UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 6-K REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 OF THE SECURITIES EXCHANGE ACT OF 1934 For the month of November, 2000 BROKAT AKTIENGESELLSCHAFT (Exact name of registrant as specified in its charter) Industriestrasse 3 D-70565 Stuttgart Federal Republic of Germany (Address of principal executive offices) Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F. Form 20-F [X] Form 40-F [ ] Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes [ ] No [X] If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-_______. On June 19, 2000, Brokat AG entered into a definitive merger agreement pursuant to which GemStone Systems, Inc. became a wholly-owned subsidiary of Brokat AG. On September 29, 2000, Brokat AG announced that it had completed its acquisition of Blaze Software, Inc. in a stock transaction. This Form 6-K contains financial statements of Brokat AG and various businesses acquired by Brokat AG as well as unaudited pro forma financial information. -2- INDEX TO FINANCIAL STATEMENTS

~~(in~~Page ~~thousands~~---- BROKAT Aktiengesellschaft Report of ~~Deutsche~~Independent ~~Mark~~Public Accountants................................... F-3 ~~TDM~~Audited -)Financial ~~September~~Statements ~~30,~~Consolidated Balance Sheets as of December 31, ~~2000~~ 1999, ~~(unaudited)~~June ~~Note~~30, ~~TDM~~1999, ~~TDM~~and ~~----------~~June ~~-------------------------~~30, ~~ASSETS~~1998........................................................... F-~~-----~~4 ~~Current~~Consolidated ~~Assets:~~Statements ~~Cash~~of ~~and~~Operations ~~cash~~for ~~equivalents~~the ~~(3)~~six ~~225,634~~months ~~6,963~~ended ~~Accounts~~December ~~receivable~~31, ~~(less~~1999 ~~allowance~~and for ~~doubtful~~the ~~accounts~~years ofended ~~TDM~~June 1030,~~004~~ ~~and TDM 1~~1999,~~575~~ atJune ~~September~~ 30, ~~2000~~1998, and ~~December~~June 3130, ~~1999,~~1997................................................................ ~~respectively)~~F-5 ~~75,480~~Consolidated ~~36,187~~Statements ~~Cost~~of ~~and~~Changes ~~estimated~~in ~~earnings~~Shareholders' inEquity ~~excess~~for ofthe ~~billings~~six ~~(3)~~months ~~3,428~~ended 1December 31,~~965~~ on1999 ~~uncompleted~~and ~~contracts~~for ~~Advances~~the onthree ~~purchase~~years ~~commitments~~ended 0June 330,~~000~~ ~~Prepaid~~1999.................................................................... ~~expenses~~F-6 ~~and~~Consolidated ~~other~~Statements ~~current~~of ~~assets~~Cash ~~35,428~~Flows ~~6,795~~for ~~-------------------------~~the ~~Total~~six ~~Current~~months ~~Assets~~ended ~~339,970~~December 5431,~~910~~ ~~-------------------------~~1999 ~~Property~~ and ~~equipment,~~for atthe ~~cost~~years ~~Computer~~ended ~~equipment~~June 3430,~~204~~ 121999,~~813~~ ~~Furniture~~June ~~and fixtures 15~~30,~~397~~ 51998,~~296~~ ~~Less:~~and ~~accumulated~~June ~~amortization (23~~30,~~962)~~ ~~(8,607)~~1997................................................................ F-~~------------------------~~7 ~~25,639~~Notes ~~9,502~~to ~~-------------------------~~the ~~Goodwill~~Consolidated ~~(6)~~Financial ~~1,428,927~~Statements........................... ~~188,887~~F-8 ~~Other~~Unaudited ~~intangible~~Financial ~~assets~~Statements ~~(6)~~Consolidated ~~219,735~~Balance ~~8,448~~Sheets ~~Less:~~as ~~accumulated~~of ~~amortization~~June ~~(53~~30,~~565)~~ ~~(20,547)~~2000.......................... F-~~------------------------~~38 ~~1,595,097~~Consolidated ~~176,788~~Statements ~~-------------------------~~of ~~Investments~~Cash inFlows ~~associated~~for ~~companies~~the ~~(6)~~six 0months ~~4,139~~ended ~~Other~~June ~~long-term~~30, ~~investments~~2000 ~~(6)~~and ~~27,341~~June 130,~~013~~ ~~Deferred~~1999.................................................. ~~income~~F-39 ~~taxes~~Consolidated ~~7,151~~Statements ~~2,333~~of ~~-------------------------~~Operations ~~Total~~for ~~assets~~the ~~1,995,198~~three ~~248,685~~months ~~=========================~~ended ~~LIABILITIES~~June ~~AND~~30, ~~SHAREHOLDERS'~~2000 ~~EQUITY~~and ~~------------------------------------~~1999 ~~Current~~and ~~liabilities~~for ~~Short-term~~six ~~debt~~months toended ~~banks~~June ~~(3)~~30, ~~973~~2000 ~~42,271~~and ~~Consideration~~1999........... ~~issuable~~F-40 Notes to ~~former~~Condensed ~~shareholder's~~Consolidated ofFinancial ~~Blaze~~Statements..................... F-41 Transaction Software Technologies, Inc. ~~(6)~~Report ~~1,053,942~~of 0Independent ~~Other~~Public ~~short~~Accountants................................... F-~~term~~45 ~~debt~~Consolidated 0Balance ~~5,665~~Sheets ~~Accounts~~as ~~payable,~~of ~~trade~~September 4330,~~014~~ ~~5,043~~1998 ~~Payroll-related~~and ~~accruals~~1997.............. ~~14,239 5,296 Tax~~F-~~related~~46 ~~accruals~~Consolidated ~~4,446~~Statements ~~2,150~~of ~~Billings~~Operations infor ~~excess~~the ofyears ~~cost~~ended ~~and~~September ~~estimated~~30, ~~earnings~~1998 ~~(3)~~and ~~6,672~~1997............................................................. ~~1,818~~F-47 onConsolidated ~~uncompleted~~Statements ~~contracts~~in ~~Other~~Shareholders' ~~accrued~~Equity ~~expenses~~for ~~and~~the ~~current~~years ~~liabilities~~ended ~~41,725~~September 630,~~264~~ ~~Deferred~~1998 ~~income~~and ~~18,416~~1997............................................... ~~3,579~~F-48 ~~Deferred~~Consolidated ~~income~~Statements ~~taxes~~of ~~7,200~~Cash ~~2,377~~Flows ~~-------------------------~~for ~~Total~~the ~~current~~years ~~liabilities~~ended ~~1,190,627~~September 7430,~~463~~ ~~-------------------------~~1998 ~~Long~~and 1997............................................................. F-~~term~~49 ~~debt~~Notes to ~~banks~~the ~~(3)~~Financial 0Statements.......................................... ~~2,000~~F-50 ~~Other~~MeTechnology ~~long-term~~AG ~~debt~~Reports ~~(3)~~of ~~247,385~~Independent ~~1,850~~Public Accountants.................................. F-~~------------------------~~57 ~~Total~~Consolidated ~~liabilities~~Balance ~~1,438,012~~Sheets ~~78,313~~as ~~-------------------------~~of ~~Minority~~December ~~interest~~31, ~~264~~1998 ~~426~~and 1997............... F-~~------------------------~~58 ~~Shareholders'~~Consolidated ~~equity:~~Statements ~~Common~~of ~~Stock~~Operations ~~(3)~~for ~~58,785~~the 52years ended December 31,~~512~~ ~~Additional~~1998 ~~paid~~and 1997.................................................................. F-59 Consolidated Statements of Changes in ~~capital~~Shareholders' ~~954,928~~Equity ~~343,260~~for ~~Accumulated~~the ~~deficit~~years ~~(242,264)~~ended ~~(109~~December 31,~~064)~~ ~~Deferred~~1998 ~~compensation~~and ~~(204,193)~~1997.......................................... ~~(113,376)~~F-60 ~~Accumulated~~Consolidated ~~other~~Statements ~~comprehensive~~of ~~loss~~Cash ~~(10,334)~~Flows ~~(3,386)~~for ~~-------------------------~~the ~~Total~~years ~~shareholders'~~ended ~~equity~~December ~~556~~31,~~922~~ ~~169,946~~1998 ~~-------------------------~~and ~~Total~~1997.................................................................. ~~liability~~F-61 ~~and~~Notes ~~shareholders'~~to ~~equity~~Consolidated ~~1,995,198~~Financial ~~248,685~~Statements................................. ~~=========================~~F-62

F-1

~~Three~~Page ~~months Three months Nine months Nine months ended ended ended ended (in thousands of Deutsche Mark~~ - ~~TDM~~ -)--- ~~September~~Blaze 30Software, ~~September~~Inc. ~~30,~~Report ~~September~~of ~~30,~~Independent ~~September~~Accountants........................................ ~~2000 1999 2000 1999 (unaudited) (unaudited) (unaudited) (unaudited) Note TDM TDM TDM TDM~~ F-~~-----------------------~~71 ~~--------------~~Audited ~~----------------------------~~Financial ~~Revenues~~Statements ~~(5)~~Consolidated ~~56,896~~Balance ~~23,379~~Sheets ~~138,625~~as ~~66,195 COST OF SALES (exclusive~~ of ~~TDM~~March 431,~~483,~~ ~~TDM-387,~~2000 ~~TDB 14,600~~ and ~~TDM~~1999.............. ~~3,131 of non~~F-~~cash~~72 ~~charges~~Consolidated ~~from~~Statements ~~stock~~of ~~option~~Operations ~~grants~~for in the ~~three~~years ~~months~~ ended ~~September~~March 3031, 2000 ~~and September 30~~, 1999 and ~~the~~1998................................................... ~~nine~~F-73 ~~months~~Consolidated ~~ended~~Statements ~~September~~of ~~30,~~Stockholders' ~~2000~~Equity ~~and September 30, 1999)~~ (~~33,424~~Deficit) ~~(10,347)~~for ~~(66,294)~~the ~~(31,301)~~years ~~-----------------------------~~ended ~~----------------------------~~March ~~Gross profit 23~~31,~~472~~ 132000,~~032~~ ~~72,331~~1999 ~~34,894~~and ~~-----------------------------~~1998................................... F-~~---------------------------~~74 ~~SELLING~~Consolidated ~~EXPENSES~~Statements ~~(exclusive~~ of ~~TDM~~Cash ~~3,466,~~Flows ~~TDM-427,~~for ~~TDM~~the ~~13,681~~years ~~and~~ended ~~TDM~~March 331,~~775~~ of2000, ~~non-cash~~1999 ~~charges~~and ~~from~~1998................................................... ~~stock~~F-76 ~~options~~Notes ~~grants~~to in the ~~three~~Consolidated ~~months~~Financial ~~ended~~Statements......................... ~~September~~F-77 ~~30,~~Unaudited ~~2000~~Financial ~~and~~Statements ~~September~~Condensed ~~30,~~Consolidated ~~1999~~Balance ~~and~~Sheets ~~the~~as ~~nine~~of ~~months~~June ~~ended September~~ 30, 2000 and ~~September~~March 3031, ~~1999)~~2000.................................................................. ~~(25,840)~~F-95 ~~(11,424)~~Condensed ~~(62,123)~~Consolidated ~~(34,737)~~Statements ~~GENERAL~~of ~~AND~~Operations ~~ADMINISTRATIVE~~for ~~EXPENSES~~the ~~(exclusive~~three ofmonths ~~TDM~~ended ~~1,547,~~June ~~TDM-177~~30, ~~TDM~~2000 ~~6,003~~ and ~~TDM~~1999.......................................... ~~1,129 of non~~F-~~cash~~96 ~~charges~~Condensed ~~from~~Consolidated ~~stock~~Statements ~~option~~of ~~grants~~Cash inFlows for the three months ended ~~September~~June 30, 2000 and ~~September 30,~~ 1999.......................................... ~~and~~F-97 ~~the~~Notes ~~nine~~to ~~months~~Condensed ~~ended~~Consolidated ~~September~~Financial ~~30,~~Statements................... ~~2000~~F-98 ~~and~~GemStone ~~September 30~~Systems, ~~1999)~~Inc. ~~(11,532)~~Report ~~(4,742)~~of ~~(27,257)~~Independent ~~(11,289)~~Auditors........................................... ~~RESEARCH~~F-102 ~~AND~~Consolidated ~~DEVELOPMENT~~Balance ~~EXPENSE~~Sheets ~~(exclusive~~as of ~~TDM~~December 131,~~911,~~ ~~TDM-209,~~1999 ~~TDM~~and ~~7,859~~1998 and ~~TDM~~June 130,~~044~~ of2000.................................................................... ~~non~~F-~~cash~~103 ~~charges~~Consolidated ~~from~~Statements ~~stock~~of ~~option~~Operations ~~grants~~for in the ~~three~~years ~~months~~ ended ~~September~~December 3031, ~~2000~~1999 and ~~September~~1998 ~~30, 1999~~ and the ~~nine~~six months ended ~~September~~June 30, 2000 and ~~September 30,~~ 1999)........... ~~(14,247)~~F-104 ~~(5,602)~~Consolidated ~~(35,684)~~Statements ~~(10,439) Amortization~~ of ~~goodwill~~Stockholders' ~~and~~Equity ~~other intangible assets from acquisitions~~ (~~16,663~~Deficit) ~~(14,723)~~for ~~(31,847)~~the ~~(18,743)~~years ~~Non-cash~~ended ~~charges~~December ~~associated with stock option grants (11~~31,~~407)~~ ~~1,200~~1999 ~~(42,142)~~and ~~(9,080)~~1998 ~~--------------~~and ~~--------------~~the ~~----------------------------~~six ~~Total~~months ~~operating~~ended ~~expenses~~June ~~(79~~30,~~689)~~ ~~(35,291)~~2000.................................................................... ~~(199,053) (84,288)~~ F-~~----------------------------~~105 ~~----------------------------~~Consolidated ~~Operating~~Statements ~~loss~~of ~~(56,217)~~Cash ~~(22,259)~~Flows ~~(126,722)~~for ~~(49,394)~~the ~~-----------------------------~~years ~~----------------------------~~ended ~~Interest~~December ~~income 1~~31,~~400~~ 351999 ~~3,257~~and ~~837~~1998 ~~Interest~~and ~~expenses~~the ~~(7,789)~~six ~~(437)~~months ~~(16,057)~~ended ~~(1,186)~~June ~~Other~~30, ~~net~~2000 ~~6,068~~and ~~1,123~~1999........... ~~6,527 2,834~~ F-~~----------------------------~~106 ~~----------------------------~~Notes ~~Loss~~to ~~before~~the ~~income~~Consolidated ~~taxes~~Financial ~~(56,538)~~Statements........................... ~~(21,538) (132,995) (46,909)~~ F-~~----------------------------~~107 ~~----------------------------~~Unauditied ~~Income~~pro ~~tax~~forma ~~benefit~~financial (expense) (390) (61) (617) (174) Minority interest 63 0 162 90 Other taxes (114) 0 (217) 0 ----------------------------- ---------------------------- Loss from ordinary operations (56,979) (21,599) (133,667) (46,993) ----------------------------- ---------------------------- Extaordinary gain 435 0 435 0 -------------- -------------- ---------------------------- Net loss (4) (56,544) (21,599) (133,232) (46,993) ============================= ============================ Basic and diluted loss per share: Net loss (2information.~~00) (0~~.~~80) (4~~.~~87) (1~~.~~84)~~........................... ~~============== ============== ============================ Weighted average number of common shares outstanding 28,225,667 26,848,773 27,378,432 25,578,925~~F-116

F-2 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Brokat Infosystems Aktiengesellschaft: We have audited the accompanying consolidated balance sheets of Brokat Infosystems Aktiengesellschaft and subsidiaries (the "Company") as of December 31, 1999, June 30, 1999, and June 30, 1998 and the related consolidated statements of operations, cash flows and shareholders' equity for the six month period ended December 31, 1999 and for each of the three years in the period ended June 30, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audits in accordance with generally accepted auditing standards in Germany and the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Brokat Infosystems Aktiengesellschaft and subsidiaries as of December 31, 1999, June 30, 1999, and June 30, 1998 and the results of their operations and their cash flows for the six month period ended December 31, 1999 and for each of the three years in the period ended June 30, 1999 in conformity with generally accepted accounting principles in the United States. Arthur Andersen Wirtschaftsprufungsgesellschaft Steuerberatungsgesellschaft mbH Dr. Schmidt Schupeck Wirtschaftsprufer Wirtschaftsprufer Stuttgart, Germany February 14, 2000, except for Note 20 as to which the date is September 1, 2000 F-3 BROKAT INFOSYSTEMS AG CONSOLIDATED BALANCE SHEETS

~~Nine~~June ~~month ended Nine months ended September~~ 30, ~~September 30, 2000 1999 (in thousands of Deutsche Mark~~ ---------------- ~~TDM~~December -)31, ~~(unaudited)~~Note ~~(unaudited)~~1998 ~~TDM~~1999 ~~TDM~~1999 ---- ------- ------- ------------ ~~Cash~~(DM ~~flow~~in ~~from~~thousands) ~~Operating~~ASSETS ~~Activities~~Current assets: ~~Net~~Cash ~~loss~~and ~~(133~~cash equivalents................. 1,~~232)~~832 ~~(46~~7,~~993)~~141 ~~Adjustments~~6,963 toAccounts ~~reconcile~~receivable ~~net~~(less ~~loss~~allowance tofor ~~net~~doubtful ~~cash~~accounts ~~use~~of inDM ~~operating~~1,575,000, ~~activities~~DM ~~Extraordinary~~2,270,000 ~~loss~~and ~~from~~DM ~~extinguishment~~283,000 ofat ~~debt~~December ~~(436)~~31, 01999, ~~Minority~~June ~~interest~~30, ~~(162)~~1999, ~~(90)~~and ~~Depreciation~~June ~~and~~30, ~~amortization~~1998, 38respectively)...................... 10,~~183~~716 2135,~~791~~076 ~~Gain~~36,187 onCost ~~disposal~~and estimated earnings in excess of ~~property~~billings ~~and~~on ~~equipment~~uncompleted 0contracts........ (24) ~~Deferred~~1,806 ~~income~~2,499 ~~taxes~~1,965 5Advances on purchase commitments.......... (19) 0 ~~Non-cash~~0 ~~charges~~3,000 ~~associated~~Prepaid ~~with~~expenses ~~stock~~and ~~option~~other ~~grants~~current 42assets................................... (5) 1,~~142~~015 93,~~080~~923 ~~Changes~~6,795 in------- ~~operating~~------- ~~assets~~-------- ~~and~~Total ~~liabilities:~~current ~~Accounts~~assets...................... ~~receivable~~15,369 ~~(22~~48,~~606)~~639 ~~(12~~54,~~436)~~910 ~~Net~~------- ~~changes~~------- in-------- ~~cost~~Property and ~~estimated~~equipment, ~~earnings~~at incost............ ~~excess~~Computer ofequipment......................... ~~billings 4~~3,~~487~~941 (9,~~391)~~696 ~~Prepaid~~12,813 ~~expenses~~Furniture and ~~other~~fixtures..................... ~~current~~1,022 ~~assets~~4,891 5,296 Less: accumulated amortization............. (171,~~993~~502) (~~966~~6,264) ~~Accounts~~(8,607) ~~payable~~------- ------- -------- 3,461 ~~trade~~8,323 149,~~347~~502 ~~500~~------- ~~Payroll~~------- ~~and~~-------- ~~tax~~Goodwill................................... ~~related~~(6) ~~accruals~~0 3212,~~548~~948 1188,~~244~~887 Other ~~accrued~~intangible ~~expenses~~assets.................... ~~and~~(6) ~~liabilities~~496 168,~~097~~033 ~~398~~8,448 ~~Deferred~~Less: ~~income~~accumulated amortization............. (36) (223) (4,~~410~~320) 1(20,~~277~~547) ------- ------- -------- 273 216,661 176,788 ------- ------- ~~Net~~-------- ~~cash~~Investments ~~used~~ in ~~operating~~associated ~~activities~~companies........ (~~59,030~~3) 0 0 4,139 Other long-term investments................ (353) 0 0 1,~~588~~013 Deferred income taxes...................... (14) 577 1,447 2,333 ------- ------- --------~~--------~~ ~~Cash~~Total ~~flow~~assets.............................. ~~from~~19,680 ~~Investing~~275,070 ~~Activities~~248,685 ~~Acquisition~~======= of======= ~~intangible~~======== ~~assets~~LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term debt to banks.................. (~~1,396~~7) (60 3,~~845~~226 42,271 Other short-term debt..................... (8) ~~Purchases~~0 of3,438 ~~property~~5,665 ~~and~~Accounts ~~equipemtn~~payable, ~~(10~~trade................... 2,~~581)~~322 (8,~~102)~~939 ~~Purchases~~5,043 ofPayroll-related ~~investments~~accruals.................. (81,~~567)~~935 ~~(973)~~4,229 ~~Acquisitions~~5,296 ~~net~~Tax-related ofaccruals...................... ~~cash~~501 ~~acquired~~847 932,~~877~~150 Billings in excess of cost and estimated earnings on uncompleted contracts........ (~~29,431~~4) ~~Proceeds~~970 ~~from~~857 ~~sale~~1,818 ofOther ~~property~~accrued expenses and ~~equipment~~current 0liabilities.............................. ~~402~~(9) ~~------------------------------~~1,499 ~~Net~~5,962 ~~cash~~6,264 ~~used~~Deferred inincome........................... ~~investing~~1,107 ~~activities~~3,430 733,~~333~~579 Deferred income taxes..................... (~~44,949~~14) 577 1,447 2,377 ------- ------- --------~~--------~~ ~~Cash~~Total ~~Flow~~current ~~from~~liabilities................. ~~Financing~~8,911 ~~Activities~~32,375 ~~Net~~74,463 ~~change~~======= in======= ~~short~~======== Long-term debt to banks.................... (~~48,679~~10) 132,~~315~~000 ~~Proceeds~~2,000 ~~from~~2,000 Long-term debt ~~issuances~~to ~~241~~shareholders............. (11) 4,~~750~~555 34,~~500~~000 ~~Proceeds~~0 ~~from~~Other ~~sale~~long-term ofdebt....................... ~~common~~(12) ~~stock~~7,005 ~~net of costs~~ 18,~~245~~356 ~~219~~1,850 ------- ------- -------- Total liabilities......................... 22,471 56,731 78,313 ------- ------- ~~Net cash provided by financing activities 211,316 17,034~~ -------- Minority interest.......................... 0 400 426 ------- ------- -------- ~~EFFECT~~Shareholders' OFequity: ~~EXCHANGE~~(15) ~~RATE~~Common ~~DIFFERENCES~~Stock.............................. ON0 ~~CASH~~44,748 52,512 GmbH Capital.............................. 158 0 0 Additional paid-in capital................ 10,567 271,751 343,260 Accumulated deficit....................... (613,~~948~~549) (157,~~070~~587) ~~INCREASE~~ (~~DECREASE~~109,064) INDeferred ~~CASH~~compensation..................... ~~AND~~(16) ~~CASH~~0 ~~EQUIVALENTS 218~~(39,~~671~~261) (64113,~~573~~376) AtAccumulated ~~the~~other ~~beginning~~comprehensive ofincome ~~the~~(loss)................................... ~~period~~33 6(1,~~963~~712) 68(3,~~839~~386) ------- ------- -------- Total shareholders' equity................ (2,791) 217,939 169,946 ------- ------- At-------- ~~the~~Total ~~end~~liabilities ofand ~~the~~shareholders' ~~period~~equity................................... ~~225~~19,~~634~~680 4275,~~266~~070 248,685 ======= ======= ========~~======== Supplemental Disclosure of Cash Flow Information Cash paid for: Interest 985 971 Income taxes 0 0~~

The accompanying notes are an integral part of these consolidated financial statements. F-4 BROKAT INFOSYSTEMS AG CONSOLIDATED STATEMENTS OF OPERATIONS

~~September~~Six Months Year Ended Ended June 30, December 31, ~~2000~~Note 1997 1998 1999 ~~TDM~~1999 ~~TDM~~-------- --------- --------------------------- ---------------- (DM in thousands, except share data and per share data) Revenue................. (18) 12,101 29,571 62,487 51,287 Cost of Sales (exclusive of DM 4,298.0 thousand and ~~estimated~~DM ~~earnings~~6,794.0 thousand of non-cash charges from stock option grants in ~~excess~~the six months ended December 31, 1999 and the year ended June 30, 1999)... (7,971) (15,493) (31,325) (22,937) --------- ---------- ------------- ------------- Gross profit............ 4,130 14,078 31,162 28,350 --------- ---------- ------------- ------------- Selling expenses (exclusive of ~~billings~~DM on3,524.0 ~~uncompleted~~thousand ~~contracts~~and DM 6,070.0 thousand of non-cash charges from stock option grants in the six months ended December 31, 1999 and the year ended June 30, 1999).................. (3,~~428~~118) (16,636) (38,848) (27,714) General and administrative expenses (exclusive of DM 1,~~965~~552.0 ~~Billings~~thousand and DM 1,580.0 thousand of non-cash charges from stock option grants in ~~excess~~the six months ended December 31, 1999, and the year ended June 30, 1999).................. (1,332) (4,305) (10,639) (12,643) Research and development expenses (exclusive of ~~cost~~DM 2,866.0 thousand and ~~estimated~~DM ~~earnings~~1,896.0 onthousand ~~uncompleted~~of ~~contracts~~non-cash 6charges from stock option grants in the six months ended December 31,~~672~~ 1999, and the year ended June 30, 1999).................. (1,~~818~~450) (4,917) (8,733) (12,769) Amortization of goodwill and other intangible assets from acquisitions........... 0 0 (3,686) (15,797) Non-cash charges associated with stock option grants.......... (16) 0 0 (16,340) (12,240) --------- ---------- ------------- ------------- Total operating expenses............... (35,~~244~~900) ~~147~~(25,858) (78,246) (81,163) --------- ---------- ------------- ------------- Operating loss.......... (1,770) (11,780) (47,084) (52,813) --------- ---------- ------------- ------------- Interest income......... 5 150 1,528 35 Interest expense........ (157) (454) (960) (867) Other, net.............. 198 239 2,565 2,298 --------- ---------- ------------- ------------- Loss before income taxes and extraordinary items.................. (1,724) (11,845) (43,951) (51,347) --------- ---------- ------------- ------------- Income tax benefit (expense).............. (14) 10 0 (113) (104) Minority interest....... 0 0 90 (26) --------- ---------- ------------- ------------- Loss before extraordinary items.... (1,714) (11,845) (43,974) (51,477) Extraordinary loss on early extinguishment of debt................... 0 0 (64) 0 --------- ---------- ------------- ------------- Net loss................ (1,714) (11,845) (44,038) (51,477) ========= ========== ============= ============= Basic and diluted loss per share: Loss before extraordinary items.... (2.23) (1.92) Extraordinary loss...... (0.01) 0.00 Net loss................ (2.24) (1.92) ============= ============= Weighted average number of common shares outstanding............ 19,694,650 26,848,773 ============= =============

The accompanying notes are an integral part of these consolidated financial statements. F-5 BROKAT INFOSYSTEMS AG CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

~~Three~~Other ~~months~~Compre- ~~Three~~Total ~~months~~Compre- ~~Nine~~Preferred ~~months~~Stock ~~Nine~~Common ~~months~~Stock ~~ended~~Additional ~~ended~~Accumulated ~~ended~~hensive ~~ended~~Stock- ~~September~~hensive 30------------------ ----------------- GMBH Paid-in Earnings Deferred Income holders Income Shares Amount Shares Amount Capital Capital (Deficit) Compensation (Loss) Equity (Loss) --------- ------- ---------- ------ ------- ---------- ----------- ------------ ------- ------- ------- (DM in thousands, ~~2000~~except ~~September~~share data) Balance, June 30, ~~1999~~1996........ ~~September~~0 300 0 0 62 0 107 0 0 169 Dividends....... 0 0 0 0 0 0 (97) 0 0 (97) Capital increases....... 0 0 0 0 65 591 0 0 0 656 Net income...... 0 0 0 0 0 0 (1,714) ~~2000~~0 ~~September~~0 30(1,714) ~~1999~~(1,714) ~~TDM~~------- ~~TDM~~Comprehensive ~~TDM~~loss............ ~~TDM~~(1,714) --------- ----- ---------- ------ ---- ------- -------- -------- ------ ------- ------- Balance, June 30, 1997........ 0 0 0 0 127 591 (1,704) 0 0 (986) --------- ----- ---------- ------ ---- ------- -------- -------- ------ ------- Capital increases....... 0 0 0 0 31 9,976 0 0 0 10,007 Net ~~income~~loss........ 0 0 0 0 0 0 (~~loss~~11,845) 0 0 (5611,~~544~~845) (2111,~~599~~845) Foreign currency translation adjustment...... 0 0 0 0 0 0 0 0 33 33 33 ------- Comprehensive loss............ (~~133~~11,~~232~~812) --------- ----- ---------- ------ ---- ------- -------- -------- ------ ------- ------- Balance, June 30, 1998........ 0 0 0 0 158 10,567 (4613,~~993~~549) ~~Foreign~~0 ~~currency~~33 ~~translation~~(2,791) ~~adjustments~~--------- (6----- ---------- ------ ---- ------- -------- -------- ------ ------- Shares issued in connection with the conversion from GmbH to AG.............. 30,~~201~~780 51 64,200 107 (158) ~~580~~0 0 0 0 0 Conversion of preferred stock to common stock........... (630,~~948~~780) (51) 30,780 51 0 0 0 0 0 0 Shares issued upon conversion of debt......... 0 0 1,~~070)~~419 ~~Unrealzed~~2 ~~gain~~0 on7,484 ~~available~~0 0 0 7,486 Shares issued in IPO, net of issuance cost... 0 0 24,000,000 40,000 0 34,066 0 0 0 74,066 Shares issued after IPO....... 0 0 420,000 700 0 8,260 0 0 0 8,960 Shares issued for ~~sale~~acquisition ~~securities:~~of MeTechnology.... 0 0 2,332,374 3,888 0 155,773 0 0 0 159,661 Non-cash compensation from issuance of stock options to employees....... 0 0 0 0 0 55,601 0 (3655,601) 0 360 Amortization of deferred stock option compensation.... 0 0 0 0 0 0 0 16,340 0 16,340 Net loss........ 0 0 0 0 0 0 (44,038) 0 0 (44,038) (44,038) Foreign currency translation adjustment...... 0 0 0 0 0 0 0 0 (1,745) (1,745) (1,745) ------- Comprehensive loss............ (45,783) --------- ----- ---------- ------ ---- ------- -------- -------- ------ ------- ------- Balance, June 30, 1999........ 0 0 26,848,773 44,748 0 271,751 (57,587) (39,261) (1,712) 217,939 --------- ----- ---------- ------ ---- ------- -------- -------- ------ ------- Adjustment to reflect change in par value.... 0 0 0 7,764 0 (627,~~781~~764) 0 0 0 0 Change in deferred compensation for variable stock options to employees on previous stock option grants... 0 0 0 0 0 35,431 0 (2135,~~019~~431) 0 0 Non-cash compensation on stock options granted to employees under ME-Plan......... 0 0 0 0 0 0 0 (~~140~~7,~~144~~082) 0 (487,~~063~~082) Non-cash compensation from issuance of stock options to employees under 1999 Plan....... 0 0 0 0 0 43,842 0 (43,842) 0 0 Amortization of deferred stock option compensation.... 0 0 0 0 0 0 0 12,240 0 12,240 Net loss........ 0 0 0 0 0 0 (51,477) 0 0 (51,477) (51,477) Foreign currency translation adjustment...... 0 0 0 0 0 0 0 0 (1,674) (1,674) (1,674) ------- Comprehensive loss............ (53,151) --------- ----- ---------- ------ ---- ------- -------- -------- ------ ------- ------- Balance, December 31, 1999............ 0 0 26,848,773 52,512 0 343,260 (109,064) (113,376) (3,386) 169,946 ========= =====~~========~~ ========== ====== ====== ======= ======== ========= ====== =======~~===========~~

The accompanying notes are an integral part of these consolidated financial statements. F-6 BROKAT INFOSYSTEMS AG CONSOLIDATED STATEMENTS OF CASH FLOWS

~~Three~~Six ~~months~~Months ~~ended~~Year ~~Three~~Ended ~~months~~June ~~ended~~30, ~~Nine~~Ended ~~months~~------------------------ ~~ended~~December ~~Nine~~31, ~~months~~1997 ~~ended~~1998 ~~September~~1999 301999 ------ ------- ------- ---------------- (DM in thousands) Cash flow from Operating Activities: Net loss......................... (1,714) ~~2000~~(11,845) ~~September~~(44,038) 30(51,477) ~~1999~~Adjustments ~~September~~to 30reconcile net loss to net cash used in operating activities: Extraordinary loss............... 0 0 64 0 Minority interest................ 0 0 (90) 26 Depreciation and amortization.... 734 1,374 ~~2000~~6,705 ~~September~~18,892 30Gain on disposal of property and equipment....................... 29 (1) (2) 0 Deferred income taxes............ (10) 0 0 44 Non-cash charges associated with stock option grants............. 0 0 16,340 ~~1999~~12,240 ~~TDM~~Changes ~~TDM~~in ~~TDM~~operating ~~TDM~~assets and liabilities: Accounts receivable............. (3,113) (6,960) (23,377) (1,111) Net changes in cost and estimated earnings in excess of billings....................... (1,576) 740 3,718 1,495 Prepaid expenses and other current assets................. (148) (833) (1,442) (5,872) Accounts payable, trade......... 1,504 613 4,750 (3,896) Payroll and tax related accruals....................... 572 1,153 2,050 2,370 Other accrued expenses and liabilities.................... 348 1,363 (564) (340) Deferred income................. 160 947 200 149 ------ ------- ------- ------- Net cash used in operating activities...................... (3,214) (13,449) (35,686) (27,480) ------ ------- ------- ------- Cash flow from Investing Activities: Acquisitions of intangible assets.......................... (282) (159) (5,628) (443) Purchases of property and equipment....................... (1,466) (3,710) (5,207) (3,891) Purchases of investments......... 0 0 0 (4,526) Acquisitions, net of cash acquired........................ 0 0 (29,431) (30) Proceeds from sale of property and equipment................... 4 106 293 0 ------ ------- ------- ------- Net cash used in investing activities..................... (1,744) (3,763) (39,973) (8,890) ------ ------- ------- ------- ~~License~~Cash ~~revenues~~flow ~~22,024~~from ~~7,162~~Financing ~~60,523~~Activities: ~~22,760~~Net ~~Professional~~change ~~services~~in ~~24,626~~short-term 12debt.... 2,~~033~~995 55(1,~~720~~129) 240 37,~~308~~746 ~~Customer~~Proceeds ~~support~~from ~~8,074~~debt ~~2,413~~issuances..... 161,~~965~~516 510,~~853~~130 ~~Income~~0 ~~from~~0 ~~the~~Issuances ~~sale~~ of ~~hardware~~share ~~2,172~~capital....... ~~1,623~~551 510,~~379~~007 1383,~~070~~025 ~~Other~~ 0 ~~148~~Dividends 38paid................... ~~204~~(97) 0 0 0 ------ ------- -------~~----~~ ------- Net cash provided by financing activities..................... 4,965 19,008 83,025 37,746 ------ -------~~----~~ ------- ------- Effect of Exchange Rate Differences on Cash.............. 0 20 (2,057) (1,554) Increase (decrease) in Cash and Cash Equivalents................. 7 1,816 5,309 (178) Cash and Cash Equivalents: At the beginning of the period... 9 16 1,832 7,141 ------~~----~~ ------- ------- --------- ~~56,896~~At 23the end of the period......... 16 1,~~379~~832 ~~138~~7,~~625~~141 666,~~195~~963 ======~~==================~~ =======~~=================~~ =======~~=================~~ =======~~================~~ Supplemental Disclosure of Cash flow Information: Cash paid for: Interest......................... 105 330 930 636 Income taxes..................... 9 0 0 240

Supplemental Disclosures of Non-Cash Transactions: In the year ended June 30, 1999, the Company acquired MeTechnology AG, Leipzig, in exchange for common shares of the Company with a fair value of DM 159,661.0 thousand. Also during that year, approximately DM 7,486.0 thousand of debt was converted into equity. In the six months period ended December 31, 1999, the change in deferred compensation related to stock options of DM 86,355.0 thousand was credited to additional paid-in capital in the amount of DM 79,273.0 thousand and goodwill in the amount of DM 7,082.0 thousand. In the same period long-term debt recorded in connection with the acquisition of MeTechnology of DM 16,980.0 thousand was forgiven and charged to goodwill (see Note 12). The accompanying notes are an integral part of these consolidated financial statements. F-7 BROKAT INFOSYSTEMS AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 1. The Company Brokat Infosystems AG (formerly: Brokat Informationssysteme GmbH), Stuttgart, Germany, was founded on September 17, 1994. The Company and its subsidiaries develop and market cross-channel software for the integration of existing IT systems and applications into various electronic channels such as Internet, mobile radio or call centers. The Company's main customers are banks and other institutions which offer and process services through electronic channels. By a shareholders' resolution of April 1, 1998, the parent company was converted from a limited liability company (Gesellschaft mit beschrankter Haftung, "GmbH") to a stock corporation (Aktiengesellschaft, "AG"). Under a GmbH the equity interests of the shareholders in the company are not represented by a specific number of shares. Under the stock corporation structure, shares are issued to the shareholders and the number of shares issued corresponds to the share capital of the company. The change in capital structure was registered with the commercial register in Stuttgart on July 3, 1998. On September 17, 1998, the Company completed an initial public offering ("IPO") of its share capital in Germany and listed its shares on the Neuer Markt, a German stock exchange. The listing of these shares and the IPO, itself, involved a series of transactions that immediately preceded the initial public offering. These transactions are discussed in the following paragraphs. The purpose of these transactions was to increase the number of shares outstanding immediately prior to the IPO, without effecting a stock split, as well as comply with German law that requires existing shareholders to have a pre-emptive right to purchase newly issued shares before outside shareholders may purchase these shares. On September 15, 1998, existing shareholders of the Company (the "Existing Shareholders") participated in a rights offering, whereby existing shareholders were issued 248.97 rights for each share of stock owned. Each right allowed shareholders to purchase one share of the Company's common stock for a price of DM 3.33 per share. In aggregate, 24,000,000 rights were issued to shareholders. Immediately upon issuance, the shareholders sold 3,750,000 of their rights to Banque Paribas, Frankfurt am Main ("Paribas"), an entity which acted as an investment banker for the Company. Paribas acquired these rights for a cash consideration of DM 18.00 per right. This value was determined based upon the difference between the Company's initial public offering price of DM 21.33 per share (see below) and the exercise price of the right of DM 3.33 per share. Upon acquisition, Paribas then immediately exercised all of the rights and purchased 3,750,000 shares of the Company's common stock for cash proceeds totaling DM 12,500,000, excluding underwriter discounts and commissions. Using the consideration received from the sale of the 3,750,000 conversion rights, the Existing Shareholders then exercised their rights and purchased 20,250,000 shares of the Company's common stock for cash proceeds totaling DM 67,500,000. In total, the Company received DM 80,000,000 from the sale of the stock rights. The remaining 3,750,000 shares then held by the bank were issued to the public at an offering price of DM 21.33 per share. All proceeds from the issuance of these shares were retained by Paribas to offset initial funding requirements to obtain and exercise the 3,750,000 rights. F-8 BROKAT INFOSYSTEMS AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table summarizes cash proceeds and expenditures by the parties to all of the transactions:

~~THREE~~Cash ~~MONTHS~~received/(expended) ~~ENDED THREE MONTHS ENDED NINE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 SEPTEMBER 30, 2000 SEPTEMBER 30, 1999~~ ------------------ ------------------ ---------------~~---~~ ~~------------------~~Existing ~~(UNAUDITED)~~New ~~(UNAUDITED)~~Bank ~~(UNAUDITED)~~Shareholders ~~(UNAUDITED)~~Shareholders Company ----------- ------------ ------------ ----------- ~~Pro~~Sale ~~forma~~of ~~net~~rights ~~sales~~to ~~(in~~Paribas................ ~~TDM~~(67,500,000) 9067,~~746 49~~500,~~325~~000 ~~227,773~~-- ~~131,639~~-- ~~Pro~~Exercise ~~forma~~of ~~net~~rights ~~loss~~by ~~(in~~Paribas................ ~~TDM~~(12,500,000) ~~180,881~~-- ~~117~~-- 12,~~341~~500,000 ~~425~~Exercise of rights by Existing Shareholders.. -- (67,~~167~~500,000) ~~299~~-- 67,~~628~~500,000 ~~Pro~~Sale ~~forma~~of ~~loss~~shares ~~per~~to ~~share~~new shareholders........... 80,000,0000 -- ~~basic~~(80,000,000) ~~and~~-- ~~diluted~~----------- ~~(in~~----------- ~~Deutsche~~----------- ~~Mark~~---------- -- -- (80,000,000) ~~6.61~~80,000,000 ~~4.59~~=========== ~~15.53~~=========== ~~11.71~~=========== ==========

In connection with the rights offering, the Existing Shareholders of the Company remained in the same economic position both immediately before and after the offering. Net proceeds to the Company as a result of the transactions described above was DM 74,066,000, consisting of gross proceeds of DM 80,000,000 less underwriters' discounts, commissions and other offering expenses of DM 5,934,000. Additionally, the Company raised DM 8,960,000 from the exercise of the over-allotment option in October 1998, resulting in total net proceeds from the offering of approximately DM 83,000,000. Note 2. Summary of Significant Accounting Policies Basis of consolidation The accompanying consolidated financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles ("US-GAAP"). The assets, liabilities and results of operations of entities in which the Company has a controlling interest have been consolidated. Investments in which the Company exercises significant influence, but which it does not control (generally 20-50% ownership interest) are accounted for under the equity method of accounting. Investments in which the Company has less than a 20% ownership interest are accounted for under cost method of accounting. All significant intercompany accounts and transactions have been eliminated. Minority interest represents the 49% separate ownership of the German subsidiary Go-Solutions GmbH. Basis of presentation The accompanying consolidated financial statements are stated in thousands of Deutsche Marks. The Company's fiscal year previously ended on June 30. In November, 1999, the Shareholders Meeting approved management's plan to change the Company's fiscal year to a calendar year ending on December 31. In 1999, the transition year, the Company's fiscal year begins July 1, 1999, and ends December 31, 1999. Beginning July 1, 1999, international operating subsidiaries, which had generally been included in the consolidated financial statements based on interim financial statements for fiscal years ending June 30, are now included in the consolidated financial statements based on fiscal years ending December 31. The consolidated statements of operations, shareholders' equity, and cash flows are presented for the six months ended December 31, 1999, and for each of the three years ended June 30, 1999, June 30, 1998, and June 30, 1997. F-9 BROKAT INFOSYSTEMS AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) For comparative purposes only, the following table presents the condensed results of operations for the six months ended December 31, 1999 and 1998. Condensed Consolidated Statement of Operations

9Six ~~MONTHS~~Months 9Ended ~~MONTHS~~December ~~CHANGE~~31, ~~JANUARY~~ - ~~SEPTEMBER JANUARY~~ - ~~SEPTEMBER YEAR~~-ON-~~YEAR~~---------------------------- ~~2000~~1998 1999 --------------- -------------- ~~Sales~~(Unaudited) ~~138,625~~(Audited) 66(DM in thousands,~~195~~ ~~109%~~except ~~Gross~~per ~~Margin~~share 52data) Revenue.2%................................ 5219,671 51,287 Cost of Sales.7.......................... ~~EBITDASO~~(110,371) (3922,~~708~~937) ~~(15~~-------------- -------------- Gross Profit............................ 9,~~599)~~300 ~~155%~~28,350 ~~Net~~-------------- ~~Loss~~-------------- Other costs and expenses................ (~~133~~21,~~232~~745) (4679,~~993~~697) ~~184%~~-------------- ~~International~~-------------- ~~Sales~~Loss 79before income taxes................ (12,~~571~~445) 17(51,~~760~~347) ~~348%~~-------------- ~~License~~-------------- ~~Sales~~Income ~~60,524~~taxes............................ ~~22,760~~0 ~~166%~~(104) ~~Partner~~Minority ~~Sales~~Interest....................... ~~31,896~~0 ~~21,695~~(26) ~~47%~~Extraordinary ~~Shareholders~~loss ~~Equity~~on ~~556,922~~early ~~169,946~~extinguishment ~~228%~~of ~~Balance~~debt................. ~~Sheet~~(64) ~~Total~~0 1-------------- -------------- Net loss................................ (12,~~955,198~~509) ~~248~~(51,~~685~~477) ~~702%~~============== ~~Equity~~============== ~~Ratio~~Basic ~~28%~~and ~~68%~~diluted ~~Net~~loss ~~Cash~~per ~~Flow~~share ~~From~~before ~~Investing~~extraordinary ~~73,333~~items.................... (~~44,949~~0.63) ~~63%~~(1.92) ~~Cash~~============== ~~225,634~~============== ~~4,226~~Basic ~~5189%~~and ~~Total~~diluted ~~number~~loss ofper ~~Employees~~share........ (0.63) (1~~,251~~.92) ~~548~~============== ~~128%~~==============

Use of estimates The preparation of financial statements in conformity with US-GAAP requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Foreign currency translation The Company's financial statements are prepared in Deutsche Mark. The functional currency of each of the Company's subsidiaries is the local currency in which each subsidiary is located. Assets and liabilities denominated in foreign currencies are translated at rates of exchange in effect at the balance sheet date. Revenues and expenses are translated at average rates of exchange in effect during the year. Differences arising from the translation are recorded to accumulated other comprehensive income. Transactions in foreign currencies are translated at the exchange rate in effect at the date of each transaction. Differences in exchange rates during the period between the date a transaction denominated in a foreign currency is consummated and the date on which it is either settled or translated for inclusion in a consolidated balance sheet are recognized in the statement of operations and are included in "Other, net" for that period. The foreign currency exchange gain (loss) recognized in the statement of operations for the six months period ended December 31, 1999, and the years ended June 30, 1999, June 30, 1998, and June 30, 1997 was DM 2,250.0 thousand, DM 2,177.0 thousand, DM (215.0) thousand and DM 0 thousand, respectively. Cash and cash equivalents All highly liquid investments with original maturities of three months or less are considered to be cash equivalents. The carrying amounts of cash and cash equivalents approximates fair value due to the short maturity of these investments. F-10 BROKAT INFOSYSTEMS AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Trade accounts receivable Receivables with recognizable risks are provided for by adequate allowances, while uncollectible receivables are written off. Trade accounts receivable are expected to be settled within one year of the origination of the receivable. Advances on purchase commitments Advances on purchase commitments represent prepayments on software licenses purchased from a related party (see Note 19). Accounting for long-lived assets The Company, at each balance date, evaluates the recoverability of the carrying amount of its long-lived assets in accordance with Statement of Financial Accounting Standard (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed of". Whenever events or changes in circumstances indicate that the carrying amounts of those assets may not be recoverable over the remaining amortization period, the Company will compare undiscounted net cash flows estimated to be generated by those assets to the carrying amount of those assets. To the extent that these cash flows are less than the carrying amounts of the assets, the Company will record impairment losses to write the asset down to fair value. As of December 31, 1999, management believes that no such impairment exists. Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful life of the assets, ranging from 3 years for computer hardware and 5 to 10 years for furniture and fixtures. Cost includes major expenditures and replacements which extend useful lives or increase capacity and interest cost associated with significant capital additions. For all periods presented, interest costs allocable to these projects have been insignificant and have not been capitalized. When assets are sold or retired, their cost and related accumulated depreciation are removed from the appropriate accounts. Any gains or losses on disposition of such assets are recorded as other income or expense. Maintenance and minor repairs are charged to operations as incurred. Purchased software is stated at cost and depreciated using the straight-line method over the estimated useful life of the software. Goodwill and purchased intangible assets are capitalized and amortized on a straight line basis over their estimated periods to be benefited. This amortization period is determined individually for each asset and ranges from 3 to 7 years. Income taxes The Company utilizes the liability method of accounting for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes". Under the liability method, deferred taxes are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Earnings (loss) per share information In accordance with SFAS No. 128, "Earnings per Share" basic earnings per share are calculated using income available to common shareholders divided by the weighted average of common shares outstanding F-11 BROKAT INFOSYSTEMS AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) during the year. Diluted earnings per share are similar to basic earnings per share except that the weighted average of common shares outstanding is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares, such as options, had been issued. For all periods presented, no potentially dilutive securities have been included in the calculation of diluted loss per share as such amounts would be antidilutive in periods in which a loss has been reported. The aggregate number of potential common share equivalents that have been excluded from the diluted loss per share calculation was 2,409,639 and 1,204,818 as of December 31, 1999, and June 30, 1999, respectively, and related entirely to stock options. As described in Note 1, the Company changed its corporate structure from a "GmbH" to "AG". Under a GmbH the equity interest of the shareholders in the company are not represented by a specific number of shares. Accordingly there is no per share amount assignable to the Company before fiscal year June 1999. Stock splits In July 1998 and December 1999, the Company effected a ten-for-one and a three-for-one stock split, respectively. All share and per-share amounts in the accompanying consolidated financial statements have been restated to give effect to both splits. Software development costs The Company accounts for its software development costs in accordance with SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed". Capitalization of software development costs begins upon establishment of technological feasibility and ends upon general release of the software to the public. In accordance with SFAS No. 86, the Company has defined technological feasibility as the completion of the working model. Research and development costs are incurred during the completion of the preliminary design and conception phase and prior to the technical and economic feasibility of the product being established. These costs are immediately expensed as research and development costs when incurred. Advertising costs Advertising costs are expensed as incurred. Advertising costs were DM 2,595.0 thousand, DM 3,367.0 thousand, DM 2,011.0 thousand and DM 420.0 thousand for the six months ended December 31, 1999, and for the years ended June 30, 1999, June 30, 1998, and June 30, 1997, respectively. F-12 BROKAT INFOSYSTEMS AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Revenue recognition The Company generates revenues from the installation and licensing of the rights to use its software products to end users. The Company also generates revenues from sales of professional services, including consulting, training, and maintenance. Cost of sales per revenue line (unaudited)

Revenues from software license agreements are recognized upon delivery of the software if among other things (1) persuasive evidence of an arrangement exists, (2) collection is probable, (3) all license payments are due within one year, (4) the license fee is otherwise fixed and determinable and (5) vendor specific evidence exists to allocate the total fee to all elements of the arrangement. Software licenses are sold directly to end users as well as to distributors or valued-added resellers ("VARs"). These distributors and VARs then attempt to sell the related licenses, along with other services, to other end users. These distributors will often buy multiple licenses that allow the software to be installed on a fixed number of hardware platforms, such as five licenses each for IBM, MacIntosh and Sun Microsystems equipment. The distributor may, at its option during the license period, exchange one or more licenses for one computer platform for those of another platform. However, the distributor can never obtain more licenses than F-13 BROKAT INFOSYSTEMS AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) total number originally purchased, unless separate license arrangements are contracted. No right of return exists associated with any installed or unused licenses. In connection with software licenses sold to distributors and VARs, the Company recognizes revenues based on the same factors previously indicated. The Company may sell software licenses together with other services. Service revenue is primarily related to implementation and installation services performed under separate service arrangements. Revenues from consulting, training and maintenance services are recognized as the services are performed. Billings on software license agreements and services provided by the Company are generally made at the time the license is delivered or the services are completed. Billings are generally payable by customers within 30 days after issuance of the invoice. Certain license agreements with distributors allow for the distributors to pay for the license over a period that is longer than 30-45 days. In no circumstances, though, do these terms extend beyond twelve months from the date the software license has been delivered. Sometimes, a license agreement includes both software and service elements. Typically, these services include installation and customization of software, and postcontract maintenance services. The revenues to be generated from postcontract maintenance services embedded in the agreement are separately identified and accounted for as described in the following paragraph. Revenues from the remaining facets of the contract, including the licensing, customization and installation of the software, are deferred and recognized under the percentage of completion method of accounting as services are performed. Due to the long-term nature of these projects, percentage of completion is measured by the labor cost incurred to total estimated labor cost method. Billings issued to, and cash payments received from customers are not shown as sales revenue but deducted without effect on income from cost in excess of billings on uncompleted contracts or added to billings in excess of costs on uncompleted contracts. Billings are generally payable by customers within 30 days of the issuance of an invoice. Sales revenues from maintenance agreements are recorded as revenue ratably over the term of the contract. Revenues from maintenance agreements, which are embedded into sale and installation agreements are estimated based on the price the customer will be required to pay when these services are sold separately (i.e., the renewal rate) and recognized over the term of the agreement. Any unrecognized revenues are recorded on the accompanying balance sheets as deferred income. The Company bills for maintenance agreements on a monthly basis and payments are due within 30-45 days after the billing. Changes in job conditions may result in revisions to previously recorded costs and revenues for a particular project. These changes are recognized in the period in which the revisions are determined; this occurs when formal change orders are signed between the Company and the customer. Furthermore, provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Sometimes in connection with the installation of customized software, customers separately will request that the Company provide hardware on which the software will reside. The Company will purchase this hardware from third party vendors, and typically those vendors will deliver and install directly the hardware for the customer. In all cases, the Company takes title to the hardware, acts as a principal in the transaction with the vendor and bears collection risk from the customer. Accordingly, the Company recognizes revenues from the sale of hardware on a gross basis, at the time the hardware is delivered to a customer, persuasive evidence of an arrangement exists, the revenues are fixed or determinable and collectibility is probable. New accounting standards Effective July 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income". SFAS No. 130 requires companies to report comprehensive income, which is defined as all changes in equity during a F-14 BROKAT INFOSYSTEMS AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) period, except those resulting from investment by owners and distribution to owners, in a financial statement for the period in which they are recognized. Net income and other comprehensive income, including foreign currency translation adjustment, minimum pension liability and unrealized gains and losses on investments are to be reported, net of their related tax effect, to arrive at comprehensive income. The Standard requires only additional disclosure in the financial statements and does not affect the Company's financial position or results of operations. Prior years financial statements have been restated to conform to the requirements of SFAS No. 130. Effective July 1, 1998, the Company adopted SFAS No. 131, "Disclosure about Segments of an enterprise and related Information". The Company operates in one business segment, the licensing of software products. Therefore the adoption of SFAS No. 131 had no impact on the Company's financial position or results of operations. In March 1998 the Accounting Standards Executive Committee of the AICPA approved Statement of Position (SOP) 98-1. This SOP governs the accounting of internally used, acquired or internally developed software and requires the capitalization of certain associated costs. SOP 98-1 is applicable for financial years beginning after December 15, 1998. Effective July 1, 1998, the Company adopted SOP 98-1. In accordance with the capitalization criteria of SOP 98-1 the Company capitalized internally developed, self-used software of DM 0 thousand and DM 437.0 thousand during the six months ended December 31, 1999, and the year ended June 30, 1999. The Financial Accounting Standards Board (FASB) recently issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", which requires that companies recognize all derivatives as either assets or liabilities in the balance sheet at fair value. Under this statement, accounting for changes in fair value of a derivative depends on its intended use and designation. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of SFAS No. 133". SFAS No. 137 amends the effective date of SFAS No. 133. SFAS No. 133 will now be effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. The Company is currently assessing the potential effects of this new standard. Based on the current and expected levels of derivative instruments used by the Company, the adoption of this new standard is not expected to have a material effect on the Company's results of operations or financial position. Note 3. Acquisitions Transaction Software Technologies, Inc., Atlanta, USA On May 9, 1999, the Company acquired Transaction Software Technologies, Inc., Atlanta, USA, (TST), for DM 34.9 million in cash (including direct acquisition costs), of which DM 1,665.0 thousand was to be paid twelve months after closing and another DM 1,665.0 thousand was to be paid 24 months after closing, with no interest due. Complementing the Company's existing software business, TST has been a leader in the development and implementation of cash management systems in U.S. banking institutions. The acquisition was accounted for using the purchase method. Accordingly, the purchase price was allocated to the assets acquired and the liabilities assumed, based on the completion of the evaluation of the fair values of TST's assets and liabilities at the date of acquisition. The following is a summary of the purchase price allocation:

F-15 BROKAT INFOSYSTEMS AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The acquired customer list is being depreciated over a period of 5 years. Acquired goodwill is being amortized over a period of 7 years. The operating results of TST have been included in the consolidated income statements from the date of acquisition. MeTechnology AG, Leipzig On May 21, 1999, the Company acquired MeTechnology AG, Leipzig, for the issuance of 2,332,374 shares of Brokat common stock having a value of DM 159.7 million on that date, based on the closing price of the Company's common stock as quoted on the Neuer Market. Additionally, DM 1.2 million direct acquisition cost were paid in cash. Complementing the Company's existing software business, MeTechnology AG has been a leader in the development and implementation of online banking software in Germany. The acquisition was accounted for using the purchase method. Accordingly, the purchase price was allocated to the assets acquired and the liabilities assumed, based on the evaluation of the fair values of MeTechnology AG's assets and liabilities at the date of acquisition. The following is a summary of the purchase price allocation:

The acquired customer list is being depreciated over a period of 5 years. Acquired goodwill is being amortized over a period of 7 years. The operating results of MeTechnology AG have been included in the consolidated income statements from the date of acquisition. In July 1999, and based on provisions described in the acquisition agreement the sellers of MeTechnology AG agreed to grant 135,150 of the total shares of 2,332,374 that they received in consideration for MeTechnology AG in the form of options to employees of MeTechnology AG. The strike price of these options was DM 21.33 and such options had the same terms as the general stock option plan for the employees of Brokat. The assignment of the employee shares was performed in the six months ended December 31, 1999, as described in Note 16. In the six months ended December 31, 1999, goodwill was decreased by DM 7,082.0 thousand due to the grant of the option rights as well as in the amount of DM 16,980.0 thousand due to the revision of management's estimates in relation to the fair value of liabilities assumed. Specifically, convertible debt and other long-term liabilities previously thought to be assumed by Brokat were actually repaid by the former shareholders of MeTechnology AG as described in Note 12. The following unaudited pro forma financial information presents results as if the acquisition of TST and MeTechnology AG had occurred at the beginning of the respective periods:

F-16 BROKAT INFOSYSTEMS AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) These pro forma results have been prepared for comparative purposes only and include certain adjustments such as additional amortization expense as a result of goodwill arising from the purchase and interest expense on acquisition debt. The pro forma results are not necessarily indicative of the results of operations which actually would have resulted had the purchase been in effect at the beginning of the respective periods or of future results. Bremen Online Services Entwicklungs- und Betriebsgesellschaft mbH & Co. KG, Bremen Bremen Online Services Entwicklungs- und Betriebsgesellschaft mbH & Co. KG, Bremen, was founded by the articles of association dated July 16, 1999. Brokat has a 5% interest in the capital of the company at a cost of DM 1,000.0 thousand, of which DM 334.0 thousand had to be paid immediately and DM 666.0 thousand is to be paid in two equal installments by March 31, 2000, and March 31, 2001, with no interest due. This investment is being accounted for utilizing the cost method of accounting. The purpose of the company is the development, operating and marketing of the Bremen Online Services infrastructure including the online applications from public administration and business who wish to use this safe infrastructure and the initiation and performance of other projects in this area. GEKA Beteiligungs AG, Frankfurt On September 6, 1999, the Company acquired 100% of the outstanding common stock of GEKA-Beteiligungs AG, Frankfurt, for DM 130.0 thousand GEKA Beteiligungs AG does not yet have an operating business. The organization cost of DM 30.0 thousand was expensed in the current period. LexLinkLine AG, Dusseldorf On October 18, 1999, the Company acquired 12.5% of the outstanding common stock of LexLinkLine AG, Dusseldorf, for DM 39.0 thousand. This investment is being accounted for using the cost method of accounting. LexLinkLine AG will develop and market "Web&Voice" technologies. As part of its product range LexLinkLine will market the "Internet Communication Center" for Brokat which connects the Internet and the Call-Center. Fernbach Financial Software S.A., Luxembourg On December 20, 1999, the Company acquired 25.1% of the outstanding common stock of Fernbach Financial Software S.A., Luxembourg, for DM 4.0 million in cash (and additional direct acquisition costs of DM 154.0 thousand). The excess of the purchase price over the company's proportionate share of the fair value of net assets acquired of DM 4,075.0 thousand is being amortized on a straight- line basis over a period of 7 years. This investment is being accounted for using the equity method of accounting. Fernbach Financial Software S.A., Luxembourg, holds 100% interests in Fernbach Software S.A, Luxembourg, in Fernbach Software AG, Deutschland, and in Fernbach-Software AG, Switzerland. Fernbach companies develop and market software and hardware solutions for the handling of transactions, particularly in the area of bank software. The purchase agreement gave Brokat an option to acquire the remaining shares of Fernbach Financial Software S.A. until June 30, 2000. Brokat can exercise the options as of December 31, 1999, March 31, or June 30, 2000. The option purchase price is variable and depends on weighted sales, profit and order backlog values that have been achieved as proxies for the fair value of Fernbach on each date the option can be exercised. Brokat is also obligated to exercise the option as of June 30, 2000, provided the consolidated financial statements of the Fernbach companies show a positive pre-tax result as of the option date June 30, F-17 BROKAT INFOSYSTEMS AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 2000, for the period from January 1 to June 30, 2000, after the elimination of any special charges. No value was assigned to this option at the time of the acquisition of Fernbach Financial Software S.A., as the option allows for the purchase of the remaining interest in Fernbach at fair value and is based on Fernbach's past and expected future near-term operating losses (see also Note 20). Note 4. Cost and Estimated Earnings in Excess of Billings on Uncompleted Contracts Cost and estimated earnings on uncompleted contracts Costs and estimated earnings in excess of billings on uncompleted contracts arise when revenues have been recorded but the amounts cannot be billed under the terms of the contracts. Such amounts are recoverable from customers upon various measures of performance, including achievement of certain milestones, completion of specified units or completion of the contract. Cost and estimated earnings contains directly allocable costs (labor cost and cost of services provided by third parties) as well as the appropriate portion of overheads including pro rata administrative expenses. Costs and estimated earnings on uncompleted contracts and related amounts billed are as follows:

Such amounts are included in the accompanying Consolidated Balance Sheets under the following captions:

F-18 BROKAT INFOSYSTEMS AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Note 5. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets are generally accounted for at nominal value and have a residual term of up to one year. Prepaid expenses and other current assets consist of the following:

The other prepaid expenses and current assets mainly contain rent deposits, receivables from employees and other prepayments. Note 6. Goodwill and Other Intangible Assets Intangible assets consist of the following:

Intangible assets are amortized over the following periods:

All intangible assets are amortized using the straight-line method. Note 7. Short-Term Debt to Banks At December 31, 1999, the Company had DM 75,500.0 thousand (June 30, 1999: DM 16,300.0 thousand; June 30, 1998: DM 1,500.0 thousand) general purpose lines of credit with several banks. Under the Credit Arrangements, the Company has the option to borrow amounts at various interest rates, payable in Deutsche Mark. Use of the borrowing is unrestricted, with the exception of the borrowings under the line of credit with Deutsche Bank AG, Stuttgart, and the borrowings are unsecured. F-19 BROKAT INFOSYSTEMS AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) At December 31, 1999, the Company had outstanding debt borrowings under the Credit Arrangements amounting to DM 42,271.0 thousand (June 30, 1999: DM 3,226.0 thousand, June 30, 1998: DM 0 thousand). Included in the lines of credit is an overdraft credit of DM 60 million granted initially by Deutsche Bank AG, Stuttgart, to Brokat until December 31, 1999. The funds are to be used exclusively for operating purposes. The current interest rate is computed at 6% per annum. An extension of the line of credit has been agreed under certain fulfilled conditions until June 30, 2000. The interest rate on short-term borrowings outstanding at December 31, 1999, was between 4.08% and 6.0% (June 30, 1999: between 5.5%-8.25%, June 30, 1998: no outstanding balances). Note 8. Other Short-Term Debt Other short-term debt are as follows:

Regarding the short-term debt against Technologie-Beteiligungs-Gesellschaft mbH of the Deutsche Ausgleichsbank, Bonn (also referred to as "tbg") (see Note 11). The short-term loans were granted by a former shareholder of MeTechnology AG, Leipzig, and were repaid during the six months ended December 31, 1999. The debt from the purchase price obligation resulted from the purchase of Transaction Software Technologies, Inc., Atlanta, USA, and is due in May 2000. Note 9. Other Accrued Expenses and Current Liabilities Other accrued expenses and current liabilities mainly contain provisions for interest payments, outstanding invoices, as well as potential losses from customer projects. Note 10. Long-Term Debt to Banks By contract dated May 23, 1997, Kreissparkasse Boblingen provided Brokat with a line of credit of DM 2,000.0 thousand. The loan has a term of ten years. Interest is to be paid on the loan at 7% per annum. Furthermore, the creditor receives profit-based remuneration of 20% per annum of the net profit for the year, but not exceeding 3% of the stated value of the loan. Repayment shall be made in one sum at the end of the term. As of December 31, 1999, all of the loan had been utilized. The credit agreement contains conditions and events of default, the failure to comply with, or occurrence of, would generally give the lender the right to terminate the credit agreement and require the repayment of the outstanding borrowings under the credit agreement. The most restrictive of such conditions include the approval of the bank to certain legal transactions. Those transactions are among others: (1) an amendment or a F-20 BROKAT INFOSYSTEMS AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) change of the Company's statutes, (2) sale of the Company or a part of the Company as well as the acquisition or the sale of other companies or the shares in other companies as well as the foundation of subsidiaries, (3) the signing/changing/termination of contracts with shareholders, relatives of shareholders except for the case when the modified contracts will meet arm's- length-principle. The Company is not in compliance with certain of these covenants but such non-compliance has been waived by the bank. Specifically, the company had entered into certain contracts prior to obtaining approval from the lenders. On February 3rd, 2000 the lenders approved the signing of the contracts and waived the non-compliance with the covenants. Note 11. Long-Term Debt to Shareholders Long-term debt to shareholders are as follows:

As of June 30, 1999, and 1998, tbg has three "silent participations" in the parent company totaling DM 4,000.0 thousand. With its first silent participation on December 2, 1996, tbg invested DM 1,000.0 thousand in the Company. The investment had an initial term until June 30, 2006. By contract dated September 19, 1997, a second silent participation of DM 1,000.0 thousand was consummated; this loan expires on December 31, 2007. By supplementary agreements of August 1, 1998, both participations were converted into loans with an annual interest rate of 10.5% and the condition, that the loans can be terminated no earlier than September 30, 1999. By contract dated September 19, 1997, a third silent participation of DM 2,000.0 thousand was concluded; this expires on December 31, 2007. By side agreement of August 1, 1998, the annual interest amounts to 11.5% and the loans can be terminated no earlier than September 30, 1999. The tbg agreements contain conditions and events of default, the failure to comply with, or occurrence of, would generally give the lender the right to terminate the credit agreement and require the repayment of the outstanding borrowings under the credit agreement. The most restrictive of such conditions include the approval of the silent partner to certain legal transactions. Those transactions are among others: the ratification of amendments or changes of the Company's statutes. By side agreements dated August 27, 1999, all three loans in the amount of DM 4,000.0 thousand have been converted into short-term debt, due June 30, 2000. The annual interest amounts have been changed to 6.0% beginning of October 1, 1999. As of July 1, 1998, a loan payable of DM 486.0 thousand was due to the shareholder Advanced European Technologies N.V., ED Heiloo, Netherlands (also referred to here as "AET"). The loan was originally callable on October 31, 2001, and was subject to interest at a rate of 5% per annum, with the first five years being free of interest. Accordingly, the note was recorded at a discounted amount and interest was imputed at a rate of 5% equivalent to Company's estimated cost of borrowing for loans with similar characteristics. In case of an Initial Public Offering ("IPO") of the Company or if all shares in the Company are sold to a third party the loan is callable at once. F-21 BROKAT INFOSYSTEMS AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) In connection with the Company's IPO the entire loan was contributed on August 4, 1998, by AET as a contribution in kind in return for 90 shares of common stock in Brokat. The excess of the value of the common stock issued of DM 486.0 thousand over the carrying value of the debt was recorded as an extraordinary loss. By resolution the amount exceeding the calculated share in the common stock was transferred to the additional paid-in capital. Note 12. Other Long-Term Debt Other long-term debt are as follows:

Debt from purchase price commitment The liability from the purchase price commitment resulted from the purchase of Transaction Software Technologies, Inc., Atlanta, USA, and is due in May 2001. The liability is free of interest. The recognized imputed interest rate was 5% per annum, and was determined based on debt with similar characteristics. Silent participation and junior loan A silent participation is a form of loan whereby the note holder receives interest based on a stated rate in the loan agreement and/or based on the level of profits (and losses) of the company. Despite receiving interest based on the earnings of the company, the silent partners do not hold voting rights in the company and cannot influence operating decisions. By contract dated December 6, 1996, and amendment agreement of May 29, 1998, SBF Sachsische Beteiligungsfonds GmbH, Leipzig (also referred to as "SBF"), invested a total of DM 9,950.0 thousand as silent shareholder in ESD Information Technology Entwicklungs GmbH, Leipzig, the predecessor of MeTechnology GmbH. The silent participation expires on December 31, 2001. The shareholder has a 20% share in the profit, but does not share in the loss of the Company. SBF also receives annual servicing compensation of 2% of the investment amount. By contract dated February 13, 1996, GSM Industriebeteiligungen GmbH, Munich (also referred to as "GSM"), granted ESD a junior loan of DM 3,530.0 thousand. The loan arrangement will mature on December 31, 2005, and bears interest at an annual rate of 8%. Due to uncertainties as to whether the Company assumed these liabilities in connection with its purchase of MeTechnology AG, the fair value of this debt was recorded as part of the purchase price allocation and reflected in the consolidated balance sheet as of June 30, 1999. During the six months ended December 31, F-22 BROKAT INFOSYSTEMS AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 1999, SBF and GSM received full repayment of the described debts from the former shareholders of MeTechnology AG and consequently waived all rights under the debt instrument. Accordingly, during the six months ended December 31, 1999, the Company eliminated the estimated liability associated with these debt instruments and reduced goodwill by DM 13,480.0 thousand, as prescribed by APB 16 of the Accounting Principles Board and related interpretations. Convertible debt By contract dated September 19, 1997, tbg invested DM 7,000.0 thousand in a silent participation in the Company. Payment was made on December 2, 1997. The investment was originally scheduled to mature on December 21, 2007. Under the silent participation agreement tbg participated proportionately in the losses of the Company. However, the agreement did not allow for tgb to participate proportionately in any gains of the Company. Instead, tbg had the right to convert its silent participation into equity interests in the Company with a value of DM 7,000.0 thousand only in the event that the Company completes an initial public offering of its common stock or if a change in control in the Company, as defined, occurs. Accordingly, as tbg had the right to convert its interest into equity at the same amount of its original investments during all periods presented, the Company did not recognize any loss participations in relation to this silent participation. As a result of the Company's initial public offering of common shares, tbg exercised its right to convert its silent participation into equity of the Company and was issued common shares with a value of DM 7,000.0 thousand on August 4, 1998. As this conversion was in accordance with the terms of original agreement, there was no gain or loss recognized in relation to this conversion. By contract dated November 12, 1998, and prior to the acquisition by the Company of MeTechnology AG, Private Equity Investment Ltd., Grand Cayman (also referred to as "PEB") invested DM 3,500.0 thousand in MeTechnology AG, Leipzig, in the form of a convertible bond. The participation entitles PEB until October 31, 2000, to convert at any time a nominal amount of the convertible bond of DM 500 into one share of MeTechnology AG. The convertible bond is interest free until January 31, 2000. That part of the convertible bond which has not yet been converted is repayable on October 31, 2000. Due to uncertainties as to whether Brokat assumed this liability in connection with its purchase of MeTechnology AG, the fair value of such debt was recorded as part of the purchase price allocation and is reflected in the consolidated balance sheet at June 30, 1999. During the six months ended December 31, 1999, PEB received repayment of the bond from the former shareholders of MeTechnology AG and consequently waived all its rights under the convertible bond. Accordingly, during the six months ended December 31, 1999, the Company eliminated the estimated liability associated with this debt instrument and reduced goodwill by DM 3,500.0 thousand, as prescribed by APB 16 and related interpretations. Note 13. Fair Value of Financial Instruments Financial assets and liabilities with carrying values approximating fair value include cash and cash equivalents, short-term investments, accounts receivable, accounts payable and short-term debt. The fair value of financial instruments for which quoted market prices are available are based on such market prices. Long-term financial investments are reflected at carrying value because it is not practical to estimate fair value as quoted market prices do not exist. Fair value of long-term debt is based on discounted cash flow analyses using interest rates at which similar loans would be made to borrowers with similar credit ratings. F-23 BROKAT INFOSYSTEMS AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table presents the carrying amounts and the estimated fair values of financial instruments at December 31, 1999, June 30, 1999, and June 30, 1998, respectively.

Note 14. Income Tax Benefit (Expense) The benefit (provision) for income taxes consists of the following:

German corporate tax law applies a split-rate with regard to the taxation of the income of a corporation. In accordance with the tax law in effect for the six months ended December 31, 1999 income is initially subject to a federal corporate tax rate of 40% (1998: 45%, 1997: 45%) plus surcharge of 5.5% (1998: 5.5%, 1997: 7.5%) on federal taxes payable. Including the impact of the surcharge the federal corporate income tax rate amounts to 42.2% (1998: 47.5%, 1997: 48.4%). F-24 BROKAT INFOSYSTEMS AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) A reconciliation of income taxes determined using the German corporate income tax rate of 42.2% plus a federal tax rate for trade taxes on income of 10.6% for a combined statutory rate of 52.7% in 1999 (1998: 57.1%, 1997: 57.8%) is as follows:

Deferred income tax assets and liabilities are summarized as follows:

At December 31, 1999, the Group had tax loss carryforwards amounting to DM 97,836.0 thousand (June 30, 1999: DM 68,163.0 thousand, June 30, 1998: DM 14,727.0 thousand). Of the tax loss carryforward as F-25 BROKAT INFOSYSTEMS AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) of December 31, 1999, DM 1,895.0 thousand expire within 6 years and DM 22,030.0 thousand expire within 15 years. Tax loss carryforwards in the amount of DM 73,911.0 thousand do not expire. The Company has provided valuation allowances on the portion of deferred tax assets for which it is not more likely than not that such assets will be realized. As of December 31, 1999, as well as in the prior years' valuation allowances have been recorded on all deferred tax assets due to the continued losses sustained by the Company. Note 15. Shareholders' Equity Common stock and additional paid-in capital The Company has been listed at the Frankfurt Stock Exchange in the market segment Neuer Markt since September 17, 1998. As of July 1, 1998, the GmbH capital of Brokat Informationssysteme GmbH, Stuttgart, amounted to DM 158.3 thousand and has developed since then as follows: As a result of the conversion of the Company into Brokat Infosystems AG, in July 1998, the capital of the Company was initially divided, pursuant to sec. 4 of the articles of association, into 6,420 common shares and 1,758 preferred shares in series A and 1,320 preferred shares in series B of DM 16.66 each which are made out to the bearer and which were taken over by the former shareholders. By a resolution of April 1, 1998, which also changed the articles of association, the shareholders' meeting of Brokat Informationssysteme GmbH, decided to reduce the par value of the shares of the future Brokat, Stuttgart, to DM 1.66 and to divide the common stock into 94,980 shares with a par value of DM 1.66 each. The amendment of the articles of association was filed with the Commercial Register on July 3, 1998. By shareholders' resolution taken on August 17, 1998, the common stock of the Company was increased by DM 2,365.00 to DM 160,665.00. The capital increase was made by contribution in kind by the contribution of a loan of DM 486,300.00 of AET and a silent contribution with a nominal value of DM 7.0 million worth DM 2,822,151.62 after loss absorption, of tbg in return for a total of 1,419 shares with a share in the common stock of DM 1.66 each (see Notes 11 and 12). In addition, by shareholders' resolution of August 17, 1998, the common stock was increased by issuing 24,000,000 new shares in the Company's IPO. See Note 1 for a description of this transaction. Additionally, by resolution of the board of management taken on October 1, 1998 the capital was increased by issuing 420,000 shares of common stock. On May 20, 1999, the Company issued 2,332,374 shares of common stock in exchange of 100% of the share capital of MeTechnology AG (see Note 3). As of June 30, 1999, the number of shares authorized amounts to 36,823,620 of which 26,848,773 shares were issued and outstanding. Shares issued and outstanding have an equivalent par value of DM 1.66. According to the shareholders' meeting on November 18, 1999, the common stock of the Company was converted to Euros ((Euro)) using the official translation rate. Additionally the Company increased its common stock by DM 7,763,681 (3,969,507 Euro). The capital increase is effected without issuing new shares by converting additional paid-in capital to common stock. F-26 BROKAT INFOSYSTEMS AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) As of December 31, 1999, the number of shares authorized amounts to 42,658,412 of which 26,848,773 shares were issued and outstanding. Shares issued and outstanding have an equivalent par value of DM 1.96 (the equivalent of 1 Euro). On November 7, 1999, the Company also passed a resolution to increase capital by issuing 279,573 new shares with an equivalent value of (Euro) 10 million (DM 19,558.0 thousand) with Intel Atlantic, Inc., Santa Clara, USA. The Company is entitled to the funds once the capital increase has been entered in the trade register. This had not been done in the six months ended December 31, 1999. Note 16. Stock Option Plans Accounting policy The Company continues to account for stock-based compensation using the intrinsic value method prescribed in APB 25, "Accounting for Stock Issued to Employees". Compensation cost for stock options is measured as the excess of the quoted market price of the Company's stock on the measurement date over the amount an employee must pay to acquire the stock and is recognized over the vesting period. The intrinsic value of the options is measured on the basis of the current market value of the Company's stock at the end of each period. SFAS No. 123, "Accounting for Stock-Based Compensation," established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. The Company has elected to retain its current method of accounting as described above, and has adopted the disclosure requirements of SFAS No. 123. Stock option plans The Company has issued two stock option plans to employees of the Company. The objectives of these plans include attracting and retaining personnel and promoting the success of the Company by providing employees the opportunity to acquire common stock. Under the 1998 stock option plan (the "1998 Plan"), the Company is authorized to issue and has issued 1,204,818 option rights for the subscription of Brokat shares to employees of Brokat and its affiliated companies on September 16, 1998. The option rights entitle the bearer to purchase shares in the Company at a price of DM 21.33 and vest in three installments approximately after two, three and four years. The options can only be exercised, if at certain specified dates the increase in the value of Brokat stock--based on the average price of the share during the last five trading days before the first exercise period against the IPO price--at least equals the performance of the Neuer Markt index. Under the 1999 stock option plan (the "1999 Plan") the Company is authorized to issue and has issued 1,204,821 option rights for the subscription of Brokat shares to employees of Brokat and its affiliated companies on December 15, 1999. The option rights entitle the bearer to purchase shares in the Company at a price of DM 65.85 (the average of the last 5 trading days in October when the program was initiated) and vest in three installments approximately after two, three and four years. The options can only be exercised if at certain specified dates the increase in the value of Brokat stock--based on the average price of the shares during the last five trading days before the first exercise period against the strike price of the options--at least equals the performance of the Neuer Markt index. F-27 BROKAT INFOSYSTEMS AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Moreover, principal investors of the Company have issued 200,460 option rights for the purchase of Brokat shares from their private holdings to several senior employees of the Brokat group ("Private Plan"). These rights entitle the bearer to purchase shares at DM 4.15 per share. The options were negotiated in February 1998, granted in August 1998 and vest ratably at the end of each of the next four years following the date of grant. There is no performance criteria for these options. Former shareholders of MeTechnology have issued options for a portion of the Brokat shares received in consideration of all of their shares of the affiliated company ("Me Plan"). These options have been issued to the present employees of the affiliated company on July 26, 1999, and entitle the bearer to purchase up to 135,150 shares of Brokat from these shareholders at a purchase price of DM 21.33. The options vest ratably after approximately 1.5, 2.5 and 3.5 years and can only be exercised if performance criteria similar to the "1998 Plan" are met. The options expire within 3.5 to 4.5 years from date of grant. The status of the Company's stock option plans is summarized below as of December 31, 1999:

None of the outstanding options as of December 31, 1999, are exercisable. All options vest between March 2000 and June 2004. Additional stock option awards are anticipated in future years. Moreover, as the measurement dates for the 1998 plan, the 1999 plan and the ME plan have not been reached yet, future changes in stock price of the Brokat shares will lead to future adjustments in the total compensation from these programs (variable stock option plans). In prior years, Brokat management has used graded vesting to amortize compensation from stock option programs. During the six months ended December 31, 1999, management has decided to employ the straight line method for amortizing this expense, since this method is a more preferable way to better match the expenses associated with these options with the service period of optionholders. The change in accounting principle, which totaled DM 131, has been recorded as an adjustment to operating expenses during the six months ended December 31, 1999. Had the Company applied the straight-line method to amortize compensation during the year ended June 30, 1999, the loss for the year then ended would have been decreased by 5.740.0 thousand and basic and diluted loss per share would have been decreased by DM 0.29. F-28 BROKAT INFOSYSTEMS AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Conversely, had the Company continued to apply the graded vesting method to amortize compensation, including on new plans entered into during the six months ended December 31, 1999, the loss for the six months ended December 31, 1999, would have been increased by DM 6, 557.0 thousand and basic and diluted loss per share would have been increased by DM 0.24. The weighted average fair value of options granted during the six months ended December 31, 1999, and the year ended June 30, 1999, was approximately DM 93.96 and DM 13.55 per share, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used for grants in 1999 and 1998: risk- free interest rates ranging from 5.03% to 6.24%; expected lives ranging from 3.5 to 4.5 years; expected forfeiture rate of 10 to 15%; expected dividend yield of zero percent; and expected volatility ranging from 79% to 90%. The following table summarizes information about the Company's stock options at December 31, 1999:

Had compensation cost for these grants been determined consistent with SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net loss would have been decreased by approximately DM 9,152.0 thousand for the six months ended December 31, 1999, and DM 13,402.0 thousand for the twelve months ended June 30, 1999, respectively. Loss per share would have been decreased by DM 0.34 and DM 0.68 for the six months ended December 31, 1999, and the twelve months ended June 30, 1999, respectively. Note 17. Commitments and Contingencies Operating leases The group companies have entered into lease and rental agreements for various facilities and vehicles. The annual minimum payments from these agreements amount to DM 7,556.0 thousand for the financial year 2000, DM 6,704.0 thousand for 2001, DM 5,773.0 thousand for 2002, DM 5,264.0 thousand for 2003 and DM 4,879.0 thousand for the financial year 2004. Thereafter, commitments of at least DM 6,086.0 thousand will be incurred. Total rental expense under operating leases amounted to DM 2,809.0 thousand for the six months ended December 31, 1999, DM 3,502.0 thousand for the year ended June 30, 1999, DM 252.0 thousand for the year ended June 30, 1998 and DM 236.0 thousand for the year ended June 30, 1997. Contingencies The Company operates in countries where political, economic, social and legal developments could have an impact on the operational activities. The effects of such risks on the Company's results of operations, which F-29 BROKAT INFOSYSTEMS AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) arise during the normal course of business, are not reasonably determinable and are therefore not included in the accompanying financial statements. The Company may be involved in lawsuits, claims, investigations and proceedings, including product liability and commercial matters which are handled and defended in the ordinary course of business. There are no such matters pending that the Company and its general counsel expect to be material in relation to the Company's business, financial position or results of operation. Legal matters The group companies may be subject to litigation from time to time in the ordinary course of business. As of December 31, 1999, the Company's management and its legal advisers are not aware of any claims which could materially affect the business, net assets, financial position or results of the Group. Note 18. Geographic, Segment and Significant Customer Information The Company is managed as one business segment. Under the definition of SFAS No. 131, "Disclosure about Segments of an enterprise and related Information", Brokat is currently operating in one segment only. The number of business segments may expand as the Company introduces new products or services or expands into different markets. The following geographical allocation of the sales depends on the seat of the subsidiary recording the sales. The assets comprise long-lived assets with the exception of deferred tax assets.

The external revenue by product group break down as follows:

F-30 BROKAT INFOSYSTEMS AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) In the six months ended December 31, 1999, approximately 11.3% of sales were recorded with one customer. In the year ended June 30, 1999, approximately 20.3% of sales were recorded with one customer and approximately 18.5% with another customer. In the year ended June 30, 1998, approximately 16.1% of sales were recorded with one customer. In the year ended June 30, 1997, approximately 21.8% of sales were recorded with one customer.

Note 19. Related Party Transactions License agreement with Fernbach Software S.A., Luxembourg Effective December 30, 1999, Brokat (licensee) entered into a license agreement with Fernbach Software S.A., Luxembourg (licensor). The purpose of the license agreement is to give Brokat the right to market the computer programs offered by Fernbach. The license is restricted to specific programs up to a value of DM 3.0 million; for each item ordered Brokat will be given a discount of 50% on the list price. In return Brokat made an advance payment for the license fees of DM 3.0 million against which all the deliveries of software by the licensor to Brokat are offset. The agreement has a term of 10 years and can be extended thereafter for a year provided notice of six months is not given. The prepaid amount of DM 3.0 has been shown as a current asset even though all purchases under this agreement may not be made during the next twelve months. This prepaid amount will then be recorded as an expense in the respective fiscal year in which the license programs were acquired. Transaction Software Technologies, Inc., Atlanta, USA, (TST) Before the acquisition date of TST, the Company recognized sales with TST for software licenses of DM 753.0 thousand in the year ended June 30, 1999, and of DM 0 thousand in the years ended June 30, 1998, and 1997. MeTechnology Europe GmbH, Dolzig/Leipzig MeTechnology Europe GmbH is a 100% subsidiary of MeTechnology AG, Leipzig. Before the acquisition date of MeTechnology AG, the Company recognized sales with MeTechnology Europe GmbH for software licenses of DM 3,000.0 thousand in the year ended June 30, 1999, and of DM 0 thousand in the years ended June 30, 1998, and June 30, 1997. Attorneys' office Haver & Mailander The attorneys Haver & Mailander resident in Stuttgart regularly work for the Company. The wife of the Chief Executive Officer of the Company works there as a partner. In her capacity as partner of the firm F-31 BROKAT INFOSYSTEMS AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Dr. Rover is not, however, involved in the Brokat engagement. The advisory services charged by the attorneys' office to the Company in the six months ended December 31, 1999, amounted to DM 251.0 thousand, in the year ended June 30, 1999, DM 301.0 thousand, in the year ended June 30, 1998, DM 2.0 thousand and in the year ended June 30, 1997, DM 0 thousand. Tax advisory firm RWT Reutlinger Wirtschaftstreuhand GmbH and the related attorneys' office Rechtsanwaltsgesellschaft RWT Anwaltskanzlei GmbH (RWT) The RWT resident in Reutlingen regularly work for the Company. The managing partner of RWT is the supervisory board member Dr. Hermann Wundt. The services charged by RWT to the Company in the six months ended December 31, 1999, amounted to DM 53.0 thousand, in the year ended June 30, 1999, DM 351.0 thousand, in the year ended June 30, 1998, DM 62.0 thousand and in the year ended June 30, 1997, DM 88.0 thousand. In addition, see Note 11 for debts to shareholders and Note 16 for options granted directly by management shareholders to employees of the Company. Management believes that these related party transactions were under terms no less favorable to the Company than those arranged with other parties. Note 20. Subsequent Events In February 2000, the management of Brokat decided to exercise the option to acquire the remaining 74.9% of interest in Fernbach Financial Software S.A., Luxembourg. The option purchase price amounted to DM 35,760.0 thousand and will be met by an issue of Companies shares (see also Note 3). The following unaudited pro forma financial information presents results as if the acquisition of TST and MeTechnology AG (see Note 4) had occurred at the beginning of the periods June 30, 1998 and June 30, 1999 and as if the acquisition of Fernbach Financial Software had occurred at the beginning of the periods June 30, 1999, December 31, 1999 and June 30, 2000.

These pro forma results have been prepared for comparative purposes only and include certain adjustments such as additional amortization expense as a result of goodwill arising from the purchase and interest expense on acquisition debt. The pro forma results are not necessarily indicative of the results of operations which actually would have resulted had the purchase been in effect at the beginning of the respective periods or of future results. Acquisition of Blaze Software, Inc. and GemStone Systems, Inc. (unaudited) On June 20, 2000 the Company announced the acquisitions of Blaze Software, Inc. and GemStone Systems, Inc. The purchase of Blaze will be made through the issuance of approximately 4.9 million new F-32 BROKAT INFOSYSTEMS AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) shares of Brokat AG and is expected to be closed by October 2000. The purchase of GemStone was made through the issuance of 2,648,748 new shares of Brokat AG and closed at August 30, 2000. Note 21. Additional Local Disclosure Requirements Exemption from the duty to prepare consolidated financial statements under German GAAP in accordance with sec. 292 a HGB As a listed company the parent company makes use of the option to prepare exempting consolidated financial statements according to international accounting standards as set forth in sec. 292 a HGB. In accordance with the interpretation by the German Accounting Standards Committee (GASC) in German Accounting Standard DRS 1 the consolidated financial reporting of the parent company is in line with Directive 83/349/EG. Variances to the HGB principles of group financial reporting relate to the capitalization of tax loss carryforwards pursuant to SFAS 109, foreign currency translation (SFAS 52), the measurement of work in process using the percentage- of-completion method (Accounting Research Bulletin No. 45 (ARB) in conjunction with SOP 97-2), the capitalization of costs for internally used software (SOP 98-1), the offsetting of issuing costs against issuing gains without effect on income (SAB 1), the recording of expenses from employee stock options (APB 25) and the amount of purchased goodwill (APB 16). Consolidated companies The consolidated financial statements of Brokat include all subsidiaries in which the parent company holds an indirect or direct majority of voting rights.

Brokat Australia and Brokat Luxembourg were founded in the six months ended December 31, 1999. GEKA Beteiligungs Aktiengesellschaft was acquired in the six months ended December 31, 1999. MeTechnology Europe GmbH, Dolzig/Leipzig, is a subsidiary of MeTechnology AG, Leipzig. MeTechnology F-33 BROKAT INFOSYSTEMS AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Kft., Budapest, Hungary, and GEKA Beteiligungs Aktiengesellschaft are subsidiaries of MeTechnology Europe GmbH, Dolzig/Leipzig. For the 100% subsidiaries of Brokat in Singapore, UK, USA, Switzerland, Australia, Austria and Luxembourg, as well as for Go-Solutions GmbH and for MeTechnology Kft. the disclosed net results refer to the six months ended December 31, 1999. For the other subsidiaries the disclosed net results refer to the full financial year 1999. The net results of MeTechnology AG and MeTechnology Europe GmbH are material affected by redemption of loans by the former shareholders of MeTechnology AG. Brokat's material additional investments are:

All of the investments were acquired in the six months ended December 31, 1999 (see also Note 3). Management Board and power of representation Members of the Management Board are: Stefan Rover Spokesman of the Board of Management Dr. Boris Anderer Deputy Spokesman of the Board of Management Michael Janssen Chief Financial Officer Other directorships Supervisory Board: german networker Multimedia AG Achim Schlumpberger Executive Vice President "New Technologies" Michael Schumacher Executive Vice President of the "Financial Angelo Maestrini Systems Division" Chief Operating Officer Field Operations since September 17, 1999 Total remuneration paid to members of the Management Board in the six months ended December 31, 1999, amounted to DM 770.0 thousand. The following were members of the Supervisory Board during the six months ended December 31, 1999: Mr. Falk F. Strascheg, Chairman Munich General manager and partner of Technologie- holding Venture Capital GmbH F-34 BROKAT INFOSYSTEMS AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Other directorships Supervisory Board: BinTec Communications AG EOS AG Ponsit Information Technologies AG Scanla AG Optical Scanning Going Public AG Bank Austria TFV High Tech-Unternehmens Bet. GmbH European Technologies Holding N.V. Advanced European Technologies N.V. Strategic European Technologies N.V. Technologieholding Central&Eastern Europe Fund N.V. Technologieholding Central&Eastern Europe Parallel Fund B.V. Dolphin Associates Informations & Communications Technology Fund for Central and Eastern Europe Oy. Dr. Hermann Wundt, Tubingen Deputy Chairman General manager and shareholder of RWT Anwaltskanzlei GmbH and RWT Reutlinger Wirtschaftstreuhand GmbH Chairman of the management of RWT Gruppe Other directorships Supervisory Board: SOMAT AG Mr. Ernst G. Mayer, Pulheim General manager of Technologie-Beteiligungs- Gesellschaft mbH der Deutschen Ausgleichsbank Other directorships Supervisory Board: Artemedia AG Otogene AG Wavelight AG Consultant: cv cryptovision gmbh Prof. Dr. Wolfgang Konig, University professor Frankfurt Other directorships Supervisory Board: Innovative Software AG Ms. Angelika Pohlenz, General secretary ICC Deutschland Wiesbaden Ms. Maisy Ng, Singapore until November 18, 1999 Dr. Peter Page, Ottobrunn Independent market analyst since November 18, 1999 F-35 BROKAT INFOSYSTEMS AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Other directorships Supervisory Board: AutInform AG ATAMA AG WEB.DE Consultant: i2 Technologies Macros Consult CuraData Total remuneration paid to members of the Supervisory Board during the six months ended December 31, 1999, amounted to DM 35.0 thousand. Employees Personnel expenses included in the Consolidated Statements of Operations are as follows:

F-36 BROKAT INFOSYSTEMS AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) DEVELOPMENT OF FIXED ASSETS OF THE GROUP FOR THE SIX MONTHS ENDED DECEMBER 31, 1999

F-37 BROKAT AG CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2000

The accompanying notes are an integral part of these Consolidated Financial Statements. F-38 BROKAT AG CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999

Supplemental disclosures of non-cash transactions: Effective as of May 19, 2000 BROKAT AG exercised its option to acquire the remaining 74.9% of interest in Fernbach Financial Software S.A., Luxembourg through the issuance of 182,838 of the Company's common shares. TDM 148 of incidental acquisitions costs were paid in cash. The accompanying notes are an integral part of these Consolidated Financial Statements. F-39 BROKAT AG CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000, AND 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999

The accompanying notes are an integral part of these Consolidated Financial Statements. F-40 BROKAT AG NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND BASIS OF PRESENTATION BROKAT AG (formerly: BROKAT Infosystems AG), Stuttgart, Germany, was founded on September 17, 1994. The Company and its subsidiaries develop and market cross-channel software for the integration of existing IT systems and applications into various electronic channels such as Internet, mobile radio or call centers. The Company's main customers are banks and other institutions that offer and process services through electronic channels. The accompanying consolidated financial statements, which include the operations of the Company and its wholly-owned subsidiaries, and the financial information included herein are unaudited. However, such information includes all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary to fairly state the results of the interim periods. Interim results are not necessarily indicative of results to be expected for the full year. It is suggested that these consolidated financial statements be read in conjunction with the Company's audited consolidated financial statements for the six months ended December 31, 1999, and for the years ended June 30, 1999, 1998 and 1997 and notes thereto. All significant intercompany accounts and transactions have been eliminated in consolidation. 2. NET INCOME (LOSS) PER SHARE The Company computes earnings per share in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings per share ("SFAS 128"). Basic net income (loss) per share is calculated by dividing net income (loss) available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is calculated in the same manner as basic net income (loss) per share except that such computation includes the effects of the Company's outstanding stock options, if dilutive. For the three months ended June 30, 2000, and 1999, and the six months ended June 30, 2000 and 1999 the effects of including outstanding stock options in the diluted net income (loss) per share calculation would have been anti-dilutive. Therefore, options to purchase 2,409,639 shares of common stock for the three and the six months ended June 30, 2000 and 1,204,818 shares of common for the three and the six months ended June 30, 1999, respectively, were not considered in the computation of diluted loss per share for such periods. 3. FINANCIAL STATEMENT COMPONENTS Cost and estimated earnings on uncompleted contracts Costs and estimated earnings on uncompleted contracts and related amounts billed are as follows:

F-41 BROKAT INFOSYSTEMS AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Such amounts are included in the accompanying Consolidated Balance Sheets under the following captions:

Short-term debt to banks At June 30, 2000, the Company had TDM 75,500 (December 31, 1999: TDM 75,500) general purpose lines of credit with several banks. Under the Credit Arrangements, the Company has the option to borrow amounts at various interest rates, payable in Deutsche Mark. Use of the borrowing is unrestricted, with the exception of the borrowings under the line of credit with Deutsche Bank AG, Stuttgart, and the borrowings are unsecured. At June 30, 2000, the Company had outstanding debt borrowings under the Credit Arrangements amounting to TDM 174 (December 31, 1999: TDM 42,271). The interest rate on short-term borrowings outstanding at June 30, 2000, was between 6.5% and 9.0% (December 31, 1999: between 4.08% and 6.0%). Long-Term Debt During the first quarter of 2000 the Company issued a total of EURO 125 million in senior notes. The senior notes mature in March 2010. Interest on the notes will accrue form the date of their issuance and be payable in cash at a rate of 11 1/2% per year semiannually in arrears on March 31 and September 30 of each year, commencing September 30, 2000, to holders of record on the immediately preceding March 15 and September 15. The net proceeds of the senior notes were and will be used to repay existing short-term and long-term indebtedness under the bank credit facilities. The Company entered into a registration rights agreement relating to the notes. Under this agreement, the Company agreed to file a registration statement on the appropriate form under the United States Securities Act of 1933, as amended (the "Act") with respect to an offer to exchange notes for New Notes registered under the Act with terms substantially identical to those of the Notes. In connection with the exchange offer, application will be made to list the New Notes on the Luxembourg Stock Exchange. Under the registration rights agreement, the Company also agreed to pay liquidated damages if (among others) the registration statement required under the registration rights agreement is not filed on or prior to the applicable filing deadline. Liquidated damages will accrue from the date of such default on the principal amount of the notes at a rate of 0.25% per annum for the first 90-day period immediately following the occurrence of such a default, increasing by an additional 0.25% per annum with respect to each subsequent 90-day-period up to a maximum of liquidated damages of 2.0% per annum. On May 25, 2000 the Company filed a registration statement on the F-4 form of the Securities Act relating to the senior notes issued in March 2000. This registration statement was amended on July 19, 2000. F-42 BROKAT INFOSYSTEMS AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Shareholders' Equity On November 7, 1999, the Company passed a resolution to increase capital by issuing 279,573 new shares with an equivalent value of EURO 10 million (TDM 19,558) with Intel Atlantic, Inc., Santa Clara, USA. The Company is entitled to the funds once the capital increase has been entered in the trade register. This has been done as of May 12, 2000. In February 2000, the management of BROKAT exercised its option to acquire the remaining 74.9% of interest in Fernbach Financial Software S.A., Luxembourg. The option purchase price amounted to TDM 35,760 and was funded through the issuance of 182,838 of the Company's common shares, effective as of May 19, 2000. 4. COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) is as follows:

5. SEGMENT INFORMATION The Company is managed as one business segment. The number of business segments may expand as the Company introduces new products or services or expands into different markets. The external revenues by product group break down as follows:

6. ACQUISITIONS On June 20, 2000 the Company announced the acquisitions of Blaze Software, Inc. and Gemstone Systems, Inc. The purchase of Blaze will be made through the issuance of approximately 4.9 million new shares of BROKAT AG and is expected to be closed by October 2000. The estimated value of consideration issued is DM 1,145 Mio. F-43 BROKAT INFOSYSTEMS AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The purchase of Gemstone will be made through the issuance of approximately 2.4 Million new shares of BROKAT AG and is expected to be closed by September 2000. The estimated value of consideration issued is DM 554 Mio. The issuance of new shares is possible only after the corresponding increase of the Company's common stock, that is, the date on which the increase of common stock is registered with the Trade Register. This registration has not been completed as of June 30, 2000. On June 28, 2000 Brokat entered into a definitive agreement with MyAlert.com S.A., Madrid, Spain, to participate in an increase of share capital. Brokat will eventually purchase 1,365 shares by paying TDM 2,199 and by a contribution in kind of 96,149 new shares of Brokat. The agreed estimated value of consideration issued is TDM 26,329. As of June 30, 2000 the deal was not consummated. It is expected to close in the 3rd quarter of 2000. MyAlert has been a customer of Brokat AG with purchases of DM 8.1 Mio. in the 6 months ended June 30, 2000 and DM 0.0 in the comparable period in the prior year. F-44 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Transaction Software Technologies, Inc.: We have audited the accompanying consolidated balance sheets of Transaction Software Technologies, Inc. (a Georgia corporation) and subsidiary as of September 30, 1998 and 1997 and the related consolidated statements of operations, shareholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Transaction Software Technologies, Inc. and subsidiary as of September 30, 1998 and 1997 and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. Arthur Andersen LLP Atlanta, Georgia January 21, 2000 F-45 TRANSACTION SOFTWARE TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1998 AND 1997

The accompanying notes are an integral part of these consolidated balance sheets. F-46 TRANSACTION SOFTWARE TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997

The accompanying notes are an integral part of these consolidated statements. F-47 TRANSACTION SOFTWARE TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997

The accompanying notes are an integral part of these consolidated statements. F-48 TRANSACTION SOFTWARE TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997

The accompanying notes are an integral part of these consolidated statements. F-49 TRANSACTION SOFTWARE TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1998 AND 1997 1. Nature of business Transaction Software Technologies, Inc. (the "Company") creates, markets, licenses, installs, and services various software products that allow financial institutions to conduct electronic commerce with their corporate clients through dial-up services or over the Internet. The Company's wholly owned subsidiary, Transoft Services, Inc. ("TSI"), provides related consulting services. 2. Summary of significant accounting policies Principles of Consolidation The consolidated financial statements include the accounts of the Company and TSI. All significant intercompany accounts and transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be the equivalent of cash for the purpose of balance sheet and statement of cash flows presentation. Cash equivalents, which consist primarily of money market accounts, are carried at cost which approximates fair market value. Property and Equipment Property and equipment which primarily consists of computer equipment and furniture and fixtures, are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the various classes of property, which are three to five years for all computer equipment, and five to seven years for all furniture and fixtures. Depreciation expense for the years ended September 30, 1998 and 1997 was $139,063 and $142,481, respectively. Expenditures for maintenance and repairs are charged to expense as incurred, and the costs of renewals and betterments are capitalized. Costs and the related accumulated depreciation of assets sold or retired are removed from the respective accounts. Any resulting gain or loss is reflected in the consolidated statements of operations. During 1995, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 established accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used for long- lived assets and certain identifiable intangibles to be disposed of. The Company reviews its long-lived assets consisting of property and equipment for impairment at each balance sheet date or whenever events or changes in circumstances indicate that the carrying amount of an asset should be assessed. An impairment is recognized when the undiscounted future cash flows estimated to be generated by the assets are not sufficient to recover the unamortized balance of the assets. In such event, an impairment loss is recorded for the difference between the fair value of the asset F-50 TRANSACTION SOFTWARE TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS--(Continued) (based on discounted cash flows) and its carrying amount. Management believes that the long-lived assets in the accompanying balance sheets are appropriately valued. Revenue Recognition Contract Revenue Revenue from fixed price contracts is recognized using the percentage of completion method measured by the cost to cost method. Contract costs include direct labor, combined with allocations of operational overhead, and other direct costs. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job conditions resulting in changes to estimated profitability may result in revisions to costs and revenue and are recognized in the period in which the revisions are determined. Services Revenue Revenue from consulting services is recognized as the service is performed. Maintenance revenue is deferred and recognized ratably over the term of the maintenance agreement, which is typically 12 months. Product Development Costs Costs incurred to establish the technological feasibility of computer software products are included in research and development expense and are charged to expense as incurred. The Company capitalizes costs incurred between the point of establishing technological feasibility and general release when such costs are material. As of September 30, 1998 and 1997, the Company has no capitalized computer software development costs. Income Taxes The company utilizes the liability method of accounting for income taxes, as set forth in SFAS No. 109, "Accounting for Income Taxes." Under the liability method, deferred income taxes are determined based on the difference between the financial and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Fair Values of Financial Instruments The Company's financial instruments include cash and cash equivalents, accounts receivable, accounts payable, notes payable, and other short-term assets and liabilities. The fair value of the Company's long-term debt is estimated based on the current rates offered to the Company for debt of similar terms and maturities. Under this method, the Company's fair value of long-term debt was not significantly different than the stated value at September 30, 1998 and 1997. Based on the short-term nature or variable interest rates of the remaining financial instruments, the estimated fair market values of the Company's financial instruments approximate their carrying values at September 30, 1998 and 1997. Concentrations of Business and Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable. Accounts receivable represent trade receivables and are unsecured. The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral to support customer receivables. F-51 TRANSACTION SOFTWARE TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS--(Continued) The Company's clients operate within the financial services industry, and a significant portion of the Company's revenues is derived from a limited number of clients. During the years ended September 30, 1998 and 1997, the following clients individually accounted for more than 10% of the Company's revenue:

-------- *Accounted for less than 10% of total revenues for the period indicated. At September 30, 1998, 15% of the Company's accounts receivable related to Client A and the remaining three clients make up 20%. Net income (loss) per share The Company has adopted Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share" for all periods presented. This statement replaces previously reported primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share exclude any dilutive effect of options and convertible securities. Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common stock outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common stock and dilutive stock equivalents outstanding during the period. The following table sets forth the computation of basic and diluted net income (loss) per share.

Recent Accounting Pronouncements In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and disclosing comprehensive income and its components. Comprehensive income is defined as the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. In addition to net income, SFAS No. 130 requires the reporting of other comprehensive income, defined as revenues, expenses, gains, and losses that under generally accepted accounting principles are not included in net income. As of September 30, 1998, the Company had no items of other comprehensive income. The Financial Accounting Standards Board ("FASB") recently issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), which requires that companies recognize all derivatives as either assets or liabilities in the balance sheet at fair value. Under this statement, accounting for changes in fair value of a derivative depends on its intended use and designation. In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB F-52 TRANSACTION SOFTWARE TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS--(Continued) Statement No. 133" ("SFAS 137"). SFAS 137 amends the effective date of SFAS 133. SFAS 133 will now be effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS No. 133 is not to be applied retroactively to financial statements of prior periods. The Company expects no material impact on its results of operations, comprehensive income or financial position as a result of the adoption of SFAS No. 133. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." Under SOP 98-1, computer software costs incurred in the preliminary project stage are expensed as incurred. Additional, specified upgrades and enhancements may be capitalized; however, external costs related to maintenance, unspecified upgrades, and enhancements should be recognized as expense over the contract period on a systematic basis. Internal costs incurred for maintenance should be expensed as incurred. In the opinion of management, the adoption of SOP 98-1 will not have a material effect on the consolidated financial statements of the Company. 3. Notes Payable Notes payable consist of the following at September 30, 1998 and 1997:

Following are maturities of notes payable as of September 30, 1998:

4. Shareholders' Equity During the years ended September 30, 1998 and 1997, the board of directors declared dividends on common stock. The Company paid dividends in the amount of $66.67 and $50 per share during the years ended September 30, 1998 and 1997, respectively. F-53 TRANSACTION SOFTWARE TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS--(Continued) 5. Income Taxes Income tax expense for the years ended September 30, 1998 and 1997 consisted of the following:

The following is a summary of the items which resulted in recorded income tax provision to differ from taxes computed using the statutory federal income tax rate for the years ended September 30, 1997 and 1998:

All net income (loss) before taxes was derived in the United States. The components of the deferred tax liabilities as of September 30, 1998 and 1997 are as follows:

6. Commitments and Contingencies Legal Proceedings The Company is not currently a party to any material legal proceedings. From time to time, the Company may be subject to legal proceedings and claims in the ordinary course of business. Such claims, even if not meritorious, could result in the expenditure of significant financial and managerial resources. In addition, the Company, from time to time, may become a party to legal or administrative proceedings or arbitration that arise in the ordinary course of business. Operating Leases The Company leases its office facilities and other equipment under noncancelable operating lease agreements which expire on various dates through November 1999. The Company recorded lease expense of approximately $98,600 and $101,500 for the years ended September 30, 1998 and 1997, respectively, related to these leases. F-54 TRANSACTION SOFTWARE TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS--(Continued) Minimum future payments under noncancelable operating leases as of September 30 are as follows:

7. Retirement Plan Effective May 1, 1993, the Company adopted a 401(k) retirement plan (the "Plan") covering substantially all employees. The Plan provides for discretionary employer matching contributions. The Company contributed approximately $44,500 and $18,500 during the years ended September 30, 1998 and 1997, respectively. These amounts have been recorded as general and administrative expenses. 8. Subsequent event (unaudited) Effective May 10, 1999, BROKAT Infosystems AG ("BROKAT"), a German company, acquired substantially all of the assets of the Company under the terms of a stock purchase agreement. The purchase price was approximately $18.6 million and is being accounted for by BROKAT under the purchase method of accounting. F-55 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of ESD Vermogensverwaltungsgesellschaft mbH: We have audited the accompanying consolidated balance sheets of ESD Vermogensverwaltungsgesellschaft mbH and subsidiaries (the "Company") as of December 31, 1997 and the related consolidated statements of operations, cash flows and shareholders' equity for the year then ended. These consolidated financial statements, which have been prepared in compliance with German commercial law, are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audits in accordance with generally accepted auditing standards in Germany which are substantially consistent with those standards in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of ESD Vermogensverwaltungsgesellschaft mbH and subsidiaries as of December 31, 1997 and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles in Germany. Accounting practices used by ESD Vermogensverwaltungsgesellschaft mbH in preparing the accompanying consolidated financial statements conform with generally accepted accounting principles in Germany but do not conform with accounting principles generally accepted in the United States (US GAAP). A description of these differences and a complete reconciliation of consolidated net income and shareholders' equity to US GAAP are set forth in Note V. Arthur Andersen Wirtschaftsprufungsgesellschaft Steuerberatungsgesellschaft mbH Stuttgart, Germany Dr. Schmidt Baierl March 10, 2000 Wirtschaftsprufer Wirtschaftsprufer F-56 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of MeTechnology Aktiengesellschaft: We have audited the accompanying consolidated balance sheets of MeTechnology Aktiengesellschaft and subsidiaries (the "Company") as of December 31, 1998 and the related consolidated statements of operations, cash flows and shareholders' equity for the year then ended. These consolidated financial statements, which have been prepared in compliance with German commercial law, are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audits in accordance with generally accepted auditing standards in Germany which are substantially consistent with those standards in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of MeTechnology Aktiengesellschaft and subsidiaries as of December 31, 1998 and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles in Germany. Accounting practices used by MeTechnology Aktiengesellschaft in preparing the accompanying consolidated financial statements conform with generally accepted accounting principles in Germany but do not conform with accounting principles generally accepted in the United States (US GAAP). A description of these differences and a complete reconciliation of consolidated net income and shareholders' equity to US GAAP are set forth in Note V. Arthur Andersen Wirtschaftsprufungsgesellschaft Steuerberatungsgesellschaft mbH Stuttgart, Germany Dr. Schmidt Baierl March 10, 2000 Wirtschaftsprufer Wirtschaftsprufer F-57 METECHNOLOGY AKTIENGESELLSCHAFT PRIOR YEAR: ESD VERMOGENSVERWALTUNGSGESELLSCHAFT MBH CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these Consolidated Financial Statements. F-58 METECHNOLOGY AKTIENGESELLSCHAFT PRIOR YEAR: ESD VERMOGENSVERWALTUNGSGESELLSCHAFT MBH CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these Consolidated Financial Statements. F-59 METECHNOLOGY AKTIENGESELLSCHAFT PRIOR YEAR: ESD VERMOGENSVERWALTUNGSGESELLSCHAFT MBH CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

The accompanying notes are an integral part of these Consolidated Financial Statements. F-60 METECHNOLOGY AKTIENGESELLSCHAFT PRIOR YEAR: ESD VERMOGENSVERWALTUNGSGESELLSCHAFT MBH CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these Consolidated Financial Statements. F-61 METECHNOLOGY AKTIENGESELLSCHAFT PRIOR YEAR: ESD VERMOGENSVERWALTUNGSGESELLSCHAFT MBH NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (I)GENERAL DISCLOSURES The consolidated financial statements of MeTechnology Aktiengesellschaft, Leipzig, for the year ended December 31, 1998 and ESD Vermogensverwaltungsgesellschaft mbH, Munchen, for the year ended December 31, 1997 have been prepared in thousands of Deutsche Mark (TDM) in accordance with the 3rd book of the German Commercial Code (HGB). The income statement has been prepared according to the method of total costs. To improve clarity individual items of the consolidated balance sheet and consolidated income statement have been combined. These items are disclosed separately in the notes to the financial statements. To further improve clarity, the items in the consolidated balance sheet and consolidated income statement have not been numbered. (II)CONSOLIDATION GROUP For the financial year 1997 the consolidated financial statements comprise the parent company ESD Vermogensverwaltungsgesellschaft mbH, Munchen (ESD-VV), and ESD Information Technology Entwicklungsgesellschaft mbH, Dolzig (ESD-IT), as a 100 % subsidiary. The first-time consolidation at the time of acquisition in 1994 was performed according to the revaluation method in accordance with sec. 301 (1) no. 2 HGB (German Commercial Code). The purchase price of ESD-IT and the equity being taken over amounted to TDM 50 so that a goodwill did not arise at the time of first-time consolidation. By a merger agreement certified by a notary public and signed July 13, 1998, ESD-IT was retroactively merged into ESD-VV as of January 1, 1998. At a shareholders' meeting on the same day, ESD-VV was renamed MeTechnology Europe GmbH (Me GmbH) and the statutory seat moved from Munchen to Bienitz. At the time of the merger the accounts of ESD-IT and EDS-VV were combined using their historical cost bases, as this merger represents a reorganization of entities under common control. MeTechnology Aktiengesellschaft with statutory seat in Leipzig (Me AG) was founded on June 26, 1998, as a holding company with common stock of TDM 100. By contract certified by a notary public dated October 21, 1998 the common stock of Me AG was increased by a contribution in kind of all shares in Me GmbH to Me AG. As of December 31, 1998, the consolidated financial statements of Me AG thus contain the parent company and Me GmbH as a wholly owned subsidiary. The shareholders of the two companies were identical at the time of the contribution of Me GmbH into Me AG and held the identical percentage interests in the two companies (common ownership). Accordingly, the contribution of Me GmbH into Me AG has also been reflected as a reorganization of entities under common control, and was accounted for using the historical cost bases of the combining entities. Due to the fact that the two groups are actually identical for economic purposes and in order to make the consolidated financial statements for the years 1997 and 1998 comparable, the consolidation was prepared as if the new structure had been started at January 1, 1998. In 1997, the shares in Yellowstar Gesellschaft fur Softwarevertrieb und Marketing mbH, Haar, a 100 % subsidiary of ESD-VV, were sold. This company was not included in the consolidated financial statements of ESD-VV in 1997 in accordance with sec. 296 (1) no. 2 and 3 HGB. On August 19, 1998, Me AG as sole shareholder founded MeTechnology Ltd., UK, with common stock of GBP 100. During 1998, MeTechnology Ltd., UK, was a non- operating legal entity. In accordance with sec. 296 (2) HGB, MeTechnology Ltd., UK, has not been included in the consolidation group due to immateriality. The shareholdings of ESD-VV and Me AG are included in Note (VI)(2). F-62 METECHNOLOGY AKTIENGESELLSCHAFT PRIOR YEAR: ESD VERMOGENSVERWALTUNGSGESELLSCHAFT MBH NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (III) PRINCIPLES OF CONSOLIDATION In 1997, the capital consolidation of ESD-VV and ESD-IT under local (German) GAAP was performed according to the revaluation method pursuant to sec. 301 (1) no. 2 HGB by offsetting the acquisition cost against the pro rata equity of the consolidated subsidiary at the time of acquisition in 1994, retroactively. Capital consolidation of Me AG and Me GmbH under local (German) GAAP was performed according to the pooling-of-interests method pursuant to sec. 302 (1) HGB. Consequently, the difference of TDM 750 between common stock issued by Me AG of TDM 900 and GmbH capital contributed in return of TDM 150 was offset against additional paid-in capital in accordance with sec. 302 (2) HGB. Intercompany results, intercompany sales, expenses and income as well as intercompany receivables and liabilities between the consolidated companies have been eliminated. There were no intercompany profits as of the closing date. (IV) SIGNIFICANT ACCOUNTING AND VALUATION METHODS, CURRENCY TRANSLATION The financial statements of the consolidated group companies were prepared according to uniform accounting and valuation methods. Intangible assets, where acquired for a consideration, are capitalized at acquisition cost and subject to scheduled depreciation. Intangible assets are written off using the straight-line method of depreciation over a period of 3 years. Buildings on third party land concern to capitalized electrical installations inside the leased buildings. Property, plant and equipment are stated at cost less scheduled depreciation or at net realizable value, if lower, as of the balance sheet date. The following depreciation methods were applied to property, plant and equipment:

Low value assets are fully expensed in the year of acquisition. Extraordinary depreciation is charged if an item has to be disclosed at the lower attributable value. Inventories of raw materials and supplies as well as work in process is valued at acquisition or manufacturing cost or at net realizable value, if lower. Manufacturing cost includes direct labor costs including appropriate overheads. Receivables and other assets are stated at the nominal amount or the lower attributable value. The collection risk on receivables has been covered by creation of a bad debt allowance of 1 % of the net receivables on hand, which approximates historic bad debt write-offs. Cash and cash equivalents have been valued at nominal value. Other accruals are created on the basis of prudent commercial judgement to cover all potential losses from pending transactions and contingent liabilities as of the balance sheet date. Liabilities are stated at the repayment value. Receivables and liabilities in foreign currency are valued at the rate prevailing at the date of origin. Exchange rate losses occurring prior to the balance sheet date or evident are considered with effect on income. F-63 METECHNOLOGY AKTIENGESELLSCHAFT PRIOR YEAR: ESD VERMOGENSVERWALTUNGSGESELLSCHAFT MBH NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (V)US-GAAP RECONCILIATION The audited consolidated financial statements of Me AG and ESD-VV were prepared according to German accounting principles. A reconciliation of the net losses and equity from the German accounting principles to the accounting principles generally accepted in the United States of America (US-GAAP) for the financial years 1997 and 1998 is presented in the following tables.

Under German GAAP, license revenues can be realized upon delivery of the software while software adaptations are posted separately according to the completed contract method. Under US-GAAP license and software adaptation revenues are realized uniformly according to the percentage of completion method. Under US-GAAP, marketable securities that are available for sale are recorded at fair market value, with the offsetting unrealized gain or loss recorded as a component of other comprehensive income. Under German GAAP, marketable securities are recorded at cost, but provisions for losses are recorded when prudent. In 1997, the Company, under German GAAP, recorded a provision of TDM 20 related to unrealized losses on marketable securities available for sale. At that time, the fair market value of the securities was below their carrying amount by more than TDM 20. However, as discussed in Note (VI)(4), the Company received a gurantee from Financial Intelligent Transactions Vermogensverwaltungs GmbH, Munchen, whereby the Company's maximum loss on these securities would be limited to TDM 20. Under US-GAAP, the reduction in the fair value of these securities in 1997, up to the TDM 20 limit, would be recorded as a reduction in other comprehensive income rather than as a charge to expense, since the decline in market value was not of a permanent nature. This difference has no effect on reported shareholders' equity but would reduce other comprehensive income by TDM 20 in 1997. In 1998, the Company sold the marketable securities at an amount nearly identical to their original cost basis. Under German GAAP, the Company recorded a gain of approximately TDM 20, as the carrying value of those securities had been reduced in 1997 by the provision described above. Under US-GAAP, the Company would have recorded no gain or loss on the disposal, but would have had a gain in other comprehensive income of TDM 20 due to the appreciation in the fair value of the securities prior to their sale. Again, this difference in accounting would have no effect on reported shareholders' equity. F-64 METECHNOLOGY AKTIENGESELLSCHAFT PRIOR YEAR: ESD VERMOGENSVERWALTUNGSGESELLSCHAFT MBH NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Under German GAAP, provisions for contingencies are established for all potential losses from pending transactions and contingent liabilities as of the balance sheet date. Under US-GAAP, such provisions can only be recorded when an exposure is probable and the amount of the exposure is reasonably estimable. At December 31, 1998 and 1997, though, there were no accruals recorded under German GAAP that would not be recorded under US-GAAP. Under German GAAP, unrealized foreign exchange gains in each group of currencies are not included in income. Exchange losses in each group of currencies, though, are charged to the statement of operations immediately. Under US-GAAP, foreign currency transaction gains and losses are expensed as incurred. At December 31, 1998 and 1997, no material amounts in foreign currency were recorded. Under German GAAP, certain balances are classified differently than under US-GAAP. For example, changes in inventory accounts which are recorded as revenues under German GAAP, would be considered part of cost of goods sold under US-GAAP. In addition, costs and estimated profits in excess of billings on long-term construction type contracts would be categorized as such under US- GAAP, but such amounts are classified as inventories for German GAAP. These differences in classification yield no GAAP differences in reported net loss or shareholders' equity. US-GAAP requires that all majority owned and controlled subsidiaries be consolidated. Under German GAAP, such subsidiaries need not to be consolidated if they do not have material operations. During the year ended December 31, 1998, the Company had one inactive subsidiary that was not consolidated for German GAAP purposes. However, the consolidation of this subsidiary under US- GAAP would yield no material differences in reported net income or shareholders' equity, or any other balance sheet or statement of operations account. F-65 METECHNOLOGY AKTIENGESELLSCHAFT PRIOR YEAR: ESD VERMOGENSVERWALTUNGSGESELLSCHAFT MBH NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (VI)EXPLANATORY COMMENTS ON THE CONSOLIDATED FINANCIAL STATEMENTS (1)Fixed assets DEVELOPMENT OF FIXED ASSETS OF THE GROUP FOR THE FINANCIAL YEAR 1997

DEVELOPMENT OF FIXED ASSETS OF THE GROUP FOR THE FINANCIAL YEAR 1998

F-66 METECHNOLOGY AKTIENGESELLSCHAFT PRIOR YEAR: ESD VERMOGENSVERWALTUNGSGESELLSCHAFT MBH NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (2)Shareholdings and consolidation group

-------- Notes: (1) Single entity financial statements for the financial year 1998 include a loss from the merger of ESD-VV and ESD-IT of TDM 9,013, which corresponds to operating losses of ESD-IT before the first-time consolidation as of January 1, 1998. (2) MeTechnology Ltd., UK, during 1998 was a non-operating legal entity. (3)Receivables and other assets

Other assets in the consolidated financial statements contain receivables from deposits, receivables from employees and prepaid taxes. Other assets contain receivables from shareholders in the amount of DM 3.0 thousand. (4)Other securities In 1997, other securities relate to marketable securities public traded on the German Stock Exchange which are held in a custody account at Oberbank, Munchen. Financial Intelligent Transactions Vermogensverwaltungs GmbH, Munchen, has agreed to guarantee that the maximum loss to be borne by the Company upon sale of these securities to be TDM 20. In 1997, the Company recorded a loss of TDM 20 to reflect the fact that the fair value of these securities was below their carrying amount. In 1998 the securities were sold at an amount nearly identical to their original cost basis. F-67 METECHNOLOGY AKTIENGESELLSCHAFT PRIOR YEAR: ESD VERMOGENSVERWALTUNGSGESELLSCHAFT MBH NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (5)Additional paid-in capital The Me AG additional paid-in capital amounts to TDM 167 as of December 31, 1998, resulting from the convertible bond as described in Note (8). The additional amount of TDM 250 results from the capital consolidation as described in Note (III). (6)Contribution of silent partners and subordinated loans In 1996, the subsidiary ESD-IT entered into a silent partnership agreement with SBF Sachsischer Beteiligungsfonds GmbH (SBF), Leipzig, until December 31, 2001. As of December 31, 1997 the contribution amounted to TDM 8,000. The contribution was increased by TDM 1,950 to TDM 9,950 in 1998. SBF has issued a letter of subordination for its claims from the silent partnership. SBF receives a 20% share of the company's profits, but does not participate in losses. SBF also receives annual servicing compensation of 2% of the investment amount. In 1996, GSM Industriebeteiligungen GmbH, Munchen, also granted ESD-IT a subordinated loan. As of December 31, 1998, the loan still amounts to TDM 3,530. The loan has to be repaid by the year 2005 and is subject to interest at a rate of 8%. (7)Other accruals The other accruals mainly contain amounts for warranties, costs yet to be incurred, personnel expenses, costs relating to the preparation of financial statements and legal and consulting costs as well as the remuneration of the supervisory board. (8)Liabilities

The convertible bond was subscribed by Private Equity Bridge Investment Ltd. (PEB), Grand Cayman, Cayman Islands, British West Indies, on November 12, 1998. The bond entitles PEB until October 31, 2000, to convert at any time a nominal amount of the convertible bond of DM 500 into one share of Me AG. The convertible bond is interest free until January 31, 2000, after which it is subject to a 6% interest rate. That part of the convertible bond which has not yet been converted is repayable on October 31, 2000. Discounted at a rate of interest for comparable debt of 5%, the face value of the bond at November 12, 1998 was TDM 3,333, with the difference of TDM 167 to the face value of the bond of TDM 3,500 being credited to additional paid-in capital. Other liabilities include liabilities to shareholders in the amount of TDM 8.0. F-68 METECHNOLOGY AKTIENGESELLSCHAFT PRIOR YEAR: ESD VERMOGENSVERWALTUNGSGESELLSCHAFT MBH NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (9)Other financial commitments In 1997 the other financial liabilities from rent and lease agreements of ESD-VV relate to:

In 1998 the other financial liabilities from rent and lease agreements of Me AG relate to:

(10)Sales The sales of the company, which were generated exclusively on the domestic market, relate to:

(11)Other operating income In 1997, other operating income mainly includes income from the sale of fixed assets, from the reversal of accruals and the reduction of general valuation allowance. In a total amount of TDM 48, the other operating income relates to other periods. In 1998, other operating income mainly includes the reversal of accruals, relating to other periods, and gains on the sale of securities of TDM 78. F-69 METECHNOLOGY AKTIENGESELLSCHAFT PRIOR YEAR: ESD VERMOGENSVERWALTUNGSGESELLSCHAFT MBH NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (12)Other operating expenses In 1997 and 1998, other operating expenses mainly concern selling and administrative expenses as well as legal and consulting costs. In an total amount of TDM 42 (1997: TDM 29), the other operating expenses relate to other periods. (13)Number of salaried employees (annual average)

(14)Capital stock authorized for issue The share capital may be increased by TDM 50 through the issuance of additional authorized capital. This may be issued to satisfy conversion rights of holders of convertible bonds, which issuance has been agreed by the shareholders' meeting on November 6, 1998. (15)Disclosures on company boards In 1997, the management of ESD-VV comprised: Dr. Christoph Bulfon General manager In 1998, the management board of Me AG comprised: Joszef Bugovics Chairman In consideration and accordance with the effect of sec. 286 (4) HGB not only on the single entity financial statements of the parent company, but also on the consolidated financials, disclosure of total remuneration for the management board has been omitted. (16)Supervisory Board In 1998 the supervisory board of Me AG comprised: Dr. Peter Page Chairman Prof. Dr. Wulf von Schimmelmann Deputy Chairman Dr. Hans-Joachim Korber Total remuneration for the supervisory board in 1998 amounted to TDM 27. (17)Advisory Board Total remuneration for the advisory board in 1998 amounted to TDM 4 and in 1997 amounted to TDM 70. Leipzig, February, 2000 ESD Vermogensverwaltungsgesellschaft mbH, MeTechnology AG Joszef Bugovics F-70 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Blaze Software, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, stockholders' equity (deficit) and of cash flows present fairly, in all material respects, the financial position of Blaze Software, Inc. and its subsidiaries at March 31, 2000 and 1999, and the results of their operations and their 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. These financial statements are the responsibility of Blaze Software, Inc.'s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP San Jose, California April 19, 2000, except for Note 15 as to which the date is June 20, 2000 F-71 BLAZE SOFTWARE, INC. (FORMERLY NEURON DATA, INC.) CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts)

The accompanying notes are an integral part of these financial statements. F-72 BLAZE SOFTWARE, INC. (FORMERLY NEURON DATA, INC.) CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts)

The accompanying notes are an integral part of these financial statements. F-73 BLAZE SOFTWARE, INC. (FORMERLY NEURON DATA, INC.) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (in thousands)

The accompanying notes are an integral part of these financial statements. F-74 BLAZE SOFTWARE, INC. (FORMERLY NEURON DATA, INC.) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)--(Continued) (in thousands)

The accompanying notes are an integral part of these financial statements. F-75 BLAZE SOFTWARE, INC. (FORMERLY NEURON DATA, INC.) CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)

The accompanying notes are an integral part of these financial statements. F-76 BLAZE SOFTWARE, INC. (FORMERLY NEURON DATA, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1--FORMATION AND BUSINESS OF THE COMPANY: Blaze Software, Inc. (together with its wholly-owned subsidiaries, unless context requires otherwise, "Blaze Software" or the "Company") was incorporated in California on June 4, 1985 as Neuron Data, Inc. Its principal activities include the development and licensing of infrastructure software that enables adaptable and personalized interactions that are consistent across all company communication channels, or touch points. This software enables companies to implement their policies, practices and procedures, or business rules, in e-business applications across multiple touch points. Blaze Software also provides related maintenance and consulting services. Blaze Software markets its products to a wide range of customers mainly in North America, Europe and the Pacific Rim primarily through a direct sales force. In March 2000, Blaze Software reincorporated in the State of Delaware. NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Principals of consolidation The consolidated financial statements include the accounts of Blaze Software, Inc. and its wholly owned subsidiaries, Blaze Software GmbH, Blaze Software S.A.R.L., Blaze Software (UK) Ltd, Blaze Software Japan, Inc., and Blaze Software Australia Pty Ltd (together, "Blaze Software" or the "Company"). All material intercompany balances and transactions have been eliminated. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Foreign currency translation The functional currency of Blaze Software's subsidiaries is the local currency. Accordingly, Blaze Software applies the current exchange rate to translate the subsidiaries' assets and liabilities and the weighted average exchange rate to translate the subsidiaries' revenues, expenses, gains and losses into U.S. dollars. Translation adjustments are included as a separate component of comprehensive income within stockholders' equity in the accompanying consolidated financial statements. Business risk and concentration of credit risk Blaze Software currently operates in a single business segment and revenue from continuing operations is principally attributable to the sale of software products and related maintenance, consulting and training services which are characterized by rapid technological advances, changes in customer requirements and industry standards. Any failure by Blaze Software to anticipate or to respond adequately to technological changes in its industry, changes in customer requirements or changes in industry standards, could have a material adverse effect on Blaze Software's business and operating results. Financial instruments which potentially subject Blaze Software to concentrations of credit risk consist primarily of temporary cash investments, including money market accounts. Blaze Software places its temporary cash investments with two major financial institutions. Deposits at any point in time may exceed the federally insured limits. Blaze Software performs ongoing credit evaluations of its customers' financial condition and does not require collateral. Blaze Software maintains allowances for potential credit losses and such losses have been within management's expectations. F-77 BLAZE SOFTWARE, INC. (FORMERLY NEURON DATA, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) As of March 31, 2000, two customers accounted for approximately 18% and 15% of the aggregate accounts receivable balance. As of March 31, 1999, one customer accounted for approximately 12% of the aggregate accounts receivable balance. For the fiscal year 2000 and 1999, one customer accounted for approximately 23% and 19% of total revenues, respectively. No customer accounted for 10% or more of total revenues in fiscal year 1998. Fair value of financial instruments Carrying amounts of certain Blaze Software's financial instruments, including cash and cash equivalents, short-term investments, accounts receivable, accounts payable, accrued expenses and other liabilities approximate fair value due to their short maturities. Based upon borrowing rates currently available to Blaze Software for loans with similar terms, the carrying value of capital lease obligations approximate fair value. Cash equivalents and short-term investments Blaze Software invests its excess cash in money market accounts and debt instruments and considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents. Investments with an original maturity at the time of purchase of over three months are classified as short-term investments regardless of the maturity date as all investments are classified as available-for-sale and can be readily liquidated to meet current operational needs. The securities are carried at amortized cost, which approximates fair value. Fair value is based upon market prices quoted on the last day of the fiscal year. Unrealized gains and losses are reported as a separate component of stockholders' equity. The amortized cost of the debt securities is adjusted for the amortization of premiums and accretion of discounts to maturity. Such amortization, as well as any interest on the securities, is included in interest expense, net. Realized gains and losses and declines in value judged to be other-than-temporary are also included in interest expense, net and have not been material. The cost of securities sold is based on the specific identification method. Property and equipment Property and equipment are stated at cost and depreciated on a straight-line basis over the estimated useful lives of the related assets, generally three to five years. Leased assets are amortized on a straight-line basis over the lesser of the estimated useful life or the lease term. Maintenance and repairs are charged to expense as incurred. When assets are sold or retired, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in operations. Impairment of long-lived assets Blaze Software evaluates the recoverability of long-lived assets in accordance with Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of ("SFAS No. 121"). SFAS No. 121 requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets. Revenue recognition Blaze Software's revenues are derived from two sources: product license revenues and service revenues. Product license revenues are derived from product sales to end users and independent software vendors as well F-78 BLAZE SOFTWARE, INC. (FORMERLY NEURON DATA, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) as royalties from independent software vendors. Service revenues are derived from providing consulting and training, maintenance and support services to end users. Blaze Software recognizes revenues in accordance with the American Institute of Certified Public Accountants Statement of Position No. 97-2, Software Revenue Recognition, as amended. License revenues from sales to end users and systems integrators are recognized upon shipment of the product, if an executed agreement or purchase order has been received, the fee is fixed and determinable and collection is deemed probable. If an acceptance period is provided, revenue is recognized upon the earlier of customer acceptance or the expiration of that period. For enterprise application vendors, Blaze Software receives quarterly reports from these vendors on sell-through of Blaze Software products to end users. Blaze Software recognizes royalty revenues upon receipt of the quarterly reports from vendors. For sales made through distributors, Blaze Software recognizes revenues upon shipment of the product, if an executed agreement or purchase order has been received, the fee is fixed and determinable, collection is deemed probable, and the distributor has identified an end-user for the product. In those instances where a distributor has not identified a valid end-user for the product, the revenue is deferred. Distributors have no right of return. For contracts with multiple obligations (e.g., product licenses, maintenance and other services), Blaze Software allocates revenue to each component of the contract based on objective evidence of its fair value, which is based on the price when each component is sold separately, or when not sold separately, the price established by management. Blaze Software recognizes revenue allocated to undelivered products when the criteria for product revenue set forth above are met. Service revenues from consulting, installation and training are recognized as the related services are performed and collectibility is probable. Revenues from maintenance and support agreements, which includes product updates, are deferred and recognized on a straight-line basis over the term of the related agreement. Payments of maintenance fees are generally made in advance and are nonrefundable. Prior to the adoption of SOP 97-2, Blaze Software recognized revenue from the sale of products upon shipment if remaining obligations were insignificant, collection of resulting accounts receivable was probable and product returns reasonably estimable. Advertising Blaze Software expenses advertising costs as they are incurred. Advertising expense for the years ended March 31, 2000, 1999 and 1998 was approximately $1,517,000, $431,000 and $1,071,000, respectively. Income taxes Blaze Software accounts for income taxes in accordance with Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. This statement prescribes the use of the liability method whereby deferred tax assets and liabilities are determined based on the differences between financial reporting and tax bases of assets and liabilities and measured at tax rates that will be in effect when the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets where it is more likely than not the deferred tax asset will not be realized. Stock-based compensation Blaze Software has elected to adopt the disclosure provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-based Compensation ("SFAS No. 123"). Blaze Software accounts for stock-based compensation using Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to F-79 BLAZE SOFTWARE, INC. (FORMERLY NEURON DATA, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Employees, ("APB No. 25") and, accordingly, pro forma disclosures required under SFAS No. 123 have been presented (See Note 10). Under APB No. 25, compensation expense is based on the difference, if any, on the date of the grant, between the deemed fair value of Blaze Software's common stock and the exercise price. Additionally, pursuant to SFAS No. 123, common stock issued to non-employees is accounted for at the fair value of the equity instruments issued, or at the fair value of the consideration received, whichever is more reliably measurable. Research and development expenditures Costs related to research, design and development of products are charged to research and development expense as incurred. Software development costs are capitalized beginning when a product's technological feasibility has been established and ending when a product is available for general release to customers. To date, attaining technological feasibility of Blaze Software's products and general release have substantially coincided. As a result, Blaze Software has not capitalized any software development costs. Net loss per share Blaze Software computes net loss per share in accordance with Statement of Financial Accounting Standards No. 128, Earnings per Share ("SFAS No. 128"). Under the provisions of SFAS No. 128, basic net loss per share is computed by dividing the net loss available to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss for the period by the weighted average number of common and common equivalent shares outstanding during the period. Options, warrants, mandatorily redeemable preferred stock and convertible preferred stock were not included in the computation of diluted net loss per share because the effect would be antidilutive. F-80 BLAZE SOFTWARE, INC. (FORMERLY NEURON DATA, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) A reconciliation of shares used in the calculation of basic and diluted net loss per share follows (in thousands, except per share amounts):

Recent accounting pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"), which establishes new standards of accounting and reporting for derivative instruments and hedging activities. SFAS 133 requires that all derivatives be recognized at fair value in the statement of financial position, and that the corresponding gains or losses be reported either in the statement of operations or as a component of comprehensive income, depending on the type of hedging relationship that exists. SFAS 133 is effective for fiscal years beginning after June 15, 2000. Blaze Software is assessing the potential impact of this pronouncement on the financial statements; however, the Company does not expect any significant impact. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin 101, Revenue Recognition ("SAB 101"), which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue and provides guidance on disclosure related to revenue recognition policies. The Company believes that it currently complies with SAB 101. F-81 BLAZE SOFTWARE, INC. (FORMERLY NEURON DATA, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) In March 2000, the FASB issued Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation--An Interpretation of APB 25 (the "Interpretation"). This Interpretation clarifies (a) the definition of an employee for purposes of applying APB 25, (b) the criteria for determining whether a stock plan qualifies as a non-compensatory plan, (c) the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. This Interpretation is effective July 1, 2000, but certain conclusions in this Interpretation cover specific events that occur after either December 15, 1998, or January 12, 2000. To the extent that this Interpretation covers events occurring during the period after December 15, 1998, or January 12, 2000, but before the effective date of July 1, 2000, the effects of applying this Interpretation are recognized on a prospective basis from July 1, 2000. Blaze Software is assessing the potential impact of this Interpretation on the financial statements; however, the Company does not expect any significant impact. Reclassifications Certain amounts in the fiscal year 1999 and 1998 financial statements have been reclassified to conform to the fiscal year 2000 presentation. NOTE 3--DISCONTINUED OPERATIONS: In December 1999, the Company's Board of Directors resolved to discontinue Blaze Software's entire user interface line of business. The accompanying financial statements have been prepared to reflect the historical results of operations and cash flows of the user interface business as discontinued operations for all periods presented. Balance sheet data (in thousands)

The current assets and current liabilities noted above comprise accounts receivable and accounts payable, respectively. Income statement data (in thousands)

F-82 BLAZE SOFTWARE, INC. (FORMERLY NEURON DATA, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Cash flow data (in thousands)

NOTE 4--FAIR VALUE OF CASH INVESTMENTS: Available-for-sale investments as of March 31, 2000, consists of the following (in thousands):

The amortized cost and estimated fair value of investments in debt securities at March 31, 2000, by contractual maturity were as follows (in thousands):

NOTE 5--BALANCE SHEET COMPONENTS: Property and equipment consists of the following (in thousands):

Property and equipment under capital leases, included in the above table, consist of the following (in thousands):

F-83 BLAZE SOFTWARE, INC. (FORMERLY NEURON DATA, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The amortization of assets recorded under capital leases is included within depreciation expense. Accrued expenses consist of the following (in thousands):

NOTE 6--BANK BORROWINGS: Blaze Software had a line of credit facility with Coast Business Credit, a division of Southern Pacific Bank, whereby Blaze Software could borrow up to 80% of eligible United States and United Kingdom accounts receivable with a maximum borrowing of $5,000,000. Borrowings under the facility bore interest at the prime rate plus 3% (10.75% as of March 31, 1999) and were collateralized by certain assets of Blaze Software. As of March 31, 1999, Blaze Software had borrowed $1,631,000 under this facility. The facility was repaid and terminated in March 2000. In November 1998, Blaze Software entered into a bridge loan agreement with several of its existing investors totaling $1.5 million. The loan bore interest at the rate of 25%, was subordinated to the agreement between Blaze Software and Coast Business Credit, and was collateralized by certain assets of Blaze Software. The bridge loan was converted into 2,777,778 shares of Series AA Preferred Stock in June 1999. NOTE 7--INITIAL PUBLIC OFFERING: In March 2000, Blaze Software completed its initial public offering and issued 4,000,000 shares of its common stock to the public at a price of $16.00 per share. Blaze Software received net proceeds of approximately $57,090,000 in cash. Upon the closing the offering, all of the outstanding shares of the Series AA and BB convertible preferred stock were converted into an aggregate of 10,369,000 shares of common stock. In addition, the underwriters exercised their over-allotment option, see Note 15, Subsequent Events. NOTE 8--MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK: In June 1999, Blaze Software converted all of its outstanding mandatorily redeemable preferred stock into common stock at the applicable conversion rates. NOTE 9--STOCKHOLDERS EQUITY: Reverse Stock Split In March 2000, Blaze Software's stockholders approved a 1-for-2 reverse stock split of the Company's preferred and common stock. All share data information has been restated to reflect the reverse stock split. Series B Preferred Stock In June 1999, Blaze Software converted all of its outstanding Series B preferred stock into shares of common stock. F-84 BLAZE SOFTWARE, INC. (FORMERLY NEURON DATA, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Preferred Stock Warrants In December 1996, warrants to purchase 107,143 shares of the Company's Series B preferred stock were issued at a price per share of $5.60. These warrants expired in December 1999. The fair value of these warrants was not material to the financial statements. Series AA and BB Preferred Stock In June 1999 and September 1999, Blaze Software issued 8,134,839 and 281,376 shares, respectively, of Series AA convertible preferred stock at a price of $0.54 per share. Net proceeds to Blaze Software were cash of $2.8 million and the cancellation of indebtedness of $1.6 million. Prior to the issuance of Series AA convertible preferred stock, Blaze Software converted all of its outstanding shares of Series A, Series B, Series C Series D, and Series F convertible preferred stock into common stock and all of its warrants for Series E preferred stock into warrants for common stock at the applicable conversion rates in effect for each series. The issuance in September 1999 resulted in a beneficial conversion feature of approximately $2.2 million, calculated in accordance with Emerging Issues Task Force No. 98-5, which resulted in an immediate charge to additional paid-in capital. On December 31, 1999 1,952,735 shares of Series BB preferred stock were issued for gross proceeds of approximately $13.9 million. The issuance resulted in a beneficial conversion feature of approximately $9.5 million, calculated in accordance with Emerging Issues Task Force No. 98-5, which resulted in an immediate charge to additional paid-in capital. In March 2000, all shares of Series AA and BB preferred stock were converted to shares of common stock effective with the Company's initial public offering. Delaware Reincorporation In March 2000, Blaze Software reincorporated in the State of Delaware. The par value of the preferred and common stock is $0.0001 per share. All share data information has been restated to reflect the reincorporation. Preferred Stock In March 2000, Blaze Software's Certificate of Incorporation was amended to authorize 10,000,000 shares of preferred stock. The Board of Directors has the authority to fix or alter the designation, powers, preferences and rights of the shares of preferred stock, and the qualifications, limitations or restrictions to any unissued series of preferred stock. Common Stock In March 2000, Blaze Software's stockholders approved an increase in the authorized number of common shares from 54,000,000 shares to 200,000,000 shares. Each share of common stock has the right to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the Board of Directors, subject to the prior rights of holders of all classes of stock outstanding at the time having priority rights as to dividends. F-85 BLAZE SOFTWARE, INC. (FORMERLY NEURON DATA, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Blaze Software has reserved shares of common stock for future issuance as of March 31, 2000 as follows (in thousands): Options outstanding.................................................... 4,478 Options available for future grants.................................... 1,059 Shares available for the employee stock purchase plan.................. 750 Outstanding warrants for common stock.................................. 1 ----- 6,288 =====

Common Stock Warrants The following table summarizes the activity on common stock warrants:

The fair value of these common stock warrants is not material to these financial statements. NOTE 10--EMPLOYEE BENEFIT PLANS: Tax Deferred Savings Plan The Company has a savings plan that is intended to qualify as a deferred salary arrangement under Sections 401(a) and 401(k) of the Internal Revenue Code (the "Savings Plan"). All full-time employees of Blaze Software are eligible to participate in the Savings Plan pursuant to the terms of the plan. Participants may defer up to 15 percent of their pre-tax earnings (up to the Internal Revenue Service limit). The Company matches 25 percent of employee contributions up to a maximum of $1,000 per employee. The participants' as well as the Company's matching contributions are fully vested. Company contributions to the Savings Plan were approximately $ 47,000, $ 40,000 and $ 45,000 for fiscal 2000, 1999 and 1998, respectively. Stock Option Plans In 1986, Blaze Software adopted the 1986 Stock Option Plan (the "1986 Plan") and had 1,254,500 shares of Common Stock reserved for issuance thereunder. In 1996, the 1986 Plan was discontinued and replaced with the 1996 Stock Option Plan (the "1996 Plan"). Under the 1996 Plan, Blaze Software reserved 5,753,429 shares of common stock for issuance, and in March 2000, stockholders approved an increase in the number of shares available under the 1996 Plan by 1,250,000 shares, to bring the total number of shares available under the 1996 Plan to 7,003,429. In March 2000, stockholders approved the 2000 Stock Option Plan (the "2000 Plan") and reserved 250,000 shares of common stock for future issuance under this plan, plus any shares which have been reserved but unissued under the 1996 stock plan, any shares returned to the 1996 stock plan, and an annual increases equal to the lesser of: (1) 50,000 shares, (2) 4% of the outstanding shares or (3) a lesser amount determined by the board of directors. Pursuant to the terms of the 1996 Plan and 2000 Plan, on March 8, 2000 a total of 1,163,198 shares, representing all of the shares that had been reserved but unissued under the 1996 Plan, were transferred to the pool of shares reserved for issuance under the 2000 Plan. This brought the total number of shares reserved for issuance under the 2000 Plan to 1,413,198. F-86 BLAZE SOFTWARE, INC. (FORMERLY NEURON DATA, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Options granted under the 1996 Plan and the 2000 Plan (the "Plans") may be incentive stock options or nonqualified stock options and shall be granted at a price not less than 100% or 85% of fair market value, respectively, or at a price not less than 110% of fair market value under certain circumstances. Fair market value (as defined in the Plans) and the vesting, of these options shall be determined by Blaze Software's Board of Directors. The options expire no later than 10 years from the date of grant. Unvested options on termination of employment are canceled and returned to the Plans. Options can be exercised from the date of issuance, even though they have not fully vested. Such shares are subject to repurchase on a pro rata basis over a four-year period from the date of issuance. As of March 31, 2000 and 1999, there were approximately 734,400 and 73,500 shares, respectively, subject to repurchase, at a weighted average price of $ 0.73 per share and $0.56 per share, respectively. During fiscal year 2000 and 1999, approximately 13,100 and 157,500 shares, respectively, were repurchased. Shares acquired under the Plans are subject to Stock Purchase Agreements, which provide Blaze Software with a right of first refusal and grant Blaze Software repurchase rights for unvested shares, at their original cost. Options granted under the Plans have a term of ten years measured from the grant date and are initially unvested. Participants vest in the option shares granted over a four-year period with (i) twenty-five percent of the option shares vesting upon the completion of one year of service, and (ii) the balance of the option shares in thirty-six successive equal monthly installments upon the participants completion of each additional month of service. A summary of the status of Blaze Software's stock option plans as of March 31, 1998, 1999, and 2000 and changes during the years ended on these dates is presented below (in thousands, except per share amounts):

F-87 BLAZE SOFTWARE, INC. (FORMERLY NEURON DATA, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table summarizes information concerning options outstanding and exercisable under the Plans as of March 31, 2000:

2000 Employee Stock Purchase Plan In February 2000, the Board of Directors adopted the 2000 Employee Stock Purchase Plan (the "ESPP"), which is designated to allow eligible employees of the Company to purchase shares of common stock at semiannual intervals through periodic payroll deductions. An aggregate of 750,000 shares of common stock have been reserved for the ESPP, and no shares have been issued through March 31, 2000. The ESPP permits eligible employees to purchase common stock through payroll deductions of up to 15% of an employee's compensation, up to a maximum of $25,000 for all purchases ending within the same calendar year. Each offering period will run for twenty-four months and consist of four six-month purchase periods. The price at which common stock will be purchased under the ESPP is equal to 85% of the fair market value of the common stock on the first day of the offering period or the last day of each purchase period, whichever is lower. Stock-based compensation In connection with certain stock option grants during the year ended March 31, 2000, Blaze Software recorded stock-based compensation totaling $37.6 million, which is being amortized in accordance with FASB Interpretation No. 28 over the vesting periods of the related options, which is generally four years. Stock-based compensation amortization recognized during the year ended March 31, 2000 totaled $16.4 million. If the stock-based compensation for the year ended March 31, 2000 had been allocated across the relevant functional expense categories within operating expenses, it would be allocated as follows:

F-88 BLAZE SOFTWARE, INC. (FORMERLY NEURON DATA, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Fair value disclosures The following information concerning Blaze Software's stock option plans is provided in accordance with SFAS No. 123. Blaze Software accounts for such plans in accordance with APB No. 25. The fair value of each option grant has been estimated on the date of grant using the Black-Scholes options-pricing model with the following weighted average assumptions for grants:

For purposes of pro forma disclosures, the estimated fair value of the options are amortized over the option's vesting period. Blaze Software pro forma information follows (in thousands, except per share amounts):

The weighted-average fair value of options granted in fiscal 2000, 1999 and 1998 was $0.44, $0.18 and $0.14, respectively. The effects of applying SFAS No. 123 in this pro forma disclosure may not be indicative of future amounts. Additional awards in future periods are anticipated. NOTE 11--COMPREHENSIVE INCOME: Under Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130") Blaze Software displays all items required to be recognized under accounting standards as components of its comprehensive income. F-89 BLAZE SOFTWARE, INC. (FORMERLY NEURON DATA, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The comprehensive loss presented in the accompanying statements of operations consists of the net unrealized gains and losses on available-for- sale-investments and foreign currency translation adjustments, net of the related tax effects for all periods presented. The tax effects for other comprehensive income were immaterial for all periods presented. The balances for each component of accumulated other comprehensive income are as follows (in thousands):

NOTE 12--COMMITMENTS AND CONTINGENCIES: Blaze Software leases administrative, engineering and sales facilities in the United States, the United Kingdom, France, Germany, Japan and Australia under noncancelable operating leases that expire at various dates through 2005. Blaze Software is generally responsible for insurance and property taxes. Blaze Software's primary lease in San Jose, California, is subject to annual payment increases based on the consumer price index. Blaze Software also leases computer equipment under leases classified as capital leases. The Company's primary building lease for its corporate headquarters is secured by a certificate of deposit of $702,000. This deposit has been classified as restricted cash on the balance sheet as of March 31, 2000. As of March 31, 2000, the aggregate future minimum lease payments under all noncancelable leases are as follows (in thousands):

Rent expense in fiscal years 2000, 1999 and 1998 was approximately $976,000, $1,002,000 and $871,000, respectively. F-90 BLAZE SOFTWARE, INC. (FORMERLY NEURON DATA, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Employment agreements Blaze Software has entered into employment agreements with certain officers of the Company. Some employment agreements also provide for severance in the event the individual is terminated without cause. Litigation From time to time, Blaze Software may be involved in litigation relating to claims arising out of its ordinary course of business. Management believes that there are no claims or actions pending or threatened against Blaze Software, the ultimate disposition of which would have a material impact on Blaze Software's financial position or results of operations. On January 6, 2000, a founder and former director of Blaze Software, notified the Company of claims that he may assert against Blaze Software. The founder and former director contends that his personal equity ownership of Blaze Software was diluted improperly in connection with our Series AA preferred stock financing that closed in June and September 1999. In particular, he contends that he was wrongfully denied the opportunity to purchase shares at a price of $0.54 per share in connection with the financing, and that the financing was otherwise unfair and benefited participating stockholders. If he had participated in the financing, he would have been able to purchase up to 1,710,949 shares. The Company believes that his assertions are without merit and intend to vigorously defend any claims that he may bring against Blaze Software. On March 17, 2000, the Company filed a complaint against the founder and former director in the United States District Court for the Northern District of California asking for declaratory relief regarding his allegations. However, should any litigation be decided adversely to the Company, Blaze Software may be required to pay substantial damages or issue additional shares to him. In addition, other stockholders that did not participate in the financing may assert similar claims against the Company. If the Company is required to issue additional shares to him or other stockholders, then-existing stockholders would experience dilution of their ownership and the Company would need to record an accounting charge in the statement of operations equal to the fair market value of the shares at the time of issuance. NOTE 13--INCOME TAXES: The components of income tax expense consisted of the following (in thousands):

F-91 BLAZE SOFTWARE, INC. (FORMERLY NEURON DATA, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The components of net deferred tax assets were as follows (in thousands):

Due to the uncertainty surrounding the realization of the deferred tax asset in future tax returns, Blaze Software has placed a valuation allowance against its net deferred tax assets. The valuation allowance increased by $2,153,000, $1,618,000 and $1,969,000 during fiscal years 2000, 1999 and 1998, respectively. Blaze Software's expected U.S. Federal statutory income tax rate (34%) differs from the effective tax rate as follows:

At March 31, 2000, Blaze Software had available net operating loss carryforwards of approximately $22,454,000 and $6,987,000 to offset future federal and state taxable income, respectively. At March 31, 2000, Blaze Software also had available research and development credit carryforwards and other credit carryforwards of approximately $1,297,000 and $479,000 to offset future federal and state taxable income, respectively, and foreign tax credits of approximately $322,000 available to offset future federal taxable income. These carryforwards expire from 2000 to 2010. For federal and state tax purposes, a portion of Blaze Software's net operating loss carryforwards may be subject to certain limitation on annual utilization in case of a change in ownership, as defined by federal and state tax law. F-92 BLAZE SOFTWARE, INC. (FORMERLY NEURON DATA, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) NOTE 14--SEGMENT INFORMATION: Blaze Software, which operates in a single business segment, develops and licenses component-based development software for building business-critical applications and also provides related maintenance and consulting services. Operations of Blaze Software's overseas subsidiaries consist of product license revenues and service revenues. Intercompany transfers between geographic areas are accounted for at prices that approximate arm's length transactions. Information regarding geographic areas at March 31, 2000, 1999 and 1998, and for each of the years then ended, is as follows (in thousands):

F-93 BLAZE SOFTWARE, INC. (FORMERLY NEURON DATA, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) NOTE 15--SUBSEQUENT EVENTS In April 2000, in connection with the initial public offering, the underwriters purchased an additional 600,000 shares of common stock as a result of the exercise of their over-allotment option. This sale resulted in additional net proceeds of approximately $8,800,000. On June 20, 2000, Brokat Infosystems AG and Blaze Software announced that the companies had entered into a definitive agreement for Brokat to acquire Blaze Software in a stock-for-stock merger, subject to the approval of Blaze Software stockholders, regulatory agencies and other customary closing conditions. Under the terms of the agreement, Blaze Software stockholders will receive an American Depositary Share equivalent of 0.1826 of a Brokat ordinary share in exchange for each share of Blaze Software common stock. Based on Brokat's closing price on June 19, 2000, the acquisition is valued at approximately $560 million. The merger is intended to be accounted for as a purchase, tax-free to Blaze Software stockholders, and is expected to close in September 2000. F-94 BLAZE SOFTWARE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)

-------- (a) The balance sheet at March 31, 2000 has been derived from the audited consolidated financial statements at that date. The accompanying notes are an integral part of these consolidated financial statements. F-95 BLAZE SOFTWARE, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts--unaudited)

The accompanying notes are an integral part of these consolidated financial statements. F-96 BLAZE SOFTWARE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands--unaudited)

The accompanying notes are an integral part of these consolidated financial statements. F-97 BLAZE SOFTWARE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1--FORMATION AND BUSINESS OF THE COMPANY Blaze Software, Inc. ("Blaze Software" or the "Company") was incorporated in California as Neuron Data, Inc. in 1985. The Company changed its name to Blaze Software, Inc. in August 1999 and reincorporated in the State of Delaware in March 2000. Blaze Software develops and licenses infrastructure software that enables adaptable and personalized interactions that are consistent across all company communication channels, or touch points. This software enables companies to implement their policies, practices and procedures, or business rules, in e-business applications across multiple touch points. Blaze Software also provides related maintenance and consulting services. Blaze Software markets its products to a wide range of customers mainly in North America, Europe and the Pacific Rim primarily through a direct sales force. NOTE 2--BASIS OF PRESENTATION Interim Financial Statements The accompanying condensed consolidated financial statements include the accounts of Blaze Software and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation. The financial results and related information as of June 30, 2000 and for the three month periods ended June 30, 2000 and 1999 are unaudited. The balance sheet at March 31, 2000, has been derived from the audited consolidated financial statements as of that date but does not necessarily reflect all of the informational disclosures previously reported in accordance with accounting principles generally accepted in the United States. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all necessary adjustments, consisting of normal recurring adjustments, to fairly state the Company's financial position, results of operations, and cash flows for the periods indicated. The accompanying condensed consolidated financial statements should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations included in this Form 10-Q and the consolidated financial statements and notes thereto included with the Company's Form 10-K and other documents that have been filed with the Securities and Exchange Commission ("SEC"). The results of the Company's operations for the interim periods presented are not necessarily indicative of operating results for the full fiscal year or any future interim periods. Discontinued Operations In December 1999, the Company's Board of Directors resolved to discontinue Blaze Software's entire user interface line of business. The accompanying condensed consolidated financial statements have been prepared to reflect the historical results of operations and cash flows of the user interface line of business as discontinued operations for all periods presented. In July 2000, the Company sold its user interface line of business, effective as of May 1, 2000. See Note 8, Subsequent Events. Revenues from the discontinued operations were $174,000 for the three months ended June 30, 2000 and $1.2 million for the three months ended June 30, 1999. NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Net loss per share Blaze Software computes net loss per share in accordance with Statement of Financial Accounting Standards No. 128, Earnings per Share ("SFAS No. 128"). Under the provisions of SFAS No. 128, basic net loss per share is computed by dividing the net loss available to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss for the period by the weighted average number of common and common equivalent shares outstanding during the period. Options, warrants and preferred stock were not included in the computation of diluted net loss per share because the effect would be antidilutive. F-98 BLAZE SOFTWARE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) A reconciliation of shares used in the calculation of basic and diluted net loss per share follows (in thousands, except per share amounts):

Use of estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Recent accounting pronouncements In June 1998, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"), which establishes new standards of accounting and reporting for derivative instruments and hedging activities. SFAS 133 requires that all derivatives be recognized at fair value in the statement of financial position, and that the corresponding gains or losses be reported either in the statement of operations or as a component of comprehensive income, depending on the type of hedging relationship that exists. SFAS 133 is effective for fiscal years beginning after June 15, 2000. Blaze Software is assessing the potential impact of this pronouncement on the financial statements; however, the Company does not expect any significant impact. In December 1999, the SEC issued Staff Accounting Bulletin 101, Revenue Recognition ("SAB 101"), which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue and provides guidance on disclosure related to revenue recognition policies. The Company believes that it currently complies with SAB 101. In March 2000, the FASB issued Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation--An Interpretation of APB 25 (the "Interpretation"). This Interpretation clarifies (a) the F-99 BLAZE SOFTWARE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) definition of an employee for purposes of applying APB 25, (b) the criteria for determining whether a stock plan qualifies as a non-compensatory plan, (c) the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. This Interpretation became effective July 1, 2000, but certain conclusions in this Interpretation cover specific events that occur after either December 15, 1998, or January 12, 2000. To the extent that this Interpretation covers events occurring during the period after December 15, 1998, or January 12, 2000, but before the effective date of July 1, 2000, the effects of applying this Interpretation did not have a material impact on the consolidated financial statements. Blaze Software does not expect that the adoption of the remaining provision of this Interpretation will have a material impact on the consolidated financial statements. NOTE 4--BUSINESS COMBINATIONS On June 20, 2000, Brokat Infosystems AG ("Brokat"), a company listed on the German Neuer Markt and Blaze Software announced that the companies had entered into a definitive agreement for Brokat to acquire Blaze Software in a stock- for-stock merger. Under the terms of the agreement, Blaze Software stockholders will receive 0.1826 of a Brokat ordinary share in exchange for each share of Blaze Software common stock. Based on Brokat's closing price on June 19, 2000, the acquisition is valued at approximately $560 million. The merger is intended to be accounted for as a purchase, tax-free to Blaze Software stockholders, and is expected to close in September 2000. NOTE 5--CONTINGENCIES From time to time, Blaze Software may be involved in litigation relating to claims arising out of its ordinary course of business. Management believes that there are no claims or actions pending or threatened against Blaze Software, the ultimate disposition of which would have a material impact on Blaze Software's financial position or results of operations. Blaze Software received notification of claims from a founder and director that he may assert against the Company. He contends that his personal equity ownership of Blaze Software was diluted improperly in connection with a preferred stock financing. Blaze Software believes that these assertions are without merit and intends to vigorously defend claims that may be brought against the Company. NOTE 6--EXERCISE OF OVER-ALLOTMENT OPTION In April 2000, in conjunction with Blaze Software's initial public offering in March 2000, the underwriters purchased an additional 600,000 shares of common stock at $16 a share as a result of their over-allotment option. This sale resulted in additional net proceeds of approximately $8.8 million. NOTE 7--SEGMENTAL INFORMATION Blaze Software, which operates in a single business segment, develops and licenses component-based development software for building business-critical applications and also provides related maintenance and consulting services. Operations of Blaze Software's overseas subsidiaries consist of product license revenues and service revenues. Intercompany transfers between geographic areas are accounted for at prices that approximate arm's length transactions. F-100 BLAZE SOFTWARE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Information regarding geographic areas at June 30, 2000 and 1999, and for each of the three months then ended, is as follows (in thousands):

NOTE 8--SUBSEQUENT EVENTS Sale of User Interface Line of Business In July 2000, Blaze Software signed an agreement to sell its user interface line of business effective May 1, 2000. The consolidated financial statements as of, and for the three months ended, June 30, 2000 reflect the sale of the user interface line of business. The sale of the user interface line of business resulted in a loss on the disposal of approximately $540,000. The loss has been included in the statement of operations under income (loss) from operations of discontinued user interface business (net of income taxes). Blaze Software may receive future royalty payments for a period of two years after the effective date of the agreement. No royalty payments were made in the three months ended June 30, 2000. Director Option Acceleration In July 2000, the Company accelerated the remaining vesting period of outstanding options granted to certain members of the Board of Directors. Due to this change in the terms of these options, the Company will incur a one-time stock-based compensation charge of approximately $670,000 in the quarter ended September 30, 2000. F-101 REPORT OF INDEPENDENT AUDITORS The Board of Directors GemStone Systems, Inc. We have audited the accompanying consolidated balance sheets of GemStone Systems, Inc. as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for each of the two years ended December 31, 1999. 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of GemStone Systems, Inc. at December 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP Walnut Creek, California March 24, 2000, except for Note 8, as to which the date is June 16, 2000 F-102 GEMSTONE SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data)

See accompanying notes. F-103 GEMSTONE SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands)

See accompanying notes. F-104 GEMSTONE SYSTEMS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (In thousands, except share data)

See accompanying notes. F-105 GEMSTONE SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)

See accompanying notes. F-106 GEMSTONE SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 1.Summary of Significant Accounting Policies Description of Business GemStone Systems, Inc. ("GemStone" or the "Company"), an Oregon corporation, is substantially wholly-owned by Lex Magna Ltd. ("LM"). The Company designs, develops, markets, and distributes enterprise application server software platforms, which are used by its customers to deploy and manage strategic business applications. The Company operates in one industry segment (development and marketing of computer software and related services) and markets its products and services internationally through foreign subsidiaries, distributors and resellers located in North America, Europe and the Pacific Rim, which includes Asia, Australia, New Zealand and South America. Basis of Presentation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The Company translates the accounts of its foreign subsidiaries using the local currency as the functional currency. The assets and liabilities of the foreign subsidiaries are translated into U.S. dollars using exchange rates in effect at the balance sheet date, revenues and expenses are translated using the average exchange rate for the period, and gains and losses from this translation process are credited or charged to stockholder's equity (deficit). Foreign currency transaction gains and losses have not been material. The Company has incurred significant operating losses and had a working capital deficit and a net capital deficiency at December 31, 1999. The Company has received cash infusions from affiliated companies owned by LM to fund its operations. Management expects that its cash flows from operations and additional funding from LM will be adequate to fund future operations (see Note 8). Unaudited Interim Financial Information The interim financial information as of June 30, 2000 and for the six 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 six months ended June 30, 2000 are not necessarily indicative of results that may be expected for any future periods. 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 in the financial statements and accompanying notes. Actual results could differ materially from those estimates. Cash and Cash Equivalents Cash and cash equivalents, which consist of cash and highly liquid short- term investments with insignificant interest rate risk and original maturities of three months or less at the date of purchase, are stated at cost, which approximates fair value. F-107 GEMSTONE SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Concentrations of Credit Risk and Credit Evaluations Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of temporary cash investments and trade accounts receivable. Cash equivalents consist principally of money market and demand deposit accounts and are held principally with one domestic financial institution. The Company performs periodic evaluations of the relative credit standing of this institution. The Company licenses its products primarily to customers in North America and Europe. The Company generally does not require collateral form its customers. Reserves are maintained for estimated losses in the collection of accounts receivable and such losses to date have been within management's expectations. Revenue Recognition The Company adopted Statement of Position 97-2, "Software Revenue Recognition", ("SOP 97-2") and Statement of Position 98-4, "Deferral of the Effective Date of a Provision of SOP 97-2, Software Revenue Recognition", ("SOP 98-4") as of January 1, 1998. SOP 97-2 and SOP 98-4 provide guidance for recognizing revenue on software transactions and supersede Statement of Position 91-1, "Software Revenue Recognition" ("SOP 91-1"). In December 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position 98-9, "Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain Transactions" ("SOP 98- 9"). SOP 98-9 amends SOP 98-4 to extend the deferral of the application of certain passages of SOP 97-2 provided by SOP 98-4 through fiscal years beginning on or before March 15, 1999. All other provisions of SOP 98-9 are effective for transactions entered into in fiscal years beginning after March 15, 1999. The Company adopted SOP 98-9 as of January 1, 2000. The Company licenses software under noncancellable license agreements. License fee revenues are recognized when a noncancellable license agreement is in force, the product has been shipped, the license fee is fixed or determinable, and collectibility is reasonably assured. If the fee is not fixed or determinable, revenue is recognized as payments become due from the customer. License revenue from third-party distributors and value added resellers is recognized as products are sold to end users under noncancellable license agreements and collectibility is reasonably assured. If collectibility is not considered probable, revenue is recognized when the fee is collected. If an agreement includes both license and service elements, the license fee is recognized on delivery of the software, provided services do not include significant customization or modification of the base product, and the payment terms for licenses are not subject to additional acceptance criteria. The Company has established vendor specific objective evidence of fair value for services and determines the allocation of the arrangement fee to the license component using the residual method. In cases where license fee payments are contingent on the acceptance of services, recognition of revenues is deferred for both the license and the service elements until the acceptance criteria are met. Maintenance and support revenues are recognized ratably over the term of the related agreements, which in most cases is one year. Revenues from consulting services under time and materials contracts and for training are recognized as services are performed. Revenues from consulting services under fixed price contracts are recognized under the percentage-of-completion method using the ratio of labor hours incurred to total expected labor hours as the measure of progress towards completion. Unbilled work-in-process represents costs incurred and estimated earnings, production, and other client-reimbursable costs that have yet to be invoiced. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. To date, these losses have not been significant. F-108 GEMSTONE SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company invoices customers for license and support fees in accordance with individual contract terms. Payment terms generally require payment of the license fees and first year support fees from the customer 30 days from the effective date of the contract. On occasion the Company may offer extended payment terms of not more than twelve months. The Company does not offer a right of return to third parties or other customers. Significant Customers Revenues from one customer accounted for 12% of total revenues for the year ended December 31, 1999. Revenues from two customers each accounted for 10% of total revenues for the year ended December 31, 1998. Software Development Costs The Company capitalizes software development costs upon the establishment of technological feasibility, which is usually upon completion of a working model, subject to net realizable value considerations. During the years ended December 31, 1999 and 1998, such capitalizable costs were not material. Accordingly, the Company charged all such costs to research and development expense in the accompanying consolidated statements of operations. Future capitalized costs, if any, will be amortized on a straight-line basis over the estimated life of the products or the ratio of current revenue to the total of current and anticipated future revenue, whichever expense is greater. Property and Equipment Property and equipment consist of office and computer equipment, furniture and fixtures, and leasehold improvements, which are stated at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets, which range from three to five years, or the lesser of the estimated useful lives or lease term for assets acquired under capital lease agreements and leasehold improvements. Income Taxes The Company uses the liability method of accounting for income taxes under which deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rules and laws that will be in effect when the differences are expected to reverse. Stock Based Compensation The Company accounts for employee stock options in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and has adopted the disclosure-only alternative described in Statement of Financial Accounting Standards No. 123, "Accounting for Stock- Based Compensation" ("FAS 123"). Comprehensive Income Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS 130"), which requires that all items that are recognized under accounting standards as components of comprehensive income (revenues, expenses, gains and losses) be reported in a financial statement that is displayed with the same prominence as other financial statements. F-109 GEMSTONE SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Segment Information Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("FAS 131") which establishes standards for the way public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to stockholders. In addition, it establishes standards for related disclosures about products and services, geographic areas and major customers. The Company operates in one segment, therefore, the adoption of this pronouncement had no impact upon the Company. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"), which establishes accounting and reporting standards for derivative instruments and hedging activities. FAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. The Company will be required to adopt FAS 133 effective January 1, 2001. Management of the Company does not believe the adoption of this statement will have a material effect on the Company's consolidated financial position, results of operations or cash flow. Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements" ("SAB 101"), was issued in December 1999 by the Securities and Exchange Commission ("SEC"). SAB 101 provides guidance surrounding revenue recognition. Due to complications surrounding the implementation of SAB 101, the SEC, in March 2000, deferred the implementation date of certain provisions of SAB 101 until the quarter ended June 30, 2000, with retroactive application to transactions entered into during the quarter ended March 31, 2000. The Company has not yet determined the effect on the Company's financial statements of adopting SAB 101. Reclassifications Certain prior year balances have been reclassified to conform with current year presentation. 2.Related Party Transactions During the year ended December 31, 1999, the Company borrowed approximately $2.9 million from affiliates owned by LM to fund operations. The annual interest rate on the unpaid principal balance is 6% with principal and interest to be paid on demand. The Company repaid $800,000 of the notes payable during the year. Interest expense related to the notes payable for the year ended December 31, 1999 was $69,000. 3.Notes Payable During 1999, the Company entered into an agreement whereby the Company finances the accounts receivable of its pre-approved customers with a financial institution on a full recourse basis through the issuance of notes payable. The Company uses advances under the notes to pay operating expenses as well as vendor purchases. The Company maintains the credit risk on all financed receivables. Only invoices outstanding for less than 90 days from the original due date have the ability to be financed by the financial institution. As of December 31, 1999, the Company had outstanding financed receivables of approximately $1.2 million with the financial institution which is included in accounts receivable and notes payable in the accompanying consolidated balance sheets. Interest on the note is due at an annual rate of 21%. The note is secured by the underlying accounts receivable and the general assets of the Company. F-110 GEMSTONE SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 4.Lease Commitments The Company leases certain premises under operating lease agreements as well as property and equipment under operating lease and capital lease agreements certain of which contain renewal options at fair market value. Future minimum lease payments are as follows at December 31, 1999 (in thousands):

Cost of and accumulated amortization on assets acquired under capital lease arrangements was $938,000 and $1,348,000, and $583,000 and $668,000 at December 31, 1999 and 1998, respectively. Rent expense totaled $1,254,000 and $848,000 in 1999 and 1998, respectively. 5.Stockholders' Equity Convertible Preferred Stock The Company has 10,000,000 shares of authorized convertible preferred stock of which 5,000,000 shares are designated Series I, 2,000,000 shares are designated Series II, and 3,000,000 shares are designated Series III. At December 31, 1999, 3,175,685 shares of Series I, 2,000,000 shares of Series II and 2,136,609 shares of Series III convertible preferred stock were outstanding. All of the shares of convertible preferred stock outstanding are held by LM. Holders of convertible preferred stock are entitled to noncumulative cash dividends, when and if declared by the Board of Directors, prior to any dividends paid on the common stock. Each share of convertible preferred stock is convertible into one share of common stock at the option of the holder. Each share will be automatically converted into common stock upon the closing of an initial public offering of the Company's common stock at a price per share that equates to a total value of the Company's capital stock of at least $20,000,000 and an aggregate offering price of at least $7,500,000, or at any such time as 67% of the convertible preferred stock has been converted to common stock. Each share of convertible preferred stock has voting rights equal to the number of common shares into which it is convertible. Upon voluntary or involuntary liquidation or merger with another corporation, the holders of Series I, Series II and Series III convertible preferred stock are entitled to receive an amount equal to the original issuance price per share of $5.00, $2.50 and $8.00, respectively, before adjustments, plus any declared but unpaid dividends, before any distribution may be made to the holders of common stock. F-111 GEMSTONE SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Stock Option Plans Under the Company's 1992 Stock Option Plan (the "Plan"), 1,518,920 shares of common stock have been reserved for the issuance of incentive stock options ("ISO") or nonstatutory stock options ("NSO") to eligible employees, consultants, and directors. The ISOs may be granted at a price per share not less than the fair market value on the date of grant. The NSOs may be granted at a price per share not less than 85% of the fair market value on the date of the grant. Options granted under the Plan expire not more than ten years from the date of grant and generally become exercisable at varying rates over a five-year period. Unvested options and vested but unexercised options are canceled and returned to the Company for regrant upon termination of employment or expiration of the option. A summary of activity under the Plan is as follows:

The following table summarizes information about stock options outstanding and exercisable at December 31, 1999:

At December 31, 1999, the Company has reserved the following shares of its common stock for future issuance: Outstanding stock options.......................................... 688,000 Future stock option grants......................................... 209,942 Outstanding convertible preferred stock............................ 7,312,294 --------- 8,210,236 =========

F-112 GEMSTONE SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Pro Forma Disclosures of the Effect of Stock-Based Compensation The Company has elected to follow APB 25 and related interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under FAS 123 requires the use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals or exceeds the market price of the underlying common stock on the grant date, no compensation expense is recorded. Pro forma information regarding net income (loss) is required by FAS 123, which also requires that the information be determined as if the Company has accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method of FAS 123. Under this method, the estimated fair value of the options is amortized to expense over the vesting period of the options. The effect of applying the fair value method of FAS 123 to the Company's stock-based awards resulted in net loss for the years ended December 31, 1999 and 1998, which was not materially different than the reported net loss. The weighted-average grant-date fair value of options was $2.31 per share for grants made during the year ended December 31, 1998. There were no grants during the year ended December 31, 1999. The fair value for these options was estimated at the date of grant using a minimum value option pricing model with the following weighted-average assumptions:

The minimum value 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, option valuation models require 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. Because FAS 123 is applicable only to options granted subsequent to December 31, 1994, its adjusted effect will not be fully reflected until 2000. 6.Income Taxes Prior to December 7, 1998, the Company was included in the consolidated return of Sanpao Industries, Inc. ("Sanpao"), which owned greater than 80% of Servio Logic Corporation ("Servio Logic"), at the time, the direct parent of the Company. At the time, Sanpao was a wholly-owned subsidiary of LM. In a series of transactions effected on December 7, 1998, the Company was reorganized such that the Company became directly owned by LM, and succeeded to all of the historical tax attributes of both Servio Logic and Sanpao. There was no provision for U.S. federal or state income taxes for any period as the Company has incurred operating losses, and there can be no assurance that the Company will realize the benefit of the net operating loss carryforwards. The tax provision recorded by the Company during the years ended December 31, 1999 and 1998 relates primarily to income taxes paid by foreign subsidiaries and taxes withheld from customer payments in various foreign jurisdictions. F-113 GEMSTONE SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 for income tax purposes. Significant components of the Company's current and non-current deferred tax assets and liabilities for federal and state income taxes are as follows:

During the years ended December 31, 1999 and 1998, the valuation allowance on the deferred tax assets increased by $1,683,000 and $30,121,000, respectively. As of December 31, 1999, the Company had net operating loss carryforwards for federal income tax purposes of approximately $115 million. The federal net operating loss carryforwards will expire at various dates beginning in the current year through 2019 if not utilized. Due to the "change in ownership" provisions of the Internal Revenue Code, the availability of the Company's net operating loss credit carryforwards may be subject to an annual limitation against taxable income in future periods if a change in ownership of more than 50% of the value of the Company's stock should occur over a three-year period, which could substantially limit the eventual utilization of these carryforwards. 7.Retirement Plan The Company maintains a savings plan under Section 401(k) of the Internal Revenue Code (the 401(k) Plan), which covers substantially all full-time employees. Participating employees may individually elect to have 1% to 18% of their total annual compensation contributed to the 401(k) Plan. The Company may contribute a discretionary matching contribution on behalf of each participant to be determined each year by the Company. The Company made no contributions to the 401(k) Plan in 1999 or 1998. 8.Subsequent Events On June 16, 2000, the Company received a commitment from LM to fund the Company up to $5 million through December 31, 2000 and not to require payment on any outstanding notes through June 15, 2001. Unaudited. From December 31, 1999 through June 30, 2000, the Company borrowed additional amounts from LM and affiliated companies increasing the total notes payable to related parties to $6,825,000 as of this date. Amounts borrowed during this period have the same terms as amounts outstanding at December 31, 1999. Unaudited. On June 19, 2000, Brokat Infosystems AG ("Brokat") and the Company entered into a definitive agreement for Brokat to acquire GemStone, subject to the approval of GemStone shareholders, regulatory agencies and other customary closing conditions. F-114 GEMSTONE SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Unaudited. On June 14, 2000, the Company established a Rabbi Trust (the "Trust") to fund deferred compensation for certain employees of the Company. The Company deposited 1.5 million shares of common stock and a demand note in the amount of $500,000 with the Trust. The Trust limits distributions of its assets to shares of the Company's common stock. Under Emerging Issue Task Force Issue 97-14 "Accounting for Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi Trust and Invested", ("EITF 97-14") assets of the Trust must be consolidated with those of the employer, and the value of the employer's stock held in the rabbi trust must be classified in stockholders' equity and generally accounted for in a manner similar to treasury stock. In accordance with the provisions of EITF 97-14, the Company recorded the 1.5 million shares held by the Trust as Employees Stock Trust included within stockholders' equity (deficit) in the accompanying consolidated balance sheet to account for the transaction. The Trust has not demanded the note as of June 30, 2000. In August 2000, the Company deposited an additional 1.3 million shares of common stock with the trust. The fair value of these shares as at that date approximates $19.3 million. Unaudited. In June 2000, the Company's Board of Directors approved a modification to the Company's stock option plans to provide for acceleration of vesting on unvested stock options in the event an employee of the Company is either terminated other than for cause or is assigned new employment duties which represent a substantial diminution of authority or responsibility. The modification is effective at the effective date of the merger. In accordance with FASB Interpretation No 44. "Accounting for Certain Transactions involving Stock Compensation," the Company will record deferred compensation at the merger date based upon the difference between the intrinsic value of the option on the date of the grant and the date of modification for the number of options which are expected to be affected as a result of the modification. This amount will be charged to expense over the expected vesting period based on estimates of the number of options that employees will ultimately retain that would have otherwise been forfeited, absent the modification. The Company currently does not anticipate any employee terminations other than for cause and does not expect terminations due to a substantial diminution of an employee's authority or responsibility and thus, does not expect to record any deferred compensation in connection with the modification. F-115 UNAUDITED PRO FORMA FINANCIAL INFORMATION What is reflected in Brokat's unaudited pro forma financial data. The following unaudited pro forma consolidated balance sheet as of June 30, 2000 reflects the offering of Brokat's 11 1/2% senior notes due 2010 and the application of the net proceeds of such offering and gives effect to the acquisitions of Blaze and GemStone as if they had occurred on June 30, 2000. The following unaudited pro forma consolidated statement of operations give effect to the acquisitions of MeTechnology AG and Transaction Software Technologies, Inc., the offering of the senior notes and the application of the net proceeds of such offering and the acquisitions of Blaze and GemStone as if they had occurred on July 1, 1998. Significant intercompany accounts and transactions that were reflected previously in the historical financial statements before the acquisitions have been eliminated. Brokat has adjusted MeTechnology and TST data because its fiscal year differed from the fiscal years of those companies. The unaudited pro forma consolidated financial data are derived from Brokat's historical consolidated financial statements and the historical consolidated financial statements of MeTechnology and TST. Because Brokat's fiscal year differed from those of MeTechnology and TST, financial data presented for those companies reflect adjustments to present financial information for periods comparable to Brokat's. These adjustments are quantified in the tables following the pro forma consolidated statements of operations. Amounts are given in thousands of Deutsche marks unless otherwise specified. While the fiscal year end of Blaze differs from Brokat's, this difference is less than 93 days. Accordingly, the unaudited pro forma consolidated statements for the years ended June 30, 1999 and for the six months ended December 31, 1999 and June 30, 2000 were developed using the financial statements of Blaze for the comparable calendar periods. You should read the unaudited pro forma financial data with Brokat's financial data. The pro forma adjustments are described in the accompanying notes to the unaudited pro forma combined financial data and are based upon available information and upon assumptions that we considered reasonable. You should read the unaudited pro forma financial data with Brokat's historical financial statements and related notes. Brokat has provided pro forma financial data only for informational purposes. Brokat has provided the unaudited pro forma financial data for informational purposes only and you should not consider the data indicative of actual results that Brokat would have achieved had these transactions been completed on the date or for the periods indicated. Brokat does not claim to indicate the balance sheet data or results of operations as of any future date or for any future period. F-116 UNAUDITED PRO FORMA COMBINED BALANCE SHEET AS OF JUNE 30, 2000 (In thousands)

The notes to unaudited pro forma financial data are an integral part of this combined pro forma balance sheet. F-117 UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1999 (In thousands except share and per share data)

The notes to unaudited pro forma data are an integral part of this combined pro forma statement of operations. F-118 UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 (In thousands except share and per share data)

The notes to unaudited pro forma data are an integral part of this consolidated pro forma statement of operations. F-119 UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 (In thousands except share and per share data)

F-120 The unaudited statement of operations of MeTechnology for the period July 1, 1998 to May 21, 1999 is:

Based on German GAAP, the audited statement of operations for the year ended December 31, 1998 has been prepared presenting costs by their nature. To comply with the functional cost format commonly used under U.S. GAAP, the costs incurred have been reclassified to cost of sales, selling, general and administrative as well as research and development expenses based on the character of the underlying costs. A reconciliation from German GAAP to U.S. GAAP has been performed to account for differences in revenue recognition on long-term software customization projects. Under German GAAP, license revenue is realized upon delivery of the software, while the customization work is accounted for separately under the completed-contract-method. Under U.S. GAAP, these license and customization revenues would be recognized using the percentage-of-completion-method. F-121 The statement of operations of TST for the period July 1, 1998 to May 9, 1999 is:

The statement of operations of TST was translated to Deutsche marks using the average translation rate for the relevant periods. Notes to Unaudited Pro Forma Data (1) Reflects the historical issuance of notes at a rate of 11.5%, with a face value of DM 244,479 and deferred note issuance costs of DM 8,800. (2) To eliminate license sales of DM 3,000 from Brokat to MeTechnology and DM 753 from Brokat to TST. No material direct costs were related to these licenses. (3) To record additional amortization expense resulting from the increase in goodwill and intangible assets from acquisitions. These amounts are expected to be amortized over the following useful lives:

F-122 The allocations of purchase price related to the acquisitions of MeTechnology and TST, and acquisitions of Blaze and GemStone are:

The purchase price allocations related to Brokat's acquisitions of Blaze and GemStone, which are based on Brokat's management's best estimates at this time, are preliminary and subject to change. At present, Brokat has not been able to perform a formal review of the net assets that it acquired of these entities and, accordingly, for purposes of these pro forma financial statements, has allocated the excess of purchase price over the fair value of net assets acquired to goodwill. It is possible that a portion of this excess will be allocated to other acquired intangible assets, such as employee base, customer lists, or technology. These intangible assets generally have shorter useful lives than that of goodwill. Had Brokat assigned the entire purchase price to an intangible asset such as software, which typically has a useful life of three years, Brokat's pro forma net loss and loss per share would have been as follows:

(4) To account for:

As described in the notes to Brokat's consolidated financial statements, interest on the financing related to the TST acquisition has been calculated by discounting the non-interest bearing notes of DM 1,665 using an imputed rate of interest of 5%. The DM 52 shown above does not include interest expense of DM 20 which already was reflected in Brokat's historical financial statements of Brokat from the date of acquisition to June 30, 1999. Interest expense on the notes has been calculated by applying the rate of interest, 11.5%, to their face value. Deferred note issuance costs are being recognized using the effective interest method over the 10-year term of the notes. Management used part of the proceeds from the note offering to repay indebtedness of Brokat. The annual interest rate on this debt outstanding at the year ended June 30, 1999 was between 4.08% and 7%. No extraordinary gain or loss will be recognized in relation to the repayment of the debt mentioned in the preceding paragraph. F-123 (5) For the six months ended June 30, 2000 to account for: . DM 14,058, respectively, related to current bond interest expense, . DM 440, respectively, related to the recognition of deferred note issuance costs and . DM 721, respectively, related to a decrease of interest expenses from the repayment of indebtedness with the proceeds from the sale of the notes. Interest expense on the notes has been calculated by applying the rate of interest, 11.5%, to their face value. Deferred note issuance costs are being recognized over the 10-year term of the notes. Management used part of the proceeds from the senior notes offering to repay indebtedness of Brokat. The annual interest rate on this debt outstanding at the year ended June 30, 1999 was between 4.08% and 7%. No extraordinary gain or loss will be recognized in relation to the repayment of this short-term debt. (6) To account for the acquisitions of Blaze and GemStone (The purchase price allocation, which is based on management's best estimates at this time, is preliminary and is subject to change) (a) Reflects the issuance of Brokat ordinary shares of 4.1 million for Blaze and 2.1 million for GemStone. According to Financial Accounting Standards Board, Interpretation No. 44, also reflects the fair market value, as determined by Black-Scholes, of vested and unvested options of 0.9 million and 0.2 million for Blaze and GemStone. Excluded from this value and included in deferred compensation is the intrinsic value of unearned options of 77% for Blaze and 70% for GemStone. See footnote (7) below. (b) Reflects the repayment of GemStone debt by Brokat from the issuance of 66,200 shares of Brokat ordinary shares. (c) Reflects the elimination of the historical shareholders' equity accounts of Blaze and GemStone. (d) The excess of purchase price over fair value of assets acquired plus acquisition costs of DM 5,000 is reflected as goodwill and is amortized over an estimated life of 7 years. (e) Pro forma basic and diluted net loss per share is computed by dividing the pro forma net loss from continuing operations by the pro forma weighted average number of common shares outstanding. (7) In its acquisition of Blaze, Brokat replaced outstanding Blaze stock options held by employees and directors of Blaze with Brokat stock options, using the exchange ratio employed to consummate the merger. In compliance with FASB Interpretation No. 44, the fair value of the Brokat stock options issued to replace Blaze awards was included as a component of the purchase price for those Brokat options that are vested as of the date of grant. For those Brokat options that are not exercisable at the time of grant, the fair value of the Brokat stock options issued to replace Blaze awards is also included as component of the purchase price, except that a portion of this amount has been classified as deferred compensation expense and amortized over the remaining vesting periods of the options granted. The portion to be classified as deferred compensation has been initially calculated by taking the difference between the fair market value of Brokat ordinary shares on the date of grant compared to the exercise prices of the new awards. However, this amount has been adjusted to recognize deferred compensation expense only to the extent of the ratio of the remaining service period on the new awards as a percentage of total service period under the original award. F-124 (8) Exchange rates used for conversion from US dollars to Deutsche marks: September 30, 1998 (average for 12 months ended)........... $1.00 = DM 1.755 June 30, 1998 (average for 12 months ended)................ $1.00 = DM 1.745 May 29, 1999 (average for 12 months ended)................. $1.00 = DM 1.747 June 30, 1999 (average for 12 months ended)................ $1.00 = DM 1.876 December 31, 1999 (average for 6 months ended)............. $1.00 = DM 1.755 June 30, 2000 (average for six months ended)............... $1.00 = DM 2.039 As of June 30, 2000........................................ $1.00 = DM 2.049

(9) For the GemStone and Blaze mergers, Brokat has reserved 213,000 Brokat ordinary shares for issuance of future stock options to the employees of GemStone and 413,000 Brokat ordinary shares for issuance of future stock options to the employees of Blaze. These options will be granted through 2001 with exercise prices at the future fair market value at the date of grant. These options will be issued under a compensatory plan as defined by Accounting Principles Board Opinion No. 25. F-125 The U.S. SEC encourages companies to disclose forward-looking information so that investors can better understand a company's future prospects and make informed investment decisions. This Form 6-K or the exhibit to this Form 6-K may contain such "forward-looking statements." Words such as "anticipate," "estimate," "expects," "projects," "intends," "plans," "believes" and words and terms of similar substance used in connection with any discussion of future operating or financial performance, or future transactions, identify forward-looking statements. All forward-looking statements are based on Brokat management's present expectations of future events and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Stockholders are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date they are made. Brokat is under no obligation, and expressly disclaims any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. For additional information about factors that could affect Brokat's future financial and operating results, see Brokat's other filings with the Securities and Exchange Commission, including the Registration Statement on Form F-4 filed with the Commission on September 8, 2000. This Form 6-K Report of Foreign Issuer is incorporated by reference into the Registration Statement on Form S-8 of Brokat (Registration No. 333-47866) and into the Registration Statement on Form S-8 of Brokat (Registration No. 333- 45594). -3- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BROKAT AKTIENGESELLSCHAFT By: Name: /s/ Stefan Roever Title: Chief Executive Officer Date: November 16, 2000 -4- EXHIBIT INDEX Exhibit No. Description ----------- ----------- 23.1 Consent of Arthur Andersen Wirtschaftsprufungsgesellschaft Steuerberatungsgellschaft mbH with respect to Brokat Aktiengesellschaft and MeTechnology AG and its predecessor, ESD Vermogensverwaltungsgesellschaft mbH 23.2 Consent of Arthur Andersen LLP with respect to Transaction Software Technologies, Inc. 23.3 Consent of PricewaterhouseCoopers, LLP with respect to Blaze Software, Inc. 23.4 Consent of Ernst & Young LLP with respect to GemStone Systems, Inc.

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