UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended December 29, 2000
Commission File Number 000-31859

SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.
(Exact name of registrant as specified in its charter)

Delaware 77-0537234
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

895 Emerson St., 94301
Palo Alto, California (Zip Code)
(Address of principal executive offices)

Telephone: (650) 473-3130
(Registrant's telephone number, including area code)

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 No X
---

On December 29, 2000, 75,283,820 shares of the registrant's common stock, $0.001
par value per share, were issued and outstanding.

SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.

INDEX

PART I FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Page
----

Consolidated Balance Sheets as of December 29, 2000 and
June 30, 2000 .............................................................................. 3
Consolidated and Combined Condensed Statements of Operations for the Quarters Ended December
29, 2000 and December 31, 1999 and for the Six Months Ended December 29, 2000 and
December 31, 1999........................................................................... 4
Consolidated and Combined Statements of Cash Flows for the Six Months Ended December 29, 2000
and December 31, 1999....................................................................... 5
Consolidated and Combined Statements of Stockholders' Equity for the Six Months Ended
December 29, 2000 and for the Year Ended June 30, 2000...................................... 6
Notes to Consolidated and Combined Condensed Financial Statements............................ 7

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................................. 25

Item 3. Quantitative and Qualitative Disclosures about Market Risk......................... 52

PART II OTHER INFORMATION

Item 1. Legal Proceedings.................................................................. 54

Item 2. Change in Securities and Use of Proceeds........................................... 55

Item 6. Exhibits and Reports on Form 8-K................................................... 55

SIGNATURES.............................................................................. 56

Item 1.

SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.

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

(See note 2)
December 29, June 30,
2000 2000
------------------------------------------
ASSETS (note 10)

Current assets:
Cash................................................................ $ 6,544 $ 3,621
Loan receivable from Seagate Technology LLC (note 3)................ 31,331 25,681
Accounts receivable, net............................................ 21,083 16,578
Income taxes receivable............................................. 1,599 6,071
Inventories......................................................... 357 674
Prepaid and other current assets.................................... 4,181 4,021
------- ---------
Total current assets............................................. 65,095 56,646
Capital assets, net.................................................. 5,955 9,348
Goodwill and other intangibles, net.................................. 21,687 5,286
------- ---------
Total assets..................................................... $92,737 $ 71,280
======= =========
LIABILITIES
Current liabilities:
Accounts payable..................................................... 10,064 10,190
Accrued employee compensation........................................ 8,449 6,004
Accrued expenses..................................................... 11,003 12,097
Deferred revenue..................................................... 24,971 19,495
------- ---------
Total current liabilities........................................ 54,487 47,786
Deferred income taxes................................................ 2,087 381
------- ---------
Total liabilities................................................ 56,574 48,167
Commitments and contingencies (notes 2, 3, and 10)

STOCKHOLDERS' EQUITY
Common stock--150,000,000 shares authorized; shares issued and
outstanding--75,283,820 and 75,002,050 at $0.001 par value per share
as of December 29, 2000 and June 30, 2000........................... 75 75
Additional paid-in capital........................................... 41,625 407,893
Accumulated deficit.................................................. (5,535) (384,688)
Accumulated other comprehensive loss................................. (2) (167)
------- ---------
Total stockholders' equity....................................... 36,163 23,113
------- ---------
Total liabilities and stockholders' equity....................... $92,737 $ 71,280
======= =========

See notes to consolidated and combined condensed financial statements.

SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.

CONSOLIDATED AND COMBINED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(UNAUDITED)

(See note 2)
For the quarters ended For the six months ended
---------------------------------- ----------------------------------
December 29, December 31, December 29, December 31,
2000 1999 2000 1999
---------------- -------------- ------------- ---------------

Revenues:
Licensing (note 7)...................... $ 25,579 $ 16,228 $ 48,536 $ 31,391
Maintenance, support and services
(note 7)................................ 14,566 14,070 28,512 26,784
----------- ----------- ----------- -----------
Total revenues ...................... 40,145 30,298 77,048 58,175
Cost of revenues:
Licensing............................... 1,155 984 2,182 1,603
Maintenance, support and services....... 10,008 9,911 20,028 20,815
Amortization of developed technologies.. 458 50 511 93
----------- ----------- ----------- -----------
Total cost of revenues............... 11,621 10,945 22,721 22,511
----------- ----------- ----------- -----------
Gross profit............................. 28,524 19,353 54,327 35,664
Operating expenses:
Sales and marketing..................... 17,755 15,513 34,823 32,427
Research and development................ 7,067 6,698 13,785 12,841
General and administrative (note 7)..... 5,307 5,621 9,491 10,008
Amortization of goodwill and other 456 494 844 2,002
intangibles............................
Write-off of in-process research and
development (note 2)................... 7,073 -- 7,073 --
Unusual items (note 5).................. 1,851 242,215 1,851 242,569
Restructuring costs (note 6)............ -- 1,301 573 1,301
----------- ----------- ----------- -----------
Total operating expenses............. 39,509 271,842 68,440 301,148
----------- ----------- ----------- -----------
Loss from operations..................... (10,985) (252,489) (14,113) (265,484)

Interest and other income (expense),
net (note 3)........................... 897 (859) 1,120 (1,283)
----------- ----------- ----------- -----------
Loss before income taxes................. (10,088) (253,348) (12,993) (266,767)
Benefit from (provision for) income...... 1,780 40,114 2,506 48,881
taxes (note 8).......................... ----------- ----------- ----------- -----------
Net loss................................. $ (8,308) $ (213,234) $ (10,487) $ (217,886)
=========== =========== =========== ===========
Net loss per share:
Basic and diluted (note 9).............. $ (0.11) $ (2.84) $ (0.14) $ (2.90)
=========== =========== =========== ===========
Weighted average number of shares used
in basic and diluted net loss per share: 75,240,507 75,001,000 75,155,894 75,001,000

See notes to consolidated and combined condensed financial statements.

SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)

(See note 2)
For the six months ended
---------------------------------------
December 29, December 31,
2000 1999
------------------ ------------------

Operating activities:
Net loss......................................................... $(10,487) $(217,886)
Adjustments to reconcile net loss to net cash from operating
activities:
Depreciation and amortization................................... 3,635 4,112
Bad debt expense................................................ 588 2,674
Deferred income taxes........................................... 162 (27)
Stock based compensation expense on Seagate Technology Exchange
of Shares...................................................... 1,851 239,574
Write-off of in-process research and development................ 7,073 --
-------- ---------
2,822 28,447
-------- ---------
Changes in operating assets and liabilities:
Accounts receivable............................................. (5,059) 15,916
Income taxes receivable......................................... 4,472 (51,280)
Income taxes receivable from Seagate Technology................. (3,978) (4,118)
Inventories..................................................... 317 366
Prepaid and other current assets................................ (129) (3,397)
Accounts payable................................................ (75) (2,668)
Accrued employee compensation................................... 2,527 (4,422)
Accrued expenses................................................ (1,094) 4,575
Deferred revenue................................................ 6,821 (568)
Other liabilities............................................... -- (225)
-------- ---------
Net cash provided by (used in) operating activities.......... 6,624 (17,374)
-------- ---------
Investing activities:
Acquisition of capital assets, net............................... (2,966) (1,454)
-------- ---------
Net cash (used in) investing activities...................... (2,966) (1,454)
-------- ---------
Financing activities:
Issuance of common stock and common stock subject to repurchase.. 1,127 1
Borrowings from Seagate Technology............................... 76,712 94,895
Payment to Seagate Technology........... (78,384) (77,075)
-------- ---------
Net cash provided by (used in) financing activities.......... (545) 17,821
Effect of exchange rate changes on cash.......................... (190) 614
-------- ---------
Increase (decrease) in cash.................................. 2,923 (393)
Cash at the beginning of the period.............................. 3,621 7,419
-------- ---------
Cash at the end of the period.................................... $ 6,544 $ 7,026
======== =========

See notes to consolidated and combined condensed financial statements.

SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.

CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
For the six months ended December 29, 2000 and for the
year ended June 30, 2000
(In thousands, except share and per share data)
(UNAUDITED)

Accumulated
(See note 2) Common Stock Additional Other
---------------- Paid-In Comprehensive Accumulated
Shares Amount Capital Income (Loss) Deficit Total
------ ------ ---------- ------------- ----------- -----

Balance at July 2, 1999.................... -- -- 167,038 (629) (163,526) 2,883
Components of comprehensive loss:
Foreign currency translation............. 462 462
Net loss................................. (221,162) (221,162)
---------
Comprehensive loss....................... (220,700)
Incorporation of Seagate Software.......... 1,000 1 1
Contribution of legal entities to Seagate
Software.................................. 75,000,000 75 (75)
Issuance of common stock upon exercise of
employee stock options.................... 1,050 4 4
Equity contribution by Seagate Technology
related to the acquisition of the
minority interest of Seagate Software
Holdings, Inc............................. 1,242 1,242
Compensation expense for Seagate
Technology Stock Exchange Offer........... 239,574 239,574
Income tax benefit from Seagate Technology
stock option exercises.................... 109 109
---------- --- -------- ----- -------- ---------
Balance at June 30, 2000................... 75,002,050 $75 $407,893 $(167) $(384,688) $ 23,113
Foreign currency translation............... 76 76
Net loss to November 22, 2000.............. (4,952) (4,952)
Issuance of common stock eligible for
repurchase................................ 225,000 900 900
Issuance of common stock upon
exercise of employee stock options....... 12,241 49 49
Income tax benefit from Seagate Technology
stock option exercises.................... 33 33
Components of comprehensive loss:
Compensation expense for
Seagate Technology Stock Options.......... 1,851 1,851
---------- --- -------- ----- -------- ---------
Balance at November 22, 2000............... 75,239,291 $75 $410,726 $ (91) $(389,640) $ 21,070
Elimination of retained deficit and other
comprehensive income ..................... (389,731) 91 389,640 --
Push down adjustments reflecting new basis
of net assets ............................. 20,452 20,452
---------- --- -------- ----- -------- ---------
Adjusted Balance at November 22, 2000...... $75 $ 41,447 -- -- $ 41,522
Foreign currency translation............... (2) (2)
Net loss................................... (5,535) (5,535)
Issuance of common stock upon
exercise of employee stock options........ 44,529 178 178
---------- --- -------- ----- -------- ---------
Balance at December 29, 2000............... 75,283,820 $75 $ 41,625 $ (2) $ (5,535) $ 36,163
========== ====== ======== ===== ========= =========

See notes to consolidated and combined condensed financial statements.

SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.

Notes to Combined and Consolidated Condensed Financial Statements

(Information as of December 29, 2000 and for the quarters and
six months ended December 29, 2000 and December 31, 1999 is unaudited)
________________________________________________________________________________

NOTE 1. Description of Business and Basis of Presentation

Description of Business

Seagate Software Information Management Group Holdings, Inc. ("Seagate
Software" or the "Company") develops and markets software products and provides
related services enabling business users and information technology
professionals to manage enterprise information. Seagate Software operates in a
single industry segment and its products, commonly referred to as business
intelligence software, permit the analysis and interpretation of data in order
to make business decisions. Seagate Software is incorporated in Delaware and
the Company's head office is in Palo Alto, California.

On November 22, 2000, through Suez Software, Seagate Software became a
majority owned subsidiary of Seagate Software (Cayman) Holdings, a Cayman
Islands limited corporation ("Suez Software"), which is a wholly owned
subsidiary of New SAC, a Cayman Islands limited corporation ("SAC"). Prior to
November 22, 2000, the Company was a majority owned subsidiary of Seagate
Software Holdings, Inc. ("Seagate Software Holdings" and formerly known as
Seagate Software, Inc.), a Delaware corporation and wholly owned subsidiary of
Seagate Technology, Inc. ("Seagate Technology"). Seagate Technology was a data
technology company that provided products for storing, managing and accessing
digital information on computer systems. The outstanding minority interests in
our capital stock amounted to approximately 12.8% and 10.5% on a fully diluted
basis as of December 29, 2000 and June 30, 2000, respectively. The minority
interests consisted of the Company's common stock and options to purchase
Seagate Software common stock issued pursuant to the 1999 and 2000 Stock Option
Plans.

Basis of Presentation

The consolidated and combined condensed financial statements of Seagate
Software have been prepared by the Company, without audit, in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, certain information and footnote disclosures normally included in
financial statements prepared in accordance with U.S. generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations. These unaudited interim financial statements, should be read in
conjunction with the consolidated and combined financial statements and related
notes of the Company as of June 30, 2000, included in the Company's Form 10 as
filed and amended with the Securities Exchange Commission ("SEC").

The consolidated and combined condensed financial statements reflect, in the
opinion of management, all material adjustments (consisting of normal recurring
items) necessary for the fair presentation of the consolidated financial
position, results of operations and cash flows for such periods. The results of
operations for the quarter and six months ended December 29, 2000 are not

SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.

Notes to Combined and Consolidated Condensed Financial Statements

necessarily indicative of the results that may be expected for the entire
fiscal year ending June 29, 2001.

On November 22, 2000, 99% of the outstanding common stock of Seagate
Software was purchased by SAC, through Suez Software and resulted in a "Change
in Control of Seagate Software" as described in note 2. Under SEC rules and
regulations, because more than 95% of the Company was acquired and a change of
ownership occurred, Seagate Software has restated all its assets and
liabilities as of November 22, 2000 on a push down accounting basis.
Accordingly, results of operations prior to November 22, 2000 and the
comparative information presented do not reflect these adjustments. Refer to
further discussion of the push down accounting basis in note 2.

Seagate Software operates and reports financial results on a fiscal year of 52
or 53 weeks ending on the Friday closest to June 30. Accordingly, fiscal 2000
ended on June 30, 2000 and fiscal 1999 ended on July 2, 1999. Fiscal 2000 and
1999 were comprised of 52 weeks. Fiscal 2001 will be a 52-week year and will
end on June 29, 2001. The quarters ended October 1, 1999, December 31, 1999,
September 29, 2000 and December 29, 2000 each comprised 13 weeks of activity.

NOTE 2. Change in Control of Seagate Software

On November 22, 2000, Seagate Software (Cayman) Holdings, a Cayman Islands
limited corporation ("Suez Software") and a wholly owned subsidiary of New
SAC, a Cayman Islands limited corporation ("SAC"), acquired 75,001,000 shares
of Seagate Software common stock under the terms of a stock purchase agreement
(the "Stock Purchase Agreement"). As a result of the transaction, SAC held
99.6% of the outstanding capital stock of Seagate Software at December 29,
2000. SAC did not purchase shares of Seagate Software common stock that are
outstanding as a result of the exercise of options to purchase these shares
under Seagate Software's 1999 and 2000 Stock Option Plans. Seagate Software
minority stockholders continue to hold their interests in common stock. In
addition, the outstanding unexercised options granted under the 1999 and 2000
Stock Option Plans continue to remain outstanding.

Sale of Seagate Technology

On March 29, 2000, Seagate Software Holdings, Seagate Technology and Suez
Acquisition Company (Cayman) Limited ("Old SAC"), an entity affiliated with,
among others, Silver Lake Partners and Texas Pacific Group, entered into the
Stock Purchase Agreement, and Seagate Technology, VERITAS Software Corporation
("VERITAS") and a wholly owned subsidiary of VERITAS entered into an Agreement
and Plan of Merger and Reorganization (the "Merger Agreement"). At the closing
of the transaction contemplated by the Stock Purchase Agreement, Old SAC
assigned all of its rights under such agreements to SAC.

SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.

Notes to Combined and Consolidated Condensed Financial Statements

SAC was organized solely for the purpose of entering into the Stock Purchase
Agreement with Seagate Technology and Seagate Software Holdings. Similar to Old
SAC, SAC is controlled by Silver Lake Partners and Texas Pacific Group. Silver
Lake Partners L.P. is a private investment firm headquartered in Menlo Park,
California and New York, New York, the general partner of which is Silver Lake
Technology Associates, L.L.C. Silver Lake Technology Associates L.L.C. is a
Delaware limited liability company.

Transaction Financing and Consideration Paid

SAC financed the acquisition of the Seagate Technology operating assets,
including 75,001,000 shares of Seagate Software's common stock through:

. Equity financing of $916 million from Silver Lake Partners, L.P., TPG
Partners III, L.P., August Capital, Chase Capital Partners, GS Private
Equity Partners, L.P. and other investors, including certain of the
directors of Seagate Software.

. A senior secured credit facility of $700 million in the aggregate from the
Chase Manhattan Bank, Goldman Sachs Credit Partners L.P. and Merrill Lynch
Capital Corporation (in addition, a revolver facility with amounts
available up to $200 million was also issued).

. Senior subordinated notes of approximately $210 million issued by Seagate
Technology International at a discount to the aggregate principal amount of
$210 million, for gross proceeds of approximately $201 million. Seagate
Technology International is indirectly owned by SAC.

. Certain cash reserves of Seagate Technology of approximately $149 million,
net of estimated transaction costs of $100 million.

. In lieu of receiving consideration in connection with the Merger, most of
Seagate Technology's senior management team converted a portion of their
unvested Seagate Technology options and restricted stock ("rollover
equity") with an aggregate value of $184 million into deferred compensation
and an equity interest in SAC. Although the amount of cash that Seagate
Technology received from SAC was reduced by the aggregate value of this
converted equity, the total merger consideration received by Seagate
Technology stockholders on a per share basis was not reduced due to the
cancellation of a number of Seagate Technology stock options equal in value
to the $184 million in rollover equity. As a result, while the cash
component of the merger consideration to be received by Seagate Technology
shareholders was reduced on a per share basis, the VERITAS shares component
of the merger consideration was increased on a per share basis by an
offsetting amount because of the antidilutive impact of the Seagate
Technology stock options that were cancelled.

Under the Stock Purchase Agreement, SAC purchased for $2.05 billion of cash
(less the value of Seagate Technology equity rolled over by former Seagate
Technology officers and less $50 million paid to VERITAS and to be released to
the former Seagate Technology shareholders upon settlement of outstanding
lawsuits), all of the operating assets of Seagate Technology and its
consolidated subsidiaries, including Seagate Technology's disc drive, tape
drive, software and

SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.

Notes to Combined and Consolidated Condensed Financial Statements

intelligent storage solutions businesses and operations, including shares of
Seagate Software common stock, and certain cash balances, but excluding the
approximately 128 million shares of VERITAS common stock then held by Seagate
Software Holdings and Seagate Technology's equity investments in Gadzoox
Networks, Inc. and Lernout & Hauspie Speech Products N.V. In addition, under the
Stock Purchase Agreement, wholly owned subsidiaries of SAC assumed substantially
all of the operating liabilities of Seagate Technology, Seagate Software
Holdings and their consolidated subsidiaries. This transaction is referred to
hereafter as the SAC Transaction.

Immediately following the SAC Transaction, VERITAS acquired Seagate Technology
pursuant to the Merger Agreement such that, a wholly owned subsidiary of VERITAS
merged with and into Seagate Technology, and Seagate Technology survived the
merger and became a wholly owned subsidiary of VERITAS. This wholly owned
subsidiary was renamed VERITAS Software Technology Corporation. We refer to
this transaction as the Merger. In the Merger, the Seagate Technology
stockholders received consideration consisting of 0.4465 shares of VERITAS
common stock and $8.55 of cash per share of Seagate Technology common stock.
The Merger is intended to qualify as a tax-free reorganization.

In addition, the Seagate Technology stockholders were entitled to receive
their proportionate amounts of a tax refund trust account, a class action
litigation settlement of $50 million and the shares of Lernout & Hauspie Speech
Products N.V. held by Seagate Technology at closing.

VERITAS did not acquire Seagate Technology's disc drive business or any other
Seagate Technology operating business, including Seagate Software. All of
Seagate Technology's operating assets, including Seagate Software, were sold to
wholly owned subsidiaries of SAC in connection with the leveraged buyout.

Seagate Software's directors and officers had interests in the Merger and the
SAC Transaction that may have differed from those of Seagate Technology's or
VERITAS' stockholders. For example, certain directors and officers of Seagate
Software are members of the board of directors of VERITAS.

As part of the SAC Transaction, SAC, Seagate Technology and Seagate Software
agreed to assume and indemnify VERITAS for substantially all liabilities arising
in connection with the Company's operating assets. On March 29, 2000, Seagate
Technology, VERITAS and SAC entered into an Indemnification Agreement, pursuant
to which these entities and certain other subsidiaries of Seagate Technology,
including Seagate Software, have agreed to certain indemnification provisions
regarding tax and other matters that may arise in connection with the SAC
Transaction and the Merger.

A majority of Seagate Software's assets along with certain other assets of
Seagate Technology, are now pledged as a guarantee for debt issued to finance
the SAC Transaction. (Refer to further discussion in note 10).

The federal tax allocation agreement ("Tax Allocation Agreement") Seagate
Software had with Seagate Technology was terminated on November 22, 2000, and
Seagate Software will no longer file federal income tax returns on a
consolidated basis with Seagate Technology. (Refer to further discussion in
note 8).

SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.

Notes to Combined and Consolidated Condensed Financial Statements

Seagate Software relies on a revolving loan, pursuant to a revolving loan
agreement (the "Revolving Loan Agreement"), with Seagate Technology LLC ("New
Seagate"), which is a wholly owned subsidiary of SAC, to fund a portion of its
operating cash needs. The Revolving Loan Agreement continues in effect
subsequent to the closing of the SAC Transaction on November 22, 2000 and
expires on July 4, 2001. (Refer to further discussion in note 3).

Allocation of Purchase Price to Seagate Software Pursuant to the Application of
Push Down Accounting

The SAC Transaction constituted a purchase business transaction of Seagate
Technology and resulted in a change in control of Seagate Software. Under
purchase accounting rules, the net purchase price under this transaction has
been allocated to the assets and liabilities of Seagate Technology and
subsidiaries, including Seagate Software based on their estimated fair values at
the date of the transaction. However, the estimated fair values of identifiable
tangible and intangible assets and liabilities of Seagate Technology and
subsidiaries at the date of the transaction were greater than the amount paid,
resulting in negative goodwill. The negative goodwill has been allocated to the
long-lived tangible and intangible assets, including those of Seagate Software,
on the basis of relative fair values. The estimated fair values of tangible and
intangible assets, including in-process research and development, have been
determined based upon independent appraisals.

The consolidated and combined condensed interim financial statements as of
December 29, 2000 reflect the historical results of operations and financial
position up to the date of the transaction, November 22, 2000, the restatement
of assets and liabilities at that date to reflect the push down purchase
accounting adjustments, followed by the results of operations and financial
position for the period from November 22, 2000 to December 29, 2000 reflecting
the effects of restated balances from the date of the SAC Transaction. As a
result of the SAC Transaction and the push down accounting, the Company's
results of operations following the SAC Transaction, particularly the
depreciation and amortization charges, are not necessarily comparable to the
results of operations prior to the SAC Transaction.

In connection with the finalization of the purchase price allocation of these
transactions, SAC and Seagate Software are currently evaluating the fair value
of the consideration given and the fair value of the assets acquired and
liabilities assumed. Using this information, SAC and Seagate Software will make
a final allocation of the purchase price including the allocation to in-process
research and development and other intangibles. Accordingly, the purchase price
allocation is preliminary, and subject to adjustment.

The table below lists the estimated net purchase price allocation of the
tangible and intangible assets acquired. The fair value of the intangible
assets acquired and long-lived assets acquired have been reduced by
approximately 46% as a result of negative goodwill allocated to these assets to
arrive at the net purchase price allocation.

SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.

Notes to Combined and Consolidated Condensed Financial Statements

Net Purchase Price
Purchase Price Allocation Allocation
- --------------------------------------------------- ------------------
(thousands)

Net current assets acquired........................ $ 9,138
Tangible long-lived assets acquired (1)............ 5,130
-------
14,268
-------
Intangible assets acquired:
Developed technology (2)........................... 15,234
Assembled work force (3)........................... 7,073
In-process research and development (4)............ 7,073
Deferred tax liability (5)......................... (2,126)
-------
$27,254
-------
Total.......................................... $41,522
=======

(1) Tangible long-lived assets acquired consists of leasehold improvements and
equipment, and are amortized over their remaining useful lives of
approximately 2 years.

(2) The value of the developed technology has been estimated by discounting
the expected future cash flows attributable to all existing technology,
taking into account risks related to the characteristics and applications
of the technology, existing and future markets and assessments of the life
cycle stage of the technology. The analysis resulted in a valuation for
developed technology, which had reached technological feasibility and
therefore was capable of being capitalized. The developed technology is
being amortized on the straight-line basis over its estimated useful life
(3 years) and the amortization is included in cost of revenues.

(3) The estimated value of the assembled work force has been determined by
estimating the costs to replace the existing employees, including the
recruiting, hiring and training costs for each category of employee. The
assembled workforce is being amortized on the straight-line basis over its
estimated useful life (3 years) and the amortization is included in
amortization of goodwill and other intangibles.

(4) As the basis for identifying the in-process research and development
("IPR&D"), Seagate Software's developmental projects were evaluated in the
context of Financial Accounting Standards Board Interpretation 4 and
paragraph 11 of Financial Accounting Standards Board ("FAS") Statement No.
2 and FAS Statement No. 86. Seagate Software has charged the value
allocated to projects identified as IPR&D to expense in the period the
transactions close. This write-off is necessary because the acquired
technologies have not yet reached technological feasibility and have no
future alternative uses.

At the valuation date, Seagate Software was in the process of developing
three next generation versions of existing technologies which were
estimated to be about 85%, 70%, and 75% complete based on total man-hours
and absolute time. Seagate Software expects these three projects to be
completed in fiscal 2002, at an estimated cost of $20 million. The nature
of the efforts required to develop the purchased IPR&D

SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.

Notes to Combined and Consolidated Condensed Financial Statements

into commercially viable products principally relate to the completion of
all planning, designing, prototyping, verification and testing activities
that are necessary to establish that the product can be produced to meet
its design specifications, including functions, features and technical
performance requirements. Seagate Software expects that the acquired IPR&D
will be successfully developed, but it cannot ensure that commercial
viability of these products will be achieved.

The value of the purchased IPR&D for Seagate Software has been calculated
by estimating the projected net cash flows related to such products,
including costs to complete the development of the technology and the
future revenues to be earned on commercialization of the products. These
cash flows were then discounted back to their net present value. The
projected net cash flows from such projects were based on management's
estimates of revenues and operating profits related to these projects.

(5) Deferred taxes arose because of the difference between book and tax basis
of tangible long-lived and intangible assets acquired and located in
jurisdictions other than the United States (U.S.). Deferred taxes do not
arise for those intangible and tangible long-lived assets acquired and
located in the U.S., because the transaction is subject to a special tax
election in the U.S., whereby no difference in the book and tax basis of
the net assets exist.

Pro Forma Information. The following table presents the unaudited pro forma
results of operations for informational purposes, assuming the change of control
of Seagate Software occurred at the beginning of fiscal 1999:

For the Six Months Ended
------------------------------------
(in thousands, except for per share amounts) December 29, 2000 December 31, 1999

Total revenue.......................................... $77,048 $ 58,175
Net loss............................................... $(6,847) $(23,237)
------- --------
Pro forma basic and diluted net loss per share......... $ (0.09) $ (0.31)
======= ========

The pro forma results of operations give effect to certain adjustments
including amendment of amortization and depreciation of revalued intangible and
tangible assets. The pro forma net loss for the six months ended December 29,
2000 and December 31, 1999 does not include the following push down and purchase
price adjustments, as they represent one time charges which are not necessarily
reflective of ongoing operating results:

. unusual items of approximately $1.9 million and $242.6 million for
the six months ended December 29, 2000 and December 31, 1999,
respectively as described in note 5;

. the effects of fair value adjustments to deferred revenue, reducing
revenue by $1.3 million on a declining basis during the twelve months
following the date of the transaction; and

. the write off of IPR&D charges of approximately $7.1 million during
the quarter and six months ended December 29, 2000, in connection
with the SAC Transaction.

NOTE 3. Economic Dependence on Seagate Technology

On July 4, 2000, Seagate Software and Seagate Technology LLC, then a wholly
owned subsidiary of Seagate Technology, now an indirect subsidiary of SAC,
renewed the Revolving Loan Agreement dated June 28, 1996. Under the Revolving
Loan Agreement, Seagate Technology finances certain of Seagate Software's
working capital needs and operating activities. The Revolving Loan Agreement
provides for maximum outstanding borrowings of up to $60.0 million and expires
on July 4, 2001. The Revolving Loan Agreement continued in effect subsequent to
the closing of the SAC Transaction on November 22, 2000. The loan is payable or
receivable upon termination of the agreement. As of December 29, 2000 and June
30, 2000, the revolving loan balance was a net receivable from Seagate
Technology LLC and its affiliates of $31.3 million and $25.7 million,
respectively. The net receivable arose largely as a result of offsetting amounts
due from Seagate Technology

SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.

Notes to Combined and Consolidated Condensed Financial Statements

under a Tax Allocation Agreement for income tax loss benefits utilized by
Seagate Technology relative to Seagate Software's tax loss position (refer to
note 8 for further discussion). The loan balance is presented on the balance
sheet as a net receivable or net payable in accordance with the terms of the
loan agreement.

During the quarter and six months ended December 29, 2000, Seagate Software
earned interest income on a monthly basis on the net receivable revolving loan
balance outstanding at a rate calculated to be Seagate Technology LLC's in-
house portfolio yield (average of 7.67% for the six months ended December 29,
2000).

During the quarter and six months ended December 31, 1999, interest was
charged or earned on the net revolving loan balance receivable or payable
outstanding on a monthly basis at the LIBOR rate plus 2% per annum, (7.53% for
the six months ended December 31, 1999). Interest income and expense as
presented in the statement of operations primarily relates to interest on the
revolving loan.

Seagate Software has incurred net losses during the three year period ended
June 30, 2000 and the quarter ended December 29, 2000. Seagate Software relies
on the revolving loan with Seagate Technology LLC to fund a portion of its
operating needs. Seagate Software believes that the amounts due from Seagate
Technology under the Revolving Loan Agreement, in addition to the amounts
available to Seagate Software under the Revolving Loan Agreement are sufficient
to fund Seagate Software's operating and planned activities during the next six
months.

Seagate Software may require additional financing through the end of fiscal
2002. Seagate Software is in the process of negotiating additional financing
with Seagate Technology LLC through the end of fiscal 2002. Should additional
financing not be available from Seagate Technology LLC at terms that are
satisfactory to Seagate Software and Seagate Technology LLC, Seagate Software
may seek additional equity and financing from other sources, subject to
concurrence by the lenders which financed the SAC Transaction, as well as
Seagate Software's parent company. As a result of the SAC Transaction, Seagate
Software guaranteed the debt used to finance the SAC Transaction and pledged a
majority of its assets. As a result of restrictive covenants under the debt
agreement, the ability of Seagate Software to raise additional debt or equity
from other sources may be limited. (Refer to note 10 for further discussion.)

NOTE 4. Revenue Recognition

Typically, Seagate Software can establish vendor specific objective evidence
("VSOE") for all elements of its multi-element arrangements, and accordingly,
revenues are allocated to the individual elements on the basis of VSOE. During
the second quarter of fiscal year 2001, Seagate Software adopted a new sales
model that limits the sale of certain software license products sold on an
individual basis and, as a result, is not able to establish sufficient VSOE for
these license products. As a result of this change in circumstance, when these
products are included in bundled arrangements with technical support and
maintenance services, Seagate Software applies the residual method of accounting
as specified in SOP 98-9 such that the total fair value of the undelivered
elements as indicated by vendor-specific objective evidence, is deferred and
subsequently recognized in accordance with SOP 97-2 and the difference between
the total arrangement fee and the amount deferred for the undelivered elements
is accounted for as revenue related to the delivered elements. The impact on
revenues of applying the residual method of accounting in the quarter ended
December 29, 2000 was not material. Although not typical, some OEM arrangements
contain end-user maintenance elements for which VSOE has not been established,
as sufficient

SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.

Notes to Combined and Consolidated Condensed Financial Statements

evidence of consistent pricing and renewal rates has not been present. In such
arrangements, Seagate Software has recognized the arrangement fee ratably over
the maintenance period in accordance with the provisions set forth in SOP 97-2.

NOTE 5. Unusual Transactions

Sale of Seagate Technology

On November 22, 2000, the date of the closing of the SAC Transaction, vesting
of Seagate Technology options were accelerated and net exercised for merger
consideration of 0.4465 shares of VERITAS and $8.55 cash per share of Seagate
Technology. The accelerated vesting and net exercise of these options resulted
in compensation expense to Seagate Technology. At November 22, 2000, options to
purchase 51,500 shares of Seagate Technology common stock were held by certain
Seagate Software employees. As a result, the Company recorded approximately $1.9
million of compensation expense attributable to its employees as a capital
contribution from Seagate Technology. The compensation expense is recorded as an
unusual item in the income statement for the quarter and six months ended
December 29, 2000.

The October 1999 Seagate Technology Exchange of Shares

On October 20, 1999, the stockholders of Seagate Software Holdings approved
the merger of Seagate Daylight Merger Corp., a wholly owned subsidiary of
Seagate Technology, with and into Seagate Software Holdings. The merger was
effected on October 20, 1999. Seagate Software Holdings assets consisted of the
assets of the business and its investment in the common stock of VERITAS. Upon
the closing of the merger, Seagate Software Holdings became a wholly owned
subsidiary of Seagate Technology. All outstanding options to purchase Seagate
Software Holdings common stock were accelerated immediately prior to the merger.
In connection with the merger, Seagate Software Holdings minority stockholders
and optionees received payment in the form of 3.23 shares of Seagate
Technology's common stock per share of Seagate Software Holdings common stock
less any amounts due for the payment of the exercise price of unexercised
options. Seagate Technology issued 9,124,046 shares of its common stock from
treasury shares to optionees and minority stockholders of Seagate Software
Holdings in connection with the merger.

Seagate Technology accounted for the exchange of shares of its common stock as
the acquisition of a minority interest for Seagate Software Holdings common
stock outstanding and vested more than six months held by employees and all
stock held by former employees and consultants. The fair value of the shares of
Seagate Technology issued was $19.4 million and was recorded as the purchase
price and allocated to all the identifiable tangible and intangible assets and
liabilities of Seagate Software Holdings. Seagate Technology accounted for the
exchange of shares of its common stock for stock options in Seagate Software
Holdings held by employees and stock held and vested by employees less than
six months as the settlement of an earlier stock award. Seagate Technology
recorded compensation expense of $283.6 million, plus $2.1 million of employer
portion of payroll taxes, related to the purchase of minority interest in
Seagate Software Holdings.

SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.

Notes to Combined and Consolidated Condensed Financial Statements

The consolidated and combined condensed statement of operations for the
quarter and six months ended December 31, 1999 includes an allocation of
compensation expense arising from the October 1999 Seagate Technology exchange
offer. Compensation expense was allocated to Seagate Software on the basis of
employees specifically identified with the business and for those employees
that performed services for the business, on the basis of time estimates.
Accordingly, Seagate Software recorded $239.6 million of the $283.6 million
compensation expense related to the October 1999 Seagate Technology Exchange
of Shares and an offsetting $239.6 million was recorded as a capital
contribution from Seagate Technology. In addition, the $2.1 million of
employer portion of payroll taxes paid related to Seagate Software employees
and therefore the amount is recorded as an expense for the quarter and six
months ended December 31, 1999.

In addition, $877,000 of legal and accounting costs were incurred by Seagate
Software in connection with the recapitalization and reorganization of Seagate
Software, of which $523,000 was recorded in the quarter and six months ended
December 31, 1999.

The following table summarizes the components of the unusual items expense
for the quarter and six months ended December 31, 1999 reported by Seagate
Technology that are attributable to the employees of Seagate Software:

As reported by Allocated to Seagate
Seagate Technology Software
------------------ --------------------
(in thousands)

Compensation expense associated with
the exchange of Seagate Software
Holdings common stock for Seagate
Technology common stock............. $283,619 $239,574
Employer portion of payroll taxes..... 2,118 2,118
Transaction costs..................... 877 877
-------- --------
Total unusual items.............. $286,614 $242,569
======== ========

SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.

Notes to Combined and Consolidated Condensed Financial Statements

NOTE 6. Restructuring Costs

During the six months ended December 29, 2000, Seagate Software incurred
$573,000 of restructuring charges. The charges relate to the closure of eight
offices in Europe and are part of a restructuring plan announced in September
2000 to consolidate the European sales organization into fewer office locations.
The charges primarily consisted of costs related to the termination of office
leases and other related closure costs, as well as severance and benefits due to
nine sales and marketing employees who were terminated in September 2000. At
December 29, 2000, $375,000 was included in accrued expenses and is expected
to be paid by the quarter ending March 30, 2001.

During the six months ended December 31, 1999, Seagate Software incurred $1.3
million of restructuring charges for termination of excess personnel as Seagate
Software realigned its resources to better manage and control its business. The
charges resulted from a Company-wide restructuring plan announced in October
1999 and were comprised of charges of severance and benefits paid to
approximately 125 employees from various locations and departments, including
direct sales force personnel, who were terminated on October 23, 1999. The
restructuring charges were paid during fiscal 2000.

The restructuring events described above were independent of each other.

NOTE 7. Related Party Transactions

During the quarter and six months ended December 29, 2000, Seagate Software
signed a software license agreement (the "License Agreement") with Seagate
Technology. Under the terms of the License Agreement, Seagate Software granted
Seagate Technology a non-exclusive, non-transferable, perpetual license to use
its business intelligence software and maintenance and support services. The
total value of the License Agreement is $1.6 million. The License Agreement was
priced at an approximate 50% discount to Seagate Software's established list
price. During the quarter and six months ended December 29, 2000, Seagate
Software recognized a total of $1.3 million from the License Agreement. The
balance of $347,000 is included in deferred revenue. As of December 29, 2000,
there was no outstanding amounts owed by Seagate Technology included in accounts
receivable.

SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.

Notes to Combined and Consolidated Condensed Financial Statements

Historically, Seagate Technology has provided substantial services to Seagate
Software under a General Services Agreement dated June 28, 1997. Upon closing
of the SAC Transaction, this agreement was assumed by SAC. The services
generally include general management, treasury, tax, financial reporting,
benefits administration, insurance, information technology, legal, accounts
payable and receivable and credit functions, among others. Seagate Technology
charges Seagate Software for these services through corporate expense
allocations. The amount of corporate expense allocations depends upon the total
amount of allocable costs incurred by Seagate Technology on behalf of Seagate
Software less amounts charged as a specific cost or expense rather than by
allocation. Such costs have been proportionately allocated to Seagate Software
based on detailed inquiries and estimates of time incurred by Seagate
Technology's corporate marketing and general and administrative departmental
managers. Management believes that the allocation method applied to the costs
provided under the General Services Agreement is reasonable. Allocations
charged to Seagate Software general and administrative expenses were $242,000
and $164,437 for the quarters ended December 29, 2000 and December 31, 1999,
respectively, and $422,000 and $328,874 for the six months ended December 29,
2000 and December 31, 1999, respectively. Management estimates that additional
costs for the services covered under this agreement would have been $688,000 for
fiscal 2000 had the Company operated on a stand-alone basis from Seagate
Technology.

NOTE 8. Income Taxes

The federal Tax Allocation Agreement ("Tax Allocation Agreement") Seagate
Software had with Seagate Technology was terminated on November 22, 2000, and
the Company will no longer file federal income tax returns on a consolidated
basis with Seagate Technology. The Company will enter into a state tax
allocation agreement with affiliates of New SAC, as applicable. Therefore,
Seagate Technology will not benefit from nor will it reimburse the Company
pursuant to the Tax Allocation Agreement for federal tax losses the Company
sustains subsequent to consummation of the SAC Transaction. In prior periods,
the Company has received substantial cash payments from its tax losses utilized
by Seagate Technology, which it has used to reduce its obligations to Seagate
Technology under the revolving loan agreement. As a result of the termination
of the Tax Allocation Agreement, the Company may not be able to convert any
future tax losses into cash.

The income tax benefit recorded by the Company for the quarter and six months
ended December 29, 2000 of $1.8 million and $2.5 million, respectively includes
$4.0 million of tax benefits recorded pursuant to the Tax Allocation Agreement
through November 22, 2000 offset by other income tax expenses. The effective
tax rate used to record the income tax benefit for the quarter and six months
ended December 29, 2000 differs from the U.S. federal statutory rate primarily
due to an increase in the valuation allowance for U.S. deferred tax assets
arising subsequent to the termination of the Tax Allocation Agreement on
November 22, 2000 and push-down accounting charges that are nondeductible in
foreign jurisdictions. The effective tax rate used to record the income tax
benefit for the quarter and six months ended December 31, 1999 was less than the
U.S. federal statutory rate primarily due to nondeductible expenses incurred in
foreign jurisdictions in connection with the October 1999 recapitalization and
reorganization of Seagate Software, including the October 1999 Seagate
Technology Exchange of Shares.

SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.

Notes to Combined and Consolidated Condensed Financial Statements

NOTE 9. Net Loss Per Share.

Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings
per Share", requires the disclosure of basic and diluted earnings (losses) per
share. Prior to August 24, 1999, Seagate Software had no outstanding share
capital. Seagate Software issued 1,000 shares of common stock to Seagate
Technology for aggregate proceeds of $1,000 on August 24, 1999. On November 16,
1999, Seagate Software Holdings contributed the Information Management Group
business' legal entities to Seagate Software in exchange for 75,000,000 shares
of Seagate Software common stock. On November 22, 2000, and as part of the SAC
Transaction, SAC, through Suez Software, acquired the 75,001,000 common shares
of Seagate Software owned by Seagate Technology. Basic loss per common share has
been computed using the weighted average number of shares of common stock
outstanding during each of the periods presented, with the initial 1,000 and
75,000,000 shares being treated as outstanding for all reporting periods.
Diluted loss per share is computed using the pro forma weighted average number
of shares of common stock outstanding during each of the periods presented
assuming exercise of options to purchase common stock, with the initial 1,000
and 75,000,000 shares being treated as outstanding for all reporting periods.
Options to purchase common stock were excluded from the computation of diluted
net loss per share, as their effect is antidilutive.

Below is a reconciliation of the numerator and denominator used to calculate
net loss per share (in thousands, expect share and per share data).

For the quarters ended For the six months ended
------------------------------------- --------------------------------------
December 29, 2000 December 31, 1999 December 29, 2000 December 31, 1999
----------------- ----------------- ----------------- -----------------

(unaudited)
Basic net loss per share
Numerator:
Net loss........................... $ (8,308) $ (213,234) $ (10,487) $ (217,886)
Denominator:
Weighted average number of common
shares outstanding................ 75,240,507 75,001,000 75,155,894 75,001,000
Net loss per share - basic............ $ (0.11) $ (2.84) $ (0.14) $ (2.90)
Diluted net loss per share
computation:
Numerator:
Net loss........................... $ (8,308) $ (213,234) $ (10,487) $ (217,886)
Denominator:
Weighted average number of common
shares outstanding................ 75,240,507 75,001,000 75,155,894 75,001,000
----------- ----------- ----------- -----------
75,240,507 75,001,000 75,155,894 75,001,000
----------- ----------- ----------- -----------
Net loss per share - diluted.......... $ (0.11) $ (2.84) $ (0.14) $ (2.90)
=========== =========== =========== ===========

SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.

Notes to Combined and Consolidated Condensed Financial Statements

NOTE 10. Debt Guarantees and Pledge of Assets

Senior Secured Credit Facility

On the closing of the SAC Transaction, Seagate Technology International and
Seagate Technology (US) Holdings, Inc., both subsidiaries of SAC entered into
senior credit facilities with a syndicate of banks and other financial
institutions led by The Chase Manhattan Bank, as administrative agent and an
issuing bank, and Goldman Sachs Credit Partners L.P., as a documentation agent,
The Bank of Nova Scotia as a documentation agent, and Merrill Lynch Capital
Corporation, as a documentation agent. The senior credit facilities provide
senior secured financing of up to $900 million, consisting of:

. a $200 million revolving credit facility for general corporate purposes,
with a sublimit of $100 million for letters of credit, which will terminate
in five years;
. a $200 million term loan A facility with a maturity of five years; and
. a $500 million term loan B facility with a maturity of six years.

At the closing of the transaction, SAC did not borrow under the revolving
credit facility. At that time approximately $155 million of the revolving
credit facility was available because approximately $45 million of existing
letters of credit were outstanding and reduced availability under it. SAC drew
the full amount of the term loan A facility and the term loan B facility on the
closing of the transaction to finance the acquisition of Seagate Technology's
operating assets, including 75,001,000 shares of Seagate Software common stock.

The $700 million of outstanding loans under the term loan A and B facilities
are repayable in semi-annual payments due as follows (in thousands):

Fiscal 2001 $ 5,000
2002 22,500
2003 40,000
2004 50,000
2005 60,000
thereafter 522,500
--------
Total $700,000
========

The loans bear interest at variable rates dependent upon market interest rates
and the nature of the borrowings, as well as the consolidated financial position
of SAC at applicable measurement dates. The average interest rates being charged
under these borrowings from the date of the SAC Transaction ranged from 9.1875%
(LIBOR plus 2.5%) to 9.6875% (LIBOR plus 3%).

SAC and certain of its subsidiaries, including Seagate Software and certain of
its subsidiaries are guarantors under the senior credit facilities. In addition,
the majority of SAC's and certain of its subsidiaries' assets, including Seagate
Software's assets and its capital stock, have been pledged against the debt
under this credit agreement. SAC, and certain of its subsidiaries,

SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.

Notes to Combined and Consolidated Condensed Financial Statements

including Seagate Software and certain of its subsidiaries, have agreed to
certain covenants under this agreement including restrictions on future equity
and borrowing transactions, business acquisitions and disposals, making certain
restricted payments and dividends, making certain capital expenditures,
incurring guarantee obligations and engaging in mergers or consolidations.
Further, Seagate Software, as part of the consolidated group, is subject to
certain financial covenants which are assessed on the consolidated operating
results and financial position of SAC and its subsidiaries.

The credit agreement provides for the release of Seagate Software from its
guarantee obligations, and asset pledge upon an approved transfer or sale of
Seagate Software's common stock, or an initial public offering of at least 10%,
on a fully diluted basis, of Seagate Software's voting common stock.

Senior Subordinated Notes

In connection with the closing and financing of the SAC Transaction, Seagate
Technology International issued unsecured senior subordinated notes under an
Indenture Agreement dated November 22, 2000 at a discount to the aggregate
principal amount of $210 million, for gross proceeds of approximately $201
million. The notes mature on November 15, 2007 and bear interest payable semi-
annually at a rate of 12.5% per annum. SAC and certain of its subsidiaries,
including Seagate Software and certain of its subsidiaries, are guarantors of
the notes. In addition, SAC and certain of its subsidiaries including Seagate
Software and certain of its subsidiaries, have agreed to certain restrictive
covenants under the terms of these notes including restrictions on future equity
and borrowing transactions, business acquisitions and disposals, making certain
restricted payments and dividends, making certain capital expenditures,
incurring guarantee obligations and engaging in mergers or consolidations.
Seagate Software may be released from its guarantee obligation, if there are
certain sales of its capital stock, including in an initial public offering, but
would remain subject to the restrictive covenants of the indenture until Seagate
Software and its subsidiaries are no longer subsidiaries of SAC or are deemed no
longer to be subject to the restrictive covenants.

SAC will not require Seagate Software's cash flow to be used to service the
obligations pursuant to the senior secured credit facility and the senior
subordinated notes. The Company believes that none of the guarantees or pledges
of assets under the senior credit facilities or the guarantees under the
Indenture are likely to be invoked.

NOTE 11. Common Stock Eligible for Repurchase

As of December 29, 2000, employees and directors of Seagate Software exercised
a combined total of 282,820 options to purchase common stock under the 1999
Stock Option Plan. At December 29, 2000, 152,611 shares were vested and 130,209
shares were unvested. At the option of Seagate Software and within 30 days of
termination, the unvested shares held by directors may be repurchased at the
directors original purchase price. As of December 29, 2000, there were 168,750
shares eligible for repurchase with a balance and a repurchase price of
$675,000.

SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.

Notes to Combined and Consolidated Condensed Financial Statements

NOTE 12. Business Segment and Geographic Information

Seagate Software adopted Statement of Financial Accounting Standards No. 131
("SFAS 131"), "Disclosures about Segments of an Enterprise and Related
Information", in fiscal 1999. SFAS 131 establishes standards for reporting
information about operating segments.

Seagate Software operates in a single industry segment, enterprise information
management. Seagate Software's products and services are sold worldwide, through
direct, OEM and distributor channels. Within the segment, the chief operating
decision maker, Seagate Software's chief executive officer, evaluates the
performance of the business based upon revenues from product and services,
revenues by geographic regions and revenues by product channels. The chief
executive officer does not receive discrete financial information about asset
allocation, expense allocation or profitability from the business products or
maintenance, support and services.

Product and services revenues (in thousands):

For the quarters ended For the six months ended
------------------------------------- ------------------------------------
December 29, 2000 December 31, 1999 December 29, 2000 December 31, 1999
----------------- ----------------- ----------------- -----------------

Licensing revenues............... $25,579 $16,228 $48,536 $31,391
Maintenance, support and other... 14,566 14,070 28,512 26,784
------- ------- ------- -------
Total revenues.................. $40,145 $30,298 $77,048 $58,175
======= ======= ======= =======

SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.

Notes to Combined and Consolidated Condensed Financial Statements

Geographic revenues (in thousands) (1), (2):

For the quarters ended For the six months ended
------------------------------------- -------------------------------------
December 29, 2000 December 31, 1999 December 29, 2000 December 31, 1999
----------------- ----------------- ----------------- -----------------

United States.................... $27,825 $19,451 $53,959 $37,262
Europe........................... 7,536 7,242 14,170 14,065
Other............................ 4,784 3,605 8,919 6,848
------- ------- ------- -------
Total revenues.................. $40,145 $30,298 $77,048 $58,175
======= ======= ======= =======

Channel revenues (in thousands):

Direct........................... $24,262 $19,900 $47,255 $37,316
Distribution..................... 13,125 7,996 24,696 16,133
OEM.............................. 2,758 2,402 5,097 4,726
------- ------- ------- -------
Total revenues................... $40,145 $30,298 $77,048 $58,175
======= ======= ======= =======

Long-lived assets (in thousands) (3):

December 29, 2000 June 30, 2000
----------------- -------------

United States.................... $14,486 $ 6,154
Canada........................... 10,467 7,254
Other............................ 2,689 1,226
------- -------
Total long-lived assets......... $27,642 $14,634
======= =======

December 29, 2000 June 30, 2000
----------------- -------------

Total long-lived assets.......... $27,642 $14,634
Other assets, including current.. 65,095 56,646
------- -------
Total assets.................... $92,737 $71,280
======= =======

(1) Revenues are attributed to geographic regions based on the location of the
customer.
(2) Europe includes South Africa and the Middle East.
(3) Reconciliation to total assets reported (in thousands).

Overall, Seagate Software's customer base is diverse however, a third-party
customer, Ingram Micro Inc. ("Ingram"), represented 20% and 23% of revenues for
the quarters ended December 29, 2000 and December 31, 1999, respectively, and
21% and 19% of revenues for the six months ended December 29, 2000 and December
31, 1999, respectively. The revenues from Ingram

SEAGATE SOFTWARE INFORMATION MANAGEMENT GROUP HOLDINGS, INC.

Notes to Combined and Consolidated Condensed Financial Statements

accounted for more than 10% of consolidated revenues for a total of $8.2 million
and $16.5 million, for the quarter and six months ended December 29, 2000,
respectively.

NOTE 13. Comparative Figures

Certain comparative figures have been reclassified to conform with the basis
of presentation adopted in fiscal 2001.

Item 2.

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

The following information should be read in conjunction with the historical
financial statements and the notes hereto included in Item 1 of this Quarterly
Report on Form 10-Q and Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in our Form 10-12/G for the year
ended June 30, 2000 as filed and amended with the Securities and Exchange
Commission ("SEC") on January 31, 2001.

Except for historical information, the discussion in this Form 10-Q contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and the Private Securities
Litigation Reform Act of 1995. These statements refer to our future plans,
objectives, expectations and intentions. These statements may be identified by
the use of words such as "expect", "anticipate", "believe", "intend", "plan" and
similar expressions. Our actual results could differ materially from those
anticipated in such forward-looking statements. Factors that could contribute to
these differences include, but are not limited to, the risks discussed in the
section titled "Factors Affecting Future Operating Results" in this Form 10-Q.
We do not undertake any obligation to publicly update any forward-looking
statement to reflect events or circumstances after the date on which any such
statement is made or to reflect the occurrence of unanticipated events.

OVERVIEW

We develop, market and support an integrated product line of end user
enterprise software products, which enable business users, developers and
information technology professionals to access, analyze, report on and
distribute enterprise information. We believe our products meet an extensive
range of data-centric business needs commonly described as enterprise reporting,
enterprise business intelligence, enterprise portals, developer reporting tools,
analytic application development and packaged analytic applications. Our
primary market is North America where our products are sold through a direct
sales force and certain indirect sales channels, such as distributors and
original equipment manufacturer ("OEM") relationships. Outside North America,
our products are sold through a direct sales force, distributors and OEMs.

We derive most of our revenues from the sale of licenses for our software
products. We also generate revenues from services that support our products such
as technical support, training, consulting and maintenance.

We are a majority owned subsidiary of Seagate Software (Cayman) Holdings
("Suez Software"), which is a wholly owned subsidiary of New SAC, a Cayman
Islands limited corporation ("SAC") and as of November 22, 2000, they hold
substantially all of our capital stock. Prior to November 22, 2000, we were a
majority owned subsidiary of Seagate Software Holdings, Inc. ("Seagate Software
Holdings" and formerly known as Seagate Software, Inc.), a Delaware corporation
and wholly owned subsidiary of Seagate Technology, Inc. ("Seagate Technology").
Seagate Technology was a data technology company that provided products for
storing, managing and accessing digital information on computer systems. The
outstanding minority interests in our capital stock amounted to approximately
12.8% and 10.5% on a fully diluted basis as of December 29, 2000 and June 30,
2000, respectively. The minority interests consisted of our common stock and
options to purchase our common stock issued pursuant to our

1999 and 2000 Stock Option Plans. The options to purchase our common stock are
held by certain employees and directors of our Company, our subsidiaries, and
our affiliated companies.

We were incorporated in Delaware in August 1999. In February 2001, we
relocated our headquarters and our new offices are located at 895 Emerson St.,
Palo Alto, California 94301 and our telephone number is (650) 473-3130.

We operate and report financial results on a fiscal year of 52 or 53 weeks
ending on the Friday closest to June 30.

Sale of Seagate Technology and Change in Control of Seagate Software
Information Management Group Holdings, Inc.

On November 22, 2000, SAC, through Suez Software, acquired 75,001,000 shares
of our Company's common stock under the terms of a stock purchase agreement (the
"Stock Purchase Agreement"). As a result of the transaction, Suez Software holds
99.6% of the outstanding capital stock of our Company's at December 29, 2000.
This transaction resulted in a change in control of our Company. Suez Software
did not purchase shares of Seagate Software common stock that are outstanding as
a result of the exercise of options to purchase these shares under our Company's
1999 and 2000 Stock Option Plans. Our Company's minority stockholders continue
to hold their interests in common stock. In addition, the outstanding
unexercised options granted under the 1999 and 2000 Stock Option Plans continue
to remain outstanding.

Under SEC rules and regulations, because more than 95% of our Company was
acquired and a change of ownership occurred, Seagate Software has restated all
its assets and liabilities as of November 22, 2000 on a push down accounting
basis in the accompanying financial statements, presented as of December 29,
2000. Accordingly, results of operations prior to November 22, 2000 and the
comparative information presented do not reflect these adjustments.

Sale of Seagate Technology

SAC is a limited corporation organized under the laws of the Cayman Islands.
SAC was organized solely for the purpose of entering into the Stock Purchase
Agreement with Seagate Technology and Seagate Software Holdings. Similar to Old
SAC, SAC is controlled by Silver Lake Partners and Texas Pacific Group. Silver
Lake Partners L.P. is a private investment firm headquartered in Menlo Park,
California and New York, New York, the general partner of which is Silver Lake
Technology Associates, L.L.C. Silver Lake Technology Associates is a Delaware
limited liability company.

Transaction Financing and Consideration Paid

SAC financed the acquisition of the Seagate Technology operating assets,
including 75,001,000 shares of our common stock through:

. Certain cash reserves of Seagate Technology of approximately $149 million,
net of estimated transaction costs of $100 million.

Under the Stock Purchase Agreement, SAC purchased for $2.05 billion of cash
(less the value of Seagate Technology equity of $184 million rolled over by
former Seagate Technology officers and less $50 million paid to VERITAS and to
be released to the former Seagate Technology shareholders upon settlement of
outstanding lawsuits), all of the operating assets of Seagate Technology and its
consolidated subsidiaries, including Seagate Technology's disc drive, tape
drive, software and intelligent storage solutions businesses and operations,
including shares of our common stock, and certain cash balances, but excluding
the approximately 128 million shares of VERITAS common stock then held by
Seagate Software Holdings and Seagate Technology's equity investments in Gadzoox
Networks, Inc. and Lernout & Hauspie Speech Products N.V. In addition, under
the Stock Purchase Agreement, wholly owned subsidiaries of SAC assumed
substantially all of the operating liabilities of Seagate Technology, Seagate
Software Holdings and their consolidated subsidiaries. This transaction is
referred to hereafter as the SAC Transaction.

The stockholders of each of VERITAS and Seagate Technology approved the Merger
and the SAC Transaction, as the case may be, on November 21, 2000. The
transactions contemplated by the Stock Purchase Agreement and Merger Agreement
were completed on November 22, 2000. Upon completion of the transaction, the
75,001,000 shares of our common stock that were held by Seagate Software
Holdings, were acquired by Suez Software. Our minority stockholders will

continue to hold their interests in our common stock. The Merger and the SAC
Transaction resulted in a change of control of our Company.

VERITAS did not acquire Seagate Technology's disc drive business or any other
Seagate Technology operating business, including our Company. All of Seagate
Technology's operating assets, including our Company, were sold to wholly owned
subsidiaries of SAC in connection with the leveraged buyout.

Seagate Software's directors and officers had interests in the Merger and the
SAC Transaction that may have differed from those of Seagate Technology's or
VERITAS' stockholders. For example, Stephen J. Luczo and Gregory B. Kerfoot,
our Chairman and Chief Executive Officer and President, respectively, are
members of the board of directors of VERITAS.

As part of the SAC Transaction, SAC, Seagate Technology and our Company agreed
to assume and indemnify VERITAS for substantially all liabilities arising in
connection with the Company's operating assets. On March 29, 2000, Seagate
Technology, VERITAS and SAC entered into an Indemnification Agreement, pursuant
to which these entities and certain other subsidiaries of Seagate Technology,
including our Company, have agreed to certain indemnification provisions
regarding tax and other matters that may arise in connection with the SAC
Transaction and the Merger.

A majority of our assets along with certain other assets of Seagate
Technology, are now pledged as a guarantee for debt issued to finance the SAC
Transaction, as discussed in the accompanying financial statements, presented as
of December 29, 2000.

The federal tax allocation agreement ("Tax Allocation Agreement") we had with
Seagate Technology was terminated on November 22, 2000, and we will no longer
file federal income tax returns on a consolidated basis with Seagate Technology,
as discussed in the accompanying financial statements, presented as of December
29, 2000.

We rely on a revolving loan with Seagate Technology, LLC ("New Seagate"),
which is a wholly owned subsidiary of SAC, to fund a portion of our operating
cash needs. The revolving loan agreement continues in effect subsequent to the
closing of the SAC Transaction on November 22, 2000 and expires on July 4, 2001,
as discussed in the accompanying financial statements, presented as of December
29, 2000.

RESULTS OF OPERATIONS

Allocation of Purchase Price to our Company pursuant to the application of
Push Down Accounting

The SAC Transaction constituted a purchase business transaction of Seagate
Technology and resulted in a change in control of our Company . Under purchase
accounting rules, the net purchase price under this transaction has been
allocated to the assets and liabilities of Seagate Technology and subsidiaries,
including our Company based on their estimated fair values at the date of the
transaction. However, the estimated fair values of identifiable tangible and
intangible assets and liabilities of Seagate Technology and subsidiaries at the
date of the transaction were greater than the amount paid, resulting in negative
goodwill. The negative goodwill has been allocated to the long-lived tangible
and intangible assets, including our assets, on the basis of relative fair
values. The fair values of tangible and intangible assets, including in-process
research and development, have been determined based upon independent
appraisals.

The accounting for the purchase transaction has been "pushed down" to our
Company's financial statements. Our December 29, 2000 consolidated and combined
condensed financial statements reflect the historical results of operations and
financial position up to the date of the transaction, November 22, 2000, the
restatement of assets and liabilities at that date to reflect the pushed down
purchase accounting adjustments, followed by the results of operations and
financial position for the period from November 22, 2000 to December 29, 2000
reflecting the effects of restated balances from the date of the SAC
Transaction.

As a result of the SAC Transaction and the push down accounting, our results
of operations following the SAC Transaction, particularly the depreciation and
amortization charges, are not necessarily comparable to the results of
operations prior to the SAC Transaction.

The actual allocation of the amounts may differ from those reflected below
after finalization of the purchase price allocation and post closing
transactions.

The following describes the impact of Push Down Accounting on our results

. Revenue. Deferred revenue was revalued at the transaction date and reduced by
$1.3 million. Consequently, revenues were lower by $0.3 million during the
quarter ended December 29, 2000 than what would have been recorded had the
push down adjustments not been made.

. Amortization and depreciation. As a result of the allocation of negative
goodwill to our long-lived tangible assets, our capital assets were reduced by
$4.3 million. Consequently, depreciation expense for the quarter ended
December 29, 2000 is approximately $224,000 less than what it would have been
had the push down adjustments not been made. In addition, we recorded
additional amortization expense of approximately $473,000 during the quarter
and six months ended December 29, 2000 resulting from the recording of
incremental fair value of intangibles in the push down adjustments.

. In-process research and development. We wrote off in-process research and
development of $7.1 million as an expense during the quarter ended December
29, 2000.

. Tax effects. The tax provision benefit of $1.8 million and $2.5 million for
the quarter and six months ended December 29, 2000, respectively, was
increased by approximately $100,000 relating to the reversal of a portion of
the deferred tax liabilities recorded in connection with the push down
adjustments.

The following table sets forth certain consolidated and combined statement of
operations data as a percentage of total revenues for the period indicated:

For the quarters ended For the six months ended
December 29, 2000 December 31, 1999 December 29, 2000 December 31, 1999
-------------------------------------------------------------------------------------------

Revenues:
Licensing................. 64% 54% 63% 54%
Maintenance, support and
services................. 36% 46% 37% 46%
-------------------------------------------------------------------------------------------
Total revenues................ 100% 100% 100% 100%
--------------------------------------------------------------------------------------------

Cost of revenues
Licensing................. 3% 3% 3% 3%
Maintenance, support and
services................. 25% 33% 26% 36%
Amortization of developed
technology............... 1% 0% 1% 0%
-------------------------------------------------------------------------------------------
Total cost of revenues........ 29% 36% 30% 39%
-------------------------------------------------------------------------------------------

Gross profit margin........... 71% 64% 70% 61%

Operating expenses:
Sales and marketing....... 44% 51% 45% 56%
Research and development.. 18% 22% 18% 22%
General and administrative 13% 19% 12% 17%
Amortization of goodwill
and intangibles.......... 1% 2% 1% 3%
Unusual items............. 5% 799% 2% 417%
Write-off of in-process
research and development... 18% 0% 9% 0%
Restructuring costs....... 0% 4% 1% 2%
-------------------------------------------------------------------------------------------
Total operating expenses...... 99% 897% 88% 517%
-------------------------------------------------------------------------------------------

Revenues

Total revenues increased by 33% from $30.3 million for the quarter ended
December 31, 1999 to $40.1 million for the quarter ended December 29, 2000.
Total revenues increased by 32% from $58.2 million for the six months ended
December 31, 1999 to $77.0 million for the six months ended December 29, 2000.
The increase in total revenues was primarily attributable to increased personnel
and productivity of our sales force, comparatively we had turnover in our
direct sales force and certain management positions in October 1999. The
increased productivity of our sales force resulted in increases in licensing
revenues and maintenance, support and services revenues.

We adopted a new sales model during the quarter ended December 29, 2000 which
has resulted in us applying the residual method of accounting for certain
multi-element arrangements as specified in SOP 98-9. The impact of applying
the residual method of accounting was not material for the quarter ended
December 29, 2000.

During the quarter ended December 29, 2000 and the quarter ended December 31,
1999, revenues from a third-party customer, Ingram Micro, Inc. ("Ingram"),
accounted for more than 10% of the consolidated revenues for a total of $8.2
million and $5.7 million, respectively. During the six months ended December
29, 2000 and December, 31, 1999, revenues from Ingram accounted for more than
10% of the consolidated revenues for a total of $16.5 million and $11.0 million,
respectively.

Licensing revenues. Licensing revenues consist of license fees for our
products. Licensing revenues increased 58% from $16.2 million for the quarter
ended December 31, 1999 to $25.6 million for the quarter ended December 29,
2000. Licensing revenues increased 55% from $31.4 million for the six months
ended December 31, 1999 to $48.5 million for the six months ended December 29,
2000. The increase in licensing revenues was primarily attributable to
increased productivity of our sales force and an overall increase in our direct
sales force, resulting in an increase in our customer base, as well as
additional sales to our existing customers. The increase in licensing revenues
compared to the prior period is also a result of increased sales of an upgraded
and enhanced version of Crystal Reports, released in February 2000.

Maintenance, support and services revenues. Our maintenance, support and
services revenues were comprised of revenues from technical support, training
activities, consulting services and maintenance related to licenses of our
products. Maintenance, support and services revenues increased 4% from $14.1
million for the quarter ended December 31, 1999 to $14.6 million for the quarter
ended December 29, 2000. Maintenance, support and services revenues increased by
6% from $26.8 million for the six months ended December 31, 1999 to $28.5
million for the six months ended December 29, 2000. The increase in maintenance,
support and services revenues was attributable to the higher cumulative
installed customer base, which resulted in increased sales of maintenance
agreements and training and consulting services.

Growth in licensing revenues as a percentage of total revenues (63% for the
quarter ended and six months ended December 29, 2000; 53% for the quarter and
six months ended December 31, 1999) compared to maintenance, support, and
services revenue as a percentage of total revenues (37% for the quarter ended
and six months ended December 29, 2000; 47% for the quarter ended December 31,
1999) increased primarily due to the acquisition of new customers with related
licensing revenues and related deferral of post contract services.

Revenues by geographic location were as follows:

For the quarters ended For the six months ended
-------------------------------- --------------------------------
December 29, December 31, December 29, December 31,
2000 1999 2000 1999
------------------------------------------------------------------

United States................. $27,825 $19,451 $53,959 $37,262
Europe 7,536 7,242 14,170 14,065
Other......................... 4,784 3,605 8,919 6,848
------- ------- ------- -------
Total revenues............... $40,145 $30,298 $77,048 $58,175
======= ======= ======= =======

Revenues from sales in Europe and other regions outside of the United States
represented 31%, and 36% of total revenues for the quarters ended December 29,
2000 and December 31, 1999, respectively, and 30% and 36% of total revenues for
the six months period ended December 29, 2000 and December 31, 1999,
respectively. Combined revenues from sales in Europe and other regions outside
the United States increased by 14% from $10.8 million for the quarter ended
December 31, 1999 to $12.3 million for the quarter ended December 29, 2000. The
increase in sales from Europe and other regions outside the United States was
primarily attributable to the expansion of our customer base and sales channels
and an increase in our direct sales force in these regions. Sales in Europe and
other regions outside of the United States declined as a percentage of total
revenues because sales productivity increased more significantly in the United
States for the quarter ended and six months ended December 29, 2000 than in
Europe and other regions outside of the United States. To date, seasonal
reductions in business activity in the summer months in Europe and certain other
regions have not had a material impact on our operating results.

A majority of our revenues are denominated in U.S. dollars, the currency in
which we report our operating results. We also collect a portion of our revenues
in currencies other than the U.S. dollar such as Canadian Dollars, German Marks,
British Pounds Sterling, French Francs, the

Australian Dollar and Japanese Yen. We expect a portion of our revenues to be
denominated and collected in the Single European Currency ("Euro") in the
future. For the quarter and six months ended December 29, 2000, approximately 4%
of our revenues were denominated and collected in currencies that will be
denominated and collected in the Single European Currency ("Euro"). To date, the
foreign exchange gains and losses on transactions and revenues reported by our
foreign subsidiaries have not been significant nor have any costs related to the
Euro conversion. In addition, since most of our foreign operations conduct
business in their local currency, our earnings are not significantly impacted by
fluctuations in exchange rates. Translation adjustments from consolidation of
such foreign operations are presented within comprehensive income.

Cost of Revenues

Cost of revenues increased 6% to $11.6 million, comprising 29% of total
revenues for the quarter ended December 29, 2000 from $10.9 million, or 36% of
total revenues for the quarter ended December 31, 1999. Cost of revenues
increased by 1% to $ 22.7 million, or 29% of total revenues, for the six months
ended December 29, 2000 from $22.5 million, or 39% of total revenues, for the
six months ended December 31, 1999. The increase in cost of revenues is
attributable to an increase in the amortization of developed technologies as a
result of push down accounting. Excluding the effect of the increase in
amortization of developed technologies, the cost of revenues was relatively
unchanged. Our gross margins, as a percentage of revenue, have increased from
64% and 61% for the quarter and six months ended December 31, 1999, respectively
to 71% and 70% for the quarter and six months ended December 29, 2000,
respectively. The increase in our gross margins is largely attributable to a
corporate-wide initiative to manage costs, while supporting revenue growth. For
the six months ended December 29, 2000, our revenues increased 32% compared to
the six months ended December 31, 1999 while our number of employees grew by
approximately 10% for the comparable periods.

Cost of licensing revenues. Cost of licensing revenues consists primarily of
materials, packaging and distribution of software, related fulfillment personnel
and third party royalties. Cost of licensing revenues increased by 17% to $1.2
million, or 5% of licensing revenues for the quarter ended December 29, 2000
from $1.0 million, or 6% of licensing revenues for the quarter ended December
31, 1999. Cost of licensing revenues increased by 36% to $2.2 million, or 5% of
licensing revenues, for the six months ended December 29, 2000 from $1.6
million, or 5% of licensing revenues, for the six months ended December 31,
1999. The increase in cost of licensing revenues in dollars was due primarily to
the increased volume of shipments during the applicable periods. We expect cost
of licensing revenues to increase in absolute dollars and as a percentage of
revenues in future periods in absolute dollars, and to vary as a percentage of
revenues from licensing revenues because of cost incurred with new product
releases, increased order fulfillment costs, and new packaging of our products
and printing costs associated with revised documentation materials.

Cost of maintenance, support and services revenues. Cost of maintenance,
support and services revenues consists of personnel and related overhead costs
for technical support, training, consulting, maintenance services and the cost
of materials delivered with enhancement releases. Cost of maintenance, support
and services revenues increased marginally by 1% to $ 10.0 million, or 69% of
maintenance, support and services revenues, for the quarter ended December 29,
2000 from $9.9 million, or 70% of maintenance, support and services revenues,
for the quarter ended December 31, 1999. Cost of maintenance, support and
services revenues decreased by 4% to $20.0 million, or 70% of maintenance,
support and services revenues, for the six months ended December 29, 2000 from
$20.8 million, or 78% maintenance, support and services revenues for the
quarter. The decline in cost of maintenance, support and services revenues as a
percentage of maintenance, support and services revenues is primarily
attributable to an increased use of company personnel rather than sub-contracted
consultants to perform our services. Cost of maintenance, support

and services revenues may vary between periods because of the mix of services we
provide and the extent we use outside consultants to assist us.

Amortization of developed technologies. Amortization of developed technologies
increased by $408,000 to $458,000 or 1% of total revenues, for the quarter
ended December 29, 2000 from $50,000 for the quarter ended December 31, 1999.
Amortization of developed technologies increased by $418,000 to $511,000 or 1%
of total revenues for the six months ended December 29, 2000 from $93,000 for
the six months ended December 31, 1999. The increase in amortization of
developed technologies is attributable to the push down of the net fair value of
our intangibles assets of $29.4 million acquired by SAC on November 22, 2000,
which included $15.2 million related to developed technology. From November 22,
2000, developed technology is being amortized over its estimated remaining
useful life of three years.

Operating Expenses

Sales and Marketing. Sales and marketing expenses include salaries,
commissions and bonuses earned by sales and marketing personnel, advertising and
product promotional activities and related facilities and other costs. Sales and
marketing expenses increased 14% to $17.8 million, or 44% of total revenues, for
the quarter ended December 29, 2000 from $15.5 million, or 51% of total revenues
for the quarter ended December 31, 1999. The dollar increase in sales and
marketing expenses was primarily due to the expansion of our sales force. The
decrease as a percentage of revenues was primarily attributable to the increase
in productivity of our sales force and the resultant increase in revenues. In
addition, there was approximately a $104,000 reduction in depreciation included
in sales and marketing related to the allocation and push down of negative
goodwill to the fair values of our tangible long-lived assets and intangible
assets acquired by SAC, effective November 22, 2000. We expect the reduction in
depreciation expense included in sales and marketing expenses to continue for
the average remaining useful lives of tangible long-lived assets acquired, of 1
to 2 years. However we do expect this reduction to be offset over time by
depreciation expense on future capital additions. In addition, we expect sales
and marketing expenses to increase in absolute dollars and to vary as a
percentage of revenues as we continue to increase our direct sales force and
promote our products and services.

Research and Development. Research and development expenses consist primarily
of personnel and related costs associated with the development of new products,
the enhancement and localization of existing products, quality assurance and
testing. Research and development expenses increased 6% to $7.1 million, or 18%
of total revenues, for the quarter ended December 29, 2000 from $ 6.7 million,
or 22% of total revenues, for the quarter ended December 31, 1999. Research and
development expenses increased 7% to $13.8 million, or 18% of total revenues,
for the six months ended December 29, 2000 from $ 12.8 million, or 22% of total
revenues, for the six months ended December 31, 1999. In addition, there was
approximately a $66,000 reduction in depreciation included in research and
development expenses related to the allocation and push down of negative
goodwill to the fair values of our tangible long-lived assets acquired by SAC,
effective November 22, 2000. We expect the reduction in depreciation expense
included in research and development expenses to continue for the average
remaining useful lives of tangible long-lived assets acquired, of 1 to 2 years.
However we do expect this reduction to be offset over time by depreciation
expense on future capital additions. The increases in research and development
expenses in absolute dollars were primarily due to increases in personnel and
related expenses. We expect research and development expenses to continue to
increase in absolute dollars as we continue to invest in our products.

General and Administrative. General and administrative expenses consist
primarily of personnel costs for finance, legal, human resources, information
systems and other administrative costs. General and administrative expenses
decreased 6% to $5.3 million, or 13% of total revenues for the quarter ended
December 29, 2000 from $5.6 million, or 19% of total revenues for the quarter
ended December 31, 1999. As a percent of total revenues, general and
administrative expenses decreased to 12% for the six months ended December 29,
2000 from 17% for the six months ended December 31, 1999. The decrease was
primarily attributable to a decline in bad debt expense during the applicable
periods because of a reduced accounts receivable balance and significantly
improved days sales outstanding. This decline is partially offset by increases
in personnel and other costs related to meeting our public reporting
requirements. We expect general and administration expenses to vary in absolute
dollars and as a percentage of revenues as we continue to develop our Company.

Amortization of Goodwill and Other Intangibles. Amortization of goodwill and
other intangibles decreased 8% to $456,000 for the quarter ended December 29,
2000 from $494,000 million for the quarter ended December 31, 1999. As a percent
of total revenues, amortization of goodwill and other intangibles decreased to
1% for the quarter ended December 29, 2000 from 2% for the quarter ended
December 31, 1999. The decrease in amortization of goodwill and other
intangibles was attributable to intangible assets that were fully amortized by
the end of the quarter ended December 31, 1999.

Restructuring Costs. There were no restructuring charges during the quarter
ended December 29, 2000. Restructuring charges were $573,000, representing 1%
of total revenues, for the six months ended December 29, 2000. The charges
relate to the closure of eight offices in Europe and are part of a restructuring
plan announced in September 2000 to consolidate the European sales organization
into fewer office locations. The charges were primarily comprised of costs
related to the termination of office leases and other related office closure
costs, as well as severance and benefits due to nine sales and marketing
employees who were terminated in September 2000. As at December 29, 2000,
$375,000 was included in accrued expenses and is expected to be paid by the
quarter ending March 30, 2001. Management believes that this restructuring is
not significant and it will not have a material impact on our future revenues,
operating costs or operating results.

Restructuring costs were $1.3 million for the quarter and six months ended
December 31, 1999, representing 4% and 2% of total revenues for the applicable
periods. The charges resulted from a Company-wide restructuring plan announced
in October 1999 to realign resources to better manage and control our business.
The charges were comprised of severance and benefits paid to approximately 125
employees from various locations and departments, including direct sales force
personnel, who were terminated on October 23, 1999. The decline in our direct
sales force as part of this restructuring contributed to the decline in revenues
during fiscal 2000 compared to fiscal 1999. The restructuring charges were paid
during fiscal 2000 and no amounts were outstanding as of June 30, 2000. We
believe there are no further restructuring liabilities related to this plan. In
addition, we believe that the future benefit of this plan, while not
quantifiable, is a more focused and productive company. Any benefits in the
form of cost reductions because of reduced salaries were realized by the end of
fiscal 2000 and are not expected to continue.

Write-off of In-process Research and Development. Write-off of in-process
research and development was $7.1 million or 18% and 9% of total revenues for
the quarter and six months ended December 29, 2000, respectively. As part of the

push down of the purchase price allocation of the SAC Transaction, the net fair
value of in-process research and development, as determined by an independent
valuation, was $7.1 million.

As the basis for identifying the in-process R&D, our developmental projects
were evaluated in the context of Financial Accounting Standards Board
Interpretation 4 and paragraph 11 of Financial Accounting Standards Board
("FAS") Statement No. 2 and FAS Statement No. 86. This write-off of in-process
research and development during the quarter ended and six months ended December
29, 2000 was necessary because the acquired technologies have not yet reached
technological feasibility and have no future alternative uses.

At the valuation date, we were in the process of developing three next
generation versions of existing technologies which were estimated to be about
85%, 70%, and 75% complete based on total man-hours and absolute time. We expect
these three projects to be completed in fiscal 2002, at an estimated cost of $20
million. The nature of the efforts required to develop the purchased in-process
research and development into commercially viable products principally relate to
the completion of all planning, designing, prototyping, verification and testing
activities that are necessary to establish that the product can be produced to
meet its design specifications, including functions, features and technical
performance requirements. We expect that the acquired in-process research and
development will be successfully developed, but we cannot ensure that commercial
viability of these products will be achieved.

The value of the purchased in-process research and development was determined
by estimating the projected net cash flows related to such products, including
costs to complete the development of the technology and the future revenues to
be earned on commercialization of the products. These cash flows were then
discounted back to their net present value. The projected net cash flows from
such projects were based on management's estimates of revenues and operating
profits related to these projects.

Unusual Items. Unusual items for the quarter and six month ended December 29,
2000 of approximately $1.9 million, or 5% and 2% of total revenues,
respectively, consist of the push down of compensation expense attributable to
our employees arising from the acceleration and net exercise of Seagate
Technology options held by our employees on November 22, 2000, the closing date
of the SAC Transaction resulting in the sale of Seagate Technology. Unusual
items for the quarter and six months ended December 29, 1999 of $242.2 million,
or 799% of total revenues and $242.6 million, or 417% of total revenues,
respectively, consist of the compensation expense and associated expenses
attributable to our employees related to the October 1999 Seagate Technology
Exchange of Shares.

Interest and other income (expense), net. Interest and other income (expense),
net consists of interest income, interest expense and net foreign currency
exchange gains or losses. Interest and other, net increased by 204% to income of
$897,000 for the quarter ended December 29, 2000, from expense of $859,000 for
the quarter ended December 31, 1999. Interest and other income (expense), net
fluctuates on a year-to year basis depending on fluctuations in Seagate
Technology LLC's in-house portfolio rate, the LIBOR interest rate, our net
outstanding loan balance with Seagate Technology and for the net foreign
currency gains or losses, change in foreign currency exchange rates. Interest is
computed on the outstanding loan balance from Seagate Technology on a monthly
basis at the LIBOR rate plus 2% per annum. The outstanding loan balance
fluctuates depending on working capital required to fund operations, offset by
or in addition to amounts due or receivable from Seagate Technology under a tax
allocation agreement we have with Seagate Technology. Interest income and
expense fluctuate from year to year because of fluctuations in the net
outstanding loan balance during the year. The net foreign currency exchange gain
or loss represents the impact of foreign currency fluctuations on the
translation of foreign currency transactions into U.S. dollars and varies
depending upon currency exchange rates.

Income Taxes. We recorded a $1.8 million benefit from income taxes for the
quarter ended December 29, 2000 compared with a $40.1 million benefit from
income taxes for the quarter ended December 31, 1999. The effective tax rate
used to record the benefit from income taxes for the quarter ended December 29,
2000 was less than the U.S. federal statutory rate primarily due to an increase
in the valuation allowance for U.S. deferred tax assets and push-down accounting
charges that are non-deductible in foreign jurisdictions. The effective tax
rate used to record the benefit from income taxes for the quarter ended December
31, 1999 was less than the U.S. federal statutory rate primarily due to non-
deductible expenses incurred in foreign jurisdictions in connection with the
October 1999 recapitalization and reorganization of Seagate Software, including
the October 1999 Seagate Technology Exchange of Shares.

From the date of closing of the SAC Transaction, Seagate Technology and we
will no longer file federal income tax returns on a consolidated basis.
Therefore, Seagate Technology would not benefit from nor would it reimburse us
pursuant to the Tax Allocation Agreement for tax losses sustained by us
subsequent to consummation of the transaction.

LIQUIDITY AND CAPITAL RESOURCES

Prior to the SAC Transaction, Seagate Technology, as part of a general
services agreement, provided cash management services to us. SAC continues to
provide these services. SAC uses a centralized cash management function for its
domestic operations, including certain of our domestic operations. We maintain
some other cash balances for our foreign operations. Year-end and quarter-end
cash balances represent both U.S. dollar and foreign currency deposits,
primarily Canadian Dollars, British Pounds Sterling, Japanese Yen and currencies
tied to the Euro. Our cash is maintained in highly liquid operating accounts and
primarily consists of bank deposits. At December 29, 2000, the Company's cash
balances totaled $6.5 million, an increase of $2.9 million from the fiscal year
ended June 30, 2000.

To date, operations have been financed by borrowings from Seagate Technology.
These borrowings were available to us under a revolving loan agreement with
Seagate Technology which was renewed in July 2000 with Seagate Technology LLC
("New Seagate"). The revolving loan agreement continues in effect subsequent to
the closing of the SAC Transaction on November 22, 2000 and expires on July 4,
2001. The revolving loan agreement provides for maximum outstanding borrowings
of up to $60.0 million. Cash in excess of amounts required for operating
activities funds the amounts due or payable under the revolving loan agreement.
Beginning in fiscal 2001, we earned interest income on a monthly basis on net
receivable balances outstanding at a rate calculated to be Seagate Technology
LLC's in-house portfolio yield (average of 7.67% for the six months ended
December 29, 2000) and were charged interest expense on a monthly basis on net
amounts payable at LIBOR plus 2% (average of 8.63% for the six months ended
December 29, 2000). During fiscal 2000 and fiscal 1999, we paid or earned
interest at the LIBOR rate plus 2% per annum on borrowings or amounts
receivable.

Upon expiration of the revolving loan agreement on July 4, 2001 we may require
additional financing through the end of fiscal 2002, and are in the process of
negotiating such additional financing with New Seagate. Should additional
financing not be available from New Seagate at terms that are satisfactory to us
and New Seagate, we may seek additional equity and financing from other sources,
subject to concurrence by the lenders which financed the SAC Transaction, as
well as our parent company. As a result of the SAC Transaction, we guaranteed
the debt used to finance the SAC Transaction and pledged a majority of our
assets. As a result of restrictive covenants under the debt agreement, our
ability to raise additional debt or equity from other sources may be limited.

Net cash provided by operating activities was $6.6 million for the six months
December 29, 2000 and net cash used in operating activities was $17.4 million
for the six months ended December 31, 1999, respectively. The cash provided by
operating activities for the six months ended December 29, 2000 was primarily
attributable to cash income of $2.8 million and

a $6.8 million, or 28% increase in our deferred revenue balance, offset by
changes in other working capital accounts. The increase in our deferred revenue
balance is consistent with the 32% increase in revenues for the six months ended
December 29, 2000 compared to December 31, 1999. The cash used in operating
activities for the six months ended December 31, 1999 was primarily attributable
to the $51.3 million increase in income taxes receivable related to the tax
benefit on compensation expense arising from the October 1999 Seagate Technology
Exchange of Shares. This is partially offset by a $15.9 million decline in
accounts receivable and a gain generated from operating activities of $28.4
million. The decline in the accounts receivable balance was the result of a
concerted effort to reduce days sales outstanding from previous levels.

Net cash used in investing activities was $3.0 million and $1.5 million for
the six months ended December 29, 2000 and December 31, 1999, respectively. Net
cash used in investing activities was primarily for new office facilities,
leasehold improvements, and purchases of computers, furniture and office
equipment to support our expansion. In fiscal 2001, we intend to invest
approximately $9.0 million in capital assets, of which approximately $3.0
million had been incurred as at December 29, 2000. These anticipated capital
expenditures include leasehold improvements for a new 129,000 square foot
facility in Vancouver, Canada, leasehold improvements in other office locations
and computer equipment. Additionally, product development activities may require
cash to acquire technology.

Net cash used in financing activities was $545,000 and net cash provided by
financing activities was $17.8 million for the six months ended December 29,
2000 and December 31, 1999, respectively. The net cash provided by (used in)
financing activities were attributable to amounts borrowed and repaid under the
revolving loan agreement with Seagate Technology to fund working capital and
operating activities. The revolving loan balance was offset by amounts due from
or payable to Seagate Technology under the tax allocation agreement. The net
revolving loan balance as of December 29, 2000 was a receivable balance of $31.3
million, an increase of $5.6 million from the receivable balance of $25.7
million at the end of fiscal 2000.

Although our Company has pledged its assets and guaranteed debt in connection
with the SAC Transaction, SAC will not require our cash flow to be used to
service the obligations pursuant to the senior secured credit facility and the
senior subordinated notes. We believe that none of the guarantees or pledges of
assets under the senior credit facilities or the guarantees under the Indenture
are likely to be invoked.

FACTORS AFFECTING FUTURE OPERATING RESULTS

You should be alerted that the following risks and uncertainties could affect
and in some instances in the past have affected our actual results and could
cause our results for future periods to differ materially. Additional risks and
uncertainties that we are unaware of or that we currently deem immaterial also
may become important factors that may adversely affect our results of
operations, financial condition or business.

Risks Associated with the SAC Transaction

As a result of the SAC Transaction closing, our business could be harmed
because:

. we will not receive any future benefits from our recently terminated
intercompany tax allocation agreement, under which we received substantial
cash payments, in the form of an offset to our loan under the revolving
loan agreement, from Seagate Technology for our income tax losses utilized
by Seagate Technology relative to our tax loss position;

. we have pledged a majority of our assets to guarantee the debt obligation
used to finance the SAC Transaction, which could impair our ability to
raise additional capital or debt;

. we may not continue to receive certain administrative services and support
from Seagate Technology after the expiration of our general services
agreement if Seagate Technology does not renew it, which may result in
additional charges or expenses to contract or perform these services
ourselves;

. we may not continue to have access to the same level of administrative
services and support from Seagate Technology after the SAC Transaction due
to the more limited resources of Seagate Technology, which may be a result
of the burden of servicing the debt used to finance the SAC Transaction,
and we may incur additional changes or expenses to provide these services
internally or obtain them from a third party;

. we may not be able to continue to use the Seagate name and trademark, which
could harm customers' recognition of our brand; and

. we continue to rely on our parent company and its affiliates to finance our
operating and capital needs.

Risks from Restrictions under the Covenants of the Debt Financing of the SAC
Transaction

SAC and certain of its subsidiaries including Seagate Software and certain of
its subsidiaries are guarantors under the senior credit facilities and senior
subordinated notes used to finance the SAC Transaction. In addition, the
majority of SAC's and certain of its subsidiaries assets, including Seagate
Software's assets and its capital stock have been pledged against the debt under
the senior credit facility.

SAC, and certain of its subsidiaries, including Seagate Software and certain
of its subsidiaries, has agreed to certain covenants under this agreement
including restrictions on future equity and borrowing transactions, business
acquisitions and disposals, making certain restricted payments and dividends,
making certain capital expenditures, incurring guarantee obligations and
engaging in mergers or consolidations. Further, Seagate Software, as part of
the consolidated group, is subject to certain financial covenants that are
assessed on the consolidated operating results and financial position of SAC and
its subsidiaries.

If SAC is unable to meet its debt obligations, we may be required to pay
amounts due under these debt agreements and may need to liquidate assets or the
Company as a whole to meet the lenders demands in such cases.

If SAC is unable to meet the consolidated financial covenants under the debt
agreements, early repayment of debt may force Seagate Software to contribute to
the debt payments under its guarantee and pledge obligations or to forgoe
amounts receivable from Seagate Technology. Currently the covenants are being
met.

The restrictive covenants under the debt agreements may prevent the Company
from growing through acquisitions, consolidations and certain capital
expenditures if approval from the lenders for such covenants are not obtained.

The Company may be unable to obtain debt or other financing to support its
liquidity requirements and growth if waiver approval of the debt covenants in
this respect cannot be obtained from the lenders.

We Remain Liable to Third Parties after the SAC Transaction and the Merger

In the SAC Transaction, Seagate Technology sold all of its operating assets
(including us) to SAC, and SAC and we have agreed to assume and indemnify
VERITAS for substantially all liabilities arising in connection with our
operating assets. As a result, we continue to face possible liabilities for
actions, events or circumstances arising or occurring both before and after the
SAC Transaction and the Merger. Some areas of potential liability include:

. tax liabilities;

. obligations under federal, state and foreign pension and retirement benefit
laws; and

. existing and future litigation.

As a result of our obligations to indemnify VERITAS, we could experience a
material adverse effect on our business and financial performance.

Risk from Change in Composition of our Board of Directors.

As a result of the SAC Transaction, the composition of our board of directors
and the direction of our business may change.

Upon the closing of the SAC Transaction in November 2000, our Company became a
majority owned subsidiary of Seagate Software (Cayman) Holdings, a wholly owned
subsidiary of SAC. As a result of the change in ownership, SAC controls more
than 85% of our common stock on a fully diluted basis and can effectively
replace the members of our board of directors. Although SAC has not taken such
action to date, it may do so in the future. In addition, as our majority
stockholder and through its influence on our board of directors, SAC has the
ability to change the direction of our business, our operating budget, the
management team and possible acquisition or sales of our Company.

Risks from Potential Fluctuations in Annual and/or Quarterly Operating Results

We often experience a high volume of sales at the end of our quarter.
Therefore, it may be late in the quarter before we are able to determine that
our costs are too high in relation to our actual sales. If this were to happen,
we would not be able to reduce these costs and, consequently, we may experience
a net loss or our net income may be reduced. In addition, our operating results
have been and, in the future, may be subject to significant quarterly
fluctuations as a result of a number of other factors including:

. the size and timing of orders from and shipment of products to major
customers;

. our ability to develop, introduce and market new products and product
enhancements in a timely fashion;

. market acceptance of and demand for business intelligence and enterprise
reporting software, generally, and our products in particular;

. the length of our sales cycles;

. personnel changes;

. our success in expanding our direct sales force and increasing our
indirect distribution;

. changes in the prices of our products and our competitors' products;

. the mix of products and services of our customer orders, which can affect
the timing of our revenue recognition;

. the amount of customization required for our customer orders, which can
affect the timing of our revenue recognition;

. our customers' preference for competing technologies in lieu of our
products;

. our inability to reduce our costs in relation to our revenues, because we
ship our products shortly after we receive orders, and we operate with no
backlog;

. the impact of changes in foreign currency exchange rates on the cost of
our products and the effective price of such products to foreign consumers;

. changes in our operating expense;

. competition and consolidation in our industry;

. the timing of new product releases; and

. seasonal factors, such as our typically lower pace of sales in our first
fiscal quarter.

Risks of Revenue Concentration

Our new products under development must be accepted by customers in order for
us to be successful. If potential customers do not purchase our products as a
result of competition, technological change or other factors, then our business,
operating results and financial condition would be materially adversely
affected.

Our software products have a fixed life cycle that is difficult to estimate.
If we do not develop and introduce new products before our existing products
have completed their life cycles, then we will be unable to sustain or increase
our level of sales. We cannot be sure that we will continue to be successful in
marketing our key products or any new products, applications or product
enhancements.

We currently obtain most of our revenue from a limited number of software
products and anticipate this to be the case in the foreseeable future. Sales to
a small number of customers generate a disproportionate amount of our revenues.
For example, we derived 20% of our revenue from sales to Ingram in fiscal year
2000. If Ingram, or any other significant customer, reduces its purchases from
us, our business, financial condition and results of operations would be
materially adversely affected unless we substantially increase sales to other
customers. Because our contracts with Ingram and other customers do not require
them to purchase any specified number of software licenses from us, we cannot be
sure that our significant customers will continue to purchase our products at
their current levels.

Risks Associated with Long Sales Cycle

To date, our customers have typically invested substantial time, money and
other resources and involved many people in the decision to license our software
products, including proprietary Seagate Info and Seagate Holos. As a result, we
may wait six to nine months after the first contact with a customer for that
customer to place an order while they seek internal approval for the purchase of
our products. During this long sales cycle, events may occur that affect the
size, timing or even completion of the order. For example, the customer's budget
and purchasing priorities may change, or new competing technology may enter the
marketplace. We may lose sales or experience reduced sales as the result of this
long sales cycle, which would reduce our revenues.

Risks Associated with Relying on Sales Staff, Channel Partners and Strategic
Relationships

We sell and support our products through:

. sales staff;

. third party distributors; and

. OEMs.

We also have a strategic relationship with Microsoft that enables us to bundle
our products with Microsoft's products, and we have developed and are developing
certain utilities and products to be a part of Microsoft's products. If
Microsoft reduces the nature and extent of its relationship with us, our
business, operating results and financial condition would be materially
adversely affected.

We have made significant expenditures in recent years to expand our sales and
marketing force. Our future success will depend in part upon the productivity of
our sales and marketing force. We believe that our ability to continue to
attract, integrate, train, motivate and retain new sales and marketing personnel
will also affect our success. We face intense competition for sales and
marketing personnel in the software industry, and we cannot be sure that we will
be successful in hiring and retaining such personnel in accordance with our
plans. Even if we hire and train sufficient numbers of sales and marketing
personnel, we cannot be sure that our recent and other planned expenses will
generate enough additional revenue to exceed these costs.

We generate a substantial portion of our revenue by selling our products to
distributors and OEMs. Our distributors and OEMs decide whether or not to
include our products with those they sell and generally can carry and sell
product lines that are competitive with ours. Because OEMs and distributors
carry other product lines and are not required to make a specified level of
purchases from us, we cannot be sure that they will prioritize selling our
products. These distributors are also generally entitled to terminate their
relationship with us without cause. Our business, financial results and
operating condition would be materially adversely affected if some or all of our
current distributors and OEMs discontinued selling our products and we failed to
find comparable replacements.

New Product Development and Technological Change

Our products are used in combination with other software. Our future success
depends on our ability to continue to support a number of popular operating
systems and databases. The emergence of new industry standards in related fields
may adversely affect the demand for our

existing products. This could happen, for example, if new web standards and
technologies emerged that were incompatible with customer deployments of our
applications. Our applications run primarily on the Microsoft operating systems.
Therefore, our ability to increase sales currently depends on the continued
acceptance of the Microsoft's operating system products.

Business intelligence applications are inherently complex, and it can take a
long time to develop and test major new products and product enhancements. In
addition, customers may delay their purchasing decisions because they anticipate
that new or enhanced versions of our products will soon become available. We
cannot be sure that we will succeed in developing and marketing, on a timely and
cost-effective basis, product enhancements or new products that respond to
technological change, introductions of new competitive products or customer
requirements, nor can we be sure that our new products and product enhancements
will achieve market acceptance.

The markets for our products are characterized by rapidly changing technology,
changing customer needs, evolving industry standards and frequent new product
introductions and enhancements. Our future success therefore will depend on our
ability to design, develop, test and support new software products and
enhancements on a timely and cost effective basis.

If we do not respond to changing market conditions, emerging industry
standards and changing customer requirements by developing and introducing new
products in a timely manner, then our business, operating results or financial
condition could be materially adversely affected.

Risks of Systems Failures

Our operations are dependent on our ability to protect our computer equipment
and the information stored in our databases from damage by catastrophic events
such as fire, natural disaster, power loss, telecommunications failures and
unauthorized intrusion. We believe that we have taken prudent measures to reduce
the risk of interruption in our operations. However, we cannot be sure that
these measures are sufficient. Any damage or failure that causes interruptions
in our operations could have a material adverse effect on our business, results
of operations and financial condition. For example, although we maintain
business insurance, our operations may be subject to some disruption that is not
covered under our policies or the dollar amount of the damages may exceed the
applicable coverage limits.

Risks from International Operations

We have significant international operations including development facilities,
sales personnel and customer support operations. We derived 31% and 36% of our
total revenue from sales outside of the United States for the quarters ended
December 29, 2000 and December 31, 1999, respectively, and 30% and 36% for the
six months ended December 29, 2000 and December 31, 1999, respectively. Our
foreign operations are subject to certain inherent risks including:

. fluctuations in currency exchange rates;

. import and export restrictions, as well as tariffs;

. lack of acceptance of localized products;

. longer payment cycles for sales in certain foreign countries;

. difficulties in staffing and managing international operations;

. seasonal reductions in business activity in the summer months in Europe and
certain other countries;

. increases in tariffs, duties, price controls, other restrictions on foreign
currencies or trade barriers imposed by foreign countries;

. potentially adverse tax consequences;

. management of an enterprise spread over various countries;

. the burden of complying with a wide variety of foreign laws; and

. political unrest, particularly in areas in which we have facilities.

These factors could have a material adverse effect on our business, operating
results and financial condition in the future. In addition, we intend to
continue to invest resources to expand our sales and support operations into
strategic international locations. If the international revenues generated by
these expanded operations are not adequate to offset the expense of establishing
these foreign operations then our business, operating results and financial
condition could be materially harmed.

Our products are generally priced in U.S. dollars even when sold to customers
who are located outside of the United States. Currency instability in foreign
financial markets may make our products more expensive than products sold by
other manufacturers that are priced in one of the effected currencies.
Therefore, foreign customers may reduce purchases of our products.

Risks from Conversion to Euro

On January 1, 1999, certain member states of the European Economic Community
fixed their respective currencies to a new currency, the Euro. On that day, the
Euro became a functional legal currency within these countries. Until December
31, 2001, business in these countries will be conducted both in the existing
national currency, such as the French Franc or the German Mark, as well as the
Euro. Companies operating in or conducting business in these countries will

need to ensure that their financial and other software systems are capable of
processing transactions and properly handling the existing currencies and the
Euro.

We are implementing updates to our internal systems to address conversion to
the Euro. To date, we have not conducted any significant sales or paid any
significant expenses in the Euro. However, we expect to begin to do so in 2001.
We do not presently expect that introduction and use of the Euro will materially
affect our foreign exchange activities or will result in any material increase
in our costs. While we will continue to evaluate the impact of the Euro
introduction over time, based on currently available information, we do not
believe that the introduction of the Euro will have a material adverse impact on
our financial condition or overall trends in results of operations, nor have the
introduction and use of the Euro had such effects to date.

Dependence on Proprietary Technology

Our success is heavily dependent on our proprietary technology. We rely
primarily on the following to protect our proprietary rights:

. patents;

. copyrights;

. trademarks and trade secret rights;

. state and common law trade secret laws;

. confidentiality procedures;

. employee and third party nondisclosure agreements; and

. licensing restrictions.

Such efforts provide only limited protection. We also rely in part on shrink-
wrap licenses that are not signed by end users and, therefore, may be
unenforceable under the laws of certain jurisdictions.

Even though we take these steps, we have only limited protection for our
proprietary rights in our software, which makes it difficult to prevent third
parties from infringing upon our rights. Someone may be able to copy or
otherwise obtain and use our products and technology without authorization.
Policing unauthorized use of our products is difficult. Although we cannot
determine the extent of existing piracy of our products, we expect that software
piracy will be a persistent problem. Third parties may also develop similar
technology independently. We believe that effective protection of intellectual
property rights is unavailable or limited in certain foreign countries. In
addition, the laws of many countries do not protect our proprietary rights to as
great an extent as the United States.

Our competitors may successfully challenge the validity or scope of our
patents, copyrights and trademarks. We cannot be sure that our patents,
copyrights and trademarks will provide us with a competitive advantage or that
our competitors will not design around any patents issued to us. We are not
aware that any of our products infringe upon the proprietary rights of third
parties, but, in the future, third parties may claim that our current or future
products infringe that party's

rights. We believe that software product developers will be increasingly subject
to claims of infringement as the functionality of products in our industry
segment overlaps. If we were subject to a claim of infringement, regardless of
our merit, such claim would have the following impacts on us that could have a
material adverse effect on our business, operating results or financial
condition in the following ways:

. require costly litigation to resolve;

. absorb significant management time;

. require us to enter into unfavorable royalty or license agreements;

. require us to cease selling our products;

. require us to indemnify our customers; or

. require us to expend additional development resources to redesign our
products.

Government Regulation may Impact Our Business

Due to increasing use of the internet and the dramatically increased access to
personal information, the U.S. federal and various state and foreign governments
have recently proposed increased limitations on the collection and use of
personal information of users of the internet and other public data networks.

Although we attempt to obtain permission from users prior to collecting or
processing their personal data, new laws or regulations governing personal
privacy may change the ways in which we and our customers and affiliates may
gather this personal information. In addition, in Europe, the European Union
Directive on Data Protection, a comprehensive administrative and regulatory
program, currently limits the ability of companies to collect, store and
exchange personal data with other entities.

Our growing business, eBusiness and our marketing strategy depend upon our
receiving personal information about subscribers. Privacy concerns may cause
some potential subscribers to forego subscribing to our service. If new laws or
regulations prohibit us from using information in the ways that we currently do,
or if users opt out of making their personal preferences and information
available to us and our affiliates, this could have a material adverse effect on
our business, operating results and financial condition. If personal information
is misused by us, our legal liability may be increased and our growth may be
limited.

Our success depends on increased use of the internet for eCommerce and other
commercial and personal activities. Consumers and businesses may choose not to
use the internet for a number of reasons, including:

. internet access costs;

. inconsistent service quality;

. unavailability of cost-effective, high-speed service;

. perceived security risks, such as a lack of confidence in encryption
technology; and

. privacy concerns.

In addition, governmental agencies and legislators may generate new laws and
regulations covering issues such as obscenity, freedom of expression, pricing,
content and quality of products and services, copyright and other intellectual
property issues and taxation. Such legislation or rule making could dampen the
growth in internet use generally and decrease the acceptance of the internet as
a commercial medium. If use of the internet decreases, some of our customers may
purchase fewer licenses for our software products and our operating results
would be harmed.

Software Product Errors or Defects

Software products as complex as those we offer frequently contain undetected
errors, defects, failures or viruses especially when first introduced or when
new versions or enhancements are released or are configured to individual
customer systems. Despite product testing, our products may contain undetected
defects, errors or viruses. If our products have errors, they could:

. cause a negative customer reaction that could reduce future sales;

. generate negative publicity regarding us and our products;

. harm our reputation;

. reduce or limit customers' adoption of our products;

. require us to incur additional service and warranty costs;

. require us to make extensive changes to the product;

. require us to divert additional development resources; or

. result in customers' delaying their purchase until the errors or defects
have been remedied, which would cause our revenues to be reduced or
delayed.

Any of these occurrences could have a material adverse effect upon our
business, operating results or financial condition.

Our license agreements with our customers typically contain provisions
designed to limit our exposure to potential product liability claims. Existing
or future federal, state or local laws or ordinances or unfavorable judicial
decisions may make these provisions ineffective. Because our products are used
in system management, resource optimization and business intelligence
applications, our liability could be substantial if we receive an unfavorable
judgment. In addition, our insurance against product liability risks may not be
adequate to cover a potential claim. These factors could have a material adverse
effect upon our business, operating results or financial condition.

Dependence on Key Personnel

Our future performance depends to a significant degree upon the continued
service of our key members of management including particularly our President
and Chief Executive Officer, Gregory B. Kerfoot, our Chief Operating Officer,
William Gibson and our Chief Financial Officer, Eric Patel, as well as other of
our marketing, sales and product development personnel. We do not maintain key
man insurance on any of our officers or key employees. None of our officers or
key employees is bound by an employment agreement for any specific term. The
loss of one or more of our key personnel would have a material adverse effect on
our business, operating results and financial condition. We believe our future
success will also depend in large part upon our ability to attract, train and
retain highly skilled management, marketing, sales and product development
personnel. We have experienced intense competition for such personnel and there
can be no assurance that we will be able to retain our key employees or that we
will be successful in attracting, assimilating and retaining them in the future.

Facing Risks of Litigation

On November 10, 1997, Vedatech commenced an action in the High Court of
Justice Chancery Division in the United Kingdom against Seagate Software
Information Management Group Ltd., a wholly owned subsidiary of Seagate
Software, claiming breach of an oral agreement and infringement of a Vedatech
U.K. copyright in the Japanese translation of one of our products and is seeking
monetary and injunctive relief. No specific damage amount has yet been claimed
with the exception of $240,000 ((Yen)26.0 million) for unpaid invoices in
connection with the quantum meruit claim. Vedatech seeks to enjoin us from
infringing the U.K. copyright and seeks forfeiture to Vedatech of all infringing
software copies. We have hired local counsel in the U.K., reviewed documents,
conducted interviews and participated in the discovery process. On August 22,
2000, Vedatech requested and obtained permission from the court to amend its
action to include claims for unjust enrichment, unlawful interference and
quantum meruit. We have deposited with the court an amount equal to $200,000 in
relation to the quantum meruit claim. We have filed an amended response.
Discovery is ongoing, and the court has set the matter for trial on June 5,
2001. With the exception of the quantum meruit claim, we believe the complaint
has no merit, and intends vigorously to defend the action. However, if an
unfavorable outcome were to arise, there can be no assurance that such outcome
would not have a material adverse affect on our liquidity, financial position or
results of operations. The outcome of this matter and amount of related claims
are not determinable at this time.

In addition to the foregoing, we are subject to other litigation in the
ordinary course of our business. While we believe that the ultimate outcome of
these matters will not have a material adverse affect on us, the outcome of
these matters is not determinable and negative outcomes may adversely affect our
financial position, liquidity, or results of operations.

Revenue Recognition

In accordance with generally accepted accounting principles, several factors
may require us to defer recognition of our revenues for a significant period of
time. Such revenue recognition factors include:

. whether the revenues are associated with the performance of services;

. whether the license agreement relates to currently unavailable software
products;

. whether the license agreement includes customer acceptance based on future
performance obligations; and

. whether license fees are sold in a multiple element contract where
insufficient VSOE exists relating to the fair value of an undelivered
element.

Our deferred revenue as of December 29, 2000 and June 30, 2000 was $25.0
million and $19.5 million, respectively. The timing of our ultimate recognition
of our deferred revenue is dependent upon the fulfillment of various obligations
such as services and also by certain actions performed by our customers.
Deferred revenue at any specific date may not be a true representation of actual
revenues for any succeeding period.

Our ability to recognize revenues is based upon whether delivery has occurred,
evidence of an arrangement exists, the fee is fixed or determinable and
collectability is deemed probable by management. As guidance on revenue
recognition for software companies is evolving and subject to ongoing
interpretation by government and other regulatory bodies, there can be no
assurance that our current revenue recognition policies will always be in full
compliance. If we were forced to change our revenue recognition policy due to
perceived failure to fully adhere to revenue recognition policies, our financial
condition could be materially adversely affected.

There is no established trading market for our common stock, and we do not
expect that any trading market will be established.

Our common stock is not listed on any stock exchange, over-the-counter market
or other quotation system. We do not expect to register our common stock for
sale to the public or to apply for quotation of our shares on any exchange,
over-the-counter market or quotation system. As a result, a purchaser of our
common stock will not be able to dispose of the shares the purchaser acquires
from us unless the purchaser can rely on an applicable exemption from
registration, such as Rule 144 under the Securities Act of 1933. We may not
comply with the criteria required for a holder of our common stock to utilize a
given exemption.

In the event that a trading market for our common stock develops, the market
prices of our common stock will likely be subject to substantial price and
volume fluctuations due to a number of factors, many of which will be beyond our
control, which may prevent our shareholders from reselling our common stock at a
profit.

The securities markets have experienced significant price and volume
fluctuations in the past, and the market prices of the securities of technology
companies have been especially volatile. This market volatility, as well as
general economic, market or political conditions, could reduce the market price
of our common stock in spite of our operating performance. In addition, our
operating results could be below the expectations of investment analysts and
investors, and in response the market price of our common stock could decrease
significantly. Investors may be unable to resell their shares of our common
stock at or above the purchase price paid by the investors. In the past,
companies that have experienced volatility in the market price of their stock
have been the object of securities class action litigation. If we were the
object of securities class action litigation, it could result in substantial
costs, liabilities and a diversion of management's attention and resources.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The following discusses our exposure to market risk related to changes in
interest rates, equity prices and foreign currency exchange rates. This
discussion contains forward-looking statements that are subject to risks and
uncertainties. Actual results could vary materially as a result of a number of
factors including those set forth in the "Factors Affecting Future Operating
Results" section.

As of December 29, 2000 and June 30, 2000, our cash balances were mostly held
by our foreign operations. The remainder of our cash balances is centrally
managed by SAC. If cash from operations is not sufficient to fund working
capital and operating activities, Seagate Technology LLC provides financing to
us through a revolving loan agreement. The revolving loan agreement provides for
maximum outstanding borrowings of up to $60.0 million and was renewed on July 4,
2000. As of December 29, 2000 and June 30, 2000, the revolving loan balance was
a net receivable from Seagate Technology and its affiliates of $31.3 million and
$25.7 million, respectively. Beginning in fiscal 2001, we earned interest income
on a monthly basis on net receivable balances outstanding at a rate calculated
to be Seagate Technology LLC's in-house portfolio yield (average of 7.67% for
the six months ended December 29, 2000) and were charged interest expense on a
monthly basis on net amounts payable at LIBOR plus 2% (8.63% for the quarter
ended December 29, 2000). During fiscal 2000, we paid or earned interest at the
LIBOR rate plus 2% per annum on net outstanding balances payable or receivable.
The average rate of interest was 7.85% for the year ended June 30, 2000. Our
interest income or expense therefore will fluctuate depending on fluctuations in
Seagate Technology LLC's in-house portfolio yield, the LIBOR rate and
fluctuations in the amounts borrowed from Seagate Technology to fund working
capital and operating activities. Net interest income of $830,000 and net
interest expense of $1,089,000 were incurred on the net receivable/loan balance
for the six months ended December 29, 2000 and six months ended December 31,
1999, respectively.

We do not have any investments in equity or debt securities traded in the
public markets. Therefore, we do not currently have any direct equity price
risk.

A majority of our sales are in the United States and therefore are recorded in
U.S. dollars, the currency in which we report our operating results. We conduct
a portion of our business in currencies other than the U.S. dollar. The
functional currency of most of our foreign operations is the local currency. In
such cases, assets and liabilities recorded in foreign currencies are
translated at the exchange rate on the balance sheet date. Translation
adjustments resulting from this process are charged or credited to other
comprehensive income. Revenues and expenses are translated at average rates of
exchange prevailing during the year. Gains and losses on foreign currency
transactions are included in other expenses. For those foreign operations whose
functional currency is the U.S. dollar, financial results are translated using a
combination of current and historical exchange rates and any translation
adjustments are included in net earnings, along with all transaction gains and
losses for the period. Historically, we have generated revenues and incurred a
significant proportion of our expenses in Canadian Dollars, Deutsche Marks,
British Pounds Sterling, French Francs, the Australian Dollar and Japanese Yen
and we expect to generate a portion of our revenues and expenses in the Euro in
the future. Certain European Union member states have fixed the value of their
respective national currencies to the Euro, and our results of operations are
affected by the U.S. dollar to Euro exchange rate. Since the adoption of the
Euro in January 1999, the overall trend for the Euro has been a devaluation
compared to the U.S. dollar. During the six months ended December 29, 2000,
approximately 4% of our revenues were denominated in currencies for which a
fixed value to the Euro has been established. Currently, none of our foreign
operations have significant transactions in the Euro, however we anticipate
implementing Euro-based transactions effective January 2001. To date, the
foreign exchange gains and losses on transactions and revenues reported by our
foreign

subsidiaries have not been significant. In addition, since most of our foreign
operations conduct business in their local currency, our earnings are not
significantly impacted by fluctuations in exchange rates. Translation
adjustments from consolidation of such foreign operations are presented within
comprehensive income. However, we cannot provide any assurance that foreign
currency denominated transactions will continue to be insignificant as revenues
from the foreign operations increase or there are significant exchange rate
fluctuations. We cannot predict the effect of exchange rate fluctuations upon
our future operating results. For the six months ended December 29, 2000, we did
not engage in a foreign currency hedging program to reduce any exposure we may
have had. For the six months ended December 29, 2000, a combined variation of
10% of the exchange rates of the main currencies in which we conduct
business--the Canadian Dollar, the Australian Dollar, the Euro, the British
Pound Sterling and the Japanese Yen would have generated a combined 1% variation
of our revenues, offset by a 5% combined variation of expenses.

PART II
OTHER INFORMATION

Item 1. Legal Proceedings

The following discussion contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. We are subject to litigation arising in the
ordinary course of our business. While we believe that the ultimate outcome of
these actions will not have a material adverse effect on us, the outcome of
these actions is not determinable and negative outcomes may adversely effect our
financial position, liquidity, or results of operations. Accordingly, actual
results could differ materially from those projected in the forward-looking
statements.

On November 10, 1997, Vedatech commenced an action in the High Court of
Justice Chancery Division in the United Kingdom against Seagate Software
Information Management Group Ltd., a wholly owned subsidiary of Seagate
Software, claiming breach of an oral agreement and infringement of a Vedatech
U.K. copyright in the Japanese translation of one of Seagate Software's products
and is seeking monetary and injunctive relief. No specific damage amount has yet
been claimed with the exception of $240,000 ((Yen)26.0 million) for unpaid
invoices in connection with the quantum meruit claim. Vedatech seeks to enjoin
Seagate Software from infringing the U.K. copyright and seeks forfeiture to
Vedatech of all infringing software copies. Seagate Software has hired local
counsel in the U.K., reviewed documents, conducted interviews and participated
in the discovery process. On August 22, 2000, Vedatech requested and obtained
permission from the court to amend its action to include claims for unjust
enrichment, unlawful interference and quantum merit. Seagate Software has
deposited with the court an amount equal to $200,000 in relation to the quantum
meruit claim. Seagate Software has filed an amended response. Discovery is
ongoing, and the court has expressed its intent to set the matter for trial on
June 5, 2001. With the exception of the quantum meruit claim, Seagate Software
believes the complaint has no merit, and intends vigorously to defend the
action. However, if an unfavorable outcome were to arise, there can be no
assurance that such outcome would not have a material adverse affect on Seagate
Software's liquidity, financial position or results of operations. The outcome
of this matter and amount of related claims are not determinable at this time.

In addition to the foregoing, Seagate Software is subject to other litigation
in the ordinary course of our business. While Seagate Software believes that the
ultimate outcome of these matters will not have a material adverse effect on
Seagate Software, the outcome of these matters is not determinable and negative
outcomes may adversely affect Seagate Software's financial position, liquidity,
or results of operations.

Item 2. Change in Securities and Use of Proceeds

Seagate Software filed a Form S-8 with the Securities Exchange Commission on
December 28, 2000. From this date to the quarter end, the following occurred:
An employee of Seagate Software exercised 556 options for 556 shares of Seagate
Software Common Stock for cash consideration of $2,224. These proceeds will be
used for general operating cash needs. In addition, one exercise reported at
December 28, 2000 for 10,000 shares of Seagate Software Common Stock was
cancelled and will be re-exercised in the quarter ended March 30, 2000.

Furthermore, under Item 701 of Regulation S-K and pursuant to Rule 463 of the
Securities Act of 1933, Seagate Software provides the following information.

During the quarter ended December 29, 2000, employees of Seagate Software
exercised 56,770 options for 56,770 shares of Seagate Software Common Stock for
cash consideration of $227,080. The proceeds of these exercises will be used for
general operating cash requirements.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

The following exhibits are included herein:

10.1 Seagate Software Information Management Group, Inc. Software License
Agreement between Seagate Software Information Management Group, Inc. and
Seagate Technology.

(b) Reports on Form 8-K

Seagate Software did not file any reports on Form 8-K during the quarter
ended December 29, 2000. The following report on Form 8-K was filed with
the Securities and Exchange Commission subsequent to December 29, 2000:

A Form 8-K dated February 5, 2001 presenting a full set of pro forma
financial statements for the fiscal year ended June 30, 2000 and the
quarter ended September 29, 2000.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the undersigned and
in the capacities and on the dates indicated.

Signature Title Date
--------- ----- ----

/s/ Gregory B. Kerfoot President and Chief February 12, 2001
______________________________ Executive Officer
(Gregory B. Kerfoot) (Principal Executive
Officer)

/s/ Eric Patel Chief Financial Officer February 12, 2001
______________________________ (Principal Accounting and
(Eric Patel) Financial Officer)