##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




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Form 10-K



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|   |  |                                                                                           
|-- |  | ------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
	15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934    
|  
|   |  | For the fiscal year ended December 31,
	2001                                              
|  
|or
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
	15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934
|  
|   |  | For the transition period
	from           to           .                                  

Commission File Number: 0-26811

Nexprise, Inc.

(Exact Name of Registrant as Specified in Its
Charter)


|                                                                        |  |                                                   
|----------------------------------------------------------------------- |  | --------------------------------------------------
|Delaware(State or other jurisdiction of
	Incorporation or Organization) |  | 77-0465496(I.R.S. Employer
	Identification Number)

701 Palomar Airport Road, Suite 110,
Carlsbad, CA 92009

(Address of Principal Executive
Offices)


Registrants telephone number, including
area code:

760-804-1333


Securities registered pursuant to
Section 12(b) of the Act:

None


Securities registered pursuant to
Section 12(g) of the Act:

Common Stock, $.0002 par value


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 þ          No o

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

At January 31, 2002, the aggregate market
value of the Common Stock held by non-affiliates of the
registrant was approximately $12,400,000

At January 31, 2002, the number of shares of
Common Stock outstanding was 46,252,604

DOCUMENTS INCORPORATED BY REFERENCE

Definitive Proxy Statement for the Companys
2002 Annual Meeting of Stockholders 

Part III of this Form 10-K.




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TABLE OF CONTENTS



|              |                                                                                               |                                                           |  |  |  |  |  | 
|------------- | --------------------------------------------------------------------------------------------- | --------------------------------------------------------- |  |  |  |  |  | 
|PART 1       
|              | Item 1. Business                                                                             
|              | Item 2. Properties                                                                           
|              | Item 3. Legal Proceedings                                                                    
|              | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II      
|              | Item 5. Market for the Registrants Common Equity and Related Stockholder Matters            
|              | Item 6. Selected Consolidated Financial Data                                                 
|              | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|              | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                          
|              | Item 8. Financial Statements and Supplementary Data                                          
|              |                                                                                               | REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS        
|              |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEET                     
|              |                                                                                               | CONSOLIDATED STATEMENTS OF OPERATIONS                    
|              |                                                                                               | CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
|              |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS                    
|              |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS               
|              | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|PART III     
|              | Item 10. Directors and Executive Officers of the Registrant                                  
|              | Item 11. Executive Compensation                                                              
|              | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|              | Item 13. Certain Relationships and Related Transactions                                      
|PART IV      
|              | Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|SIGNATURES   
|EXHIBIT INDEX
|Exhibit 2.11 
|Exhibit 10.24
|Exhibit 10.25
|Exhibit 10.26
|Exhibit 10.27
|Exhibit 10.28
|Exhibit 23.1 



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##### Table of Contents



NEXPRISE, INC.

FORM 10-K ANNUAL REPORT

For the Fiscal Year Ended December 31,
2001


|         |  |                                                                                       |  |      |    | 
|-------- |  | ------------------------------------------------------------------------------------- |  | ---- | -- | 
|         |  |                                                                                       |  | Page
|         |  |                                                                                       |  |     
|PART I  
|Item 1   |  | Business                                                                              |  |      | 2  | 
|Item 2   |  | Properties                                                                            |  |      | 6  | 
|Item 3   |  | Legal Proceedings                                                                     |  |      | 7  | 
|Item 4   |  | Submission of Matters to a Vote of Security
	Holders                                  |  |      | 7  | 
|PART II 
|Item 5   |  | Market for the Registrants Common Equity
	and Related Stockholder Matters            |  |      | 8  | 
|Item 6   |  | Selected Consolidated Financial Data                                                  |  |      | 9  | 
|Item 7   |  | Managements Discussion and Analysis of
	Financial Condition and Result of Operations |  |      | 10 | 
|Item 7A  |  | Quantitative and Qualitative Disclosure About
	Market Risk                            |  |      | 25 | 
|Item 8   |  | Financial Statements and Supplementary Data                                           |  |      | 26 | 
|Item 9   |  | Changes in and Disagreements with Accountants on
	Accounting and Financial Disclosure |  |      | 53 | 
|PART III
|Item 10  |  | Directors and Executive Officers of the Registrant                                    |  |      | 53 | 
|Item 11  |  | Executive Compensation                                                                |  |      | 53 | 
|Item 12  |  | Security Ownership of Certain Beneficial Owners
	and Management                       |  |      | 53 | 
|Item 13  |  | Certain Relationships and Related Transactions                                        |  |      | 53 | 
|PART IV 
|Item 14  |  | Exhibits, Financial Statement Schedules and
	Reports on Form 8-K                      |  |      | 53 | 

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PART 1




Item 1.     Business

Overview

NexPrise, Inc. (the Company,
NexPrise, us, our or
we), formerly known as both Ventro Corporation and
as Chemdex Corporation, is a provider of collaborative solutions
for program management and quote management. In 2001, we
significantly restructured our operations and focused on a new
business direction. We virtually completed our exit from the
business of building and servicing business-to-business
marketplaces and entered the business of providing collaborative
software solutions. In August 2001, we acquired privately-held
NexPrise, Inc., a company with an advanced collaborative
software solution and an established customer base. We have
reorganized our management team and Board of Directors and also
have taken measures to reduce commitments and operating expenses
and conserve cash.

The Company originally was incorporated as
Chemdex Corporation in September 1997 in Delaware. In February
2000, we changed our name to Ventro Corporation and in January
2002, we renamed the company NexPrise, Inc. to reflect our new
direction. For 2002, our focus is to further develop our product
offering, to increase our customer base and revenue and to get
our operations closer to generating positive cash flow.

Unwinding of Marketplace Operations

In December 2000, we announced a plan to
discontinue operations of our wholly-owned business-to-business
marketplaces, Chemdex and Promedix. In 2001, we shut down their
operations by severing electronic ties to these marketplaces;
customers ceased placing electronic orders for products offered
by suppliers. Throughout 2001, we unwound our contractual
obligations to customers, vendors, and minority-owned companies
to which we had been providing marketplace services. We had
formed in 1999 and 2000 separate entities with industry
partners, but concluded in 2001 that we would not continue to
provide services to them. We terminated our contracts with
Amphire Solutions and MarketMile in 2001 but maintain equity
positions in these companies. We terminated our contract with
Broadlane and sold our equity position back to them for an
$11 million, two-year interest-bearing note of Broadlane
guaranteed by Tenet Healthcare Corporation. This note was
subsequently used as consideration to acquire then outstanding
NexPrise Notes payable. Industria Solutions concluded that it
could not be a profitable entity and shut down its operations in
the second quarter of 2001; we acquired certain of its assets
and hired certain of their personnel.

Financial Management

We took measures over the last year to reduce our
commitments and operating expenses and conserve our cash. In
February, we announced a tender offer to repurchase all of the
outstanding 6% convertible Notes that were issued in March 2000.
We offered $270 per $1,000 of principal and interest accrued
thereon and retired approximately $185 million in principal
for $58.4 million. In June, we repurchased approximately
$56 million in principal in private transactions where we
paid $11 million in cash and assigned the $11 million
promissory note from Broadlane. The two transactions reduced the
Notes outstanding from $250 million to approximately
$9 million, which reduced our annual interest expense from
$15 million to approximately $500,000.

We also reduced our operating expenses by
terminating significant real estate and equipment leases,
lowering headcount from approximately 600 in December 2000
to 74 in February 2002 and reducing non-personnel expenses. In
the fourth quarter of 2001, our operating expenses, excluding
net restructuring and settlement, were $6.8 million,
including approximately $1.5 million of depreciation and
amortization.

NexPrise Acquisition and Organizational
Changes

Building on our experience with
business-to-business marketplaces and transaction flows, we
determined that the market for complex procurement solutions was
a large, growing opportunity and that our emphasis should be to
assist companies with their own complex procurement needs,
rather than enabling independent marketplaces. So, we altered
our business strategy in 2001 to speed our time-to-market in
providing

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collaborative solutions. We acquired the
operations of privately-held NexPrise, Inc., a provider of such
solutions with an established product and a strong customer
base. The combined entity, now named NexPrise, Inc., made
changes to the management team and Board of Directors to better
reflect the new direction of the company. Ted Drysdale, who was
Chief Executive Officer of NexPrise, is now Chief Executive
Officer, President, and Chairman of the Board of the combined
entity. Ted Drysdale, John Glancy, Gary Lenz, Thomas Insley and
Thomas Jones are new members of the Board of Directors.


The combined entity now operates as one
organization and continues to develop and sell our product
offering. Since the companies merged operations, we have
announced several new contracts with key customers including
industry leaders Trelleborg Automotive, Budd Plastics, and Bell
Helicopter. Our customer base is a diversified group; no single
customer makes up over 10% of our consolidated revenues.

Marketing, Sales, and Support

Our current marketing, sales, and support
activities relate to building NexPrises brand identity,
determining product direction, selling to customers, and
managing and serving customer accounts. We sell our product
through a direct sales force distributed in various strategic
locations. Technical Account Managers are responsible for the
successful deployment of our product at the customer site. As of
February 11, 2002, we employed 30 individuals in these
organizations at NexPrise offices in Carlsbad, CA, Mountain
View, CA, and remote field locations. Expenses for marketing,
sales, and support activities were $11 million in 2001. We
expect to add personnel and expenses only as needed to support
new customers.

Research and Development

Our research and development organization is
focused on developing and enhancing our product for customers.
As of February 11, 2002, our research and development
organization included 31 employees responsible for software
and system development. Expenses for research and development
were $25 million in 2001, plus $2.3 million of
acquired in-process research and development related to the
acquisition of NexPrise. The 2001 and 2000 expenses included
substantial expenses incurred prior to our revised business
direction and to our acquisition of NexPrise and are not
indicative of planned future expenditures. To date,
substantially all software development costs have been expensed
as incurred because the time from working model to saleable
model is very short. We believe that continued investments in
research and development are required to remain competitive.

Product

NexPrises product was originally developed
as software technology to share sensitive documents securely
over the Internet. In 1997, NexPrise was formed as a private
company with intellectual property rights to this technology. We
have continued to develop the product and it has evolved into
business applications that facilitate collaborative commerce.
Our software can be accessed by approved users with standard
Internet browsers and can reside on either servers maintained
and administered by our customers or servers hosted by us,
though our hosting is generally outsourced to a third party. Our
product requires minimal installation, customization, and
training.

Our two principal applications are Program
Manager and Quote System. Both applications are collaborative
software solutions that allow individuals within and between
companies to work together on complex processes. Both
applications have functionality for:



| |   |                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------
| |  | User administration to ensure that only
	authorized users have access                                  
|
| |  | Virtual workspaces for document sharing and
	collaboration                                             
|
| |  | Document storage, management, and viewing for
	multiple file formats through standard Internet browsers
|
| |  | Discussion groups and chat for capturing
	information and decisions                                    

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The Program Manager application enables users to
manage and track programs and has functionality such as project
dashboards and integrations with project management, efficiency,
and enterprise applications. The Quote System application
enables users to manage cost estimating and complex procurement
for build-to-order materials and has functionality for bid
tabulation and quote estimating.

System Architecture.Our solutions include three layers of
technology:



| |   |                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Infrastructure Layer.This layer is the foundation of the
	product and provides the product with Internet, email, database
	security, and flexibility. The layer is implemented using
	standard web servers and supports standard Internet protocols
	such as HTTP/HTTPS and XML.
|
| |  | Platform Layer.This
	layer provides critical functionality for the applications. It
	enables the creation of virtual project workspaces with document
	management and viewing, ad-hoc workflow creation, and status
	tracking.                                                  
|
| |  | Application Layer.This layer provides specific
	functionality and workflow for business applications such as
	Program Manager and Quote System.                                                                                                                                 

Competition

The market for collaborative software solutions
is new and evolving rapidly. Competition is intense and is
expected to increase significantly in the future. Barriers to
entry are not substantial. We believe that the critical success
factors for companies seeking to create Internet collaborative
software solutions include the following:



| |   |                                                  
| | - | -------------------------------------------------
| |  | Quality, reliability and security of the solution
|
| |  | Breadth and depth of product offerings           
|
| |  | Brand recognition                                
|
| |  | Installed base of customers                      
|
| |  | Ease of use and customers                        
|
| |  | Speed of installation and operability            

We face competition from a diverse group of
companies, including companies with Product Data Management
(PDM) offerings such as MatrixOne or Parametric Technology
Corporation (PTC). These companies have extended their PDM
offerings to develop solutions that are competitive. Competition
could also come from developers of enterprise software solutions
such as i2 Technologies, Oracle, or Ariba, which may expand
their product lines to compete. We believe we have a product
that is superior to competitors offerings and that we can
compete effectively with these companies. However, these
companies have greater financial resources and larger sales and
marketing organizations and will be formidable competitors.

Proprietary Rights and Licensing

Our success and ability to compete depends on our
ability to develop and maintain the proprietary aspects of our
technology. We rely on a combination of copyright, trademark and
trade secret laws and contractual restrictions to establish and
protect the proprietary aspects of our technology. We seek to
protect our source code for our software, documentation and
other written materials under trade secret and copyright laws.
Finally, we seek to avoid disclosure of our intellectual
property by requiring employees and consultants with access to
our proprietary information to execute confidentiality
agreements with us and by restricting access to our source code.
We have filed two U.S. patent applications and two foreign
applications on our proprietary technology. One U.S. patent has
been issued. Our remaining three patents are currently pending.
We have applied to register three trademarks; one has been
registered.

Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy aspects of our
products or to obtain and use information that we regard as
proprietary. Litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade
secrets, and to determine the validity and

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scope of the proprietary rights of others. Any
resulting litigation could result in substantial costs and
diversion of resources and could have a material adverse effect
on our business operating results.


Our business involves the licensing of our
technology to our customers. Pursuant to our existing licenses,
we have made certain representations and warranties and agreed
to indemnify our licensees against claims of infringement by
third parties. Thus, we may be exposed to a significant risk of
liability for intellectual property infringement claims by
others. Our success and ability to compete also depend on our
ability to operate without infringing upon the proprietary
rights of others. In the event of a successful claim of
infringement against us and our failure or inability to license
the infringed technology, our business and operating results
would be significantly harmed.

Employees

As of February 11, 2002, we had
74 full-time employees, including 31 in research and
development, 26 in sales and marketing, 4 in customer
support and 13 in general and administrative functions. We
also employ a limited number of independent contractors to
support our development and administrative organizations.

Directors and Executive Officers of the
Registrant

Set forth below is information regarding the
directors and executive officers of NexPrise as of
February 19, 2002.

|                 |  |     |    |          |  |                                                                           
|---------------- |  | --- | -- | -------- |  | --------------------------------------------------------------------------
|Name             |  | Age |    | Position
|                 |  |     |    |         
|Ted Drysdale     |  |     | 53 |          |  | President, Chief Executive Officer and Chairman
	of the Board of Directors
|David P. Perry   |  |     | 34 |          |  | Vice Chairman of the Board of Directors                                   
|David Zechnich   |  |     | 45 |          |  | Chief Financial Officer                                                   
|Varma Kunaparaju |  |     | 34 |          |  | Vice President, Product Development                                       
|Raj Tolani       |  |     | 42 |          |  | Vice President, Engineering                                               
|John Glancy      |  |     | 55 |          |  | Director                                                                  
|Thomas Insley    |  |     | 51 |          |  | Director                                                                  
|Thomas Jones     |  |     | 52 |          |  | Director                                                                  
|Gary Lenz        |  |     | 54 |          |  | Director                                                                  

Ted Drysdalehas
served as our President, Chief Executive Officer and Chairman of
the Board of Directors since November 2001. Mr. Drysdale
has served on our Board of Directors since October 2001. Prior
to joining NexPrise, Mr. Drysdale was President and Chief
Executive Officer of privately held NexPrise, Inc., a
manufacturing software company, which we acquired in August
2001. From January 1979 to April 2000, Mr. Drysdale was
Senior Vice President of the Visualization and CSM Group of
Parametric Technology Corporation, a software company. From
September 1996 to January 1999, Mr. Drysdale also served as
President and Chief Executive Officer of Division, Inc., a
software company, and from April 1996 to September 1998, he
served as Chief Executive Officer and Co-Founder of Objectlogic,
a developer of visualization and markup software.

David P. Perryco-founded the Company in September
1997 and served as our President and Chief Executive Officer
until November 2001. He has served as a director since September
1997 and as Vice Chairman of the Board of Directors since
November 2001. From December 1995 to April 1997, he co-founded
and served in various positions, including Chief Executive
Officer, of Virogen, Inc., a biotechnology company.
Mr. Perry has also held various positions at Exxon
Corporation, including Refinery Operations Supervisor from
January 1994 to May 1995, financial analyst from March 1993 to
January 1994, project manager from September 1992 to March 1993
and engineer from September 1990 to March 1992. Mr. Perry
holds an M.B.A. from Harvard University and a B.S. in chemical
engineering from the University of Tulsa.

David W. Zechnichjoined us in March 2001 as our Chief
Financial Officer. From October 2000 to February 2001,
Mr. Zechnich served as the Chief Financial officer of
Xoriant, an enterprise application

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consulting provider. From September 1978 to
October 2000, Mr. Zechnich held various positions at
PricewaterhouseCoopers LLP, a public accountancy firm.
Mr. Zechnich serves on the board of directors of
MarketMile, a privately-held company. Mr. Zechnich has
announced that he will be leaving the Company effective
February 28, 2002.


Varma Kunaparajuhas
served as our Vice President of Product Development since August
2001 and co-founded privately-held NexPrise. Before that, he
worked at Palo Alto Research Labs. Mr. Kunaparaju has over
twelve years of experience in software development and delivered
several successful enterprise products. Before joining Palo Alto
Research Labs, Mr. Kunaparaju held key consulting positions
at Exodus and also led a team of engineers in India in designing
and developing software products in distributed computing area.
He holds an MS degree in Computer Science and a
BS degree in electronics and communications engineering.

Raj Tolanihas
served as our Vice President, Engineering since February 2002.
Prior to joining NexPrise, Mr. Tolani was the President and
CEO of InfoPrise, which was acquired by the company in February
2002. Mr. Tolani has been in the software development
industry for the past 16 years and is the former founder,
chairman and President of ObjectLogic. Mr. Tolani led the
development and growth of ObjectLogic, as well as its merger
with Division Ltd and stayed on as Vice-President of Development
after its acquisition. During his tenure with Division Ltd., he
lead development teams in both the U.S. and U.K. Prior to that,
as Vice-President of development for Computervision,
Mr. Tolani led the development of Perolus (CAD software)
from its inception to completion. Mr. Tolani holds a
Bachelors Degree in Mechanical Engineering from the Indian
Institute of Technology and a Masters Degree in Mechanical
Engineering from the University of Rhode Island.

John Glancyhas been
a member of our Board of Directors since November 2001.
Mr. Glancy is also a member of the Board of Directors of
Science Applications International Corporation (SAIC) and
head of SAICs International Committee. SAIC is a research
and engineering firm that provides information technology,
systems, integration, and e-business products and services to
commercial and government customers. From February 1994 to
February 2000, Mr. Glancy was Corporate Executive Vice
President at SAIC. Mr. Glancy also serves on the
boards of directors of Coorstek and two private companies.

Thomas Insleyhas
been a member of our Board of Directors since February 2002.
Mr. Insley retired in October 2001 as a partner with
PricewaterhouseCoopers LLP, where he worked for over 29 years.
He worked most recently as office managing partner and audit
site leader of the San Diego office, where he oversaw all
operations and managed a number of audit client engagements.

Thomas Joneshas
been a member of our Board of Directors since November 2001.
From May 1999 to June 2001, Mr. Jones was Chief Executive
Officer at Stratasource, Inc., a management service provider.
From March 1986 to March 1999, Mr. Jones served as
President of MDL Information Systems, Inc., a software company.

Gary Lenzhas been a
member of our Board of Directors since January 2002.
Mr. Lenz has also served as a member of the Office of the
Chairman of Peregrine Systems, Inc., a global software company,
since July 2000. From June 1983 until June 2000, Mr. Lenz
held various positions at Arthur Andersen LLP and most recently
served as managing partner of its worldwide real estate and
hospitality industry practice. Mr. Lenz also serves as an
advisory board member for Supply Solutions, Inc.




Item 2.     Properties

Our executive, sales and a portion of our
development offices are located in approximately
4,300 square feet in Carlsbad, California under a lease
expiring in February 2003. Development and administrative
offices are located in approximately 17,000 square feet
located in Mountain View, California under a lease expiring in
February 2005. We also have leased and sub-leased approximately
34,000 square feet in Palo Alto, California; both the lease
and sublease expire on December 31, 2003. The Company also
maintains a small sales office in the United Kingdom and a few
domestic locations.

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Item 3.     Legal
Proceedings

A former stockholder of Promedix filed a
complaint against us, Promedix and certain other parties in the
Superior Court of California, County of Los Angeles alleging,
among other things, that we had negligently failed to exchange
his shares of Promedix stock for shares of our common stock on a
timely basis, causing him damages resulting from a decline in
our stock price in the intervening time between the submission
of his Promedix shares for exchange and his receipt of our
shares. The complaint did not specify the amount of damages
sought by the plaintiff, but instead seeks general, special and
punitive damages. We filed a partially successful motion to
dismiss the plaintiffs claims on February 5, 2001.
Plaintiff amended the complaint to allege a conspiracy between
all defendants to delay his sale of stock. We believe we have
meritorious defenses against all claims asserted. Trial is set
for April 2002. It is impossible for us to predict the outcome
of such litigation.

In 2001, several class action lawsuits were filed
and served on us alleging that the Company and certain
individuals made false and misleading statements concerning our
business model and earnings for fiscal 2000. The Company is also
a defendant in the IPO class action suits filed against issuers
and the investment banks alleging that the offering documents
were false and misleading. Although we believe that we have
meritorious defenses to the actions and intend to defend the
suits vigorously, we cannot predict with certainty the outcome
of these lawsuits. Our defense against such lawsuits will be
costly and may require a significant commitment of time and
resources by our senior management. The Company also has been
served with a shareholder derivative action but is named solely
as a nominal defendant against whom no recovery is sought.

The Company is a party to various claims in the
ordinary course of business. Although the results of litigation
and claims cannot be predicted with certainty, the Company
believes the final outcome of such matters will not have a
material adverse effect on the Companys financial
position, results of operations or cash flows.




Item 4.     Submission
of Matters to a Vote of Security Holders

None.

7



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##### Table of Contents






PART II




Item 5.     Market
for the Registrants Common Equity and Related Stockholder
Matters

Our common stock is traded on the Nasdaq National
Market under the symbol NXPS. Previously the Company
has utilized the symbols CMDX starting on
July 27, 1999, and VNTR starting March 1,
2000. We have traded under the current symbol NXPS
since January 15, 2002. Prior to July 27, 1999, there
was no public market for our common stock. The following table
shows the high and low sale prices of the Companys common
stock as reported by the Nasdaq National Market for the periods
indicated.

|                              |                                    |                    |   |        |  |  |   |       | 
|----------------------------- | ---------------------------------- | ------------------ | - | ------ |  |  | - | ----- | 
|                              |                                    |                   
|                              |                                    | Common Stock Price
|                              |                                    |                   
|                              |                                    | High               |   | Low   
|                              |                                    |                    |   |       
|(Price Range of Common Stock) |                                    |                    |   |        |  |  |   |      
|Year Ended December 31, 2001  |                                    |                    |   |        |  |  |   |      
|                              | First Quarter                      |                    | $ | 4.31   |  |  | $ | 0.66  | 
|                              | Second Quarter                     |                    | $ | 1.15   |  |  | $ | 0.31  | 
|                              | Third Quarter                      |                    | $ | 0.65   |  |  | $ | 0.12  | 
|                              | Fourth Quarter                     |                    | $ | 1.15   |  |  | $ | 0.23  | 
|Year Ended December 31, 2000  |                                    |                    |   |        |  |  |   |      
|                              | First Quarter                      |                    | $ | 243.50 |  |  | $ | 51.13 | 
|                              | Second Quarter                     |                    | $ | 59.50  |  |  | $ | 14.00 | 
|                              | Third Quarter                      |                    | $ | 26.88  |  |  | $ | 8.13  | 
|                              | Fourth Quarter                     |                    | $ | 12.02  |  |  | $ | 0.59  | 
|Year Ended December 31, 1999  |                                    |                    |   |        |  |  |   |      
|                              | Third Quarter (from July 27, 1999) |                    | $ | 34.88  |  |  | $ | 15.13 | 
|                              | Fourth Quarter                     |                    | $ | 143.00 |  |  | $ | 29.44 | 

On February 8, 2002, the last reported sales
price of our common stock on the Nasdaq National Market was $.35
per share. As of December 31, 2001, there were
approximately 64,000 stockholders of record of our common stock.

Dividend Policy

We have not declared or paid any cash dividends
on our capital stock since our inception and do not expect to
pay any cash dividends in the foreseeable future. We currently
intend to retain future earnings, if any, to finance the
expansion of our business.

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Item 6.     Selected
Consolidated Financial Data

The selected financial data below should be read
together with Managements Discussion and Analysis of
Financial Condition and Results of Operations and the
financial statements and related notes included in this
document. The following balance sheet data as of
December 31, 2001 and 2000 and the selected consolidated
statements of operations data for years ended December 31,
2001, 2000, and 1999 have been derived from audited consolidated
financial statements included elsewhere in this document. The
consolidated balance sheet data as of December 31, 1999,
1998 and 1997 and the consolidated statements of operation data
for the year ended December 31, 1998 and for the period
from inception (September 4, 1997) through
December 31, 1997 have been derived from audited
consolidated statements not included in this document. The
selected Consolidated Statement of Operations Data has been
restated to reflect the Chemdex and Promedix businesses as
discontinued operations. Historical results are not necessarily
indicative of results that may be expected for future periods.
See Note 2 of Notes to our Consolidated Financial
Statements that explains how shares used in computing basic and
diluted net loss per share were determined.

|                                                                |  |                                       |         |               |  |      |          |      |  |             |         |   |  |   |        |   |  |   |       |  
|--------------------------------------------------------------- |  | ------------------------------------- | ------- | ------------- |  | ---- | -------- | ---- |  | ----------- | ------- | - |  | - | ------ | - |  | - | ----- | -
|                                                                |  |                                       |         |               |  |      |          |      |  | Period from
|                                                                |  |                                       |         |               |  |      |          |      |  | Inception  
|                                                                |  |                                       |         | (September 4,
|                                                                |  | Year Ended December 31,               |         | 1997 through 
|                                                                |  |                                       |         | December 31, 
|                                                                |  | 2001                                  |         | 2000          |  | 1999 |          | 1998 |  | 1997       
|                                                                |  |                                       |         |               |  |      |          |      |  |            
|                                                                |  |                                      
|                                                                |  | (in thousands, except per share data)
|Consolidated Statement of Operations
	Data:                     |  |                                       |         |               |  |      |          |      |  |             |         |   |  |   |        |   |  |   |       |  
|Net revenues                                                    |  | $                                     | 1,042   |               |  |      |         |      |  |             |        |   |  |   |       |   |  |   |      |  
|Loss from continuing operations                                 |  | $                                     | (79,330 | )             |  | $    | (93,536  | )    |  | $           | (5,421  | ) |  | $ | (1,051 | ) |  | $ | (121  | )
|Basic and diluted loss per share from continuing
	operations    |  | $                                     | (1.72   | )             |  | $    | (2.16    | )    |  | $           | (0.35   | ) |  | $ | (0.59  | ) |  | $ | (0.07 | )
|Loss from discontinued operations                               |  |                                       |        |               |  | $    | (524,561 | )    |  | $           | (43,152 | ) |  | $ | (7,437 | ) |  | $ | (283  | )
|Basic and diluted loss per share from
	discontinued operations  |  |                                       |        |               |  | $    | (12.12   | )    |  | $           | (2.82   | ) |  | $ | (4.20  | ) |  | $ | (0.17 | )
|Extraordinary item: gain from retirements of bonds              |  | $                                     | 159,762 |               |  |      |         |      |  |             |        |   |  |   |       |   |  |   |      |  
|Basic and diluted gain from retirements of bonds                |  | $                                     | 3.46    |               |  |      |         |      |  |             |        |   |  |   |       |   |  |   |      |  
|Net income/(loss)                                               |  | $                                     | 80,432  |               |  | $    | (618,097 | )    |  | $           | (48,573 | ) |  | $ | (8,488 | ) |  | $ | (404  | )
|Basic and diluted net income (loss) per share                   |  | $                                     | 1.74    |               |  | $    | (14.28   | )    |  | $           | (3.17   | ) |  | $ | (4.79  | ) |  | $ | (0.24 | )
|Weighted average common shares
	outstanding  basic and diluted |  |                                       | 46,210  |               |  |      | 43,298   |      |  |             | 15,322  |   |  |   | 1,772  |   |  |   | 1,704 |  

|                                                                    |  |                    |        |      |  |      |         |      |  |      |         |  |  |   |       |  |  |   |       | 
|------------------------------------------------------------------- |  | ------------------ | ------ | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ----- |  |  | - | ----- | 
|                                                                    |  |                   
|                                                                    |  | As of December 31,
|                                                                    |  |                   
|                                                                    |  | 2001               |        | 2000 |  | 1999 |         | 1998 |  | 1997
|                                                                    |  |                    |        |      |  |      |         |      |  |     
|                                                                    |  |                   
|                                                                    |  | (in thousands)    
|Consolidated Balance Sheet Data:                                    |  |                    |        |      |  |      |         |      |  |      |         |  |  |   |       |  |  |   |       | 
|Cash, cash equivalents, restricted cash and
	short-term investments |  | $                  | 22,235 |      |  | $    | 192,022 |      |  | $    | 103,095 |  |  | $ | 5,990 |  |  | $ | 1,346 | 
|Working capital                                                     |  | $                  | 15,792 |      |  | $    | 158,352 |      |  | $    | 82,130  |  |  | $ | 4,489 |  |  | $ | 1,116 | 
|Total assets                                                        |  | $                  | 52,625 |      |  | $    | 257,308 |      |  | $    | 163,933 |  |  | $ | 8,168 |  |  | $ | 1,728 | 
|Long term obligations                                               |  | $                  | 8,803  |      |  | $    | 250,206 |      |  | $    | 494     |  |  |   |      |  |  | $ | 6     | 
|Total liabilities                                                   |  | $                  | 17,182 |      |  | $    | 304,381 |      |  | $    | 38,914  |  |  | $ | 1,820 |  |  | $ | 280   | 
|Total stockholders equity (deficit)                                |  | $                  | 35,443 |      |  | $    | (47,073 | )    |  | $    | 125,019 |  |  | $ | 6,348 |  |  | $ | 1,448 | 

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Item 7.     Managements
Discussion and Analysis of Financial Condition and Results of
Operations

The following Managements Discussion and
Analysis of Results of Operations and Financial Condition
contains forward-looking statements. In some cases, readers can
identify forward-looking statements by terminology such as
may, will, should,
could, expects, plans,
anticipates, believes,
estimates, predicts,
potential, or continue. These statements
involve known and unknown risks, uncertainties and other factors
that may cause our actual results, performance or achievements
to be materially different from those stated herein. Although
management of NexPrise believes that the expectations reflected
in the forward-looking statements are reasonable, the Company
cannot guarantee future results, performance, or achievements.
For further information, refer to the Risk Factors section of
this Form 10-K.

Presentation of Financial
Information

In 2001, we significantly restructured our
operations and focused on a new business direction. We virtually
completed our exit from the business of building and servicing
business-to-business marketplaces and entered the business of
providing collaborative software solutions. In August 2001, we
acquired privately-held NexPrise, Inc., a company with an
advanced collaborative software solution and an established
customer base. We have reorganized our management team and Board
of Directors and also have taken measures to reduce commitments
and operating expenses and conserve cash.

During 2001 the Company incurred a net charge of
$16.5 million in connection with restructurings and
settlements. All revenues presented are derived from the
operations of NexPrise, acquired in August 2001. In the quarter
ended December 31, 2000, NexPrise (then Ventro) decided to
restructure and shut down its two wholly-owned marketplaces,
Chemdex and Promedix. Accordingly, results of continuing
operations for NexPrise for the periods ended December 31,
2000 exclude the results of operations of Chemdex and Promedix
and the results of those operations have been accounted for as
discontinued operations. Aggregate charges of approximately
$386 million were recorded for the year ended
December 31, 2000, in connection with restructuring and
discontinued operations.

Overview

NexPrise, Inc. (the Company,
NexPrise, us, our or
we), formerly known as both Ventro Corporation and
as Chemdex Corporation, is a provider of collaborative solutions
for program management and quote management. On August 8,
2001 the Company purchased privately-held NexPrise, Inc., a
provider of collaborative commerce solutions located in Santa
Clara, California. Under the terms of the merger agreement, the
cost of the transaction was approximately $25 million,
inclusive of liabilities assumed and transaction costs.
Additionally, as part of the transaction, NexPrises
obligations under existing employee option plans were assumed,
which resulted in the issuance of up to 3.5 million shares,
the value of which is included in the $25 million cost.

NexPrise expects to incur operating losses on a
quarterly basis for at least the next twelve months as we
develop and enhance our technology and service offerings.

Critical Accounting Policies

The Company considers certain accounting policies
related to revenue recognition, accounting for investments,
impairment of long-lived assets and valuation of deferred tax
assets to be critical policies due to the estimation processes
involved in each.

Revenue recognition.The Company recognizes license revenue
using the subscription method. The subscription
method recognizes revenue ratably over the duration of a
contract. Revenue is made up primarily of subscriptions of
bundled license and post contract support (PCS) and in some
situations include hosting. The initial and renewal amounts are
recognized as revenue ratably over the period of the license
during which the services are expected to be provided. For each
arrangement, we determine whether evidence of an arrangement
exists, delivery has occurred, the fee is fixed or determinable,
and collection is probable. If any of these criteria are not
met, revenue recognition is deferred until such time as all of
the criteria are met.

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Investments.The
various interests that we have acquired in companies are
accounted for under three broad methods: consolidation, the
equity method and the cost method. The applicable accounting
method is generally determined based on our voting interest in a
company.

Consolidation.Companies that NexPrise directly or
indirectly controls are accounted for under the consolidation
method of accounting. Under this method, a companys
accounts are reflected within its Consolidated Financial
Statements. All significant inter-company accounts and
transactions are eliminated.

Equity Method.Entities where NexPrise can exercise
significant influence, but not control, are accounted for under
the equity method of accounting. Whether or not NexPrise
exercises significant influence with respect to a company
depends on an evaluation of several factors including, among
others, representation on the companys board of directors
and ownership level, generally 20%  50% interest in
the voting securities of the company including voting rights
associated with NexPrise holdings in common, preferred and other
convertible instruments in the company. Under the equity method
of accounting, our share of the earnings or losses of these
companies are included in the equity income (loss) section
of the Consolidated Statements of Operations.

Cost Method.Companies not consolidated or
accounted for under the equity method are accounted for under
the cost method of accounting. Under this method,
NexPrises share of the earnings or losses of these
companies is not included in its Consolidated Statements of
Operations. The Company periodically evaluates the carrying
value of its investments for impairment.

The fair value of the long-term investments is
dependent on the performance of the entities in which the
Company has invested, as well as volatility inherent in the
external markets for these investments. In assessing potential
impairment for these investments the Company will consider these
factors as well as forecasted financial performance of its
investees. If these forecasts are not met the Company may have
to record additional impairment charges not previously
recognized.

Long-lived assets.The Companys long-lived assets include goodwill and other
intangible assets. At December 31, 2001, the Company had
$20.5 million of goodwill and other intangible assets. In
assessing the recoverability of the Companys goodwill and
other intangibles the Company must make assumptions regarding
estimated future cash flows and other factors to determine the
fair value of the respective assets. If these estimates or their
related assumptions change in the future, the Company may be
required to record impairment charges for these assets not
previously recorded. In 2002 the Company will adopt Statement of
Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets, and will be required to analyze
its goodwill for impairment issues during the first six months
of fiscal 2002, and then on a periodic basis thereafter. The
Company expects to perform the first of the required impairment
tests of goodwill as of January 1, 2002 in the first half
of 2002. The Company does not believe that any reduction of the
goodwill balance at January 1, 2002 is required. However,
based on steps the Company has taken to prepare for the adoption
of Statement 142, it is possible that a portion of the
$11.7 million goodwill related to the acquisition of
NexPrise will be impaired using the impairment test required by
Statement 142. An impairment that is required to be
recognized when adopting Statement 142 will be reflected as
the cumulative effect of a change in accounting principle in the
first half of 2002. During the year ended December 31,
2001, the Company did not record any impairment losses related
to goodwill and other acquisition related intangible assets.

Deferred tax assets.The Company has provided a full valuation reserve related to its
substantial deferred tax assets. In the future, if sufficient
evidence of the Companys ability to generate sufficient
future taxable income in certain tax jurisdictions becomes
apparent, the Company may be required to reduce its valuation
allowances, resulting in income tax benefits in the
Companys consolidated statement of operations. Management
evaluates the realizability of the deferred tax assets quarterly
and assesses the need for valuation allowance quarterly.

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Results of Operations

The following table sets forth items from our
consolidated statements of operations (in thousands):

|                                                         |                                                       |                          |         |        |     |      |          |          |   |   |         |         |   | 
|-------------------------------------------------------- | ----------------------------------------------------- | ------------------------ | ------- | ------ | --- | ---- | -------- | -------- | - | - | ------- | ------- | - | 
|                                                         |                                                       |                         
|                                                         |                                                       | Years Ended December 31,
|                                                         |                                                       |                         
|                                                         |                                                       | 2001                     |         | 2000   |     | 1999
|                                                         |                                                       |                          |         |        |     |     
|Net revenues                                             |                                                       | $                        | 1,042   |        |     | $    |         |          |   | $ |        |        
|Cost of revenues                                         |                                                       |                          | (797    | )      |     |      |         |          |   |   |        |        
|                                                         |                                                       |                          |         |        |     |      |          |          |   |   |         |        
|                                                         |                                                       | Gross profit             |         |        | 245 |      |          |          |  |   |         |         |  | 
|                                                         |                                                       |                          |         |        |     |      |          |          |   |   |         |        
|Operating expenses:                                      |                                                       |                          |         |        |     |      |          |          |   |   |         |        
|                                                         | Research and development                              |                          |         | 24,580 |     |      |          | 35,227   |   |   |         |        |  
|                                                         | Amortization of in process research and
	development  |                          |         | 2,300  |     |      |          |         |   |   |         |        |  
|                                                         | Sales and marketing                                   |                          |         | 11,050 |     |      |          | 24,501   |   |   |         |        |  
|                                                         | General and administrative                            |                          |         | 14,067 |     |      |          | 6,689    |   |   |         | 8,416   |  
|                                                         | Restructuring and settlement charges                  |                          |         | 16,543 |     |      |          | 4,891    |   |   |         |        |  
|                                                         |                                                       |                          |         |        |     |      |          |          |   |   |         |        
|                                                         | Total operating expenses                              |                          |         | 68,540 |     |      |          | 71,308   |   |   |         | 8,416   |  
|                                                         |                                                       |                          |         |        |     |      |          |          |   |   |         |        
|Operating loss                                           |                                                       |                          | (68,295 | )      |     |      | (71,308  | )        |   |   | (8,416  | )      
|Interest expenses                                        |                                                       |                          | (5,646  | )      |     |      | (12,813  | )        |   |   | (168    | )      
|Interest income and other, net                           |                                                       |                          | 4,426   |        |     |      | 14,242   |          |   |   | 3,163   |        
|Equity and investment loss                               |                                                       |                          | (9,815  | )      |     |      | (23,657  | )        |   |   |        |        
|                                                         |                                                       |                          |         |        |     |      |          |          |   |   |         |        
|Loss from continuing operations                          |                                                       |                          | (79,330 | )      |     |      | (93,536  | )        |   |   | (5,421  | )      
|                                                         |                                                       |                          |         |        |     |      |          |          |   |   |         |        
|Discontinued operations:                                 |                                                       |                          |         |        |     |      |          |          |   |   |         |        
|                                                         | Loss from discontinued operations, net of
	income tax |                          |         |       |     |      |          | (186,466 | ) |   |         | (43,152 | )
|                                                         | Loss on disposal, net of income taxes                 |                          |         |       |     |      |          | (338,095 | ) |   |         |        |  
|                                                         |                                                       |                          |         |        |     |      |          |          |   |   |         |        
|Loss from discontinued operations                        |                                                       |                          |        |        |     |      | (524,561 | )        |   |   | (43,152 | )      
|                                                         |                                                       |                          |         |        |     |      |          |          |   |   |         |        
|Extraordinary item  gain from
	retirement of bonds, net |                                                       |                          | 159,762 |        |     |      |         |          |   |   |        |        
|                                                         |                                                       |                          |         |        |     |      |          |          |   |   |         |        
|Net income(loss)                                         |                                                       | $                        | 80,432  |        |     | $    | (618,097 | )        |   | $ | (48,573 | )      
|                                                         |                                                       |                          |         |        |     |      |          |          |   |   |         |        

Revenues.NexPrise
reported $1,042,000 of revenue for the period ended
December 31, 2001. This revenue is made up primarily of
subscriptions of bundled license and post contract support (PCS)
and in some situations include hosting for the Companys
collaborative commerce products generated subsequent to our
August 8, 2001 acquisition of privately-held NexPrise, Inc.
Subscription revenue generally entails recognizing the value of
the customer contract as revenue ratably over the term of the
contract. Previously, revenues were derived primarily from
product sales through the Chemdex and Promedix marketplaces,
which have been presented as discontinued operations. Our
revenues may increase in 2002 as we recognize a full year of
revenue, as existing customers renew and expand their user base
and as new customers are brought under contract.

Cost of Revenues.Cost of revenues in 2001 consists
primarily of outsourced hosting services for our customers,
amortization of the technology intangible asset acquired in
August 2001, personnel and other expenses associated with
providing maintenance services, technical support services and
royalties payable to third parties whose software is
incorporated in the NexPrise solution. Cost of revenues in 2000
and 1999 were related to operations that were discontinued in
December 2000. The Company expects the cost of revenues in
absolute dollars to increase in the coming year, but for cost of
revenues to decline as a percentage of revenue if revenues
increase significantly as the Companys infrastructure is
leveraged across what is expected to be a larger customer base
in 2002.

Research and Development.Research and development expenses
consist primarily of personnel and other expenses associated
with developing, updating, and enhancing software. Research and
development

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expenses from continuing operations were
approximately $24.6 million during fiscal 2001, down
approximately $10.6 million from the approximately
$35.2 million spent during fiscal 2000. The decrease was
largely driven by reductions in workforce that occurred in April
and July of 2001. A substantial portion of research and
development expenses incurred in 2000 and in 1999 related to
operations that are included in the discontinued operations line
items. The Company expects next years recurring research
and development expenses to be substantially less than those
incurred in 2001. We believe that continued investments in
research and development are required to remain competitive.


In-Process Research and Development.The Company expensed $2.3 million
of acquired in-process research and development as a result of
the NexPrise acquisition, which closed on August 8, 2001.
The Company determined the amount of in process research and
development through an independent valuation in connection with
the allocation of the purchase price. An additional in-process
research and development charge may also result from our
February, 2002 acquisition of InfoPrise; however, the amount of
such a charge, if any, has not yet been determined.

Sales and Marketing.Sales and marketing expenses consist
primarily of payroll and related expenses for personnel engaged
in enterprise sales activities and enterprise account
management, as well as travel and promotional expenses. Sales
and marketing expenses from continuing operations were
approximately $11.1 million during fiscal 2001, down
$13.4 million from the approximately $24.5 million
expensed during 2000. The decrease was driven by reductions in
workforce that took place during 2001 and reduced spending on
marketing programs. Sales and marketing expenses in 2000 and
1999, related to operations that were discontinued in December
2000, are included in discontinued operations. The Company does
not expect sales and marketing expenses to change significantly
in the coming year.

General and Administrative.General and administrative expenses
consist primarily of salaries, fees for professional services
and facilities expenses. General and administrative expenses
from continuing operations were approximately
$14.1 million, up $7.4 million from the approximately
$6.7 million spent in 2000. The Company incurred
approximately $8.4 million in 1999. The increase in 2001
was driven by incentive payments made in the first two quarters
of 2001 and reduced cost recoveries from subsidiaries and
marketplace investments; the reduced cost recoveries also
explain the reduction in 2000 as compared to 1999. The Company
expects general and administrative expenses in 2002 to be
significantly lower than those reported in 2001 due to
reductions in infrastructure costs and reductions in workforce
that took place during 2001.

Settlements, Restructurings and other.During the year ended December 31,
2001, the Company took many actions to improve efficiencies and
reduce operating costs. The specific actions outlined below
include employee and contractor terminations, consolidation of
facilities, settlements of various disputes and termination of
leases. The net of these charges was reported as a component of
loss from continuing operations.

In the second quarter of 2001, the Company
announced a restructuring plan in connection with its efforts to
improve efficiencies and cut operating costs. The restructuring
included a workforce reduction, consolidation of excess
facilities, write-offs and accruals with respect to certain
assets and commitments, as well as termination of services for
the Broadlane, MarketMile and Industria marketplaces. As a
result, the Company recorded a net charge of $14.7 million
during the three months ended June 30, 2001 and included:
a) a workforce reduction charge of $3.6 million,
primarily related to the cost of severance and related benefits
for the termination of approximately 170 employees,
b) $7.5 million of estimated remaining lease payments
and the cost recoveries anticipated from subleases related to
excess leased facilities and equipment and c) a write-off
of the difference between the net book value of the assets and
the anticipated salvage value of excess computer and networking
equipment and related software of $9.5 million. The Company
recorded a gain of $6 million in the quarter ended
June 30, 2001 for the settlements, net of write-downs
associated with its marketplace companies: Broadlane, Industria
and MarketMile. The gain primarily consisted of receipt of an
$11 million two year interest-bearing promissory note from
Broadlane (which is guaranteed by Tenet Healthcare Corporation)
and cash and certain assets from Industria, offset by accruals
and write-downs of receivables from the marketplace companies.

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In the three months ended September 30, 2001
the Company recorded $5.3 million of restructuring charges.
These charges consisted of approximately $1.4 million of
severance and other related costs associated with the Ventro
employees terminated in connection with the acquisition of
NexPrise and $3.9 million of expense, accrued for
anticipated reduced cost recoveries related to disposal of
excess facilities and equipment, resulting from continued
deterioration of the real estate and equipment markets.

In the three months ended December 31, 2001
the Company recorded a $3.4 million gain from restructuring
and settlement. The gain was driven by better than expected
settlements related to the termination of excess facilities and
equipment leases and the settlement with MarketMile. The charges
related to additional employee terminations and identification
of additional excess equipment.

The following table summarizes the restructuring
and settlement activity in 2001 (in thousands):

|               |  |            |       |              |  |           |        |             |  |       |        |  |  |   |        |   |  |   |        |  
|-------------- |  | ---------- | ----- | ------------ |  | --------- | ------ | ----------- |  | ----- | ------ |  |  | - | ------ | - |  | - | ------ | -
|               |  |            |       | Estimated    |  |           |        |             |  |      
|               |  |            |       | Excess Lease |  |           |        | Marketplace |  |      
|               |  | Workforce  |       | Costs and    |  | Write-off |        | companies   |  |      
|               |  | Reductions |       | Legal        |  | of assets |        | settlements |  | Total
|               |  |            |       |              |  |           |        |             |  |      
|Second Quarter |  | $          | 3,649 |              |  | $         | 7,476  |             |  | $     | 9,539  |  |  | $ | (6,014 | ) |  | $ | 14,650 |  
|Third Quarter  |  |            | 1,399 |              |  |           | 3,900  |             |  |       |       |  |  |   |       |   |  |   | 5,299  |  
|Fourth Quarter |  |            | 368   |              |  |           | (4,174 | )           |  |       | 2,014  |  |  |   | (1,614 | ) |  |   | (3,406 | )
|               |  |            |       |              |  |           |        |             |  |       |        |  |  |   |        |   |  |   |        |  
|               |  | $          | 5,416 |              |  | $         | 7,202  |             |  | $     | 11,553 |  |  | $ | (7,628 | ) |  | $ | 16,543 |  
|               |  |            |       |              |  |           |        |             |  |       |        |  |  |   |        |   |  |   |        |  

At December 31, 2001 the Company had
unliquidated accruals of $884,000.

In the fourth quarter of 2000, the Company
recorded charges of $37.2 million related to write-offs of
certain investments and costs of restructuring its business to
be consistent with the new business model. These charges were
reported as components of net loss from continuing operations.
The write-downs of investments included a $22.3 million
write-down of a strategic marketplace investment and
$10.0 million of write-downs of other investments. The
restructuring charge included $320,000 and $990,000 of cash and
non-cash charges related to employee layoffs in addition to
approximately $3.3 million of non-cash charges for the
write-off of intangible assets associated with development
projects that were cancelled and $280,000 for other expenses.
Substantially all of the cash charges related to the
restructuring were paid in the fourth quarter of 2000.

Interest Expense.Interest expense decreased to
approximately $5.6 million for 2001 from $12.8 million
in 2000. Interest expense consists primarily of interest related
to convertible subordinated Notes issued in April 2000 and, to a
lesser extent, financed equipment and other financing
arrangements. Approximately $265,000 is payable semi-annually in
arrears on April 1 and October 1 of each year for
interest on the subordinated Notes that remain outstanding at
December 31, 2001, which is down from the approximately
$7.5 million of interest that was payable semi-annually
when the full balance of subordinated Notes remained
outstanding. In addition, the remaining deferred offering costs
of approximately $200,000, related to the Notes, are being
amortized as interest expense ratably over the term of the Notes.

Interest Income and Other.Interest income and other decreased to
approximately $4.4 million in 2001 from $14.2 million
for 2000 which increased from $3.2 million in 1999.
Interest income and other has been derived primarily from
earnings on investments in cash equivalents and short-term
investments. Interest income increased during 2000 due to
increased cash, cash equivalents and short-term investments
resulting from the net proceeds of the Companys offering
of 6% convertible subordinated Notes in April 2000. Interest
income in 2001 and expected 2002 interest income will be
substantially less as a result of lower cash equivalents and
short-term investments balances, as well as lower interest rates.

Equity and Investment Losses.The equity and investment loss
decreased to approximately $9.8 million in 2001 from
approximately $23.7 million in 2000. The loss in 2001 is
made up of approximately $8.6 million of equity losses in
the marketplace companies in which we have a significant
ownership percentage and approximately $1.2 million of
write-downs of investments accounted for using the cost method.
The loss in 2000 is made up of approximately $20.6 million
of equity losses, $10 million of write-downs of
investments, approximately $22.3 million of losses on
investment in strategic partners in 2000, offset by a
$29.2 million gain

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on the sale of Ariba (formerly Tradex) stock. The
Company has a net book value of $3.8 million related to
these investments as of December 31, 2001, down from
$8.1 million at December 31, 2000.


Loss from Continuing Operations.As a result of the changes described
above, the loss from continuing operations was approximately
$79.3 million in 2001, down $14.2 million from 2000.
The loss from continuing operations is expected to decrease
significantly in 2002 due to reductions we have made in
operating expenses and the settlement of obligations during 2001.

Discontinued Operations.In December 2000, the Companys
Board of Directors adopted a formal plan for and announced the
shut down of all business operations associated with the
Companys life sciences and specialty medical products
marketplaces. The shutdown of Chemdex, Promedix and SpecialtyMD
was completed by March 31, 2001.

The businesses represented by Promedix and
Specialty MD were acquired in the first quarter of 2000. These
transactions were recorded in accordance with the purchase
method of accounting. For Promedix, the purchase consideration
was 12.1 million shares of the Companys common stock
valued at $325.3 million. The entire Promedix purchase
price was allocated to intangible assets. For SpecialtyMD, the
purchase consideration was 1.1 million shares of the
Companys common stock valued at $107.7 million. Of
the SpecialtyMD purchase price, $0.8 million was allocated
to net tangible liabilities and the remainder to intangible
assets. The Company wrote off as part of the loss on disposal of
discontinued operations $326.7 million of intangible assets.

No interest expense was allocated to discontinued
operations. In addition, general corporate overhead has been
allocated to continuing operations for all periods presented
prior to fiscal 2001.

Revenues from discontinued operations were
approximately $24.2 million, $99.3 million,
$30.8 million for the years ended 2001, 2000, and 1999. The
Company paid approximately $9.8 million in 2001 for
severance, lease obligations and other liabilities incurred to
shut down Chemdex and Promedix. At December 31, 2001
accrued liabilities relating to discontinued operations amounted
to approximately $700,000. This balance is comprised of accruals
for estimated costs to settle lease and other contractual
obligations.

Extraordinary gain.During 2001 the Company repurchased
approximately $241.2 million of Convertible Subordinated
Notes, which represented approximately 96.5% of the Notes
outstanding at December 2000. The Company recognized a gain of
approximately $159.8 million on the transactions. As most
of the Notes have been retired, future such gains, if any, will
be smaller than that which occurred in the first and second
quarters of 2001.

Liquidity and Capital Resources

As of December 31, 2001 NexPrise had
approximately $22.2 million of cash, cash equivalents,
short-term investments and restricted cash; working capital
approximated $15.8 million. The Company completed an
initial public offering of common stock in July 1999 and
realized net proceeds of approximately $117.4 million.
Prior to the initial public offering, operations were funded
primarily by the private sale of the Companys equity
securities, through which approximately $45 million was
raised. In April 2000, the Company completed an offering of 6%
convertible subordinated Notes payable in 2007 and realized net
proceeds of $242.4 million. As a result of repurchases in
March and June 2001, $8.8 million of convertible Notes
remain outstanding at December 31, 2001.

Net cash used in 2001 by operating activities
totaled $77.5 million, including numerous significant items
related to restructuring, settlements and discontinued
operations. The net cash used in operating activities during
this period was primarily due to losses from operations, which
were partially offset by non-cash charges of depreciation, and
write-downs of assets. The Company shut down Chemdex and
Promedix, as announced in December 2000, reduced lease
commitments and other ongoing expenditures and completed
workforce reductions that decreased total headcount from
approximately 295 people in January 2001 to approximately
74 in February of 2002. The actions taken to reduce
expenditures are expected to decrease the ongoing use of cash by
operating activities to between $4 million and
$5 million in the first quarter of 2002, decreasing in
subsequent quarters.

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Net cash provided by investing activities totaled
$61.2 million for the year ended December 31, 2001.
During the year ended December 31, 2001, the Company had
net sales and maturities of $86.8 million of short-term
investments and used approximately $23 million in cash for
the acquisition of NexPrise. In addition, the Company invested
$6 million in affiliated marketplace companies and reduced
the restricted cash balance by $5.1 million primarily via
settlements of leases that had restricted cash as collateral.
That reduction was partially offset by the establishment of
$520,000 of letters of credit that serve as collateral for the
primary property leases the Company is a party to.

Net cash used in financing activities was
$61.5 million for the year ended December 31, 2001 and
resulted primarily from retiring $241.2 million of the
outstanding $250 million of our 6% convertible subordinated
Notes in March and June 2001. The actions resulted in an
extraordinary gain of approximately $159.8 million.

Management believes the Company has adequate cash
to sustain operations through 2002 and is managing its business
to achieve positive cash flow utilizing existing assets. During
2001 the Companys commitments and liabilities were
significantly reduced via restructuring events, settlements of
long-term contracts and the repurchase of convertible Notes at a
substantial gain. In addition, the Company reduced ongoing
operating expenses by renegotiating its lease commitments,
reducing purchases of other services and making workforce
reductions. It is the Companys belief that the adjustments
to spending that have been made, combined with receipts expected
from customer contracts already in place, will carry the Company
through 2002. New customer contracts expected to be signed in
2002 and thereafter should provide the additional revenue
required to achieve profitability. We are committed to the
successful execution of our operating plan and will take further
action as necessary to align our operations and reduce expenses.

Recent Accounting Pronouncements

The FASB has recently issued FAS 141,
Business Combinations, and FAS 142, Goodwill and Other
Intangible Assets. The Company has adopted the provisions of
FAS 141 for its acquisition of NexPrise, Inc. The Company
will apply Statement 142 beginning in 2002. Application of
the non-amortization provisions of Statement 142 is not
expected to result in a change to results of operations in 2002
as there was no goodwill amortized in 2001. The Company wrote
down to $0 as of December 31, 2000 intangibles and goodwill
previously acquired. The Company will test goodwill generated by
the NexPrise acquisition using the two-step process prescribed
in Statement 142. The first step is a screen for potential
impairment, while the second step measures the amount of the
impairment, if any. The Company expects to perform the first of
the required impairment tests of goodwill as of January 1,
2002 in the first half of 2002. The Company does not believe
that any reduction of the goodwill balance at January 1,
2002 is required. However, based on steps the Company has taken
to prepare for the adoption of Statement 142, it is
possible that a portion of the $11.7 million goodwill
related to the acquisition of NexPrise may be impaired using the
impairment test required by Statement 142. An impairment
required to be recognized when adopting Statement 142 would
be reflected as the cumulative effect of a change in accounting
principle in the first half of 2002.

On October 3, 2001, the FASB issued
Statement of Financial Accounting Standards No. 144.
Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS 144) which is applicable to
financial statements issued for fiscal years beginning after
December 15, 2001. The FASBs new rules on asset
impairment supersede SFAS 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of, and portions of Accounting Principles Board
Opinion 30, Reporting the Results of
Operations. This Standard provides a single accounting
model for long-lived assets to be disposed of and significantly
changes the criteria that would have to be met to classify and
asset as held-for-sale. Classification as held-for-sale is an
important distinction since such assets are not depreciated and
are stated at the lower of fair value and carrying amount. This
Standard also requires expected future operating losses from
discontinued operations to be displayed in the period(s) in
which the losses are incurred, rather than as of the measurement
date as presently required. We will adopt SFAS 144 on
January 1, 2002 when our new fiscal year begins; the
Company does not expect the adoption will have a material effect
on our operating results or financial condition.

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Risk Factors

An investment in our securities involves
significant risks, including those described below. These risks
relate to our new business model, our ability to generate
revenues and gain operating efficiencies, our history of losses,
significant changes, our ability to hire and retain key
personnel, our reliance on the hosted environment and technology
provided by others, the possible delisting of our common stock,
the need to respond to rapid technological change and legal
claims against us.

Our actual results may differ materially from
those expressed in any forward-looking statement as a result of
certain factors, including but not limited to those set forth
below and included in other portions of this document.

We Have Made Substantial Changes in Our
Business Model and Shut Down the Businesses That Had Provided
All of Our Revenues Since Inception

In August 2001 we used approximately
$23 million in cash to acquire NexPrise, Inc. a provider of
collaborative commerce software solutions. This business now
provides all of our revenue; thus, management focus and
operational efforts primarily support this business. Prior to
this acquisition, the Companys business model was
substantially different. In December 2000, we shut down our
Chemdex and Promedix marketplaces, laid off 235 employees
and restructured certain operations. On April 26, 2001, we
implemented another restructuring in which we terminated
170 employees, representing two-thirds of our workforce,
accrued future lease costs associated with excess production
equipment and facilities, and wrote off assets as well as the
value of certain investments all estimates to recognize
diminished future utility to the company. During the first six
months of 2001, we ceased to provide technology and services to
our remaining marketplaces, and, as part of the combination with
NexPrise, Inc. we terminated additional personnel. Furthermore,
in February 2002 we acquired InfoPrise, Inc., a provider of data
management solutions. As a result of these and similar actions,
there has been a fundamental change in our business. There can
be no assurance that we will be successful in developing viable
technology or a complete service offering.

Restructurings May Not Sufficiently Reduce
Operating Expenses

Our restructurings were designed to lower our
cash used for operating expenses by reducing expenses for
facilities, sales and marketing, hosting, professional services
and marketing arrangements and significantly reducing our
current employee and contractor staffing levels. While the
restructurings have reduced cash operating expenses, our ability
to adequately reduce cash used in operations, and ultimately
generate profitable results from operations, is dependent upon
successful execution of our business plan, including obtaining
new customers. As of December 31, 2001, we had working
capital of $15.8 million and had equity of
$35.4 million. During the year ended December 31,
2001, we used cash in operating activities of
$77.5 million. There can be no assurance that we will be
successful in implementing our new business plan or sufficiently
reducing our operating expenses in the future. Our inability to
reduce costs or to integrate our recent acquisition and develop
a successful product and services offering could have a material
adverse effect upon our ability to successfully transition to
our new business plan.

We Have a Limited Operating History and an
Evolving Technology and Service Offering, Which Makes it
Difficult to Evaluate Our Future Prospects

The success of NexPrise is based on integrating
and developing a viable technology and services offering and
securing new customers. Our business model is not fully
developed, not proven and depends upon our ability, among other
things, to:



| |   |                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------
| |  | develop and market technology and services
	solutions that achieve broad market acceptance by our customers                                      
|
| |  | acquire and deploy a sufficient number of
	customers to achieve profitability                                                                    
|
| |  | extend our technology to support a wide range of
	hardware and software to meet the needs of a large range of
	customers with a variety of needs;

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| |   |                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | acquire or license third party technologies that
	we require to deliver our technology and services                                                 
|
| |  | overcome publicity related to our public
	announcements of restructurings, shareholder litigation and the
	shutdown of our former marketplaces, and,
|
| |  | acquire customers operating in industries where
	we have limited experience and provide them quality technology
	and services.                      

We may not successfully address these risks. If
we do successfully address these risks, additional risks related
to factors that are outside our control may prevent us from
realizing sufficient revenues or profit margins to reach or
sustain profitability. For example, electronic commerce
solutions may experience problems with users as a result of
security and privacy concerns, general reticence about
technology or the Internet or the failure of the market to
develop the necessary infrastructure for Internet-based
communications, such as wide-spread Internet access, high-speed
modems, high-speed communication lines and computer availability.

NexPrise May Not Achieve the Benefits We
Expect from both the August Acquisition and the More Recently
Announced Acquisition of InfoPrise and This May Have a Material
Adverse Effect on the Combined Companys Business,
Financial Condition and Operating Results

The combined company will need to overcome
significant issues in order to realize any benefits or synergies
from the acquisitions, including the timely, efficient and
successful execution of a number of post-merger events. Key
events include:



| |   |                                                                                       
| | - | --------------------------------------------------------------------------------------
| |  | integrating the operations of the companies;                                          
|
| |  | retaining and assimilating the key personnel of
	each company;                        
|
| |  | developing a product that will be attractive to
	existing and potential customers; and
|
| |  | retaining existing customers and strategic
	partners of each company.                 

The successful execution of these post-merger
events will involve considerable risk and may not be successful.
These risks include:



| |   |                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------
| |  | the potential disruption of the combined
	companys ongoing business and distraction of its
	management;                      
|
| |  | the difficulty of incorporating acquired
	technology and rights into the combined companys products
	and services            
|
| |  | unanticipated expenses related to technology
	integration;                                                                    
|
| |  | the impairment of relationships with employees
	and customers as a result of any integration of new management
	personnel; and
|
| |  | potential unknown liabilities associated with the
	merger.                                                                    

The combined company may not succeed in
addressing these risks or other problems encountered in
connection with the merger.

We Are Dependent on a Small Number of
Customers in a Limited Number of Industries

To date, NexPrise has derived a significant
portion of its revenues from a small number of customers in two
industries. Many of our customers do not have contracts that
extend beyond one year. A critical component of the business
plan of the combined company will be the acquisition of new
customers in other industries, increasing the number of users in
our current customers and renewing current contracts. There can
be no assurance that we will be successful in developing
profitable relationships with new customers in new industries or
that we will retain existing customers. There also can be no
assurance that NexPrise will achieve its sales goals given the
worsening business environment that has followed the
September 11, 2001 events and the effect it may have on
corporate spending for technology.

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Security Risks and Concerns May Decrease the
Demand for Our Services, and Security Breaches May Disrupt Our
Services or Make Them Inaccessible to Our Customers.

Our services involve the storage and transmission
of business-critical, proprietary information. If the security
measures we or our third party data centers have implemented are
breached, our customers could lose this information and we could
be exposed to litigation and possible liability. Anyone who
circumvents these security measures could misappropriate
business-critical proprietary information or cause interruptions
in our services or operations. In addition, computer
hackers could introduce computer viruses into our
systems or those of our customers, which could disrupt our
services or make them inaccessible to customers. We may be
required to expend significant capital and other resources to
protect against the threat of security breaches or to alleviate
problems caused by breaches. Our security measures and those
that our third-party data centers provide may be inadequate to
prevent security breaches, and our business and reputation will
suffer if these breaches occur.

We Are Dependent Upon Outsourcing Providers
for Provision of the Hosted Environment for our Customers;
Connection and Performance Issues Have Occurred and May
Recur

We rely on third-party providers for our data
center services, principal Internet connections and application
and data hosting. This hosted environment is critical to the
provision of our software to our customers and if the
environment does not work well, is cut-off or fails, our
customers are unable to use our solution; this causes great
consternation among any hosted customer. In the past our current
primary provider has cut-off or provided deficient service to
our customers as a result of billing errors, disputes and
technical issues. In addition, our current primary provider has
recently filed for Chapter 11 bankruptcy protection under
the United States bankruptcy code. Their continued financial
difficulties may have negative effects on our business, the
nature and extent of which we cannot predict. We have
experienced and may continue to experience interruptions and
delays in service and availability for such services. The
Company has signed an agreement with another company to provide
the hosted environment, but there can be no assurance that the
transition to this environment will successfully occur to the
full satisfaction of our customers. Furthermore, we depend on
these third party providers for prompt delivery, installation
and service of software, hardware and telecommunications
equipment used to deliver our products and services. Any
failures, interruptions or delays experienced or caused by these
third-party providers could negatively impact our relationship
with users and adversely affect our brand and our business and
could expose us to liabilities to third parties. In addition,
because we are required in most circumstances to enter into
contracts for data center space in advance of customer
commitments, if we are unable to increase our customer base at
the rate that we anticipate in the geographic areas in which we
have contracted for space, our operating results will suffer.

Our operations could be significantly hindered by
the occurrence of a natural disaster or other catastrophic event
at our company or any third party provider. Our and their
operations are susceptible to outages due to fire, floods, power
loss, telecommunications failures, break-ins and similar events.
In addition, the majority of our and their network
infrastructure is located in Northern California, an area
susceptible to earthquakes. In the recent past, the western
United States (and California in particular) has experienced
repeated episodes of diminished electrical power supply. As a
result of these episodes, certain of our and their operations or
facilities may be subject to rolling blackouts or
other unscheduled interruptions of electrical power. The
prospect of such unscheduled interruptions may continue for the
foreseeable future and we are unable to predict either their
occurrence, duration or cessation. We do not have, and our third
party providers may not have, multiple site capacity for all of
our services in the event of any such occurrence. Despite
implementation of network security measures, the servers are
vulnerable to computer viruses, physical and electronic
break-ins, and similar disruptions from unauthorized tampering
with our computer systems. In addition, systems are vulnerable
to coordinated attempts to overload systems with data which
could result in denial or reduction of service to some or all of
our users for a period of time. Furthermore, the failure by the
third party providers to provide our required data
communications capacity could result in interruptions in our
service. Interruptions in our service will reduce our revenues
and profits, and our future revenues and profits will be harmed
if our users believe that our system is unreliable or insecure.
We have experienced system failures from time to time. If we
experience frequent or persistent system failures, our
reputation and brand

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could be permanently harmed. We do not carry
sufficient business interruption insurance to compensate us for
losses that may occur as a result of any of these events. Any
such event could have a material adverse effect on our business,
operating results, and financial condition.


Our Operating Results Will Be Highly Dependent
on License and Service Revenues from One Software Suite and Our
Business Could Be Materially Harmed by Factors That Adversely
Affect the Pricing and Demand for This Software Suite

Substantially all of NexPrises license
revenues have been, and the license and services revenues of the
combined company are expected to continue to be, derived from
the license of the ipTeamTM solution. Accordingly,
our future operating results will depend on the demand for
ipTeam by future customers, including new and enhanced releases
that are subsequently introduced. ipTeam was commercially
launched in 1998. If our competitors release new products that
are superior to ipTeam in performance or price, or if we fail to
enhance ipTeam and introduce new products in a timely manner,
demand for our products may decline, and we may have to reduce
the pricing of our products. A decline in demand or pricing for
ipTeam as a result of these or other factors would significantly
reduce the revenues we can expect in the future.

In the past, many software companies have
experienced delays in the commencement of commercial release of
their products. To date, such delays have not had a material
impact on NexPrises revenues. In the future, we may fail
to introduce or deliver new products on a timely basis. If new
releases or products are delayed or do not achieve market
acceptance, we could experience customer dissatisfaction or a
delay or loss of revenues. In addition, customers may delay
purchases of our products in anticipation of future releases. If
customers defer material orders in anticipation of new releases
or new product introductions, our revenues may decline.

Moreover, as we release enhanced versions of our
products, we may not be successful in upgrading our customers
who purchased previous versions of the product to the current
version. We also may not be successful in selling add-on modules
for our products to existing customers. Any failure to continue
to upgrade existing customers products or sell new
modules, if and when they are introduced, could negatively
impact customer satisfaction and our revenues.

As with most software companies, developing and
selling a product that does not require significant
customization in product features or sales process for any
particular customer or set of customers is critical to our
success. If we are unable to resist customer requests to
individualize our product or unable to develop a repeatable
sales process our revenues will suffer and our costs will
increase.

The Company Has a History of Losses, No
Significant Revenues and Expects to Continue to Incur
Significant Operating Losses and Negative Cash Flow; NexPrise
May Never Be Profitable

Prior to the NexPrise acquisition, the Company
had derived revenues solely from product sales through its
Chemdex and Promedix marketplaces: their operations have been
discontinued. In addition, it is unlikely that we will recognize
any revenue in the future related to our affiliated
marketplaces. Since its inception, NexPrise has recorded
revenues from a small number of customers, not all of which are
committed to purchase long-term licenses. There can be no
assurance that the combined company will be successful in
identifying new customers or negotiating commercially acceptable
contractual provisions that will allow recording of revenues.
Accordingly, we have little basis upon which to anticipate
significant revenues. The Company has spent significant funds
for the acquisition, and is subject to commitments to lease
third party facilities, procure software and networking products
and will likely spend a significant amount of money to further
develop our operations, research and development and sales and
marketing operations. We have incurred significant operating and
net losses and negative cash flow and have not achieved
profitability. There can be no assurance that we will ever be
profitable.

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We Operate in a New, Highly Competitive Market
and Our Inability to Compete Successfully Against New Entrants
and Established Companies Would Limit Our Ability to Gain
Significant Market Share

Our target market is rapidly evolving and highly
competitive. It will likely be characterized by an increasing
number of market entrants, as there are few barriers to entry.

We have competition from a diverse group of
companies. Competition may come from companies such as MatrixOne
and PTC. In addition, providers of various software products
such as Ariba, Commerce One, Oracle and SAP may expand their
product offerings to be competitive with us in the future.

Our current and potential competitors may develop
superior e-commerce platforms that achieve greater market
acceptance than our solution. Many of our existing and potential
competitors have longer operating histories, greater name
recognition, larger customer bases and significantly greater
financial, technical and marketing resources than we do. Such
competitors can undertake more extensive marketing campaigns for
their brands, products and services, adopt more aggressive
pricing policies and make more attractive offers to customers,
potential employees, distribution partners, commerce companies
and third-party suppliers.

In addition, substantially all of our prospective
customers have established and long-standing relationships with
some of our competitors. Accordingly, we cannot be certain that
we will be able to expand NexPrises customer and user
base, or retain its current customers. We may not be able to
compete successfully against our current or future competitors,
which could have a material adverse effect on our business,
results of operations and financial condition.

Our Financial Performance, Workforce Reduction
and Acquisitions of NexPrise and InfoPrise May Adversely Affect
the Morale and Performance of Our Personnel and Our Ability to
Hire New Personnel

In connection with the evolution of our business
model and in order to reduce our cash expenses, we have enacted
a number of changes in personnel including virtually all
executive management and most of the board of directors have
left or have announced their resignations and over the past year
there have been significant workforce reductions. The
significant changes in personnel may adversely affect morale and
the companys ability to attract and retain key personnel.
In addition, recent trading levels of our common stock have
decreased the value of the stock options granted to employees
pursuant to our stock option plan. As a result of these factors,
our remaining personnel may seek employment with larger, more
established companies or companies they perceive to have better
prospects.

If Our Common Stock Price Remains Under $1.00,
or if We Otherwise Fail to Comply with Nasdaq Rules, Our Common
Stock May Be Delisted from the Nasdaq National Market, Which
Could Eliminate the Trading Market for Our Common
Stock

If the market price for our common stock remains
below $1.00 per share through May 15, 2002 or we otherwise
fail to meet the criteria for continued listing on the Nasdaq
National Market, our common stock may be delisted from the
Nasdaq National Market. For example, the Company could
eventually fail the $10 million equity requirement. If the
stock is delisted, it would significantly decrease the liquidity
of an investment in NexPrise common stock. In addition, the
stock may be deemed to be penny stock. If our common stock is
considered penny stock, it would be subject to rules that impose
additional sales practices in broker-dealers who sell our
securities. For example, broker-dealers must make a special
suitability determination for the purchaser and have received
the purchasers written consent to the transaction prior to
sale. Also, a disclosure schedule must be prepared prior to any
transaction involving a penny stock and disclosure is required
about sales commissions payable to both the broker-dealer and
the registered representative and current quotations for the
securities. Monthly statements are also required to be sent
disclosing recent price information for the penny stock held in
the account and information on the limited market in penny
stock. Because of these additional obligations, some brokers may
be unwilling to effect transactions in penny stocks. This could
have an adverse effect on the liquidity of our common stock and
the ability of investors to sell the common stock.

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The Market Price Per Share of NexPrise Common
Stock Following the Reverse Stock Split May Drop and not Remain
in Excess of the $1.00 Minimum Bid Price as Required by Nasdaq,
as Downward Pressure May be Created by Such Split or Other
Factors May Arise.

NexPrise cannot predict whether the reverse stock
split, if completed, will increase the market price for
NexPrises common stock. The history of similar stock split
combinations for companies in like circumstances is varied.
There is no assurance that the market price per share of
NexPrise common stock following the reverse stock split will
either exceed or remain in excess of the $1.00 minimum bid price
as required by Nasdaq or that NexPrise will otherwise meet the
requirements of Nasdaq for continued inclusion for trading on
Nasdaq. A reverse stock split could negatively impact the value
of NexPrises stock by allowing additional downward
pressure on the stock price as its relative value becomes
greater following the reverse split. In other words, the stock,
at its new, higher price, has farther to fall and therefore more
room for investors to short or otherwise trade the value of the
stock downward. Similarly, a delisting may negatively impact the
value of the stock as stocks trading on the over-the-counter
market are typically less liquid and trade with larger
variations between the bid and ask price. The market price of
NexPrises common stock will also be based on
NexPrises performance and other factors, some of which are
unrelated to the number of shares outstanding. If the reverse
stock split is effected and the market price of NexPrises
common stock declines, the percentage decline as an absolute
number and as a percentage of NexPrises overall market
capitalization may be greater than would occur in the absence of
a reverse stock split. Furthermore, liquidity of NexPrises
common stock could be adversely affected by the reduced number
of shares that would be outstanding after the reverse stock
split.

Changes to Our Management Team and Board of
Directors May Create an Environment which is Ineffective and/or
Inefficient; If We are Unsuccessful in Developing An Integrated
Management Team, Our Business and Results of Operations could
Suffer

Most of the members of our management team and
Board of Directors have joined us recently. In August 2001, Ted
Drysdale joined us as President, Varma Kunaparaju as Vice
President, Product Development, and John Lynch as Senior Vice
President of Sales and Services. In November 2001, we promoted
Ted Drysdale to President, Chief Executive Officer and Chairman
of the Board, replacing David Perry, former Chief Executive
Officer, who became Vice Chairman. Also in November 2001, John
Glancy and Thomas Jones were elected to our Board, replacing
Brook Byers, Jan Leschly, Naomi Seligman and L. John
Wilkerson, who resigned. In January 2002 Gary Lenz and February
2002, Thomas Insley were elected to our Board. In addition, in
February 2002, Raj Tolani joined us as Vice President,
Engineering. If we do not effectively integrate these executives
and board members into our business, or if they do not work
together with existing personnel as a management team to enable
us to implement our business strategy, our business will suffer.

It is contemplated that our current Chief
Financial Officer, David Zechnich, will resign effective at the
end of February 2002, and will be replaced by Jerry Natoli.
Mr. Natoli is presently the Controller of NexPrise. If we
do not successfully transition Mr. Natoli into the CFO
role, or if he does not work well with the management team to
enable us to implement our business strategy, our business will
suffer.

Our Business Involves a Lengthy and
Unpredictable Sales Cycle

The sales cycle for the target customers of the
software and services we provide tends to be lengthy; our sales
cycle may be somewhat longer than those of our more established
competitors. The unpredictability of the length of our sales
cycle could make it difficult to forecast revenue and plan
expenditures. Additionally, any delays in deployment of our
software related to our inexperience with a type of business or
the size or complexity of the account would delay our ability to
recognize revenue from that account. Such delays could adversely
affect our financial results.

Our Business Will Suffer if We Do Not Enhance
our Product or Introduce New Features to Meet Changing Customer
Requirements

The market for collaborative software and
services is characterized by rapid technological change,
frequent new hardware, software and networking product
introductions and Internet-related technology

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enhancements, uncertain product life cycles,
changes in customer demands and evolving industry standards. If
we do not develop technology that can respond to these changes
the probability of us obtaining new customers will be remote. In
particular, we are designing our technology to support a variety
of hardware, software and networking products that we believe to
be proven and among the most widely used. We can make no
assurances, however, that future customers will continue to use
these products. Even if they do, new versions of these products
are likely to be released and we will need to adapt our
technology to keep pace with changes made to hardware and
software configurations and network infrastructures.


If we do not develop, license or acquire new
technology, or deliver enhancements to existing products on a
timely and cost-effective basis, we may be unable to meet the
growing demands of potential customers. In addition, as we
introduce new services or technologies into existing customer
architectures, we may experience performance problems associated
with incompatibility among different versions of hardware,
software and networking products. To the extent that such
problems occur, we may face adverse publicity, delay in market
acceptance of our services or customer claims against us, any of
which could harm our business.

We Anticipate Our Operating Results Will
Fluctuate Significantly from Quarter to Quarter

Important factors that could cause our quarterly
results to fluctuate materially include:



| |   |                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the timing of obtaining new customers (length of
	sales cycle);                                                                                           
|
| |  | the timing of deploying services for new
	customers;                                                                                                      
|
| |  | the timing and magnitude of operating expenses
	and capital expenditures;                                                                                 
|
| |  | costs related to the various third-party
	technologies we incorporate into our products;                                                                  
|
| |  | utilization of our leased third-party data center
	space and technology infrastructure;                                                                   
|
| |  | changes in our pricing policies or those of our
	competitors; and                                                                                         
|
| |  | the amount of credits that we may be required to
	issue to our current customers if we fail to deliver our
	services pursuant to contractual arrangements.

Due to these and other factors,
quarter-to-quarter comparisons of our operating results may not
be meaningful. You should not rely on our results for any one
quarter as an indication of our future performance. In future
quarters, our operating results may fall below the expectations
of public market analysts or investors. If this occurs, the
market price of our common stock would likely decline.

Our current and future levels of operating
expenses and capital expenditures are based largely on our
operating plans and estimates of future billings and revenues.
These expenditure levels are, to a large extent, fixed in the
short term. We may not be able to adjust spending in a timely
manner to compensate for any unexpected revenue shortfall, and
any significant shortfall in revenue relative to planned
expenditures could negatively impact our business and results of
operations.

We Are Dependent on Intellectual Property and
on Products Licensed or Purchased from Third Parties and are
Exposed to Legal Liability for Infringement

Our success and ability to compete depends on our
ability to develop and maintain the proprietary aspects of our
technology. We rely on a combination of copyright, trademark and
trade secret laws and contractual restrictions to establish and
protect the proprietary aspects of our technology. We seek to
protect our source code for our software, documentation and
other written materials under trade secret copyright laws.
Finally, we seek to avoid disclosure of our intellectual
property by requiring employees and consultants with access to
our proprietary information to execute confidentiality
agreements with us and by restricting access to our source code.

Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy aspects of our
products or to obtain and use information that we regard as
proprietary. Litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade
secrets, and to determine the validity and

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scope of the proprietary rights of others. Any
resulting litigation could result in substantial costs and
diversion of resources and could have a material adverse effect
on our business operating results.


Our business has involved the licensing of our
technology to our customers. Pursuant to our existing licenses,
we have made certain representations and warranties and agreed
to indemnify our licensees against claims of infringement by
third parties. Thus, we may be exposed to a significant risk of
liability for intellectual property infringement claims by
others. Our success and ability to compete also depend on our
ability to operate without infringing upon the proprietary
rights of others. In the event of a successful claim of
infringement against us and our failure or inability to license
the infringed technology, our business and operating results
would be significantly harmed.

As part of our normal operations, we purchase,
license or lease software, hardware and networking products from
third party commercial vendors. We obtain most of our components
from third parties on a purchase order basis. These products may
not continue to be available on commercially reasonable terms,
or at all. The loss of these products could result in delays in
the sale of our services until equivalent technology, if
available, is identified, procured and integrated, and these
delays could result in lost revenues. Some of the key components
of our services are available only from sole or limited sources.
For example, only hardware manufactured by two vendors is
compatible with the Solaris operating system, which is a key
component of our infrastructure. Further, to the extent that the
vendors from whom we purchase these products increase their
prices, our gross margins could be negatively affected.

Non-Compliance with Government Regulations May
Subject Us to Liability

In addition to regulations applicable to
businesses generally, in connection with our former business of
servicing business-to-business marketplaces, we were subject to
direct regulation by governmental agencies which includes
numerous laws and regulations generally applicable to the
chemical, pharmaceutical, controlled substances, human and
biological reagents, medical and invitro devices, nuclear
chemical businesses and environmental spills, as well as
U.S. import and export controls and import controls of
other countries. While the shutdown of Chemdex, Promedix and
SpecialtyMD may limit future regulatory and product liability
risks, until all statutes of limitation have expired, certain
legal risks will remain.

We relied on our suppliers to comply with
applicable local, state and federal laws regarding the labeling
and the dissemination of information on any products sold that
may be hazardous or present a health threat to the user. If
these suppliers have failed, or we have failed to maintain the
requisite records irrespective of the actions of the suppliers,
or if either of us have failed to adequately comply with
labeling and information dispensing requirements of local, state
or federal laws, then we may be held legally responsible, since
we held title to these products, and could be subject to
governmental penalties or fines, as well as private lawsuits to
enforce these laws. We have also relied upon our suppliers to
obtain appropriate approvals for products regulated by the FDA
and to comply with the requirements relating to those approvals
and products. The failure of suppliers to obtain or comply with
those approvals, or the failure of the product advertising or
labeling to be consistent with the FDA approval for the
products, or other failures by the products themselves, or our
failure to keep regulatory records required by the FDA, such as
complaint files, could result in costly product recalls,
significant fines and judgments, civil and criminal liabilities
and negative publicity. In addition, we may discover that we
inadvertently sold other regulated products without a requisite
license or permit or failed to fully comply with other local,
state or federal laws governing these sales.

Except as described in the next sentence, we are
unaware of any current investigations, inquiries, citations,
fines or allegations of violations or noncompliance relating to
regulatory requirements pending by government agencies or by
third parties against us. In February, 2001 the Company received
a subpoena from the U.S. Department of Justice, Drug Enforcement
Administration, for certain billing, invoice, and shipping
records concerning sales to an unaffiliated purchaser. It is
also possible that there may be investigations or allegations
that we are not aware of or future investigations or
allegations. The risk that any noncompliance may be discovered
in the future is currently unknown. Although any potential
impact on us for noncompliance cannot currently be established,
it could result in significant civil or criminal penalties,
including monetary

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fines and injunctions, for noncompliance and
negative publicity, and seriously harm our business, revenues,
results of operations and financial condition.


Government Regulations May Subject Us to
Increased Administrative Burdens and Risks That May Increase the
Cost of Doing Business

As a result of any future contracting with
Federal, state and local agencies, we may become subject to
additional laws and regulations not currently applicable to us
thereby increasing our administrative burdens. Furthermore, we
must comply with any new regulations in both Europe and the
United States, as well as any other regulations adopted by other
countries where we may do business. Compliance with any newly
adopted laws may prove difficult and may harm our business,
operating results and financial condition.

We Face Risks Associated With Shareholder and
Bondholder Litigation

Several class action lawsuits have been filed and
served on the Company alleging that the Company and certain
individuals made false and misleading statements concerning our
business model and earnings for fiscal 2000 and concerning the
Companys initial public offering. Although we believe that
we have meritorious defenses to the actions and intend to defend
the suits vigorously, we cannot predict with certainty the
outcome of these lawsuits. Our defense against such lawsuits
will be costly and will require a significant commitment of time
and resources by our senior management.

Our Common Stock Price is especially volatile
which could result in substantial losses to investors.

The stock market and specifically the stock of
Internet related companies have been very volatile. This broad
market volatility and industry volatility may reduce the price
of our common stock, because our business is Internet-based
without regard to our operating performance. Our common stock
reached a high of $243.50 and traded as low as $0.59 during
2000, and had a high of $4.31 and low of $.12 during 2001. On
February 8, 2002 the last reported sales price on Nasdaq
was $0.35.




Item 7A.     Quantitative
and Qualitative Disclosures About Market Risk



| |                        
| | -----------------------
| | Market Risk Disclosures

The following discussion about the Companys
market risk disclosures involves forward-looking statements.
Actual results could differ materially from those projected in
the forward-looking statements. We are exposed to market risk
related primarily to changes in interest rates. However, we do
not hold derivative financial instruments for speculative or
trading purposes.



| |                          
| | -------------------------
| | Interest Rate Sensitivity

We maintain a short-term investment portfolio
consisting of mainly income securities with maturities of less
than 90 days. These available-for-sale securities are
subject to interest rate risk and will fall in value if market
interest rates increase. We place our investments in instruments
that meet high credit quality standards, as specified in our
investment policy. We do not expect any material loss with
respect to our investment portfolio.



| |                      
| | ---------------------
| | Foreign Currency Risk

Our sales from inception have primarily been made
to U.S. customers and, as a result, we have not had significant
exposure to factors such as changes in foreign currency exchange
rates or weak economic conditions in foreign markets. However,
in future periods, we expect increased sales in foreign markets.
As our sales will be made in U.S. dollars, a strengthening of
the U.S. dollar could make the prices of our products less
competitive in foreign markets. If we need to reduce prices to
become more competitive it will have a negative effect on
operating results.

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##### Table of Contents






Item 8.     Financial
Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS AND
SCHEDULES

The following financial statements of NexPrise,
Inc. are filed as part of this Report on Form 10-K:

|                                                   |                                                                                                                  |      |  |    | 
|-------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------- | ---- |  | -- | 
|                                                   |                                                                                                                  | Page
|NexPrise, Inc. Consolidated Financial
	Statements: |                                                                                                                  |      |  |   
|                                                   | Independent Auditors Report                                                                                     |      |  | 27 | 
|                                                   | Consolidated Balance Sheets at December 31,
	2001 and 2000                                                       |      |  | 28 | 
|                                                   | Consolidated Statements of Operations for the
	years ended December 31, 2001, 2000 and 1999                      |      |  | 29 | 
|                                                   | Consolidated Statements of Stockholders
	Equity (Deficit) for the years ended December 31, 2001,
	2000 and 1999 |      |  | 30 | 
|                                                   | Consolidated Statements of Cash Flows for the
	years ended December 31, 2001, 2000 and 1999                      |      |  | 31 | 
|                                                   | Notes to Consolidated Financial Statements                                                                       |      |  | 32 | 

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REPORT OF ERNST & YOUNG LLP, INDEPENDENT
AUDITORS

The Board of Directors and Stockholders

NexPrise, Inc.


We have audited the accompanying consolidated
balance sheets of NexPrise, Inc. (formerly Ventro
Corporation) as of December 31, 2001 and 2000, and
the related consolidated statements of operations,
stockholders equity (deficit), and cash flows for each of
the three years in the period ended December 31, 2001. Our
audits also included the financial statement schedule listed in
Item 14(a). These financial statements and schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of NexPrise, Inc. at
December 31, 2001 and 2000 and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States.
Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the
information set forth therein.



| |                      
| | ---------------------
| | /s/ ERNST & YOUNG LLP

San Jose, California


February 19, 2002


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NEXPRISE, INC.

CONDENSED CONSOLIDATED BALANCE SHEET

|                                                      |                                                                                                             |                                                       |        |              |        |  |         |          |         |  
|----------------------------------------------------- | ----------------------------------------------------------------------------------------------------------- | ----------------------------------------------------- | ------ | ------------ | ------ |  | ------- | -------- | ------- | -
|                                                      |                                                                                                             | December 31,                                          |        | December 31,
|                                                      |                                                                                                             | 2001                                                  |        | 2000        
|                                                      |                                                                                                             |                                                       |        |             
|                                                      |                                                                                                             |                                                      
|                                                      |                                                                                                             | (In thousands,                                       
|                                                      |                                                                                                             | except $ per share data)                             
|ASSETS                                               
|Current assets:                                       |                                                                                                             |                                                       |        |              |        |  |         |         
|                                                      | Cash and cash equivalents                                                                                   |                                                       | $      | 13,565       |        |  | $       | 91,348   |        
|                                                      | Short-term investments                                                                                      |                                                       |        | 8,150        |        |  |         | 94,987   |        
|                                                      | Accounts receivable, net of reserves of $182 and
	$0                                                        |                                                       |        | 760          |        |  |         |         |        
|                                                      | Due from marketplace companies, net of reserves
	of $0 and $4,646                                           |                                                       |        | 54           |        |  |         | 4,269    |        
|                                                      | Other current assets                                                                                        |                                                       |        | 1,352        |        |  |         | 6,303    |        
|                                                      | Current assets relating to discontinued operations                                                          |                                                       |        | 290          |        |  |         | 15,620   |        
|                                                      |                                                                                                             |                                                       |        |              |        |  |         |         
|                                                      |                                                                                                             | Total current assets                                  |        |              | 24,171 |  |         |          | 212,527 |  
|Restricted cash                                       |                                                                                                             |                                                       | 520    |              |        |  | 5,687   |         
|Property and equipment, net                           |                                                                                                             |                                                       | 2,675  |              |        |  | 21,797  |         
|Equity investments                                    |                                                                                                             |                                                       | 3,033  |              |        |  | 6,103   |         
|Goodwill                                              |                                                                                                             |                                                       | 11,652 |              |        |  |        |         
|Other long-term assets, net                           |                                                                                                             |                                                       | 10,574 |              |        |  | 9,333   |         
|Long-term assets relating to discontinued
	operations |                                                                                                             |                                                       |       |              |        |  | 1,861   |         
|                                                      |                                                                                                             |                                                       |        |              |        |  |         |         
|                                                      |                                                                                                             | Total assets                                          |        | $            | 52,625 |  |         | $        | 257,308 |  
|                                                      |                                                                                                             |                                                       |        |              |        |  |         |         
|                                                     
|LIABILITIES AND STOCKHOLDERS EQUITY
	(DEFICIT)      
|Current liabilities:                                  |                                                                                                             |                                                       |        |              |        |  |         |         
|                                                      | Accounts payable                                                                                            |                                                       | $      | 665          |        |  | $       | 2,931    |        
|                                                      | Accrued compensation                                                                                        |                                                       |        | 960          |        |  |         | 3,699    |        
|                                                      | Accrued expenses                                                                                            |                                                       |        | 5,400        |        |  |         | 14,423   |        
|                                                      | Deferred revenue and customer advance                                                                       |                                                       |        | 525          |        |  |         | 5,000    |        
|                                                      | Other current liabilities                                                                                   |                                                       |        | 114          |        |  |         | 419      |        
|                                                      | Accrued liabilities relating to discontinued
	operations                                                    |                                                       |        | 715          |        |  |         | 27,703   |        
|                                                      |                                                                                                             |                                                       |        |              |        |  |         |         
|                                                      |                                                                                                             | Total current liabilities                             |        |              | 8,379  |  |         |          | 54,175  |  
|Notes payable                                         |                                                                                                             |                                                       | 8,803  |              |        |  | 250,000 |         
|Other Long-term liabilities                           |                                                                                                             |                                                       |       |              |        |  | 206     |         
|Commitments and contingencies (Notes 10, 17
	& 20)    |                                                                                                             |                                                       |        |              |        |  |         |         
|Stockholders equity (deficit):                       |                                                                                                             |                                                       |        |              |        |  |         |         
|                                                      | Preferred stock, no par value; 2,500 shares
	authorized; none issued or outstanding                         |                                                       |        |             |        |  |         |         |        
|                                                      | Common stock, $.0002 par value; 175,000 shares
	authorized; 46,309 and 45,953 shares issued and outstanding |                                                       |        | 10           |        |  |         | 9        |        
|                                                      | Additional paid-in capital                                                                                  |                                                       |        | 631,082      |        |  |         | 630,140  |        
|                                                      | Deferred compensation                                                                                       |                                                       |        | (592         | )      |  |         | (1,051   | )      
|                                                      | Accumulated deficit                                                                                         |                                                       |        | (595,130     | )      |  |         | (675,562 | )      
|                                                      | Accumulated other comprehensive income (loss)                                                               |                                                       |        | 73           |        |  |         | (609     | )      
|                                                      |                                                                                                             |                                                       |        |              |        |  |         |         
|                                                      |                                                                                                             | Total stockholders equity (deficit)                  |        |              | 35,443 |  |         |          | (47,073 | )
|                                                      |                                                                                                             |                                                       |        |              |        |  |         |         
|                                                      |                                                                                                             | Total liabilities and stockholders equity
	(deficit) |        | $            | 52,625 |  |         | $        | 257,308 |  
|                                                      |                                                                                                             |                                                       |        |              |        |  |         |         

See accompanying notes to the consolidated
financial statements.

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NEXPRISE, INC.






CONSOLIDATED STATEMENTS OF
OPERATIONS


|                                                                                                            |                                                                |                                         |         |        |  |      |          |          |   |   |         |         |  
|----------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------- | --------------------------------------- | ------- | ------ |  | ---- | -------- | -------- | - | - | ------- | ------- | -
|                                                                                                            |                                                                |                                        
|                                                                                                            |                                                                | December 31,                           
|                                                                                                            |                                                                |                                        
|                                                                                                            |                                                                | 2001                                    |         | 2000   |  | 1999
|                                                                                                            |                                                                |                                         |         |        |  |     
|                                                                                                            |                                                                |                                        
|                                                                                                            |                                                                | (In thousands, except $ per share data)
|Net revenues                                                                                                |                                                                | $                                       | 1,042   |        |  | $    |         |          |   | $ |        |        
|Cost of revenues                                                                                            |                                                                |                                         | (797    | )      |  |      |         |          |   |   |        |        
|                                                                                                            |                                                                |                                         |         |        |  |      |          |          |   |   |         |        
|                                                                                                            | Gross profit                                                   |                                         |         | 245    |  |      |          |         |   |   |         |        |  
|                                                                                                            |                                                                |                                         |         |        |  |      |          |          |   |   |         |        
|Operating Expenses:                                                                                         |                                                                |                                         |         |        |  |      |          |          |   |   |         |        
|                                                                                                            | Research and development                                       |                                         |         | 24,580 |  |      |          | 35,227   |   |   |         |        |  
|                                                                                                            | In process research and development                            |                                         |         | 2,300  |  |      |          |         |   |   |         |        |  
|                                                                                                            | Sales and marketing                                            |                                         |         | 11,050 |  |      |          | 24,501   |   |   |         |        |  
|                                                                                                            | General and administrative                                     |                                         |         | 14,067 |  |      |          | 6,689    |   |   |         | 8,416   |  
|                                                                                                            | Settlements, restructurings and other charges                  |                                         |         | 16,543 |  |      |          | 4,891    |   |   |         |        |  
|                                                                                                            |                                                                |                                         |         |        |  |      |          |          |   |   |         |        
|                                                                                                            | Total operating expenses                                       |                                         |         | 68,540 |  |      |          | 71,308   |   |   |         | 8,416   |  
|                                                                                                            |                                                                |                                         |         |        |  |      |          |          |   |   |         |        
|Operating loss                                                                                              |                                                                |                                         | (68,295 | )      |  |      | (71,308  | )        |   |   | (8,416  | )      
|Interest expense                                                                                            |                                                                |                                         | (5,646  | )      |  |      | (12,813  | )        |   |   | (168    | )      
|Interest income and other, net                                                                              |                                                                |                                         | 4,426   |        |  |      | 14,242   |          |   |   | 3,163   |        
|Gain on investment                                                                                          |                                                                |                                         |        |        |  |      | 29,240   |          |   |   |        |        
|Loss on investment in strategic partners                                                                    |                                                                |                                         |        |        |  |      | (22,268  | )        |   |   |        |        
|Write-down of investment                                                                                    |                                                                |                                         | (1,201  | )      |  |      | (10,000  | )        |   |   |        |        
|Equity loss(1)                                                                                              |                                                                |                                         | (8,614  | )      |  |      | (20,629  | )        |   |   |        |        
|                                                                                                            |                                                                |                                         |         |        |  |      |          |          |   |   |         |        
|Loss from continuing operations                                                                             |                                                                |                                         | (79,330 | )      |  |      | (93,536  | )        |   |   | (5,421  | )      
|                                                                                                            |                                                                |                                         |         |        |  |      |          |          |   |   |         |        
|Discontinued operations:                                                                                    |                                                                |                                         |         |        |  |      |          |          |   |   |         |        
|                                                                                                            | Income (loss) from discontinued operations,
	net of income tax |                                         |         |       |  |      |          | (186,466 | ) |   |         | (43,152 | )
|                                                                                                            | Gain (loss) on disposal, net of income taxes                   |                                         |         |       |  |      |          | (338,095 | ) |   |         |        |  
|                                                                                                            |                                                                |                                         |         |        |  |      |          |          |   |   |         |        
|Loss from discontinued operations                                                                           |                                                                |                                         |        |        |  |      | (524,561 | )        |   |   | (43,152 | )      
|                                                                                                            |                                                                |                                         |         |        |  |      |          |          |   |   |         |        
|Extraordinary item: gain from retirements of
	bonds, net                                                    |                                                                |                                         | 159,762 |        |  |      |         |          |   |   |        |        
|                                                                                                            |                                                                |                                         |         |        |  |      |          |          |   |   |         |        
|Net income (loss)                                                                                           |                                                                | $                                       | 80,432  |        |  | $    | (618,097 | )        |   | $ | (48,573 | )      
|                                                                                                            |                                                                |                                         |         |        |  |      |          |          |   |   |         |        
|Basic and diluted loss per share from continuing
	operations                                                |                                                                | $                                       | (1.72   | )      |  | $    | (2.16    | )        |   | $ | (0.35   | )      
|                                                                                                            |                                                                |                                         |         |        |  |      |          |          |   |   |         |        
|Basic and diluted loss per share from
	discontinued operations                                              |                                                                |                                         |        |        |  | $    | (12.12   | )        |   | $ | (2.82   | )      
|                                                                                                            |                                                                |                                         |         |        |  |      |          |          |   |   |         |        
|Basic and diluted income per share from
	extraordinary item                                                 |                                                                | $                                       | 3.46    |        |  |      |         |          |   |   |        |        
|                                                                                                            |                                                                |                                         |         |        |  |      |          |          |   |   |         |        
|Basic and diluted net income (loss) per share                                                               |                                                                | $                                       | 1.74    |        |  | $    | (14.28   | )        |   | $ | (3.17   | )      
|                                                                                                            |                                                                |                                         |         |        |  |      |          |          |   |   |         |        
|Weighted average common shares outstanding used
	in computing basic and diluted net income (loss) per share |                                                                |                                         | 46,210  |        |  |      | 43,298   |          |   |   | 15,322  |        
|                                                                                                            |                                                                |                                         |         |        |  |      |          |          |   |   |         |        



---



|    |                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------
|(1) | Includes $8,306 in amortization of goodwill
	related to the equity interest in marketplace companies in 2000.

See accompanying notes to the consolidated
financial statements.

29



---



##### Table of Contents



NEXPRISE, INC.






CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY (DEFICIT)


(in thousands)


|                                                                                   |                                                |                          |         |              |  |            |    |          |  |                 |        |              |  |                   |    |         |  |               |         |       |  |   |        |   |  |   |      |   |  |   |          |          |   |   |      |      |   |   |         |          |          |  
|---------------------------------------------------------------------------------- | ---------------------------------------------- | ------------------------ | ------- | ------------ |  | ---------- | -- | -------- |  | --------------- | ------ | ------------ |  | ----------------- | -- | ------- |  | ------------- | ------- | ----- |  | - | ------ | - |  | - | ---- | - |  | - | -------- | -------- | - | - | ---- | ---- | - | - | ------- | -------- | -------- | -
|                                                                                   |                                                |                          |         |              |  |            |    |          |  |                 |        |              |  |                   |    |        
|                                                                                   |                                                | Preferred Stock          |         | Common Stock |  |            |    |          |  |                 |        |              |  | Accumulated other |    |        
|                                                                                   |                                                |                          |         |              |  | Additional |    | Deferred |  | Shareholders    |        | Accumulated  |  | comprehensive     |    |        
|                                                                                   |                                                | Shares                   |         | Amount       |  | Shares     |    | Amount   |  | Paid-in Capital |        | Compensation |  | Notes Receivable  |    | Deficit |  | income/(loss) |         | Total
|                                                                                   |                                                |                          |         |              |  |            |    |          |  |                 |        |              |  |                   |    |         |  |               |         |      
|Balance as of December 31, 1998                                                    |                                                |                          | 11,446  |              |  | $          | 2  |          |  |                 | 3,922  |              |  | $                 | 1  |         |  | $             | 18,379  |       |  | $ | (2,992 | ) |  | $ | (150 | ) |  | $ | (8,892   | )        |   | $ |     |      |   | $ | 6,348   |         
|Issuance of Series C preferred stock, net of
	issuance costs                       |                                                |                          | 5,300   |              |  |            | 1  |          |  |                 |       |              |  |                   |   |         |  |               | 30,197  |       |  |   |       |   |  |   |     |   |  |   |         |          |   |   |     |      |   |   | 30,198  |         
|Conversion of preferred shares into common stock
	upon Initial Public Offering     |                                                |                          | (16,746 | )            |  |            | (3 | )        |  |                 | 16,746 |              |  |                   | 3  |         |  |               |        |       |  |   |       |   |  |   |     |   |  |   |         |          |   |   |     |      |   |   |        |         
|Issuance of shares upon Initial Public Offering,
	net of issuance costs            |                                                |                          |        |              |  |            |   |          |  |                 | 8,625  |              |  |                   | 2  |         |  |               | 117,403 |       |  |   |       |   |  |   |     |   |  |   |         |          |   |   |     |      |   |   | 117,405 |         
|Issuance of common stock                                                           |                                                |                          |        |              |  |            |   |          |  |                 | 2,726  |              |  |                   | 1  |         |  |               | 15,691  |       |  |   |       |   |  |   |     |   |  |   |         |          |   |   |     |      |   |   | 15,692  |         
|Exercise of stock options, net of repurchases                                      |                                                |                          |        |              |  |            |   |          |  |                 | 744    |              |  |                   |   |         |  |               | 1,856   |       |  |   |       |   |  |   | (844 | ) |  |   |         |          |   |   |     |      |   |   | 1,012   |         
|Deferred Compensation relating to stock options                                    |                                                |                          |        |              |  |            |   |          |  |                 |       |              |  |                   |   |         |  |               | 5,380   |       |  |   | (5,380 | ) |  |   |     |   |  |   |         |          |   |   |     |      |   |   |        |         
|Amortization of Deferred Compensation                                              |                                                |                          |        |              |  |            |   |          |  |                 |       |              |  |                   |   |         |  |               |        |       |  |   | 1,992  |   |  |   |     |   |  |   |         |          |   |   |     |      |   |   | 1,992   |         
|Issuance of warrants                                                               |                                                |                          |        |              |  |            |   |          |  |                 |       |              |  |                   |   |         |  |               | 936     |       |  |   |       |   |  |   |     |   |  |   |         |          |   |   |     |      |   |   | 936     |         
|Payment on notes receivable                                                        |                                                |                          |        |              |  |            |   |          |  |                 |       |              |  |                   |   |         |  |               |        |       |  |   |       |   |  |   | 9    |   |  |   |         |          |   |   |     |      |   |   | 9       |         
|Net loss                                                                           |                                                |                          |        |              |  |            |   |          |  |                 |       |              |  |                   |   |         |  |               |        |       |  |   |       |   |  |   |     |   |  |   | (48,573  | )        |   |   |     |      |   |   | (48,573 | )       
|                                                                                   |                                                |                          |         |              |  |            |    |          |  |                 |        |              |  |                   |    |         |  |               |         |       |  |   |        |   |  |   |      |   |  |   |          |          |   |   |      |      |   |   |         |         
|Balance as of December 31, 1999                                                    |                                                |                          |        |              |  |            |   |          |  |                 | 32,763 |              |  |                   | 7  |         |  |               | 189,842 |       |  |   | (6,380 | ) |  |   | (985 | ) |  |   | (57,465  | )        |   |   |     |      |   |   | 125,019 |         
|Issuance of common stock relating to acquisitions                                  |                                                |                          |        |              |  |            |   |          |  |                 | 12,373 |              |  |                   | 2  |         |  |               | 437,336 |       |  |   |       |   |  |   |     |   |  |   |         |          |   |   |     |      |   |   | 437,338 |         
|Exercise of stock options, net of repurchases                                      |                                                |                          |        |              |  |            |   |          |  |                 | 688    |              |  |                   |   |         |  |               | 5,730   |       |  |   |       |   |  |   |     |   |  |   |         |          |   |   |     |      |   |   | 5,730   |         
|Payments on notes receivable                                                       |                                                |                          |        |              |  |            |   |          |  |                 |       |              |  |                   |   |         |  |               |        |       |  |   |       |   |  |   | 985  |   |  |   |         |          |   |   |     |      |   |   | 985     |         
|Exercise of warrants                                                               |                                                |                          |        |              |  |            |   |          |  |                 | 129    |              |  |                   |   |         |  |               | 375     |       |  |   |       |   |  |   |     |   |  |   |         |          |   |   |     |      |   |   | 375     |         
|Amortization of Deferred Compensation                                              |                                                |                          |        |              |  |            |   |          |  |                 |       |              |  |                   |   |         |  |               |        |       |  |   | 2,186  |   |  |   |     |   |  |   |         |          |   |   |     |      |   |   | 2,186   |         
|Reclassification of Deferred Compensation related
	to Discontinued Operations      |                                                |                          |        |              |  |            |   |          |  |                 |       |              |  |                   |   |         |  |               | (3,143  | )     |  |   | 3,143  |   |  |   |     |   |  |   |         |          |   |   |     |      |   |   |        |         
|Components of Other Comprehensive income/(loss):                                   |                                                |                          |         |              |  |            |    |          |  |                 |        |              |  |                   |    |         |  |               |         |       |  |   |        |   |  |   |      |   |  |   |          |          |   |   |      |      |   |   |         |         
|                                                                                   | Unrealized gains/losses (comprehensive income) |                          |         |             |  |            |    |         |  |                 |        |             |  |                   |    |        |  |               |         |      |  |   |        |  |  |   |      |  |  |   |          |         |   |   |      | (711 | ) |   |         | (711     | )       
|                                                                                   | Unrealized foreign currency gains/losses       |                          |         |             |  |            |    |         |  |                 |        |             |  |                   |    |        |  |               |         |      |  |   |        |  |  |   |      |  |  |   |          |         |   |   |      | 102  |   |   |         | 102      |         
|                                                                                   | Net loss                                       |                          |         |             |  |            |    |         |  |                 |        |             |  |                   |    |        |  |               |         |      |  |   |        |  |  |   |      |  |  |   |          | (618,097 | ) |   |      |     |   |   |         | (618,097 | )       
|                                                                                   |                                                |                          |         |              |  |            |    |          |  |                 |        |              |  |                   |    |         |  |               |         |       |  |   |        |   |  |   |      |   |  |   |          |          |   |   |      |      |   |   |         |         
|                                                                                   |                                                | Total comprehensive loss |         |              |  |            |    |          |  |                 |        |              |  |                   |    |         |  |               |         |       |  |   |        |   |  |   |      |   |  |   |          |          |   |   |      |      |   |   |         |          | (618,706 | )
|                                                                                   |                                                |                          |         |              |  |            |    |          |  |                 |        |              |  |                   |    |         |  |               |         |       |  |   |        |   |  |   |      |   |  |   |          |          |   |   |      |      |   |   |         |         
|Balance as of December 31, 2000                                                    |                                                |                          |        |              |  |            |   |          |  |                 | 45,953 |              |  |                   | 9  |         |  |               | 630,140 |       |  |   | (1,051 | ) |  |   |     |   |  |   | (675,562 | )        |   |   | (609 | )    |   |   | (47,073 | )       
|Issuance of common stock relating to acquisition                                   |                                                |                          |        |              |  |            |   |          |  |                 | 200    |              |  |                   |   |         |  |               | 100     |       |  |   |       |   |  |   |     |   |  |   |         |          |   |   |     |      |   |   | 100     |         
|Stock options assumed on acquisition                                               |                                                |                          |        |              |  |            |   |          |  |                 |       |              |  |                   |   |         |  |               | 1,874   |       |  |   | (687   | ) |  |   |     |   |  |   |         |          |   |   |     |      |   |   | 1,187   |         
|Exercises of stock options, net of repurchases                                     |                                                |                          |        |              |  |            |   |          |  |                 | 487    |              |  |                   | 1  |         |  |               | 52      |       |  |   |       |   |  |   |     |   |  |   |         |          |   |   |     |      |   |   | 53      |         
|Amortization of Deferred Compensation                                              |                                                |                          |        |              |  |            |   |          |  |                 |       |              |  |                   |   |         |  |               |        |       |  |   | 273    |   |  |   |     |   |  |   |         |          |   |   |     |      |   |   | 273     |         
|Elimination of Deferred Compensation for
	Discontinued and Restructured Operations |                                                |                          |        |              |  |            |   |          |  |                 |       |              |  |                   |   |         |  |               | (873    | )     |  |   | 873    |   |  |   |     |   |  |   |         |          |   |   |     |      |   |   |        |         
|Stock repurchase                                                                   |                                                |                          |        |              |  |            |   |          |  |                 | (331   | )            |  |                   |   |         |  |               | (211    | )     |  |   |       |   |  |   |     |   |  |   |         |          |   |   |     |      |   |   | (211    | )       
|Components of Other Comprehensive income/(loss):                                   |                                                |                          |         |              |  |            |    |          |  |                 |        |              |  |                   |    |         |  |               |         |       |  |   |        |   |  |   |      |   |  |   |          |          |   |   |      |      |   |   |         |         
|                                                                                   | Unrealized gains/losses (comprehensive income) |                          |         |             |  |            |    |         |  |                 |        |             |  |                   |    |        |  |               |         |      |  |   |        |  |  |   |      |  |  |   |          |         |   |   |      | 711  |   |   |         | 711      |         
|                                                                                   | Unrealized foreign currency gains/losses       |                          |         |             |  |            |    |         |  |                 |        |             |  |                   |    |        |  |               |         |      |  |   |        |  |  |   |      |  |  |   |          |         |   |   |      | (29  | ) |   |         | (29      | )       
|                                                                                   | Net Income                                     |                          |         |             |  |            |    |         |  |                 |        |             |  |                   |    |        |  |               |         |      |  |   |        |  |  |   |      |  |  |   |          | 80,432   |   |   |      |     |   |   |         | 80,432   |         
|                                                                                   |                                                |                          |         |              |  |            |    |          |  |                 |        |              |  |                   |    |         |  |               |         |       |  |   |        |   |  |   |      |   |  |   |          |          |   |   |      |      |   |   |         |         
|                                                                                   |                                                | Total comprehensive loss |         |              |  |            |    |          |  |                 |        |              |  |                   |    |         |  |               |         |       |  |   |        |   |  |   |      |   |  |   |          |          |   |   |      |      |   |   |         |          | 81,114   |  
|                                                                                   |                                                |                          |         |              |  |            |    |          |  |                 |        |              |  |                   |    |         |  |               |         |       |  |   |        |   |  |   |      |   |  |   |          |          |   |   |      |      |   |   |         |         
|Balance as of December 31, 2001                                                    |                                                |                          |        |              |  | $          |   |          |  |                 | 46,309 |              |  | $                 | 10 |         |  | $             | 631,082 |       |  | $ | (592   | ) |  | $ |     |   |  | $ | (595,130 | )        |   | $ | 73   |      |   | $ | 35,443  |         
|                                                                                   |                                                |                          |         |              |  |            |    |          |  |                 |        |              |  |                   |    |         |  |               |         |       |  |   |        |   |  |   |      |   |  |   |          |          |   |   |      |      |   |   |         |         

See accompanying notes to consolidated financial
statements.

30



---



##### Table of Contents






NEXPRISE, INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                                                        |                                                   |                                                      |          |          |         |      |            |         |          |   |          |         |         |  
|----------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------- | ---------------------------------------------------- | -------- | -------- | ------- | ---- | ---------- | ------- | -------- | - | -------- | ------- | ------- | -
|                                                                                                                        |                                                   |                                                     
|                                                                                                                        |                                                   | For the Years Ended                                 
|                                                                                                                        |                                                   |                                                     
|                                                                                                                        |                                                   | 2001                                                 |          | 2000     |         | 1999
|                                                                                                                        |                                                   |                                                      |          |          |         |     
|                                                                                                                        |                                                   |                                                     
|                                                                                                                        |                                                   | (In thousands)                                      
|Operating Activities                                                                                                    |                                                   |                                                      |          |          |         |      |            |         |          |   |          |        
|Net income(loss) from continuing operations                                                                             |                                                   | $                                                    | (79,330  | )        |         | $    | (93,536    | )       |          | $ | (5,421   | )      
|Net loss from discontinued operations                                                                                   |                                                   |                                                      |         |          |         |      | (524,561   | )       |          |   | (43,152  | )      
|Extraordinary item                                                                                                      |                                                   |                                                      | 159,762  |          |         |      |           |         |          |   |          |        
|Adjustments to reconcile net income
	(loss) to net cash used in operating activities:                                   |                                                   |                                                      |          |          |         |      |            |         |          |   |          |        
|                                                                                                                        | Depreciation and amortization                     |                                                      |          | 6,365    |         |      |            | 9,727   |          |   |          | 1,749   |        
|                                                                                                                        | Amortization of goodwill and other intangibles    |                                                      |          | 3,848    |         |      |            | 120,299 |          |   |          |        |        
|                                                                                                                        | Amortization of deferred stock-based compensation |                                                      |          | 273      |         |      |            | 2,186   |          |   |          | 4,884   |        
|                                                                                                                        | Restructuring and settlement charges              |                                                      |          | 3,906    |         |      |            | 4,596   |          |   |          |        |        
|                                                                                                                        | Equity losses & write down of investments         |                                                      |          | 9,815    |         |      |            | 52,897  |          |   |          |        |        
|                                                                                                                        | Write down of intangible assets                   |                                                      |          |         |         |      |            | 326,653 |          |   |          |        |        
|                                                                                                                        | Gain on investment                                |                                                      |          |         |         |      |            | (29,240 | )        |   |          |        |        
|                                                                                                                        | Gain from retirement of convertible Notes         |                                                      |          | (159,762 | )       |      |            |        |          |   |          |        |        
|Changes in operating assets and
	liabilities:                                                                           |                                                   |                                                      |          |          |         |      |            |         |          |   |          |        
|                                                                                                                        | Accounts receivable                               |                                                      |          | (352     | )       |      |            |        |          |   |          | (12,382 | )      
|                                                                                                                        | Due from marketplace companies                    |                                                      |          | (54      | )       |      |            | (4,269  | )        |   |          |        |        
|                                                                                                                        | Other current assets                              |                                                      |          | 2,405    |         |      |            | (6,353  | )        |   |          | (4,124  | )      
|                                                                                                                        | Other long term assets                            |                                                      |          | 100      |         |      |            | (15,130 | )        |   |          | (19,712 | )      
|                                                                                                                        | Discontinued assets and liabilities               |                                                      |          | (9,797   | )       |      |            | (7,916  | )        |   |          |        |        
|                                                                                                                        | Accounts payable                                  |                                                      |          | (2,266   | )       |      |            | 2,931   |          |   |          | 7,830   |        
|                                                                                                                        | Accrued compensation                              |                                                      |          | (2,685   | )       |      |            | 3,699   |          |   |          | 3,446   |        
|                                                                                                                        | Accrued expenses                                  |                                                      |          | (9,913   | )       |      |            | 14,123  |          |   |          | 24,960  |        
|                                                                                                                        | Deferred revenue and customer advance             |                                                      |          | 143      |         |      |            | 5,000   |          |   |          |        |        
|                                                                                                                        | Other Liabilities                                 |                                                      |          |         |         |      |            | (125    | )        |   |          |        |        
|                                                                                                                        |                                                   |                                                      |          |          |         |      |            |         |          |   |          |        
|                                                                                                                        |                                                   | Net cash used by operating activities                |          |          | (77,542 | )    |            |         | (139,019 | ) |          |         | (41,922 | )
|                                                                                                                        |                                                   |                                                      |          |          |         |      |            |         |          |   |          |        
|Investing Activities                                                                                                    |                                                   |                                                      |          |          |         |      |            |         |          |   |          |        
|Purchase of property and equipment                                                                                      |                                                   |                                                      | (1,672   | )        |         |      | (26,341    | )       |          |   | (9,323   | )      
|Purchases of short-term investments                                                                                     |                                                   |                                                      | (291,767 | )        |         |      | (1,532,759 | )       |          |   | (101,571 | )      
|Sale and maturities of short-term investments                                                                           |                                                   |                                                      | 378,575  |          |         |      | 1,547,561  |         |          |   | 20,410   |        
|(Increase)/decrease in restricted cash                                                                                  |                                                   |                                                      | 5,167    |          |         |      | (5,687     | )       |          |   |         |        
|Investments in marketplace companies                                                                                    |                                                   |                                                      | (6,000   | )        |         |      | (29,800    | )       |          |   |         |        
|Purchase of NexPrise, net of cash                                                                                       |                                                   |                                                      | (23,074  | )        |         |      |           |         |          |   |         |        
|Purchases of Promedix and SpecialtyMD, net of cash                                                                      |                                                   |                                                      |         |          |         |      | 7,228      |         |          |   |         |        
|                                                                                                                        |                                                   |                                                      |          |          |         |      |            |         |          |   |          |        
|                                                                                                                        |                                                   | Net cash provided by (used in) investing
	activities |          |          | 61,229  |      |            |         | (39,798  | ) |          |         | (90,484 | )
|                                                                                                                        |                                                   |                                                      |          |          |         |      |            |         |          |   |          |        
|Financing Activities                                                                                                    |                                                   |                                                      |          |          |         |      |            |         |          |   |          |        
|Principal payments on capital lease obligations                                                                         |                                                   |                                                      | (380     | )        |         |      | (369       | )       |          |   | (274     | )      
|Net proceeds from issuance (payments for
	repurchase) of convertible subordinated Notes                                 |                                                   |                                                      | (60,931  | )        |         |      | 242,500    |         |          |   |          |        
|Net proceeds from the issuance of preferred stock                                                                       |                                                   |                                                      |         |          |         |      |           |         |          |   | 30,198   |        
|Issuance of warrants                                                                                                    |                                                   |                                                      |         |          |         |      | 375        |         |          |   |         |        
|Net proceeds from issuance and repurchase of
	ESPP, options and common stock                                            |                                                   |                                                      | (159     | )        |         |      | 4,740      |         |          |   | 118,417  |        
|Receipts of stockholders notes receivable                                                                              |                                                   |                                                      |         |          |         |      | 985        |         |          |   | 9        |        
|                                                                                                                        |                                                   |                                                      |          |          |         |      |            |         |          |   |          |        
|                                                                                                                        |                                                   | Net cash provided by (used in) financing
	activities |          |          | (61,470 | )    |            |         | 248,231  |   |          |         | 148,350 |  
|                                                                                                                        |                                                   |                                                      |          |          |         |      |            |         |          |   |          |        
|Net increase/(decrease) in cash and cash
	equivalents                                                                   |                                                   |                                                      | (77,783  | )        |         |      | 69,414     |         |          |   | 15,944   |        
|Cash and cash equivalents at beginning of period                                                                        |                                                   |                                                      | 91,348   |          |         |      | 21,934     |         |          |   | 5,990    |        
|                                                                                                                        |                                                   |                                                      |          |          |         |      |            |         |          |   |          |        
|Cash and cash equivalents at end of period                                                                              |                                                   | $                                                    | 13,565   |          |         | $    | 91,348     |         |          | $ | 21,934   |        
|                                                                                                                        |                                                   |                                                      |          |          |         |      |            |         |          |   |          |        
|Supplemental disclosure of noncash
	activities:                                                                         |                                                   |                                                      |          |          |         |      |            |         |          |   |          |        
|Note received upon sale of Marketplace interest                                                                         |                                                   | $                                                    | 11,000   |          |         | $    |           |         |          | $ |         |        
|Note transferred upon retirement of convertible
	debt                                                                   |                                                   | $                                                    | (11,000  | )        |         | $    |           |         |          | $ |         |        
|Forfeiture of MarketMile shares upon settlement                                                                         |                                                   | $                                                    | (1,442   | )        |         | $    |           |         |          | $ |         |        
|Issuance of shares in exchange for
	stockholders notes receivable, net                                                 |                                                   | $                                                    |         |          |         | $    |           |         |          | $ | 844      |        
|Equipment purchased under capital lease or note
	payable                                                                |                                                   | $                                                    |         |          |         | $    |           |         |          | $ | 1,132    |        
|Issuance of common stock for intangible assets                                                                          |                                                   | $                                                    |         |          |         | $    |           |         |          | $ | 15,692   |        
|Issuance of warrants                                                                                                    |                                                   | $                                                    |         |          |         | $    | 246        |         |          | $ | 936      |        
|Issuance of shares in connection with acquisitions                                                                      |                                                   | $                                                    | 1,974    |          |         | $    | 418,480    |         |          | $ |         |        
|Issuance of shares in connection with the
	investment in Amphire                                                        |                                                   | $                                                    |         |          |         | $    | 19,100     |         |          | $ |         |        
|Unrealized accounting loss on available-for-sale
	securities                                                            |                                                   | $                                                    | 711      |          |         | $    | (711       | )       |          | $ |         |        
|Discontinued deferred compensation                                                                                      |                                                   | $                                                    |          |          |         | $    | 3,143      |         |          | $ |         |        
|Deferred Stock Based Compensation related to the
	stock options assumed in connection with the acquisition of
	NexPrise |                                                   | $                                                    | (688     | )        |         | $    |           |         |          | $ |         |        
|Supplemental disclosures of cash flow
	information                                                                      |                                                   |                                                      |          |          |         |      |            |         |          |   |          |        
|Cash paid for interest                                                                                                  |                                                   | $                                                    | 7,641    |          |         | $    | 7,500      |         |          | $ | 117      |        

See accompanying notes to the consolidated
financial statements.

31



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##### Table of Contents



NEXPRISE, INC.






NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


December 31, 2001, 2000 and
1999


1.     Description of
Business



| |            
| | -----------
| | The Company

NexPrise, Inc. (the Company or
NexPrise or we), formerly known as
Ventro Corporation and Chemdex Corporation, is a provider of
collaborative solutions for program management and quote
management.

In 2001 the Company restructured its operations
and focused on a new business direction. The discontinuance of
our Chemdex and Promedix businesses, announced in December 2000,
was virtually completed, we exited or reduced our emphasis in
marketplace investments and acquired NexPrise, Inc. Further, we
restructured the Company and substantially reduced lease and
other commitments to size the Company to focus on our ongoing
operations, providing collaborative software solutions.
Subsequently, we changed the name of the Company to NexPrise,
Inc.

The Company began operations in 1997 as Chemdex,
a marketplace for life sciences research products. In February
2000, Chemdex announced the formation of Ventro Corporation as a
new parent company focused on building the next generation of
B2B marketplace companies. Ventro expanded its portfolio of
wholly owned marketplaces with the acquisition of Promedix.com,
Inc., (Promedix), a marketplace company addressing
the specialty medical products market (SpecialtyMD).
In December 1999 and throughout 2000 Ventro continued to expand
its operations with the formation of four minority owned
marketplaces addressing the needs of a number of new industry
markets. Broadlane, Inc., (Broadlane), a cost method
investment, was formed with Tenet Healthcare to address the
high-volume, hospital and medical supplies market. Industria
Solutions Inc., (Industria), was formed with Dupont
and IBM to address the fluid processing market. Amphire
Solutions Inc., (Amphire), was formed with several
large food industry distributors to address the
U.S. foodservice market. MarketMile Inc.,
(MarketMile) was formed with American Express to
provide customers an affordable e-purchasing solution for a
broad array of products from office and industrial supplies,
computers and peripherals to business services such as temporary
labor. Industria, Amphire and MarketMile are accounted for under
the equity method.

On December 6, 2000, the Company announced
that it would restructure and discontinue operations of its
wholly owned marketplaces, Chemdex, Promedix and SpecialtyMD.
The Company subsequently focused on providing technology and
services as a marketplace service provider to its existing four
minority owned marketplace customers and new marketplace
customers.

As a result of the Companys decision to
shut down Chemdex, Promedix and SpecialtyMD, the results of
operations from these businesses have been reported as
discontinued operations. The accounting for discontinued
operations requires that the results of businesses being
discontinued be reported separately. See Note 19 for more
details of the shut-down costs and results of operations for
these businesses.

In the fourth quarter of 2000, the Company
recorded charges of $37.2 million related to write-downs of
certain investments and costs of restructuring its business. The
write-downs of investments included a $22.3 million
write-down of a strategic marketplace investment and
$10.0 million of write-downs of other investments. The
restructuring charge included $320,000 and $990,000 of cash and
non-cash charges related to employee layoffs in addition to
approximately $3.3 million of non-cash charges for the
write-off of intangible assets associated with development
projects that were cancelled and $280,000 for other expenses.

In 2001, as plans evolved, we continued to
restructure the company and settle various legacy leases and
disputes. We incurred severance related costs of approximately
$5.4 million, recorded approximately $7.6 million of
settlement gains to exit or reduce our relationships with the
marketplace investments and recorded write-downs for excess
leased facilities and excess assets of approximately
$18.8 million, net of

32



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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

approximately $4.2 million of adjustments to
reduce such losses resulting from settlements occurring in the
fourth quarter of 2001. These charges were reported as
components of net loss from continuing operations.

As of December 31, 2001, the Company had
working capital of $15.8 million and had stockholders
equity of $35.4 million. During 2001 the Company used cash
and cash equivalents in operating activities of
$78 million. The net decrease in cash for operating,
investing and financing activities in 2001 was also
approximately $78 million. Management believes that its
restructuring activities, including the elimination of various
leases, has reduced its ongoing operating expenses and that it
will have sufficient working capital to support the
Companys planned activities through 2002. We are committed
to the successful execution of our operating plan and will take
further action as necessary to align our operations and reduce
expenses.

2.     Summary of
Significant Accounting Policies



| |                                                     
| | ----------------------------------------------------
| | Principles of Consolidation, Equity and
	Cost Method

The various interests that NexPrise acquires in
companies are accounted for under three broad methods:
consolidation, the equity method and the cost method. The
applicable accounting method is generally determined based on
our voting interest in a company.

Consolidation.Companies that NexPrise directly or
indirectly controls are accounted for under the consolidation
method of accounting. Under this method, a companys
accounts are reflected within its Consolidated Financial
Statements. All significant inter-company accounts and
transactions are eliminated.

Equity Method.Entities where NexPrise can exercise
significant influence, but not control, are accounted for under
the equity method of accounting. Whether or not NexPrise
exercises significant influence with respect to a company
depends on an evaluation of several factors including, among
others, representation on the companys board of directors
and ownership level, generally 20% - 50% interest in
the voting securities of the company including voting rights
associated with NexPrise holdings in common, preferred and other
convertible instruments in the company. Under the equity method
of accounting, our share of the earnings or losses of these
companies are included in the equity income (loss) section of
the Consolidated Statements of Operations.

Cost Method.Companies not consolidated or
accounted for under the equity method are accounted for under
the cost method of accounting. Under this method,
NexPrises share of the earnings or losses of these
companies is not included in its Consolidated Statements of
Operations. The Company periodically evaluates the carrying
value of its investments for impairment.

Revenue.NexPrise
recognizes revenue for software subscriptions over the term of
the subscription period. Revenue for services is recognized as
the services are performed. Deferred revenue consists of that
portion of customer contracts invoiced in advance of when the
revenue will be recognized under the subscription method.
Revenue is made up primarily of subscriptions of bundled license
and post contract support (PCS) and in some situations include
hosting. The initial and renewal amounts are recognized as
revenue ratably over the period of the license during which the
services are expected to be provided. Our revenue recognition
policy is in accordance with Statement of Position
No. 97-2, or SOP 97-2, Software Revenue
Recognition, as amended and Staff Accounting Bulletin No.
101. For each arrangement, we determine whether evidence of an
arrangement exists, delivery has occurred, the fee is fixed or
determinable, and collection is probable. If any of these
criteria are not met, revenue recognition is deferred until such
time as all of the criteria are met. Generally terms are
net 30. No customer has the right of return. The Company
does not present elements of revenue separately as allocation
methodologies (i.e. allocation based on relative costs) would
not provide a meaningful and supportable allocation, principally
because the Company has yet to establish sufficient vendor
specific objective evidence among various elements.

33



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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Billings for Marketplace Customers.The Company bills marketplace
customers in accordance with the terms of the individual
customer contracts. Offsets to gross expenses are recorded when
the Company provides technology and services that include
hosting and consulting in accordance with the agreement, the
price of the services is fixed or determinable, all contracted
services have been delivered, significant contractual milestones
have been achieved, contractual contingencies have been
eliminated, customer acceptance criteria have been met, and
payment is reasonably assured. Amounts billed and cash received
in excess of costs offset have been included as a customer
advance.

Cash, Cash Equivalents and Short-term
Investments.The Company considers all
highly liquid investment securities with original maturities of
three months or less to be cash equivalents. Management
determines the appropriate classification of debt and equity
securities at the time of purchase and re-evaluates such
designation as of each balance sheet date. Marketable securities
are classified as available-for-sale and are carried at fair
value with material unrealized gains and losses, if any,
included in stockholders equity. Realized gains and losses
on available-for-sale securities are included in interest income.

Goodwill and Other Intangible Assets.Goodwill represents the excess of the
purchase price paid over the fair value of tangible and
identifiable intangible net assets acquired in business
combinations. Identifiable assets primarily include business
partner agreements, technology and trademarks. Identifiable
intangible assets acquired after July 1, 2001 are amortized
based on forecasted revenue as part of the cost of revenues
using percentages established at the time of the acquisition;
periodic reviews are made to ensure the related assets are fully
amortized by the end of their useful lives. Under new accounting
pronouncements, goodwill will no longer be amortized; rather, it
is evaluated using a two-step approach under the transition
rules of FAS 142. Transition to the new rules requires the
completion of a transitional impairment test of all goodwill
within the first year of adoption. Companies are required to
determine and compare the fair value of the reporting unit to
the reporting units carrying value as of January 1,
2002 as the first step of the transitional impairment test
within six months of adopting Statement 142. This will qualify
the Company for the cumulative effect of a change in accounting
principle treatment for any resulting impairment loss. If the
reporting units carrying value exceeds its fair value the
measurement of the impairment loss should be completed as soon
as possible but no later than the end of the Companys
fiscal year.

Capitalized Product Development.The Company capitalizes product
development costs in accordance with Statement of Financial
Accounting Standards No. 86, Accounting for Costs of
Computer Software to be Sold, Leased or Otherwise
Marketed, and EITF 00-2, Accounting for Web
Site Development Costs, under which certain software
development costs incurred subsequent to the establishment of
technological feasibility are capitalized and amortized over the
estimated lives of the related products. We determine
technological feasibility to be established upon the internal
release of the product for acceptance testing. Upon the general
release of the product to customers, development costs for that
product are amortized based on the estimated economic life of
the product.

The related amortization of the capitalized
development costs is provided on a product-by-product basis, and
accounted for as either research and development costs or cost
of revenue for products or services sold to marketplaces.
Quarterly, the Company reviews and expenses the unamortized cost
of any feature identified as being impaired. The Company also
reviews recoverability of the total unamortized cost of all
features and software products in relation to estimated product
and service revenues, and, when necessary, makes an appropriate
adjustment to net realizable value.

Internally developed capitalized software costs
amounted to $0 at December 31, 2001 and 2000.

Property and Equipment.NexPrise records property and
equipment at cost and calculates depreciation using the
straight-line method over estimated useful lives of three to
five years. Property under capital leases is depreciated over
the lesser of the useful lives of the assets or lease term.

34



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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Evaluation of Long-Lived Assets.In accordance with Statement of
Financial Accounting Standards (SFAS) No. 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, the Company
periodically evaluates the carrying value of long-lived assets
and certain identifiable intangibles for impairment, when events
and circumstances indicate that the book value of an asset may
not be recoverable. Recoverability of long-lived assets is
measured by a comparison of the carrying amount of an asset to
the future net cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying
amount by the assets exceeds the fair value of the assets.
Long-lived assets held for disposal are recorded at the lower of
carrying amount or fair value, less estimated costs of sale.

Stock-Based Compensation.The Company accounts for stock-based
employee compensation arrangements in accordance with the
provisions of Accounting Principles Board Opinion
(APB) No. 25, Accounting for Stock Issued
to Employees, and complies with the disclosure provisions
of Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for
Stock-Based Compensation. Under APB 25, compensation
expense is recognized over the vesting period based on the
difference, if any, on the date of grant between the deemed fair
value for accounting purposes of the Companys stock and
the exercise price on the date of grant. The Company accounts
for stock issued to non-employees in accordance with the
provisions of SFAS No. 123 and Emerging Issues Task Force
(EITF) 96-18.

Advertising Costs.Advertising costs are charged to
expense when incurred. Advertising expense was $0,
$2.7 million and $5.5 million for the years ended
December 31, 2001, 2000 and 1999.

Accumulated Other Comprehensive Income (Loss).SFAS No. 130 Reporting
Comprehensive Income, establishes standards of reporting and
display of comprehensive income and its components of net income
(loss) and Other Comprehensive Income in a full set
of general purpose financial statements. Other
Comprehensive Income refers to revenues, expenses, gains
and losses that are not included in net income (loss) but rather
are recorded directly in stockholders equity.

Net Loss Per Share.Net loss per share is presented in
accordance with the requirements of Statement of Financial
Accounting Standards No. 128 Earnings Per Share
(FAS 128) which requires dual presentation of basic
earnings per share (EPS) and diluted EPS.

Basic earnings per share is computed using the
weighted average number of common shares outstanding during the
period. Diluted earnings per share is computed using the
weighted average number of common shares and potentially
dilutive shares outstanding during the period. If NexPrise had
reported income from continuing operations, diluted earnings per
share would have included the shares used in the computation of
basic net loss per share as well as an additional
1.6 million 4.5 million, and 2.1 million common
share equivalents related to the outstanding options and
warrants (determined using the treasury stock method) for the
periods ended December 31, 2001, 2000, and 1999. These
options and warrants could potentially dilute basic earnings per
share in the future but have not been included in the
computation of diluted net (loss) per share as the impact would
have been antidilutive for the periods presented. The Company
has a loss from continuing operations for all periods presented.
In accordance with FAS 128 the same number of shares is
used to calculate per share amounts, regardless of whether the
individual line items display income or loss.

35



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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table presents the calculation of
basic and diluted loss per share from continuing and
discontinued operations and net loss per common share as of
December 31 (in thousands, except per share data):

|                                                                |                                                                                        |      |         |        |   |      |          |        |   |   |         |        |  
|--------------------------------------------------------------- | -------------------------------------------------------------------------------------- | ---- | ------- | ------ | - | ---- | -------- | ------ | - | - | ------- | ------ | -
|                                                                |                                                                                        | 2001 |         | 2000   |   | 1999
|                                                                |                                                                                        |      |         |        |   |     
|Loss from continuing operations                                 |                                                                                        | $    | (79,330 | )      |   | $    | (93,536  | )      |   | $ | (5,421  | )     
|Loss from discontinued operations                               |                                                                                        |      |        |        |   |      | (524,561 | )      |   |   | (43,152 | )     
|Extraordinary item                                              |                                                                                        |      | 159,762 |        |   |      |         |        |   |   |        |       
|                                                                |                                                                                        |      |         |        |   |      |          |        |   |   |         |       
|Net income (loss)                                               |                                                                                        | $    | 80,432  |        |   | $    | (618,097 | )      |   | $ | (48,573 | )     
|                                                                |                                                                                        |      |         |        |   |      |          |        |   |   |         |       
|Basic and diluted:                                              |                                                                                        |      |         |        |   |      |          |        |   |   |         |       
|                                                                | Weighted-average shares of common stock
	outstanding                                   |      |         | 46,236 |   |      |          | 44,108 |   |   |         | 17,446 |  
|                                                                | Less: weighted-average common shares subject to
	repurchase                            |      |         | (26    | ) |      |          | (810   | ) |   |         | (2,124 | )
|                                                                |                                                                                        |      |         |        |   |      |          |        |   |   |         |       
|                                                                | Weighted-average shares used in computing basic
	and diluted net loss per common share |      | $       | 46,210 |   |      | $        | 43,298 |   |   | $       | 15,322 |  
|                                                                |                                                                                        |      |         |        |   |      |          |        |   |   |         |       
|Basic and diluted loss per share from continuing
	operations    |                                                                                        | $    | (1.72   | )      |   | $    | (2.16    | )      |   | $ | (0.35   | )     
|Basic and diluted loss per share from
	discontinuing operations |                                                                                        |      |        |        |   |      | (12.12   | )      |   |   | (2.82   | )     
|Basic and diluted income per share from
	extraordinary item     |                                                                                        |      | 3.46    |        |   |      |         |        |   |   |        |       
|                                                                |                                                                                        |      |         |        |   |      |          |        |   |   |         |       
|Basic and diluted net income (loss) per common
	share           |                                                                                        | $    | 1.74    |        |   | $    | (14.28   | )      |   | $ | (3.17   | )     
|                                                                |                                                                                        |      |         |        |   |      |          |        |   |   |         |       

Recent Accounting Pronouncements.The FASB has recently issued
FAS 141, Business Combinations, and FAS 142, Goodwill
and Other Intangible Assets. The Company has adopted the
provisions of FAS 141 for its acquisition of NexPrise, Inc. The
Company will adopt Statement 142 beginning in 2002.
Application of the non-amortization provisions of
Statement 142 is not expected to result in a change to
results of operations in 2002 as there was no goodwill being
amortized in 2001. The Company wrote down to $0 as of
December 31, 2000 intangibles and goodwill previously
acquired. The Company will test goodwill generated by the
NexPrise acquisition using the two-step process prescribed in
Statement 142. The first step is a screen for potential
impairment, while the second step measures the amount of the
impairment, if any. The Company expects to perform the first of
the required impairment tests of goodwill as of January 1,
2002 in the first half of 2002. The Company does not believe
that any reduction of the goodwill balance at January 1,
2002 is required. However, based on steps the Company has taken
to prepare for the adoption of Statement 142, it is possible
that a portion of the $11.7 million goodwill related to the
acquisition of NexPrise will be impaired using the impairment
test required by Statement 142. An impairment that is
required to be recognized when adopting Statement 142 would
be reflected as the cumulative effect of a change in accounting
principle in the first half of 2002.

On October 3, 2001, the FASB issued
Statement of Financial Accounting Standards No. 144.
Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS 144) which is applicable to
financial statements issued for fiscal years beginning after
December 15, 2001. The FASBs new rules on asset
impairment supersede SFAS 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of, and portions of Accounting Principles Board
Opinion 30, Reporting the Results of
Operations. This Standard provides a single accounting
model for long-lived assets to be disposed of and significantly
changes the criteria that would have to be met to classify and
asset as held-for-sale. Classification as held-for-sale is an
important distinction since such assets are not depreciated and
are stated at the lower of fair value and carrying amount. This
Standard also requires expected future operating losses from
discontinued operations to be displayed in the period(s) in
which the losses are incurred, rather than as of the measurement
date as presently required. We will adopt SFAS 144 on
January 1, 2002 when our new fiscal year begins and do not
expect the adoption will have a material effect on our operating
results or financial condition.

36



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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Use of Estimates.The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.

Reclassifications.Certain amounts in prior years
financial statements have been reclassified to conform to the
current year presentation.

3.     Business
Combinations

The Company announced on July 16, 2001 that
it had signed a definitive agreement to purchase privately held
NexPrise, Inc., a provider of collaborative commerce solutions
located in Santa Clara, California. The transaction was
completed on August 8, 2001 and the operating results of
NexPrise are reflected in the Companys statement of
operations from that date forward. The purchase of NexPrise was
undertaken to accelerate our product development cycle and
enable the Company to offer a comprehensive, proven
collaborative commerce solution with the depth and breadth of
capabilities required to address the critical e-business needs
of customers in the aerospace, automotive, and process
industries. The purchase price for NexPrise resulted in goodwill
of $11.7 million. Key elements of the purchase that are not
valued separately in purchase accounting, such as the members of
the NexPrise management team and workforce that joined the
Company upon completion of the acquisition and NexPrises
blue-chip customers in this large and growing market, contribute
to the generation of goodwill. An escrow account of
$1.5 million of the proceeds paid to acquire NexPrise was
used to compensate for significant liabilities discovered, if
any, in the twelve months following the acquisition.

The following tables summarize the forms of
consideration and allocated fair values (in thousands):

|                                          |  |   |        |  |  |  |  | 
|----------------------------------------- |  | - | ------ |  |  |  |  | 
|Cash                                      |  | $ | 10,092 |  |  |  |  | 
|Stock (200,000 shares)                    |  |   | 100    |  |  |  |  | 
|Employee stock options assumed            |  |   | 1,874  |  |  |  |  | 
|Liabilities assumed and transaction costs |  |   | 13,602 |  |  |  |  | 
|                                          |  |   |        |  |  |  |  | 
|Total purchase consideration              |  | $ | 25,668 |  |  |  |  | 
|                                          |  |   |        |  |  |  |  | 

|                                    |  |   |        |             |  |  |           | 
|----------------------------------- |  | - | ------ | ----------- |  |  | --------- | 
|                                    |  |   |        | Expected   
|                                    |  |   |        | useful life
|                                    |  |   |        | (years)    
|                                    |  |   |        |            
|Tangible assets                     |  | $ | 1,229  |             |  |  | 3         | 
|Purchased technology                |  |   | 7,600  |             |  |  | 5         | 
|In-process research and development |  |   | 2,300  |             |  |  |          | 
|Trade name                          |  |   | 1,700  |             |  |  | 2         | 
|Deferred compensation               |  |   | 687    |             |  |  | as vested | 
|Non-compete                         |  |   | 500    |             |  |  | 3         | 
|Goodwill                            |  |   | 11,652 |             |  |  |          | 
|                                    |  |   |        |             |  |  |           | 
|                                    |  | $ | 25,668 |             |  |  |           | 
|                                    |  |   |        |             |  |  |           | 

37



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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following unaudited, pro forma information
shows the results of operations of the Company for the year
ended December 31, 2001 and 2000 as if the business
combination had occurred at the beginning of each period. This
data is not indicative of the results of operations that would
have arisen if the business combinations had occurred at the
beginning of the respective periods and is not intended to be
indicative of future results of operations (in thousands except
per share data).

|                                                       |  |                         |         |      |  |   |          |  
|------------------------------------------------------ |  | ----------------------- | ------- | ---- |  | - | -------- | -
|                                                       |  |                        
|                                                       |  | Year ended December 31,
|                                                       |  |                        
|                                                       |  | 2001                    |         | 2000
|                                                       |  |                         |         |     
|Revenue                                                |  | $                       | 2,775   |      |  | $ | 2,272    |  
|Net income (loss) from continuing operations           |  | $                       | (93,032 | )    |  | $ | (109,214 | )
|Net income (loss)                                      |  | $                       | 66,730  |      |  | $ | (633,775 | )
|Per Share:                                             |  |                         |         |      |  |   |          |  
|Basic and diluted net loss from continuing
	operations |  | $                       | (2.01   | )    |  | $ | (2.52    | )
|Basic and diluted net income (loss)                    |  | $                       | 1.44    |      |  | $ | (14.64   | )

4.     Financial
Instruments

The following is a summary of available for sale
securities as of December 31 (in thousands):

|                        |                              |                |        |                   |  |                |         |               |  |   |      |      |   |   |         |         | 
|----------------------- | ---------------------------- | -------------- | ------ | ----------------- |  | -------------- | ------- | ------------- |  | - | ---- | ---- | - | - | ------- | ------- | 
|                        |                              | December 31,   |        |                  
|                        |                              | 2001           |        | December 31, 2000
|                        |                              |                |        |                  
|                        |                              | Amortized Cost |        |                   |  | Amortized Cost
|                        |                              | and Estimated  |        | Amortized         |  | Unrealized     |         | and Estimated
|                        |                              | Fair Value     |        | cost              |  | Loss           |         | Fair Value   
|                        |                              |                |        |                   |  |                |         |              
|Money Market Funds      |                              | $              | 11,310 |                   |  | $              | 4,323   |               |  | $ |     |      |   | $ | 4,323   |        
|Commercial paper        |                              |                |       |                   |  |                | 110,020 |               |  |   | (251 | )    |   |   | 109,769 |        
|Corporate notes         |                              |                |       |                   |  |                | 22,505  |               |  |   | (401 | )    |   |   | 22,104  |        
|Government bonds        |                              |                |       |                   |  |                | 1,069   |               |  |   | (22  | )    |   |   | 1,047   |        
|Muni bonds/notes        |                              |                |       |                   |  |                | 40,247  |               |  |   | (37  | )    |   |   | 40,210  |        
|Auction Preferred Stock |                              |                | 8,150  |                   |  |                |        |               |  |   |     |      |   |   |        |        
|                        |                              |                |        |                   |  |                |         |               |  |   |      |      |   |   |         |        
|                        | Total short-term investments |                | $      | 19,460            |  |                | $       | 178,164       |  |   | $    | (711 | ) |   | $       | 177,453 | 
|                        |                              |                |        |                   |  |                |         |               |  |   |      |      |   |   |         |        
|Report as:              |                              |                |        |                   |  |                |         |               |  |   |      |      |   |   |         |        
|Cash equivalents        |                              | $              | 11,310 |                   |  | $              | 82,466  |               |  | $ |     |      |   | $ | 82,466  |        
|Short-term investments  |                              |                | 8,150  |                   |  |                | 95,698  |               |  |   | (711 | )    |   |   | 94,987  |        
|                        |                              |                |        |                   |  |                |         |               |  |   |      |      |   |   |         |        
|                        |                              | $              | 19,460 |                   |  | $              | 178,164 |               |  | $ | (711 | )    |   | $ | 177,453 |        
|                        |                              |                |        |                   |  |                |         |               |  |   |      |      |   |   |         |        

All available-for-sale securities as of
December 31, 2001 and 2000 have a contractual maturity of
one year or less.

38



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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

5.     Property and
Equipment

Property and equipment consisted of the following
as of December 31, (in thousands):

|                                                |  |      |        |      |  |   |        |  
|----------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | -
|                                                |  | 2001 |        | 2000
|                                                |  |      |        |     
|Computer equipment                              |  | $    | 4,167  |      |  | $ | 11,636 |  
|Furniture and equipment                         |  |      | 635    |      |  |   | 1,667  |  
|Purchased software                              |  |      | 1,969  |      |  |   | 15,883 |  
|Leased equipment and software                   |  |      | 1,145  |      |  |   | 1,145  |  
|Leasehold improvements                          |  |      | 116    |      |  |   | 706    |  
|                                                |  |      |        |      |  |   |        |  
|                                                |  |      | 8,032  |      |  |   | 31,037 |  
|Less: accumulated depreciation and amortization |  |      | (5,357 | )    |  |   | (9,240 | )
|                                                |  |      |        |      |  |   |        |  
|                                                |  | $    | 2,675  |      |  | $ | 21,797 |  
|                                                |  |      |        |      |  |   |        |  

6.     Investments

In January 2000, the Company, DuPont, IBM and
@Ventures, the venture capital division of CMGI, Inc., announced
the formation of Industria, a business-to-business e-commerce
company in the worldwide fluid processing market. For a cash
investment of $5.0 million, as well as the contribution of
technology, we received an ownership interest in Industria of
approximately 49%. The investment was accounted for using
the equity method. As of December 31, 2000, the equity
investment in Industria had been reduced to $0. During
2001, we acquired certain Industria assets and hired certain
former Industria employees. The Company also entered into a
mutual and general release in which the Company and Industria
terminated their technology and service agreement.

In April 2000, the Company and Entangible.com
announced the formation of Amphire, a business-to-business
e-commerce company in the food service market. The Company
acquired a minority interest in Amphire for cash and equity
totaling $35 million, which was written down in 2000. In
January 2001, the Company contributed $2.0 million to
Amphires Series B Preferred Stock Financing. In
connection with the financing, the Company terminated its
technology and service agreements with Amphire. The investment
is accounted for using the equity method.

In August 2000, the Company and American Express
Company announced the formation of MarketMile, a new
business-to-business e-commerce company in the business products
and services market. We made cash investments of
$13.0 million, $4.0 of which was made in January 2001, and
account for the investment using the equity method. In April
2001, MarketMile decided not to use our technology and asserted
that we had breached our contract with MarketMile. We believe
that we did not breach our contractual obligations to
MarketMile. The parties reached a settlement in October 2001
whereby we reduced our equity investment in MarketMile to 23%
and the bulk of the receivables due from MarketMile were written
off. Correspondingly, MarketMile released all claims on a
$5 million customer advance. The net effect of settlement
gain reported in the fourth quarter was less than
$1 million.

At March 31, 2001, we had approximately a
19% interest in Broadlane, a business-to-business e-commerce
company in the healthcare industry that we formed with Tenet
Healthcare in January 2000. The investment was accounted for
using the cost method. In April 2001, the Company and Broadlane
settled several disputes between the two companies and severed
relationships with each other. Under the terms of the agreement,
Broadlane repurchased all of its shares owned by the Company and
the parties resolved all disputes relating to amounts owed to
the Company for an aggregate payment to of $11 million. The
payment was made in the form of a two year interest-bearing note
from Broadlane, which was guaranteed by Tenet Healthcare
Corporation. (See Note 11)

39



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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table outlines the Companys
equity investment activity with its marketplace companies for
the years ended December 31, 2001 and 2000 ($ in
thousands):

|                 |  |            |        |             |  |              |       |             |  |          |       |  |  |  |        |  |  |  |       | 
|---------------- |  | ---------- | ------ | ----------- |  | ------------ | ----- | ----------- |  | -------- | ----- |  |  |  | ------ |  |  |  | ----- | 
|                 |  | Initial    |        | Equity Loss |  | Amortization |       | Write down  |  | Carrying
|                 |  | Investment |        | of Investee |  | of Goodwill  |       | of Goodwill |  | Value   
|                 |  | ($)        |        | ($)         |  | ($)          |       | ($)         |  | ($)     
|                 |  |            |        |             |  |              |       |             |  |         
|Activity in 2000 |  |            |        |             |  |              |       |             |  |          |       |  |  |  |        |  |  |  |       | 
|Industria        |  |            | 5,000  |             |  |              | 5,000 |             |  |          |      |  |  |  |       |  |  |  |      | 
|Amphire          |  |            | 35,000 |             |  |              | 4,426 |             |  |          | 8,306 |  |  |  | 22,268 |  |  |  |      | 
|MarketMile       |  |            | 9,000  |             |  |              | 2,897 |             |  |          |      |  |  |  |       |  |  |  | 6,103 | 

|                 |  |              |       |            |  |             |       |            |  |              |       |              |  |  |     |  |  |  |       |  |  |  |    |  
|---------------- |  | ------------ | ----- | ---------- |  | ----------- | ----- | ---------- |  | ------------ | ----- | ------------ |  |  | --- |  |  |  | ----- |  |  |  | -- | -
|                 |  | Carrying     |       |            |  |             |       |            |  | Carrying     |       | Percentage  
|                 |  | Value at     |       |            |  |             |       |            |  | Value at     |       | Ownership at
|                 |  | December 31, |       | Additional |  | Equity Loss |       |            |  | December 31, |       | December 31,
|                 |  | 2000         |       | Investment |  | of Investee |       | Settlement |  | 2001         |       | 2001        
|                 |  | ($)          |       | ($)        |  | ($)         |       | ($)        |  | ($)          |       | ($)         
|                 |  |              |       |            |  |             |       |            |  |              |       |             
|Activity in 2001 |  |              |       |            |  |             |       |            |  |              |       |              |  |  |     |  |  |  |       |  |  |  |    |  
|Industria        |  |              |      |            |  |             |      |            |  |              |      |              |  |  |    |  |  |  |      |  |  |  | 0  | %
|Amphire          |  |              |      |            |  |             | 2,000 |            |  |              | 1,588 |              |  |  |    |  |  |  | 412   |  |  |  | 34 | %
|MarketMile       |  |              | 6,103 |            |  |             | 4,000 |            |  |              | 7,026 |              |  |  | 456 |  |  |  | 2,621 |  |  |  | 23 | %

In the year ended December 31, 2001, most of
which was is the first quarter, the Company billed the
affiliated marketplace companies approximately
$3.7 million, net of reserves. The billings were for
charges incurred on behalf of the marketplace companies,
services the Company provided and facility rent that we passed
on. These amounts were included in settlements with the
marketplace companies.

For the year ended December 31, 2000, the
Company billed its affiliated marketplace companies, Broadlane,
Industria, Amphire, and MarketMile, an aggregate of
approximately $26.6 million. The billings were for services
we had provided or for charges such as rent that we passed
through to the affiliates. As of December 31, 2000, we had
collected $12.7 million of the amounts billed. The Company
wrote off $5.1 million due from Amphire and reserved
$4.4 million related to Broadlane and $270,000 related to
Industria. At December 31, 2000 the $4.3 million net
receivable is due from Industria ($2.1 million) and
MarketMile ($2.2 million). All amounts billed to Amphire
and Broadlane were either reserved as potentially uncollectible
or written off at December 31, 2000.

Approximately $3.3 million of the amounts
billed and collected from marketplace companies were offset
against the Companys gross operating expenses during 2000.
An additional $5.0 million of amounts billed and collected
were not offset but were deferred pursuant to acceptance
provisions of a service agreement with MarketMile.

7.     Other
Long-term Assets

Other long-term assets were comprised of the
following as of December 31, (in thousands):

|                                                                                |                              |      |       |        |  |   |       |       | 
|------------------------------------------------------------------------------- | ---------------------------- | ---- | ----- | ------ |  | - | ----- | ----- | 
|                                                                                |                              | 2001 |       | 2000  
|                                                                                |                              |      |       |       
|Deposits and other                                                              |                              | $    | 746   |        |  | $ | 395   |      
|Deferred debt offering costs, net of accumulated
	amortization of $415 and $991 |                              |      | 200   |        |  |   | 6,938 |      
|Long-term investments, cost method                                              |                              |      | 799   |        |  |   | 2,000 |      
|Purchased intangibles, net of accumulated
	amortization of $971                 |                              |      | 8,829 |        |  |   |      |      
|                                                                                |                              |      |       |        |  |   |       |      
|                                                                                | Total other long-term assets |      | $     | 10,574 |  |   | $     | 9,333 | 
|                                                                                |                              |      |       |        |  |   |       |      

40



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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

8.     Accrued
Expenses

Accrued expenses were comprised of the following
as of December 31, (in thousands):

|                            |                        |      |       |       |  |   |       |        | 
|--------------------------- | ---------------------- | ---- | ----- | ----- |  | - | ----- | ------ | 
|                            |                        | 2001 |       | 2000 
|                            |                        |      |       |      
|Accrued marketing expenses  |                        | $    | 237   |       |  | $ | 790   |       
|Accrued consulting expenses |                        |      | 174   |       |  |   | 4,317 |       
|Other accrued liabilities   |                        |      | 4,989 |       |  |   | 9,316 |       
|                            |                        |      |       |       |  |   |       |       
|                            | Total accrued expenses |      | $     | 5,400 |  |   | $     | 14,423 | 
|                            |                        |      |       |       |  |   |       |       

9.     Settlements
and Restructurings

Settlements, Restructurings and other Charges.During the year ended
December 31, 2001, the Company took many actions to improve
efficiencies and reduce operating costs. The specific actions
outlined below include employee and contractor terminations,
consolidation of facilities, settlements of various disputes and
termination of leases. The net of these charges was reported as
a component of loss from continuing operations.

In the second quarter of 2001, the Company
announced a restructuring plan in connection with its efforts to
improve efficiencies and cut operating costs. The restructuring
included a workforce reduction, consolidation of excess
facilities, write-offs and accruals with respect to certain
assets and commitments, as well as termination of services for
the Broadlane, MarketMile and Industria marketplaces. As a
result, the Company recorded a net charge of $14.7 million
during the three months ended June 30, 2001 and included:
a) a workforce reduction charge of $3.6 million,
primarily related to the cost of severance and related benefits
for the termination of approximately 170 employees,
b) $7.5 million of estimated remaining lease payments
and the cost recoveries anticipated from subleases related to
excess leased facilities and equipment and c) a write-off
of the difference between the net book value of the assets and
the anticipated salvage value of excess computer and networking
equipment and related software of $9.5 million. The Company
recorded a gain of $6 million in the quarter ended
June 30, 2001 for the settlements net of write-downs
associated with its marketplace companies: Broadlane, Industria
and MarketMile. The gain primarily consisted of receipt of an
$11 million two year interest-bearing promissory note from
Broadlane (which is guaranteed by Tenet Healthcare Corporation)
and cash and certain assets from Industria, offset by accruals
and write-downs of receivables from the marketplace companies.

In the three months ended September 30, 2001
the Company recorded $5.3 million of restructuring charges.
These charges consisted of approximately $1.4 million of
severance and other related costs associated with the Ventro
employees terminated in connection with the acquisition of
NexPrise and $3.9 million of expense, accrued for
anticipated reduced cost recoveries related to disposal of
excess facilities and equipment, resulting from continued
deterioration of the real estate and equipment markets.

In the three months ended December 31, 2001
the Company recorded a $3.4 million gain from restructuring
and settlement. The gain was driven by better than expected
settlements related to the termination of excess facilities and
equipment leases and the settlement with MarketMile. The charges
related to additional employee terminations and identification
of additional excess equipment.

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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table summarizes the restructuring
and settlement activity in 2001 (in thousands):

|               |  |            |       |              |  |              |        |             |  |       |        |  |  |   |        |   |  |   |        |  
|-------------- |  | ---------- | ----- | ------------ |  | ------------ | ------ | ----------- |  | ----- | ------ |  |  | - | ------ | - |  | - | ------ | -
|               |  |            |       | Estimated    |  |              |        |             |  |      
|               |  |            |       | Excess Lease |  |              |        | Marketplace |  |      
|               |  | Workforce  |       | Costs and    |  | Write-off of |        | companies   |  |      
|               |  | Reductions |       | Legal        |  | assets       |        | settlements |  | Total
|               |  |            |       |              |  |              |        |             |  |      
|Second Quarter |  | $          | 3,649 |              |  | $            | 7,476  |             |  | $     | 9,539  |  |  | $ | (6,014 | ) |  | $ | 14,650 |  
|Third Quarter  |  |            | 1,399 |              |  |              | 3,900  |             |  |       |       |  |  |   |       |   |  |   | 5,299  |  
|Fourth Quarter |  |            | 368   |              |  |              | (4,174 | )           |  |       | 2,014  |  |  |   | (1,614 | ) |  |   | (3,406 | )
|               |  |            |       |              |  |              |        |             |  |       |        |  |  |   |        |   |  |   |        |  
|               |  | $          | 5,416 |              |  | $            | 7,202  |             |  | $     | 11,553 |  |  | $ | (7,628 | ) |  | $ | 16,543 |  
|               |  |            |       |              |  |              |        |             |  |       |        |  |  |   |        |   |  |   |        |  

At December 31, 2001 the Company had
unliquidated accruals of $884,000.

In the fourth quarter of 2000, the Company
recorded charges of $37.2 million related to write-offs of
certain investments and costs of restructuring its business to
be consistent with the new business model. These charges were
reported as components of net loss from continuing operations.
The write-downs of investments included a $22.3 million
write-down of a strategic marketplace investment and
$10.0 million of write-downs of other investments. The
restructuring charge included $320,000 and $990,000 of cash and
non-cash charges related to employee layoffs in addition to
approximately $3.3 million of non-cash charges for the
write-off of capitalized software and other intangible assets
associated with 2000 development projects that were cancelled
and $280,000 for other expenses. Substantially all of the cash
charges related to the restructuring were paid in the fourth
quarter of 2000.

10.     Commitments

The Company leases its office facilities under
non-cancelable operating leases expiring through 2005. Minimum
annual operating lease commitments as of December 31, 2001
are as follows (in thousands):

|                               |                              |   |        |       | 
|------------------------------ | ---------------------------- | - | ------ | ----- | 
|2002                           |                              | $ | 1,857  |      
|2003                           |                              |   | 1,841  |      
|2004                           |                              |   | 666    |      
|2005                           |                              |   | 107    |      
|Thereafter                     |                              |   |       |      
|                               |                              |   |        |      
|                               | Total minimum lease payments |   |        | 4,471 | 
|Less, expected sublease income |                              |   | (2,426 | )    
|                               |                              |   |        |      
|                               |                              | $ | 2,045  |      
|                               |                              |   |        |      

In November 1999, the Company entered in a new
facilities sublease agreement for its former headquarters. The
sublease term commenced on December 1, 1999 and will end on
December 31, 2003. Sublease receipts for the Company will
be received on an escalating basis with the total future minimum
sublease receipts amounting to approximately $2,426,000 over the
remaining lease term. Late in 2001, the Company signed
agreements terminating certain lease agreements. See Settlements
and Restructuring.

Rent expense for the years ended
December 31, 2001, 2000 and 1999 approximated $3,936,000,
$5,641,000, and $1,488,000.

11.     Financing
Arrangements, Extraordinary Gain

In April 2000, NexPrise (then Ventro) incurred
$250 million of indebtedness (Notes) in
connection with the issuance of convertible subordinated Notes
whereby the Company received net cash proceeds of
$242.5 million. The Notes are due in 2007, bear annual
interest at 6%, and are convertible at the option of the

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NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

holder into the Companys common stock at a
price of $90.78 per share subject to adjustment if certain
events affecting our common stock occur. The Company may redeem
the Notes, as a whole or in part, on or after April 4,
2003. The Notes are unsecured and are subordinated to existing
and future senior debt as defined in the indenture pursuant to
which the Notes were issued. Interest on the Notes is payable
semi-annually in arrears on April 1 and October 1 of
each year, commencing on October 1, 2000. The Notes could
be declared immediately due and payable if we do not make timely
interest payments. The deferred debt offering costs were
approximately $9.3 million and are being amortized to
interest expense over the life of the Notes.

In March 2001, the Company repurchased
$184.7 million of the convertible subordinated Notes for
$270 in cash per $1,000 principal amount, plus accrued and
unpaid interest up to, but not including the date of payment.
The transaction resulted in an extraordinary gain of
$125.8 million, consisting of a gain of $135 million
due to the discount, offset by the write-off of $6 million in
issue costs associated with the original issuance of the Notes
in April 2000 as well as $3.2 million of costs associated
with the retirement of the Notes.

In June 2001, the Company repurchased in private
transactions $56.5 million in principal of its remaining
outstanding convertible subordinated Notes. NexPrise paid
approximately $11 million in cash and assigned an $11
million promissory note from Broadlane, Inc. as consideration
for the Notes and the accrued interest thereon. The transactions
resulted in an extraordinary gain of $33 million,
consisting of a gain of $35 million due to the discount,
offset by the write-off of $1.7 million in issue costs
associated with the original issuance of the Notes in April 2000
as well as $300,000 of costs associated with the retirement of
the Notes. In the fourth quarter of 2001, the Company increased
its extraordinary gain by $600,000 to reduce previous cost
estimates. At December 31, 2001, $8.8 million of
convertible Notes remain outstanding and require annual interest
payments of approximately $500,000; the remaining unamortized
issue costs were approximately $200,000.

In February 1999, the Company entered into a
financing arrangement in the amount of $1,132,000 for the
purchase of certain computer software and related support. This
arrangement provides for 12 equal quarterly payments of the
financed amount commencing May 1, 1999, with interest
imputed at 13.24% per year. As of December 31, 2001,
aggregate future minimum payments under the financing agreement
which has been drawn upon are $125,000.

12.     Stockholders
Equity



| |                
| | ---------------
| | Preferred Stock

The Board of Directors has the authority, within
the limitations and restrictions in the amended and restated
certificate of incorporation, to issue 2,500,000 shares of
preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including
dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or
the designation of any series, without further vote or action by
the stockholders.



| |         
| | --------
| | Warrants

In January 1999, in connection with an equipment
lease line, NexPrise issued a fully vested warrant that entitles
the holder to purchase 105,000 shares of NexPrises common
stock at an exercise price of $1.50 per share. This warrant is
exercisable through January 2006. The fair value of this
warrant, approximately $353,000 was being expensed as a cost of
financing over the four year period of the lease line until
2001, at which time the remaining value was written off as the
Company can no longer utilize this line. The fair value of this
warrant was originally calculated using the Black-Scholes option
pricing model. The warrant was exercised in full during 2000.

In March 1999, NexPrise issued a fully vested,
non-forfeitable warrant in exchange for consulting services. The
warrant entitles the holder to purchase 49,999 shares of
NexPrises common stock at an exercise price of $5.20 per
share. This warrant was exercisable through July 27, 2001.
The fair value of this warrant,

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NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

approximately $208,000, was expensed over the six
month period of the consulting agreement. The fair value of this
warrant was calculated using the Black-Scholes option pricing
model. This warrant expired unexercised.

In July 1999, the Company issued a fully-vested,
non-forfeitable warrant that entitles the holder to purchase
25,000 shares of NexPrises common stock at an
exercise price of $15.00 per share, in connection with a lease
agreement. The fair value of this warrant, approximately,
$375,000, was being expensed over the term of the lease until
the fourth quarter of 2001, at which time the remaining value
was written off since the lease agreement was terminated. The
fair value of this warrant was calculated using the
Black-Scholes option pricing model. This warrant was exercised
in full prior to December 31, 2000.

In February 2000, in conjunction with the
Companys acquisition of SpecialtyMD, the Company converted
166,310 outstanding and exercisable warrants for shares of
SpecialtyMD Series B preferred stock into warrants
exercisable for an aggregate of 17,179 shares of NexPrise
common stock having the same terms and conditions as the
SpecialtyMD warrants. These warrants have an exercise price is
$10.55 and are exercisable through September 10, 2009.



| |             
| | ------------
| | Common Stock

At December 31, 2001 and 2000, 521 and
389,000 shares, were subject to repurchase. The stock repurchase
arrangement vests over a period of four years. For the fiscal
years ended December 31, 2001, 2000 and 1999, 282,761,
390,904 and 397,411 shares were repurchased.

In September 2001, the board of directors
approved a stock repurchase plan, authorizing the Company to
repurchase up to $2 million in stock through March 2003.
During 2001, the Company repurchased approximately $200,000 of
stock included as additional paid-in capital in the balance
sheet.



| |                   
| | ------------------
| | Stock Option Plans

1998 Stock Plan

General.NexPrises 1998 Stock Plan
provides for the granting of stock options and stock purchase
rights to eligible employees, officers, directors, including
non-employee directors, and consultants of NexPrise. Stock
options granted under the 1998 Stock Plan may be either
incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as
amended, or non-statutory stock options, which are options not
intended to qualify as incentive stock options. Stock purchase
rights granted under the 1998 Stock Plan allow a recipient to
purchase shares of common stock directly from NexPrise.
Incentive stock options may be granted to employees, officers
and employee directors of NexPrise and nonstatutory stock
options and stock purchase rights may be granted to employees,
officers, directors and consultants.

As of December 31, 2001, 9,494,819 shares of
common stock were issuable upon the exercise of outstanding
options granted under the 1998 Stock Plan at a weighted average
exercise price of $2.189 per share. For the fiscal year
ended December 31, 2001, 58,406 shares of common stock
have been issued upon exercise of options or pursuant to stock
purchase rights at exercise or purchase prices ranging between
$0.375 and $190.00 per share and 4,844,102 shares
of common stock remained available for future issuance under the
1998 Stock Plan. The 1998 Stock Plan was originally adopted by
the Board of Directors in January 1998 and approved by the
stockholders in March 1998. In May 1999 the Board of Directors
authorized an automatic annual increase on the first day of each
of our fiscal years beginning in 2000, 2001, 2002, 2003, and
2004 equal to the lesser of 1,250,000 shares, 3% of our
outstanding common stock on the last day of the preceding fiscal
year or a lesser number determined by the Companys Board
of Directors. Shareholders approved increases in the number of
common shares available for issuance under the Companys
1998 Stock Plan to a total of 16,107,883 shares. Unless
terminated earlier by our Board of Directors, the 1998 Stock
Plan will terminate in January 2008.

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NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                    
| | -------------------
| | Promedix Stock Plan

On February 10, 2000, the Company assumed
the Promedix 1998 stock plan. Approximately
1,013,511 outstanding and unexercised options of Promedix
converted into 1,281,710 options of NexPrise common stock, under
the 1998 Stock Plan, having the same terms and conditions as the
Promedix options, after giving effect to the
1.2647 exchange ratio in the merger. As of
December 31, 2001, there were 360,566 shares of common
stock remained available for future issuance under the Promedix
1998 Stock Plan.



| |                       
| | ----------------------
| | SpecialtyMD Stock Plan

On February 10, 2000, the Company assumed
the SpecialtyMD 1998 stock plan. Under the 1998 Stock Plan,
1,311,583 outstanding and unexercised options of SpecialtyMD
converted into 137,540 options of NexPrise common stock
having the same terms and conditions as the SpecialtyMD options
after giving effect to the 0.1033 exchange ratio in the
merger. As of December 31, 2001, 3,099 shares of
common stock were issuable upon the exercise of outstanding
options granted under the SpecialtyMD 1998 Stock Plan at a
weighted average exercise price of $1.452 per share. For
the fiscal year ended December 31, 2001, 13,430 shares
of common stock have been issued upon exercise of options or
pursuant to stock purchase rights at exercise or purchase prices
ranging between $1.452 and $1.452 per share and
92,396 shares of common stock remained available for future
issuance under the 1998 Stock Plan.



| |                     
| | --------------------
| | NexPrise Stock Plans

On August 8, 2001, in connection with the
acquisition of privately-held NexPrise, Inc., the Company
assumed the privately-held NexPrise, Incs 1997 Stock Plan.
Under the 1997 Stock Plan, 2,329,442 outstanding and
unexercised options of privately-held NexPrise, Inc. converted
into 1,863,585 options of the Companys common stock having
the same terms and conditions as the privately-held NexPrise,
Inc. options after giving effect to the 0.80 exchange ratio
in the merger. As of December 31, 2001, 1,412,383 shares of
common stock were issuable upon the exercise of outstanding
options granted under the 1997 Stock Plan at a weighted average
exercise price of $0.373 per share. For the fiscal year
ended December 31, 2001, 162,653 shares of common
stock have been issued upon exercise of options or pursuant to
stock purchase rights at exercise or purchase prices ranging
between $0.130 and $1.00 per share and 288,549 shares of
common stock remained available for future issuance under the
1997 Stock Plan.

On August 8, 2001, the Company assumed the
privately-held NexPrise, Inc. Nonstatutory Stock Plan. Under the
Nonstatutory Stock Plan, 2,048,756 outstanding and
unexercised options of privately-held NexPrise, Inc. converted
into 1,639,005 options of the Companys common stock
having the same terms and conditions as the privately-held
NexPrise, Inc.s options after giving effect to the 0.80
exchange ratio in the merger. As of December 31, 2001,
1,639,005 shares of common stock were issuable upon the
exercise of outstanding options granted under the Nonstatutory
Stock Plan at a weighted average exercise price of
$0.267 per share.

1999 Directors Stock Plan

NexPrises 1999 Directors Stock Plan
was adopted by the Board of Directors in May 1999 and was
approved by the stockholders in July 1999. The directors
Plan provides for the grant of nonstatutory stock options to
non-employee directors of NexPrise.

The Directors Plan as amended provides that
each person who is or becomes a non-employee director of
NexPrise will be granted a non-statutory stock option to
purchase 25,000 shares of common stock on the date which the
optionee first becomes a non employee director of NexPrise.
Thereafter, on the date of NexPrises Annual Stockholders
Meeting each year, each non-employee director of NexPrise will
be granted an

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NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

additional option to purchase 25,000 shares
of common stock if, on that date, he or she has served on
NexPrises Board of Directors for at least six months

The Directors Plan provides that each
option granted under the directors Plan shall vest and
become exercisable in full immediately upon grant of the option.
The exercise price of all stock options granted under the
Directors Plan shall be equal to the fair market value of
a share of NexPrises common stock on the date of grant of
the option. Options granted under the Directors Plan have
a term of ten years.

The Board of Directors may amend or terminate the
Directors Plan; provided, however, that none of these
actions may adversely affect any outstanding option. The Company
will obtain stockholder approval for any amendment to the extent
required by applicable law. If not terminated earlier, the
Directors Plan will have a term of ten years.

As of December 31, 2001, 75,000 shares of
common stock were issuable upon the exercise of outstanding
options granted under the 1999 Stock Plan at a weighted average
exercise price of $1.742 per share. For the fiscal year
ended December 31, 2001, no shares of common stock have
been issued upon exercise of options or pursuant to stock
purchase rights. As of December 31, 2001,
142,500 shares of common stock remained available for
future issuance under the 1999 Directors Stock Plan.

1999 Employee Stock Purchase Plan

NexPrises 1999 Employee Stock Purchase Plan
was adopted by the Board of Directors in May 1999 and was
approved by the stockholders in July 1999. A total of 750,000
shares of common stock was initially reserved for issuance under
the purchase plan, as well as an automatic annual increase on
the first day of each of NexPrises fiscal years beginning
in 2001, 2002, 2003 and 2004 equal to the lesser of 200,000
shares, or  1/2% of NexPrises outstanding common
stock on the last day of the immediately preceding fiscal year.
Shareholders approved an increase in the number of common shares
available for issuance under the Companys 1999 Employee
Stock Purchase Plan to a total of 1,413,814 shares. During 2001
employees purchased 92,063 shares at an average price of
$1.44 per share through this program. As of December 31,
2001, 368,118 shares have been issued under the 1999 Employee
Stock Purchase Plan.

The Purchase Plan permits eligible employees to
purchase common stock through payroll deductions. Employees may
end their participation in the offering at any time during the
offering period, and participation ends automatically on
termination of employment. If not terminated earlier, the
Purchase Plan will have a term of 20 years.



| |                              
| | -----------------------------
| | Acceleration of Stock Options

Under terms of agreements with certain employees,
if performance criteria are met, up to 1,250,000 shares could
accelerate vesting in 2002 and up to 1,250,000 shares could
accelerate vesting in 2003.



| |                                         
| | ----------------------------------------
| | Accounting for Stock-Based
	Compensation

The Company accounts for stock-based employee
compensation arrangements in accordance with the provisions of
Accounting Principles Board Opinion (APB)
No. 25, Accounting for Stock Issued to
Employees, and complies with the disclosure provisions of
Statement of Financial Accounting Standards (SFAS)
No. 123, Accounting for Stock-Based
Compensation.

For purposes of the SFAS No. 123 disclosure,
the fair value for the options granted subsequent to the
Companys initial public offering was estimated at the date
of grant using a Black-Scholes option pricing model. The fair
value of the Companys stock based awards was estimated
assuming no expected dividends and the following
weighted-average assumptions: expected life of four years,
risk-free interest rates of 3.84%, 6.00% and 6.66% and
volatility of 1.9, 3.5 and 1.0 in 2001, 2000 and 1999.

46



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NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

If SFAS No. 123 were used to account for the
Companys stock based compensation programs, the pro forma
net loss per share would be as follows (in thousands, except per
share data):

|                                               |             |                          |   |        |  |      |   |          |   |  |   |         |  
|---------------------------------------------- | ----------- | ------------------------ | - | ------ |  | ---- | - | -------- | - |  | - | ------- | -
|                                               |             |                         
|                                               |             | Years Ended December 31,
|                                               |             |                         
|                                               |             | 2001                     |   | 2000   |  | 1999
|                                               |             |                          |   |        |  |     
|Net Income/(loss):                             |             |                          |   |        |  |      |   |          |   |  |   |        
|                                               | As reported |                          | $ | 80,432 |  |      | $ | (618,097 | ) |  | $ | (48,573 | )
|                                               | Pro forma   |                          | $ | 79,436 |  |      | $ | (681,070 | ) |  | $ | (52,114 | )
|Basic and diluted net income (loss) per share: |             |                          |   |        |  |      |   |          |   |  |   |        
|                                               | As reported |                          | $ | 1.74   |  |      | $ | (14.28   | ) |  | $ | (3.17   | )
|                                               | Pro forma   |                          | $ | 1.72   |  |      | $ | (15.73   | ) |  | $ | (3.40   | )

Stock option activity for all our stock plans was
as follows (in thousands, except per share data):

|                                   |                          |                          |        |           |   |        |       |           |  |        |        |           |   |   |       |       |  |  |       |        |   |   |       |       | 
|---------------------------------- | ------------------------ | ------------------------ | ------ | --------- | - | ------ | ----- | --------- |  | ------ | ------ | --------- | - | - | ----- | ----- |  |  | ----- | ------ | - | - | ----- | ----- | 
|                                   |                          |                         
|                                   |                          | Years Ended December 31,
|                                   |                          |                         
|                                   |                          |                          |        |           |   |       
|                                   |                          | 2001                     |        | 2000      |   | 1999  
|                                   |                          |                          |        |           |   |       
|                                   |                          |                          |        | Weighted- |   |        |       | Weighted- |  |        |        | Weighted-
|                                   |                          |                          |        | Average   |   |        |       | Average   |  |        |        | Average  
|                                   |                          |                          |        | Exercise  |   |        |       | Exercise  |  |        |        | Exercise 
|                                   |                          | Shares                   |        | Price     |   | Shares |       | Price     |  | Shares |        | Price    
|                                   |                          |                          |        |           |   |        |       |           |  |        |        |          
|Outstanding at beginning of period |                          |                          | 11,364 |           |   | $      | 28.06 |           |  |        | 2,793  |           |   | $ | 17.40 |       |  |  | 509   |        |   | $ | 0.14  |      
|                                   | Acquired  Promedix.com  |                          |        |          |   |        |       |          |  |        |        | 1,282     |   |   | $     | 11.48 |  |  |       |       |   |   |       |      | 
|                                   | Acquired  SpecialtyMD   |                          |        |          |   |        |       |          |  |        |        | 137       |   |   | $     | 2.63  |  |  |       |       |   |   |       |      | 
|                                   | Acquired  NexPrise Inc. |                          |        | 3,503     |   |        | $     | 0.32      |  |        |        |          |   |   |       |      |  |  |       |       |   |   |       |      | 
|                                   | Granted                  |                          |        | 11,060    |   |        | $     | 0.42      |  |        |        | 11,034    |   |   | $     | 34.45 |  |  |       | 3,579  |   |   | $     | 14.28 | 
|                                   | Exercised                |                          |        | (613      | ) |        | $     | 0.30      |  |        |        | (803      | ) |   | $     | 2.21  |  |  |       | (1,142 | ) |   | $     | 1.40  | 
|                                   | Canceled                 |                          |        | (12,690   | ) |        | $     | 24.08     |  |        |        | (3,079    | ) |   | $     | 36.91 |  |  |       | (153   | ) |   | $     | 6.40  | 
|                                   |                          |                          |        |           |   |        |       |           |  |        |        |           |   |   |       |       |  |  |       |        |   |   |       |      
|Outstanding at end of period       |                          |                          | 12,624 |           |   |        | 1.70  |           |  |        | 11,364 |           |   | $ | 28.06 |       |  |  | 2,793 |        |   | $ | 17.40 |      
|                                   |                          |                          |        |           |   |        |       |           |  |        |        |           |   |   |       |       |  |  |       |        |   |   |       |      
|Exercisable at end of period       |                          |                          | 4,238  |           |   |        |      |           |  |        | 1,828  |           |   |   |       |       |  |  | 119   |        |   |   |       |      
|                                   |                          |                          |        |           |   |        |       |           |  |        |        |           |   |   |       |       |  |  |       |        |   |   |       |      

The following table summarizes information about
stock options outstanding as of December 31, 2001
(# shares in thousands):

|                         |  |             |        |              |  |           |      |           |  |           |      |  |  |  |       |  |  |   |       | 
|------------------------ |  | ----------- | ------ | ------------ |  | --------- | ---- | --------- |  | --------- | ---- |  |  |  | ----- |  |  | - | ----- | 
|                         |  |             |        |              |  |          
|                         |  | Outstanding |        |             
|                         |  |             |        | Exercisable 
|                         |  |             |        | Weighted     |  |           |      |          
|                         |  |             |        | Average      |  | Weighted- |      |           |  | Weighted-
|                         |  |             |        | Remaining    |  | Average   |      |           |  | Average  
|                         |  | Number of   |        | Contractual  |  | Exercise  |      | Number of |  | Exercise 
|Range of Exercise Prices |  | Shares      |        | Life (years) |  | Price     |      | Shares    |  | Price    
|                         |  |             |        |              |  |           |      |           |  |          
|$0.063 - $0.375          |  |             | 2,624  |              |  |           | 9.17 |           |  | $         | 0.27 |  |  |  | 2,395 |  |  | $ | 0.27  | 
|$ 0.44 - $0.44           |  |             | 821    |              |  |           | 9.29 |           |  | $         | 0.44 |  |  |  | 821   |  |  | $ | 0.44  | 
|$ 0.55 - $0.55           |  |             | 3,849  |              |  |           | 9.60 |           |  | $         | 0.55 |  |  |  | 105   |  |  | $ | 0.55  | 
|$ 0.58 - $0.58           |  |             | 189    |              |  |           | 9.33 |           |  | $         | 0.58 |  |  |  | 131   |  |  | $ | 0.58  | 
|$ 0.65 - $190.00         |  |             | 5,141  |              |  |           | 9.49 |           |  | $         | 3.61 |  |  |  | 786   |  |  | $ | 10.98 | 
|                         |  |             |        |              |  |           |      |           |  |           |      |  |  |  |       |  |  |   |       | 
|                         |  |             | 12,624 |              |  |           | 9.44 |           |  | $         | 1.70 |  |  |  | 4,238 |  |  | $ | 2.30  | 
|                         |  |             |        |              |  |           |      |           |  |           |      |  |  |  |       |  |  |   |       | 

13.     Deferred
Stock-based Compensation

The Company recorded deferred compensation for
options assumed under the NexPrise acquisition of $686,897. The
Company recorded deferred compensation for options granted in
the fiscal years ended

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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

December 31, 1998 and 1999, for the
difference at the option grant date between the exercise price
and the fair value of the common stock underlying the options in
accordance with FASB Interpretation No. 28. These options
are being amortized over the vesting schedule. As of
December 31, 2000 the Company had recorded aggregate
deferred stock compensation of $8.7 million,
$6.6 million of which was associated with discontinued
operations. In 2001 the Company wrote-down $873,354 of deferred
compensation charges in connection with the restructuring. The
write-down affected equity; amounts expensed previously were not
reversed. The remaining deferred stock compensation balance of
$592,000 is being amortized over the vesting periods of the
stock options. The Company recognized $273,000, $532,000 and
$491,000 in stock compensation expense from continuing
operations during the years ended December 31, 2001, 2000
and 1999. The total charges to be recognized in future periods
from amortization of deferred stock compensation as of
December 31, 2001 are anticipated to be approximately
$229,000, $229,000, and $134,000 for 2002, 2003, 2004.

14.     Employee
Savings and Retirement Plan

NexPrise has a 401(k) Plan that allows eligible
employees to contribute up to 20% of their salary, subject to
annual limits. Under the plan, eligible employees may defer a
portion of their pretax salaries but not more than statutory
limits. NexPrise may make discretionary contributions to the
plan based on profitability as determined by the Board of
Directors. NexPrise did not make any contributions to the plan
during the years ended December 31, 2001, 2000 and 1999.

15.     Income
Taxes

Due to operating losses and the Companys
inability to recognize an income tax benefit from current
losses, there is no provision for income taxes for the years
ended December 31, 2001, 2000 or 1999.

As of December 31, 2001, the Company had net
operating loss carry forwards for federal income tax purposes of
approximately $140 million which expire in the years 2012
through 2021 and federal research and development tax credits of
approximately $1.2 million which expire in the years 2012
through 2021. Utilization of the Companys net operating
losses may be subject to substantial annual limitation due to
the ownership change limitations provided by the Internal
Revenue Code and similar state provisions. Such an annual
limitation could result in the expiration of the net operating
losses before utilization.

Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts
used for income tax purposes. Realization of deferred tax assets
is dependent upon future earnings, if any, the timing and amount
of which are uncertain. Accordingly, the net deferred tax assets
have been fully offset by a valuation allowance. The valuation
allowance decreased by $34.7 million in 2001 and increased
by $61.9 million and $19.4 million during 2000 and
1999. Approximately $7 million of the valuation allowance
at December 31, 2001 is attributable to stock option
deductions, the benefit of which will be credited to paid-in
capital when realized.

Significant components of the Companys
deferred tax assets are as follows (in thousands):

|                        |                       |                           |         |        |        |   |         |        |        | 
|----------------------- | --------------------- | ------------------------- | ------- | ------ | ------ | - | ------- | ------ | ------ | 
|                        |                       |                          
|                        |                       | December 31,             
|                        |                       |                          
|                        |                       | 2001                      |         | 2000  
|                        |                       |                           |         |       
|Deferred Tax Assets:    |                       |                           |         |        |        |   |         |       
|                        | Net operating loss    |                           | $       | 47,300 |        |   | $       | 79,300 |       
|                        | Research Credits      |                           |         | 2,135  |        |   |         | 1,210  |       
|                        | Reserves and accruals |                           |         | 744    |        |   |         | 4,320  |       
|                        |                       |                           |         |        |        |   |         |       
|                        |                       | Total Deferred Tax Assets |         |        | 50,179 |   |         |        | 84,830 | 
|Valuation Allowance     |                       |                           | (50,179 | )      |        |   | (84,830 | )     
|                        |                       |                           |         |        |        |   |         |       
|Net Deferred Tax Assets |                       | $                         |        |        |        | $ |        |       
|                        |                       |                           |         |        |        |   |         |       

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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

16.     Concentration
of Credit Risk and Other Risks

Financial instruments that potentially subject
NexPrise to credit risk consist primarily of uninsured cash, and
cash equivalents and short-term investments.

The Company performs ongoing credit evaluations
of its customers and generally does not require collateral and
analyzes the need for reserves for potential credit losses and
records reserves when necessary. In 2001 the Company wrote-off
approximately $0.1 million of bad debt related to
receivables from customers, and in 2000 the Company wrote-off
approximately $5.1 million of bad debts related to
receivables from marketplace companies.

17.     Contingencies

A former stockholder of Promedix filed a
complaint against us, Promedix and certain other parties in the
Superior Court of California, County of Los Angeles alleging,
among other things, that we had negligently failed to exchange
his shares of Promedix stock for shares of the Companys
common stock on a timely basis, causing him damages resulting
from a decline in our stock price in the intervening time
between the submission of his Promedix shares for exchange and
his receipt of our shares. The complaint did not specify the
amount of damages sought by the plaintiff, but instead seeks
general, special and punitive damages. We filed a partially
successful motion to dismiss the plaintiffs claims on
February 5, 2001. Plaintiff amended the complaint to allege
a conspiracy between all defendants to delay his sale of stock.
We believe we have meritorious defenses against all claims
asserted. Trial is set for April 2002. It is impossible for us
to predict the outcome of such litigation.

In 2001, several class action lawsuits were filed
and served on the Company alleging that the Company and certain
individuals made false and misleading statements concerning our
business model and earnings for fiscal 2000. The Company is also
a defendant in the IPO class action suits filed against issuers
and the investment banks alleging that the offering documents
were false and misleading. Although we believe that we have
meritorious defenses to the actions and intend to defend the
suits vigorously, we cannot predict with certainty the outcome
of these lawsuits. Our defense against such lawsuits will be
costly and will require a significant commitment of time and
resources by our senior management. The Company also has been
served with a shareholder derivative action but is named solely
as a nominal defendant against whom no recovery is sought.

The Company is a party to various claims in the
ordinary course of business. Although the results of litigation
and claims cannot be predicted with certainty, the Company
believes the final outcome of such matters will not have a
material adverse effect on the Companys financial
position, results of operations or cash flows.

Promedix and Chemdex

Contracts with Promedix and Chemdex customers and
suppliers provide, in some cases, for cancellation notification
periods longer than the Company provided. In some cases, shorter
notification periods have caused inconvenience to customers and
suppliers, and the Company has been notified by several parties
that discontinuing the marketplace represents a breach of
Promedix contractual obligations. Additionally, two customers of
Chemdex have informed the Company that they did not receive
notice of the termination of their contracts within the
contractually required time period. However, as of
December 31, 2001 no customer or supplier of Promedix or
Chemdex has instituted legal proceedings against the Company.

Government Regulations

In addition to regulations applicable to
businesses generally, the Company is or may be subject to direct
regulation by governmental agencies which includes numerous laws
and regulations generally applicable to the

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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

chemical, pharmaceutical, controlled substances,
human and biological reagents, medical and in vitro devices,
nuclear chemical businesses and environmental spills, as well as
U.S. import and export controls and import controls of other
countries. While the shutdown of Chemdex, Promedix and
SpecialtyMD may limit future regulatory and product liability
risks, until all statutes of limitation have expired, certain
legal risks will remain.

The Company relied on their suppliers to comply
with applicable local, state and federal laws regarding the
labeling and the dissemination of information on any products
sold that may be hazardous or present a health threat to the
user. If these suppliers have failed, or we have failed to
maintain the requisite records irrespective of the actions of
the suppliers, or if either of us had failed to adequately
comply with labeling and information dispensing requirements of
local, state or federal laws, then the Company may be held
legally responsible, since Company held title to these products,
and could be subject to governmental penalties or fines, as well
as private lawsuits to enforce these laws.

Finally, Company has relied upon their suppliers
to obtain appropriate approvals for products regulated by the
FDA and to comply with the requirements relating to those
approvals and products. The failure of suppliers to obtain or
comply with those approvals, or the failure of the product
advertising or labeling to be consistent with the FDA approval
for the products, or other failures by the products themselves,
or our failure to keep regulatory records required by the FDA,
such as complaint files, could result in costly product recalls,
significant fines and judgments, civil and criminal liabilities
and negative publicity.

Except as described in the next sentence, the
Company is unaware of any current investigations, inquiries,
citations, fines or allegations of violations or noncompliance
relating to regulatory requirements pending by government
agencies or by third parties against us. In February, 2001 the
Company received a subpoena from the U.S. Department of Justice,
Drug Enforcement Administration, for certain billing, invoice,
and shipping records concerning sales to an unaffiliated
purchaser. It is also possible that there may be investigations
or allegations that the Company is not aware of or future
investigations or allegations. The risk that any noncompliance
may be discovered in the future is currently unknown. Although
any potential impact on the Company for noncompliance cannot
currently be established, it could result in significant civil
or criminal penalties, including monetary fines and injunctions,
for noncompliance and negative publicity, and seriously harm our
business, revenues, results of operations and financial
condition.

Related Parties.

In 2001 the Company entered into a Net Proceeds
Income Agreement with DPP Ventures, a company owned by our
former CEO. Pursuant to the Net Proceeds Income Agreement, DPP
Ventures would receive payment of 10% of the net proceeds
received by the Company for the liquidation of each of certain
named investment assets.

Upon the closing of a significant corporate
transaction, such as a sale of the Company, a former executive
is eligible to receive an incentive amount equal to the value of
up to 350,000 shares of the Companys common stock
(adjusted for stock dividends, stock splits, etc.), if such
transaction occurs prior to February 28, 2006.

18.     Segment
Reporting

Due to the shut down of the Companys
operating exchanges, Chemdex, Promedix and Specialty MD, the
Company has changed the composition of its reportable segments.
The Companys Chemdex exchange, which sold life science
research products to research scientists working in
pharmaceutical and biotechnology companies and academic research
institutions, and the Promedix exchange, which sold specialty
medical products to healthcare professionals have been
classified as discontinued operations (Note 19) and are no
longer reported as part of segment reporting. After the shut
down of Chemdex and Promedix the Company is operating primarily
in one segment, as a provider of collaborative solutions for
program management and quote management.

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NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

19.     Discontinued
Operations

In December 2000, the Companys Board of
Directors adopted a formal plan and announced the shut down of
all business operations associated with the Companys life
sciences and specialty medical products marketplaces. The
shutdown of Chemdex, Promedix and SpecialtyMD was completed
March 31, 2001.

In the first quarter of 2000 the Company acquired
the businesses represented by Promedix and SpecialtyMD. These
transactions were effected in accordance with the purchase
method of accounting. For Promedix, the purchase consideration
was 12.1 million shares of the Companys common stock
valued at $325.3 million. The entire Promedix purchase
price was allocated to intangible assets. For SpecialtyMD, the
purchase consideration was 1.1 million shares of the
Companys common stock valued at $107.7 million. Of
the SpecialtyMD purchase price, $0.8 million was allocated
to net tangible liabilities and the remainder to intangible
assets. The Company wrote off as part of the loss on disposal of
discontinued operations $326.7 million of intangible
assets, severance pay, write down of equipment to its estimated
recoverable amounts of $1.8 million, and accruals for
liabilities and operating losses of $5.7 million during the
phase out period for the discontinued businesses. The intangible
assets were comprised of $317.1 million related to the
Promedix and SpecialtyMD acquisitions, $1.2 million related
to the Biotechnology Industry Organization intangible asset and
$8.4 million related to the VWR customer list intangible
asset.

No interest expense has been allocated to
discontinued operations. In addition, general corporate overhead
has been allocated to continuing operations for all periods
presented. Revenues from discontinued operations were
$24.2 million, $99.3 and $30.8 million for 2001, 2000
and 1999. The loss on disposal recorded in 2000 principally
includes the write-off of intangibles of $326.7 million,

The Company paid approximately $9.8 million
in 2001 for severance, lease obligations and other liabilities
incurred to shut down Chemdex and Promedix. At December 31,
2001 accrued liabilities relating to discontinued operations
amounted to approximately $700,000. This amount is comprised of
accruals for estimated costs to settle lease and other
contractual obligations.

20.     Subsequent
events



| |                      
| | ---------------------
| | Business Combinations

In February 2002 NexPrise acquired privately held
InfoPrise Inc., a provider of data management solutions located
in San Diego, California. As consideration for the acquisition,
NexPrise has agreed to issue unsecured convertible promissory
notes, due 2006, with a face value of $3,040,000 and a per share
conversion price of $1.25, together with 2,096,748 shares of
NexPrise common stock and assumed InfoPrises outstanding
stock options, which may result in the issuance of up to 970,000
shares of NexPrise common stock. InfoPrise has net tangible
assets of approximately $1,000,000, most of which is represented
by cash. The Company has not yet determined the allocation of
purchase price, including the amount, if any, which would result
in an in-process research and development charge.

51



---



##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

21.     Quarterly
Results of Operations (unaudited)

|                                                               |                                                                |                    |         |          |   |               |          |              |   |           |         |          |   |               |          |              |   |   |         |        |  |   |         |        |  |   |         |        |  |   |        |        |  
|-------------------------------------------------------------- | -------------------------------------------------------------- | ------------------ | ------- | -------- | - | ------------- | -------- | ------------ | - | --------- | ------- | -------- | - | ------------- | -------- | ------------ | - | - | ------- | ------ |  | - | ------- | ------ |  | - | ------- | ------ |  | - | ------ | ------ | -
|                                                               |                                                                |                   
|                                                               |                                                                | Three Months Ended
|                                                               |                                                                |                   
|                                                               |                                                                | March 31,          |         | June 30, |   | September 30, |          | December 31, |   | March 31, |         | June 30, |   | September 30, |          | December 31,
|                                                               |                                                                | 2000               |         | 2000     |   | 2000          |          | 2000         |   | 2001      |         | 2001     |   | 2001          |          | 2001        
|                                                               |                                                                |                    |         |          |   |               |          |              |   |           |         |          |   |               |          |             
|                                                               |                                                                |                   
|                                                               |                                                                | (In thousands)    
|Net revenues                                                   |                                                                | $                  |        |          |   | $             |         |              |   | $         |        |          |   | $             |         |              |   | $ |        |        |  | $ |        |        |  | $ | 350     |        |  | $ | 692    |       
|Cost of revenues                                               |                                                                |                    |        |          |   |               |         |              |   |           |        |          |   |               |         |              |   |   |        |        |  |   |        |        |  |   | (265    | )      |  |   | (532   | )     
|                                                               |                                                                |                    |         |          |   |               |          |              |   |           |         |          |   |               |          |              |   |   |         |        |  |   |         |        |  |   |         |        |  |   |        |       
|                                                               | Gross profit                                                   |                    |         |         |   |               |          |             |   |           |         |         |   |               |          |             |   |   |         |       |  |   |         |       |  |   |         | 85     |  |   |        | 160    |  
|                                                               |                                                                |                    |         |          |   |               |          |              |   |           |         |          |   |               |          |              |   |   |         |        |  |   |         |        |  |   |         |        |  |   |        |       
|Operating Expenses:                                            |                                                                |                    |         |          |   |               |          |              |   |           |         |          |   |               |          |              |   |   |         |        |  |   |         |        |  |   |         |        |  |   |        |       
|                                                               | Research and development                                       |                    |         | 4,364    |   |               |          | 5,770        |   |           |         | 9,946    |   |               |          | 15,147       |   |   |         | 13,401 |  |   |         | 5,391  |  |   |         | 3,280  |  |   |        | 2,508  |  
|                                                               | Amortization of In process research and
	development           |                    |         |         |   |               |          |             |   |           |         |         |   |               |          |             |   |   |         |       |  |   |         |       |  |   |         | 2,300  |  |   |        |       |  
|                                                               | Sales and marketing                                            |                    |         | 6,416    |   |               |          | 5,357        |   |           |         | 6,083    |   |               |          | 6,645        |   |   |         | 4,984  |  |   |         | 2,330  |  |   |         | 1,648  |  |   |        | 2,088  |  
|                                                               | General and administrative                                     |                    |         | 937      |   |               |          | 631          |   |           |         | 1,554    |   |               |          | 3,567        |   |   |         | 6,187  |  |   |         | 3,210  |  |   |         | 2,506  |  |   |        | 2,164  |  
|                                                               | Restructuring and settlement charges                           |                    |         |         |   |               |          |             |   |           |         |         |   |               |          | 4,891        |   |   |         |       |  |   |         | 14,650 |  |   |         | 5,299  |  |   |        | (3,406 | )
|                                                               |                                                                |                    |         |          |   |               |          |              |   |           |         |          |   |               |          |              |   |   |         |        |  |   |         |        |  |   |         |        |  |   |        |       
|                                                               | Total operating expenses                                       |                    |         | 11,717   |   |               |          | 11,758       |   |           |         | 17,583   |   |               |          | 30,250       |   |   |         | 24,572 |  |   |         | 25,581 |  |   |         | 15,033 |  |   |        | 3,354  |  
|                                                               |                                                                |                    |         |          |   |               |          |              |   |           |         |          |   |               |          |              |   |   |         |        |  |   |         |        |  |   |         |        |  |   |        |       
|Operating loss                                                 |                                                                |                    | (11,717 | )        |   |               | (11,758  | )            |   |           | (17,583 | )        |   |               | (30,250  | )            |   |   | (24,572 | )      |  |   | (25,581 | )      |  |   | (14,948 | )      |  |   | (3,194 | )     
|Interest expenses                                              |                                                                |                    | (47     | )        |   |               | (4,307   | )            |   |           | (4,237  | )        |   |               | (4,222   | )            |   |   | (4,022  | )      |  |   | (1,209  | )      |  |   | (190    | )      |  |   | (225   | )     
|Interest income and other, net                                 |                                                                |                    | 1,683   |          |   |               | 4,660    |              |   |           | 4,229   |          |   |               | 3,670    |              |   |   | 2,491   |        |  |   | 1,226   |        |  |   | 495     |        |  |   | 214    |       
|Gain/loss on investment                                        |                                                                |                    | 74,532  |          |   |               | (45,292  | )            |   |           |        |          |   |               |         |              |   |   |        |        |  |   | (585    | )      |  |   |        |        |  |   | (298   | )     
|Loss on investment in strategic partners                       |                                                                |                    |        |          |   |               |         |              |   |           |        |          |   |               | (22,268  | )            |   |   |        |        |  |   |        |        |  |   |        |        |  |   |       |       
|Write-down of investment                                       |                                                                |                    |        |          |   |               |         |              |   |           |        |          |   |               | (10,000  | )            |   |   |        |        |  |   |        |        |  |   |        |        |  |   |       |       
|Equity loss                                                    |                                                                |                    | (1,702  | )        |   |               | (6,603   | )            |   |           | (6,324  | )        |   |               | (6,000   | )            |   |   | (2,736  | )      |  |   | (2,905  | )      |  |   | (1,948  | )      |  |   | (1,343 | )     
|                                                               |                                                                |                    |         |          |   |               |          |              |   |           |         |          |   |               |          |              |   |   |         |        |  |   |         |        |  |   |         |        |  |   |        |       
|Income/(loss) from continuing operations                       |                                                                |                    | 62,749  |          |   |               | (63,300  | )            |   |           | (23,915 | )        |   |               | (69,070  | )            |   |   | (28,839 | )      |  |   | (29,054 | )      |  |   | (16,591 | )      |  |   | (4,846 | )     
|                                                               |                                                                |                    |         |          |   |               |          |              |   |           |         |          |   |               |          |              |   |   |         |        |  |   |         |        |  |   |         |        |  |   |        |       
|Discontinued operations:                                       |                                                                |                    |         |          |   |               |          |              |   |           |         |          |   |               |          |              |   |   |         |        |  |   |         |        |  |   |         |        |  |   |        |       
|                                                               | Income (loss) from discontinued operations, net
	of income tax |                    |         | (33,336  | ) |               |          | (56,322      | ) |           |         | (52,396  | ) |               |          | (44,412      | ) |   |         |       |  |   |         |       |  |   |         |       |  |   |        |       |  
|                                                               | Gain (loss) on disposal, net of income taxes                   |                    |         |         |   |               |          |             |   |           |         |         |   |               |          | (338,095     | ) |   |         |       |  |   |         |       |  |   |         |       |  |   |        |       |  
|                                                               |                                                                |                    |         |          |   |               |          |              |   |           |         |          |   |               |          |              |   |   |         |        |  |   |         |        |  |   |         |        |  |   |        |       
|Loss from discontinued operations                              |                                                                |                    | (33,336 | )        |   |               | (56,322  | )            |   |           | (52,396 | )        |   |               | (382,507 | )            |   |   |        |        |  |   |        |        |  |   |        |        |  |   |       |       
|Extraordinary item  gain from
	retirement of bonds, net       |                                                                |                    |        |          |   |               |         |              |   |           |        |          |   |               |         |              |   |   | 125,840 |        |  |   | 33,322  |        |  |   |        |        |  |   | 600    |       
|                                                               |                                                                |                    |         |          |   |               |          |              |   |           |         |          |   |               |          |              |   |   |         |        |  |   |         |        |  |   |         |        |  |   |        |       
|Net income (loss)                                              |                                                                | $                  | 29,413  |          |   | $             | (119,622 | )            |   | $         | (76,311 | )        |   | $             | (451,577 | )            |   | $ | 97,001  |        |  | $ | 4,268   |        |  | $ | (16,591 | )      |  | $ | (4,246 | )     
|                                                               |                                                                |                    |         |          |   |               |          |              |   |           |         |          |   |               |          |              |   |   |         |        |  |   |         |        |  |   |         |        |  |   |        |       
|Basic and diluted loss per share from continuing
	operations   |                                                                | $                  | 1.64    |          |   | $             | (1.42    | )            |   | $         | (0.53   | )        |   | $             | (1.52    | )            |   | $ | (0.63   | )      |  | $ | (0.63   | )      |  | $ | (0.36   | )      |  | $ | (0.10  | )     
|Basic and diluted loss per share from
	discontinued operations |                                                                |                    | (0.87   | )        |   |               | (1.27    | )            |   |           | (1.16   | )        |   |               | (8.41    | )            |   |   |        |        |  |   |        |        |  |   |        |        |  |   |       |       
|Basic and diluted loss per share from
	extraordinary item      |                                                                |                    |        |          |   |               |         |              |   |           |        |          |   |               |         |              |   |   | 2.73    |        |  |   | 0.72    |        |  |   |        |        |  |   | 0.01   |       
|Basic and diluted net loss per share                           |                                                                |                    | 0.77    |          |   |               | (2.69    | )            |   |           | (1.69   | )        |   |               | (9.93    | )            |   |   | 2.10    |        |  |   | 0.09    |        |  |   | (0.36   | )      |  |   | (0.09  | )     
|Weighted average common shares outstanding used
	in computing  |                                                                |                    | 38,159  |          |   |               | 44,499   |              |   |           | 45,064  |          |   |               | 45,469   |              |   |   | 46,086  |        |  |   | 46,163  |        |  |   | 46,293  |        |  |   | 46,299 |       

52



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NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






Item 9.     Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure

Not applicable.




PART III




Item 10.     Directors
and Executive Officers of the Registrant

The information required by this Item with
respect to the Companys directors and executive officers
is incorporated herein by reference from the information
contained in Item 1 of Part I of this Report under the
caption Directors and Executive Officers of the
Registrant. The information required by Item 405 of
Regulation S-K is incorporated herein by reference from the
information provided under the heading Section 16(a)
Beneficial Ownership Reporting Compliance of the
Companys Proxy Statement.




Item 11.     Executive
Compensation

The information required by this Item is
incorporated herein by reference from the information provided
under the heading Compensation of Executive Officers
of the Companys Proxy Statement.




Item 12.     Security
Ownership of Certain Beneficial Owners and
Management

The information required by this Item is
incorporated herein by reference from the information provided
under the heading Security Ownership of Certain Beneficial
Owners and Management of the Companys Proxy
Statement.




Item 13.     Certain
Relationships and Related Transactions

The information required by this Item is
incorporated herein by reference from the information provided
under the heading Certain Relationships and Related
Transactions of the Companys Proxy Statement.




PART IV




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

(a)(1) Financial Statements.The
following financial statements of NexPrise are filed as part of
this annual report on Form 10-K:

Independent Auditors Report

Consolidated Balance sheets at December 31,
2001 and 2000



| |                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------
| | Consolidated Statements of Operations for the
	years ended December 31, 2001, 2000 and 1999                     
|
| | Consolidated Statements of Stockholders
	Equity (Deficit) for the years ended December 31, 2001,
	2000 and 1999
|
| | Consolidated Statements of Cash Flows for the
	years ended December 31, 2001, 2000 and 1999                     

Notes to Consolidated Financial Statements

(a)(2) Financial Data Schedule.The
financial statement Schedule II  VALUATION AND
QUALIFYING ACCOUNTS is filed as part of this annual report on
Form 10-K, at page 56.

53



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##### Table of Contents



(a)(3) Exhibits.The following
exhibits are filed as part of this report or are incorporated
herein by reference:

|        |        |             |  |                                                                                                                                                                                                                                                                                                                                                                 
|------- | ------ | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |            
|Number  |        | Description
|        |        |            
|        | 2.8    |             |  | Form of Certificate of Merger between Chemdex
	Corporation and Ventro Corporation(3)                                                                                                                                                                                                                                                                            
|        | 2.9    |             |  | Agreement and Plan of Merger and Reorganization
	dated January 13, 2001, by and among Registrant, NexPrise,
	Inc., a Delaware corporation, Neptune Merger Corp., a Delaware
	corporation, Ram Sriram as Stockholders Representative,
	and U.S. Bank Trust National Association as Escrow Agent(6)                                                              
|        | 2.10   |             |  | Agreement and Plan of Merger and Reorganization
	dated February 4, 2002 by and among Registrant, InfoPrise,
	Inc., a Delaware corporation, Indigo Acquisition Corporation, a
	Delaware corporation, Raj Tolani, Can Nguyen, and Timeline
	Venture Investors I, LP as Principal Stockholders and
	Timeline Venture Management, LLC, as Securityholders
	Agent(7)
|        | 2.11*  |             |  | Form of Certificate of Ownership and Merger
	between Ventro Corporation and Ventro Merger Subsidiary                                                                                                                                                                                                                                                            
|        | 3.1    |             |  | Amended and Restated Certificate of Incorporation
	of NexPrise(1)                                                                                                                                                                                                                                                                                               
|        | 3.2    |             |  | Amended and Restated Bylaws of NexPrise(4)                                                                                                                                                                                                                                                                                                                      
|        | 4.1    |             |  | Specimen of NexPrise Common Stock Certificate(3)                                                                                                                                                                                                                                                                                                                
|        | 4.2    |             |  | Third Amended and Restated Investors Rights
	Agreement dated March 24, 1999(1)                                                                                                                                                                                                                                                                                 
|        | 4.3    |             |  | Amendment dated May 12, 1999 to Third
	Amended and Restated Investors Rights Agreement(1)                                                                                                                                                                                                                                                                      
|        | 4.4    |             |  | Form of Indenture between NexPrise and State
	Street Bank and Trust Company of California, N.A.(3)                                                                                                                                                                                                                                                              
|        | 4.5    |             |  | Form of Note(3)                                                                                                                                                                                                                                                                                                                                                 
|        | 4.6    |             |  | Form of convertible promissory notes(7)                                                                                                                                                                                                                                                                                                                         
|        | 10.1   |             |  | Form of Indemnification Agreement between
	NexPrise and each of its officers and directors(4)                                                                                                                                                                                                                                                                   
|        | **10.2 |             |  | Form of Change of Control Agreement between
	NexPrise, each of its officers and certain employees(1)                                                                                                                                                                                                                                                            
|        | **10.4 |             |  | 1998 Stock Plan, as amended, and form of option
	agreement(3)                                                                                                                                                                                                                                                                                                   
|        | **10.6 |             |  | 1999 Directors Stock Plan(1)                                                                                                                                                                                                                                                                                                                                   
|        | 10.10  |             |  | Standard Office Lease dated June 11, 1998
	between NexPrise and Fabian Partners II, a California General
	Partnership, as amended(1)                                                                                                                                                                                                                            
|        | 10.11  |             |  | Master Lease Agreement dated January 20,
	1999, as amended, between NexPrise and Comdisco, Inc.(1)                                                                                                                                                                                                                                                              
|        | 10.12  |             |  | Warrant to Purchase Shares of Common Stock of
	NexPrise dated March 24, 1999 between NexPrise and Galen
	Partners III, L.P.(1)                                                                                                                                                                                                                                  
|        | 10.13  |             |  | Warrant to Purchase Shares of Common Stock of
	NexPrise dated March 24, 1999 between NexPrise and Galen
	Partners International III, L.P.(1)                                                                                                                                                                                                                    
|        | 10.14  |             |  | Warrant to Purchase Shares of Common Stock of
	NexPrise dated March 24, 1999 between NexPrise and Galen
	Employee Fund III, L.P.(1)                                                                                                                                                                                                                             
|        | 10.15  |             |  | Payment Plan Agreement dated February 22,
	1999 and related agreements between NexPrise and Oracle Credit
	Corporation(1)                                                                                                                                                                                                                                       
|        | 10.16  |             |  | Office Lease dated August 13, 1999 between
	NexPrise and Alza Corporation for space located at 1010 Joaquin
	Road, Mountain View, California(3)                                                                                                                                                                                                                 
|        | 10.18  |             |  | Form of warrant to purchase common stock of
	Healthcare Transaction Systems, Inc.(3)                                                                                                                                                                                                                                                                            
|        | 10.21  |             |  | Termination Agreement dated April 21, 2001
	between NexPrise and Broadlane, Inc.(5)                                                                                                                                                                                                                                                                             
|        | 10.22  |             |  | NexPrise, Inc. 1997 Stock Plan(6)                                                                                                                                                                                                                                                                                                                               
|        | 10.23  |             |  | Form of NexPrise, Inc. Nonstatutory Stock Option
	Agreement(6)                                                                                                                                                                                                                                                                                                  

54



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##### Table of Contents



|        |          |             |  |                                                                                                                                                                
|------- | -------- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |          |            
|Number  |          | Description
|        |          |            
|        | 10.24*   |             |  | Amendment to Lease Agreement dated
	December 28, 2001 between NexPrise and Alza Corporation for
	space located at 1010 Joaquin Road, Mountain View, California.
|        | **10.25* |             |  | Form of offer letter between NexPrise and certain
	of its officers                                                                                             
|        | **10.26* |             |  | Addendum to Letter Agreement between NexPrise and
	David Zechnich dated January 24, 2002                                                                       
|        | **10.27* |             |  | Employment Agreement between NexPrise and David
	Perry dated November 16, 2001                                                                                 
|        | **10.28* |             |  | Net Proceeds Income Agreement between NexPrise
	and DPP Ventures dated November 19, 2001                                                                       
|        | 21.1     |             |  | Subsidiaries of NexPrise(3)                                                                                                                                    
|        | 23.1*    |             |  | Consent of Ernst & Young LLP, Independent
	Auditors                                                                                                            



---



|    |                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to the corresponding
	Exhibit previously filed as an Exhibit to Registrants
	Registration Statement on Form S-1 (File
	No. 333-78505) filed with the Commission on May 14,
	1999, as amended, which Registration Statement was declared
	effective July 26, 1999.
|   
|(2) | Incorporated by reference to the corresponding
	Exhibit previously filed as an Exhibit to Registrants
	Quarterly Report on Form 10-Q filed with the Commission on
	August 16, 1999.                                                                                                        
|   
|(3) | Incorporated by reference to the corresponding
	Exhibit previously filed as an Exhibit to Registrants
	Registration Statement on Form S-1 filed with the
	Commission on March 6, 2000. (File No. 333-31774).                                                                               
|   
|(4) | Incorporated by reference to the corresponding
	Exhibit previously filed as an Exhibit to Registrants
	Annual Report on Form 10-K filed with the Commission on
	February 26, 2001.                                                                                                         
|   
|(5) | Incorporated by reference to the corresponding
	Exhibit previously filed as an Exhibit Registrants
	Quarterly Report on Form 10-Q filed with the Commission on
	May 15, 2001.                                                                                                              
|   
|(6) | Incorporated by reference to the corresponding
	Exhibit previously filed as an Exhibit to Registrants
	Quarterly Report on Form 10-Q filed with the Commission on
	August 14, 2001.                                                                                                        
|   
|(7) | Incorporated by reference to the corresponding
	Exhibit previously filed as an Exhibit Registrants
	Current Report on Form 8-K filed with the Commission on
	February 8, 2002.                                                                                                             
|   
|*   | Filed herewith.                                                                                                                                                                                                                                                                             



|   |                                                                    
|-- | -------------------------------------------------------------------
|** | Indicates management contract or compensatory
	plan or arrangement.

(b) Reports on Form 8-K

A Report on Form 8-K was filed with the
Securities and Exchange Commission on November 28, 2001
with respect to the Companys press release dated
November 26, 2001 whereby it announced changes to its
Executive Management Team and Board Members.

55



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##### Table of Contents



NEXPRISE, INC.

SCHEDULE II VALUATION AND QUALIFYING
ACCOUNTS

For the years ended December 31, 2001,
2000 and 1999


|                                 |                              |                |   |            |  |             |   |            |  |  |   |       |  |  |   |       | 
|-------------------------------- | ---------------------------- | -------------- | - | ---------- |  | ----------- | - | ---------- |  |  | - | ----- |  |  | - | ----- | 
|                                 |                              | Balance at     |   | Amounts    |  | Adjustments |   | Balance at
|                                 |                              | Beginning of   |   | Charged to |  | and         |   | End of    
|Description                      |                              | Year           |   | Expenses   |  | Write-offs  |   | Year      
|                                 |                              |                |   |            |  |             |   |           
|                                 |                              |               
|                                 |                              | (In thousands)
|Allowance for Doubtful Accounts: |                              |                |   |            |  |             |   |            |  |  |   |       |  |  |   |      
|                                 | Year ended December 31, 2001 |                | $ | 4,646      |  |             | $ | 20         |  |  | $ | 4,484 |  |  | $ | 182   | 
|                                 | Year ended December 31, 2000 |                | $ |           |  |             | $ | 9,713      |  |  | $ | 5,067 |  |  | $ | 4,646 | 
|                                 | Year ended December 31, 1999 |                | $ |           |  |             | $ |           |  |  | $ |      |  |  | $ |      | 

56



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on February 21, 2002.



| |               
| | --------------
| | NEXPRISE, INC.



| |     |                 
| | --- | ----------------
| | By: | /s/ TED DRYSDALE

| |                                       
| | --------------------------------------
| |                                       
| | Ted Drysdale                          
| | President and Chief Executive
	Officer

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

|                                 |  |                                                                                                          |  |                  
|-------------------------------- |  | -------------------------------------------------------------------------------------------------------- |  | -----------------
|Signature                        |  | Title                                                                                                    |  | Date             
|                                 |  |                                                                                                          |  |                  
|                                
|/s/ TED DRYSDALETed Drysdale     |  | President, Chief Executive Officer and Chairman
	of the Board of Directors (Principal Executive Officer) |  | February 21, 2002
|                                
|/s/ DAVID ZECHNICHDavid Zechnich |  | Chief Financial Officer (Principal Financial
	Officer)                                                   |  | February 21, 2002
|                                
|/s/ DAVID PERRYDavid Perry       |  | Vice Chairman of the
	Board of Directors                                                                 |  | February 21, 2002
|                                
|/s/ JOHN GLANCYJohn Glancy       |  | Director                                                                                                 |  | February 21, 2002
|                                
|/s/ THOMAS INSLEYThomas Insley   |  | Director                                                                                                 |  | February 21, 2002
|                                
|/s/ THOMAS JONESThomas Jones     |  | Director                                                                                                 |  | February 21, 2002
|                                
|/s/ GARY LENZGary Lenz           |  | Director                                                                                                 |  | February 21, 2002

57



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##### Table of Contents






EXHIBIT INDEX

|        |          |             |  |                                                                                                                                                                                                                                                                                                                                                                
|------- | -------- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |          |            
|Number  |          | Description
|        |          |            
|        | 2.8      |             |  | Form of Certificate of Merger between Chemdex
	Corporation and Ventro Corporation(3)                                                                                                                                                                                                                                                                           
|        | 2.9      |             |  | Agreement and Plan of Merger and Reorganization
	dated January 13, 2001, by and among Registrant, NexPrise, Inc.,
	a Delaware corporation, Neptune Merger Corp., a Delaware
	corporation, Ram Sriram as Stockholders Representative,
	and U.S. Bank Trust National Association as Escrow Agent(6)                                                             
|        | 2.10     |             |  | Agreement and Plan of Merger and Reorganization
	dated February 4, 2002 by and among Registrant, InfoPrise, Inc.,
	a Delaware corporation, Indigo Acquisition Corporation, a
	Delaware corporation, Raj Tolani, Can Nguyen, and Timeline
	Venture Investors I, LP as Principal Stockholders and Timeline
	Venture Management, LLC, as Securityholders Agent(7)
|        | 2.11*    |             |  | Form of Certificate of Ownership and Merger
	between Ventro Corporation and Ventro Merger Subsidiary                                                                                                                                                                                                                                                           
|        | 3.1      |             |  | Amended and Restated Certificate of Incorporation
	of NexPrise(1)                                                                                                                                                                                                                                                                                              
|        | 3.2      |             |  | Amended and Restated Bylaws of NexPrise(4)                                                                                                                                                                                                                                                                                                                     
|        | 4.1      |             |  | Specimen of NexPrise Common Stock Certificate(3)                                                                                                                                                                                                                                                                                                               
|        | 4.2      |             |  | Third Amended and Restated Investors Rights
	Agreement dated March 24, 1999(1)                                                                                                                                                                                                                                                                                
|        | 4.3      |             |  | Amendment dated May 12, 1999 to Third
	Amended and Restated Investors Rights Agreement(1)                                                                                                                                                                                                                                                                     
|        | 4.4      |             |  | Form of Indenture between NexPrise and State
	Street Bank and Trust Company of California, N.A.(3)                                                                                                                                                                                                                                                             
|        | 4.5      |             |  | Form of Note(3)                                                                                                                                                                                                                                                                                                                                                
|        | 4.6      |             |  | Form of convertible promissory notes(7)                                                                                                                                                                                                                                                                                                                        
|        | 10.1     |             |  | Form of Indemnification Agreement between
	NexPrise and each of its officers and directors(4)                                                                                                                                                                                                                                                                  
|        | **10.2   |             |  | Form of Change of Control Agreement between
	NexPrise, each of its officers and certain employees(1)                                                                                                                                                                                                                                                           
|        | **10.4   |             |  | 1998 Stock Plan, as amended, and form of option
	agreement(3)                                                                                                                                                                                                                                                                                                  
|        | **10.6   |             |  | 1999 Directors Stock Plan(1)                                                                                                                                                                                                                                                                                                                                  
|        | 10.10    |             |  | Standard Office Lease dated June 11, 1998
	between NexPrise and Fabian Partners II, a California General
	Partnership, as amended(1)                                                                                                                                                                                                                           
|        | 10.11    |             |  | Master Lease Agreement dated January 20,
	1999, as amended, between NexPrise and Comdisco, Inc.(1)                                                                                                                                                                                                                                                             
|        | 10.12    |             |  | Warrant to Purchase Shares of Common Stock of
	NexPrise dated March 24, 1999 between NexPrise and Galen
	Partners III, L.P.(1)                                                                                                                                                                                                                                 
|        | 10.13    |             |  | Warrant to Purchase Shares of Common Stock of
	NexPrise dated March 24, 1999 between NexPrise and Galen
	Partners International III, L.P.(1)                                                                                                                                                                                                                   
|        | 10.14    |             |  | Warrant to Purchase Shares of Common Stock of
	NexPrise dated March 24, 1999 between NexPrise and Galen
	Employee Fund III, L.P.(1)                                                                                                                                                                                                                            
|        | 10.15    |             |  | Payment Plan Agreement dated February 22,
	1999 and related agreements between NexPrise and Oracle Credit
	Corporation(1)                                                                                                                                                                                                                                      
|        | 10.16    |             |  | Office Lease dated August 13, 1999 between
	NexPrise and Alza Corporation for space located at 1010 Joaquin
	Road, Mountain View, California(3)                                                                                                                                                                                                                
|        | 10.18    |             |  | Form of warrant to purchase common stock of
	Healthcare Transaction Systems, Inc.(3)                                                                                                                                                                                                                                                                           
|        | 10.21    |             |  | Termination Agreement dated April 21, 2001
	between NexPrise and Broadlane, Inc.(5)                                                                                                                                                                                                                                                                            
|        | 10.22    |             |  | NexPrise, Inc. 1997 Stock Plan(6)                                                                                                                                                                                                                                                                                                                              
|        | 10.23    |             |  | Form of NexPrise, Inc. Nonstatutory Stock Option
	Agreement(6)                                                                                                                                                                                                                                                                                                 
|        | 10.24*   |             |  | Amendment to Lease Agreement dated
	December 28, 2001 between NexPrise and Alza Corporation for
	space located at 1010 Joaquin Road, Mountain View, California                                                                                                                                                                                                 
|        | **10.25* |             |  | Form of offer letter between NexPrise and certain
	of its officers                                                                                                                                                                                                                                                                                             
|        | **10.26* |             |  | Addendum to Letter Agreement between NexPrise and
	David Zechnich dated January 24, 2002                                                                                                                                                                                                                                                                       



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##### Table of Contents



|        |          |             |  |                                                                                         
|------- | -------- | ----------- |  | ----------------------------------------------------------------------------------------
|Exhibit |          |            
|Number  |          | Description
|        |          |            
|        | **10.27* |             |  | Employment Agreement between NexPrise and David
	Perry dated November 16, 2001          
|        | **10.28* |             |  | Net Proceeds Income Agreement between NexPrise
	and DPP Ventures dated November 19, 2001
|        | 21.1     |             |  | Subsidiaries of NexPrise(3)                                                             
|        | 23.1*    |             |  | Consent of Ernst & Young LLP, Independent
	Auditors                                     



---



|    |                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to the corresponding
	Exhibit previously filed as an Exhibit to Registrants
	Registration Statement on Form S-1 (File No. 333-78505)
	filed with the Commission on May 14, 1999, as amended,
	which Registration Statement was declared effective
	July 26, 1999.
|   
|(2) | Incorporated by reference to the corresponding
	Exhibit previously filed as an Exhibit to Registrants
	Quarterly Report on Form 10-Q filed with the Commission on
	August 16, 1999.                                                                                                        
|   
|(3) | Incorporated by reference to the corresponding
	Exhibit previously filed as an Exhibit to Registrants
	Registration Statement on Form S-1 filed with the
	Commission on March 6, 2000. (File No. 333-31774)                                                                                
|   
|(4) | Incorporated by reference to the corresponding
	Exhibit previously filed as an Exhibit to Registrants
	Annual Report on Form 10-K filed with the Commission on
	February 26, 2001.                                                                                                         
|   
|(5) | Incorporated by reference to the corresponding
	Exhibit previously filed as an Exhibit Registrants
	Quarterly Report on Form 10-Q filed with the Commission on
	May 15, 2001.                                                                                                              
|   
|(6) | Incorporated by reference to the corresponding
	Exhibit previously filed as an Exhibit to Registrants
	Quarterly Report on Form 10-Q filed with the Commission on
	August 14, 2001.                                                                                                        
|   
|(7) | Incorporated by reference to the corresponding
	Exhibit previously filed as an Exhibit Registrants
	Current Report on Form 8-K filed with the Commission on
	February 8, 2002.                                                                                                             



|  |               
|- | --------------
|* | Filed herewith



|   |                                                                   
|-- | ------------------------------------------------------------------
|** | Indicates management contract or compensatory
	plan or arrangement