KABIRA TECHNOLOGIES INC
S-1/A, 2000-09-15
PREPACKAGED SOFTWARE
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<PAGE>   1


   AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 15, 2000



                                                      REGISTRATION NO. 333-41484

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

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


                                AMENDMENT NO. 1


                                       TO


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

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

<TABLE>
<S>                              <C>                              <C>
            DELAWARE                           7372                          68-0375619
(STATE OR OTHER JURISDICTION OF    (PRIMARY STANDARD INDUSTRIAL           (I.R.S. EMPLOYER
 INCORPORATION OR ORGANIZATION)    CLASSIFICATION CODE NUMBER)         IDENTIFICATION NUMBER)
</TABLE>

                           KABIRA TECHNOLOGIES, INC.
                              ONE MCINNIS PARKWAY
                              SAN RAFAEL, CA 94903
                                 (415) 446-5000
  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                   REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
                            ------------------------

                                  PAUL SUTTON
                            CHIEF EXECUTIVE OFFICER
                           KABIRA TECHNOLOGIES, INC.
                              ONE MCINNIS PARKWAY
                              SAN RAFAEL, CA 94903
                                 (415) 446-5000
 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
                             OF AGENT FOR SERVICE)
                            ------------------------

                                   COPIES TO:

<TABLE>
<S>                                              <C>
                BARRY E. TAYLOR                                  KENNETH R. LAMB
               HERBERT P. FOCKLER                                  BEAU STACOM
                  RAMSEY HANNA                                     KELLY DODGE
              MICHAEL H. DOMESICK                          GIBSON, DUNN & CRUTCHER LLP
        WILSON SONSINI GOODRICH & ROSATI                      ONE MONTGOMERY STREET
            PROFESSIONAL CORPORATION                         SAN FRANCISCO, CA 94104
               650 PAGE MILL ROAD                           TELEPHONE: (415) 393-8200
              PALO ALTO, CA 94304                           FACSIMILE: (415) 986-5309
           TELEPHONE: (650) 493-9300
           FACSIMILE: (650) 845-5000
</TABLE>

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

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

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

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

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

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

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

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

        THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY
        BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE
        REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
        IS DECLARED EFFECTIVE. THIS PRELIMINARY 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 15, 2000


                                 [KABIRA LOGO]

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

4,000,000 SHARES

COMMON STOCK
--------------------------------------------------------------------------------


This is the initial public offering of Kabira Technologies, Inc. and we are
offering 4,000,000 shares of our common stock. We have estimated that the
initial public offering price will be between $10.00 and $12.00 per share. We
have applied to list our common stock on the Nasdaq National Market under the
symbol "KABR."



INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 5.


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

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


We have granted the underwriters the right to purchase up to 600,000 additional
shares to cover over-allotments.


DEUTSCHE BANC ALEX. BROWN
                                    SG COWEN
                                                      THOMAS WEISEL PARTNERS LLC

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

[DESCRIPTION OF INSIDE FRONT COVER GRAPHIC]


     This is a diagram containing a graphical representation of how Kabira's
technology brings together telecommunications networks, internal enterprise
networks and the Internet, and enables the delivery of Next-Generation Services.



     At the bottom of the diagram is shown three networks consisting of
computers, switches, routers, hard disks and telecommunications devices. There
are three small arrows at the top of this network pointing upwards. The arrows
contain the words "Telecom Networks", "Internet" and "Enterprise Networks."



     The arrows point into an ellipse, which contains a center circle and four
small segments comprising the perimeter of the circle. The center circle
contains the words "Kabira -- Makers of ObjectSwitch". At the top of the circle
are the words "Design Center". Surrounding the circle, the four smaller segments
each contain two words: "Data Automation", "Network Mediation", "Package
Mediation", and "Process Automation".



     Branching out from the top of the center ellipse are three rays moving
roughly upwards. The left ray contains the words "eHubs and Real-Time
Exchanges", a picture of three buildings connected together and a data monitor.
The center ray contains the words "3G Wireless and Mobile Commerce" and a
picture of a pager and a mobile telephone. The right ray contains the words
"E-Commerce and Online Financial Services" and the symbols of several currencies
(US Dollar sign, Euro and Yen) in addition to an airplane and a cruise ship.

<PAGE>   4

                               PROSPECTUS SUMMARY

     You should read the following summary together with the more detailed
information about us, the sale of our common stock in this offering, and our
financial statements and notes to those financial statements that appear
elsewhere in this prospectus.

                                  OUR BUSINESS


     We provide a new class of infrastructure software for the development and
delivery of business and consumer services that are made possible by the
convergence of telecommunications networks, internal enterprise networks and the
Internet. This new breed of services, which we refer to as Next-Generation
Services, includes new online services that enable consumers to obtain
information and execute transactions through many types of electronic devices;
more efficient methods for managing and exploiting information about products,
customers and operations; and new electronic means for businesses to exchange
information, work together and buy and sell products and services. Specific
examples of Next-Generation Services include: mobile travel services, voice
transmission over Internet networks, wireless Internet applications, online
banking services and real-time business-to-business exchanges.



     The delivery of Next-Generation Services is complex and has been limited by
significant technological impediments. The technologies underlying
telecommunications networks, internal enterprise networks and the Internet
generally evolved independently and were designed to serve different functions.
As a result, businesses wishing to integrate these technology environments to
deliver Next-Generation Services typically face a complex and time-consuming
design and engineering effort, and may be forced to alter or limit the services
they provide because of the technical complications they encounter.



     Our ObjectSwitch platform is designed to provide the enhanced speed,
reliability and integration that businesses need to develop and deliver
Next-Generation Services that can support up to millions of users and thousands
of concurrent transactions. For optimal performance, our platform aggregates in
real memory (centrally located memory, also known as cache memory or random
access memory) the application logic, application data and transactional
instructions. By placing these basic elements of the service in close proximity
to each other, our ObjectSwitch technology allows services to operate at high
speeds and enables many different applications and services to share and access
data simultaneously in real time.



     Our customers use our ObjectSwitch product suite to create and deliver
Next-Generation Services. Working with our customers, we install our software
within our customers' existing networks. Our customers use it as a foundation to
develop new applications and services and to mediate among their existing
systems and software applications. Our product suite includes server software,
integration components, adapters for third-party applications and network
equipment and pre-built service application frameworks. Our customers use
standard industry modeling tools to design the services that they wish to
provide, and our design tools then automatically create a complete service
application that runs on our ObjectSwitch platform.



     Our technology makes it possible for our applications to recover
immediately from a system failure and restore transactions that were in process
at the time of failure. Services remain online even when developers need to
modify them to add enhanced features or new business logic. Our ObjectSwitch
product suite can easily integrate with a wide variety of commercial software,
network equipment, high-speed network protocols and access devices. Our products
enable our customers to focus on designing optimal business processes for new
services rather than devoting time and resources to overcoming technical
implementation constraints.



     To date, we have derived substantially all of our revenues from sales of
our ObjectSwitch product line and related professional services, and we expect
that sales of ObjectSwitch products and related services will continue to
account for a majority of our revenues for the foreseeable future. Our
ObjectSwitch platform has been deployed worldwide to support Next-Generation
Service offerings. We license our products and sell professional services
primarily

                                        1
<PAGE>   5


through our direct sales organization, complemented by third-party systems
integrators and value-added resellers. We are dependent on a single product and
have derived our revenues from sales to a relatively small number of large
customers who change from period to period. During our most recent fiscal year,
E*Trade Securities, New Edge Networks and Lucent Technologies accounted for 20%,
14% and 11% of our revenues. We have initially targeted our marketing efforts at
the telecommunications and financial services industries and have licensed our
software to more than twenty customers, including Aerie Networks, Alcatel,
Ameris (formerly France Caraibe Mobiles), E*Trade Securities, Energis N.V.,
France Telecom Mobile Liban, Gabriel Communications, Lucent Technologies, New
Edge Networks and Noos (formerly Lyonnaise Cable).


                                        2
<PAGE>   6

                                  THE OFFERING


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



Common stock to be outstanding after
this offering...........................     28,047,487 shares



Use of proceeds.........................     We intend to use the net proceeds
                                             of this offering for general
                                             corporate purposes, including
                                             working capital, research and
                                             development, sales, service and
                                             marketing, operating and
                                             administrative and capital
                                             expenditures. We may also use
                                             proceeds for acquisition
                                             opportunities that may arise in the
                                             future. See "Use of Proceeds" for
                                             more information regarding our
                                             planned use of the proceeds from
                                             this offering.


Proposed Nasdaq National Market
symbol..................................     KABR

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

     The above information is based on shares outstanding as of June 30, 2000.
This information excludes:

     - 2,987,421 shares of common stock that were subject to outstanding options
       at a weighted average exercise price of $2.02 per share;

     - 4,000,000 shares of common stock that will be available for issuance
       under our stock option plans and 1,000,000 shares of common stock that
       will be available for issuance under our employee stock purchase plan
       upon completion of this offering; and

     - 262,024 shares of common stock issuable upon exercise of outstanding
       warrants at a weighted average exercise price of $2.09 per share.

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

     Except as otherwise indicated, all information in this prospectus:

     - Reflects the conversion of all outstanding shares of preferred stock into
       shares of common stock, which will occur automatically upon the
       completion of this offering;

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

     - Assumes an amendment to our certificate of incorporation prior to
       completion of this offering to increase our authorized common stock to
       150,000,000 shares and to authorize 10,000,000 shares of undesignated
       preferred stock.

     See "Capitalization," "Management -- Compensation Plans," "Underwriting"
and Notes 8, 9 and 13 of Notes to Consolidated Financial Statements.

                                        3
<PAGE>   7

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


<TABLE>
<CAPTION>
                                                                     THREE MONTHS ENDED
                                          YEAR ENDED MARCH 31,            JUNE 30,
                                      ----------------------------   -------------------
                                       1998      1999       2000       1999       2000
                                      -------   -------   --------   --------   --------
                                                                         (UNAUDITED)
<S>                                   <C>       <C>       <C>        <C>        <C>
CONSOLIDATED STATEMENT OF OPERATIONS
  DATA:
Revenues:
  Software license..................  $    69   $   670   $  4,563   $   168    $ 1,909
  Service, maintenance and other....      242       602      3,686       183      3,911
                                      -------   -------   --------   -------    -------
     Total revenues.................      311     1,272      8,249       351      5,820
Cost of revenues....................      236       589      3,887       350      3,846
Gross profit........................       75       683      4,362         1      1,974
Net loss............................   (7,876)   (9,557)   (16,939)   (4,028)    (7,806)
Net loss per share:
  Basic and diluted.................  $ (8.24)  $ (6.66)  $  (7.69)  $ (2.37)   $ (2.74)
  Weighted average shares...........      956     1,435      2,203     1,699      2,854
Pro forma net loss per share:
  Basic and diluted (unaudited).....                      $  (0.99)  $ (0.25)   $ (0.38)
  Weighted average shares
     (unaudited)....................                        17,136    16,366     20,720
</TABLE>



<TABLE>
<CAPTION>
                                                                   JUNE 30, 2000
                                                        ------------------------------------
                                                                    (UNAUDITED)
                                                                                  PRO FORMA
                                                         ACTUAL     PRO FORMA    AS ADJUSTED
                                                        --------    ---------    -----------
<S>                                                     <C>         <C>          <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.............................  $ 24,003     $24,003       63,223
Working capital.......................................    17,609      17,609       56,829
Total assets..........................................    33,652      33,652       72,872
Deferred revenues.....................................     4,438       4,438        4,438
Long-term debt (including capitalized leases).........       358         358          358
Redeemable convertible preferred stock................    64,017          --           --
Stockholders' equity (deficit)........................   (42,586)     21,431       60,651
</TABLE>


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

     The pro forma net loss per share and weighted average shares used in
computing pro forma net loss per share are calculated as if all our outstanding
preferred stock was converted into shares of common stock on the date of
issuance.

     The pro forma balance sheet data give effect to the conversion of all
outstanding preferred stock into common stock upon the closing of this offering.
See Note 13 of Notes to Consolidated Financial Statements.


     The pro forma as adjusted balance sheet data reflect the pro forma effects
described above and receipt of the net proceeds from the sale of 4,000,000
shares of common stock offered by us in this offering at an assumed initial
public offering price of $11.00 per share and the application of the net
proceeds from the offering, after deducting underwriting discounts and
commissions and estimated offering expenses.

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


     We were incorporated in California as Softwire, Inc. in February 1996 and
changed our name to ObjectSwitch Corporation in October 1998. We reincorporated
in Delaware and changed our name to Kabira Technologies, Inc. in July 2000.


     Our principal executive offices are located at One McInnis Parkway, San
Rafael, California 94903. Our telephone number at that location is (415)
446-5000.

                                        4
<PAGE>   8

                                  RISK FACTORS

     You should consider carefully the following information about risks,
together with the other information contained in this prospectus, before you
decide whether to invest in our common stock. If any of the following risks
actually occurs, our business, results of operations and financial condition
could suffer significantly. In addition, the market price of our common stock
could decline, and you could lose all or part of your investment. The risks and
uncertainties described below, although comprising the risks we currently
believe to be material, may not be the only ones that we face. Additional risks
and uncertainties not presently known to us or that we currently deem immaterial
may also harm our business.

                         RISKS RELATED TO OUR BUSINESS

OUR SHORT OPERATING HISTORY MAKES IT DIFFICULT FOR YOU TO EVALUATE OUR BUSINESS
PROSPECTS.

     We were incorporated in February 1996 and commenced licensing our software
in September 1997. Because of our short operating history, we have limited
financial data that you and securities analysts can use to evaluate our business
prospects and that financial data may not be indicative of our future financial
performance. We confront similar challenges and uncertainties encountered by
growing, early stage companies, particularly companies in the new and rapidly
evolving global market for Internet-based software applications. These
challenges and uncertainties include our ability to:

     - Expand our base of customers who have fully installed and deployed our
       products and who can serve as references for our ongoing sales efforts;

     - Expand our pipeline of sales prospects in order to grow revenues and to
       promote greater predictability in our period-to-period sales levels;

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

     - Continue to develop and upgrade our technology to add additional features
       and functionality and to adapt to changing industry standards;

     - Hire aggressively to expand our sales and marketing, services and product
       development efforts;

     - Maintain our current, and develop new, relationships with third parties
       who can assist us by providing implementation and consulting services to
       our customers; and

     - Increase demand for, and market acceptance of, our products and
       technology.

     Our business strategy may not be successful, and we may not successfully
address these challenges and uncertainties. In this case, our business and stock
price will likely suffer.

BECAUSE WE HAVE A HISTORY OF OPERATING LOSSES AND ANTICIPATE CONTINUING LOSSES
FOR THE FORESEEABLE FUTURE, OUR FUTURE PROFITABILITY IS UNCERTAIN.


     To date, we have not been profitable. We have incurred net losses in every
fiscal period since we began our operations. For the fiscal year ended March 31,
2000, our net loss was $16.9 million. For the fiscal quarter ended June 30,
2000, our net loss was $7.8 million. As of June 30, 2000, our accumulated
deficit was $45.9 million. We plan to continue to expand our sales force and to
invest heavily in marketing to promote our company and products. We also plan to
expand our workforce in other areas of our company in order to support our
growing

                                        5
<PAGE>   9

business. As a result, we will need to increase our revenues significantly to
achieve and maintain profitability. Because we plan to continue to invest in our
business ahead of anticipated future revenues, we expect to continue to incur
operating losses at least through the end of the fiscal year ending March 31,
2002. If our revenues do not grow as we anticipate during and after this time,
or if our operating expenses exceed our expectations, we may not become
profitable. Even if we do become profitable, we may not be able to sustain or
increase our profitability on a quarterly or annual basis. Our failure to
achieve or maintain profitability in accordance with market expectations would
likely cause the market price of our common stock to decline.

OUR QUARTERLY OPERATING RESULTS FLUCTUATE, ARE DIFFICULT TO PREDICT AND MAY NOT
MEET ANALYST OR INVESTOR EXPECTATIONS.

     As we have grown, our quarterly revenues and results of operations have
fluctuated and have been difficult to predict. As we continue to grow, we expect
to continue to experience fluctuations in revenues and operating results from
quarter to quarter. As a result, we believe that quarter-to-quarter comparisons
of our revenues and operating results are not necessarily meaningful, and that
such comparisons may not be accurate indicators of future performance. Our
future operating results may continue to fluctuate and be difficult to predict
because of various factors including:

     - The amount and timing of operating costs related to the expansion of our
       business, operations and infrastructure;

     - The number and timing of new hires, particularly sales, services and
       operations personnel;

     - The length and variability of our sales cycles, particularly because a
       small number of customers has historically accounted for a large
       percentage of our total revenues, and we expect a small number will
       continue to do so for the foreseeable future;

     - Our ability to develop and expand relationships with third parties who
       can assist us by providing implementation and consulting services to our
       customers;

     - The utilization rate for our services and operations personnel;

     - The introduction of new products and product enhancements by us and our
       competitors; and

     - Changes in economic conditions generally, and specifically in the
       Internet and telecommunications industries, as well as in various
       geographic areas where our customers do business.

     Many of these factors are difficult or impossible for us to forecast. If
revenues fall below our expectations during a quarter, we would not be able to
quickly reduce our spending in response, which would hurt our operating results.
It is likely that in some future quarter our operating results will be below the
expectations of public market analysts and investors and, as a result, the price
of our common stock may decline.

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

                                        6
<PAGE>   10

     In addition, we predominantly use the percentage-of-completion method of
contract accounting to recognize license fees. As a result, if our professional
services organization is unable to implement our applications so that customers
can use them within our anticipated time frames, we would have to defer
recognition of revenue for those customers, which could cause our revenue in a
quarter to be less than anticipated.

IF WE FAIL TO ESTABLISH SUCCESSFUL RELATIONSHIPS WITH THIRD-PARTY SYSTEMS
INTEGRATORS THAT CAN PROVIDE IMPLEMENTATION AND CONSULTING SERVICES TO OUR
CUSTOMERS, WE MAY BE UNABLE TO GROW OUR REVENUES AND OUR BUSINESS COULD BE
HARMED.

     We are actively seeking to supplement our professional services
organization by establishing successful relationships with third-party systems
integrators that can help our customers install and deploy our products. As our
business grows, we will need to rely more heavily on these systems integrators
to meet our anticipated growth rates. As we increase our reliance on systems
integrators, we have less control over the quality of service. Moreover, as a
result of the limited resources and capacities of many systems integrators, they
may be unable to meet all of our customers' needs. If sufficient resources are
unavailable, we will be required to provide these services internally, which
could limit our ability to expand our base of customers. Systems integrators can
also influence a customer's choice of infrastructure software. A number of our
competitors have more established relationships with these systems integrators
and, as a result, these integrators may be more likely to recommend competitors'
products and services rather than our own. If we are unable to establish and
maintain effective, long-term relationships with systems integrators, or if
these integrators do not meet our customers' needs or expectations, we may be
unable to grow our revenues.

IF WE ARE UNABLE TO SUCCESSFULLY EXPAND OUR PROFESSIONAL SERVICES ORGANIZATION,
CUSTOMER SATISFACTION AND DEMAND FOR OUR PRODUCTS WILL SUFFER.

     We believe that successful implementation of our technology by our
customers and future growth in our product sales depend on our ability to
provide our customers with professional services, including customer support,
training, consulting and initial implementation and deployment of our products.
We have developed an in-house professional services organization with employees
who can perform these tasks and who also educate third-party systems integrators
in the use of our products so that they can provide these services to our
customers. New professional services personnel will require training, and it
will take time for them to reach full productivity. Competition for qualified
professional services personnel is intense due to the limited number of people
who have the requisite knowledge and skills. As a result, we may not be able to
attract or retain a sufficient number of qualified professional services
personnel. If we are unable to develop sufficient relationships with third-party
systems integrators and our professional services organization is under-staffed,
we could be unable to complete implementations in a timely manner, which would
cause delays in revenue recognition. In addition, if we do not provide adequate
customer support, consulting and training for our customers, we could face
customer dissatisfaction, damage to our reputation and decreased overall demand
for our products.

OUR PRODUCTS ARE COMPLEX, AND OUR BUSINESS WILL SUFFER IF WE DO NOT
SIGNIFICANTLY EXPAND OUR SALES FORCE, OR OUR SALES FORCE IS UNABLE TO EDUCATE
POTENTIAL CUSTOMERS ABOUT OUR PRODUCTS AND CONSUMMATE SALES.

     Our software is complex and is sold primarily through our direct sales
force. To increase our revenues, we must significantly expand our direct sales
operations by increasing the number of experienced sales personnel who can
effectively educate potential customers about the capabilities of our products.
Our products and services require sophisticated sales efforts and
                                        7
<PAGE>   11

our ability to increase our direct sales operation will depend on our ability to
recruit, train and retain highly-qualified sales people with effective sales
skills and advanced technical knowledge. Because competition for qualified
personnel is intense in our industry, we may not be successful in our efforts to
expand our sales force. If we are unable to hire and retain qualified sales
personnel, if newly hired personnel fail to develop the necessary skills, if
they reach productivity more slowly than anticipated, or if they are unable to
effectively educate potential customers about the capabilities of our products
or to consummate sales, we may be unable to grow our revenues as rapidly as we
planned, if at all.

WE HAVE DERIVED OUR REVENUES FROM SALES TO A RELATIVELY SMALL NUMBER OF LARGE
CUSTOMERS WHO CHANGE FROM PERIOD TO PERIOD. IF WE ARE NOT ABLE TO RETAIN THESE
CUSTOMERS AND ENTER INTO AGREEMENTS WITH NEW CUSTOMERS, OUR REVENUES MAY NOT
GROW OR MAY EVEN DECLINE.


     Our largest customers account for a significant percentage of our revenue.
As of June 30, 2000, we had licensed our products to a total of 29 customers. In
the years ended March 31, 1999 and 2000, sales to our three largest customers
accounted for 76% and 45% of our total revenues. In the year ended March 31,
2000, sales to E*Trade Securities, New Edge Networks and Lucent Technologies
accounted for 20%, 14% and 11% of total revenues. In the quarter ended June 30,
2000, five customers accounted for 69% of total revenues, with revenues from
E*Trade Securities and New Edge Networks accounting for 24% and 22% of total
revenues. Our license agreements do not generally provide for ongoing license
payments. We expect to continue to derive a significant percentage of our
revenues from a relatively small number of large customers in the future. Our
revenues could decline if one or more of these customers cancels a purchase
order or reschedules or decreases their level of purchases from us. In addition,
because our customers change from period to period, our failure to obtain new
customers who purchase significant amounts of our products and services would
harm our financial results.


UNEXPECTED COSTS OR DIFFICULTIES IN IMPLEMENTING OUR PRODUCTS COULD
SIGNIFICANTLY HARM OUR REPUTATION WITH CUSTOMERS AND OUR ABILITY TO GENERATE
FUTURE SALES.

     We have limited experience in implementing solutions utilizing our
technology. As a result, technical challenges and impediments may be encountered
during implementation that we did not anticipate. If unforeseen delays or
difficulties are encountered while deploying our products, our customers may
reverse their decision to use our technology, which would reduce our operating
revenues and potentially damage our reputation. Factors which could delay or
complicate the process of deploying our products include:

     - Customers may lack the internal resources to effectively manage a large
       software deployment project;

     - Customers may rely on third-party systems integrators to perform all or a
       portion of the deployment work, which reduces the control we have over
       the implementation process and our ability to assure the quality of
       service provided to the customer;

     - Our professional services staff may encounter difficulties in integrating
       unfamiliar customer systems or applications; and

     - Customers may need to purchase and deploy significant additional hardware
       and software resources.

                                        8
<PAGE>   12

WE MAY NOT BE ABLE TO ATTRACT INDEPENDENT DEVELOPERS TO BUILD THE SOFTWARE
APPLICATIONS, TEMPLATES AND COMPLEMENTARY SOFTWARE PRODUCTS REQUIRED TO SUPPORT
THE WIDESPREAD ADOPTION OF OUR TECHNOLOGY PLATFORM.

     Widespread adoption of our ObjectSwitch platform for delivering
Next-Generation Services will require significant support from independent
software developers and system integrators. We need:

     - Independent software developers to develop packaged applications based on
       our ObjectSwitch platform;

     - Systems integrators to develop application templates that can be used to
       accelerate the development and delivery of new services; and

     - Software application vendors to introduce and support complementary
       software products, such as network management and development tools.

     If we are unable to attract sufficient support from independent software
developers and systems integrators, we will be compelled to continue to devote a
substantial portion of our resources to developing and implementing customized
applications for our customers, which would divert our attention from continuing
to advance our core technology and limit our future growth. A lack of packaged
applications, application templates and complementary tools would also increase
the time and expenditures required to deploy our products, which would adversely
affect our competitive position.

OUR SALES ARE CONCENTRATED IN THE TELECOMMUNICATIONS INDUSTRY, AND IF WE ARE NOT
SUCCESSFUL IN THIS MARKET, OR IF WE FAIL TO PENETRATE OTHER INDUSTRIES, OUR
REVENUES MAY DECLINE.

     Sales to customers in the telecommunications industry accounted for most of
our revenue to date. We have also begun to sell to customers in the financial
services industry. We expect to continue to direct our sales and marketing
efforts to companies in the telecommunications and financial services
industries. If we fail to further penetrate these vertical markets, our
operating results may suffer. Given our limited market penetration, the high
degree of competition and the rapid technological change in these industries, we
may not be able to maintain sales at current levels or increase sales in these
industries. In addition, we intend to market our products to businesses engaging
in e-commerce, including businesses who are establishing or participating in
eHubs. These potential customers are likely to have different requirements than
customers in the telecommunications and financial services industries, which may
require us to change our product design or features, sales methods, support
capabilities or pricing policies. If we fail to successfully address the needs
of these potential customers, our sales may decrease in future periods.

OUR PRODUCTS GENERALLY HAVE LONG SALES CYCLES, WHICH REDUCES THE PREDICTABILITY
OF OUR REVENUES AND EARNINGS AND CAN INCREASE OUR COSTS TO OBTAIN ORDERS.

     Customers generally consider a wide range of issues before committing to
purchase our products, including product benefits, ability to operate with
existing and future systems and applications and ability to accommodate
increased transaction volume and product reliability. Many of our customers will
be addressing these issues for the first time. As a result, we or other parties,
including systems integrators, must devote significant time to educate potential
customers about the use and benefits of our products and services. In addition,
the purchase of our products generally involves a significant commitment of
capital and other resources by a customer. This commitment often requires a
lengthy technical review process, an assessment

                                        9
<PAGE>   13

of competitive products, and approval at a number of management levels within
the customer's organization.


     Our sales cycles typically range from three to twelve months. Longer sales
cycles delay the generation of revenue and require us to invest significant
resources in attempting to make sales, with no assurance that the investment
will generate revenues. The length of our sales cycles makes our revenues
difficult to predict because a small number of customers typically account for a
large percentage of our total revenues. In addition, orders expected in one
quarter could shift to another quarter or be cancelled altogether because of the
timing of customers' purchase decisions.


WE DEPEND ON A SINGLE PRODUCT LINE FOR ALL OF OUR REVENUE, AND IF OUR PRODUCTS
DO NOT ACHIEVE MARKET ACCEPTANCE, OUR REVENUES COULD DECLINE.


     Our ObjectSwitch products and related services have accounted for all of
our revenues to date. We anticipate that revenues from these products and
related services will continue to constitute substantially all of our revenues
for the foreseeable future. Our future financial performance will depend, in
significant part, upon widespread market acceptance of our ObjectSwitch
platform. Our products must be interoperable with a variety of software
applications and systems and, in some cases, process a high number of
transactions per second with high reliability. If our products fail to satisfy
these demanding technological objectives, our customers will be dissatisfied and
we may be unable to generate future sales. Any factors adversely affecting
demand for our ObjectSwitch platform, including competition and technological
change, would cause our revenues to decline and our business to suffer.


THE GROWTH OF OUR BUSINESS DEPENDS ON THE GROWTH OF THE MARKET FOR
INFRASTRUCTURE PLATFORM SOFTWARE FOR NEXT-GENERATION SERVICES.

     All of our historical revenues have been attributable to the sale of our
infrastructure platform software for Next-Generation Services. The market for
infrastructure software used to deliver Next-Generation Services is a new one.
It is too early to determine whether major corporations will choose to adopt
infrastructure platform software in order to deploy Next-Generation Services.
Although we have devoted significant resources to promoting market awareness of
our technology and the problems that our products address through our direct
sales efforts, advertising, contacts with industry analysts, trade shows and
participation in industry organizations, we do not know whether these efforts
will be sufficient to support significant growth in the market for
infrastructure platform software. Accordingly, the market for our products may
not continue to grow.

FAILURE OF OUR CURRENT OR PROSPECTIVE CUSTOMERS TO RECEIVE NECESSARY FUNDING
COULD HARM OUR BUSINESS.

     Our current and prospective customers include small, rapidly growing
Internet and telecommunications companies. Most privately and publicly held
small, rapidly growing companies require outside cash sources to continue
operations. To the extent additional funding is less available for these
companies as a result of a stock market decline or other factors, demand for our
products may decline significantly and thereby reduce our revenues.

IF WE ARE UNABLE TO ATTRACT AND RETAIN HIGHLY SKILLED EMPLOYEES, WE MAY NOT BE
ABLE TO SUCCESSFULLY EXECUTE OUR BUSINESS STRATEGY.

     Our future success will depend to a significant extent on the continued
services of our key employees. None of our key personnel are bound by employment
agreements, and we do not

                                       10
<PAGE>   14

maintain key person insurance on any of our employees with the exception of our
Chief Executive Officer and Chief Technology Officer. As we continue to grow,
our success will also depend on our ability to attract and retain qualified
sales, marketing, customer support, technical, finance and managerial personnel.
If we are unable to attract and retain qualified individuals, we may have
difficulty implementing portions of our business strategy in a timely manner, or
at all.

     The competition for qualified personnel is intense in our industry,
particularly in northern California, where there is a high concentration of
established and emerging technology companies. This competition will make it
more difficult to retain our key personnel and to recruit new highly qualified
personnel. We have experienced, and we expect to continue to experience,
difficulty in hiring highly skilled employees with appropriate qualifications.
If we do not succeed in hiring and retaining candidates with appropriate
qualifications, we may not be able to grow our business.

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

     Our margins on our service, maintenance and other revenues to date have
been very small or negative. We expect them to continue to be very small or
negative for the foreseeable future. As a percentage of our service, maintenance
and other revenues, the cost of service, maintenance and other revenues
represented 75.6% in the year ended March 31, 1998, 71.1% in the year ended
March 31, 1999, 101.9% in the year ended March 31, 2000 and 97.6% in the quarter
ended June 30, 2000. Failure to achieve positive margins on service, maintenance
and other revenues could cause our results of operations to suffer. Our ability
to improve our margins on these revenues will depend, in part, on our ability to
establish successful relationships with more third-party systems integrators who
can contract directly with our customers to provide the bulk of implementation
and consulting services directly to them. Failure to establish these
relationships may also affect our software license revenues by preventing us
from focusing on our core business of developing and licensing software
solutions. If we do not increase software license revenues as a percentage of
our total revenues, our overall margins will suffer.

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


     We have experienced and are currently experiencing a period of significant
growth. Our employee headcount increased from 37 at March 31, 1998, to 48 at
March 31, 1999, to 141 at March 31, 2000 and to 193 at June 30, 2000, and we
anticipate further significant increases in the number of our employees as we
continue to grow. This growth has placed a significant strain on our resources.
We expect that any future growth would cause similar or increased strains on our
resources. Our financial performance and our ability to compete effectively will
depend, in large part, on our ability to manage this growth effectively. To that
end, we must:


     - Expand, train and manage our existing employee base;

     - Hire, train and manage additional qualified personnel;

     - Implement new operational and financial systems and procedures and
       controls; and

     - Maintain close coordination among our technical, accounting, finance,
       marketing and sales staffs.

     The rate of our future growth, combined with the rapidly evolving market
for our products, will require a high level of managerial effectiveness to
anticipate, plan, coordinate and satisfy our operational needs and the demands
of our customers. Our plans to continue to develop our
                                       11
<PAGE>   15

operations in diverse geographic locations may also affect our ability to manage
our growth. Any failure to manage our growth could impede our ability to
increase revenues and achieve profitability.

BECAUSE A SIGNIFICANT PORTION OF OUR REVENUE IS DERIVED FROM SALES OUTSIDE THE
UNITED STATES, WE FACE ISSUES ASSOCIATED WITH INTERNATIONAL OPERATIONS, WHICH
MAY REDUCE OUR PROFITABILITY AND CAUSE THE PRICE OF OUR COMMON STOCK TO DECLINE.

     We currently sell our products in foreign countries through our sales
offices in France, the United Kingdom, Germany and Sweden. Sales outside of the
United States accounted for 88%, 79% and 46% of our revenues in the fiscal years
ended March 31, 1998, 1999 and 2000 and 36% of our revenues in the quarter ended
June 30, 2000. One of our growth strategies is to expand our presence in the
international markets both through increased international sales and strategic
relationships. As a result, we anticipate that sales outside the United States
will continue to account for a significant portion of our revenue in future
periods. We will continue to be subject to the risks associated with
international operations, including:

     - Longer payment cycles for foreign customers, including delays due to
       currency controls and fluctuations;

     - Exposure to changes in foreign currency exchange rates because a portion
       of our sales are denominated in foreign currencies; and

     - Difficulties in complying with telecommunications, Internet-related and
       other regulations in many foreign jurisdictions.

     We are also exposed to geopolitical risks, such as political and economic
instability and changes in diplomatic or trade relationships. Any of these
factors may reduce our revenues or profitability and cause the price of our
stock to decline.

SOFTWARE DEFECTS COULD DELAY MARKET ACCEPTANCE OF OUR PRODUCTS, CAUSE A LOSS OF
REVENUE AND REQUIRE US TO PAY DAMAGES TO THIRD PARTIES.

     Our software is complex and, despite our extensive testing, it may contain
undetected defects, errors or failures when first introduced to customers or as
new versions are released. We have in the past discovered errors in our new
releases and new products after their introduction. We may in the future
discover errors in new releases or new products after the commencement of
commercial shipments. The sale of products with defects or reliability, quality
or compatibility problems may result in loss of or delay in market acceptance of
our products and damage to our reputation and our ability to retain existing
customers and attract new customers. Significant software defects in future
releases could lead to delays in release and result in additional development
costs, diversion of technical and management resources, delayed product
shipments and order cancellations.

     Because our infrastructure platform is used by our customers to operate
critical services and functions, product defects may also give rise to
substantial product liability claims. Although our license agreements with
customers typically contain provisions designed to limit our exposure, some
courts may not enforce all or part of these limitations. Despite the fact that
we have not encountered product liability claims to date, we may encounter these
claims in the future. Product liability claims, whether or not they have merit,
could:

     - Divert the attention of our management and key personnel;

     - Be expensive to defend; and

     - Result in large damage awards.

                                       12
<PAGE>   16

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

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

ANY ACQUISITIONS COULD DISRUPT OUR BUSINESS AND SEVERELY HARM OUR FINANCIAL
CONDITION.

     Although we have no current agreements to do so, we intend to consider
acquisitions of complementary companies, products and technologies. In the event
that we engage in any future acquisitions, we could:

     - Issue stock that would dilute our current stockholders' percentage
       ownership;

     - Incur debt that would result in interest charges that would reduce our
       earnings and principal repayments that would reduce our cash available
       for operations;

     - Assume liabilities that may require payments or performance of other
       obligations on our part that could harm our business, earnings or cash
       flow;

     - Incur amortization expenses related to goodwill and other intangible
       assets that reduce future earnings; or

     - Incur large and immediate write-offs that reduce future earnings.

     Our operation of any acquired business will also involve numerous risks,
including:

     - Problems combining the purchased operations, technologies or products;

     - Unanticipated costs;

     - Diversion of management's attention from our core business;

     - Adverse effects on existing business relationships with customers;

     - Risks associated with entering markets in which we have no or limited
       prior experience; and

     - Potential loss of key employees, particularly those of the purchased
       organizations.

     We may not be able to successfully integrate any business, products,
technologies or personnel that we may acquire in the future and our failure to
do so could disrupt our business and seriously harm our financial condition.

                                       13
<PAGE>   17

                         RISKS RELATED TO OUR INDUSTRY

OUR INDUSTRY IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE, AND OUR FUTURE SUCCESS
WILL DEPEND ON OUR ABILITY TO MEET THE CHANGING NEEDS OF OUR INDUSTRY.

     Our industry is characterized by rapidly changing technology, evolving
standards, frequent new product and service announcements and rapidly changing
customer requirements. Competitors may introduce new products or technologies or
enhancements to existing products, which could render our existing products and
services obsolete and unmarketable. To be successful in this industry, our
products and services must keep pace with the technological developments and
emerging industry standards, address the ever-changing and increasingly
sophisticated needs of our customers and achieve market acceptance. Any
inability to develop, release and market new software product enhancements on a
timely and cost-effective basis could harm our reputation and results of
operations, provide a competitor with a first-to-market opportunity or allow a
competitor to achieve greater market share. We could also incur substantial
costs to develop these new products enhancements. Our business could be harmed
if we incur significant product development costs without adequate results, or
if we are unable to rapidly adapt to evolving industry standards.

WE FACE INTENSE COMPETITION, AND POTENTIAL NEW COMPETITION, FROM COMPANIES WITH
GREATER RESOURCES THAN OURS, AND IF WE ARE UNABLE TO COMPETE EFFECTIVELY WITH
THEM, WE MAY NOT BE ABLE TO INCREASE OR MAINTAIN REVENUES, MARGINS OR MARKET
SHARE.

     The market for our products is intensely competitive and we expect
competition to increase in the future. Competitors vary in size and in the scope
and breadth of the products and services they offer. Our current competitors
include:

     - Enterprise application integration vendors, middleware vendors and other
       software companies, such as Active Software, BEA Systems, CrossWorlds
       Software, Hewlett-Packard, IBM, New Era of Networks (also known as NEON),
       Sun Microsystems, TIBCO Software and Vitria Technology; and

     - Application vendors that offer products that address specific industry or
       functionality requirements of individual customers, such as
       CommerceQuest, Comptel Finland and Architel.

     We also face competition from internal information technology departments
of potential customers that have developed or may develop systems that provide
some or all of the functionality of our products. We expect that internally
developed integration and process automation efforts will continue to be a
principal source of competition for the foreseeable future. In particular, it
can be difficult to sell our products to a potential customer whose internal
development group has already made large investments in, and progress towards
completion of, systems that our products are intended to replace.

     We may in the future also encounter competition from major enterprise
software developers such as Microsoft, Oracle and SAP.

     Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, marketing, sales and
other resources, significantly greater name recognition and a larger installed
base of customers than us. In addition, many of our competitors have
well-established relationships with our current and potential customers and have
extensive knowledge of our industry. Current and potential competitors have
established or may establish cooperative relationships among themselves or with
third parties to increase the ability of their products to address customer
needs. It is possible that new competitors, or

                                       14
<PAGE>   18

competitors engaged in these cooperative alliances, could rapidly acquire
significant market share. We also expect that competition will increase as a
result of industry consolidation. Increased competition may result in price
reductions, reduced margins, loss of market share and an inability to generate
cash flows that are sufficient to maintain or expand our development of new
products.

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

     Our success depends in large part upon our proprietary technology. We rely
on a combination of copyright, trademark and trade secret protection,
confidentiality and nondisclosure agreements and licensing arrangements to
establish and protect our intellectual property rights. We license rather than
sell our solutions and require our customers to enter into license agreements
that impose restrictions on their ability to utilize the software. In addition,
we seek to avoid disclosure of our trade secrets through a number of means,
including requiring individuals who have access to our proprietary information
to execute nondisclosure agreements with us and restricting access to our source
code. We seek to protect our software, documentation and other written materials
under trade secret and copyright laws.

     We currently have one patent. Any patents, if issued, may not prevent our
competitors from developing competitive products. In addition, third parties may
successfully challenge our patents or our patents could be invalidated through
administrative process or litigation.

     Despite our efforts to protect our proprietary rights, existing laws offer
only limited protection, and unauthorized parties may attempt to copy or
otherwise obtain and use our technology or proprietary information. Policing
unauthorized use of our products is difficult, and, although we are unable to
determine the extent to which piracy of our software products exists, we expect
that software piracy will be a persistent problem. In addition, the laws of some
foreign countries do not protect proprietary rights as fully as in the United
States. Our means of protecting our proprietary rights may not be adequate and
our competitors may independently develop similar technology, duplicate our
products, or design around our proprietary intellectual property.

CLAIMS OR LITIGATION OVER INTELLECTUAL PROPERTY RIGHTS COULD REQUIRE US TO INCUR
SIGNIFICANT COSTS AND SERIOUSLY HARM OUR BUSINESS.


     There has been a substantial amount of litigation in the software and
Internet industries relating to intellectual property rights. We could become a
party to litigation with third parties in the future either to protect our
intellectual property rights or to defend against allegations that we have
infringed third parties' intellectual property. We expect that software product
developers and providers of Internet-based software applications like us will
increasingly be subject to infringement claims as the number of products and
competitors in our industry segment grows and the functionality of products in
different industry segments overlaps. Any claims against us, whether with or
without merit, could be costly and time consuming to defend, cause product
shipment delays or require us to enter into royalty or licensing agreements.
These agreements, if required, may not be available on terms acceptable to us or
at all, which could seriously harm our business.


                                       15
<PAGE>   19

                         RISKS RELATED TO THIS OFFERING

THE SALE OF A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK COULD CAUSE THE
MARKET PRICE OF OUR COMMON STOCK TO DECLINE.


     After this offering, we will have a total of 28,047,487 shares of common
stock outstanding, or 28,647,487 shares if the underwriters exercise their
entire over-allotment option. Sales by us or resales by stockholders of shares
of our common stock in the public market after the offering could cause the
market price of our common stock to decline. The federal securities laws impose
restrictions on the ability of certain stockholders to resell their shares of
common stock. In addition, we, our executive officers and directors and certain
other stockholders have entered into lock-up agreements with Deutsche Bank
Securities Inc., one of the representatives of the underwriters, where they have
agreed not to sell any of our capital stock for a period ending 180 days from
the effective date of the registration statement related to this offering. As a
result, the 28,047,487 shares of our common stock outstanding after this
offering will be available for resale in the public market as follows:



<TABLE>
<CAPTION>
NUMBER OF SHARES        DATE AVAILABLE FOR RESALE
----------------        -------------------------
<C>                <S>
    4,000,000      Upon effectiveness of this offering
   21,114,948      180 days after effectiveness
    2,932,539      May 31, 2001
</TABLE>



     After this offering and the expiration or release of the lock-up
agreements, holders of 22,785,402 shares of our common stock and the holders of
warrants to purchase approximately 262,024 shares of common stock may
contractually require us to register their shares for resale under the federal
securities laws.


     We intend to file a registration statement following this offering to
permit the sale of shares of common stock under our stock plans. As of June 30,
2000, options to purchase 2,987,421 shares of common stock with a weighted
average exercise price per share of $2.02 were outstanding, all of which are
subject to agreements not to sell these shares for 180 days after the effective
date of the registration statement related to this offering. Registration of
these shares would result in these stockholders' being able to immediately
resell their shares in the public market after expiration or release of the
lock-up agreements. These sales, or anticipation of these sales, could cause the
market price of our common stock to decline.

OUR STOCK PRICE MAY FLUCTUATE WIDELY FOR A NUMBER OF REASONS.

     The market price of our common stock may fluctuate widely because of
factors including:

     - Actual or anticipated variations in our results of operations;

     - Announcements of technological innovations by us or our competitors;

     - Announcements of new products by us or our competitors;

     - Investor perceptions of us, the market for Internet infrastructure
       software or the Internet in general;

     - Changes in financial estimates by securities analysts;

     - General economic and market conditions; and

     - Potential acquisitions that we may make.

                                       16
<PAGE>   20

     In addition, from time to time, the stock market experiences extreme price
and trading volume volatility, which may affect the market price of our common
stock. Recently, the market prices of technology companies in general and
Internet-related companies in particular have been extremely volatile. Recent
initial public offerings by technology companies have been accompanied by
exceptional share price and trading volume changes. If this happens to our
common stock following our offering, you may not be able to resell your shares
at or above the initial public offering price. In the past, following periods of
volatility in the market price of a public company's securities, securities
class action litigation has often been instituted against that company. If
similar litigation were instituted against us, it could result in substantial
costs and a diversion of our management's attention and resources, which could
have an adverse effect on our business.

WE MAY REQUIRE SIGNIFICANT ADDITIONAL CAPITAL TO FUND OUR OPERATIONS.

     We have not been able to fund our operations from cash generated by our
business, and we may not be able to do so in the future. We have principally
financed our operations to date through the private placements of shares of our
preferred stock. We believe that our available cash resources, together with the
net proceeds from this offering, will be sufficient to meet our anticipated
operational, working capital and capital expenditure requirements for at least
twelve months after the date of this prospectus. After this, we may need to
raise additional funds to respond to business contingencies, which may include
the need to:

     - Fund more rapid expansion;

     - Fund additional marketing expenditures;

     - Develop new or enhance existing products and services;

     - Enhance our operating infrastructure;

     - Hire additional personnel;

     - Respond to competitive pressures; or

     - Acquire complementary businesses or technologies.

     In the event additional financing is required, we may not be able to obtain
it on acceptable terms or at all. If we raise additional funds through the
issuance of equity securities, the percentage ownership of our existing
stockholders would be reduced. In addition, these new equity securities could
have rights, preferences or privileges senior to those of our common stock,
including the common stock sold in this offering. If we raise additional funds
through debt financing, we could incur significant interest charges, which would
reduce our net income. If adequate funds are not available or are not available
on acceptable terms, our ability to fund our operations, take advantage of
unanticipated opportunities, develop or enhance our products and services, or
otherwise respond to competitive pressures, would be significantly limited.

THE LIQUIDITY OF OUR COMMON STOCK IS UNCERTAIN BECAUSE IT HAS NOT BEEN PUBLICLY
TRADED AND MAY HAVE A LIMITED MARKET, WHICH COULD DEPRESS OUR STOCK PRICE.

     There has been no public market for our common stock. We cannot predict the
extent to which investor interest in our company will lead to the development of
an active, liquid trading market. In this offering, we intend to sell our common
stock primarily to a limited number of institutional investors, which could
limit the development of an active trading market. Active trading markets
generally result in lower price volatility and more efficient execution of buy
and sell orders for investors. The initial public offering price for shares in
this offering will be

                                       17
<PAGE>   21

determined by negotiations between us and the representatives of the
underwriters and may not be indicative of the price at which our common stock
will trade upon completion of this offering.


OUR MANAGEMENT WILL HAVE BROAD DISCRETION AS TO THE USE OF THE PROCEEDS FROM
THIS OFFERING AND MAY NOT USE THE PROCEEDS IN A MANNER THAT IMPROVES OUR
OPERATING RESULTS OR INCREASES OUR MARKET VALUE.



     We do not have a definitive plan for the use of the net proceeds from this
offering. Our management will have broad discretion as to how to use the net
proceeds from this offering and you will be relying on their judgment. We
anticipate using proceeds to expand our sales, service and marketing operations,
invest in research and development, broaden our operational and administrative
infrastructure, and lease additional facilities as well as for working capital
and other general corporate purposes. We may also use a portion of the proceeds
for acquisitions or investments, which may not yield a favorable return.


BECAUSE CERTAIN EXISTING STOCKHOLDERS OWN A LARGE PERCENTAGE OF OUR VOTING
STOCK, OTHER STOCKHOLDERS' VOTING POWER MAY BE LIMITED.


     After this offering is completed, we anticipate that our executive
officers, directors and their affiliates will beneficially own or control
approximately 47.9% of our common stock. Together with entities owning 5% or
more of our outstanding shares of common stock, this group will beneficially own
16,934,778 shares of our common stock after completion of this offering, or
approximately 58.6% of the outstanding shares of our stock. As a result, if
these stockholders act together, they will have the ability to control all
matters submitted to our stockholders for approval, including the election and
removal of directors and the approval of any merger, consolidation or sale of
our assets. These stockholders may make decisions that are adverse to your
interests. See "Principal Stockholders" for more information about ownership of
our outstanding shares.


YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE TANGIBLE NET BOOK
VALUE OF YOUR SHARES.


     We expect the initial public offering price of our common stock to be
substantially higher than the net tangible book value per share of our common
stock. Purchasers of our common stock will incur immediate and substantial
dilution of $8.84 per share in the net tangible book value of our common stock
from the assumed initial public offering price of $11.00 per share. Additional
dilution will occur upon exercise of options or warrants.


PROVISIONS OF OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY HAVE ANTI-TAKEOVER
EFFECTS THAT COULD PREVENT A CHANGE IN CONTROL EVEN IF THE CHANGE IN CONTROL
WOULD BE BENEFICIAL TO OUR STOCKHOLDERS.

     We will have a staggered board of directors, are subject to the "interested
stockholder" provisions of Delaware law and have in place procedures that
eliminate the ability of our stockholders to act without a meeting and limit the
manner in which a stockholder meeting can be called. Provisions of our
certificate of incorporation, bylaws and Delaware law could make it more
difficult for a third party to acquire us, even if doing so would be beneficial
to our stockholders. For a more complete description of these provisions, see
"Description of Capital Stock -- Charter Provisions and Delaware Laws That May
Have an Anti-Takeover Effect."

                                       18
<PAGE>   22

                           FORWARD-LOOKING STATEMENTS

     This prospectus contains forward-looking statements within the meaning of
the federal securities laws that relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "expect," "plan," "anticipate,"
"believe," "estimate," "predict," "intend," "potential" or "continue" or the
negative of these terms or other comparable terminology. Examples of these
forward-looking statements include, but are not limited to, statements regarding
the following: our market opportunities, our business strategies, market
acceptance of our products, product development plans, prospects for revenue
growth, anticipated capital requirements and operating expenditures and
anticipated net losses. These statements are only predictions.

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

     In this prospectus, we use market data and industry forecasts which we have
obtained from International Data Corporation, an independent market research
organization, publicly available information and industry publications. Neither
we nor any of the underwriters represent that any such information is accurate.
Each of these sources may define markets or market segments differently, and
accordingly, the information obtained from one source might not be comparable
with information obtained from other sources. Industry publications generally
state that the information they provide has been obtained from sources believed
to be reliable, but that the accuracy and completeness of such information is
not guaranteed. We have not independently verified any of this information. In
particular, we do not know what rate of general economic growth was assumed in
preparing forecasts. Forecasts of developing markets, such as ours, are not
based upon sophisticated analyses of substantial amounts of historical data, as
in the case of more mature markets. As a result, forecasts of developing markets
like ours are much less likely to be accurate.

                                       19
<PAGE>   23

                                USE OF PROCEEDS


     We will receive net proceeds from this offering of approximately
$39,220,000 from the sale of 4,000,000 shares of common stock at an assumed
initial public offering price of $11.00 per share (approximately $45,358,000 if
the underwriters' over-allotment option is exercised in full), after deducting
the estimated underwriting discounts and offering expenses payable by us.



     From the net proceeds of this offering, we anticipate spending:



     - between $18 million and $21 million on sales and marketing,



     - between $9 million and $11 million on professional services,



     - between $3 million and $5 million on general and administrative expenses,



     - between $5 million and $7 million on research and development, and



     - between $1 million and $2 million for capital expenditures for computer
       equipment and office furniture.



fIn addition to using the proceeds from this offering, we currently intend to
fund our future expenses from our existing cash balances and cash generated from
our operations. Although we do not currently anticipate changing the above uses,
we may allocate our current anticipated uses in different amounts. The actual
amounts and timing of these expenditures will vary depending on a number of
factors, including the amount of cash generated by our operations, competitive
and technological developments and the rate of growth, if any, of our business.



     We may also use a portion of the net proceeds to acquire additional
businesses, services, products or technologies that we believe will complement
our current or future business. However, we have no specific plans, agreements
or commitments to do so and are not currently engaged in any negotiations for
any acquisition. As a result, we will retain broad discretion in the allocation
of the net proceeds of this offering. Pending the uses described above, we will
invest the net proceeds of this offering in interest-bearing, investment grade
securities. We cannot predict whether the proceeds will be invested to yield a
favorable return.


                                DIVIDEND POLICY

     We have never paid cash dividends on our common stock or any other
securities. We anticipate that we will retain all of our future earnings, if
any, for use in the expansion and operation of our business and do not
anticipate paying cash dividends in the foreseeable future.

                                       20
<PAGE>   24

                                 CAPITALIZATION

     The following table sets forth the following information:

     - Our actual capitalization as of June 30, 2000;

     - Our pro forma capitalization as of that date after giving effect to an
       amendment to our certificate of incorporation to change our authorized
       capital stock which will be effective prior to this offering, and the
       conversion of all outstanding shares of preferred stock into 19,332,287
       shares of common stock upon completion of this offering; and


     - Our pro forma capitalization as adjusted to reflect the pro forma effects
       described above and receipt of the net proceeds from our sale of
       4,000,000 shares of common stock at an assumed initial public offering
       price of $11.00 per share in this offering, less underwriting discounts
       and commissions and estimated offering expenses payable by us.



<TABLE>
<CAPTION>
                                                                       JUNE 30, 2000
                                                                      (IN THOUSANDS)
                                                                        (UNAUDITED)
                                                           -------------------------------------
                                                                                      PRO FORMA
                                                            ACTUAL      PRO FORMA    AS ADJUSTED
                                                           ---------    ---------    -----------
<S>                                                        <C>          <C>          <C>
Long-term debt (including capitalized leases)............  $     358    $    358      $    358
Redeemable convertible preferred stock: $0.001 par value;
  19,581,528 shares authorized actual, 10,000,000 shares
  authorized pro forma and pro forma as adjusted;
  18,644,311 shares outstanding actual, none outstanding
  pro forma and pro forma as adjusted....................     64,017          --            --
Stockholders' equity (deficit):
  Common stock: $0.001 par value; 40,000,000 shares
     authorized actual, 150,000,000 shares authorized pro
     forma and pro forma as adjusted; 4,715,200 shares
     outstanding actual, 24,047,487 shares outstanding
     pro forma and 28,047,487 shares outstanding pro
     forma as adjusted...................................          5          24            28
  Additional paid-in capital.............................     12,843      76,841       116,057
  Deferred stock-based compensation......................     (7,006)     (7,006)       (7,006)
  Notes receivable from stockholders.....................     (2,533)     (2,533)       (2,533)
  Accumulated deficit....................................    (45,857)    (45,857)      (45,857)
  Accumulated other comprehensive loss...................        (38)        (38)          (38)
                                                           ---------    --------      --------
     Total stockholders' equity (deficit)................    (42,586)     21,431        60,651
                                                           ---------    --------      --------
          Total capitalization...........................  $  21,789    $ 21,789      $ 61,009
                                                           =========    ========      ========
</TABLE>


     This table does not include:

     - 2,987,421 shares of common stock that were subject to outstanding options
       as of June 30, 2000 at a weighted average exercise price of $2.02 per
       share;

     - 4,000,000 shares of common stock that will be available for issuance
       under our stock option plans upon completion of this offering, subject to
       annual increases, and 1,000,000 shares that will be available for
       issuance under our employee stock purchase plan upon completion of this
       offering, subject to annual increases; and

     - 262,024 shares of common stock issuable upon exercise of outstanding
       warrants at a weighted average exercise price of $2.09 per share.

                                       21
<PAGE>   25

                                    DILUTION


     Our pro forma net tangible book value as of June 30, 2000, after giving
effect to the automatic conversion of all outstanding preferred stock upon the
closing of this offering, would have been $21.4 million, or $0.89 per share of
common stock. Net tangible book value per share is determined by dividing our
tangible book value (total tangible assets less total liabilities) by the number
of outstanding shares of common stock at that date. After giving effect to the
sale of the 4,000,000 shares of our common stock offered in this offering at an
assumed initial public offering price of $11.00 per share and after deducting
estimated underwriting discounts and commissions and estimated offering
expenses, our pro forma net tangible book value as of June 30, 2000 would have
been $60.7 million, or $2.16 per share. This represents an immediate increase in
net tangible book value to existing stockholders of $1.27 per share and an
immediate dilution in net tangible book value to new investors of $8.84 per
share. The following table illustrates the per share dilution:



<TABLE>
<S>                                                           <C>     <C>
Assumed initial public offering price per share.............          $11.00
  Pro forma net tangible book value per share as of June 30,
     2000...................................................  $0.89
  Increase per share attributable to new investors..........   1.27
                                                              -----
Pro forma net tangible book value per share after this
  offering..................................................            2.16
                                                                      ------
Net tangible book value dilution per share to new
  investors.................................................          $ 8.84
                                                                      ======
</TABLE>



     The following table summarizes, on a pro forma basis as of June 30, 2000,
the differences between the number of shares of common stock purchased from us,
the total consideration paid and the average price per share paid by our
existing stockholders and by the new public investors (based upon an assumed
initial public offering price of $11.00 per share and before deducting estimated
underwriting discounts and commissions and estimated offering expenses):



<TABLE>
<CAPTION>
                           SHARES PURCHASED         TOTAL CONSIDERATION
                         ---------------------    -----------------------        AVERAGE
                           NUMBER      PERCENT       AMOUNT       PERCENT    PRICE PER SHARE
                         ----------    -------    ------------    -------    ---------------
<S>                      <C>           <C>        <C>             <C>        <C>
Existing
  stockholders.........  24,047,487     85.7%     $ 67,108,000     60.4%         $ 2.79
New public investors...   4,000,000     14.3%       44,000,000     39.6%          11.00
                         ----------     ----      ------------     ----
  Total................  28,047,487      100%     $111,108,000      100%
                         ==========     ====      ============     ====
</TABLE>


     The above discussion and tables assume no exercise of stock options or
warrants outstanding as of June 30, 2000. As of June 30, 2000, there were
options outstanding to purchase a total of 2,987,421 shares of common stock at a
weighted average exercise price of $2.02 per share under our stock plans, and
262,024 shares of common stock subject to outstanding warrants at a weighted
average exercise price of $2.09. Upon completion of the offering, we will have
4,000,000 additional shares of our common stock reserved for issuance under our
stock option plan and 1,000,000 shares reserved under our employee stock
purchase plan. To the extent that any of these options or warrants are
exercised, there will be further dilution to the new public investors. See
"Capitalization," "Management -- Compensation Plans" and Notes 8, 9, and 13 of
Notes to Consolidated Financial Statements.

                                       22
<PAGE>   26

                      SELECTED CONSOLIDATED FINANCIAL DATA


     The following selected financial data are derived from the consolidated
financial statements of Kabira Technologies, Inc. The consolidated financial
statements as of March 31, 1999 and 2000, and for each of the three years in the
period ended March 31, 2000, have been audited by Ernst & Young LLP, independent
auditors. The consolidated financial statements as of March 31, 1997 and 1998,
and for the period from inception (February 6, 1996) to March 31, 1997, have
been audited by other independent auditors. The data as of March 31, 1997 and
1998, and for the period from inception (February 6, 1996) to March 31, 1997,
are derived from the consolidated financial statements audited by other
independent auditors and reflect certain reclassifications to conform with the
current presentation. The data as of March 31, 1999 and 2000, and for each of
the three years in the period ended March 31, 2000, should be read in
conjunction with the consolidated financial statements, related notes, and other
financial information included in this prospectus. The selected financial data
as of June 30, 2000 and for the three-month periods ended June 30, 1999 and 2000
are derived from unaudited consolidated financial statements. The unaudited
consolidated financial statements include all adjustments, consisting of normal
recurring adjustments, which we consider necessary for a fair presentation of
our consolidated financial position and results of operations for these periods.
Operating results for the three months ended June 30, 2000 are not necessarily
indicative of the results that may be expected for future periods. Such
unaudited data should be read in conjunction with the unaudited consolidated
financial statements, related notes and other financial information included in
this prospectus.



<TABLE>
<CAPTION>
                                                                                         THREE MONTHS
                                                                                             ENDED
                                                       YEAR ENDED MARCH 31,                JUNE 30,
                                              --------------------------------------   -----------------
                                              1997(1)    1998      1999       2000      1999      2000
                                              -------   -------   -------   --------   -------   -------
                                              (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                           <C>       <C>       <C>       <C>        <C>       <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
  Software license..........................  $    --   $    69   $   670   $  4,563   $   168   $ 1,909
  Service, maintenance and other............       --       242       602      3,686       183     3,911
                                              -------   -------   -------   --------   -------   -------
    Total revenues..........................       --       311     1,272      8,249       351     5,820
                                              -------   -------   -------   --------   -------   -------
Cost of revenues:
  Software license..........................       --        53       161        131        52        27
  Service, maintenance and other............       --       183       428      3,756       298     3,819
                                              -------   -------   -------   --------   -------   -------
    Total cost of revenues..................       --       236       589      3,887       350     3,846
                                              -------   -------   -------   --------   -------   -------
Gross profit................................       --        75       683      4,362         1     1,974
Operating expenses:
  Sales and marketing.......................    1,457     3,829     4,802     12,852     2,560     5,738
  Research and development..................    1,735     3,223     3,190      3,939       773     1,606
  General and administrative................      548       967     1,774      3,226       563     1,189
  Stock-based compensation(3)...............       --        --        --      1,342       178     1,405
                                              -------   -------   -------   --------   -------   -------
    Total operating expenses................    3,740     8,019     9,766     21,359     4,074     9,938
                                              -------   -------   -------   --------   -------   -------
    Loss from operations....................   (3,740)   (7,944)   (9,083)   (16,997)   (4,073)   (7,964)
Interest and other income (expense), net....      107        74      (469)        82        45       211
                                              -------   -------   -------   --------   -------   -------
    Loss before income taxes................   (3,633)   (7,870)   (9,552)   (16,915)   (4,028)   (7,753)
Provision for income taxes..................       --        (6)       (5)       (24)       --       (53)
                                              -------   -------   -------   --------   -------   -------
    Net loss................................  $(3,633)  $(7,876)  $(9,557)  $(16,939)  $(4,028)  $(7,806)
                                              =======   =======   =======   ========   =======   =======

Net loss per share:
  Basic and diluted.........................  $ (7.35)  $ (8.24)  $ (6.66)  $  (7.69)  $ (2.37)  $ (2.74)
                                              =======   =======   =======   ========   =======   =======
  Weighted average shares...................      494       956     1,435      2,203     1,699     2,854
                                              =======   =======   =======   ========   =======   =======
Pro forma net loss per share(2):
  Basic and diluted (unaudited).............                                $  (0.99)  $ (0.25)  $ (0.38)
                                                                            ========   =======   =======
  Weighted average shares (unaudited).......                                  17,136    16,366    20,720
                                                                            ========   =======   =======
</TABLE>


                                       23
<PAGE>   27

-------------------------
(1) Period from inception (February 6, 1996) to March 31, 1997.

(2) The pro forma net loss per share and weighted average shares used in
    computing pro forma net loss per share are calculated as if all our
    outstanding preferred stock as of June 30, 2000 was converted into shares of
    common stock on the date of issuance.


(3) Our stock-based compensation is comprised of the following:



<TABLE>
<CAPTION>
                                                                             THREE MONTHS
                                                                                ENDED
                                                              YEAR ENDED       JUNE 30,
                                                              MARCH 31,     --------------
                                                                 2000       1999     2000
                                                              ----------    ----    ------
<S>                                                           <C>           <C>     <C>
Cost of service, maintenance and other revenues.............    $   15      $ --    $   33
Sales and marketing.........................................       630        56    $  667
Research and development....................................       206        47       292
General and administrative..................................       491        75       413
                                                                ------      ----    ------
  Total stock-based compensation                                $1,342      $178    $1,405
                                                                ======      ====    ======
</TABLE>



<TABLE>
<CAPTION>
                                                                  MARCH 31,
                                                   ----------------------------------------    JUNE 30,
                                                    1997       1998       1999       2000        2000
                                                   -------   --------   --------   --------   -----------
                                                                (IN THOUSANDS)                (UNAUDITED)
<S>                                                <C>       <C>        <C>        <C>        <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................  $ 5,279   $  3,991   $ 11,728   $ 11,546    $ 24,003
Working capital..................................    4,834      3,413     10,683      5,864      17,609
Total assets.....................................    6,144      5,298     13,233     18,795      33,652
Deferred revenues................................       --         12         58      4,603       4,438
Long term debt (including capitalized leases)....      251        664        327        471         358
Redeemable convertible preferred stock...........    8,945     15,263     32,223     44,031      64,017
Stockholders' deficit............................   (3,613)   (11,464)   (20,942)   (36,234)    (42,586)
</TABLE>


                                       24
<PAGE>   28

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

     You should read the following discussion and analysis in conjunction with
"Selected Consolidated Financial Data" and our consolidated financial statements
and related notes included elsewhere in this prospectus. In addition to
historical information, the following discussion contains certain
forward-looking statements that involve known and unknown risks and
uncertainties, such as statements of our plans, objectives, expectations and
intentions. Factors that could cause results to differ from those contemplated
by these statements include, but are not limited to, those discussed below and
under "Risk Factors," as well as those discussed elsewhere in this prospectus.
Our actual results could differ materially from those discussed in the
forward-looking statements.

OVERVIEW

     We provide a new class of infrastructure software for the delivery of
Next-Generation Services that are made possible by the convergence of
telecommunication networks, traditional enterprise networks and the Internet. We
introduced the first commercial version of our ObjectSwitch Server in June 1997
and completed our first customer implementation in September 1997. We initially
generated revenues primarily through consulting fee arrangements, in which we
used our products as the basis for creating pilot software solutions for our
customers. We began recognizing significant software license revenues following
the release of version 3.0 of our ObjectSwitch Server in June 1999. Since then,
we have created a suite of products based on our ObjectSwitch platform, and have
generated revenues from software licenses and related services provided to
customers.


     Since inception, we have incurred substantial research and development
costs, invested heavily in our sales, marketing and professional services
organizations and have expanded our global operations and corporate
infrastructure to support our long-term growth strategy. Our employee headcount
increased from 37 as of March 31, 1998, to 48 as of March 31, 1999, to 141 as of
March 31, 2000 and to 193 as of June 30, 2000. Because our expenditures have
been much higher than our revenues, we have incurred net losses in each fiscal
quarter since inception, and, as of June 30, 2000, we had an accumulated deficit
of $45.9 million.


     We generate our revenues from software license agreements and from related
services that we provide to customers, including implementation and
customization services, maintenance and support activities and training
services. Software license revenues comprised 22.2%, 52.7%, 55.3% and 32.8% of
our total revenues in the years ended March 31, 1998, 1999 and 2000 and the
quarter ended June 30, 2000, while service, maintenance and other revenues
comprised 77.8%, 47.3%, 44.7% and 67.2% of our total revenues for the same
periods.


     Our standard licensing agreements with our customers contain software
licensing terms that are typical in the software industry, including granting a
perpetual software license in exchange for a license fee, and an annual
maintenance fee stated as a fixed percentage of the license fee. In addition,
our standard professional service agreements are best-efforts arrangements that
are priced on a time and expenses basis. Typically, the initial contracts with
our customers include one of two possible types of payment schedules, both of
which include payments that are due at the beginning of the project. The first
type of payment schedule requires payment of the software license fee upon
contract signing and payment for the services as they are performed. The
alternate payment schedule provides for amounts due in installments at specified
dates over a period of generally less than six months.


                                       25
<PAGE>   29

     Revenues

     Our products are typically licensed directly to customers for a perpetual
term, with pricing based on the number of authorized system users or computer
processors.


     The nature of each licensing arrangement determines how we recognize
software license revenues:


     - If the contract requires us to perform significant implementation or
       modification services for delivery of a software solution, software
       license revenues are recognized using the percentage-of-completion method
       of contract accounting, as required under the provisions of SOP 97-2,
       "Software Revenue Recognition" and SOP 81-1, "Accounting for Performance
       of Construction-Type and Certain Production-Type Contracts." Percentage
       of completion is based on the ratio of total labor hours incurred to date
       to estimated total labor hours. To date, substantially all of our
       software license revenues have been recognized on this basis, and project
       implementation periods have typically ranged from three to nine months.


     - If the contract requires us to deliver the product to the end user with
       no obligation for us to perform implementation or modification services,
       we follow the applicable provisions of SOP 97-2. Accordingly, we
       recognize revenue upon shipment of the product after a non-cancellable
       license agreement has been signed, the fee is fixed and determinable and
       collectibility is probable.



     - If the contract requires us to deliver the product to a systems
       integrator or value-added reseller, we follow the provisions of SOP 97-2,
       as amended by SOP 98-9, "Modification of SOP 97-2, Software Revenue
       Recognition, With Respect to Certain Transactions," under which we
       presently recognize revenue when the software is resold to the end user
       using the percentage of completion method of contract accounting.



     Our customer contracts are generally multi-element arrangements that
include a software license, consulting services, maintenance and customer
training. Elements that are undelivered at the time of contract execution
typically include maintenance, customer training and services. When contract
accounting applies, the software license is also considered undelivered as of
the execution of the license agreement. As required under SOP 97-2, we allocate
the contract value to the various elements of the contract using the residual
method in accordance with SOP 98-9, regardless of any separate prices stated
within the contract.



     Revenue from consulting and training services is generally billed on a time
and materials basis and is recognized as those services are performed. Customers
who license our products normally purchase maintenance contracts. These
contracts provide for software upgrades and technical support over a specified
term, which is typically twelve months. Maintenance contracts are usually paid
for in advance and maintenance revenue is recognized ratably over the term of
the agreement.



     When maintenance is sold with software licenses that are subject to the
percentage-of-completion method of accounting, we account for the maintenance
revenues separately from the license revenues. Our resellers are also able to
sell maintenance contracts to their end users for a separate fee payable to us.
We use objective evidence of fair value to determine the fair value of the
maintenance revenues when we sell directly to the end-user and in reseller
arrangements. This objective evidence of fair value consists of our customary
pricing for these maintenance services when sold separately.



     We do not offer third parties or any of our customers the right to return
our software products.


                                       26
<PAGE>   30

     Since late 1999, we have expanded our professional services organization by
aggressively recruiting consulting, training and customer support professionals.
We believe building a comprehensive professional services organization is
necessary to help ensure the satisfaction of our customers as our customer base
expands. Nonetheless, our ultimate goal is to increase our sales through
third-party systems integrators and value-added resellers and reduce the
percentage of our total revenues attributable to professional services. At this
time, we have established relationships with only a limited number of systems
integrators and value-added resellers, and our own professional services
organization continues to provide services to a majority of our customers.

     Prior to June 1999, we derived most of our revenues from international
accounts. We established an international presence in 1997 by opening sales
offices in the United Kingdom and France. We opened sales offices in Sweden and
Germany in late 1999. For the years ended March 31, 1998, 1999 and 2000 and for
the quarter ended June 30, 2000, we generated 12%, 21%, 54% and 64% of our total
revenues in the United States and 88%, 79%, 46% and 36% of our total revenues
internationally.


     A relatively small number of customers account for a significant portion of
our total revenues. In the year ended March 31, 2000, revenues from six
customers accounted for 69% of total revenues, with revenues from E*Trade
Securities, New Edge Networks and Lucent Technologies accounting for 20%, 14%
and 11% of total revenues. In the quarter ended June 30, 2000, five customers
accounted for 69% of total revenues, with revenues from E*Trade Securities and
New Edge Networks accounting for 24% and 22% of total revenues. We expect that
revenues from a limited number of customers will continue to account for a large
percentage of total revenues in future quarters. As a result, the loss or delay
of individual orders can have a significant impact on our revenues.


     Cost of revenues and operating expenses

     Our cost of revenues includes the costs associated with software license
and related service revenues. The cost of software license revenues includes the
cost of product media, documentation and packaging as well as royalties paid to
third parties for technology included in our products. Our cost of service,
maintenance and other revenues consist of compensation and related overhead
costs for personnel engaged in consulting, training, maintenance and support
services for our customers, as well as costs for third-party consultants we
utilize to assist us with providing these services to our customers. The gross
margin associated with our revenues may fluctuate based on the mix of software
license to service, maintenance and other revenues.

     Our operating expenses consist of three general categories: sales and
marketing, research and development and general and administrative. In addition,
our operating expenses include non-cash stock-based compensation. We classify
operating expenses to each category based on the nature of the expenses.

     Sales and marketing expenses include compensation and related costs for
sales and marketing personnel, including sales commissions, travel costs, field
sales office expenses, public relations fees, advertising, tradeshow and
marketing collateral expenses and overhead. Research and development expenses
include compensation and related costs for software developers and management
and quality assurance personnel. Through June 30, 2000, all software development
costs that were eligible for capitalization have been insignificant and,
therefore, charged to research and development expenses as incurred. General and
administrative expenses include compensation and related costs for executive,
finance, human resources and information systems personnel as well as
professional fees and bad debt expense. We expect that all three categories of
operating expenses will continue to increase in

                                       27
<PAGE>   31

future quarters as we hire additional employees and make the investments
necessary to expand our business.

     Stock-based compensation includes the amortization of employee stock-based
compensation and expenses for stock options or purchase rights granted to
consultants in exchange for services. Employee stock-based compensation reflects
the difference between the deemed fair value of the common stock at the grant
date and the exercise price of the options. This amount is amortized to
operations over a four year vesting period using a graded vesting method.
Non-qualified stock options and stock purchase rights granted to consultants are
recorded at fair value and periodically revalued as they vest using the
Black-Scholes valuation method.

     As of June 30, 2000, the cumulative difference between the deemed fair
value of the underlying stock at the date the options were granted and the
exercise price of the granted options was $9.7 million. We amortized $1.3
million of this amount during the year ended March 31, 2000 and $1.4 million of
this amount during the quarter ended June 30, 2000. We expect to record
stock-based compensation amortization expenses of approximately $4.8 million in
the year ending March 31, 2001, $2.2 million in the year ending March 31, 2002,
$1.0 million in the year ending March 31, 2003 and $300,000 in the year ending
March 31, 2004.

     We have a limited operating history, which makes it difficult to predict
future operating results. We believe our success depends on our ability to
expand our customer base and enhance our products. We anticipate that our
operating expenses will continue to increase for the foreseeable future, as we
increase our sales and marketing efforts and increase our research and
development efforts to expand our product lines. As a result, we expect to incur
net losses at least through the end of the year ending March 31, 2002. Our
operating expenses are relatively fixed and are based on anticipated revenue
trends. The loss of, or a delay in recognizing revenue from, one or more
anticipated license transactions could cause significant variations in operating
results from quarter to quarter and could result in unforeseen losses.

                                       28
<PAGE>   32

RESULTS OF OPERATIONS

     The following table sets forth certain operating data as a percentage of
total revenues.


<TABLE>
<CAPTION>
                                                                        THREE MONTHS
                                                                           ENDED
                                         YEAR ENDED MARCH 31,             JUNE 30,
                                     ----------------------------    ------------------
                                       1998       1999      2000       1999       2000
                                     --------    ------    ------    --------    ------
<S>                                  <C>         <C>       <C>       <C>         <C>
Revenues:
  Software license.................      22.2%     52.7%     55.3%       47.9%     32.8%
  Service, maintenance and other...      77.8      47.3      44.7        52.1      67.2
                                     --------    ------    ------    --------    ------
     Total revenues................     100.0     100.0     100.0       100.0     100.0
Cost of revenues:
  Software license.................      17.0      12.7       1.6        14.8       0.5
  Service, maintenance and other...      58.9      33.6      45.5        84.9      65.6
                                     --------    ------    ------    --------    ------
     Total cost of revenues........      75.9      46.3      47.1        99.7      66.1
                                     --------    ------    ------    --------    ------
     Gross profit..................      24.1      53.7      52.9         0.3      33.9
Operating expenses:
  Sales and marketing..............   1,231.2     377.5     155.8       729.3      98.6
  Research and development.........   1,036.3     250.8      47.8       220.2      27.6
  General and administrative.......     310.9     139.5      39.1       160.4      20.4
  Stock-based compensation.........        --        --      16.2        50.7      24.1
                                     --------    ------    ------    --------    ------
     Total operating expenses......   2,578.4     767.8     258.9    (1,160.6)    170.7
                                     --------    ------    ------    --------    ------
     Loss from operations..........  (2,554.3)   (714.1)   (206.0)   (1,160.3)   (136.8)
Other income (expense), net........      23.8     (36.8)      1.0        12.8       3.6
                                     --------    ------    ------    --------    ------
     Loss before income taxes......  (2,530.5)   (750.9)   (205.0)   (1,147.5)   (133.2)
Provision for income taxes.........      (1.9)     (0.4)     (0.3)         --      (0.9)
                                     --------    ------    ------    --------    ------
     Net loss......................  (2,532.4)%  (751.3)%  (205.3)%  (1,147.5)%  (134.1)%
                                     ========    ======    ======    ========    ======
</TABLE>


THREE MONTHS ENDED JUNE 30, 1999 AND 2000

     Revenues


     Total revenues increased from $351,000 in the quarter ended June 30, 1999
to $5.8 million in the quarter ended June 30, 2000, representing growth of
1,558%. This increase was attributable to an increase in the number of customers
with revenues in excess of $40,000 from 4 in the quarter ended June 30, 1999 to
14 in the quarter ended June 30, 2000 and an increase in average revenues from
these customers from $58,000 to $400,000, resulting in substantial growth in
software license and service revenues.



     SOFTWARE LICENSE REVENUES. Software license revenues increased from
$168,000 in the quarter ended June 30, 1999 to $1.9 million in the quarter ended
June 30, 2000, representing growth of 1,036%. This increase is attributable to a
larger number of customers in the most recent fiscal quarter and higher average
revenues per customer. Software license revenues as a percentage of total
revenues was 47.9% in the quarter ended June 30, 1999 and 32.8% in the quarter
ended June 30, 2000.



     SERVICE, MAINTENANCE AND OTHER REVENUES. Service, maintenance and other
revenues increased from $183,000 in the quarter ended June 30, 1999 to $3.9
million in the quarter ended June 30, 2000, representing growth of 2,037%. The
increase was due primarily to increases in consulting fees associated with the
larger number of customers in the most recent fiscal quarter and the higher
average revenues per customer. Service, maintenance and other


                                       29
<PAGE>   33

revenues as a percentage of total revenues was 52.1% in the quarter ended June
30, 1999 and 67.2% in the quarter ended June 30, 2000. In the quarter ended June
30, 2000, service, maintenance and other revenues increased at a greater rate
than license revenues, because our two largest customers utilized a higher
amount of consulting services.

     We believe that growth in our software license revenues depends on our
ability to provide our customers with support, education and consulting services
and to educate third-party consulting partners about our products. As a result,
we intend to significantly expand our services organizations during the current
fiscal year ending March 31, 2001. We expect that service, maintenance and other
revenues will increase in absolute dollars, as we assist new customers who
license our software products and as we expand our capacity for the delivery of
these services.

     Cost of Revenues

     COST OF SOFTWARE LICENSE REVENUES. Cost of software license revenues
decreased from $52,000 in the quarter ended June 30, 1999 to $27,000 in the
quarter ended June 30, 2000, a decrease of 48%. As a percentage of software
license revenues, these costs represented 31.0% in the quarter ended June 30,
1999 and 1.4% in the quarter ended June 30, 2000. This decrease reflects
increased efficiencies associated with larger sales volumes and reduced royalty
costs associated with the replacement of third-party licensed technology
included in prior versions of our products with internally developed technology.
We expect that software license cost as a percentage of software license
revenues could increase in the future if we choose to embed additional
third-party technology in our product offerings.

     COST OF SERVICE, MAINTENANCE AND OTHER REVENUES. Cost of service,
maintenance and other revenues increased from $298,000 in the quarter ended June
30, 1999 to $3.8 million in the quarter ended June 30, 2000, an increase of
1,182%. The increase in absolute dollars was due to the creation and expansion
of our consulting services business, the increased hiring of services personnel
and the utilization of third-party consultants to support our customer growth.
As a percentage of service, maintenance and other revenues, these costs
represented 162.8% in the quarter ended June 30, 1999 and 97.6% in the quarter
ended June 30, 2000. Our gross margins on service, maintenance and other
revenues have been minimal or negative, and we expect this to continue for the
next several quarters, as we continue to expand all of our services
organizations in order to meet anticipated demand for services.

     Operating Expenses

     SALES AND MARKETING. Sales and marketing expenses increased from $2.6
million in the quarter ended June 30, 1999 to $5.7 million in the quarter ended
June 30, 2000, an increase of 124%. The increase was due primarily to an
increase in the number of sales and marketing personnel, the opening of new
sales offices in the United States and Europe, and expenses incurred in
connection with trade shows, changing the name of our company to Kabira and
other marketing programs. We believe these expenses will increase significantly
in absolute dollars, as we continue to expand our sales and marketing efforts.
Sales and marketing expenses decreased as a percentage of total revenues from
729.3% in the quarter ended June 30, 1999 to 98.6% in the quarter ended June 30,
2000 as a result of the general expansion of our business. We also anticipate
that sales and marketing expenses may fluctuate as a percentage of total
revenues from period to period as new sales personnel are hired and begin to
achieve productivity.

     RESEARCH AND DEVELOPMENT. Research and development expenses increased from
$773,000 in the quarter ended June 30, 1999 to $1.6 million in the quarter ended
June 30, 2000, an increase of 108%. Research and development expenses decreased
as a percentage of

                                       30
<PAGE>   34

total revenues from 220.2% in the quarter ended June 30, 1999 to 27.6% in the
quarter ended June 30, 2000 as a result of the general expansion of our
business. The absolute dollar increase in research and development expenses is
primarily attributable to increases in the number of research and development
personnel to support our product development activities. 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 to increase significantly in future periods.

     GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
from $563,000 in the quarter ended June 30, 1999 to $1.2 million in the quarter
ended June 30, 2000, an increase of 111%. These expenses decreased as a
percentage of total revenues from 160.4% in the quarter ended June 30, 1999 to
20.4% in the quarter ended June 30, 2000 as a result of the general expansion of
our business. These absolute dollar increases were primarily due to increases in
the number of general and administrative personnel, and an increase in legal and
accounting costs incurred in connection with the growth of our business. We
believe general and administrative expenses will increase significantly as we
add personnel to support our expanding operations, incur additional costs
related to the growth of our business, and assume the responsibilities of a
public company.

     STOCK-BASED COMPENSATION. During the quarter ended June 30, 2000, we
recorded $4.9 million of deferred stock-based compensation related to employee
stock options for the purchase of 1,490,500 shares of common stock. We amortized
employee stock-based compensation expense of $1.4 million in the quarter ended
June 30, 2000. Stock-based compensation expense associated with options to
purchase 17,600 shares of common stock granted to consultants in exchange for
services was $33,000 in the quarter ended June 30, 2000.

     Other Income (Expense), Net

     Other income (expense), net increased from $45,000 in the three months
ended June 30, 1999 to $211,000 in the three months ended June 30, 2000. This
increase is primarily attributable to increased interest earned on higher cash,
cash equivalents and short-term investment balances generated from capital
raised in preferred stock financings.

FISCAL YEARS ENDED MARCH 31, 1998, 1999 AND 2000

     Revenues


     Total revenues increased from $311,000 in the year ended March 31,1998 to
$1.3 million in the year ended March 31, 1999 and to $8.2 million in the year
ended March 31, 2000, representing growth of 309% and 549%. Both software
license revenues and service, maintenance and other revenues increased after the
release of version 3.0 of our ObjectSwitch Server in June 1999, and the
subsequent expansion of our suite of available products based on the
ObjectSwitch platform. The increase resulted from an increase in the number of
customers generating revenues in excess of $100,000 from 4 in the year ended
March 31, 1999 to 14 in the year ended March 31, 2000, and an increase in
average revenues from these customers from $281,000 to $549,000.



     SOFTWARE LICENSE REVENUES. Our software license revenues increased from
$69,000 in the year ended March 31, 1998 to $670,000 in the year ended March 31,
1999 and to $4.6 million in the year ended March 31, 2000, representing growth
of 871% and 581%. The increases were attributable to a larger number of
customers in the most recent fiscal year and the higher average revenues per
customer. Software license revenues as a percent of total revenues were 22.2% in
the year ended March 31, 1998, 52.7% in the year ended March 31, 1999 and 55.3%
in the year ended March 31, 2000.


                                       31
<PAGE>   35


     SERVICE, MAINTENANCE AND OTHER REVENUES. Service, maintenance and other
revenues increased from $242,000 in the year ended March 31, 1998 to $602,000 in
the year ended March 31,1999 and to $3.7 million in the year ended March 31,
2000, representing growth of 149% and 512%. The increases were due to increases
in consulting, training and maintenance fees associated with the larger number
of customers in the most recent fiscal year and the higher average revenues per
customer.


     Cost of Revenues

     Total cost of revenues increased from $236,000 in the year ended March 31,
1998 to $589,000 in the year ended March 31, 1999 and to $3.9 million in the
year ended March 31, 2000, representing increases of 150% and 560%. Cost of
revenues as a percent of total revenues were 75.9% in the year ended March 31,
1998, 46.3% in the year ended March 31, 1999 and 47.1% in the year ended March
31, 2000. The decline in cost of revenues as a percent of total revenues
reflects the improved gross margin associated with a higher mix of software
license to service, maintenance and other revenues.

     COST OF SOFTWARE LICENSE REVENUES. Cost of license revenues was $53,000 in
the year ended March 31, 1998, $161,000 in the year ended March 31, 1999 and
$131,000 in the year ended March 31, 2000. As a percentage of software license
revenues, these costs represented 76.8% in the year ended March 31, 1998, 24.0%
in the year ended March 31, 1999 and 2.9% in the year ended March 31, 2000. The
decreases in cost of software license revenues as a percentage of software
license revenues in the year ended March 31, 1999 resulted from the expansion of
our revenue base. The further decrease in the year ended March 31, 2000 resulted
in part from further revenue growth and in part from the replacement of
third-party licensed technology included in the prior versions of our products
with our own internally developed technology and a corresponding decline in
royalty payments to third parties.

     COST OF SERVICE, MAINTENANCE AND OTHER REVENUES. Cost of service,
maintenance and other revenues was $183,000 in the year ended March 31, 1998,
$428,000 in the year ended March 31, 1999 and $3.8 million in the year ended
March 31, 2000. As a percentage of our service, maintenance and other revenues,
these costs were 75.6% in the year ended March 31, 1998, 71.1% in the year ended
March 31, 1999 and 101.9% in the year ended March 31, 2000. In the year ended
March 31, 2000, total cost of service, maintenance and other revenues as a
result of hiring to build our professional services organization in anticipation
of increased project volumes and as a result of increased use of third party
consultants. We expect that cost of service revenues will continue to increase
in absolute dollars as we support a growing base of customers. We anticipate
that we will continue to experience minimal or negative gross margins on our
service, maintenance and other revenues at least through the end of the year
ending March 31, 2001.

     Operating Expenses

     SALES AND MARKETING. Sales and marketing expenses were $3.8 million in the
year ended March 31, 1998, $4.8 million in the year ended March 31, 1999 and
$12.9 million in the year ended March 31, 2000, representing increases of 25%
and 168%. The increases were primarily due to higher compensation expenses and
related overhead associated with building our sales force and hiring additional
pre-sales engineers and marketing personnel, increased sales commissions
associated with increased sales volume, and increased marketing program
expenses. Sales and marketing expenses decreased as a percentage of total
revenues from 1,231.2% in the year ended March 31, 1998 to 377.5% in the year
ended March 31, 1999 and to 155.8% in the year ended March 31, 2000. We expect
that sales and marketing

                                       32
<PAGE>   36

expenses will continue to increase in absolute dollars as we expand our domestic
and international sales force and increase our marketing efforts.

     RESEARCH AND DEVELOPMENT. Research and development expenses were $3.2
million in the years ended March 31, 1998 and 1999 and increased to $3.9 million
in the year ended March 31, 2000, an increase of 23%. This increase was
primarily due to an increase in personnel and related overhead costs. Research
and development expenses as a percentage of total revenues were 1,036.3% in the
year ended March 31, 1998, 250.8% in the year ended March 31, 1999 and 47.8% in
the year ended March 31, 2000. We expect that research and development expenses
will continue to increase in absolute dollars as we continue to make additional
investments in our technology and products.

     GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$967,000 in the year ended March 31, 1998, $1.8 million in the year ended March
31, 1999 and $3.2 million in the year ended March 31, 2000, representing
increases of 83% and 82%. These increases were primarily due to increases in
personnel and related overhead expenses needed to support the growth of our
business, an increase in professional service fees, and an increase in bad debt
expense as our accounts receivable balances increased. General and
administrative expenses decreased as a percentage of total revenues from 310.9%
in the year ended March 31, 1998 to 139.5% in the year ended March 31, 1999 and
to 39.1% in the year ended March 31, 2000. We expect that our general and
administrative expenses will continue to increase in absolute dollars to support
our business growth strategy and our status as a public company.

     STOCK-BASED COMPENSATION. During the year ended March 31, 2000, we recorded
$4.7 million of deferred stock-based compensation related to employee stock
options for the purchase of 2,683,000 shares of common stock. We amortized
employee stock-based compensation expense of $1.2 million in the year ended
March 31, 2000. Stock-based compensation expense associated with stock options
and stock purchase rights granted to consultants in exchange for services was
$113,000 in the year ended March 31, 2000.

     Other Income (Expense), Net


     Other income (expense), net consists of interest earned on our cash, cash
equivalents and short-term investment balances offset by interest expense
incurred for equipment financing and, in the year ended March 31, 1999, interest
incurred on bridge loans while awaiting additional equity funding. Foreign
currency gains and losses generated by our intercompany balances and foreign
offices, and the gain or loss on disposal of fixed assets are also included.
Other income (expense), net was $74,000 of income in the year ended March 31,
1998, $469,000 of expense in the year ended March 31, 1999 and $82,000 of income
in the year ended March 31, 2000. In the years ended March 31, 1998 and 2000,
the income resulted primarily from interest earned on the higher cash and
short-term investment balances generated from capital raised in preferred stock
financings.


INCOME TAXES

     Since inception, we have incurred net operating losses for U.S. federal and
state tax purposes and have not recognized any significant tax provision or
benefit. We have incurred insignificant tax expense on our foreign operations.
As of March 31, 2000, we had U.S. federal and state net operating loss
carryforwards of approximately $31 million and $16 million. If not utilized, our
federal net operating loss carryforwards will expire in the years ending March
31, 2012 through 2020, and our state net operating loss carryforwards will
expire in the year ending March 31, 2005. Use of our net operating loss
carryforwards may be subject to ownership change limitations contained in the
Internal Revenue Code and similar state

                                       33
<PAGE>   37

provisions. Because the realization of our deferred tax asset is dependent upon
future earnings of which the timing and amount are uncertain, we have
established a valuation allowance and no benefit has been recognized for our net
operating loss carryforwards and other deferred tax assets. The net valuation
allowance increased to $13.9 million at March 31, 2000 from $8.5 million at
March 31, 1999.

QUARTERLY RESULTS

     The following table presents unaudited consolidated statement of operations
data for each of the nine quarters ended June 30, 2000. This information has
been prepared on the same basis as the audited consolidated financial statements
contained in this prospectus and includes all adjustments, consisting only of
normal recurring adjustments, that we consider necessary for a fair presentation
of such information when read in conjunction with our audited consolidated
financial statements and related notes. Operating results for any quarter are
not necessarily indicative of results for any future period.

<TABLE>
<CAPTION>
                                                              QUARTER ENDED
                                   -------------------------------------------------------------------
                                   JUN. 30,    SEPT. 30,   DEC. 31,   MAR. 31,   JUN. 30,    SEPT. 30,
                                     1998        1998        1998       1999       1999        1999
                                   ---------   ---------   --------   --------   ---------   ---------
                                                             (IN THOUSANDS)
                                                               (UNAUDITED)
<S>                                <C>         <C>         <C>        <C>        <C>         <C>
Revenues:
 Software license................  $      63    $   341    $   210    $    56    $     168    $   624
Service, maintenance and other...        113         48        142        299          183        278
                                   ---------    -------    -------    -------    ---------    -------
   Total revenues................        176        389        352        355          351        902
Cost of revenues:
 Software license................         18        132          6          5           52         16
Service, maintenance and other...         95         39        127        167          298        295
                                   ---------    -------    -------    -------    ---------    -------
   Total cost of revenues........        113        171        133        172          350        311
                                   ---------    -------    -------    -------    ---------    -------
   Gross profit..................         63        218        219        183            1        591
Operating expenses:
 Sales and marketing.............      1,030      1,226      1,242      1,304        2,560      2,756
 Research and development........        773        771        799        847          773        714
 General and administrative......        498        460        440        376          563        675
 Stock-based compensation(1).....         --         --         --         --          178        203
                                   ---------    -------    -------    -------    ---------    -------
   Total operating expenses......      2,301      2,457      2,481      2,527        4,074      4,348
                                   ---------    -------    -------    -------    ---------    -------
   Loss from operations..........     (2,238)    (2,239)    (2,262)    (2,344)      (4,073)    (3,757)
Other income (expense), net......        (23)       (46)       (88)      (312)          45         52
                                   ---------    -------    -------    -------    ---------    -------
   Loss before income taxes......     (2,261)    (2,285)    (2,350)    (2,656)      (4,028)    (3,705)
Provision for income taxes.......         (1)        (0)        --         (4)          --         --
                                   ---------    -------    -------    -------    ---------    -------
   Net loss......................  $  (2,262)   $(2,285)   $(2,350)   $(2,660)   $  (4,028)   $(3,705)
                                   =========    =======    =======    =======    =========    =======

<CAPTION>
                                             QUARTER ENDED
                                   ---------------------------------
                                   DEC. 31,   MAR. 31,    JUN. 30,
                                     1999       2000        2000
                                   --------   --------   -----------
                                     (IN THOUSANDS)
                                       (UNAUDITED)
<S>                                <C>        <C>        <C>
Revenues:
 Software license................  $ 1,776    $ 1,995      $ 1,909

Service, maintenance and other...    1,130      2,095        3,911
                                   -------    -------      -------
   Total revenues................    2,906      4,090        5,820
Cost of revenues:
 Software license................       58          5           27

Service, maintenance and other...    1,023      2,140        3,819
                                   -------    -------      -------
   Total cost of revenues........    1,081      2,145        3,846
                                   -------    -------      -------
   Gross profit..................    1,825      1,945        1,974
Operating expenses:
 Sales and marketing.............    3,200      4,336        5,738
 Research and development........    1,033      1,419        1,606
 General and administrative......      872      1,116        1,189
 Stock-based compensation(1).....      261        700        1,405
                                   -------    -------      -------
   Total operating expenses......    5,366      7,571        9,938
                                   -------    -------      -------
   Loss from operations..........   (3,541)    (5,626)      (7,964)
Other income (expense), net......      (22)         7          211
                                   -------    -------      -------
   Loss before income taxes......   (3,563)    (5,619)      (7,753)
Provision for income taxes.......       --        (24)         (53)
                                   -------    -------      -------
   Net loss......................  $(3,563)   $(5,643)     $(7,806)
                                   =======    =======      =======
</TABLE>


                                       34
<PAGE>   38

<TABLE>
<CAPTION>
                                                              QUARTER ENDED
                                   -------------------------------------------------------------------
                                   JUN. 30,    SEPT. 30,   DEC. 31,   MAR. 31,   JUN. 30,    SEPT. 30,
                                     1998        1998        1998       1999       1999        1999
                                   ---------   ---------   --------   --------   ---------   ---------
                                                             (IN THOUSANDS)
                                                               (UNAUDITED)
<S>                                <C>         <C>         <C>        <C>        <C>         <C>
AS A PERCENTAGE OF REVENUES:
Revenues:
 Software license................       35.8%      87.7%      59.7%      15.8%        47.9%      69.2%
Service, maintenance and other...       64.2       12.3       40.3       84.2         52.1       30.8
                                   ---------    -------    -------    -------    ---------    -------
   Total revenues................      100.0      100.0      100.0      100.0        100.0      100.0
Cost of revenues:
 Software license................       10.2       33.9        1.7        1.4         14.8        1.8
Service, maintenance and other...       54.0       10.0       36.1       47.0         84.9       32.7
                                   ---------    -------    -------    -------    ---------    -------
   Total cost of revenues........       64.2       43.9       37.8       48.4         99.7       34.5
                                   ---------    -------    -------    -------    ---------    -------
   Gross margin..................       35.8       56.1       62.2       51.6          0.3       65.5
Operating expenses:
 Sales and marketing.............      585.2      315.2      352.8      367.3        729.3      305.5
 Research and development........      439.2      198.2      227.0      238.6        220.2       79.2
 General and administrative......      283.0      118.3      125.0      105.9        160.4       74.8
 Stock-based compensation........         --         --         --         --         50.7       22.3
                                   ---------    -------    -------    -------    ---------    -------
   Total operating expenses......    1,307.4      631.7      704.8      711.8      1,160.6      482.0
                                   ---------    -------    -------    -------    ---------    -------
   Loss from operations..........   (1,271.6)    (575.6)    (642.6)    (660.2)    (1,160.3)    (416.5)
Other income (expense), net......      (13.1)     (11.8)     (25.0)     (87.9)        12.8        5.8
                                   ---------    -------    -------    -------    ---------    -------
   Loss before income taxes......   (1,284.7)    (587.4)    (667.6)    (748.1)    (1,147.5)    (410.7)
Provision for income taxes.......       (0.6)        --         --       (1.1)          --         --
                                   ---------    -------    -------    -------    ---------    -------
   Net loss......................   (1,285.3)%   (587.4)%   (667.6)%   (749.2)%   (1,147.5)%   (410.7)%
                                   =========    =======    =======    =======    =========    =======

<CAPTION>
                                             QUARTER ENDED
                                   ---------------------------------
                                   DEC. 31,   MAR. 31,    JUN. 30,
                                     1999       2000        2000
                                   --------   --------   -----------
                                     (IN THOUSANDS)
                                       (UNAUDITED)
<S>                                <C>        <C>        <C>
AS A PERCENTAGE OF REVENUES:
Revenues:
 Software license................     61.1%      48.8%        32.8%
Service, maintenance and other...     38.9       51.2         67.2%
                                   -------    -------      -------
   Total revenues................    100.0      100.0        100.0
Cost of revenues:
 Software license................      2.0        0.1          0.5
Service, maintenance and other...     35.2       52.3         65.6
                                   -------    -------      -------
   Total cost of revenues........     37.2       52.4         66.1
                                   -------    -------      -------
   Gross margin..................     62.8       47.6         33.9
Operating expenses:
 Sales and marketing.............    110.1      106.0         98.6
 Research and development........     35.5       34.7         27.6
 General and administrative......     30.0       27.3         20.4
 Stock-based compensation........      9.0       17.1         24.1
                                   -------    -------      -------
   Total operating expenses......    184.6      185.1        170.7
                                   -------    -------      -------
   Loss from operations..........   (121.8)    (137.5)      (136.8)
Other income (expense), net......     (0.8)       0.2          3.6
                                   -------    -------      -------
   Loss before income taxes......   (122.6)    (137.3)      (133.2)
Provision for income taxes.......       --       (0.6)        (0.9)
                                   -------    -------      -------
   Net loss......................   (122.6)%   (137.9)%     (134.1)%
                                   =======    =======      =======
</TABLE>


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


(1) Our stock-based compensation was comprised of the following:



<TABLE>
<CAPTION>
                                                                                  QUARTER ENDED
                                                              ------------------------------------------------------
                                                              JUN. 30,    SEPT. 30,   DEC. 31,   MAR. 31,   JUN. 30,
                                                                1999        1999        1999       2000       2000
                                                              ---------   ---------   --------   --------   --------
                                                                            (IN THOUSANDS) (UNAUDITED)
<S>                                                           <C>         <C>         <C>        <C>        <C>
Cost of service, maintenance and other revenues.............    $ --        $  3        $  3       $  9      $   33
Sales and marketing.........................................      56          71         142        361         667
Research and development....................................      47          47          40         72         292
General and administrative..................................      75          82          76        258         413
                                                                ----        ----        ----       ----      ------
   Total stock-based compensation...........................    $178        $203        $261       $700      $1,405
                                                                ====        ====        ====       ====      ======
</TABLE>


     Our total revenues for the nine quarters ended June 30, 2000 varied
significantly from quarter to quarter, because our revenues were generated from
a limited number of customers. In addition, software license revenues increased
following introduction of version 3.0 of our ObjectSwitch Server in June 1999.
In the two quarters ended June 30, 2000, service, maintenance and other revenues
increased at a greater rate than license revenues, because our two largest
customers utilized a higher amount of consulting services.

     Our cost of revenues as a percent of total revenues for the nine quarters
ended June 30, 2000 varied significantly from quarter to quarter due to these
changes in the mix of software license to service, maintenance and other
revenues. In addition, cost of service revenues increased significantly in the
three quarters ended June 30, 2000, following the release of version 3.0 of our
ObjectSwitch Server and the initiation of related service projects.

     Operating expenses have generally increased over the nine quarters ended
June 30, 2000, as a result of the general expansion of our business and
increases in headcount. In addition, sales and marketing expenses increased
significantly from the quarter ended March 31, 1999 to the quarter ended June
30, 1999 in anticipation of the release of version 3.0 of our ObjectSwitch
Server in June 1999. Similarly, operating expenses increased significantly in
the

                                       35
<PAGE>   39

quarters ended December 31, 1999, March 31, 2000, and June 30, 2000, reflecting
our efforts to create, expand and market our suite of products based on our
ObjectSwitch technology.

     Our quarterly results have fluctuated considerably in the past and may
continue to fluctuate in the future. We have a limited operating history and are
in the early stages of a developing market. Our customer base is still
relatively small. Additionally, the factors discussed under "Risk Factors" in
this prospectus may significantly influence our quarterly results. You should
not rely on quarter-to-quarter comparisons of our results of operations as
indicators of future performance. If in some future periods our operating
results are below the expectations of public market analysts and investors, the
price of our common stock may under-perform or fall.

LIQUIDITY AND CAPITAL RESOURCES

     Since inception, we have funded our operations and our capital expenditures
primarily through the sale of equity securities, supplemented by various
equipment financing arrangements. Through June 30, 2000, we had raised aggregate
proceeds of $64.0 million from private equity financings and $2.0 million from
long-term debt and capital lease agreements. As of June 30, 2000, we had $24.0
million in cash and cash equivalents and $17.6 million in working capital.

     Net cash used in operating activities was $7.4 million in the year ended
March 31, 1998, $8.3 million in the year ended March 31, 1999, $10.0 million in
the year ended March 31, 2000 and $6.3 million in the quarter ended June 30,
2000. Net cash used in operating activities in the year ended March 31, 2000 was
significantly less than the net loss of $16.9 million due to non-cash charges
consisting of depreciation, bad debt and stock-based compensation expenses of
$630,000, $419,000 and $1.3 million and increases in accounts payable, accrued
liabilities and deferred revenues, which were caused principally by growth in
contract volume and the scope of our operations in the year ended March 31,
2000. These differences were partially offset by an increase in accounts
receivable, which was caused by growth in contract volume. Net cash used in
operating activities in the quarter ended June 30, 2000 was less than the net
loss of $7.8 million due to non-cash charges consisting of depreciation, bad
debt and stock-based compensation expenses of $261,000, $56,000 and $1.4 million
and increases in accounts payable which were caused principally by the growth of
our operations. These increases were partially offset by an increase in accounts
receivable.

     Net cash used in investing activities was negligible in the year ended
March 31, 1998, $399,000 in the year ended March 31, 1999, $2.3 million in the
year ended March 31, 2000 and $726,000 in the quarter ended June 30, 2000.
Investing activities consisted primarily of capital expenditures for computer
equipment and purchases and maturities of marketable securities in both the year
ended March 31, 2000 and the quarter ended June 30, 2000.

     Net cash provided by financing activities was $6.1 million in the year
ended March 31, 1998, $16.4 million in the year ended March 31, 1999, $12.2
million in the year ended March 31, 2000 and $19.5 million in the quarter ended
June 30, 2000. Financing activities consisted primarily of the proceeds from the
issuance of common and preferred stock and were offset, in part, by repayments
of long-term debt and capital leases. In March 1999, we raised $16.7 million
from the issuance of preferred stock, including $4.2 million in debt and related
interest converted into stock as part of the equity financing. We raised $11.8
million from the issuance of preferred stock in February 2000 and an additional
$20 million from a further issuance of preferred stock in May 2000.

     We expect to experience significant growth in our operating expenses in the
future in order to develop our business. As a result, we anticipate that these
operating expenses, as well as capital expenditures, will constitute a material
use of our cash resources. We may also utilize

                                       36
<PAGE>   40


cash resources to fund acquisitions of or investments in complementary
businesses, technologies or product lines. We believe that the net proceeds from
the sale of common stock in this offering, together with the net proceeds from
the sale of preferred stock in May 2000 and our existing cash resources, will be
sufficient to meet our operational and capital expenditure requirements for at
least the next 12 months. After that time, we may need to obtain additional
equity or debt financing. We may seek to obtain additional financing sooner,
depending on market conditions. In the event additional financing is required,
we may not be able to raise it on acceptable terms or at all. In the event that
we are unable to obtain additional funding on a timely basis, we may be
compelled to significantly curtail our operations, which could harm our
competitive position and reputation, or cease operations entirely.


YEAR 2000 MATTERS

     Many computer systems and software products have historically accepted only
two-digit entries in the date code field and cannot reliably distinguish dates
beginning on January 1, 2000 from dates in 1900. This is referred to as the Year
2000 problem. We have designed our products to be Year 2000 compliant. We define
Year 2000 compliance to mean that our systems or products accurately process
date data from, in and between the years 1999 and 2000, including leap year
effects. We did not experience any significant problems associated with Year
2000 issues either with our products or internal systems, and we are not aware
that any of our customers, suppliers or vendors experienced any such problems.

QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

     We sell our products in North America and internationally. Some of our
international sales are denominated in local currencies and others in U.S.
dollars. 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. To date, our financial results have not been affected
significantly by changes in foreign currency exchange rates. However, some of
our international sales will continue to be denominated in U.S. dollars, and a
strengthening of the dollar could make our products less competitive in foreign
markets. Furthermore, we expect that some of our future revenues will continue
to be denominated in the currency of the applicable market. As a result, our
operating results may fluctuate based upon changes in the value of local
currencies in relation to the U.S. dollar. We intend to monitor our exposure to
currency fluctuations, and, when appropriate, we may use financial hedging
techniques in the future to minimize the effect of these fluctuations.
Nonetheless, these techniques may not be effective.

     Our interest income is sensitive to changes in interest rates. We have an
investment portfolio of money market funds and fixed income securities. Due to
the short-term nature of our investments, we believe we have no material risk of
exposure. Our interest expense on capital leases and notes payable secured by
computer systems is not sensitive to changes in interest rates because all of
these arrangements are based on fixed rates of interest.

     We do not own any equity securities. Therefore, we are not subject to any
direct equity price risk.

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Financial Instruments and Hedging Activities," which provides a comprehensive
and consistent standard for the recognition and measurement of hedging
activities and derivatives. In June 1999, the Financial Accounting Standards
Board issued SFAS No. 137, which defers the effective date of SFAS

                                       37
<PAGE>   41

No. 133 to years beginning after June 15, 2000. We do not believe the adoption
of SFAS No. 133 will have a material impact on our consolidated financial
statements.

     In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements,"
which provides guidance on revenue recognition based on interpretations and
practices followed by the SEC. We have followed this guidance in the preparation
of our consolidated financial statements.


     In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation," an
interpretation of APB No. 25. FIN 44 clarifies guidance for certain issues that
arose in the application of APB No. 25. FIN 44 applies to all new awards,
modifications to outstanding awards and changes in employee status on or after
July 1, 2000. We do not anticipate that FIN 44 will have a material impact on
our consolidated financial position or results of operations.


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<PAGE>   42

                                    BUSINESS

OVERVIEW


     We provide a new class of infrastructure software for the development and
delivery of business and consumer services that are made possible by the
convergence of telecommunications networks, internal enterprise networks and the
Internet. Our ObjectSwitch platform is designed to provide the enhanced speed,
reliability and integration that businesses need to develop and deliver
Next-Generation Services that can support up to millions of users and thousands
of concurrent transactions. For optimal performance, our platform aggregates in
real memory the application logic, application data and transactional
instructions. By placing these basic elements of the service in close proximity
to each other, our ObjectSwitch technology allows services to operate at high
speeds and enables many different applications and services to share and access
data simultaneously in real time.



     Our technology makes it possible for our applications to recover
immediately from a system failure and restore transactions that were in process
at the time of failure. Services remain online even when developers need to
modify them to add enhanced features or new business logic. Our ObjectSwitch
product suite can easily integrate with a wide variety of commercial software,
network equipment, high-speed network protocols and access devices. Our products
enable our customers to focus on designing optimal business processes for new
services rather than devoting time and resources to overcoming technical
implementation constraints.



     We license our products and sell professional services primarily through
our direct sales organization, complemented by third-party systems integrators
and value-added resellers. We have initially targeted our marketing efforts at
the telecommunications and financial services industries and have licensed our
software to more than twenty customers, including Aerie Networks, Alcatel,
Ameris (formerly France Caraibe Mobiles), E*Trade Securities, Energis N.V.,
France Telecom Mobile Liban, Gabriel Communications, Lucent Technologies, New
Edge Networks and Noos (formerly Lyonnaise Cable).



INDUSTRY BACKGROUND


Network Convergence and Next-Generation Services


     With the growth of the Internet and the rapid evolution and expansion of
broadband and digital wireless networks, three formerly independent technology
environments have begun to converge: telecommunications networks, internal
enterprise networks and the Internet. As a result, businesses now have
significant opportunities to provide a new breed of services that take advantage
of this convergence. These new services allow businesses to pursue new market
opportunities, respond more quickly to customer requirements and gain revenues
from unique service offerings. This new breed of services includes new online
services that enable consumers to obtain information and execute transactions
through many types of electronic devices; more efficient methods for managing
and exploiting information about products, customers and operations; and new
electronic means for businesses to exchange information, work together, and buy
and sell products and services. We refer to these new applications and services
as Next-Generation Services.



     Representative Next-Generation Services include:



     - Third-generation, or 3G, wireless services, which are continuously
       available to deliver rich multimedia content and personalized services
       via wireless devices to users anywhere in the world 24 hours each day.


                                       39
<PAGE>   43


     - eHubs, real-time exchanges, and Internet-based business environments,
       which enable businesses and their customers, partners, suppliers and
       employees to collaborate and conduct e-commerce transactions in real
       time, improve operating efficiency and streamline product supply chains.



     - Online trading systems and financial services, which allow users to
       execute secure and reliable trading transactions from any
       Internet-enabled device, and provide real-time price quotes and rich
       multimedia financial information.



     To date, the growth of Next-Generation Services has been limited by
significant technical barriers. The technologies underlying telecommunications
networks, traditional enterprise networks and the Internet have generally
evolved independently and were designed to serve different functions. For
example, telecommunication networks were designed primarily for voice
transmission, not for delivery of rich multimedia applications and other
data-oriented services to wireless phones and other Internet-enabled mobile
devices. Similarly, most traditional enterprise networks were designed prior to
the widespread adoption of the Internet and are unable to effectively employ the
Internet's flexible capabilities to connect businesses with customers, partners,
suppliers and employees on demand. Internet-based applications for businesses
were designed predominantly as stand-alone marketing or communications vehicles,
and not to reliably support large-scale, real-time transactional applications.



     If a business wishes to integrate multiple network environments to deliver
Next-Generation Services, it typically faces a complex and time-consuming
engineering effort. Businesses are often forced to alter or limit their new
services and the way they operate because of the technical constraints they
encounter in working across disparate technology environments. As a result, new
services may be less useful and competitive in the market. We believe the most
serious limitation overall is the speed of the new services. Next-Generation
Services that are too slow significantly limit customer acceptance and revenue
growth. Not only must the new services be very fast, they must also be capable
of expanding to support large numbers of users in order to generate the revenue
required to recover the investments made in their development and delivery.



Infrastructure Requirements for Delivering Next-Generation Services



     Business and communication service providers are making substantial
investments in new classes of infrastructure software including large-scale
Internet content caching software and real-time commerce server software.
According to IDC, businesses spent over $13 billion on Internet infrastructure
software in 1999, and spending is expected to increase to over $36 billion in
2003.



     We believe that successful development and delivery of Next-Generation
Services also requires a unified network platform that:


     - Overcomes the technical challenges posed by the existing disparate
       technology environments; and

     - Offers an effective and efficient application development process.


     OVERCOMING TECHNICAL CHALLENGES. In order to develop and deliver
Next-Generation Services, businesses need a comprehensive, reliable, high-speed
software platform. An effective software platform for Next-Generation Services
must offer:



     - High-Speed Delivery. Infrastructure solutions for Next-Generation
       Services need to support large numbers of users, each of whom can enjoy
       fast response to service requests. The software infrastructure must
       process, in parallel, thousands of complex


                                       40
<PAGE>   44

       transactions per second and even larger bursts of user traffic, while
       minimizing transaction response time.

     - Constant Availability. As Next-Generation Services become critical to
       businesses and essential to consumers, they must be as reliable as the
       traditional telephone network. Infrastructure solutions for
       Next-Generation Services must recognize when parts of the overall system
       fail, and be able to redirect transactions from failed to working system
       components, restore transactions and data to the state they were in
       before the failure occurred and complete the transactions.

     - Effective Integration and Mediation. Infrastructure solutions for
       Next-Generation Services must integrate existing technologies, such as
       mainframe, billing, database and other systems, utilize the valuable
       information residing in these existing systems, and interface with new
       network software, hardware and protocols. In addition, these solutions
       must be able to mediate data and transactions between slower
       software-based systems and extremely high-speed network hardware, such as
       switches and routers, in order to optimize overall system efficiency.


     ENABLING AN EFFECTIVE DEVELOPMENT PROCESS. To successfully deliver
Next-Generation Services, businesses need an environment that allows them the
freedom and flexibility to design and deploy applications that conform to their
commercial requirements without devoting excessive time and resources to
overcoming technical implementation constraints. The design environment must
reduce the time required to develop applications and integrate with existing
software systems. In addition, Next-Generation Services compete with other
services in a rapidly changing market, with a constant demand for new features.
A successful infrastructure platform must support constant service changes and
enhancements, without requiring interruption of existing services.



Limitations of Existing Infrastructure Technologies



     Several infrastructure technologies have been developed to address some of
the challenges faced by businesses in deploying applications and services in
specific network environments. Some of these current technologies are:


     - Enterprise application integration, or EAI, tools, which are software
       products designed to connect specific versions of enterprise software
       applications;

     - Process automation software tools, which are designed for business
       process and workflow automation;

     - Applications servers, which are software systems designed to add
       e-commerce or other Internet functionality to specific operating
       environments; and

     - Middleware and other proprietary software solutions, which are designed
       to transport data or support traditional enterprise transactions.


     None of these current technologies was designed to provide a comprehensive
software infrastructure solution for developing and delivering Next-Generation
Services. The various existing technologies generally only optimize speed,
availability or interoperability of networked systems, at the expense of the
other criteria. As a result, businesses seeking to launch applications and
services in a convergent network environment often have been forced to devote
substantial time and resources to custom programming and integration efforts to
meet their individual needs. This limits their ability to rapidly deliver new
services and enhance their systems to match the evolution of their business.


                                       41
<PAGE>   45


     In large measure, these limitations are the result of an historical need to
conserve the amount of computer memory and processing power required to run an
application. Computer memory chips and high-performance processors have
historically been costly, forcing developers of prior infrastructure
technologies to focus on crafting limited integration solutions with modest
memory and processing power requirements. Until very recently, it has been very
difficult to implement the needed infrastructure for Next-Generation Services.



     Rapid advances in computer processor technology and a substantial increase
in worldwide memory chip manufacturing capacity have now greatly reduced the
cost of processor and memory components, while continuously increasing
performance. It is now possible to provide a unified platform with large numbers
of parallel processing units and expansive memory banks that can support large
transaction volumes at high speeds, deliver services with constant availability,
enable a broad variety of hardware, networks, applications and devices to
communicate and operate together effectively, and allow businesses to rapidly
deliver new services.


OUR SOLUTION


     We provide a new class of infrastructure software for the development and
delivery of Next-Generation Services that are made possible by the convergence
of telecommunication networks, traditional enterprise networks and the Internet.
Working with our customers, we install our software within their networks and
use it as a foundation to develop new applications and services that they will
offer to their customers and to mediate among their existing systems and
software applications. Our product suite includes server software, integration
components, adapters for third-party applications and network equipment and
pre-built software frameworks. Our customers use standard industry modeling
tools to create the application logic and data models underlying the services
that they wish to provide. Our product suite also includes a set of design tools
that integrate the application logic created by our customers with supporting
applications and equipment. The design tools then automatically create a
complete service application that runs on our ObjectSwitch platform.



     For optimal performance the ObjectSwitch product suite aggregates in real
memory the logic, consumer or business data and transactional instructions that
are needed to deliver Next-Generation Services. This improves performance by
reducing data copying and movement around the network and eliminates time
consuming aggregation and mediation programming. Our products also can easily
integrate with a wide variety of commercial software applications, network
equipment, high-speed network protocols and access devices. We enable businesses
to focus on designing optimal business processes for new services rather than
devoting time and resources to overcoming technical implementation constraints.


     We believe our solution provides the following benefits to businesses
seeking to introduce Next-Generation Services:


     SPEED AND SCALABILITY. Our architecture is designed to process thousands of
parallel transactions per second on a single server, absorb large bursts of
traffic during peak demand times and support millions of end-users. Our
technology accelerates the performance of a customer's internal and external
network systems by aggregating in real memory the application logic, application
data and transactional instructions used by Next-Generation Services. By placing
these elements in close proximity to each other, our ObjectSwitch platform
allows them to be quickly accessed by many services at the same time. In
addition, as a customer's transaction volumes increase, our platform can be
expanded in parallel across multiple integrated computer processors within a
single computer server, as well as across multiple servers.


                                       42
<PAGE>   46


     CONSTANT AVAILABILITY. Our ObjectSwitch technology is designed to allow
applications to continue operating in the event of machine, network or
third-party application failures. Our solution makes it possible for an
application or device to recover immediately from a system failure and restore
transactions that were in process at the time of the failure. Our ObjectSwitch
platform allows systems to continue to operate while they are being modified, so
that new functionality can be added, or existing functions can be changed or
enhanced, without any interruption of service.



     EFFECTIVE INTEGRATION AND MEDIATION. Our products bridge the gaps between
slow business processes, relatively high-speed internal network systems and
ultra-high speed telecommunications systems. This is accomplished by providing
interfaces that integrate diverse systems and then mediate between different
system components to optimize overall system performance. Mediation coordinates
the operation of various system components to ensure that they can operate in
parallel and exchange data in concert, while avoiding performance bottlenecks.
Our automated mediation and integration features allow customers to design
applications which best suit their needs and those of their customers and
partners, without devoting excessive time or resources to address the details of
how to deploy the applications in their existing network environment.



     RAPID DEVELOPMENT AND DEPLOYMENT. In order to make it easier for our
customers to rapidly develop Next-Generation Services, our platform allows users
to employ standard graphical development tools to design an application's
functions, logic, processes and mediation features. Our technology then
automatically generates the entire computer code required for the application.
We have also developed a suite of generic frameworks that our customers can use
as a basis for applications such as mediating between billing services, and
industry-specific frameworks that can be used to deliver solutions such as
mobile telephone subscriber and service provisioning. By employing these
frameworks as a starting point, businesses can more rapidly design applications
that meet their needs. Once the development phase is completed, our ObjectSwitch
platform allows new applications and services to be deployed while systems
remain online and fully operational. We believe that ObjectSwitch enables the
development and delivery of Next-Generation Services that are compelling and
useful.


OUR STRATEGY

     Our goal is to establish Kabira as the leading provider of infrastructure
platforms for delivering Next-Generation Services. To achieve this goal, we are
pursuing the following principal strategies:

     FOCUS RELENTLESSLY ON SUCCESSFUL IMPLEMENTATIONS TO PROMOTE WIDESPREAD
ADOPTION OF OUR PRODUCTS. We work closely with our customers to thoroughly
assess their needs and ensure successful deployment of our products, with the
goal of attaining complete customer satisfaction. We intend to capitalize on the
success of our initial deployments to encourage existing customers to broadly
adopt our solutions to deliver additional services. In addition, we believe that
by ensuring the success of initial deployments, we will establish a broad base
of referenceable customers. We also believe that our focus on quick, successful
implementations may cause our customers to encourage their own partners and
customers to adopt our solutions to deliver Next-Generation Services.

     TARGET MARKET LEADERS IN SELECTED GEOGRAPHIC AND VERTICAL MARKETS. We
target market leaders throughout the world in selected geographic markets and
industry sectors. We believe that market leaders can drive the adoption of new
technology throughout their sectors, often resulting in a de facto standard for
their markets. For example, we intend to capitalize on the deployment of our
solutions with prominent telecommunications services providers to drive adoption
of our technology throughout the international telecommunications sector. We
have

                                       43
<PAGE>   47

licensed our products to customers in eleven countries to date. We have expanded
our initial focus on the telecommunications services providers to target the
worldwide financial services sector.


     DEVELOP EFFECTIVE MARKET-FOCUSED SOLUTIONS. We believe that a key to our
success has been our focus on working with customers to more effectively assess
and understand their needs, and collaborating with them to develop systems
enhancements and application frameworks that specifically address their
requirements and those of other businesses in their market sector. We plan to
continue to partner with customers to develop application frameworks that can be
provided to other customers with similar requirements. This strategy provides us
with additional revenue opportunities while reducing our internal development
costs. We develop application frameworks using the same application design tools
that we provide to customers. In addition, we intend to license our technology
to independent software developers and original equipment manufacturers to allow
them to develop and market additional applications and application frameworks,
which further drive the adoption of our core technology and increase the library
of applications available to new customers.


     ENHANCE OUR CORE TECHNOLOGY AND PRODUCTS. We have developed a comprehensive
software infrastructure for the development and delivery of Next-Generation
Services. We plan to continue to enhance and extend the functionality of our
ObjectSwitch platform and related technologies. For instance, we are currently
developing a broader range of application development tools and an enhanced
development interface. We will continue to advance our ObjectSwitch technology
as an open technology platform by constantly expanding support for emerging
industry standards and protocols and adding enhanced features which capitalize
on advances in computer and network hardware technologies. We proactively
participate in standard-setting organizations such as the Object Management
Group in order to help advance industry standards for relevant network and
communications technologies.


     EXPAND OUR PROFESSIONAL SERVICES CAPABILITIES. We intend to continue to
build a comprehensive global professional services organization, and expand our
relationships with third-party systems integrators and value-added resellers, to
help customers build and deploy solutions based on our technology. We provide
our customers with a complete range of services, including consulting, training,
implementation and customer support. Our continuing interaction with customers
through our professional services organization is also important because it
allows us to maintain and expand customer relationships and better understand
our customers' evolving needs. We intend to supplement our professional services
organization by entering into additional alliances with leading consulting
organizations, systems integrators and resellers, which will involve extensive
training programs for consulting staff and close interaction with us throughout
the sales, implementation and support cycle. To date, we have entered into
agreements with organizations including Cap Gemini, KPMG, Lucent Technologies
and Perot Systems.


                                       44
<PAGE>   48

CUSTOMERS AND CASE STUDIES


     Through June 30, 2000, over 20 customers in 16 countries had licensed our
ObjectSwitch platform. The following end-user customers have purchased $100,000
or more of licenses and related services from us or from one of our resellers
through that date:



<TABLE>
<S>                                                   <C>
Aerie Networks                                        Noos (formerly Lyonnaise
Alcatel (France)                                      Cable) (France)
Ameris (formerly France Caraibe Mobiles)              Nuevatel (Bolivia)
  (French West Indies)                                One.Tel Networks (Australia)
DMW Worldwide                                         Petra Jordanian Mobile
Energis N.V. (The Netherlands)                        Telecom (Jordan)
E*Trade Securities                                    Steria (France)
France Telecom                                        STET-Hellas
France Telecom Mobile Liban (Lebanon)                   Telecommunications SA
Gabriel Communications                                  (Greece)
Gateway Telephone (Canada)                            TAL (Iceland)
Globtel GSM, a.s. (Slovak Republic)                   Telia (Sweden)
Irish Multichannel
New Edge Networks
New South Communications
</TABLE>



     We have derived our revenues from sales to a relatively small number of
large customers. In the year ended March 31, 2000, revenues from E*Trade
Securities, New Edge Networks and Lucent Technologies accounted for 20%, 14% and
11% of our total revenues. During the quarter ended June 30, 2000, revenues from
E*Trade Securities and New Edge Networks accounted for 24% and 22% of total
revenues. We expect that revenues from a limited number of customers will
continue to account for a large percentage of total revenues.



     We work with our customers to install our ObjectSwitch software, placing it
within their existing networks to support these new services. With our
assistance, our customers create new services by first identifying their key
business goals and then designing the necessary data models and application
service logic and deploying the service.



     The following case studies illustrate how our customers have used our
ObjectSwitch platform to deliver Next-Generation Services:



     AMERIS (FORMERLY FRANCE CARAIBE MOBILES)



     Ameris, a wholly owned subsidiary of France Telecom, is a provider of
digital GSM mobile telephone and mobile Internet services in the Caribbean and
South America. The coverage area includes Guadeloupe, Martinique,
Saint-Barthelemy, Saint-Martin and French Guyana.



     Business Opportunity: Ameris' growth plans require continuous innovation
and deployment of new services within their digital network. Ameris desired to
gain comprehensive oversight of their network infrastructure interfaces, and be
able to introduce new services without system downtime. For example, Ameris
wished to provide a new GSM mobile phone service, which would be purchasable
from vendors at multiple locations and would allow for instant service by
plugging a smart chip (SIM card) into the customer's GSM phone.



     The challenge at Ameris was to build a new flexible infrastructure for
services and integrate existing systems into a single "customer view" with
real-time database and network updates for all software and network elements.



     Customer Solution: With our participation, it was possible to
cost-effectively and rapidly implement the logical connections and integrate the
systems needed for Ameris' new prepaid service. By deploying Kabira's
ObjectSwitch infrastructure software, Ameris was able to


                                       45
<PAGE>   49

integrate the required systems and then fully deploy a working pre-paid
subscriber system within two months.

     The resulting service integrated billing systems, customer data,
provisioning logic and several high-speed network elements into a single
seamless service.


     Because our platform is capable of integrating existing and new systems
into a single service application, there was no need to change most of Ameris
system components or software in order to create the new service. The end result
for Ameris is the increased ability to implement new services and products that
in the future are expected to include Wireless Access Protocol, or WAP, mobile
Internet service, Global Packet Radio Service, and 3G wireless-networks.


ENERGIS N.V.


     Energis N.V., a wholly owned subsidiary of the European telecommunications
operator Energis plc, provides voice, data and Internet solutions to Internet
service providers, corporate accounts and telecommunications carriers in the
Netherlands.


     Business opportunity: Energis required a network software infrastructure
that would allow it to rapidly deploy and provision new services, and expand and
maintain its network. Energis was encountering persistent delays in implementing
new technologies to support its growing customer base and in providing new
services to its customers. For instance, a new network element could only be
used with Energis's existing infrastructure after acceptance test and invoicing
by its existing middleware vendor.

     Customer solution: We worked with Energis to develop two mission-critical
mediation applications based on our ObjectSwitch technology:

     - Hades, an automatic flow-through provisioning system that allows customer
       care representatives to automatically provision new services for
       customers, update billing systems as required and reconfigure all
       necessary network elements to provide the new services.

     - Hermes, a call detail record collection and processing system that
       automatically retrieves billing information from the network elements,
       translates it into an internal unified format, and applies a set of
       functions, such as consistency checks, filtering and local number
       portability translation, before dispatching this data to various
       subsystems. According to Energis, the system is processing 50 million
       call detail records per month.

Energis can now implement new services and deploy new network elements in days,
rather than months. In addition, Energis has gained direct control over its
network architecture and technology growth strategy, rather than depending on
product roadmaps and pricing policies of its suppliers.

                                       46
<PAGE>   50

PRODUCTS

     Our ObjectSwitch product suite is designed to simplify the rapid
development of Next-Generation Services, and to allow these services to operate
in a high-performance, reliable, scalable environment. Our products are used by
customers to automate their business processes, to integrate and mediate among
their existing systems and software applications and a wide variety of Internet
applications, network equipment and high-speed network protocols, and to develop
new applications and services. The following diagram illustrates the components
of our ObjectSwitch product suite:

                            [DESIGN CENTER GRAPHIC]


     [This is a diagram, which represents our ObjectSwitch product family.



     The diagram consists of a series of imbedded ellipses. The ellipse at the
center contains the words "ObjectSwitch Server". Surrounding the center ellipse
is a larger ellipse subdivided into four segments, which are labeled "Process
Automation", "Data Automation", "Package Mediation" and "Network Mediation". The
outermost ellipse is labeled "Design Center".]



     Typically, our customers use our products to develop and deploy
Next-Generation Services in a four-step process. First, they use our products to
build the data models required to create new services and to connect their
existing network equipment and business applications. Second, our customers use
our products to add the core business rules or application logic that allow
their newly connected systems to operate as a single, integrated unit. Third,
our products allow our customers to continuously add new features and
enhancements without disrupting their existing services. Fourth, our customers
use our software platform to deliver these enhanced services to large numbers of
end-users on a 24-hour basis.



     Our customers use our ObjectSwitch Server in all stages of this four-step
process. They initially use our Design Center to develop their basic services
and later to enhance and add new features to these services. Our customers use
our Package Mediation and Network Mediation Modules to integrate their existing
equipment and applications and when they add new components to their network.
High-level service logic, which is the collection of business rules that define
the features visible to end users, is managed in our Process Automation Module,
and the network-speed logic is managed in the Data Automation Module.


                                       47
<PAGE>   51


     OBJECTSWITCH SERVER. Our ObjectSwitch Server is the centerpiece of the
Kabira product family. Our ObjectSwitch Server is a high performance unified
real memory platform that accelerates the performance of Next-Generation
Services by collecting data and events in real memory, where they can be quickly
accessed by multiple services at the same time. Our ObjectSwitch Server
architecture allows applications operating across diverse networks to work in
concert. It provides a fully connected and distributed architecture that can be
deployed across multiple integrated computer processors within a single computer
server, as well as across multiple servers. For optimal performance, our
ObjectSwitch server aggregates in real memory application logic, application
data and transactional instructions. By placing these basic elements of a
customer's service in close proximity to each other, our ObjectSwitch Server
improves performance and enables many different services to share and access
data simultaneously and in real time.


     OBJECTSWITCH MODULES. To enable rapid deployment of Next-Generation
Services, we offer two Mediation and two Automation modules that operate in
conjunction with our ObjectSwitch Server. Each of these modules consists of
configurable elements that a customer can use to support key Next-Generation
Service functions. These modules include:


     - Package Mediation Module, which enables services to connect our
       ObjectSwitch Server to a range of third-party software applications and
       databases and mediate among various software systems. Our Package
       Mediation Module provides services with an integrated view of all system
       data and components through a graphical interface.



     - Network Mediation Module, which allows our ObjectSwitch Server to mediate
       among a wide variety of computer hardware, high-speed network elements,
       routers, switches and other Internet and telecommunications equipment.
       The Network Mediation Module is designed to connect high-speed
       telecommunications network elements, such as mobile and broadband
       telecommunications switches and securities data network routers, and
       supports high data rates in a highly reliable environment. Much like the
       Package Mediation Module, the Network Mediation Module offers services an
       integrated graphical view of all network data and elements.



     - Process Automation Module, which provides a customizable framework for
       defining, managing and automating a customer's business processes and
       logic in an open graphical modeling environment. The Process Automation
       Module also enables the customer to match the operation of a new service
       to the customer's existing internal organization and business models, and
       reconfigure the rules and logic of the service in real time to allow for
       dynamic business process and workflow changes. The Process Automation
       Module is targeted for commercial release in the fourth quarter of
       calendar 2000.


     - Data Automation Module, which provides a customizable framework for
       managing, manipulating and transforming high-speed data from multiple
       sources. The Data Automation Module also employs a graphical model to
       allow customers to develop new high-speed data application features or
       enhance existing services in real time.

     All modules interact with our ObjectSwitch Server, which acts as the
central host environment and provides a common set of services used by each of
the modules.


     DESIGN CENTER. Our ObjectSwitch product suite also includes the Design
Center, a Next-Generation Services design environment that enables customers to
create custom business logic, extend and customize the standard application
frameworks that we provide and develop or alter service features. The Design
Center allows customers to use standard tools to develop services using
high-level business logic instead of labor-intensive hand coding. Once the


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<PAGE>   52

application design is completed, it is automatically translated into fully
executable software code to be deployed on our ObjectSwitch platform.

     UTILITY PRODUCTS. We also offer a range of administration utilities for use
with Next-Generation Services operating on our ObjectSwitch Server. These
utilities assist in tasks such as configuring, deploying, automatically
restarting and upgrading an application, as well as in performance enhancement
and tuning.

TECHNOLOGY


     All components of our product suite are based on a common ObjectSwitch
architecture. Our ObjectSwitch architecture was designed to be able to
capitalize on advances in computer technology that have steadily driven down the
cost of computer processors and memory, while continuously increasing
performance. Our architecture uses shared real memory to store data and events,
which dramatically increases the speed of transaction processing. Our
architecture also utilizes multiple central processing units in parallel across
multiple integrated computer processors within a single computer server, as well
as across multiple servers, to deliver a high-performance, high-reliability
Next-Generation Services platform capable of supporting increasing transaction
volumes. Furthermore, our common architecture provides a reusable infrastructure
that allows customers to use common application designs and components for
multiple services deployed on their networks.



     HIGH PERFORMANCE WITH SHARED MEMORY. Services running on our ObjectSwitch
platform utilize shared computer real memory. Shared real memory is used because
it allows data to be shared by different programs within a service at the
highest possible speed, in contrast with disk speeds and network speeds which
are significantly slower than memory speeds. All access to this real memory
takes place within a computational transaction, to ensure that it remains
consistent and recoverable. Within this shared real memory reside:


     - Data. All of the data used or generated by a service can be shared among
       all of the various programs requiring this data. This includes data
       extracted from existing databases and data generated by the service, as
       well as indices that organize the data and definitions of relationships
       among various data elements.


     - Events. The real memory captures a queue of events waiting to be
       processed. These events can originate from other servers, or between
       parts of the service within a single server. The queues can grow and
       shrink in order to absorb bursts of events which system components might
       otherwise not be able to absorb. The types of events accepted can grow
       over time, as new functionality is added to a service.



     HIGH AVAILABILITY WITH ENGINES. All of the logic of Next-Generation
Services based on our ObjectSwitch platform resides in programs which we call
"engines." Each engine contains logic only, not data. Engines "attach" to the
shared memory, so that data and events may flow from engine to engine at memory
speeds. Engines support both synchronous and asynchronous transactional events.
Asynchronous transactional events allow engines to support the continuation of
service even when parts of the system are down. Each engine contains the
following infrastructure:


     - Kernel level threads, which allow application logic to automatically run
       in parallel, for maximum usage of multiple CPU's on a single server.

     - Independent transaction capability, which guarantees the consistency of
       data and events by allowing the engine to operate independently of the
       underlying database or transaction service. The consistency mechanisms
       employ such devices as read-locks, write-locks, lock promotion, deadlock
       detection and logging.

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<PAGE>   53

     - Recovery capabilities, which enable engines, in the event they are
       abruptly stopped, to restart at exactly the same place in the logic of
       the application, without losing data or the "state" of the application.

     - Run-time modifiability, which allows new applications and services to be
       deployed on our ObjectSwitch Server, and existing functionality to be
       changed or enhanced, while systems remain online and fully operational.

     MEDIATION WITH ADVANCED ADAPTERS AND EVENT QUEUES. We have developed an
advanced adapter architecture that allows interfaces for protocols and
technologies to be built quickly, makes these adapters easily reusable, and
allows systems with many adapters to scale with ease. Features of our adapter
architecture include:


     - Peer-to-peer interfacing. Adapters are all plugged into shared memory as
       peers, meaning the adapters can share memory resources on an equal basis.
       They employ a communications procedure similar to traditional "publish
       and subscribe" systems, but in a highly optimized manner.


     - Self-describing shared memory event queues. This mechanism allows the
       central shared memory to "learn" about adapters for new protocols and
       technologies that are added to older systems, without having to modify or
       restart the system.

     RAPID APPLICATION DEVELOPMENT. Our ObjectSwitch architecture employs
business-level description of services running on our ObjectSwitch platform
using standard development tools. Furthermore, it separates the business logic
of an application from the technology required to operate the application, which
accelerates the development and modification of applications using our Design
Center. Technologies employed by our Design Center to facilitate service
development include:


     - Support for open protocols and standard tools. Our Design Center accepts
       service descriptions in Unified Modeling Language, or UML, a graphically
       based open standard from our Object Management Group, an industry
       standard consortium. We support multiple UML graphical tools, notably
       Rational Rose and Objecteering. Alternatively, the Design Center will
       accept service descriptions in textual format, such as the Interface
       Definition Language, eXtensible Markup Language, or XML, and Java
       interfaces.


     - User-controlled service mapping. Our Design Center allows the user to
       control how a service is mapped to a target technology, such as the
       hardware, protocols or databases employed by the customer. Once the
       service is mapped, our Design Center will automatically build an engine
       for the technology of choice. For example, a developer's model can be
       immediately turned into a server for such technologies as Common Object
       Request Broker Architecture, or CORBA, or Enterprise Java Beans.

     - Automated application translation. Once a new service is designed and
       mapped to the underlying technologies, the Design Center translates the
       service design into optimized, running, executable ObjectSwitch Server
       engines. The combination of translation plus separation of business logic
       from underlying technologies provides "early-binding" speed with
       "late-binding" flexibility.

DEVELOPMENT

     We believe that introduction of new and enhanced products will be a key
factor for our future success. We have devoted and expect to continue to devote
significant resources to

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<PAGE>   54

developing new and enhanced products, including new releases of our ObjectSwitch
Server and our related technologies. Our product development strategy is based
on the following principles:


     - Collaboration with customers. Our engineering staff works closely with
       customers to effectively assess and understand their needs, and
       collaborates with them to develop systems enhancements and application
       frameworks that specifically address their requirements and those of
       other businesses in their market sector. This strategy provides us with
       additional revenue opportunities while reducing our internal development
       costs.


     - Reusable infrastructure. Because we build all our products on our
       ObjectSwitch architecture, we and our customers are able to reuse designs
       and components for multiple products and services, reducing development
       time and expense while enhancing consistency and robustness.

     - Structured engineering process. We utilize a structured development
       process for all engineering efforts, which includes technology and
       architectural roadmaps; product planning; technical and marketing review;
       functional specification definition; implementation; unit/regression
       testing, performed by the engineers who built the software; and system
       testing, performed by our quality assurance group.

     - Development methodology. We have built a collaborative development
       environment that can support rapid growth of our research and development
       organization. Our methodology includes building systems for automatic
       nightly regression testing of all code; multi-platform codeline
       management capable of geographically distributed development; and
       Intranet-based scheduling, project tracking, documentation and problem
       tracking.

     As of June 30, 2000, our engineering organization consisted of 32
employees. Our research and development expenses were $3.2 million in the year
ended March 31, 1999, $3.9 million in the year ended March 31, 2000 and $1.6
million for the quarter ended June 30, 2000. We expect that research and
development expenses will increase as we hire additional research and
development personnel to develop our products and services.

SALES AND MARKETING

     We license our products and sell professional services primarily through
our direct sales organization, complemented by sales and support efforts of
third-party systems integrators and value-added resellers. As of June 30, 2000,
our sales organization consisted of 65 sales professionals and systems engineers
located in six domestic sales offices and four international offices. We have
sales offices in the greater metropolitan areas of Atlanta, Chicago, Dallas,
Frankfurt, London, Paris, New York City, St. Louis, San Francisco and Stockholm.
Our systems engineers complement our direct sales professionals by providing
pre- and post-sales support to potential customers. We plan to significantly
expand the size of our direct sales organization and to establish additional
sales offices domestically and internationally.


     Our sales process requires that we work closely with customers to identify
short-term technical needs and long-term goals. Our sales team, which includes
both sales and technical professionals, then works with the customer to develop
a proposal to address these needs. Our proposal identifies all components and
resources required for the project, and it may include an initial
proof-of-concept phase. Once the customer has accepted our proposal, we create a
detailed project plan in cooperation with the customer and then begin designing
and implementing the new service.


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<PAGE>   55

     We focus our marketing efforts on the following:

     - Creating awareness of our products and technology, both in targeted
       industry sectors and in the overall information technology market;

     - Generating new sales opportunities and leads for our sales organization;
       and

     - Educating potential customers via printed materials, seminars, telephone
       calls and the Web.

     We conduct a variety of marketing programs, including advertising, analyst
updates, co-marketing with strategic partners, direct mail campaigns, industry
analyst programs, press relations, trade shows, telemarketing, seminars,
speaking engagements and Web marketing.

CUSTOMER SERVICE AND SUPPORT

     We offer a comprehensive range of services and support to our customers,
enabling them to deploy our products to address their business needs and
strategies. Customers may choose to do their own development and deployment, and
utilize only our educational and support services. For customers in need of more
assistance, we can provide referrals to a third-party systems integrator or
perform development services through our professional services organization. We
had 58 service and support employees as of June 30, 2000, organized into a
professional services group, a customer support group and an education services
group.

     Our professional services organization has a well-defined process for
managing and deploying solutions that optimize our customers' success. All
customers and Kabira-qualified systems integrators are trained in this process.
In addition, this organization is staffed by engineers with specific domain
expertise relevant to our market focus.

     The customer support group is staffed by experienced technical support
engineers to ensure the highest quality of technical support. Automated problem
reporting, tracking and escalation procedures ensure responsive and predictable
service. We offer guaranteed levels of support 7 days a week, 24 hours a day by
telephone and the Internet.

     The educational services group teaches our customers and third-party
systems integrators how to use our products successfully. We make educational
materials available in both self-directed and instructor-based formats. We use
our customer Internet site to provide a wide range of up-to-date information.

INDUSTRY RELATIONSHIPS

     We have established relationships with third-party systems integrators,
technology partners and value-added resellers in order to extend our sales and
support capabilities beyond our direct sales and services organizations.


     SYSTEMS INTEGRATORS. We have established relationships with third-party
systems integrators including Business Edge Solutions, Cap Gemini, DMR, France
Telecom, Intresys, ISM-BC, KPMG, Lucent Technologies, Module1, Perot Systems,
Steria and Western Pacific Technologies. These relationships allow us to:


     - Extend our sales coverage to reach the large number of customers
       conducting business with these systems integrators;

     - Offer comprehensive solutions that capitalize on our systems integrators'
       resources and domain expertise;

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<PAGE>   56


     - Create additional business process frameworks employing systems
       integrators' expertise in industry-specific business requirements; and


     - Ensure local long-term customer support after the initial project work is
       completed.

     TECHNOLOGY PARTNERS. Our technology partners include providers of
application software, database software, network equipment and other hardware
products. We have relationships with companies including Daleen Technologies,
Informix, IONA Technologies, MetaSolv, Merant, NightFire Software, Oracle,
Portal Software, Quintessant, Rational Software, Sun Microsystems, Sybase and
Syndesis.


     VALUE-ADDED RESELLERS. We provide products through value-added resellers.
Value-added resellers provide pre-built solutions to customers that normally
require less customization than the general project work performed by systems
integrators. Value-added resellers primarily specialize in providing solutions
for particular industries such as telecommunications and financial services. We
intend to capitalize on our value-added resellers' industry expertise to deliver
solutions that accelerate our penetration in key markets. Our current
value-added resellers include Cap Gemini, ipVerse, UCMS, Lucent Technologies,
Perot Systems and Steria.


COMPETITION

     The market for our products is intensely competitive and is characterized
by rapidly changing technology, evolving industry standards, frequent new
product introductions and rapidly changing customer requirements. We expect
competition to increase in the future. Competitors vary in size and in the scope
and breadth of the products and services they offer. Our current competitors
include:

     - Enterprise application integration vendors, middleware vendors and other
       software companies, such as Active Software, BEA Systems, CrossWorlds
       Software, Hewlett-Packard, IBM, New Era of Networks (also known as NEON),
       Sun Microsystems, TIBCO Software and Vitria Technology; and

     - Application vendors that offer products that address specific industry or
       functionality requirements of individual customers, such as
       CommerceQuest, Comptel Finland and Architel.

     We also face competition from internal information technology departments
of potential customers that have developed or may develop systems that provide
for some or all of the functionality of our products. We expect that internally
developed integration and process automation efforts will continue to be a
principal source of competition for the foreseeable future. In particular, it
can be difficult to sell our products to a potential customer whose internal
development group has already made large investments in, and progress towards
completion of, systems that our products are intended to replace.

     We may in the future also encounter competition from major enterprise
software developers, including Microsoft, Oracle and SAP.

     We believe that the principal competitive factors affecting the market for
our products are the ability to:

     - Deliver the performance, reliability and adaptability required for
       complex applications and services;


     - Enable customers to upgrade services online without service downtime;


     - Generate complete applications and services from high-level business
       logic without need for extensive hand-coding;

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<PAGE>   57

     - Integrate a broad range of commercial software applications, network
       equipment, high-speed network protocols and access devices;

     - Host high-level business process logic and high-speed network data
       mediation services in a single application suite;

     - Enable services to recover immediately from system failures and restore
       transactions that were in process at the time of failure;

     - Deliver effective customer service and support, including installation
       and maintenance services; and

     - Deliver products at a competitive price, relative to the performance they
       provide.

     Although we believe that our solutions compete favorably with respect to
these factors, our market is relatively new and is evolving rapidly. Many of our
competitors have significantly greater resources than we do. We may not be able
to maintain our competitive position against any of these or other current and
potential competitors.

INTELLECTUAL PROPERTY

     Our success is dependent upon our ability to develop and protect our
proprietary technology and intellectual proprietary rights. We rely primarily on
a combination of contractual provisions, confidentiality procedures, trade
secrets, and patent, copyright and trademark laws to accomplish these goals.

     We license our products pursuant to non-exclusive license agreements that
impose restrictions on customers' ability to utilize the software. In addition,
we seek to avoid disclosure of our trade secrets through a number of means,
including by requiring employees, customers and others with access to our
proprietary information to execute confidentiality agreements with us, and
restricting access to our source code. We also seek to protect our software,
documentation and other written materials under trade secret and copyright laws.

     We have been granted one U.S. patent. It is possible that our patent or our
potential future patents may be successfully challenged. It is also possible
that we may not develop proprietary products or technologies that are
patentable, that any patent issued to us may not provide us with any competitive
advantages, or that the patents of others will seriously harm our ability to do
business.


     Despite our efforts to protect our proprietary rights, existing laws afford
only limited protection. Attempts may be made to copy or reverse engineer
aspects of our product or to obtain and use information that we regard as
proprietary. We may not be able to protect our proprietary rights against
unauthorized third-party copying or use. Use by others of our proprietary rights
could materially harm our business. Furthermore, policing the unauthorized use
of our products is difficult, and expensive litigation may be necessary in the
future to enforce our intellectual property rights.


     It is also possible that third parties will claim that we have infringed
their current or future products. Any claims, whether with or without merit,
could be time-consuming, result in costly litigation, prevent product shipment,
cause delays, or require us to enter into royalty or licensing agreements, any
of which could harm our business. Patent litigation in particular involves
complex technical issues and inherent uncertainties. In the event an
infringement claim against us was successful and we could not obtain a license
on acceptable terms or license a substitute technology or redesign our products
to avoid infringement, our business would be harmed.

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<PAGE>   58

EMPLOYEES

     As of June 30, 2000, we had a total of 193 employees, including 32 in
research and development, 83 in sales, marketing, pre-sales engineering support
and business development, 58 in customer service and support, and 20 in
administration and finance. None of our employees is represented by a collective
bargaining agreement, nor have we experienced any work stoppage. We consider our
relations with our employees to be good.

FACILITIES

     Our principal sales, marketing, research and development and administrative
offices are located in approximately 30,000 square feet in San Rafael,
California under subleases that expire beginning in December 2002. We also lease
space for our nine domestic and four international offices, which primarily
perform sales and support functions. We anticipate leasing additional facilities
in the future to support our growth plans.

LEGAL PROCEEDINGS


     Although we are not currently a party in any litigation, we may from time
to time become subject to claims arising out of our business. These claims,
whether with or without merit, could result in a significant diversion of time
and resources.


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<PAGE>   59

                                   MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND OTHER KEY EMPLOYEES


     The names and positions of our executive officers and directors and their
ages as of August 31, 2000 are as follows:



<TABLE>
<CAPTION>
             NAME                AGE                         POSITION
             ----                ---                         --------
<S>                              <C>   <C>
Paul Sutton....................  44    President, Chief Executive Officer and Director
Frederic Aries.................  42    Vice President and General Manager of Europe, Middle
                                       East and Africa Operations
Dirk Epperson..................  51    Vice President of Product Strategy and Director
Eric Lee.......................  45    Vice President of North American Operations
David Marshall.................  44    Vice President of Corporate Development
Grover Righter.................  44    Vice President of Marketing
Daniel Sifter..................  40    Chief Technology Officer
Rodger Weismann................  58    Chief Financial Officer
Robert Dahl(1).................  59    Director
Jennifer Gill Roberts(1).......  37    Director
Rich Shapero(2)................  52    Director
Thomas Wooters, Jr.(1)(2)......  32    Director
</TABLE>


-------------------------
(1) Member of the audit committee.
(2) Member of the compensation committee.

     PAUL SUTTON has been our President since March 1998 and our Chief Executive
Officer and a director since July 1998. Prior to joining Kabira, from September
1997 to March 1998, Mr. Sutton was a principal and Vice President of Interval
Logic, a real-time scheduling company. From October 1996 to June 1997, he served
as Vice President of Sales and Service for Decisis Corporation, an Internet
decision support software company. Mr. Sutton served as Corporate Vice President
of Worldwide Sales and Marketing for Intellicorp, a business modeling software
company, from September 1992 to January 1996. From August 1990 to July 1992, Mr.
Sutton served as Managing Director of Boole & Babbage Europe, a systems
management software company. From January 1987 to August 1990, Mr. Sutton served
as Vice President of Sales for Softlab, a CASE software company.

     FREDERIC ARIES has served as our Vice President and General Manager of
Europe, Middle East and Africa Operations since 1998. From 1997 to 1998, Mr.
Aries served as our Managing Director of Southern Europe. From 1995 to 1997, Mr.
Aries served as Managing Director Southern Europe at Illustra Information
Technologies, a database software company. From 1985 to 1995, Mr. Aries held
various positions with SUN Microsystems, France, a computer manufacturer,
including Sales Director for France and Marketing Director for Southern Europe.
Mr. Aries holds an MBA from ESSCA in France.

     DIRK EPPERSON co-founded Kabira in 1996 and has been our Vice President of
Product Strategy since September 1997 and a director since January 1999. From
1996 to 1997, Mr. Epperson served as our Vice President of Engineering. Before
co-founding Kabira, Mr. Epperson was Director of Intermedia Architecture for
Sybase, a database software supplier. From 1989 to 1993, Mr. Epperson was Vice
President of Software Development at Hill Arts & Entertainment, Inc., a supplier
of ticketing and reservation software systems. Mr. Epperson holds a Bachelors
degree in physics from Harvey Mudd College and a Masters degree in engineering
from Yale University.

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<PAGE>   60


     ERIC LEE has served as our Vice President of North American Operations
since August 2000. From June 1998 to July of 2000, Mr. Lee served as Vice
President of Worldwide Sales for iPass, a business-to-business software services
company. From August 1990 to May 1998, Mr. Lee was Vice President of Sales and
Marketing Operations for Silicon Graphics. From July 1977 to August 1990, he
held various sales positions for IBM, the last of which was General Manager for
the Application Marketing Division. Mr. Lee holds a B.S. Degree in Economics
from the University at California at Davis.



     DAVID MARSHALL has served as our Vice President of Corporate Development
since August 2000. From August 1999 to July 2000, Mr. Marshall held positions as
Vice President of Product Marketing & Development and Vice President of
E-Commerce for Homestore.com, Inc., a real estate Internet portal. From January
1997 to July 1999, Mr. Marshall served as Senior Marketing Director for Oracle
Corporation, a database software company. From February 1993 to December 1996,
Mr. Marshall was President and Chief Executive Officer of JourneyWare Media, an
adult education software company. From July 1987 to January 1993, Mr. Marshall
held positions as Director of Strategic Planning and Business Development at the
Munich headquarters and President of the United States subsidiary of Softlab, a
CASE software company. He also held management positions with D&B Software and
Chase Manhattan Bank. Mr. Marshall holds an M.B.A. from Harvard University.


     GROVER RIGHTER has served as our Vice President of Marketing since February
1999. Prior to joining Kabira, from 1997 to 1999, Mr. Righter served as Vice
President of Marketing for Softways System, Inc., a provider of UNIX operating
systems. From 1996 to 1997, Mr. Righter served as Vice President of Marketing
and General Manager of Geoworks, a software solutions company for wireless
telecommunications providers. Between 1992 and 1996, Mr. Righter held positions
of Vice President of Marketing, Vice President of Strategic Marketing and Vice
President of Product Management of The Santa Cruz Operation, a software company.
Mr. Righter holds a B.S. in Computer Science from Brigham Young University and a
B.A. in Mathematics and Classics jointly from the College of William and Mary
and the US Armed Forces DANTES program.

     DANIEL SIFTER co-founded Kabira in 1996 and has served as our Chief
Technology Officer since its inception. Prior to founding Kabira, from 1991 to
1996, Mr. Sifter was chief architect for Sybase's connectivity products group.
Prior to joining Sybase, Mr. Sifter worked for Control Data Corporation, a
computer manufacturer, as Architect for messaging technologies between 1990 and
1991. Mr. Sifter holds a B.S.E.E. in computer science from University of
California at Davis.

     RODGER WEISMANN has served as our Chief Financial Officer since December
1999. From December 1998 to December 1999, Mr. Weismann served as Chief
Financial Officer and Vice President of Finance at NONSTOP Solutions, a
distribution optimization services company. From September 1998 to November
1998, Mr. Weismann served as Vice President of Finance and Administration and
Chief Financial Officer at Live Picture, an internet imaging company. From
February 1993 to March 1998, Mr. Weismann served as Chief Financial Officer and
Senior Vice President of Finance and Administration at Forte Software, a
software applications development and deployment company. From 1986 to 1993, Mr.
Weismann served as Chief Financial Officer, Chief Operating Officer and
Executive Vice President of Corporate Development at Banyan Systems, a computer
networking firm. Mr. Weismann received an M.B.A. from the Amos Tuck School of
Business Administration of Dartmouth College and a B.S. degree from Cornell
University. He is a certified public accountant.


     ROBERT DAHL has been a director since 1998. Mr. Dahl has been a General
Partner at Riviera Ventures, a private equity investing firm, since January
1998. From January 1994 to July 1997, Mr. Dahl served as the Executive Vice
President and Chief Financial Officer for Ascend


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<PAGE>   61

Communications, Inc., a telecommunications equipment supplier, and from July
1997 to January 1998, Mr. Dahl served as Ascend's Executive Vice President of
Corporate Planning. Mr. Dahl also serves as a director of Momentum Business
Applications Inc., Northpoint Communications, the Bank of Alameda and several
privately held companies.

     JENNIFER GILL ROBERTS has been a director since our inception in 1996. Ms.
Roberts has been a general partner of Sevin Rosen Funds, a venture capital firm,
since 1994. Ms. Roberts serves as a director of Metawave Communications and
several private companies.

     RICH SHAPERO has been a director since our inception in 1996. Since March
1993, Mr. Shapero has been a General Partner of Crosspoint Venture Partners, a
venture capital firm. Mr. Shapero serves as a director of iBeam Broadcasting, an
Internet broadcasting services provider, and several private companies.

     THOMAS WOOTERS, JR. has been a director since March 1999. Mr. Wooters has
been Vice President and Partner of Argo Global Capital, Inc., a venture capital
firm, since September 1997. From August 1995 to June 1997, Mr. Wooters was an
Associate at Advent International, Inc., a venture capital firm. From May 1993
to July 1995, Mr. Wooters was a financial analyst at Cowen & Company, an
investment-banking firm. Mr. Wooters serves as a director of several private
companies.

BOARD OF DIRECTORS

     Our board of directors currently consists of six members. Each director
holds office until his or her term expires or until his or her successor is duly
elected and qualified. Upon completion of this offering, our certificate of
incorporation will provide for a classified board of directors, which will be
divided into three classes whose terms will expire three years after each
class's election. The three classes will be comprised of the following
directors:

     - Class I will consist of Dirk Epperson and Rich Shapero, who will serve
       until the annual meeting of stockholders to be held in 2001;

     - Class II will consist of Jennifer Gill Roberts and Thomas Wooters, Jr.,
       who will serve until the annual meeting of stockholders to be held in
       2002; and

     - Class III will consist of Robert Dahl and Paul Sutton, who will serve
       until the annual meeting of stockholders to be held in 2003.

     At each annual meeting of stockholders beginning with the 2001 annual
meeting, the successors to directors whose terms then expire will be elected to
serve from the time of election and qualification until the third annual meeting
following their election and until their successors have been duly elected and
qualified. Any additional directorships resulting from an increase in the number
of directors will be distributed among the three classes so that, as nearly as
possible, each class will consist of an equal number of directors.

     Board Committees

     Our board of directors has an audit committee and a compensation committee.
The audit committee consists of Robert Dahl, Jennifer Gill Roberts and Thomas
Wooters, Jr. The audit committee reviews our financial statements and accounting
practices and makes recommendations to the board regarding the selection of
independent auditors.


     The compensation committee consists of Rich Shapero and Thomas Wooters,
Jr., each of whom served on this committee throughout the year ended March 31,
2000. The compensation committee makes recommendations to the board concerning
salaries and


                                       58
<PAGE>   62

incentive compensation for our officers and employees and administers our
employee benefit plans.

     Compensation Committee Interlocks and Insider Participation

     Our compensation committee consists of Rich Shapero and Thomas Wooters, Jr.
Neither of the members of the committee is currently or has been, at any time
since the time of our formation, one of our officers or employees. None of our
executive officers currently serves, or in the past has served, as a member of
the board of directors or compensation committee of any entity that has one or
more executive officers serving on our board or compensation committee. Mr.
Shapero is a general partner of Crosspoint Venture Partners, a holder of
approximately 18.9% of our outstanding shares prior to this offering, acquired
through the purchase of shares of our preferred stock. Mr. Wooters, Jr. is a
general partner of Argo Global Capital, Inc., which together with its affiliated
entities is a holder of approximately 9.9% of our outstanding stock prior to
this offering, also acquired through the purchase of shares of our preferred
stock. See "Transactions with Related Parties and Insiders."

     Director Compensation

     We reimburse our non-employee directors for expenses incurred in connection
with attending meetings of the board of directors and any of its committees,
but, except as described below, do not otherwise compensate them for their
services as members of the board or its committees.

     Each individual that becomes a non-employee director following this
offering will be granted an option to purchase 25,000 shares of our common stock
on the date that such person becomes a director. The shares subject to each of
these options will vest and become exercisable in equal annual installments over
a four year period following the date of grant. Additionally, beginning at our
annual meeting of stockholders to be held in 2001 and at each successive annual
stockholder meeting, each non-employee director who has previously served at
least six consecutive months prior to the meeting will receive an option to
purchase 6,000 shares of our common stock. The shares subject to these annual
option grants will vest in equal annual installments over a two year period
following the date of grant. The exercise price per share for all options
granted to directors will be equal to the market price of our common stock on
the date of grant. Each option will have a ten year term, but will generally
terminate within a specified time following the date the option holder ceases to
be a director or consultant.

     We have in the past granted to non-employee directors discretionary options
to purchase our common stock under our stock option plans, and our board
continues to have the discretion to grant options to new non-employee directors.

LIMITATION ON DIRECTORS' LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS

     Our certificate of incorporation and bylaws limit the liability of
directors and officers to the fullest extent permitted by Delaware law. Delaware
law permits a corporation to provide that its directors will not be personally
liable for monetary damages for breach of their fiduciary duties as directors,
except for liability for:

     - Any breach of their duty of loyalty to the corporation or its
       stockholders;

     - Acts or omissions not in good faith or which involve intentional
       misconduct or a knowing violation of law;

                                       59
<PAGE>   63

     - Unlawful payments of dividends or unlawful stock repurchases or
       redemptions; or

     - Any transaction from which the director derived an improper personal
       benefit.

     The limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.

     Our certificate of incorporation and bylaws also provide that we will
indemnify our directors and officers and may indemnify our employees and other
agents to the fullest extent permitted by law. Our bylaws also permit us to
obtain insurance on behalf of any officer, director, employee or other agent for
any liability arising out of his or her actions in their capacity as an officer,
director, employee or other agent, regardless of whether the bylaws would permit
indemnification.

     We have also entered into agreements to indemnify our directors and
officers, in addition to the indemnification provided for in our bylaws. These
agreements, among other things, provide for indemnification for judgments,
fines, settlement amounts and other expenses, including attorneys' fees,
incurred by the director or officer in any action or proceeding, including any
action by or in our right, arising out of the person's services as a director or
officer of Kabira, any of our subsidiaries or any other company or enterprise to
which the person provides services at our request. We believe that these
provisions and agreements are necessary to attract and retain qualified persons
as directors and officers.

     The limited liability and indemnification provisions in our certificate of
incorporation and bylaws may discourage stockholders from bringing a lawsuit
against our directors for breach of their fiduciary duty and may reduce the
likelihood of derivative litigation against our directors and officers, even
though a derivative action, if successful, might otherwise benefit Kabira or our
stockholders. The market price of our common stock may be adversely affected to
the extent that we pay the costs of settlement or damage awards against our
directors and officers under these indemnification provisions.

     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.

                                       60
<PAGE>   64

EXECUTIVE COMPENSATION

     The following table sets forth the compensation earned, awarded or paid for
services rendered to us in all capacities for the year ended March 31, 2000 by
our Chief Executive Officer and our next four most highly compensated executive
officers who earned more than $100,000 in salary and bonus during the year ended
March 31, 2000. We refer to these persons collectively as the "named executive
officers."

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                              LONG-TERM
                                                                             COMPENSATION
                                                                                AWARDS
                                                                             ------------
                                                     ANNUAL COMPENSATION      SECURITIES
                                                     --------------------     UNDERLYING
            NAME AND PRINCIPAL POSITION               SALARY      BONUS        OPTIONS
            ---------------------------              --------    --------    ------------
<S>                                                  <C>         <C>         <C>
Paul Sutton........................................  $175,000    $105,834      400,000
  President and Chief Executive Officer
Frederic Aries.....................................   121,025     203,340      110,000
  Vice President and General Manager of Europe,
  Middle East and Africa Operations
Dirk Epperson......................................   161,124      28,500       50,000
  Vice President of Product Strategy
Grover Righter.....................................   170,000      60,500       80,000
  Vice President of Marketing
Dan Sifter.........................................   165,000      33,000      150,000
  Chief Technology Officer
</TABLE>

     The compensation described in the table above does not include perquisites
and other personal benefits received by the named executive officers that do not
exceed the lesser of $50,000 or 10% of the total salary and bonus reported for
these officers.

STOCK OPTIONS GRANTED IN FISCAL YEAR ENDED MARCH 31, 2000

     The following table shows information regarding stock options granted to
the named executive officers during the fiscal year ended March 31, 2000. We
granted options to purchase 2,683,000 shares of common stock to employees and
consultants in the fiscal year ended March 31, 2000.


<TABLE>
<CAPTION>
                                                                                        POTENTIAL REALIZABLE
                                                                                          VALUE AT ASSUMED
                              NUMBER OF    PERCENT OF TOTAL                             ANNUAL RATES OF STOCK
                              SECURITIES       OPTIONS                                 PRICE APPRECIATION FOR
                              UNDERLYING      GRANTED TO      EXERCISE                       OPTION TERM
                               OPTIONS       EMPLOYEES IN     PRICE PER   EXPIRATION   -----------------------
            NAME               GRANTED       FISCAL 2000        SHARE        DATE          5%          10%
            ----              ----------   ----------------   ---------   ----------   ----------   ----------
<S>                           <C>          <C>                <C>         <C>          <C>          <C>
Paul Sutton.................   400,000          14.8%           $0.50      4/29/09     2,567,200    6,812,400
Frederic Aries..............   110,000           4.1%            0.50      4/29/09       705,980    1,873,410
Dirk Epperson...............    50,000           1.9%            0.50      4/29/09       320,900      851,550
Grover Righter..............    80,000           3.0%            0.50      4/29/09       513,440    1,362,480
Daniel Sifter...............   150,000           5.6%            0.50      4/29/09       962,700    2,554,650
</TABLE>


-------------------------
     The options in this table are incentive stock options or nonqualified stock
options granted under the 1998 Stock Plan and have exercise prices equal to the
fair market value of our common stock determined by the board of directors on
the date of grant. In determining the fair market value of the common stock, the
board of directors considered various factors, including

                                       61
<PAGE>   65

our financial condition and business prospects, our operating results, the
absence of a market for our common stock and the risks normally associated with
technology companies. The options in this table may terminate before their
expiration upon the termination of an optionee's status as an employee or
consultant or upon the optionee's disability or death. All of the above options
have ten-year terms and vest over a period of four years at a rate of 1/48 of
the shares per month.

     Under rules promulgated by the Securities and Exchange Commission, the
amounts in the rightmost two columns represent the hypothetical gain that would
exist for the options in this table based on assumed stock price appreciation
over a ten-year term at assumed annual rates of 5% and 10% increases over the
fair market value as of the grant date. The 5% and 10% assumed annual rates of
appreciation are specified in SEC rules and do not represent our estimate or
projection of future stock price growth. We do not necessarily agree that this
method can properly determine the value of an option. Actual gains, if any, on
stock option exercises depend on numerous factors, including our future
performance, overall market conditions and the option holder's continued
employment with us throughout the entire vesting period and option term. These
factors are not reflected in this table.

     In addition to the options described above, subsequent to March 31, 2000,
we granted options to purchase 350,000 shares of common stock to Paul Sutton,
options to purchase 200,000 shares to Daniel Sifter, options to purchase 50,000
shares to Frederic Aries, and options to purchase 25,000 shares to each of Dirk
Epperson and Grover Righter. All options had an exercise price of $3.25 per
share.

AGGREGATED OPTION EXERCISES IN FISCAL YEAR 2000 AND FISCAL-YEAR END OPTION
VALUES

     The following table sets forth for the named executive officers information
concerning stock option activity during the last fiscal year and the number of
shares subject to, and the value of, both exercisable and unexercisable options
held by them as of March 31, 2000. All options granted to these executive
officers in the last fiscal year were granted under the 1998 Stock Plan. All
options were granted at a fair market value determined by our board of directors
on the date of grant. The value realized upon exercise and the value of
unexercised in-the-money options are based on the fair value of our common stock
as of March 31, 2000, minus the per share exercise price, multiplied by the
number of shares underlying each option.

<TABLE>
<CAPTION>
                                                         NUMBER OF SECURITIES
                                                              UNDERLYING                VALUE OF UNEXERCISED
                                                         UNEXERCISED OPTIONS            IN-THE-MONEY OPTIONS
                            SHARES                        AT MARCH 31, 2000              AT FISCAL YEAR-END
                          ACQUIRED ON     VALUE     ------------------------------   ---------------------------
          NAME             EXERCISE      REALIZED   EXERCISABLE(A)   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
          ----            -----------    --------   --------------   -------------   -----------   -------------
<S>                       <C>            <C>        <C>              <C>             <C>           <C>
Paul Sutton.............   1,050,000(b)  $545,250           --             --               --           --
Frederic Aries..........          --           --      180,000             --         $459,600           --
Dirk Epperson...........          --           --       50,000             --          125,000           --
Grover Righter..........     180,000(c)     6,000           --             --               --           --
Daniel Sifter...........          --           --      150,000             --          375,000           --
</TABLE>

-------------------------
(a) All options are fully exercisable, subject to the optionee's granting us the
    right to repurchase a portion of the purchased shares, which portion
    diminishes over time.
(b) Includes 654,168 shares subject to repurchase as of March 31, 2000.
(c) Includes 134,584 shares subject to repurchase as of March 31, 2000.

                                       62
<PAGE>   66

COMPENSATION PLANS

     2000 STOCK PLAN

     Our 2000 Stock Plan was adopted by our board of directors in May 2000, and
we will submit the plan to our stockholders for approval in August 2000. This
plan provides for the grant of incentive stock options to employees and
nonstatutory stock options and stock purchase rights to employees, directors and
consultants.

     A total of 4,000,000 shares of common stock have initially been reserved
for issuance under the 2000 Stock Plan. No options have yet been issued pursuant
to the 2000 Stock Plan. The number of shares reserved for issuance under the
2000 Stock Plan will increase annually on April 1st of each year, beginning in
2001, by an amount equal to the least of 6% of the outstanding shares of common
stock on the first day of our fiscal year, 4,000,000 shares and a lesser amount
determined by our board of directors.

     The compensation committee of our board of directors administers the 2000
Stock Plan. The committee has the power to determine the terms of the options or
stock purchase rights granted, including the exercise price, the number of
shares subject to each option or stock purchase right, the exercisability of the
options, the vesting schedule of the options and the form of consideration
payable upon exercise. Although the committee determines the exercise price of
options granted, the exercise price for incentive stock options must at least be
equal to the fair market value of our common stock on the date of grant.
Additionally, the term of an incentive stock option may not exceed ten years.
The committee determines the term of all other options. No optionee may be
granted an option to purchase more than 1,000,000 shares in any fiscal year.

     An optionee may exercise his or her options after termination for a given
period of time. If termination is due to death or disability, the option will
generally remain exercisable for 12 months following such termination. In all
other cases, the option will generally remain exercisable for three months.
However, an option may never be exercised following the expiration of its term.

     The compensation committee also determines the exercise price of stock
purchase rights granted under our 2000 Stock Plan. Unless the committee
determines otherwise, we have a repurchase option that we may exercise upon the
voluntary or involuntary termination of the purchaser's service to Kabira for
any reason, including death or disability. The purchase price for shares we
repurchase will generally be the original price paid by the purchaser. The
committee determines the rate at which our repurchase option will lapse.

     The plan generally does not allow for the transfer of options or stock
purchase rights and only the optionee may exercise an option and stock purchase
right during his or her lifetime.

     The 2000 Stock Plan provides that in the event of our merger with another
corporation or a sale of substantially all of our assets, the successor
corporation will assume or provide a substitute for each option or stock
purchase right. If the outstanding options or stock purchase rights are not
assumed or substitutes are not provided, all outstanding options and stock
purchase rights will become fully vested and exercisable prior to the merger or
sale of assets. Even if all options and stock purchase rights are assumed or
substitutes are provided, an option or stock purchase right will become fully
vested and immediately exercisable if the optionee is involuntarily terminated
without cause or constructively terminated within 12 months of the merger.

     Our 2000 Stock Plan will automatically terminate in 2010, unless we
terminate it sooner. In addition, our board of directors has the authority to
amend, suspend or terminate the plan, provided no such action may adversely
affect any option previously granted under the plan.

                                       63
<PAGE>   67

     2000 KEY EMPLOYEE STOCK PLAN

     Our 2000 Key Employee Stock Plan was adopted by our board of directors and
approved by our stockholders in December 1999. Our 2000 Key Employee Stock Plan
provides for the grant of incentive stock options to our employees, and for the
grant of nonstatutory stock options and stock purchase rights to our employees,
directors and consultants. The terms of the 2000 Key Employee Stock Plan are
generally the same as those of the 2000 Stock Plan.

     As of June 30, 2000, we had reserved an aggregate of 1,245,000 shares of
our common stock for issuance under this plan, of which options to purchase
685,000 shares of common stock were outstanding, and 295,000 shares remained
available for future grant. We do not intend to grant any additional stock
options under the 2000 Key Employee Stock Plan after this offering. Instead we
intend to grant options under our 2000 Stock Plan.

     The 2000 Key Employee Stock Plan provides that in the event of a change in
control, each outstanding option will be accelerated and become fully vested and
exercisable if the option is not assumed or a substitute is not provided by the
successor corporation. Even if all options and stock purchase rights are assumed
or substitutes are provided, an option or stock purchase right will become fully
vested and immediately exercisable if the optionee is involuntarily terminated
without cause or constructively terminated.

     1998 STOCK PLAN

     Our 1998 Stock Plan was adopted by our board of directors in August 1998,
and our stockholders approved the plan in December 1998. Our 1998 Stock Plan
provides for the grant of incentive stock options to our employees, and for the
grant of nonstatutory stock options and stock purchase rights to our employees,
directors and consultants. The terms of the 1998 Stock Plan are generally the
same as those of the 2000 Stock Plan.

     As of June 30, 2000, we had reserved an aggregate of 5,931,763 shares of
our common stock for issuance under this plan, which includes 1,785,263 shares
of common stock which had transferred from our 1996 Stock Option Plan. As of
June 30, 2000, options to purchase 2,302,921 shares of common stock were
outstanding, and 1,119,495 shares were available for future grant under this
plan. We do not intend to grant any additional stock options under our 1998
Stock Plan after this offering.

     The 1998 Stock Plan provides that in the event of a change in control, each
outstanding option will be accelerated and become fully vested and exercisable
if the option is not assumed or a substitute is not provided by the successor
corporation. Even if all options and stock purchase rights are assumed or
substitutes are provided, an option or stock purchase right will become fully
vested and immediately exercisable if the optionee is involuntarily terminated
without cause or constructively terminated within twelve months of the change in
control.

     1996 STOCK OPTION PLAN

     Our 1996 Stock Option Plan was adopted by our board of directors in
February 1996, and our stockholders approved the plan in July 1996. Our 1996
Option Stock Plan provides for the grant of incentive stock options to our
employees, and for the grant of nonstatutory stock options and stock purchase
rights to our employees, directors and consultants. The terms of the 1996 Stock
Option Plan are substantially similar to those of the 1998 Stock Plan.

     We reserved an aggregate of 1,937,500 shares of our common stock for
issuance under this plan. In August 1998, with the adoption of our 1998 Stock
Plan, we discontinued granting new stock options under our 1996 Stock Option
Plan.

                                       64
<PAGE>   68

     2000 EMPLOYEE STOCK PURCHASE PLAN

     Concurrently with this offering, we intend to establish an employee stock
purchase plan. A total of 1,000,000 shares of our common stock will initially be
made available for sale under the plan. In addition, the plan provides for
annual increases in the number of shares available for issuance on April 1st of
each year, beginning in 2001, equal to the least of 1.5% of the outstanding
shares of our common stock on the first day of our fiscal year, 1,000,000
shares, and a lesser amount determined by our board of directors.

     The compensation committee administers the plan. The board of directors or
the committee has full and exclusive authority to interpret the terms of the
plan and determine eligibility. All of our employees are eligible to participate
in the plan if they are employed by us or any participating subsidiary for at
least 20 hours per week and more than five months in any calendar year. However,
an employee may not participate in the plan if:

     - At the beginning of any offering period, he or she owns stock
       representing 5% or more of the total voting power or value of all classes
       of our capital stock, or

     - His or her right to purchase stock under the plan accrues at a rate that
       exceeds $25,000 worth of stock in any calendar year.

     The 2000 Employee Stock Purchase Plan is intended to qualify for
preferential tax treatment and contains consecutive, overlapping 24-month
offering periods. Each offering period includes four six-month purchase periods.
The offering periods generally start on the first trading day on or after August
1 and February 1 of each year, except for the first offering period, which will
commence on the first trading day on or after the date of this offering and will
end on the last trading day on or before July 31, 2002.

     The 2000 Employee Stock Purchase Plan permits participants to purchase
common stock through payroll deductions of up to 15% of their eligible
compensation, which includes a participant's base compensation and commissions
but excludes overtime and all other compensation paid to our employees. A
participant may purchase no more than 10,000 shares during any 6-month purchase
period. Amounts deducted and accumulated by the participant are used to purchase
shares of our common stock at the end of each 6-month purchase period. The price
is 85% of the lower of the fair market value of our common stock at the
beginning of the offering period or the end of the applicable purchase period.
In the case of the first offering period, the price at the beginning of the
offering period will be the initial public offering price. If the fair market
value at the end of a purchase period is less than the fair market value at the
beginning of the offering period, all participants will be withdrawn from the
current offering period following their purchase of shares on the purchase date
and will be automatically re-enrolled in a new offering period. Participants may
end their participation at any time during an offering period, and will be paid
their payroll deductions to date. Participation ends automatically upon
termination of employment with us.

     A participant may not transfer rights granted under the 2000 Employee Stock
Purchase Plan other than by will, the laws of descent and distribution or as
otherwise provided under the plan.

     In the event of our merger with another corporation or a sale of
substantially all of our assets, a successor corporation may assume or provide a
substitute for the participation rights under the 2000 Employee Stock Purchase
Plan. If the successor corporation refuses to assume or provide a substitute for
these participation rights, all offering periods then in progress will be
shortened, and new end dates will be set for the purchase periods under each
offering period.

     The 2000 Employee Stock Purchase Plan will terminate in 2010. Our board of
directors has the authority to amend or terminate the plan prior to that date,
except that, subject to certain

                                       65
<PAGE>   69

exceptions, no such action may adversely affect any outstanding rights to
purchase stock under the plan.

401(k) PLAN


     We sponsor a defined contribution plan intended to qualify under Section
401(k) of the Internal Revenue Code. Under the plan, all U.S. employees who are
at least 21 years old are generally eligible to participate on the first day of
the month following the employment start date and may enter the plan as of the
first day of employment. Participants may elect to make pre-tax contributions up
to 25% of their current compensation to the 401(k) plan, subject to the
statutorily prescribed annual limit. Participants are fully vested in their
contributions and the investment earnings. The plan permits us to make
discretionary matching contributions. To date, we have not made matching
contributions under the plan.


CHANGE OF CONTROL, SEVERANCE AND EMPLOYEE ARRANGEMENTS

     Our incentive stock plans provide that in the event of our merger with
another corporation, a sale of substantially all of our assets or other change
in control of Kabira, the successor corporation must assume or provide a
substitute for each option or stock purchase right. If the successor corporation
does not assume or provide a substitute for the outstanding options and stock
purchase rights, all outstanding options and stock purchase rights will become
fully vested and exercisable prior to the change in control and then terminate.
In addition, even if all options and stock purchase rights are assumed or
substitutes are provided, an option or stock purchase right will become fully
vested and immediately exercisable if the optionee is involuntarily terminated
without cause or constructively terminated within twelve months after the change
in control.

                                       66
<PAGE>   70

                 TRANSACTIONS WITH RELATED PARTIES AND INSIDERS

     Since April 1, 1997, other than compensation agreements and other
arrangements that are described in "Management" and the transactions described
below, we have not engaged in any transaction or series of similar transactions
in which any director, executive officer or holder of more than 5% of our common
stock, or any member of their immediate family, had or will have a direct or
indirect material interest, and in which the amount involved exceeded or will
exceed $60,000. We believe that each of the transactions described below was on
terms no less favorable than we could have obtained from unaffiliated third
parties. All future transactions between us and any director or executive
officer will be subject to approval by a majority of the disinterested members
of our board of directors.

PREFERRED STOCK SALES

     In October 1998, we issued an aggregate of 1,441,648 shares of Series D
preferred stock at a purchase price of $4.37 per share, 1,327,232 of which were
purchased by directors, executive officers, holders of more than 5% of our
common stock or their affiliates. Each share of Series D preferred stock is
convertible into 1.314535 shares of common stock, for an aggregate of 1,895,097
shares of common stock, of which 1,744,693 shares are held by directors,
executive officers, 5% stockholders or their affiliates. In March 1999, we
issued an aggregate of 7,704,063 shares of Series E preferred stock at a
purchase price of $2.20 per share, 4,474,220 of which were purchased by
directors, executive officers, 5% stockholders or their affiliates. In February
2000 and May 2000, we issued an aggregate of 4,665,560 shares of Series F
preferred stock at a purchase price of $6.82 per share, 2,885,635 shares of
which were purchased by directors, executive officers, 5% stockholders or their
affiliates. Upon the completion of this offering, all shares of our outstanding
preferred stock will automatically convert into shares of common stock.

     The following table summarizes the purchases by each of these persons. All
share numbers are presented on an as-converted to common stock basis.

<TABLE>
<CAPTION>
                                                      SERIES D     SERIES E     SERIES F
                        NAME                          PREFERRED    PREFERRED    PREFERRED
                        ----                          ---------    ---------    ---------
<S>                                                   <C>          <C>          <C>
Crosspoint Venture Partners 1996....................    30,081     1,022,727     990,312
  Rich Shapero
Sevin Rosen funds(a)................................    60,162       727,273     638,377
  Jennifer Gill Roberts
JAFCO funds(b)......................................   902,428       351,493     323,163
Star Venture funds(c)...............................   752,022       454,545     253,372
Argo Global Capital funds(d)........................        --     1,818,182     528,174
  Thomas Wooters, Jr.
Robert Dahl.........................................        --       100,000      25,772
Rodger Weismann.....................................        --            --     126,465
</TABLE>

-------------------------
(a) Includes shares held by Sevin Rosen Fund V L.P. and by Sevin Rosen V
    Affiliates Fund L.P.

(b) Includes shares held by U.S. Information Technology No. 2 Investment
    Enterprise Partnership, by JAFCO Co., Ltd., by JAFCO G-6(A) Investment
    Enterprise Partnership, by JAFCO G-6(B) Investment Enterprise Partnership,
    by JAFCO JS-3 Investment Enterprise Partnership, by JAFCO R-3 Investment
    Enterprise Partnership and by JAFCO America Ventures, Inc.

                                       67
<PAGE>   71

(c) Includes shares held by SVE Star Venture Enterprises No. VII, by SVE Star
    Ventures Enterprises No. V, by SVM Star Ventures Managementgesellschaft mbH
    Nr. 3 & Co. Beteilgungs KG Nr. 2, and by SVM Star Ventures
    Managementgesellschaft mbH Nr. 3.

(d) Includes shares held by GSM Capital L.P., by ARGC III, LLC and by ARGC LLC.

LOANS, CONVERTIBLE PROMISSORY NOTES AND WARRANT ISSUANCES


     Between August and November 1998, we issued convertible notes to various 5%
stockholders in exchange for short-term loans of approximately $2,706,000. The
notes bore interest at 10% per year and were repayable by December 31, 1998
unless converted into shares of our stock. In December 1998 through February
1999, we issued additional convertible notes for $1,686,000 in cash and
exchanged the then outstanding notes plus accrued interest for new notes. The
new notes bore interest at 4.5% per year and were converted to Series E
preferred stock in March 1999. These new notes were issued with warrants to
purchase 199,627 shares of Series E preferred stock for $2.20 per share that
expire December 31, 2003.



     In March 1999, the Company issued additional convertible notes payable to
certain investors for $250,000 in cash. The notes bore interest at 10% and were
converted to Series E preferred stock in March 1999.


     In March 1999, the holders of the notes payable described above converted a
portion of the notes together with accrued interest into 1,897,664 shares of our
Series E preferred stock. We repaid the remaining principal and accrued interest
of $548,000 in conjunction with a new purchase of $1,000,000 in Series E
preferred stock by those same holders.

     The following table summarizes these loans, notes and warrant issuances.
All warrant share numbers are presented on an as-converted to common stock
basis.

<TABLE>
<CAPTION>
                                               AGGREGATE        AMOUNT CONVERTED
                                             LOAN PRINCIPAL       INTO SERIES E       SHARES SUBJECT TO
                   NAME                          AMOUNT             PREFERRED             WARRANTS
                   ----                      --------------   ---------------------   -----------------
<S>                                          <C>              <C>                     <C>
Crosspoint Venture Partners 1996...........    $1,800,000          $1,825,942              70,454
Sevin Rosen funds..........................     1,550,000           1,575,634              70,455
JAFCO American Ventures, Inc...............       750,000             773,284              34,091
Star Venture funds.........................       542,000                  --              24,627
</TABLE>

REGISTRATION RIGHTS

     We have entered into agreements with all preferred stockholders and
warrantholders, including those described above, and with certain common
stockholders, including Paul Sutton, Allan Lees, Daniel Sifter and Dirk
Epperson, who are current or former executive officers and in some cases
directors of Kabira, pursuant to which these persons have registration rights
with respect to their shares of common stock following this offering. For a
description of these registration rights, see "Description of Capital Stock."

COMMON STOCK PURCHASES AND OPTIONS

     We have from time to time sold shares of common stock and granted options
to purchase shares of common stock to our executive officers and directors. See
below, as well as "Management -- Director Compensation,"
"Management -- Compensation Plans" and "Principal Stockholders."

                                       68
<PAGE>   72

INDEMNIFICATION AGREEMENTS

     We have entered into indemnification agreements with each of our directors
and executive officers. These indemnification agreements require us to indemnify
our directors and executive officers to the fullest extent permitted by Delaware
law. We believe that these agreements are necessary to attract and retain
qualified persons as directors and executive officers. For a description of the
limitation on our directors' liability and our indemnification of such
directors, see "Management -- Limitation on Directors' Liability and
Indemnification of Directors and Officers."

EMPLOYEE AND RELATED PARTY LOANS

     In March 1999, we loaned Allan Lees, a founder and our former chief
executive officer, $75,000, in connection with his departure from Kabira. This
loan accrues interest at a variable rate equal to the prime rate, which was 9.5%
as of June 30, 2000; is due and payable on March 31, 2001; and is secured by a
pledge of 300,000 shares of common stock owned by Mr. Lees. The principal amount
and interest outstanding under this loan as of June 30, 2000 was $83,016.

     In July 1999, we loaned Paul Sutton $387,000, Greg Straughn $76,400 and
Grover Righter $84,000 in connection with their purchases of 825,000, 160,000
and 180,000 shares of our common stock through option exercises. Each of these
loans accrues interest at an annual rate of 5.37%, is due and payable in July
2004 and is secured by the pledge of the shares the loans were used to purchase.
The principal amounts and interest outstanding under these loans as of June 30,
2000 were $406,619, $80,261 and $88,258.

     In August 1999, we loaned John Donnelly, our Vice President of Sales for
the eastern region of the United States, $86,400 in connection with his purchase
of 180,000 shares of our common stock through an option exercise. This loan
accrues interest at a rate of 5.37%, is due and payable in August 2004 and is
secured by the pledge of the shares the loan was used to purchase. The principal
amount and interest outstanding under this loan as of June 30, 2000 was $90,380.

     In January 2000, we loaned Rodger Weismann $662,500 in connection with his
purchase of 265,000 shares of our common stock through an option exercise. This
loan accrues interest at a rate of 6.21%, is due and payable in January 2005 and
is secured by the pledge of the shares the loan was used to purchase. The
principal amount and interest outstanding under this loan as of June 30, 2000
was $679,642.

     In March 2000, we loaned Paul Sutton $99,000 in connection with his
purchase of 225,000 shares of our common stock through an option exercise. This
loan accrues interest at a rate of 6.8%, is due and payable in March 2005 and is
secured by the pledge of the shares the loan was used to purchase. The principal
amount and interest outstanding under this loan as of June 30, 2000 was
$101,244.

     In May 2000, we loaned Paul Sutton $1,137,500 in connection with his
purchase of 350,000 shares of our common stock through an option exercise. This
loan accrues interest at a rate of 6.4%, is due and payable in May 2005 and is
secured by the pledge of the shares the loan was used to purchase. The principal
amount and interest outstanding under this loan as of June 30, 2000 was
$1,149,633.

OTHER TRANSACTIONS

     Rich Shapero, one of our directors, is a general partner of Crosspoint
Venture Partners 1996, a holder of approximately 18.6% of our outstanding shares
prior to this offering.

                                       69
<PAGE>   73


Crosspoint Venture Partners or its affiliated entities also hold equity
interests in New Edge Networks and Blue Star Communications. Mr. Shapero is a
director of both companies. Through June 30, 2000, we had billed New Edge
Networks approximately $3.2 million and Blue Star Communications approximately
$475,000 for software sales and services.


                                       70
<PAGE>   74

                             PRINCIPAL STOCKHOLDERS

     The following table sets forth the beneficial ownership of our common stock
as of June 30, 2000, as adjusted to reflect the sale of common stock offered by
this prospectus, by:

     - Each person who is known by us to beneficially own more than 5% of our
       common stock;

     - Each of the named executive officers and each of our directors; and

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

     Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares and
percentage beneficially owned by a person, shares of common stock subject to
options and warrants held by that person that are currently exercisable or
exercisable within 60 days after June 30, 2000 are deemed issued and outstanding
for the purposes of calculating the number of shares and percentage of shares
owned by that person. These shares, however, are not deemed outstanding for
purposes of computing percentage ownership of any other stockholder.

     Except as indicated in the footnotes to this table and subject to
applicable community property laws, each stockholder named in the table has sole
voting and investment power with respect to the shares shown as beneficially
owned by them. Unless otherwise indicated, the address of each of the
individuals named below is: Kabira Technologies, Inc., One McInnis Parkway, San
Rafael, California 94903.


     Percentage ownership prior to the offering is based on 24,047,487 shares of
common stock outstanding on June 30, 2000, adjusted to include shares of common
stock issuable upon the automatic conversion of all outstanding preferred stock.
Percentage ownership after the offering is based on 28,047,487 shares of common
stock outstanding after completion of this offering.



<TABLE>
<CAPTION>
                                                                                 PERCENT OF SHARES
                                                                                    OUTSTANDING
                                                                              ------------------------
                                                        SHARES BENEFICIALLY   PRIOR TO THE   AFTER THE
                   BENEFICIAL OWNER                            OWNED            OFFERING     OFFERING
                   ----------------                     -------------------   ------------   ---------
<S>                                                     <C>                   <C>            <C>
Crosspoint Venture Partners 1996(1)...................       4,469,809            18.5%        15.9%
Rich Shapero
  2925 Woodside Road
  Woodside, CA 94062
Sevin Rosen funds(2)..................................       3,185,836            13.2         11.3%
Jennifer Gill Roberts
  Two Galleria Tower
  13455 Noel Road, Suite 1670
  Dallas, TX 75240
Argo Global Capital funds(3)..........................       2,346,356             9.8          8.4%
Thomas Wooters, Jr.
  210 Broadway, Suite 101
  Lynnfield, MA 09140
JAFCO funds(4)........................................       1,611,174             6.7          5.7%
  505 Hamilton Avenue
  Palo Alto, CA 94301
</TABLE>


                                       71
<PAGE>   75


<TABLE>
<CAPTION>
                                                                                 PERCENT OF SHARES
                                                                                    OUTSTANDING
                                                                              ------------------------
                                                        SHARES BENEFICIALLY   PRIOR TO THE   AFTER THE
                   BENEFICIAL OWNER                            OWNED            OFFERING     OFFERING
                   ----------------                     -------------------   ------------   ---------
<S>                                                     <C>                   <C>            <C>
Star Venture funds(5).................................       1,484,566             6.2          5.3%
  c/o Star Ventures Management
  Possarstrasse 9
  D-81679 Munich, Germany
Paul Sutton(6)........................................       1,400,000             5.8          5.0%
Frederic Aries(7).....................................         264,799             1.1            *
Dirk Epperson(8)......................................         575,000             2.4          2.0%
Grover Righter(9).....................................         205,000               *            *
Daniel Sifter(10).....................................         850,000             3.5          3.0%
Robert Dahl(11).......................................         150,772               *            *
All executive officers and directors as a group (10
  persons)(12)........................................      13,839,038            55.6         47.9%
</TABLE>


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


 (1) Includes 70,454 shares issuable upon exercise of warrants. Rich Shapero, a
     member of our board of directors, is a general partner of Crosspoint
     Venture Partners 1996 and is the only individual who holds voting and
     investment power with respect to the shares of Kabira held by Crosspoint
     Venture Partners 1996. Mr. Shapero disclaims beneficial ownership of the
     shares held by Crosspoint Venture Partners 1996, except to the extent of
     his pecuniary interest in those shares.



 (2) Consists of 2,529,376 shares, and 67,566 shares issuable upon exercise of
     warrants, held by Sevin Rosen Fund V L.P., 108,138 shares, and 2,889 shares
     issuable upon exercise of warrants, held by Sevin Rosen V Affiliates Fund
     L.P., 4,286 shares held by Sevin Rosen Bayless Management Company, 456,059
     shares held by Sevin Rosen Fund VII L.P., and 17,523 shares held by Sevin
     Rosen Fund VII Affiliates Fund L.P. Jennifer Gill Roberts, a member of our
     board of directors, is a general partner of Sevin Rosen Funds. The only
     individuals who hold or share voting and investment power with respect to
     the shares of Kabira held by the funds affiliated with Sevin Rosen Funds
     are Jon W. Bayless, John V. Jaggers, Charles H. Phipps, Stephen L. Domenik,
     Stephen M. Dow and Ms. Roberts, all of whom disclaim beneficial ownership
     of the shares held by the funds referred to above, except to the extent of
     their pecuniary interest in those shares.



 (3) Consists of 2,332,588 shares held by GSM Capital L.P., 9,091 shares held by
     ARGC LLC., and 4,677 shares held by ARGC III, LLC. Thomas Wooters, Jr., a
     member of our board of directors, is Vice President and Partner of Argo
     Global Capital Inc. The only individuals who hold or share voting and
     investment power with respect to the shares of Kabira held by the funds
     affiliated with Argo Capital, Inc. are Mr. Wooters, H.H. Haight and Bernice
     E. Braden, all of whom disclaim beneficial ownership of the shares held by
     the funds referred to above, except to the extent of their pecuniary
     interest in those shares.


 (4) Consists of 1,117,822 shares held by U.S. Information Technology No. 2
     Enterprise Partnership, 244,573 shares held by JAFCO Co., Ltd., 42,467
     shares held by JAFCO R-3 Investment Enterprise Partnership, 38,221 shares
     held by JAFCO G-6(A) Investment Enterprise Partnership, 38,221 shares held
     by JAFCO G-6(B) Investment Enterprise

                                       72
<PAGE>   76


     Partnership, 25,480 shares held by JAFCO JS3 Investment Enterprise
     Partnership, and 70,299 shares and 34,091 shares issuable upon exercise of
     warrants held by JAFCO American Ventures. The only individuals who hold or
     share voting and investment power with respect to the shares of Kabira held
     by the funds affiliated with JAFCO are Barry J. Schiffman, Hitoshi Imuta,
     Mistumasa Murase, Akira Tsuda and Tomio Kezuka, all of whom disclaim
     beneficial ownership of the shares held by the funds referred to above,
     except to the extent of their pecuniary interest in those shares.



 (5) Consists of 587,549 shares, and 20,914 shares issuable upon exercise of
     warrants, held by SVE Star Ventures Enterprises No. V, 454,545 shares held
     by SVE Star Venture Enterprises No. VII, 126,306 shares held by SVM Star
     Ventures Managementgesellschaft mbH Nr. 3 & Co. Beteiligungs KG Nr. 2,
     60,161 shares and 3,713 shares issuable upon exercise of warrants held by
     SVM Star Ventures Managementgesellschaft mbH Nr. 3, and 231,378 shares held
     by Star Growth Enterprise. The only individual who holds voting and
     investment power with respect to the shares of Kabira held by the funds
     affiliated with Star is Dr. Meir Barel. Dr. Barel disclaims beneficial
     ownership of the shares held by the funds referred to above, except to the
     extent of their pecuniary interest in those shares.


 (6) As of June 30, 2000, we had a right to repurchase 923,961 shares held by
     Mr. Sutton in the event of the termination of Mr. Sutton's employment.

 (7) Includes 230,000 shares subject to immediately exercisable options. As of
     June 30, 2000, we had a right to repurchase 142,709 shares subject to
     options, if Mr. Aries were to exercise these options, in the event of the
     termination of Mr. Aries's employment.

 (8) Includes 75,000 shares subject to immediately exercisable options. As of
     June 30, 2000, we had a right to repurchase 59,376 shares subject to
     options, if Mr. Epperson were to exercise these options, in the event of
     the termination of Mr. Epperson's employment.

 (9) Includes 25,000 shares subject to immediately exercisable options. As of
     June 30, 2000, we had a right to repurchase 123,334 shares held by Mr.
     Righter in the event of the termination of Mr. Righter's employment and we
     had a right to repurchase 23,959 shares subject to options if Mr. Righter
     were to exercise these options.

(10) Includes 150,000 shares subject to immediately exercisable options. As of
     June 30, 2000, we had a right to repurchase 297,917 shares subject to
     options, if Mr. Sifter were to exercise these options, in the event of the
     termination of Mr. Sifter's employment.

(11) Includes 125,772 shares held by The Dahl Family Trust, dated October 31,
     1998, as amended May 3, 1999, as to which Mr. Dahl disclaims beneficial
     ownership, and 25,000 shares subject to immediately exercisable options. As
     of June 30, 2000, we had a right to repurchase 12,500 shares subject to
     options, if Mr. Dahl were to exercise these options, in the event of the
     termination of Mr. Dahl's services as a director of Kabira.

(12) Includes an aggregate of 705,000 shares subject to immediately exercisable
     options and 140,909 shares issuable upon exercise of warrants. As of June
     30, 2000, we had a right to repurchase an aggregate of 1,279,170 shares
     held by executive officers and directors and 536,461 of the shares subject
     to options, if these options were to be exercised, in the event of the
     termination of such persons' employment.

                                       73
<PAGE>   77

                          DESCRIPTION OF CAPITAL STOCK

     The following description of our capital stock is intended as a summary
only and is not complete. You should read the full text of our amended and
restated certificate of incorporation and our bylaws, which were filed with the
registration statement of which this prospectus is a part.

COMMON STOCK


     As of June 30, 2000, there were 24,047,487 shares of common stock
outstanding (including 19,332,287 shares of common stock issuable upon the
automatic conversion of all outstanding preferred stock), which were held of
record by approximately 155 stockholders. There will be 28,047,487 shares of
common stock outstanding (assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options and warrants after
March 31, 2000) after giving effect to the sale of our common stock in this
offering. As of June 30, 2000, there were outstanding options to purchase an
aggregate of 2,987,421 shares of our common stock and outstanding warrants to
purchase an aggregate of 253,062 shares.


     The holders of common stock are entitled to one vote per share held of
record on all matters submitted to a vote of the stockholders. Subject to any
preferences that may be applicable to any outstanding preferred stock, the
holders of common stock are entitled to receive ratably any dividends that 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, the holders of common stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior distribution
rights of any preferred stock then outstanding. The holders of common stock have
no preemptive or other subscription or conversion rights. There are no
redemption or sinking fund provisions applicable to common stock.

PREFERRED STOCK

     Upon the completion of this offering, our board of directors will be
authorized, without further action by the stockholders, to issue 10,000,000
shares of preferred stock in one or more series and to fix the number,
designation, 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 and sinking
fund terms, any of which may be superior to the rights of the common stock. It
is not possible to state the actual effect the issuance of preferred stock might
have on the rights of holders of our common stock until our board of directors
actually determines the specific rights of any preferred stock that may be
issued. However, the effects could 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, or delaying or preventing
a change in control of Kabira. Upon the closing of this offering, no shares of
preferred stock will be outstanding, and we have no current plans to issue any
shares of preferred stock.

WARRANTS


     Immediately following the closing of this offering, there will be
outstanding warrants to purchase an aggregate of 262,024 shares of our common
stock at a weighted average exercise price of $2.09 per share. Of these
warrants, warrants to purchase 199,627 shares expire in December 2003, and
warrants to purchase 62,397 shares expire at various times from June 2006
through July 2008. All warrants may be exercised on a "net" basis, which means,
in lieu of paying the exercise price in cash, the holder may instruct us to
retain shares that have a total fair market value at the time of exercise equal
to the aggregate exercise price.


                                       74
<PAGE>   78

REGISTRATION RIGHTS


     Upon completion of this offering, the holders of 22,785,402 shares of
common stock, including shares issuable upon exercise of all warrants, will be
entitled to certain rights with respect to the registration of these shares
under the Securities Act. Under the terms of the agreement between us and the
holders of these registrable securities, if we propose to register any of our
securities under the Securities Act, either for our own account or for the
account of other securities holders exercising registration rights, these
holders are entitled to notice of that registration and to include shares of
their common stock therein. Holders of registration rights may also require us
to file two registration statements under the Securities Act at our expense with
respect to their shares of common stock, and we are required to use our best
efforts to effect such registrations. Further, these holders may require us to
file registration statements on Form S-3 at our expense when the form becomes
available for use by us. All of these registration rights are subject to certain
conditions and limitations, including the right of the underwriters of an
offering to limit the number of registrable securities included in the
registration. These registration rights will expire with respect to any
particular stockholder when that stockholder can sell all of its shares in a
consecutive three month period under Rule 144 of the Securities Act. In any
event, the registration rights will expire five years after completion of this
offering.


     The underwriters have requested that no registrable shares be registered in
this offering. In addition, the holders of these registration rights have
entered into lock-up agreements and waived their registration rights until 180
days following the effective date of the registration statement related to this
offering. See "Shares Eligible for Future Sale" and "Underwriting."

CHARTER PROVISIONS AND DELAWARE LAWS THAT MAY HAVE AN ANTI-TAKEOVER EFFECT

     Some provisions of Delaware law and our certificate of incorporation and
bylaws could make it more difficult for a third party to acquire control of
Kabira by means of a tender offer, a proxy contest or otherwise, or to remove
our incumbent officers and directors. These provisions are summarized below.
They are intended to discourage coercive takeover practices and inadequate
takeover bids and to encourage persons seeking to acquire control of Kabira to
first negotiate with our board of directors. We believe that the benefits of our
potential increased ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to acquire or restructure Kabira outweigh the disadvantages
of discouraging such proposals because negotiation of such proposals could
result in an improvement of their terms.

     Election and Removal of Directors. Effective as of the first annual meeting
of stockholders following completion of this offering, our bylaws provide for
the division of our board of directors into three classes, as nearly equal in
number as possible. Directors in each class will serve for a three-year term.
One class is elected each year by our stockholders. This system of electing
directors may tend to discourage a third party from making a tender offer or
otherwise attempting to obtain control of Kabira and may maintain the incumbency
of the board of directors, as it generally makes it more difficult for
stockholders to replace a majority of the directors. For more information on the
classified board, see "Management -- Board of Directors."

     Requirements for Advance Notification of Stockholder Nominations and
Proposals. Our bylaws establish advance notice procedures with respect to
proposals which stockholders desire to bring before stockholder meetings and
with respect to the nomination of candidates for election as directors, other
than nominations made by or at the direction of the board of directors.

                                       75
<PAGE>   79

     Stockholder Meetings. Under our certificate of incorporation and bylaws,
only our board of directors, the Chairman of the Board or our Chief Executive
Officer may call special meetings of stockholders.

     Delaware Anti-Takeover Law. We are subject to Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, Section 203 prohibits
a publicly held Delaware corporation from engaging in a business combination
with an interested stockholder for a period of three years following the date
the person became an interested stockholder, unless the business combination, or
the transaction in which the person became an interested stockholder, is
approved in a prescribed manner. Generally, a "business combination" includes a
merger, asset or stock sale, or other transaction resulting in a financial
benefit to the interested stockholder. Generally, an "interested stockholder" is
a person who, together with affiliates and associates, owns, or within three
years prior to the determination of interested stockholder status did own, 15%
or more of the corporation's voting stock. The existence of this provision may
have an anti-takeover effect with respect to transactions not approved in
advance by our board of directors, including discouraging attempts that might
have resulted in the payment of a premium over the market price for the shares
of common stock held by our stockholders.

     Elimination of Stockholder Action By Written Consent. Our certificate of
incorporation eliminates the right of stockholders to act by written consent
without a meeting.

     Elimination of Cumulative Voting. Neither our certificate of incorporation
nor our bylaws provide for cumulative voting in the election of directors.
Cumulative voting enables a minority stockholder to cast all votes to which he
or she is entitled in an election of directors for one or more candidates on the
board. Without cumulative voting, it is more difficult for a minority
stockholder to elect a person of his or her choice to the board of directors
than he or she could if cumulative voting were permitted. As a result, the
elimination of cumulative voting makes it more difficult for a minority
stockholder to gain a seat on our board of directors and to influence the board
of directors' decision regarding a takeover.

     Undesignated Preferred Stock. The authorization of undesignated preferred
stock makes it possible for the board of directors to issue preferred stock
without approval by our stockholders. Preferred stock could have voting or other
rights or preferences that could impede the success of any attempt to change the
control of Kabira. These and other provisions may have the effect of deterring
hostile takeovers or delaying changes in control or management of Kabira.

     Amendment of Charter Provisions. The amendment of any of the above
provisions would require approval by holders of at least 66 2/3% of our
outstanding common stock or a majority of our directors who are not affiliated
or associated with any person or entity holding, or who has announced his or her
intention to acquire, 20% or more of our outstanding capital stock.

TRANSFER AGENT AND REGISTRAR


     The Transfer Agent and Registrar for our common stock is BankBoston, N.A.


LISTING

     We have applied for listing of our common stock on The Nasdaq Stock
Market's National Market under the symbol "KABR."

                                       76
<PAGE>   80

                        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 June
30, 2000, adjusted to include shares of common stock issued upon conversion of
all outstanding preferred stock, we will have 28,047,487 outstanding shares of
common stock, assuming the issuance of 4,000,000 shares of common stock in this
offering, no exercise of the underwriters' over-allotment option, and no
exercise of options or warrants after June 30, 2000. All of the shares sold in
this offering will be freely tradable without restriction or further
registration under the Securities Act subject to applicable lock-up agreements.
However, the sale of any of these shares by "affiliates," as that term is
defined in Rule 144, is subject to limitations and restrictions described below.



     The remaining 24,047,487 shares of common 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" 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 effective date of the registration
statement relating to this offering. Accordingly, of the remaining 24,047,487
shares, approximately 21,114,948 shares will become eligible for sale on the
181st day after the effective date of this offering and 2,932,539 shares will
become eligible for sale in May 31, 2001, subject in some cases to compliance
with Rules 144 and/or 701. Deutsche Bank Securities Inc., however, may in its
sole discretion, at any time without notice, release all or any portion of the
shares subject to these lock-up agreements.


     As of June 30, 2000, there were a total of 2,987,421 shares of common stock
subject to outstanding options, 678,823 of which were vested, and all of which
are subject to lock-up agreements. Immediately after the completion of the
offering, we intend to file a registration statement on Form S-8 under the
Securities Act to register all of the shares of common stock subject to
outstanding options or reserved for future issuance under our stock option and
stock purchase plans. As a result, shares purchased upon exercise of options
granted pursuant to our stock option and stock purchase plans generally will be
available for resale in the public market, subject to applicable lock-up
agreements.

RULE 144

     In general, under Rule 144 as currently in effect, 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, including the holding period of any prior
owner who is not an affiliate of Kabira, 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 our common stock then outstanding, which
       will equal approximately 280,475 shares immediately after this offering;
       or


                                       77
<PAGE>   81

     - The average weekly trading volume of our common stock on The Nasdaq Stock
       Market's National Market during the four calendar weeks preceding the
       filing of a notice on Form 144 for the sale.

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
Kabira.

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 current public information provisions
of Rule 144. Unless otherwise restricted by lock-up agreements, these 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 purchased 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 rely on the resale provision of
Rule 701. 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 options, including exercises after the date of this
prospectus. Securities issued in reliance on Rule 701 are restricted securities
but, subject to lock-up agreements described above, beginning 90 days after the
date of this prospectus, may be sold by persons other than affiliates, 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>   82

                                  UNDERWRITING

     Subject to the terms and conditions of the underwriting agreement, each
underwriter named below, through their representatives, Deutsche Bank Securities
Inc., SG Cowen Securities Corporation and Thomas Weisel Partners LLC, has
severally agreed to purchase from us the following respective number 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 OF
                        UNDERWRITER                            SHARES
                        -----------                           ---------
<S>                                                           <C>
Deutsche Bank Securities Inc. ..............................
SG Cowen Securities Corporation.............................
Thomas Weisel Partners LLC..................................

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

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

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


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



     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 7% of the
initial public offering price. We have agreed to pay the


                                       79
<PAGE>   83

underwriters the following fees, assuming either no exercise or full exercise by
the underwriters of the over-allotment option:


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



     In addition, we estimate that our share of the total expenses of this
offering, excluding underwriting discounts and commissions, will be
approximately $1,700,000.


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

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

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

     In order to facilitate the offering of our common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of our common stock. The underwriters may over-allot shares of our
common stock in connection with this offering, thus creating a short position in
our common stock for their own account. Short sales involve the sale by the
underwriters of a greater number of shares than they are committed to purchase
in the offering. A short position may involve either "covered" short sales or
"naked" short sales. Covered short sales are sales made in an amount not greater
than 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 the covered short
position, the underwriters will 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 must
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.

                                       80
<PAGE>   84

Additionally, the representatives, on behalf of the underwriters, may also
reclaim selling concessions allowed to an underwriter or dealer. Similar to
other purchase transactions, the underwriters' purchases 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.

     We have applied for listing of our common stock on The Nasdaq National
Market under the symbol "KABR."


     The underwriters have reserved for sale, at the initial public offering
price, up to 390,000 shares for our employees, directors and certain other
parties associated with us who express an interest in purchasing common stock in
the offering. The number of shares of our common stock available for sale to the
general public in the offering will be reduced to the extent these parties
purchase the reserved shares. Any reserved shares that are not purchased will be
offered by the underwriters to the general public on the same terms as the other
shares offered by this prospectus.


     Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since December
1998, Thomas Weisel Partners has been named as a lead or co-manager on 172 filed
public offerings of equity securities, of which 127 have been completed, and has
acted as a syndicate member in an additional 97 public offerings of equity
securities. Thomas Weisel Partners does not have any material relationship with
us or any of our officers, directors or other controlling persons, except with
respect to its contractual relationship with us pursuant to the underwriting
agreement entered into in connection with this offering.


     In May 2000, we sold shares of our Series F preferred stock in a private
placement at a price of $6.82 per share. Each of the shares of Series F
preferred stock is convertible at the option of the holder into one share of our
common stock. In this private placement, individuals associated with Deutsche
Bank Securities Inc. purchased 26,791 shares of Series F preferred stock and a
fund associated with Thomas Weisel Partners LLC purchased 18,328 shares of
Series F preferred stock, all on the same terms as other investors in the
private placement. Upon conversion of these shares into common stock, based on
an assumed initial public offering price of $11.00, the value of these shares is
$496,309. The difference between the amount that individuals and funds
associated with Deutsche Bank Securities Inc. and Thomas Weisel Partners LLC
originally paid for the Series F preferred stock and the value of the Series F
preferred stock based on an assumed initial public offering price of $11.00
equals $188,597.


PRICING OF THIS OFFERING

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

     - Prevailing market conditions;

     - Estimates of our business potential;

     - The present stage of our development;

                                       81
<PAGE>   85

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

     - Our results of operations in recent periods.

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

                                 LEGAL MATTERS

     The validity of the common stock offered hereby will be passed upon for
Kabira by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. Certain legal matters in connection with this offering will be
passed upon for the underwriters by Gibson, Dunn & Crutcher LLP, San Francisco,
California. An investment partnership composed of current and former members of
and persons associated with Wilson Sonisini Goodrich & Rosati, Professional
Corporation, beneficially owns 71,804 shares of our preferred stock. An
investment partnership composed of current and former partners of Gibson, Dunn &
Crutcher LLP beneficially owns 10,997 shares of our preferred stock.

                                       82
<PAGE>   86

                                    EXPERTS


     The consolidated financial statements of Kabira Technologies, Inc. at March
31, 1999 and 2000, and for each of the three years in the period ended March 31,
2000, appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere in this prospectus, and are included in reliance upon such
report given on the authority of that firm as experts in accounting and
auditing.



                             CHANGE IN ACCOUNTANTS



     In August 1999, we retained Ernst & Young LLP as our independent auditors
to audit our consolidated financial statements as of March 31, 1999 and 2000,
and for each of the three years in the period ended March 31, 2000. Other
auditors had previously been engaged as our former independent accountants. The
decision to dismiss the former accountants was approved by our board of
directors on July 16, 1999. The former accountants' reports on our consolidated
financial statements at March 31, 1997 and 1998 and for the period from February
6, 1996 (inception) to March 31, 1997, and for the year ended March 31, 1998 and
for the period from February 6, 1996 (inception) to March 31, 1998 did not
contain any adverse opinion or disclaimer of opinion, and its reports were not
otherwise modified or qualified as to audit scope, or accounting principles
except that their reports for both fiscal years were modified to disclose that
Kabira was a development stage enterprise, and their report for the period ended
March 31, 1997 was also modified to include an explanatory paragraph that
expressed uncertainty over our ability to continue as a going concern. To our
knowledge, during the years ended March 31, 1997 and 1998 and the interim
period, through July 16, 1999, there were no disagreements with the former
accountants on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which the former
accountants would have been required to refer to in its reports if such
disagreements had not been resolved to its satisfaction. Our former accountants
have not audited or reported on any of the financial statements or information
included in this prospectus. Prior to July 16, 1999, we had not consulted with
Ernst & Young LLP on items that involved our accounting principles or the form
of audit opinion to be issued on our financial statements.


                   WHERE YOU CAN FIND ADDITIONAL INFORMATION

     We filed with the SEC a registration statement on Form S-1 (including
exhibits and schedules) under the Securities Act with respect to the shares to
be sold in this offering. This prospectus does not contain all of the
information in the registration statement and the exhibits and schedules that
were filed with the registration statement. For further information with respect
to Kabira and our common stock, we refer you to the registration statement and
the exhibits and schedules that were filed with the registration statement.
Statements contained in this prospectus as to the contents of any contract or
any other document referred to are not necessarily complete. In each instance,
we refer you to the copy of such contract or document filed as an Exhibit to the
registration statement, and each of these statements is qualified in all
respects by this reference. A copy of the registration statement and the
exhibits and schedules may be inspected without charge at the public reference
facilities maintained by the Commission at 450 Fifth Street, NW, Washington,
D.C. 20549, at the regional offices of the Commission located at Seven World
Trade Center, Suite 1300, New York, New York 10048 and at Northwestern Atrium
Center, 500 Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such materials may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, NW, Washington, D.C. 20549, at prescribed rates.
The SEC maintains a World Wide Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of the site is
http://www.sec.gov.

                                       83
<PAGE>   87

     Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities and Exchange Act of 1934,
as amended, and, in accordance therewith, will file periodic reports, proxy
statements and other information with the SEC. These periodic reports, proxy
statements and other information will be available for inspection and copying at
the regional offices, public reference facilities and web site of the SEC
referred to above.

     Upon approval of our common stock for quotation on the Nasdaq National
Market, such reports, proxy and information statements and other information
also can be inspected at the office of Nasdaq Operations, 9801 Washingtonian
Boulevard, 5(th) Floor, Gaithersburg, Maryland 20878-5356.

                                       84
<PAGE>   88

                           KABIRA TECHNOLOGIES, INC.

                       CONSOLIDATED FINANCIAL STATEMENTS
         FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED MARCH 31, 2000

                                    CONTENTS


<TABLE>
<CAPTION>
                                                              PAGE
<S>                                                           <C>
Report of Ernst & Young LLP, Independent Auditors...........   F-2
Consolidated Financial Statements
  Consolidated Balance Sheets...............................   F-3
  Consolidated Statements of Operations.....................   F-4
  Consolidated Statements of Redeemable Convertible
     Preferred Stock and Stockholders' Deficit..............   F-5
  Consolidated Statements of Cash Flows.....................   F-8
  Notes to Consolidated Financial Statements................   F-9
</TABLE>


                                       F-1
<PAGE>   89

               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Kabira Technologies, Inc.

     We have audited the accompanying consolidated balance sheets of Kabira
Technologies, Inc. (Note 1) as of March 31, 1999 and 2000, and the related
consolidated statements of operations, redeemable convertible preferred stock
and stockholders' deficit, and cash flows for each of 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 consolidated financial position of Kabira
Technologies, Inc. at March 31, 1999 and 2000, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended March 31, 2000, in conformity with accounting principles generally
accepted in the United States.


                                                              /s/ ERNST & YOUNG
LLP
Walnut Creek, California

May 18, 2000,
  except for Note 13,
  as to which the
  date is May 31, 2000

                                       F-2
<PAGE>   90

                           KABIRA TECHNOLOGIES, INC.

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


<TABLE>
<CAPTION>
                                                                                           PRO FORMA
                                                                                          STOCKHOLDERS
                                                           MARCH 31,                       EQUITY AT
                                                      -------------------    JUNE 30,       JUNE 30,
                                                        1999       2000        2000           2000
                                                      --------   --------   -----------   ------------
                                                                            (UNAUDITED)   (UNAUDITED)
<S>                                                   <C>        <C>        <C>           <C>
ASSETS
  Current assets:
    Cash and cash equivalents.......................  $ 11,728   $ 11,546    $ 24,003
    Short-term investments..........................        --        411          --
    Accounts receivable, net of allowance for
      doubtful accounts of $419 at March 31, 2000
      (none at March 31, 1999), and $475 at June 30,
      2000..........................................       327      3,944       4,880
    Note receivable from former officer.............        --         81          81
    Prepaid expenses and other current assets.......       253        409         508
                                                      --------   --------    --------
      Total current assets..........................    12,308     16,391      29,472
  Property and equipment, net.......................       730      1,928       2,804
  Note receivable from former officer...............        75         --          --
  Accrued interest on notes receivable from
    stockholders....................................        --         30          65
  Deposits and other................................       120        446       1,311
                                                      --------   --------    --------
      Total assets..................................  $ 13,233   $ 18,795    $ 33,652
                                                      ========   ========    ========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK
  AND STOCKHOLDERS' DEFICIT
  Current liabilities:
    Accounts payable................................  $    721   $  2,480    $  3,598
    Accrued liabilities.............................       511      2,937       3,341
    Deferred revenues...............................        58      4,603       4,438
    Current portion of long-term debt...............        --        236         245
    Current portion of capital lease obligations....       335        271         241
                                                      --------   --------    --------
      Total current liabilities.....................     1,625     10,527      11,863
  Long-term debt, less current portion..............        --        410         345
  Capital lease obligations, less current portion...       327         61          13
  Commitments (Note 7)
  Redeemable convertible preferred stock, $0.001 par
    value; 19,581,528 shares authorized; 13,978,751,
    15,711,772 and 18,644,311 shares issued and
    outstanding as of March 31, 1999 and 2000 and
    June 30, 2000, respectively (none outstanding as
    of June 30, 2000 pro forma, unaudited);
    aggregate liquidation preference of $44,013 at
    March 31, 2000..................................    32,223     44,031      64,017       $     --
  Stockholders' deficit:
    Common stock, $0.001 par value, 40,000,000
      shares authorized; 2,001,175 and 4,306,780 and
      4,715,200 shares issued and outstanding at
      March 31, 1999 and 2000 and June 30, 2000,
      respectively (24,047,487 shares outstanding as
      of June 30, 2000 pro forma, unaudited)........         2          4           5             24
    Additional paid-in capital......................       128      6,747      12,843         76,841
    Deferred stock-based compensation...............        --     (3,517)     (7,006)        (7,006)
    Notes receivable from stockholders..............        --     (1,395)     (2,533)        (2,533)
    Accumulated deficit.............................   (21,066)   (38,042)    (45,857)       (45,857)
    Accumulated other comprehensive loss............        (6)       (31)        (38)           (38)
                                                      --------   --------    --------       --------
      Total stockholders' deficit...................   (20,942)   (36,234)    (42,586)      $ 21,431
                                                      --------   --------    --------       ========
      Total liabilities, redeemable convertible
         preferred stock and stockholders'
         deficit....................................  $ 13,233   $ 18,795    $ 33,652
                                                      ========   ========    ========
</TABLE>


See accompanying notes.

                                       F-3
<PAGE>   91

                           KABIRA TECHNOLOGIES, INC.

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


<TABLE>
<CAPTION>
                                                                                THREE MONTHS ENDED
                                             YEARS ENDED MARCH 31,                   JUNE 30,
                                     -------------------------------------   -------------------------
                                        1998         1999         2000          1999          2000
                                     ----------   ----------   -----------   -----------   -----------
                                                                                    (UNAUDITED)
<S>                                  <C>          <C>          <C>           <C>           <C>
Revenues:
  Software license.................  $       69   $      670   $     4,563   $       168   $     1,909
  Service, maintenance and other...         242          602         3,686           183         3,911
                                     ----------   ----------   -----------   -----------   -----------
    Total revenues.................         311        1,272         8,249           351         5,820
Cost of revenues:
  Software license.................          53          161           131            52            27
  Service, maintenance and other...         183          428         3,756           298         3,819
                                     ----------   ----------   -----------   -----------   -----------
    Total cost of revenues.........         236          589         3,887           350         3,846
                                     ----------   ----------   -----------   -----------   -----------
    Gross profit...................          75          683         4,362             1         1,974
Operating expenses:
  Sales and marketing..............       3,829        4,802        12,852         2,560         5,738
  Research and development.........       3,223        3,190         3,939           773         1,606
  General and administrative.......         967        1,774         3,226           563         1,189
  Stock-based compensation(1)......          --           --         1,342           178         1,405
                                     ----------   ----------   -----------   -----------   -----------
    Total operating expenses.......       8,019        9,766        21,359         4,074         9,938
                                     ----------   ----------   -----------   -----------   -----------
    Loss from operations...........      (7,944)      (9,083)      (16,997)       (4,073)       (7,964)
Other income (expense):
  Interest and other income
    (expense), net.................         194           24           232            73           247
  Interest expense.................        (120)        (493)         (150)          (28)          (36)
                                     ----------   ----------   -----------   -----------   -----------
    Other income (expense), net....          74         (469)           82            45           211
                                     ----------   ----------   -----------   -----------   -----------
    Loss before income taxes.......      (7,870)      (9,552)      (16,915)       (4,028)       (7,753)
Provision for income taxes.........          (6)          (5)          (24)           --           (53)
                                     ----------   ----------   -----------   -----------   -----------
    Net loss.......................  $   (7,876)  $   (9,557)  $   (16,939)  $    (4,028)  $    (7,806)
                                     ==========   ==========   ===========   ===========   ===========
Net loss per share, basic and
  diluted..........................  $    (8.24)  $    (6.66)  $     (7.69)  $     (2.37)  $     (2.74)
                                     ==========   ==========   ===========   ===========   ===========
Weighted average shares used in
  calculating net loss per share,
  basic and diluted................     955,941    1,434,860     2,202,554     1,698,891     2,854,411
                                     ==========   ==========   ===========   ===========   ===========
Pro forma net loss per share, basic
  and diluted (unaudited)..........                            $     (0.99)  $     (0.25)  $     (0.38)
                                                               ===========   ===========   ===========
Weighted average shares used in
  calculating pro forma net loss
  per share, basic and diluted
  (unaudited)......................                             17,135,900    16,365,618    20,720,427
                                                               ===========   ===========   ===========
</TABLE>


-------------------------
(1) Stock-based compensation consisted of the following:




<TABLE>
<CAPTION>
                                                                            THREE MONTHS ENDED
                                                              YEAR ENDED         JUNE 30,
                                                              MARCH 31,     ------------------
                                                                 2000       1999         2000
                                                              ----------    ----        ------
                                                                               (UNAUDITED)
<S>                                                           <C>           <C>         <C>
Cost of service maintenance and other revenues..............    $   15      $ --        $   33
Sales and marketing.........................................       630        56           667
Research and development....................................       206        47           292
General and administrative..................................       491        75           413
                                                                ------      ----        ------
  Total stock-based compensation............................    $1,342      $178        $1,405
                                                                ======      ====        ======
</TABLE>


See accompanying notes.

                                       F-4
<PAGE>   92

                           KABIRA TECHNOLOGIES, INC.

     CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
                             STOCKHOLDERS' DEFICIT
                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                 STOCKHOLDERS' DEFICIT
                                                             --------------------------------------------------------------
                                    REDEEMABLE CONVERTIBLE                                                        NOTES
                                       PREFERRED STOCK          COMMON STOCK       ADDITIONAL     DEFERRED      RECEIVABLE
                                    ----------------------   -------------------    PAID-IN     STOCK-BASED        FROM
                                      SHARES       AMOUNT      SHARES     AMOUNT    CAPITAL     COMPENSATION   STOCKHOLDERS
                                    -----------   --------   ----------   ------   ----------   ------------   ------------
<S>                                 <C>           <C>        <C>          <C>      <C>          <C>            <C>
Balance at March 31, 1997.........   4,833,040    $ 8,945     1,821,392    $ 2       $   18       $    --        $    --
  Issuance of Series D redeemable
    convertible preferred stock in
    exchange for cash at $4.37 per
    share.........................   1,441,648      6,300            --     --           --            --             --
  Issuance of warrants in
    connection with lease
    agreements....................          --         18            --     --           --            --             --
  Exercise of stock options.......          --         --       100,662     --           34            --             --
  Net loss........................          --         --            --     --           --            --             --
  Other comprehensive loss:
    Foreign currency translation
      adjustment..................          --         --            --     --           --            --             --
    Comprehensive loss............          --         --            --     --           --            --             --
                                    ----------    -------    ----------    ---       ------       -------        -------
Balance at March 31, 1998.........   6,274,688     15,263     1,922,054      2           52            --             --
  Issuance of Series E redeemable
    convertible preferred stock in
    exchange for cash at $2.20 per
    share (net of issuance costs
    of $259)......................   5,806,399     12,515            --     --           --            --             --
  Issuance of warrants in
    connection with convertible
    notes payable.................          --        270            --     --           --            --             --
  Issuance of Series E redeemable
    convertible preferred stock in
    exchange for conversion of
    convertible notes payable and
    accrued interest at $2.20 per
    share.........................   1,897,664      4,175            --     --           --            --             --
  Exercise of stock options.......          --         --        79,121     --           76            --             --
  Net loss........................          --         --            --     --           --            --             --
  Other comprehensive loss:
    Foreign currency translation
      adjustment..................          --         --            --     --           --            --             --
    Comprehensive loss............          --         --            --     --           --            --             --
                                    ----------    -------    ----------    ---       ------       -------        -------
Balance at March 31, 1999.........  13,978,751     32,223     2,001,175      2          128            --             --

<CAPTION>
                                             STOCKHOLDERS' DEFICIT
                                    ---------------------------------------
                                                   ACCUMULATED
                                                      OTHER
                                    ACCUMULATED   COMPREHENSIVE
                                      DEFICIT     INCOME (LOSS)     TOTAL
                                    -----------   --------------   --------
<S>                                 <C>           <C>              <C>
Balance at March 31, 1997.........   $ (3,633)         $ --        $ (3,613)
  Issuance of Series D redeemable
    convertible preferred stock in
    exchange for cash at $4.37 per
    share.........................         --            --              --
  Issuance of warrants in
    connection with lease
    agreements....................         --            --              --
  Exercise of stock options.......         --            --              34
  Net loss........................     (7,876)           --          (7,876)
  Other comprehensive loss:
    Foreign currency translation
      adjustment..................         --            (9)             (9)
                                                                   --------
    Comprehensive loss............         --            --          (7,885)
                                     --------          ----        --------
Balance at March 31, 1998.........    (11,509)           (9)        (11,464)
  Issuance of Series E redeemable
    convertible preferred stock in
    exchange for cash at $2.20 per
    share (net of issuance costs
    of $259)......................         --            --              --
  Issuance of warrants in
    connection with convertible
    notes payable.................         --            --              --
  Issuance of Series E redeemable
    convertible preferred stock in
    exchange for conversion of
    convertible notes payable and
    accrued interest at $2.20 per
    share.........................         --            --              --
  Exercise of stock options.......         --            --              76
  Net loss........................     (9,557)           --          (9,557)
  Other comprehensive loss:
    Foreign currency translation
      adjustment..................         --             3               3
                                                                   --------
    Comprehensive loss............         --            --          (9,554)
                                     --------          ----        --------
Balance at March 31, 1999.........    (21,066)           (6)        (20,942)
</TABLE>


                                       F-5
<PAGE>   93

                           KABIRA TECHNOLOGIES, INC.

     CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
                             STOCKHOLDERS' DEFICIT
                       (IN THOUSANDS, EXCEPT SHARE DATA)
                                  (CONTINUED)

<TABLE>
<CAPTION>
                                                                                STOCKHOLDERS' DEFICIT
                                                            --------------------------------------------------------------
                                   REDEEMABLE CONVERTIBLE                                                        NOTES
                                      PREFERRED STOCK          COMMON STOCK       ADDITIONAL     DEFERRED      RECEIVABLE
                                   ----------------------   -------------------    PAID-IN     STOCK-BASED        FROM
                                     SHARES       AMOUNT      SHARES     AMOUNT    CAPITAL     COMPENSATION   STOCKHOLDERS
                                   -----------   --------   ----------   ------   ----------   ------------   ------------
<S>                                <C>           <C>        <C>          <C>      <C>          <C>            <C>
  Issuance of Series F redeemable
    convertible preferred stock
    in exchange for cash at $6.82
    per share (net of issuance
    costs of $48)................   1,733,021     11,771            --     --           --            --             --
  Exercise of stock options in
    exchange for cash............          --         --       456,605      2          365            --             --
  Exercise of stock options in
    exchange for notes
    receivable...................          --         --     1,835,000     --        1,395            --         (1,395)
  Accretion of issuance costs
    associated with redeemable
    convertible preferred
    stock........................          --         37            --     --           --            --             --
  Deferred stock-based
    compensation.................          --         --            --     --        4,746        (4,746)            --
  Amortization of deferred stock-
    compensation.................          --         --            --     --           --         1,229             --
  Issuance of nonqualified stock
    options to consultants for
    services rendered............          --         --            --     --           37            --             --
  Issuance and exercise of common
    stock purchase rights to
    consultants for services
    rendered.....................          --         --        14,000     --           76            --             --
  Net loss.......................          --         --            --     --           --            --             --
  Other comprehensive loss:
  Foreign currency translation
    adjustment...................          --         --            --     --           --            --             --
  Comprehensive loss.............          --         --            --     --           --            --             --
                                   ----------    -------    ----------    ---       ------       -------        -------
Balance at March 31, 2000........  15,711,772    $44,031     4,306,780    $ 4       $6,747       $(3,517)       $(1,395)

<CAPTION>
                                            STOCKHOLDERS' DEFICIT
                                   ---------------------------------------
                                                  ACCUMULATED
                                                     OTHER
                                   ACCUMULATED   COMPREHENSIVE
                                     DEFICIT     INCOME (LOSS)     TOTAL
                                   -----------   --------------   --------
<S>                                <C>           <C>              <C>
  Issuance of Series F redeemable
    convertible preferred stock
    in exchange for cash at $6.82
    per share (net of issuance
    costs of $48)................         --            --              --
  Exercise of stock options in
    exchange for cash............         --            --             367
  Exercise of stock options in
    exchange for notes
    receivable...................         --            --              --
  Accretion of issuance costs
    associated with redeemable
    convertible preferred
    stock........................        (37)           --             (37)
  Deferred stock-based
    compensation.................         --            --              --
  Amortization of deferred stock-
    compensation.................         --            --           1,229
  Issuance of nonqualified stock
    options to consultants for
    services rendered............         --            --              37
  Issuance and exercise of common
    stock purchase rights to
    consultants for services
    rendered.....................         --            --              76
  Net loss.......................    (16,939)           --         (16,939)
  Other comprehensive loss:
  Foreign currency translation
    adjustment...................         --           (25)            (25)
                                                                  --------
  Comprehensive loss.............         --            --         (16,964)
                                    --------          ----        --------
Balance at March 31, 2000........   $(38,042)         $(31)       $(36,234)
</TABLE>


See accompanying notes.

                                       F-6
<PAGE>   94

                           KABIRA TECHNOLOGIES, INC.

     CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
                             STOCKHOLDERS' DEFICIT
                       (IN THOUSANDS, EXCEPT SHARE DATA)
                                  (CONTINUED)

<TABLE>
<CAPTION>
                                                                                     STOCKHOLDERS' DEFICIT
                                                                 --------------------------------------------------------------
                                        REDEEMABLE CONVERTIBLE                                                        NOTES
                                           PREFERRED STOCK          COMMON STOCK       ADDITIONAL     DEFERRED      RECEIVABLE
                                        ----------------------   -------------------    PAID-IN     STOCK-BASED        FROM
                                          SHARES       AMOUNT      SHARES     AMOUNT    CAPITAL     COMPENSATION   STOCKHOLDERS
                                        -----------   --------   ----------   ------   ----------   ------------   ------------
<S>                                     <C>           <C>        <C>          <C>      <C>          <C>            <C>
  Issuance of Series F redeemable
    convertible preferred stock in
    exchange for cash at $6.82 per
    share (net of issuance costs of
    $23) (unaudited)..................   2,932,539     19,977            --     --           --            --             --
  Exercise of stock options in
    exchange for cash (unaudited).....          --         --        58,420      1           64            --             --
  Exercise of stock options in
    exchange for notes receivable
    (unaudited).......................          --         --       350,000     --        1,138            --         (1,138)
  Accretion of issuance costs
    associated with redeemable
    convertible preferred stock
    (unaudited).......................          --          9            --     --           --            --             --
  Deferred stock-based compensation
    (unaudited).......................          --         --            --     --        4,861        (4,861)            --
  Amortization of deferred stock
    compensation (unaudited)..........          --         --            --     --           --         1,372             --
  Issuance of nonqualified stock
    options to consultants for
    services rendered (unaudited).....          --         --            --     --           33            --             --
  Net loss (unaudited)................          --         --            --     --           --            --             --
  Other comprehensive loss:
    (unaudited)
  Foreign currency translation
    adjustment (unaudited)............          --         --            --     --           --            --             --
  Comprehensive loss (unaudited)......          --         --            --     --           --            --             --
                                        ----------    -------    ----------    ---      -------       -------        -------
Balance at June 30, 2000 (unaudited)..  18,644,311    $64,017     4,715,200    $ 5      $12,843       $(7,006)       $(2,533)
                                        ==========    =======    ==========    ===      =======       =======        =======

<CAPTION>
                                                 STOCKHOLDERS' DEFICIT
                                        ---------------------------------------
                                                       ACCUMULATED
                                                          OTHER
                                        ACCUMULATED   COMPREHENSIVE
                                          DEFICIT     INCOME (LOSS)     TOTAL
                                        -----------   --------------   --------
<S>                                     <C>           <C>              <C>
  Issuance of Series F redeemable
    convertible preferred stock in
    exchange for cash at $6.82 per
    share (net of issuance costs of
    $23) (unaudited)..................         --            --              --
  Exercise of stock options in
    exchange for cash (unaudited).....         --            --              65
  Exercise of stock options in
    exchange for notes receivable
    (unaudited).......................         --            --              --
  Accretion of issuance costs
    associated with redeemable
    convertible preferred stock
    (unaudited).......................         (9)           --              (9)
  Deferred stock-based compensation
    (unaudited).......................         --            --              --
  Amortization of deferred stock
    compensation (unaudited)..........         --            --           1,372
  Issuance of nonqualified stock
    options to consultants for
    services rendered (unaudited).....         --            --              33
  Net loss (unaudited)................     (7,806)           --          (7,806)
  Other comprehensive loss:
    (unaudited)
  Foreign currency translation
    adjustment (unaudited)............         --            (7)             (7)
                                                                       --------
  Comprehensive loss (unaudited)......         --            --          (7,813)
                                         --------          ----        --------
Balance at June 30, 2000 (unaudited)..   $(45,857)         $(38)       $(42,586)
                                         ========          ====        ========
</TABLE>


See accompanying notes.

                                       F-7
<PAGE>   95

                           KABIRA TECHNOLOGIES, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                         THREE MONTHS
                                                           YEARS ENDED MARCH 31,        ENDED JUNE 30,
                                                        ----------------------------   -----------------
                                                         1998      1999       2000      1999      2000
                                                        -------   -------   --------   -------   -------
                                                                                          (UNAUDITED)
<S>                                                     <C>       <C>       <C>        <C>       <C>
OPERATING ACTIVITIES
  Net loss............................................  $(7,876)  $(9,557)  $(16,939)  $(3,986)  $(7,806)
  Adjustments to reconcile net loss to net cash used
    in operating activities:
    Depreciation......................................      452       633        630       128       261
    Provision for bad debts...........................       --        --        419        39        56
    Stock-based compensation..........................       --        --      1,342       136     1,405
    Loss on disposal of property and equipment........       71        10         46        38        --
    Interest expense related to notes payable
      converted into redeemable convertible preferred
      stock...........................................       --       352         --        --        --
    Other.............................................       14        --        (36)       (1)      (35)
    Changes in operating assets and liabilities:
      Accounts receivable.............................     (149)     (190)    (4,036)   (1,419)     (992)
      Prepaid expenses and other current assets.......        8      (143)      (156)       (6)      (99)
      Deposits........................................       --      (120)        --        --        --
      Other assets....................................       --        --        (26)        4      (431)
      Accounts payable................................      (74)      503      1,759       138     1,118
      Accrued liabilities.............................      144       197      2,426       685       404
      Deferred revenues...............................       --        62      4,545     1,325      (165)
                                                        -------   -------   --------   -------   -------
         Net cash used in operating activities........   (7,410)   (8,253)   (10,026)   (2,919)   (6,284)
INVESTING ACTIVITIES
  Purchases of available-for-sale investments.........       --        --     (3,150)       --        --
  Maturities of available-for-sale investments........       --        --      2,739        --       411
  Purchases of property and equipment.................       --      (324)    (1,874)     (314)   (1,137)
  Issuance of note receivable from former officer.....       --       (75)        --        --        --
                                                        -------   -------   --------   -------   -------
         Net cash used in investing activities........       --      (399)    (2,285)     (314)     (726)
FINANCING ACTIVITIES
  Purchases of restricted certificates of deposit.....       --        --       (300)       --      (434)
  Proceeds from issuance of long-term debt............       --        --        771        --        --
  Principal payments on long-term debt................       --        --       (125)       --       (56)
  Principal payments on capital leases................     (212)     (305)      (330)      (89)      (78)
  Proceeds from convertible notes payable.............       --     4,642         --        --        --
  Repayment of convertible notes payable..............       --      (548)        --        --        --
  Net proceeds from issuance of preferred stock.......    6,300    12,515     11,771        --    19,977
  Proceeds from exercise of stock options.............       34        76        367         6        65
                                                        -------   -------   --------   -------   -------
         Net cash provided by financing activities....    6,122    16,380     12,154       (83)   19,474
  Effect of foreign currency translation on cash and
    cash equivalents..................................       --         9        (25)       (6)       (7)
                                                        -------   -------   --------   -------   -------
         Net increase (decrease) in cash and cash
           equivalents................................   (1,288)    7,737       (182)   (3,322)   12,457
  Cash and cash equivalents at beginning of period....    5,279     3,991     11,728    11,728    11,546
                                                        -------   -------   --------   -------   -------
  Cash and cash equivalents at end of period..........  $ 3,991   $11,728   $ 11,546   $ 8,406   $24,003
                                                        =======   =======   ========   =======   =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
  Interest paid.......................................  $   117   $   139   $    150   $    28   $    37
                                                        =======   =======   ========   =======   =======
  Income taxes paid...................................  $     2   $     5   $     24   $    --   $    53
                                                        =======   =======   ========   =======   =======
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
  FINANCING ACTIVITIES
  Purchases of equipment under capital lease
    obligations.......................................  $   824   $    --   $     --   $    --   $    --
                                                        =======   =======   ========   =======   =======
Issuance of Series E redeemable convertible preferred
  stock in exchange for conversion of convertible
  notes payable and accrued interest..................  $    --   $ 4,175   $     --   $    --   $    --
                                                        =======   =======   ========   =======   =======
</TABLE>


See accompanying notes.

                                       F-8
<PAGE>   96

                           KABIRA TECHNOLOGIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         MARCH 31, 1998, 1999 AND 2000
          (INFORMATION AT JUNE 30, 2000 AND FOR THE THREE MONTHS ENDED
                      JUNE 30, 1999 AND 2000 IS UNAUDITED)

 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND OPERATIONS

     ObjectSwitch Corporation ("ObjectSwitch"), which is currently doing
business as "Kabira Technologies, Inc.," was incorporated in the State of
California on February 6, 1996. On March 26, 2000, ObjectSwitch formed a wholly
owned subsidiary, Kabira Technologies, Inc. ("Kabira"), in the State of
Delaware. Prior to consummation of the proposed initial public offering
described in Note 13, ObjectSwitch will be merged into Kabira, with Kabira being
the surviving Delaware corporation.

     Kabira Technologies, Inc. and its subsidiaries (collectively, the
"Company") develop and market infrastructure software for the delivery of
business and consumer services made possible by the convergence of
telecommunications networks, traditional enterprise networks and the Internet.
The Company's principal product, the ObjectSwitch Server, is designed to allow
businesses to rapidly design and deploy applications and services involving
high-volume business-to-business or business-to-consumer transactions. The
Company currently markets its products in North America and Europe.

     The Company's current operating plan anticipates that the Company will
require additional capital to fund its operations, continue its research and
development programs and build its sales and marketing organization prior to
reaching profitability. To date, the Company has financed its operations
primarily with proceeds from private equity offerings and various equipment
financing arrangements. As described in Note 13, the Company has obtained and
plans to seek additional funding through public or private financing
arrangements subsequent to June 30, 2000.

UNAUDITED 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 includes all adjustments,
consisting only of normal recurring adjustments, that management considers
necessary for a fair presentation of the Company's consolidated financial
position at that date and its consolidated results of operations and cash flows
for those periods. Operating results for the three months ended June 30, 2000
are not necessarily indicative of results that may be expected for any future
periods.

PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements include the accounts of Kabira
Technologies, Inc. and its wholly owned subsidiaries in the United Kingdom,
France, Germany, Sweden and Canada. All significant intercompany transactions
have been eliminated in consolidation.

FOREIGN CURRENCY TRANSLATION

     The functional currency of the Company's foreign subsidiaries is the local
currency. The Company translates all assets and liabilities to U.S. dollars at
the current exchange rate as of

                                       F-9
<PAGE>   97
                           KABIRA TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                         MARCH 31, 1998, 1999 AND 2000
          (INFORMATION AT JUNE 30, 2000 AND FOR THE THREE MONTHS ENDED
                      JUNE 30, 1999 AND 2000 IS UNAUDITED)

 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
the applicable balance sheet date. Revenues and expenses are translated at the
average exchange rate prevailing during the period. Gains and losses resulting
from the translation of the foreign subsidiaries' financial statements are
reported as a separate component of stockholders' deficit. Net gains and losses
resulting from foreign exchange transactions were not material in any of the
periods presented.

USE OF ESTIMATES

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

CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

     The Company invests its excess cash in certificates of deposit, money
market accounts and high quality marketable debt securities. The Company
considers all highly liquid investments with original maturities of 90 days or
less at the time of purchase to be cash equivalents.

     The Company accounts for its investments in marketable securities in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."

     Under SFAS No. 115, all debt and equity securities must be classified as
held-to-maturity, trading or available-for-sale. Management determines the
appropriate classification of securities at the time of purchase and reevaluates
such designation as of each balance sheet date.

     All investments in debt securities have been designated as
available-for-sale. Available-for-sale securities are carried at fair value,
with unrealized gains and losses reported as a separate component of
stockholders' deficit, if material. Realized gains and losses and declines in
value judged to be other-than-temporary, if any, on available-for-sale
securities are included in other income. The cost of securities sold is based on
the specific identification method. Interest on securities classified as
available-for-sale is included in interest income.

CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS

     The Company sells its products in the United States and internationally on
a credit basis. The Company performs ongoing credit evaluations of its
customers, does not require collateral and maintains allowances for potential
credit losses on customer accounts when deemed necessary. For the year ended
March 31, 1998, two customers accounted for 39% and 21% of total revenues,
respectively. For the year ended March 31, 1999, one of these customers and two
new customers accounted for 30%, 26% and 20% of total revenues and, as of March
31, 1999, 6%, 32% and 44% of gross accounts receivable, respectively. For the
year ended March 31, 2000, three new customers accounted for 20%, 14% and 11% of
total revenues and, as of March 31, 2000, 13%, 2% and 5% of gross accounts
receivable, respectively.

                                      F-10
<PAGE>   98
                           KABIRA TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                         MARCH 31, 1998, 1999 AND 2000
          (INFORMATION AT JUNE 30, 2000 AND FOR THE THREE MONTHS ENDED
                      JUNE 30, 1999 AND 2000 IS UNAUDITED)

 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Additionally, one other customer accounted for 17% of gross accounts receivable
as of March 31, 2000. However, the revenues from this customer represented less
than 10% of the Company's total revenues for the year ended March 31, 2000.

PROPERTY AND EQUIPMENT

     Property and equipment is stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the respective assets. Equipment under capital leases is
amortized over the shorter of the estimated useful life or the life of the
lease.

     Estimated useful lives of the respective elements of property and equipment
are as follows:

<TABLE>
<S>                                                           <C>
Computers and equipment.....................................  3 years
Furniture, fixtures and improvements........................  5 years
</TABLE>

REVENUE AND COST RECOGNITION

     The Company generates revenue primarily from software license sales and
from related services, including implementation and customization services,
maintenance and support activities and training services. The Company's software
license revenues are generated from licensing the Company's products directly to
end users and indirectly through resellers. The Company recognizes revenues in
accordance with provisions of Statement of Position ("SOP") 97-2, "Software
Revenue Recognition" and SOP 81-1, "Accounting for Performance of
Construction-Type and Certain Production-Type Contracts." The nature of each
licensing arrangement determines how revenues and the related costs are
recognized:

     - If the contract requires the Company to perform significant production,
       modification or customization of software, software license revenues are
       recognized using the percentage-of-completion method of accounting as
       required under the provisions of SOP 97-2 and SOP 81-1. The
       percentage-of-completion method is applied based on the ratio of total
       labor hours incurred to estimated total labor hours. The duration of
       contracts of this type typically ranges from three to nine months. To
       date, most of the Company's software license revenues have been
       recognized on this basis.


     - If the contract requires delivery of the product to the end user and the
       Company will not be performing the implementation, the Company recognizes
       software license revenues under the provisions of SOP 97-2. Accordingly,
       such software license revenues are recognized when a noncancelable
       license agreement has been signed, the product has been shipped, the fees
       are fixed and determinable and collectibility is probable. The Company
       uses the residual method in accordance with SOP 98-9 to allocate revenues
       to the elements of the arrangement, as described below.


     - If the contract requires delivery of the product to a third-party
       reseller or integrator, the Company also follows the provisions of SOP
       97-2, as amended by SOP 98-4 and SOP 98-9, under which the Company
       presently recognizes revenue when the licenses are

                                      F-11
<PAGE>   99
                           KABIRA TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                         MARCH 31, 1998, 1999 AND 2000
          (INFORMATION AT JUNE 30, 2000 AND FOR THE THREE MONTHS ENDED
                      JUNE 30, 1999 AND 2000 IS UNAUDITED)

 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
       resold to the end user. The Company recognizes such software license
       revenues using the percentage-of-completion method of accounting
       described above when significant obligations exist under the contract to
       assist the third-party throughout the implementation process.


     - The Company's customer contracts are generally multi-element arrangements
       that include a software license, consulting services, maintenance and
       customer training. Elements that are undelivered at the time of contract
       execution typically include maintenance, customer training and services.
       When contract accounting applies, the software license is also considered
       undelivered as of the execution of the license agreement. As required
       under SOP 97-2, the company allocates the contract value to the various
       elements of the contract using the residual method in accordance with SOP
       98-9, regardless of any separate prices stated within the contract, as
       described below.


     - Cost of software license revenues includes the cost of the media, product
       packaging, documentation and certain third-party royalties. In addition,
       the Company generally warrants its products to meet standard
       specifications for a period of 30 days following the delivery of the
       product to the customer. The Company accrues for its estimated warranty
       costs at the time the related software license revenues are recognized
       through charges to cost of software license revenues.


     - Services are performed on a "best efforts" basis and generally billed
       under time and materials arrangements. The resultant service revenues and
       expenses are recognized as services are performed. Revenues from
       maintenance activities, which consist of fees for ongoing support and
       product updates, are recognized ratably over the term of the maintenance
       contract, typically one year, and the associated costs are expensed as
       incurred. When maintenance is sold with software licenses that are
       subject to the percentage-of-completion method of accounting, the Company
       accounts for the maintenance revenues separately from the license
       revenues. The Company utilizes objective evidence to determine the fair
       value of maintenance revenues. This objective evidence of fair value
       consists of the Company's customary pricing for such maintenance when
       sold separately. The Company's resellers are also able to sell
       maintenance contracts to their end users for a separate fee payable to
       the Company. The objective evidence of fair value for maintenance
       revenues in reseller arrangements is the same as the objective evidence
       when the sale is directly between the Company and an end user.


     - Cost of service, maintenance and other revenues consists of compensation
       and related overhead costs for personnel engaged in consulting, training,
       maintenance and support activities, as well as costs for third-party
       consultants utilized in providing such services. Provisions for estimated
       losses on uncompleted contracts are made in the period in which such
       losses are determined. Changes in contract performance and estimated
       profitability may result in revisions to costs and revenues and are
       recognized in the period in which the revisions are determined, the
       effects of which may be material. Costs and estimated earnings in excess
       of billings on uncompleted contracts were insignificant as of March 31,
       2000 (none as of March 31, 1999) and, accordingly, have not been
       recognized in the accompanying consolidated balance sheets. Billings in
       excess of costs

                                      F-12
<PAGE>   100
                           KABIRA TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                         MARCH 31, 1998, 1999 AND 2000
          (INFORMATION AT JUNE 30, 2000 AND FOR THE THREE MONTHS ENDED
                      JUNE 30, 1999 AND 2000 IS UNAUDITED)

 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
       and estimated earnings on uncompleted contracts are classified as
       deferred revenues in the accompanying consolidated balance sheets.


     - The Company does not offer third parties or any of its customers the
       right to return the Company's software products.



     As of March 31 and June 30, 2000, deferred revenues of $2,347,000 and
$1,880,000, respectively, related to amounts included in accounts receivable at
such dates.


SOFTWARE DEVELOPMENT COSTS

     Under the criteria set forth in SFAS No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed," capitalization of
software development costs begins upon the establishment of technological
feasibility of the product. With respect to the Company's software development
process, technological feasibility is established upon completion of a working
model. To date, the Company's products have been released shortly after reaching
technological feasibility. Therefore, development costs incurred after
completion of a working model and prior to general release have not been
significant. Accordingly, no software development costs have been capitalized by
the Company from its inception through June 30, 2000.

RESEARCH AND DEVELOPMENT

     Research and development costs related to software products are expensed as
incurred and consist primarily of compensation and related costs incurred in
connection with software development activities.

ADVERTISING COSTS

     Advertising costs are expensed as incurred. For the years ended March 31,
1998, 1999 and 2000, the Company incurred advertising expenses of $5,000,
$58,000 and $514,000, respectively.

STOCK-BASED COMPENSATION

     The Company has elected to account for stock-based awards to employees and
others in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25"), and related
interpretations. However, the pro forma disclosures required by SFAS No. 123,
"Accounting for Stock-Based Compensation," are included in Note 9.

INCOME TAXES

     The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which requires the use of the liability method in
accounting for income

                                      F-13
<PAGE>   101
                           KABIRA TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                         MARCH 31, 1998, 1999 AND 2000
          (INFORMATION AT JUNE 30, 2000 AND FOR THE THREE MONTHS ENDED
                      JUNE 30, 1999 AND 2000 IS UNAUDITED)

 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
taxes. Under SFAS No. 109, deferred tax assets and liabilities are measured
based on differences between the financial reporting and tax bases of assets and
liabilities using enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse. Valuation allowances are
established when necessary to reduce deferred tax assets to the net amounts
expected to be realized.

COMPREHENSIVE INCOME (LOSS)

     SFAS No. 130, "Reporting Comprehensive Income," requires reporting of
comprehensive income (loss) and its components in financial statements. The only
significant item of other comprehensive income (loss) which the Company
currently reports is foreign currency translation adjustments, which are
included in accumulated other comprehensive income (loss) in the consolidated
statements of redeemable convertible preferred stock and stockholders' deficit.

NET LOSS PER SHARE

     Historical net loss per share has been computed according to SFAS No. 128,
"Earnings Per Share." Basic net loss per share on an historical basis is
computed using the weighted average number of common shares outstanding less the
weighted average number of such shares that are subject to repurchase. Potential
common shares from conversion of redeemable convertible preferred stock and
exercise of stock options and warrants are excluded from diluted net loss per
share because they would be antidilutive. Based on the guidance provided by the
Securities and Exchange Commission's ("SEC") Staff Accounting Bulletin ("SAB")
No. 98, common stock and preferred stock that has been issued or granted for
nominal consideration prior to the anticipated effective date of an initial
public offering must be included in the calculation of basic and diluted net
loss per share as if these shares had been outstanding for all periods
presented. To date, the Company has not issued or granted shares for nominal
consideration.

     Pro forma net loss per share also includes the effect of shares issuable
upon the conversion of outstanding shares of redeemable convertible preferred
stock (using the as-if-converted method) from the original date of issuance.

                                      F-14
<PAGE>   102
                           KABIRA TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                         MARCH 31, 1998, 1999 AND 2000
          (INFORMATION AT JUNE 30, 2000 AND FOR THE THREE MONTHS ENDED
                      JUNE 30, 1999 AND 2000 IS UNAUDITED)

 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
     A reconciliation of shares used in the calculation of historical and pro
forma net loss per share is as follows:

<TABLE>
<CAPTION>
                                                                      THREE MONTHS ENDED
                                     YEARS ENDED MARCH 31,                 JUNE 30,
                               ----------------------------------   -----------------------
                                 1998        1999         2000         1999         2000
                               ---------   ---------   ----------   ----------   ----------
                                                                          (UNAUDITED)
<S>                            <C>         <C>         <C>          <C>          <C>
Basic and diluted:
  Weighted average shares of
    common stock
    outstanding..............  1,846,274   1,959,789    3,196,062    2,006,300    4,513,917
  Weighted average shares of
    common stock subject to
    repurchase...............   (890,333)   (524,929)    (993,508)    (307,409)  (1,659,506)
                               ---------   ---------   ----------   ----------   ----------
  Weighted average shares
    used in historical net
    loss per share, basic and
    diluted..................    955,941   1,434,860    2,202,554    1,698,891    2,854,411
                               =========   =========
  Pro forma adjustment to
    reflect weighted average
    effect of assumed
    conversions of preferred
    stock (unaudited)........                          14,933,346   14,666,727   17,866,016
                                                       ----------   ----------   ----------
  Weighted average shares
    used in pro forma net
    loss per share, basic and
    diluted (unaudited)......                          17,135,900   16,365,618   20,720,427
                                                       ==========   ==========   ==========
</TABLE>

     During all periods presented, the Company had securities outstanding which
could potentially dilute basic earnings per share in the future, but were
excluded from the computation of diluted net loss per share, as their effect
would have been antidilutive. These outstanding securities consist of the
following equivalent common shares:

<TABLE>
<CAPTION>
                                         MARCH 31,
                           -------------------------------------     JUNE 30,
                             1998          1999          2000          2000
                           ---------    ----------    ----------    -----------
                                                                    (UNAUDITED)
<S>                        <C>          <C>           <C>           <C>
Redeemable convertible
  preferred stock........  6,274,688    14,666,727    16,399,748    19,332,287
Outstanding options......  1,367,812     1,916,266     2,171,096     2,987,421
Warrants.................     49,752       262,024       262,024       262,024
</TABLE>

FAIR VALUES OF FINANCIAL INSTRUMENTS

     The carrying amounts reported in the consolidated balance sheets for cash,
cash equivalents and short-term investments (Note 2) approximate those assets'
fair values. Active markets for the Company's other financial instruments that
are subject to the fair value

                                      F-15
<PAGE>   103
                           KABIRA TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                         MARCH 31, 1998, 1999 AND 2000
          (INFORMATION AT JUNE 30, 2000 AND FOR THE THREE MONTHS ENDED
                      JUNE 30, 1999 AND 2000 IS UNAUDITED)

 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
disclosure requirements, which consist of notes receivable from stockholders
(Notes 4 and 9), long-term debt (Note 6) and capital lease obligations (Note 7),
do not exist and there are no quoted market prices for these assets and
liabilities. However, management believes that the carrying amounts of these
other financial instruments reported in the consolidated balance sheets
approximate their fair values.

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Financial Instruments and Hedging
Activities," which provides a comprehensive and consistent standard for the
recognition and measurement of derivatives and hedging activities. In June 1999,
the FASB issued SFAS No. 137, which defers the effective date of SFAS No. 133 to
years beginning after June 15, 2000. The Company does not anticipate that SFAS
No. 133 will have a material impact on its consolidated financial position or
results of operations when adopted.

     In December 1999, the SEC released SAB No. 101, "Revenue Recognition in
Financial Statements," which provides guidance on revenue recognition based on
interpretations and practices followed by the SEC. The Company has followed this
guidance in the preparation of the accompanying consolidated financial
statements.


     In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation," an
interpretation of APB No. 25. FIN 44 clarifies guidance for certain issues that
arose in the application of APB No. 25. FIN 44 is generally effective, and to be
applied prospectively, to all new awards, modifications to outstanding awards
and changes in employee status on or after July 1, 2000. The Company does not
anticipate that FIN 44 will have a material impact on its consolidated financial
position or results of operations upon its initial application.


 2. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

     Cash equivalents and short-term investments consist of the following (in
thousands):

<TABLE>
<CAPTION>
                                                       AMORTIZED COST AND FAIR
                                                          VALUE AT MARCH 31,
                                                       ------------------------
                                                          1999          2000
                                                       ----------    ----------
<S>                                                    <C>           <C>
Money market funds...................................   $11,728       $   860
Certificates of deposit..............................        --           438
Commercial paper.....................................        --        10,659
                                                        -------       -------
                                                        $11,728       $11,957
                                                        =======       =======
Reported as:
  Cash equivalents...................................   $11,728       $11,546
  Short-term investments.............................        --           411
                                                        -------       -------
                                                        $11,728       $11,957
                                                        =======       =======
</TABLE>

                                      F-16
<PAGE>   104
                           KABIRA TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                         MARCH 31, 1998, 1999 AND 2000
          (INFORMATION AT JUNE 30, 2000 AND FOR THE THREE MONTHS ENDED
                      JUNE 30, 1999 AND 2000 IS UNAUDITED)

 2. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS (CONTINUED)
     As of March 31, 1999 and 2000, the difference between the fair value and
amortized cost of available-for-sale securities was not material. As of March
31, 2000, the average maturity of short-term investments in the portfolio was
approximately four months.

     There were no material realized gains or losses from sales of securities in
the periods presented. Unrealized gains and losses on investments were not
material at March 31, 1999 and 2000.

 3. PROPERTY AND EQUIPMENT

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

<TABLE>
<CAPTION>
                                                           MARCH 31,
                                                       ------------------
                                                        1999       2000
                                                       -------    -------
<S>                                                    <C>        <C>
Computers and equipment..............................  $ 1,562    $ 3,040
Furniture, fixtures and improvements.................      206        275
                                                       -------    -------
                                                         1,768      3,315
Accumulated depreciation.............................   (1,038)    (1,387)
                                                       -------    -------
                                                       $   730    $ 1,928
                                                       =======    =======
</TABLE>

 4. NOTE RECEIVABLE FROM FORMER OFFICER

     In March 1999, the Company loaned $75,000 to a former officer and current
stockholder in exchange for a full-recourse promissory note. This note is
collateralized by 300,000 shares of the Company's common stock and bears
interest at a rate equal to a bank's prime rate (9.0% at March 31, 2000). All
principal and accrued interest on this note is payable on March 31, 2001.
Management believes that the aggregate outstanding balance of $81,000 as of
March 31, 2000 will be collected in full at maturity.

 5. ACCRUED LIABILITIES

     Accrued liabilities consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                              MARCH 31,
                                                            --------------
                                                            1999     2000
                                                            ----    ------
<S>                                                         <C>     <C>
Accrued compensation......................................  $379    $1,593
Estimated warranty liability..............................    --       150
Customer deposit..........................................    --       548
Other.....................................................   132       646
                                                            ----    ------
                                                            $511    $2,937
                                                            ====    ======
</TABLE>

                                      F-17
<PAGE>   105
                           KABIRA TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                         MARCH 31, 1998, 1999 AND 2000
          (INFORMATION AT JUNE 30, 2000 AND FOR THE THREE MONTHS ENDED
                      JUNE 30, 1999 AND 2000 IS UNAUDITED)

 6. LONG-TERM DEBT

     Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                             MARCH 31,
                                                           --------------
                                                           1999     2000
                                                           -----    -----
<S>                                                        <C>      <C>
Installment notes payable bearing interest at fixed rates
  ranging from 14.3% to 15.3%, payments of principal and
  interest due monthly, with maturities between June and
  December 2002 and collateralized by equipment with an
  aggregate carrying value of $624,000 as of March 31,
  2000...................................................  $  --    $ 646
Current portion..........................................     --     (236)
                                                           -----    -----
                                                           $  --    $ 410
                                                           =====    =====
</TABLE>

     Aggregate future principal payments on long-term debt are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                           MARCH 31,
                                                             2000
                                                           ---------
<S>                                                        <C>
Years ending March 31,
  2001...................................................    $236
  2002...................................................     273
  2003...................................................     137
                                                             ----
                                                             $646
                                                             ====
</TABLE>

     During the three-month period ended June 30, 2000, the Company did not
undertake additional debt. As of June 30, 2000, the Company had borrowings of
$590,000 under the above debt arrangement.

 7. LEASES

     The Company leases its facilities under noncancelable operating leases
expiring between June 2000 and December 2002. Capital lease obligations
represent the present value of future rental payments under lease agreements for
equipment. The original cost of equipment under capital leases was $1,125,000 at
March 31, 1999 and 2000. Accumulated depreciation related to such leased assets
was $671,000 and $1,009,000 as of March 31, 1999 and 2000, respectively.
Depreciation associated with equipment under capital leases is included in

                                      F-18
<PAGE>   106
                           KABIRA TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                         MARCH 31, 1998, 1999 AND 2000
          (INFORMATION AT JUNE 30, 2000 AND FOR THE THREE MONTHS ENDED
                      JUNE 30, 1999 AND 2000 IS UNAUDITED)

 7. LEASES (CONTINUED)
depreciation expense. Future minimum payments under operating and capital leases
are as follows (in thousands):

<TABLE>
<CAPTION>
                                                            MARCH 31, 2000
                                                         --------------------
                                                         OPERATING    CAPITAL
                                                          LEASES      LEASES
                                                         ---------    -------
<S>                                                      <C>          <C>
Years ending March 31,
  2001.................................................   $  886       $ 303
  2002.................................................      793          68
  2003.................................................       15          --
                                                          ------       -----
                                                          $1,694         371
                                                          ======
Amount representing interest...........................                  (39)
                                                                       -----
Present value of net minimum capital lease payments....                  332
Current portion........................................                 (271)
                                                                       -----
Long-term capital lease obligations....................                $  61
                                                                       =====
</TABLE>

     During the year ended March 31, 2000, the Company was required to pledge a
certificate of deposit in the amount of $300,000 as collateral for a bank
standby letter of credit that supports an operating lease agreement. Such
standby letter of credit expires on November 1, 2000; however, it may be
automatically extended in one-year increments to a maximum maturity date of
January 1, 2006. The aforementioned restricted certificate of deposit is
included in "Deposits and other" in the accompanying consolidated balance sheet
as of March 31, 2000.

     Rent expense under operating lease arrangements for the years ended March
31, 1998, 1999 and 2000 totaled $370,000, $317,000 and $643,000, respectively.

     During the three-month period ended June 30, 2000, the Company entered into
a number of additional noncancelable operating leases expiring between September
2000 and October 2010. No additional capital leases were entered into during
this period. As of June 30, 2000, the Company had outstanding borrowings of
$254,000 under capital lease arrangements. Also, the Company was required to
pledge additional certificates of deposit in the amount of $434,000 as
collateral for two bank standby letters of credit that support the new operating
lease agreements.

 8. CONVERTIBLE NOTES PAYABLE AND WARRANTS


     Between August and November 1998, the Company issued convertible notes
payable to certain investors for $2,706,000 in cash. The notes bore interest at
10% per year and were repayable on or before December 31, 1998 unless converted
earlier into shares of the Company's equity securities. Between December 1998
and February 1999, the Company issued additional convertible notes payable for
$1,686,000 in cash and exchanged the then outstanding notes plus accrued
interest for new notes. The new convertible notes payable bore interest at 4.5%
per year and were converted to Series E preferred stock in March 1999. Such


                                      F-19
<PAGE>   107
                           KABIRA TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                         MARCH 31, 1998, 1999 AND 2000
          (INFORMATION AT JUNE 30, 2000 AND FOR THE THREE MONTHS ENDED
                      JUNE 30, 1999 AND 2000 IS UNAUDITED)

 8. CONVERTIBLE NOTES PAYABLE AND WARRANTS (CONTINUED)

convertible notes were issued with warrants to purchase 199,627 shares of Series
E redeemable convertible preferred stock for $2.20 per share through December
31, 2003. These warrants, however, were not exercisable until the closing of the
Company's Series E redeemable convertible preferred stock financing, and they
remained outstanding as of March 31, 2000. The fair value of the warrants was
estimated by the Company to be $270,000, all of which was charged to interest
expense during the year ended March 31, 1999. The fair value of these warrants
was estimated at the date of grant using a Black-Scholes option pricing model
with the following assumptions: risk-free interest rate, 4.5%; expected life, 5
years; expected volatility, 70%; and, expected dividend yield, 0%.



     In March 1999 the Company issued additional convertible notes payable to
certain investors for $250,000 in cash. The notes bore interest at 10% and were
converted to Series E preferred stock in March 1999.


     In March 1999, the holders of the notes payable converted a portion of the
notes together with accrued interest into 1,897,664 shares of the Company's
Series E redeemable convertible preferred stock. The Company repaid the
remaining principal and accrued interest of $548,000 in conjunction with a new
investment of $1,000,000 in Series E redeemable convertible preferred stock by
those same investors.

 9. STOCKHOLDERS' EQUITY

PREFERRED STOCK

Conversion

     Each share of redeemable preferred stock is convertible, at the option of
the holder, into fully paid and nonassessable shares of common stock at the
specified conversion rate. The conversion ratio of the Series A, Series B,
Series E and Series F redeemable convertible preferred stock is 1:1. Shares
Series C and Series D redeemable convertible preferred stock is convertible into
approximately 1.22 and 1.31 shares of common stock, respectively. These
conversion rates are subject to adjustment from time to time.

     Each share of redeemable convertible preferred stock will automatically be
converted into shares of common stock, based on the then effective conversion
rate, at any time upon the affirmative vote of the holders of at least 50% of
the outstanding shares of the Series A, Series B, Series C and Series F
redeemable convertible preferred stock, voting together as one class or, for the
Series D and Series E redeemable convertible preferred stock voting as separate
series, upon the affirmative vote of the holders of at least 50% of the
outstanding shares of that series, or immediately upon the closing of a firm
underwritten public offering with gross proceeds of not less than $15,000,000 or
a public offering of at least $7.00 per share for any offering closing on or
prior to December 31, 2000, or $10.23 per share for any offering closing after
that date.

                                      F-20
<PAGE>   108
                           KABIRA TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                         MARCH 31, 1998, 1999 AND 2000
          (INFORMATION AT JUNE 30, 2000 AND FOR THE THREE MONTHS ENDED
                      JUNE 30, 1999 AND 2000 IS UNAUDITED)

 9. STOCKHOLDERS' EQUITY (CONTINUED)
Dividends

     The holders of shares of the Company's redeemable convertible preferred
stock are entitled to receive dividends at the rates of $0.042, $0.14, $0.28,
$0.35, $0.176 and $0.5456 per annum on each outstanding share of Series A,
Series B, Series C, Series D, Series E and Series F redeemable convertible
preferred stock, respectively (as adjusted for any stock dividends, combinations
or splits with respect to such shares) payable in preference and priority to any
payment of any dividends on common stock of the Company. Such dividends are
payable when and if declared by the Board of Directors, but only to the extent
of funds that are legally available and are noncumulative. No dividends have
been declared through March 31, 2000.

Redemption

     Upon written notice, the holders of not less than a majority of the
outstanding shares of Series A, Series B, Series C, Series D, Series E and
Series F redeemable convertible preferred stock, voting together as a single
class, may require the Company to redeem for cash all shares of Series A, Series
B, Series C, Series D, Series E and Series F redeemable convertible preferred
stock outstanding on April 26, 2003. If requested by the holders redemption will
be in four equal annual installments beginning April 26, 2003. The redemption
price would be the original issue price plus all declared but unpaid dividends.
If the Company does not have sufficient funds legally available to redeem all
the shares to be redeemed at the redemption date, then the Company will redeem
such shares pro rata to the extent possible and will redeem the remaining shares
as soon as sufficient funds are legally available.

Liquidation Preference

     In the event of any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of convertible preferred stock are
entitled to receive, prior and in preference to any distribution of the assets
of the Company to the holders of common stock, by reason of their ownership, an
amount equal to the sum of $0.525, $1.75, $3.50, $4.37, $2.20 and $6.82,
respectively, for each share of Series A, Series B, Series C, Series D, Series E
and Series F redeemable convertible preferred stock plus any declared but unpaid
dividends with respect to such shares. The remaining assets legally available
for distribution will be paid on a pro rata basis to the holders of common
stock. If, upon the occurrence of a liquidation event, the assets and funds
distributed among the holders of the preferred stock are insufficient to permit
the payment to holders of the full preferential amount, then all assets and
funds of the Company legally available for distribution are to be distributed
ratably among the holders of preferred stock, in proportion to the preferential
amount each such holder is otherwise entitled to receive.

Voting

     The holders of preferred stock are entitled to the number of votes equal to
the number of shares of common stock into which each share of preferred stock is
convertible.

                                      F-21
<PAGE>   109
                           KABIRA TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                         MARCH 31, 1998, 1999 AND 2000
          (INFORMATION AT JUNE 30, 2000 AND FOR THE THREE MONTHS ENDED
                      JUNE 30, 1999 AND 2000 IS UNAUDITED)

 9. STOCKHOLDERS' EQUITY (CONTINUED)
Antidilution Provisions

     The conversion price of the Company's preferred stock is subject to
adjustment to prevent dilution in the event that the Company issues additional
shares of preferred stock, common stock or common stock equivalents at a
purchase price less than the then-effective conversion price, provided, however,
that without triggering antidilution adjustments, the Company may issue shares
of common stock to directors, officers, employees, or consultants in connection
with financing or other transactions which involve consideration and which are
approved by the Board of Directors.

STOCK OPTION PLANS

     As of March 31, 2000, the Company has reserved 4,162,500 shares of common
stock for issuance under the 1996 and 1998 Stock Option Plans and 545,000 shares
of common stock under the 2000 Key Employee Stock Option Plan (collectively, the
"Plans"). The Plans provide for incentive stock options, as defined by the
Internal Revenue Code, to be granted to employees, at an exercise price of not
less than 100% of the fair value at the grant date as determined by the Board of
Directors, unless the optionee is a 10% stockholder, in which case the option
price will not be less than 110% of such fair market value. The Plans also
provide for nonqualified stock options and stock purchase rights to be issued to
employees, directors and consultants.

     Options granted under the Plans generally have a maximum term of 10 years
from grant date and are immediately exercisable. Option vesting schedules are
determined by the Board of Directors at the time of issuance. Initial grants to
new employees generally vest 12.5% on the six month anniversary date and ratably
on a monthly basis for 42 months thereafter. Additional grants to existing
employees generally vest on a monthly basis over 48 months. The Plans specify
that unvested shares resulting from the early exercise of stock options are
subject to repurchase by the Company upon termination of employment at the
original price paid for the shares. At March 31 and June 30, 2000, 1,542,593 and
1,748,888 common shares, respectively, were subject to such repurchase rights.

     During the year ended March 31, 2000, the Plans were amended to provide
that in the event of the Company's merger with another corporation or a sale of
substantially all of the Company's assets, the successor corporation will assume
or provide a substitute for each option or stock purchase right. If the
outstanding options or stock purchase rights are not assumed or substitutes are
not provided, all outstanding options and stock purchase rights will become
fully vested and exercisable prior to the merger or sale of assets. Even if all
options and stock purchase rights are assumed or substitutes are provided, an
option or stock purchase right will become fully vested and immediately
exercisable if the optionee is involuntarily terminated without cause or
constructively terminated.

                                      F-22
<PAGE>   110
                           KABIRA TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                         MARCH 31, 1998, 1999 AND 2000
          (INFORMATION AT JUNE 30, 2000 AND FOR THE THREE MONTHS ENDED
                      JUNE 30, 1999 AND 2000 IS UNAUDITED)

 9. STOCKHOLDERS' EQUITY (CONTINUED)
     A summary of the incentive and nonqualified stock option activity under the
Plans is as follows:

<TABLE>
<CAPTION>
                                                                              WEIGHTED-
                                              SHARES         EXERCISE          AVERAGE
                                              UNDER         PRICE PER       EXERCISE PRICE
                                              OPTION          SHARE           PER SHARE
                                            ----------    --------------    --------------
<S>                                         <C>           <C>               <C>
Outstanding at March 31,1997..............     603,252    $ 0.05 - $0.35        $0.28
  Granted.................................   1,087,500      0.35 -  0.44         0.41
  Exercised...............................    (100,662)     0.17 -  0.44         0.34
  Cancelled...............................    (222,278)     0.17 -  0.44         0.31
                                            ----------    --------------
Outstanding at March 31, 1998.............   1,367,812      0.05 -  0.44         0.37
  Granted.................................     968,100      0.44 -  0.50         0.45
  Exercised...............................     (79,121)     0.17 -  0.44         0.35
  Cancelled...............................    (340,525)     0.17 -  0.44         0.39
                                            ----------    --------------
Outstanding at March 31, 1999.............   1,916,266      0.05 -  0.50         0.41
  Granted.................................   2,683,000      0.50 -  3.00         1.41
  Exercised...............................  (2,291,605)    0.175 -  2.75         0.76
  Cancelled...............................    (136,565)     0.35 -  2.50         0.69
                                            ----------    --------------
Outstanding at March 31, 2000.............   2,171,096      0.05 -  3.00         1.26
                                            ----------    --------------
  Granted.................................   1,523,500      2.75 -  4.00         3.45
  Exercised...............................    (408,420)     0.35 -  3.25         2.95
  Cancelled...............................    (298,755)     0.75 -  2.75         2.51
                                            ----------    --------------        -----
Outstanding at June 30, 2000..............   2,987,421    $ 0.05 - $4.00        $2.02
                                            ==========    ==============        =====
</TABLE>

     On April 7, 2000, the Company's board of directors increased the number of
shares of common stock reserved for issuance under the Plans by 2,621,500
shares.

     At March 31 and June 30, 2000, options for 17,740 and 1,414,495 shares of
common stock, respectively, were available for future grant under the Plans.

                                      F-23
<PAGE>   111
                           KABIRA TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                         MARCH 31, 1998, 1999 AND 2000
          (INFORMATION AT JUNE 30, 2000 AND FOR THE THREE MONTHS ENDED
                      JUNE 30, 1999 AND 2000 IS UNAUDITED)

 9. STOCKHOLDERS' EQUITY (CONTINUED)
     Additional information concerning incentive and nonqualified stock options
outstanding under the Plans as of March 31, 2000 is as follows:

<TABLE>
<CAPTION>
                                                 OPTIONS OUTSTANDING AND
                                                       EXERCISABLE
                                              -----------------------------
                                                           WEIGHTED-AVERAGE
                                                              REMAINING
                                                           CONTRACTUAL LIFE
          EXERCISE PRICE PER SHARE             NUMBER         (IN YEARS)
          ------------------------            ---------    ----------------
<S>                                           <C>          <C>
$0.05.......................................     31,250          6.16
$0.17.......................................     40,000          6.37
$0.35.......................................    272,575          6.94
$0.44.......................................    288,267          8.48
$0.50.......................................    631,504          9.10
$0.75.......................................     83,000          9.45
$1.75.......................................     28,500          9.53
$2.50.......................................    576,000          9.71
$2.75.......................................     61,500          9.85
$3.00.......................................    158,500          9.96
                                              ---------
$0.05 - $3.00...............................  2,171,096          9.04
                                              =========
</TABLE>

     On May 22, 2000, the Company's board of directors adopted, subject to
stockholder approval, the 2000 Employee Stock Purchase Plan and the 2000 Stock
Option Plan, which will be effective upon the completion of the Company's
initial public offering of its common stock, as described in Note 13. The
Company has reserved a total of 5,000,000 shares of common stock for issuance
under these plans, subject to annual increases.

STOCK-BASED COMPENSATION

     The Company has recorded deferred stock-based compensation of $4,746,000
and $4,861,000 with respect to options granted to officers and employees during
the year ended March 31, 2000 and the three months ended June 30, 2000,
respectively which amounts represent the difference between the exercise price
of the options and the deemed fair value of the common stock at the date of
grant. This amount is being amortized to operations over the vesting periods of
the options using a graded vesting method. The weighted average deemed fair
value of the 2,683,000 and 1,523,500 options granted during the year ended March
31, 2000 and the three months ended June 30, 2000, respectively with an exercise
price below the deemed fair value of the underlying common stock on the date of
grant was $3.16 and $6.72 per share, respectively. The weighted average deemed
fair values of the 1,087,500 and 968,100 options granted during the years ended
March 31, 1998 and 1999, respectively, with an exercise price equal to the fair
value of the Company's common stock on the date of grant were $0.41 and $0.45
per share, respectively.

     During the year ended March 31, 2000, the Company granted nonqualified
stock options to purchase 33,000 shares of common stock and stock purchase
rights pertaining to

                                      F-24
<PAGE>   112
                           KABIRA TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                         MARCH 31, 1998, 1999 AND 2000
          (INFORMATION AT JUNE 30, 2000 AND FOR THE THREE MONTHS ENDED
                      JUNE 30, 1999 AND 2000 IS UNAUDITED)

 9. STOCKHOLDERS' EQUITY (CONTINUED)
14,000 shares of common stock to certain consultants under the Plans. The
nonqualified stock options have exercise prices ranging from $0.50 to $2.75 per
share and the stock purchase rights required no cash payment to receive the
underlying shares. These options and stock purchase rights were granted in
exchange for consulting services rendered. As of March 31, 2000, nonqualified
stock options to purchase 10,792 shares of common stock, as well as all stock
purchase rights, are fully-vested and nonforfeitable. Nonqualified stock options
to purchase the remaining 22,208 shares of common stock vest ratably over 48
months. The Company recognized stock-based compensation expense of $113,000
relating to nonqualified stock options and stock purchase rights granted during
the year ended March 31, 2000. In accordance with SFAS No. 123 and the FASB's
Emerging Issues Task Force Issue No. 96-18, stock options and stock purchase
rights granted to consultants are initially recorded at fair value and
periodically revalued as they vest.


     During the three-month period ended June 30, 2000, the Company granted
nonqualified stock options to purchase 12,600 shares of common stock to certain
consultants under the Plans. These nonqualified stock options have an exercise
price of $2.75 per share. These options were granted in exchange for consulting
services rendered. As of June 30, 2000, these 12,600 nonqualified stock options
are fully-vested and nonforfeitable. The Company recognized stock-based
compensation expense of $33,000 relating to these nonqualified stock options
during the three months ended June 30, 2000.



     The fair values of these nonqualified stock options and stock purchase
rights were estimated using a Black-Scholes option pricing model with the
following weighted-average assumptions:



<TABLE>
<CAPTION>
                                                                        THREE MONTHS
                                              YEARS ENDED MARCH 31,        ENDED
                                             -----------------------      JUNE 30,
                                             1998    1999     2000          2000
                                             ----    ----    -------    ------------
                                                                        (UNAUDITED)
<S>                                          <C>     <C>     <C>        <C>
Risk-free interest rate....................  --      --          6.0%         6.0%
Expected life of the option................  --      --      5 years      5 years
Expected volatility........................  --      --          100%         100%
Expected dividend yield....................  --      --            0%           0%
</TABLE>


PRO FORMA DISCLOSURE OF THE EFFECT OF STOCK-BASED COMPENSATION

     The Company has elected to follow APB No. 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS No. 123 requires the
use of option valuation models that were not developed for use in valuing
employee stock options. Pro forma information regarding net loss is required by
SFAS No. 123. This information is required to be determined as if the Company
had accounted for its employee stock options under the fair value method
specified in SFAS No. 123. Under this method, the estimated fair value of the
options is amortized to expense over the option vesting period. The fair value
for these options was estimated at the

                                      F-25
<PAGE>   113
                           KABIRA TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                         MARCH 31, 1998, 1999 AND 2000
          (INFORMATION AT JUNE 30, 2000 AND FOR THE THREE MONTHS ENDED
                      JUNE 30, 1999 AND 2000 IS UNAUDITED)

 9. STOCKHOLDERS' EQUITY (CONTINUED)
date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions:


<TABLE>
<CAPTION>
                                                          YEARS ENDED MARCH 31,
                                                     -------------------------------
                                                       1998        1999       2000
                                                     ---------    -------    -------
<S>                                                  <C>          <C>        <C>
Risk-free interest rate............................       6.16%       5.5%       6.0%
Expected life of the option........................  4.5 years    4 years    5 years
Expected volatility................................          0%         0%       100%
Expected dividend yield............................          0%         0%         0%
</TABLE>


     The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, this option valuation model requires
the input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimates, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

     The effect of applying the SFAS No. 123 fair value method to the Company's
stock-based awards results in a pro forma net loss as follows (in thousands,
except per share data):


<TABLE>
<CAPTION>
                                                     YEARS ENDED MARCH 31,
                                                 ------------------------------
                                                  1998       1999        2000
                                                 -------    -------    --------
<S>                                              <C>        <C>        <C>
Net loss, as reported..........................  $(7,876)   $(9,557)   $(16,939)
Net loss, pro forma............................   (7,883)    (9,600)    (16,062)
Reported basic and diluted net loss per
  share........................................    (8.24)     (6.66)      (7.69)
Pro forma basic and diluted net loss per
  share........................................    (8.25)     (6.69)      (7.29)
</TABLE>


PREFERRED STOCK WARRANTS

     In connection with certain lease agreements, the Company issued warrants in
fiscal 1997 to purchase 22,857 shares of its Series A redeemable convertible
preferred stock at a price of $0.525 per share, 10,000 shares of its Series B
redeemable convertible preferred stock at $1.75 per share, and 8,000 shares of
its Series C redeemable convertible preferred stock at a price of $3.50 per
share. These warrants are fully vested and have terms of 10 years.


     In connection with certain other lease agreements, the Company issued
warrants in August 1997 to purchase 8,895 shares of its Series C redeemable
convertible preferred stock at a price of $3.94 per share and, in July 1998, to
purchase 6,818 shares of its Series D redeemable convertible preferred stock at
a price of $2.20 per share. These warrants are fully vested and have terms of 10
years. The fair value of these warrants was estimated at the date of grant using
a Black-Scholes option pricing model with the following assumptions: risk-free
interest rate, 5%; expected life, 10 years; expected volatility, 70%; and,
expected dividend yield, 0%.


                                      F-26
<PAGE>   114
                           KABIRA TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                         MARCH 31, 1998, 1999 AND 2000
          (INFORMATION AT JUNE 30, 2000 AND FOR THE THREE MONTHS ENDED
                      JUNE 30, 1999 AND 2000 IS UNAUDITED)

 9. STOCKHOLDERS' EQUITY (CONTINUED)
     The estimated fair value of the warrants issued in August 1997 of $18,000
is being amortized to interest expense over the lease term. The fair value of
the other warrants was not deemed material by management and not recognized in
the Company's consolidated financial statements.

SHARES RESERVED FOR FUTURE ISSUANCE

     Shares of common stock reserved for future issuance were as follows:

<TABLE>
<CAPTION>
                                               MARCH 31, 2000    JUNE 30, 2000
                                               --------------    -------------
                                                                  (UNAUDITED)
<S>                                            <C>               <C>
Stock options................................     2,188,836        4,401,916
Conversion of redeemable convertible
  preferred stock, including outstanding
  warrants to purchase redeemable convertible
  preferred stock............................    16,661,772       19,594,311
                                                 ----------       ----------
          Total shares reserved for future
            issuance.........................    18,850,608       23,996,227
                                                 ==========       ==========
</TABLE>

NOTES RECEIVABLE FROM STOCKHOLDERS

     Notes receivable from shareholders consist of full-recourse notes issued to
the Company by various officers and employees in connection with the exercise of
certain stock options granted under the Plans. Such notes are collateralized by
shares of the Company's common stock and bear interest at fixed rates ranging
from 5.00% to 6.8%. All principal and accrued interest on these notes is due at
maturity, which occurs between July 2004 and May 2005, and management believes
that all such amounts are fully collectible.

10. 401(K) RETIREMENT SAVINGS PLAN

     The Company maintains a 401(k) retirement savings plan (the "Savings Plan")
for its permanent U.S. employees. Each participant in the Savings Plan may elect
to contribute a percentage of his or her annual compensation to the Savings
Plan, up to a specified maximum amount per year. The Company, at its discretion,
may make contributions to the Savings Plan. The Company made no contributions to
the Savings Plan during any of the periods presented. Benefits payable under the
Savings Plan are limited to Company and employee contributions and earnings
thereon.

11. INCOME TAXES


     The Company's income tax provisions relate to minimum or income taxes
imposed by various U.S. state and foreign taxing jurisdictions on the Company's
operations in such jurisdictions. The Company has recognized no provision or
benefit for U.S. federal income taxes in any period presented because the
Company has incurred domestic net operating losses in all


                                      F-27
<PAGE>   115
                           KABIRA TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                         MARCH 31, 1998, 1999 AND 2000
          (INFORMATION AT JUNE 30, 2000 AND FOR THE THREE MONTHS ENDED
                      JUNE 30, 1999 AND 2000 IS UNAUDITED)

11. INCOME TAXES (CONTINUED)
such periods. In addition, as described below, the Company does not presently
have the ability to recognize the benefit of its net operating losses.


     The following is a geographical breakdown of consolidated income (loss)
before income taxes by income tax jurisdiction (in thousands).



<TABLE>
<CAPTION>
                                                     YEARS ENDED MARCH 31,
                                                 ------------------------------
                                                  1998       1999        2000
                                                 -------    -------    --------
<S>                                              <C>        <C>        <C>
Domestic.......................................  $(6,331)   $(9,564)   $(17,159)
Foreign........................................   (1,539)        12         244
                                                 -------    -------    --------
Total..........................................  $(7,870)   $(9,552)   $(16,915)
                                                 =======    =======    ========
</TABLE>



     The income tax provisions consist of the following components (in
thousands):



<TABLE>
<CAPTION>
                                                     YEARS ENDED MARCH 31,
                                                 ------------------------------
                                                  1998       1999        2000
                                                 -------    -------    --------
<S>                                              <C>        <C>        <C>
Current:
  U.S. federal.................................  $    --    $    --    $     --
  U.S. state...................................        6          5           7
  Foreign......................................       --         --          17
                                                 -------    -------    --------
          Total current provision..............        6          5          24
Deferred:
  U.S. federal.................................       --         --          --
  U.S. state...................................       --         --          --
  Foreign......................................       --         --          --
                                                 -------    -------    --------
          Total deferred provision.............       --         --          --
                                                 -------    -------    --------
          Total provision......................  $     6    $     5    $     24
                                                 =======    =======    ========
</TABLE>



     A reconciliation of the income tax provisions (benefits) computed at the
statutory U.S. federal income tax rate to the actual income tax provisions
reflected in the accompanying consolidated statements of operations is as
follows:



<TABLE>
<CAPTION>
                                                  YEARS ENDED MARCH 31,
                                             --------------------------------
                                               1998        1999        2000
                                             --------    --------    --------
<S>                                          <C>         <C>         <C>
U.S. federal income tax benefits computed
  at statutory rate........................    (34.0%)     (34.0%)     (34.0%)
Unbenefitted net operating losses..........     36.0%       36.8%       31.4%
Other......................................     (2.0%)      (2.8%)       2.6%
                                             --------    --------    --------
Effective income tax rate..................      0.0%        0.0%        0.0%
                                             ========    ========    ========
</TABLE>


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

                                      F-28
<PAGE>   116
                           KABIRA TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                         MARCH 31, 1998, 1999 AND 2000
          (INFORMATION AT JUNE 30, 2000 AND FOR THE THREE MONTHS ENDED
                      JUNE 30, 1999 AND 2000 IS UNAUDITED)

11. INCOME TAXES (CONTINUED)
for income tax purposes. Significant components of the Company's deferred tax
assets are as follows (in thousands):

<TABLE>
<CAPTION>
                                                           MARCH 31,
                                                      -------------------
                                                       1999        2000
                                                      -------    --------
<S>                                                   <C>        <C>
Deferred tax assets:
  Net operating loss carryforwards..................  $ 7,150    $ 11,618
  Differences in the timing of recognition of
     revenues.......................................       --         988
  Capitalized start-up costs........................      966         696
  Other.............................................      376         554
                                                      -------    --------
Total deferred tax assets...........................    8,492      13,856
Valuation allowance.................................   (8,492)    (13,856)
                                                      -------    --------
Net deferred tax assets.............................  $    --    $     --
                                                      =======    ========
</TABLE>

     Realization of the Company's deferred tax assets is dependent upon future
earnings, the timing and amount of which are uncertain. Accordingly, the total
deferred tax assets have been fully offset by a valuation allowance. The
valuation allowance increased by $4,513,000, $3,979,000 and $5,364,000 during
the years ended March 31, 1998, 1999 and 2000, respectively.

     As of March 31, 2000, the Company had U.S. federal net operating loss
carryforwards of approximately $31,000,000, which expire in the years ending
March 31, 2012 through 2020 and net operating loss carryforwards for U.S. state
income tax purposes of approximately $16,000,000, which expire in the year
ending March 31, 2005.

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

12. SEGMENT INFORMATION

     Based on the criteria of SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," the Company's chief operating decision
maker, its Chief Executive Officer ("CEO"), evaluates the Company's operating
performance based on two geographically-defined business segments: North America
and Europe. Employee headcount and operating costs are managed by functional
areas, rather than by operating segments, and are only reviewed by the CEO on a
consolidated basis. In addition, the Company does not account for, or report to
the CEO, its losses from operations, long-lived assets or capital expenditures,
other than on a consolidated basis. Thus, the Company is not required to
disclose any additional information pursuant to SFAS No. 131. The accounting
policies for each of the reportable segments shown below are the same as those
described in the summary of significant accounting policies (Note 1).
Intersegment transactions have not been significant.

                                      F-29
<PAGE>   117
                           KABIRA TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                         MARCH 31, 1998, 1999 AND 2000
          (INFORMATION AT JUNE 30, 2000 AND FOR THE THREE MONTHS ENDED
                      JUNE 30, 1999 AND 2000 IS UNAUDITED)

12. SEGMENT INFORMATION (CONTINUED)
     The following table presents a summary of operating information and certain
year-end balance sheet information by reportable segment as of and for the years
ended March 31 (in thousands):

<TABLE>
<CAPTION>
                                                                  THREE MONTHS
                                                                      ENDED
                                                                    JUNE 30,
                                                                -----------------
                                    1998     1999      2000      1999      2000
                                   ------   -------   -------   -------   -------
                                                                   (UNAUDITED)
<S>                                <C>      <C>       <C>       <C>       <C>
Total revenues:
  North American operations......  $   37   $   264   $ 4,460   $   146   $ 3,752
  European operations............     274     1,008     3,789       205     2,068
                                   ------   -------   -------   -------   -------
  Consolidated...................  $  311   $ 1,272   $ 8,249   $   351   $ 5,820
                                   ======   =======   =======   =======   =======
Identifiable assets:
  North American operations......  $4,969   $12,732   $15,422   $ 9,929   $30,090
  European operations............     329       501     3,373     1,512     3,562
                                   ------   -------   -------   -------   -------
  Consolidated...................  $5,298   $13,233   $18,795   $11,441   $33,652
                                   ======   =======   =======   =======   =======
</TABLE>

13. SUBSEQUENT EVENTS

     Significant events that have occurred subsequent to March 31, 2000, which
are not disclosed elsewhere in these notes to consolidated financial statements,
are as follows:

     On May 22, 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 initial public offering. If such offering is
consummated at an offering price of $7.00 per share or more, the redeemable
convertible preferred stock outstanding as of the closing date will
automatically be converted into shares of the Company's common stock.

     On May 31, 2000, the Company issued 2,932,539 additional shares of its
Series F redeemable convertible preferred stock to certain existing investors at
$6.82 per share. The net cash proceeds to the Company from this private
placement were $19,977,000. The rights and preferences associated with this
Series F redeemable convertible preferred stock are identical to those of the
Series F redeemable convertible preferred stock described in Note 9.

                                      F-30
<PAGE>   118

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

                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                        PAGE
                                        ----
<S>                                     <C>
Prospectus Summary....................    1
Risk Factors..........................    5
Forward-Looking Statements............   19
Use of Proceeds.......................   20
Dividend Policy.......................   20
Capitalization........................   21
Dilution..............................   22
Selected Consolidated Financial
  Data................................   23
Management's Discussion and Analysis
  of Financial Condition and Results
  of Operations.......................   25
Business..............................   39
Management............................   56
Transactions with Related Parties and
  Insiders............................   67
Principal Stockholders................   71
Description of Capital Stock..........   74
Shares Eligible for Future Sale.......   77
Underwriting..........................   79
Legal Matters.........................   82
Experts...............................   83
Change in Accountants.................   83
Where You Can Find Additional
  Information.........................   83
Consolidated Financial Statements.....  F-1
</TABLE>


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

                                 [KABIRA LOGO]

       SHARES

COMMON STOCK
DEUTSCHE BANC ALEX. BROWN

SG COWEN

THOMAS WEISEL PARTNERS LLC
PROSPECTUS

            , 2000
<PAGE>   119

                                    PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

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

<TABLE>
<S>                                                           <C>
SEC registration fee........................................  $15,180
NASD filing fee.............................................    6,250
Nasdaq National Market listing fee..........................        *
Printing and engraving costs................................        *
Legal fees and expenses.....................................        *
Accounting fees and expenses................................        *
Blue Sky fees and expenses..................................        *
Transfer agent and registrar fees...........................        *
Miscellaneous expenses......................................        *
                                                              -------
          Total.............................................  $
                                                              =======
</TABLE>

-------------------------
* To be completed by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

     Section 145 of the Delaware General Corporation Law permits a corporation
to include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.

     Article Ninth of Kabira's Certificate of Incorporation provides that its
directors will not be personally liable for monetary damages for breach of their
fiduciary duties to the fullest extent permissible under Delaware law.

     Article VI of Kabira's Bylaws provides for the indemnification of officers,
directors and third parties acting on behalf of Kabira to the fullest extent
permissible under Delaware law.

     Kabira has entered into indemnification agreements with its directors and
executive officers, in addition to the indemnification provided for in Kabira's
Bylaws, and intends to enter into indemnification agreements with any new
directors and executive officers in the future.

     The Underwriting Agreement (Exhibit 1.1 hereto) provides for
indemnification by the underwriters of Kabira and its executive officers and
directors, and by Kabira of the underwriters for liabilities, including
liabilities arising under the Securities Act, in connection with this offering.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES


     During the past three years, Kabira has issued unregistered securities to a
limited number of persons as described below.



          (a) From inception through June 30, 2000, Kabira issued an aggregate
     of 2,312,084 shares of its common stock upon exercise of options at
     exercise prices ranging from $0.0525 to $3.00 per share to 71 employees,
     consultants, directors and other service providers pursuant to its 1996
     Stock Option Plan and its 1998 Stock Plan. Kabira relied on Rule 701 under
     the Securities Act for each of these issuances. Each of these plans is a

                                      II-1
<PAGE>   120


     written compensatory benefit plan as contemplated under Rule 701, and
     Kabira met the aggregate sales price or amount of securities tests under
     Rule 701 at the time of each issuance. These issuances were made without
     any underwriters, underwriting discounts or commissions, any general
     advertising or solicitation, or any public offers. Each of the recipients
     represented his intention to acquire the securities for his own account for
     investment only and not with a view to or for sale in connection with any
     distribution thereof, and had adequate access, through his relationship
     with Kabira, to information about Kabira. In addition to the conditions and
     circumstances described above for each of the foregoing transactions,
     Kabira also affixed appropriate legends to the share certificates and
     instruments issued in such transactions.



          (b) From December 1999 through June 30, 2000, Kabira issued an
     aggregate of 615,000 shares of its common stock upon exercise of options at
     exercise prices ranging from $2.50 to $3.25 per share to two executive
     officers pursuant to its 2000 Key Employee Stock Plan. Kabira relied on
     Rule 506 promulgated under Regulation D of the Securities Act for an
     exemption from registration for each of these issuances. These issuances
     were made without any underwriters, underwriting discounts or commissions,
     any general advertising or solicitation, or any public offers. Given his
     status as an executive officer of Kabira, each recipient may be deemed to
     be an accredited investor under Regulation D. Each of the recipients
     represented his intention to acquire the securities for his own account for
     investment only and not with a view to or for sale in connection with any
     distribution thereof, and had adequate access, through his relationship
     with Kabira, to information about Kabira. In addition to the conditions and
     circumstances described above for each of the foregoing transactions,
     Kabira also affixed appropriate legends to the share certificates and
     instruments issued in such transactions.



          (c) In February and May 2000, Kabira sold an aggregate of 4,665,560
     shares of its Series F Preferred Stock for $6.82 per share to 17 venture
     capital funds and 31 individuals or entities affiliated with Kabira, its
     employees or its investors for an aggregate purchase price of $31,819,119.
     Kabira relied on Rule 506 promulgated under Regulation D of the Securities
     Act for an exemption from registration for each of these issuances. Based
     upon written representations by each recipient, Kabira believes all of the
     recipients in these transactions to be accredited investors, except for 12
     purchasers who, based upon written representations, Kabira believes met the
     requirements of Rule 506(b)(2)(ii). Kabira delivered to each recipient a
     disclosure document which Kabira believes complied with Rule 502(b). These
     issuances did not involve any underwriters, underwriting discounts or
     commissions, any general advertising or solicitation, or any public offers.
     Each of the recipients represented its intention to acquire the securities
     for its own account for investment only and not with a view to or for sale
     in connection with any distribution thereof and had adequate access,
     through its relationship with Kabira, to information about Kabira. In
     addition to the conditions and circumstances described above for each of
     the foregoing transactions, Kabira also affixed appropriate legends to the
     share certificates issued in such transactions.



          (d) In March 1999, Kabira sold an aggregate of 7,704,063 shares of its
     Series E Preferred Stock for $2.20 per share to 12 venture capital funds
     and four individuals or entities affiliated with Kabira, its employees or
     its investors for an aggregate purchase price of $16,948,939. Kabira relied
     on Rule 506 promulgated under Regulation D of the Securities Act for an
     exemption from registration for each of these issuances. Kabira believes
     all of the recipients in these transactions to be accredited investors.
     These issuances did not involve any underwriters, underwriting discounts or
     commissions, any general advertising or solicitation, or any public offers.
     Each of the recipients represented its intention to acquire the securities
     for its own account for investment only and not with a view to or for sale
     in connection with any distribution thereof, and had adequate access,

                                      II-2
<PAGE>   121


     through its relationship with Kabira, to information about Kabira. In
     addition to the conditions and circumstances described above for each of
     the foregoing transactions, Kabira also affixed appropriate legends to the
     share certificates and instruments issued in such transactions.



          (e) From December 1998 through February 1999, Kabira issued 4.5%
     convertible promissory notes and warrants to purchase 199,627 shares of
     Series E Preferred Stock at an exercise price of $2.20 per share to three
     venture capital funds in exchange for aggregate cash consideration of
     $1,686,000 and cancellation of the 10% convertible promissory notes
     described in paragraph (f) below, plus accrued interest on those notes, and
     in March 1999 Kabira issued 10% convertible promissory notes to one of
     those three venture capital funds in exchange for aggregate cash
     consideration of $250,000. Kabira believes each of these recipients to be
     an accredited investor. In March 1999, Kabira converted a portion of these
     notes together with accrued interest into 1,897,664 shares of Series E
     Preferred Stock, and the remaining principal and accrued interest was
     subsequently repaid. Kabira relied on Rule 506 promulgated under Regulation
     D of the Securities Act for an exemption from registration for each of
     these transactions. These issuances did not involve any underwriters,
     underwriting discounts or commissions, any general advertising or
     solicitation, or any public offers. Each of the recipients represented its
     intention to acquire the securities for its own account for investment only
     and not with a view to or for sale in connection with any distribution
     thereof, and had adequate access, through its relationship with Kabira, to
     information about Kabira. In addition to the conditions and circumstances
     described above for each of the foregoing transactions, Kabira also affixed
     appropriate legends to the share certificates and instruments issued in
     such transactions.



          (f) From August through November 1998, Kabira issued 10% convertible
     promissory notes in the aggregate principle amount of $2,706,000 to six
     venture capital funds, each of which Kabira believes to be an accredited
     investor. All of these notes were subsequently canceled by Kabira. Kabira
     relied on Rule 506 promulgated under Regulation D of the Securities Act for
     an exemption from registration for each of these issuances. These issuances
     did not involve any underwriters, underwriting discounts or commissions,
     any general advertising or solicitation, or any public offers. Each of the
     recipients represented its intention to acquire the securities for its own
     account for investment only and not with a view to or for sale in
     connection with any distribution thereof, and had adequate access, through
     its relationship with Kabira, to information about Kabira. In addition to
     the conditions and circumstances described above for each of the foregoing
     transactions, Kabira also affixed appropriate legends to the share
     certificates and instruments issued in such transactions.



          (g) In July 1998, solely in connection with Kabira's entering into
     capital leases for equipment, Kabira granted warrants to three individuals
     affiliated with the lessor to purchase an aggregate of 6,818 shares of
     Series D Preferred Stock at an exercise price of $2.20 per share. The
     warrants were canceled upon mutual agreement of Kabira and the
     warrantholders. Kabira relied on Section 4(2) of the Securities Act for an
     exemption from registration for each of these issuances. These issuances
     did not involve any underwriters, underwriting discounts or commissions,
     any general advertising or solicitation, or any public offers. Each of the
     recipients represented his intention to acquire the securities for his own
     account for investment only and not with a view to or for sale in
     connection with any distribution thereof, and had adequate access, through
     his relationship with Kabira, to information about Kabira. In addition to
     the conditions and circumstances described above for each of the foregoing
     transactions, Kabira also affixed appropriate legends to the share
     certificates and instruments issued in such transactions.


                                      II-3
<PAGE>   122


          (h) In October 1997, Kabira sold an aggregate of 1,441,648 shares of
     its Series D Preferred Stock for $4.37 per share and an aggregate purchase
     price of $6,300,002 to thirteen venture capital funds, each of which Kabira
     believes to be an accredited investor. Kabira relied on Rule 506
     promulgated under Regulation D of the Securities Act for an exemption from
     registration for each of these issuances. These issuances did not involve
     any underwriters, underwriting discounts or commissions, any general
     advertising or solicitation, or any public offers. Each of the recipients
     represented its intention to acquire the securities for its account for
     investment only and not with a view to or for sale in connection with any
     distribution thereof, and had adequate access, through its relationship
     with Kabira, to information about Kabira. In addition to the conditions and
     circumstances described above for each of the foregoing transactions,
     Kabira also affixed appropriate legends to the share certificates issued in
     such transactions.



     For additional information concerning certain of these equity investment
transactions, please see the information contained under the caption
"Transactions with Related Parties and Insiders" in the prospectus included in
this Registration Statement.


                                      II-4
<PAGE>   123

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

     (a) EXHIBITS


<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
<C>       <S>
  1.1*    Form of Underwriting Agreement.
  3.1+    Amended and Restated Certificate of Incorporation of the
          Registrant.
  3.2+    Form of Amended and Restated Certificate of Incorporation of
          the Registrant, to be filed prior to the closing of this
          offering.
  3.3+    Bylaws of the Registrant.
  4.1*    Form of Registrant's Common Stock certificate.
  4.2+    Sixth Amended and Restated Registration Rights Agreement
          dated May 31, 2000.
  5.1*    Opinion of Wilson Sonsini Goodrich & Rosati, Professional
          Corporation.
 10.1     Form of Indemnification Agreement entered into by the
          Registrant with each of its directors and executive
          officers.
 10.2+    Work Contract dated March 14, 1997 between Softwire France
          SARL and Frederic Aries (translation from French).
 10.3+    1996 Stock Option Plan and forms of agreement thereunder.
 10.4+    1998 Stock Plan and forms of agreement thereunder.
 10.5     2000 Key Employee Stock Plan and forms of agreement
          thereunder.
 10.6+    2000 Stock Plan and forms of agreement thereunder.
 10.7+    2000 Employee Stock Purchase Plan and form of agreement
          thereunder.
 10.8+    Lease Agreement dated June 30, 1998 between Joe Shekou and
          Haidy Shekou and Autodesk, Inc. with respect to the
          Registrant's facilities in San Rafael, California.
 10.9+    Sublease Agreement dated October 14, 1999 between Autodesk,
          Inc. and the Registrant with respect to the Registrant's
          facilities in San Rafael, California.
 10.10    Lease Agreement dated August 2, 1993 between WHLW Real
          Estate Limited Partnership and Autodesk, Inc., as amended,
          with respect to the Registrant's facilities in San Rafael,
          California.
 10.11+   Sublease Agreement dated April 27, 2000 between Autodesk,
          Inc. and the Registrant with respect to the Registrant's
          facilities in San Rafael, California.
 10.12+   Form of Promissory Note executed by certain current and
          former executive officers in favor of the Registrant,
          together with form of Stock Pledge Agreement.
 10.13+   Form of Series E Preferred Stock Warrant Agreement.
 10.14    Form of letter regarding vesting of options held by
          non-officer employees of the Registrant upon a change of
          control.
 10.15    Form of letter regarding vesting of options held by officers
          of the Registrant upon a change of control.
 16.1     Letter regarding change in auditors.
 21.1+    List of Subsidiaries.
 23.1     Consent of Ernst & Young LLP, Independent Auditors.
 23.2*    Consent of Counsel (Reference is made to Exhibit 5.1).
 24.1+    Power of Attorney (see page II-7).
 27.1+    Financial Data Schedule.
</TABLE>


-------------------------
* To be filed by amendment.


+ Previously filed.


     (b) FINANCIAL STATEMENT SCHEDULES

     No financial statement schedules have been included because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.

                                      II-5
<PAGE>   124

ITEM 17. UNDERTAKINGS

     Kabira 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.

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

     Kabira hereby undertakes that:

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

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

                                      II-6
<PAGE>   125

                                   SIGNATURES


     Pursuant to the requirements of the Securities Act of 1993, as amended, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of San Rafael,
State of California, on the 15th day of September, 2000.


                                          KABIRA TECHNOLOGIES, INC.

                                          By:       /s/ PAUL SUTTON
                                            ------------------------------------
                                                        Paul Sutton
                                               President and Chief Executive
                                                           Officer


     Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on the 15th day
of September 2000 in the capacities indicated:



<TABLE>
<CAPTION>
                   SIGNATURE                                          TITLE
                   ---------                                          -----
<S>                                                 <C>
                /s/ PAUL SUTTON                            President, Chief Executive
------------------------------------------------    Officer and Director (Principal Executive
                  Paul Sutton                                       Officer)

              /s/ RODGER WEISMANN                      Chief Financial Officer (Principal
------------------------------------------------        Financial and Accounting Officer)
                Rodger Weismann

                /s/ ROBERT DAHL*                                    Director
------------------------------------------------
                  Robert Dahl

               /s/ DIRK EPPERSON*                                   Director
------------------------------------------------
                 Dirk Epperson

           /s/ JENNIFER GILL ROBERTS*                               Director
------------------------------------------------
             Jennifer Gill Roberts

               /s/ RICH SHAPERO*                                    Director
------------------------------------------------
                  Rich Shapero

              /s/ THOMAS WOOTERS*                                   Director
------------------------------------------------
                 Thomas Wooters

            *By: /s/ RODGER WEISMANN
  -------------------------------------------
                Attorney-in-fact
</TABLE>


                                      II-7
<PAGE>   126

                               INDEX TO EXHIBITS


<TABLE>
<CAPTION>
EXHIBIT
NUMBER                      DESCRIPTION OF DOCUMENTS
-------                     ------------------------
<C>       <S>
  1.1*    Form of Underwriting Agreement.
  3.1+    Amended and Restated Certificate of Incorporation of the
          Registrant.
  3.2+    Form of Amended and Restated Certificate of Incorporation of
          the Registrant, to be filed prior to the closing of this
          offering.
  3.3+    Bylaws of the Registrant.
  4.1*    Form of Registrant's Common Stock certificate.
  4.2+    Sixth Amended and Restated Registration Rights Agreement
          dated May 31, 2000.
  5.1*    Opinion of Wilson Sonsini Goodrich & Rosati, Professional
          Corporation.
 10.1     Form of Indemnification Agreement entered into by the
          Registrant with each of its directors and executive
          officers.
 10.2+    Work Contract dated March 14, 1997 between Softwire France
          SARL and Frederic Aries (translation from French).
 10.3+    1996 Stock Option Plan and forms of agreement thereunder.
 10.4+    1998 Stock Plan and forms of agreement thereunder.
 10.5     2000 Key Employee Stock Plan and forms of agreement
          thereunder.
 10.6+    2000 Stock Plan and forms of agreement thereunder.
 10.7+    2000 Employee Stock Purchase Plan and form of agreement
          thereunder.
 10.8+    Lease Agreement dated June 30, 1998 between Joe Shekou and
          Haidy Shekou and Autodesk, Inc. with respect to the
          Registrant's facilities in San Rafael, California.
 10.9+    Sublease Agreement dated October 14, 1999 between Autodesk,
          Inc. and the Registrant with respect to the Registrant's
          facilities in San Rafael, California.
 10.10    Lease Agreement dated August 2, 1993 between WHLW Real
          Estate Limited Partnership and Autodesk, Inc., as amended,
          with respect to the Registrant's facilities in San Rafael,
          California.
 10.11+   Sublease Agreement dated April 27, 2000 between Autodesk,
          Inc. and the Registrant with respect to the Registrant's
          facilities in San Rafael, California.
 10.12+   Form of Promissory Note executed by certain current and
          former executive officers in favor of the Registrant,
          together with form of Stock Pledge Agreement.
 10.13+   Form of Series E Preferred Stock Warrant Agreement.
 10.14    Form of letter regarding vesting of options held by
          non-officer employees of the Registrant upon a change of
          control.
 10.15    Form of letter regarding vesting of options held by officers
          of the Registrant upon a change of control.
 16.1     Letter regarding change in auditors.
 21.1+    List of Subsidiaries.
 23.1     Consent of Ernst & Young LLP, Independent Auditors.
 23.2*    Consent of Counsel (Reference is made to Exhibit 5.1).
 24.1+    Power of Attorney (see page II-7).
 27.1+    Financial Data Schedule.
</TABLE>


-------------------------
* To be filed by amendment.


+ Previously filed.



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