ARIBA INC - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2000
OR

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

FOR THE TRANSITION PERIOD FROM ______________ TO ______________

COMMISSION FILE NUMBER 000-26299
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ARIBA, INC.

(Exact name of registrant as specified in its charter)

DELAWARE 77-0439730
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)

1565 CHARLESTON ROAD,
MOUNTAIN VIEW, CALIFORNIA 94043
(Address of principal executive (Zip Code)
offices)

(650) 930-6200
(Registrant's telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

None

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

Common Stock, $0.002 par value
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /

As of December 15, 2000, there were 249,784,098 shares of the Registrant's
Common Stock outstanding. The aggregate market value of the Common Stock held by
non-affiliates of the Registrant (based on the closing price for the Common
Stock on the Nasdaq National Market on December 15, 2000) was approximately
$14,469,515,948.

DOCUMENTS INCORPORATED BY REFERENCE

The information called for by Part III is incorporated by reference to
specified portions of the Registrant's definitive Proxy Statement to be issued
in conjunction with the Registrant's 2001 Annual Meeting of Stockholders, which
is expected to be filed not later than 120 days after the Registrant's fiscal
year ended September 30, 2000.

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ARIBA, INC.
FORM 10-K
SEPTEMBER 30, 2000

TABLE OF CONTENTS

ITEM PAGE NO.
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PART I

1. Business.................................................... 3
2. Properties.................................................. 30
3. Legal Proceedings........................................... 30
4. Submission of Matters to a Vote of Security Holders......... 30
4A. Executive Officers of the Registrant........................ 31

PART II

5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 33
6. Selected Consolidated Financial Data........................ 34
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 35
7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 50
8. Financial Statements and Supplementary Data................. 52
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 85

PART III

10. Directors and Executive Officers of the Registrant.......... 85
11. Executive Compensation...................................... 85
12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 85
13. Certain Relationships and Related Transactions.............. 85

PART IV

14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 86

SIGNATURES.......................................................................... 88

PART I

ITEM 1. BUSINESS

The information in this report contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such statements
are based upon current expectations that involve risks and uncertainties. Any
statements contained herein that are not statements of historical facts may be
deemed to be forward-looking statements. For example, words such as "may,"
"will," "should," "estimates," "predicts," "potential," "continue," "strategy,"
"believes," "anticipates," "plans," "expects," "intends," and similar
expressions are intended to identify forward-looking statements. Our actual
results and the timing of certain events may differ significantly from the
results discussed in the forward-looking statement. Factors that might cause or
contribute to such a discrepancy include, but are not limited to, those
discussed elsewhere in this report in the section entitled "Risk Factors" and
the risks discussed in our other Securities and Exchange Commission ("SEC")
filings including our Registration Statement on Form S-1 declared effective on
June 22, 1999 by the SEC (File No. 333-76953) and in our Form 10-Q for the
quarter ended June 30, 2000 filed with the SEC on August 14, 2000.

OVERVIEW

Ariba is a leading business-to-business electronic commerce software and
network services platform provider. Ariba provides software, network access and
commerce services that enable corporations to electronically automate and
optimize business with their buyers and suppliers. Customers can do this by both
automating their existing relationships with their buyers and suppliers and by
building a marketplace that brings buyers and suppliers together to buy and sell
electronically. In addition, the company offers commerce services such as
content management, electronic payment, electronic sourcing, and electronic
logistics, among others.

Our Ariba B2B Commerce Platform consists of three primary components,
including Ariba Buyer, our Internet-based procurement application, Ariba
Marketplace and Ariba Dynamic Trade, our Internet-based marketmaker applications
and Ariba Commerce Services Network, our Internet-based commerce services. We
plan to continue to add applications and network-based services to our platform
in the future to provide an increasing amount of commerce services to customers
and partners. In March 1997, we began selling our products and related services
and currently market them in 25 countries including the United States, Latin
America, Europe, Canada, Australia and Asia, primarily through our direct sales
force and indirect sales channels.

Our objective is to create the leading Internet-based business-to-business
electronic commerce network platform. Our strategy to achieve this objective is
to take advantage of the buying power of a large multinational customer base to
attract leading operating resource suppliers to the Ariba Commerce Services
Network. We believe a growing number of suppliers in the Ariba Commerce Services
Network will in turn draw more buyers to our network. We also believe this
growth cycle will help create a network effect, where the value to each
participant in the network increases with the addition of each new participant,
increasing the overall value of our Ariba solution.

Ariba was incorporated in Delaware in September 1996 and from that date
through March 1997 were in the development stage, conducting research and
developing our initial products. Our principal executive Offices are located at
1565 Charleston Road, Mountain View, California 94043.

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RECENT EVENTS

In December 2000, Nihon Ariba K.K. ("Ariba Japan"), a wholly owned
subsidiary, issued and sold 40% of its common stock for approximately
$40 million cash to a third party. We expect that the proceeds will be reflected
as a capital contribution on our consolidated financial statements.

INDUSTRY BACKGROUND

GROWTH OF THE INTERNET AND BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE

The Internet has emerged as the fastest growing communication medium in
history. Approximately 116.5 million Americans are now online and International
Data Corporation estimates that over 200 million Americans will be online within
the next five years. The Internet is dramatically changing how businesses and
individuals communicate and share information. Recently, the widespread adoption
of intranets and the acceptance of the Internet as a business communications
platform has created a foundation for business-to-business electronic commerce
that will enable organizations to streamline complex processes, lower costs and
improve productivity.

With this foundation, Internet-based business-to-business electronic
commerce has grown rapidly. According to Forrester Research,
business-to-business electronic commerce is expected to grow to $2.7 trillion in
2004, with 17% of all business trade transacted on the Internet by 2004. This
market is expected to create a substantial demand for Internet-based electronic
commerce applications. According to International Data Corporation, the
worldwide market for Internet-based electronic commerce procurement and order
management applications topped $1.8 billion in 1999, up 305% from $444 million
in 1998. International Data Corporation estimates that the electronic commerce
applications market will experience tremendous growth, increasing 175% to
$5 billion in 2000 and to $10 billion in 2001.

TRADITIONAL APPROACHES TO BUSINESS TO BUSINESS COMMERCE

Companies buy and sell a variety of goods and services from other companies
in order to build the products they sell as well as operate their company. In
the early 1990's EDI (electronic data exchange), represented the first phase of
electronic commerce. This approach was structured to connect buyers directly to
their suppliers through rigid, private connections. While this approach
significantly shrank some processing times, it was very costly and was not
flexible enough to operate a dynamic marketplace. Moreover, it was used
primarily for planned, fixed price purchasing, such as manufacturing resource
expenditures for cost of goods sold materials, and was less frequently used to
capture a significant portion of a company's purchases, such as operating
resource expenditures for goods and services required to operate a company,
estimated by Killen and Associates to be an average of 33% of what a typical
corporation spends.

Technologically, this early form of electronic commerce was based on older
technological paradigms. It did not take advantage of the breadth and
flexibility of the Internet. All participants in a particular network had to
adapt to rigid, complicated standards for publishing transactions, then transmit
those transactions in a pre-defined sequence. Finally, these transaction were
communicated in batch mode.

The costly economic implications of this method of electronic commerce was a
barrier to smaller companies and thus the method did not provide aggregation of
fragmented industries, which is where a major source of efficiency in an
industry is gained. Also, EDI did not allow for market transparency, or the
ability to search and find market data on pricing across suppliers and other
product data. The users had to know the price and the exact quantity before
conducting a transaction.

Since then, suppliers made their foray into the initial stages of electronic
commerce by publishing their products on a website and enabling the site to
become a major sales channel. Thus, the next

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phase for many companies was using the web to display catalog content. Today,
however, only a small percentage of those sites are able to accept orders.

Today, many organizations buy goods and services through paper-based or
semi-automated processes. These processes are costly, time consuming and complex
and often include the re-keying of information, lengthy approval cycles and
significant involvement of financial and administrative personnel. AMR estimates
that the cost per procurement transaction ranges from $75 to $175, often
exceeding the cost of the items being purchased. In addition, these time
consuming processes often result in fulfillment delays to end-users, leading to
productivity losses.

Beyond the time and expense associated with manual processing costs,
organizations suffer even greater costs when they cannot fully exploit
procurement economies of scale. Most organizations lack the systems that enable
them to monitor purchases and compile data necessary to negotiate better volume
discounts with preferred suppliers. In addition, most organizations suffer from
a problem known as "maverick buying," which occurs when personnel do not follow
internal guidelines as to which suppliers to use for operating resource
purchases. When preferred suppliers are not used, organizations pay a premium.
AMR estimates that maverick buying accounts for one-third of operating resource
expenditures, costing organizations a 15% to 27% premium on those purchases.

Traditional procurement processes also result in missed revenue
opportunities and additional costs to suppliers. When buyers are unable to
channel purchases to preferred suppliers, these suppliers lose revenue.
Suppliers also suffer from inefficient, error prone and manually-intensive order
fulfillment processes. Many suppliers dedicate significant resources to the
manual entry of information from faxed or phoned-in purchase orders and the
manual processing of paper checks, invoices and ship notices. Suppliers also
spend significant resources on customer acquisition and sales costs, including
the production and distribution of paper catalogs. Without fully automated and
integrated electronic commerce technologies, both buyers and suppliers incur
substantial extraneous costs in conducting commerce.

OPPORTUNITY FOR BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE SOLUTIONS

Over the past 30 years, information technologies have brought automation to
departmental operations such as manufacturing resource planning, financial
management, sales force automation and human resource management, through legacy
client server solutions. However, the information technology platforms that made
departmental automation possible did not provide enterprise-wide connectivity
within organizations or connectivity between organizations. Thus, the processes
linking end-users to approvers and organizations to suppliers for goods and
services are today largely paper-based. With the widespread implementation of
intranets and the adoption of the Internet as a business communication platform,
organizations can now automate enterprise-wide and inter-organizational commerce
activities through flexible, Internet-based systems. The availability of this
technology creates a significant market opportunity for Internet-based
business-to-business electronic commerce solutions.

For buyers, a solution must include a user-friendly, intranet-based system
that links end-users, approvers and administrative personnel with an integrated
global network that connects buying organizations with suppliers. This system
must be flexible enough to meet the unique business process requirements of
large, multinational organizations and must be highly scalable, reliable and
rapidly deployable. It must take advantage of an organization's existing
investments in information technologies by working with and connecting to
multiple financial, human resource and enterprise resource planning systems. The
system must provide data reporting and analytical tools that enable analysis of
end-user spending patterns and provide insight into savings opportunities. For
suppliers, the solution must be easy to implement, based on open standards and
build upon existing investments in on-line catalogs and order processing
technologies. Additionally, the solution should offer suppliers the opportunity
to expand their customer base by providing access to a critical mass of buyers.
Addressing these

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requirements for both buyers and suppliers is critical to enabling full scale
business-to-business electronic commerce for goods and services.

For corporations, the benefits of the Internet can allow them to leverage
their business by creating their own marketplace, in turn, benefiting their
customers and their potential suppliers within and across their industry.
Marketplaces need to bring buyers and sellers together, enhancing their
transaction liquidity and lowering their transaction costs. Buyers need to be
able to discover new suppliers and suppliers need to be able to realize greater
revenue opportunities through increased access to buying organizations.
Marketplaces need to provide functionality that helps buyer and supplier
determine the market price, the product options and the availability of those
products. After the market helps to execute the transaction, there is an
opportunity for the network to provide a number of post-transaction services,
such as electronic payment, logistics and content management, among others.

THE ARIBA B2B COMMERCE PLATFORM

Ariba is a leading provider of Internet-based business-to-business
electronic commerce solutions. Our solution consists of four primary components,
our intranet-based Ariba Buyer network application, our Internet-based Ariba
Marketplace and Ariba Dynamic Trade market maker applications and our
Internet-based Ariba Commerce Services Network. Ariba Buyer is a robust,
scalable and reliable network application that operates primarily within a
buying organization's intranet. Ariba Buyer enables an organization to reduce
processing costs and improve productivity by automating the procurement cycle
and linking end-users throughout an organization with internal approvers and
financial systems. Ariba Buyer also enables organizations to reduce the cost of
goods and services by channeling purchases to suppliers with the best prices.

Ariba Marketplace is a flexible, rapid deployment solution that enables the
creation of electronic B2B marketplaces and exchanges. Ariba Marketplace is
designed to bridge the gap between traditional buy-side and sell-side solutions
by facilitating the creation of all types of B2B exchanges. Ariba Dynamic Trade
is a highly configurable, integrated auction and exchange application. Ariba
Dynamic Trade includes a family of trading mechanisms such as auctions, reverse
auctions and bid/ask exchanges built on a distributed application architecture.

The Ariba Commerce Services Network is a single global business-to-business
electronic commerce network, enabling buyers and suppliers to automate
transactions on the Internet. Together, Ariba Buyer, Ariba Marketplace and Ariba
Dynamic Trade, the Ariba Commerce Services Network and Ariba's other products
and services combine intranet and Internet-based network applications with an
Internet-based network to create a business-to-business electronic commerce
platform benefiting both buyers and suppliers.

We believe our solution provides the following benefits:

BENEFITS TO BUYERS:

SIGNIFICANTLY REDUCED PROCESSING COSTS AND INCREASED PRODUCTIVITY. By
automating the operating resource procurement process, our Ariba Buyer solution
allows organizations to achieve significant cost savings and productivity
enhancements. Ariba Buyer enables an organization to streamline and automate
complex and unusual business processes. Ariba Buyer also takes advantage of
existing investments in financial, human resource and enterprise resource
planning systems, which reduces or eliminates the need to manually enter data
into these systems. As a result, our Ariba solution allows organizations to
focus on value-added activities such as negotiating better discounts with
preferred suppliers. Through our solution, end-users can order and receive
requested items more quickly and with less effort, improving overall
productivity.

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SUBSTANTIALLY REDUCED COSTS OF GOODS AND SERVICES. Our Ariba solution
enables organizations to maximize procurement economies of scale, lowering the
overall costs of goods and services. Ariba Buyer provides corporate-wide data
analysis and reporting tools on buying patterns, enabling organizations to
negotiate more favorable contracts with preferred suppliers. Our Ariba solution
in turn routes transactions to these preferred suppliers automatically.
Moreover, Ariba Buyer is accessible on every desktop, is easy-to-use and
streamlines the procurement process. These benefits minimize the frustration to
end-users that often results in maverick buying, further enabling organizations
to take advantage of negotiated discounts with suppliers.

REDUCE MARKET FRAGMENTATION. Large corporations can create their own
private marketplaces by aggregating their suppliers and get better guaranteed
prices with the promise of increased and pre-committed volume. They can also
extend their discounts to lower volume buyers for a fee like their own
customers. Ariba Marketplace allows companies to create their own buying
consortiums.

INCREASE MARKET TRANSPARENCY ON PRODUCTS AND PRICING. Buyers can benefit
from increased knowledge of pricing and product availability published on the
Ariba Commerce Services Network. With the aggregation of information on a
centralized network with increased market participation, buyers have the
potential for greater access to information overall.

BENEFITS TO SUPPLIERS:

INCREASED VOLUME AND REVENUE OPPORTUNITIES. Ariba Buyer, Ariba Marketplace
and the Ariba Commerce Services Network enable buyers to channel spending to
suppliers, providing these suppliers the opportunity to increase revenues. The
Ariba Commerce Services Network provides suppliers with greater access to new
and existing customers through a global presence and availability 24 hours a
day, seven days a week. In addition, by taking advantage of suppliers' web-based
catalog capabilities, our solution enables suppliers to differentiate and market
their goods and services in their preferred format.

REDUCED SALES COSTS. The Ariba Marketplace and Commerce Services Network
platform enables suppliers to reduce sales costs in several ways. By automating
transactions, suppliers can reduce the costs associated with, and reduce the
potential for error inherent in paper-based ordering and payment processes.
Product information can be distributed electronically, reducing the cost of
printed product catalog distribution. In addition, suppliers can utilize their
existing investments in electronic commerce systems, including catalogs and
product web pages.

We believe that the benefits of the Ariba Commerce Services Network platform
will create a growth cycle that increases the value of the Ariba Commerce
Services Network to both buyers and suppliers over time. As buyers benefit from
the efficiencies of the Ariba solution, we believe suppliers will be drawn to
the Ariba Commerce Services Network by the aggregated purchasing power of buyers
using our network. As more suppliers offer products and services through the
network, more buyers are encouraged to join our network.

THE ARIBA GROWTH STRATEGY

Our objective is to create the leading Internet-based business-to-business
electronic commerce network platform. Key elements of our strategy to achieve
this objective include:

TARGET LARGE MULTINATIONAL BUYERS IN A BROAD RANGE OF INDUSTRIES. We intend
to continue to target large, multinational corporations and public sector
institutions, benefiting from our first-mover advantage with many of these
organizations. We believe these organizations will be the most likely early
beneficiaries of an automated, reliable, robust and scalable electronic commerce
solutions and can provide strong customer references. Furthermore, we believe
the large spending power these organizations can channel through the Ariba
Commerce Services Network will attract more suppliers to

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the network. Finally, these organizations have demanding requirements and
rigorously test our products, assisting us in designing a robust, reliable and
scalable solution.

CREATE A NETWORK EFFECT BY ATTRACTING THE LARGEST BUYERS AND SUPPLIERS TO
THE ARIBA COMMERCE SERVICES NETWORK. As Ariba Buyer is deployed to a critical
mass of large buyers in numerous industries, we intend to build upon the buying
power of these large organizations to attract suppliers to the Ariba Commerce
Services Network. We believe a growing number of suppliers in the Ariba Commerce
Services Network will in turn draw more buyers to our network. We also believe
this growth cycle will help create a network effect, where the value to each
participant in the network increases with the addition of each new participant,
increasing the overall value of our Ariba solution.

EXTEND AND BUILD UPON THE ARIBA COMMUNITY OF PARTNERS. We intend to build
upon our strategic relationships with industry leaders in the areas of
electronic commerce systems, information technology consulting, distribution and
content aggregation. We are working with these partners to provide additional
customer implementation capabilities, expand our customer base and increase the
content available on the Ariba Commerce Services Network. These relationships
allow us to focus on our core area of expertise, while taking advantage of the
strengths of complementary technologies and the influence of these industry
leaders. We believe that these relationships, as well as others that we intend
to pursue, will enable the rapid and widespread deployment of our electronic
commerce network platform.

PROVIDE SUPERIOR CUSTOMER SATISFACTION. We believe a loyal base of
reference customers affords us a significant competitive advantage. Therefore,
we intend to continue to focus significant resources on customer satisfaction
programs. In order to foster a culture of customer satisfaction as our highest
priority, all of our employees with variable compensation are paid in part based
on customer satisfaction as measured by an independent third party organization.
We continue to make use of a number of other programs to promote superior
customer satisfaction including our customer-driven development process and our
frequent customer advisory councils.

EXPAND GLOBAL OPERATIONS. We have grown and plan to continue growing our
global presence by expanding our worldwide field sales, marketing and services
organizations. To complement this strategy, we intend to continue to globalize
our operations, expand our corporate and administrative organizations and
systems and form joint ventures and strategic relationships. We also intend to
enter into a strategic relationship with a third party to expand the computer
and communications equipment and software required to support the day-to-day
operations of the Ariba Commerce Services Network on a global basis.

GROWTH THROUGH PARTNERING AND ACQUISITION. We intend to pursue
opportunities to expand our product and network services solution through a
combination of internal development, strategic relationships as well as
acquisitions.

ARIBA PRODUCTS AND SERVICES

Ariba is a leading provider of comprehensive intranet- and Internet-based
business-to-business electronic commerce solutions. This solution consists of
three primary components, Ariba Buyer, Ariba Marketplace and Ariba Dynamic Trade
and the Ariba Commerce Services Network. Ariba Buyer is a network procurement
application that operates primarily within a buying organization's internal
network. Ariba Marketplace is a flexible, rapid deployment solution that enables
the creation of electronic B2B marketplace and exchanges. Ariba Dynamic Trade is
a highly configurable, integrated auction and exchange application. The Ariba
Commerce Services Network is a global business-to-business electronic commerce
network that enables buying organizations, suppliers and distributors to
automate transactions on the Internet. Together, Ariba Buyer, Ariba Marketplace,
Ariba Dynamic Trade, the Ariba Commerce Services Network and Ariba's other
products and services

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combine intranet-based network applications with an Internet-based network to
create a business-to-business electronic commerce platform benefiting both
buyers and suppliers.

ARIBA BUYER

Ariba Buyer is a robust, scalable and reliable network application that
operates primarily within a buying organization's intranet. Ariba Buyer enables
organizations to reduce processing costs and improve productivity by automating
the procurement cycle, linking end-users throughout the organization with
approvers and financial systems. Ariba Buyer also enables organizations to
reduce the cost of goods and services by channeling purchases to preferred
suppliers. As orders are generated and approved, Ariba Buyer automates commerce
transactions securely with suppliers on the Internet through the Ariba Commerce
Services Network. Ariba Buyer is designed to connect large numbers of end-users,
approvers and administrative personnel through web-based applications that
automate procurement and finance processes. Ariba Buyer works with multiple
enterprise systems simultaneously, in addition to providing real-time electronic
access to important procurement information, such as supplier product
specifications, price lists, web sites and order status.

The primary characteristics of Ariba Buyer are:

USER FRIENDLY, WEB-BASED INTERFACES. The browser-based user interface
enables users throughout an organization to take full advantage of Ariba Buyer
from their desktop with minimal training. Wizards, software that provides
automated assistance, guide less experienced users through the acquisition
process, while an advanced user interface makes the system more productive for
experienced users.

ELECTRONIC BUSINESS PROCESS AUTOMATION. Ariba Buyer provides flexible
workflow capable of streamlining and automating even the most complex or unusual
business processes of large, multinational organizations. This flexible workflow
can be customized for the unique processes of an organization and can be
tailored to respond to end-user input, system events or any extrinsic or
intrinsic data in the procurement cycle.

SIMULTANEOUS INTERACTION WITH MULTIPLE ENTERPRISE SYSTEMS. Ariba Buyer
works with, and connects to, leading finance, human resource management and
enterprise resource planning systems from vendors such as PeopleSoft, SAP and
Oracle. In addition, Ariba Buyer provides a comprehensive API (Application
Programming Interface) to connect and work with other legacy systems through
adapters that are sold as separate products. A single Ariba Buyer installation
can connect with multiple enterprise applications simultaneously through
real-time or scheduled interfaces. These interfaces also enable Ariba Buyer to
utilize standard user authentication and directory services such as LDAP
(Lightweight Directory Access Protocol) and Microsoft's Active Directory.

INFORMATION ACCESS. With powerful analytical and reporting tools, Ariba
Buyer enables organizations to evaluate data collected throughout the process of
acquiring, receiving and paying for goods and services. By employing these
analytical tools, an organization can analyze purchasing patterns to streamline
the procurement process, negotiate more favorable terms with preferred suppliers
and gain insight into additional savings opportunities.

INTERFACE WITH THE ARIBA COMMERCE SERVICES NETWORK. Ariba Buyer allows
organizations to automate commerce transactions with suppliers over the Internet
and through the Ariba Commerce Services Network. By adhering to open standards,
Ariba Buyer provides a variety of methods for suppliers to communicate
electronically with buying organizations through the Ariba Commerce Services
Network. Ariba Buyer also allows suppliers to take advantage of their existing
web-based catalogs to provide product information to buyers.

MULTI-PLATFORM ARCHITECTURE. The Ariba Buyer server currently supports
industry-standard approaches to high-performance databases and multi-processor
hardware. Ariba Buyer currently

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supports Microsoft Windows NT and Unix platforms including Hewlett-Packard HP-UX
and Sun Solaris.

ARIBA BUYER MODULES

Ariba Buyer modules are designed specifically for the procurement and
management of different goods and services. Each module contains powerful
reporting and data analysis tools that enable operations managers to monitor the
requisition process and identify areas for cost reductions.

The Ariba Buyer modules are:

ARIBA MRO. Ariba MRO allows organizations to manage purchases associated
with maintenance, repair and operations supplies. These items are primarily
ordered through electronic catalogs and may include office products, information
technologies and facilities items.

ARIBA SERVICES. Ariba Services are specifically designed to address the
unique data collection requirements for the procurement of professional
services, such as facility, legal, temporary and maintenance services.
Purchasing professional services, unlike commodities, involves a number of
different variables, such as scope of services needed, qualification of
personnel and duration of the services. Ariba Services can integrate this data
to process requisitions obtained from the end-user at various points in the
requisitioning, procurement and receiving cycle.

ARIBA CAPITAL EQUIPMENT. Ariba Capital Equipment addresses the specific
needs of capital equipment purchases such as manufacturing, facilities or
information technology equipment. The procurement of capital equipment often
requires unique data such as different accounting, asset identification and
tracking information. Ariba Capital Equipment can be easily configured to suit
an organization's specific accounting and tracking needs.

ARIBA EFORMS. Ariba eForms allow organizations to create custom forms,
which can be attached to existing Ariba applications or used to create new
applications for nearly any type of operating resource request. Ariba eForms are
created using XML (eXtensible Markup Language), a robust definition language
that allows organizations to design forms that capture information from
end-users and route the information for internal approval. Each Ariba eForm can
have its own approval rules and can incorporate standard data from Ariba Buyer
including financial accounting and human resources information.

ARIBA EXPENSE MANAGEMENT. Ariba Expense Management automates the expense
reporting process associated with expenditures such as travel and entertainment.
Ariba Expense Management provides a robust set of features to generate expense
reports automatically from electronic credit card, travel card or procurement
card data feeds and can route expense reports to functional, travel and expense
managers.

ARIBA P-CARD RECONCILIATION. Ariba P-Card Reconciliation provides support
for the use of P-Cards, which are credit cards designed specifically for
business procurement. P-Cards can be allocated to a given user or an accounting
entity. Electronic P-Card statements from financial institutions can be read
automatically by Ariba Buyer and reconciled against purchases made, flagging any
exceptions or inconsistencies.

ARIBA BUYER ENTERPRISE ADAPTERS

Ariba Buyer enterprise adapters are designed specifically to connect to or
integrate with leading finance, human resource management and enterprise
resource and planning systems. Integration refers to the ability of Ariba Buyer
adapters to exchange information with an organization's enterprise systems,
eliminating the need for manual transfer of critical information from Ariba
Buyer to these

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systems. Ariba Buyer enterprise adapters can integrate with standard
implementations of these systems or can be configured to integrate with custom
installations of the enterprise system. These adapters enable a single Ariba
Buyer installation to integrate with multiple enterprise applications
simultaneously.

ARIBA SAP ADAPTER. Ariba SAP Adapter provides real-time and scheduled
integration with SAP applications through standard programming interfaces for
personnel, accounting, distribution, supplier and financial information.

ARIBA PEOPLESOFT ADAPTER. Ariba PeopleSoft Adapter allows real-time and
scheduled integration with PeopleSoft finance, distribution and human resources
management systems through PeopleSoft's message agent for administrative,
personnel, accounting, distribution, supplier and financial information.

ARIBA ORACLE ADAPTER. Ariba Oracle Adapter allows real-time and scheduled
integration with Oracle applications for personnel, accounting, distribution,
supplier and financial information.

ARIBA AUTHENTICATION ADAPTER. Ariba Authentication Adapter provides
integration with standard user authentication and directory services such as
LDAP and Microsoft's Active Directory.

ARIBA GENERAL API ADAPTER. Ariba General API Adapter provides integration
with existing and legacy enterprise systems to interface information with Ariba
Buyer on a real-time or scheduled basis.

Customers who purchase our software products receive a server capacity
license, one or more of the Ariba Buyer modules and adapters to interface with
enterprise financial and human resource systems. The license fee for the server
capacity license is based on the customer's annual volume of line items of
purchasing transactions. The license fees for the software modules and adapters
consist of individual prices for each module or adapter.

The volume licensing of the server capacity allows customers to scale the
total cost of their purchase of the Ariba Buyer system to their needs. The
server capacity license entitles customers to execute the licensed volume of
line items of purchasing transactions during any annual period following their
purchase of the server license. Ariba's customers generally purchase estimated
server capacity at the time of the purchase of the server license. Following the
initial implementation of Ariba Buyer, and based on the reporting and analysis
tools available through Ariba Buyer, our customers are able to understand their
annual transaction volume more fully. Customers who exceed their estimated
volume can purchase additional server capacity.

THE ARIBA COMMERCE SERVICES NETWORK

The Ariba Commerce Services Network is an Internet-based corporate resource
commerce network designed to provide access to large amounts of supplier product
information and to enable electronic commerce transactions over the Internet.
The Ariba Commerce Services Network bridges buyer and supplier networks on the
Internet and offers electronic payment, catalog and content management, order
transaction routing and multi-protocol support for numerous electronic commerce
standards.

Our multi-protocol network allows buyers to send transactions from Ariba
Buyer in one standard format; it then converts the order into the supplier's
preferred transaction format, such as CXML (Commerce eXtensible Markup
Language), a format used on the Internet to describe commerce data and
documents, or EDI (Electronic Data Interchange), a format used to exchange data
and documents electronically. This feature eliminates the need for a single
standard for electronic commerce and gives suppliers the freedom to transact in
their preferred protocols.

11

The Ariba Commerce Services Network also allows suppliers to utilize their
existing electronic commerce systems to provide information about their products
and services. Suppliers can send electronic catalogs through standard formats
such as CIF (Catalog Interchange Format), a format commonly used to transfer
catalog information electronically, and CXML. In addition, buyers can link to a
supplier's web site using a technology called CXML Punch-out. CXML Punch-out
allows a buyer to select a product utilizing a supplier's web site while keeping
the purchasing process within our Ariba Buyer system for internal approval,
accounting and administrative controls. This feature is particularly useful for
suppliers with robust web sites, electronic product configuration systems and
large product catalogs. In addition, suppliers can take advantage of their
existing web-based catalog capabilities to differentiate and market their goods
and services.

The key components of the Ariba Commerce Services Network are:

OPEN STANDARDS MULTI-PROTOCOL TRANSACTION NETWORK. The Ariba Commerce
Services Network automatically routes and translates transactions between buyers
and suppliers using most major electronic commerce standards, including XML;
CXML; Internet EDI; VAN EDI (Value Added Networks for EDI); a subset of the OBI
standard (Open Buying on the Internet), a protocol for buying goods and services
on the Internet; HTML (Hyper-Text Markup Language), a format commonly used to
define content for web pages; e-mail; auto-fax and CIF. This enables buyers to
conduct business with suppliers independent of the type of electronic commerce
systems used by the supplier.

WEB-BASED CONTENT ACCESS AND INDEXING. The Ariba Commerce Services Network
uses a scalable approach for content management. This approach employs indexing,
rather than content aggregation, to connect buying organizations using Ariba
Buyer to suppliers' existing web-based catalogs. This indexing approach
eliminates the need to aggregate content in a central repository, yet provides
robust and comprehensive searching tools to buyers. In addition, the Ariba
Commerce Services Network allows suppliers to take advantage of existing
electronic commerce web-based catalogs through CIF, CXML and CXML Punch-out.

SUPPLIER SELF-MANAGEMENT AND REGISTRATION. To conduct commerce with all
buying organizations using Ariba Buyer, suppliers need only to register once and
continue to manage their relationships online, in their preferred transaction
standards and configurations without the need for additional software.

NEWS, INFORMATION AND SERVICES. The Ariba Commerce Services Network
provides news, information and services of interest to business buyers and
suppliers such as sourcing, supplier, financial and industry information.

The Ariba Commerce Services Network is designed for high-performance
databases and multi-processing hardware and utilizes a multi-server
configuration to allow workloads to be shared across multiple servers and the
site to maintain availability of online service. This network and platform
infrastructure consists of the computer and communications equipment and
software that allow buyers and suppliers to exchange information over the Ariba
Commerce Services Network.

Although we expect to derive a substantial portion of our revenue from the
Ariba Commerce Services Network in the future, we are still developing our
pricing, expense and revenue model for the services associated with our network.
If we are unable to successfully establish a pricing, expense and revenue model
acceptable to our customers, the Ariba Commerce Services Network may not be
commercially successful.

STRATEGIC RELATIONSHIPS

To ensure that we deliver a comprehensive solution to our customers, we have
established strategic relationships with organizations in five general
categories: distribution; hardware platforms; software

12

platforms; electronic commerce; and systems integrators. Our hardware partners
include Cisco Systems, Hewlett-Packard and Sun Microsystems. These relationships
help ensure the reliability, scalability and performance of the Ariba solution
on these platforms. This network and platform infrastructure consists of the
computer and communications equipment and software that allow buyers and
suppliers to exchange information over the Ariba Commerce Services Network. Our
electronic commerce partners include American Express, Sterling Commerce and
Visa International.

We have marketing relationships with IBM and other software providers
including, J.D. Edwards, i2 Technologies, Siebel Systems, and BEA Systems. These
partners either re-sell or co-sell our products to their respective customers.
We also have strategic relationships with Softbank in Japan, and Telefonica in
Europe and Latin America.

We have system integrator relationships with various parties to implement
our products and to assist us with sales lead generation. We have certified and
trained consultants in these organizations for the implementation and operation
of our products.

We rely, and expect to increasingly rely, on a number of third parties to
implement, support and recommend our products during the evaluation stage of a
customer's purchase process. If we are unable to maintain or increase the number
and quality of our relationships with providers that recommend, implement or
support goods and services management systems, our business will be seriously
harmed. A number of our competitors, including Oracle, SAP and PeopleSoft, have
significantly more established relationships with such providers and, as a
result, these firms may be more likely to recommend competitors' products and
services rather than our products and services. Furthermore, it is possible that
our current implementation partners, many of which have significantly greater
financial, technical, marketing and other resources than we have, could begin to
market software products and services that compete with our products and
services.

SALES AND IMPLEMENTATION

We sell our software primarily through our worldwide direct sales
organization. As of September 30, 2000, our direct sales force consisted of 638
sales professionals located in several domestic locations and offices in North
America, Europe, Asia, Australia and Latin America. Application specialists that
provide pre-sales support to potential customers on product information and
deployment capabilities complement our direct sales force. We plan to expand our
direct sales force.

During our sales process, we typically approach senior executive management
teams including the chief financial officer, chief information officer and chief
executive officer of our potential customers. We utilize sales teams consisting
of both sales and technical professionals who work with our strategic partners
to create organization-specific proposals, presentations and demonstrations that
address the specific needs of each potential customer.

Ariba provides professional services to augment the implementation efforts
of customers and systems integrators. This organization provides professional
services on the strategy, methodology and technical implementation of Ariba
Buyer, Ariba Marketplace and Ariba Dynamic Trade.

We believe that strategic partnerships will assist us in gaining broad
market acceptance as well as enhance our marketing, sales and distribution
capabilities. We have therefore developed close relationships with a number of
strategic integrators and technology providers. These companies have worked with
us and participated in joint sales calls to several of our large accounts. See
"Strategic Relationships."

13

MARKETING

We focus our marketing efforts toward educating our target market,
generating new sales opportunities, and creating awareness for our
business-to-business electronic commerce solutions. We conduct a variety of
marketing programs worldwide to educate our target market. We have engaged in
marketing activities such as business seminars, trade shows, press relations and
industry analyst programs and advisory councils.

Our marketing organization also serves an integral role in acquiring,
organizing and prioritizing customer and industry feedback in order to help
provide product direction to our development organizations. We formalized this
customer-driven approach by establishing advisory council meetings, made up of
numerous industry experts, to provide forums for discussing customer needs and
requirements. One of our most recent advisory council meetings was attended by
over 3,000 people, including procurement, information technology and finance
executives. In addition to providing information to prospective customers,
advisory council meetings provide a useful forum in which to share information,
test product concepts and collect data on customer and industry needs. We have
also augmented advisory council meetings with a detailed product management
process that surveys customer and market needs to predict and prioritize future
customer requirements. We also have marketing relationships with Andersen
Consulting, Cisco Systems, Hewlett-Packard, Sun Microsystems and Visa
International. These relationships provide collaborative resources to help
extend the reach of our presence in the marketplace. We intend to continue to
pursue these programs in the future.

CUSTOMER SERVICE, TRAINING AND SUPPORT

We believe that customer satisfaction is essential for our long-term success
and offer comprehensive customer assistance programs. Our technical support
provides dependable and timely resolution of customer technical inquiries and is
available to clients by telephone, over the web or by electronic mail. We use a
customer service automation system to track each customer inquiry until it is
resolved. Our education services group delivers education and training to our
clients and partners. We offer a comprehensive series of classes to provide the
knowledge and skills to successfully deploy, use and maintain our products and
solutions. These courses focus on the technical aspects of our products as well
as real-world business issues and processes. All of our classes include lecture,
demonstration, discussion and hands-on use of our solutions. Classes are held
regularly in our training facilities at our headquarters in Mountain View,
California, Atlanta, Georgia and Singapore.

RESEARCH AND DEVELOPMENT

We originally introduced Ariba Buyer in May 1997 and have released a number
of product enhancements in five subsequent major releases. We began to operate
the Ariba Commerce Services Network in April 1999 and continue to provide
enhancements to this Internet platform on an ongoing basis. Research and
development expenses were $39.0 million, $11.6 million and $4.5 million for the
fiscal years ended September 30, 2000, 1999 and 1998, respectively. In addition,
for fiscal year 2000, we recorded charges of $27.3 million for acquired
in-process research and development costs and amortization of acquired current
technology of $2.9 million in connection with our acquisitions of
TradingDynamics, Tradex and SupplierMarket.

Our research and development operations focus on Ariba Buyer, Ariba
Marketplace and Ariba Dynamic Trade, and the Ariba Commerce Services Network.
Our Ariba research and development organization has several teams that include
server and infrastructure development, user interface and Internet application
design, tools development, enterprise integration, operations, quality
assurance, documentation, release management and advanced development. The Ariba
Buyer, Ariba Marketplace and Dynamic Trade and the Ariba Commerce Services
Network organizations regularly share resources and collaborate on code
development, quality assurance and documentation.

14

We believe our software and Internet applications teams and core
technologies represent a significant competitive advantage. The software and
Internet applications development organizations include a number of key members
from past engineering organizations that have developed Internet applications
and services, and have extensive experience with Java programming. We believe a
technically skilled and highly productive development organization is a key
component for the success of new product offerings. We must attract and retain
highly qualified employees to further our research and development efforts. Our
business could be seriously harmed if we are not able to hire and retain a
sufficient number of these individuals.

We cannot be sure that existing and future development efforts will be
completed within our anticipated schedules or that, if completed, they will have
the features or quality necessary to make them successful in the marketplace.
Further, despite testing by us and by current and potential customers, errors
could be found in our products. We may not be able to successfully correct these
errors in a timely and cost effective manner. If we are not able to develop new
products or enhancements to existing products or corrections on a timely and
cost-effective basis, or if these new products or enhancements do not have the
features or quality necessary to make them successful in the marketplace, our
business will be seriously harmed.

We expect that most of our enhancements to existing and future products will
be developed internally or through acquisitions. However, we currently license
certain externally-developed technologies and will continue to evaluate
externally-developed technologies to integrate with our solutions. These
externally-developed technologies, if suffering from defects, quality issues or
the lack of product functionality required to make our solutions successful in
the marketplace, may seriously impact and harm our business.

INTERNATIONAL OPERATIONS

The Company has established twenty subsidiaries, namely Ariba
Holdings, Inc. in Cayman Islands, Ariba Technologies Ireland Limited in Ireland,
Ariba Technologies Canada, Inc. in Canada, Ariba U.K. Limited in the United
Kingdom, Ariba Sweden AB in Sweden, Ariba Italia S.r.l. in Italy, Ariba
Technologies Netherlands B.V. in the Netherlands, Ariba Technologies India
Private Limited in India, Ariba Iberia, S.L. in Spain, Ariba Latin
America, Inc. in Latin America, Ariba Argentina in Argentina, Ariba Brazil
Limitada in Brazil, Ariba Deutschland GmbH in Germany, Ariba Korea, Ltd. in
Korea, Ariba France Sarl in France, Ariba (China) Limited in Hong Kong, Ariba
Australia Pty Ltd in Australia, Ariba New Zealand in New Zealand, Ariba
Switzerland GmbH/Sarl/Ltd liab Co. in Switzerland and Nihon Ariba, K.K. in
Japan. All of the subsidiaries are wholly-owned except our Japanese subsidiary,
Nihon Ariba, K.K., in which Softbank and other strategic partners have purchased
minority equity interests. Revenue from our international customers was
$61.4 million, $6.7 million and $1.8 million for the fiscal years ended
September 30, 2000, 1999 and 1998, respectively.

COMPETITION

The market for our solution is intensely competitive, evolving and subject
to rapid technological change. The intensity of competition has increased and is
expected to further increase in the future. This increased competition is likely
to result in price reductions, reduced gross margins and loss of market share,
any one of which could seriously harm our business. Competitors vary in size and
in the scope and breadth of the products and services offered. We have also
increasingly encountered competition with respect to different aspects of our
solution from a variety of vendors including Captura Software, Clarus, Commerce
One, Concur Technologies, Extensity, GE Information Services, Intelysis, and
Netscape Communications, a subsidiary of America Online, and VerticalNet. In the
area of procurement software, we also encounter competition from several major
client server enterprise software manufacturers. In addition, because there are
relatively low barriers to entry in the operating resource management software
market, we expect additional competition from other established and

15

emerging companies, as the operational resource management software market
continues to develop and expand.

We believe that the principal competitive factors affecting our market
include a significant base of reference customers, breadth and depth of
solution, critical mass of buyers and suppliers, product quality and
performance, customer service, core technology, product features, ability to
implement solutions and value of solution. Although we believe that our
solutions currently compete favorably with respect to these factors, our market
is relatively new and is evolving rapidly. We may not be able to maintain our
competitive position against current and potential competitors, especially those
with significantly greater financial, marketing, service, support, technical and
other resources.

Many of our competitors have longer operating histories, significantly
greater financial, technical, marketing and other resources than us,
significantly greater name recognition and a larger installed base of customers.
In addition, many of our competitors have well-established relationships with
our current and potential customers and have extensive knowledge of our
industry. In the past, we have lost potential customers to competitors for
various reasons, including lower prices and other incentives not matched by us.
In addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase the
ability of their products to address customer needs. Accordingly, it is possible
that new competitors or alliances among competitors may emerge and rapidly
acquire significant market share. We also expect that competition will increase
as a result of industry consolidations.

We may not be able to compete successfully against our current and future
competitors.

INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS

We depend on our ability to develop and maintain the proprietary aspects of
our technology. To protect our proprietary technology, we rely primarily on a
combination of contractual provisions, confidentiality procedures, trade
secrets, and patent, copyright and trademark laws.

We license rather than sell our software products and require our customers
to enter into license agreements, which impose restrictions on their ability to
utilize the software. In addition, we seek to avoid disclosure of our trade
secrets through a number of means, including but not limited to, requiring those
persons with access to our proprietary information to execute confidentiality
agreements with us and restricting access to our source code. We seek to protect
our software, documentation and other written materials under trade secret and
copyright laws, which afford only limited protection. We cannot assure you that
any of our proprietary rights with respect to the Ariba Commerce Services
Network will be viable or of value in the future since the validity,
enforceability and type of protection of proprietary rights in Internet-related
industries are uncertain and still evolving.

We presently have seven U.S. patent applications pending. We also have filed
patent applications in other countries. It is possible that the patents that we
have applied for, if issued, or our potential future patents may be successfully
challenged or that no patents will be issued from our patent applications. It is
also possible that we may not develop proprietary products or technologies that
are patentable, that any patent issued to us may not provide us with any
competitive advantages, or that the patents of others will seriously harm our
ability to do business.

16

We rely on technology that we license from third parties, including software
that is integrated with internally developed software and used in our software
products to perform key functions. For example, we license reporting software
from Actuate and integration software from Tibco for Ariba Buyer. If we are
unable to continue to license any of this software on commercially reasonable
terms, we will face delays in releases of our software until equivalent
technology can be identified, licensed or developed, and integrated into our
current product. These delays, if they occur, could seriously harm our business.

Ariba and the Ariba logo are registered as trademarks in the United States.
In addition, we have the following trademarks registered in one or more foreign
countries: Ariba, the Ariba logo, the Ariba "boomerang" design, Ariba Commerce
Services Network, ORM, Buyer and Walk-Up UI. We also have filed applications to
register these trademarks in several countries. The above mentioned trademark
applications are subject to review by the applicable governmental authority, may
be opposed by private parties, and may not issue.

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

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

RECENT ACQUISITIONS

January 20, 2000, we acquired TradingDynamics, Inc. ("TradingDynamics"), a
provider of business-to-business Internet trading applications. On March 8,
2000, we acquired Tradex Technologies, Inc. ("Tradex"), a provider of solutions
for enabling B2B marketplaces and exchanges. On August 20, 2000, we acquired
SupplierMarket.com, a provider of online collaborative sourcing technologies.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview" and Note 2 of "Notes to Consolidated Financial Statements"
for more detailed information.

EMPLOYEES

As of September 30, 2000, we had a total of 1,680 employees, including 333
in research and development, 638 in sales and marketing, 509 in customer
support, professional services and training, and 200 in administration and
finance. Of these employees, 1,421 were located in the United States and 259
were located outside the United States. None of our employees is represented by
a collective bargaining agreement, nor have we experienced any work stoppage. We
consider our relations with our employees to be good.

Our future operating results depend in significant part on the continued
service of our key technical, sales and senior management personnel, none of
whom is bound by an employment

17

agreement. Our future success also depends on our continuing ability to attract
and retain highly qualified technical, sales and senior management personnel.
Competition for these personnel is intense, and we may not be able to retain our
key technical, sales and senior management personnel or attract these personnel
in the future. We have experienced difficulty in recruiting qualified technical,
sales and senior management personnel, and we expect to experience these
difficulties in the future. If we are unable to hire and retain qualified
personnel in the future, this inability could seriously harm our business.

RISK FACTORS

In addition to other information in this Form 10-K, the following risk
factors should be carefully considered in evaluating Ariba and its business
because such factors currently may have a significant impact on Ariba's
business, operating results and financial condition. As a result of the risk
factors set forth below and elsewhere in this Form 10-K, and the risks discussed
in Ariba's other Securities and Exchange Commission filings, actual results
could differ materially from those projected in any forward-looking statements.

ARIBA IS AN EARLY-STAGE COMPANY. OUR LIMITED OPERATING HISTORY MAKES IT
DIFFICULT TO EVALUATE OUR FUTURE PROSPECTS.

Ariba was founded in September 1996 and has a limited operating history. Our
limited operating history makes an evaluation of our future prospects very
difficult. We began shipping our first product, the Ariba Buyer, in June 1997
and began to operate the Ariba Commerce Services Network in April 1999. We began
shipping Ariba Dynamic Trade in February 2000, following our acquisition of
TradingDynamics, and Ariba Marketplace in March 2000, following our acquisition
of Tradex. We will encounter risks and difficulties frequently encountered by
early-stage companies in new and rapidly evolving markets, including risks
associated with our recent acquisitions. Many of these risks are described in
more detail in this "Risk Factors" section. We may not successfully address any
of these risks. If we do not successfully address these risks, our business
would be seriously harmed.

THE MARKET FOR OUR SOLUTIONS IS AT AN EARLY STAGE. WE NEED A CRITICAL MASS
OF LARGE BUYING ORGANIZATIONS AND THEIR SUPPLIERS TO IMPLEMENT OUR
SOLUTIONS.

The market for Internet-based electronic commerce applications and services
is at an early stage of development. Our success depends on a significant number
of large buying organizations, marketplaces and exchanges implementing our
products and services. The implementation of our products by these organizations
is complex, time consuming and expensive. In many cases, these organizations
must change established business practices and conduct business in new ways. Our
ability to attract additional customers for our products and services will
depend on using our existing customers as reference accounts. Unless a critical
mass of large buying organizations, their suppliers, marketplaces and exchanges
join the Ariba Commerce Services Network, our solutions may not achieve
widespread market acceptance and our business would be seriously harmed.

WE HAVE A HISTORY OF LOSSES AND EXPECT TO INCUR SIGNIFICANT ADDITIONAL
LOSSES IN THE FUTURE.

We incurred net losses of $11.0 million in fiscal 1998, $29.3 million in
fiscal 1999 and $792.8 million in fiscal 2000, including $545.7 million in
non-cash costs for amortization of goodwill and intangible assets resulting from
acquisitions and stock-based compensation expense. We expect to derive
substantially all of our revenues for the foreseeable future from licensing our
products and from transaction-based revenue. Although our licensing revenues
have grown significantly in recent quarters, we do not believe that our prior
growth rates are sustainable or indicative of future operating results. In fact,
we may not have any revenue growth, and our revenues could decline. Over the
longer term, we expect to derive more of our revenues from revenues related to
network access, network services

18

and independent Internet marketplaces, which are based on unproven business
models. Moreover, we expect to incur significant sales and marketing, research
and development, and general and administrative expenses. In the future, we will
continue to incur substantial non-cash costs relating to the amortization of
deferred compensation, amortization of our goodwill and other intangible assets
and we may incur significant non-cash costs related to the issuance of warrants
to purchase our common stock. As of September 30, 2000, we had an aggregate of
$130.0 million of deferred compensation and $3.3 billion of goodwill and other
intangible assets to be amortized. As a result, we expect to incur significant
losses for the foreseeable future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the "Notes to the
Consolidated Financial Statements."

OUR QUARTERLY OPERATING RESULTS ARE VOLATILE AND DIFFICULT TO PREDICT. IF WE
FAIL TO MEET THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS OR INVESTORS, THE
MARKET PRICE OF OUR COMMON STOCK MAY DECREASE SIGNIFICANTLY.

Our quarterly operating results have varied significantly in the past and
will likely vary significantly in the future. We believe that period-to-period
comparisons of our results of operations are not meaningful and should not be
relied upon as indicators of future performance. Our operating results will
likely fall below the expectations of securities analysts or investors in some
future quarter or quarters. Our failure to meet these expectations would likely
adversely affect the market price of our common stock.

Our quarterly operating results may vary depending on a number of factors,
including:

- Demand for our products and services;

- Actions taken by our competitors, including new product introductions and
enhancements;

- Ability to scale our network and operations to support large numbers of
customers, suppliers and transactions;

- Ability to develop, introduce and market new products and enhancements to
our existing products on a timely basis;

- Changes in our pricing policies and business model or those of our
competitors;

- Integration of our recent acquisitions and any future acquisitions;

- Ability to expand our sales and marketing operations, including hiring
additional sales personnel;

- Size and timing of sales of our products and services, including the
recognition of a significant portion of our sales at the end of the
quarter;

- Success in maintaining and enhancing existing relationships and developing
new relationships with strategic partners, including systems integrators
and other implementation partners;

- Compensation policies that compensate sales personnel based on achieving
annual quotas;

- Ability to control costs;

- Technological changes in our markets;

- Deferrals of customer orders in anticipation of product enhancements or
new products;

- Customer budget cycles and changes in these budget cycles; and

- General economic factors, including an economic slowdown or recession.

Our quarterly revenues are especially subject to fluctuation because they
depend on the sale of relatively large orders for our Ariba products and related
services. As a result, our quarterly operating

19

results may fluctuate significantly if we are unable to complete one or more
substantial sales in any given quarter. In some cases, we recognize revenues
from product sales on a percentage of completion basis. Accordingly, our ability
to recognize these revenues is subject to delays associated with our customers'
ability to complete the implementation of Ariba products in a timely manner. In
some cases, we recognize revenues on a subscription basis over the life of the
subscriptions specified in the contract, which is typically 12 to 36 months.
Therefore, if we do not book a sufficient number of large orders in a particular
quarter, our revenues in future periods could be lower than expected. As our
business model evolves, the potential for fluctuations in our quarterly results
could increase and our revenues could be lower than expected. Furthermore, our
quarterly revenues may be affected significantly by other revenue recognition
policies and procedures. These policies and procedures may evolve or change over
time based on applicable accounting standards and how these standards are
interpreted. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

We plan to increase our operating expenses to expand our sales and marketing
operations, fund greater levels of research and development, develop new
partnerships, make tenant improvements to our new facilities, increase our
professional services and support capabilities and improve our operational and
financial systems. Also our amortization of stock-based compensation and
amortization of goodwill and other intangible assets will fluctuate based on our
acquisition activity. Moreover, any non-cash expenses related to the issuance of
warrants to purchase our common stock could fluctuate significantly as a result
of fluctuations in the fair market value of our common stock. If our revenues do
not increase along with these expenses or if we experience significant
fluctuations in non-cash expenses related to these warrants, our business,
operating results and financial condition could be seriously harmed and net
losses in a given quarter could be even larger than expected.

In addition, because our expense levels are relatively fixed in the near
term and are based in part on expectations of our future revenues, any decline
in our revenues to a level that is below our expectations would have a
disproportionately adverse impact on our operating results.

IMPLEMENTATION OF OUR ARIBA PRODUCTS BY LARGE CUSTOMERS IS COMPLEX, TIME
CONSUMING AND EXPENSIVE. WE FREQUENTLY EXPERIENCE LONG SALES AND
IMPLEMENTATION CYCLES.

Ariba Buyer and Ariba Marketplace are enterprise-wide solutions that must be
deployed with many users within a buying organization. Its implementation by
buying organizations is complex, time consuming and expensive. In many cases,
our customers must change established business practices and conduct business in
new ways. In addition, they must generally consider a wide range of other issues
before committing to purchase our products, including product benefits, ease of
installation, ability to work with existing computer systems, ability to support
a larger user base, functionality and reliability. Furthermore, because we are
one of the first companies to offer an Internet-based operating resource
management system and other B2B electronic commerce solutions, many customers
will be addressing these issues for the first time in the context of
implementing these solutions. As a result, we must educate potential customers
on the use and benefits of our products and services. In addition, we believe
that the purchase of our products is often discretionary and generally involves
a significant commitment of capital and other resources by a customer. It
frequently takes several months to finalize a sale and requires approval at a
number of management levels within the customer organization. The implementation
and deployment of our products requires a significant commitment of resources by
our customers and third-party and/or our professional services organizations.
Because we target different sized customers, our sales cycles typically average
approximately five to nine months for our different product offerings.

20

BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE PURCHASING NETWORKS, INCLUDING THE
ARIBA COMMERCE SERVICES NETWORK, ARE AT AN EARLY STAGE OF DEVELOPMENT AND
MARKET ACCEPTANCE

We began operating the Ariba Commerce Services Network in April 1999. Broad
and timely acceptance of the Ariba Commerce Services Network, which is important
to our future success, is subject to a number of significant risks. These risks
include:

- Operating resource management and procurement on the Internet is a new
market;

- Our network's ability to support large numbers of buyers and suppliers is
unproven;

- Our need to enhance the interface between our Ariba Buyer, Ariba
Marketplace and Ariba Dynamic Trade products and the Ariba Commerce
Services Network;

- Our need to significantly enhance the features and services of the Ariba
Commerce Services Network to achieve widespread commercial acceptance of
our network; and

- Our need to significantly expand our internal resources to support planned
growth of the Ariba Commerce Services Network.

Although we expect to derive a significant portion of our long-term future
revenue from the Ariba Commerce Services Network, we have not yet fully evolved
our revenue model for services associated with these networks. The revenues
associated may be a combination of transaction and/or annual subscription fees.
Examples of such services might include electronic payment, bid/quote and
sourcing, among others. However, we cannot predict whether these services and
other functionality will be commercially successful or whether they will
adversely impact revenues from our Ariba Buyer products and services. We would
be seriously harmed if the Ariba Commerce Services Network and other electronic
trading networks are not commercially successful, or if we experience a decline
in the growth or growth rate of revenues from our Ariba Buyer solution.

WE RELY ON THIRD PARTIES TO EXPAND, MANAGE AND MAINTAIN THE COMPUTER AND
COMMUNICATIONS EQUIPMENT AND SOFTWARE NEEDED FOR THE DAY-TO-DAY OPERATIONS
OF THE ARIBA COMMERCE SERVICES NETWORK.

We rely on several third parties to provide hardware, software and services
required to expand, manage and maintain the computer and communications
equipment and software needed for the day-to-day operations of the Ariba
Commerce Services Network. Services provided by these parties include managing
the Ariba Commerce Services Network web server, maintaining communications lines
and managing network data centers, which are the locations on our network where
data is stored. We may not successfully obtain these services on a timely and
cost effective basis. Since the installation of the computer and communications
equipment and software needed for the day-to-day operations of the Ariba
Commerce Services Network to a significant extent will be managed by third
parties, we will be dependent on those parties to the extent that they manage,
maintain and provide security for such equipment and software.

WE DEPEND ON STRATEGIC RELATIONSHIPS WITH OUR PARTNERS

We have established strategic reselling, ASP and hosting relationships with
some outside companies. These companies are entitled to resell and/or host our
products to their customers. These relationships are new and this strategy is
unproven. We cannot be assured that any of these resellers, ASP partners or
hosts, or those we may contract with in the future, will be able to resell our
products to an adequate number of customers. If our current or future strategic
partners are not able to successfully resell our products our business could be
seriously harmed. We have formed strategic alliance relationships with IBM and
i2 Technologies to integrate our technologies and work together to market and
sell targeted solutions. We also have strategic relationships with Softbank as a
minority

21

shareholder of our Japanese subsidiary Nihon Ariba, K.K., and with Telefonica in
Europe and Latin America. We plan to expand our strategic relationships both
domestically and internationally. As part of these agreements, we will be
deploying critical employee resources to help promote these alliances. There is
no guarantee that these alliances will be successful in creating a larger market
for our product offerings. If these alliances are not successful, our business,
operating results and financial position could be seriously harmed.

THE BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE INDUSTRY IS VERY COMPETITIVE,
AND WE FACE INTENSE COMPETITION FROM MANY PARTICIPANTS IN THIS INDUSTRY. IF
WE ARE UNABLE TO COMPETE SUCCESSFULLY, OUR BUSINESS WILL BE SERIOUSLY
HARMED.

The market for our solutions are intensely competitive, evolving and subject
to rapid technological change. The intensity of competition has increased and is
expected to further increase in the future. This increased competition is likely
to result in price reductions, reduced gross margins and loss of market share,
any one of which could seriously harm our business. Competitors vary in size and
in the scope and breadth of the products and services offered. We also
increasingly encounter competition with respect to different aspects of our
solution from companies such as Captura Software, Clarus, Commerce One, Concur
Technologies, Extensity, GE Information Services, Intelisys, Netscape
Communications, a subsidiary of America Online and VerticalNet. We also
encounter significant competition from several major enterprise software
developers, such as Oracle, PeopleSoft and SAP. In addition, because there are
relatively low barriers to entry in the business-to-business exchange market, we
expect additional competition from other established and emerging companies,
particularly if they acquire one of our competitors. For example, third parties
that currently help implement Ariba Buyer and our other products could begin to
market products and services that compete with our own. We could also face
competition from new companies who introduce an Internet-based management
solution.

Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources than us, significantly greater name recognition and a larger installed
base of customers. In addition, many of our competitors have well-established
relationships with our current and potential customers and have extensive
knowledge of our industry. In the past, we have lost potential customers to
competitors for various reasons, including lower prices and incentives not
matched by us. In addition, current and potential competitors have established
or may establish cooperative relationships among themselves or with third
parties to increase the ability of their products to address customer needs.
Accordingly, it is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share. We also expect that
competition will increase as a result of industry consolidations.

We may not be able to compete successfully against our current and future
competitors.

IF WE FAIL TO DEVELOP OUR PRODUCTS AND SERVICES IN A TIMELY AND
COST-EFFECTIVE BASIS, OR IF OUR PRODUCTS AND SERVICES DO NOT ACHIEVE MARKET
ACCEPTANCE, OUR BUSINESS WOULD BE SERIOUSLY HARMED.

We may fail to introduce or deliver new releases or new potential offerings
on a timely and cost-effective basis or at all, particularly given the expansion
of our product offering as a result of our recent acquisitions. The life cycles
of our products are difficult to predict because the market for our products is
new and emerging, and is characterized by rapid technological change, changing
customer needs and evolving industry standards. The introduction of products
employing new technologies and emerging industry standards could render our
existing products or services obsolete and unmarketable. In addition, we have
experienced delays in the commencement of commercial shipments of our new
releases in the past. If new releases or potential new products are delayed or
do not achieve market acceptance, we could experience a delay or loss of
revenues and customer dissatisfaction.

22

To be successful, our products and services must keep pace with
technological developments and emerging industry standards, address the
ever-changing and increasingly sophisticated needs of our customers and achieve
market acceptance. In developing new products and services, we may:

- Fail to develop and market products that respond to technological changes
or evolving industry standards in a timely or cost-effective manner;

- Encounter products, capabilities or technologies developed by others that
render our products and services obsolete or noncompetitive or that
shorten the life cycles of our existing products and services;

- Experience difficulties that could delay or prevent the successful
development, introduction and marketing of these new products and
services;

- Experience deferrals in orders in anticipation of new products or
releases; or

- Fail to develop new products and services that adequately meet the
requirements of the marketplace or achieve market acceptance.

As a result of the foregoing factors, we could experience a delay or loss of
revenues and customer dissatisfaction when introducing new and enhanced products
and services.

WE EXPECT TO DEPEND ON ARIBA BUYER FOR A SUBSTANTIAL PORTION OF OUR REVENUES
FOR THE FORESEEABLE FUTURE. THESE REVENUES COULD BE CONCENTRATED IN A
RELATIVELY SMALL NUMBER OF CUSTOMERS.

We anticipate that revenues from Ariba Buyer and related products and
services will continue to constitute a substantial portion of our revenues for
the foreseeable future. Consequently, a decline in the price of, or demand for,
our Ariba Buyer solution, or its failure to achieve broad market acceptance,
would seriously harm our business. Although no customer accounted for more than
10% of our total revenues in fiscal 2000 we may in the future derive a
significant portion of our revenues from a relatively small number of customers
in the future. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

WE RELY ON THIRD PARTIES TO IMPLEMENT OUR PRODUCTS.

We rely, and expect to rely increasingly, on a number of third parties to
implement Ariba Buyer, Ariba Marketplace and our other products at customer
sites. If we are unable to establish and maintain effective, long-term
relationships with our implementation providers, or if these providers do not
meet the needs or expectations of our customers, our business would be seriously
harmed. This strategy will also require that we develop new relationships with
additional third-party implementation providers to provide these services if the
number of Ariba Buyer, Ariba Marketplace and other product implementations
continues to increase. Our current implementation partners are not contractually
required to continue to help implement Ariba Buyer, Ariba Marketplace and our
other products. As a result of the limited resources and capacities of many
third-party implementation providers, we may be unable to establish or maintain
relationships with third parties having sufficient resources to provide the
necessary implementation services to support our needs. If these resources are
unavailable, we will be required to provide these services internally, which
would significantly limit our ability to meet our customers' implementation
needs. A number of our competitors, including Oracle, SAP and PeopleSoft, have
significantly more well-established relationships with these third parties and,
as a result, these third parties may be more likely to recommend competitors'
products and services rather than our own. In addition, we cannot control the
level and quality of service provided by our current and future implementation
partners.

23

WE DEPEND ON SUPPLIERS FOR THE SUCCESS OF THE ARIBA COMMERCE SERVICES
NETWORK.

We depend on suppliers joining the Ariba Commerce Services Network. Any
failure of suppliers to join the Ariba Commerce Services Network in sufficient
and increasing numbers would make our network less attractive to buyers and
consequently other suppliers. In order to provide buyers on the Ariba Commerce
Services Network an organized method for accessing goods and services, we rely
on suppliers to maintain web-based catalogs, indexing services and other content
aggregation tools. Our inability to access and index these catalogs and services
would result in our customers having fewer products and services available to
them through our solution, which would adversely affect the perceived usefulness
of the Ariba Commerce Services Network.

NEW VERSIONS AND RELEASES OF OUR PRODUCTS MAY CONTAIN ERRORS OR DEFECTS.

Ariba Buyer, Ariba Marketplace and our other products are complex and,
accordingly, may contain undetected errors or failures when first introduced or
as new versions are released. This may result in loss of, or delay in, market
acceptance of our products. We have in the past discovered software errors in
our new releases and new products after their introduction. For example, in the
past we discovered problems with respect to the ability of software written in
Java to scale to allow for large numbers of concurrent users of Ariba Buyer. We
have experienced delays in release, lost revenues and customer frustration
during the period required to correct these errors. We may in the future
discover errors and additional scalability limitations, in new releases or new
products after the commencement of commercial shipments. In addition, a delay in
the commercial release of the next version of Ariba Buyer, Ariba Marketplace or
our other products could also slow the growth of the Ariba Commerce Services
Network.

WE COULD BE SUBJECT TO POTENTIAL PRODUCT LIABILITY CLAIMS AND THIRD PARTY
LIABILITY CLAIMS RELATED TO PRODUCTS AND SERVICES PURCHASED THROUGH THE
ARIBA COMMERCE SERVICES NETWORK.

Our customers use our products and services to manage their goods and
services procurement and other business processes. Any errors, defects or other
performance problems could result in financial or other damages to our
customers. A product liability claim brought against us, even if not successful,
would likely be time consuming and costly and could seriously harm our business.
Although our customer license agreements typically contain provisions designed
to limit our exposure to product liability claims, existing or future laws or
unfavorable judicial decisions could negate these limitation of liability
provisions.

The Ariba Commerce Services Network provides our customers with indices of
products that can be purchased from suppliers participating in the Ariba
Commerce Services Network. The law relating to the liability of providers of
listings of products and services sold over the Internet for errors, defects or
other performance problems with respect to those products and services is
currently unsettled. We will not pre-screen the types of products and services
that may be purchased through the Ariba Commerce Services Network. Some of these
products and services could contain performance or other problems. Similar
issues may arise for B2B marketplaces and exchanges that use our Ariba
Marketplace and Ariba Dynamic Trade applications. We may not successfully avoid
civil or criminal liability for problems related to the products and services
sold through the Ariba Commerce Services Network or other electronic networks
using our market maker applications. Any claims or litigation could still
require expenditures in terms of management time and other resources to defend
ourselves. Liability of this sort could require us to implement measures to
reduce our exposure to this liability, which may require us, among other things,
to expend substantial resources or to discontinue certain product or service
offerings or to take precautions to ensure that certain products and services
are not available through the Ariba Commerce Services Network or other
electronic networks using our market maker applications.

24

OUR SUCCESS DEPENDS ON RETAINING OUR CURRENT KEY PERSONNEL AND ATTRACTING
ADDITIONAL KEY PERSONNEL, PARTICULARLY IN THE AREAS OF DIRECT SALES AND
RESEARCH AND DEVELOPMENT.

Our future performance depends on the continued service of our senior
management, product development and sales personnel, in particular Keith Krach,
our Chairman and Chief Executive Officer and Larry Mueller, our President and
Chief Operating Officer. None of these persons, including Messrs. Krach and
Mueller, is bound by an employment agreement, and we do not carry key person
life insurance. The loss of the services of one or more of our key personnel
could seriously harm our business. Our future success also depends on our
continuing ability to attract, hire, train and retain a substantial number of
highly skilled managerial, technical, sales, marketing and customer support
personnel. We are particularly dependent on hiring additional personnel to
increase our direct sales and research and development organizations. In
addition, new hires frequently require extensive training before they achieve
desired levels of productivity. Competition for qualified personnel is intense,
and we may fail to retain our key employees or to attract or retain other highly
qualified personnel.

IF THE PROTECTION OF OUR INTELLECTUAL PROPERTY IS INADEQUATE, OUR
COMPETITORS MAY GAIN ACCESS TO OUR TECHNOLOGY, AND WE MAY LOSE CUSTOMERS.

We depend on our ability to develop and maintain the proprietary aspects of
our technology. To protect our proprietary technology, we rely primarily on a
combination of contractual provisions, confidentiality procedures, trade
secrets, and patent, copyright and trademark laws.

We license rather than sell Ariba Buyer, Ariba Marketplace, Ariba Dynamic
Trade and our other products and require our customers to enter into license
agreements, which impose restrictions on their ability to utilize the software.
In addition, we seek to avoid disclosure of our trade secrets through a number
of means, including but not limited to, requiring those persons with access to
our proprietary information to execute confidentiality agreements with us and
restricting access to our source code. We seek to protect our software,
documentation and other written materials under trade secret and copyright laws,
which afford only limited protection. We cannot assure you that any of our
proprietary rights with respect to the Ariba Commerce Services Network will be
viable or of value in the future because the validity, enforceability and type
of protection of proprietary rights in Internet-related industries are uncertain
and still evolving.

We have no patents, and none may be issued from our existing patent
applications. Our future patents, if any, may be successfully challenged or may
not provide us with any competitive advantages. We may not develop proprietary
products or technologies that are patentable.

In the quarter ended March 31, 2000, we entered into an intellectual
property agreement with an independent third party as part of an alliance. This
intellectual property agreement protects our products against any patents of
this outside party that are currently issued, pending and are to be issued over
the three year period subsequent to the date of the agreement.

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

There has been a substantial amount of litigation in the software industry
and the Internet industry regarding intellectual property rights. It is possible
that in the future, third parties may claim that we or

25

our current or potential future products infringe their intellectual property.
We expect that software product developers and providers of electronic commerce
solutions will increasingly be subject to infringement claims as the number of
products and competitors in our industry segment grows and the functionality of
products in different industry segments overlaps. Any claims, with or without
merit, could be time-consuming, result in costly litigation, cause product
shipment delays or require us to enter into royalty or licensing agreements.
Royalty or licensing agreements, if required, may not be available on terms
acceptable to us or at all, which could seriously harm our business.

We must now, and may in the future have to, license or otherwise obtain
access to intellectual property of third parties. For example, we are currently
dependent on developers' licenses from enterprise resource planning, database,
human resource and other system software vendors in order to ensure compliance
of our products with their management systems. We may not be able to obtain any
required third party intellectual property in the future.

IN ORDER TO MANAGE OUR GROWTH AND EXPANSION, WE WILL NEED TO IMPROVE AND
IMPLEMENT NEW SYSTEMS, PROCEDURES AND CONTROLS.

We have recently experienced a period of significant expansion of our
operations that has placed a significant strain upon our management systems and
resources. If we are unable to manage our growth and expansion, our business
will be seriously harmed. In addition, we have recently hired a significant
number of employees and plan to further increase our total headcount. We also
plan to expand the geographic scope of our customer base and operations. This
expansion has resulted and will continue to result in substantial demands on our
management resources. Our ability to compete effectively and to manage future
expansion of our operations, if any, will require us to continue to improve our
financial and management controls, reporting systems and procedures on a timely
basis, and expand, train and manage our employee work force. We have implemented
new systems to manage our financial and human resources infrastructure. We may
find that this system, our personnel, procedures and controls may be inadequate
to support our future operations.

AS WE EXPAND OUR INTERNATIONAL SALES AND MARKETING ACTIVITIES, OUR BUSINESS
WILL BE SUSCEPTIBLE TO NUMEROUS RISKS ASSOCIATED WITH INTERNATIONAL
OPERATIONS.

To be successful, we believe we must continue to expand our international
operations and hire additional international personnel. Therefore, we have
committed and expect to continue to commit significant resources to expand our
international sales and marketing activities. If successful, we will be subject
to a number of risks associated with international business activities. These
risks generally include:

- Currency exchange rate fluctuations;

- Seasonal fluctuations in purchasing patterns;

- Unexpected changes in regulatory requirements;

- Tariffs, export controls and other trade barriers;

- Longer accounts receivable payment cycles and difficulties in collecting
accounts receivable;

- Difficulties in managing and staffing international operations;

- Potentially adverse tax consequences, including restrictions on the
repatriation of earnings;

- The burdens of complying with a wide variety of foreign laws;

- The risks related to the recent global economic turbulence and adverse
economic circumstances in Asia; and

26

- Political instability.

WE MUST INTEGRATE RECENT ACQUISITIONS, AND WE MAY NEED TO MAKE ADDITIONAL
FUTURE ACQUISITIONS TO REMAIN COMPETITIVE. OUR BUSINESS COULD BE ADVERSELY
AFFECTED AS A RESULT OF THESE ACQUISITIONS.

In the quarter ended March 31, 2000, we completed our acquisitions of
TradingDynamics, a leading provider of business-to-business Internet trading
applications, and Tradex, a leading provider of solutions for net markets,
respectively. In the quarter ended September 30, 2000, we completed our
acquisition of SupplierMarket.com, a leading provider of online collaborative
sourcing technologies. We may find it necessary or desirable to acquire
additional businesses, products, or technologies. If we identify an appropriate
acquisition candidate, we may not be able to negotiate the terms of the
acquisition successfully, finance the acquisition, or integrate the acquired
business, products or technologies into our existing business and operations. If
our efforts are not successful, it could seriously harm our business.

Completing any potential future acquisitions, and integrating our existing
acquisitions will cause significant diversions of management time and resources.
In particular, the acquisition of Tradex requires the integration of two large,
geographically distant organizations. If we consummate one or more significant
future acquisitions in which the consideration consists of stock or other
securities, our equity could be significantly diluted. If we were to proceed
with one or more significant future acquisitions in which the consideration
included cash, we could be required to use a substantial portion of our
available cash, to consummate any acquisition. Financing for future acquisitions
may not be available on favorable terms, or at all. In addition, in connection
with our recent, pending and possibly with future acquisitions we will or may be
required to amortize significant amounts of goodwill and other intangible
assets, which will negatively effect the operating income of our business. As of
September 30, 2000, we had an aggregate of $3.3 billion of goodwill and other
intangible assets remaining to be amortized of which a majority relates to our
acquisitions. The amortization of the remaining goodwill and other intangible
assets will result in additional charges to operations through the quarter
ending September 30, 2003.

IN THE FUTURE WE MAY NEED TO RAISE ADDITIONAL CAPITAL IN ORDER TO REMAIN
COMPETITIVE IN THE BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE INDUSTRY. THIS
CAPITAL MAY NOT BE AVAILABLE ON ACCEPTABLE TERMS, IF AT ALL.

We believe that our existing cash and cash equivalents and our anticipated
cash flow from operations will be sufficient to meet our working capital and
operating resource expenditure requirements for at least the next year. After
that, we may need to raise additional funds and we cannot be certain that we
will be able to obtain additional financing on favorable terms, if at all. If we
cannot raise funds on acceptable terms, if and when needed, we may not be able
to develop or enhance our products and services, take advantage of future
opportunities, grow our business or respond to competitive pressures or
unanticipated requirements, which could seriously harm our business.

OUR STOCK PRICE IS HIGHLY VOLATILE.

Our stock price has fluctuated dramatically. The market price of the common
stock may decrease significantly in the future in response to the following
factors, some of which are beyond our control:

- Variations in our quarterly operating results;

- Announcements that our revenue or income are below analysts' expectations;

- Changes in analysts' estimates of our performance or industry performance;

- Changes in market valuations of similar companies;

27

- Sales of large blocks of our common stock;

- Announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;

- Loss of a major customer or failure to complete significant license
transactions;

- Additions or departures of key personnel; and

- Fluctuations in stock market price and volume, which are particularly
common among highly volatile securities of software and Internet-based
companies.

See "Market for Registrant's Common Equity and Related Stockholder Matters"
below.

WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION DUE TO OUR STOCK PRICE
VOLATILITY.

In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and divert management's attention
and resources, which could seriously harm our business.

WE HAVE IMPLEMENTED CERTAIN ANTI-TAKEOVER PROVISIONS THAT COULD MAKE IT MORE
DIFFICULT FOR A THIRD PARTY TO ACQUIRE US.

Provisions of our amended and restated certificate of incorporation and
bylaws, as well as provisions of Delaware law, could make it more difficult for
a third party to acquire us, even if doing so would be beneficial to our
stockholders.

WE DEPEND ON INCREASING USE OF THE INTERNET AND ON THE GROWTH OF ELECTRONIC
COMMERCE. IF THE USE OF THE INTERNET AND ELECTRONIC COMMERCE DO NOT GROW AS
ANTICIPATED, OUR BUSINESS WILL BE SERIOUSLY HARMED.

Our business depends on the increased acceptance and use of the Internet as
a medium of commerce. Rapid growth in the use of the Internet is a recent
phenomenon. As a result, acceptance and use may not continue to develop at
historical rates and a sufficiently broad base of business customers may not
adopt or continue to use the Internet as a medium of commerce. Demand and market
acceptance for recently introduced services and products over the Internet are
subject to a high level of uncertainty, and there exist few proven services and
products.

Our business would be seriously harmed if:

- Use of the Internet and other online services does not continue to
increase or increases more slowly than expected;

- The technology underlying the Internet and other online services does not
effectively support any expansion that may occur; or

- The Internet and other online services do not create a viable commercial
marketplace, inhibiting the development of electronic commerce and
reducing the need for our products and services.

WE DEPEND ON THE ACCEPTANCE OF THE INTERNET AS A COMMERCIAL MARKETPLACE AND
THIS ACCEPTANCE MAY NOT OCCUR ON A TIMELY BASIS.

The Internet may not be accepted as a viable long-term commercial
marketplace for a number of reasons. These include:

- Potentially inadequate development of the necessary communication and
computer network technology, particularly if rapid growth of the Internet
continues;

28

- Delayed development of enabling technologies and performance improvements;

- Delays in the development or adoption of new standards and protocols; and

- Increased governmental regulation.

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

A significant barrier to electronic commerce and communications is the
secure transmission of confidential information over public networks. Advances
in computer capabilities, new discoveries in the field of cryptography or other
events or developments could result in compromises or breaches of our security
systems or those of other web sites to protect proprietary information. If any
well-publicized compromises of security were to occur, it could have the effect
of substantially reducing the use of the web for commerce and communications.
Anyone who circumvents our security measures could misappropriate proprietary
information or cause interruptions in our services or operations. The Internet
is a public network, and data is sent over this network from many sources. In
the past, computer viruses, software programs that disable or impair computers,
have been distributed and have rapidly spread over the Internet. Computer
viruses could be introduced into our systems or those of our customers or
suppliers, which could disrupt the Ariba Commerce Services Network or make it
inaccessible to customers or suppliers. We may be required to expend significant
capital and other resources to protect against the threat of security breaches
or to alleviate problems caused by breaches. To the extent that our activities
may involve the storage and transmission of proprietary information, such as
credit card numbers, security breaches, could expose us to a risk of loss or
litigation and possible liability. Our security measures may be inadequate to
prevent security breaches, and our business would be harmed if we do not prevent
them.

THE ARIBA COMMERCE SERVICES NETWORK MAY EXPERIENCE PERFORMANCE PROBLEMS OR
DELAYS AS A RESULT OF HIGH VOLUMES OF TRAFFIC.

If the volume of traffic on the web site for the Ariba Commerce Services
Network increases, the Ariba Commerce Services Network may in the future
experience slower response times or other problems. In addition, users will
depend on Internet service providers, telecommunications companies and the
efficient operation of their computer networks and other computer equipment for
access to the Ariba Commerce Services Network. Each of these has experienced
significant outages in the past and could experience outages, delays and other
difficulties due to system failures unrelated to our systems. Any delays in
response time or performance problems could cause users of the Ariba Commerce
Services Network to perceive this service as not functioning properly and
therefore cause them to use other methods to procure their goods and services.

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

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

We do not collect sales or other similar taxes in respect of goods and
services purchased through the Ariba Commerce Services Network. However, one or
more states may seek to impose sales tax collection obligations on out-of-state
companies like us that engage in or facilitate electronic commerce. A number of
proposals have been made at the state and local level that would impose
additional taxes on the sale of goods and services over the Internet. These
proposals, if adopted, could substantially

29

impair the growth of electronic commerce and could adversely affect our
opportunity to derive financial benefit from such activities. Moreover, a
successful assertion by one or more states or any foreign country that we should
collect sales or other taxes on the exchange of goods and services through the
Ariba Commerce Services Network could seriously harm our business.

Legislation limiting the ability of the states to impose taxes on
Internet-based transactions has been proposed in the U.S. Congress. This
legislation could ultimately be enacted into law or this legislation could
contain a limited time period in which this tax moratorium will apply. In the
event that the tax moratorium is imposed for a limited time period, legislation
could be renewed at the end of this period. Failure to enact or renew this
legislation could allow various states to impose taxes on electronic commerce,
and the imposition of these taxes could seriously harm our business.

ITEM 2. PROPERTIES

Our principal sales, marketing, research, development, and administrative
offices occupy approximately 131,600 square feet in Mountain View, California
which is our corporate headquarters. Our sublease for this facility expires in
October 2006. We occupy an additional 45,800 square feet in Mountain View and
16,000 square feet in Palo Alto, California. These subleases expire in
April 2005 and August 2001 respectively. Regional offices are located in Tampa,
Atlanta, Boston and New Jersey. These leases total approximately 124,900 square
feet and expire at various dates between 2004 and 2007. We are currently
building a new 715,000 square foot headquarters campus in Sunnyvale, California
under a lease that expires 12 years after we take possession of the facility,
subject to an option to extend the lease for an additional 5 year period.

Previously our principal sales, marketing, research, development, and
administrative offices occupied approximately 33,000 square feet in Sunnyvale,
California under a lease that expires on August 31, 2004. We are currently
subleasing the Sunnyvale facility to a third party. In addition we also lease
sales and support offices in the North American metropolitan areas of Chicago,
Cleveland, Columbus, Cincinnati, Dallas, Denver, Detroit, Kansas City, Los
Angeles, Milwaukee, Miami, Minneapolis, Montreal, New York, Phoenix,
Philadelphia, Raleigh-Durham, Seattle, St. Louis, Toronto, and Washington D.C.
We also lease sales and support offices outside of North America including
locations in Australia, Belgium, Brazil, France, Germany, Hong Kong, Ireland,
Italy, Japan, Mexico, The Netherlands, Singapore, Spain, Sweden, Switzerland,
Taiwan and the United Kingdom.

ITEM 3. LEGAL PROCEEDINGS

Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable

30

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of Ariba and other key employees and their ages as of
September 30, 2000 are as follows:

NAME AGE POSITION(S)
- ---- -------- ---------------------------------------------

Keith J. Krach.................................. 43 Chief Executive Officer and Chairman of the
Board of Directors
Larry Mueller................................... 48 President and Chief Operating Officer
Edward P. Kinsey................................ 44 Chief Financial Officer, Executive Vice
President-Finance & Administration and
Secretary
Eileen Basho.................................... 46 Senior Vice President-Global Solutions
Delivery
Robert J. DeSantis.............................. 37 Senior Vice President-Network Commerce
K. Charly Kleissner............................. 43 Senior Vice President-Engineering

KEITH J. KRACH, a co-founder of Ariba, has served as Chairman of the Board
of Directors and Chief Executive Officer since our inception in September 1996,
and President of Ariba from our inception to October 1999. From March 1996 to
September 1996, Mr. Krach served as an Entrepreneur in Residence at Benchmark
Capital. From October 1988 to August 1995, Mr. Krach served as Chief Operating
Officer of Rasna Corporation, a mechanical computer-aided design automation
software company. Prior to joining Rasna, Mr. Krach held various positions with
General Motors, including General Manager and Vice President of GMF Robotics.
Mr. Krach holds a Bachelor of Science degree in Industrial Engineering from
Purdue University and a Master of Business Administration from Harvard Business
School.

LARRY MUELLER has served as Ariba's President and Chief Operating Officer
since October 1999. From 1996 to 1999, Mr. Mueller served as President and Chief
Executive Officer of Imageware, a 3D modeling company. From 1994 to 1996,
Mr. Mueller served as Vice President of North American Operations of Rasna
Corporation, a mechanical computer-aided design automation software company.
From 1991 to 1994, Mr. Mueller served as Executive Vice President of Worldwide
Operations at J.D. Edwards. Prior to joining J.D. Edwards, Mr. Mueller held
various positions with IBM, including General Manager responsible for North
American business partner channels, director of AS/400 marketing strategies for
IBM Europe, and executive assistant to the Chairman of IBM Europe. Mr. Mueller
holds a Bachelor of Science degree in Business Administration from the
University of Wisconsin.

EDWARD P. KINSEY, a co-founder of Ariba, served as Chief Financial Officer,
Secretary and Executive Vice President of Finance and Administration from our
inception in September 1996 through November 2000, at which time he resigned
from this role and assumed a leadership role in the area of strategic
development. From October 1995 to August 1996, Mr. Kinsey served as the Chief
Financial Officer and Vice President of Finance of CenterView Software, an
Internet development tools company. From March 1994 to October 1995, Mr. Kinsey
served as Corporate Controller of Rasna Corporation and, from July 1988 to
March 1994, Mr. Kinsey served in various capacities at Zenger-Miller, Inc., a
management and supervisory skills training and development company, most
recently as the Chief Financial Officer and Vice President of Operations. Prior
to 1988, Mr. Kinsey held management positions at Peat Marwick Mitchell and at
Price Waterhouse. Mr. Kinsey is a Certified Public Accountant in California and
Ohio and holds a Bachelor of Business Administration degree in Accounting from
the University of Toledo.

31

EILEEN BASHO has served as Ariba's Senior Vice President of Global Solutions
Delivery since February 2000. From September 1998 to September 1999, Ms. Basho
was a Partner at Andersen Consulting, responsible for developing the strategic
offerings and market direction for Enterprise Business Solutions, a line of
business comprised of more than 6,000 consultants. From July 1994 to
August 1998, Ms. Basho worked at SAP America, Inc., serving as Executive Vice
President from January 1996 to August 1998, responsible for SAP's consulting
business, worldwide partnering program and global accounts. Ms. Basho holds a
Bachelor of Science degree from the Philadelphia College of Textiles and
Sciences.

ROBERT J. DESANTIS, a co-founder of Ariba, has served as Senior Vice
President of Network Commerce since September 1999, as Vice President of
International Operations from July 1998 to September 1999 and Vice President of
Sales from our inception in September 1996 to July 1998. From October 1995 to
September 1996, Mr. DeSantis worked as a consultant in the venture capital
community. From August 1990 to October 1995, Mr. DeSantis served as Vice
President of Sales and Vice President of European Operations at Rasna
Corporation. Prior to joining Rasna, Mr. DeSantis served as Director of Sales
for Structural Research and Analysis Corporation, a design analysis software
company, and as a member of the technical staff of Hughes Aircraft Company.
Mr. DeSantis holds a Bachelor of Science degree in Mechanical Engineering from
the University of Rhode Island.

K. CHARLY KLEISSNER has served as Ariba's Senior Vice President of
Engineering since July 1997. From June 1996 to July 1997, Dr. Kleissner was Vice
President of Product Development at DataMind Corporation, a data mining software
tools development company. From April 1994 to June 1996, Dr. Kleissner held
various senior engineering management positions at NeXT Software Inc., a
software development company. Prior to joining NeXT, Dr. Kleissner held various
senior engineering management positions at Digital Equipment Corporation and
Hewlett-Packard Company. Dr. Kleissner holds a Ph.D. in Computer Science from
the University of Technology, Vienna and a Master of Science degree in Computer
Science from the Institute of Technology at the University of Vienna.

32

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is traded on the Nasdaq National Market under the symbol
"ARBA." Our initial public offering of stock was June 23, 1999 at $5.75 per
share. The price range per share reflected in the table below, is the highest
and lowest sale price for our stock as reported by the Nasdaq National Market
during each quarter the stock has been publicly traded. Our present policy is to
retain earnings, if any, to finance future growth. We have never paid cash
dividends and have no present intention to pay cash dividends. In addition, our
existing line of credit agreement currently prohibits the payment of dividends.
At December 15, 2000, there were approximately 1,379 stockholders of record and
the price per share of our common stock was $67.13.

THREE MONTHS ENDED
-------------------------------------------------------------
DEC. 31, 1999 MAR. 31, 2000 JUN. 30, 2000 SEP. 30, 2000
------------- ------------- ------------- -------------

Priced range per share:
Low....................................... $36.87 $ 75.06 $ 50.00 $ 91.13
High...................................... $91.50 $165.50 $105.38 $168.75

The above information has been restated to reflect the two-for-one stock
splits, effected in the form of a stock dividend to each stockholder on
November 16, 1999 and March 2, 2000.

During the quarter ended September 30, 2000, in connection with the
acquisition of SupplierMarket.com we issued an aggregate of approximately
5,249,300 shares of our common stock to former stockholders of those companies,
604,465 shares of which are held in escrow, and granted options and warrants to
purchase an aggregate of approximately 1,437,272 shares of our common stock. The
shares, options and warrants were issued pursuant to an exemption by reason of
Section 3(a)(10) of the Securities Act of 1933. The terms and conditions of such
issuances and grants were approved after a hearing upon the fairness of such
terms and conditions by a government authority expressly authorized by the law
to grant such approval.

During the quarter ended September 30, 2000, we issue an aggregate of
12,715,386 shares of our common stock upon the exercise of outstanding options
to purchase our common stock. A portion of those shares were issued pursuant to
an exemption by reason of Rule 701 under the Securities Act of 1933.

33

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and the notes to the
consolidated financial statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," which are included elsewhere in
this report. The consolidated statement of operations data for each of the four
years in the period ended September 30, 2000, and the consolidated balance sheet
data as of the years then ended are derived from our audited consolidated
financial statements. Activity for the period from September 17, 1996
(inception) to September 30, 1996 consisted of the sale of common stock and
preferred stock for approximately $6.0 million and earned interest of
approximately $1,000 on this amount.

YEARS ENDED SEPTEMBER 30,
--------------------------------------------
2000 1999 1998 1997
----------- -------- -------- --------
CONSOLIDATED STATEMENT OF OPERATIONS DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA)

Revenues:
License............................................... $ 198,790 $ 26,768 $ 6,040 $ 630
Maintenance and service............................... 80,249 18,604 2,323 130
----------- -------- -------- -------
Total revenues.................................... 279,039 45,372 8,363 760
Cost of revenues:
License............................................... 12,572 724 165 13
Maintenance and service (exclusive of stock-based
compensation expense of $1,458, $1,084, $48 and $0
for the years ended September 30, 2000, 1999, 1998
and 1997, respectively)............................. 34,947 8,089 1,373 927
----------- -------- -------- -------
Total cost of revenues............................ 47,519 8,813 1,538 940
----------- -------- -------- -------
Gross profit.......................................... 231,520 36,559 6,825 (180)
----------- -------- -------- -------
Operating Expenses:
Sales and marketing (exclusive of stock-based
compensation expense of $7,425, $6,569, $535 and $0
for the years ended September 30, 2000, 1999, 1998
and 1997, respectively and exclusive of $29,251 of
business partner warrant expense for the year ended
September 30, 2000)................................. 207,234 33,859 10,311 2,235
Research and development (exclusive of stock-based
compensation expense of $3,475, $2,998, $178 and $0
for the years ended September 30, 2000, 1999, 1998
and 1997, respectively)............................. 39,017 11,620 4,499 1,899
General and administrative (exclusive of stock-based
compensation expense of $5,693, $3,933, $195 and $50
for the years ended September 30, 2000, 1999, 1998
and 1997, respectively)............................. 29,172 7,917 2,580 588
Amortization of goodwill and other intangible
assets.............................................. 688,588 -- -- --
In-process research and development................... 27,350 -- -- --
Business partner warrants............................. 29,251 -- -- --
Amortization of stock-based compensation.............. 18,051 14,584 956 50
----------- -------- -------- -------
Total operating expenses.......................... 1,038,663 67,980 18,346 4,772
----------- -------- -------- -------
Loss from operations.................................. (807,143) (31,421) (11,521) (4,952)
Other income, net....................................... 16,331 2,219 568 273
----------- -------- -------- -------
Net loss before taxes................................... (790,812) (29,202) (10,953) (4,679)
Provision for income taxes.............................. (1,963) (98) -- --
----------- -------- -------- -------
Net loss................................................ $ (792,775) $(29,300) $(10,953) $(4,679)
=========== ======== ======== =======
Net loss per share -- basic and diluted................. $ (4.10) $ (0.42) $ (0.48) $ (1.83)
=========== ======== ======== =======
Weighted average shares used in computing basic and
diluted net loss per share............................ 193,417 70,064 23,048 2,558
=========== ======== ======== =======

34

SEPTEMBER 30,
----------------------------------------------------
2000 1999 1998 1997
---------- -------- -------- --------
CONSOLIDATED BALANCE SHEET DATA: (IN THOUSANDS)

Cash, cash equivalents and investments......... $ 364,691 $152,440 $ 13,932 $15,471
Working capital................................ 139,847 58,988 6,127 13,685
Total assets................................... 3,815,878 170,021 18,771 16,800
Long-term debt................................. 402 781 647 140
Accumulated deficit............................ (837,707) (44,932) (15,632) (4,679)
Total stockholders' equity..................... $3,498,192 $122,183 $ 9,959 $14,517

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

- - See Note 1 of Notes to Consolidated Financial Statements for an explanation of
the determination of the number of shares used to compute basic and diluted
net loss per share.

- - The Company is restricted in paying cash dividends under the terms of its line
of credit agreement and paid no cash dividends during the four year period.

- - The above information has been restated to reflect a two-for-one stock split,
effected in the form of a stock dividend to each stockholder on November 16,
1999 and March 2, 2000.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION, AND RESULTS
OF OPERATIONS

THE FOLLOWING DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF ARIBA, INC., ("ARIBA") SHOULD BE READ IN CONJUNCTION WITH
"SELECTED CONSOLIDATED FINANCIAL DATA" AND ARIBA'S CONSOLIDATED FINANCIAL
STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS REPORT. THIS DISCUSSION
AND ANALYSIS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS,
UNCERTAINTIES AND ASSUMPTIONS. THE ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING BUT NOT LIMITED TO, THOSE SET FORTH UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS REPORT.

OVERVIEW

Ariba is a leading business-to-business electronic commerce platform and
network services provider. We were founded in September 1996 and from that date
through March 1997 were in the development stage, conducting research and
developing our initial products. In March 1997, we began selling our products
and related services and currently market them in the United States, Latin
America, Europe, Canada, Asia and Asia Pacific primarily through our direct
sales force and to a lesser extent through indirect sales channels.

On January 20, 2000, March 8, 2000 and August 28, 2000, we acquired
TradingDynamics, Inc. ("TradingDynamics"), Tradex Technologies, Inc. ("Tradex")
and SupplierMarket.com ("SupplierMarket") respectively, primarily for their
product offerings and research and development teams. We accounted for these
acquisitions as purchase business combinations. Accordingly, the results of
operations of TradingDynamics, Tradex and SupplierMarket are included in our
combined results from the date of the acquisitions. Please see Note 2 of Notes
to Consolidated Financial Statements for more detailed information.

35

Through September 30, 2000, our revenues have been principally derived from
licenses of our products, from maintenance and support contracts and from the
delivery of implementation consulting and training services. Customers who
license Ariba Buyer and our other products, such as Ariba Marketplace, also
generally purchase maintenance contracts which provide software upgrades and
technical support over a stated term, which is usually a twelve-month period.
Customers may purchase implementation services from us, but we continue to
expect to increasingly rely on third-party consulting organizations to deliver
these services directly to our customers. We also offer fee-based training
services to our customers.

On October 1, 1997, we adopted Statement of Position, or SOP, 97-2, SOFTWARE
REVENUE RECOGNITION, which supersedes SOP 91-1, SOFTWARE REVENUE RECOGNITION. On
October 1, 1999, we adopted Statement of Position, or SOP, 98-9, MODIFICATION OF
SOP 97-2, SOFTWARE REVENUE RECOGNITION, WITH RESPECT TO CERTAIN TRANSACTIONS,
which amends SOP 97-2 and supercedes SOP 98-4. The adoption of SOP 97-2 and SOP
98-9 has not had a material effect on our operating results. SOP 97-2 SOFTWARE
REVENUE RECOGNITION, as amended, generally requires revenue earned on software
arrangements involving multiple elements to be allocated to each element based
on the relative fair values of the elements. The fair value of an element must
be based on the evidence that is specified to the vendor. License revenue
allocated to software products generally is recognized upon delivery of the
products or deferred and recognized in future periods to the extent that an
arrangement includes one or more elements that are to be delivered at a future
date and for which fair values have not been established. Revenue allocated to
maintenance is recognized ratably over the maintenance term and revenue
allocated to training and other service elements is recognized as the services
are performed. If evidence of fair value does not exist for all elements of a
license agreement and PCS is the only undelivered element, then all revenue for
the license arrangement is recognized ratably over the term of the agreement as
license revenue. If evidence of fair value of all undelivered elements exists
but evidence does not exist for one or more delivered elements, then revenue is
recognized using the residual method. Under the residual method, the fair value
of the undelivered elements is deferred and the remaining portion of the
arrangement fee is recognized as revenue. Revenue from hosted software
agreements are recognized ratably over the term of the hosting arrangement.

If the Company provides other services that are considered essential to the
functionality of the software products, both the software product revenue and
service revenue are recognized using the percentage of completion method in
accordance with the provisions of SOP 81-1, ACCOUNTING FOR PERFORMANCE OF
CONSTRUCTION TYPE AND CERTAIN PRODUCTION TYPE CONTRACTS. Such contracts
typically consist of implementation management services and are generally on a
time and materials basis with a few fixed fee contracts entered into in fiscal
1998 and 1997. The contracts are not subject to renegotiation and range from 5
to 24 months in duration. Revenues and costs are recognized based on the labor
hours incurred to date compared to total estimated labor hours for the contract.
Contract costs include all direct material, direct labor and indirect costs
related to contract performance. Selling, general, and administrative costs are
charged to expense as incurred. Provisions for estimated losses on uncompleted
contracts are recorded in the period in which such losses become probable based
on the current contract estimates. Commencing in fiscal year 2000, third party
consultants have managed many implementations of the Company's products for its
customers.

The majority of our customers who license our Ariba Buyer products generally
receive a server capacity license, one or more of the Ariba Buyer modules and
adapters to interface with financial, human resource and other existing
enterprise systems. The fee for the server capacity license is based on the
customers' estimated annual volume of line items of purchasing transactions. The
license fees for the software modules and adapters consist of individual prices
for each module or adapter.

The volume licensing of the server capacity allows customers to scale the
total cost of their purchase of our products to their needs. The server capacity
license entitles customers to execute the licensed volume of line items of
purchasing transactions during any annual period following their

36

purchase of the server license. Our customers generally purchase estimated
server capacity at the time of the purchase of the server license. Following the
initial implementation of our products, and based on the reporting and analysis
tools available through our products, our customers are able to understand their
annual transaction volume more fully. Customers who exceed their estimated
volume can purchase additional server capacity. Marketplace and Dynamic Trade
products are generally purchased under term licensing arrangements that include
incremental fees based on the customers' transactions or events.

We allocate the total costs for overhead and facilities to each of the
functional areas that use the overhead and facilities services based on their
headcount. These allocated charges include facility rent for the corporate
office, communication charges and depreciation expense for office furniture and
equipment.

Included in our operating expenses is the amortization of goodwill and other
intangible assets. These expenses are for the amortization of goodwill and other
intangible assets we have purchased in our acquisitions of TradingDynamics,
Tradex, SupplierMarket and for the amortization of an intellectual property
agreement we have entered into with an outside party. During the year ended
September 30, 2000 we also had a charge related to the purchase of in-process
technology related to the acquisitions. See Note 2 of Notes to Consolidated
Financial Statements for more detailed information.

Also included in our operating expenses is the non-cash expense for business
partner warrants. This non-cash expense relates to warrants that have been
earned by our business partners. If and when it becomes probable that the
business partner will earn any warrants, we recognize a non-cash expense for
these warrants. See Note 10 of Notes to Consolidated Financial Statements for
more detailed information.

Although revenues have consistently increased from quarter to quarter, we
have incurred significant costs to develop our technology and products, to
recruit and train personnel for our engineering, sales, marketing, professional
services and administration departments, for the amortization of our goodwill
and other intangible assets and for our business partner warrants. As a result,
we have incurred significant losses since inception, and as of September 30,
2000, had an accumulated deficit of $837.7 million. We believe our success is
contingent on increasing our customer base and developing our products and
services. We intend to continue to invest heavily in sales, marketing, research
and development and, to a lesser extent, support infrastructure. We also will
have significant expenses going forward related to the amortization of our
goodwill and other intangible assets, and we may continue to have substantial
non-cash expenses related to the issuance of warrants to purchase our common
stock. These warrant related expenses will not be recognized until the warrants
are earned and will fluctuate depending on the market value of our common stock.
We therefore expect to continue to incur substantial operating losses for the
foreseeable future.

We had 1,680 full-time employees as of September 30, 2000 and intend to hire
a significant number of employees in the future. This expansion places
significant demands on our management and operational resources. To manage this
rapid growth and increased demand, we must invest in and implement scalable
operational systems, procedures and controls. We must also be able to recruit
qualified candidates to manage our expanding operations. We expect future
expansion to continue to challenge our ability to hire, train, manage and retain
our employees.

In connection with the granting of stock options to our employees and in
connection with stock options issued related to the SupplierMarket acquisition,
we recorded deferred stock-based compensation totaling approximately
$163.0 million from inception through September 30, 2000. This amount represents
the difference between the exercise price and the deemed fair value of our
common stock for accounting purposes on the date these stock options were
granted. This amount is included as a component of stockholders' equity and is
being amortized by charges to operations over the vesting period of the options,
consistent with the method described in Financial Accounting Standards Board

37

Interpretation No. 28. During fiscal 2000, 1999 and 1998, we recorded
$18.0 million, $14.6 million and $956,000, respectively, of related stock-based
compensation amortization expense. As of September 30, 2000, we had an aggregate
of $130.0 million of related deferred compensation to be amortized. The
amortization of the remaining deferred stock-based compensation will result in
additional charges to operations through fiscal 2004. The amortization of
stock-based compensation is presented as a separate component of operating
expenses in our consolidated statements of operations.

During the year ended September 30, 2000 in connection with our recent
acquisitions and our entering into an intellectual property agreement and
business partner agreement with two independent third parties, we recorded
goodwill and other intangible assets of $3.9 billion. These assets are being
amortized over their estimated useful lives ranging from three to five years.
During the year ended September 30, 2000, we recorded $694.2 million of
amortization expense for these assets of which $688.6 million was recorded as
amortization of goodwill and other intangible assets and the remaining
$5.6 million was recorded as business partner warrant expense on the
Consolidated Statements of Operations. As of September 30, 2000, we had an
aggregate of $3.3 billion of goodwill and other intangible assets remaining to
be amortized for these assets. The amortization of the remaining goodwill and
other intangible assets will result in additional charges to operations through
the quarter ending September 30, 2003. The amortization of goodwill and other
intangible assets is presented as a separate component of operating expenses in
our consolidated statements of operations. We also had a charge of
$27.4 million during the year ended September 30, 2000 for in-process research
and development related to our recent acquisitions. See Note 2 of Notes to
Consolidated Financial Statements for more detailed information.

During the year ended September 30, 2000, a warrant for 1,936,000 shares of
our common stock was earned upon signing of a sales and marketing alliance
agreement. A total of $56.2 million was recorded as an intangible asset for this
sales and marketing alliance based on the fair market value of the warrant. This
intangible asset will be amortized over the life of the agreement of five years.
$5.6 million was amortized during the year as business partner warrant expense
on our Consolidated Statements of Operations. The remaining $50.6 million, as of
September 30, 2000, will be amortized over the next 18 quarter term of the
warrant. We also had additional sales and marketing expense of $23.6 million in
the year ended September 30, 2000 related to other business partner warrants.
This alliance was undertaken to broaden and accelerate adoption of our
marketplace product. The entire $29.2 million of amortization expense was
classified as business partner warrant expense on our Consolidated Statements of
Operations. See Note 10 of Notes to Consolidated Financial Statements for more
detailed information.

Our limited operating history makes the prediction of future operating
results very difficult. We believe that period-to-period comparisons of
operating results should not be relied upon as predictive of future performance.
Our operating results are expected to vary significantly from quarter to quarter
and are difficult or impossible to predict. Our prospects must be considered in
light of the risks, expenses and difficulties encountered by companies at an
early stage of development, particularly companies in new and rapidly evolving
markets, including risks associated with our recent acquisitions. We may not be
successful in addressing such risks and difficulties. Although we have
experienced significant percentage growth in revenues in recent periods, we do
not believe that prior growth rates are sustainable or indicative of future
operating results. Please refer to the "Risk Factors" section for additional
information.

STOCK SPLITS

On November 16, 1999 and March 2, 2000, the Board of Directors authorized a
two-for-one stock split of the Company's common stock, in the form of a stock
dividend. The financial information included in this report has been restated to
give effect to the stock splits.

38

CURRENT YEAR ACQUISITIONS

TRADINGDYNAMICS

In January 2000, we acquired TradingDynamics, which provided
business-to-business Internet trading applications, including
business-to-business auction, request for quote ("RFQ"), reverse auction, and
bid/ask-style exchange mechanisms. The acquisition was accounted for using the
purchase method of accounting and accordingly, the purchase price was allocated
to the assets acquired and liabilities assumed based on their estimated fair
values on the acquisition date.

The purchase price of approximately $465.0 million consisted of an exchange
of 7,274,656 shares of our common stock with a fair value of $371.9 million,
assumed stock options with a fair value of $91.7 million, and other acquisition
related expenses of approximately $1.4 million consisting primarily of payments
for financial advisor and other professional fees. Of the total purchase price,
$224,000 was allocated to property and equipment, $13.4 million was allocated to
net liabilities acquired, excluding property and equipment, and the remainder
was allocated to intangible assets, including in-process technology ($950,000),
core technology ($4.4 million), covenants not-to-compete ($1.3 million),
assembled workforce ($1.1 million) and goodwill ($470.5 million).

TRADEX

In March 2000, we acquired Tradex, which provided solutions for enabling B2B
marketplaces and exchanges. The acquisition was accounted for using the purchase
method of accounting and accordingly, the purchase price was allocated to the
assets acquired and liabilities assumed based on their estimated fair values on
the acquisition date.

The purchase price of approximately $2.3 billion consisted of an exchange of
34,059,336 shares of our common stock with a fair value of $2.1 billion, assumed
stock options with a fair value of approximately $207.5 million, and other
acquisition related expenses of approximately $28.8 million consisting primarily
of payments for financial advisor and other professional fees. Of the total
purchase price, $3.5 million was allocated to property and equipment,
$75.6 million was allocated to net assets acquired, excluding property and
equipment, and the remainder was allocated to intangible assets, including
in-process technology ($11.8 million), core technology ($7.9 million),
trademarks ($2.0 million), assembled workforce ($5.4 million) and goodwill
($2.2 billion).

SUPPLIERMARKET

In August 2000, we acquired SupplierMarket, a leading provider of online
collaborative sourcing technologies that allows buyers and suppliers of direct
and indirect materials to locate new trading partners, negotiate purchases and
collaborate on the Internet. The acquisition was accounted for using the
purchase method of accounting and accordingly, the purchase price was allocated
to the assets acquired and liabilities assumed based on their estimated fair
values on the acquisition date.

The total purchase price of approximately $607.1 million consisted of and
exchange of 5,249,330 shares of our common stock with a fair value of
$478.7 million, assumed stock options with a fair value of approximately
$108.4 million and other acquisition related expenses of approximately
$20.0 million consisting primarily of payments for financial advisor and other
professional fees. Of the total purchase price, $3.1 million was allocated to
property and equipment, $4.2 million was allocated to net assets acquired,
excluding property and equipment, $124.6 million to deferred compensation and
the remainder was allocated to intangible assets, including in-process
technology ($14.6 million), core technology ($7.9 million), assembled workforce
($6.5 million) and goodwill ($446.1million). There was one project included in
in-process technology for SupplierMarket.

See Note 2 of Notes to Consolidated Financial Statements for more detailed
information about the accounting treatment of TradingDynamics, Tradex and
SupplierMarket acquisitions.

39

RESULTS OF OPERATIONS

The following table sets forth certain statements of operations data in
absolute dollars for the periods indicated. The data has been derived from the
consolidated financial statements contained in this report. The operating
results for any period should not be considered indicative of results for any
future period. This information should be read in conjunction with the
consolidated financial statements included in this report.

YEARS ENDED SEPTEMBER 30,
--------------------------------
2000 1999 1998
---------- -------- --------

CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License................................................... $ 198,790 $ 26,768 $ 6,040
Maintenance and service................................... 80,249 18,604 2,323
---------- -------- --------
Total revenues.......................................... 279,039 45,372 8,363
Cost of revenues:
License................................................... 12,572 724 165
Maintenance and service (exclusive of stock-based
compensation expense of $1,458, $1,084 and $48 for the
years ended September 30, 2000, 1999 and 1998,
respectively)........................................... 34,947 8,089 1,373
---------- -------- --------
Total cost of revenues.................................. 47,519 8,813 1,538
---------- -------- --------
Gross profit.............................................. 231,520 36,559 6,825
---------- -------- --------
Operating expenses:
Sales and marketing (exclusive of stock-based compensation
expense of $7,425, $6,569 and $535 for the years ended
September 30, 2000, 1999 and 1998, respectively and
exclusive of $29,251 of business partner warrant expense
for the year ended September 30, 2000).................. 207,234 33,859 10,311
Research and development (exclusive of stock-based
compensation expense of $3,475, $2,998 and $178 for the
years ended September 30, 2000, 1999 and 1998,
respectively) 39,017 11,620 4,499
General and administrative (exclusive of stock-based
compensation expense of $5,693, $3,933 and $195 for the
years ended September 30, 2000, 1999 and 1998,
respectively)............................................. 29,172 7,917 2,580
Amortization of goodwill and other intangible assets...... 688,588 0 0
In-process research and development....................... 27,350 0 0
Business partner warrants................................. 29,251 0 0
Amortization of stock-based compensation.................. 18,051 14,584 956
---------- -------- --------
Total operating expenses................................ 1,038,663 67,980 18,346
---------- -------- --------
Loss from operations...................................... (807,143) (31,421) (11,521)
Other income, net........................................... 16,331 2,219 568
---------- -------- --------
Net loss before taxes..................................... (790,812) (29,202) (10,953)
Provision for income taxes.................................. 1,963 98 0
---------- -------- --------
Net loss.................................................. $ (792,775) $(29,300) $(10,953)
========== ======== ========
Net loss per share -- basic and diluted..................... $ (4.10) $ (0.42) $ (0.48)
========== ======== ========
Weighted average shares used in computing basic and diluted
net loss per share........................................ 193,417 70,064 23,048
========== ======== ========

40

COMPARISON OF THE FISCAL YEARS ENDED SEPTEMBER 30, 2000 AND 1999

REVENUES

LICENSE

License revenues for the year ended September 30, 2000 were $198.8 million,
a 643% increase over license revenues of $26.8 million for the year ended
September 30, 1999. This increase was primarily attributable to increased market
acceptance of our products, domestically and internationally, an increase in
sales to new customers resulting from increased headcount in our sales force,
increased demand for business-to-business electronic commerce solutions across a
broad range of industries, new strategic products and solutions, including those
resulting from our acquisitions, increased number of and success from strategic
relationships designed to help promote and sell our products domestically and
internationally.

MAINTENANCE AND SERVICE

Maintenance and service revenues for the year ended September 30, 2000 were
$80.2 million, a 331% increase over maintenance and service revenues of
$18.6 million for the year ended September 30, 1999. This increase was primarily
attributable to the increased licensing activity described above, which has
resulted in increased revenues from customer implementations and maintenance
contracts and, to a lesser extent, accelerated customer implementations and
renewals of recurring maintenance.

During the years ended September 30, 2000 and 1999, no customer and one
customer, respectively, accounted for more than 10% of total revenues. Revenues
from international sales were $61.4 million and $6.7 million in the years ended
September 30, 2000 and 1999. Our international revenues were derived from sales
in Canada, Europe, Asia, Asia Pacific and Latin America.

COST OF REVENUES

LICENSE

Cost of license revenues were $12.6 million in the year ended September 30,
2000, an increase of 1,636% over cost of license revenues of $724,000 for the
year ended September 30, 1999. The increase in the cost of license revenues was
primarily attributable to royalties due to third parties for integrated
technology.

MAINTENANCE AND SERVICE

Cost of maintenance and service revenues were $34.9 million in the year
ended September 30, 2000, an increase of 332% over cost of maintenance and
service revenues of $8.0 million for the year ended September 30, 1999. The
increase was primarily attributable to personnel costs associated with increases
in the number of implementation, training and technical support personnel from
our internal growth and as a result of our acquisitions and due to an increase
in licensing activity during the year resulting in increased implementation,
customer support and training costs.

OPERATING EXPENSES

SALES AND MARKETING

During the year ended September 30, 2000, sales and marketing expenses were
$207.2 million, an increase of 512% over sales and marketing expenses of
$33.8 million for the year ended September 30, 1999.

41

The increase was primarily attributable to increased compensation for sales
and marketing personnel as a result of increased sales through internal growth
and acquisitions, advertising, employer payroll taxes on stock options in our
foreign subsidiaries, customer advisory council meetings, an increase in our
allowance for doubtful accounts, increases in management bonuses, fees paid to
outside professional service providers, the expansion of our corporate
headquarters and international sales offices and, to a lesser extent, related
overhead. We believe these expenses will continue to increase in absolute dollar
amounts in future periods as we expect to continue to expand our sales and
marketing efforts.

RESEARCH AND DEVELOPMENT

During the year ended September 30, 2000, research and development expenses
were $39.0 million, an increase of 236% over research and development expenses
of $11.6 million for the year ended September 30, 1999.

The increase was primarily attributable to increases in compensation for
research and development personnel due to our internal growth and acquisitions,
technology costs related to the expansion of our headquarters and to a lesser
extent, related overhead. To date, all software development costs have been
expensed in the period incurred. We believe that continued investment in
research and development is critical to attaining our strategic objectives, and,
as a result, we expect research and development expenses to increase in absolute
dollar amounts in future periods.

GENERAL AND ADMINISTRATIVE

During the year ended September 30, 2000, general and administrative
expenses were $29.2 million, an increase of 268% over general and administrative
expenses of $7.9 million for the year ended September 30, 1999.

The increase was primarily attributable to an increase in compensation
associated with additional employees in finance, accounting, legal, human
resources and information technology personnel from our internal growth and
acquisitions, an increase in fees paid to outside professional service
providers, an increase in communication costs, particularly to remote offices,
the implementation costs to install our financial and human resources
infrastructure and to a lesser extent, related overhead. We believe general and
administrative expenses will increase in absolute dollars, as we expect to add
personnel to support our expanding operations, and to incur additional costs
related to the growth of our business and responsibilities as a public company.

AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS

Our acquisitions of TradingDynamics, Tradex and SupplierMarket were
accounted for under the purchase method of accounting. Accordingly, we recorded
goodwill and other intangible assets representing the excess of the purchase
price paid over the fair value of net assets acquired. The aggregate
amortization of goodwill and these other intangible assets was $539.4 million in
fiscal 2000. There were no acquisitions in fiscal 1999 or 1998.

In March 2000, we sold 5,142,858 shares of common stock with a fair market
value of $834.4 million to an independent third party in connection with an
intellectual property agreement. As part of the sale we received intellectual
property and $47.5 million in cash. The intellectual property is valued at the
difference between the fair market value of the stock being exchanged and the
cash received, which is $786.9 million. This amount is classified within other
intangible assets and is being amortized over three years based on the terms of
the related intellectual property agreement. The aggregate amortization of this
intellectual property agreement was $149.1 million in fiscal 2000.

42

In June 2000, 1,936,000 shares of our common stock, underlying a warrant,
were earned upon signing of a sales and marketing alliance agreement. A total of
$56.2 million was recorded as an intangible asset for this sales and marketing
alliance based on the fair market value of the warrant. This intangible asset is
being amortized over the life of the agreement of five years and resulted in a
$5.6 million amortization to business partner warrants expense during the year
ended September 30, 2000.

The related amortization expense for goodwill and other intangible assets
totaled $694.2 million for the year ended September 30, 2000. There was no
goodwill and other intangible assets during fiscal 1999 and 1998.

We anticipate that future amortization of goodwill and other intangibles
associated with fiscal 2000 acquisitions and strategic relationships will
continue to be amortized on a straight-line basis over their expected useful
lives ranging from three years to five years, respectively, and will amount to
approximately $1.3 billion in 2001, $1.3 billion in 2002, $631.0 million in
2003, and $16.9 million thereafter until the related goodwill and other
purchased intangibles are fully amortized. It is likely we may continue to
expand our business through acquisitions and internal development. Any
additional acquisitions or impairment of goodwill and other purchased
intangibles could result in additional merger and acquisition related costs.

IN-PROCESS RESEARCH AND DEVELOPMENT

In connection with the acquisition of TradingDynamics we allocated $950,000
as in-process research and development of the $465.0 million purchase price..
The applications from the in-process technology project have been integrated
into our products. The efforts required to complete the acquired in-process
technology included the completion of all planning, designing and testing
activities that were necessary to establish that the product can be produced to
meet its design requirements, including functions, features and technical
performance requirements.

The value of the acquired in-process technology was computed using a
discounted cash flow analysis rate of 25% on the anticipated income stream of
the related product revenues. The discounted cash flow analysis was based on
management's forecast of future revenues, cost of revenues, and operating
expenses related to the products and technologies purchased from
TradingDynamics. The calculation of value was then adjusted to reflect only the
value creation efforts of TradingDynamics prior to the close of the acquisition.
At the time of the acquisition, the product was approximately 90% complete. The
majority of the costs to complete the project were incurred in fiscal 2000 and
the remaining costs are not material. The resultant value of in-process
technology was further reduced by the estimated value of core technology and was
expensed in the period the transaction was consummated. The acquired intangible
assets are being amortized over their estimated useful lives of three years.
Goodwill is being amortized using the straight-line method over three years,
resulting in an aggregate quarterly charge of $39.7 million during the
amortization period. At September 30, 2000, cumulative amortization of goodwill
and other intangible assets associated with this acquisition totaled
$111.0 million.

In connection with the acquisition of Tradex we allocated $11.8 million as
in-process research and development of the $2.3 billion purchase price. There
was one project included in in-process technology for Tradex. The applications
from this project have been integrated into the Company's products. The efforts
required to complete the acquired in-process technology included the completion
of all planning, designing and testing activities that are necessary to
establish that the product can be produced to meet its design requirements,
including functions, features and technical performance requirements.

The value of the acquired in-process technology was computed using a
discounted cash flow analysis rate of 22% on the anticipated income stream of
the related product revenues. The discounted cash flow analysis was based on
management's forecast of future revenues, cost of revenues, and

43

operating expenses related to the products and technologies purchased from
Tradex. The calculation of value was then adjusted to reflect only the value
creation efforts of Tradex prior to the close of the acquisition. At the time of
the acquisition, the product was approximately 33% complete with approximately
$693,000 in estimated costs remaining. The majority of these costs were incurred
in fiscal 2000 and the remaining costs are material. The resultant value of
in-process technology was further reduced by the estimated value of core
technology. The acquired in-process technology was expensed in the period the
transaction was consummated. The acquired intangible assets are being amortized
over their estimated useful lives of three years. Goodwill is being amortized
using the straight-line method over three years, resulting in an aggregate
quarterly charge of $183.3 million during the amortization period. At
September 30, 2000, cumulative amortization of goodwill and other intangibles
assets associated with this acquisition totaled $415.6 million.

In connection with the acquisition of SupplierMarket we allocated
$14.6 million as in-process research and development of the $607.1 purchase
price. The applications from this project have been integrated into our
products. The efforts required to complete the acquired in-process technology
included the completion of all planning, designing and testing activities that
are necessary to establish that the product can be produced to meet its design
requirements, including functions, features and technical performance
requirements.

The value of the acquired in-process technology was computed using a
discounted cash flow analysis rate of 19% on the anticipated income stream of
the related product revenues. The discounted cash flow analysis was based on
management's forecast of future revenues, cost of revenues, and operating
expenses related to the products and technologies purchased from SupplierMarket.
The calculation of value was then adjusted to reflect only the value creation
efforts of SupplierMarket prior to the close of the acquisition. At the time of
the acquisition, the product was approximately 53% complete with approximately
$158,000 in estimated costs remaining. The majority of these costs are expected
to be incurred by the end of the next fiscal quarter ending December 31, 2000.
The resultant value of in-process technology was further reduced by the
estimated value of core technology. The acquired in-process technology was
expensed in the period the transaction was consummated. The acquired intangible
assets are being amortized over their estimated useful lives of three years.
Goodwill is being amortized using the straight-line method over three years,
resulting in an aggregate quarterly charge of $38.3 million during the
amortization period. At September 30, 2000, cumulative amortization of goodwill
and other intangible assets associated with this acquisition totaled
$12.7 million.

STOCK-BASED COMPENSATION

We recognized stock-based compensation expense associated with stock options
granted to employees with an exercise price below market value on the date of
grant and unvested stock options issued to employees in conjunction with the
consummation of the August 2000 SupplierMarket acquisition. These amounts are
included as a component of stockholders' equity and are being amortized by
charges to operations over the vesting period of the options, consistent with
the method described in Financial Accounting Standards Board Interpretation
No. 28. The amortization of stock-based compensation is presented as a separate
component of operating expenses in our consolidated

44

statement of operations. Amortization of stock-based compensation consists of
the following for the year ended September 30 (in thousands):

2000 1999 1998
-------- -------- ---------

Cost of revenues............................................ $ 1,458 $ -- $ --
Sales and marketing......................................... 7,425 7653 --
Research and development.................................... 3,475 2998 --
General and administrative.................................. 5,693 3933 50
------- ------- ---------
Total....................................................... $18,051 $14,584 $ 50
======= ======= =========

As of September 30, 2000, we had an aggregate of $9.1 million and
$120.9 million of deferred stock-based compensation relating to cost of
maintenance and service revenues and operating expenses, respectively, remaining
to be amortized.

BUSINESS PARTNER WARRANTS

We have issued warrants for the purchase of our common stock to certain
business partners which vest based upon the achievement of certain milestones
for sales of our products to third parties. During the year ended September 30,
2000, we recognized business partner warrant expenses associated with two sales
and marketing alliance agreements in the aggregate amount of $29.2 million. See
Note 10 of Notes to Consolidated Financial Statements for more detailed
information.

In the quarter ended June 30, 2000, 1,936,000 shares of our common stock,
underlying a warrant, were earned upon signing of a sales and marketing alliance
agreement. A total of $56.2 million was recorded as an intangible asset for this
sales and marketing alliance based on the fair market value of the warrant. This
intangible asset is being amortized over the life of the agreement of
five years and resulted in $5.6 million amortization during the year ended
September 30, 2000. As of September 30, 2000, an intangible asset of
$50.6 million remains to be amortized over the next 18 quarters relating to this
warrant.

During the year ended September 30, 2000, 468,041 shares of our common stock
underlying a warrant were earned upon attainment of certain milestones related
to revenue targets. A total of $23.6 million in amortization expense was
recorded for the year ended September 30, 2000.

OTHER INCOME, NET

Other income, net consists of interest income, interest expense and other
non-operating expenses. During the year ended September 30, 2000, other income,
net was $16.3 million, an increase of 636% over other income, net of
$2.2 million for the year ended September 30, 1999. This increase is primarily
attributable to interest income resulting from higher average cash balances
during fiscal 2000.

PROVISION FOR INCOME TAXES

We incurred operating losses for all periods from inception through
September 30, 2000. We have recorded a valuation allowance for the full amount
of its net deferred tax assets, as the future realization of the tax benefit is
not currently likely. We recorded income tax expense of $1.9 million relating to
our international subsidiaries during the year ended September 30, 2000.

As of September 30, 2000, we had net operating loss carryforwards for
federal and state tax purposes of approximately $686.0 million and
$214.8 million, respectively. These federal and state carryforwards expire in
various years through fiscal year 2020 and 2005. We had research credit
carryforwards for federal and state tax purpose of approximately $1.5 million
and $913,000, respectively. If not utilized, the federal carryforwards will
expire in various years through fiscal year 2020. The state

45

credit will carryforward indefinitely. We also had manufacturer's credit
carryforwards for state tax purposes of approximately $81,000, which will expire
in various years through fiscal year 2008.

The Internal Revenue Code, and applicable state tax laws, impose substantial
restrictions on our ability to utilize net operating losses and tax credit
carryforwards in the event of an "ownership change," as defined in Section 382
of the Internal Revenue Code. As a result of ownership changes, our federal and
state tax losses and tax credit carryover incurred through that date of change
are subject to an annual limitation.

COMPARISON OF THE FISCAL YEARS ENDED SEPTEMBER 30, 1999 AND 1998

REVENUES

LICENSE

License revenues for the year ended September 30, 1999 were $26.8 million, a
343% increase over license revenues of $6.0 million for the year ended
September 30, 1998. This increase was primarily attributable to increased market
acceptance of our products, an increase in sales to new customers resulting from
increased headcount in our sales force and the expansion of international
operations.

MAINTENANCE AND SERVICE

Maintenance and service revenues for the year ended September 30, 1999 were
$18.6 million, a 701% increase over maintenance and service revenues of
$2.3 million for the year ended September 30, 1998. This increase was primarily
attributable to the increased licensing activity described above, which has
resulted in increased revenues from customer implementations and maintenance
contracts and, to a lesser extent, accelerated customer implementations and
renewals of recurring maintenance.

During the years ended September 30, 1999 and 1998, one and five customers,
respectively, accounted for more than 10% of total revenues. Revenues from
international sales were $6.7 million in the year ended September 30, 1999 and
were $1.8 million for the year ended September 30, 1998. Our international
revenues were derived from sales in Canada and Europe.

COST OF REVENUES

LICENSE

Cost of license revenues were $724,000 in the year ended September 30, 1999,
an increase of 339% over cost of license revenues of $165,000 for the year ended
September 30, 1998. The increase in the cost of license revenues was primarily
attributable to royalties due to third parties for integrated technology.

MAINTENANCE AND SERVICE

Cost of maintenance and service revenues were $8.1 million in the year ended
September 30, 1999, an increase of 489% over cost of maintenance and service
revenues of $1.4 million for the year ended September 30, 1998. Our cost of
maintenance and service revenues includes salaries and related expenses for its
customer support, implementation and training services organizations, costs of
third parties contracted to provide consulting services to customers and an
allocation of its facilities, communications and depreciation expenses. The
increase was primarily attributable to personnel costs associated with increases
in the number of implementation, training and technical support personnel.

46

OPERATING EXPENSES

SALES AND MARKETING

During the year ended September 30, 1999, sales and marketing expenses were
$33.9 million, an increase of 228% over sales and marketing expenses of
$10.3 million for the year ended September 30, 1998. The increase was primarily
attributable to increased sales commissions as a result of increased sales, an
increase in the number of sales and marketing employees, expanded marketing
programs for trade shows and customer advisory council meetings and the
expansion of our corporate headquarters and international sales offices.

RESEARCH AND DEVELOPMENT

During the year ended September 30, 1999, research and development expenses
were $11.6 million, an increase of 158% over research and development expenses
of $4.5 million for the year ended September 30, 1998. The increase was
primarily attributable to increases in the number of research and development
personnel. To date, all software development costs have been expensed in the
period incurred.

GENERAL AND ADMINISTRATIVE

During the year ended September 30, 1999, general and administrative
expenses were $7.9 million, an increase of 207% over general and administrative
expenses of $2.6 million for the year ended September 30, 1998. The increase was
primarily attributable to an increase in the number of finance, accounting,
legal, human resources and information technology personnel, an increase in fees
paid to outside professional service providers, an increase in facility costs,
and, to a lesser extent, to increased communication costs, particularly to
remote offices, and the implementation costs to install our financial and human
resources infrastructure.

OTHER INCOME, NET

Other income, net consists of interest income, interest expense and other
non-operating expenses. During the year ended September 30, 1999, other income,
net was $2.2 million, an increase of 291% over other income, net of $568,000 for
the year ended September 30, 1998. This increase is primarily attributable to
interest income resulting from higher average cash balances during the more
recent period.

PROVISION FOR INCOME TAXES

We incurred operating losses for all periods from inception through
September 30, 1999. We have recorded a valuation allowance for the full amount
of its net deferred tax assets, as the future realization of the tax benefit is
not currently likely. We recorded income tax expense of $98,000 relating to its
international subsidiaries during the year ended September 30, 1999.

LIQUIDITY AND CAPITAL RESOURCES

In June 1999, we completed the initial public offering of our common stock
and realized net proceeds from the offering of approximately $121.2 million.
Prior to the offering, we had financed our operations through private sales of
preferred stock, with net proceeds of $23.2 million, and through bank loans and
equipment leases.

As of September 30, 2000, we had $280.2 million in cash, cash equivalents
and short-term investments, $84.5 million in long-term investments,
$32.0 million in restricted cash and $168.4 million in working capital. In the
year ended September 30, 2000, we received $60.9 million in cash and cash
equivalents less direct transaction costs, from the acquisitions of
TradingDynamics, Tradex and

47

SupplierMarket. We also received $47.5 million in cash as part of a transaction
from an outside party. As of September 30, 2000, we had outstanding lease
liabilities of $938,000. In May 2000, our line of credit expired with no amounts
outstanding under the revolving line of credit. Our capital lease obligations
contain no provisions that would limit our future borrowing ability. Please see
Note 6 of Consolidated Financial Statements for more detailed information.

Net cash provided by operating activities was $140.9 million in the year
ended September 30, 2000. Net cash provided by operating activities in the year
ended September 30, 2000 was primarily attributed to deferred revenue from
customer payments that were not recognized as revenue, and to a lesser extent,
by increases in accounts payable, accrued compensation and related liabilities.
These cash flows provided by operating activities were partially offset by the
net loss for the year (less non-cash expenses) and, to a lesser extent,
increases in accounts receivable and prepaid expenses and other assets for the
year ended September 30, 2000. Net cash used by operating activities was
$20.4 million for the year ended September 30, 1999. Net cash provided by
operating activities was $4.9 million for the year ended September 30, 1998. Net
cash flows provided by operating activities in each period reflect increasing
net losses (less non-cash expenses) and, to a lesser extent, increases in
accounts receivable. Net cash flows provided by operating activities in each
period are primarily attributed to deferred revenue from customer payments that
were not recognized as revenue, amortization of stock-based compensation and by
increases in accrued compensation, accounts payable and other accrued
liabilities.

Net cash used in investing activities was $70.8 million in the year ended
September 30, 2000. Cash used in investing activities in the year ended
September 30, 2000 primarily reflects purchases of property and equipment,
purchases of investments and increase in restricted cash. These cash flows used
in investing activities were partially offset by the cash acquired in our
acquisitions of TradingDynamics, Tradex and SupplierMarket less direct
transaction costs for the acquisitions. Net cash used in investing activities
was $105.2 million and $6.5 million for the years ended September 30, 1999 and
1998, respectively. Cash used in investing activities primarily reflects
purchases of investments for the years ended September 30, 1999 and 1998 and, to
a lesser extent the purchases of property and equipment for all periods.

Net cash provided by financing activities was $75.0 million for the year
ended September 30, 2000, primarily from the proceeds of the sale of our common
stock to an outside party. These cash flows provided by financing activities
were partially offset by payments of capital lease obligations. Net cash
provided by financing activities was $126.7 million for the year ended
September 30, 1999, consisting primarily of the net proceeds of our initial
public offering of $121.2 million. Net cash provided by financing activities was
$4.2 million for the year ended September 30, 1998, primarily from the net
proceeds from private sales of preferred stock, as well as exercises of employee
stock options, offset by payments on capital lease obligations.

Capital expenditures, including capital leases, were $47.1 million,
$8.6 million, and $2.0 million for the years ended September 30, 2000, 1999 and
1998, respectively. Our capital expenditures consisted of purchases of operating
resources to manage its operations, including computer hardware and software,
office furniture and equipment and leasehold improvements. We expect that our
capital expenditures will continue to increase in the future. We, currently,
estimate that planned capital equipment for fiscal 2001 will be approximately
$85.0 million.

In March 2000, we entered into a new facility lease agreement. The lease
term commences upon possession through twelve years. We currently expect
possession to occur in the quarter ending March 31, 2001. Lease payments will be
made on an escalating basis with the total future minimum lease payments
amounting to $375.9 million over the lease term. We will also have to contribute
a significant amount towards construction costs of the facility. This amount is
currently estimated at approximately $116.0 million, but is subject to change.
As part of this agreement, we are required to

48

hold a certificate of deposit as a form of security totaling $32.0 million which
is classified as restricted cash on our balance sheet. Since inception, we have
generally funded capital expenditures either through the use of working capital
or with capital leases. We will also need to purchase additional operating
resources. We expect to fund these commitments from our existing cash and cash
equivalents.

We expect to experience significant growth in our operating expenses,
particularly research and development and sales and marketing expenses, for the
foreseeable future in order to execute our business plan. As a result, we
anticipate that such operating expenses, as well as planned capital
expenditures, will constitute a material use of our cash resources. In addition,
we may utilize cash resources to fund acquisitions or investments in
complementary businesses, technologies or product lines.

We believe that our existing cash and cash equivalents and our anticipated
cash flows from operations will be sufficient to meet our working capital and
operating resource expenditure requirements for at least the next year.
Thereafter, we may find it necessary to obtain additional equity or debt
financing. In the event additional financing is required, we may not be able to
raise it on acceptable terms or at all.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued Statement of Financial Accounting Standards,
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities.
SFAS No. 133 establishes accounting and reporting standards for derivative
financial instruments and hedging activities related to those instruments, as
well as other hedging activities. To date, the Company's investments in
derivative instruments has been insignificant and the Company and has not
engaged in hedging activities. Accordingly, the Company has evaluated the
effects of adopting SFAS No. 133 and determined that it will not have a material
impact on its financial position, results of operations or cash flows. The
Company adopted SFAS No. 133 in the first quarter of fiscal 2001 in accordance
with SFAS No. 137, which delays the required implementation of SFAS No. 133 for
one year. In June 2000, the FASB issued Statement No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities". FASB 138
addresses certain issues related to the implementation of FAS 133, but does not
change the basic model of FAS 133 or further delay the implementation of
FAS 133.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") 101, Revenue Recognition in Financial Statements
which provides guidance related to revenue recognition based on interpretations
and practices followed by the SEC. SAB 101 requires companies to report any
changes in revenue recognition as cumulative change in accounting principle at
the time of implementation in accordance with Accounting Principles Board
Opinion 20, "Accounting Changes." SAB 101 will not be effective until the
Company's fourth fiscal quarter of 2001. The Company is currently in the process
of evaluating the impact, if any, SAB 101 will have on its financial position or
results of operations.

In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, ("FIN 44"), Accounting for Certain Transactions Involving
Stock Compensation--an Interpretation of APB 25. This Interpretation clarifies
(a) the definition of employee for purposes of applying Opinion 25, (b) the
criteria for determining whether a 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 are recognized
on a prospective basis from July 1, 2000. As a result of the Company's adoption
of this guidance in July

49

2000, approximately $124.6 million and $6.2 million of deferred stock-based
compensation and stock-based compensation expense, respectively, were recorded
in conjunction with the SupplierMarket acquisition.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FOREIGN CURRENCY RISK

The Company develops products in the United States and markets its products
in the United States, Canada, Europe, Middle East, Asia, Asia Pacific and Latin
America. As a result, the Company's financial results could be affected by
factors such as changes in foreign currency exchange rates or weak economic
conditions in foreign markets. As a majority of the Company's sales are
currently made in U.S. dollars, a strengthening of the dollar could make the
Company's products less competitive in foreign markets.

INTEREST RATE RISK

The Company's exposure to market risk for changes in interest rates relate
primarily to the Company's investment portfolio. The Company does not use
derivative financial instruments in its investment portfolio. The primary
objective of the Company's investment activities is to preserve principal while
maximizing yields without significantly increasing risk. This is accomplished by
investing in widely diversified investments, consisting primarily of investment
grade securities. Due to the nature of its investments, the Company believes
that there is no material risk exposure. All investments in the table below are
carried at market value, which approximates cost.

The table below represents principal (or notional) amounts and related
weighted-average interest rates by year of maturity of the Company's investment
portfolio (in thousands, except for interest rates):

FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 TOTALS
-------- -------- -------- --------- --------- --------

Cash equivalents.............................. $196,702 $ -- $ -- $ -- $ -- $196,702
Average interest rate....................... 6.44% -- -- -- -- 6.44%
Investments................................... $112,330 $44,070 9,200 -- -- $165,600
Average interest rate....................... 6.33% 6.67% 7.17% -- -- 6.47%
-------- ------- ----- --------- --------- --------
Total investment securities................... $309,032 $44,070 9,200 $ -- $ -- $362,302
======== ======= ===== ========= ========= ========

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

Note that these amounts exclude equity investments as described below.

OTHER INVESTMENTS

Equity investments consist of investments in publicly traded companies for
which the company does not have the ability to exercise significant influence
are classified as available-for-sale and stated at fair value based on quoted
market rates. Adjustments to the fair value of available-for-sale investments
are recorded as a component of other comprehensive income. As of September 30,
2000 and 1999, investments in publicly traded companies totaled approximately
$702,000 and $0, respectively.

At September 30, 2000 and 1999, the Company also held approximately
$30.5 million and $0, respectively, of common stock, preferred stock and
warrants of various private companies, some of which are business partners.
These investments are accounted for using the cost method and are classified as
long-term investments. These investments are reviewed each reporting period for
impairment and, if appropriate, written down to their estimated fair value. Some
of these equity securities vest upon the attainment of certain milestones
primarily related to the attainment of revenue targets in connection with the
use of our products. The shares underlying those milestones for which

50

achievement is considered probable are remeasured at each subsequent reporting
date until each revenue target threshold is achieved and the related underlying
shares vest, at which time that tranche of the equity investment is determinable
and recorded.

The Company also exercised a warrant for common stock in a software company
publicly traded in Germany with an estimated fair value of $316,000 as of
September 30, 2000. The common stock is subject to significant risk based on the
recent volatility of stock markets around the world. This investment is
classified as a long-term investment. In October 2000, the Company sold all of
its investment for proceeds of $263,000.

51

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following consolidated financial statements, and the related notes
thereto, of Ariba and the Report of Independent Auditors are filed as a part of
this Form 10-K.

PAGE
NUMBER
--------

Independent Auditors' Report................................ 53
Consolidated Balance Sheets as of September 30, 2000 and
1999...................................................... 54
Consolidated Statements of Operations and Comprehensive Loss
for the years ended September 30, 2000, 1999 and 1998..... 55
Consolidated Statements of Stockholders' Equity for the
years ended September 30, 2000, 1999 and 1998............. 56
Consolidated Statements of Cash Flows for the years ended
September 30, 2000, 1999 and 1998......................... 57
Notes to Consolidated Financial Statements.................. 58

52

INDEPENDENT AUDITORS' REPORT

To The Board of Directors and
Stockholders of Ariba, Inc.:

We have audited the accompanying consolidated balance sheets of Ariba, Inc.
and subsidiaries (the Company) as of September 30, 2000 and 1999, and the
related consolidated statements of operations and comprehensive loss,
stockholders' equity, and cash flows for each of the years in the three-year
period ended September 30, 2000. Our audits also included the related financial
statement schedule listed in Item 14(a). These consolidated financial statements
and financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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
Ariba, Inc. and subsidiaries at September 30, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
years in the three-year period ended September 30, 2000 in conformity with
accounting principles generally accepted in the United States of America. Also
in our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.

/s/ KPMG LLP

Mountain View, California
October 16, 2000

53

ARIBA, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

SEPTEMBER 30, SEPTEMBER 30,
2000 1999
------------- -------------

ASSETS
Current assets:
Cash and cash equivalents................................. $ 195,241 $ 50,284
Short-term investments.................................... 84,974 47,868
Restricted cash........................................... 3,500 800
Accounts receivable, net of allowance of doubtful accounts
of $13,791 and $20 in 2000 and 1999, respectively....... 61,892 5,157
Prepaid expenses and other current assets................. 13,067 1,936
---------- --------
Total current assets.................................... 358,674 106,045
Property and equipment, net............................... 56,049 9,402
Long-term investments..................................... 84,476 54,288
Restricted cash........................................... 28,537 --
Other assets.............................................. 1,004 286
Goodwill and other intangible assets, net................. 3,287,138 --
---------- --------
Total assets............................................ $3,815,878 $170,021
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 11,235 $ 3,846
Accrued compensation and related liabilities.............. 54,439 6,959
Other accrued liabilities................................. 51,372 4,834
Deferred revenue.......................................... 101,245 30,733
Current portion of capital leases......................... 536 685
---------- --------
Total current liabilities............................... 218,827 47,057
Deferred revenue............................................ 98,457 --
Capital leases, net of current portion...................... 402 781
---------- --------
Total liabilities....................................... 317,686 47,838
---------- --------
Commitments
Stockholders' equity:
Convertible preferred stock, $.002 par
value; 20,000,000 shares authorized; no
shares issued and outstanding as
of September 30, 2000 and 1999, respectively............ -- --
Common stock, $.002 par value; 600,000,000 shares
authorized; 247,816,682 and 181,756,264 shares
issued and outstanding as of September 30, 2000
and 1999, respectively.................................. 495 364
Additional paid-in capital................................ 4,466,325 191,150
Deferred stock-based compensation......................... (130,003) (24,178)
Accumulated other comprehensive loss...................... (918) (221)
Accumulated deficit....................................... (837,707) (44,932)
---------- --------
Total stockholders' equity.............................. 3,498,192 122,183
---------- --------
Total liabilities and stockholders' equity............ $3,815,878 $170,021
========== ========

See accompanying notes to consolidated financial statements.

54

ARIBA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

YEARS ENDED SEPTEMBER 30,
-------------------------------
2000 1999 1998
--------- -------- --------

Revenues:
License................................................... $ 198,790 $ 26,768 $ 6,040
Maintenance and service................................... 80,249 18,604 2,323
--------- -------- --------
Total revenues.......................................... 279,039 45,372 8,363
Cost of revenues:
License................................................... 12,572 724 165
Maintenance and service (exclusive of
stock-based compensation expense of
$1,458, $1,084 and $48 for the years ended
September 30, 2000, 1999 and 1998, respectively)........ 34,947 8,089 1,373
--------- -------- --------
Total cost of revenues.................................. 47,519 8,813 1,538
--------- -------- --------
Gross profit.............................................. 231,520 36,559 6,825
--------- -------- --------
Operating expenses:
Sales and marketing (exclusive of stock-based
compensation expense of $7,425, $6,569 and
$535 for the years ended September 30, 2000, 1999 and
1998, respectively and exclusive of $29,251 of
business partner warrant expense for the
year ended September 30, 2000).......................... 207,234 33,859 10,311
Research and development (exclusive of stock-based
compensation expense of $3,475, $2,998 and $178 for the
years ended September 30, 2000, 1999 and
1998, respectively)..................................... 39,017 11,620 4,499
General and administrative (exclusive of stock-based
compensation expense of $5,693, $3,933 and $195 for the
years ended September 30, 2000, 1999
and 1998, respectively)................................. 29,172 7,917 2,580
Amortization of goodwill and other intangible assets...... 688,588 -- --
In-process research and development....................... 27,350 -- --
Business partner warrants................................. 29,251 -- --
Amortization of stock-based compensation.................. 18,051 14,584 956
--------- -------- --------
Total operating expenses................................ 1,038,663 67,980 18,346
--------- -------- --------
Loss from operations...................................... (807,143) (31,421) (11,521)
Other income, net........................................... 16,331 2,219 568
--------- -------- --------
Net loss before taxes..................................... (790,812) (29,202) (10,953)
Provision for income taxes.................................. 1,963 98 --
--------- -------- --------
Net loss.................................................... $(792,775) $(29,300) $(10,953)
========= ======== ========
Other comprehensive loss:
Unrealized gain (loss) on investments..................... (523) (283) 61
Foreign currency translation adjustment................... (174) 1 --
--------- -------- --------
Other comprehensive income (loss)........................... (697) (282) 61
--------- -------- --------
Comprehensive loss.......................................... $(793,472) $(29,582) $(10,892)
========= ======== ========
Net loss per share--basic and diluted....................... $ (4.10) $ (0.42) $ (0.48)
========= ======== ========
Weighted average shares used in computing basic and diluted
net loss per share........................................ 193,417 70,064 23,048
========= ======== ========

See accompanying notes to consolidated financial statements.

55

ARIBA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL DEFERRED ACCUMULATED
---------------------- ---------------------- PAID-IN STOCK-BASED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION INCOME (LOSS)
---------- --------- ----------- -------- ---------- ------------- --------------

Balances at September 30, 1997..... 4,127,900 $ 8 72,909,600 $145 $ 19,193 $ (150) $ --
Issuance of Series B convertible
preferred stock, net............. 144,000 -- -- -- 1,798 -- --
Issuance of Series BB convertible
preferred stock, net............. 189,394 1 -- -- 2,493 -- --
Exercise of stock options.......... -- -- 4,438,560 7 494 -- --
Repurchase of common stock......... -- -- (980,000) -- (12) -- --
Deferred stock-based
compensation..................... -- -- -- -- 3,541 (3,541) --
Amortization of stock-based
compensation..................... -- -- -- -- -- 956 --
Issuance of warrants for common
stock............................ -- -- -- -- 504 -- --
Issuance of warrants for preferred
stock............................ -- -- -- -- 93 -- --
Unrealized investment income....... -- -- -- -- -- -- 61
Net loss........................... -- -- -- -- -- -- --
---------- --------- ----------- ---- ---------- --------- -----
Balances at September 30, 1998..... 4,461,294 $ 9 76,368,160 $152 $ 28,104 $ (2,735) $ 61
Exercise of stock options.......... -- -- 13,765,792 28 5,948 -- --
Repurchase of common stock......... -- -- (4,798,580) (8) (4) -- --
Deferred stock-based
compensation..................... -- -- -- -- 36,027 (36,027) --
Amortization of stock-based
compensation..................... -- -- -- -- -- 14,584 --
Conversion of preferred stock...... (4,461,294) (9) 71,380,704 142 (133) -- --
Issuance of Common Stock........... -- -- 23,028,800 46 121,212 -- --
Exercise of common stock
warrants......................... -- -- 2,011,388 4 (4) -- --
Unrealized investment loss......... -- -- -- -- -- -- (283)
Foreign currency translation
adjustment....................... -- -- -- -- -- -- 1
Net loss........................... -- -- -- -- -- -- --
---------- --------- ----------- ---- ---------- --------- -----
Balances at September 30, 1999..... -- $ -- 181,756,264 $364 $ 191,150 $ (24,178) $(221)
Exercise of stock options.......... -- -- 12,715,386 25 19,240 -- --
Issuance of common stock........... -- -- 6,657,881 13 843,504 -- --
Repurchase of common stock......... -- -- (160,950) -- (77) -- --
Deferred stock-based
compensation..................... -- -- -- -- (744) 744 --
Deferred business partner
warrant.......................... -- -- -- -- 79,850 -- --
Amortization of stock-based
compensation..................... -- -- -- -- -- 18,051 --
Issuance of common stock related to
acquisitions..................... -- -- 46,583,322 92 3,333,403 -- --
Deferred stock-based compensation
related to acquisition........... -- -- -- -- -- (124,620) --
Exercise of warrants for common
stock............................ -- -- 264,779 1 (1) -- --
Unrealized investment loss......... -- -- -- -- -- -- (523)
Foreign currency translation
adjustment....................... -- -- -- -- -- -- (174)
Net loss........................... -- -- -- -- -- -- --
---------- --------- ----------- ---- ---------- --------- -----
Balances at September 30, 2000..... -- $ -- 247,816,682 $495 $4,466,325 $(130,003) $(918)
========== ========= =========== ==== ========== ========= =====

TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
------------ -------------

Balances at September 30, 1997..... $ (4,679) $ 14,517
Issuance of Series B convertible
preferred stock, net............. -- 1,798
Issuance of Series BB convertible
preferred stock, net............. -- 2,494
Exercise of stock options.......... -- 501
Repurchase of common stock......... -- (12)
Deferred stock-based
compensation..................... -- --
Amortization of stock-based
compensation..................... -- 956
Issuance of warrants for common
stock............................ -- 504
Issuance of warrants for preferred
stock............................ -- 93
Unrealized investment income....... -- 61
Net loss........................... (10,953) (10,953)
--------- ----------
Balances at September 30, 1998..... $ (15,632) $ 9,959
Exercise of stock options.......... -- 5,976
Repurchase of common stock......... -- (12)
Deferred stock-based
compensation..................... -- --
Amortization of stock-based
compensation..................... -- 14,584
Conversion of preferred stock...... -- --
Issuance of Common Stock........... -- 121,258
Exercise of common stock
warrants......................... -- --
Unrealized investment loss......... -- (283)
Foreign currency translation
adjustment....................... -- 1
Net loss........................... (29,300) (29,300)
--------- ----------
Balances at September 30, 1999..... $ (44,932) $ 122,183
Exercise of stock options.......... -- 19,265
Issuance of common stock........... -- 843,517
Repurchase of common stock......... -- (77)
Deferred stock-based
compensation..................... -- --
Deferred business partner
warrant.......................... -- 79,850
Amortization of stock-based
compensation..................... -- 18,051
Issuance of common stock related to
acquisitions..................... -- 3,333,495
Deferred stock-based compensation
related to acquisition........... -- (124,620)
Exercise of warrants for common
stock............................ -- --
Unrealized investment loss......... -- (523)
Foreign currency translation
adjustment....................... -- (174)
Net loss........................... (792,775) (792,775)
--------- ----------
Balances at September 30, 2000..... $(837,707) $3,498,192
========= ==========

See accompanying notes to consolidated financial statements.

56

ARIBA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

YEARS ENDED
SEPTEMBER 30,
--------------------------------
2000 1999 1998
---------- -------- --------

OPERATING ACTIVITIES:
Net loss.................................................. $ (792,775) $(29,300) $(10,953)
Adjustments to reconcile net loss to net cash used in
operating activities:
Provisions for doubtful accounts.......................... 14,200 20 --
Depreciation and amortization............................. 696,283 1,417 644
Amortization of stock-based compensation.................. 18,051 14,584 956
In-process research and development....................... 27,350 -- --
Non-cash warrant expense.................................. 29,278 27 521
Non-cash investments revenue.............................. (563) -- --
Loss on disposition of property and equipment............. -- -- 4
Changes in operating assets and liabilities:
Accounts receivable..................................... (61,092) (3,048) (1,907)
Prepaid expenses and other assets....................... (11,574) (1,756) (171)
Accounts payable........................................ 6,321 2,884 66
Accrued compensation and related liabilities............ 42,965 5,255 1,589
Other accrued liabilities............................... 25,751 3,570 704
Deferred revenue........................................ 146,739 26,795 3,606
---------- -------- --------
Net cash provided by (used in) operating activities....... 140,934 20,448 (4,941)
---------- -------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment, net of
acquisitions............................................ (47,186) (7,581) (896)
Proceeds from the sales of investments.................... -- 10,069 --
Purchase of investments................................... (53,276) (106,880) (5,566)
Cash acquired from acquisitions........................... 104,480 -- --
Direct merger costs....................................... (43,566) -- --
Increase in restricted cash............................... (31,237) (800) --
---------- -------- --------
Net cash used in investing activities..................... (70,785) (105,192) (6,462)
---------- -------- --------
FINANCING ACTIVITIES:
Principal payments on lease obligations................... (794) (499) (544)
Proceeds from issuance of convertible preferred stock,
net..................................................... -- -- 4,292
Proceeds from issuance of common stock.................... 75,853 127,234 501
Repurchase of common stock................................ (77) (12) (12)
---------- -------- --------
Net cash provided by financing activities................. 74,982 126,723 4,237
---------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 145,131 41,979 (7,166)
Effect of exchange rates on cash and cash equivalents....... (174) -- --
Cash and cash equivalents at beginning of year.............. 50,284 8,305 15,471
---------- -------- --------
Cash and cash equivalents at end of year.................... 195,241 $ 50,284 $ 8,305
========== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during year for interest........................ $ 194 $ 100 $ 120
========== ======== ========
Non-cash investing and financing activities:
Assets recorded under capital leases.................... $ -- $ 1,021 $ 1,108
Warrants issued for financing commitments............... $ -- $ -- $ 93
Common stock and options issued for acquisitions, net of
cash acquired.......................................... $3,229,015 $ -- $ --
Common stock issued for intellectual property, net of
cash acquired.......................................... $ 786,929 $ -- $ --

See accompanying notes to consolidated financial statements

57

ARIBA INC. AND SUBSIDIARES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2000, 1999 AND 1998

NOTE 1--DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

Ariba, Inc., along with its subsidiaries (collectively referred to herein as
the "Company"), provides software, network access and commerce services designed
to enable corporations to electronically automate and optimize business with
their buyers and suppliers. The Company was founded in September 1996 and from
that date through March 1997 was in the development stage, conducting research
and developing its initial products. In March 1997, the Company began selling
its products and related services and currently markets them in the United
States, Canada, Europe, Latin America, Asia and Asia Pacific primarily through
its direct sales force and indirect sales channels.

ACQUISITIONS

To date, business combinations have been accounted for under the purchase
method of accounting. The Company includes the results of operations of the
acquired business from the acquisition date. Net assets of the companies
acquired are recorded at their fair value at the acquisition date. The excess of
the purchase price over the fair value of net assets acquired is included in
goodwill and other purchased intangibles in the accompanying consolidated
balance sheet. Amounts allocated to in-process research and development are
expensed in the period in which the acquisition is consummated.

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.

USE OF ESTIMATES

The preparation of consolidated 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 reported results of operations during the reporting period.
Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

The Company considers all highly liquid investments with original maturity
dates of 90 days or less at the date of acquisition to be cash equivalents. Cash
equivalents consist of money market funds, commercial paper, government/federal
notes and bonds, certificates of deposit, and auction rate preferred stock.
Restricted cash comprises amounts held in deposits that are required as
collateral for a new facilities operating lease agreement.

INVESTMENTS

The Company's marketable securities are classified as available-for-sale as
of the balance sheet date and are reported at fair value, with unrealized gains
and losses, net of tax, recorded in stockholders' equity. Realized gains or
losses and permanent declines in value, if any, on available-for-sale securities
will be reported in other income or expense as incurred. The Company uses

58

ARIBA INC. AND SUBSIDIARES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2000, 1999 AND 1998

NOTE 1--DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
the cost method to account for certain equity securities in which it has a
minority interest and does not exercise significant influence. The Company
periodically reviews these investments for other-than-temporary impairment.

FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

The carrying value of the Company's financial instruments, including cash
and cash equivalents, investments, accounts receivable and long-term debt
approximates fair market value. Financial instruments that subject the Company
to concentrations of credit risk consist primarily of cash and cash equivalents,
investments and trade accounts receivable. Management believes the financial
risks associated with these financial instruments are minimal. The Company
maintains its cash and cash equivalents and investments with high quality
financial institutions. The Company's customer base consists of businesses in
North America, Europe, Middle East, Asia, and Latin America. The Company
performs ongoing credit evaluations of its customers and generally does not
require collateral on accounts receivable. The Company maintains reserves for
potential credit losses; historically, such losses have been within management's
expectations.

Significant customer information is as follows:

% OF ACCOUNTS
% OF TOTAL REVENUES RECEIVABLE
------------------------------ ------------------------------
2000 1999 1998 2000 1999 1998
-------- -------- -------- -------- -------- --------

Customer A........................................ -- -- 21% -- -- --
Customer B........................................ -- -- 18% -- -- 15%
Customer C........................................ -- -- 13% -- -- --
Customer D........................................ -- -- 13% -- -- 52%
Customer E........................................ -- -- 11% -- -- --
Customer F........................................ -- 12% -- -- -- --
Customer G........................................ -- -- -- -- 11% --
Customer H........................................ -- -- -- -- 12% --
Customer I........................................ -- -- -- 12% -- --

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost less accumulated depreciation.
Depreciation and amortization are computed using the straight-line method over
the shorter of the estimated useful lives of the assets, generally two to five
years, or the lease term, if applicable. Gains and losses on disposals are
included in income at amounts equal to the difference between the net book value
of the disposed assets and the proceeds received upon disposal. Expenditures for
replacements and betterments are capitalized, while expenditures for maintenance
and repairs are charged against earnings as incurred.

INTERNALLY DEVELOPED SOFTWARE

During fiscal 2000, the Company adopted Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," which requires that certain costs for the development of internal
use software should be capitalized, including the costs of coding,

59

ARIBA INC. AND SUBSIDIARES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2000, 1999 AND 1998

NOTE 1--DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
software configuration, upgrades and enhancements. Approximately, $4.8 million
of internal use software was capitalized for the year ended September 30, 2000.
There were no amounts capitalized in fiscal 1999 and 1998.

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill represents the excess of the purchase price paid over the fair
value of tangible and identifiable intangible net assets acquired in business
combinations. Identifiable intangible assets primarily include intellectual
property, business partner agreements, assembled workforce, covenants
not-to-compete, trademarks, and core technology. The Company uses modeling
techniques on new acquisitions and long-range business plans, revised annually,
to assess whether a revision of the existing estimated useful lives of
intangible assets is necessary. The Company regularly performs reviews to
determine if the carrying value of the goodwill and other intangible assets is
impaired. The purpose for the review is to identify any facts or circumstances,
either internal or external, which indicate that the carrying value of the asset
cannot be recovered. No such impairment has been indicated to date. Goodwill and
other intangible assets are stated net of accumulated amortization and are
amortized on a straight-line basis over their expected useful lives of three
years.

VALUATION OF LONG-LIVED ASSETS

In accordance with 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," the Company periodically evaluates the carrying value
of long-lived assets and certain identifiable intangibles for impairment, when
events and circumstances indicate that the book value of an asset may not be
recoverable. An impairment loss is recognized whenever the review demonstrates
that the book value of a long-lived asset is not recoverable. Since
September 17, 1996 (inception) through September 30, 2000, no impairment losses
have been identified.

REVENUE RECOGNITION

SOP 97-2 SOFTWARE REVENUE RECOGNITION, as amended, generally requires
revenue earned on software arrangements involving multiple elements to be
allocated to each element based on the relative fair values of the elements. The
fair value of an element must be based on the evidence that is specified to the
vendor. License revenue allocated to software products generally is recognized
upon delivery of the products or deferred and recognized in future periods to
the extent that an arrangement includes one or more elements to be delivered at
a future date and for which fair values have not been established. Revenue
allocated to maintenance is recognized ratably over the maintenance term and
revenue allocated to training and other service elements is recognized as the
services are performed. If evidence of fair value does not exist for all
elements of a license agreement and PCS is the only undelivered element, then
all revenue for the license arrangement is recognized ratably over the term of
the agreement as license revenue. If evidence of fair value of all undelivered
elements exists but evidence does not exist for one or more delivered elements,
then revenue is recognized using the residual method. Under the residual method,
the fair value of the undelivered elements is deferred and the remaining portion
of the arrangement fee is recognized as revenue. Revenue from hosted software
agreements are recognized ratably over the term of the hosting arrangements.

60

ARIBA INC. AND SUBSIDIARES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2000, 1999 AND 1998

NOTE 1--DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
If the Company provides other services that are considered essential to the
functionality of the software products, both the software product revenue and
service revenue are recognized using the percentage of completion method in
accordance with the provisions of SOP 81-1, ACCOUNTING FOR PERFORMANCE OF
CONSTRUCTION TYPE AND CERTAIN PRODUCTION TYPE CONTRACTS. Such contracts
typically consist of implementation management services and are generally on a
time and materials basis with a few fixed fee contracts entered into in fiscal
1998 and 1997. The contracts are not subject to renegotiation and range from 5
to 24 months in duration. Revenues and costs are recognized based on the labor
hours incurred to date compared to total estimated labor hours for the contract.
Contract costs include all direct material, direct labor and indirect costs
related to contract performance. Selling, general, and administrative costs are
charged to expense as incurred. Provisions for estimated losses on uncompleted
contracts are recorded in the period in which such losses become probable based
on the current contract estimates. Commencing in fiscal year 2000, third party
consultants have managed implementation of the Company's products for its
customers.

Cost of license revenue primarily includes product, delivery and royalty
costs. Cost of maintenance and service revenue consists primarily of labor costs
for engineers performing implementation services and technical support and
training personnel and facilities and equipment costs.

Accounts receivable include amounts due from customers for which revenue has
been recognized. Deferred revenue includes amounts received from customers for
which revenue has not been recognized.

RESEARCH AND DEVELOPMENT

In accordance with Statement of Financial Accounting Standards, or SFAS
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed," software development costs are expensed as incurred until
technological feasibility has been established, at which time such costs are
capitalized until the product is available for general release to customers. To
date, the Company's software has been available for general release concurrent
with the establishment of technological feasibility and, accordingly, no
development costs have been capitalized.

ADVERTISING EXPENSE

Advertising costs are expensed as incurred and totaled $7.6 million,
$129,000 and $0 during the years ended September 30, 2000, 1999 and 1998,
respectively.

STOCK BASED COMPENSATION

The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees" and complies with the
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Under APB No. 25, compensation expense on fixed stock options is
based on the difference, if any, on the date of the grant, between the fair
value of the Company's stock and the exercise price of the option. The Company
accounts for equity instruments issued to non-employees in accordance with the
provisions of SFAS No. 123 and Emerging Issues Task Force ("EITF") 96-18,

61

ARIBA INC. AND SUBSIDIARES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2000, 1999 AND 1998

NOTE 1--DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
"Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services."

EQUITY INSTRUMENTS RECEIVED IN CONJUNCTION WITH LICENSING TRANSACTIONS

Fully vested equity instruments received in conjunction with licensing
transactions are recorded at their estimated fair market value and included in
the measurement of the related license revenue. Equity instruments for which
vesting is contingent upon future events are recorded at their estimated fair
value and included to license revenue at the earlier of (a) the date at which a
performance commitment is reached or (b), absent a performance commitment, when
vesting occurs.

INCOME TAXES

Income taxes are computed using an asset and liability approach, which
requires the recognition of taxes payable or refundable for the current year and
deferred tax assets and liabilities for the future tax consequences of events
that have been recognized in the Company's consolidated financial statements or
tax returns. The measurement of current and deferred tax assets and liabilities
are based on provisions of the enacted tax law; the effects of future changes in
tax laws or rates are not anticipated. The measurement of deferred tax assets is
reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized.

NET LOSS PER SHARE

Net loss per share is calculated in accordance with SFAS No. 128, "Earnings
per Share". 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, excluding shares subject to repurchase and in escrow related to
acquisitions. Diluted net loss per share is computed by dividing the net loss
for the period by the weighted average number of common and potential common
shares outstanding during the period if their effect is dilutive. Potential
common shares comprise restricted common stock, shares held in escrow, and
incremental common shares issuable upon the exercise of stock options and
warrants.

COMPREHENSIVE INCOME

The Company reports comprehensive income or loss in accordance with the
provisions of SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes standards for reporting comprehensive income and its components in
financial statements. Comprehensive income or loss, as defined, includes all
changes in equity (net assets) during a period from non-owner sources. Tax
effects of comprehensive income or loss are not considered material for any
period.

FOREIGN CURRENCY TRANSLATION

The Company translates the assets and liabilities of international non-U.S.
functional currency subsidiaries into dollars at the current rates of exchange
in effect during each period. Revenues and expenses are translated using rates
that approximate those in effect during the period. Gains and losses from
translation adjustments are included in stockholders' equity in the consolidated
balance sheet

62

ARIBA INC. AND SUBSIDIARES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2000, 1999 AND 1998

NOTE 1--DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
caption "Accumulated other comprehensive loss." Currency transaction gains or
losses, derived on monetary assets and liabilities stated in a currency other
than the functional currency, are recognized in current operations and have not
been significant to the Company's operating results in any period. The effect of
foreign currency rate changes on cash and cash equivalents has not been
significant in any period.

SEGMENT AND GEOGRAPHIC INFORMATION

In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
Statement establishes standards for the way companies report information about
operating segments in annual financial statements. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. In accordance with the provisions of SFAS No. 131, the Company has
determined that it does not have separately reportable operating segments. The
Company operates in one principal business segment across domestic and
international markets. Substantially all of the Company's operating results and
identifiable assets are in the United States.

RECLASSIFICATIONS

Certain reclassifications, none of which affected net income, have been made
to prior year amounts to conform to the current year presentation.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued Statement of Financial Accounting Standards,
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities.
SFAS No. 133 establishes accounting and reporting standards for derivative
financial instruments and hedging activities related to those instruments, as
well as other hedging activities. To date, the Company's investments in
derivative instruments has been insignificant and the Company and has not
engaged in hedging activities. Accordingly, the Company has evaluated the
effects of adopting SFAS No. 133 and determined that it will not have a material
impact on its financial position, results of operations or cash flows. The
Company adopted SFAS No. 133 in the first quarter of fiscal 2001 in accordance
with SFAS No. 137, which delays the required implementation of SFAS No. 133 for
one year. In June 2000, the FASB issued Statement No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities". FASB 138
addresses certain issues related to the implementation of FAS 133, but does not
change the basic model of FAS 133 or further delay the implementation of
FAS 133.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") 101, Revenue Recognition in Financial Statements
which provides guidance related to revenue recognition based on interpretations
and practices followed by the SEC. SAB 101 requires companies to report any
changes in revenue recognition as cumulative change in accounting principle at
the time of implementation in accordance with Accounting Principles Board
Opinion 20, "Accounting Changes." SAB 101 as amended is not required to be
implemented until the Company's fourth fiscal quarter of 2001. The Company is
currently in the process of evaluating the impact, if any, SAB 101 will have on
its financial position or results of operations.

63

ARIBA INC. AND SUBSIDIARES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2000, 1999 AND 1998

NOTE 1--DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, ("FIN 44"), Accounting for Certain Transactions Involving
Stock Compensation--an Interpretation of APB 25. This Interpretation clarifies
(a) the definition of employee for purposes of applying Opinion 25, (b) the
criteria for determining whether a 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 are recognized
on a prospective basis from July 1, 2000. As a result of the Company's adoption
of this guidance in July 2000, the Company recorded approximately
$124.6 million and $6.2 million of deferred stock-based compensation and
stock-based compensation expense, respectively, in conjunction with the
SupplierMarket acquisition. Had the Company not adopted this standard an
equivalent amount would have been recorded as additional goodwill of which
approximately $3.5 million would have been amortized to expense in the current
year.

NOTE 2--ACQUISITIONS

TRADINGDYNAMICS, INC.

On January 20, 2000, the Company acquired TradingDynamics, Inc.,
("TradingDynamics"), which provided business-to-business Internet trading
applications, including business-to-business auction, request for quote, reverse
auction, and bid/ask-style exchange mechanisms. The acquisition was accounted
for using the purchase method of accounting and accordingly, the purchase price
was allocated to the assets acquired and liabilities assumed based on their
estimated fair values on the acquisition date. Since January 20, 2000,
TradingDynamics results of operations have been included in the Company's
Consolidated Statements of Operations. The fair value of the intangible assets
was determined based upon a valuation using a combination of methods, including
a cost approach for the assembled workforce, an income approach for the
covenants not-to-compete and an income approach for the core technology.

The purchase price of approximately $465.0 million consisted of an exchange
of 7,274,656 shares of the Company's common stock with a fair value of
$371.9 million, assumed stock options with a fair value of $91.7 million, and
other acquisition related expenses of approximately $1.4 million consisting
primarily of payments for financial advisor and other professional fees. Of the
total purchase price, $224,000 was allocated to property and equipment,
$13.4 million was allocated to net liabilities acquired, excluding property and
equipment, and the remainder was allocated to intangible assets, including
in-process technology ($950,000), core technology ($4.4 million), covenants
not-to-compete ($1.3 million), assembled workforce ($1.1 million) and goodwill
($470.5 million). The applications from the in-process technology project have
been integrated into our products. The efforts required to complete the acquired
in-process technology included the completion of all planning, designing and
testing activities that were necessary to establish that the product can be
produced to meet its design requirements, including functions, features and
technical performance requirements.

64

ARIBA INC. AND SUBSIDIARES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2000, 1999 AND 1998

NOTE 2--ACQUISITIONS (CONTINUED)
The value of the acquired in-process technology was computed using a
discounted cash flow analysis rate of 25% on the anticipated income stream of
the related product revenues. The discounted cash flow analysis was based on
management's forecast of future revenues, cost of revenues, and operating
expenses related to the products and technologies purchased from
TradingDynamics. The calculation of value was then adjusted to reflect only the
value creation efforts of TradingDynamics prior to the close of the acquisition.
At the time of the acquisition, the product was approximately 90% complete. The
majority of the costs to complete the project were incurred in fiscal 2000 and
the remaining costs are not material. The resultant value of in-process
technology was further reduced by the estimated value of core technology and was
expensed in the period the transaction was consummated. The acquired intangible
assets are being amortized over their estimated useful lives of three years.
Goodwill is being amortized using the straight-line method over three years,
resulting in an aggregate quarterly charge of $39.7 million during the
amortization period. At September 30, 2000, cumulative amortization of goodwill
and other intangible assets associated with this acquisition totaled
$111.0 million.

The following is a summary of the allocation of the purchase price in the
acquisition of TradingDynamics (in thousands):

Property and equipment...................................... $ 224
Net liabilities acquired, excluding property and
equipment................................................. (13,447)
Identifiable intangible assets.............................. 6,800
In-process research and development......................... 950
Goodwill.................................................... 470,537
--------
Total..................................................... $465,064
========

TRADEX TECHNOLOGIES, INC.

On March 8, 2000, the Company acquired Tradex Technologies, Inc., ("Tradex")
which provided solutions for net markets. The acquisition was accounted for
using the purchase method of accounting and accordingly, the purchase price was
allocated to the assets acquired and liabilities assumed based on their
estimated fair values on the acquisition date. Since March 8, 2000, the results
of operations of Tradex have been included in the Company's Consolidated
Statements of Operations. The fair value of the intangible assets was determined
based upon a valuation using a combination of methods, including an income
approach for the core technology, an income approach for the trademarks and a
cost approach for the assembled workforce.

The purchase price of approximately $2.3 billion consisted of an exchange of
34,059,336 shares of the Company's common stock with a fair value of
$2.1 billion, assumed stock options with a fair value of approximately
$207.5 million, and other acquisition related expenses of approximately
$28.8 million consisting primarily of payments for financial advisor and other
professional fees. Of the total purchase price, $3.5 million was allocated to
property and equipment, $75.6 million was allocated to net assets acquired,
excluding property and equipment, and the remainder was allocated to intangible
assets, including in-process technology ($11.8 million), core technology
($7.9 million), trademarks ($2.0 million), assembled workforce ($5.4 million)
and goodwill ($2.2 billion). There was one project

65

ARIBA INC. AND SUBSIDIARES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2000, 1999 AND 1998

NOTE 2--ACQUISITIONS (CONTINUED)
included in in-process technology for Tradex. The applications from this project
have been integrated into the Company's products. The efforts required to
complete the acquired in-process technology included the completion of all
planning, designing and testing activities that are necessary to establish that
the product can be produced to meet its design requirements, including
functions, features and technical performance requirements.

The value of the acquired in-process technology was computed using a
discounted cash flow analysis rate of 22% on the anticipated income stream of
the related product revenues. The discounted cash flow analysis was based on
management's forecast of future revenues, cost of revenues, and operating
expenses related to the products and technologies purchased from Tradex. The
calculation of value was then adjusted to reflect only the value creation
efforts of Tradex prior to the close of the acquisition. At the time of the
acquisition, the product was approximately 33% complete with approximately
$693,000 in estimated costs remaining. The majority of these costs were incurred
in fiscal 2000 and the remaining costs are not material. The resultant value of
in-process technology was further reduced by the estimated value of core
technology. The acquired in-process technology was expensed in the period the
transaction was consummated. The acquired intangible assets are being amortized
over their estimated useful lives of three years. Goodwill is being amortized
using the straight-line method over three years, resulting in an aggregate
quarterly charge of $183.3 million during the amortization period. At
September 30, 2000, cumulative amortization of goodwill and other intangibles
assets associated with this acquisition totaled $415.6 million.

The following is a summary of the allocation of the purchase price in the
acquisition of Tradex (in thousands):

Property and equipment...................................... $ 3,502
Net assets acquired, excluding property and equipment....... 75,679
Identifiable intangible assets.............................. 15,300
In-process research and development......................... 11,800
Goodwill.................................................... 2,185,000
----------
Total..................................................... $2,291,281
==========

SUPPLIERMARKET.COM

On August 28, 2000, the Company acquired SupplierMarket.com,
("SupplierMarket"), a leading provider of online collaborative sourcing
technologies that allows buyers and suppliers of direct and indirect materials
to locate new trading partners, negotiate purchases and collaborate on the
Internet. The acquisition was accounted for using the purchase method of
accounting and accordingly, the purchase price was allocated to the assets
acquired and liabilities assumed based on their estimated fair values on the
acquisition date. Since August 28, 2000, the results of operations of
SupplierMarket have been included in the Company's Consolidated Statements of
Operations. The fair value of the intangible assets was determined based upon a
valuation using a combination of methods, including an income approach for the
in-process and core technology, and a cost approach for the value of the
assembled workforce.

66

ARIBA INC. AND SUBSIDIARES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2000, 1999 AND 1998

NOTE 2--ACQUISITIONS (CONTINUED)
The total purchase price of approximately $607.1 million consisted of an
exchange of 5,249,330 shares of the Company's common stock with a fair value of
$478.7 million, assumed stock options with a fair value of approximately
$108.4 million and other acquisition related expenses of approximately
$20.0 million consisting primarily of payments for financial advisor and other
professional fees. Of the total purchase price, $3.1 million was allocated to
property and equipment, $4.2 million was allocated to net assets acquired,
excluding property and equipment, $124.6 million to deferred compensation and
the remainder was allocated to intangible assets, including in-process
technology ($14.6 million), core technology ($7.9 million), assembled workforce
($6.5 million) and goodwill ($446.1million). There was one project included in
in-process technology for SupplierMarket. The applications from this project
have been integrated into our products. The efforts required to complete the
acquired in-process technology included the completion of all planning,
designing and testing activities that are necessary to establish that the
product can be produced to meet its design requirements, including functions,
features and technical performance requirements.

The value of the acquired in-process technology was computed using a
discounted cash flow analysis rate of 19% on the anticipated income stream of
the related product revenues. The discounted cash flow analysis was based on
management's forecast of future revenues, cost of revenues, and operating
expenses related to the products and technologies purchased from SupplierMarket.
The calculation of value was then adjusted to reflect only the value creation
efforts of SupplierMarket prior to the close of the acquisition. At the time of
the acquisition, the product was approximately 53% complete with approximately
$158,000 in estimated costs remaining. The majority of these costs are expected
to be incurred by the end of the next fiscal quarter ending December 31, 2000.
The resultant value of in-process technology was further reduced by the
estimated value of core technology. The acquired in-process technology was
expensed in the period the transaction was consummated. The acquired intangible
assets are being amortized over their estimated useful lives of three years.
Goodwill is being amortized using the straight-line method over three years,
resulting in an aggregate quarterly charge of $38.3 million during the
amortization period. At September 30, 2000, cumulative amortization of goodwill
and other intangible assets associated with this acquisition totaled
$12.7 million. The Company recognized stock-based compensation expense
associated with unvested stock options issued to employees in conjunction with
the acquisition. This amount is included as a component of stockholders' equity
and is being amortized by charges to operations over the vesting period of the
options, consistent with the method described in Financial Accounting Standards
Board Interpretation No. 28. Amortization of stock-based compensation associated
with this acquisition totaled $6.2 million for the year ended September 30,
2000.

67

ARIBA INC. AND SUBSIDIARES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2000, 1999 AND 1998

NOTE 2--ACQUISITIONS (CONTINUED)
The following is a summary of the allocation of the purchase price in the
acquisition of SupplierMarket (in thousands):

Property and equipment...................................... $ 3,165
Net assets acquired, excluding property and equipment....... 4,228
Deferred compensation....................................... 124,620
Identifiable intangible assets.............................. 14,400
In-process research and development......................... 14,600
Goodwill.................................................... 446,158
--------
Total..................................................... $607,171
========

PRO FORMA RESULTS (UNAUDITED)

The following unaudited pro forma summary presents the Company's
consolidated results of operations for the year ended September 30, 2000 and
1999 as if the preceding three acquisitions had been consummated at the
beginning of the earliest period. The pro forma consolidated results of
operations include certain pro forma adjustments, including amortization of
goodwill and other intangible assets, amortization of deferred compensation and
the elimination of the charge for acquired in process research and development
and the preferred stock dividend payable for the Tradex acquisition.

Pro forma results for the years ended September 30, are as follows (in
thousands, except per share amounts):

2000 1999
----------- -----------

Revenues................................................... $ 290,972 $ 50,621
Net loss................................................... (1,390,223) (1,163,090)
Net loss per share basic and diluted....................... $ (5.79) $ (10.40)

The pro forma results are not necessarily indicative of those that would
have actually occurred had the acquisitions taken place at the beginning of the
periods presented.

NOTE 3--ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following as of September 30 (in
thousands):

2000 1999
-------- --------

Accounts receivable......................................... $75,683 $5,177
Allowance for doubtful accounts............................. (13,791) (20)
------- ------
Accounts receivable, net.................................. $61,892 $5,157
======= ======

Bad debt expense was $14.2 million, $0, and $0 in 2000, 1999 and 1998,
respectively.

68

ARIBA INC. AND SUBSIDIARES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2000, 1999 AND 1998

NOTE 4--INVESTMENTS

The following is a summary of available for sale securities (in thousands):

SEPTEMBER 30, 2000
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GRAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------

Money market funds.................................. $185,055 $ -- $ -- $185,055
Certificate of deposit.............................. 3,003 -- -- 3,003
Commercial paper.................................... 9,770 -- -- 9,770
Government notes and bonds.......................... 54,156 122 (137) 54,141
Corporate notes/bonds............................... 66,600 121 (153) 66,568
Auction rate preferred stock........................ 11,690 -- (28) 11,662
Equity investments.................................. 1,371 316 (985) 702
-------- ---- ------- --------
$331,645 $559 $(1,303) $330,901
======== ==== ======= ========
Included in cash and cash equivalents............... $191,932 $ 17 $ -- $191,949
Included in short-term investments.................. 85,078 33 (137) 84,974
Included in long-term investments................... 54,635 509 (1,166) 53,979
-------- ---- ------- --------
$331,645 $559 $(1,303) $330,901
======== ==== ======= ========

SEPTEMBER 30, 1999
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GRAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------

Money market funds.................................. $ 35,601 $ -- $ -- $ 35,601
Certificate of deposit.............................. 1,031 -- -- 1,031
Commercial paper.................................... 8,995 -- -- 8,995
Government notes and bonds.......................... 40,953 -- (79) 40,874
Corporate notes/bonds............................... 63,385 -- (143) 63,242
Auction rate preferred stock........................ 2,000 -- -- 2,000
-------- ---- ------- --------
$151,965 $ -- $ (222) $151,743
======== ==== ======= ========
Included in cash and cash equivalents............... $ 49,588 $ -- $ (1) $ 49,587
Included in short-term investments.................. 47,938 -- (70) 47,868
Included in long-term investments................... 54,439 -- (151) 54,288
-------- ---- ------- --------
$151,965 $ -- $ (222) $151,743
======== ==== ======= ========

The following is a summary of contractual maturities of the Company's
available for sale securities, excluding equity investments (in thousands):

SEPTEMBER 30,
-------------------
2000 1999
-------- --------

Due in one year or less................................. $ 84,974 $ 47,868
Due after one year through 2 years...................... 43,957 27,564
Due after 2 years through 3 years....................... 9,319 26,724
-------- --------
$138,250 $102,156
-------- --------

69

ARIBA INC. AND SUBSIDIARES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2000, 1999 AND 1998

NOTE 4--INVESTMENTS (CONTINUED)
Equity investments consist of investments in publicly traded companies for
which the company does not have the ability to exercise significant influence
are classified as available-for-sale and stated at fair value based on quoted
market rates. Adjustments to the fair value of available-for-sale investments
are recorded as a component of other comprehensive income.

At September 30, 2000 and 1999, the Company also held approximately
$30.5 million and $0, respectively, of common stock, preferred stock and
warrants of various private companies, some of which are business partners.
These investments are accounted for using the cost method and are classified as
long-term investments. These investments are reviewed each reporting period for
impairment and, if appropriate, written down to their estimated fair value. Some
of the equity securities vest upon the attainment of certain milestones
primarily related to revenue targets for the Company. The shares underlying
those milestones for which achievement is considered probable are remeasured at
each subsequent reporting date until each revenue target threshold is achieved
and the related underlying shares vest, at which time that tranche of the equity
investment is determinable and recorded.

NOTE 5--PROPERTY AND EQUIPMENT

Property and equipment consisted of the following as of September 30 (in
thousands):

2000 1999
-------- --------

Computer equipment and purchased software................. $26,250 $ 5,341
Office equipment.......................................... 4,233 509
Furniture and fixtures.................................... 3,825 922
Leasehold improvements.................................... 31,609 4,803
65,917 11,575
------- -------
Less accumulated depreciation and amortization............ (9,868) (2,173)
------- -------
$56,049 $ 9,402
======= =======

During the year ended September 30, 2000, the Company revised the estimated
useful lives of software and leasehold improvements from three years to two
years and three years to five years, respectively. Software and leasehold
improvements will continue to be amortized on a straight line basis. The effect
of this change resulted in an increase in the current year depreciation expense
of approximately $140,000.

Certain computer equipment, software and office equipment are recorded under
capital leases that aggregated $1.3 million and $2.1 million as of
September 30, 2000 and 1999, respectively. Accumulated amortization on the
assets recorded under capital leases aggregated $956,000 and $792,000 as of
September 30, 2000 and 1999, respectively.

Depreciation and amortization expense of property and equipment totaled
$7.7 million, $1.4 million and $644,000 for the periods ended September 30,
2000, 1999 and 1998, respectively.

70

ARIBA INC. AND SUBSIDIARES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2000, 1999 AND 1998

NOTE 6--GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets consisted of the following as of
September 30, 2000 (in thousands):

Goodwill.................................................... $3,101,697
Assembled workforce......................................... 13,000
Covenants not-to-compete.................................... 1,300
Trademarks.................................................. 2,000
Core technology............................................. 20,200
Intellectual property agreement............................. 786,929
Business partner agreement.................................. 56,221
----------
3,981,347
Less: accumulated amortization.............................. 694,209
----------
Goodwill and other intangible assets, net................... $3,287,138
==========

In March 2000, the Company sold 5,142,858 shares of common stock with a fair
market value of $834.4 million to an independent third party in connection with
an intellectual property agreement. As part of the sale the Company received
intellectual property and $47.5 million in cash. The intellectual property is
valued at the difference between the fair market value of the stock being
exchanged and the cash received, which is $786.9 million. This amount is
classified within other intangible assets and is being amortized over three
years based on the terms of the related intellectual property agreement.

During the year ended September 30, 2000, 468,041 shares of our common stock
underlying a warrant were earned upon attainment of certain milestones related
to revenue targets. A total of $23.6 million in amortization expense was
recorded for the year ended September 30, 2000.

In June 2000, 1,936,000 shares of the Company's common stock, underlying a
warrant to a business partner, were earned upon signing of an sales and
marketing agreement. The alliance was undertaken to broaden and accelerate
adoption of the Company's marketplace products. A total of $56.2 million was
recorded as an intangible asset for this sales and marketing alliance based on
the fair market value of the warrant. This intangible asset is being amortized
over the life of the agreement of five years and resulted in $5.6 million
amortization during the year ended September 30, 2000. As of September 30, 2000,
an intangible asset of $50.6 million remains to be amortized over the next 18
quarters relating to this warrant.

The related amortization expense for goodwill and other intangible assets
totaled $694.2 million for the year ended September 30, 2000. This amount
includes $5.6 million in amortization of business partner warrants which are
included as a business partner warrant expense. There was no goodwill and other
intangible assets during 1999 and 1998.

NOTE 7--INCOME TAXES

The Company has provided a valuation allowance due to the uncertainty of
generating future profits that would allow for the realization of such deferred
tax assets. The net increase (decrease) in the total valuation allowance for the
years ended September 30, 2000 and 1999, was approximately $330.4 million and
$6.3 million, respectively. Included in the valuation allowance is a tax benefit

71

ARIBA INC. AND SUBSIDIARES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2000, 1999 AND 1998

NOTE 7--INCOME TAXES (CONTINUED)
attributable to noncompensatory stock options of $247.4 million which when
realized will be a credit to additional paid in capital.

As of September 30, 2000, the Company had net operating loss carryforwards
for federal and state tax purposes of approximately $686.0 million and
$214.8 million, respectively. These federal and state carryforwards expire in
various years through fiscal year 2020 and 2005. The Company had research credit
carryforwards for federal and state tax purpose of approximately $1.5 million
and $913,000, respectively. If not utilized, the federal carryforwards will
expire in various years through fiscal year 2020. The state credit will
carryforward indefinitely. As a result of ownership changes, the Company also
had manufacturer's credit carryforwards for state tax purposes of approximately
$81,000, which will expire in various years through fiscal year 2008.

The Internal Revenue Code, and applicable state tax laws, impose substantial
restrictions on the ability of the Company to utilize net operating losses and
tax credit carryforwards in the event of an "ownership change," as defined in
Section 382 of the Internal Revenue Code. The Company's federal and state tax
losses and tax credit carryover incurred through that date of change are subject
to an annual limitation.

The Company's pretax income (loss) from operations for the fiscal years
ended September 30, 2000, 1999 and 1998 consisted of the following components
(in thousands):

2000 1999 1998
--------- -------- --------

Domestic.............................................. $(793,090) $(29,510) $(10,953)
Foreign............................................... 2,278 308 --
--------- -------- --------
Total pretax loss..................................... $(790,812) $(29,202) $(10,953)
========= ======== ========

Income taxes for the years ended September 30, 2000 and 1999, were comprised
of the following (in thousands):

CURRENT DEFERRED TOTAL
-------- -------- --------

2000:
Federal.................................................. $ -- $ -- $ --
State.................................................... 534 -- 534
Foreign.................................................. 1,429 -- 1,429
------ ---- ------
Total.................................................. $1,963 $ -- $ 1963
====== ==== ======
1999:
Federal.................................................. $ -- $ -- $ --
State.................................................... -- -- --
Foreign.................................................. 98 -- 98
------ ---- ------
Total.................................................. $ 98 $ -- $ 98
====== ==== ======

72

ARIBA INC. AND SUBSIDIARES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2000, 1999 AND 1998

NOTE 7--INCOME TAXES (CONTINUED)

The reconciliation between the amount computed by applying the U.S. federal
statutory tax rate of 35% in 2000 and 34% in 1999 and 1998 to income before
income taxes and actual income taxes as of September 30, 2000, 1999 and 1998
follows (in thousands):

2000 1999 1998
--------- -------- --------

Tax expense/(benefit)................................... $(276,784) $(9,929) $(3,724)
State taxes, no federal income tax benefit.............. 534 -- --
Nondeductible goodwill.................................. 188,012 -- --
Nondeductible expenses.................................. 9,010 5,230 416
Foreign tax differential................................ 1,429 98 --
Net operating loss and temporary differences for which
no benefit was realized............................... 79,762 4,699 3,308
--------- ------- -------
Total............................................... $ 1,963 $ 98 $ --
========= ======= =======

The tax effects of temporary differences that give rise to significant
portions of deferred tax assets as of September 30, 2000 and 1999 are as follows
(in thousands):

2000 1999
--------- --------

Deferred tax assets:
Accruals and allowances.............................. $ 100,830 $ 1,224
Depreciation and amortization........................ - 258
Deferred start-up costs.............................. 144 225
Credit carryforwards................................. 2,134 1,130
Net operating loss carryforwards..................... 252,434 9,367
--------- --------
Total gross deferred tax assets.................... 355,542 12,204
--------- --------
Valuation allowance.................................. (342,563) (12,204)
========= ========
12,979 --
Deferred tax liabilities:
Depreciation and amortization........................ (90) --
Acquired intangibles................................. (12,889) --
--------- --------
Net deferred tax assets............................ $ -- $ --
========= ========

NOTE 8--COMMITMENTS AND CONTINGENCIES

The Company leases certain equipment, software and its facilities under
various noncancelable operating and capital leases with various expiration dates
through 2006. Rental expense was approximately $10.6 million, $3.6 million, and
$865,000 for the years ended September 30, 2000, 1999 and 1998, respectively.
Estimated future rents receivable from sublease agreements amount to
$3.8 million through fiscal 2004.

73

ARIBA INC. AND SUBSIDIARES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2000, 1999 AND 1998

NOTE 8--COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease payments under noncancelable, operating and capital
leases are as follows as of September 30, 2000 (in thousands):

CAPITAL OPERATING
YEAR ENDING SEPTEMBER 30, LEASES LEASES
- ------------------------- -------- ---------

2001........................................................ $ 586 $ 26,419
2002........................................................ 315 36,408
2003........................................................ 108 37,485
2004........................................................ -- 37,106
2005........................................................ -- 36,637
Thereafter.................................................. -- 254,823
------ --------
Total minimum lease payments................................ 1,009 $428,878
====== ========
Less: Amount representing imputed interest.................. (71)
Present value of minimum lease payments..................... 938
Less: Current portion....................................... 536
------
Capital lease obligation, less current portion.............. $ 402
======

Interest expense is immaterial for all periods presented.

In November 1997, the Company entered into a lease line arrangement with a
lending company in which the Company can obtain financing for up to
$2.0 million. The lease term commenced on January 1, 1998 and expires within
42 months.

In August 1998, the Company entered into an additional lease line
arrangement with a lending company in which the Company can obtain financing for
up to $1.0 million. The lease term commenced on August 26, 1998 and expires
within 42 months.

In May 1999, the Company entered into a credit agreement with a bank. The
credit agreement was collateralized by certain assets of the Company, required
the Company to maintain certain financial ratios and levels of net worth and did
not permit the payment of dividends to stockholders. The provisions of the
credit agreement enabled the Company to borrow up to $7.0 million on a revolving
line of credit at the prime rate. In May 2000, the credit agreement expired with
no amounts outstanding under the revolving line of credit.

In October 1999, the Company entered in a new facilities sublease agreement
for its former headquarters. The sublease term commences on December 1, 1999 and
will end on September 13, 2004. Sublease receipts for the Company will be
received on an escalating basis with the total future minimum sublease receipts
amounting to approximately $4.5 million over the lease term.

In March 2000, the Company entered into a new facility lease agreement. The
lease term commences upon possession of the facility and has a term of
12 years. The Company currently expects possession of the facility to occur in
the quarter ending March 31, 2001. Lease payments will be made on an escalating
basis and the total future minimum lease payments amount to $375.9 million over
the lease term. The Company will also have to contribute a significant amount
towards construction costs of the facility. This amount is currently estimated
at approximately $116.0 million, but is subject to

74

ARIBA INC. AND SUBSIDIARES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2000, 1999 AND 1998

NOTE 8--COMMITMENTS AND CONTINGENCIES (CONTINUED)
change. As part of this agreement the Company is required to hold a certificate
of deposit as a form of security totaling $32.0 million which is classified as
restricted cash on the balance sheet as of September 30, 2000.

NOTE 9--SEGMENT INFORMATION

The Company adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION, in fiscal 1999. SFAS No. 131 supercedes SFAS
No. 14, FINANCIAL REPORTING FOR SEGMENTS OF A BUSINESS ENTERPRISE and
establishes standards for reporting information about operating segments.
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance.

The Company operates in one segment, business-to-business electronic
commerce solutions. The Company markets its products in the United States and in
foreign countries through its sales personnel and its subsidiaries. The
Company's management evaluates resource allocation decisions and the performance
of the Company based upon revenue by the geographic regions of the segment and
does not receive discrete financial information about asset allocation and
expense allocation on a disaggregated basis.

Information regarding geographic areas for the years ended September 30, are
as follows (in thousands):

2000 1999 1998
---------- -------- --------

Revenues:
United States................................ $ 217,554 $38,660 $6,591
International................................ 61,485 6,712 1,772
---------- ------- ------
Total...................................... $ 279,039 $45,372 $8,363
========== ======= ======

2000 1999 1998
---------- -------- --------

Long-Lived Assets:
United States................................ $3,341,016 $ 9,497 $2,455
International................................ 3,175 191 --
---------- ------- ------
Total...................................... $3,344,191 $ 9,688 $2,455
========== ======= ======

Revenues are attributed to countries based on the location of the customers.

NOTE 10--STOCKHOLDERS' EQUITY

INCORPORATION AND AUTHORIZED CAPITAL

The Company's Certificate of Incorporation, as amended, authorize the
Company to issue 600 million shares of Common Stock $0.002 par value per share,
and 20 million shares of Preferred Stock, $0.002 par value per share.

75

ARIBA INC. AND SUBSIDIARES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2000, 1999 AND 1998

NOTE 10--STOCKHOLDERS' EQUITY (CONTINUED)
On November 16, 1999 and March 2, 2000, the Board of Directors authorized a
two-for-one stock split of the Company's common stock, in the form of a stock
dividend. The financial information included in the accompanying consolidated
financial statements has been restated to give effect to these stock splits.

CONVERTIBLE PREFERRED STOCK

As of the closing of the Company's initial public offering on June 28, 1999,
all convertible preferred stock outstanding was converted into an aggregate of
71,380,704 shares of common stock. Also at the time of the Company's initial
public offering, the Board of Directors increased the number of authorized
shares of convertible preferred stock to 20 million.

WARRANTS

In November 1997, in connection with a lease line arrangement, the Company
issued warrants to purchase 8,000 shares of the Company's Series B convertible
preferred stock at a price of $12.50 per share, the fair value on the date of
issuance. Upon the Company's initial public offering the warrants were converted
into a warrant to purchase 128,000 shares of common stock. The fair value of the
warrants of $62,000 was calculated using the Black-Scholes option pricing model
and is being amortized to interest expense over the term of the lease,
42 months. In October 1999, the Company issued a net of 125,536 shares of common
stock for no proceeds in the cashless exercise of these warrants.

In August 1998, in connection with an additional lease line arrangement, the
Company issued warrants entitling the holder to purchase 58,176 shares of common
stock. The warrants are immediately exercisable and expire on the earliest of
(i) August 26, 2005 or (ii) three years from the effective date of the Company's
initial public offering. The fair value of the warrants of $31,000 was
calculated using the Black-Scholes option pricing model and is being amortized
to interest expense over the term of the lease, 42 months.

In January 2000, the Company assumed warrants issued to an outside party in
connection with the TradingDyanmics acquisition. Upon consummation of the
acquisition, the outside party exercised shares underlying the warrant and
received a 4,460 shares of the Company's common stock.

In January 2000, in connection with a sales and marketing alliance agreement
with a third party, the Company issued warrants to purchase up to approximately
11,600,000 shares (4.7% of the Company's stock outstanding at September 30,
2000) of the Company's common stock, assuming the exercise of such warrants on a
net issuance basis at current market values, at various exercise prices based on
future prices of our common stock or on predetermined exercise prices. The
warrants vest upon attainment of certain milestones primarily related to revenue
targets and other sales related targets. The warrants generally expire either
upon the termination of the agreement, five years from their vesting date or on
December 31, 2008. The warrants can be earned over approximately a five year
period. The Company believes that this agreement could result in the recognition
of significant stock-based compensation. This alliance was undertaken to broaden
and accelerate adoption of the Company's marketplace products.

At each reporting date, stock-based compensation is recorded based on the
fair value of the shares underlying those milestones for which achievement is
considered probable. Such compensation is then

76

ARIBA INC. AND SUBSIDIARES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2000, 1999 AND 1998

NOTE 10--STOCKHOLDERS' EQUITY (CONTINUED)
remeasured at each reporting date, beginning January 2000, until each revenue
target threshold is achieved and the related warrant shares vest, at which time
the fair value attributable to that tranche of the warrant is fixed. In the
event such remeasurement results in increases or decreases from the initial fair
value, which could be substantial, these increases and decreases will be
recognized immediately.

As of September 30, 2000, all of these warrants were outstanding. None of
the revenue targets were considered probable and as a result, no stock-based
compensation associated with these warrants was recognized. The Company believes
that depending on the trading price of the Company's common stock at the end of
each quarter, and on whether subsequent revenue targets are considered probable
and achieved, the ultimate amount of the stock-based compensation expense
recorded could be substantial.

In February 2000, in connection with a sales and marketing alliance
agreement with a third party, the Company issued warrants to purchase up to
4,800,000 shares (1.9% of the Company's common stock outstanding at
September 30, 2000) of the Company's common stock at various exercise prices
based on future prices of our common stock or on predetermined exercise prices.
The warrants vest upon attainment of certain milestones related to revenue
targets. The warrants generally expire either upon termination of the agreement,
when the milestone period expires or one year after the specific milestone is
met. The warrants can be earned over approximately a five year period. The
Company believes that this agreement could result in the recognition of
significant stock-based compensation. This alliance was undertaken to broaden
and accelerate adoption of the Company's marketplace products.

At each reporting date, stock-based compensation is recorded based on the
fair value of the shares underlying those milestones for which achievement is
considered probable. Such compensation is then remeasured at each reporting
date, beginning February 2000, until each revenue target threshold is achieved
and the related warrant shares vest, at which time the fair value attributable
to that tranche of the warrant is fixed. In the event such remeasurement results
in increases or decreases from the initial fair value, which could be
substantial, these increases and decreases will be recognized immediately.

As of September 30, 2000, all of these warrants were outstanding. None of
the revenue targets were considered probable and as a result, no stock-based
compensation associated with these warrants was recognized. The Company believes
that depending on the trading price of the Company's common stock at the end of
each quarter, and on whether subsequent revenue targets are considered probable
and achieved, the ultimate amount of the stock-based compensation expense
recorded could be substantial.

In March 2000, in connection with a sales and marketing alliance agreement
with a third party, the Company issued warrants to purchase up to 3,428,572
shares (1.4% of the Company's common stock outstanding at September 30, 2000) of
the Company's common stock at an exercise price of $87.50. The warrants vest
upon attainment of certain milestones related to revenue targets. The warrants
generally expire either upon termination of the agreement, when the milestone
period expires, or eighteen months after the specific milestone is met. The
warrants can be earned over approximately a five year period. This alliance was
undertaken to broaden and accelerate adoption of the Company's marketplace
products.

77

ARIBA INC. AND SUBSIDIARES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2000, 1999 AND 1998

NOTE 10--STOCKHOLDERS' EQUITY (CONTINUED)
At each reporting date, stock-based compensation is recorded based on the
fair value of the shares underlying those milestones for which achievement is
considered probable. Such compensation is then remeasured at each reporting
date, beginning March 2000, until each revenue target threshold is achieved and
the related warrant shares vest, at which time the fair value attributable to
that tranche of the warrant is fixed. In the event such remeasurement results in
increases or decreases from the initial fair value, which could be substantial,
these increases and decreases will be recognized immediately. In connection with
these warrants, the Company recorded stock-based compensation of $23.6 million,
using the Black-Scholes option pricing model and assuming a term of 1.5 years
and expected volatility of 103% for the year ended September 30, 2000. As of
September 30, 2000, all of these warrants remain outstanding of which 468,041
shares were fully vested.

The Company believes that depending on the trading price of the Company's
common stock at the end of each quarter, and on whether subsequent revenue
targets are considered probable and achieved, the ultimate amount of the
stock-based compensation expense recorded could be substantial.

In April 2000, in connection with a sales and marketing alliance agreement
with a third party, the Company issued warrants to purchase up to 6,776,000
shares (2.7% of the Company's common stock outstanding at September 30, 2000) of
the Company's common stock at an exercise price based on the ten day average of
the Company's stock price up to and including the vesting date of when the
warrant is earned. The warrants primarily vest upon attainment of certain
milestones. The warrants generally expire either upon termination of the
agreement, when the milestone period expires, or one year after the specific
milestone is met. The warrants can be earned over approximately a five year
period. This alliance was undertaken to broaden and accelerate adoption of the
Company's marketplace products.

In conjunction with this sales and marketing alliance agreement, 1,936,000
shares underlying the warrant were vested upon signing of the agreement in the
quarter ended June 30, 2000. Using the Black-Scholes option pricing model and
assuming a term of one year and expected volatility of 103%, the fair value of
the warrants to purchase the 1,936,000 shares of the Company's common stock
resulted in a $56.2 million valuation which is recorded as an intangible asset.
This intangible asset will be amortized over the life of the agreement, which is
five years, using the straight-line method and resulting in a quarterly
amortization of $2.8 million. As of September 30, 2000, $5.6 million was
amortized as sales and marketing expense. As of September 30, 2000, there were
6,226,000 of these warrants outstanding, of which 1,386,000 were fully vested.

In the quarter ended September 30, 2000, the third party exercised 550,000
shares underlying the warrant and received a net exercise amount of 134,784
shares of the Company's common stock.

COMMON STOCK

In September 1996, 58,150,400 shares of common stock were issued to the
Company's founders at $0.000125 per share. Based on management's estimate of the
fair value of these shares, the Company recorded $200,000 of stock-based
compensation expense. This amount was amortized over the four-year vesting
period through September 30, 2000.

On June 28, 1999 the Company completed an initial public offering in which
it sold 23,000,000 shares of Common Stock, including 3,000,000 shares in
connection with the exercise of the underwriters' over-allotment option, at
$5.75 per share. The Company received $121.2 million in cash,

78

ARIBA INC. AND SUBSIDIARES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2000, 1999 AND 1998

NOTE 10--STOCKHOLDERS' EQUITY (CONTINUED)
net of underwriting discounts, commissions and other offering costs. Concurrent
with the offering the Company also sold 28,800 shares of common stock to its
Canadian employees at $5.75 per share.

1996 STOCK PLAN

The Company's 1996 Stock Plan ("1996 Stock Plan"), in effect until the
Company's initial public offering, authorized the granting of incentive and
nonstatutory common stock options to employees, directors, and consultants at
exercise prices no less than 100% and 85%, respectively, of the fair market
value of the common stock on the grant date, as determined by the Board of
Directors. Stock options generally vest 25% after one year of service and
thereafter ratably over 36 months of service and generally have a term of ten
years. The 1996 Stock Plan also allowed for exercise of unvested options. Shares
of common stock issued to employees upon exercise of unvested options are
subject to repurchase by the Company at the original exercise price. The
Company's ability to repurchase these shares expires at a rate consistent with
the vesting schedule of each option. Any right to repurchase shares upon an
employee's termination of service lapses and all shares vest if the Company is
subject to a change in control unless the Company's repurchase right is assumed
by the acquiring entity. As of September 30, 2000, 9,787,384 shares of common
stock were issued upon the exercise of unvested options subject to repurchase
under the 1996 Stock Plan. Options that expire under the 1996 Stock Plan will be
available for future grants under the 1999 Equity Incentive Plan. As no options
could be granted out of the 1996 Stock Plan after the Company's initial public
offering, there were no shares available for option grants under the 1996 Stock
Plan at September 30, 2000.

1999 EQUITY INCENTIVE PLAN

The Company's Board of Directors approved the 1999 Equity Incentive Plan
("Incentive Plan") on April 20, 1999 under which 9,600,000 shares were reserved
for issuance. In addition, any shares not issued under the 1996 Stock Plan and
any shares repurchased pursuant to the 1996 Stock Plan will also be available
for grant under the Incentive Plan. The number of shares reserved under the
Incentive Plan automatically increases annually on January 1 by the lesser of
8,000,000 shares or 5% of the total number of shares of common stock outstanding
on that date. Under the Incentive Plan, eligible employees may be granted stock
options, stock appreciation rights, restricted shares, and stock units. The
exercise price for incentive stock options and non-qualified options may not be
less than 100% and 85%, respectively, of the fair value of common stock at the
option grant date. As of September 30, 2000, approximately 21,232,736 shares of
common stock have been reserved for issuance and 5,649,892 shares are available
for grant under the Incentive Plan, respectively.

1999 DIRECTORS' STOCK OPTION PLAN

The Company's Board of Directors adopted the 1999 Directors' Stock Option
Plan ("Directors Plan") on April 20, 1999, as amended May 15, 2000, under which
2,000,000 shares were reserved for issuance. Each non-employee joining the Board
of Directors after June 22, 1999 automatically receive options to purchase
25,000 shares of common stock. In addition, each non-employee director
automatically receives options to purchase 10,000 shares of common stock at each
annual meeting of the Company's stockholders beginning after January 1, 2000.
Each option will have an exercise price equal to the fair value of the common
stock on the grant date. As of September 30, 2000, there have

79

ARIBA INC. AND SUBSIDIARES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2000, 1999 AND 1998

NOTE 10--STOCKHOLDERS' EQUITY (CONTINUED)
been 65,000 options granted under the Directors Plan and 1,935,000 shares are
available for future issuance.

EMPLOYEE STOCK PURCHASE PLAN

The Company's Board of Directors adopted the Employee Stock Purchase Plan
("Purchase Plan") on April 20, 1999 under which 16,000,000 shares were reserved
for issuance. The number of shares reserved under the Purchase Plan
automatically increases on January 1 of each year by the lesser of 3,000,000
shares or 2% of the total amount of common stock shares outstanding on that
date. Under the Purchase Plan, eligible employees may purchase common stock in
an amount not to exceed 15% of the employees' cash compensation. The purchase
price per share will be 85% of the common stock fair value at the lower of
certain plan defined dates. As of September 30, 2000 there have been 1,515,023
shares issued under the Purchase Plan and 17,484,977 shares are available for
future issuance.

The Company has, in connection with the acquisition of various companies,
assumed the stock option plans of each acquired company.

TRADINGDYNAMICS STOCK PLANS

On January 20, 2000, the Company assumed the TradingDynamics 1998 Stock Plan
and 1999 Stock Plan ("TradingDynamics Plans"). The TradingDynamics Plans
provided for the grant of incentive stock options and non-qualified stock
options to employees and consultants at prices from 85% to 110% of the fair
market value of the common stock on the date of grant as determined by the Board
of Directors. Generally, options granted were immediately exercisable and the
resulting shares issued to optionees under the TradingDynamics Plans were
subject to certain repurchase rights, also assumed by the Company. As of
September 30, 2000, there were 325,809 shares of the Company's common stock
issued pursuant to the TradingDynamics Plans that were subject to repurchase by
the Company. These repurchase rights generally lapse over a 48-month period, and
options generally vest at the rate of 25% of the grant after 12 months of
service and 1/48 of the grant per month thereafter. Options expire no later than
ten years from the date of grant. A total of 2,155,635 shares of the Company's
common stock were reserved for issuance upon the exercise of stock options
assumed in connection with the acquisition of TradingDynamics; the
TradingDynamics Plans were terminated upon assumption by the Company and no
further options will be granted under them.

TRADEX STOCK PLANS

On March 8, 2000, the Company assumed the Tradex 1997 Employee Stock Option
Plan and 1999 Employee Stock Option/Stock Issuance Plan ("Tradex Plans"). The
Tradex Plans provided for the grant of incentive stock options and non-qualified
stock options, as well as grants of shares of common stock, to employees and
consultants at prices from 85% to 110% of the fair market value of the common
stock on the date of grant as determined by the Board of Directors. Generally,
options granted were immediately exercisable and the resulting shares issued to
optionees under the Tradex Plans were subject to certain repurchase rights, also
assumed by the Company. As of September 30, 2000, there were 239,052 shares of
the Company's common stock issued pursuant to the Tradex Plans that were subject
to repurchase by the Company. These repurchase rights generally lapse over a
48-month period, and options generally vest at the rate of 25% of the grant
after 12 months of service and 1/48 of the

80

ARIBA INC. AND SUBSIDIARES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2000, 1999 AND 1998

NOTE 10--STOCKHOLDERS' EQUITY (CONTINUED)
grant per month thereafter. Options expire no later than ten years from the date
of grant. A total of 4,023,974 shares of the Company's common stock were
reserved for issuance upon the exercise of stock options assumed in connection
with the acquisition of Tradex; the Tradex Plans were terminated upon assumption
by the Company, and no further options will be granted under them.

SUPPLIERMARKET.COM STOCK PLAN

On August 28, 2000, the Company assumed the SupplierMarket.com 1999 Stock
Option Plan ("SupplierMarket Plan"). The SupplierMarket Plan provided for the
grant of incentive stock options and non-qualified stock options to employees
and consultants at prices from 85% to 110% of the fair market value of the
common stock on the date of grant as determined by the Board of Directors. Under
the SupplierMarket Plan, options generally vest over a 48-month period at the
rate of 12.5% of the grant after six months of service and 1/48 of the grant per
month thereafter. Options expire no later than ten years from the date of grant.
A total of 1,437,272 shares of the Company's common stock were reserved for
issuance upon the exercise of stock options assumed in connection with the
acquisition of SupplierMarket.com; the SupplierMarket Plan was terminated upon
its assumption by Ariba, and no further options will be granted under it.

A summary of the status of the Company's stock option plans as of
September 30, 2000, 1999 and 1998 and changes during the periods ending on those
dates is presented below:

YEARS ENDED SEPTEMBER 30,
--------------------------------------------------------------------------
2000 1999 1998
----------------------- ----------------------- ----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
----------- --------- ----------- --------- ---------- ---------

Outstanding at beginning of year... 41,351,180 $ 3.39 14,275,840 $ 0.19 2,612,800 $0.04
Granted.......................... 21,782,681 62.34 41,799,532 3.46 17,089,600 0.19
Exercised........................ (12,715,386) 1.51 (13,765,792) 0.47 (4,406,560) 0.11
Forfeited........................ (3,529,012) 37.85 (958,400) 1.39 (1,020,000) 0.11
----------- ----------- ----------
Outstanding at end of year......... 46,889,463 $28.91 41,351,180 $ 3.39 14,275,840 $0.19
=========== =========== ==========
Exercisable at end of year......... 30,823,408 $ 3.31 38,613,180 $ 1.32 14,275,840 $0.19
=========== =========== ==========
Weighted-average fair value of
options granted during the year
at market........................ 14,133,000 $88.80 5,650,000 $18.16 4,136,000 $0.02
Weighted-average fair value of
options granted during the year
at less than market.............. 7,638,881 $53.36 36,149,532 $ 1.16 12,953,600 $0.30
Weighted-average fair value of
options granted during the year
at greater than market........... 10,800 $60.39 -- -- -- --

81

ARIBA INC. AND SUBSIDIARES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2000, 1999 AND 1998

NOTE 10--STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about stock options outstanding
as of September 30, 2000:

OUTSTANDING EXERCISABLE
----------------------------------------- ----------------------
WEIGHTED-AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER OF CONTRACTUAL LIFE EXERCISE NUMBER OF EXERCISE
PRICES SHARES (YEARS) PRICE SHARES PRICE
- -------- ---------- ---------------- --------- ---------- ---------

$0.01-$0.33................ 5,004,198 7.80 $ 0.20 5,004,198 $ 0.20
$0.42-$0.50................ 3,329,666 8.07 $ 0.45 3,329,666 $ 0.45
$0.55-$0.59................ 5,489,514 8.39 $ 0.59 5,368,597 $ 0.59
$0.81-$1.36................ 5,440,814 8.61 $ 0.92 5,440,814 $ 0.92
$1.50-$3.00................ 6,084,400 8.54 $ 2.12 6,084,400 $ 2.12
$3.64-$24.75............... 5,119,743 8.87 $ 9.15 4,818,108 $ 8.95
$27.61-$54.44.............. 6,464,572 9.16 $ 43.19 708,875 $ 36.22
$56.88-$91.13.............. 5,410,174 9.56 $ 77.24 -- $ 0.00
$91.19-$165.50............. 4,402,882 9.47 $128.16 68,750 $140.55
$166.44.................... 143,500 9.62 $166.44 -- $ 0.00
---------- ----------
$0.01-$166.44.............. 46,889,463 8.75 $ 28.91 30,823,408 $ 3.31
========== ==========

Had compensation cost been recognized based on the fair value at the date of
grant for options granted during 2000, the pro forma amounts of the Company's
net loss and net loss per share would have been as follows for the years ended
September 30, (in thousands, except per share amounts):

2000 1999 1998
--------- -------- --------

Net loss -- as reported............................... $(792,775) $(29,300) $(10,953)
Net loss -- pro forma................................. (999,529) (30,425) (11,000)
Basic and diluted net loss per share -- as reported... (4.10) (0.42) (0.48)
Basic and diluted net loss per share -- pro forma..... $ (5.17) $ (0.87) $ (0.95)

For all options that were granted prior to the Company's initial public
offering in June 1999, the fair value of these options was determined using the
minimum value method, which assumes no volatility except for non-employees. The
fair value for the options granted subsequent to the Company's initial public
offering was estimated at the date of grant using the Black-Scholes option
pricing model, using the following assumptions:

YEAR ENDED SEPTEMBER 30 2000 1999 1998
- ----------------------- -------- -------- --------

Risk-free interest rate..................................... 6.02% 5.09% 5.50%
Expected lives (in years)................................... 3 3 2.5
Dividend yield.............................................. 0.0% 0.0% 0.0%
Expected volatility......................................... 100% 80% 60%

To comply with the pro forma reporting requirements of SFAS No. 123
compensation cost is also estimated for the fair value of future employee stock
purchase plan issuances which is included in the pro forma totals above.
Therefore, the Company has estimated the compensation cost for its employee

82

ARIBA INC. AND SUBSIDIARES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2000, 1999 AND 1998

NOTE 10--STOCKHOLDERS' EQUITY (CONTINUED)
stock purchase plan issuance, which will be in January 2001. The fair value of
purchase rights granted under the Purchase Plan is estimated on the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions for the year ended September 30, 2000: no expected
dividends; expected volatility of 100%; risk-free interest rate of 6.02%; and
expected life of approximately six months. The weighted-average fair value of
the purchase rights granted under the Purchase Plan during fiscal 2000 was
$5.94.

DEFERRED STOCK-BASED COMPENSATION

The Company uses the intrinsic value method of accounting for its employee
stock-based compensation plans. Accordingly, no compensation cost is recognized
for any of its fixed stock options when the exercise price of each option equals
or exceeds the fair value of the underlying common stock as of the grant date
for each stock option. With respect to the stock options granted since inception
through September 30, 2000, and options assumed in connection with the
acquisition of SupplierMarket, the Company has recorded deferred stock-based
compensation of approximately $38.4 million and $124.6 million, respectively,
for the difference at the grant date between the exercise price and the fair
value of the common stock underlying the options, respectively. This amount is
being amortized in accordance with Financial Accounting Standards Board (FASB)
Interpretation No. 28 over the vesting period of the individual options,
generally four years. Amortization expense recognized during 2000 and 1999
totaled $18.0 million and $14.6 million, respectively.

NOTE 11--LOSS PER SHARE

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

YEAR ENDED SEPTEMBER 30,
-------------------------------
2000 1999 1998
--------- -------- --------

Net loss.................................................... $(792,775) $(29,300) $(10,953)
--------- -------- --------
Weighted average shares outstanding......................... 216,215 104,184 74,758
Weighted average common shares issued subject to repurchase
agreement................................................. (20,350) (34,120) (51,710)
Weighted average shares held in escrow related to
acquisitions.............................................. (2,448) -- --
--------- -------- --------
Shares used in computation of basic and diluted net loss per
share..................................................... 193,417 70,064 23,048
========= ======== ========
Basic and diluted loss per share............................ $ (4.10) $ (0.42) $ (0.48)
========= ======== ========

The weighted-average exercise price for stock options outstanding was
$28.91, $3.39 and $0.19 as of September 30, 2000, 1999 and 1998, respectively.
The weighted average purchase price of unvested stock was $0.36, $0.19 and
$0.015 as of September 30, 2000, 1999 and 1998, respectively. The weighted
average exercise price of warrants was $68.79, $0.80 and $0.83 as of
September 30, 2000, 1999 and 1998, respectively.

At September 30, 2000, 1999 and 1998, 64,303,857, 70,609,132 and 129,103,360
potential common shares respectively, are excluded from the determination of
diluted net loss per share, as the effect of

83

ARIBA INC. AND SUBSIDIARES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2000, 1999 AND 1998

NOTE 11--LOSS PER SHARE (CONTINUED)
such shares is anti-dilutive. Further, the potential common shares for fiscal
2000 exclude 26,243,568 shares which would be issuable under certain warrants
contingent upon completion of certain milestones.

NOTE 12--SUBSEQUENT EVENTS (UNAUDITED)

Effective November 1, 2000, the Company's stockholders approved an amendment
to increase the authorized Common Stock to 1.5 billion shares.

In December 2000, Nihon Ariba K.K. ("Ariba Japan"), a wholly owned
subsidiary, issued and sold 40% of its common stock for approximately $40
million cash to a third party. The Company expects that the proceeds will be
reflected as a capital contribution in its consolidated financial statements. No
gain was recorded in connection with this transaction.

84

PART III

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

See the information set forth in the section entitled "Proposal No. 1
"Election of Directors" in the Company's Proxy Statement for the 2001 Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission
within 120 days after the end of the Company's fiscal year ended September 30,
2000 (the "2001 Proxy Statement"), which is incorporated herein by reference,
and the information set forth in the section entitled "Executive Officers of the
Registrant" in Part I, Item 4A of this Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

See the information set forth in the section entitled "Executive
Compensation and Related Information" in the 2001 Proxy Statement, which is
incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

See the information set forth in the section entitled "Stock Ownership of
Certain Beneficial Owners and Management" in the 2001 Proxy Statement, which is
incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

See the information set forth in the section entitled "Certain Relationships
and Related Transactions" in the 2001 Proxy Statement, which is incorporated
herein by reference.

85

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) 1. FINANCIAL STATEMENTS

See Item 8 of this Form 10-K.

2. EXHIBITS

The exhibits listed on the accompanying index to exhibits immediately
following the financial statement schedule are filed as part of, or incorporated
by reference into, this Form 10-K.

EXHIBIT
NO. DESCRIPTION
- --------------------- -----------

2.1 Agreement and Plan of Merger, dated November 15, 1999, by
and among the Registrant, Blue Merger Corp. and
TradingDynamics, Inc. (which is incorporated herein by
reference to Exhibit 2.1 to the Registrant's Current Report
on Form 8-K dated January 25, 2000).

2.2 Agreement and Plan of Reorganization, dated December 16,
1999, by and among the Registrant, Apache Merger Corporation
and Tradex Technologies Inc., as amended January 24, 2000
(which is incorporated herein by reference to Exhibits 2.1
and 2.2 to the Registrant's Current Report on Form 8-K dated
March 21, 2000).

2.3 Agreement and Plan of Reorganization, dated June 21, 2000,
by and among the Registrant, Eli Merger Corporation and
SupplierMarket.com Inc. (which is incorporated herein by
reference to Exhibit 2.1 to the Registrant's Current Report
on Form 8-K dated September 12, 2000).

3.1 Amended and Restated Certificate of Incorporation of the
Registrant including all amendments to date.

3.2 Amended and Restated Bylaws of the Registrant (which are
incorporated herein by reference to Exhibit 3.4 to the
Registrant's Form S-1 Registration No. 333- 76953).

4.1 Amended and Restated Investors' Rights Agreement, dated
April 17, 1998 (which is incorporated herein by reference to
Exhibit 4.1 to the Registrant's Form S-1 Registration
No. 333-76953).

4.2 Specimen Certificate of the Registrant's common stock (which
is incorporated herein by reference to Exhibit 4.2 to the
Registrant's Form S-1 Registration No. 333-76953).

4.3 Amended and Restated Investors' Rights Agreement, dated June
7, 1999 (which is incorporated herein by reference to
Exhibit 4.3 to the Registrant's Form S-1 Registration
No. 333-76953).

4.4* Registration Rights Agreement, dated January 1, 2000, by and
between EDS CoNext, Inc. and the Registrant (which is
incorporated herein by reference to Exhibit 4.4 to the
Registrant's 10-Q dated May 15, 2000).

10.1 Form of Indemnification Agreement entered into between the
Registrant and its directors and executive officers (which
is incorporated herein by reference to Exhibit 10.1 to the
Registrant's Form S-1 Registration No. 333- 76953).

10.2 1996 Stock Plan, as amended (which is incorporated herein by
reference to Exhibit 10.2 to the Registrant's Form S-1
Registration No. 333-76953).

10.3 1999 Equity Incentive Plan (which is incorporated herein by
reference to Exhibit 10.3 to the Registrant's Form S-1
Registration No. 333-76953).

10.4 1999 Directors' Stock Option Plan (which is incorporated
herein by reference to Exhibit 10.4 to the Registrant's Form
S-1 Registration No. 333- 76953).

86

EXHIBIT
NO. DESCRIPTION
- --------------------- -----------

10.5 Employee Stock Purchase Plan (which is incorporated herein
by reference to Exhibit 10.5 to the Registrant's Form S-1
Registration No. 333-76953).

10.6 Industrial Complex Lease, dated August 11, 1997, by and
between MP Caribbean, Inc. and the Registrant (which is
incorporated herein by reference to Exhibit 10.6 to the
Registrant's Form S-1 Registration No. 333-76953).

10.7 Lease Agreement, dated June 12, 1996, by and between
Charleston Place Associates and U.S. Robotics Access Corp.,
as amended (which is incorporated herein by reference to
Exhibit 10.7 to the Registrant's Form S-1 Registration
No. 333-76953).

10.8 Sublease, dated February 1999, by and between 3Com
Corporation, successor in interest to U.S. Robotics Access
Corp., and the Registrant (which is incorporated herein by
reference to Exhibit 10.8 to the Registrant's Form S-1
Registration No. 333-76953).

10.9 Sublease, dated October 1999, by and between the Registrant
and ChainLink Technologies, Inc. (which is incorporated
herein by reference to Exhibit 10.9 to the Registrant's 10-K
dated December 23, 1999).

10.10 Lease agreement, dated March 15, 2000, by and between
Moffett Park Drive LLC and the Registrant (which is
incorporated herein by reference to Exhibit 10.10 to the
Registrant's 10-Q dated May 15, 2000).

10.11* Class A Common Stock Purchase Warrant, dated January 1,
2000, issued by the Registrant to EDS CoNext, Inc. (which is
incorporated herein by reference to Exhibit 10.11 to the
Registrant's 10-Q dated May 15, 2000).

10.12* Class B Common Stock Purchase Warrant, dated January 1,
2000, issued by the Registrant to EDS CoNext, Inc. (which is
incorporated herein by reference to Exhibit 10.12 to the
Registrant's 10-Q dated May 15, 2000).

10.13* Class C-1 Common Stock Purchase Warrant, dated January 1,
2000, issued by the Registrant to EDS CoNext, Inc. (which is
incorporated herein by reference to Exhibit 10.13 to the
Registrant's 10-Q dated May 15, 2000).

10.14* Class C-2 Common Stock Purchase Warrant, dated January 1,
2000, issued by the Registrant to EDS CoNext, Inc. (which is
incorporated herein by reference to Exhibit 10.14 to the
Registrant's 10-Q dated May 15, 2000).

10.15* Class D Common Stock Purchase Warrant, dated January 1,
2000, issued by the Registrant to EDS CoNext, Inc. (which is
incorporated herein by reference to Exhibit 10.15 to the
Registrant's 10-Q dated May 15, 2000).

21.1 Subsidiaries.

23.1 Consent of Independent Auditors.

27.1 Financial Data Schedule.

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

* Confidential treatment has been granted with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.

(b) REPORTS ON FORM 8-K

A current report on Form 8-K was filed with the Securities and Exchange
Commission by Ariba on July 20, 2000 and on September 12, 2000 to report the
announcement of the signing of a definitive agreement to merge with
SupplierMarket.com, Inc.

87

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this Form 10-K to be signed
on its behalf by the undersigned, who is duly authorized, in the City of
Mountain View, State of California on this 28th day of December, 2000.

ARIBA, INC.

By: /s/ KEITH J. KRACH
-----------------------------------------
Keith J. Krach
CHIEF EXECUTIVE OFFICER AND ACTING CHIEF
FINANCIAL OFFICER (PRINCIPAL EXECUTIVE AND
FINANCIAL OFFICER)

By: /s/ ALLISON J. CHAO
-----------------------------------------
Allison J. Chao
VICE-PRESIDENT AND CORPORATE CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Keith J. Krach and Allison J. Chao, and each of
them, his true and lawful attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Report on Form 10-K, and to file the same, with Exhibits thereto and other
documents in connection therewith with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or
substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Form 10-K has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

SIGNATURE TITLE DATE
--------- ----- ----

Chief Executive Officer,
Acting Chief Financial
/s/ KEITH J. KRACH Officer and Chairman of
------------------------------------------- the Board of Directors December 28, 2000
Keith J. Krach (Principal Executive and
Financial Officer)

Vice-President and
/s/ ALLISON J. CHAO Corporate Controller
------------------------------------------- (Principal Accounting December 28, 2000
Allison J. Chao Officer)

/s/ PAUL HEGARTY
------------------------------------------- Director December 28, 2000
Paul Hegarty

88

SIGNATURE TITLE DATE
--------- ----- ----

/s/ ROBERT C. KAGLE
------------------------------------------- Director December 28, 2000
Robert C. Kagle

/s/ JOHN B. MUMFORD
------------------------------------------- Director December 28, 2000
John B. Mumford

/s/ HATIM A. TYABJI
------------------------------------------- Director December 28, 2000
Hatim A. Tyabji

/s/ ROBERT KNOWLING
------------------------------------------- Director December 28, 2000
Robert Knowling

89

INDEX TO EXHIBITS

EXHIBIT
NO. DESCRIPTION
- --------------------- -----------

2.1 Agreement and Plan of Merger, dated November 15, 1999, by
and among the Registrant, Blue Merger Corp. and
TradingDynamics, Inc. (which is incorporated herein by
reference to Exhibit 2.1 to the Registrant's Current Report
on Form 8-K dated January 25, 2000).

2.2 Agreement and Plan of Reorganization, dated December 16,
1999, by and among the Registrant, Apache Merger Corporation
and Tradex Technologies Inc., as amended January 24, 2000
(which is incorporated herein by reference to Exhibits 2.1
and 2.2 to the Registrant's Current Report on Form 8-K dated
March 21, 2000).

2.3 Agreement and Plan of Reorganization, dated June 21, 2000,
by and among the Registrant, Eli Merger Corporation and
SupplierMarket.com Inc. (which is incorporated herein by
reference to Exhibit 2.1 to the Registrant's Current Report
on Form 8-K dated September 12, 2000).

3.1 Amended and Restated Certificate of Incorporation of the
Registrant including all amendments to date.

3.2 Amended and Restated Bylaws of the Registrant (which are
incorporated herein by reference to Exhibit 3.4 to the
Registrant's Form S-1 Registration No. 333- 76953).

4.1 Amended and Restated Investors' Rights Agreement, dated
April 17, 1998 (which is incorporated herein by reference to
Exhibit 4.1 to the Registrant's Form S-1 Registration
No. 333-76953).

4.2 Specimen Certificate of the Registrant's common stock (which
is incorporated herein by reference to Exhibit 4.2 to the
Registrant's Form S-1 Registration No. 333-76953).

4.3 Amended and Restated Investors' Rights Agreement, dated June
7, 1999 (which is incorporated herein by reference to
Exhibit 4.3 to the Registrant's Form S-1 Registration
No. 333-76953).

4.4* Registration Rights Agreement, dated January 1, 2000, by and
between EDS CoNext, Inc. and the Registrant (which is
incorporated herein by reference to Exhibit 4.4 to the
Registrant's 10-Q dated May 15, 2000).

10.1 Form of Indemnification Agreement entered into between the
Registrant and its directors and executive officers (which
is incorporated herein by reference to Exhibit 10.1 to the
Registrant's Form S-1 Registration No. 333- 76953).

10.2 1996 Stock Plan, as amended (which is incorporated herein by
reference to Exhibit 10.2 to the Registrant's Form S-1
Registration No. 333-76953).

10.3 1999 Equity Incentive Plan (which is incorporated herein by
reference to Exhibit 10.3 to the Registrant's Form S-1
Registration No. 333-76953).

10.4 1999 Directors' Stock Option Plan (which is incorporated
herein by reference to Exhibit 10.4 to the Registrant's Form
S-1 Registration No. 333- 76953).

10.5 Employee Stock Purchase Plan (which is incorporated herein
by reference to Exhibit 10.5 to the Registrant's Form S-1
Registration No. 333-76953).

10.6 Industrial Complex Lease, dated August 11, 1997, by and
between MP Caribbean, Inc. and the Registrant (which is
incorporated herein by reference to Exhibit 10.6 to the
Registrant's Form S-1 Registration No. 333-76953).

10.7 Lease Agreement, dated June 12, 1996, by and between
Charleston Place Associates and U.S. Robotics Access Corp.,
as amended (which is incorporated herein by reference to
Exhibit 10.7 to the Registrant's Form S-1 Registration
No. 333-76953).

10.8 Sublease, dated February 1999, by and between 3Com
Corporation, successor in interest to U.S. Robotics Access
Corp., and the Registrant (which is incorporated herein by
reference to Exhibit 10.8 to the Registrant's Form S-1
Registration No. 333-76953).

EXHIBIT
NO. DESCRIPTION
- --------------------- -----------

10.9 Sublease, dated October 1999, by and between the Registrant
and ChainLink Technologies, Inc. (which is incorporated
herein by reference to Exhibit 10.9 to the Registrant's 10-K
dated December 23, 1999).

10.10 Lease agreement, dated March 15, 2000, by and between
Moffett Park Drive LLC and the Registrant (which is
incorporated herein by reference to Exhibit 10.10 to the
Registrant's 10-Q dated May 15, 2000).

10.11* Class A Common Stock Purchase Warrant, dated January 1,
2000, issued by the Registrant to EDS CoNext, Inc. (which is
incorporated herein by reference to Exhibit 10.11 to the
Registrant's 10-Q dated May 15, 2000).

10.12* Class B Common Stock Purchase Warrant, dated January 1,
2000, issued by the Registrant to EDS CoNext, Inc. (which is
incorporated herein by reference to Exhibit 10.12 to the
Registrant's 10-Q dated May 15, 2000).

10.13* Class C-1 Common Stock Purchase Warrant, dated January 1,
2000, issued by the Registrant to EDS CoNext, Inc. (which is
incorporated herein by reference to Exhibit 10.13 to the
Registrant's 10-Q dated May 15, 2000).

10.14* Class C-2 Common Stock Purchase Warrant, dated January 1,
2000, issued by the Registrant to EDS CoNext, Inc. (which is
incorporated herein by reference to Exhibit 10.14 to the
Registrant's 10-Q dated May 15, 2000).

10.15* Class D Common Stock Purchase Warrant, dated January 1,
2000, issued by the Registrant to EDS CoNext, Inc. (which is
incorporated herein by reference to Exhibit 10.15 to the
Registrant's 10-Q dated May 15, 2000).

21.1 Subsidiaries.

23.1 Consent of Independent Auditors.

27.1 Financial Data Schedule

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

* Confidential treatment has been granted with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.