EXTRICITY INC, S-1/A, 2000-09-25

EXTRICITY INC
S-1/A, 2000-09-25
COMPUTER PROGRAMMING SERVICES

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As filed with the Securities and Exchange Commission on September 25, 2000

Registration No. 333-37058
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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Amendment No. 2
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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Extricity, Inc.
(Exact name of registrant as specified in its charter)
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<TABLE>
<S> <C> <C>
Delaware 7371 94-3243041
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
</TABLE>

1 Davis Drive
Belmont, California 94002
(650) 596-1300
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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Barry M. Ariko
Chairman and CEO
1 Davis Drive
Belmont, California 94002
(650) 596-1300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

Copies to:
<TABLE>
<S> <C>
GREGORY M. GALLO, ESQ. CURTIS L. MO, ESQ.
JOE C. SORENSON, ESQ. JONATHAN P. SHANBERGE, ESQ.
P. JAMES SCHUMACHER, ESQ. ALEXANDER C. CHEN, ESQ.
ALISSA N. PARK, ESQ. RICHARD A. MCCARTHY, ESQ.
Gray Cary Ware & Freidenrich LLP Brobeck, Phleger & Harrison LLP
400 Hamilton Avenue Two Embarcadero Place
Palo Alto, California 94301-1825 2200 Geng Road
(650) 328-6561 Palo Alto, California 94303
(650) 424-0160
</TABLE>
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Approximate date of commencement of proposed sale to public:
As soon as practicable after this Registration Statement becomes effective.
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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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Title of Each Class of Proposed Maximum Proposed Maximum Amount of
Securities to Be Amount to be Offering Price Aggregate Registration
Registered Registered(1) Per Share(2) Offering Price(2) Fee(3)
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<S> <C> <C> <C> <C>
Common Stock, par value
$0.00001.............. 6,900,000 shares $11.00 $75,900,000 $20,038
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</TABLE>
(1) Includes 900,000 shares subject to an overallotment option granted by the
registrant to the underwriters.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rules 457(a) and 457(o) under the Securities Act.

(3) Previously paid.
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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 this 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>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and we are not soliciting an offer to buy +
+these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

Subject to Completion, Dated September 25, 2000

[EXTRICITY LOGO]

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6,000,000 Shares
Common Stock
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This is the initial public offering of Extricity, Inc. and we are offering
6,000,000 shares of our common stock. We anticipate that the initial public
offering price will be between $9.00 and $11.00 per share. We have applied to
list our common stock for quotation on the Nasdaq National Market under the
symbol "EXTY".

Investing in our common stock involves risks. See "Risk Factors" beginning on
page 7.

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>
Price
to Underwriting Discounts Proceeds to
Public and Commissions Extricity
<S> <C> <C> <C>
Per Share $ $ $
Total $ $ $
</TABLE>

We have granted the underwriters the right to purchase up to 900,000
additional shares to cover over-allotments.

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Deutsche Banc Alex. Brown

SG Cowen

Banc of America Securities LLC

The date of this Prospectus is , 2000
<PAGE>

INSIDE FRONT COVER:

GATE FOLD:

On the top far left-hand side of the inside front cover reads:

Extricity OUR B2B PRODUCTS

. Simplify deployment and management of secure B2B environments

. Help companies improve efficiencies

. Support collaboration while enabling each organization to maintain their
own organizational independence

On the top right-hand side of the inside front cover reads: Internal.

. Integrate existing applications

. Model and execute business processes

The main graphic, which covers the span of the gatefold, will be a graphic
showing multiple businesses working together on a common object.

On the left-hand side of the gate fold there is a stick person with a web sheet
behind the stick figure, above the figure reads: WWW. To the lower left of the
stick figure reads: Manufacturer (Buyer). The stick figure is connected to a
building by a line to the right. To the left of the Building reads: Supplier.
The Building is connected to a larger building by a thin line. To the left of
the larger building reads: Contract Manufacturer. There is a thin line from the
stick person, which is connected to a set of buildings, which reads: Electronic
Market. The Electronic Market is a circle with 6 different types of buildings
and a stick figure. There is a thin line from the Electronic Market which is
connected to a set of three buildings, which reads: Manufacturer. A line to a
truck and building which reads Extricity B2B. To the bottom right of the
Extricity B2B reads: Distributor. There is a transparent rectangular wall
between the Manufacturer and the Extricity B2B. The top of the wall reads:
Extricity B2B, and the bottom of the wall reads: External. The transparent wall
has one diamond, and seven circles, which are connected in a box shape. Above
the right side of the Extricity B2B is a square. The top of the square reads
Extricity B2B and the bottom reads: Internal. In the square there is a picture
of two servers and one stick figure. There is a sky background on the entire
gatefold background.

On the bottom right-hand side of the inside front cover reads: External

. Manage simple to sophisticated range of collaboration

. Operate independent of existing communications and software
infrastructure
<PAGE>

PROSPECTUS SUMMARY

You should read the following summary together with the more detailed
information in this prospectus, including "Risk Factors," and our financial
statements and related notes included in this prospectus.

Extricity, Inc.

We believe we are a leading provider of business-to-business, or B2B,
software products that allow companies to manage the internal and external
sharing of information and the execution of interactions among software
applications and business partners over the Internet. We refer to this exchange
and management of information among groups of companies over the Internet as
business-to-business relationship management, or B2BRM. Our platform is based
on the eXtensible Markup Language, or XML, which is an industry recognized
programming language for exchanging information over the Internet. Our platform
allows diverse information systems and businesses to work together more
effectively by automating and synchronizing the flow of information and
execution of processes, regardless of size, sophistication or existing software
applications.

Over the last decade, companies have attempted to gain competitive advantages
by investing in information technology with the goal of improving their
internal operations and efficiencies. With the emergence of the Internet as a
widely available communications infrastructure, companies now have the
opportunity to realize new competitive advantages by assembling highly
coordinated networks of business partners, including suppliers, customers and
distributors to work together to rapidly bring goods and services to market.
Companies are becoming increasingly dependent on these cooperative
relationships with business partners to integrate supply chains, enable e-
commerce fulfillment and deploy electronic markets. Since our inception, we
have worked to provide a packaged technology framework that uses the Internet
to allow companies to engage in a wide range of collaboration to increase the
efficiencies of their business, implement new business models and create
greater levels of customer service and loyalty.

Our comprehensive B2BRM platform:

. allows companies to communicate internally and externally with their
business partners regardless of existing technology infrastructure;

. is open and scalable to support simple data exchange as well as complex
collaboration arrangements among numerous partners;

. provides high-level security and availability necessary to support the
large transaction volumes enabled by the Internet;

. allows companies to easily add or change processes or applications
without the need for complex programming or significant interruption;
and

. provides pre-packaged industry and market-focused solutions tailored to
specific industries and markets.

Our objective is to be the leading platform provider for B2BRM powering the
interactions within B2B e-commerce environments. Key elements of our strategy
include leveraging and

3
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expanding business relationships, proliferating our products through network
effect, offering market-focused B2B solutions, extending product and technology
leadership, offering our customers multiple ways of acquiring our technology
and expanding our international presence.

We license our products and sell services through direct and reseller sales
channels, including the selling assistance of system integrators. Our customers
use our products to optimize three main business functions: supply chain
management, e-commerce fulfillment and electronic markets. Our top five
customers by revenue during fiscal year ended March 31, 2000 included The North
Face, Inc., Solectron Corporation, Amkor Technology, Inc., Taiwan Semiconductor
Manufacturing Corporation and IBM--Storage Division. These five customers
represented approximately 44.3% of our total revenues in fiscal year 2000,
ended March 31, 2000, and approximately 19.4% of our total revenues in the
three months ended June 30, 2000.

Recent Developments

In August 2000, we entered into an Original Equipment Manufacturer, or OEM,
license agreement with IBM under which IBM will include Extricity software in
its B2B software platform, WebSphere Business-to-Business Integrator. Our
software is expected to provide the IBM WebSphere platform with a
collaborative, web-based, business-process-oriented B2B application solution.
Under the terms of the agreement, we granted IBM a non-exclusive, non-
transferable, world-wide license to distribute certain Extricity software
products as IBM branded products through IBM's direct and indirect sales
channels. We maintain the ability to distribute additional Extricity branded
software products to current and future WebSphere customers. This agreement is
in addition to our existing relationships with IBM as a reseller and customer
of our software products.

The initial term of the agreement is for 37 months after IBM's acceptance of
specified initial deliverables from us and will be automatically extended for
subsequent one-year terms unless either party gives notice of termination at
least 90 days prior to the end of the initial term or any subsequent one-year
term. IBM will pay royalty fees to us based on revenues generated from the sale
of IBM products that incorporate licensed Extricity software. Although the
royalties we receive will be based on future IBM revenues and are not capped,
IBM will make quarterly, non-refundable royalty pre-payments totaling $24.0
million beginning no later than December 31, 2000 over the initial term of the
agreement.

Corporate Information

We were incorporated in California in April 1996, under the name Augmentum
Software, Inc. We changed our name to CrossRoute Software, Inc. in July 1996,
to Extricity Software, Inc. in September 1998, and to Extricity, Inc. in May
2000. We reincorporated in Delaware under the name Extricity, Inc. in June
2000. Our principal executive offices are located at 1 Davis Drive, Belmont,
California 94002. Our telephone number is (650) 596-1300. Our worldwide web
site is located at http://www.extricity.com. We are providing an inactive
textual reference only to our web site because it does not constitute part of
this prospectus. Extricity, Extricity B2B Alliance and the Extricity logo are
our trademarks. Each other trademark or service mark of any other company
appearing in this prospectus is the property of its holder.

4
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The Offering

<TABLE>
<C> <S>
Common stock offered by Extricity.................. 6,000,000 shares

Common stock to be outstanding after the offering.. 43,041,024 shares

Use of proceeds.................................... For expansion of sales and
marketing activities,
product development,
facilities expansion and
other capital
expenditures, working
capital and other general
corporate purposes. See
"Use of Proceeds" on page
21.

Proposed Nasdaq National Market Symbol............. EXTY
</TABLE>

The number of shares of common stock to be outstanding after the offering as
set forth above is based on 37,041,024 shares outstanding as of September 1,
2000 and excludes:

. 2,741,054 shares of common stock issuable upon exercise of options
outstanding under our 1996 stock option plan at a weighted average
exercise price of $2.53 per share;

. 4,077,335 shares of common stock reserved for issuance pursuant to
future grants under our 1996 stock option plan;

. 2,000,000 shares of common stock reserved for issuance under our 2000
employee stock purchase plan immediately following our initial public
offering; and

. 308,312 shares of common stock issuable through the exercise and
conversion of warrants outstanding at a weighted average exercise price
of $3.60 per share.

Except as otherwise indicated, all information in this prospectus:

. gives effect to the conversion of all outstanding shares of preferred
stock into 26,131,746 shares of common stock upon the closing of our
initial public offering;

. assumes no exercise of the underwriters' over-allotment option; and

. gives effect to the Delaware reincorporation in June 2000 and amendments
to our certificate of incorporation and bylaws to be effective upon
completion of this offering.

5
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Summary Consolidated Financial Data
(in thousands, except per share data)

<TABLE>
<CAPTION>
As of June 30, 2000
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Pro Forma
Actual As Adjusted
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(unaudited)
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments.......... $38,934 $92,592
Working capital............................................ 34,756 88,773
Total assets............................................... 58,002 111,660
Long-term debt, less current portion....................... 283 --
Accumulated deficit........................................ (48,768) (48,768)
Total stockholders' equity................................. 44,631 98,931
</TABLE>

See Note 2 of notes to financial statements for the determination of the
number of shares used in computing pro forma basic net loss per share amounts.

The pro forma as adjusted balance sheet data above reflects the receipt of
the estimated net proceeds from the sale of 6,000,000 shares of common stock in
this offering at an assumed initial public offering price of $10.00 per share,
after the repayment of approximately $642,000 of indebtedness under our loan
facilities and after deducting underwriting discounts and commissions and
estimated offering expenses.

6
<PAGE>

RISK FACTORS

Investing in our common stock involves a substantial risk. You should
carefully consider the following risks and uncertainties before you decide to
buy our common stock. If any of the following risks or uncertainties actually
occur, our business could be harmed. If our business is harmed, the trading
price of our common stock could decline, and you could lose all or part of the
money you paid to buy our common stock.

Risks Related to Our Operations

We expect to incur losses in the future and may not become profitable.

We have incurred significant net losses since our inception, including losses
of approximately $6.0 million for fiscal year 1998, approximately $9.1 million
for fiscal year 1999 and approximately $19.9 million for fiscal year 2000. As
of June 30, 2000, we had an accumulated deficit of approximately $48.8 million.
We expect to substantially increase our expenses for the foreseeable future
primarily to fund the continued development of our products and technologies
and to expand our sales and marketing organizations. As a result, we will need
to generate significant additional revenues to achieve and maintain
profitability in the future. We expect quarterly operating losses to increase
for the fiscal year ended March 31, 2001 and are not certain when we will
become profitable, if ever. Even if we do achieve profitability, we may not be
able to sustain or increase profitability on a quarterly or annual basis.
Failure to achieve or maintain profitability will materially and adversely
affect the market price of our common stock.

We have a limited operating history, so it is difficult to evaluate our
business and prospects.

We incorporated in April 1996 and began shipping products in the fourth
quarter of calendar year 1997. Because of our limited operating history, it is
difficult or impossible to predict our future results. We are subject to the
risks inherent in the operation of a new business enterprise, and we cannot
assure you that we will be able to successfully address these risks. We are
generally unable to significantly reduce expenses in the short term to
compensate for any unexpected revenue shortfall. Accordingly, any significant
shortfall of revenues in relation to our expectations, any material delay of
customer orders or material delays in product releases would immediately harm
our business, operating results and financial condition. Additional risks we
face include our ability to:

. attract and retain a broad customer base;

. negotiate and maintain favorable business relationships; and

. plan and manage our growth effectively.

If we fail to manage these risks successfully, our business and operating
results could be harmed. We cannot assure you that we will be profitable in any
future period, and recent operating results should not be considered indicative
of future financial performance.

Our quarterly operating results are volatile and difficult to predict. If we
fail to meet the expectations of public market analysts and investors, the
market price of our common stock may decrease significantly.

We have not achieved profitability in any quarter, and we incurred net losses
of approximately $12.4 million during the quarter ended June 30, 2000. Our
quarterly operating results have fluctuated significantly in the past and may
vary significantly in the future. This quarter-to-quarter fluctuation is due to
a number of factors, including the following:

. the amount and timing of operating costs relating to expansion of our
business, operations and infrastructure;

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. the complexity of our selling process which can cause potential revenue
transactions to be delayed, postponed or cancelled;

. the ability to acquire expansion facility space at economical rates;

. the number and timing of new hires;

. our mix of license and professional services revenues;

. the mix of license types and selling channels which can cause variations
in recognized revenue;

. the rate of adoption of B2B e-commerce infrastructure within the overall
economy;

. our utilization rate for our professional services personnel;

. the level of utilization of subcontractors to perform professional
services which can cause both services revenues and cost of services
revenues and the related gross margin to fluctuate;

. the success of our business relationships;

. changes in our pricing policies or our competitors' pricing policies;

. the announcement and introduction of new products or product
enhancements by us or our competitors; and

. our mix of domestic and international sales.

Our revenues and operating results depend upon the volume and timing of
customer orders and payments, the type of license acquired and the success of
our systems integrators and resellers in selling the product and the date of
product delivery. Historically, a substantial portion of revenues in a given
quarter have been recorded in the third month of that quarter, with a
concentration of these revenues in the last two weeks of the third month. We
expect this trend to continue and, therefore, any failure or delay in the
closing of orders would seriously harm our quarterly operating results. Since
our operating expenses are based on anticipated revenues and because a high
percentage of these expenses are relatively fixed, a delay in the recognition
of revenue from one or more license transactions could cause significant
variations in operating results from quarter-to-quarter and cause unexpected
results.

Due to these and other factors, we believe that period-to-period comparisons
of our results of operations are not meaningful and should not be relied upon
as indicators of our future performance. It is possible that in some future
periods our results of operations may be below the expectations of public
market analysts and investors. If this occurs, the price of our common stock
may decline.

A change in our anticipated mix of customer types and license types and selling
channels could cause significant variations in recognized revenue which could
negatively impact short-term operating results.

The size of our license transactions ranges from just below $100,000 to over
$1.0 million and is primarily a factor of the size and type of customer.
Historically, supply chain integration customers have purchased perpetual
enterprise-wide licenses which represent significantly higher average license
fees per transaction. E-commerce fulfillment and net market makers have
occasionally purchased perpetual and renewable one-year term licenses with
lower average license fees per transaction. The amount of the license fees
which can be recognized as revenues depends on whether a perpetual or renewable
term license structure is involved,

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and whether the license was sold through our direct or indirect channels. The
license fees for perpetual licenses are greater than the initial license fees
for renewable term licenses. Also, as perpetual licenses are generally
recognized upon product shipment, they have a more significant impact on
revenues in the quarter of execution. In addition, the revenues received from
sales of licenses by our resellers are lower than the revenues we receive from
sales of licenses by our direct sales force. As a result, although we may
achieve our anticipated level of licensing activity, a change in the mix of
license types and selling channels could cause significant variations in
recognized revenue which significantly impacts our operating results from
quarter-to-quarter and may cause unexpected results. You should read
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations" for a more detailed discussion of revenue
recognition issues which affect our business.

Deferred revenue includes unearned license fees and prepaid services that
will be recognized as revenues in the future as we deliver licenses and perform
services. Since the amount of our revenues each quarter recognized from
deferred revenues can vary and is generally less than half of the license fees
in a given quarter, our quarterly results will depend primarily upon entering
into new contracts to generate revenues for that quarter. New contracts may not
result in revenues in the quarter in which the contract was signed, and we may
not be able to predict accurately when revenues from these contracts will be
recognized. In addition, as noted above, different license types will result in
differing revenue recognition treatment which can cause the amount of license
fees recognized in a quarter to vary.

Our OEM agreement with IBM could place a significant strain on our sales,
marketing and development processes.

Our OEM license agreement with IBM contains provisions relating to the
delivery of products and coordination of sales and marketing efforts.
Currently, our development, sales and marketing efforts are largely self-
contained and do not require extensive coordination with outside parties for
successful execution. Our agreement with IBM will require us to coordinate with
IBM personnel in connection with the development, sales and marketing of the
combined Extricity and IBM product and will place a significant strain on our
management resources. We may not be able to effectively manage the requirements
under our OEM license agreement, which could have a negative impact on our
business.

The market for our products is new, rapidly changing and competitive, and new
products developed by others could impair our ability to grow our business and
remain competitive.

The market for our products is competitive and subject to rapid technological
change. The intensity of competition is expected to increase in the future.
Increased competition may result in price reductions, reduced gross margins and
loss of market share, any one of which could seriously harm our business.
Today, our primary competition includes vendors providing their own B2B
solutions and companies attempting to build B2B integration solutions through
internal information technology development. Although we believe that we do not
currently face any single direct competitor, there are many vendors in related
markets that address particular aspects of the features and functions that we
provide. Today, we face competition from:

. internal enterprise application integration software vendors, including
Active Software, Inc., Software Technologies, Inc., TIBCO Software Inc.
and Vitria Technology, Inc.;

. proprietary electronic data exchange vendors, such as GE Information
Systems, Harbinger Corporation, Sterling Commerce, Inc. and webMethods,
Inc.; and

. supply chain vendors, such as i2 Technologies, Inc.

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<PAGE>

In the future, it is possible that we could face competition from vendors in
complementary markets, including enterprise resource planning, or ERP, vendors
such as SAP, Oracle Corporation, PeopleSoft, Inc., Baan Company, International
Business Machines Corporation, Microsoft Corporation, OnDisplay, Inc., Viacore,
Inc. and other vendors such as Ariba, Inc. and Commerce One, Inc. or other
large enterprise software companies such as Siebel Systems, Inc. In addition,
dozens of smaller software companies are developing products which may compete
with our products in the future.

Many of our competitors have more resources and broader customer
relationships than we do. In addition, many of these competitors have extensive
knowledge of our industry. Current and potential competitors have established
or may establish cooperative relationships among themselves or with third
parties to offer a single solution and increase the ability of their products
to address customer needs. In the past, we have lost potential customers to
competitors for various reasons, including lower prices for less complex
implementations. We may not be able to maintain our competitive position
against current and potential competitors, especially those with significantly
greater resources.

The market for our products is in an early stage of development and customers
may not yet be ready to implement our products.

The market for B2B integration software is relatively new and rapidly
evolving, and there are a variety of integration methods available, including
electronic application integration, or EAI, electronic data interchange, or
EDI, and enterprise resource planning, or ERP. Some of these other integration
methods are more established and less expensive than our Extricity B2B software
products. In addition, application service providers, value added networks and
procurement networks have similar characteristics. At this early development
phase of the marketplace, a number of solutions will be attempted, any of which
could emerge as a preferred solution in a given industry or in general. If such
a standard or product type were to emerge and we could not make our products
compatible, our revenues would grow more slowly than anticipated. Furthermore,
we do not know if our target markets will widely adopt and deploy electronic
business integration products such as ours. If electronic business integration
products such as our Extricity B2B software products are not widely adopted by
our target markets, our operating results will suffer.

Our products are complex and generally involve capital expenditures by our
customers in excess of $250,000. As a result, these potential customers may
elect to pursue more inexpensive solutions rather than purchasing our products.
We do not have a long history of selling our Extricity B2B software products
and will have to continue to devote substantial resources in the future to
educate prospective customers about the benefits of our products. Our efforts
to educate potential customers may not result in our products achieving market
acceptance. In addition, our selling efforts frequently involve pilot projects
and proof of concept projects. These projects are typically provided at or
below cost and can have a negative impact on our gross profit. Many of our
prospective customers have made significant investments in internally-developed
or customized systems and would incur significant costs in switching to third-
party products such as ours. Furthermore, even if our products are effective,
our target customers may not choose them for technical, cost, support or other
reasons. If the market for our products fails to grow or grows more slowly than
we anticipate, our business could suffer.

If we fail to introduce new versions and releases of our product in a timely
manner, our revenues may decline.

We may fail to introduce or deliver new products or versions of our software
on a timely basis, if at all. The complexity of our software, internal quality
assurance testing and customer testing may reveal product performance issues or
desirable feature enhancements that could

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lead us to postpone the release of new versions of our software. We may not be
able to successfully complete the development of currently planned or future
enhancements in a timely and efficient manner. The reallocation of resources
associated with any postponement could cause delays in the development and
release of future enhancements to our currently available software. Any such
failure or delay could harm our operating results.

Customers could experience difficulty in integrating our products with third-
party applications, which would inhibit sales.

We currently serve a customer base with a wide variety of constantly changing
hardware, operating system software, packaged software applications and
networking platforms. If our product fails to gain broad market acceptance due
to its inability to support a variety of these platforms, our operating results
may suffer. Our business depends, in part, on the following factors:

. our ability to integrate our product with multiple platforms and
existing systems and to modify our product as new versions of packaged
applications are introduced;

. access to application program interfaces, or APIs, for the third-party
software products that are integrated with our products;

. our ability to anticipate and support new standards; and

. our management of software being developed by third parties for our
customers or for use with our product.

Application program interfaces provide the instructions that are required to
transfer information into and out of an application and trigger the specific
characteristics of that application. These instructions are needed to create
adapters between our products and third- party software products, but access to
application program interfaces is controlled by the vendors of these
applications. If the application vendor denies or delays our access to
application program interfaces, our business may be harmed. Some application
vendors may become competitors or establish alliances with our competitors,
increasing the likelihood that we would not be granted access to their
application program interfaces. Furthermore, we may need to modify our
Extricity B2B software products or develop new adapters in the future as new
applications or newer versions of existing applications are introduced. If we
fail to continue to develop adapters or respond to new applications or newer
versions of existing applications in a timely manner, our business could
suffer.

Loss of key customers could significantly impact our revenues.

We have generated a substantial portion of our annual and quarterly
historical revenues from a limited number of customers. Revenues from our five
largest customers, The North Face, Inc., Solectron Corporation, Amkor
Technology, Inc., Taiwan Semiconductor Manufacturing Corporation and IBM-
Storage Division, accounted for approximately 44.3% of our total revenues in
fiscal year 2000 and approximately 19.4% of our total revenues in the three
months ended June 30, 2000. In addition, a significant amount of our revenues
is generated from selling our software products to customers and suppliers of
our customers. As a result, if we lose a major customer within any given supply
chain or fail to maintain a significant base of accounts, our current and
future potential revenues could suffer.

Failure to significantly expand our customer base could result in slower
revenue growth or declining revenues.

We expect that revenues from a limited number of customers will account for a
large percentage of our total revenues during fiscal year 2001. Our ability to
maintain and increase our revenues is largely dependent on expanding our
customer base as well as expanding into new industry supply chains. Our ability
to attract new customers will depend on a variety of

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factors, including the performance, quality and breadth of our current and
future products. We may not be able to expand our customer base. Our failure to
add new customers that make significant purchases of our products and services
could result in slower revenue growth or declining revenues.

If our customers do not renew their licenses, our revenues may decline.

Although most of our current revenues are derived from sales of perpetual
software licenses and related services, we expect that a portion of our
revenues in the future will be derived from sales of software licenses sold on
a renewal basis. We first began to offer renewable licenses in the fourth
quarter of fiscal year 2000 and, to date, none of our initial renewable
licenses have reached their renewal dates. If a significant portion of our
customers who purchased renewal licenses elect not to renew their licenses for
our software, we would lose a recurring revenue stream on which we base part of
our business model and our business, operating results and financial condition
could be harmed.

If our business relationships terminate or if our system integrators, resellers
and consulting firms fail to perform as expected, we may lose important sales
and marketing opportunities.

We have established business relationships with system integrators, resellers
and consulting firms that sell, install and deploy our products and perform
custom integrations of systems and applications on a non-exclusive basis. Some
system integrators, resellers and consulting firms engage in joint marketing
and sales efforts with us and these relationships expose our software to many
potential customers to which we may not otherwise have access. In addition,
these relationships provide us with insights into new technology and with
third-party service providers that our customers can use for implementation
services. We anticipate that we will derive a significant portion of our
revenues from customers that purchase products or services from these system
integrators, resellers and consulting firms. Our future growth will be limited
if we fail to optimize these business relationships.

We do not have written contracts with many of our system integrators and
consulting firms. Our business relationships with these system integrators,
resellers and consulting firms do not require them to market or promote our
products and impose no restrictions in connection with working with competing
software companies. Accordingly, our success will depend on their willingness
and ability to devote sufficient resources and efforts to marketing our
Extricity B2B software products rather than the products of others. We are
currently investing, and plan to continue to invest, significant resources to
develop these relationships.

We anticipate that system integrators, resellers and consulting firms will
provide an increasing level of system implementation services for our
customers. If we are unable to engage a sufficient number of system
integrators, resellers and consulting firms needed to service our customers'
implementation requirements, our relations with our customers could be harmed
and we might be required to hire additional personnel to provide these
implementation services ourselves. We rely on the sales personnel of our system
integrators, resellers and consulting firms to provide customer leads and
assist in closing sales of licenses for our products. Changes in the
availability and pricing of competitive products and the training and
compensation incentives provided to the sales management and individual sales
personnel of these organizations could cause these sales personnel to favor
their employers' products or other partners' products over our products. If we
are not able to compensate for the loss in revenues from sales of licenses by
systems integrators, resellers and consulting firms by increasing sales of
licenses by our direct sales force, this could result in slower revenue growth
or declining revenues. In addition, if the system integrators, resellers and
consulting firms fail to provide adequate and timely implementation services,
our relations with our customers and our operating and financial results could
be harmed.

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A number of our competitors have more established relationships with these
system integrators, resellers and consulting firms and, as a result, these
system integrators, resellers or consulting firms may be more likely to
recommend competitors' products and services. In addition, a number of our
competitors have relationships with a greater number of system integrators,
resellers and consulting firms than we do and therefore, have access to a
broader base of enterprise customers. Our failure to establish or maintain
these relationships would significantly harm our ability to license and
successfully implement our product line. If we are not successful in
establishing new business relationships or fail to maintain existing business
relationships, we will have to devote substantially more resources to the
distribution, sales and marketing, implementation and support of our products
than we would otherwise, which could harm our business.

We may distribute our technology through third-party application service
providers or through our application service provider offering, which may
result in a negative impact on revenues generated via our existing sales
channels.

In the future we may offer our technology on a services contract basis
through application service providers, or ASPs, or create our own ASP offering.
Offering our software products through application service providers would
allow our customers to utilize our technology without having to make
substantial investments in additional hardware and support personnel. The
distribution of our products through third-party application service providers
or through our application service provider offering may involve monthly or
quarterly subscription fees which may result in lower average initial revenues
per transaction. Prospective customers may find the application service
provider offerings more attractive than the purchase of a license for our
products which could have a negative impact on revenues until the monthly or
quarterly subscription fees paid over time become large enough to offset the
lower initial revenues. In addition, the creation of our own ASP offering could
involve significant investments of financial resources and staffing, which
could have a negative impact on our business.

We are dependent on the acceptance of our core product, and if it does not
achieve market acceptance our revenues could decline.

We derived substantially all of our revenues in fiscal year 2000 from
software licenses and service fees from our Extricity B2B product line. We
expect that this suite of products will continue to account for the substantial
majority of our total revenues for the foreseeable future. Accordingly, our
future operating results significantly depend on the market acceptance and
growth of our product line and enhancements of these products and services. We
may not be able to successfully market our Extricity B2B product line or
develop extensions and enhancements to this product line on a long-term basis.
We have only licensed our product to a small number of customers and only a
portion of these customers have commenced commercial deployment. The deployment
of our Extricity B2B product line requires interoperability with a variety of
software applications and systems and, in some cases, requires the processing
of a high number of transactions per second. If our products fail to satisfy
these demanding technological objectives, our customers may become dissatisfied
and we may be unable to generate future sales. Failure to establish a
significant base of customer references will significantly reduce our ability
to license our products to additional customers.

Our lengthy and variable sales cycle makes it difficult for us to predict when
or if sales will be made.

Our products have a lengthy and unpredictable sales cycle that could cause
our revenues to fluctuate widely from period-to-period. Our sales cycle can
range from two weeks to nine

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months. We spend significant time educating and providing information to our
prospective customers regarding the use and benefits of our products. These
customers often view the purchase of our products as a significant and
strategic decision and may take two weeks to four months to evaluate our
products. As a result, the average sales cycle for our products has typically
ranged from three to four months, but can be much longer for larger
opportunities with new customers. In addition, a number of organizations within
a company, such as procurement, manufacturing, information technology and
supply chain management, frequently become involved in the decision-making
process. This increases the difficulties in forecasting our sales cycle, since
customers may commit to purchase our products but may want to further review
the amount of their purchase as the solution is offered to additional potential
users within their extended enterprise.

We depend on key personnel whose knowledge and expertise may be difficult to
replace.

We have recently hired several new managers and we intend to continue to hire
key management personnel. All of our employees are at-will and may terminate
their employment with us at any time. We may not successfully assimilate our
recently hired managers or successfully locate, hire and retain qualified key
management personnel. Furthermore, our continued success largely depends on the
personal efforts and abilities of our senior management, including Mr. Barry M.
Ariko, our chairman and chief executive officer, Dr. Gregory Olsen, our vice
president and chief technology officer, Ms. Laura Ferrell, our vice president
of engineering, and other key personnel. The loss of key personnel could
seriously harm our results of operations and financial condition. We have not
obtained and do not expect to obtain key person life insurance on any of our
senior managers.

Because of competition for additional qualified personnel, we may be unable to
recruit or retain necessary personnel, which could impact development or sales
of our products.

Our future success also depends on our ability to attract, train and retain
highly qualified sales, research and development and managerial personnel.
Competition for qualified personnel in our industry and in the San Francisco
Bay Area, as well as other areas in which we recruit, is extremely intense and
characterized by rapidly escalating salaries, which may increase our operating
expenses or impair our ability to recruit qualified candidates. We have at
times experienced, and we continue to experience, difficulty in recruiting
qualified sales and research and development personnel, and we anticipate these
difficulties will continue in the future.

If we are unable to manage growth, our business could be harmed.

The number of our employees has grown from approximately 39 at the end of
fiscal year 1998 to 264 as of September 1, 2000, of which 107 were engaged in
sales and marketing, 81 were engaged in research and development, 60 were
engaged in client services, and 16 were engaged in general and administrative
functions. This growth has placed, and we expect that any future growth we
experience will continue to place, a significant strain on our management,
systems and resources. We may not be able to install management information and
control systems in an efficient and timely manner, and our current or planned
personnel, systems, procedures and controls may not be adequate to support our
future operations. If we do not manage growth effectively, it could harm our
business, operating results and financial condition.

If we are unable to protect our intellectual property we may lose a valuable
asset, experience reduced market share or incur costs of litigation to protect
our rights.

We depend on our ability to develop and protect our proprietary technology
and intellectual property rights to distinguish our products from those of our
competitors. We have

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filed one patent application in the United States and in 12 foreign countries
with respect to several elements of our architecture. Despite our efforts, we
may be unable to prevent others from infringing upon or misappropriating our
intellectual property, which could harm our business.

It is possible that no patents will issue from our currently pending patent
applications. Moreover, new patent applications may not result in issued
patents and may not provide us with any competitive advantages over, or may be
challenged by, others. Legal standards relating to the validity, enforceability
and scope of protection of intellectual property rights in Internet-related
industries are uncertain and still evolving, and the future viability or value
of any of our intellectual property rights is uncertain. Effective trademark,
copyright and trade secret protection may not be available in every country in
which our products are distributed or made available. Furthermore, our
competitors may independently develop similar technology that substantially
limits the value of our intellectual property, or they may design around
patents that may be issued to us in the future.

In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights. We expect that we
could become subject to intellectual property infringement claims as the number
of our competitors grows and our products and services overlap with competitive
offerings. These claims, even if not meritorious, could be expensive and divert
management's attention from operating our company. If we become liable to
others for infringing their intellectual property rights, we could be required
to pay a substantial damage award, to develop non-infringing technology, or to
obtain a license or to cease selling the products that contain the infringing
intellectual property. We may be unable to develop non-infringing technology or
to obtain a license on commercially reasonable terms, if at all.

We also license certain technology from third parties as part of our product
offering. We cannot assure you that our technology licenses will not infringe
the proprietary rights of others or will continue to be available to us on
commercially reasonable terms, if at all. The loss of this technology could
require us to obtain or develop substitute technology of lower quality or
performance standards or at greater cost. If we do not obtain or develop
substitute technology, we could be unable to offer all of the features or
functionality that we desire to include in our products.

Defects in our software products could diminish demand for our products, which
may cause a decrease in revenues.

Our products and their interactions with customers' software applications and
information technology systems are complex and, accordingly, there may be
undetected errors or failures when products are introduced or as new versions
are released. We have in the past discovered software errors in our new
releases and new products after their introduction which has resulted in
additional research and development expenses. To date, these additional
expenses have not been material. These errors have resulted in product release
delays, delayed revenues and customer dissatisfaction. We may in the future
discover errors, including performance limitations, in new releases or new
products after the commencement of commercial shipments. In addition, if our
products fail to provide a secure pathway for communications, we may be sued by
our customers. Since many customers are using our products for mission-critical
business operations, any of these occurrences could seriously harm our
business, generate negative publicity and cause our stock price to fall.

We may be unsuccessful in establishing a brand name, which could harm our
business.

We believe that maintaining and strengthening the Extricity brand is an
important aspect of our business and an important element in attracting new
customers. We recently changed

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our corporate name to Extricity, Inc. and renamed our products. Establishing a
brand name in this marketplace is difficult due to the dominance of certain
established technologies such as the major enterprise resource planning and
supply chain optimization vendors. As a result, our efforts to build our brand
will involve significant expense. To promote our brand, we may increase our
marketing budget or increase our financial commitment to building our brand. If
our brand-building strategy is unsuccessful, we may fail to attract enough new
customers or retain our existing customers to the extent necessary to realize a
sufficient return on our brand-building efforts.

If we are not successful in expanding our international operations, we may not
achieve projected revenue growth.

We believe that expansion of our international operations is important to our
future success, and a key aspect to our business strategy is to expand our
sales and support organizations internationally. International revenues
accounted for approximately 10.8% of our total revenues in fiscal year 2000. We
have recently hired a general manager for Europe, Middle East and Africa and we
have entered into a distribution relationship with a company in Taiwan.
However, if we fail to sell our products in international markets, we could
experience slower revenue growth and our business could be harmed. There are a
number of risks to establishing operations outside of the United States,
including:

. competition with larger, more established local operations from U.S. and
European corporations, as well as smaller local companies;

. unexpected changes in regulatory requirements, taxes, trade laws and
tariffs;

. potentially adverse tax consequences, including restrictions on
repatriation of earnings;

. reduced protection for intellectual property rights in some countries;

. differing labor regulations;

. changes in a specific country's or region's political or economic
conditions;

. greater difficulty in staffing and managing international operations;
and

. fluctuating currency exchange rates.

We anticipate devoting significant resources and management attention to
expanding international opportunities. However, we can give you no assurance
that we will be able to successfully establish international operations.

We may require additional financing which may result in additional dilution.

To date, we have required substantial amounts of capital to design, develop,
market and sell our products. Our future capital requirements will depend on
many factors, including but not limited to the evolution of the market for B2B
integration software, the market acceptance of our products, competitive
pressure on the price of our products, the levels of promotion and marketing
required to launch such products and attain a competitive position in the
marketplace, the extent to which we invest in new technology and improvements
on our existing technology, and the response of competitors to our products. If
the funds generated by this offering, together with existing resources, are
insufficient to fund our activities over the long-term, we may need to raise
additional funds through equity or debt financing or from other sources at a
time when we may not be profitable. The sale of additional equity or
convertible debt may result in additional dilution to our stockholders and such
securities may

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<PAGE>

have rights, preferences or privileges senior to those of the common stock. To
the extent that we rely upon debt financing, we will incur the obligation to
repay the funds borrowed with interest and may become subject to covenants and
restrictions that restrict operating flexibility. We cannot assure you that
additional equity or debt financing will be available or that, if available, it
can be obtained on terms favorable to us or our stockholders.

Future acquisitions may be difficult to integrate, disrupt our business, dilute
stockholder value and divert management attention.

As part of our business strategy, we may find it desirable or necessary to
acquire or invest in additional businesses, products or technologies that we
feel could complement or expand our business, increase our market coverage,
enhance our technical capabilities or offer other types of growth
opportunities. If we identify an appropriate acquisition candidate, we may not
be able to successfully negotiate the terms of the acquisition, finance the
acquisition, or integrate the acquired business, products or technologies into
our existing business and operations. Furthermore, completing a potential
acquisition and integrating an acquired business will cause significant
diversions of management time and other resources. Since we have never acquired
another business, we may experience unexpected difficulties and obstacles in
acquiring and integrating new operations.

If we consummate a significant acquisition in which the consideration
consists of stock or other securities, your equity could be significantly
diluted. If we were to proceed with a significant acquisition in which the
consideration included cash, we could be required to use a substantial portion
of our available cash, including proceeds of this offering, to consummate that
acquisition. Acquisition financing may not be available on favorable terms, if
at all. In addition, we may be required to amortize significant amounts of
goodwill and other intangible assets in connection with future acquisitions,
which would seriously harm our operating results.

Our executive officers, directors and principal stockholders will retain
significant control after this offering, which may lead to conflicts with other
stockholders over corporate governance matters.

Upon completion of this offering, our executive officers, directors and
principal stockholders will beneficially own approximately 38.9% of our
outstanding common stock. As a result, these stockholders will be able to
exercise control over all matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions, which
could have the effect of delaying or preventing a third party from acquiring
control over or merging with us.

Risks Related To Our Industry

Continued adoption of the Internet as a method of conducting business is
necessary for our future growth.

The market for Internet-based, B2B integration software is relatively new and
is evolving rapidly. Our future revenues and any future profits depend upon the
widespread acceptance and use of the Internet as an effective medium for B2B e-
commerce and B2BRM. The failure of the Internet to continue to develop as a
commercial or business medium could harm our business, operating results and
financial condition. The acceptance and use of the Internet for B2B commerce
could be limited by a number of factors, such as the growth and use of the
Internet in general, the relative ease of conducting business on the Internet,
the efficiencies and improvements that conducting commerce on the Internet
provides, concerns about transaction security and taxation of transactions on
the Internet.

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We depend on the speed and reliability of the Internet and our customers'
internal networks.

If Internet usage continues to grow rapidly, its infrastructure may not be
able to support these demands and its performance and reliability may decline.
If outages or delays on the Internet occur frequently or increase in frequency,
B2B e-commerce could grow more slowly or decline, which may reduce the demand
for our software. The ability of our products to satisfy our customers' needs
is ultimately limited by and depends upon the speed and reliability of both the
Internet and our customers' internal networks. Consequently, the emergence and
growth of the market for our software depends upon improvements being made to
the entire Internet as well as to our individual customers' networking
infrastructures to alleviate overloading and congestion. If these improvements
are not made, the ability of our customers to utilize our solution will be
hindered, and our business, operating results and financial condition may
suffer.

Increased security risks of online commerce may deter future use of our
software and services.

A fundamental requirement to conduct B2B e-commerce is the secure
transmission of confidential information over public networks. Advances in
computer capabilities, new discoveries in the field of cryptography, or other
developments may result in a compromise or breach of the security features
contained in our software or the algorithms used by our customers and their
business partners to protect content and transactions on Internet e-commerce
marketplaces or proprietary information in our customers' and their business
partners' databases. Anyone who is able to circumvent security measures could
misappropriate proprietary, confidential customer information or cause
interruptions in our customers' and their business partners' operations. Our
customers and their business partners may be required to incur significant
costs to protect against security breaches or to alleviate problems caused by
breaches, reducing their demand for our software. Further, a well-publicized
compromise of security could deter businesses from using the Internet to
conduct transactions that involve transmitting confidential information. The
failure of the security features of our software to prevent security breaches,
or well publicized security breaches affecting the Web in general, could
significantly harm our business, operating results and financial condition.

Internet-related laws could adversely affect our business.

Regulation of the Internet is largely unsettled. The adoption of laws or
regulations that increase the costs or administrative burdens of doing business
using the Internet could cause companies to seek an alternative means of
transacting business. If the adoption of new Internet laws or regulations
causes companies to seek alternative methods for conducting business, the
demand for our software could decrease and our business could be adversely
affected.

Risks Related to This Offering

Future sales of our common stock may depress our stock price.

Upon completion of this offering, there will be 43,041,024 shares of our
common stock outstanding. All of the 6,000,000 shares sold in this offering
will be freely tradable without restrictions or further registration under the
Securities Act, unless such shares are purchased by our "affiliates," as that
term is defined under the Securities Act. The remaining 37,041,024 shares of
common stock held by existing stockholders will be "restricted securities" as
that term is defined in Rule 144 of the Securities Act and can be sold in the
public market upon the expiration of lock-up agreements between the holders and
the representatives of the

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<PAGE>

underwriters beginning 180 days after the completion of this offering. These
restricted shares will be available for sale in the public market as follows:

. 8,348,851 restricted shares will become eligible for sale on the date of
this prospectus pursuant to Rule 144(k) of the Securities Act, some of
which are subject to a right of repurchase in favor of the Company. All
but of these shares are subject to lock-up agreements between the
holders and representatives of the underwriters which expire 180 days
after the completion of this offering;

. 15,508,774 restricted shares will become eligible for sale 90 days after
the date of this prospectus pursuant to Rule 144 of the Securities Act,
some of which are subject to a right of repurchase in favor of the
Company. All but of these shares are subject to lock-up agreements
between the holders and representatives of the underwriters which expire
180 days after the completion of this offering; and

. the remainder of the restricted shares will become eligible for sale
from time to time thereafter upon expiration of one-year holding periods
and subject to the requirements of Rule 144. All but of these shares
are subject to lockup agreements between the holders and representatives
of the underwriters which expire 180 days after the completion of this
offering.

After the completion of this offering, we intend to file a registration
statement on Form S-8 under the Securities Act to register 11,840,000 shares
reserved for issuance under our 1996 Stock Option Plan and 2,000,000 shares
reserved for issuance under our 2000 Employee Stock Purchase Plan. Upon
registration, all of these shares will be freely tradable when issued. If
substantial amounts of our common stock were to be sold in the public market
following this offering, the market price of our common stock could fall. In
addition, such sales could create the perception to the public of difficulties
or problems with our software and services. As a result, these sales also might
make it more difficult for us to sell equity or equity-related securities in
the future at a time and price that we deem appropriate. For a more detailed
discussion of shares eligible for sale after the offering, see "Shares Eligible
for Future Sale."

Internet-related stock prices are especially volatile and this volatility may
lead to losses by investors and securities litigation.

The stock market, and specifically the stock prices of Internet-related
companies, has been very volatile. This broad market volatility and industry
volatility may reduce the price of our common stock, without regard to our
operating performance. Due to this volatility, the market price of our common
stock could significantly decrease.

Fluctuations in our common stock's price may affect our visibility and
credibility in the B2B e-commerce solutions market. In the event of broad
fluctuations in the market price of our common stock, you may be unable to
resell your shares at or above the initial public offering price.

Securities class action litigation has often been brought against companies
that experience volatility in the market price of their securities. Litigation
brought against us could result in substantial costs to us in defending against
a lawsuit and management's attention could be diverted from our business.

We have broad discretion to use the offering proceeds, and the investment of
these proceeds may not yield a favorable return.

The net proceeds of this offering are not allocated for specific purposes.
Thus, our management has broad discretion over how these proceeds are used and
could spend most of

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<PAGE>

these proceeds in ways with which our stockholders may not agree. The proceeds
may be invested in ways that do not yield favorable returns. See "Use of
Proceeds" for more information about how we plan to use our proceeds from this
offering.

Our securities have no prior market, and our stock price may decline after the
offering.

While we have applied to list our common stock on the Nasdaq National Market,
a trading market for our common stock may not develop or, if a market does
develop, the common stock may still be difficult to trade. You may not be able
to resell your shares at or above the initial public offering price. The
initial public offering price has been determined by negotiations between
representatives of the underwriters and us. The trading prices of many
technology companies have declined from their historical highs, but continue to
reflect high price to earnings ratios. We cannot be certain that these trading
prices or price to earnings ratios will be sustained. The trading market price
of our common stock may decline below our initial public offering price.

As a new investor, you will experience immediate and substantial dilution in
the value of the common stock.

If you purchase shares of our common stock in this offering, you will incur
immediate and substantial dilution in pro forma net tangible book value. If the
holders of outstanding options and warrants exercise those options and
warrants, you will incur further dilution. See "Dilution" for a calculation of
the amount of dilution you will incur.

We have implemented certain anti-takeover provisions.

Provisions of our certificate of incorporation and our bylaws, as well as
Delaware law, could make it more difficult for a third party to acquire us,
even if doing so would be beneficial to our stockholders. In addition, our OEM
license agreement with IBM contains specific provisions related to a change in
control of Extricity, which may make it more difficult for a third party to
acquire us. See "Description of Capital Stock--Delaware Anti-Takeover Law and
Certain Charter and Bylaw Provisions" for a description of these provisions.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute forward-
looking statements. In some cases, you can identify forward-looking statements
by terms such as may, will, should, expect, plan, intend, forecast, anticipate,
believe, estimate, predict, potential, continue or the negative of these terms
or other comparable terminology. The forward-looking statements contained in
this prospectus involve known and unknown risks, uncertainties and situations
that may cause our or our industry's actual results, level of activity,
performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by these
statements. These factors include those listed under "Risk Factors" and
elsewhere in this prospectus.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. You should not place undue reliance on
these forward-looking statements.

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USE OF PROCEEDS

We estimate that our net proceeds from the sale of the 6,000,000 shares of
common stock in this offering will be approximately $54.3 million, based on an
assumed initial public offering price of $10.00 per share and after deducting
underwriting discounts and commissions and estimated offering expenses. If the
underwriters' over-allotment option is exercised in full, we estimate that our
net proceeds will be approximately $62.7 million.

The principal purposes of this offering are to obtain additional capital and
to create a public market for our common stock, thereby enhancing our ability
to acquire other businesses, products or technologies, and to facilitate future
access to public equity markets. In addition, we believe that as a public
company we will gain credibility and increase awareness of our brand name and
products. We intend to use the net proceeds from this offering for expansion of
sales and marketing activities, product development, facilities expansion and
other capital expenditures, working capital and other general corporate
purposes. We may also use a portion of the net proceeds from this offering to
expand our existing business relationships as well as form new relationships
with companies with whom opportunities may arise from our business development
activities. We may also acquire or invest in businesses, technologies or
products that are complementary to our business. We currently have no
commitments or agreements for any acquisitions. Pending our use of the net
proceeds, we intend to invest them in short-term, interest bearing, investment
grade securities.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our common stock and do
not currently anticipate paying any cash dividends. We currently anticipate
that we will retain all of our future earnings for use in the development and
expansion of our business and for general corporate purposes. Any determination
to pay dividends in the future will be at the discretion of our board of
directors and will depend upon our financial condition, operating results and
other relevant factors as determined by the board of directors, in its
discretion. Additionally, we have entered into a loan agreement with a bank
that restricts our ability to pay dividends.

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CAPITALIZATION

The following table sets forth our capitalization as of June 30, 2000:

. on an actual basis;

. on a pro forma basis to reflect the conversion of all outstanding shares
of preferred stock into 26,131,746 shares of common stock; and

. on a pro forma as adjusted basis to reflect the application of the net
proceeds from the sale of 6,000,000 shares of common stock in this
offering at an assumed initial public offering price of $10.00 per
share, after the repayment of approximately $642,000 of indebtedness
under our loan facilities and after deducting underwriting discounts and
commissions and estimated offering expenses.

You should read this table in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and the related notes included in this prospectus.

<TABLE>
<CAPTION>
June 30, 2000
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(unaudited)
(in thousands)
<S> <C> <C> <C>
Long-term debt, less current portion........... $ 283 $ 283 $ --
-------- -------- --------
Stockholders' equity:
Convertible preferred stock, $0.00001 par
value, 18,224,804 shares authorized,
17,957,765 shares issued and outstanding,
actual; no shares issued and outstanding pro
forma; 20,000,000 shares authorized, no
shares issued or outstanding, pro forma as
adjusted..................................... -- -- --
Common stock, $0.00001 par value, 50,000,000
shares authorized, 10,818,805 issued and
outstanding, actual; 36,950,551 shares issued
and outstanding, pro forma; 200,000,000
shares authorized, 42,950,551 shares issued
and outstanding pro forma as adjusted........ -- -- --
Additional paid-in capital..................... 117,942 117,942 172,242
Warrants....................................... 728 728 728
Notes receivable from stockholders............. (6,751) (6,751) (6,751)
Deferred stock-based compensation.............. (18,483) (18,483) (18,483)
Accumulated other comprehensive loss........... (37) (37) (37)
Accumulated deficit............................ (48,768) (48,768) (48,768)
-------- -------- --------
Total stockholders' equity..................... 44,631 44,631 98,931
-------- -------- --------
Total capitalization........................... $ 44,914 $ 44,914 $ 98,931
======== ======== ========
</TABLE>

The number of shares of common stock to be outstanding after the offering as
set forth above is based on 36,950,551 shares outstanding as of June 30, 2000
and excludes:

. 2,563,316 shares of common stock issuable upon exercise of options
outstanding under our 1996 stock option plan at a weighted average
exercise price of $2.18 per share;

22
<PAGE>

. 4,345,546 shares of common stock reserved for issuance pursuant to
future grants under our 1996 stock option plan;

. 2,000,000 shares of common stock reserved for issuance under our 2000
employee stock purchase plan immediately following our initial public
offering; and

. 308,312 shares of common stock issuable through the exercise and
conversion of warrants outstanding at a weighted average exercise price
of $3.60 per share.

23
<PAGE>

DILUTION

Our pro forma net tangible book value as of June 30, 2000 was approximately
$44.6 million or approximately $1.21 per share. Pro forma net tangible book
value per share represents total tangible assets less total liabilities,
divided by the number of shares outstanding as of June 30, 2000, after giving
effect to the conversion into common stock of all of our outstanding shares of
preferred stock.

After giving effect to the sale of 6,000,000 shares of common stock in this
offering at an assumed initial public offering price of $10.00 per share and
after deducting underwriting discounts and commissions and estimated offering
expenses, our pro forma net tangible book value as of June 30, 2000 would have
been approximately $98.9 million, or $2.30 per share. This represents an
immediate increase in net tangible book value of $1.09 per share to existing
stockholders and an immediate dilution in net tangible book value of $7.70 per
share to new investors purchasing shares in this offering. The following table
illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $10.00
------
Pro forma net tangible book value per share before this
offering.................................................... $1.21
Increase per share attributable to new investors............. 1.09
-----
Pro forma net tangible book value per share after this
offering...................................................... 2.30
------
Dilution per share to new investors............................ $ 7.70
======
</TABLE>

The following table assumes conversion into common stock of all of our
outstanding shares of preferred stock, and sets forth, on a pro forma basis as
of June 30, 2000, the difference between existing stockholders and new
investors in this offering with respect to the number of shares of common stock
purchased from us, the total consideration paid to us and the average price per
share paid:

<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ -------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 36,950,551 86.0% $ 94,258,000 61.1% $2.55
New investors............. 6,000,000 14.0 60,000,000 38.9 10.00
---------- ----- ------------ ----- -----
Total................... 42,950,551 100.0% $154,258,000 100.0% $3.59
========== ===== ============ ===== =====
</TABLE>

This information is based on pro forma shares outstanding as of June 30, 2000
and excludes:

. 2,563,316 shares of common stock issuable upon exercise of options
outstanding under our 1996 stock option plan at a weighted average
exercise price of $2.18 per share;

. 4,345,546 shares of common stock reserved for issuance pursuant to
future grants under our 1996 stock option plan;

. 2,000,000 shares of common stock reserved for issuance under our 2000
employee stock purchase plan immediately following our initial public
offering; and

. 308,312 shares of common stock issuable through the exercise and
conversion of warrants outstanding at a weighted average exercise price
of $3.60 per share.

To the extent outstanding options or warrants are exercised, there will be
further dilution to new investors. See "Management--Benefit Plans" and Notes 8
and 9 to our financial statements included in this prospectus.

24
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)

The following selected consolidated financial data should be read in
conjunction with, and is qualified by reference to, our consolidated financial
statements and related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The selected consolidated
statement of operations data for each of the three years in the period ended
March 31, 2000, and the selected consolidated balance sheet data at March 31,
1999 and 2000 are derived from, and are qualified by reference to, our audited
consolidated financial statements included in this prospectus. The selected
consolidated statement of operations data for the period from inception on
April 3, 1996 to March 31, 1997 and the selected consolidated balance sheet
data as of March 31, 1997 and 1998 are derived from audited consolidated
financial statements not included in this prospectus. The consolidated
statement of operations data for the three-month periods ended June 30, 1999
and 2000 and the consolidated balance sheet data as of June 30, 2000 are
derived from, and are qualified by reference to, our unaudited consolidated
financial statements included in this prospectus. The unaudited consolidated
financial statements include all normal recurring adjustments that we consider
necessary for a fair presentation of our financial position and results of
operations. The historical results are not necessarily indicative of results to
be expected in any future period.

<TABLE>
<CAPTION>
Period from
April 3, 1996 Three Months
(Inception) to Year Ended March 31, Ended June 30,
March 31, -------------------------- -----------------
1997 1998 1999 2000 1999 2000
-------------- ------- ------- -------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenues:
License fees........... $ -- $ 250 $ 2,302 $ 4,554 $ 199 $ 2,310
Services............... 11 253 733 4,631 930 2,353
------- ------- ------- -------- ------- --------
Total revenues......... 11 503 3,035 9,185 1,129 4,663
------- ------- ------- -------- ------- --------
Cost of revenues:
License fees........... -- 51 238 349 41 149
Services............... 6 186 824 4,569 875 2,647
------- ------- ------- -------- ------- --------
Total cost of
revenues.............. 6 237 1,062 4,918 916 2,796
------- ------- ------- -------- ------- --------
Gross profit............ 5 266 1,973 4,267 213 1,867
------- ------- ------- -------- ------- --------
Operating expenses:
Research and
development........... 773 2,766 4,262 7,245 1,270 3,799
Sales and marketing.... 263 2,788 6,177 12,238 2,525 6,366
General and
administrative........ 444 829 891 2,622 447 1,310
Amortization of
deferred stock-based
compensation (1)...... -- -- -- 2,347 23 3,241
------- ------- ------- -------- ------- --------
Total operating
expenses.............. 1,480 6,383 11,330 24,452 4,265 14,716
------- ------- ------- -------- ------- --------
Loss from operations.... (1,475) (6,117) (9,357) (20,185) (4,052) (12,849)
Interest income......... 88 184 324 371 75 451
Interest expense........ (6) (40) (64) (75) (17) (18)
------- ------- ------- -------- ------- --------
Net loss................ $(1,393) $(5,973) $(9,097) $(19,889) $(3,994) $(12,416)
======= ======= ======= ======== ======= ========
Basic and diluted net
loss per share......... $ (8.24) $ (4.21) $ (3.32) $ (4.64) $ (1.08) $ (2.25)
Shares used in computing
basic and diluted net
loss per share......... 169 1,418 2,738 4,289 3,700 5,508
Pro forma basic and
diluted net loss per
share (unaudited)...... $ (0.93) $ (0.44)
Shares used to compute
pro forma basic and
diluted net loss per
share (unaudited)...... 21,300 28,395
Cost of services
revenues............... $ -- $ -- $ -- $ 322 $ 4 $ 298
Research and
development............ -- -- -- 428 2 564
Sales and marketing..... -- -- -- 850 15 817
General and
administrative......... -- -- -- 747 2 1,562
------- ------- ------- -------- ------- --------
Amortization of deferred
stock-based
compensation........... $ -- $ -- $ -- $ 2,347 $ 23 $ 3,241
======= ======= ======= ======== ======= ========
</TABLE>
--------
(1) Amortization of deferred stock-based compensation is comprised of the
following:

25
<PAGE>

<TABLE>
<CAPTION>
As of March 31, As of
------------------------------------ June 30,
1997 1998 1999 2000 2000
------- ------- -------- -------- -----------
(in thousands) (unaudited)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet
Data:
Cash, cash equivalents and
short-term investments..... $ 1,674 $ 1,915 $ 2,779 $ 7,861 $ 38,934
Working capital............. 1,436 756 1,676 1,826 34,756
Total assets................ 1,979 2,889 6,150 14,196 58,002
Long-term debt, less current
portion.................... 87 448 526 373 283
Accumulated deficit......... (1,393) (7,366) (16,463) (36,352) (48,768)
Total stockholders' equity.. 1,644 1,065 2,065 2,310 44,631
</TABLE>

26
<PAGE>

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 in conjunction with the financial statements and
related notes included in this prospectus. In addition to historical
information, the discussion in this prospectus contains certain forward-looking
statements that involve risks and uncertainties. Our actual results may differ
significantly from those anticipated by these forward-looking statements due to
factors discussed under "Risk Factors," "Business" and elsewhere in this
prospectus.

Overview

We believe we are a leading provider of B2B software products that allow
companies to manage the internal and external sharing of information and the
execution of interactions among software applications and business partners
over the Internet. We refer to this exchange and management of information
among groups of companies over the Internet as B2B relationship management, or
B2BRM. Our platform is based on the eXtensible Markup Language, or XML, which
is an industry recognized programming language for exchanging information over
the Internet. Our platform allows diverse information systems and businesses to
work together more effectively by automating and synchronizing the flow of
information and execution of processes, regardless of size, sophistication or
existing software applications.

We were incorporated on April 3, 1996. From inception through the fourth
calendar quarter of 1998, we focused our resources primarily on developing our
software and recruiting and hiring personnel. Since that time, our focus has
expanded to include broadening and deepening our product line as well as
creating a worldwide selling presence through a combination of direct sales and
indirect channels including system integrators, resellers and consulting firms.

We derive revenues from sales of licenses of our Extricity B2B software,
professional services and software maintenance contracts. We license our
software on a perpetual basis or on an annual renewable basis. Annual renewal
arrangements represent one-year term licenses which include software
maintenance during the term of the arrangement. To date, our license fees have
predominantly been generated through our direct sales channel. We began our
international direct sales efforts in October 1999.

We offer implementation and other professional services on a time-and-
materials basis and training on a fixed-fee basis. In the future, we expect
that our services revenues will not grow as rapidly as our license fees due to
increased outsourcing of the professional services, maintenance and training
services arising out of our license fee arrangements to system integrators,
resellers and consulting firms.

Revenues from the sale of perpetual software licenses are recognized upon
shipment of our software, provided that the fee is fixed or determinable,
persuasive evidence of an arrangement exists and collection of the resulting
receivable is considered probable. Historically, we have not experienced
significant returns or exchanges of our software. We recognize software license
fees ratably over the term of the license for all renewable one-year term
licenses. Maintenance revenues are recognized ratably over the maintenance
period. Billed receivables and payments received in advance of revenue
recognition are recorded as deferred revenue. Professional service revenues are
recognized as the service is performed. Our revenue recognition practices are
in accordance with Statement of Position, or SOP, 97-2, as modified by SOP 98-
9.

27
<PAGE>

In the fourth quarter of fiscal year 2000, we began to offer customers the
option to purchase our software licenses on one-year renewable term
arrangements. We recognize revenue on these one-year term arrangements pro rata
over the term of the license. Although the license fees for perpetual licenses
are greater than the initial license fees for renewable term arrangements, the
ability to recognize revenue ratably over the life of a renewable term
arrangement provides us with greater predictability of future license fees. In
the event that a significant number of our customers who have renewable term
arrangements do not renew their licenses, our license fees will be negatively
impacted proportionately to the amount of revenues otherwise received under the
licenses. During our fiscal year 2001, we do not anticipate any negative impact
because none of our renewable term licenses are up for renewal until March
2001.

Our cost of revenues includes the costs of license fees and services. Our
cost of license fees consists of royalties payable to third parties for
software shipped with our software and the costs of manuals, freight and
handling. Our cost of services revenues includes salaries and related expenses
for our professional services and technical support organizations, costs of
third-party consultants we use to provide professional services to our
customers and an allocation of overhead costs.

Although revenues have generally increased from quarter to quarter, we have
incurred significant costs to develop our technology and products and to
recruit and train personnel for our research and development, sales, marketing,
professional services and administration departments. As a result, we have
incurred significant losses since inception, and as of June 30, 2000, had an
accumulated deficit of approximately $48.8 million. We believe our success will
depend on rapidly increasing our customer base, further developing our
Extricity B2B software and introducing new product enhancements into the
marketplace. We intend to continue to invest heavily in research and
development, sales, marketing, professional support and general and
administrative services.

For the year ended March 31, 2000 and the three months ended June 30, 2000,
in connection with the grant of certain stock options to employees, we recorded
deferred compensation of approximately $15.7 million and $8.4 million,
respectively, representing the difference between the deemed value of the
common stock for accounting purposes and the option exercise price at the date
of the option grant. This amount is presented as a reduction of stockholders'
equity and will be amortized over the vesting period of the applicable options
in a manner consistent with Financial Standards Board Interpretation No. 28,
"Accounting for Stock Appreciation Rights and Other Variable Stock Option or
Award Plans." Approximately $2.3 million was expensed during fiscal year 2000
and is included in amortization of deferred stock-based compensation in the
accompanying consolidated statement of operations. Amortization expense of
$12.8 million, $5.7 million, $2.6 million and $688,000 will be recorded in
fiscal years 2001, 2002, 2003 and 2004, respectively. Compensation expense is
decreased in the period of forfeiture for any accrued but unvested compensation
arising from the early termination of an option holder's services.

28
<PAGE>

Results of Operations

The following table sets forth our consolidated statement of operations data
expressed as a percentage of total revenues, unless otherwise indicated:

<TABLE>
<CAPTION>
Year Ended March Three Months
31, Ended June 30,
-------------------- -----------------
1998 1999 2000 1999 2000
------ ---- ---- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
License fees ................. 50 % 76 % 50 % 18 % 50 %
Services...................... 50 24 50 82 50
------ ---- ---- ------- -------
Total revenues.............. 100 100 100 100 100
------ ---- ---- ------- -------
Cost of revenues:
License fees.................. 10 8 4 4 3
Services...................... 37 27 50 77 57
------ ---- ---- ------- -------
Total cost of revenues...... 47 35 54 81 60
------ ---- ---- ------- -------
Gross profit.................... 53 65 46 19 40
------ ---- ---- ------- -------
Operating expenses:
Research and development...... 550 140 79 112 81
Sales and marketing........... 554 204 133 224 137
General and administrative.... 165 29 28 40 28
Amortization of deferred
stock-based compensation..... -- -- 26 2 70
------ ---- ---- ------- -------
Total operating expenses.... 1,269 373 266 378 316
------ ---- ---- ------- -------
Loss from operations............ (1,216) (308) (220) (359) (276)
Interest income................. 37 10 4 7 10
Interest expense................ (8) (2) (1) (2) (1)
------ ---- ---- ------- -------
Net loss........................ (1,187)% (300)% (217)% (354)% (267)%
====== ==== ==== ======= =======
------------
Cost of license fees as a
percentage of license fees..... 20% 10% 8% 21% 6%
Cost of services revenues as a
percentage of services
revenues....................... 74% 112% 99% 94% 112%
</TABLE>

Three Months Ended June 30, 1999 and 2000

Revenues

Total Revenues. Our revenues increased from approximately $1.1 million in the
three months ended June 30, 1999 to approximately $4.7 million in the three
months ended June 30, 2000. This increase was primarily due to increased sales
of software licenses. License fees as a percentage of total revenues increased
from approximately 18% in the three months ended June 30, 1999 to approximately
50% in the three months ended June 30, 2000. This increase was due to unusually
low license fees generated in the quarter ended June 30, 1999 as a result of a
reorganization and restructuring of our sales force.

License Fees. License fees increased from approximately $199,000 for the
three months ended June 30, 1999 to approximately $2.3 million for the three
months ended June 30, 2000. This increase is attributable to broader acceptance
of our products, additional products

29
<PAGE>

available for sale, a significant increase in direct sales force headcount and
increased sales by our indirect channel partners. The average selling price per
transaction increased from approximately $275,000 per transaction during the
three months ended June 30, 1999 to approximately $277,000 per transaction
during the three months ended June 30, 2000.

Services. Services revenues increased from approximately $930,000 in the
three months ended June 30, 1999 to approximately $2.4 million in the three
months ended June 30, 2000. This increase is primarily due to increased demand
for services generated from increased sales of software licenses. We have hired
new professional services staff to expand our internal capacity to provide
professional services, training and support.

Cost of Revenues

Total Cost of Revenues. Cost of revenues increased from approximately
$916,000 for the three months ended June 30, 1999 to approximately $2.8 million
for the three months ended June 30, 2000. Total cost of revenues as a
percentage of total revenues decreased from approximately 81% in the three
months ended June 30, 1999 to approximately 60% in the three months ended June
30, 2000. This decrease was due to an increase in license fees as a percentage
of total revenues. License fees, which have a higher gross margin than services
revenues, increased from approximately 18% of total revenues in the three
months ended June 30, 1999 to approximately 50% of total revenues in the three
months ended June 30, 2000. Services revenues decreased from approximately 82%
of total revenues for the three months ended June 30, 1999 to approximately 50%
of total revenues for the three months ended June 30, 2000.

License Fees. Cost of license fees increased from approximately $41,000 for
the three months ended June 30, 1999 to approximately $149,000 for the three
month period ended June 30, 2000. This increase is due to increased sales
volume and license fees paid to third-party software vendors for software
products embedded in and packaged with our software products. Cost of license
fees as a percentage of total license fees decreased from approximately 21% for
the three months ended June 30, 1999 to approximately 6% for the three months
ended June 30, 2000 due to the removal of a complimentary third-party product
from our licensed software product offerings.

Services. Cost of services revenues increased from approximately $875,000 in
the three months ended June 30, 1999 to approximately $2.6 million in the three
months ended June 30, 2000. This increase is due to our investments in
consulting and training services personnel and customer support staff and the
retention of additional subcontractors to provide professional services. Cost
of services revenues as a percentage of services revenues increased from
approximately 99% for the three months ended June 30, 1999 to approximately
112% for the three months ended June 30, 2000 due to an increased number of
newly hired professional services personnel engaged in non-revenue generating
activities such as training.

Operating Expenses

Research and Development. Our research and development expenses increased
from approximately $1.3 million in the three months ended June 30, 1999 to
approximately $3.8 million in the three months ended June 30, 2000. This
increase was primarily due to compensation expenses associated with increases
in development personnel and the use of third-party contractors to assist on
development projects.

Sales and Marketing. Sales and marketing expenses increased from
approximately $2.5 million in the three months ended June 30, 1999 to
approximately $6.4 million in the three months ended June 30, 2000. This
increase is attributable to an increase in the number

30
<PAGE>

of sales and marketing personnel from 35 at June 30, 1999 to 93 at June 30,
2000, an increase in sales commissions due to our increased license fees, the
establishment of our European sales operations and increased marketing
activities.

General and Administrative. Our general and administrative expenses increased
from approximately $447,000 in the three months ended June 30, 1999 to
approximately $1.3 million in the three months ended June 30, 2000. This
increase is attributable to an increase in the number of general and
administrative personnel from seven at June 30, 1999 to 16 at June 30, 2000 and
increased professional services fees associated with supporting the increased
size of our business.

Amortization of Deferred Stock-Based Compensation. Stock-based compensation
expense increased from approximately $23,000 in the three months ended June 30,
1999 to approximately $3.2 million in the three months ended June 30, 2000.
This increase was due to an increase in the number of employees and the
granting of stock options to these additional employees. For the three months
ended June 30, 2000, we recorded deferred stock-based compensation of
approximately $8.4 million in connection with stock option grants to employees
as compared to approximately $284,000 for the three months ended June 30, 1999.

Interest Income

Interest income increased from approximately $75,000 in the three months
ended June 30, 1999 to approximately $451,000 in the three months ended June
30, 2000. This increase is attributable to an increase in short-term interest-
bearing investments resulting from the proceeds of our Series D, E and F
preferred stock financings, offset by the use of proceeds to fund our
operations.

Interest Expense

Interest expense increased from approximately $17,000 in the three months
ended June 30, 1999 to $18,000 in the three months ended June 30, 2000.
Interest expense in these periods is attributable to net borrowings on our line
of credit.

Fiscal Years Ended March 31, 1999 and 2000

Revenues

Total Revenues. Our revenues increased from approximately $3.0 million for
the fiscal year ended March 31, 1999 to approximately $9.2 million for the
fiscal year ended March 31, 2000. In fiscal year 1999, four customers each
accounted for more than 10% of our revenues. In fiscal year 2000, only one
customer accounted for more than 10% of our revenues. License fees as a
percentage of total revenues decreased from approximately 76% in fiscal year
1999 to approximately 50% in fiscal year 2000. This shift in revenue mix is
attributable to increased sales of software licenses in the second half of
fiscal year 1999 which generated services revenues, including software
maintenance and implementation assistance in fiscal year 2000, as well as new
services revenues from the additional sales of software licenses generated in
fiscal year 2000.

License Fees. Our license fees increased from approximately $2.3 million for
fiscal year 1999 to approximately $4.6 million for fiscal year 2000. This
increase is attributable to growing acceptance of our software, increased sales
force headcount and increased sales momentum generated from successful
deployment of our software by our customers. During fiscal year 2000, we
reduced our average selling price per transaction from approximately $420,000
to

31
<PAGE>

approximately $275,000 due to increased sales through indirect channels, sales
of renewable licenses and increased sales into electronic markets and e-
commerce fulfillment customers who typically purchase initial product
configurations which have lower average transaction values. This resulted in an
increase in customer growth which more than offset the lower average selling
price.

The number of customers from which license fees were recognized increased
from six at the end of fiscal year 1999 to 19 at the end of fiscal year 2000.
During fiscal year 1999, we sold a large perpetual license to Solectron
Corporation which increased the average revenue recognized per transaction in
fiscal year 1999 to approximately $329,000. During the fiscal year ended
March 31, 2000, the average revenue recognized per transaction was
approximately $304,000.

Services. Services revenues increased from approximately $733,000 for fiscal
year 1999 to approximately $4.6 million for fiscal year 2000. This increase is
attributable to an increase in our professional services staff, both in
consulting and training, increased follow-on services as a result of higher
license activity, increased use of subcontractors to perform professional
services for customers and increased maintenance revenues due to a larger
installed base.

Cost of Revenues

Total Cost of Revenues. Cost of revenues increased from approximately $1.1
million for fiscal year 1999 to approximately $4.9 million for fiscal year
2000. Total cost of revenues as a percentage of total revenues increased from
approximately 35% for fiscal year 1999 to approximately 54% for fiscal year
2000. This increase was due to a decrease in license fees as a percentage of
total revenues. License fees, which have a higher gross margin than services
revenues, decreased from approximately 76% of total revenues for fiscal year
1999 to approximately 50% of total revenues for fiscal year 2000. Services
revenues increased from approximately 24% of total revenue in fiscal year 1999
to approximately 50% of total revenue in fiscal year 2000.

License Fees. Cost of license fees increased from approximately $238,000 for
fiscal year 1999 to approximately $349,000 for fiscal year 2000. This increase
is due to increased sales volume, license fees paid to third-party software
vendors for software products embedded in and shipped within our software
products. Cost of license fees as a percentage of license fees decreased from
approximately 10% for fiscal year 1999 to approximately 8% for fiscal year 2000
due to the removal of a complementary third-party product from our license
software product offerings.

Services. Cost of services revenues increased from approximately $824,000 for
fiscal year 1999 to approximately $4.6 million for fiscal year 2000. This
increase is attributable to increases in the number of consulting
professionals, consulting subcontractors and technical support personnel in
fiscal year 2000 as compared to fiscal year 1999. Services personnel increased
from 14 at the end of fiscal year 1999 to 28 at the end of fiscal year 2000. In
addition, higher travel and recruiting expenses contributed to the increase in
cost of professional services and maintenance for fiscal year 2000. Gross
margin on services increased from approximately negative 12% in fiscal year
1999 to approximately 1% in fiscal year 2000. This increase in the gross margin
on services is attributable to an increase in billable rates for our software
support and maintenance consulting services and increased utilization of our
professional services staff in revenue generating activities such as
implementation advisory services.

Operating Expenses

Research and Development. Research and development expenses increased from
approximately $4.3 million for fiscal year 1999 to approximately $7.2 million
for fiscal year 2000. This increase is attributable to increases in the number
of software development, quality

32
<PAGE>

assurance and documentation personnel from 24 at the end of fiscal year 1999 to
53 at the end of fiscal year 2000, plus associated overhead and occupancy
costs. To date, all research and development expenses have been expensed in the
period incurred. We believe that continued investment in research and
development is critical to attaining our strategic objectives, and, as a
result, we expect research and development expenses will increase in absolute
dollar amounts in future periods.

Sales and Marketing. Sales and marketing expenses increased from
approximately $6.2 million for fiscal year 1999 to approximately $12.2 million
for fiscal year 2000. This increase is attributable to an increase in the
number of sales and marketing employees, higher incentive payments due to
increased revenue growth and an increase in the number and scope of our
marketing programs. Additionally, a sales and marketing subsidiary was formed
in the United Kingdom in October 1999. As of March 31, 2000, our European
organization had 10 employees located in the U.K. Since March 31, 2000,
additional subsidiaries have been opened in Canada, Germany, France and the
Netherlands. We expect to continue to expand our sales and marketing efforts in
Europe and internationally, which will result in an increase in sales and
marketing expenses in absolute dollar amounts in future periods.

General and Administrative. General and administrative expenses increased
from approximately $891,000 for fiscal year 1999 to approximately $2.6 million
for fiscal year 2000. This increase is attributable to increases in the number
of accounting and finance, human resources, information technology and office
administration personnel. The number of finance and administration employees
increased from six at the end of fiscal year 1999 to 13 at the end of fiscal
year 2000. In addition, we recorded a bad debt provision of $300,000 due to
uncertainty in collecting the receivable balance from one specific customer.
Also, professional service fees, corporate insurance and other general
corporate costs increased to support organizational growth. We expect general
and administrative expenses to continue to increase in absolute dollar amounts,
as we expect to add personnel to support our expanding operations, incur
additional costs related to the growth of our business and assume the
responsibilities of managing a public company.

Amortization of Deferred Stock-Based Compensation. During fiscal year 2000,
we recorded deferred stock-based compensation of approximately $15.7 million in
connection with stock option grants to employees. We are amortizing this amount
over the vesting periods of the applicable options using the accelerated method
of amortization prescribed by Financial Accounting Standards Board
Interpretation No. 28, resulting in amortization expense of approximately $2.3
million in fiscal year 2000.

Interest Income

Interest income increased from approximately $324,000 in fiscal year 1999 to
approximately $371,000 in fiscal year 2000. This increase is attributable to an
increase in interest-bearing short-term investments from March 31, 1999 to
March 31, 2000 resulting from the proceeds of the Series D and E preferred
stock financings, offset by the use of proceeds to fund our operations.

Interest Expense

Interest expense increased from approximately $64,000 in fiscal year 1999 to
approximately $75,000 in fiscal year 2000. This increase is attributable to an
increase in net borrowings on the line of credit from fiscal year 1999 to
fiscal year 2000.

Fiscal Years Ended March 31, 1998 and 1999

Revenues

Total Revenues. Our revenues increased from approximately $503,000 for fiscal
year 1998 to approximately $3.0 million for fiscal year 1999. Our first license
sales took place during fiscal year 1998 and two customers each accounted for
more than 10% of our total revenues. In fiscal year 1999, four

33
<PAGE>

customers each accounted for more than 10% of our total revenues. Sales to
Taiwan Semiconductor Manufacturing Corporation decreased from approximately 49%
of total revenues in fiscal year 1998 to approximately 15% of total revenues in
fiscal year 1999. This decrease as a percentage of total revenues was primarily
due to the increase in total revenues from approximately $503,000 for fiscal
year 1998 to approximately $3.0 million for fiscal year 1999. Sales to Adaptec,
Inc. decreased from approximately 44% of total revenues in fiscal year 1998 to
less than 10% of total revenues in fiscal year 1999. This decrease as a
percentage of total revenues was primarily due to the increase in total
revenues for fiscal year 1999.

License fees. License fees increased from approximately $250,000 for fiscal
year 1998 to approximately $2.3 million for fiscal year 1999. This increase is
attributable to increased sales of licenses for our software, which was first
introduced in the third quarter of fiscal year 1998.

Services. Services revenues increased from approximately $253,000 for fiscal
year 1998 to approximately $733,000 for fiscal year 1999. This increase is
attributable to the increased license activity described above, which resulted
in maintenance and customer implementation revenues and follow-on professional
services.

Cost of Revenues

Total Cost of Revenues. Cost of revenues increased from approximately
$237,000 for fiscal year 1998 to approximately $1.1 million for fiscal year
1999. Total cost of revenues as a percentage of total revenues decreased from
approximately 47% for fiscal year 1998 to approximately 35% for fiscal year
1999. This decrease was due to an increase in license fees as a percentage of
total revenues. License fees, which have a higher gross margin than services
revenues, increased from approximately 50% of total revenues for fiscal year
1998 to approximately 76% of total revenues for fiscal year 1999. Services
revenues decreased from approximately 50% of total revenues for fiscal year
1998 to approximately 24% of total revenues for fiscal year 1999.

License fees. Cost of license fees increased from approximately $51,000 for
fiscal year 1998 to approximately $238,000 for fiscal year 1999. This increase
is due to additional license fees paid to new third-party software vendors for
software products embedded in and packaged with our software products. Cost of
license fees as a percentage of license fees decreased from approximately 20%
for fiscal year 1998 to approximately 10% for fiscal year 2000 due to an
increase in the number of licenses sold in fiscal year 1999 as compared to
fiscal year 1998.

Services. Cost of services revenues increased from approximately $186,000 for
fiscal year 1998 to approximately $824,000 for fiscal year 1999. This increase
is primarily attributable to increases in the number of professionals and
technical support personnel in fiscal year 1999 as compared to fiscal year
1998. Services personnel increased from seven at the end of fiscal year 1998 to
14 at the end of fiscal year 1999. Cost of services revenues as a percentage of
services revenues increased from approximately 74% for fiscal year 1998 to
approximately 112% for fiscal year 1999 due to increased staffing of support
and management positions in anticipation of future growth.

Operating Expenses

Research and Development. Research and development expenses increased from
approximately $2.8 million for fiscal year 1998 to approximately $4.3 million
for fiscal year 1999. This increase is primarily attributable to increases in
the number of software development, quality assurance and documentation
personnel, which increased from 17 at the end of fiscal year 1998 to 24 at the
end of fiscal year 1999.

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<PAGE>

Sales and Marketing. Sales and marketing expenses increased from
approximately $2.8 million for fiscal year 1998 to approximately $6.2 million
for fiscal year 1999. This increase is primarily attributable to an increase in
the number of sales and marketing employees which increased from 10 at the end
of fiscal year 1998 to 23 at the end of fiscal year 1999. In addition, this
increase is attributable to an increase in the number and scope of marketing
programs.

General and Administrative. General and administrative expenses increased
from approximately $829,000 for fiscal year 1998 to approximately $891,000 for
fiscal year 1999. This increase is primarily attributable to increases in
professional service fees and other general corporate expenses to support
organizational growth. The number of finance and administration employees
increased from five at the end of fiscal year 1998 to six at the end of fiscal
year 1999.

Interest Income

Interest income increased from approximately $184,000 for fiscal year 1998 to
approximately $324,000 for fiscal year 1999. This increase is attributable to
an increase in interest-bearing short-term investments resulting from the
proceeds of a preferred stock financing.

Interest Expense

Interest expense increased from approximately $40,000 for fiscal year 1998 to
approximately $64,000 for fiscal year 1999. This increase is attributable to an
increase in net borrowings on the line of credit from fiscal year 1998 to
fiscal year 1999.

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<PAGE>

Selected Quarterly Results of Operations

The following table presents our results of operations for each of the last
nine quarters. In the opinion of management, this information has been prepared
substantially on the same basis as the audited financial statements appearing
elsewhere in this prospectus, and all necessary adjustments, consisting only of
normal recurring adjustments, have been included in the amounts stated below to
present fairly the unaudited quarterly results of operations. This quarterly
data should be read in conjunction with the financial statements and related
notes appearing elsewhere in this prospectus. The operating results for any
quarter are not necessarily indicative of the operating results for any future
period.

<TABLE>
<CAPTION>
Three Months Ended (unaudited)
----------------------------------------------------------------------------------------------
June 30, Sept 30, Dec 31, March 31, June 30, Sept 30, Dec 31, March 31, June 30,
1998 1998 1998 1999 1999 1999 1999 2000 2000
-------- -------- ------- --------- -------- -------- ------- --------- --------
(in thousands, except as a percentage of total revenues)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenues:
License fees........... $ 39 $ 118 $ 365 $ 1,780 $ 199 $ 752 $ 1,309 $ 2,294 $ 2,310
Services............... 70 52 168 443 930 1,069 1,450 1,182 2,353
------- ------- ------- ------- ------- ------- ------- ------- --------
Total revenues......... 109 170 533 2,223 1,129 1,821 2,759 3,476 4,663
------- ------- ------- ------- ------- ------- ------- ------- --------
Cost of revenues:
License fees........... 2 3 64 169 41 66 78 164 149
Services............... 136 127 197 364 875 925 1,348 1,421 2,647
------- ------- ------- ------- ------- ------- ------- ------- --------
Total cost of
revenues.............. 138 130 261 533 916 991 1,426 1,585 2,796
------- ------- ------- ------- ------- ------- ------- ------- --------
Gross profit............ (29) 40 272 1,690 213 830 1,333 1,891 1,867
------- ------- ------- ------- ------- ------- ------- ------- --------
Operating expenses:
Research and
development........... 857 975 1,190 1,240 1,270 1,647 1,866 2,462 3,799
Sales and marketing.... 1,009 1,416 1,909 1,843 2,525 2,699 2,697 4,317 6,366
General and
administrative........ 210 205 206 270 447 576 572 1,027 1,310
Amortization of
deferred stock-based
compensation(1)....... -- -- -- -- 23 210 422 1,692 3,241
------- ------- ------- ------- ------- ------- ------- ------- --------
Total operating
expenses.............. 2,076 2,596 3,305 3,353 4,265 5,132 5,557 9,498 14,716
------- ------- ------- ------- ------- ------- ------- ------- --------
Loss from operations.... (2,105) (2,556) (3,033) (1,663) (4,052) (4,302) (4,224) (7,607) (12,849)
Interest income......... 69 101 102 52 75 88 78 130 451
Interest expense........ (15) (16) (15) (18) (17) (18) (20) (20) (18)
------- ------- ------- ------- ------- ------- ------- ------- --------
Net loss............... $(2,051) $(2,471) $(2,946) $(1,629) $(3,994) $(4,232) $(4,166) $(7,497) $(12,416)
======= ======= ======= ======= ======= ======= ======= ======= ========
As a Percentage of Total
Revenues:
Revenues:
License fees........... 36 % 69 % 68 % 80 % 18 % 41 % 47 % 66 % 50 %
Services............... 64 31 32 20 82 59 53 34 50
------- ------- ------- ------- ------- ------- ------- ------- --------
Total revenues......... 100 100 100 100 100 100 100 100 100
------- ------- ------- ------- ------- ------- ------- ------- --------
Cost of revenues:
License fees........... 2 2 12 8 4 3 3 5 3
Services............... 125 75 37 16 77 51 49 41 57
------- ------- ------- ------- ------- ------- ------- ------- --------
Total cost of
revenues.............. 127 77 49 24 81 54 52 46 60
------- ------- ------- ------- ------- ------- ------- ------- --------
Gross profit............ (27) 23 51 76 19 46 48 54 40
------- ------- ------- ------- ------- ------- ------- ------- --------
Operating expenses:
Research and
development........... 786 574 223 56 112 90 67 71 81
Sales and marketing.... 926 833 358 83 224 148 98 124 137
General and
administrative........ 192 120 39 12 40 32 21 29 28
Amortization of
deferred stock-based
compensation.......... -- -- -- -- 2 12 15 49 70
------- ------- ------- ------- ------- ------- ------- ------- --------
Total operating
expenses.............. 1,904 1,527 620 151 378 282 201 273 316
------- ------- ------- ------- ------- ------- ------- ------- --------
Loss from operations.... (1,931) (1,504) (569) (75) (359) (236) (153) (219) (276)
Interest income......... 63 59 19 3 7 5 3 4 10
Interest expense........ (14) (9) (3) (1) (2) (1) (1) (1) (1)
------- ------- ------- ------- ------- ------- ------- ------- --------
Net loss............... (1,882)% (1,454)% (553)% (73)% (354)% (232)% (151)% (216)% (267)%
======= ======= ======= ======= ======= ======= ======= ======= ========
--------
(1)Amortization of deferred stock-based compensation is comprised of the
following:
Cost of services
revenues.............. $ -- $ -- $ -- $ -- $ 4 $ 45 $ 71 $ 203 $ 298
Research and
development........... -- -- -- -- 2 53 167 205 564
Sales and marketing.... -- -- -- -- 15 106 145 583 817
General and
administrative........ -- -- -- -- 2 6 39 701 1,562
------- ------- ------- ------- ------- ------- ------- ------- --------
Amortization of
deferred stock-based
compensation.......... $ -- $ -- $ -- $ -- $ 23 $ 210 $ 422 $ 1,692 $ 3,241
======= ======= ======= ======= ======= ======= ======= ======= ========
</TABLE>

36
<PAGE>

Revenues. Our total revenues increased in each of the nine quarterly periods
ended June 30, 2000, except during the quarter ended June 30, 1999. This
increase is due to growing acceptance of our software, increased sales force
headcount, sales from our indirect channels and increased sales momentum
generated from successful deployment of our software by our customers. The
increase in total revenues from approximately $533,000 in the quarter ended
December 31, 1998 to approximately $2.2 million in the quarter ended March 31,
1999 is primarily attributable to the sale of a large perpetual license
agreement to Solectron Corporation in March 1999. Revenues were lower in the
quarter ended June 30, 1999 due to the reorganization and restructuring of our
sales force and our focus on hiring additional sales personnel. We believe that
the increase in license fees was primarily due to this reorganization and
restructuring and our focus on additional hiring in the quarter ended September
30, 1999. Historically, our services revenues have increased in connection with
increases in our license fees. However, during the quarter ended March 31,
2000, services revenues decreased primarily in connection with a customer
project with The North Face, Inc. transitioning from a prime contractor
relationship directly with us to a relationship in which The North Face
contracted for those services with a third-party services provider. The initial
transaction with The North Face occurred in December 1998 and involved a
license to integrate The North Face's interactions with a specific logistics
and distribution vendor. Following the initial sale and the recognition of
revenue using percentage of completion methodology in the quarters ended
December 31, 1998 and March 31, 1999, The North Face continued to request
professional consulting services in connection with supply chain initiatives
unrelated to the implementation of the initial license. We negotiated with a
third party systems integrator to provide these services to The North Face on a
subcontractor basis. In January 2000, we began to transition this project to
another vendor. The North Face has now contracted directly with another vendor
to provide these ongoing professional services. This transition resulted in a
significant portion of the decrease in our services revenues for the quarter
ended March 31, 2000. We intend to outsource increasing amounts of basic
implementation services to outside service providers and focus our professional
services staff on higher margin services, such as implementation advisor
services. In addition, we intend to create and develop pre-packaged solutions
and methodologies to increase our revenues and margins.

Cost of revenues. Since June 30, 1998, our cost of revenues increased in each
of the eight quarterly periods ended June 30, 2000 as a result of the growth in
revenues. Historically, cost of services revenues have been the primary
component of total cost of revenues. Total cost of revenues increased from
approximately $533,000 for the three months ended March 31, 1999 to
approximately $916,000 for the three months ended June 30, 1999 despite a
decrease in total revenues from approximately $2.2 million to approximately
$1.1 million over the same time period. This increase in total cost of
revenues, despite the decrease in total revenues, was due to a decrease in
license fees as a percentage of total revenues, from approximately 80% of total
revenues in the three months ended March 31, 1999 to approximately 18% in the
three months ended June 30, 1999. Although services revenues decreased in the
quarter ended March 31, 2000, cost of services increased during the same period
due to the increase in professional services personnel from 10 on December 31,
1999 to 28 on March 31, 2000. The increase in revenues in the quarter ended
March 31, 1999, was largely due to the sale of a large enterprise license
agreement in March 1999. As a result, cost of revenues did not increase in the
same proportion to the increase in revenues in the quarter ended March 31,
1999. We expect that our cost of services revenues will, as a percentage of
services revenues, increase in the near term due to increased hiring of
employees focused on strategy and service program development. Over time, we
expect that the cost of services revenues will decrease as a percentage of
total revenues as these employees create more efficiency and higher margin
services programs. In addition, we expect to outsource increasing amounts of
low margin professional services, maintenance and training services arising out
of our license fee arrangements.

37
<PAGE>

Operating Expenses. Operating expenses increased in each of the nine
quarterly periods ended June 30, 2000 as a result of increased expenses in each
department associated with higher numbers of personnel, use of consultants,
related hiring and recruiting expenses, and the increase in the size of our
facilities. Sales and marketing expenses increased significantly in the
quarters ended March 31, 2000 and June 30, 2000 due to substantial hiring of
sales and marketing staff and the opening of a sales office in the U.K. in
October 1999 which became fully operational in the three months ended March 31,
2000. In addition, quarterly amounts beginning in June 30, 1999 reflect the
amortization of deferred stock-based compensation.

Our quarterly operating results have varied widely in the past, and we expect
that they will continue to fluctuate in the future as a result of a number of
factors, many of which are outside of our control. We believe that our period-
to-period operating results are not meaningful, and you should not rely on them
as indicative of our future performance. You should also evaluate our prospects
in light of the risks, expenses and difficulties commonly encountered by
comparable early-stage companies in new and rapidly emerging markets. We may
not successfully address the risks and challenges that face us. In addition,
although we have experienced significant revenue growth recently, our revenues
might not continue to grow and we might not become or remain profitable in the
future. Our future operating results will depend on many factors, including:

. size and timing of sales and installations of our software;

. entry of new competitors into our market, or the announcement of new
products or product enhancements by competitors;

. our ability to successfully expand our direct sales force and our
international sales organization;

. unexpected delays in developing and marketing new and enhanced products;

. deferral of customer orders in anticipation of product enhancements or
new products;

. unexpected decline in purchases by our existing customers, including
purchases of additional licenses and maintenance contracts;

. variability in the mix of our license fees and services revenues; and

. our ability to establish and maintain relationships with system
integrators, resellers and consulting firms.

Liquidity and Capital Resources

Through June 30, 2000, we have funded our operations primarily through sales
of equity securities, with net proceeds of approximately $85.1 million, and to
a lesser extent, the use of borrowings under our line of credit facility.

Net cash used in operations was approximately $5.0 million in fiscal year
1998, approximately $8.8 million in fiscal year 1999, approximately $10.9
million in fiscal year 2000 and approximately $10.5 million in the three months
ended June 30, 2000. During these periods, net cash used by operating
activities was primarily a result of funding ongoing operations.

Accounts receivable increased from approximately $2.3 million as of March 31,
1999 to approximately $4.3 million as of March 31, 2000 and to approximately
$6.9 million as of June 30, 2000. This increase was primarily due to increased
revenues during the quarter ended March 31, 2000 as compared to the quarter
ended March 31, 1999, as well as increased billings for annual term licenses,
maintenance and prepaid royalties. This increase was

38
<PAGE>

partially offset by an increase in the allowance for doubtful accounts from
approximately $45,000 as of March 31, 1999 to approximately $801,000 as of
March 31, 2000, due primarily to the uncertainty of collecting the outstanding
receivable balance from one specific customer who filed for bankruptcy during
fiscal year 2000. The allowance for doubtful accounts as of June 30, 2000 was
approximately $801,000. The increase in accounts receivable during the three
months ended June 30, 2000 was primarily due to an increase in revenues, as
well as a delay in receiving payments from two customers in an aggregate amount
of approximately $1.9 million, which were due to be received in June 2000 but
were not received until the first week of July 2000. We perform periodic credit
evaluations of our customers and maintain an allowance for potential credit
losses based on historical experience and other information available to
management.

Accrued expenses increased from approximately $1.9 million as of March 31,
1999 to approximately $4.9 million as of March 31, 2000 and to approximately
$6.4 million as of June 30, 2000. These increases were primarily due to an
increase in the number of employees from 66 as of March 31, 1999, to 158 as of
March 31, 2000 and to 233 as of June 30, 2000 and the related accrued payroll
and related expenses which increased from approximately $1.1 million as of
March 31, 1999 to approximately $3.1 million as of March 31, 2000 and
approximately $3.2 million as of June 30, 2000. In addition, other accrued
expenses increased from approximately $510,000 as of March 31, 1999 to
approximately $917,000 as of March 31, 2000 to approximately $2.2 million as of
June 30, 2000, which was primarily due to increased travel expenses
attributable to an increase in the number of employees traveling in connection
with sales efforts.

Deferred revenue increased from approximately $819,000 as of March 31, 1999
to approximately $4.5 million as of March 31, 2000. This increase was primarily
due to an increase in deferred services revenue from approximately $216,000 at
March 31, 1999 to approximately $2.4 million as of March 31, 2000 attributable
to higher volumes of licenses generating increased maintenance agreements which
are billed in advance, deferred and recognized over the maintenance period.
Deferred maintenance revenue represented approximately $1.2 million of the
deferred services revenue balance as of March 31, 2000. In addition, deferred
license fees increased from approximately $603,000 as of March 31, 1999 to
approximately $2.1 million as of March 31, 2000 due primarily to a prepayment
of royalties which will be recognized over the two-year term of the agreement
and the sale of one-year term licenses which are deferred when billed and
recognized over the term of the license.

To date, our investing activities have consisted of purchases of equipment
and leasehold improvements to our facilities. Capital expenditures totaled
approximately $470,000 in fiscal year 1998, approximately $474,000 in fiscal
year 1999, approximately $1.1 million in fiscal year 2000 and approximately
$838,000 in the three months ended June 30, 2000.

Net cash from financing activities was approximately $5.7 million in fiscal
year 1998, approximately $10.1 million in fiscal year 1999, approximately $17.1
million in fiscal year 2000 and approximately $42.5 million in the three months
ended June 30, 2000. For fiscal year 1998, proceeds from financing activities
were primarily from the private sale of preferred stock of approximately $5.4
million and approximately $457,000 in net borrowings under our line of credit.
For fiscal year 1999, proceeds from financing activities were primarily from
the private sale of preferred stock of approximately $9.9 million and
approximately $167,000 in net borrowings under our line of credit. For fiscal
year 2000, proceeds from financing activities were primarily from the private
sale of preferred stock of approximately $16.9 million. For the three months
ended June 30, 2000, proceeds from financing activities were primarily from the
private sale of preferred stock of approximately $49.9 million. To date, we
have used our line of credit only to fund equipment purchases.

39
<PAGE>

We currently have two equipment term loans and a loan facility with Imperial
Bank under an amended and restated loan agreement dated September 8, 1998. As
of June 30, 2000, we have outstanding equipment term loans of $240,000 and
$402,000 due October 5, 2001 and September 7, 2002, respectively.

Our loan facility with Imperial Bank is a revolving line of credit in an
amount up to $1.5 million based on eligible receivables to be used for general
corporate purposes. Under our amended and restated loan agreement and related
security agreements, each dated September 8, 1998, we granted Imperial Bank a
blanket security interest in all of our property, including intellectual
property rights and our interest in license agreements. Borrowings under the
arrangements accrue interest at Imperial Bank's prime rate plus 1.0% and 0.75%
for the equipment term loans and 0.5% for the line of credit. The borrowings
under the amended and restated loan agreement are contingent upon our
satisfying specific loan covenants, including financial covenants related to
minimum quick ratio, minimum liquidity coverage ratio, minimum tangible net
worth and maximum loss. As of March 31, 2000, we were in violation of the
maximum loss covenant for which we received a waiver from Imperial Bank in
April 2000. The amended and restated loan agreement prohibits us from paying
cash dividends. This loan facility expires in May 2001.

We expect to experience significant growth in our operating expenses in the
future, particularly in sales and marketing and research and development, in
order to execute our business plan. As a result, we anticipate that these
operating expenses, as well as planned capital expenditures, will constitute a
material use of cash resources. In addition, we may utilize cash resources to
fund acquisitions or investments in complementary businesses, technologies or
product lines. We believe that the net proceeds of this offering, existing cash
balances and funds generated from operations, if any, will be sufficient to
meet our operational and capital expenditure requirements for at least the next
18 months. We may find it necessary to obtain additional equity or debt
financing at a time when we are not profitable. In the event additional
financing is required, we may not be able to raise it on acceptable terms, if
at all.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards, or SFAS, No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133, as amended,
requires certain accounting and reporting standards for derivative financial
instruments and hedging activities and is effective for fiscal years beginning
after June 15, 2000. SFAS No. 133 will be effective for us on April 1, 2001.
Because we do not currently hold any derivative instruments and do not engage
in hedging activities, management does not believe that the adoption of this
statement will have a material impact on our financial position or results of
operations.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition," or SAB 101, which provides
guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the Securities and Exchange Commission. SAB 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. The Company
has retroactively adopted SAB 101 for all periods presented. The adoption of
SAB 101 had no impact on our consolidated financial statements.

In March 2000, the Emerging Issues Task Force or EITF, reached a consensus on
Issue 00-2, "Accounting for the Costs of Developing a Web Site" or EITF 00-2,
EITF 00-2 states that for specific web site development costs, the accounting
for such costs should be based

40
<PAGE>

generally on a model consistent with the American Institute of Certified Public
Accountants Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use", or SOP 98-1. All costs
incurred in the planning stage should be expensed as incurred. For the web site
application and development stage, all costs relating to software used to
operate a web site should be accounted for pursuant to SOP 98-1, unless a plan
exists to market the software externally, in which case the costs should be
accounted for pursuant to SFAS No. 86. Web site hosting fees should be expensed
over the period of benefit and web site graphics should be capitalized in
accordance with SOP 98-1. This consensus will be applicable to all web site
development costs incurred for the quarter beginning after June 30, 2000, even
for costs relating to projects that are in progress as of that date. We are
currently evaluating EITF 00-02 and do not expect that the abstract will have a
material effect on our financial position or results of operations.

In March 2000, the FASB issued Financial Accounting Standards Board
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation--an Interpretation of APB Opinion No. 25", or FIN No. 44. FIN No.
44 addresses the application of APB No. 25 to clarify, among other issues, (a)
the definition of employee for purposes of applying APB No. 25, (b) the
criteria for determining whether a plan qualifies as a noncompensatory plan,
(c) the accounting consequence of various modifications to the terms of a
previously fixed stock option or award, and (d) the accounting for an exchange
of stock compensation awards in a business combination. FIN No. 44 is effective
July 1, 2000, but certain conclusions cover specific events that occur after
either December 15, 1998, or January 12, 2000. To the extent FIN No. 44 covers
events occurring during the period after December 15, 1998, or January 12,
2000, but before the effective date of July 1, 2000, the effects of applying
the interpretation will recognized on a prospective basis from July 1, 2000. We
are currently evaluating FIN No. 44 and do not expect that it will have a
material effect on our financial position or results of operations.

Qualitative and Quantitative Disclosures about Market Risks

We are developing products in the United States and currently market our
products in North America, Europe and Taiwan. As a result, our financial
results could be affected by factors including changes in foreign currency
exchange rates or weak economic conditions in foreign markets. As all sales are
currently made in U.S. dollars, a strengthening of the dollar could make our
product less competitive in foreign markets. Our interest income is sensitive
to changes in the general level of U.S. interest rates, particularly since the
majority of our investments are in short-term instruments. However, due to the
short-term nature of our investments, we believe that there is no material risk
exposure. Therefore, no quantitative tabular disclosures are required.

41
<PAGE>

BUSINESS

Overview

We believe we are a leading provider of B2B software products that allow
companies to manage the internal and external sharing of information and the
execution of interactions among software applications and business partners
over the Internet. We refer to this exchange and management of information and
execution of business processes among groups of companies over the Internet as
B2B relationship management, or B2BRM. Our platform is based on the eXtensible
Markup Language, or XML, which is an industry recognized programming language
for exchanging information over the Internet. Our platform allows diverse
information systems and businesses to work together more effectively by
automating and synchronizing the flow of information and execution of
processes, regardless of size, sophistication or existing software
applications. Our top five customers by revenue during fiscal year 2000
included The North Face, Inc., Solectron Corporation, Amkor Technology, Inc.,
Taiwan Semiconductor Manufacturing Corporation and IBM--Storage Division.

Industry Background

Over the last decade, companies have attempted to gain competitive advantages
by investing in information technology with the goal of improving their
internal operations and efficiencies. With the emergence of the Internet as a
widely available communications infrastructure, companies now have the
opportunity to realize new competitive advantages by assembling highly
coordinated networks of business partners, including suppliers, customers and
distributors working together to rapidly bring goods and services to market.
Companies are becoming increasingly dependent on these cooperative
relationships with business partners to integrate supply chains, enable e-
commerce fulfillment and deploy electronic markets. The exchange of information
and the execution of business transactions among companies over the Internet is
referred to as B2B e-commerce. Forrester Research, an independent research
firm, estimates that B2B transactions will total approximately $406 billion in
2000. The Gartner Group, a provider of business technology research, consumer
and market intelligence, estimates that B2B transactions will grow to
approximately $7.3 trillion by 2004. These market estimates are based on a
number of assumptions, limitations and conditions which may not be realized and
the market for B2B translations may not be as large as these estimates.

B2B e-commerce involves multiple activities among diverse businesses, each
with different information technology infrastructures and applications, often
spanning multiple geographies and languages. Although the nature of B2B
environments may vary significantly depending on the collaborating businesses'
relationships with one another, B2B e-commerce can be categorized into three
main areas.

. Supply chain integration. Supply chain integration involves
interactions, such as collaborative planning and forecasting, design
collaboration, coordinated manufacturing and coordinated distribution
management, among partners in a supply chain. Supply chain integration
also occurs among business units within large, distributed companies.

. E-commerce fulfillment. Every company that sells products over the
Internet must coordinate with external organizations, such as suppliers
and distributors, for various activities such as order fulfillment,
catalog information and pricing updates, inventory and shipping
information. E-commerce fulfillment represents the integration and
coordination of a company's processes and existing software associated
with fulfilling online purchases.

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. Electronic markets. Electronic markets consist of on-line trading
exchanges, auctions and portals. Electronic markets are communities of
buyers and sellers that use the Internet as a medium to manage and
execute various interactions among community members, such as catalog
and pricing information management, order management and shipping
coordination. Electronic markets can be focused on the supply chain of a
single enterprise, the supply chain of a particular industry or a
specific function that is applicable to multiple industry segments.

Companies engaged in B2B e-commerce operate in an environment characterized
by rapid change and increasingly complex business transactions. The business
processes that define these transactions often span numerous software
applications within groups of Internet-enabled companies and their suppliers
and partners, which is sometimes referred to as an extended enterprise.
Integrating and managing information among the independent and interdependent
organizations contained within an extended enterprise present several
challenges.

. Independent information technology systems. The information systems
among diverse businesses within an extended enterprise may be composed
of a variety of information technology infrastructures and applications,
including enterprise resource planning, or ERP, advanced planning
systems, product data management, and web-based Intranet applications.
An effective B2B platform should support emerging standards and enable
companies to integrate disparate internal applications while offering
their business partners the ability to exchange information and conduct
transactions regardless of the installed technology infrastructure and
without substantial modification to their existing information systems.

. Diverse business processes. The logical and sequential flow of
information within a company and between internal systems to support
activities such as procurement, inventory management and distribution,
will vary based on a company's industry, size, sophistication, pre-
existing approaches and specific business relationships with external
partners. An effective B2B platform should enable real-time sharing of
information and provide the flexibility necessary to support a wide
variety of business processes ranging from simple procurement or catalog
management to complex business collaboration arrangements, without
requiring the user or its partners to substantially modify their
existing processes.

. Security, reliability and availability. Managing interactions among
multiple companies increases the exposure for breaches in security and
system outages. Secure and reliable communication pathways must exist
before any interaction among systems can take place. An effective B2B
platform should provide the security and reliability necessary to build
partnerships and other collaborative relationships, and manage these
relationships with the high degree of operational availability required.

. Evolving technology and business processes. B2B e-commerce is
characterized by constantly evolving information technology and business
processes. An effective B2B platform should provide the necessary
flexibility to efficiently accommodate evolving technology and future
system modifications enabling companies within an extended enterprise to
work together and evolve their relationships, while maintaining control
over their information technology environment.

We believe that current approaches to deliver B2B integration do not provide
a complete solution for enabling B2B e-commerce. First-generation efforts at
B2B e-commerce involve primarily point-to-point electronic communications
between two companies to streamline

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operations or engage in simple activities such as procurement. The B2B tools
used to accomplish these interactions, including facsimile and electronic data
interchange, or EDI, do not provide the adaptability required to efficiently
accommodate different independent information technology systems without
substantial modifications. Enterprise application integration products, or EAI,
are tools built to integrate applications inside a controlled environment and
lack the scalability to extend beyond point-to-point interactions required to
support more complex collaborative information sharing arrangements. Business
application suites, such as enterprise resource planning, or ERP, and supply
chain management systems, built to work within a single organization, are
typically unable to extend their business processes to work with other
businesses and do not adapt well to a constantly evolving technology
environment. Other attempts at developing a system from multiple point tools
have proved to be difficult, time-consuming and costly to maintain.

Business use of the Internet has increased the demands on B2B e-commerce
beyond the initial requirements of basic point-to-point data exchange and
connectivity. Today's B2B needs have evolved to include dynamic collaboration
and communications among interdependent groups of businesses and information
sharing within electronic markets to support activities ranging from sourcing
to procurement, collaborative design to logistics, inventory and credit to
returns management. Managing the flow of information and the execution of
business processes among companies, their people and diverse information
technology systems over the Internet is what we refer to as B2B relationship
management or B2BRM. B2BRM represents a major advancement from simple B2B
integration, which delivered largely point-to-point connectivity, to true
collaboration among business partners, supporting a more complete set of
interactions among companies.

Extricity Solution

Our platform for B2BRM enables companies to manage the internal and external
sharing of information and the execution of interactions among software
applications and business partners over the Internet. Our solution assists
companies in automating and synchronizing the flow of information and execution
of business processes needed to enable organizations to collaborate regardless
of size, sophistication or existing software applications. Businesses utilizing
our Extricity B2B platform are able to integrate internal systems, share
information and work together over the Internet without sacrificing existing
business practices or control over their environment. Our product family
combines, in a single solution, five elements essential for B2BRM.

Integration of independent information technology systems. Our B2B platform
allows companies to communicate internally among their existing software
applications and externally with their business partners regardless of existing
technology infrastructure. Our Extricity B2B platform supports emerging
technology standards, such as eXtensible Markup Language, or XML, hyperText
transfer protocol, or HTTP, and Java, as well as B2B process standards such as
RosettaNet. In contrast to past standards that specified how information of a
particular type can be exchanged from one organization to another, RosettaNet
and other B2B standards specify how conversational exchanges of multiple
messages can be coordinated between organizations. These conversational
exchanges are referred to as B2B processes. Our B2B products allow companies to
extend their investments in enterprise applications by integrating with a broad
range of applications and tools, including those offered by Baan, i2
Technology, IBM MQSeries, Oracle, PeopleSoft, SAP and TIBCO. This ability to
communicate effectively and integrate with existing information systems allows
our customers to optimize their internal efficiencies and external business
relationships.

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Extension of business processes. Our information technology architecture
provides the ability to extend a company's business processes to work with
those of its partners. Our Extricity B2B platform may be applied to support
simple data exchange and content aggregation as well as sophisticated process
execution enabling businesses to support a range of transactions from basic
procurement to complex business collaboration arrangements among numerous
partners. Our Extricity B2B platform supports full-service B2BRM by providing
flexibility and integration capabilities without requiring the user or its
business partners to substantially change their internal or external
information sharing processes.

Security, reliability and availability. Our Extricity B2B platform provides
the features necessary to implement B2BRM in a secure environment, such as
encryption, authorization, non-repudiation, guaranteed message delivery and
process recovery. Our software has been designed to provide a high performance,
highly available secure pathway capable of supporting the large transaction
volumes enabled by the Internet.

Adaptability to evolving technology and business processes. Our unique
architecture enables business partners to easily add or change processes or
applications without the need for complex programming or significant
interruption. In addition, our Extricity B2B platform enables our customers to
extend existing information technology investments in areas such as enterprise
and supply chain management applications, to work together more efficiently and
to support more complex and potentially valuable collaborative interactions
with business partners.

Market-focused solutions. Our products include market-focused solutions which
offer out-of-the-box templates tailored to the specific needs of customers in a
variety of industries and markets and provide significant time-to-market
benefits by reducing their deployment time and their implementation and
maintenance costs. These products also provide us with additional revenue
opportunities and further market differentiation from products offered by other
companies.

Extricity Strategy

Our objective is to be the leading platform provider for B2BRM powering the
interactions within B2B e-commerce environments. Key elements of our strategy
include:

Leverage and expand relationships. We intend to access new markets and
distribution channels by leveraging business relationships that we have formed
with leading resellers and system integrators such as Aspen Technology, CSC,
IBM, Manugistics, PricewaterhouseCoopers and Unitopia, our distributor located
in Taiwan. We believe that these reseller and system integrators provide
geographic coverage and domain expertise that should favorably introduce our
B2B platform in a variety of markets. We also intend to leverage our
relationships with leading consulting firms such as CSC, IBM Global Services
and PricewaterhouseCoopers to extend our reach and provide comprehensive
solutions to our customers. We believe that these firms' deployment expertise
and industry knowledge shortens implementation time and helps us to secure add-
on business.

Proliferate our products through network effect. As our existing customers
deploy our software throughout their extended enterprise, including their
supply chains and electronic markets, their customers, suppliers and partners
will be exposed to our solution and the functionality provided by our products.
We license our B2B software to leading companies such as IBM and Taiwan
Semiconductor Manufacturing Corporation that are sponsoring the integration of
their supply chain of partners and suppliers as well as other businesses that
act as intermediaries of new electronic markets. We believe that this exposure,
which allows non-customer participants in the supply chain to benefit from our
solution first-hand, creates a network effect that may accelerate industry
recognition and adoption of our products.

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Offer market-focused B2B solutions. We intend to leverage the expertise of
system integrators, customers and our knowledge of specific market segments to
build market-focused solutions. Market-focused solutions offer out-of-the box
solution templates tailored to the specific needs of customers in a variety of
industries and markets and provide significant time-to-market benefits by
reducing their deployment time and their implementation and maintenance costs.
This initiative also provides us with additional revenue opportunities and
further market differentiation of products.

Extend product and technology leadership. We intend to continue to introduce
enhancements to our existing products that enable our customers to efficiently
deploy effective B2BRM solutions. We also intend to extend our position as a
leader in technology by continuing to invest significantly in research and
development and by acquiring technologies through strategic acquisitions. We
have assembled a team of experienced developers and engineers with expertise in
Internet technology, e-commerce, B2B process engineering, and enterprise
software and have established a corporate culture designed to promote product
innovation with the highest quality standards.

Offer our customers multiple ways of accessing our technology. In addition to
perpetual licenses and renewal term licenses, we intend to provide our
customers with the ability to acquire our technology on a services contract
basis via an application service provider, or ASP, offering. This offering
would be made available to customers through our own ASP offering or through
third-party ASPs, who could host our software products. An ASP offering thereby
allows existing or potential customers to acquire our technology without having
to make substantial additional investments in hardware or support personnel.

Expand our international presence. We plan to aggressively pursue a global
distribution strategy that combines building a direct sales force with
leveraging our relationships with domestic and international system
integrators, resellers and consulting firms. We currently distribute products
through a distributor located in Taiwan and our wholly-owned subsidiaries
located in the U.K. and Germany. We plan to expand our international presence
by continuing to establish indirect sales channels in Europe and Asia.

Products

Our products provide a comprehensive platform for B2BRM to support all
aspects of rapidly deploying and easily managing an Internet-based business
partner environment. Our products integrate diverse internal applications and
support the full spectrum of external collaborative requirements among business
partners ranging from simple data exchange and content aggregation to the
execution of sophisticated B2BRM processes among companies in order to work
together more efficiently over the Internet. Our products are suitable for a
wide variety of industries and market segments, such as high-tech
manufacturing, automotive, healthcare, consumer packaged goods, distribution
and financial services. Our Extricity B2B Software Components include the
following:

. Extricity B2B Alliance Manager. Extricity Alliance Manager is our core
software server that supports the design and execution of business
processes and the flow of information, manages the integration of back-
end systems, and coordinates interactions with external organizations
and business partners. Our Alliance Manager provides a comprehensive
management environment for businesses and their partners by providing
real-time visibility and control over the flow of information and the
execution of business processes among groups of businesses and their
existing information technology systems. We also provide a special
packaging of multiple Extricity Alliance Manager products specifically
tailored for IBM MQSeries customers.

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. Extricity B2B Integration Adapters. Extricity Integration Adapters
include a series of products that act as a bridge between Extricity
Alliance Manager and targeted business applications, including
applications offered by Baan, i2 Technologies, Oracle, PeopleSoft and
SAP. Our products also include integration adapters for middleware,
which enable companies to extend investments in existing internal
middleware products, such as IBM MQSeries and TIBCO Software to work in
a B2B environment.

. Extricity B2B Partner Channels. Extricity Partner Channels coordinate
interactions with external organizations, trading partners or electronic
markets regardless of business size, sophistication or existing
applications. The Extricity Partner Channels enable customers to build
their B2B solutions as their needs grow by supporting a broad range of
collaborative interactions including file transfer, eXtensible Markup
Language, or XML, data exchange, electronic data interchange, web
browser interactions and RosettaNet through shared process execution.

. Extricity B2B Process Paks. Extricity Process Paks include a series of
software products that can be used out of the box or as a template to
meet an organization's specific needs. Our Process Paks are focused on
ensuring rapid deployment and easy management of a B2B environment and
can be customized to integrate with a variety of industries, markets and
processes, such as semiconductor, consumer packaged goods, logistics,
eRetailers, electronic markets and RosettaNet.

. Extricity B2B Partner Kit. Extricity Partner Kits consist of a
restricted access version of the Extricity Alliance Manager that allows
business partners to engage in the full capabilities of B2BRM with
hosting or sponsoring business organizations.

Our Extricity B2B Software Components may also be combined to form customized
software solutions tailored to a specific industry, market or process including
high-tech manufacturing, consumer packaged goods, logistics, electronic
markets, eRetailers and RosettaNet. These customized software solutions can be
supplemented by our pre-packaged Process Paks to address the specific
functionality and integration requirements of a specific business.

Product Graphic:

The far upper left hand side of the graphic reads in bold:
EXTRICITY B2B

The far lower left hand side of the graphic reads:
Internal

The upper center title of the graphic reads:
Extricity Alliance Manager

The lower center title of the graphic reads:
United Management Environment

On the far-left hand side of the graphic there are three vertical computer
servers. The top computer server is connected to the bottom computer server by
a line. To the left of the 3 vertical computer servers reads vertically:

Internal
Business
Applications
And Tools

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Each of the three computer servers is connected by a line to three small
rectangle boxes titled Adapters. The three adapters are connected to a large
square. In the middle of the large square, there is a circle which is labeled:
Process Manager. Within the square, there are thin lines, which flow from the
adapters to the Process Manager. Within the square, there are thin lines, which
flow from the Process Manager towards the Channels. In the top of the square,
there are four overlapping squares labeled: Process Paks. On the right hand
side of the square, four vertical rectangle boxes are attached and labeled:
Channels. Each vertical rectangular box is connected by a thin line to four
vertical pictures located on the right side of the graphic. Above the four
vertical pictures reads: External Business Partners. The top vertical picture
is a unisex stick figure representing a customer standing in front of a
computer screen. Below the customer is a picture of a building, which
represents a warehouse. Below the building is a picture of a large truck, which
represents distribution. Below the truck is a picture of a building, which
represents a supplier. Below the supplier is a picture of a circle with people
and buildings around the perimeter, which represents a net market.

Service and Support

Our Client Services organization provides a complete set of services focused
on ensuring the success of our customers and partners. The organization is
comprised of three distinct groups consisting of consulting, training and
support.

Consulting. Our consulting organization assists customers with all aspects of
implementing the Extricity B2B products. From solution architecture to program
and project management to implementation services, our consulting team provides
the skills and experience required to ensure the success of our customers'
Extricity B2B product implementation projects. In addition to our personnel
located in the United States and Europe, our consulting team works with a
number of system integrator partners to provide the geographic coverage and
resources for the global marketplace in which our customers operate. Finally,
as a means of leveraging our internal knowledge to partners and customers and
ensuring consistent, high quality Extricity B2B product deployments, we have
invested and will continue to invest in the area of practice development. Such
efforts include continual refinement of our consulting methodology and
implementation guidelines.

Training. Our training organization provides a comprehensive training program
for our customers and partners as well as for our employees. Our curriculum
includes product-focused training and implementation training courses.

Support. Our support organization is founded on the premises that our
customers and resellers are using our products in mission-critical applications
and that our ability to provide high quality maintenance and support services
is one of the factors that distinguishes us from our competition. We provide
support to customers and resellers on a round-the-clock basis.

Technology

The Extricity B2B platform provides a broad spectrum of capabilities to
support information coordination among separate organizations. These
capabilities range from the ability to support simple data exchange between two
partners to complex collaboration processes among many partners. Collaboration
can include conversational interactions between organizations that involve
multi-step interdependent communications, exception handling and other feedback
mechanisms. In addition, the flexibility provided by the Extricity B2B platform
enables our customers to extend the platform to support B2B application areas
such as procurement, collaborative design and planning, logistics management,
catalog information management and returns management. Our Extricity B2B
platform supports a

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<PAGE>

process-based flow of mission-critical information that enables organizations
to collaborate with each other and achieve operational efficiencies. In
addition, our platform allows companies to change their internal processes or
information technology environments regardless of size, sophistication or
existing software applications.

Extricity B2B software is written in the Java programming language and makes
extensive use of the eXtensible Markup Language, or XML. The use of Java
provides several advantages including enhanced operating system and hardware
platform portability and access to a growing list of Java language features.
The eXtensible Markup Language is used as a base representation language for
data and process definitions managed within Extricity B2B software products.

Extricity B2B product architecture consists of four major elements:

. Process Engine. The process engine is the heart of the Extricity B2B
platform and controls the execution of processes running in a server.
Our process engine distinguishes between external communications, or
public processes, and internal communications, or private processes.
Public processes govern interactions between organizations and can
involve any number of partners. Public processes can represent custom
processes created by users of our software or imported standards-based
processes such as RosettaNet partner interface processes. Private
processes govern interactions within organizations that use the
Extricity B2B platform and serve as the means by which our software
implementation executes its associated steps in a public process.
Private processes specify various types of dependent actions such as
calls to application systems via Adapters, data transformation actions,
email notifications, sub-process calls, script block executions and user
approval steps.

. Integration Adapters. Adapters act as the bridge between Extricity B2B
processes and targeted business applications. Each adapter exposes a
specific set of application functionality. An Adapter Manager manages
and provides services to a set of Adapters and serves as the internal
communications interface to the process engine. Key functions performed
by the Adapter Manager include management of Adapter
install/uninstall/start/stop as well checkpoint, logging and queuing
services for Adapters.

. Channels. Channels are the mechanism by which the Extricity B2B platform
manages multiple external communication requirements such as electronic
data interchange, RosettaNet and other combinations of standards-based
and ad hoc agreements. Channels isolate communication details such as
network protocol support, security arrangements, and data format
conversion from the other components of the system. A Channel Manager
manages and provides execution services to installed channels.

. Management Framework. The Extricity B2B product family is built on a
common management framework that simplifies control of system
components, information and behaviors. Key functions supported by the
framework include channel management, adapter management, partner
management, process definition and business object definition management
and user management.

The Extricity B2B products contain a variety of features to maximize
reliability, including assured message delivery, mutually assured process
completion, communications service failover, such as Internet connection to
telephone dial-up, process check-point and failure recovery capabilities,
support for high availability hardware/software configurations, and
comprehensive logging and audit capabilities. The Extricity B2B platform
provides comprehensive security management capabilities to address a broad
range of security issues

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including external communications security, systems security, user access
control and application security management. External communications support
includes X.509 certificate, secure socket layer, or SSL, and S/MIME. Specific
support is provided for non-repudiation of origin and delivery of individual
messages. The Extricity B2B Alliance Manager can be configured to operate in a
variety of firewall environments and to use a variety of cryptographic
algorithms.

Technology Graphic:

The graphic is rectangular in shape. The far-left hand side of the graphic
reads vertically:
Integration Adapters

On the far-left hand side of the graphic are 9 vertical thin rectangles. These
rectangles read top to bottom:
SAP Adapter
Baan Adapter
Oracle Adapter
PeopleSoft Adapter
i2Adapter
Tibco Adapter
IBM MQSeries
Custom Developed
More...

These 9 thin rectangles are connected to a large square. The far-left hand side
of the square reads vertically: Adapter Manager. Inside the large square are
two boxes. The top box reads: B2B Process Paks. Underneath the B2B Process Pak
title reads: RosettaNet, eRetailers, Net Markets, Semi Conductor, Logistics
Services, Consumer Packaged Goods. The bottom box reads: Process Manager. The
far right hand side of the square reads vertically: Channel Manager. The far
right hand side of the graphic contains 7 vertical thin rectangles which read
from top to bottom:
Extricity Partner Channel
WebAgent Channel
Web App Channel
EDI Channel
RosettaNet Channel
Custom Developed Channel
More...
These 7 vertical thin lines are connected to the large square.

Customers

We provide our products and services to customers worldwide. Customers
utilize our software either as a direct licensee or as a sublicensee, or as a
customer, supplier or vendor along the extended enterprise of one of our direct
licensees. In fiscal year 2000, The North Face, Inc. accounted for
approximately 14.5% of our total revenues and was the only customer which
represented more than 10% of our total revenues. In fiscal year 1999, Ingram
Micro, Inc., The North Face, Inc., Solectron Corporation and Taiwan
Semiconductor Manufacturing Corporation each represented more than 10% of our
total revenues. In fiscal year 1998, Adaptec, Inc. and Taiwan Semiconductor
Manufacturing Corporation each represented more than 10% of our total revenues.

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The following is a list of current direct licensees of our products from whom
we have received consent to name them in this prospectus.

<TABLE>
<S> <C>
Supply Chain
Adaptec, Inc. IBM
Advanced Micro Devices Jabil Circuit Inc.
Amkor Technology, Inc. Motorola SPS
Arrow Electronics, Inc. NABS, Inc.
Aspen Technology, Inc. Solectron Corporation
Bourns, Inc. Stratus Computer, Inc.
Taiwan Semiconductor Manufacturing Corporation
eBusiness
Mary Kay, Inc.
Softlab Limited, a BMW
Corporation

Trading Exchanges/Electronic Markets
Aerospan.com MetaPack Limited
Edaflow Corporation Need2Buy.com, Inc.
GOTSchool, Inc. RightFreight.com, Inc.
MarketFusion, Inc.
</TABLE>

As of June 30, 2000, we have 49 licensees of our software, of which 14 are
sublicensees. As of June 30, 2000, we have recognized license fees from 34
licensees.

Customer Case Studies

Enabling Supply Chain Integration--Solectron Corporation

Solectron is the world's largest technology contract manufacturing company
and two time winner of the Malcolm Baldridge award for its quality standards.
As a contract manufacturer, Solectron must tightly integrate its internal
operations internally with those of its customers. In November 1998, Solectron
selected the Extricity B2B products as its business-to-business integration
platform. As of March 31, 2000, Solectron has deployed Extricity B2B products
internally to manage the integration between its enterprise resource planning,
manufacturing execution, and warehouse management systems and externally with
several of its key customers to automate the complex processes required to
support an outsourced manufacturing model. Such processes include managing
sales orders and acknowledgements, bills of materials, entitlement data, item
master requests, work-in-progress status, inventory availability, and shipment
notifications between Solectron and its customers. For some external
interactions, Solectron has utilized the Extricity Partner Channel for
RosettaNet to communicate with several of its partners. By utilizing the
Extricity B2B products to automate these intercompany interactions over the
Internet, Solectron has removed the inefficiencies inherent historically when
integrating companies and enabled its customers to focus on their own core
competencies while leveraging Solectron's manufacturing competency. As a
result, Solectron and its customers have established new business models and
created competitive advantages.

Enabling Electronic Markets--RightFreight.com

RightFreight.com, a leading provider of logistics management solutions,
operates two global airfreight service exchanges. These exchanges enable air
carriers to provide capacity information and accept reservation bids from
freight forwarders and allow shippers to request

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transportation service quotes from freight forwarders. As is typical of
electronic market makers, these exchanges must be able to efficiently and
automatically handle the dynamic interactions between RightFreight and its
exchange members. RightFreight plans to implement Extricity B2B for its
electronic markets as a B2B platform to integrate the backend auction, web and
logistics management applications of the exchanges, manage the processes with
participants in the exchanges and communicate through various modes of
interaction, from simple data exchange to sophisticated business processes that
integrate RightFreight's systems with those of its partners. In addition to
integrating with participants in its own exchanges, RightFreight plans to use
the Extricity B2B electronic markets platform to integrate with the leading
ground-based freight exchange, thus providing a multi-modal transportation and
logistics service solution. Utilizing the Extricity B2B platform, RightFreight
expects to provide an efficient, end-to-end logistics management solution that
reduces transportation search costs, accelerates logistics decision-making and
improves communication among all parties in a supply chain.

Enabling E-Commerce Fulfillment--Mary Kay, Inc.

Mary Kay is a leading provider of facial skin care and color cosmetics in the
United States. As part of its strategic e-business initiative, Mary Kay has
selected Extricity as its B2B platform to integrate with its supply chain
partners. The initial deployment of Extricity B2B products will be focused on
integrating Mary Kay's internal inventory and order management applications
with those of its third-party fulfillment centers. Through automated processes
tied directly into back-end systems at Mary Kay and its partners, Mary Kay will
be able to provide new product information to track inventory levels at, share
order information with, and coordinate shipments with its distribution
partners. As a result, Mary Kay will be able to fulfill more efficiently the
orders from its approximately 500,000 independent Mary Kay Beauty Consultants
and from its MyMK.com e-commerce website. In addition to integrating with its
distribution partners, Mary Kay's long term vision is to extend its Extricity
infrastructure to integrate with its suppliers and its third-party logistics
providers such that they can further reduce inventory levels throughout the
supply chain while fulfilling orders with shorter lead times.

Business Relationships

To enhance the productivity of our sales and service organizations, we have
established business relationships with resellers and system integrators.

License Agreement with IBM.

In August 2000, we entered into an OEM license agreement with IBM under which
IBM will include Extricity software in its B2B software platform, WebSphere
Business-to-Business Integrator. Our software is expected to provide the IBM
WebSphere platform with a collaborative, web-based, business-process-oriented
B2B application solution. Under the terms of the agreement, we granted IBM a
non-exclusive, non-transferable, world-wide license to distribute certain
Extricity software products as IBM branded products through IBM's direct and
indirect sales channels. We maintain the ability to distribute additional
Extricity branded software products to current and future WebSphere customers.
This agreement is in addition to our existing relationships with IBM as a
reseller and customer of our software products.

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generated from the sale of IBM products that incorporate licensed Extricity
software. Although the royalties we receive will be based on future IBM
revenues and are not capped, IBM will make quarterly, non-refundable royalty
pre-payments totaling $24.0 million over the initial term of the agreement. The
source code and related documentation for the licensed software will be
maintained in escrow and will be released to IBM only if:

(1) IBM terminates the license agreement for cause,

(2) we cease to exist and there is no surviving entity which continues
substantially all of Extricity's business related to the licensed software
or

(3) there is a change in control affecting us and IBM is permitted to
terminate the license agreement on the basis of the change in control.

Upon the release of the escrowed materials for termination of the agreement by
IBM for cause or if we cease to exist, IBM will be granted a non-exclusive,
non-transferable, world-wide, perpetual, irrevocable, royalty-free license to
use, distribute and sublicense the escrowed materials and derivative works
based on the derivative works. Upon the release of the escrowed materials after
a change in control affecting us, IBM will be granted a non-exclusive, non-
transferable, world-wide license for 24 months to use the escrowed materials to
continue to use, distribute and sublicense the licensed software in IBM
products and to provide support to IBM's customers, provided that IBM continues
to pay the applicable royalty amounts. If we receive an offer which if accepted
would result in a change in control, we must give IBM notice of our intention
to proceed with that transaction. Within 48 hours of receipt of the notice, IBM
may submit a proposal of its own to us. If we reject IBM's proposal within 48
hours after receiving it, we have 5 days to determine if the change in control
is grounds for termination of the agreement and release of the escrowed
materials.

Resellers. In addition to our direct sales force, we also distribute our
products through various reseller organizations that enable us to leverage our
sales resources and provide solutions targeted to specific markets. Other
resellers provide sales support coverage in specific geographical areas. We
intend to leverage industry expertise of these organizations to deliver
solutions that accelerate our penetration into key markets. Aspen Technologies,
Inc. is the leading provider of software for process design and plant control,
management and optimization, business integration and supply chain solutions to
end-user customers in various process industries worldwide. We have a reseller
relationship with Manugistics, a leading provider of solutions for customer-
centric supply chain optimization. IBM is a reseller of the entire Extricity
B2B product family through its direct and indirect sales channels. While cross-
industry in scope, IBM's initial efforts will focus on high-tech, automotive,
aerospace, finance and electronic market segments. In addition, CSC, while a
system integration firm, has the ability to resell our Extricity B2B products
as a part of their net market offerings. Unitopia Corporation is a distributor
for our products in Taiwan, mainland China, Singapore, Hong Kong, the
Philippines, Japan, Korea and Malaysia and provides sales, implementation and
support services.

System Integrators and Consulting Firms. We have established strategic
relationships with a number of major system integrators and consulting firms
including CSC, IBM Global Services and PricewaterhouseCoopers. Many of these
system integrators and consulting firms have deep relationships across a broad
range of enterprise customers and our relationships with these system
integrators often enable us to reach key decision makers within these
enterprises more quickly. The significant financial and technical resources of
many of our system integrators can help us deliver large, mission-critical
engagements. Working with system integrators and consulting firms enables us to
leverage our service organization and shorten solution implementation time. In
addition, by leveraging the domain expertise of our

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<PAGE>

system integrators and consulting firms, we can more effectively and rapidly
build custom templates which codify business process solutions for vertical
markets.

Sales and Marketing

We license our products and sell services through both direct and reseller
sales channels, including the selling assistance and support efforts of system
integrators. As of September 1, 2000, our sales force consisted of 84 sales
professionals and technical sales engineers located in our headquarters in
Redwood Shores, California and in regional sales locations in the greater
metropolitan areas of Atlanta, Boston, Chicago, Cincinnati, Dallas, Los
Angeles, New York, Washington, D.C., Toronto, Canada, London, England and
Cologne, Germany. We plan to significantly expand the size of both our direct
and reseller sales organizations and to establish additional sales offices
domestically and internationally.

We have expanded the sales and licensing of our products through original
equipment manufacturers, or OEMs, resellers and systems integrators, including
those described above. These organizations provide solutions targeted to
specific market segments or geographical areas. We believe that working with
these organizations will provide us with increased sales force leverage as well
as the ability to sell into vertical markets and geographical areas that we
would otherwise be unable to penetrate.

Our marketing efforts are focused on developing greater awareness among
target customers for the Extricity B2B products and the benefits we offer our
customers. We market our products and services through targeted events
including tradeshows, conferences and seminars. We also regularly promote our
products through a variety of public relations activities and industry analyst
briefings, and our executives are frequent speakers at industry conferences and
forums. We have developed a wide range of collateral materials and sales and
promotional tools, including product brochures, data sheets, technical and
business white papers, case studies and press releases.

Research and Development

We believe that our future success will depend in large part upon our ability
to enhance our Extricity B2B suite of products, develop new products and
capitalize on our technological leadership in the provision of B2B solutions.
Since early 1996, we have devoted a significant portion of our resources to
product engineering. We plan to continue to invest substantial resources in
research and development activities in support of both product maintenance and
expansion.

Our research and development expenses were approximately $4.3 million for
fiscal year 1999 and approximately $7.2 million for fiscal year 2000 and we
expect to continue to invest significantly in research and development in the
future. We have actively recruited experienced technical leadership in the
areas of object oriented analysis and design, Java, eXtensible Markup Language,
or XML, Internet and network security programming, application integration and
test automation.

The market for our products and services is characterized by rapid
technological change, frequent new product introductions and enhancements,
evolving industry standards, and rapidly changing customer requirements. The
introduction of products incorporating new technologies and the emergence of
new industry standards could render existing products obsolete and
unmarketable. Our future success will depend in part on our ability to
anticipate changes, enhance our current products, develop and introduce new
products that keep pace with technological advancements and address the
increasingly sophisticated needs of our customers.

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<PAGE>

Competition

The market for our products is competitive, evolving and subject to rapid
technological change. We expect competition to increase in the future which may
result in price reductions, reduced gross margins and loss of market share, any
one of which could seriously harm our business. Today, our primary competition
includes vendors providing their own B2B solutions and companies attempting to
build B2B e-commerce solutions through internal information technology
development. We believe that we do not currently face any single direct
competitor. There are, however, many vendors in related markets that address
particular aspects of the features and functions that we provide. Today, we
face competition from:

. internal enterprise application integration software vendors, including
Active Software, Software Technologies Inc., STC TIBCO Software and
Vitria;

. proprietary electronic data exchange vendors, such as GE Information
Systems Harbinger, Sterling Commerce, Netfish and webMethods; and

. supply chain vendors, such as i2 Technologies.

In the future, it is possible that we could face competition from vendors in
complementary markets, including enterprise resource planning vendors such as
SAP, Oracle, PeopleSoft, Baan, IBM, Microsoft, OnDisplay, Viacore and other
vendors such as Ariba and Commerce One, and other large enterprise software
companies such as Siebel Systems.

We believe that the principal competitive factors in our market include: the
breadth and depth of solutions; product quality and performance; the ability of
products to operate between multiple businesses with multiple software
applications; ability to easily implement and manage solutions; customer
service; relationships with system integrators; establishment of a significant
base of reference customers in production with measurable benefits; strength
and differentiation of core technology and product price.

Although we believe that our solutions compete favorably with respect to
these factors, our market is relatively new and is evolving rapidly. In the
past, we have lost potential customers to competitors for various reasons,
including lower prices for less complex implementations and lack of
availability on specific Unix platforms. We may not be able to maintain our
competitive position against current and potential competitors, especially
those with significantly greater resources.

Proprietary Rights

Our success and ability to compete are substantially dependent on our
internally developed technology and software applications. We have filed one
patent application in the United States and in 12 foreign countries with
respect to several aspects of our architecture for B2BRM. While we rely on
patent, trademark, service mark, copyright and trade secret laws and
restrictions in the United States and other jurisdictions, together with
contractual restrictions, to protect our proprietary rights, such patent,
trademark, copyright and trade secret protection may not be available in every
country in which we distribute our products.

We have entered into confidentiality and invention assignment agreements with
our employees and contractors, and nondisclosure agreements with our customers,
suppliers and strategic partners in order to limit access to and distribution
and disclosure of our proprietary information. However, despite our efforts to
protect our proprietary rights, unauthorized parties may attempt to copy or
otherwise obtain and use our products or technology or to develop products with
the same functionality as our products. Policing unauthorized use is difficult,
and we cannot be certain that the steps we have taken will prevent
misappropriation

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<PAGE>

of our technology, particularly in foreign jurisdictions, where the laws may
provide less protection of proprietary rights than do the laws of the United
States.

Substantial litigation regarding intellectual property rights exists in the
software industry. We expect that software products may increasingly be subject
to third-party infringement
claims as the number of competitors supplying advanced e-commerce applications
and solutions grows, and the functionality in other industry segments overlaps.
Some of our competitors may have filed or intend to file patent applications
covering aspects of their technology that they claim our technology infringes.
We cannot be certain that any of our competitors will not make a claim of
infringement against us with respect to our products and technology. Any such
claims could result in litigation subjecting us to significant liability for
damages, or in invalidation of our proprietary rights. Any such claims, with or
without merit, could be time consuming to defend, result in costly litigation,
divert management's attention and resources, or require us to enter into
royalty or licensing agreements.

Employees

As of September 1, 2000, we employed approximately 264 full time employees,
of which 107 were engaged in sales and marketing, 81 were engaged in research
and development, 60 were engaged in client services, and 16 were engaged in
general and administrative functions. None of our employees are represented by
a labor union and we have never had a work stoppage. We believe our relations
with our employees are good.

Properties

In October 2000, we will move our principal and executive offices to 1 Davis
Drive, Belmont, California 94002 where we will sub-lease approximately 70,000
square feet under an office lease expiring 2006. Our principal and executive
offices are currently located at 555 Twin Dolphin Drive, Redwood Shores,
California 94065, where we lease approximately 25,000 square feet under office
leases expiring in October 2000. In addition, we have leased space in executive
suites in Boston, Chicago, Cincinnati, Dallas, New York, Washington D.C.,
Toronto, Canada, London, England and Cologne, Germany, and in Atlanta, we have
sub-leased approximately 5,300 square feet under an office lease expiring in
2005.

Legal Proceedings

We are not currently a party to any material legal proceedings.

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<PAGE>

MANAGEMENT

The names, ages and positions of our directors and executive officers as of
June 30, 2000 are as follows:

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Barry M. Ariko......... 54 Chairman of the Board, Chief Executive Officer and
President
Stephen J. Albertolle.. 44 Vice President of Finance and Administration,
Chief Financial Officer and Secretary
David Cope............. 39 Vice President of Marketing
Laura Ferrell.......... 38 Vice President of Engineering
Richard Fitchen........ 36 Vice President of Client Services
James Lochry........... 46 Vice President of Worldwide Sales
Gregory Olsen.......... 38 Vice President and Chief Technology Officer
Nicole Ward Eagan...... 35 Vice President of Business Development
Tania Amochaev......... 51 Director
Bruce Bourbon.......... 58 Director
B.J. Cassin............ 66 Director
Neal Dempsey........... 59 Director
Kenneth Ross........... 57 Director
</TABLE>

Executive Officers and Board Members

Barry M. Ariko has served as our President and Chief Executive Officer since
February 2000 and as Chairman of the Board since March 2000. From March 1999 to
January 2000, Mr. Ariko was a Senior Vice President at America Online, Inc.,
where he had responsibility for the Netscape Enterprise Group. Prior to the
acquisition of Netscape Communications Corp. by AOL in March 1999, Mr. Ariko
served as Executive Vice-President and Chief Operating Officer of Netscape
Communications Corp. From 1994 to August 1998, Mr. Ariko served as Executive
Vice President and as a member of the Executive Management Committee at Oracle
Corp. Mr. Ariko currently serves as a director of Autonomy Corporation PLC and
on the boards of directors of a number of private companies. Mr. Ariko holds a
B.S. in Management from Golden Gate University and completed the Executive
Management Program at Northwestern University's Kellogg School of Business.

Stephen J. Albertolle has served as our Vice President of Finance and
Administration and Chief Financial Officer since March 1999 and as our
Secretary since February 2000. From February 1995 to March 1999, Mr. Albertolle
was employed at PeopleSoft, Inc. where he served as Vice President and
Corporate Controller from February 1995 to November 1997 and Vice President of
Business Operations from November 1997 to March 1999. From December 1993 until
February 1995, Mr. Albertolle served as Vice President and Corporate Controller
at OpenVision Technologies, Inc. Mr. Albertolle holds a B.S. from the
University of California, Berkeley.

David Cope has served as our Vice President of Marketing since May 1998. From
March 1997 to January 1998, Mr. Cope served as Vice President of Marketing at
Marimba, Inc. From January 1996 to April 1997, Mr. Cope served as Vice
President of Marketing and Operations and General Manager of DataBlade Business
Development at Illustra/Informix. From July 1981 to January 1996, Mr. Cope
served as Worldwide Executive for IBM's Electronics Industry Sales and
Marketing Organization. Mr. Cope holds a B.A. from San Jose State University
and attended Harvard Business School's Advanced Management Program.

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<PAGE>

Laura Ferrell has served as our Vice President of Engineering since October
1996. From November 1992 to September 1996, Ms. Ferrell served as Senior
Consultant to Sun Microsystems working on their global deployment of Oracle
Applications. From January 1989 to May 1992, Ms. Ferrell was a Director in the
Applications Division at Oracle Corporation. Ms. Ferrell holds a B.A. in
Sociology from Stanford University.

Richard Fitchen has served as our Vice President of Client Services since
January 1997. From May 1993 to January 1997, Mr. Fitchen served as Director of
Consulting at CAP Gemini, where he led large-scale ERP implementations and
developed the company's ERP implementation methodology. Mr. Fitchen holds a
B.S. in Engineering from University of California, Berkeley, and an M.B.A. from
the University of Michigan.

James Lochry has served as our Vice President of Sales since February 1999.
From August 1996 to February 1999, Mr. Lochry served as the Vice President of
Worldwide Sales for Versant Corporation. From June 1995 to August 1996, Mr.
Lochry served as Vice President of North American Sales at n-Cube Corporation.
Mr. Lochry holds a B.A. from Southern Methodist University and an M.B.A. from
the University of Detroit.

Gregory Olsen, a co-founder of Extricity, has served as our Vice President
and Chief Technology Officer since June 1996. From June 1995 to June 1996, Dr.
Olsen served as Technical Manager at the Internet Commerce Division of
Verifone, formerly EIT. Dr. Olsen holds a Ph.D. in Mechanical Engineering and a
M.S. in Computer Science from Stanford University, as well as a M.S. and B.S.
in Mechanical Engineering from the University of California, Santa Barbara.

Nicole Ward Eagan has served as our Vice President of Business Development
since May 2000. From May 1996 to May 2000, Ms. Eagan was employed at E-Stamp
Corporation where she most recently served as Senior Vice President of Business
Development and Strategy. From July 1993 to May 1996, Ms. Eagan was employed at
Oracle Corporation where she most recently served as Director of Strategic
Marketing. Ms. Eagan holds a B.S. in Marketing from Montclair University.

Tania Amochaev has served on our Board of Directors since September 2000. Ms.
Amochaev has been retired from full time executive management since 1997. She
currently serves on the boards of directors of QRS Corporation, Symantec
Corporation and Walker Interactive, as well as on the boards of directors of
several private companies. From 1992 to 1997, Ms. Amochaev served as President
of QRS Corporation and as its Chief Executive Officer from 1993 to 1997. Ms.
Amochaev holds a B.A. in Mathematics from University of California, Berkeley,
and a M.S. in Management from the Stanford Graduate School of Business.

Bruce Bourbon has served on our Board of Directors since April 1996. Mr.
Bourbon has been a general partner at Telos Venture Partners, L.P. since
December 1995. He currently serves on the board of directors of Preview
Systems, Inc., as well as on the boards of directors of several private
companies. Mr. Bourbon holds a B.S.E.E. from California State Polytechnic
University and a M.S.E.E. from the University of California, Los Angeles.

B.J. Cassin has served on our Board of Directors since April 1996. Mr. Cassin
has been a private venture capitalist since 1979. Mr. Cassin currently serves
on the boards of directors of Cerus Corporation and Symphonix Devices, Inc., as
well as on the boards of directors of several private companies. Mr. Cassin
holds an A.B. in Economics from Holy Cross University.

Neal Dempsey has served on our Board of Directors since May 1996. Mr. Dempsey
is currently a General Partner of Bay Partners, a venture capital firm, which
he joined in 1989.

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<PAGE>

Prior to joining Bay Partners, Mr. Dempsey acted in various management
positions, including Chief Executive Officer of Qubix Graphics Systems, Chief
Executive of Envision Technology, and senior management positions with Zentec
and Harris Corporation. Mr. Dempsey currently serves on the board of directors
of Brocade Communications Systems, Inc. as well as on the boards of directors
of several private companies. Mr. Dempsey holds a B.A. in Business from the
University of Washington.

Kenneth Ross, a co-founder of Extricity, has served on our Board of Directors
since April 1996. Mr. Ross is currently a partner of RRE Ventures, a venture
capital firm, which he joined in July 2000. Mr. Ross served as our President
and Chief Executive Officer from April 1996 to February 2000 and as Chairman of
the Board from February 2000 to March 2000. From 1991 to 1995, Mr. Ross served
as President and Chief Executive Officer of Pillar Software, an enterprise
budgeting software company. From May 1995 to April 1996, Mr. Ross was an
independent consultant. Mr. Ross currently serves on the boards of directors of
a number of private companies. Mr. Ross holds a B.S. in Industrial Management
from the Massachusetts Institute of Technology and a M.B.A. from Stanford
University.

Composition of the Board of Directors

Upon completion of this offering, the terms of office of the members of the
Board of Directors will be divided into three classes: Class I, whose term will
expire at the annual meeting of stockholders to be held in 2001; Class II,
whose term will expire at the annual meeting of stockholders to be held in
2002; and Class III, whose term will expire at the annual meeting of
stockholders to be held in 2003. The Class I directors are Messrs. Ross and
Cassin, the Class II directors are Messrs. Dempsey and Bourbon, and the Class
III directors are Mr. Ariko and Ms. Amochaev. At each annual meeting of
directors after the initial classification, the successors to directors whose
term will then expire will be elected to serve a term from the time of election
and qualification until the third annual meeting following their election. Our
non-employee directors devote the time to our affairs that is necessary to
perform their duties. There are no family relationships among any of our
directors, officers or key employees.

Compensation of Directors

Our directors do not receive compensation for their services as directors or
members of committees of the board of directors.

Board Committees

We have established an audit committee and a compensation committee.

The audit committee consists of B.J. Cassin, Neal Dempsey and Bruce Bourbon.
The audit committee makes recommendations to the board of directors regarding
the selection of independent auditors, reviews the results and the scope of
audit and other services provided by our independent auditors and reviews and
evaluates our internal controls.

The compensation committee consists of B.J. Cassin, Neal Dempsey and Bruce
Bourbon. The compensation committee reviews and makes recommendations regarding
our stock plans and makes decisions concerning the compensation and benefits
for our executive officers.

Compensation Committee Interlocks and Insider Participation

None of the members of the compensation committee has at any time since our
formation been one of our officers or employees. No executive officer currently
serves or in the past has served as a member of the board of directors or
compensation committee of any entity that

59
<PAGE>

has one or more executive officers serving as a member of our board of
directors or the compensation committee. Before the creation of our
compensation committee, all compensation decisions were made by our full board
of directors.

Employment Contracts, Termination of Employment and Change of Control
Arrangements

Employment Contracts. None of the executive officers has an employment
agreement with us. These officers may resign or we may terminate their
employment at any time.

Change in Control Arrangements. We have entered into employment arrangements
with our senior management executives which provide for the immediate vesting
of 50% of all unvested shares or options in the event of either:

. a merger or acquisition resulting in our shareholders owning less than a
majority of the surviving corporation, or

. the sale of all or substantially of our assets.

In February 2000, we extended an employment offer to Barry M. Ariko, our
chairman, chief executive officer and president, which provides for immediate
vesting of 50% of all of his unvested shares or options owned immediately prior
to the consummation of a merger or acquisition resulting in a change in control
or the sale of all or substantially all of Extricity's assets. This offer
letter also provides that, in the event of a change in control and termination
of Mr. Ariko's employment, other than for cause or as a result of constructive
termination, 100% of Mr. Ariko's unvested shares or options will immediately
vest. In addition, the offer letter provided Mr. Ariko with anti-dilution
protection such that he would receive additional options to enable him to
achieve a 7% equity interest in Extricity, on a fully diluted basis, following
an equity financing prior to our initial public offering. Following the closing
of the sale of Series F preferred stock, we granted Mr. Ariko an option to
purchase 789,736 shares of common stock at an exercise price of $5.48 per
share. In April 2000, Mr. Ariko's offer letter was amended to terminate his
anti-dilution protection following the issuance of additional options pursuant
to the Series F preferred stock financing.

In May 1998, we entered into an arrangement with David Cope, our vice
president of marketing, which provides for immediate vesting of 50% of all of
his unvested shares or options owned immediately prior to the consummation of a
merger or acquisition resulting in a change in control or a sale of all or
substantially all of Extricity's assets. In addition, in the event of a change
in control Mr. Cope will receive an additional year of vesting in any unvested
shares or options if his employment is terminated or if he voluntarily
terminates his employment because his position has suffered a significant
decrease in either responsibility, salary or reporting position.

Executive Officers

Our executive officers are appointed by our Board of Directors and serve
until their successors are elected or appointed.

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<PAGE>

Executive Compensation

The following table sets forth information concerning the compensation paid
during the fiscal year ended March 31, 2000, to all individuals serving as our
president and chief executive officer, and each of our four other most highly
compensated officers whose total annual salary and bonus exceeded $100,000 for
the period.

Summary Compensation Table

<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------------ ------------
Number of
Securities
Other Annual Underlying
Name and Principal Position Salary Compensation(1) Options
--------------------------- -------- --------------- ------------
<S> <C> <C> <C>
Barry M. Ariko.......................... $ 34,103 $ -- 1,922,932
Chairman of the Board, Chief Executive
Officer and President (began February
2000)
Kenneth Ross............................ 180,000 40,000 --
President and Chief Executive Officer
(ended February 2000)
James Lochry............................ 177,019 41,827 50,000
Vice President of Worldwide Sales
David Cope.............................. 175,000 36,384 40,000
Vice President of Marketing
Laura Ferrell........................... 161,314 39,510 50,000
Vice President of Engineering
Richard Fitchen......................... 148,050 26,880 40,000
Vice President of Client Services
</TABLE>
--------
(1) Other Annual Compensation refers to year-end bonuses.

Option Grants

The following table sets forth information concerning stock options granted
to the executive officers named in the summary compensation table above who
received stock options during the fiscal year ended March 31, 2000. Except for
the options granted to Barry M. Ariko, all of these options were granted under
our 1996 Stock Option Plan. Options granted under the 1996 Stock Option Plan
generally vest over a four-year period with 25% of the shares vesting on the
first anniversary of the employee's start date and the remaining shares vesting
in equal monthly installments over the next 36 months. Mr. Ariko's options,
which were granted outside the 1996 Stock Option Plan, vest over a four-year
period with 12.5% of the shares vesting on the six-month anniversary of his
start date and the remaining shares vesting in equal monthly installments over
the next 42 months.

The following table sets forth information regarding grants of stock options
to each of the executive officers named in the Summary Compensation Table above
during the fiscal year ended March 31, 2000. Except for Barry M. Ariko, all of
these options were granted under our 1996 Stock Option Plan. The percentage of
total options set forth below is based on an aggregate of 3,652,384 options
granted, less cancellations, during the fiscal year. All options were granted
at the fair market value of our common stock, as determined by the Board of
Directors on the date of grant. Potential realizable values are net of exercise
price, but before taxes associated with exercise. Amounts represent
hypothetical gains that could be achieved for the options if exercised at the
end of the option term. The assumed 5% and 10% rates of stock price
appreciation are provided in accordance with rules of the SEC and do not
represent our estimate or projection of the future common stock price.

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<PAGE>

Option Grants in Fiscal Year Ended March 31, 2000

<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------
Potential Realizable
% of Total Deemed Value At Assumed Annual
Number of Options Value Rates of Stock
Securities Granted to Per Appreciation For Option
Underlying Employees Exercise Share at Term
Options in Fiscal Price Expiration Date of -----------------------
Name Granted 2000 (per share) Date Grant(1) 5% 10%
---- ---------- ---------- ----------- ---------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Barry M. Ariko.......... 1,922,932 52.7% $0.8183 2/28/10 $5.57 $15,873,117 $26,207,343
James Lochry............ 50,000 1.4 0.4925 7/21/09 2.95 215,637 357,952
David Cope.............. 40,000 1.1 0.4925 7/21/09 2.95 172,510 286,362
Laura Ferrell........... 50,000 1.4 0.4925 7/21/09 2.95 215,637 357,952
Richard Fitchen......... 40,000 1.1 0.4925 7/21/09 2.95 172,510 286,362
</TABLE>
--------
(1) Based on the deemed value of the common stock for accounting purposes.

Option Exercises and Option Values

The following table sets forth information regarding option exercises, and
the fiscal year-end values of stock options held, by the executive officers
named in the summary compensation table above during the fiscal year ended
March 31, 2000. The options vest over four years and generally conform to the
terms of our 1996 Stock Option Plan with the exception of the options granted
to Mr. Ariko, which vest with respect to 12.5% of the shares on the six-month
anniversary of his start date and in equal monthly installments over the
following 42 months. The value realized upon exercise of the options is based
on an assumed initial public offering price of $10.00 per share, less the
exercise price.

Aggregated Option Exercises in Fiscal Year Ended March 31, 2000 and Year End
Option Values

<TABLE>
<CAPTION>
Value of Value of
Unexercised Unexercised
Number of Securities In-the-Money In-the-Money
Underlying Unexercised Options as Options Based
Number of Options as of of March 31, on Offering
Shares Value Realized March 31, 2000 2000 Price
Acquired (Market Price at ---------------------- ------------- -------------
On Exercise Less Exercisable/ Exercisable/ Exercisable/
Name Exercise Exercise Price) Unexercisable Unexercisable Unexercisable
---- --------- ---------------- ---------------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Barry M. Ariko.......... 1,922,932 $17,655,785 0/0 -- --
James Lochry............ 400,000 3,854,000 50,000/0 $62,375 $475,375
David Cope.............. -- -- 40,000/0 49,900 380,300
Laura Ferrell........... -- -- 50,000/0 62,375 475,375
Richard Fitchen......... -- -- 40,000/0 49,900 380,300
</TABLE>

Benefit Plans

1996 Stock Option Plan

Our 1996 Stock Option Plan was adopted by our Board of Directors on June 13,
1996 and has been amended from time to time. A total of 11,840,000 shares have
been reserved for issuance under the 1996 Stock Option Plan as amended through
June 21, 2000. In addition, the share reserve of the 1996 Stock Option Plan
will automatically be increased on the first day of each fiscal year beginning
on and after December 31, 2000 by the lesser of:

. 2,500,000 shares;

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<PAGE>

. 5% of the number of shares of our common stock that was issued and
outstanding on the last day of the immediately preceding fiscal year; or

. a lesser number of shares as determined by our board of directors.

The 1996 Stock Option Plan allows the grant of incentive stock options,
within the meaning of Section 422 of the United States tax code, to employees,
including officers and employee directors. In addition, it allows grants of
nonstatutory options to employees, non-employee directors, and consultants. The
1996 Stock Option Plan is administered by our board of directors, which selects
the persons who will receive options, determines the number of shares subject
to each option and prescribes other terms and conditions, including the type of
consideration to be paid to us upon exercise and vesting schedules, in
connection with each option. However, this responsibility may be delegated to a
committee of our board of directors.

The exercise price of nonstatutory stock options granted under the 1996 Stock
Option Plan cannot be less than 85% of the fair market value of a share of
common stock on the date of grant. In the case of incentive stock options, the
exercise price cannot be less than the fair market value of share of common
stock on the date of grant. With respect to any optionee who owns stock
representing more than 10% of the voting power of all classes of our
outstanding capital stock, the exercise price of any incentive stock option has
to be equal to at least 110% of the fair market value of a share of the common
stock on the date of grant, and the term of the option cannot exceed five
years. The terms of all other options cannot exceed ten years. The aggregate
fair market value, determined as of the date of option grant, of the common
stock for which an incentive stock option can become exercisable for the first
time cannot exceed $100,000 in any calendar year.

In the event of a change in control of Extricity, the acquiring or successor
corporation may assume or substitute for the outstanding options granted under
the 1996 stock option plan. The outstanding options will terminate to the
extent that the options are not exercised or assumed or substituted for by the
acquiring or successor corporation.

As of September 1, 2000, 5,021,611 shares of common stock had been issued
upon exercise of options under our 1996 Stock Option Plan, options to purchase
2,741,054 shares of common stock with a weighted average exercise price of
$2.53 were outstanding and 4,077,335 shares were available for future grant
under this plan. Of the 7,734,279 shares which had been issued upon exercise of
options or were subject to outstanding options, 5,248,780 shares were subject
to a repurchase option in our favor.

2000 Employee Stock Purchase Plan

Our 2000 Employee Stock Purchase Plan was adopted by our board of directors
in June 2000 and is expected to be approved by our stockholders in August 2000.
This plan will be effective upon the completion of this offering. Initially, a
total of 2,000,000 shares of common stock will be reserved for issuance under
the 2000 Employee Stock Purchase Plan, none of which will be issued as of the
effective date of this offering. The share reserve will automatically increase
on January 1, 2001, and on each following January 1 until and including January
1, 2010, by an amount equal to the lesser of:

. 1,000,000 shares;

. 2% of the number of shares of our common stock that was issued and
outstanding on the last day of the immediately preceding fiscal year; or

. a lesser number of shares as determined by our board of directors or a
committee of our board of directors.

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<PAGE>

The 2000 Employee Stock Purchase Plan, which is intended to qualify under
Section 423 of the United States tax code, will be administered by our board of
directors or by a committee of our board of directors. Our employees, including
our officers and directors or employees, including officers and directors, of
any subsidiary designated by our board of directors for participation in the
2000 Employee Stock Purchase Plan, will be eligible to participate in the 2000
Employee Stock Purchase Plan if they are customarily employed for more than 20
hours per week and more than five months per year.

The first offering period under the 2000 Employee Stock Purchase Plan will
commence on the date of this prospectus and will end on the last day of October
2002. This initial offering period will be comprised of 4 six-month purchase
periods, although the first purchase period will commence on the date of this
prospectus and end on April 30, 2001. Each subsequent offering of common stock
under the 2000 Employee Stock Purchase Plan will be for a period of 12 months,
and will be comprised of 2 six-month purchase periods. An offering period will
generally commence on the first days of May and November of each year and end
on the last days of the following October and April. Shares are purchased on
the last day of each purchase period. The board may establish a different term
for one or more offerings or purchase periods or different commencement or
ending dates for an offering or a purchase period.

The 2000 Employee Stock Purchase Plan will permit eligible employees to
purchase shares of common stock through payroll deductions, or through a single
lump sum cash payment in the case of the first offering period, at a price
equal to 85% of the lower of the fair market value of our common stock on (a)
the first day of the offering period or (b) the purchase date. Participants
generally may not purchase more than 2,500 shares on any purchase date or
purchase stock having a value, measured at the beginning of the offering
period, greater than $25,000 in any calendar year. In the event of a change in
control of Extricity, our board of directors may adjust the last day of the
then current offering period to a date on or before the change in control, or
the acquiring corporation may assume or replace the outstanding purchase rights
under the purchase plan.

401(k) Plan

We have established an employee savings and retirement plan commonly known as
a 401(k) Plan. The 401(k) Plan provides that each participant may contribute
between 1% and 20% of her or his pre-tax gross compensation up to a statutorily
prescribed annual limit of $10,500 in 2000. The 401(k) Plan is intended to
qualify under Section 401(k) of the United States tax code, so that
contributions to the 401(k) Plan by employees or by us and the investment
earnings on those contributions are not taxable to the employees until
withdrawn. Employees are eligible to participate on the first day of the first
month following commencement as an employee. All amounts contributed by
employee participants and earnings on these contributions are fully vested at
all times. Employee participants may elect to invest their contributions in
various established funds. While we have the option of matching our employee's
contributions with a discretionary employer contribution, we currently do not
do so. If our 401(k) Plan qualifies under Section 401(k) of the United States
tax code, any contributions we make will be deductible by us.

Limitation of Liability and Indemnification

As permitted by the Delaware General Corporation Law, we have adopted
provisions in our certificate of incorporation and bylaws that limit or
eliminate the personal liability of our directors for a breach of their
fiduciary duty of care as a director. The duty of care generally

64
<PAGE>

requires, when acting on behalf of the corporation, directors exercise an
informed business judgment based on all material information reasonably
available to them. Consequently, a director will not be personally liable to us
or our stockholders for monetary damages or breach of fiduciary duty as a
director, except for liability for:

. any breach of the director's duty of loyalty to us or our stockholders;

. acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;

. unlawful payments of dividends or unlawful stock repurchases,
redemptions or other distributions; or

. any transaction from which the director derived an improper personal
benefit.

Our certificate of incorporation allows us to indemnify our officers,
directors and other agents to the full extent permitted by Delaware law. We
intend to enter into indemnification agreements with each of our directors and
officers that are, in some cases, broader than the specific indemnification
provisions permitted by in Delaware law, and that may provide additional
procedural protection. The indemnification agreements require us, among other
things, to:

. indemnify officers and directors against certain liabilities that may
arise because of their status as officers or directors;

. advance expenses, as incurred, to officers and directors in connection
with a legal proceeding, subject to limited exceptions; or

. obtain directors' and officers' insurance.

Our bylaws also permit us to purchase insurance on behalf of any officer,
director, employee or other agent for any liability arising out of his or her
actions in such capacity, regardless of whether Delaware law would permit
indemnification, and to provide indemnification in circumstances in which
indemnification is otherwise discretionary under Delaware law.

At present, there is no pending litigation or proceeding involving any of our
directors, officers or employees in which indemnification is sought, nor are we
aware of any threatened litigation that may result in claims for
indemnification.

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<PAGE>

RELATED-PARTY TRANSACTIONS

Other than the transactions described below, since we were formed there has
not been nor is there currently proposed, any transaction or series of similar
transactions to which we were or will be a party:

. in which the amount involved exceed or will exceed $60,000; and

. in which any director, executive officer, holder of more than 5% of a
class of voting securities or any member of their immediate family had
or will have a direct or indirect material interest.

Sales of Stock to Insiders

The following directors, executive officers, holders of more than 5% of a
class of voting securities and members of these persons' immediate families
purchased from us shares of our Series A preferred stock, Series B preferred
stock, Series C preferred stock, Series D preferred stock, Series E preferred
stock, Series F preferred stock or common stock. Immediately before the closing
of this offering, all outstanding shares of Series A preferred stock, Series B
preferred stock, Series C preferred stock, Series D preferred stock, Series E
preferred stock and Series F preferred stock will automatically convert into
shares of common stock on a one-for-one basis.

Generally, shares of common stock subject to options granted by us and shares
of common stock which were purchased by exercising options granted by us are
subject to a right of repurchase in favor of Extricity which lapses over a
four-year period with 25% of the shares vesting on the first anniversary of the
employee's start date and the remaining shares vesting in equal monthly
installments over the next 36 months.

<TABLE>
<CAPTION>
Series A Series B Series C Series D Series E Series F
preferred preferred preferred preferred preferred preferred Common
Stockholder stock stock stock stock stock stock stock
----------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Telos Venture Partners,
L.P. (1)............... 1,600,000 654,546 263,582 175,624 161,355 195,258 --
Bay Partners Entities
(2)
Bay Partners SBIC,
L.P. ................ 1,600,000 654,546 263,582 175,624 161,355 264,900 --
Bay Partners LS Fund,
L.P. ................ -- -- -- -- 1,018,330 -- --
Charter Growth Capital
II, L.P. Entities (3)
Charter Growth Capital
II, L.P. ............ -- -- -- -- -- 1,767,442 --
CGC Investors II QP,
L.P. ................ -- -- -- -- -- 69,767 --
CGC Investors II A,
L.P. ................ -- -- -- -- -- 23,256 --
Barry M. Ariko.......... -- -- -- -- -- -- 2,712,668
Stephen J. Albertolle... -- -- -- -- -- -- 297,000
David Cope.............. -- -- -- -- -- -- 400,000
Nicole Ward Eagan....... -- -- -- -- -- -- 100,000
Laura Ferrell........... -- -- -- -- -- -- 390,000
James Lochry............ -- -- -- -- -- -- 400,000
Tania Amochaev.......... -- -- -- -- -- -- 25,000
Kenneth Ross (4)........ 180,000 38,188 25,508 -- -- 15,417 2,370,000
B.J. Cassin (5)......... 550,000 189,976 86,510 57,642 106,647 67,758 --
</TABLE>
--------
(1) Mr. Bourbon, one of our directors, is a general partner of Telos Venture
Partners, L.P.
(2) Bay Partners SBIC, L.P. and Bay Partners LS Fund, L.P. are affiliated
entities and together are considered a 5% stockholder. Mr. Dempsey, one of
our current directors, is a general partner of Bay Management Company 1995
and Bay Management Company 1999, both of which are the general partners of
Bay Partners SBIC, L.P. and Bay Partners LS Fund, L.P., respectively.
(3) Charter Growth Capital II, L.P., CGC Investors II QP, L.P. and CGC
Investors II A, L.P. are affiliated entities and are together considered a
5% stockholder.

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<PAGE>

(4) Includes:
(a) 1,870,000 shares of common stock held by The Kenneth Ross Trust dated
December 3, 1980, of which Mr. Ross is a trustee;
(b) 300,000 shares of common stock held by the Ross ACD Irrevocable Trust
Rtd April 17, 1997;
(c) 100,000 shares of common stock held by the Ross EAR Irrevocable Trust
dated July 29, 1999;
(d) 100,000 shares of common stock held by the Ross BMR Irrevocable Trust
dated August 13, 1997;
(e) 150,000 shares of Series A preferred stock; 27,274 shares of Series B
preferred stock; 20,726 shares of Series C preferred stock; and 13,361
shares of Series F preferred stock, all on an as-converted basis, held
by Alison Ross. Alison Ross is the wife of Kenneth Ross;
(f) 10,000 shares of Series A preferred stock; 3,638 shares of Series B
preferred stock; and 1,594 shares of Series C preferred stock, all on
an as-converted basis, held by Aaron Ross. Aaron Ross is the son of
Kenneth Ross;
(g) 10,000 shares of Series A preferred stock; 3,638 shares of Series B
preferred stock; 1,594 shares of Series C preferred stock; and 1,028
shares of Series F preferred stock, all on an as-converted basis, held
by Catherine Ross. Catherine Ross is the daughter of Kenneth Ross; and
(h) 10,000 shares of Series A preferred stock; 3,638 shares of Series B
preferred stock; 1,594 shares of Series C preferred stock; and 1,028
shares of Series F preferred stock, all on an as-converted basis, held
by David Ross. David Ross is the son of Kenneth Ross.
(5) Includes:
(a) 500,000 shares of Series A preferred stock; 172,706 shares of Series B
preferred stock; 78,646 shares of Series C preferred stock; 52,402
shares of Series D preferred stock; 101,833 shares of Series E
preferred stock; and 61,932 shares of Series F preferred stock, all on
an as-converted basis, held by the Cassin Family Trust U/T/D dated
January 31, 1996, of which Mr. Cassin is a trustee; and
(b) 50,000 shares of Series A preferred stock; 17,270 shares of Series B
preferred stock; 7,864 shares of Series C preferred stock; 5,240 shares
of Series D preferred stock; 4,814 shares of Series E preferred stock;
and 5,826 shares of Series F preferred stock, all on an as-converted
basis, held by the Robert Sean Cassin Trust U/T/D dated February 20,
1997, of which Mr. Cassin is a trustee.

The following is a summary of sales of our preferred and common stock that
are presented in the table above:

Series A Financing. In May 1996, we sold an aggregate of 3,055,000 shares
of Series A preferred stock at a purchase price of $1.00 per share,
representing 6,110,000 shares on an as-converted to common stock basis.

Series B Financing. In June 1997, we sold an aggregate of 1,976,469
shares of Series B preferred stock at a purchase price of $2.75 per share,
representing 3,952,938 shares on an as-converted to common stock basis.

Series C Financing. In April and August 1998, we sold an aggregate of
1,954,937 shares of Series C preferred stock at a purchase price of $5.10
per share, representing 3,909,874 on an as-converted to common stock basis.

Also in April 1999, entities associated with RRE Investors, L.P. and
Invesco Private Capital, Inc. purchased an aggregate of 196,078 shares,
representing 392,156 shares on an

67
<PAGE>

as-converted to common stock basis, of Series C preferred stock from a
prior purchaser of the Series C preferred stock at a price per share of
$5.91.

Series D Financing. In April 1999, we sold an aggregate of 1,187,575
shares of Series D preferred stock at a purchase price of $5.91 per share,
representing 2,375,150 shares on an as-converted to common stock basis.

Series E Financing. In November 1999, we sold an aggregate of 2,031,846
shares of Series E preferred stock at a purchase price of $4.91 per share.

Series F Financing. In May 2000, we sold an aggregate of 7,751,938 shares
of Series F preferred stock at a purchase price of $6.45 per share.

The number of shares given on an as-converted basis for the sales of Series A
preferred stock, Series B preferred stock, Series C preferred stock and Series
D preferred stock give effect for a 2-for-1 stock split effected by Extricity
in June 1999 with the effective conversion price reduced to one-half of the
original purchase price.

Sales of Common Stock.

On April 8, 1996, Mr. Kenneth Ross purchased 1,200,000 shares of common stock
at an exercise price of $0.0005 per share, representing 2,400,000 shares on an
as-converted basis.

On April 21, 1997, Mr. Kenneth Ross transferred 150,000 shares of common
stock to the Ross ACD Irrevocable Trust Rtd April 17, 1997, representing
300,000 shares on an as-converted basis; and 1,050,000 shares to The Kenneth
Ross Trust dated December 3, 1980, representing 2,100,000 shares on an as-
converted basis.

On August 13, 1997, Mr. Kenneth Ross transferred 50,000 shares of common
stock from The Kenneth Ross Trust dated December 3, 1980 to the Ross BMR
Irrevocable Trust dated August 13, 1997, representing 100,000 shares on an as-
converted basis.

On March 17, 1998, Mr. Kenneth Ross transferred 15,000 shares of common stock
from The Kenneth Ross Trust dated December 3, 1980 to Beverly Goldman and
Michael Goldman, Trustees of the Goldman Trust dated April 2, 1996,
representing 30,000 shares on an as-converted basis.

On June 28, 1998, Ms. Laura Ferrell exercised an option to acquire 150,000
shares of common stock at an exercise price of $0.0500 per share, representing
300,000 shares on an as-converted basis.

On August 25, 1998, Mr. David Cope exercised an option to acquire 200,000
shares of common stock at an exercise price of $0.2550 per share, representing
400,000 shares on an as-converted basis.

On April 8, 1999, Mr. Stephen J. Albertolle exercised an option to acquire
150,000 shares of common stock at an exercise price of $0.3650 per share,
representing 300,000 shares on an as-converted basis.

On August 25, 1999, Mr. James Lochry exercised an option to acquire 400,000
shares of common stock at an exercise price of $0.3650 per share.

On September 1, 1999, Mr. Kenneth Ross transferred 100,000 shares from The
Kenneth Ross Trust dated December 3, 1980 to The Kenneth Ross EAR Irrevocable
Trust dated July 29, 1999.

On February 29, 2000, Mr. Barry M. Ariko exercised an option to acquire
1,922,932 shares of common stock at an exercise price of $0.8183 per share.

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<PAGE>

On April 7, 2000, Mr. Stephen J. Albertolle transferred an aggregate of 3,000
shares to various family members.

On April 9, 2000, Ms. Laura Ferrell transferred an aggregate of 60,000 shares
to various family members.

On May 8, 2000, Mr. Barry M. Ariko exercised an option to acquire 789,736
shares of common stock at an exercise price of $5.48 per share.

On May 18, 2000, Ms. Nicole Ward Eagan exercised an option to acquire 100,000
shares of common stock at an exercise price of $3.61 per share.

On August 18, 2000, Ms. Tania Amochaev exercised an option to acquire 25,000
shares of common stock at an exercise price of $5.48 per share.

Loans to Executive Officers

Barry M. Ariko. In February 2000 and May 2000, we loaned an aggregate of
approximately $5.9 million to Mr. Ariko, our chairman and chief executive
officer, in connection with his exercise of options to purchase shares of
common stock. These loans are evidenced by full recourse promissory notes and
are secured by a pledge of the shares of stock being purchased. The loan
accrues interest at 5.61% per year and is due five years from the date of
issuance or upon the occurrence of specific liquidation or sale events.

James Lochry. In August 1999, we loaned $146,000 to Mr. Lochry, our vice
president of worldwide sales, in connection with his exercise of options to
purchase shares of common stock. The loan is evidenced by a full recourse
promissory note and is secured by a pledge of the shares of stock being
purchased. The loan accrues interest at 5.61% per year and is due five years
from the date of issuance or upon the occurrence of specific liquidation or
sale events.

Stephen J. Albertolle. In April 1999, we loaned $109,500 to Mr. Albertolle,
our vice president of finance and administration and chief financial officer,
in connection with his exercise of options to purchase shares of common stock.
The loan is evidenced by a full recourse promissory note and is secured by a
pledge of the shares of stock being purchased. The loan accrues interest at
5.61% per year and is due five years from the date of issuance or upon the
occurrence of specific liquidation or sale events.

David Cope. In August 1998, we loaned $102,000 to Mr. Cope, our vice
president of marketing, in connection with his exercise of options to purchase
shares of common stock. The loan is evidenced by a full recourse promissory
note and is secured by a pledge of the shares of stock being purchased. The
loan accrues interest at 5.61% per year and is due five years from the date of
issuance or upon the occurrence of specific liquidation or sale events.

Nicole Ward Eagan. In May 2000, we loaned $361,000 to Ms. Eagan, our vice
president of business development, in connection with her exercise of options
to purchase shares of common stock. The loan is evidenced by a full recourse
promissory note and is secured by a pledge of the shares of stock being
purchased. The loan accrues interest at 5.61% per year and is due five years
from the date of issuance or upon the occurrence of specific liquidation or
sale events.

Reseller Agreement

On September 30, 1999, the Company entered into a Reseller/OEM Agreement with
Aspen Technologies, Inc. for our software, which was amended on March 13, 2000.
Alison Ross, the wife of Kenneth Ross, one of our directors, currently serves
on the board of Aspen Technologies, Inc.

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<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth the beneficial ownership of our common stock
as of September 1, 2000 and as adjusted to reflect the sale of the shares of
common stock offered hereby by:

. the chief executive officer, each of the executive officers named in the
summary compensation table and each of our directors;

. all executive officers and directors as a group; and

. each person or entity who is known by us to beneficially own more than
5% of our outstanding common stock.

Unless otherwise indicated, the address for each of the named individuals is
c/o Extricity, Inc. 1 Davis Drive, Belmont, California 94002. Except as
otherwise indicated, and subject to applicable community property laws, based
on information provided by the persons named in the table, those persons have
sole voting and investment power with respect to all shares of common stock
shown as beneficially owned by them.

Applicable percentage ownership in the table is based on 37,041,024 shares of
common stock outstanding as of September 1, 2000 and 43,041,024 shares
outstanding immediately following the completion of this offering. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission. Shares of common stock subject to options or warrants that
are presently exercisable or exercisable within 60 days of September 1, 2000
are deemed outstanding for the purpose of computing the percentage ownership of
the person or entity holding options or warrants, but are not treated as
outstanding for the purpose of computing the percentage ownership of any other
person or entity. If any shares are issued upon exercise of options, warrants
or other rights to acquire our capital stock that are presently outstanding or
granted in the future or reserved for future issuance under our stock plans,
there will be further dilution to new public investors.

<TABLE>
<CAPTION>
Percentage of
Shares
Outstanding
-----------------
Number of Shares Before After
Name of Beneficial Owner Beneficially Owned Offering Offering
------------------------ ------------------ -------- --------
<S> <C> <C> <C>
Other 5% Stockholders:
Entities affiliated with Bay Partners
SBIC, L.P. (1).......................... 4,138,337 11.2% 9.6%
10600 No. DeAnza Blvd., Suite 100
Cupertino, CA 95014
Telos Venture Partners, L.P. (2)......... 3,050,365 8.3 7.1
2350 Mission College Blvd., Suite 1070
Santa Clara, CA 95054
Entities affiliated with Charter Growth
Capital II, L.P. (3).................... 1,860,465 5.0 4.3
525 University Avenue
Suite 1500
Palo Alto, CA 94301

Named executive officers and directors:
Barry M. Ariko (4)....................... 2,712,668 7.3 6.3
James Lochry (5)......................... 480,000 1.3 1.1
David Cope (6)........................... 470,000 1.3 1.1
</TABLE>

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<PAGE>

<TABLE>
<CAPTION>
Percentage of
Shares
Outstanding
-----------------
Number of Shares Before After
Name of Beneficial Owner Beneficially Owned Offering Offering
------------------------ ------------------ -------- --------
<S> <C> <C> <C>
Laura Ferrell (7)........................ 430,000 1.2% *
Richard Fitchen (8)...................... 340,000 * *
Bruce Bourbon (2)........................ 3,050,365 8.2 7.1
c/o Telos Venture Partners, L.P.
2350 Mission College Blvd., Suite 1070
Santa Clara, CA 95054
Neal Dempsey (1)......................... 4,138,337 11.2 9.6
c/o Bay Partners SBIC, L.P.
10600 No. De Anza Blvd., Suite 100
Cupertino, CA 95014
Kenneth Ross (9)......................... 2,629,113 7.1 6.1
B.J. Cassin (10)......................... 1,058,533 2.9 2.5
Tania Amochaev (11)...................... 60,000 * *
All directors and executive officers as a
group
(13 persons) (12)....................... 16,746,016 45.2 38.9
</TABLE>
--------
* Less than one percent.

(1) Includes 3,120,007 shares owned by Bay Partners SBIC, L.P. and 1,018,330
shares owned by Bay Partners LS Fund, L.P. The general partners of Bay
Partners SBIC, L.P. and of Bay Partners LS Fund, L.P. are Bay Management
Company 1995 and Bay Management Company 1999, respectively, the managing
members of both of which are Neal Dempsey, John Freidenrich, James
Wickett, Robert Williams and Marcella Yano. The general partners of both
entities exercise voting and investment power with respect to all shares
held of record by these investment partnerships. Mr. Dempsey disclaims
beneficial ownership of the shares held by these entities except to the
extent of his proportionate interest therein.

(2) Includes 3,047,365 shares held by Telos Venture Partners, L.P. of which
Mr. Bourbon is a general partner. Mr. Bourbon exercises voting and
investment power with respect to all shares held of record by Telos
Venture Partners, L.P. Mr. Bourbon disclaims beneficial ownership of the
shares held by this entity except to the extent of his proportionate
interest therein.
(3) Includes:
(a) 1,767,442 shares owned by Charter Growth Capital II, L.P.
(b) 69,767 shares owned by CGC Investors II QP, L.P.
(c) 23,256 shares owned by CGC Investors II A, L.P.

The general partner of CGC Investors II QP, L.P. and CGC Investors II A,
L.P. is Charter Growth Capital II, L.P., the members of which are Steven
P. Bird, George H. Bischof, James H. Boettcher and Kevin J. McQuillan. The
general partners of Charter Growth Capital II, L.P. exercise voting and
investment power with respect to all shares held of record by these
investment partnerships.

(4) Includes: 2,432,237 shares subject to a repurchase option in favor of
Extricity which lapses over time.
(5) Includes:

(a) 312,292 shares subject to a repurchase option in favor of Extricity
which lapses over time; and
(b) immediately exercisable options to purchase 80,000 shares of common
stock that are subject to a right of repurchase which lapses over
time.

71
<PAGE>

(6) Includes:

(a) 230,833 shares subject to a repurchase option in favor of Extricity
which lapses over time; and
(b) immediately exercisable options to purchase 70,000 shares of common
stock that are subject to a right of repurchase which lapses over
time.
(7) Includes:

(a) 128,542 shares subject to a repurchase option in favor of Extricity
which lapses over time; and
(b) immediately exercisable options to purchase 40,000 shares of common
stock that are subject to a right of repurchase which lapses over
time.
(8) Includes:

(a) 85,416 shares subject to a repurchase option in favor of Extricity
which lapses over time; and
(b) immediately exercisable options to purchase 40,000 shares of common
stock that are subject to a right of repurchase which lapses over
time.
(9) Includes:
(a) 1,870,000 shares held by The Kenneth Ross Trust dated December 3,
1980, of which Mr. Ross is a trustee;
(b) 300,000 shares held by the Ross ACD Irrevocable Trust Rtd dated April
17, 1997, of which Mr. Ross is a trustee;
(c) 100,000 shares held by the Ross EAR Irrevocable Trust dated July 29,
1999, of which Mr. Ross is a trustee;
(d) 100,000 shares held by the Ross BMR Irrevocable Trust dated August 13,
1997, of which Mr. Ross is a trustee;
(e) 211,361 shares held by Alison Ross, the wife of Mr. Ross. Mr. Ross
disclaims beneficial ownership of these securities;
(f) 15,232 shares held by Aaron Ross, a son of Mr. Ross. Mr. Ross
disclaims beneficial ownership of these securities;
(g) 16,260 shares held by Catherine Ross, a daughter of Mr. Ross. Mr. Ross
disclaims beneficial ownership of these securities; and
(h) 16,260 shares held by David Ross, a son of Mr. Ross. Mr. Ross
disclaims beneficial ownership of these securities.
(10) Includes:
(a) 967,519 shares held by Cassin Family Trust U/T/D dated January 31,
1996, of which Mr. Cassin is a trustee. Mr. Cassin disclaims
beneficial ownership of these securities, except to the extent of his
proportionate interest therein.
(b) 91,014 shares held by the Robert Sean Cassin Trust U/T/D dated
February 20, 1997, of which Mr. Cassin is a trustee. Mr. Cassin
disclaims beneficial ownership of these securities, except to the
extent of his proportionate interest therein.

(11) Includes:

(a) 25,000 shares subject to a repurchase option in favor of Extricity
which lapses over time; and

(b) immediately exercisable options to purchase 35,000 shares of common
stock that are subject to a right of repurchase which lapses over
time.

(12) Includes:

(a) 3,677,654 shares subject to a repurchase option in favor of Extricity
which lapses over time; and

(b) immediately exercisable options to purchase 645,000 shares of common
stock that are subject to a right of repurchase which lapses over
time.

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<PAGE>

DESCRIPTION OF CAPITAL STOCK

Upon the completion of this offering, we will be authorized to issue
220,000,000 shares, $0.00001 par value per share, to be divided into two
classes to be designated common stock and preferred stock. Of the shares
authorized, 200,000,000 shares shall be designated as common stock and
20,000,000 shares shall be designated as preferred stock. The following
description of our capital stock is only a summary. You should refer to our
certificate of incorporation and bylaws as in effect upon the closing of this
offering, which are included as exhibits to the registration statement of which
this prospectus forms a part, and by the provisions of applicable Delaware law.

Common Stock

As of September 1, 2000, there were 37,041,024 shares of common stock
outstanding which were held of record by approximately 277 stockholders. There
will be 43,041,024 shares of common stock outstanding (assuming no exercise of
the underwriters' over-allotment option and no exercise of outstanding options
after June 30, 2000) after giving effect to the sale of our common stock in
this offering. There are outstanding unexercised options to purchase a total of
2,741,054 shares of our common stock.

The holders of our common stock are entitled to one vote per share held of
record on all matters submitted to a vote of the stockholders. Our amended and
restated certificate of incorporation to be filed concurrently with completion
of this offering does not provide for cumulative voting in the election of
directors. Subject to preferences that may be applicable to any outstanding
preferred stock, the holders of common stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by our Board of
Directors out of funds legally available for that purpose. In the event of our
liquidation, dissolution or winding up, holders of our common stock are
entitled to share ratably in all assets remaining after payment of liabilities,
subject to prior distribution rights of preferred stock, if any, then
outstanding. Holders of our common stock have no preemptive or other
subscription or conversion rights. There are no redemption or sinking fund
provisions applicable to our common stock.

Preferred Stock

Upon the completion of this offering and filing of our amended and restated
certificate of incorporation, our Board of Directors will be authorized,
without action by the stockholders, to issue 20,000,000 shares of preferred
stock in one or more series and to fix the rights, preferences, privileges and
restrictions of these shares. These rights, preferences and privileges may
include dividend rights, conversion rights, voting rights, terms of redemption,
liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of any series, all or any of which
may be greater than the rights of the common stock. It is not possible to state
the actual effect of the issuance of all shares of preferred stock upon the
right of holders of our common stock until our Board of Directors determines
the specific rights of the holders of any preferred stock that may be issued.
However, the effect might include, among other things:

. restricting dividends on the common stock;

. diluting the voting power of the common stock;

. impairing the liquidation rights of the common stock; and

. delaying or preventing a change in our control without further action by
the stockholders.

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<PAGE>

Upon the closing of this offering, no shares of preferred stock will be
outstanding and we have no present plans to issue any shares of preferred
stock.

Registration Rights

The holders of approximately 26,131,746 shares of preferred stock, on an as-
converted basis, have the right to require us to register their shares with the
Securities and Exchange Commission so that those shares may be publicly resold
or to include their shares in any registration statement we file.

Demand registration rights

. At any time after December 31, 2000 the holders of at least 40% of the
shares having registration rights have the right to demand on two
separate occasions that we file a registration statement on a form other
than Form S-3 so that they can publicly sell their shares, as long as
the aggregate market value of the shares to be sold under the
registration statement is at least $5.0 million. The underwriters of any
underwritten offering will have the right to limit the number of shares
to be included in the registration.

. If we are eligible to file a registration statement on Form S-3, any
holders of the shares having registration rights have the right to
demand at any time that we file a registration statement on Form S-3, as
long as the aggregate market value of the shares to be sold under the
registration statement exceeds $1.0 million.

Piggyback registration rights

If we register any shares for public sale, stockholders with registration
rights will have the right to include their shares in the registration. The
underwriters of any underwritten offering will have the right to limit the
number of shares to be included in the registration; provided that the number
of shares to be included by holders with registration rights in the
registration shall not be reduced below 30% of the total number of shares to be
included in the registration. In addition, the underwriters of this offering
have the right to exclude all shares held by holders with registration rights.

Expenses of registration

We will pay all expenses relating to any demand or piggyback registration.
However, we will not pay for the expenses of any demand registration if the
request is subsequently withdrawn by the holders of a majority of the shares
having registration rights, subject to very limited exceptions.

Expiration of registration rights

The registration rights described above will expire five years after this
offering is completed. The registration rights will terminate earlier for a
particular stockholder if that holder can resell all of its shares pursuant to
Rule 144 of the Securities Act.

Delaware Anti-Takeover Law and Certain Charter and Bylaw Provisions

Certain provisions of Delaware law and our certificate of incorporation and
bylaws could make our acquisition more difficult by means of a tender offer, a
proxy contest or otherwise and could also make the removal of incumbent
officers and directors more difficult. These

74
<PAGE>

provisions, summarized below, may discourage certain types of coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to
acquire control of us to first negotiate with us. We believe that the benefits
of increased protection of our potential ability to negotiate with the
proponent of an unfriendly or unsolicited proposal to acquire or restructure us
outweighs the disadvantages of discouraging such proposals because, among other
things, negotiation of such proposals could result in an improvement of their
terms. The amendment of any of the following provisions would require approval
by holders of at least a majority of our outstanding common stock.

Certificate of Incorporation and Bylaw Provisions.

Upon the closing of this offering, our certificate of incorporation will
provide that our Board of Directors will be divided into three classes of
directors, with each class serving a staggered three-year term. See "Management
-- Composition of the Board of Directors." The classification system of
electing directors may discourage a third party from making a tender offer or
otherwise attempting to obtain control of us and may maintain the incumbency of
the Board of Directors, because the classification of the Board of Directors
generally increases the difficulty of replacing a majority of the directors.
Our amended and restated certificate of incorporation requires that any action
required or to be taken by stockholders must be effected at a duly called
annual or special meeting of the stockholders and may not be effected by a
consent in writing. In addition, special meetings may be called only by our
Board of Directors, Chairman of the Board or Chief Executive Officer, and the
holders of shares entitled to cast not less than 10% percent of the votes at
the meeting. The authorization of undesignated preferred stock makes it
possible for the Board of Directors to issue preferred stock with voting or
other rights or preferences that could impede the success of any attempt to
effect a change of control of us. These and other provisions may have the
effect of deferring hostile takeovers or delaying changes in control or
management.

Delaware Law

We are subject to Section 203 of the Delaware General Corporation Law. In
general, the statute 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:

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

. upon consummation of the transaction that resulted in the stockholders
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding those shares owned by persons who
are directors and also officers, and employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or

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

Section 203 defines "business combination" to include:

. any merger or consolidation involving the corporation and the interested
stockholder;

75
<PAGE>

. any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the corporation;

. subject to exceptions, any transaction that results in the issuance or
transfer by the corporation of any stock of the corporation to the
interested stockholder; or

. the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.

In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by the entity or person.

Warrants

As of September 1, 2000, we had outstanding warrants to purchase 308,312
shares of common stock on an as-converted basis. Warrants to purchase 16,666
shares of common stock at $0.365 per share will expire in 2002. Warrants to
purchase 30,000 shares of common stock at $0.365 per share will expire in 2001.
Warrants to purchase 84,000 shares of common stock at $2.55 per share will
expire in 2002. Warrants to purchase 117,646 shares of common stock at
$2.55 per share will expire in 2003. Warrants to purchase 20,000 shares of
common stock at $16.00 per share will expire in 2004. Warrants to purchase
40,000 shares of common stock at $6.45 per share will expire in 2004.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock will be Boston
EquiServe.

76
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Immediately prior to this offering, there was no public market for our common
stock. Future sales of substantial amounts of our common stock in the public
market could adversely affect the market price of our common stock.

Upon completion of this offering, based on shares outstanding as of September
1, 2000, we will have outstanding 43,041,024 shares of common stock, assuming
(1) the issuance of 6,000,000 shares of common stock in this offering, (2) no
exercise of the underwriters' over-allotment option, and (3) no exercise of
options after September 1, 2000.

All of the 6,000,000 shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act. However,
the sale of any of these shares if purchased by "affiliates" as that term is
defined in Rule 144 are subject to the limitations and restrictions that are
described below.

The remaining 37,041,024 shares of common stock and mandatorily redeemable
convertible preferred stock held by existing stockholders were issued and sold
by us in reliance on exemptions from the registration requirements of the
Securities Act. These shares are "restricted shares" as that term is defined in
Rule 144 and therefore may not be sold publicly unless they are registered
under the Securities Act or are sold pursuant to Rule 144 or another exemption
from registration. In addition, our directors and officers as well as other
stockholders and optionholders have entered into "lock-up agreements" with the
underwriters. These lock-up agreements provide that, except under limited
exceptions, the stockholder may not offer, sell, contract to sell, pledge or
otherwise dispose of any of our common stock or securities that are convertible
into or exchangeable for, or that represent the right to receive, our common
stock for a period of 180 days after the date of this prospectus. Deutsche Bank
Securities Inc. may, however, in its sole discretion, at any time without
notice, release all or any portion of the shares subject to lock-up agreements.
Accordingly, of the remaining 37,041,024 shares, 24,179,622 shares will become
eligible for sale 180 days after the effective date subject to Rules 144 and
701, subject in some cases to repurchase rights in favor of Extricity.

Immediately after the completion of the offering, we intend to file
registration statements on Form S-8 under the Securities Act to register all of
the shares of common stock issued or reserved for future issuance under our
1996 Stock Option Plan and our 2000 Employee Stock Purchase Plan. On the date
90 days after this prospectus, a total of 2,933,338 shares of our common stock
acquired by exercise of options will be vested. After the effective dates of
the registration statements on Form S-8, shares purchased upon exercise of
options granted pursuant to our 1996 Stock Option Plan and our 2000 Employee
Stock Purchase Plan generally would be available for resale in the public
market.

Rule 144

In general, under Rule 144 beginning 90 days after the date of this
prospectus, a person who has beneficially owned shares of our common stock for
at least one year would be entitled to sell, within any three-month period, a
number of shares that does not exceed the greater of:

. 1% of the number of shares of common stock then outstanding, which will
equal approximately 430,410 shares immediately after this offering; or

. the average weekly trading volume of the common stock on the Nasdaq
Stock Market's National Market during the four calendar weeks preceding
the filing of a notice on Form 144 with respect to such sale.

77
<PAGE>

Sales under Rule 144 are also subject to other requirements regarding the
manner of sale, notice filing and the availability of current public
information about us.

Rule 144(k)

Under Rule 144(k), a person who is not deemed to have been one of our
"affiliates" at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
generally including the holding period of any prior owner other than an
"affiliate," is entitled to sell such shares without complying with the manner
of sale, notice filing, volume limitation or notice provisions of Rule 144.
Therefore, unless otherwise restricted, "144(k) shares" may be sold immediately
upon the completion of this offering.

Rule 701

In general, under Rule 701, any of our employees, directors, officers,
consultants or advisors who purchase shares from us in connection with a
compensatory stock or option plan or other written agreement before the
effective date of this offering is entitled to resell such shares 90 days after
the effective date of this offering in reliance on Rule 144, without having to
comply with certain restrictions, including the holding period, contained in
Rule 144.

The SEC has indicated that Rule 701 will apply to typical stock options
granted by an issuer before it becomes subject to the reporting requirements of
the Securities Exchange Act of 1934, along with the shares acquired upon
exercise of such options (including exercises after the date of this
prospectus). Securities issued in reliance on Rule 701 are restricted
securities and, subject to the contractual lock-up restrictions described
above, beginning 90 days after the date of this prospectus, may be sold by
persons other than "affiliates," as defined in Rule 144, subject only to the
manner of sale provisions of Rule 144. Securities issued in reliance on Rule
701 may be sold by "affiliates" under Rule 144 without compliance with its one-
year minimum holding period requirement.

78
<PAGE>

UNDERWRITING

Subject to the terms and conditions contained in an underwriting agreement,
the underwriters named below, through their representatives, Deutsche Bank
Securities Inc., SG Cowen Securities Corporation and Banc of America Securities
LLC, have severally agreed to purchase from us the respective numbers of shares
of common stock at the initial public offering price less the underwriting
discounts and commissions set forth on the cover page of this prospectus.

<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
Deutsche Bank Securities Inc.......................................
SG Cowen Securities Corporation....................................
Banc of America Securities LLC.....................................

------
Total............................................................
======
</TABLE>

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

We have been advised by the representatives of the underwriters that the
underwriters propose to offer the shares of common stock to the public at the
initial public offering price specified on the cover page of this prospectus
and to selected dealers at a price that represents a concession not in excess
of $ per share from the initial public offering price. The underwriters
may allow, and those dealers may re-allow, a concession not in excess of
$ per share to other dealers. After the initial public offering, the
representatives of the underwriters may change the offering price and other
selling terms.

We have granted to the underwriters an option to purchase up to 900,000
additional shares of common stock at the initial public offering price less the
underwriting discounts and commissions shown on the cover page of this
prospectus. The underwriters may exercise this option not later than 30 days
after the date of this prospectus. The underwriters may exercise this option
only to cover over-allotments for the sale of common stock offered by this
prospectus. If the underwriters exercise this option, each of the underwriters
will become obligated to purchase approximately its pro rata share of the
option shares that the underwriters have elected to purchase. An underwriter's
pro rata share will be equal to the percentage that the number of shares of
common stock shown next to its name in the table above bears to the total
number of shares shown in that table. We will be obligated to sell those
additional shares of common stock to the underwriters if the option is
exercised.

79
<PAGE>

The underwriting fee is equal to the initial 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
% of the initial public offering price. We have agreed to pay the
underwriters the following discounts and commissions, assuming either no
exercise or full exercise by the underwriters of the underwriters' over-
allotment option:

<TABLE>
<CAPTION>
Total Discounts and Commissions
Discounts and -------------------------------------------
Commissions Without Exercise of With Full Exercise of
Per Share Over-Allotment Option Over-Allotment Option
------------- --------------------- ---------------------
<S> <C> <C> <C>
Discounts and commis-
sions paid by us....... $ $ $
</TABLE>

We estimate that the total expenses of this offering, excluding underwriting
discounts and commissions, will be approximately $ million.

We have agreed to indemnify the underwriters against some specified types of
liabilities, including liabilities under the Securities Act. We have agreed to
contribute to payments the underwriters may be required to make as a result of
these liabilities.

Each of our officers and directors and the holders of a substantial majority
of the outstanding shares of our common stock have agreed not to offer, sell or
otherwise dispose of any shares of our common stock or any securities
exercisable for shares of common stock for a period of 180 days after the date
of this prospectus without the prior written consent of Deutsche Bank
Securities Inc. This consent may be given at any time without public notice.
This prohibition does not apply to shares acquired in the open market. We have
entered into a similar agreement with the representatives of the underwriters,
except that we may

. issue shares upon the exercise of outstanding stock options and
warrants,

. grant options and sell shares under our 1996 stock plan and 2000
employee stock purchase plan, and

. issue stock with the prior written consent of Deutsche Bank Securities
Inc., which consent may be given at any time without notice.

For a period of 180 days following the date of this prospectus, we may only
issue stock in connection with mergers and acquisitions if contractual
restrictions on such issuances are waived and the recipients of that stock
agree not to offer, sell or dispose of those shares during the period of 180
days after the date of this prospectus.

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
sales position in our common stock for their own account. A short sales
position results when an underwriter sells more shares of common stock than
that underwriter is committed to purchase. A short sales position may involve
either "covered" short sales or "naked" short sales. Covered short sales are
sales made for an amount not greater that the underwriters' overallotment
option to purchase additional shares in the offering described above. The
underwriters may close out any covered short position by either exercising
their overallotment option or purchasing shares in the open market. In
determining the source of shares to close out the covered short position, the
underwriters will

80
<PAGE>

consider, among other things, the price of shares available for purchase in the
open market as compared to the price at which they may purchase shares through
the overallotment option. Naked short sales are sales in excess of the
overallotment option. The underwriters will have to close out any naked short
position by purchasing shares in the open market. A naked short position is
more likely to be created if the underwriters are concerned that there may be
downward pressure on the price of the shares in the open market after pricing
that could adversely affect investors who purchase in the offering.

Accordingly, to cover these short sales positions 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. These transactions may be effected on
the Nasdaq National Market or otherwise. Additionally, 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. Similar to other purchase
transactions, the underwriter's purchase to cover the syndicate short sales or
to stabilize the market price of our common stock may have the effect of
raising or maintaining the market price of our common stock or preventing or
mitigating a decline in the market price of our common stock. As a result, the
price of the shares of our common stock may be higher than the price that might
otherwise exist in the open market. The underwriters are not required to engage
in these activities and, if commenced, may end any of these activities at any
time. 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 stabilize the market price of our common stock, the
underwriters may bid for, and purchase, shares of our common stock in the open
market. The representatives on behalf of the underwriters may also reclaim
selling concessions allowed to an underwriter or dealer.

Any of the activities described in the preceding paragraph 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 begun, may end any of these activities at any time.

At our request, the underwriters may reserve up to 5% of the shares of our
common stock sold in this offering for sale, at the initial public offering
price, to our employees, family members of employees, vendors, customers and
other third parties. The number of shares of our common stock available for
sale to the general public will be reduced by the number of reserved shares are
purchased by these persons. 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 offered by this prospectus.

A prospectus in electronic format is being made available on Internet
websites maintained by the underwriters. At the discretion of Deutsche Bank
Securities Inc., an allocation of shares may be made to a member of the selling
group for Internet purchases of the common stock. Such an allocation will be
available only to those registered customers of a member of the selling group
who possess sufficient net worth and investment experience. All eligible
accounts may submit a conditional offer to the member of the selling group to
purchase shares, which conditional offer will be subject to one or more e-mail
reconfirmations. If demand exceeds availability, the member of the selling
group will randomly allocate shares first to applicants who have submitted
conditional offers prior to a predesignated date and then on a first-come
first-served basis.

Before this offering, there has been no public market for our common stock.
Consequently, the initial public offering price for our common stock will be
determined by

81
<PAGE>

negotiation between us and the representatives of the underwriters. Among the
factors to be considered in determining the initial public offering price will
be:

. prevailing market conditions;

. our results of operations in recent periods;

. the present stage of our development;

. the market capitalizations and stages of development of other companies
that we and the representatives of the underwriters believe to be
comparable to us; and

. estimates of our business potential.

The estimated initial public offering price listed on the cover of this
preliminary prospectus may change due to market conditions and other factors.

LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed upon
for us by Gray Cary Ware & Freidenrich LLP, Palo Alto, California. As of the
date of this prospectus, Gray Cary Ware & Freidenrich LLP, GCWF Investment
Partners II, an investment partnership composed of some current and former
members of and persons associated with Gray Cary Ware & Freidenrich LLP, and
some individual members of Gray Cary Ware & Freidenrich LLP, beneficially own
an aggregate of 35,542 shares of our common stock. Certain legal matters in
connection with the offering will be passed upon for the underwriters by
Brobeck, Phleger & Harrison LLP, Palo Alto, California.

EXPERTS

The audited consolidated financial statements and schedule included in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing.

82
<PAGE>

WHERE TO FIND ADDITIONAL INFORMATION ABOUT EXTRICITY

We have filed with the SEC a registration statement on form S-1 under the
Securities Act with respect to the shares of common stock offered by this
prospectus. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the
registration statement and the exhibits and schedules filed therewith. For
further information with respect to us and our common stock, reference is made
to the registration statement and the exhibits and schedules filed with it.
With respect to statements contained in this prospectus regarding the contents
of any agreement or any other document, in each instance, reference is made to
the copy of such agreement or other document filed as an exhibit to the
registration statement. Each statement is qualified in all respects by the
exhibits and schedules.

For further information with respect to Extricity and our common stock,
reference is made to the registration statement and its exhibits and schedules.
You may read and copy any document Extricity files at the SEC's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Please call the SEC at 1-800-SEC-0330 for further information about the public
reference rooms. Extricity's SEC filings are also available to the public from
the SEC's website at http://www.sec.gov.

Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Exchange Act, and 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 SEC's
website, which is described above.

83
<PAGE>

EXTRICITY, INC.

Index to Consolidated Financial Statements

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

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
Extricity, Inc.:

We have audited the accompanying consolidated balance sheets of Extricity,
Inc., (a Delaware corporation, formerly known as Extricity Software, Inc.), and
subsidiary as of March 31, 1999 and 2000, and the related consolidated
statements of operations, stockholders' equity and cash flows for the three
years in the period ended March 31, 2000. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Extricity, Inc. and subsidiary
as of March 31, 1999 and 2000, and the results of their operations and their
cash flows for the three years in the period ended March 31, 2000 in conformity
with accounting principles generally accepted in the United States.
Arthur Andersen LLP

San Jose, California
April 27, 2000 (except for the matter
discussed in Note 12, as to
which the date is June 28, 2000)

F-2
<PAGE>

EXTRICITY, INC.

CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)

<TABLE>
<CAPTION>
Pro Forma
March 31, Stockholders'
------------------ June 30, Equity as of
1999 2000 2000 June 30, 2000
-------- -------- -------- -------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........ $ 1,938 $ 6,587 $ 37,277
Short-term investments........... 841 1,274 1,657
Accounts receivable, net of
allowance for doubtful accounts
of $45, $801 and $801,
respectively.................... 2,273 4,261 6,872
Prepaid expenses and other
current assets.................. 183 431 1,209
-------- -------- --------
Total current assets............ 5,235 12,553 47,015
Restricted cash.................... 180 300 9,036
Property and equipment, net........ 674 1,268 1,647
Other assets....................... 61 75 304
-------- -------- --------
Total assets.................... $ 6,150 $ 14,196 $ 58,002
======== ======== ========

LIABILITIES AND STOCKHOLDERS'
EQUITY

Current liabilities:
Accounts payable................. $ 567 $ 1,824 $ 1,890
Accrued expenses................. 1,902 4,853 6,414
Deferred revenue................. 819 3,691 3,596
Current portion of long-term
debt............................ 271 359 359
-------- -------- --------
Total current liabilities....... 3,559 10,727 12,259
Long-term deferred revenue......... -- 786 829
Long-term debt, less current
portion........................... 526 373 283
-------- -------- --------
Total liabilities............... 4,085 11,886 13,371
-------- -------- --------
Commitments and contingencies (Note
7)

Stockholders' equity:
Convertible preferred stock, no
par value, 10,424,804 shares
authorized, 6,986,406 shares and
10,205,827 shares issued and
outstanding as of March 31, 1999
and 2000, respectively,
aggregate liquidation preference
of $35,455 as of March 31, 2000;
$.00001 par value, 18,224,804
shares authorized, 17,957,765
shares issued and outstanding as
of June 30, 2000, aggregate
liquidation preference of
$85,455 at June 30, 2000
(unaudited); 20,000,000 shares
authorized, no shares issued and
outstanding pro forma
(unaudited)..................... 18,303 35,168 -- $ --
Common stock, no par value,
40,000,000 shares authorized,
5,057,678 shares and 8,858,422
shares issued and outstanding as
of March 31, 1999 and 2000,
respectively; $.00001 par value,
50,000,000 shares authorized,
10,818,805 shares issued and
outstanding as of June 30, 2000
(unaudited); 200,000,000 shares
authorized, 36,950,551 shares
issued and outstanding pro forma
(unaudited)..................... 260 18,450 -- --
Additional paid-in capital....... -- -- 117,942 117,942
Warrants......................... 124 478 728 728
Notes receivable from
stockholders.................... (159) (2,062) (6,751) (6,751)
Deferred stock-based
compensation.................... -- (13,372) (18,483) (18,483)
Accumulated other comprehensive
loss............................ -- -- (37) (37)
Accumulated deficit.............. (16,463) (36,352) (48,768) (48,768)
-------- -------- -------- --------
Total stockholders' equity...... 2,065 2,310 44,631 $ 44,631
-------- -------- -------- ========
Total liabilities and
stockholders' equity........... $ 6,150 $ 14,196 $ 58,002
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.

F-3
<PAGE>

EXTRICITY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

<TABLE>
<CAPTION>
Year Ended Three Months
March 31, Ended June 30,
-------------------------- -----------------
1998 1999 2000 1999 2000
------- ------- -------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
License fees................... $ 250 $ 2,302 $ 4,554 $ 199 $ 2,310
Services....................... 253 733 4,631 930 2,353
------- ------- -------- ------- --------
Total revenues............... 503 3,035 9,185 1,129 4,663
------- ------- -------- ------- --------
Cost of revenues:
License fees................... 51 238 349 41 149
Services....................... 186 824 4,569 875 2,647
------- ------- -------- ------- --------
Total cost of revenues....... 237 1,062 4,918 916 2,796
------- ------- -------- ------- --------
Gross profit.................... 266 1,973 4,267 213 1,867
------- ------- -------- ------- --------
Operating expenses:
Research and development....... 2,766 4,262 7,245 1,270 3,799
Sales and marketing............ 2,788 6,177 12,238 2,525 6,366
General and administrative..... 829 891 2,622 447 1,310
Amortization of deferred
stock-based compensation
(1)........................... -- -- 2,347 23 3,241
------- ------- -------- ------- --------
Total operating expenses..... 6,383 11,330 24,452 4,265 14,716
------- ------- -------- ------- --------
Loss from operations............ (6,117) (9,357) (20,185) (4,052) (12,849)
Interest income................. 184 324 371 75 451
Interest expense................ (40) (64) (75) (17) (18)
------- ------- -------- ------- --------
Net loss........................ $(5,973) $(9,097) $(19,889) $(3,994) $(12,416)
======= ======= ======== ======= ========
Basic and diluted net loss per
share.......................... $ (4.21) $ (3.32) $ (4.64) $ (1.08) $ (2.25)
Shares used in computing basic
and diluted net loss per
share.......................... 1,418 2,738 4,289 3,700 5,508
Pro forma basic and diluted net
loss per share (unaudited)..... $ (0.93) $ (0.44)
Shares used to compute pro forma
basic and diluted net loss per
share (unaudited).............. 21,300 28,395
--------

(1) Amortization of deferred stock-based compensation is comprised of the
following:

Cost of services revenues....... $ -- $ -- $ 322 $ 4 $ 298
Research and development........ -- -- 428 2 564
Sales and marketing............. -- -- 850 15 817
General and administrative...... -- -- 747 2 1,562
------- ------- -------- ------- --------
Amortization of deferred stock-
based compensation............. $ -- $ -- $ 2,347 $ 23 $ 3,241
======= ======= ======== ======= ========
</TABLE>

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

F-4
<PAGE>

EXTRICITY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Convertible
Preferred Notes Accumulated
Stock Common Stock Additional Receivable Deferred Other
-------------- --------------- Paid-in from Stock-Based Comprehensive Accumulated
Shares Amount Shares Amount Capital Warrants Stockholders Compensation Loss Deficit
------ ------- ------ ------- ---------- -------- ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of
March 31, 1997.. 3,055 $ 3,035 3,368 $ 2 $ -- $-- $ -- $ -- $-- $ (1,393)
Repurchase of
common stock.... -- -- (210) -- -- -- -- -- -- --
Issuance of
Series B
convertible
preferred stock,
net............. 1,976 5,388 -- -- -- -- -- -- -- --
Issuance of
common stock on
exercise of
stock options... -- -- 646 80 -- -- (74) -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- (5,973)
------ ------- ------ ------- -------- ---- -------- -------- ---- --------
Balance as of
March 31, 1998.. 5,031 8,423 3,804 82 -- -- (74) -- -- (7,366)
Repurchase of
common stock.... -- -- (360) (47) -- -- -- -- -- --
Issuance of
Series C
convertible
preferred stock,
net............. 1,955 9,880 -- -- -- -- -- -- -- --
Issuance of
Series C
convertible
preferred stock
warrants........ -- -- -- -- -- 124 -- -- -- --
Issuance of
common stock on
exercise of
stock options... -- -- 1,614 225 -- -- (85) -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- (9,097)
------ ------- ------ ------- -------- ---- -------- -------- ---- --------
Balance as of
March 31, 1999.. 6,986 18,303 5,058 260 -- 124 (159) -- -- (16,463)
Repurchase of
common stock.... -- -- (50) (14) -- -- -- -- -- --
Issuance of
Series D
convertible
preferred stock,
net............. 1,188 6,944 -- -- -- -- -- -- -- --
Issuance of
Series E
convertible
preferred stock,
net............. 2,032 9,921 -- -- -- -- -- -- -- --
Issuance of
Series C
convertible
preferred stock
warrants........ -- -- -- -- -- 59 -- -- -- --
Issuance of
Series E
convertible
preferred stock
warrants........ -- -- -- -- -- 108 -- -- -- --
Issuance of
common stock on
exercise of
stock options... -- -- 3,850 2,288 -- -- (1,903) -- -- --
Issuance of
common stock
warrants for
services........ -- -- -- -- -- 187 -- -- -- --
Issuance of
common stock
options for
services........ -- -- -- 197 -- -- -- -- -- --
Deferred stock-
based
compensation.... -- -- -- 15,719 -- -- -- (15,719) -- --
Amortization of
deferred stock-
based
compensation.... -- -- -- -- -- -- -- 2,347 -- --
Net loss........ -- -- -- -- -- -- -- -- -- (19,889)
------ ------- ------ ------- -------- ---- -------- -------- ---- --------
Balance as of
March 31, 2000.. 10,206 35,168 8,858 18,450 -- 478 (2,062) (13,372) -- (36,352)
Repurchase of
common stock*... -- -- (14) -- (9) -- -- -- -- --
Issuance of
Series F
convertible
preferred stock,
net*............ 7,752 49,900 -- -- -- -- -- -- -- --
Issuance of
common stock on
exercise of
stock options*.. -- -- 1,950 -- 6,037 -- (4,689) -- -- --
Issuance of
common stock
warrants*....... -- -- -- -- -- 250 -- -- -- --
Issuance of
common stock on
exercise of
warrants*....... -- -- 25 -- 44 -- -- -- -- --
Deferred stock-
based
compensation*... -- -- -- -- 8,352 -- -- (8,352) -- --
Amortization of
deferred stock-
based
compensation*... -- -- -- -- -- -- -- 3,241 -- --
Reincorporation
in Delaware*.... -- (85,068) -- (18,450) 103,518 -- -- -- -- --
Foreign currency
translation
adjustment*..... -- -- -- -- -- -- -- -- (37) --
Net loss*....... -- -- -- -- -- -- -- -- -- (12,416)
------ ------- ------ ------- -------- ---- -------- -------- ---- --------
Balance as of
June 30, 2000*.. 17,958 $ -- 10,819 $ -- $117,942 $728 $(6,751) $(18,483) $(37) $(48,768)
====== ======= ====== ======= ======== ==== ======== ======== ==== ========
<CAPTION>
Total
Stockholders'
Equity
-------------
<S> <C>
Balance as of
March 31, 1997.. $ 1,644
Repurchase of
common stock.... --
Issuance of
Series B
convertible
preferred stock,
net............. 5,388
Issuance of
common stock on
exercise of
stock options... 6
Net loss........ (5,973)
-------------
Balance as of
March 31, 1998.. 1,065
Repurchase of
common stock.... (47)
Issuance of
Series C
convertible
preferred stock,
net............. 9,880
Issuance of
Series C
convertible
preferred stock
warrants........ 124
Issuance of
common stock on
exercise of
stock options... 140
Net loss........ (9,097)
-------------
Balance as of
March 31, 1999.. 2,065
Repurchase of
common stock.... (14)
Issuance of
Series D
convertible
preferred stock,
net............. 6,944
Issuance of
Series E
convertible
preferred stock,
net............. 9,921
Issuance of
Series C
convertible
preferred stock
warrants........ 59
Issuance of
Series E
convertible
preferred stock
warrants........ 108
Issuance of
common stock on
exercise of
stock options... 385
Issuance of
common stock
warrants for
services........ 187
Issuance of
common stock
options for
services........ 197
Deferred stock-
based
compensation.... --
Amortization of
deferred stock-
based
compensation.... 2,347
Net loss........ (19,889)
-------------
Balance as of
March 31, 2000.. 2,310
Repurchase of
common stock*... (9)
Issuance of
Series F
convertible
preferred stock,
net*............ 49,900
Issuance of
common stock on
exercise of
stock options*.. 1,348
Issuance of
common stock
warrants*....... 250
Issuance of
common stock on
exercise of
warrants*....... 44
Deferred stock-
based
compensation*... --
Amortization of
deferred stock-
based
compensation*... 3,241
Reincorporation
in Delaware*.... --
Foreign currency
translation
adjustment*..... (37)
Net loss*....... (12,416)
-------------
Balance as of
June 30, 2000*.. $ 44,631
=============
</TABLE>
*Unaudited.
The accompanying notes are an integral part of these consolidated financial
statements.

F-5
<PAGE>

EXTRICITY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

<TABLE>
<CAPTION>
Year Ended Three Months
March 31, Ended June 30,
-------------------------- -----------------
1998 1999 2000 1999 2000
------- ------- -------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss....................... $(5,973) $(9,097) $(19,889) $(3,994) $(12,416)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization.................. 168 295 484 99 205
Provision for doubtful
accounts...................... 25 20 756 37 --
Write-off of property and
equipment..................... -- 21 -- -- 254
Issuance of convertible
preferred stock warrants...... -- 124 167 59 --
Issuance of common stock
warrants...................... -- -- 84 84 --
Issuance of stock options for
services...................... -- -- 197 9 --
Amortization of deferred
stock-based compensation...... -- -- 2,347 23 3,241
Changes in operating assets and
liabilities:
Accounts receivable............ (82) (2,236) (2,744) 972 (2,611)
Prepaid expenses and other
current assets................ (150) (23) (145) (17) (738)
Other assets................... 20 -- (14) 145 (19)
Accounts payable............... 151 413 1,257 311 66
Accrued expenses............... 881 871 2,951 203 1,561
Deferred revenue............... -- 810 3,658 1,075 (52)
------- ------- -------- ------- --------
Net cash used in operating
activities.................. (4,960) (8,802) (10,891) (994) (10,509)
------- ------- -------- ------- --------
Cash flows from investing
activities:
Acquisition of property and
equipment..................... (470) (474) (1,078) (166) (838)
Purchases of short-term
investments................... -- (841) (433) (677) (383)
------- ------- -------- ------- --------
Net cash used in investing
activities.................. (470) (1,315) (1,511) (843) (1,221)
------- ------- -------- ------- --------
Cash flows from financing
activities:
Increase in restricted cash.... (180) -- (120) -- (8,736)
Proceeds from issuance of
Series B convertible preferred
stock, net.................... 5,388 -- -- -- --
Proceeds from issuance of
Series C convertible preferred
stock, net.................... -- 9,880 -- -- --
Proceeds from issuance of
Series D convertible preferred
stock, net.................... -- -- 6,944 6,944 --
Proceeds from issuance of
Series E convertible preferred
stock, net.................... -- -- 9,921 -- --
Proceeds from issuance of
Series F convertible preferred
stock, net.................... -- -- -- -- 49,900
Proceeds from issuance of
common stock.................. 6 140 385 16 1,392
Repurchase of common stock..... -- (47) (14) -- (9)
Proceeds from long-term debt... 526 270 266 -- --
Repayments of long-term debt... (69) (103) (331) (71) (90)
------- ------- -------- ------- --------
Net cash provided by
financing activities........ 5,671 10,140 17,051 6,889 42,457
Effect of exchange rate changes
on cash and cash equivalents.. -- -- -- -- (37)
------- ------- -------- ------- --------
Net increase in cash and cash
equivalents.................... 241 23 4,649 5,052 30,690
Cash and cash equivalents,
beginning of period............ 1,674 1,915 1,938 1,938 6,587
------- ------- -------- ------- --------
Cash and cash equivalents, end
of period...................... $ 1,915 $ 1,938 $ 6,587 $ 6,990 $ 37,277
======= ======= ======== ======= ========
Supplemental disclosure of cash
flow information:
Cash paid during the period for
interest....................... $ 40 $ 64 $ 75 $ 17 $ 18
======= ======= ======== ======= ========
Noncash financing activities:
Notes receivable from
stockholders.................. $ 74 $ 85 $ 1,903 $ 183 $ 4,689
======= ======= ======== ======= ========
Issuance of common stock
warrants for prepaid stock
issuance costs................ $ -- $ -- $ 103 $ -- $ --
======= ======= ======== ======= ========
Issuance of preferred stock
warrants for facilities
sublease ..................... $ -- $ -- $ -- $ -- $ 250
======= ======= ======== ======= ========
</TABLE>

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

F-6
<PAGE>

EXTRICITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information as of June 30, 2000 and for the three months ended
June 30, 1999 and 2000 is unaudited)

1. The Company

Extricity, Inc. ("Extricity" or the "Company") was incorporated on April 3,
1996 in California, and subsequently reincorporated in June 2000 in the state
of Delaware. The Company is a provider of infrastructure software and services
for achieving business-to-business relationship management ("B2BRM"). The
Company develops and markets software that enables companies to extend business
processes beyond corporate boundaries to forge tighter relationships and
collaborate more efficiently with customers, partners and suppliers. The
Extricity B2B platform features a business-to-business server, a broad line of
integration adapters, communication channel components and packaged business
process solutions for specific industries to provide a comprehensive B2BRM
platform. Companies can implement the Extricity B2B products to power trading
communities, establish net market exchanges and to provide back end fulfillment
for their e-commerce activities. The Company's products, which are based on
open standards such as XML, allow users to reduce costs, shorten lead cycle
times, simplify extended operations, gain visibility and control, increase
customer and partner service levels, increase profitability and extend
investments in existing information technology.

In October 1999, the Company established a wholly-owned subsidiary in the
U.K., Extricity Software, Limited.

The Company is subject to a number of risks associated with companies in a
similar stage of development, including a history of net losses and the
expectation to continue to incur losses; volatility of and rapid change in the
B2B software integration industry; potential competition from larger, more
established companies; and dependence on key employees for technology and
support.

2. Summary of significant accounting policies

Principles of consolidation

The consolidated financial statements include the accounts of Extricity, Inc.
and its wholly-owned subsidiaries. All material intercompany accounts and
transactions have been eliminated.

Management estimates

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

Fair value information

The carrying amount of current assets and current liabilities approximates
fair value because of the short maturity of these instruments. The carrying
amount of the Company's debt approximates fair value based on the floating
interest rates.

F-7
<PAGE>

EXTRICITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Cash and cash equivalents

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

Short-term investments

The Company's short-term investments consist of corporate bonds with original
maturities at date of purchase beyond three months and less than one year. The
Company classifies its short-term investments as "available-for-sale." The
difference between the cost basis and the market value of the Company's
investments and unrealized gross holding gains and losses was not material as
of March 31, 1999 and 2000. Realized gains and losses are recorded on the
specific identification method.

Property and equipment

Property and equipment are stated at cost. Depreciation is computed on the
straight-line method over the estimated useful lives of the related assets,
ranging from three to five years. Leasehold improvements are amortized over the
shorter of the term of the related lease or the estimated useful life of the
asset.

Restricted cash

In October 1997, the Company entered into a facilities operating lease
agreement. Under the terms of the agreement, the Company is required to hold a
certificate of deposit as a form of security. As of March 31, 1999, the
certificate of deposit amounted to $180,000. In January 2000, the Company
entered into an additional facilities operating lease which increased the
security requirement and certificate of deposit to $300,000 as of March 31,
2000.

In June 2000, the Company entered into a facilities operating sublease
agreement. Under the terms of the sublease agreement, the Company is required
to provide a security deposit in the form of an irrevocable letter of credit of
approximately $8,600,000. The Company has provided two irrevocable letters of
credit through two banks that are secured by certificates of deposits for the
security requirement.

Software development costs

The Company accounts for software development costs in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,"
whereby costs for the development of new software product and substantial
enhancements to existing software products are expensed as incurred until
technological feasibility has been established, at which time any additional
costs are capitalized until the product is commercially available. The Company
has defined technological feasibility as the completion of beta testing of a
working product. Through March 31, 2000, software development costs incurred
subsequent to the establishment of technological feasibility and prior to
commercial availability have not been significant and, accordingly, all
software development costs have been charged to research and development
expense in the accompanying consolidated statements of operations.

Deferred revenue

Deferred revenue includes unearned license fees and prepaid services that
will be recognized as revenue in the future as the Company delivers licenses
and performs services.

F-8
<PAGE>

EXTRICITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Income taxes

Deferred tax assets and liabilities are recognized for the estimated future
tax consequences of temporary differences and income tax credits. Temporary
differences are primarily the result of the differences between the tax basis
of assets and liabilities and their financial reporting amounts. Deferred tax
assets and liabilities are measured by applying enacted statutory tax rates
applicable to the future years in which deferred tax assets or liabilities are
expected to be settled or realized. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.

Revenue recognition

The Company's revenues are derived from two sources, license fees and
services. Services include consulting, software maintenance and training.

Revenue from the sale of software licenses is generally recognized upon
shipment of product, provided that the fee is fixed or determinable, persuasive
evidence of an arrangement exists and collection of the resulting receivable is
considered probable. Historically, the Company has not experienced significant
returns or exchanges of its products from direct sales to customers.

The timing of recognizing license fees as revenue is affected by the type of
license sold. Certain licenses grant perpetual rights while others are
available on an annual renewable basis. Revenue recognition related to
perpetual licenses is affected by whether the Company performs consulting
services in the arrangement and the nature of those services. In the majority
of cases, the Company either performs no consulting services at all or performs
standard implementation services that are not essential to the functionality of
the software. In these cases, the Company recognizes license fees revenue
either upon delivery of the software or on customer acceptance, if the
arrangement has acceptance criteria (which occurs infrequently). In certain
rare instances, the Company performs consulting services that are essential to
the functionality of the software. In such cases, both the license fees and
services revenue are recognized using the percentage of completion method of
accounting, based on the percentage that incurred contract costs to date bear
to the most recent estimates of total contract costs. The effect of changes to
total estimated contract costs is recognized in the period such changes are
determined. Provisions for estimated losses are made in the period in which the
loss first becomes apparent.

Revenue on annual renewable licenses is recognized ratably over the one-year
term of the agreement, as the Company does not have vendor specific objective
evidence for software maintenance in annual renewal license arrangements.

License fees from value-added resellers are recognized when the product has
been sold through to an end user and such sell-through has been reported to the
Company, provided that the fee is fixed or determinable, persuasive evidence of
an arrangement exists and collection of the resulting receivable is considered
probable.

Many of the Company's arrangements include multiple elements. In such cases,
the Company allocates revenue to the different elements of a contract based on
vendor-specific objective evidence of fair value as determined by the price
charged for the individual elements when they are sold separately.

F-9
<PAGE>

EXTRICITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Services revenues include consulting, maintenance and training. Training and
consulting revenues are recognized as the services are performed. Revenues from
maintenance contracts, which include the rights to unspecified upgrades and
technical support, is recognized ratably over the term of the applicable
agreement.

Stock-based compensation

The Company measures compensation expense for its employee stock-based
compensation using the intrinsic value method in accordance with Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees," and provides pro forma disclosures of net loss as if the fair value
method had been applied in measuring compensation expense in accordance with
SFAS No. 123, "Accounting for Stock-Based Compensation." Under the intrinsic
value method of accounting for stock-based compensation, when the exercise
price of options granted to employees is less than the fair value of the
underlying stock on the grant date, compensation expense is recognized over the
applicable vesting period.

Foreign currency translation

The functional currency of the Company's foreign subsidiaries are deemed to
be the local countries' currency. Consequently, assets and liabilities outside
the United States are translated into United States dollars using current
exchange rates as of the applicable balance sheet date. Revenues and expenses
are translated at the average exchange rate prevailing during the period.

Net loss per share and pro forma net loss per share

Historical basic net loss per share is computed based on the weighted average
number of outstanding shares of common stock, less shares subject to
repurchase. Diluted net loss per share adjusts the weighted average number of
outstanding shares of common stock for the potential dilution that could occur
if stock options, warrants or convertible securities were exercised or
converted into common stock. Diluted net loss per share is the same as basic
net loss per share for all periods presented because the effects of such items
were antidilutive given the Company's losses.

Pro forma basic net loss per share has been calculated assuming the
conversion of preferred stock into common stock, based on the respective
conversion ratios, as if the shares had been converted on the original dates of
their issuance.

F-10
<PAGE>

EXTRICITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following table presents the calculation of basic and diluted net loss
per share and pro forma basic and diluted net loss per share (in thousands,
except per share data):

<TABLE>
<CAPTION>
Three Months
Year Ended March 31, Ended June 30,
-------------------------- -----------------
1998 1999 2000 1999 2000
------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Net loss..................... $(5,973) $(9,097) $(19,889) $(3,994) $(12,416)
======= ======= ======== ======= ========
Historical:
Weighted average shares of
common stock outstanding.. 3,393 4,836 6,179 5,548 10,200
Less: Weighted average
shares of common stock
subject to repurchase..... (1,975) (2,098) (1,890) 1,848 (4,692)
------- ------- -------- ------- --------
Weighted average shares
used in computing basic
and diluted net loss per
share..................... 1,418 2,738 4,289 3,700 5,508
======= ======= ======== ======= ========
Basic and diluted net loss
per share................... $ (4.21) $ (3.32) $ (4.64) $ (1.08) $ (2.25)
======= ======= ======== ======= ========
Pro forma:
Shares used above.......... 4,289 5,508
Pro forma adjustment to
reflect assumed conversion
of convertible preferred
stock..................... 17,011 22,887
-------- --------
Weighted average shares
used in computing pro
forma basic and diluted
net loss per share........ 21,300 28,395
======== ========
Pro forma basic and diluted
net loss per share.......... $ (0.93) $ (0.44)
======== ========
</TABLE>

The Company has excluded all convertible preferred stock, outstanding stock
options, warrants and shares subject to repurchase by the Company from the
calculation of historical diluted net loss per share because these securities
are anti-dilutive for all years presented. Common shares excluded from the
calculation of diluted net loss per share are detailed in the table below (in
thousands).

<TABLE>
<CAPTION>
Three Months Ended
Year Ended March 31, June 30,
-------------------- -------------------
1998 1999 2000 1999 2000
------ ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C>
Conversion of convertible
preferred stock................. 10,063 13,973 18,380 16,348 26,132
Outstanding stock options........ 1,886 2,195 1,934 1,664 2,563
Warrants......................... -- 218 293 248 308
Common shares subject to
repurchase...................... 291 489 3,640 1,331 5,133
------ ------ ------ --------- ---------
12,240 16,875 24,247 19,591 34,136
====== ====== ====== ========= =========
</TABLE>

See Notes 8 and 9 for further information on these securities.

F-11
<PAGE>

EXTRICITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Subsequent to March 31, 2000, the following transactions occurred that would
have changed the number of common shares or potential common shares outstanding
at March 31, 2000 if the transactions had occurred before the end of the
period:

<TABLE>
<CAPTION>
For the Period From
April 1 to September 1,
2000
-----------------------
(unaudited)
<S> <C>
Stock options granted................................ 2,936,459
Issuance of convertible preferred stock.............. 7,751,938
Stock options cancelled.............................. (69,682)
Shares repurchased................................... (34,337)
----------
10,584,378
==========
</TABLE>

Comprehensive income

In fiscal 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and displaying
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. Such items may include
foreign currency translation adjustments and unrealized gains/losses from
investing and hedging activities.

Recent accounting pronouncements

In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133, as amended, requires certain accounting and reporting standards for
derivative financial instruments and hedging activities and is effective for
fiscal years beginning after June 15, 2000. SFAS No. 133 will be effective for
the Company on April 1, 2001. Because the Company does not currently hold any
derivative instruments and does not engage in hedging activities, management
does not believe that the adoption of this statement will have a material
impact on the Company's financial position or results of operations.

In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition," which provides
guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue and provides guidance for disclosures
related to revenue recognition policies. The Company has retroactively adopted
SAB 101 for all periods presented. The adoption of SAB 101 had no impact on the
Company's consolidated financial statements.

In March 2000, the Emerging Issues Task Force ("EITF") reached a consensus on
Issue 00-2, "Accounting for the Costs of Developing a Web Site" ("EITF 00-2").
EITF 00-2 states that for specific web site development costs, the accounting
for such costs should be based generally on a model consistent with the
American Institute of Certified Public Accountants Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." All costs incurred in the planning stage should be
expensed as incurred. For the web site application and development stage, all
costs relating to software used to operate a web site should be accounted for
pursuant to SOP 98-1, unless a plan exists

F-12
<PAGE>

EXTRICITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

to market the software externally, in which case the costs should be accounted
for pursuant to SFAS No. 86. Web site hosting fees should be expensed over the
period of benefit and web site graphics should be capitalized in accordance
with SOP 98-1. This consensus will be applicable to all web site development
costs incurred for quarters beginning after June 30, 2000, even for costs
relating to projects that are in progress as of that date. The Company is
currently evaluating EITF 00-2 and does not expect that the abstract will have
a material effect on its financial position or results of operations.

In March 2000, the FASB issued Financial Standards Board Interpretation No.
44, "Accounting for Certain Transactions involving Stock Compensation--an
Interpretation of APB Opinion No. 25" ("FIN No. 44"). FIN No. 44 addresses the
application of APB No. 25 to clarify, among other issues, (a) the definition of
employee for purposes of applying APB No. 25, (b) the criteria for determining
whether a plan qualifies as a noncompensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. FIN No. 44 is effective July 1, 2000, but
certain conclusions cover specific events that occur after either December 15,
1998, or January 12, 2000. To the extent FIN No. 44 covers events occurring
during the period after December 15, 1998, or January 12, 2000, but before the
effective date of July 1, 2000, the effects of applying the interpretation will
be recognized on a prospective basis from July 1, 2000. The Company is
currently evaluating FIN No. 44 and does not expect that it will have a
material effect on its financial position or results of operations.

Interim financial information

The interim financial information as of June 30, 2000 and for the three
months ended June 30, 1999 and 2000 is unaudited but, in the opinion of
management, has been prepared on the same basis as the annual consolidated
financial statements and includes all adjustments (consisting only of normal
recurring adjustments) that the Company considers necessary for a fair
presentation of its financial position at such date and its operating results
and cash flows for those periods. Results for the interim periods are not
necessarily indicative of the results to be expected for the entire year, or
any future period.

3. Significant Concentrations

Financial instruments which potentially expose the Company to concentration
of credit risk consist primarily of cash and cash equivalents and accounts
receivable. The Company maintains its cash and cash equivalents in bank
accounts which, at times, may exceed federally insured limits. The Company has
not experienced any losses on such accounts. Accounts receivable consists
principally of amounts due from large, credit-worthy companies. The Company
monitors the balances of individual accounts to assess any collectibility
issues. The Company has not experienced significant losses related to
receivables in the past.

As of March 31, 1999, three individual customers accounted for 56%, 16% and
15% of accounts receivable, respectively. As of March 31, 2000, three
individual customers accounted for 21%, 13% and 12% of accounts receivable,
respectively. As of June 30, 2000, one customer accounted for 18% of accounts
receivable.

F-13
<PAGE>

EXTRICITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Several customers have accounted for more than 10% of the Company's revenues.
The amount of revenue from these customers as a percentage of total revenues is
included in the table below.

<TABLE>
<CAPTION>
Year Ended Three Months
March 31, Ended June 30,
---------------- -----------------
1998 1999 2000 1999 2000
---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C>
Customer A................................. 49% 15% * 12% *
Customer B................................. 44% * * * *
Customer C................................. -- 44% * 30% *
Customer D................................. -- 13% 15% 32% *
Customer E................................. -- 12% * 12% *
</TABLE>

*Less than 10% of revenue.

4. Consolidated Balance Sheets Detail

Property and equipment consisted of the following (in thousands):

<TABLE>
<CAPTION>
March 31,
---------------
1999 2000
------ -------
<S> <C> <C>
Computer equipment.......................................... $ 889 $ 1,722
Furniture and equipment..................................... 270 493
Leasehold improvements...................................... 14 36
------ -------
1,173 2,251
Less: Accumulated depreciation and amortization............. (499) (983)
------ -------
$ 674 $ 1,268
====== =======

Accrued expenses consisted of the following (in thousands):

<CAPTION>
March 31,
---------------
1999 2000
------ -------
<S> <C> <C>
Accrued payroll and employee benefits....................... $1,144 $ 3,131
Accrued travel expenses..................................... 89 431
Accrued marketing expenses.................................. 159 374
Other accrued expenses...................................... 510 917
------ -------
$1,902 $ 4,853
====== =======
</TABLE>

5. Credit Facility

The Company has two term loans and a loan facility with Imperial Bank (the
"Bank") under an Amended and Restated Loan Agreement dated September 8, 1998
(the "Loan Agreement") as follows:

Equipment Term Loans--Two term loans with balances outstanding as of March
31, 2000 of $285,000 and $447,000, respectively. The loan for $285,000 is due
October 5, 2001 and the loan for $447,000 is due September 7, 2002.

F-14
<PAGE>

EXTRICITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Loan Facility --A revolving line of credit in the amount of $750,000 (which
will increase to $1,500,000 upon the receipt of proceeds by the Company greater
than $10,000,000 in association with any equity financing) expiring December 7,
2000 based on eligible receivables to be used for general corporate purposes.

Pursuant to the Loan Agreement, an Amended and Restated General Security
Agreement and a Collateral Assignment, Patent Mortgage and Security Agreement,
each dated September 8, 1998, the Company has granted the Bank a blanket
security interest in all of the Company's property including intellectual
property rights and its interest in its license agreements. Borrowings under
the arrangements bear interest at the Bank's prime rate (9.0% as of March 31,
2000) plus 1% and 0.75% for equipment term loans and 0.5% for the line of
credit. Certain material terms of the Loan Agreement state that available
borrowings are contingent upon satisfaction of certain loan covenants including
financial covenants related to minimum quick ratio, minimum liquidity coverage
ratio, minimum tangible net worth and maximum loss and that the Company is
prohibited from paying cash dividends. As of March 31, 2000, the Company was in
violation of the maximum loss financial covenant set forth in the Loan
Agreement. In April 2000, the Company received a waiver of the violation for
the period ended March 31, 2000.

In May 2000, the Company and the Bank amended the Loan Agreement to provide,
generally, for (i) an increase of the commitment under the line of credit from
$750,000 to $1,500,000, (ii) an extension of the term on the line of credit
through May 1, 2001 and (iii) the revision of certain financial covenants
including lowering the minimum quick ratio and increasing the permitted maximum
loss.

Maturities of long-term debt are as follows as of March 31, 2000 (in
thousands):

<TABLE>
<CAPTION>
Year Ending
-----------
<S> <C>
2001.................................................................. $359
2002.................................................................. 284
2003.................................................................. 89
----
Total................................................................. $732
====
</TABLE>

6. Income taxes

The effective tax rate differs from the amount computed by applying the U.S.
Federal corporate tax rate of 35% to the net loss as follows:

<TABLE>
<CAPTION>
Year Ended
March 31,
------------------
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Statutory Federal tax rate............................ (35)% (35)% (35)%
State tax rate, net of Federal tax benefit............ (6) (6) (6)
Change in valuation allowance......................... 41 41 41
--- --- ---
-- % -- % -- %
=== === ===
</TABLE>

F-15
<PAGE>

EXTRICITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The temporary differences that give rise to the Company's deferred tax assets
are as follows (in thousands):

<TABLE>
<CAPTION>
March 31,
-----------------
1999 2000
------- --------
<S> <C> <C>
Net operating loss carryforwards........................ $ 5,914 $ 13,384
Research and development credits........................ 736 1,218
Allowance for doubtful accounts......................... 18 438
Accrued expenses........................................ 301 200
Deferred revenue........................................ 97 200
------- --------
7,066 15,440
Valuation allowance..................................... (7,066) (15,440)
------- --------
Net deferred tax asset.................................. $ -- $ --
======= ========
</TABLE>

As of March 31, 1999 and 2000, the deferred tax assets have been fully offset
by valuation allowances. In assessing the ultimate realization of deferred tax
assets, management considers the likelihood that some or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which the temporary differences become deductible. Management
considers the scheduled reversal of any deferred tax assets, projected future
taxable income and tax planning strategies in making this assessment. The
amount of the deferred tax assets considered realizable could change in the
near term if estimates of future taxable income during the carryforward periods
are increased. In addition, utilization of the net operating losses may be
subject to a substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code of 1986, as amended, and
similar state provisions. The annual limitation may result in the expiration of
net operating losses before utilization.

As of March 31, 2000, the Company had net operating loss carryforwards of
approximately $33,600,000 each for federal and state tax purposes, which expire
in varying amounts beginning 2005 through 2020.

As of March 31, 2000, the Company also had tax credit carryforwards of
approximately $740,000 for federal and $478,000 for California income tax
purposes. The federal credit will expire on various dates beginning in 2012
through 2020, while the California credit may be carried forward indefinitely.

7. Commitments and Contingencies

The Company leases its facilities under noncancellable operating leases,
which expire at various dates through December 31, 2004. Future minimum lease
payments under these leases are as follows (in thousands):

<TABLE>
<CAPTION>
Year Ending March 31,
---------------------
<S> <C>
2001................................................................ $1,269
2002................................................................ 1,303
2003................................................................ 902
2004................................................................ 318
2005................................................................ 243
------
$4,035
======
</TABLE>

F-16
<PAGE>

EXTRICITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Rent expense for the years ended March 31, 1998, 1999 and 2000, was $468,000,
$790,000 and, $1,199,000, respectively.

In June 2000, the Company entered into a sublease agreement for approximately
70,000 square feet under an office lease for new principal and executive office
space. The lease expires in September 2006.

The Company is subject to various claims which arise in the normal course of
business. In the opinion of management, the ultimate disposition of such claims
will not have a material adverse effect on the consolidated financial position
or results of operations of the Company.

8. Convertible Preferred Stock

Convertible preferred stock

On May 10, 1996, the Company issued 3,055,000 shares of Series A Convertible
Preferred Stock ("Series A") at a purchase price of $1.00 per share for
proceeds of $3,035,000, net of issuance costs of $20,000. On June 18, 1997 the
Company issued 1,976,469 shares of Series B Convertible Preferred Stock
("Series B") at a purchase price of $2.75 per share for proceeds of $5,388,000,
net of issuance costs of $47,000. On April 24 and August 28, 1998, the Company
issued an aggregate of 1,954,937 shares of Series C Convertible Preferred Stock
("Series C") at a purchase price of $5.10 per share for proceeds of $9,880,000,
net of issuance costs of $90,000. On April 28, 1999, the Company issued
1,187,575 shares of Series D Convertible Preferred Stock ("Series D") at a
purchase price of $5.91 per share for proceeds of $6,944,000, net of issuance
costs of $75,000. On November 29, 1999, the Company issued 2,031,846 shares of
Series E Convertible Preferred Stock ("Series E") at a purchase price of $4.91
per share for proceeds of $9,921,000, net of issuance costs of $55,000. On May
8, 2000, the Company issued 7,751,938 shares of Series F Convertible Preferred
Stock ("Series F") at a purchase price of $6.45 for proceeds of $49,900,000,
net of issuance costs of $100,000, 68% of which were issued to new investors
and 32% of which were issued to existing investors.

The Company has authorized the total number of shares of each series of
convertible preferred stock as follows:

<TABLE>
<CAPTION>
Shares Liquidation
Designated Shares Amount Preference
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Series A preferred stock..... 3,055,000 3,055,000 $ 3,035,000 $ 3,055,000
Series B preferred stock..... 1,976,469 1,976,469 5,388,000 5,435,290
Series C preferred stock..... 2,055,760 1,954,937 9,880,000 9,970,179
Series D preferred stock..... 1,187,575 1,187,575 6,944,000 7,018,568
Series E preferred stock..... 2,150,000 2,031,846 9,921,000 9,976,364
---------- ---------- ----------- -----------
Balance as of March 31,
2000........................ 10,424,804 10,205,827 35,168,000 35,455,401
Series F preferred stock..... 7,800,000 7,751,938 49,900,000 50,000,000
---------- ---------- ----------- -----------
Balance as of June 30, 2000.. 18,224,804 17,957,765 $85,068,000 $85,455,401
========== ========== =========== ===========
</TABLE>

F-17
<PAGE>

EXTRICITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The rights, restrictions and preferences of convertible preferred stock are
as follows:

. Each share of Series A, B, C and D is convertible, at the right and
option of the stockholder, into two shares of common stock. The
conversion ratio is subject to adjustment in the event of stock splits
and stock dividends.

. Each share of Series E and F is convertible, at the right and option of
the stockholder, into one share of common stock. The conversion ratio is
subject to adjustment in the event of stock splits and stock dividends.

. Each holder of Series A, B, C, D, E and F is entitled to the number of
votes equal to the number of shares of common stock into which the
shares of preferred stock could be converted.

. Each share of Series A, B, C, D, E and F shall automatically be
converted into shares of common stock at the then effective conversion
rate for each series immediately prior to the closing of a firm
commitment underwritten initial public offering ("IPO") of the Company's
common stock at a price per share of not less than $9.00 and aggregate
gross proceeds of not less than $25,000,000, exclusive of underwriting
discounts and offering expenses.

. Each holder of Series A, B, C, D, E and F is entitled to noncumulative
dividends, if and when declared by the Board of Directors, equal to
$0.05 per share per annum, prior and in preference to any distribution
on the common stock. No dividends have been declared to date.

. In the event of any liquidation, dissolution or winding up of the
Company, the holders of the Series D, E and F shall be entitled to
receive, prior and in preference to any distribution to the holders of
the common stock, Series A and B and on an equal priority with the
holders of Series C, the amount of $5.91, $4.91 and $6.45, respectively,
per share, plus an amount equal to all declared but unpaid dividends on
such shares. The holders of Series A, B and C shall be entitled to
receive, prior and in preference to any distribution to the holders of
the common stock, the amount of $1.00, $2.75 and $5.10 per share,
respectively, plus an amount equal to all declared but unpaid dividends
on such shares.

Series C convertible preferred stock warrants

In April 1998, the Company issued warrants to purchase 58,823 shares of
Series C for $5.10 per share in connection with the issuance of Series C
convertible preferred stock to a certain stockholder. Such warrants are
exercisable on the date when a joint team of this stockholder and Company
engineers achieve certain performance benchmarks as defined in a Collaboration
Agreement. During fiscal 2000, the benchmarks were achieved, and the warrants
became fully exercisable. Such warrants expire on August 17, 2003. In
accordance with EITF 96-18, "Accounting For Equity Instruments That Are Issued
To Other Than Employees For Acquiring, Or In Conjunction With Selling, Goods Or
Services," the Company estimated the fair value of the warrants to be
approximately $59,000 on the date at which a commitment for performance was
obtained, using the Black-Scholes model with the following assumptions: risk-
free interest rate of 5.5%, term of 4 years, expected volatility of 72% and no
expected dividends. The fair value of the warrants was recorded as research and
development expenses in the accompanying consolidated statement of operations
in fiscal 2000.

F-18
<PAGE>

EXTRICITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

In March 1999, in connection with a revenue transaction, the Company issued
fully exercisable warrants to purchase 42,000 shares of Series C for $5.10 per
share, which expire in April 2002. The fair value of the warrants at the date
of issuance was determined to be $124,000 and was estimated using the Black-
Scholes model with the following assumptions: risk-free interest rate of 5.6%,
term of 4 years, expected volatility of 72% and no expected dividends. The fair
value of the warrants was offset against license fees in fiscal 1999.

Series E convertible preferred stock warrants

In March 2000, in connection with a revenue transaction, the Company issued
fully exercisable warrants to purchase 20,000 shares of Series E for $16.00 per
share, which expire in March 2004. The fair value of the warrants at the date
of issuance was determined to be $108,000 and was estimated using the Black-
Scholes model with the following assumptions: risk-free interest rate of 6.5%,
term of 4 years, expected volatility of 82% and no expected dividends. The fair
value of the warrants was offset against license fees in fiscal 2000.

Series F convertible preferred stock warrants

In June 2000, the Company issued fully vested, nonforfeitable warrants in
connection with a facilities sublease agreement to the landlord and sublandlord
to each purchase 20,000 shares of Series F convertible preferred stock at a
strike price of $6.45 per share. The warrants expire in July 2004. The fair
value of the warrants at the date of issuance was determined to be
approximately $250,000 using the Black-Scholes valuation model and will be
amortized over the term of the sublease agreement.

Unaudited pro forma stockholders' equity

In May 2000, the Company's Board of Directors authorized the filing of a
registration statement with the SEC to register shares of its common stock in
connection with a proposed IPO. If the IPO is consummated under the terms
presently anticipated, all of the outstanding convertible preferred stock at
June 30, 2000, will be converted into 26,131,746 shares of common stock upon
the closing of the IPO. In addition, as discussed in Note 12, in June 2000 the
Company reincorporated in Delaware and established a par value for its common
stock of $.00001. The effect of both the conversion and the reincorporation has
been reflected in pro forma stockholders' equity in the accompanying
consolidated balance sheet as of June 30, 2000.

9. Common Stock

On April 21, 1999, the Company's Board of Directors approved a two for one
stock split for each share of common stock which was effective as of June 7,
1999. All share and per share data in the accompanying financial statements
have been retroactively restated to reflect the split.

In December 1998, the Company issued fully exercisable warrants to purchase
16,666 shares of common stock for $0.365 per share to a vendor in conjunction
with services performed. The warrants expire in December 2002. The fair value
of the warrants at the date of issuance was estimated using the Black-Scholes
model with the following assumptions: risk-free interest rate of 4.55%, term of
4 years, expected volatility of 72% and no expected dividends. The value of the
common stock warrants was determined to be immaterial.

F-19
<PAGE>

EXTRICITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

In May 1999, the Company issued fully exercisable warrants to purchase 30,000
shares of common stock for $0.365 per share to a charitable organization. The
warrants expire in May 2001. The fair value of the warrants at the date of
issuance was determined to be $84,000 and was estimated using the Black-Scholes
model with the following assumptions: risk-free interest rate of 5.2%, term of
2 years, expected volatility of 82% and no expected dividends. The fair value
of the warrants was included in general and administrative expenses in the
accompanying consolidated statements of operations.

In March 2000, the Company issued fully vested, nonforfeitable warrants to
purchase 25,000 shares of common stock for $1.74 per share in conjunction with
legal services to be provided. In April 2000, all of the warrants were
exercised. The Company estimated the fair value of the warrants to be
approximately $103,000 as of March 31, 2000, using the Black-Scholes model with
the following assumptions: risk-free interest rate of 6.63%, term of 2 years,
expected volatility of 82% and no expected dividends. This fair value of the
warrants was included in prepaid expenses in the accompanying consolidated
balance sheets. The warrants will continue to be revalued over the performance
period.

The Company's Articles of Incorporation designate and authorize 40,000,000
shares of common stock. As of March 31, 2000, the Company had reserved shares
of its common stock for future issuance as follows (in thousands):

<TABLE>
<S> <C>
Conversion of Series A preferred stock.............................. 6,110
Conversion of Series B preferred stock.............................. 3,953
Conversion of Series C preferred stock.............................. 3,910
Conversion of Series D preferred stock.............................. 2,375
Conversion of Series E preferred stock.............................. 2,032
Conversion of preferred stock upon exercise of stock warrants....... 222
Exercise of common stock warrants................................... 72
Issuance and exercise of common stock options....................... 4,955
------
Total shares reserved............................................. 23,629
======
</TABLE>

Stock-based compensation

For the year ended March 31, 2000 and the three months ended June 30, 2000,
in connection with the grant of certain stock options to employees, the Company
recorded deferred compensation of approximately $15.7 million and $ 8.4
million, respectively, representing the difference between the deemed value of
the common stock for accounting purposes and the option exercise price at the
date of the option grant. Such amount is presented as a reduction of
stockholders' equity and will be amortized over the vesting period of the
applicable options in a manner consistent with Financial Standards Board
Interpretation No. 28, "Accounting for Stock Appreciation Rights and Other
Variable Stock Option or Award Plans." Approximately $2.3 million was expensed
during the year ended March 31, 2000 and is included in amortization of
deferred stock-based compensation in the accompanying consolidated statement of
operations. Amortization expense of $12,800,000, $5,700,000, $2,600,000 and
$688,000 will be recorded in fiscal years 2001, 2002, 2003 and 2004,
respectively. Compensation expense is decreased in the period of forfeiture for
any accrued but unvested compensation arising from the early termination of an
option holder's services.

F-20
<PAGE>

EXTRICITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Notes receivable from stockholders

The Company has issued nine full recourse notes to seven stockholders for the
purchase of common stock upon the exercise of stock options totaling $2,062,000
at March 31, 2000 that are secured by 3,353,000 shares of the Company's common
stock. The notes bear interest at an annual rate of 5.61%. Principal and
accrued interest are repayable prior to maturity, or upon termination of the
respective employee. Maturity dates range from June 21, 2003 to February 28,
2005.

In May 2000, the Company issued two full recourse notes to two officers of
the Company for the purchase of common stock upon the exercise of stock options
totalling $4,689,000 that are secured by 889,736 shares of the Company's common
stock. The notes bear interest at an annual rate of 5.61% and principal and
accrued interest are repayable prior to maturity, upon termination of the
respective officer, or five years from the issuance date of the note.

Stock options

In 1996, the Company adopted an incentive and nonstatutory stock option plan
(the "1996 Stock Option Plan") for which 8,740,000 shares have been reserved
for issuance. Options granted under the 1996 Stock Option Plan are for periods
not to exceed ten years from the date of grant. Exercise prices of incentive
stock option grants under the 1996 Stock Option Plan will not be less than 100%
of the fair market value of the stock at the date of grant and exercise price
for nonstatutory stock options will not be less than 85% of the fair market
value of the stock at the date of grant, all as determined by the Board of
Directors. Options granted to stockholders who own more than 10% of the
outstanding stock of the Company are for periods not to exceed five years from
the date of grant and must be issued at prices not less than 110% of the fair
market value of the stock on the date of grant as determined by the Board of
Directors. Incentive options granted to employees generally vest over four
years, with 25% vesting upon the first anniversary of the vesting commencement
date, and the balance vesting ratably each month over a thirty-six month period
or shorter period as determined by the Board of Directors. The 1996 Stock
Option Plan provides that the options may be exercised prior to the options
becoming vested. If the optionee's employment is terminated for any reason, the
Company has the right to repurchase any unvested shares.

In February 2000, the Company granted 1,922,932 nonstatutory stock options to
an officer of the Company outside of the 1996 Stock Option Plan. These options,
which the Company has reserved for separately, were granted at an exercise
price of $0.82 per share and will vest with respect to 12.5% of the options on
the six-month anniversary of the officer's start date and the balance vesting
ratably each month over a forty-two month period.

During the years ended March 31, 1998, 1999, and 2000, the Company granted
options to purchase 27,786, 47,316 and 68,279 shares, respectively, of common
stock to non-employees in exchange for recruiting and research services at a
range of exercise prices between $0.05 and $0.82 per share, contractual terms
of ten years and vesting periods ranging from immediate to 50% per year over a
two-year period. The Company accounted for the options consistent with EITF 96-
18. In fiscal years 1998 and 1999, the estimated fair value of the options
using the Black-Scholes model was immaterial. In fiscal 2000 the estimated fair
value of the options using the Black-Scholes model was determined to be
approximately $197,000 and was recorded as $12,000 as research and development
expense, $28,000 as sales and marketing expense and $157,000 as general and
administrative expense in the accompanying consolidated statements of
operations.

F-21
<PAGE>

EXTRICITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Company's stock option activity is summarized below:

<TABLE>
<CAPTION>
1996 Stock Weighted
Option Average
Plan Options Exercise
Shares Outstanding Price
---------- ----------- --------
<S> <C> <C> <C>
Balance as of March 31, 1999............. 1,586,992 1,044,960 $0.05
Granted under the 1996 Stock Option
Plan.................................... (1,592,286) 1,592,286 $0.12
Exercised................................ -- (645,906) $0.12
Cancelled................................ 105,840 (105,840) $0.05
---------- ----------
Balance as of March 31, 1998............. 100,546 1,885,500 $0.09
Additional shares authorized............. 2,100,000 -- --
Repurchase of restricted common stock.... 360,000 -- --
Granted under the 1996 Stock Option
Plan.................................... (2,154,382) 2,154,382 $0.33
Exercised................................ -- (1,613,724) $0.14
Cancelled................................ 230,794 (230,794) $0.13
---------- ----------
Balance as of March 31, 1999............. 636,958 2,195,364 $0.28
Additional shares authorized............. 4,000,000 -- --
Repurchase of restricted common stock.... 49,868 -- --
Granted under the 1996 Stock Option
Plan.................................... (1,993,879) 1,993,879 $0.78
Granted outside of the 1996 Stock Option
Plan.................................... -- 1,922,932 $0.82
Exercised................................ -- (3,850,614) $0.59
Cancelled................................ 327,084 (327,084) $0.32
---------- ----------
Balance as of March 31, 2000............. 3,020,031 1,934,477 $0.70
Additional shares authorized............. 3,100,000 -- --
Repurchase of restricted common stock.... 14,310 -- --
Granted under the 1996 Stock Option
Plan.................................... (1,809,093) 1,809,093 $3.33
Granted outside of the 1996 Stock Option
Plan.................................... -- 789,736 $5.48
Exercised................................ -- (1,949,692) $3.10
Cancelled................................ 20,298 (20,298) $2.24
---------- ----------
Balance as of June 30, 2000.............. 4,345,546 2,563,316 $2.18
========== ==========
</TABLE>

As of March 31, 2000, a total of 348,950 options were vested and unexercised
and 3,640,199 shares purchased through early exercise of stock options were
subject to repurchase. As of June 30, 2000, a total of 223,069 options were
vested and unexercised and 5,133,432 shares purchased through early exercise of
stock options were subject to repurchase.

Options outstanding as of March 31, 2000, and related weighted average
exercise price and contractual life information are as follows:

<TABLE>
<CAPTION>
Options Outstanding Options Vested
------------------------------------ ------------------------
Number
Number Weighted Weighted Vested as
Outstanding Average Average of Weighted
as of Contractual Exercise March 31, Average
Range of Exercise Price March 31, 2000 Life (Years) Price 2000 Exercise Price
----------------------- -------------- ----------- -------- --------- --------------
<S> <C> <C> <C> <C> <C>
$0.05-$0.14............. 195,000 7.20 $0.12 173,124 $0.12
$0.26-$0.49............. 1,052,573 9.13 $0.43 172,882 $0.33
$0.82................... 356,004 9.84 $0.82 2,944 $0.82
$1.74................... 330,900 9.98 $1.74 -- $ --
--------- -------
1,934,477 9.21 $0.69 348,950 $0.23
========= =======
</TABLE>

F-22
<PAGE>

EXTRICITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

In May 2000, in connection with the Series F offering discussed in Note 8 and
under the terms of an offer letter, the Company granted an officer of the
Company a stock option outside the 1996 Stock Option Plan to purchase 789,736
shares of common stock at an exercise price of $5.48 to enable him to achieve a
7% equity interest in the Company. As a result, the Company recorded deferred
stock-based compensation of $1,990,000, representing the difference between the
deemed value of the common stock for accounting purposes and the option
exercise price at the date of grant.

Fair value disclosure

Had compensation expense for stock options granted to employees been
determined based on the fair value of the related options at the grant dates,
consistent with SFAS No. 123, the Company's net loss and net loss per share
would have increased by the pro forma amounts indicated below (in thousands,
except per share data):

<TABLE>
<CAPTION>
Year Ended March 31,
--------------------------
1998 1999 2000
------- ------- --------
<S> <C> <C> <C>
Net loss, as reported.......................... $(5,973) $(9,097) $(19,889)
Net loss, pro forma............................ $(5,981) $(9,272) $(20,418)
Basic and diluted net loss per share, as re-
ported........................................ $ (4.21) $ (3.32) $ (4.64)
Basic and diluted net loss per share, pro
forma......................................... $ (4.22) $ (3.39) $ (4.76)
</TABLE>

The weighted average fair value of options granted during 1998, 1999 and 2000
was $0.03, $0.06 and $0.27, respectively.

The Company calculated the fair value of each option on the date of grant
using the Black-Scholes option valuation model with the following assumptions:

<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------------
1998 1999 2000
--------- --------- ---------
<S> <C> <C> <C>
Expected life (years)....................... 4 4 4
Risk-free interest rate..................... 6.09-6.41% 4.52-5.62% 5.19-6.63%
Volatility.................................. 0.0% 0.0% 82.0%
Dividend yield.............................. 0.0% 0.0% 0.0%
</TABLE>

Employee stock purchase plan

In June 2000, the Board of Directors approved the Company's 2000 Employee
Stock Purchase Plan ("ESPP"). The ESPP will become effective upon the
completion of the IPO. The plan permits participants to purchase common stock
through payroll deductions of up to 20% of the participant's base salary and
commissions, or through a single lump sum cash payment in the case of the first
offering period. Such amounts are applied to the purchase by the Company of
shares of common stock at the end of each offering period at a price which is
generally 85% of the lower of the fair market value of the common stock on
either the first or last day of the offering period. The maximum number of
shares a participant may purchase in any six-month offering period is the
lesser of 1,000 shares or a number of shares determined by dividing $12,500 by
the fair market value of a share of common stock at the beginning of the
offering period. Participants may voluntarily end their participation at any
time during an offering period, and participation ends automatically upon
termination of employment.

F-23
<PAGE>

EXTRICITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

10. Segment Reporting

In fiscal 1999, the Company adopted the provisions of SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 establishes standards for the way companies report information about
operating segments in financial statements. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. Operating segments are defined as components of an enterprise about
which separate financial information is available that is evaluated regularly
by the chief operating decision maker, or decision making group, in deciding
how to allocate resources and in assessing performance. The Company's chief
operating decision maker is the Chief Executive Officer of the Company.

The Company has two operating segments: licenses and services. Revenues and
cost of revenues for the segments are identical to those presented on the
accompanying consolidated statements of operations. The company does not
allocate or report financial operations by segment beyond revenues and cost of
revenues.

Sales of licenses and services through March 31, 2000 occurred through
partners and direct sales representatives located in the Company's headquarters
in Redwood Shores, California, and in other locations. These sales were
supported through the Redwood Shores location. The Company does not separately
report costs by region internally. Additionally, long-lived assets in locations
other than Redwood Shores are not significant for any period presented.

International revenues are based on the country in which the end-user is
located. The following is a summary of international license fees and services
revenue by geographic region (in thousands):

<TABLE>
<CAPTION>
Three Months
Year Ended March 31, Ended June 30,
-------------------- ---------------
1998 1999 2000 1999 2000
---- ------- ------- ---------------
<S> <C> <C> <C> <C> <C>
License fees:
United States......................... $ 70 $ 1,828 $ 3,669 $ 85 $ 1,858
Europe................................ -- 95 370 -- 107
Asia-Pacific.......................... 180 379 515 114 345
---- ------- ------- ------ --------
Total............................... $250 $ 2,302 $ 4,554 $ 199 $ 2,310
==== ======= ======= ====== ========
Services:
United States......................... $188 $ 652 $ 4,526 $ 905 $ 2,278
Europe................................ -- 17 13 4 54
Asia-Pacific.......................... 65 64 92 21 21
---- ------- ------- ------ --------
Total............................... $253 $ 733 $ 4,631 $ 930 $ 2,353
==== ======= ======= ====== ========
</TABLE>

11. 401(k) Plan

The Company has a defined contribution saving plan under Section 401(k) of
the Internal Revenue Code. The plan provides that each participant may
contribute between 1% and 20% of their pre-tax gross compensation up to a
statutorily prescribed annual limit. Employees are eligible to participate on
the first day of the first month following commencement as an employee. All
amounts contributed by employee participants and earnings on those
contributions are fully vested at all times. Employee participants may elect to
invest their

F-24
<PAGE>

EXTRICITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

contributions in various established funds. The Company has the option of
matching the employee's contributions with a discretionary employer
contribution. The Company made no such contributions in fiscal years 1998, 1999
and 2000.

12. Subsequent Events

Reincorporation

In June 2000, the Company was reincorporated in Delaware in connection with
the Company's proposed IPO.

F-25
<PAGE>

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....................................................... 3
Risk Factors............................................................. 7
Special Note Regarding Forward-Looking Statements........................ 20
Use Of Proceeds.......................................................... 21
Dividend Policy.......................................................... 21
Capitalization........................................................... 22
Dilution................................................................. 24
Selected Consolidated Financial Data..................................... 25
Management's Discussion And Analysis Of Financial Condition And Results
Of Operations........................................................... 27
Business................................................................. 42
Management............................................................... 57
Related-Party Transactions............................................... 66
Principal Stockholders................................................... 70
Description Of Capital Stock............................................. 73
Shares Eligible For Future Sale.......................................... 77
Underwriting............................................................. 79
Legal Matters............................................................ 82
Experts.................................................................. 82
Where To Find Additional Information About Extricity..................... 83
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 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.
-------------------------------------------------------------------------------

[EXTRICITY LOGO]

6,000,000 Shares

Common Stock

Deutsche Banc Alex. Brown

SG Cowen

Banc of America Securities LLC

Prospectus

, 2000
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

The following table sets forth all expenses to be paid by the Registrant,
other than the underwriting discounts and commissions payable by the Registrant
in connection with the sale of the common stock being registered. All amounts
shown are estimates except for the registration fee, the NASD filing fee and
the Nasdaq National Market listing fee.

<TABLE>
<CAPTION>
Amount to
be Paid
----------
<S> <C>
Securities and Exchange Commission registration fee............... $ 23,038
NASD filing fee................................................... 8,090
Nasdaq National Market listing fee................................ 95,000
Legal fees and expenses........................................... 500,000
Accounting fees and expenses...................................... 500,000
Blue Sky fees and expenses........................................ 10,000
Printing and engraving expenses................................... 300,000
Transfer Agent and Registrar fees................................. 8,000
Miscellaneous fees and expenses................................... 55,872
----------
Total........................................................... $1,500,000
==========
</TABLE>

Item 14. Indemnification of Directors and Officers.

Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors and other corporate agents under certain circumstances
and subject to certain limitations. The Registrant's Certificate of
Incorporation and Bylaws provide that the Registrant shall indemnify its
directors, officers, employees and agents to the full extent permitted by
Delaware General Corporation Law, including in circumstances in which
indemnification is otherwise discretionary under Delaware law. In addition, the
Registrant intends to enter into separate indemnification agreements with its
directors, officers and certain employees which would require the Registrant,
among other things, to indemnify them against certain liabilities which may
arise by reason of their status or service (other than liabilities arising from
willful misconduct of a culpable nature). We have obtained officer and director
liability insurance with respect to liabilities arising out of certain matters,
including matters arising under the Securities Act.

We also have entered into agreements with our directors and executive
officers that, among other things, indemnify them for certain expenses
(including attorneys' fees), judgments, fines and settlement amounts incurred
by them in any action or proceeding, including any action by or in the right of
Extricity, arising out of such person's services as a director or officer of
Extricity, any subsidiary of Extricity or any other company or enterprise to
which the person provides services at our request.

Reference is also made to Section 7 of the Form of Underwriting Agreement to
be filed as Exhibit 1.1 to this Registration Statement for certain provisions
regarding the indemnification of officers and directors of Extricity by the
Underwriters.

II-1
<PAGE>

Item 15. Recent Sales of Unregistered Securities.

Since April 1, 1997, we have issued and sold unregistered securities as
follows:

(*1) From April 1, 1997 through September 1, 2000, we granted options to
purchase an aggregate of 7,887,270 shares of common stock under our 1996 Stock
Option Plan, 733,408 of which were canceled in the same period, and issued an
aggregate of 5,457,768 shares of common stock upon the exercise of stock
options, 444,205 of which were repurchased in the same time period.

(*2) In June 1997, we sold 1,976,469 shares of our Series B preferred stock
to a limited number of investors at a purchase price of $2.75 per share for a
total purchase price of $5,435,289.75.

(*3) In April and August 1998, we sold an aggregate of 1,954,937 shares of
our Series C preferred stock to a limited number of investors at a purchase
price of $5.10 per share for a total purchase price of $9,970,178.70.

(*4) In April 1998, we issued a warrant, which will expire on August 17,
2003, to purchase 58,823 shares of Series C preferred stock at a price of $5.10
per share for a total purchase price of $299,997.30. This transaction was made
in reliance upon the exemption from registration provided by Section 4(2) of
the Securities Act.

(*5) In December 1998, we issued a warrant, which will expire on December 18,
2002 to purchase 16,666 shares of common stock at a purchase price of $0.365
per share for a total purchase price of $6,083.09. This transaction was made in
reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act.

(*6) In March 1999, we issued a warrant, which will expire on April 21, 2002,
to purchase 42,000 shares of Series C preferred stock at a price of $5.10 per
share for a total purchase price of $214,200.00. This transaction was made in
reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act.

(*7) In April 1999, we sold 1,187,575 shares of our Series D preferred stock
to a limited number of investors at a purchase price of $5.91 per share for a
total purchase price of $7,018,568.25.

(*8) In May 1999, we issued a warrant, which will expire on May 19, 2001, to
purchase 30,000 shares of common stock at a purchase price of $0.365 per share
for a total purchase price of $10,950.00. This transaction was made in reliance
upon the exemption from registration provided by Section 4(2) of the Securities
Act.

(9) In November 1999, we sold 2,031,846 shares of our Series E preferred
stock to a limited number of investors at a purchase price of $4.91 per share
for a total purchase price of $9,976,363.86.

(10) In January 2000, we granted 1,922,932 shares of non-qualified stock
options to an officer of Extricity at an exercise price of $0.8183 per share
for a total purchase price of $1,573,535,26, all of which were exercised. This
transaction was made in reliance upon the exemption from registration provided
by Section 4(2) of the Securities Act.

(11) In March 2000, we issued a warrant, which will expire on March 29, 2004,
to purchase 20,000 shares of Series E preferred stock at a purchase price of
$16.00 per share for a total purchase price of $320,000.00. This transaction
was made in reliance upon the exemption from registration provided by Section
4(2) of the Securities Act.

II-2
<PAGE>

(12) In March 2000, we issued a warrant, which will expire on March 13, 2005,
to purchase 25,000 shares of common stock, at a purchase price of $1.74 per
share for a total purchase price of $43,500.00. This transaction was made in
reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act.

(13) In May 2000, we granted 789,736 shares of non-qualified stock options to
an officer of Extricity at an exercise price of $5.48 per share for a total
purchase price of $4,327,753.28, all of which were exercised. This transaction
was made in reliance upon the exemption from registration provided by Section
4(2) of the Securities Act.

(14) In May 2000, we sold 7,751,938 shares of our Series F preferred stock to
a limited number of investors at a purchase price of $6.45 per share for a
total purchase price of approximately $50,000,000.

(15) In June 2000, we issued warrants, which will expire in July 2004, to
purchase 40,000 shares of Series F preferred stock, at a purchase price of
$6.45 per share for a total purchase price of $129,000. This transaction was
made in reliance upon the exemption from registration provided by Section 4(2)
of the Securities Act.
--------
* Equity instruments were issued prior to a 2-for-1 stock split effected by
Extricity in June 1999. Amounts above have been adjusted to give effect to
the stock split.

No underwriters were engaged in connection with these issuances and sales.
Grants of stock pursuant to the 1996 Stock Option Plan were made in reliance
upon the exemption from registration provided by Regulation F, Rule 701 of the
Securities Act. Each of the preferred stock transactions noted above was made
in reliance upon the exemption from registration provided by Regulation D, Rule
506 of the Securities Act.

For additional information concerning these equity investment transactions,
see the section entitled "Related Party Transactions" in the prospectus.

Item 16. Exhibits and Financial Statement Schedules.

(a) Exhibits.

<TABLE>
<CAPTION>
Number Description
------ ---------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.

+3.1 Amended and Restated Articles of Incorporation.

+3.2 Bylaws.

+3.3 Certificate of Incorporation (Delaware).

+3.4 Bylaws (Delaware).

3.5 Amended and Restated Certificate of Incorporation (Delaware,
proposed).

3.6 Amended and Restated Bylaws (Delaware, proposed).

+4.1 Specimen Stock Certificate.

+4.2 Series F Preferred Stock Purchase Agreement.

+4.3 Fifth Restated Investors' Rights Agreement.

*5.1 Opinion of Gray Cary Ware & Freidenrich LLP.

+10.1 Form of Indemnification Agreement between Registrant and Registrant's
directors and officers.

+10.2 1996 Stock Option Plan, as amended through June 21, 2000.

+10.3 2000 Employee Stock Purchase Plan.
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
Number Description
------ ----------------------------------------------------------------------
<C> <S>
+10.4 Offer letter between Registrant and Registrant's Chairman and Chief
Executive Officer, as amended.

+10.5 Offer letter between Registrant and Registrant's Vice President of
Finance and Administration, Chief Financial Officer and Secretary.

+10.6 Offer letter between Registrant and Registrant's Vice President of
Marketing.

+10.7 Offer letter between Registrant and Registrant's Vice President of
Engineering, as amended.

+10.8 Offer letter between Registrant and Registrant's Vice President of
Client Services, as amended.

+10.9 Offer letter between Registrant and Registrant's Vice President of
Worldwide Sales.

+10.10 Offer letter between Registrant and Registrant's Vice President and
Chief Technology Officer, as amended.

+10.11 Lease Agreement dated March 28, 1997, as amended, between Spieker
Properties, L.P. and Registrant.

+10.12 Loan Agreement dated October 6, 1997, as amended, between Imperial
Bank and Registrant, including Security Agreements dated September 8,
1998.

+10.13 Consent to Sublease dated June 2000, between Oracle Corporation and
Registrant, as well as Master Lease Agreement dated December 1996
between Davis Associates and Oracle Corporation
**10.14 Software OEM Licensing Agreement between International Business
Machines Corporation and Extricity, Inc. with an effective date of
August 18, 2000.
10.15 Promissory note between Registrant and Registrant's Chairman and Chief
Executive Officer.
10.16 Promissory note between Registrant and Registrant's Vice President of
Finance and Administration, Chief Financial Officer and Secretary.
10.17 Promissory note between Registrant and Registrant's Vice President of
Marketing.
10.18 Promissory note between Registrant and Registrant's Vice President of
Worldwide Sales.
10.19 Promissory note between Registrant and Registrant's Vice President of
Business Development.
21.1 Subsidiaries of the Registrant, as amended.

*23.1 Consent of Gray Cary Ware & Freidenrich LLP (included in its opinion
to be filed as Exhibit 5.1 hereto).

23.2 Consent of Arthur Andersen LLP.

+24.1 Power of Attorney (see Page II-5 of the Registration Statement).

+27.1 Financial Data Schedule.
</TABLE>
--------
* To be filed by amendment.

** Material has been omitted pursuant to a request for confidential treatment
and such material has been filed separately with the SEC.
+ Previously filed.

(b) Financial Statement Schedules.

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.

II-4
<PAGE>

Item 17. Undertakings.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
Extricity pursuant to the foregoing provisions, or otherwise, we have been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by us of expenses incurred or
paid by a director, officer or controlling person of Extricity 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, we 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 us is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.

Extricity 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.

Extricity hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, 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 Securities Act shall be deemed to be a part of this Registration
Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act of
1933, 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-5
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended,
Extricity, Inc. has duly caused this amendment to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Redwood City, State of California, on September 24, 2000.

EXTRICITY, INC.

By: /s/ Barry M. Ariko*
----------------------------------
Barry M. Ariko
Chairman and Chief Executive
Officer

KNOW ALL PERSONS BY THESE PRESENTS, that each of the persons whose names
appear below hereby appoint and constitute Barry M. Ariko, Stephen J.
Albertolle and Vicki L. Randall, Esq. and each of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to execute
any and all amendments to the within Registration Statement, and to sign any
and all registration statements relating to the same offering of securities as
this Registration Statement that are filed pursuant to Rule 462(b) of the
Securities Act of 1933, as amended, and to file the same, together with all
exhibits thereto, with the Securities and Exchange Commission, the National
Association of Securities Dealers, Inc., and such other agencies, offices and
persons as may be required by applicable law, granting unto each said attorney-
in-fact and agent, full power and authority to do and perform each and every
act and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each said attorney-in-fact and agent may
lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated:

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<C> <S> <C>
/s/ Barry M. Ariko* Chairman of the Board, Chief September 24, 2000
_________________________________ Executive Officer and President
Barry M. Ariko (chief executive officer)

/s/ Stephen J. Albertolle* Vice President--Finance and September 24, 2000
_________________________________ Administration, Chief Financial
Stephen J. Albertolle Officer (principal financial and
accounting officer) and Secretary

Director
_________________________________
Tania Amochaev

/s/ Bruce R. Bourbon* Director September 24, 2000
_________________________________
Bruce R. Bourbon

/s/ B.J. Cassin* Director September 24, 2000
_________________________________
B.J. Cassin
</TABLE>

II-6
<PAGE>

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<C> <S> <C>
/s/ Neal Dempsey* Director September 24, 2000
_________________________________
Neal Dempsey

/s/ Kenneth Ross* Director September 24, 2000
_________________________________
Kenneth Ross
</TABLE>

* By: /s/ Stephen J. Albertolle
-------------------------------
Stephen J. Albertolle
(Attorney-in-fact)

II-7
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
Extricity, Inc.

We have audited in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements of Extricity, Inc. and
subsidiary included in this registration statement and have issued our report
thereon dated April 27, 2000 (except for the matter discussed in Note 12, as to
which the date is June 28, 2000). Our audit was made for the purpose of forming
an opinion on the basic financial statements taken as a whole. The schedule
listed in the index above is the responsibility of the company's management and
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

Arthur Andersen LLP

San Jose, California
April 27, 2000

S-1
<PAGE>

SCHEDULE II

EXTRICITY, INC.

VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
Balance Additions Balance
at Charged At End
Beginning To Of
Description Of Period Operations Write-offs Period
----------- --------- ---------- ---------- --------
(in thousands)
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts Year
Ended:
March 31, 1998..................... $ -- $ 25,000 $ -- $ 25,000
======= ======== ===== ========
March 31, 1999..................... $25,000 $ 20,000 $ -- $ 45,000
======= ======== ===== ========
March 31, 2000..................... $45,000 $756,000 $ -- $801,000
======= ======== ===== ========
</TABLE>

S-2
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
Number Description
------ ----------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
+3.1 Amended and Restated Articles of Incorporation
+3.2 Bylaws
+3.3 Certificate of Incorporation (Delaware)
+3.4 Bylaws (Delaware)
3.5 Amended and Restated Certificate of Incorporation (Delaware,
proposed).

3.6 Amended and Restated Bylaws (Delaware, proposed).

+4.1 Specimen Stock Certificate
+4.2 Series F Preferred Stock Purchase Agreement
+4.3 Fifth Restated Investors' Rights Agreement
*5.1 Opinion of Gray Cary Ware & Freidenrich LLP
+10.1 Form of Indemnification Agreement between Registrant and Registrant's
directors and officers
+10.2 1996 Stock Option Plan, as amended through June 21, 2000
+10.3 2000 Employee Stock Purchase Plan
+10.4 Offer letter between Registrant and Registrant's Chairman and Chief
Executive Officer, as amended
+10.5 Offer letter between Registrant and Registrant's Vice President of
Finance and Administration, Chief Financial Officer and Secretary
Offer letter between Registrant and Registrant's Vice President of
+10.6 Marketing
+10.7 Offer letter between Registrant and Registrant's Vice President of
Engineering, as amended
+10.8 Offer letter between Registrant and Registrant's Vice President of
Client Services, as amended
Offer letter between Registrant and Registrant's Vice President of
+10.9 Worldwide Sales
+10.10 Offer letter between Registrant and Registrant's Vice President and
Chief Technology Officer, as amended
+10.11 Lease Agreement dated March 28, 1997, as amended, between Spieker
Properties, L.P. and Registrant
+10.12 Loan Agreement dated October 6, 1997, as amended, between Imperial
Bank and Registrant, including Security Agreements dated September 8,
1998
+10.13 Consent to Sublease dated June 2000, between Oracle Corporation and
Registrant, as well as Master Lease Agreement dated December 1996
between Davis Associates and Oracle Corporation
**10.14 Software OEM Licensing Agreement between International Business
Machines Corporation and Extricity, Inc. with an effective date of
August 18, 2000.
10.15 Promissory note between Registrant and Registrant's Chairman and Chief
Executive Officer.
10.16 Promissory note between Registrant and Registrant's Vice President of
Finance and Administration, Chief Financial Officer and Secretary.
</TABLE>
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
Number Description
------ -----------------------------------------------------------------------
<C> <S>
10.17 Promissory note between Registrant and Registrant's Vice President of
Marketing.
10.18 Promissory note between Registrant and Registrant's Vice President of
Worldwide Sales.
10.19 Promissory note between Registrant and Registrant's Vice President of
Business Development.
21.1 Subsidiaries of the Registrant, as amended
*23.1 Consent of Gray Cary Ware & Freidenrich LLP (included in its opinion to
be filed as Exhibit 5.1 hereto)
23.2 Consent of Arthur Andersen LLP
+24.1 Power of Attorney (see Page II--5 of the Registration Statement)
+27.1 Financial Data Schedule
</TABLE>
--------
* To be filed by amendment.

** Material has been omitted pursuant to a request for confidential treatment
and such material has been filed separately with the SEC.
+ Previously filed.