##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




---

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,
    2002                                             
|  
|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                                                           |  | 77-0465496                                 
|(State or other jurisdiction of
    Incorporation or Organization) |  | (I.R.S. Employer
    Identification Number)

5950 La Place Court, Suite 200,
Carlsbad, CA 92008

(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.     þ

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Act).     Yes o          No þ

At June 28, 2002, the aggregate market value
of the Common Stock held by non-affiliates of the registrant was
approximately $14,517,000

At February 28, 2003, the number of shares
of Common Stock outstanding was 3,226,471

DOCUMENTS INCORPORATED BY REFERENCE

Definitive Proxy Statement for the Companys
2003 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. Qualitative and Quantitative Disclosure about Market Risk                                     
|               | Item 8. Financial Statements and Supplementary Data                                                    
|               | 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 and Related Stockholder Matters
|               | Item 13. Certain Relationships and Related Transactions                                                
|               | Item 14. Controls and Procedures                                                                       
|PART IV       
|               | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                               
|SIGNATURES    
|CERTIFICATIONS
|EXHIBIT INDEX 
|EXHIBIT 21.1  
|EXHIBIT 23.1  
|EXHIBIT 99.1  
|EXHIBIT 99.2  



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##### Table of Contents



NEXPRISE, INC.

FORM 10-K ANNUAL REPORT

For the Fiscal Year Ended December 31,
2002


|         |  |                                                                                          |  |      |    | 
|-------- |  | ---------------------------------------------------------------------------------------- |  | ---- | -- | 
|         |  |                                                                                          |  | Page
|         |  |                                                                                          |  |     
|PART I  
|Item 1   |  | Business                                                                                 |  |      | 1  | 
|Item 2   |  | Properties                                                                               |  |      | 5  | 
|Item 3   |  | Legal Proceedings                                                                        |  |      | 5  | 
|Item 4   |  | Submission of Matters to a Vote of Security
    Holders                                  |  |      | 6  | 
|PART II 
|Item 5   |  | Market for the Registrants Common Equity
    and Related Stockholder Matters            |  |      | 7  | 
|Item 6   |  | Selected Consolidated Financial Data                                                     |  |      | 8  | 
|Item 7   |  | Managements Discussion and Analysis of
    Financial Condition and Result of Operations |  |      | 9  | 
|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 |  |      | 26 | 
|PART III
|Item 10  |  | Directors and Executive Officers of the Registrant                                       |  |      | 26 | 
|Item 11  |  | Executive Compensation                                                                   |  |      | 26 | 
|Item 12  |  | Security Ownership of Certain Beneficial Owners
    and Management                       |  |      | 26 | 
|Item 13  |  | Certain Relationships and Related Transactions                                           |  |      | 26 | 
|Item 14  |  | Controls and Procedures                                                                  |  |      | 27 | 
|PART IV 
|Item 15  |  | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K                      |  |      | 27 | 
|         |  | Signatures                                                                               |  |      | 60 | 
|         |  | Certifications                                                                           |  |      | 61 | 
|         |  | Exhibit Index                                                                            |  |      | 63 | 



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PART 1




Item 1.     Business

Overview

NexPrise, Inc. (the Company,
NexPrise, us, our or
we), formerly known as Ventro Corporation and, prior
thereto, as Chemdex Corporation, is a seller of business process
applications. We develop and market software solutions that can
enable manufacturers to rapidly automate key business processes.
These solutions complement and expand on currently installed
enterprise systems and accommodate ongoing process improvements
as companies require to meet their changing business demands. In
2002 we acquired privately-held InfoPrise, Inc.
(InfoPrise) and combined its data management
technology with our existing collaborative solutions
infrastructure to produce the business process automation
applications and development platform that are now our primary
product offerings. We also continued streamlining the operation
to reduce commitments and operating expenses and conserve cash.
We terminated a significant real estate lease, lowered headcount
from 90 at the end of 2001 to 45 at the end of 2002 and reduced
non-personnel expenses. These reductions lowered operating
expenses from approximately $5.6 million in the first
quarter of 2002 to approximately $2.6 million in the fourth
quarter of 2002, excluding a fourth quarter non-cash charge of
approximately $11.7 million for impairment of goodwill.

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 the focus
on the solutions and customers acquired in August 2001. Our
principal offices are located at 5950 La Place Court,
Suite 2000, Carlsbad, California, 92008. Our telephone
number is (760) 804-1333. Investors may access our filings
with the Securities and Exchange Commission on our website,
which is located on the Internet at www.nexprise.com, but the
information on our website does not constitute part of this
Annual Report.

In April 2002, the Company effected a reverse
split of its common stock. As a result of the reverse stock
split, every 15 issued and outstanding shares of the
Companys old common stock were converted into one share of
new common stock. The reverse split brought the minimum bid
price per share of the Companys common stock into
compliance with the listing requirements of the Nasdaq National
Market. The financial data contained in this report has been
adjusted to reflect the reverse stock split.

For 2003, our focus is to further develop our
product offering, to increase our customer base and revenue and
to move our operations closer to generating positive cash flow.

InfoPrise Acquisition and Organizational
Changes

In February 2002, NexPrise acquired privately
held InfoPrise, a provider of data management solutions located
in Carlsbad, California. As consideration for the acquisition,
NexPrise issued to InfoPrises stockholders an aggregate of
139,790 shares of NexPrise common stock together with
unsecured convertible promissory notes with a face value of
$3,040,000 due 2007. The notes bear interest at a rate of
6% per year and are convertible to the Companys
common stock at $18.75 per share. NexPrise also assumed
InfoPrises outstanding stock options, which may result in
the issuance of up to approximately 64,000 shares of
NexPrise common stock if all of the assumed options are
exercised.

Following the InfoPrise acquisition, the Company
relocated its principal executive office to Carlsbad,
California. The product development and marketing teams were
also consolidated into the Carlsbad location. The combined
entity now operates as one organization and continues to develop
and sell our product offering.

Customers and Backlog

We target large-to-medium size organizations,
primarily in North America. Our installed base of customers
represents numerous industries. The aerospace and defense and
automotive industries are particularly well represented. During
2002, approximately 17% of our revenues were from three entities
of The Boeing Company, approximately 13% were from Sikorsky
Aircraft Corporation, approximately 12% were from

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Trelleborg-YSH, Inc. and approximately 10% were
from Decoma International, Inc. During 2001 approximately 15% of
our revenues were from entities of The Boeing Company and
approximately 14% of revenues were from Sikorsky Aircraft
Corporation. The Company maintains allowances for potential
credit losses and, historically, those losses have been within
managements expectations.


NexPrises backlog was approximately
$1.9 million at December 31, 2002. Backlog includes
only orders for which delivery will occur within 12 months
and for which revenue has not been recognized. In addition,
backlog includes service revenue and maintenance fees to be
earned within the next 12 months. However, customers may
delay delivery of products or cancel orders suddenly and without
notice, subject to possible cancellation penalties. Due to these
possible changes, NexPrises backlog at any particular date
is not necessarily indicative of actual sales for any succeeding
period.

Asset Sale

In August 2002, the Company sold its interest in
Amphire, one of the marketplaces formed in 2000 that we provided
services to until 2001 and in which we continued to hold an
equity position. Under the terms of the agreement, NexPrise sold
all of its shares of Amphire common stock for $2 million in
cash to parties unaffiliated with NexPrise. The transaction
resulted in a gain of approximately $1.8 million reported
in the quarter ending September 30, 2002.

Marketing, Sales, and Support

Our current marketing, sales, and support
activities relate to building NexPrises brand identity,
determining product direction, building our customer base, 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
pre-sales technical support and also the successful deployment
of our product at the customer site. As of February 28,
2003, we employed 16 individuals in these organizations at
NexPrise offices in Carlsbad, California and remote field
locations. Expenses for marketing and sales were
$5.5 million in 2002. Expenses for technical support and
customer service in 2002 were approximately $414,000 and are
included in cost of revenues. The 2001 and 2000 sales and
marketing expenses included substantial expenses incurred prior
to our revised business direction and our acquisitions of
NexPrise and InfoPrise and are not indicative of planned future
expenditures. We expect to add personnel and expenses only as
needed to acquire and support new customers.

Research and Development

Our research and development organization is
focused on developing and enhancing our product for customers.
As of February 28, 2003, our research and development
organization included 22 employees responsible for software and
system development. Expenses for research and development were
$5.3 million in 2002, plus $399,000 of acquired in-process
research and development related to the acquisition of
InfoPrise. Research and development expenses in 2001 and 2000
were $24.6 million and $35.2 million, respectively.
The research and development expense in 2001 included
$2.3 million of acquired in-process research and
development related to the acquisition of NexPrise. Both years
included substantial expenses incurred prior to our revised
business direction and to our acquisitions of NexPrise and
InfoPrise and expenditures in those years 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 grew out of work that
began in 1993. The product originally was 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 continued to
develop the product and it evolved into the Program Manager and
Quote System applications deployed in most of our installed
base. In June 2002, we announced the release of the
nProcess Platform and a set of configurable process

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applications that offer improved workflow,
efficient integration into multiple data sources, rapid
configuration and reconfiguration and a development studio
customers can use to automate their processes. 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 and training.


Our principal applications are Engineering Change
Manager, Supplier Non-Conformance and Corrective Action Manager,
Cost Estimation and Quote Manager, Contract Data Manager,
Supplier Materials Manager, Action Item Manager and
Management of Change. All NexPrise applications are
collaborative business process software solutions that allow
individuals within and between companies to work efficiently
together. All applications have functionality for:



| |   |                                       
| | - | --------------------------------------
| |  | Intelligent workflow and forms        
|
| |  | Role-based views                      
|
| |  | Secure internal/external collaboration
|
| |  | Powerful, flexible reporting          
|
| |  | Simple, efficient integration         

The nProcess Platform enables any number
of process applications to be built rapidly, inexpensively and
without writing code. The graphical workflow module, the ability
to tailor access to data to the specific requirements of each
participant in the process and the ability to create and map
data objects enable our process experts to develop and configure
business process automation applications that precisely fit
customer processes, as well as to change those applications
quickly and inexpensively as customers evolve their processes.
We also license the nProcess Platform to customers who prefer to
do their own development and modifications.

System Architecture.Our solutions include two layers of
technology:



| |   |                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Infrastructure Layer.This layer is the foundation of the
    product and provides the product with Internet access, email and
    database functionality and security. The layer is implemented
    using standard web servers and supports standard Internet
    protocols such as HTTP/HTTPS and XML.
|
| |  | Application Layer.This layer provides specific
    functionality and workflow for business applications such as
    Engineering Change Manager and Supplier Non-Conformance and
    Corrective Action Manager.                                                                                         

Competition

The markets for business process automation and
collaborative solutions are 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 these solutions include the following:



| |   |                                                                            
| | - | ---------------------------------------------------------------------------
| |  | Quality, reliability and security of the solution                          
|
| |  | Breadth and depth of product offerings                                     
|
| |  | Ability of solution to embrace and extend
    installed legacy applications
|
| |  | Ability of solution to be efficiently configured
    and rapidly deployed  
|
| |  | Brand recognition                                                          
|
| |  | Installed base of customers                                                
|
| |  | Ease of use                                                                

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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. Competition could also come from
enterprise application integration software providers, such as
Vitria, BEA, and IBM. 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
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 registered two trademarks, have two
applications pending and have filed petitions to revive two
trademarks.

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 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 28, 2003, we had
44 full-time employees, including 22 in research and
development, 16 in sales and marketing and 6 in general and
administrative functions. We also employ from time to time a
limited number of independent contractors to support our
development and administrative organizations.

Executive Officers of the Registrant

Set forth below is information regarding the
directors and executive officers of NexPrise as of
February 28, 2003.

|              |  |     |    |          |  |                                                                              
|------------- |  | --- | -- | -------- |  | -----------------------------------------------------------------------------
|Name          |  | Age |    | Position
|              |  |     |    |         
|Ted Drysdale  |  |     | 54 |          |  | President, Chief Executive Officer and Chairman
    of the Board of Directors
|Jerome Natoli |  |     | 40 |          |  | Chief Financial Officer                                                      
|Raj Tolani    |  |     | 42 |          |  | Vice President, Engineering                                                  
|John Lynch    |  |     | 36 |          |  | Senior Vice President, Sales and Services                                    

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.,

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a manufacturing software company, which we
acquired in August 2001. From January 1999 to April 2000,
Mr. Drysdale was Senior Vice President of the Visualization
and CSM Group of Parametric Technology Corporation, a
manufacturing software company. From September 1998 to January
1999, Mr. Drysdale served as President and Chief Executive
Officer of Division, Inc., a software manufacturing 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.


Jerome E. Natolihas
served as our Chief Financial Officer since March 2002.
Mr. Natoli joined the Company as the Chemdex Director of
Finance in March 2000 and was appointed Vice-President of
Finance in March 2001. From October 1998 to March 2000 he was
Controller of Hewlett-Packards E-Commerce division.
Between July 1989 and October 1998 he held various positions in
Hewlett-Packards finance organization in the U.S. and
overseas. Mr. Natoli holds a B.A. in Economics from the
University of California, Berkeley, and an M.B.A. from the
University of Chicago.

Raj Tolaniwas the
President and Chief Executive Officer of InfoPrise, which was
acquired by the Company in February 2002. Mr. Tolani has
been in the software development industry for the past
17 years and is the former founder, Chairman and President
of ObjectLogic. He 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 CV, he 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 Lynchwas
appointed Senior Vice President of Sales & Services in
August 2001. From July 2000 to August 2001 Mr. Lynch served
as Senior Vice President of Sales at NexPrise, Inc. Prior to
joining NexPrise, Mr. Lynch served from January 1999 to
June 2000 as Area Vice President at Parametric Technology
Corporation, where he was responsible for global account sales
of web-based enterprise business-to-business collaboration
software technology, document management, vaulting, and
consulting services. Previous to PTC, Mr. Lynch served from
May 1996 to December 1998 as Vice President Sales for Division
Inc, where he was responsible for North American sales of
web-based enterprise visualization tools to Fortune 1000
companies. Prior to Division, Mr. Lynch served as Vice
President, Sales for the eastern region at Objectlogic, a
developer of visualization and markup software. He holds a
Bachelor of Science degree in Economics from the University of
Southern California.




Item 2.     Properties

Our executive, sales and development offices are
located in approximately 10,107 square feet in Carlsbad,
California under a lease expiring in December 2006.
Administrative offices are located in approximately
1,200 square feet located in Palo Alto, California under a
lease expiring in December 2003. 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 small sales
offices in a few domestic locations.




Item 3.     Legal
Proceedings

In March 2001, several lawsuits were filed in
United States District Court for the Northern District of
California against the Company and certain of its officers and
directors on behalf of putative classes of persons who purchased
the Companys securities during time periods from
December 13, 1999 through December 6, 2000. One of the
lawsuits also names as a defendant the lead underwriter for the
Companys offering of convertible notes. The lawsuits
generally allege that the Company and certain individuals
violated federal securities laws by making false and misleading
statements during 2000, including in the Companys
registration statement for its convertible notes offering. These
lawsuits have been consolidated as In re Ventro Corp. Sec.
Litig., Master File No. Civ. 01-1287 SBA, and a
consolidated complaint was filed. Defendants have filed motions
to dismiss. The Court has taken the motions under submission and
will issue a ruling

5



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without oral argument from the parties. No
discovery has taken place, and the Court has not set a trial
date. The Company believes that the claims are without merit and
intends to defend the case vigorously.


In August 2001, Chadwell v Byers, Case
No. CV800814, a putative stockholder derivative suit, was
filed in California Superior Court, Santa Clara County
against certain of the Companys present and former
officers and directors, alleging breaches of fiduciary duty and
insider trading. The Company is named solely as a nominal
defendant against which no recovery is sought. After a demurrer
was sustained with leave to amend, the parties stipulated to a
stay of proceedings pending resolution of the IN re Ventro Corp.
Sec. Litig. Federal consolidated action.

In March 2001, Kassin v. Ventro Corp.
et al., Index No. 01-CV-3450 (SAS), a stockholder
class action complaint, was filed in the United States District
Court for the Southern District of New York against the Company,
several of its officers and directors, and the underwriters of
its initial public offering. The class action has been
consolidated for pre-trial purposes with more than one thousand
other actions, filed against more than 300 other issuers of
securities, affiliated individuals and dozens of underwriters of
the securities offerings in In Re Initial Public Offering
Securities Litigation, 21 MC 92 (SAS). The plaintiffs
allege that the prospectus for the initial public offering of
the Companys common stock, incorporated in the
Registration Statement on Form S-1 filed with the
Securities and Exchange Commission, was materially false and
misleading because it failed to disclose, among other things,
that the underwriters had made secret arrangements for
aftermarket purchases of the securities and made arrangements
for excessive and improper underwriters compensation in
the form of increased brokerage commissions. Plaintiffs are
claiming damages of an unspecified amount based on the
subsequent decline in the market price of the Companys
shares below their original offering price. The litigation is in
an early phase, and no date has yet been set by the court for
completion of pretrial discovery or trial. Although we believe
that we have meritorious defenses to the action and intend to
defend the suit vigorously, we cannot predict with certainty the
outcome of this lawsuit. Our defense against such lawsuits will
be costly and may require a significant commitment of time and
resources by our senior management.

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.

6



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##### Table of Contents






PART II






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

Common Stock

Our common stock is traded on the Nasdaq National
Market under the symbol NXPS. The Company previously
utilized the trading symbol CMDX from July 27,
1999 until February 28, 2000 and VNTR from
March 1, 2000 until January 14, 2002. 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. In April 2002, the Company effected a
reverse split of its common stock. As a result of the reverse
stock split, every 15 issued and outstanding shares of the
Companys old common stock were converted into one share of
new common stock. The reverse split brought the minimum bid
price per share of the Companys common stock into
compliance with the listing requirements of the Nasdaq National
Market.

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. The historical
price per share data has been adjusted to reflect the reverse
stock split.

Common Stock Price

|                              |                |      |   |      |  |      |   |      |  |  |   |       |  |  |   |      | 
|----------------------------- | -------------- | ---- | - | ---- |  | ---- | - | ---- |  |  | - | ----- |  |  | - | ---- | 
|                              |                |      |   |     
|                              |                | 2002 |   | 2001
|                              |                |      |   |     
|                              |                | High |   | Low  |  | High |   | Low 
|                              |                |      |   |      |  |      |   |     
|(Price Range of Common Stock) |                |      |   |      |  |      |   |      |  |  |   |       |  |  |   |     
|                              | Fourth Quarter |      | $ | 2.95 |  |      | $ | 1.34 |  |  | $ | 17.25 |  |  | $ | 3.45 | 
|                              | Third Quarter  |      | $ | 4.58 |  |      | $ | 1.68 |  |  | $ | 9.75  |  |  | $ | 1.80 | 
|                              | Second Quarter |      | $ | 7.25 |  |      | $ | 3.40 |  |  | $ | 17.25 |  |  | $ | 4.65 | 
|                              | First Quarter  |      | $ | 6.60 |  |      | $ | 3.90 |  |  | $ | 64.65 |  |  | $ | 9.90 | 

On January 31, 2003 there were approximately
405 stockholders of record of our common stock, one of which is
Cede & Co., a nominee for Depository Trust Company (or
DTC). All of the shares of common stock held by brokerage firms,
banks and other financial institutions as nominees for
beneficial owners are deposited into participant accounts at
DTC, and are therefore considered to be held of record by Cede
and Co. as one stockholder.

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, 2002 and 2001 and the selected consolidated
statements of operations data for years ended December 31,
2002, 2001, and 2000 have been derived from audited consolidated
financial statements included elsewhere in this document. The
consolidated balance sheet data as of December 31, 2000,
1999, and 1998 and the consolidated statements of operation data
for the years ended December 31, 1999 and 1998 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.

|                                                                   |  |                                       |         |      |  |      |         |      |  |      |          |   |  |   |         |   |  |   |        |  
|------------------------------------------------------------------ |  | ------------------------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | -------- | - |  | - | ------- | - |  | - | ------ | -
|                                                                   |  |                                      
|                                                                   |  | December 31,                         
|                                                                   |  |                                      
|                                                                   |  | 2002                                  |         | 2001 |  | 2000 |         | 1999 |  | 1998
|                                                                   |  |                                       |         |      |  |      |         |      |  |     
|                                                                   |  |                                      
|                                                                   |  | (In thousands, except per share data)
|Consolidated Statement of Operations
    Data:                     |  |                                       |         |      |  |      |         |      |  |      |          |   |  |   |         |   |  |   |        |  
|Net revenues                                                       |  | $                                     | 2,802   |      |  | $    | 1,042   |      |  | $    |         |   |  | $ |        |   |  | $ |       |  
|Loss from continuing operations                                    |  | $                                     | (29,446 | )    |  | $    | (79,330 | )    |  | $    | (93,536  | ) |  | $ | (5,421  | ) |  | $ | (1,051 | )
|Basic and diluted loss per share from continuing
    operations    |  | $                                     | (9.21   | )    |  | $    | (25.75  | )    |  | $    | (32.40   | ) |  | $ | (5.25   | ) |  | $ | (8.85  | )
|Loss from discontinued operations                                  |  | $                                     |        |      |  | $    |        |      |  | $    | (524,561 | ) |  | $ | (43,152 | ) |  | $ | (7,437 | )
|Basic and diluted loss per share from
    discontinued operations  |  | $                                     |        |      |  | $    |        |      |  | $    | (181.73  | ) |  | $ | (42.30  | ) |  | $ | (63.00 | )
|Extraordinary item: gain from retirement of
    bonds, net         |  | $                                     |        |      |  | $    | 159,762 |      |  | $    |         |   |  | $ |        |   |  | $ |       |  
|Basic and diluted gain per share from
    extraordinary item       |  | $                                     |        |      |  | $    | 51.86   |      |  | $    |         |   |  | $ |        |   |  | $ |       |  
|Net income (loss)                                                  |  | $                                     | (29,446 | )    |  | $    | 80,432  |      |  | $    | (618,097 | ) |  | $ | (48,573 | ) |  | $ | (8,488 | )
|Basic and diluted net income (loss) per share                      |  | $                                     | (9.21   | )    |  | $    | 26.11   |      |  | $    | (214.13  | ) |  | $ | (47.55  | ) |  | $ | (71.85 | )
|Weighted average common shares
    outstanding  basic and diluted |  |                                       | 3,196   |      |  |      | 3,081   |      |  |      | 2,887    |   |  |   | 1,021   |   |  |   | 118    |  

|                                                  |  |                    |        |      |  |      |        |      |  |      |         |   |  |   |         |  |  |   |       | 
|------------------------------------------------- |  | ------------------ | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------- | - |  | - | ------- |  |  | - | ----- | 
|                                                  |  |                   
|                                                  |  | As of December 31,
|                                                  |  |                   
|                                                  |  | 2002               |        | 2001 |  | 2000 |        | 1999 |  | 1998
|                                                  |  |                    |        |      |  |      |        |      |  |     
|                                                  |  |                   
|                                                  |  | (In thousands)    
|Consolidated Balance Sheet Data:                  |  |                    |        |      |  |      |        |      |  |      |         |   |  |   |         |  |  |   |       | 
|Cash, cash equivalents and short-term investments |  | $                  | 10,275 |      |  | $    | 21,715 |      |  | $    | 192,022 |   |  | $ | 103,095 |  |  | $ | 5,990 | 
|Working capital                                   |  | $                  | 8,120  |      |  | $    | 15,792 |      |  | $    | 158,352 |   |  | $ | 82,130  |  |  | $ | 4,489 | 
|Total assets                                      |  | $                  | 23,004 |      |  | $    | 52,625 |      |  | $    | 257,308 |   |  | $ | 163,933 |  |  | $ | 8,168 | 
|Long term obligations                             |  | $                  | 11,843 |      |  | $    | 8,803  |      |  | $    | 250,206 |   |  | $ | 494     |  |  | $ |      | 
|Total liabilities                                 |  | $                  | 16,070 |      |  | $    | 17,182 |      |  | $    | 304,381 |   |  | $ | 38,914  |  |  | $ | 1,820 | 
|Total stockholders equity (deficit)              |  | $                  | 6,934  |      |  | $    | 35,443 |      |  | $    | (47,073 | ) |  | $ | 125,019 |  |  | $ | 6,348 | 

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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 Financial Condition and Results of Operations
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.

Overview

We are a seller of business process applications
and collaborative solutions for program management and quote
management. Our revenue primarily consists of subscriptions of
bundled license, post contract support (PCS) and, in most cases,
hosting services.

In 2001, we significantly restructured our
operations and focused on a new business direction. We exited
the business of building and servicing business-to-business
marketplaces and entered the business of providing collaborative
and business process automation software solutions. In August
2001, while doing business under the name Ventro Corporation, we
acquired privately-held NexPrise, Inc., a company with an
advanced collaborative software solution and an established
customer base located in Santa Clara, California. Later in
the year we reorganized our management team and Board of
Directors and took measures to reduce commitments and operating
expenses and conserve cash. In 2001, the Company incurred a net
charge of $16.5 million in connection with restructurings
and settlements. In January 2002, we changed our name to
NexPrise, Inc.

On February 4, 2002, we acquired
privately-held InfoPrise, a provider of data management
solutions located in Carlsbad, California. As consideration for
the acquisition, we issued to InfoPrises stockholders an
aggregate of 139,790 shares of NexPrise common stock
together with unsecured 6% promissory notes convertible into the
Companys common stock, due in 2007, with a face value of
$3,040,000 and a per share conversion price of $18.75. We also
assumed InfoPrises outstanding stock options, which may
result in the issuance of up to approximately 64,000 shares
of common stock if all of the assumed options are exercised. As
of December 31, 2002 1,820 of these options had been
exercised. All operating results presented for periods following
the above date are derived from the combined operations of
NexPrise and InfoPrise. We expect to incur operating losses on a
quarterly basis for at least the next 12 months as we
develop and enhance our technology and service offerings.

Critical Accounting Policies

Use of Estimates.Managements discussion and
analysis of its financial condition and results of operations
are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these
financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. Management bases its
estimates on historical experience and on various other
assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or
conditions.

Management believes the following critical
accounting policies affect its more significant estimates and
assumptions used in the preparation of its consolidated
financial statements

Revenue Recognition.Revenue is made up primarily of
subscriptions of bundled license, post contract support (PCS)
and, in most cases, includes hosting services. The Company
recognizes such revenue using the subscription
method, whereby the initial and renewal amounts are recognized
ratably over the period of the

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license during which the services are expected to
be provided. Revenue for training or consulting services is
recognized based on achievement of billable milestones as
written in the contract or upon contract completion and
currently makes up less than 10% of overall revenue. Our revenue
recognition policy is in accordance with Statement of Position
No. 97-2 (SOP 97-2), Software Revenue
Recognition, as amended, and Staff Accounting Bulletin 101.
For all arrangements, 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. The Company anticipates
revenue in the coming quarters will include the sale of paid-up
perpetual licenses. These license fees will be recognized when
earned, subject to the same criteria as discussed above.


Consolidations.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.

Companies that NexPrise directly or indirectly
control 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.

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% to 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.

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

Long Lived Assets.The Company reviews property, plant and equipment, goodwill and
purchased intangible assets for impairment whenever events or
changes in circumstances indicate the carrying value of an asset
may not be recoverable. Our asset impairment review assesses the
fair value of the assets based on the future cash flows the
assets are expected to generate. An impairment loss is
recognized when estimated undiscounted future cash flows
expected to result from the use of the asset, plus net proceeds
expected from disposition of the asset (if any) are less than
the carrying value of the asset. This approach uses our
estimates of future market growth, forecasted revenue and costs,
expected periods the assets will be utilized and appropriate
discount rates. When an impairment is identified, the carrying
amount of the asset is reduced to its estimated fair value.
During 2003 we will continue to evaluate our intangible assets
for impairment as events and circumstances warrant. Among other
circumstances, a material deterioration in the future cash flows
expected from these assets due to lower than planned revenue or
a decline in the Companys market capitalization could be
indicators of impairment and lead to write-offs.

Legal.The Company
is involved in certain claims and litigation related to its
operations, including ordinary, routine litigation incidental to
its business. Management reviews and determines which
liabilities, if any, arising from these claims and litigation
could have a material adverse effect on the Companys
consolidated financial position, liquidity, results of
operations or properties. In reviewing these claims and
litigation, management assesses the likelihood of any adverse
judgments or outcomes to these matters as well

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as potential ranges of probable losses. A
determination of the amount of accruals required, if any, for
these contingencies is made after analysis of each matter, which
includes discussion with counsel retained in such matter. The
required accruals may change in the future due to new
developments in a matter or changes in strategies to resolve
that matter, including changes in litigation defense and
settlement strategies. The Company had no accruals for legal
contingencies at December 31, 2002. If a change in
circumstances resulted in a materially adverse outcome or
judgment against NexPrise, NexPrise could be required to expend
cash intended to fund operations in defense of the Company and
might then have an insufficient amount of cash to meet other
obligations.


Results of Operations

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

|                                                           |                                                          |              |         |        |  |      |         |        |  |   |          |          |  
|---------------------------------------------------------- | -------------------------------------------------------- | ------------ | ------- | ------ |  | ---- | ------- | ------ |  | - | -------- | -------- | -
|                                                           |                                                          |             
|                                                           |                                                          | December 31,
|                                                           |                                                          |             
|                                                           |                                                          | 2002         |         | 2001   |  | 2000
|                                                           |                                                          |              |         |        |  |     
|Net revenues                                               |                                                          | $            | 2,802   |        |  | $    | 1,042   |        |  | $ |         |         
|Cost of revenues                                           |                                                          |              | 2,393   |        |  |      | 797     |        |  |   |         |         
|                                                           |                                                          |              |         |        |  |      |         |        |  |   |          |         
|                                                           | Gross profit                                             |              |         | 409    |  |      |         | 245    |  |   |          |         |  
|Operating Expenses:                                        |                                                          |              |         |        |  |      |         |        |  |   |          |         
|                                                           | Research and development                                 |              |         | 5,295  |  |      |         | 24,580 |  |   |          | 35,227   |  
|                                                           | In process research and development                      |              |         | 399    |  |      |         | 2,300  |  |   |          |         |  
|                                                           | Sales and marketing                                      |              |         | 5,469  |  |      |         | 11,050 |  |   |          | 24,501   |  
|                                                           | General and administrative                               |              |         | 5,087  |  |      |         | 14,067 |  |   |          | 6,689    |  
|                                                           | Settlements, restructurings and other charges            |              |         |       |  |      |         | 16,543 |  |   |          | 4,891    |  
|                                                           | Impairment of goodwill                                   |              |         | 11,652 |  |      |         |       |  |   |          |         |  
|                                                           |                                                          |              |         |        |  |      |         |        |  |   |          |         
|                                                           | Total operating expenses                                 |              |         | 27,902 |  |      |         | 68,540 |  |   |          | 71,308   |  
|                                                           |                                                          |              |         |        |  |      |         |        |  |   |          |         
|Operating loss                                             |                                                          |              | (27,493 | )      |  |      | (68,295 | )      |  |   | (71,308  | )       
|Interest expense                                           |                                                          |              | (749    | )      |  |      | (5,646  | )      |  |   | (12,813  | )       
|Interest income and other, net                             |                                                          |              | 216     |        |  |      | 4,426   |        |  |   | 14,242   |         
|Investment losses                                          |                                                          |              | (1,420  | )      |  |      | (9,815  | )      |  |   | (23,657  | )       
|                                                           |                                                          |              |         |        |  |      |         |        |  |   |          |         
|Loss from continuing operations                            |                                                          |              | (29,446 | )      |  |      | (79,330 | )      |  |   | (93,536  | )       
|Discontinued operations:                                   |                                                          |              |         |        |  |      |         |        |  |   |          |         
|                                                           | Loss from discontinued operations, net of income
    tax |              |         |       |  |      |         |       |  |   |          | (186,466 | )
|                                                           | Loss on disposal, net of income taxes                    |              |         |       |  |      |         |       |  |   |          | (338,095 | )
|                                                           |                                                          |              |         |        |  |      |         |        |  |   |          |         
|Loss from discontinued operations                          |                                                          |              |        |        |  |      |        |        |  |   | (524,561 | )       
|Extraordinary item: gain from retirement of
    bonds, net |                                                          |              |        |        |  |      | 159,762 |        |  |   |         |         
|                                                           |                                                          |              |         |        |  |      |         |        |  |   |          |         
|Net income (loss)                                          |                                                          | $            | (29,446 | )      |  | $    | 80,432  |        |  | $ | (618,097 | )       
|                                                           |                                                          |              |         |        |  |      |         |        |  |   |          |         

Revenues.NexPrise
reported approximately $2.8 million of revenue for the year
ended December 31, 2002, an increase of $1.8 million
from the approximately $1.0 million reported in 2001. This
revenue is made up primarily of subscriptions and maintenance
for the Companys collaborative commerce products generated
subsequent to our August 8, 2001 acquisition of
privately-held NexPrise, Inc. Subscription revenue 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.

Cost of Revenues.Cost of revenues were approximately
$2.4 million in 2002, up $1.6 million from the
approximately $797,000 recorded in 2001. Cost of revenues
consist primarily of outsourced hosting services for our
customers, amortization of the intangible technology asset
acquired as part of our acquisition of NexPrise

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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 was related to operations that were
discontinued in December 2000. The Company expects the dollar
value of cost of revenues 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 and amortization of intangible assets is
leveraged across what is expected to be a larger customer base
in 2003.


Research and Development.Research and development
(R&D) expenses consist primarily of personnel
and other expenses associated with developing, updating, and
enhancing software. R&D expenses from continuing operations
were approximately $5.3 million during 2002, down
approximately $19.3 million from 2001. R&D expenses in
2001 were $24.6 million, down $10.6 million from 2000.
The decreases were largely driven by reductions in workforce
that have occurred over the past 24 months. To date, all
software development costs have been expensed in the period
incurred. A substantial portion of research and development
expenses incurred in 2000 related to operations that are
included in the discontinued operations line items. The Company
does not expect R&D expenses to change significantly in the
coming year. We believe that continued investments in research
and development are required to remain competitive.

In Process Research and Development.The Company expensed $399,000 and
$2.3 million of acquired in-process research and
development for the year ended December 31, 2002 and
December 31, 2001, respectively. The in-process research
and development expensed in 2002 was acquired as a result of the
InfoPrise acquisition in February 2002. The in-process research
and development expensed in 2001 was acquired as a result of the
NexPrise acquisition in August 2001. The Company determined the
amounts of in process research and development through
independent valuations in connection with the allocation of
purchase price.

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 $5.5 million during 2002, down approximately
$5.6 million from 2001. Sales and marketing expenses in
2001 were $11.1 million, 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 2002 and 2001 and reduced spending on marketing programs.
Sales and marketing expenses in 2000 related to operations that
were discontinued in December 2000 are included in discontinued
operations. The Company expects sales and marketing expenses in
the coming year to increase as investments are made in personnel
and programs to acquire new customers.

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 $5.1 million,
down approximately $9.0 million from 2001. General and
administrative expenses from continuing operations in 2001 were
approximately $14.1 million, an increase of approximately
$7.4 million from the approximately $6.7 million spent
in 2000. The decrease in 2002 was driven by reductions in
infrastructure costs and reductions in workforce. 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 Company does not expect general
and administrative expenses to change significantly in the
coming year.

Settlements, Restructurings and Other.The Company did not report any
restructuring or settlement expenses in the year ended
December 31, 2002. During the year ended December 31,
2001, the Company reported charges of approximately
$16.5 million for several actions taken to improve
efficiencies and reduce operating costs. The specific actions
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 before extraordinary item and consisted of approximately
$5.4 million of expense related to workforce reductions,
approximately $7.2 million of expense related to
terminating equipment and property leases and asset write-offs
of approximately $11.6 million. These expenses were
partially offset by an approximately $7.6 million net gain
from settlements with our former marketplace companies. At Decem-

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ber 31, 2002 the Company had accruals of
approximately $505,000 related to these charges. Further
information on these activities can be found in Note 10.


During the year ended December 31, 2000, the
Company recorded approximately $4.9 million of
restructuring charges. The charge included $320,000 and $990,000
of cash and non-cash charges, respectively, 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.

Impairment of Goodwill.SFAS 142, Goodwill and Other
Intangible Assets, requires that we evaluate on an annual
basis (or whenever events occur which may indicate possible
impairment) whether any portion of our recorded goodwill is
impaired. This analysis requires management to make a series of
critical assumptions to: (1) evaluate whether any
impairment exists, and (2) measure the amount of
impairment. The Company performed the required transitional
impairment test and annual impairment test of the goodwill
acquired as part of its acquisition of NexPrise as of
January 1, 2002 and September 30, 2002, respectively,
and, in each case, did not identify an impairment of the
goodwill balance. In the fourth quarter of 2002 our market
capitalization decreased to a value at December 31, 2002
that was approximately $14 million less than our book value
prior to any impairment charges. That decrease and a reduction
in forecast revenues led us to conclude there were sufficient
indicators to warrant an evaluation of whether any portion of
our $11.7 million of recorded goodwill was impaired in the
fourth quarter of 2002. The analysis resulted in an impairment
charge equal to the entire $11.7 million balance in the
fourth quarter of 2002. The remaining identified intangible
assets were also tested for impairment. No impairment was found,
as the value of the undiscounted cash flows expected to be
generated by these assets over their estimated lives exceeded
their carrying value of $9.2 million at December 31,
2002. During 2003, we will continue to evaluate these intangible
assets for impairment as events and circumstances warrant. If an
impairment is determined, further write-offs may be required.

Interest Expense.Interest expense in 2002 was
approximately $749,000, down approximately $4.9 million
from 2001. Interest expense in 2001 was approximately
$5.6 million, down approximately $7.2 million from the
$12.8 million expensed in 2000. Interest expense consists
primarily of interest related to convertible subordinated notes
issued in April 2000, the convertible promissory note issued in
association with the purchase of InfoPrise in February 2002 and,
to a lesser extent, financed equipment and other financing
arrangements. With respect to the subordinated notes,
approximately $265,000 is payable semi-annually in arrears on
April 1 and October 1 of each year for interest on the
notes that remain outstanding at December 31, 2002. In
addition, the remaining deferred offering costs of approximately
$198,000 related to the subordinated notes are being amortized
as interest expense ratably over the term of the subordinated
notes. With respect to the InfoPrise convertible promissory
note, approximately $73,000 is payable annually on each
anniversary of the issuance of the promissory note, with the
balance of interest owed due at maturity. The decrease in
interest expense in 2002 and 2001 was due primarily to the
retirement of approximately 96% of the original balance of
convertible subordinated notes during 2001.

Interest Income and Other, Net.Interest income and other, net, in
2002 was approximately $216,000 in 2002, a decrease of
approximately $4.2 million from 2001. Interest income and
other, net, in 2001 was approximately $4.4 million, a
decrease of approximately $9.8 million from the
$14.2 million reported in 2000. Interest income and other,
net, has been derived primarily from earnings on investments in
cash equivalents and short-term investments. The decrease in
interest income and other is primarily attributable to lower
cash, cash equivalent and investment balances and a decline in
interest rates during 2002. Interest income in 2003 is expected
to be somewhat lower as a result of lower cash equivalents and
short-term investments balances.

Investment Losses.The 2002 investment loss of
approximately $1.4 million is approximately
$8.4 million lower than the loss reported in 2001. The
$9.8 million loss reported for 2001 is $13.9 million
lower than the $23.7 million reported in 2000. The loss in
2002 is made up primarily of approximately $3.0 million of
equity losses in the marketplace companies in which we have a
significant ownership percentage and approximately $186,000 of
write-downs for impairment deemed to be other than temporary of
an investment accounted for using the cost method, offset by an
approximately $1.8 million gain from the sale of the

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Companys shares of Amphire Solutions. The
$9.8 million loss in 2001 is made up primarily of
$8.6 million of equity losses in the marketplace companies
and approximately $1.2 million of write-downs of
investments accounted for using the cost method. The
$23.7 million loss in 2000 is made up of approximately
$20.6 million of equity losses, approximately
$10.0 million of write-downs of investments, approximately
$22.3 million of losses on investment in strategic
partners, offset by a $29.4 million gain on the sale of
Ariba (formerly Tradex) stock. The Company has a net book value
of approximately $613,000 related to these investments as of
December 31, 2002, down from $3.8 million at
December 31, 2001. The remaining investment is accounted
for using the cost method.


Loss from Continuing Operations.As a result of the changes described
above, the loss from continuing operations was approximately
$29.4 million in 2002, down $49.9 from 2001. The loss from
continuing operations was approximately $79.3 million in
2001, a decrease of $14.2 from 2000. The loss from continuing
operations is expected to decrease in 2003 due to reductions we
have made in operating expenses and the planned increase in
revenue.

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 accounted for in accordance with the purchase
method of accounting. For Promedix, the purchase consideration
was 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 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 and $99.3 million for the
years ended December 31, 2001 and 2000, respectively. 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, 2002
accrued liabilities relating to discontinued operations amounted
to approximately $336,000.

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 total consideration provided
by the Company for the tendered notes, including accrued
interest, transaction and other costs, was approximately
$81.4 million. The Company recognized a gain of
approximately $159.8 million on the transactions.

Liquidity and Capital Resources

As of December 31, 2002, NexPrise had
approximately $10.3 million of cash, cash equivalents and
short-term investments; working capital was approximately
$8.1 million.

Net cash used in operating activities was
approximately $14.8 million for the year ended
December 31, 2002 compared to $77.5 million of net
cash used in operating activities for the year ended
December 31, 2001. Net cash used in operating activities
for the year ended December 31, 2002 is primarily
attributable to the net loss for the period (less non-cash
expenses) and, to a lesser extent, an increase in deferred
revenue and decreases in accounts payable, accrued compensation,
accrued expenses and discontinued liabilities. Non cash items
primarily consisted of an impairment of goodwill which totaled
$11.7 million, depreciation and amortization of
$4.4 million and investment losses of $3.2 million.
These cash flows used in operating activities were partially
offset by decreases in accounts receivable, other current assets
and discontinued assets and gains of approximately
$1.8 million from the sale of Amphire Solutions. The
actions taken in the past 12 months to

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reduce expenditures are expected to decrease the
ongoing use of cash by operating activities to between
$1.0 million and $2.0 million per quarter in 2003.


Net cash provided by investing activities totaled
$4.5 million for the year ended December 31, 2002,
compared to net cash provided by investing activities of
$61.2 million for the year ended December 31, 2001.
During the year ended December 31, 2002, the Company had
net sales and maturities of approximately $2.9 million of
short-term investments and received cash of approximately
$1.0 million as part of the acquisition of InfoPrise.

Net cash used in financing activities was
$112,000 for the year ended December 31, 2002 compared to
net cash used in financing activities of $61.5 million for
the year ended December 31, 2001. Net cash used in
financing activities for the year ended December 31, 2002
resulted primarily from the principal payments on our capital
lease obligations. This lease has been paid in full. In
addition, the Company used $26,000 in the year ended
December 31, 2002 to repurchase Company stock.

Management believes the Company has adequate cash
to sustain operations at least through 2003 and is managing its
business to achieve positive cash flow utilizing existing
assets. During 2002 the Company continued to reduce ongoing
operating expenses by renegotiating its lease commitments,
reducing purchases of other services and making workforce
reductions. It is managements belief that the adjustments
to spending that have been made, combined with receipts expected
from customer contracts already in place and new customer
contracts expected to be signed in 2003 and thereafter will
provide the additional resources required to achieve positive
cash flow. 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.

Although we expect our existing cash, cash
equivalent and investment balances together with our anticipated
cash flows from operations to be sufficient to meet our working
capital and operating resource expenditure requirements for at
least the next 12 months, higher than anticipated expenses
or lower than anticipated receipts may result in lower cash,
cash equivalents and investments balances than presently
anticipated and we may find it necessary to obtain additional
equity or debt financing. In the event additional financing is
required, we may not be able to raise it on acceptable terms or
at all.

Contractual Obligations

The following table summarizes the companys
contractual obligations and commercial commitments as of
December 31, 2002 (in thousands):

|                              |  |                        |        |             |  |           |       |           |  |               |     |  |  |   |        |  |  |   |   | 
|----------------------------- |  | ---------------------- | ------ | ----------- |  | --------- | ----- | --------- |  | ------------- | --- |  |  | - | ------ |  |  | - | - | 
|                              |  |                       
|                              |  | Payments Due By Period
|                              |  |                       
|                              |  |                        |        | Less Than 1 |  |          
|Contractual Obligations       |  | Total                  |        | Year        |  | 1-3 Years |       | 3-5 Years |  | After 5 Years
|                              |  |                        |        |             |  |           |       |           |  |              
|Long-term debt                |  | $                      | 11,843 |             |  | $         |      |           |  | $             |    |  |  | $ | 11,843 |  |  | $ |  | 
|Hosting agreement             |  |                        | 416    |             |  |           | 416   |           |  |               |    |  |  |   |       |  |  |   |  | 
|Operating leases(a)           |  |                        | 2,090  |             |  |           | 1,448 |           |  |               | 422 |  |  |   | 220    |  |  |   |  | 
|                              |  |                        |        |             |  |           |       |           |  |               |     |  |  |   |        |  |  |   |   | 
|Total contractual obligations |  | $                      | 14,349 |             |  | $         | 1,864 |           |  | $             | 422 |  |  | $ | 12,063 |  |  | $ |  | 
|                              |  |                        |        |             |  |           |       |           |  |               |     |  |  |   |        |  |  |   |   | 



---



|    |  |                                                                                                
|--- |  | -----------------------------------------------------------------------------------------------
|(a) |  | Operating lease has not been offset by expected
    sublease income of approximately $1,231,000

Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards
Board (FASB) issued SFAS No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No. 141 requires that the
purchase method of accounting be used for all business
combinations initiated after June 30, 2001.
SFAS No. 141 also specifies criteria for determining
intangible assets acquired in a purchase method business
combination that must be recognized and reported apart from
goodwill, noting that any purchase price allocable to an
assembled workforce may not be accounted for separately. SFAS
No. 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead be
tested for

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impairment at least annually in accordance with
the provisions of SFAS No. 142. SFAS No. 142 also
requires that intangible assets with definite useful lives be
amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of. The Company adopted Statement 142 in
January 2002. Application of the non-amortization provisions of
Statement 142 did not result in a change to results of
operations in 2002 as there was no goodwill amortized in fiscal
2001. The Company has tested goodwill generated by the NexPrise
and InfoPrise acquisitions using the two-step process prescribed
in Statement 142. The first required step is a screen for
potential impairment, while the second step measures the amount
of the impairment, if any. The Company performed the first of
the required impairment tests of NexPrise goodwill as of
January 1, 2002 and did not have an impairment of the
goodwill balance. The Company performed its required annual
impairment test in September 2002 and again did not have an
impairment of the goodwill balance. In the fourth quarter of
2002, our market capitalization decreased to a value at
December 31, 2002 that was approximately $14 million
less than our book value prior to any impairment charges. That
decrease and a reduction in forecast revenues led us to conclude
there were sufficient indicators to warrant an analysis of
whether any portion of our $11.7 million of recorded
goodwill balance was impaired in the fourth quarter of 2002.
That analysis resulted in an impairment charge equal to the
entire $11.7 million balance in the fourth quarter of 2002.
The remaining identified intangible assets were also tested for
impairment. No impairment was found, as the value of the
undiscounted cash flows expected to be generated by these assets
over their estimated lives exceeded their carrying value of
$9.2 million at December 31, 2002. During 2003, we
will continue to evaluate these intangible assets for impairment
as events and circumstances warrant. If an impairment is
determined, further write-offs may be required.


In August 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, 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 an 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. Our adoption of SFAS 144 on
January 1, 2002 did not have a material effect on our
operating results or financial condition.

In July 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities.SFAS 146 addresses significant issues
relating to the recognition, measurement and reporting of costs
associated with exit and disposal activities, including
restructuring activities, and nullifies the guidance in Emerging
Issues Task Force (EITF) Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring).SFAS 146 requires that the initial
liability for costs associated with exit and disposal activities
be measured at fair value and prohibits the recognition of a
liability based solely on an entitys commitment to a plan.
The provisions of SFAS 146 are effective for exit and
disposal activities initiated after December 31, 2002.
Retroactive application of SFAS 146 is prohibited and,
accordingly, liabilities recognized prior to the initial
application of SFAS 146 should continue to be accounted for
in accordance with EITF 94-3 or other applicable
pre-existing guidance. The Company does not believe that the
adoption of SFAS 146 will have a material impact on its
financial position or results of operations.

In December 2002, the FASB issued SFAS 148,
Accounting for Stock Based Compensation 
Transition and Disclosure  an Amendment of
SFAS 123. SFAS 148 provides additional transition
guidance for those entities that elect to voluntarily adopt the
provisions of SFAS 123, Accounting for Stock Based
Compensation. Furthermore, SFAS 148 mandates new
disclosures in both interim and year-end financial statements
within the Companys Significant Accounting Policies
footnote. The Company has adopted these disclosure requirements
for the year ended December 31, 2002 and will apply them to
its interim financial statements beginning in 2003.

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In November 2002, the FASB issued FASB
Interpretation No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. FIN 45 requires
that a liability be recorded in the guarantors balance
sheet upon issuance of a guarantee. In addition, FIN 45
requires disclosures about the guarantees that an entity has
issued, including a rollforward of the entitys product
warranty liabilities. NexPrise will apply the recognition
provisions of FIN 45 prospectively to guarantees issued
after December 31, 2002. The disclosure provisions of
FIN 45 are effective for financial statements for the first
quarter of NexPrises fiscal year 2003. NexPrise is
currently in the process of evaluating the potential impact that
the adoption of FIN 45 will have on its consolidated
financial position and results of operations.

In November 2002, the EITF reached a consensus on
Issue No. 00-21, Revenue Arrangements with Multiple
Deliverables. EITF Issue No. 00-21 provides guidance on
how to account for arrangements that involve the delivery or
performance of multiple products, services and/or rights to use
assets. The provisions of EITF Issue No. 00-21 will apply
to revenue arrangements entered into in fiscal periods beginning
after June 15, 2003. NexPrise is currently evaluating the
effect that the adoption of EITF Issue No. 00-21 will have
on its results of operations and financial condition.

Risk Factors

This Annual Report on Form 10-K contains
forward-looking statements within the meaning of the Securities
Litigation Reform Act of 1995 that involve risks and
uncertainties. Our actual results could differ materially from
those anticipated in these forward-looking statements as a
result of certain factors, including those set forth in the
following cautionary statements and elsewhere in this Annual
Report on Form 10-K. If any of the following risks were to
occur, our business, financial condition or results or
operations would likely suffer. In addition to other information
in this Form 10-K, the following risk factors should be
carefully considered in evaluating NexPrise and its business
because such factors may have significant impact on
NexPrises business, operating results and financial
condition.

Investment Considerations

An investment in our securities involves
significant risks, including those described below. These risks
relate to 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 a Limited Operating History and an
Evolving Technology and Service Offering, Which Makes it
Difficult to Evaluate Our Future Prospects

Our success 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 large range of
    customers with a variety of needs;                                                 
|
| |  | acquire or license third party technologies that
    we require to deliver our technology and services;                                  
|
| |  | overcome publicity related to our public
    announcements of restructurings, litigation and the shutdown of
    our former marketplaces;

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| |   |                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------
| |  | overcome customer bias toward choosing larger,
    well capitalized vendors to provide their enterprises software
    solutions; 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, collaborative business
process solutions may experience problems with users as a result
of security and privacy concerns or general reticence about
technology.

We May Not Achieve the Benefits We Expected
from the Acquisitions of NexPrise and 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 expected benefits or
synergies from the acquisitions of NexPrise and InfoPrise,
including the timely, efficient and successful execution of a
number of post-merger events. Key events include:



| |   |                                                                                          
| | - | -----------------------------------------------------------------------------------------
| |  | 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;                                                            
|
| |  | 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 mergers.

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

To date, we have derived a significant portion of
our revenues from a small number of customers in two industries.
Many of our customers do not have contracts that extend beyond
one year. Critical to the success of the Companys business
plan 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.

Legislative Actions, Higher Insurance Costs
and Potential New Accounting Pronouncements May Cause our
General and Administrative Expenses to Increase and Impact our
Future Financial Position and Results of Operations

In order to comply with the newly adopted
Sarbanes-Oxley Act of 2002, as well as proposed changes to
listing standards by Nasdaq and proposed accounting changes by
the Securities and Exchange Commission, we may be required to
hire additional personnel and utilize additional outside legal,
accounting and advisory services, all of which will cause our
general and administrative costs to increase beyond what we
currently have planned. Insurers are also likely to increase
premiums as a result of the high claims rates incurred over the
past year, and so our premiums for our various insurance
policies, including our directors and officers
insurance policies, are likely to increase. Proposed changes to
accounting rules, including proposals to account

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for employee stock options as a compensation
expense, could, if mandated, materially increase the expenses we
report under generally accepted accounting principles and
adversely affect our operating results.


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 include 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 data
hosting. This hosted environment is critical to the provision of
our software to many of our customers and if the environment
does not work well, is cut-off or fails, our customers would be
unable to use our solution. We have experienced and may continue
to experience interruptions and delays in service and
availability for such services. We have signed an agreement with
a new vendor to provide the hosted environment, but there can be
no assurance that the transition to a new provider will
successfully occur to the full satisfaction of our customers.
Furthermore, we rely on these third party providers to respond
promptly to requests we make for changes to our hardware,
networking and telecommunications configuration in order to
deliver our products and services to our customers. Any
failures, security breaches, 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.

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 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 them 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 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.

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Our Operating Results Are Highly Dependent on
License and Service Revenues from Our 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 our revenues to date have
been derived from the sale of licenses and services associated
with the ipTeamTM solution. Our future operating
results will depend on continued demand for ipTeam and the
recently introduced nProcess Platform. ipTeam was
commercially launched in 1998. If our competitors release new
products that are superior to ipTeam or nProcess Platform
in performance or price, or if we fail to enhance ipTeam and
nProcess Platform 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 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; We May
Never Achieve or Maintain Profitability

We have incurred substantial net losses in the
past and we expect to incur net losses in future periods. We
incurred a net loss of approximately $29.4 million during
the year ended December 31, 2002 and a net loss before
extraordinary items of $79.3 million during the year ended
December 31, 2001. As of December 31, 2002 we had an
accumulated deficit of approximately $625 million. We will
need to generate significant increases in revenues to achieve
and maintain profitability, and we may not be able to do so. If
our revenues grow more slowly than we anticipate or if our
operating expenses cannot be reduced in the event of lower than
expected revenues, we may find it necessary to obtain additional
equity or debt financing or, in the alternative, significantly
curtail our operations. Such financing may not be available on
acceptable terms or at all. Even if we achieve profitability in
the future on a quarterly or annual basis, we may not be able to
sustain or increase profitability. Failure to achieve
profitability or achieve and sustain the level of profitability
expected by investors and securities analysts may adversely
affect the market price of our common stock.

We Operate in a New, Highly Competitive Market
and Our Inability to Compete Successfully Against New Entrants
and Established Companies Could Adversely Affect Our Market
Share

Our target market is rapidly evolving and is
highly competitive. It may be characterized by an increasing
number of market entrants, as many companies may find a
technological path around existing barriers to entry.

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

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Our current and potential competitors may develop
superior 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 current or potential 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 and Workforce
Reductions 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. This includes changes to
virtually all executive management, resignation of most of the
original board of directors, significant workforce reductions
and transfers of several employees. 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.

General Economic and Political Conditions May
Impact Our Results

Our revenue growth and future profitability
depend on the overall demand for software and related services.
This demand can be adversely affected by unfavorable economic
conditions, as customers reduce or defer spending on information
technology improvements. We may be especially prone to this as a
result of the relatively small installed base and operating
history of our products. A softening demand for software caused
by a prolonged slowdown of the economy would result in decreased
revenue or lower revenue growth rates and would adversely affect
our operating results.

Recent political events, including the prospect
of U.S. military action in the Middle East and elsewhere,
have put further pressure on economic conditions. The potential
turmoil that may result from such events contributes to the
uncertainty of the economic climate, further reducing
predictability and our ability to develop and implement
long-term strategic plans. The impact of these or future similar
events may have a material adverse impact on our operating
results and financial position

If We Fail to Comply with Nasdaq Rules, Our
Common Stock May Be Delisted from Nasdaq, Which Could Eliminate
the Trading Market for Our Common Stock

If we fail to meet the criteria for continued
listing on Nasdaq, our common stock may be delisted from Nasdaq.
The Nasdaq National and SmallCap Markets have a number of
criteria companies are required to meet in order to stay listed
on Nasdaq. Those criteria include maintaining a minimum bid
price of at least $1 per share and maintaining
stockholders equity of at least $10 million for the
Nasdaq National Market or $2.5 million for the Nasdaq
SmallCap Market. If NexPrise is unable to maintain the
$1 per share minimum bid price or if ongoing reported
losses drive stockholders equity below the
$2.5 million threshold, the Company may be delisted from
Nasdaq. If the stock is delisted, it would significantly
decrease the liquidity of an investment in NexPrise common
stock. In addition, following delisting, the stock could 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 on broker-dealers who sell our securities. For
example, broker-dealers would have to 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

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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.


The Market Price Per Share of NexPrise Common
Stock Following the Reverse Stock Split May 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.

We cannot predict whether the reverse stock split
completed in 2002 will permanently increase the market price for
our 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 our
common stock following the reverse stock split will remain in
excess of the $1.00 minimum bid price as required by Nasdaq
or that we will otherwise meet the requirements of Nasdaq for
continued inclusion for trading on Nasdaq. A reverse stock split
could negatively impact the value of our 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 our common stock will also be based on our
performance and other factors, some of which are unrelated to
the number of shares outstanding. If the market price of our
common stock declines, the percentage decline as an absolute
number and as a percentage of our overall market capitalization
may be greater than would occur in the absence of a reverse
stock split. Furthermore, liquidity of our common stock could be
adversely affected by the reduced number of shares that would be
outstanding after the reverse stock split.

Our Business Involves a Lengthy and
Unpredictable Sales Cycle

The sales cycle for the target customers for the
software and services we provide tends to be lengthy and 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 software and services is
characterized by rapid technological change, frequent new
hardware, software and networking product introductions and
Internet-related technology 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

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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.




| |                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------
| | Our Products May Contain Defects That Could
    Harm Our Reputation, Be Costly to Correct, Delay Revenue and
    Expose Us to Litigation

Despite testing by us, our partners and our
customers, errors may be found in our products after
commencement of commercial delivery. Errors have arisen in our
software products from time to time, and they could arise again
in the future. If errors are discovered, we may not be able to
successfully correct them in a timely manner or at all. Errors
and failures in our products could result in loss of or delay in
market acceptance of our products and damage to our reputation
and our ability to convince commercial users of the benefits of
our products. In addition, we may need to make significant
expenditures of capital resources in order to eliminate errors
and failures. Since our products are used by customers for
mission-critical applications, errors, defects or other
performance problems could also result in financial or other
damages to our customers, which could assert warranty and other
claims for substantial damages against us. Although our license
agreements with our customers typically contain provisions
designed to limit our exposure to potential product liability
claims, it is possible that such provisions may not be effective
or enforceable under the laws of certain jurisdictions. In
addition, our insurance policies may not adequately limit our
exposure with respect to such claims. A product liability claim,
even if unsuccessful, would be costly and time-consuming to
defend and 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 third party data center services
    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 the 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

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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 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 or
license software products from third party commercial vendors.
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. 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 Food
and Drug Administration (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 we 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

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


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

As a result of increased 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.

Government entities may also terminate their
contracts with us earlier than we expect which could result in
revenue shortfalls. Government entities may also investigate and
audit our contracts and, if any improprieties are found, we may
be required to refund revenues we have received, to forego
anticipated revenues and may be subject to penalties. In
addition, if we fail to establish and maintain important
relationships with government entities and agencies, our ability
to successfully bid for future contracts may be adversely
affected.

We Face Risks Associated With Stockholder and
Bondholder Litigation

Several class action lawsuits have been filed and
served upon us alleging that we and certain individuals made
false and misleading statements concerning our business model
and earnings for fiscal 2000 and concerning our 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
prices of technology 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. On a
post reverse split basis, our common stock reached a high of
$3,652.50 and traded as low as $8.85 during 2000, and had a high
of $64.65 and low of $1.80 during 2001. Our stock reached a high
of $7.25 and a low of $1.34 during fiscal 2002. On
December 31, 2002 the last reported sales price on Nasdaq
was $1.38.




Item 7A.     Qualitative
and Quantitative Disclosure about Market Risk

Market Risk Disclosure

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 are also exposed to interest rate risk related
to our investment portfolios. We have performed a sensitivity
analysis as of December 31, 2002, using a modeling
technique that measures the change in the fair values arising
from a hypothetical 10% adverse movement in the levels of
interest rates across the entire yield curve with all other
variables constant. The discount rates used were based on the
market interest rates in effect at December 31, 2002. The
sensitivity analysis at December 31, 2002 indicated that a
potential loss in the fair values of our interest rate sensitive
investment instruments was not material.

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Our convertible and promissory notes are not
exposed to interest rate risk as our interest rate is fixed at
6%.

Foreign Currency Risk

Our sales to-date have primarily been made to
U.S. customers and, as a result, we have not had any
exposure to factors such as changes in foreign currency exchange
rates or weak economic conditions in foreign markets. If our
sales outside of the U.S. increase and are made in
U.S. dollars, a strengthening of the U.S. dollar could
make our products less competitive in foreign markets.




Item 8.     Financial
Statements and Supplementary Data

The Consolidated Financial Statements and
Supplementary Data required by this Item are set forth in
Item 15 below.




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

Not applicable.




PART III

Portions of the information required in
Part III of this report are incorporated by reference from
the definitive Proxy Statement for the Companys 2003
annual meeting, which the Company expects to file with the SEC
within 120 days following the end of the fiscal year ended
December 31, 2002.




Item 10.     Directors
and Executive Officers of the Registrant

The information required by this Item with
respect to the Companys executive officers is incorporated
herein by reference from the information contained in
Item 1 of Part I of this Report under the caption
Executive Officers of the Registrant.

The information required by this Item regarding
the Companys directors is incorporated herein by reference
from the information provided under the heading Proposal
No. 1  Election of Directors of the
Companys Proxy Statement.

The information required by this Item with
respect to compliance with Section 16(a) of the Securities
Exchange Act of 1934, as amended, 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 and
Related Stockholder Matters

The information required by this Item is
incorporated herein by reference from the information provided
under the headings Security Ownership of Certain
Beneficial Owners and Management and Equity
Compensation Plan Information 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.

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Item 14.     Controls
and Procedures

(a) Under the supervision and with the
participation of our management, including our principal
executive officer and principal financial officer, we conducted
an evaluation of our disclosure controls and procedures, as such
term is defined under Rule 13a-14(c) promulgated under the
Securities Exchange Act of 1934, as amended (the Exchange
Act), within 90 days prior to the filing date of this
report. Based on their evaluation, our principal executive
officer and principal financial officer concluded that our
disclosure controls and procedures are effective in ensuring
that we are able to gather, analyze and disclose on a timely
basis all information that is required to be disclosed in our
Exchange Act reports.

(b) There have been no significant changes
(including corrective actions with regard to significant
deficiencies or material weaknesses) in our internal controls or
in other factors that could significantly affect these controls
subsequent to the date of the evaluation referenced in paragraph
(a) above.




PART IV




Item 15.     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,
2002 and 2001


Consolidated Statements of Operations for the
years ended December 31, 2002, 2001 and 2000


Consolidated Statements of Stockholders
Equity (Deficit) for the years ended December 31, 2002,
2001 and 2000


Consolidated Statements of Cash Flows for the
years ended December 31,


2002, 2001 and 2000


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 59.

(a)(3) Exhibits. See the
Exhibit Index on page 63 hereof. The exhibits listed
in the accompanying Exhibit Index are filed as part of this
Annual Report on Form 10-K.

(b) Reports on Form 8-K



| |      
| | -----
| | None.

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REPORT OF 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, 2002 and 2001, 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, 2002. Our
audits also included the financial statement schedule listed in
Item 15(a)(1). 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, 2002 and 2001 and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2002 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.

As discussed in Note 3 to the consolidated
financial statements, in 2002, NexPrise changed its method of
accounting for goodwill and other intangible assets in
accordance with guidance provided in Statement of Financial
Accounting Standards No. 142, Goodwill and Other
Intangible Assets.



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

SAN JOSE, CALIFORNIA

FEBRUARY 10, 2003


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NEXPRISE, INC

CONSOLIDATED BALANCE SHEETS

|                                                    |                                                                                                                 |                                            |        |              |        |  |        |          |        | 
|--------------------------------------------------- | --------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | ------------ | ------ |  | ------ | -------- | ------ | 
|                                                    |                                                                                                                 | December 31,                               |        | December 31,
|                                                    |                                                                                                                 | 2002                                       |        | 2001        
|                                                    |                                                                                                                 |                                            |        |             
|                                                    |                                                                                                                 |                                           
|                                                    |                                                                                                                 | (Dollars in thousands, except             
|                                                    |                                                                                                                 | per share value)                          
|ASSETS                                             
|Current assets:                                     |                                                                                                                 |                                            |        |              |        |  |        |         
|                                                    | Cash and cash equivalents                                                                                       |                                            | $      | 3,225        |        |  | $      | 13,565   |       
|                                                    | Short-term investments                                                                                          |                                            |        | 7,050        |        |  |        | 8,150    |       
|                                                    | Accounts receivable  net of reserves
    of $102 and $182 respectively                                         |                                            |        | 560          |        |  |        | 760      |       
|                                                    | Prepaid expenses                                                                                                |                                            |        | 671          |        |  |        | 549      |       
|                                                    | Other current assets                                                                                            |                                            |        | 841          |        |  |        | 857      |       
|                                                    | Current assets relating to discontinued operations                                                              |                                            |        |             |        |  |        | 290      |       
|                                                    |                                                                                                                 |                                            |        |              |        |  |        |         
|                                                    |                                                                                                                 | Total current assets                       |        |              | 12,347 |  |        |          | 24,171 | 
|Restricted cash                                     |                                                                                                                 |                                            |       |              |        |  | 520    |         
|Property and equipment, net                         |                                                                                                                 |                                            | 339    |              |        |  | 2,675  |         
|Equity investments                                  |                                                                                                                 |                                            |       |              |        |  | 3,033  |         
|Goodwill                                            |                                                                                                                 |                                            |       |              |        |  | 11,652 |         
|Intangible assets, net                              |                                                                                                                 |                                            | 9,150  |              |        |  | 8,829  |         
|Other long-term assets, net                         |                                                                                                                 |                                            | 1,168  |              |        |  | 1,745  |         
|                                                    |                                                                                                                 |                                            |        |              |        |  |        |         
|                                                    |                                                                                                                 | Total assets                               |        | $            | 23,004 |  |        | $        | 52,625 | 
|                                                    |                                                                                                                 |                                            |        |              |        |  |        |         
|                                                   
|LIABILITIES AND STOCKHOLDERS
    EQUITY           
|Current liabilities:                                |                                                                                                                 |                                            |        |              |        |  |        |         
|                                                    | Accounts payable                                                                                                |                                            | $      | 160          |        |  | $      | 665      |       
|                                                    | Accrued compensation                                                                                            |                                            |        | 646          |        |  |        | 960      |       
|                                                    | Accrued expenses                                                                                                |                                            |        | 2,374        |        |  |        | 5,400    |       
|                                                    | Deferred revenue                                                                                                |                                            |        | 711          |        |  |        | 525      |       
|                                                    | Other current liabilities                                                                                       |                                            |        |             |        |  |        | 114      |       
|                                                    | Accrued liabilities relating to discontinued
    operations                                                     |                                            |        | 336          |        |  |        | 715      |       
|                                                    |                                                                                                                 |                                            |        |              |        |  |        |         
|                                                    |                                                                                                                 | Total current liabilities                  |        |              | 4,227  |  |        |          | 8,379  | 
|Notes payable                                       |                                                                                                                 |                                            | 11,843 |              |        |  | 8,803  |         
|Commitments and contingencies (Notes 11 and
    18) |                                                                                                                 |                                            |        |              |        |  |        |         
|Stockholders equity:                               |                                                                                                                 |                                            |        |              |        |  |        |         
|                                                    | Preferred stock, no par value; 2,500 shares
    authorized; none issued or outstanding                          |                                            |        |             |        |  |        |         |       
|                                                    | Common stock, $0002 par value;
    175,000 shares authorized; 3,230 and 3,087 shares
    issued and outstanding |                                            |        | 10           |        |  |        | 10       |       
|                                                    | Additional paid-in capital                                                                                      |                                            |        | 631,764      |        |  |        | 631,082  |       
|                                                    | Deferred compensation                                                                                           |                                            |        | (416         | )      |  |        | (592     | )     
|                                                    | Accumulated deficit                                                                                             |                                            |        | (624,576     | )      |  |        | (595,130 | )     
|                                                    | Accumulated other comprehensive income                                                                          |                                            |        | 152          |        |  |        | 73       |       
|                                                    |                                                                                                                 |                                            |        |              |        |  |        |         
|                                                    |                                                                                                                 | Total stockholders equity                 |        |              | 6,934  |  |        |          | 35,443 | 
|                                                    |                                                                                                                 |                                            |        |              |        |  |        |         
|                                                    |                                                                                                                 | Total liabilities and stockholders equity |        | $            | 23,004 |  |        | $        | 52,625 | 
|                                                    |                                                                                                                 |                                            |        |              |        |  |        |         

See accompanying notes to the consolidated
financial statements.

29



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##### Table of Contents



NEXPRISE, INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                                                               |                                                            |                                                |         |         |   |      |         |         |   |   |          |          |  
|-------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | ---------------------------------------------- | ------- | ------- | - | ---- | ------- | ------- | - | - | -------- | -------- | -
|                                                                                                               |                                                            |                                               
|                                                                                                               |                                                            | December 31,                                  
|                                                                                                               |                                                            |                                               
|                                                                                                               |                                                            | 2002                                           |         | 2001    |   | 2000
|                                                                                                               |                                                            |                                                |         |         |   |     
|                                                                                                               |                                                            |                                               
|                                                                                                               |                                                            | (Dollars in thousands, except per share value)
|Net revenues                                                                                                   |                                                            | $                                              | 2,802   |         |   | $    | 1,042   |         |   | $ |         |         
|Cost of revenues                                                                                               |                                                            |                                                | 2,393   |         |   |      | 797     |         |   |   |         |         
|                                                                                                               |                                                            |                                                |         |         |   |      |         |         |   |   |          |         
|Gross profit                                                                                                   |                                                            |                                                | 409     |         |   |      | 245     |         |   |   |         |         
|Operating expenses:                                                                                            |                                                            |                                                |         |         |   |      |         |         |   |   |          |         
|                                                                                                               | Research and development                                   |                                                |         | 5,295   |   |      |         | 24,580  |   |   |          | 35,227   |  
|                                                                                                               | In process research and development                        |                                                |         | 399     |   |      |         | 2,300   |   |   |          |         |  
|                                                                                                               | Sales and marketing                                        |                                                |         | 5,469   |   |      |         | 11,050  |   |   |          | 24,501   |  
|                                                                                                               | General and administrative                                 |                                                |         | 5,087   |   |      |         | 14,067  |   |   |          | 6,689    |  
|                                                                                                               | Settlements, restructurings and other charges              |                                                |         |        |   |      |         | 16,543  |   |   |          | 4,891    |  
|                                                                                                               | Impairment of goodwill                                     |                                                |         | 11,652  |   |      |         |        |   |   |          |         |  
|                                                                                                               |                                                            |                                                |         |         |   |      |         |         |   |   |          |         
|                                                                                                               | Total operating expenses                                   |                                                |         | 27,902  |   |      |         | 68,540  |   |   |          | 71,308   |  
|                                                                                                               |                                                            |                                                |         |         |   |      |         |         |   |   |          |         
|Operating loss                                                                                                 |                                                            |                                                | (27,493 | )       |   |      | (68,295 | )       |   |   | (71,308  | )       
|Interest expense                                                                                               |                                                            |                                                | (749    | )       |   |      | (5,646  | )       |   |   | (12,813  | )       
|Interest income and other, net                                                                                 |                                                            |                                                | 216     |         |   |      | 4,426   |         |   |   | 14,242   |         
|Gain on sale of investment                                                                                     |                                                            |                                                |        |         |   |      |        |         |   |   | 29,240   |         
|Gain (loss) on investment in strategic partners                                                                |                                                            |                                                | 1,800   |         |   |      |        |         |   |   | (22,268  | )       
|Write-down of investment                                                                                       |                                                            |                                                | (187    | )       |   |      | (1,201  | )       |   |   | (10,000  | )       
|Equity loss(1)                                                                                                 |                                                            |                                                | (3,033  | )       |   |      | (8,614  | )       |   |   | (20,629  | )       
|                                                                                                               |                                                            |                                                |         |         |   |      |         |         |   |   |          |         
|Loss from continuing operations                                                                                |                                                            |                                                | (29,446 | )       |   |      | (79,330 | )       |   |   | (93,536  | )       
|Discontinued operations:                                                                                       |                                                            |                                                |         |         |   |      |         |         |   |   |          |         
|                                                                                                               | Loss from discontinued operations, net of income
    tax   |                                                |         |        |   |      |         |        |   |   |          | (186,466 | )
|                                                                                                               | Loss on disposal, net of income taxes                      |                                                |         |        |   |      |         |        |   |   |          | (338,095 | )
|                                                                                                               |                                                            |                                                |         |         |   |      |         |         |   |   |          |         
|                                                                                                               | Loss from discontinued operations                          |                                                |         |        |   |      |         |        |   |   |          | (524,561 | )
|                                                                                                               |                                                            |                                                |         |         |   |      |         |         |   |   |          |         
|                                                                                                               | Loss before extraordinary item                             |                                                |         | (29,446 | ) |      |         | (79,330 | ) |   |          | (618,097 | )
|                                                                                                               | Extraordinary item: gain from retirement of
    bonds, net |                                                |         |        |   |      |         | 159,762 |   |   |          |         |  
|                                                                                                               |                                                            |                                                |         |         |   |      |         |         |   |   |          |         
|Net income (loss)                                                                                              |                                                            | $                                              | (29,446 | )       |   | $    | 80,432  |         |   | $ | (618,097 | )       
|                                                                                                               |                                                            |                                                |         |         |   |      |         |         |   |   |          |         
|Basic and diluted loss per share from continuing
    operations                                                |                                                            | $                                              | (9.21   | )       |   | $    | (25.75  | )       |   | $ | (32.40   | )       
|Basic and diluted loss per share from
    discontinued operations                                              |                                                            |                                                |        |         |   |      |        |         |   |   | (181.73  | )       
|Basic and diluted gain per share from
    extraordinary item                                                   |                                                            |                                                |        |         |   |      | 51.86   |         |   |   |         |         
|                                                                                                               |                                                            |                                                |         |         |   |      |         |         |   |   |          |         
|Basic and diluted net income (loss) per share                                                                  |                                                            | $                                              | (9.21   | )       |   | $    | 26.11   |         |   | $ | (214.13  | )       
|                                                                                                               |                                                            |                                                |         |         |   |      |         |         |   |   |          |         
|Weighted average common shares outstanding used
    in computing-basic and diluted net income (loss) per share |                                                            |                                                | 3,196   |         |   |      | 3,081   |         |   |   | 2,887    |         



---



|    |                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------
|(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.

30



---



##### Table of Contents



NEXPRISE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(DEFICIT)

|                                                            |                          |                |       |            |  |          |    |              |  |             |         |               |  |               |        |       |  |   |      |   |  |   |          |   |  |   |      |   |  |   |          |          |  
|----------------------------------------------------------- | ------------------------ | -------------- | ----- | ---------- |  | -------- | -- | ------------ |  | ----------- | ------- | ------------- |  | ------------- | ------ | ----- |  | - | ---- | - |  | - | -------- | - |  | - | ---- | - |  | - | -------- | -------- | -
|                                                            |                          |                |       |            |  |          |    |              |  |             |         | Accumulated   |  |              
|                                                            |                          | Common Stock   |       | Additional |  |          |    | Shareholders |  |             |         | Other         |  |              
|                                                            |                          |                |       | Paid in    |  | Deferred |    | Notes        |  | Accumulated |         | Comprehensive |  |              
|                                                            |                          | Shares         |       | Amount     |  | Capital  |    | Compensation |  | Receivable  |         | Deficit       |  | Income/(Loss) |        | Total
|                                                            |                          |                |       |            |  |          |    |              |  |             |         |               |  |               |        |      
|                                                            |                          |               
|                                                            |                          | (In thousands)
|Balance as of December 31, 1999                             |                          |                | 2,184 |            |  | $        | 7  |              |  | $           | 189,842 |               |  | $             | (6,380 | )     |  | $ | (985 | ) |  | $ | (57,465  | ) |  | $ |     |   |  | $ | 125,019  |         
|Issuance of common stock relating to acquisitions           |                          |                | 825   |            |  |          | 2  |              |  |             | 437,336 |               |  |               |       |       |  |   |     |   |  |   |         |   |  |   |     |   |  |   | 437,338  |         
|Exercise of stock options, net of repurchases               |                          |                | 46    |            |  |          |   |              |  |             | 5,730   |               |  |               |       |       |  |   |     |   |  |   |         |   |  |   |     |   |  |   | 5,730    |         
|Payments on notes receivable                                |                          |                |      |            |  |          |   |              |  |             |        |               |  |               |       |       |  |   | 985  |   |  |   |         |   |  |   |     |   |  |   | 985      |         
|Exercise of warrants                                        |                          |                | 9     |            |  |          |   |              |  |             | 375     |               |  |               |       |       |  |   |     |   |  |   |         |   |  |   |     |   |  |   | 375      |         
|Amortization of deferred compensation                       |                          |                |      |            |  |          |   |              |  |             |        |               |  |               | 2,186  |       |  |   |     |   |  |   |         |   |  |   |     |   |  |   | 2,186    |         
|Deferred stock based compensation for cancelled
    options |                          |                |      |            |  |          |   |              |  |             | (3,143  | )             |  |               | 3,143  |       |  |   |     |   |  |   |         |   |  |   |     |   |  |   |         |         
|Unrealized gains/losses (comprehensive income)              |                          |                |      |            |  |          |   |              |  |             |        |               |  |               |       |       |  |   |     |   |  |   |         |   |  |   | (711 | ) |  |   | (711     | )       
|Foreign exchange translation                                |                          |                |      |            |  |          |   |              |  |             |        |               |  |               |       |       |  |   |     |   |  |   |         |   |  |   | 102  |   |  |   | 102      |         
|Net loss                                                    |                          |                |      |            |  |          |   |              |  |             |        |               |  |               |       |       |  |   |      |   |  |   | (618,097 | ) |  |   |     |   |  |   | (618,097 | )       
|                                                            |                          |                |       |            |  |          |    |              |  |             |         |               |  |               |        |       |  |   |      |   |  |   |          |   |  |   |      |   |  |   |          |         
|                                                            | Total comprehensive loss |                |       |           |  |          |    |             |  |             |         |              |  |               |        |      |  |   |      |  |  |   |          |  |  |   |      |  |  |   |          | (618,706 | )
|                                                            |                          |                |       |            |  |          |    |              |  |             |         |               |  |               |        |       |  |   |      |   |  |   |          |   |  |   |      |   |  |   |          |         
|Balance as of December 31, 2000                             |                          |                | 3,064 |            |  |          | 9  |              |  |             | 630,140 |               |  |               | (1,051 | )     |  |   |     |   |  |   | (675,562 | ) |  |   | (609 | ) |  |   | (47,073  | )       
|Issuance of common stock relating to acquisition            |                          |                | 13    |            |  |          |   |              |  |             | 100     |               |  |               |       |       |  |   |     |   |  |   |         |   |  |   |     |   |  |   | 100      |         
|Stock options assumed on acquisition                        |                          |                |      |            |  |          |   |              |  |             | 1,874   |               |  |               | (687   | )     |  |   |     |   |  |   |         |   |  |   |     |   |  |   | 1,187    |         
|Exercises of stock options, net of repurchases              |                          |                | 32    |            |  |          | 1  |              |  |             | 52      |               |  |               |       |       |  |   |     |   |  |   |         |   |  |   |     |   |  |   | 53       |         
|Amortization of deferred compensation                       |                          |                |      |            |  |          |   |              |  |             |        |               |  |               | 273    |       |  |   |     |   |  |   |         |   |  |   |     |   |  |   | 273      |         
|Deferred stock based compensation for cancelled
    options |                          |                |      |            |  |          |   |              |  |             | (873    | )             |  |               | 873    |       |  |   |     |   |  |   |         |   |  |   |     |   |  |   |         |         
|NexPrise stock repurchase                                   |                          |                | (22   | )          |  |          |   |              |  |             | (211    | )             |  |               |       |       |  |   |     |   |  |   |         |   |  |   |     |   |  |   | (211     | )       
|Unrealized gains/losses (comprehensive income)              |                          |                |      |            |  |          |   |              |  |             |        |               |  |               |       |       |  |   |     |   |  |   |         |   |  |   | 711  |   |  |   | 711      |         
|Foreign exchange translation                                |                          |                |      |            |  |          |   |              |  |             |        |               |  |               |       |       |  |   |     |   |  |   |         |   |  |   | (29  | ) |  |   | (29      | )       
|Net income                                                  |                          |                |      |            |  |          |   |              |  |             |        |               |  |               |       |       |  |   |     |   |  |   | 80,432   |   |  |   |     |   |  |   | 80,432   |         
|                                                            |                          |                |       |            |  |          |    |              |  |             |         |               |  |               |        |       |  |   |      |   |  |   |          |   |  |   |      |   |  |   |          |         
|                                                            | Total comprehensive loss |                |       |           |  |          |    |             |  |             |         |              |  |               |        |      |  |   |      |  |  |   |          |  |  |   |      |  |  |   |          | 81,114   |  
|                                                            |                          |                |       |            |  |          |    |              |  |             |         |               |  |               |        |       |  |   |      |   |  |   |          |   |  |   |      |   |  |   |          |         
|Balance as of December 31, 2001                             |                          |                | 3,087 |            |  |          | 10 |              |  |             | 631,082 |               |  |               | (592   | )     |  |   |     |   |  |   | (595,130 | ) |  |   | 73   |   |  |   | 35,443   |         
|Issuance of common stock relating to acquisition            |                          |                | 140   |            |  |          |   |              |  |             | 663     |               |  |               | (184   | )     |  |   |     |   |  |   |         |   |  |   |     |   |  |   | 479      |         
|Stock options assumed on acquisition                        |                          |                |      |            |  |          |   |              |  |             | 132     |               |  |               | (132   | )     |  |   |     |   |  |   |         |   |  |   |     |   |  |   |         |         
|Issuance of stock upon exercise of options                  |                          |                | 6     |            |  |          |   |              |  |             | 15      |               |  |               |       |       |  |   |     |   |  |   |         |   |  |   |     |   |  |   | 15       |         
|Issuance of stock under employee stock plan                 |                          |                | 4     |            |  |          |   |              |  |             | 13      |               |  |               |       |       |  |   |     |   |  |   |         |   |  |   |     |   |  |   | 13       |         
|Compensation expense related to acceleration of
    vesting |                          |                |      |            |  |          |   |              |  |             | 28      |               |  |               |       |       |  |   |     |   |  |   |         |   |  |   |     |   |  |   | 28       |         
|Amortization of deferred compensation                       |                          |                |      |            |  |          |   |              |  |             |        |               |  |               | 349    |       |  |   |     |   |  |   |         |   |  |   |     |   |  |   | 349      |         
|Deferred stock based compensation for cancelled
    options |                          |                |      |            |  |          |   |              |  |             | (143    | )             |  |               | 143    |       |  |   |     |   |  |   |         |   |  |   |     |   |  |   |         |         
|Repurchase of Company common stock                          |                          |                | (7    | )          |  |          |   |              |  |             | (26     | )             |  |               |       |       |  |   |     |   |  |   |         |   |  |   |     |   |  |   | (26      | )       
|Foreign exchange translation                                |                          |                |      |            |  |          |   |              |  |             |        |               |  |               |       |       |  |   |     |   |  |   |         |   |  |   | 79   |   |  |   | 79       |         
|Net income(loss)                                            |                          |                |      |            |  |          |   |              |  |             |        |               |  |               |       |       |  |   |     |   |  |   | (29,446  | ) |  |   |     |   |  |   | (29,446  | )       
|                                                            |                          |                |       |            |  |          |    |              |  |             |         |               |  |               |        |       |  |   |      |   |  |   |          |   |  |   |      |   |  |   |          |         
|                                                            | Total comprehensive loss |                |       |           |  |          |    |             |  |             |         |              |  |               |        |      |  |   |      |  |  |   |          |  |  |   |      |  |  |   |          | (29,367  | )
|                                                            |                          |                |       |            |  |          |    |              |  |             |         |               |  |               |        |       |  |   |      |   |  |   |          |   |  |   |      |   |  |   |          |         
|Balance as of December 31, 2002                             |                          |                | 3,230 |            |  | $        | 10 |              |  | $           | 631,764 |               |  | $             | (416   | )     |  | $ |     |   |  | $ | (624,576 | ) |  | $ | 152  |   |  | $ | 6,934    |         
|                                                            |                          |                |       |            |  |          |    |              |  |             |         |               |  |               |        |       |  |   |      |   |  |   |          |   |  |   |      |   |  |   |          |         

See accompanying notes to the consolidated
financial statements.

31



---



##### Table of Contents



NEXPRISE, INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                |                                                         |                                                         |         |        |         |      |          |          |         |   |            |         |          |  
|------------------------------------------------------------------------------- | ------------------------------------------------------- | ------------------------------------------------------- | ------- | ------ | ------- | ---- | -------- | -------- | ------- | - | ---------- | ------- | -------- | -
|                                                                                |                                                         |                                                        
|                                                                                |                                                         | For the Years Ended                                    
|                                                                                |                                                         |                                                        
|                                                                                |                                                         | 2002                                                    |         | 2001   |         | 2000
|                                                                                |                                                         |                                                         |         |        |         |     
|                                                                                |                                                         |                                                        
|                                                                                |                                                         | (In thousands)                                         
|Operating Activities                                                            |                                                         |                                                         |         |        |         |      |          |          |         |   |            |        
|Net loss from continuing operations                                             |                                                         | $                                                       | (29,446 | )      |         | $    | (79,330  | )        |         | $ | (93,536    | )      
|Net loss from discontinued operations                                           |                                                         |                                                         |        |        |         |      |         |          |         |   | (524,561   | )      
|Extraordinary item                                                              |                                                         |                                                         |        |        |         |      | 159,762  |          |         |   |           |        
|Adjustments to reconcile net loss to net cash
    used in operating activities: |                                                         |                                                         |         |        |         |      |          |          |         |   |            |        
|                                                                                |  Depreciation                                          |                                                         |         | 1,706  |         |      |          | 6,365    |         |   |            | 9,727   |         
|                                                                                |  Write-off of goodwill                                 |                                                         |         | 11,652 |         |      |          |         |         |   |            | 120,299 |         
|                                                                                |  Amortization of other intangibles                     |                                                         |         | 2,311  |         |      |          | 3,848    |         |   |            |        |         
|                                                                                |  Amortization of deferred stock-based
    compensation |                                                         |         | 349    |         |      |          | 273      |         |   |            | 2,186   |         
|                                                                                |  Restructuring and settlement charges                  |                                                         |         |       |         |      |          | 3,906    |         |   |            | 4,596   |         
|                                                                                |  Equity losses & write down
    of investments         |                                                         |         | 3,220  |         |      |          | 9,815    |         |   |            | 52,897  |         
|                                                                                |  Gain on sale of investments                           |                                                         |         | (1,820 | )       |      |          |         |         |   |            |        |         
|                                                                                |  Write down of intangible assets                       |                                                         |         |       |         |      |          |         |         |   |            | 326,653 |         
|                                                                                |  Gain on investment                                    |                                                         |         |       |         |      |          |         |         |   |            | (29,240 | )       
|                                                                                |  Gain from retirement of convertible
    notes         |                                                         |         |       |         |      |          | (159,762 | )       |   |            |        |         
|                                                                                |  Non-cash charges related to
    stock-option grants   |                                                         |         | 29     |         |      |          |         |         |   |            |        |         
|Changes in operating assets and
    liabilities:                                |                                                         |                                                         |         |        |         |      |          |          |         |   |            |        
|                                                                                |  Accounts receivable                                   |                                                         |         | 200    |         |      |          | (352     | )       |   |            |        |         
|                                                                                |  Due from marketplace companies                        |                                                         |         |       |         |      |          | (54      | )       |   |            | (4,269  | )       
|                                                                                |  Other current assets                                  |                                                         |         | 427    |         |      |          | 2,405    |         |   |            | (6,353  | )       
|                                                                                |  Other long term assets                                |                                                         |         | (224   | )       |      |          | 100      |         |   |            | (15,130 | )       
|                                                                                |  Discontinued assets and liabilities                   |                                                         |         | 183    |         |      |          | (9,797   | )       |   |            | (7,916  | )       
|                                                                                |  Accounts payable                                      |                                                         |         | (582   | )       |      |          | (2,266   | )       |   |            | 2,931   |         
|                                                                                |  Accrued compensation                                  |                                                         |         | (344   | )       |      |          | (2,685   | )       |   |            | 3,699   |         
|                                                                                |  Accrued expenses                                      |                                                         |         | (2,245 | )       |      |          | (9,913   | )       |   |            | 14,123  |         
|                                                                                |  Deferred revenue and customer advance                 |                                                         |         | 186    |         |      |          | 143      |         |   |            | 5,000   |         
|                                                                                |  Other Liabilities                                     |                                                         |         | (379   | )       |      |          |         |         |   |            | (125    | )       
|                                                                                |                                                         |                                                         |         |        |         |      |          |          |         |   |            |        
|                                                                                |                                                         | Net cash used in operating activities                   |         |        | (14,757 | )    |          |          | (77,542 | ) |            |         | (139,019 | )
|                                                                                |                                                         |                                                         |         |        |         |      |          |          |         |   |            |        
|Investing Activities                                                            |                                                         |                                                         |         |        |         |      |          |          |         |   |            |        
|Purchase of property and equipment                                              |                                                         |                                                         |        |        |         |      | (1,672   | )        |         |   | (26,341    | )      
|Purchases of short-term investments                                             |                                                         |                                                         | (24,601 | )      |         |      | (291,767 | )        |         |   | (1,532,759 | )      
|Sale and maturities of short-term investments                                   |                                                         |                                                         | 27,502  |        |         |      | 378,575  |          |         |   | 1,547,561  |        
|(Increase)/ decrease in restricted cash                                         |                                                         |                                                         | 520     |        |         |      | 5,167    |          |         |   | (5,687     | )      
|Investments in marketplace companies                                            |                                                         |                                                         |        |        |         |      | (6,000   | )        |         |   | (29,800    | )      
|Cash acquired on purchase of InfoPrise                                          |                                                         |                                                         | 1,029   |        |         |      |         |          |         |   |           |        
|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 |         |        | 4,450   |      |          |          | 61,229  |   |            |         | (39,798  | )
|                                                                                |                                                         |                                                         |         |        |         |      |          |          |         |   |            |        

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##### Table of Contents



NEXPRISE, INC.


CONSOLIDATED STATEMENTS OF CASH
FLOWS  (Continued)

|                                                                                                                               |                                           |                     |         |      |   |      |         |         |   |   |         |         | 
|------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------- | ------------------- | ------- | ---- | - | ---- | ------- | ------- | - | - | ------- | ------- | 
|                                                                                                                               |                                           |                    
|                                                                                                                               |                                           | For the Years Ended
|                                                                                                                               |                                           |                    
|                                                                                                                               |                                           | 2002                |         | 2001 |   | 2000
|                                                                                                                               |                                           |                     |         |      |   |     
|                                                                                                                               |                                           |                    
|                                                                                                                               |                                           | (In thousands)     
|Financing Activities                                                                                                           |                                           |                     |         |      |   |      |         |         |   |   |         |        
|Principal payments on capital lease obligations                                                                                |                                           |                     | (114    | )    |   |      | (380    | )       |   |   | (369    | )      
|Net proceeds from issuance (payments for
    repurchase) of convertible subordinated notes                                     |                                           |                     |        |      |   |      | (60,931 | )       |   |   | 242,500 |        
|Issuance of warrants                                                                                                           |                                           |                     |        |      |   |      |        |         |   |   | 375     |        
|Net proceeds from issuance (repurchase) of
    ESPP, stock options and common stock                                            |                                           |                     | 2       |      |   |      | (159    | )       |   |   | 4,740   |        
|Receipt of stockholders notes receivable                                                                                      |                                           |                     |        |      |   |      |        |         |   |   | 985     |        
|                                                                                                                               |                                           |                     |         |      |   |      |         |         |   |   |         |        
|                                                                                                                               | Net cash provided in financing activities |                     |         | (112 | ) |      |         | (61,470 | ) |   |         | 248,231 | 
|                                                                                                                               |                                           |                     |         |      |   |      |         |         |   |   |         |        
|Foreign currency translation                                                                                                   |                                           |                     | 79      |      |   |      |        |         |   |   |        |        
|Net increase/(decrease) in cash and cash
    equivalents                                                                       |                                           |                     | (10,340 | )    |   |      | (77,783 | )       |   |   | 69,414  |        
|Cash and cash equivalents at beginning of period                                                                               |                                           |                     | 13,565  |      |   |      | 91,348  |         |   |   | 21,934  |        
|                                                                                                                               |                                           |                     |         |      |   |      |         |         |   |   |         |        
|Cash and cash equivalents at end of period                                                                                     |                                           | $                   | 3,225   |      |   | $    | 13,565  |         |   | $ | 91,348  |        
|                                                                                                                               |                                           |                     |         |      |   |      |         |         |   |   |         |        
|Supplemental disclosure of noncash
    activities:                                                                             |                                           |                     |         |      |   |      |         |         |   |   |         |        
|Issuance of shares in connection with the
    acquisition of InfoPrise                                                         |                                           | $                   | 794     |      |   | $    |        |         |   | $ |        |        
|Deferred stock based compensation related to the
    stock options assumed in connection with the acquisition of
    InfoPrise |                                           | $                   | (316    | )    |   | $    |        |         |   | $ |        |        
|Issuance of convertible notes relating to
    InfoPrise acquisition                                                            |                                           | $                   | 3,040   |      |   | $    |        |         |   | $ |        |        
|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 warrants                                                                                                           |                                           | $                   |         |      |   | $    |        |         |   | $ | 246     |        
|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                                                                                                         |                                           | $                   | 528     |      |   | $    | 7,641   |         |   | $ | 7,500   |        

See accompanying notes to the consolidated
financial statements.

33



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##### Table of Contents



NEXPRISE, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002, 2001 and
2000


1.     Description of
Business

NexPrise, Inc. (the Company or
NexPrise or we), formerly known as
Ventro Corporation and Chemdex Corporation, is a seller of
business process applications and provides solutions and
services that enable discrete manufacturing companies to address
their specific business challenges. These solutions complement
and expand on currently installed enterprise systems and allow
for the continuous process improvements required to meet
customers changing business demands.

In 2001, we significantly restructured our
operations and focused on a new business direction. We exited
the business of building and servicing business-to-business
marketplaces and entered the business of providing collaborative
and business process automation software solutions. In August
2001, while doing business under the name Ventro Corporation, we
acquired privately-held NexPrise, Inc., a company with an
advanced collaborative software solution and an established
customer base located in Santa Clara, California. Later in
the year we reorganized our management team and Board of
Directors and took measures to reduce commitments and operating
expenses and conserve cash. In January 2002, we changed our name
to NexPrise, Inc.

On February 4, 2002, we acquired
privately-held InfoPrise, a provider of data management
solutions located in Carlsbad, California. As consideration for
the acquisition, we issued to InfoPrises stockholders an
aggregate of 139,790 shares of NexPrise common stock
together with unsecured 6% promissory notes due in 2007 with a
face value of $3,040,000 and convertible into the Companys
common stock at a per share conversion price of $18.75. We also
assumed InfoPrises outstanding stock options, which may
result in the issuance of up to approximately 64,000 shares
of common stock if all of the assumed options are exercised. As
of December 31, 2002 1,820 of these options had been
exercised. All operating results presented for periods following
the above date are derived from the combined operations of
NexPrise and InfoPrise.

Management believes that its restructuring
activities, including the elimination of various leases, have
reduced its ongoing operating expenses such that the Company
will have sufficient working capital to support planned
activities through 2003 and beyond. As of December 31,
2002, the Company had working capital of approximately
$8.1 million and stockholders equity of approximately
$6.9 million. During the year ended December 31, 2002,
the Company used cash and cash equivalents in operating
activities of approximately $14.8 million. During the
fourth quarter of 2002, the Company used cash and cash
equivalents in operating activities of approximately
$1.0 million. Management is 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



| |              
| | -------------
| | Consolidation

Companies that NexPrise directly or indirectly
control 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.


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% to 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.

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NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


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



| |                    
| | -------------------
| | Revenue Recognition

Revenue is made up primarily of subscriptions of
bundled license, post contract support (PCS) and, in
most cases, includes hosting services. The Company recognizes
such revenue using the subscription method, whereby
the initial and renewal amounts are recognized ratably over the
period of the license during which the services are expected to
be provided. Revenue for training or consulting services is
recognized based on achievement of billable milestones as
written in the contract or upon contract completion and
currently makes up less than 10% of overall revenue. Our revenue
recognition policy is in accordance with Statement of Position
No. 97-2 (SOP 97-2), Software Revenue
Recognition, as amended, and Staff Accounting
Bulletin 101. For all arrangements, 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. The Company
anticipates revenue in the coming quarters will include the sale
of paid-up perpetual licenses. These license fees will be
recognized when earned, subject to the same criteria as
discussed above.




| |                                       
| | --------------------------------------
| | 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 are delivered,
significant contractual milestones are achieved, contractual
contingencies are eliminated, customer acceptance criteria are
met, and payment is reasonably assured. Amounts billed and cash
received in excess of costs offset have been included as a
customer advance.




| |                  
| | -----------------
| | Long Lived Assets

The Company reviews property, plant and
equipment, goodwill and purchased intangible assets for
impairment whenever events or changes in circumstances indicate
the carrying value of an asset may not be recoverable. Our asset
impairment review assesses the fair value of the assets based on
the future cash flows the assets are expected to generate. An
impairment loss is recognized when estimated undiscounted future
cash flows expected to result from the use of the asset, plus
net proceeds expected from disposition of the asset (if any) are
less than the carrying value of the asset. This approach uses
our estimates of future market growth, forecasted revenue and
costs, expected periods the assets will be utilized and
appropriate discount rates. When an impairment is identified,
the carrying amount of the asset is reduced to its estimated
fair value. Effective January 1, 2002, in conjunction with
the implementation of SFAS No. 142, goodwill will no longer
be amortized and potential impairment of goodwill and purchased
intangible assets with indefinite useful lives will be evaluated
using the specific guidance provided by SFAS No. 142. This
impairment analysis will be performed at least annually. Also
effective January 1, 2002, potential impairment of
long-lived assets other than goodwill and purchased intangible
assets with indefinite useful lives will be evaluated using the
guidance provided by SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets.See
Recent Accounting Pronouncements below for a
discussion of the expected effect of NexPrises adoption of
SFAS No. 144.


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##### Table of Contents







NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |                                                      
| | -----------------------------------------------------
| | 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 unrealized
gains and losses, if any, included in stockholders equity.
Realized gains and losses on available-for-sale securities are
included in interest income.




| |                                    
| | -----------------------------------
| | Capitalized Product
    Development

The Company capitalizes product development costs
in accordance with SFAS 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 may
be 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.

There were no internally developed software costs
capitalized at December 31, 2002 and 2001.



| |                                        
| | ---------------------------------------
| | In-Process Research and
    Development

The Company expenses any acquired in-process
research and development in the year of acquisition. The
in-process research and development expensed in 2002 was
acquired as a result of the InfoPrise acquisition in February
2002. The in-process research and development expensed in 2001
was acquired as a result of the NexPrise acquisition in August
2001. The Company determined the amounts of in-process research
and development through independent valuations in connection
with the allocation of purchase price.




| |                       
| | ----------------------
| | 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.




| |                         
| | ------------------------
| | Stock-Based Compensation

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure.
SFAS 148 amends SFAS 123, Accounting for
Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair-value for
stock-based employee compensation. In addition, SFAS 148
amends the disclosure requirements of SFAS 123 to require
prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based
employee compensation and the effect of the method used on
reported results. SFAS 148 is effective for fiscal years
beginning after Dec. 15, 2002. The interim disclosure
provisions are effective for financial reports containing
financial statements for interim periods beginning after
Dec. 15, 2002.


36



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##### Table of Contents







NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


Disclosures required by SFAS 123 and
SFAS 148 are as follows:

|                                                   |                         |      |      |      |   |      |      |      |   |   |        |     |  
|-------------------------------------------------- | ----------------------- | ---- | ---- | ---- | - | ---- | ---- | ---- | - | - | ------ | --- | -
|Option Value Information(a)                        |                         | 2002 |      | 2001 |   | 2000
|                                                   |                         |      |      |      |   |     
|Fair value per option(b)                           |                         | $    | 2.36 |      |   | $    | 9.86 |      |   | $ | 506.62 |    
|Valuation assumptions Expected option term (years) |                         |      | 3    |      |   |      | 4    |      |   |   | 4      |    
|                                                   | Expected volatility     |      |      | 1.42 | % |      |      | 1.90 | % |   |        | 3.5 | %
|                                                   | Expected dividend yield |      |      | 0    | % |      |      | 0    | % |   |        | 0   | %
|                                                   | Risk-free interest rate |      |      | 1.92 | % |      |      | 3.84 | % |   |        | 6.0 | %



---



|    |  |                                                          
|--- |  | ---------------------------------------------------------
|(a) |  | Weighted averages of option grants during each
    period
|   
|(b) |  | Estimated using Black-Scholes option pricing model       

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

For purposes of pro forma disclosures, the
estimated fair value of the options is amortized to expense over
the options vesting period. The companys 2002, 2001
and 2000 GAAP and pro forma information follows (in thousands,
except for earnings per share data):

|                                     |  |      |         |      |  |      |        |  |  |   |          |  
|------------------------------------ |  | ---- | ------- | ---- |  | ---- | ------ |  |  | - | -------- | -
|                                     |  | 2002 |         | 2001 |  | 2000
|                                     |  |      |         |      |  |     
|GAAP net income (loss)               |  | $    | (29,446 | )    |  | $    | 80,432 |  |  | $ | (618,097 | )
|GAAP basic earnings per share        |  | $    | (9.21   | )    |  | $    | 26.11  |  |  | $ | (214.13  | )
|GAAP diluted earnings per share      |  | $    | (9.21   | )    |  | $    | 26.11  |  |  | $ | (214.13  | )
|Pro forma net income (loss)          |  | $    | (29,678 | )    |  | $    | 79,436 |  |  | $ | (681,070 | )
|Pro forma basic earnings per share   |  | $    | (9.29   | )    |  | $    | 25.79  |  |  | $ | (235.95  | )
|Pro forma diluted earnings per share |  | $    | (9.29   | )    |  | $    | 25.79  |  |  | $ | (235.95  | )



| |                  
| | -----------------
| | Advertising Costs

Advertising costs are charged to expense when
incurred. Advertising expense was $0, $0 and $2.7 million
for the years ended December 31, 2002, 2001 and 2000.




| |                                           
| | ------------------------------------------
| | Accumulated Other Comprehensive
    Income

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 SFAS No. 128, Earnings Per
Share, 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

37



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##### Table of Contents







NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


continuing operations instead of losses, diluted
earnings per share would have included the shares used in the
computation of basic net gain (loss) per share as well as an
additional 29,000, 107,000, and 302,000 common share equivalents
related to the outstanding options and warrants (determined
using the treasury stock method) for the periods ended
December 31, 2002, 2001, and 2000. 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 gain (loss) per share as the impact would have been
antidilutive on the loss per share from continuing operations
for the periods presented and, in accordance with FAS 128,
the same number of shares is used to calculate diluted per share
amounts from continuing operations, discontinued operations,
extraordinary items and net gain (loss), regardless of whether
the line items other than continuing operations display income
or loss.

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):

|                                                                                          |  |      |         |      |  |      |         |   |  |   |          |  
|----------------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | -------- | -
|                                                                                          |  | 2002 |         | 2001 |  | 2000
|                                                                                          |  |      |         |      |  |     
|Loss from continuing operations                                                           |  | $    | (29,446 | )    |  | $    | (79,330 | ) |  | $ | (93,536  | )
|Loss from discontinued operations                                                         |  |      |        |      |  |      |        |   |  |   | (524,561 | )
|Extraordinary item                                                                        |  |      |        |      |  |      | 159,762 |   |  |   |         |  
|                                                                                          |  |      |         |      |  |      |         |   |  |   |          |  
|Net income (loss)                                                                         |  | $    | (29,446 | )    |  | $    | 80,432  |   |  | $ | (618,097 | )
|                                                                                          |  |      |         |      |  |      |         |   |  |   |          |  
|Basic and diluted:                                                                        |  |      |         |      |  |      |         |   |  |   |          |  
|Weighted-average shares of common stock
    outstanding                                   |  |      | 3,213   |      |  |      | 3,082   |   |  |   | 2,941    |  
|Less: weighted-average common shares subject to
    repurchase                            |  |      | (17     | )    |  |      | (1      | ) |  |   | (54      | )
|                                                                                          |  |      |         |      |  |      |         |   |  |   |          |  
|Weighted-average shares used in computing basic
    and diluted net loss per common share |  | $    | 3,196   |      |  | $    | 3,081   |   |  | $ | 2,887    |  
|                                                                                          |  |      |         |      |  |      |         |   |  |   |          |  
|Basic and diluted loss per share from continuing
    operations                           |  | $    | (9.21   | )    |  | $    | (25.75  | ) |  | $ | (32.40   | )
|Basic and diluted loss per share from
    discontinued operations                         |  |      |        |      |  |      |        |   |  |   | (181.73  | )
|Basic and diluted gain per share from
    extraordinary item                              |  |      |        |      |  |      | 51.86   |   |  |   |         |  
|                                                                                          |  |      |         |      |  |      |         |   |  |   |          |  
|Basic and diluted net gain (loss) per common share                                        |  | $    | (9.21   | )    |  | $    | 26.11   |   |  | $ | (214.13  | )
|                                                                                          |  |      |         |      |  |      |         |   |  |   |          |  



| |      
| | -----
| | Legal

The Company is involved in certain claims and
litigation related to its operations, including ordinary,
routine litigation incidental to its business. Management
reviews and determines which liabilities, if any, arising from
these claims and litigation could have a material adverse effect
on the Companys consolidated financial position,
liquidity, results of operations or properties. In reviewing
these claims and litigation, management assesses the likelihood
of any adverse judgments or outcomes to these matters as well as
potential ranges of probable losses. A determination of the
amount of accruals required, if any, for these contingencies is
made after analysis of each matter, which includes discussion
with counsel retained in such matter. The required accruals may
change in the future due to new developments in a matter or
changes in strategies to resolve that matter, including changes
in litigation defense and settlement strategies. The Company had
no accruals for legal contingencies at December 31, 2002.
If a change in circumstances resulted in a materially adverse
outcome or judgment against NexPrise, NexPrise could be required
to expend cash intended to fund operations in defense of the
Company and might then have an insufficient amount of cash to
meet other obligations.


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NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |             
| | ------------
| | Income taxes

NexPrise accounts for income taxes using the
asset and liability method in accordance with Statement of
Financial Accounting Standards No. 109
(SFAS 109), Accounting for Income Taxes.
Under the asset and liability method, a current tax asset or
liability is recognized for the estimated taxes payable or
refundable on tax returns for the current year. A deferred tax
asset or liability is recognized for the estimated future tax
effects attributable to temporary differences and carryforwards.
Management must make significant judgments to determine our
provision for income taxes, our deferred tax assets and
liabilities and any valuation allowance to be recorded against
our net deferred tax asset. In the future, if sufficient
evidence of the Companys ability to generate sufficient
future taxable income in certain 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. The Company has provided a
full valuation allowance as of December 31, 2002.
Management evaluates the realizability of the deferred tax
assets quarterly and assesses the need for a valuation allowance
quarterly.




| |                                     
| | ------------------------------------
| | Recent Accounting
    Pronouncements

In July 2001, the Financial Accounting Standards
Board (FASB) issued SFAS No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No. 141 requires that the
purchase method of accounting be used for all business
combinations initiated after June 30, 2001.
SFAS No. 141 also specifies criteria for determining
intangible assets acquired in a purchase method business
combination that must be recognized and reported apart from
goodwill, noting that any purchase price allocable to an
assembled workforce may not be accounted for separately. SFAS
No. 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead be
tested for impairment at least annually in accordance with the
provisions of SFAS No. 142. SFAS No. 142 also requires
that intangible assets with definite useful lives be amortized
over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with
SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. The Company adopted Statement 142 in January 2002.
Application of the non-amortization provisions of Statement 142
did not result in a change to results of operations in 2002 as
there was no goodwill amortized in fiscal 2001. The Company has
tested goodwill generated by the NexPrise and InfoPrise
acquisitions using the two-step process prescribed in Statement
142. The first required step is a screen for potential
impairment, while the second step measures the amount of the
impairment, if any. The Company performed the first of the
required impairment tests of NexPrise goodwill as of
January 1, 2002 and did not have an impairment of the
goodwill balance. The Company performed its required annual
impairment test in September 2002 and again did not have an
impairment of the goodwill balance. In the fourth quarter of
2002 our market capitalization decreased to a value at
December 31, 2002 that was approximately $14 million
less than our book value prior to any impairment charges. That
decrease and a reduction in forecast revenues led us to conclude
there were sufficient indicators to warrant an analysis of
whether any portion of our $11.7 million of recorded
goodwill balance was impaired in the fourth quarter of 2002.
That analysis resulted in an impairment charge equal to the
entire $11.7 million balance in the fourth quarter of 2002.
The remaining identified intangible assets were also tested for
impairment. No impairment was found, as the value of the
undiscounted cash flows expected to be generated by these assets
over their estimated lives exceeded their carrying value of
$9.2 million at December 31, 2002. During 2003, we
will continue to evaluate these intangible assets for impairment
as events and circumstances warrant. If an impairment is
determined, further write-offs may be required.


In August, 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, 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 an asset as held-for-sale.
Classification as held-for-sale is an important distinction
since such assets are not

39



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NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


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.
Our adoption of SFAS 144 on January 1, 2002 did not
have a material effect on our operating results or financial
condition.

In July 2002 the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities. SFAS 146 addresses significant issues
relating to the recognition, measurement and reporting of costs
associated with exit and disposal activities, including
restructuring activities, and nullifies the guidance in Emerging
Issues Task Force (EITF) Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). SFAS 146 requires that the initial
liability for costs associated with exit and disposal activities
be measured at fair value and prohibits the recognition of a
liability based solely on an entitys commitment to a plan.
The provisions of SFAS 146 are effective for exit and
disposal activities initiated after December 31, 2002.
Retroactive application of SFAS 146 is prohibited and,
accordingly, liabilities recognized prior to the initial
application of SFAS 146 should continue to be accounted for
in accordance with EITF 94-3 or other applicable
pre-existing guidance. The Company does not believe that the
adoption of SFAS 146 will have a material impact on its
financial position or results of operations.

In November 2002, the FASB issued FASB
Interpretation No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. FIN 45 requires
that a liability be recorded in the guarantors balance
sheet upon issuance of a guarantee. In addition, FIN 45
requires disclosures about the guarantees that an entity has
issued, including a rollforward of the entitys product
warranty liabilities. NexPrise will apply the recognition
provisions of FIN 45 prospectively to guarantees issued
after December 31, 2002. The disclosure provisions of
FIN 45 are effective for financial statements for the first
quarter of NexPrises fiscal year 2003. NexPrise is
currently in the process of evaluating the potential impact that
the adoption of FIN 45 will have on its consolidated
financial position and results of operations.

In November 2002, the EITF reached a consensus on
Issue No. 00-21, Revenue Arrangements with Multiple
Deliverables. EITF Issue No. 00-21 provides guidance on
how to account for arrangements that involve the delivery or
performance of multiple products, services and/or rights to use
assets. The provisions of EITF Issue No. 00-21 will apply
to revenue arrangements entered into in fiscal periods beginning
after June 15, 2003. NexPrise is currently evaluating the
effect that the adoption of EITF Issue No. 00-21 will have
on its results of operations and financial condition.



| |                 
| | ----------------
| | 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 the prior years
financial statements have been reclassified to conform to the
current year presentation.


3.     Goodwill and
Purchased Intangibles

SFAS 142, Goodwill and Other Intangible
Assets, requires that we evaluate on an annual basis (or
whenever events occur which may indicate possible impairment)
whether any portion of our recorded goodwill is impaired. This
analysis requires management to make a series of critical
assumptions to: (1) evaluate whether any impairment exists,
and (2) measure the amount of impairment. The Company
performed the required transitional impairment test of the
goodwill acquired as part of its acquisition of NexPrise as of
January 1, 2002 and, with the assistance of third party
valuation experts, performed the annual impairment

40



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NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


test as of September 30, 2002. In each case,
the tests did not identify an impairment of the goodwill
balance. In the fourth quarter of 2002 our market capitalization
decreased to a value at December 31, 2002 that was
approximately $14 million less than our book value prior to
any impairment charges. That decrease and a reduction in
forecast revenues led us to conclude there were sufficient
indicators to warrant an evaluation of whether any portion of
our $11.7 million of recorded goodwill was impaired in the
fourth quarter of 2002. That analysis resulted in an impairment
charge equal to the entire $11.7 million balance in the
fourth quarter of 2002. The remaining identified intangible
assets were also tested for impairment. No impairment was found,
as the value of the undiscounted cash flows expected to be
generated by these assets over their estimated lives exceeded
their carrying value of $9.2 million at December 31,
2002. During 2003, we will continue to evaluate these intangible
assets for impairment as events and circumstances warrant. If an
impairment is determined, further write-offs may be required.

Goodwill and intangible assets with indefinite
lives are shown as goodwill on the face of the balance sheet.
The changes in the net carrying amount of goodwill for 2002 and
2001 are as follows:

|                              |  |              |         |      |  |   |        | 
|----------------------------- |  | ------------ | ------- | ---- |  | - | ------ | 
|                              |  |             
|                              |  | Years Ended 
|                              |  | December 31,
|                              |  |             
|                              |  | 2002         |         | 2001
|                              |  |              |         |     
|Beginning balance             |  | $            | 11,652  |      |  | $ |       | 
|Goodwill acquired during year |  |              |        |      |  |   | 11,652 | 
|Impairment charge             |  |              | (11,652 | )    |  |   |       | 
|                              |  |              |         |      |  |   |        | 
|Ending balance                |  | $            |        |      |  | $ | 11,652 | 
|                              |  |              |         |      |  |   |        | 

Subsequent to the adoption of SFAS 142,
identifiable intangible assets with definite lives will continue
to be amortized over their useful lives and are reviewed for
impairment in accordance with SFAS 144 when impairment
indicators exist. These assets are shown as intangible assets on
the face of the balance sheet and are as follows (in thousands):

|                               |  |                   |        |                   |  |         |        |          |  |              |       |         |  |   |        |  |  |   |        |   |  |   |       | 
|------------------------------ |  | ----------------- | ------ | ----------------- |  | ------- | ------ | -------- |  | ------------ | ----- | ------- |  | - | ------ |  |  | - | ------ | - |  | - | ----- | 
|                               |  |                   |        |                  
|                               |  | December 31, 2002 |        | December 31, 2001
|                               |  |                   |        |                  
|                               |  | Gross             |        |                   |  | Gross   |        |         
|                               |  | Carrying          |        | Accumulated       |  | Net     |        | Carrying |  | Accumulated  |       | Net    
|                               |  | Amount            |        | Amortization      |  | Balance |        | Amount   |  | Amortization |       | Balance
|                               |  |                   |        |                   |  |         |        |          |  |              |       |        
|NexPrise purchased technology  |  | $                 | 7,600  |                   |  | $       | (1,431 | )        |  | $            | 6,169 |         |  | $ | 7,600  |  |  | $ | (548   | ) |  | $ | 7,052 | 
|NexPrise in-process R&D        |  |                   | 2,300  |                   |  |         | (2,300 | )        |  |              |      |         |  |   | 2,300  |  |  |   | (2,300 | ) |  |   |      | 
|NexPrise trade name            |  |                   | 1,700  |                   |  |         | (1,204 | )        |  |              | 496   |         |  |   | 1,700  |  |  |   | (354   | ) |  |   | 1,346 | 
|NexPrise non-compete agreement |  |                   | 500    |                   |  |         | (236   | )        |  |              | 264   |         |  |   | 500    |  |  |   | (69    | ) |  |   | 431   | 
|                               |  |                   |        |                   |  |         |        |          |  |              |       |         |  |   |        |  |  |   |        |   |  |   |       | 
|Total NexPrise intangibles     |  |                   | 12,100 |                   |  |         | (5,171 | )        |  |              | 6,929 |         |  |   | 12,100 |  |  |   | (3,271 | ) |  |   | 8,829 | 
|InfoPrise purchased technology |  |                   | 2,234  |                   |  |         | (13    | )        |  |              | 2,221 |         |  |   |       |  |  |   |       |   |  |   |      | 
|InfoPrise in-process R&D       |  |                   | 399    |                   |  |         | (399   | )        |  |              |      |         |  |   |       |  |  |   |       |   |  |   |      | 
|                               |  |                   |        |                   |  |         |        |          |  |              |       |         |  |   |        |  |  |   |        |   |  |   |       | 
|Total InfoPrise intangibles    |  |                   | 2,633  |                   |  |         | (412   | )        |  |              | 2,221 |         |  |   |       |  |  |   |       |   |  |   |      | 
|                               |  |                   |        |                   |  |         |        |          |  |              |       |         |  |   |        |  |  |   |        |   |  |   |       | 
|Total intangible assets        |  | $                 | 14,733 |                   |  | $       | (5,583 | )        |  | $            | 9,150 |         |  | $ | 12,100 |  |  | $ | (3,271 | ) |  | $ | 8,829 | 
|                               |  |                   |        |                   |  |         |        |          |  |              |       |         |  |   |        |  |  |   |        |   |  |   |       | 

NexPrise will continue to amortize the intangible
asset balance of approximately $9.2 million over the
remaining useful lives of the intangible assets. NexPrise
purchased technology is amortized based on forecast revenue over
5 years. InfoPrise purchased technology is amortized based
on forecast revenue over 3 years. The NexPrise trade name
and non-compete intangible assets are amortized using a straight
line method over 2 and 3 year periods, respectively. The
amortization of purchased intangible assets was
$2.3 million in 2002, including $399,000 of in-process
research and development. Estimated amortization expense for the
years ended December 31, 2003 and 2004 are
$2.6 million and $2.9 million, respectively.

41



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##### Table of Contents







NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


Expenses for the amortization and write-down of
goodwill and other intangible assets was $13.9 million,
$3.3 million and $0 million for the years ended
December 31, 2002, 2001 and 2000 respectively.

4.     Business
Combinations

On February 4, 2002 we acquired
privately-held InfoPrise, a provider of data management
solutions located in Carlsbad, California. As consideration for
the acquisition, we issued to InfoPrises stockholders an
aggregate of 139,790 shares of NexPrise common stock
together with unsecured 6% promissory notes due in 2007 with a
face value of $3,040,000 that are convertible into the
Companys common stock at a per share conversion price of
$18.75. We also assumed InfoPrises outstanding stock
options, which may result in the issuance of up to approximately
64,000 shares of common stock if all of the assumed options
are exercised. As of December 31, 2002, 1,820 of these
options had been exercised. All operating results presented for
periods following the above date are derived from the combined
operations of NexPrise and InfoPrise. An independent valuation
study was commissioned to value the intangible assets associated
with the InfoPrise purchase and facilitate the purchase
accounting.

The following table summarizes the forms of
consideration and their fair values (in thousands):

|                                          |  |   |       | 
|----------------------------------------- |  | - | ----- | 
|Convertible promissory note               |  | $ | 3,040 | 
|Restricted stock (92,565 shares)          |  |   | 361   | 
|Employee stock options assumed            |  |   | 117   | 
|Liabilities assumed and transaction costs |  |   | 125   | 
|                                          |  |   |       | 
|Total purchase consideration              |  | $ | 3,643 | 
|                                          |  |   |       | 

A summary of the InfoPrise purchase transaction
is shown below (in thousands):

|                                            |  |   |       | 
|------------------------------------------- |  | - | ----- | 
|Tangible assets                             |  | $ | 1,010 | 
|Developed technology (3 yrs estimated life) |  |   | 2,234 | 
|In process research and development         |  |   | 399   | 
|                                            |  |   |       | 
|                                            |  | $ | 3,643 | 
|                                            |  |   |       | 

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 price paid 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 fund of
$1.5 million was established to absorb significant
liabilities discovered in the 12 months following the
acquisition. No significant liabilities were discovered and the
escrow account has been settled.

42



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##### Table of Contents







NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


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

|                                          |  |   |        | 
|----------------------------------------- |  | - | ------ | 
|Cash                                      |  | $ | 10,092 | 
|Stock (13,333 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 agreement               |  |   | 500    |             |  |  | 3         | 
|Goodwill                            |  |   | 11,652 |             |  |  |          | 
|                                    |  |   |        |             |  |  |           | 
|                                    |  | $ | 25,668 |             |  |  |           | 
|                                    |  |   |        |             |  |  |           | 

The following unaudited pro forma information
shows the results of operations of the Company for the
12 months ended December 31, 2002 and 2001 as if the
business combinations with NexPrise and InfoPrise had occurred
at the beginning of each period. In process research and
development charges of $399,000 are included for the
12 months ended December 31, 2002. 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).

|                                                                   |  |                     |         |      |  |   |         |  
|------------------------------------------------------------------ |  | ------------------- | ------- | ---- |  | - | ------- | -
|                                                                   |  |                    
|                                                                   |  | Twelve Months Ended
|                                                                   |  | December 31,       
|                                                                   |  |                    
|                                                                   |  | 2002                |         | 2001
|                                                                   |  |                     |         |     
|Revenue                                                            |  | $                   | 2,802   |      |  | $ | 2,775   |  
|Loss before extraordinary items                                    |  |                     | (29,546 | )    |  |   | (94,232 | )
|Net income (loss)                                                  |  |                     | (29,546 | )    |  |   | 65,530  |  
|Basic and diluted net loss per share before
    extraordinary item |  |                     | (9.24   | )    |  |   | (30.58  | )
|Basic and diluted net income (loss) per share:                     |  |                     | (9.24   | )    |  |   | 21.27   |  

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NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


5.     Financial
Instruments

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

|                             |  |                      |        |                      |  |   |        | 
|---------------------------- |  | -------------------- | ------ | -------------------- |  | - | ------ | 
|                             |  | December 31, 2002    |        | December 31, 2001   
|                             |  |                      |        |                     
|                             |  | Amortized Cost and   |        | Amortized Cost and  
|                             |  | Estimated Fair Value |        | Estimated Fair Value
|                             |  |                      |        |                     
|Money Market Funds           |  | $                    | 3,019  |                      |  | $ | 11,310 | 
|Municipal bonds/ notes       |  |                      | 7,050  |                      |  |   | 8,150  | 
|                             |  |                      |        |                      |  |   |        | 
|Total short-term investments |  | $                    | 10,069 |                      |  | $ | 19,460 | 
|                             |  |                      |        |                      |  |   |        | 
|Report as:                   |  |                      |        |                      |  |   |        | 
|Cash equivalents             |  | $                    | 3,019  |                      |  | $ | 11,310 | 
|Short-term investments       |  |                      | 7,050  |                      |  |   | 8,150  | 
|                             |  |                      |        |                      |  |   |        | 
|                             |  | $                    | 10,069 |                      |  | $ | 19,460 | 
|                             |  |                      |        |                      |  |   |        | 

All available-for-sale securities as of
December 31, 2002 and 2001 have a contractual maturity of
one year or less.

6.     Property and
Equipment

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

|                                               |  |      |        |      |  |   |        |  
|---------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | -
|                                               |  | 2002 |        | 2001
|                                               |  |      |        |     
|Computer equipment                             |  | $    | 1,611  |      |  | $ | 4,167  |  
|Furniture and equipment                        |  |      | 641    |      |  |   | 635    |  
|Purchased software                             |  |      | 1,045  |      |  |   | 1,969  |  
|Leased equipment and software                  |  |      | 1,132  |      |  |   | 1,145  |  
|Leasehold improvements                         |  |      | 54     |      |  |   | 116    |  
|                                               |  |      |        |      |  |   |        |  
|                                               |  |      | 4,483  |      |  |   | 8,032  |  
|Less accumulated depreciation and amortization |  |      | (4,144 | )    |  |   | (5,357 | )
|                                               |  |      |        |      |  |   |        |  
|                                               |  | $    | 339    |      |  | $ | 2,675  |  
|                                               |  |      |        |      |  |   |        |  

7.     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, Industria ceased operations and 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 off 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. In August 2002,
the

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NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


Company sold all of its interest in Amphire for
cash and recognized a gain of $1.8 million. The investment
was 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, a claim which
the Company disputes. The parties reached a settlement in
October 2001 whereby we reduced our equity investment in
MarketMile to 20% 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 the settlement was a gain reported in the fourth
quarter 2001 of less than $1 million. In 2002 MarketMile
changed its name to Ketera Technologies.

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 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 12)

The following table outlines the Companys
equity investment activity with its marketplace companies for
the years ended December 31, 2000, 2001 and 2002 ($ in
thousands):

|                 |  |            |        |          |  |              |       |          |  |          |       |              |  |  |        |  |  |  |       |  |  |  |      |  
|---------------- |  | ---------- | ------ | -------- |  | ------------ | ----- | -------- |  | -------- | ----- | ------------ |  |  | ------ |  |  |  | ----- |  |  |  | ---- | -
|                 |  |            |        | Equity   |  |              |       | Write    |  |          |       | Percentage  
|                 |  | Initial    |        | Loss of  |  | Amortization |       | down of  |  | Carrying |       | Ownership at
|                 |  | Investment |        | Investee |  | of Goodwill  |       | Goodwill |  | Value    |       | December 31,
|Activity in 2000 |  | ($)        |        | ($)      |  | ($)          |       | ($)      |  | ($)      |       | 2000        
|                 |  |            |        |          |  |              |       |          |  |          |       |             
|Industria        |  |            | 5,000  |          |  |              | 5,000 |          |  |          |      |              |  |  |       |  |  |  |      |  |  |  | 49.7 | %
|Amphire          |  |            | 35,000 |          |  |              | 4,426 |          |  |          | 8,306 |              |  |  | 22,268 |  |  |  |      |  |  |  | 37.0 | %
|MarketMile       |  |            | 9,000  |          |  |              | 2,897 |          |  |          |      |              |  |  |       |  |  |  | 6,103 |  |  |  | 34.2 | %

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

|                        |  |              |       |            |  |          |  |            |  |              |       |              |  |  |   |  |  |  |   |  |  |  |    |  
|----------------------- |  | ------------ | ----- | ---------- |  | -------- |  | ---------- |  | ------------ | ----- | ------------ |  |  | - |  |  |  | - |  |  |  | -- | -
|                        |  | Carrying     |       |            |  |          |  |            |  | Carrying     |       |             
|                        |  | Value at     |       |            |  | Equity   |  |            |  | Value at     |       | Percentage  
|                        |  | December 31, |       | Additional |  | Loss of  |  |            |  | December 31, |       | Ownership at
|                        |  | 2001         |       | Investment |  | Investee |  | Settlement |  | 2002         |       | December 31,
|Activity in 2002        |  | ($)          |       | ($)        |  | ($)      |  | ($)        |  | ($)          |       | 2002        
|                        |  |              |       |            |  |          |  |            |  |              |       |             
|Amphire                 |  |              | 412   |            |  |          |  |            |  |              | 412   |              |  |  |  |  |  |  | 0 |  |  |  | 0  | %
|Ketera (fka MarketMile) |  |              | 2,621 |            |  |          |  |            |  |              | 2,621 |              |  |  | 0 |  |  |  | 0 |  |  |  | 20 | %

In the year ended December 31, 2001 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 and occurred primarily in the first quarter of the
year. These amounts were included in settlements with the
marketplace companies.

45



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##### Table of Contents







NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


8.     Other
Long-term Assets

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

|                                                                                                                  |                                |      |     |       |  |   |     |       | 
|----------------------------------------------------------------------------------------------------------------- | ------------------------------ | ---- | --- | ----- |  | - | --- | ----- | 
|                                                                                                                  |                                | 2002 |     | 2001 
|                                                                                                                  |                                |      |     |      
|Deposits and other                                                                                                |                                | $    | 323 |       |  | $ | 746 |      
|Deferred debt offering costs, net of accumulated
    amortization of $461 and $415 in 2002 and 2001, respectively |                                |      | 154 |       |  |   | 200 |      
|Employee notes receivable and interest                                                                            |                                |      | 78  |       |  |   |    |      
|Long term investments                                                                                             |                                |      | 613 |       |  |   | 799 |      
|                                                                                                                  |                                |      |     |       |  |   |     |      
|                                                                                                                  | Total other long  term assets |      | $   | 1,168 |  |   | $   | 1,745 | 
|                                                                                                                  |                                |      |     |       |  |   |     |      

During the second quarter of fiscal 2002 the
Company entered into loan agreements totaling $75,000 with an
executive and another member of the management team. The loans
are full recourse, accrue interest at 6% per annum, are due
the earlier of, (a) April 2005, (b) one year from the
effective date of the termination of employment with the Company
or (c) the sale of note collateral, and are included in the
other long term assets above.

9.     Accrued
Expenses

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

|                            |  |      |       |      |  |   |       | 
|--------------------------- |  | ---- | ----- | ---- |  | - | ----- | 
|                            |  | 2002 |       | 2001
|                            |  |      |       |     
|Accrued marketing expenses  |  | $    | 16    |      |  | $ | 237   | 
|Accrued consulting expenses |  |      | 93    |      |  |   | 174   | 
|Accrued interest payable    |  |      | 296   |      |  |   | 132   | 
|Accrued professional fees   |  |      | 253   |      |  |   | 759   | 
|Accrued acquisition costs   |  |      | 154   |      |  |   | 1,121 | 
|Accrued restructuring costs |  |      | 505   |      |  |   | 2,033 | 
|Other accrued liabilities   |  |      | 1,057 |      |  |   | 944   | 
|                            |  |      |       |      |  |   |       | 
|                            |  | $    | 2,374 |      |  | $ | 5,400 | 
|                            |  |      |       |      |  |   |       | 

10.     Settlements
and Restructurings

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.

On April 26, 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 which 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 computer and networking
equipment and related software of $9.5 million. These
charges were partially offset by a gain of $6 million for
settlements and write-downs associated with the marketplace
companies: Broadlane, Industria

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NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


and MarketMile. The gain primarily consisted of
receipt of an $11 million two year interest-bearing
promissory note from Broadlane (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 employees
terminated in connection with the acquisition of NexPrise and
$3.9 million of expense accrued for changes in anticipated
reduced cost recoveries related to disposal of excess facilities
and equipment.

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 and were
partially offset by charges related to additional employee
terminations and excess equipment.

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

|                             |  |            |       |              |  |           |        |             |  |       |        |  |  |   |        |   |  |   |        |  
|---------------------------- |  | ---------- | ----- | ------------ |  | --------- | ------ | ----------- |  | ----- | ------ |  |  | - | ------ | - |  | - | ------ | -
|                             |  |            |       | Estimated    |  |           |        |             |  |      
|                             |  |            |       | Excess Lease |  |           |        | Marketplace |  |      
|                             |  | Workforce  |       | and Lease    |  | Write-off |        | Companies   |  |      
|                             |  | Reductions |       | Settlement   |  | of assets |        | Settlements |  | Total
|                             |  |            |       |              |  |           |        |             |  |      
|April 26, 2001 Restructuring |  | $          | 3,649 |              |  | $         | 7,476  |             |  | $     | 9,539  |  |  | $ | (6,014 | ) |  | $ | 14,650 |  
|Third Quarter 2001           |  |            | 1,399 |              |  |           | 3,900  |             |  |       |       |  |  |   |       |   |  |   | 5,299  |  
|Fourth Quarter 2001          |  |            | 368   |              |  |           | (4,174 | )           |  |       | 2,014  |  |  |   | (1,614 | ) |  |   | (3,406 | )
|                             |  |            |       |              |  |           |        |             |  |       |        |  |  |   |        |   |  |   |        |  
|                             |  | $          | 5,416 |              |  | $         | 7,202  |             |  | $     | 11,553 |  |  | $ | (7,628 | ) |  | $ | 16,543 |  
|                             |  |            |       |              |  |           |        |             |  |       |        |  |  |   |        |   |  |   |        |  

In the three months ended June 30, 2002 the
activity involving the settlement, restructuring and other
accrual consisted primarily of a $989,000 reduction of a charge
initially accrued in December 2001 for estimated contractual
liabilities for which actual expenses have been less than
originally estimated. This was partially offset by a $652,000
increase of an equipment write-off initially estimated in
December 2001, a $200,000 charge for the settlement of a
stockholder lawsuit and $137,000 of charges for employee
terminations.

In the three months ended September 30, 2002
the activity involving the settlement, restructuring and other
accrual consisted primarily of restructuring charges of
approximately $242,000 related to a reduction in force
undertaken in September 2002, a $182,000 reduction of a
charge initially accrued in December 2001 for estimated
contractual liabilities for which actual expenses have been less
than originally estimated and the realization of additional cash
proceeds of approximately $60,000 from the liquidation of excess
equipment originally written off in the restructuring events of
2001.

In the three months ended December 31, 2002
the activity involving the settlement, restructuring and other
accrual consisted primarily of settlement charges of
approximately $244,000 related to the termination of a facility
lease, a $228,000 reduction of a charge initially accrued in
December 2001 for estimated contractual liabilities for
which actual expenses have been less than originally estimated
and the realization of

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NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


additional cash proceeds of approximately $16,000
from the liquidation of excess equipment originally written off
in the restructuring events of 2001.

|                    |  |            |     |              |  |              |        |             |  |       |     |   |  |   |     |  |  |   |   | 
|------------------- |  | ---------- | --- | ------------ |  | ------------ | ------ | ----------- |  | ----- | --- | - |  | - | --- |  |  | - | - | 
|                    |  |            |     | Estimated    |  |              |        |             |  |      
|                    |  |            |     | Excess Lease |  |              |        |             |  |      
|                    |  | Workforce  |     | and Lease    |  | Write-off of |        |             |  |      
|                    |  | Reductions |     | Settlement   |  | Assets       |        | Settlements |  | Total
|                    |  |            |     |              |  |              |        |             |  |      
|Second Quarter 2002 |  | $          | 137 |              |  | $            | (989   | )           |  | $     | 652 |   |  | $ | 200 |  |  | $ |  | 
|Third Quarter 2002  |  |            | 242 |              |  |              | (182   | )           |  |       | (60 | ) |  |   |    |  |  |   |   | 
|Fourth Quarter 2002 |  |            |     |              |  |              | (228   | )           |  |       | (16 | ) |  |   | 244 |  |  |   |  | 
|                    |  |            |     |              |  |              |        |             |  |       |     |   |  |   |     |  |  |   |   | 
|                    |  | $          | 379 |              |  | $            | (1,399 | )           |  | $     | 576 |   |  | $ | 444 |  |  | $ |  | 
|                    |  |            |     |              |  |              |        |             |  |       |     |   |  |   |     |  |  |   |   | 

At December 31, 2002 and 2001 the Company
had accruals and reserves of $505,000 and $2,033,000,
respectively. An analysis of the 2001 and 2002 activity is as
follows (in thousands):

|               |                               |       |        |         |  
|-------------- | ----------------------------- | ----- | ------ | ------- | -
|               |                               | Total
|               |                               |      
|2000 provision |                               | $     | 4,891  |        
|               | Activity                      |       |        | (4,591  | )
|               |                               |       |        |        
|               | Accruals at December 31, 2000 |       |        | 300     |  
|               | Activity                      |       |        | (300    | )
|               |                               |       |        |        
|               | Accruals at December 31, 2001 |       | $      |        |  
|               |                               |       |        |        
|2001 provision |                               | $     | 16,543 |        
|               | Activity                      |       |        | (14,510 | )
|               |                               |       |        |        
|               | Accruals at December 31, 2001 |       |        | 2,033   |  
|               | Activity                      |       |        | (1,528  | )
|               |                               |       |        |        
|               | Accruals at December 31, 2002 |       | $      | 505     |  
|               |                               |       |        |        

11.     Commitments

The Company leases its office facilities under
non-cancelable operating leases expiring through 2006. Minimum
annual operating lease commitments as of December 31, 2002
are as follows (in thousands):

|                               |                              |   |        |       | 
|------------------------------ | ---------------------------- | - | ------ | ----- | 
|2003                           |                              | $ | 1,448  |      
|2004                           |                              |   | 208    |      
|2005                           |                              |   | 214    |      
|2006                           |                              |   | 220    |      
|Thereafter                     |                              |   |       |      
|                               | Total minimum lease payments |   |        | 2,090 | 
|Less, expected sublease income |                              | $ | (1,231 | )    
|                               |                              |   |        |      
|                               |                              | $ | 859    |      
|                               |                              |   |        |      

In November 1999, the Company entered in a
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 $1,231,000 over the
remaining lease term. Late in 2001 and 2002, the Company signed
agreements terminating certain lease agreements. See Settlements
and Restructuring.

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NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


Rent expense for the years ended
December 31, 2002, 2001 and 2000 approximated $2,058,000,
$3,936,000 and $5,641,000.

In December 2002, the Company entered into a
hosting agreement which obligates the Company to pay
approximately $35,000 per month at current levels of
capacity for a term of 12 months.

12.     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 holder
into the Companys common stock at a price of
$1,361.70 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
$33.3 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, 2002,
$8.8 million of convertible Notes remained outstanding and
the remaining unamortized issue costs were approximately
$198,000.

In February 2002 NexPrise acquired privately
held InfoPrise, Inc., a provider of data management solutions
located in Carlsbad, California. As part of the consideration
for the acquisition, NexPrise agreed to issue unsecured
convertible promissory notes with a face value of $3,040,000 due
2007. The notes bear interest at a rate of 6% and are
convertible to the Companys common stock at
$18.75 per share.

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, 2002
there are no further payments required under the financing
agreement and the financing arrangement has been paid in full.

13.     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

49



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NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


number of shares constituting any series or the
designation of any series, without further vote or action by the
stockholders. No preferred stock was issued or outstanding at
December 31, 2002 or 2001.



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

In February 2000, in conjunction with the
Companys acquisition of SpecialtyMD, the Company converted
11,087 outstanding and exercisable warrants for shares of
SpecialtyMD Series B preferred stock into warrants
exercisable for an aggregate of 1,145 shares of NexPrise
common stock having the same terms and conditions as the
SpecialtyMD warrants. These warrants have an exercise price of
$158.25 and are exercisable through September 10, 2009.



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

In April 2002, the Company effected a
reverse split of the Companys common stock. As a result of
the reverse stock split, every 15 shares of the
Companys old common stock issued and outstanding were
automatically converted into one new share of common stock. The
financial data has been adjusted to reflect the reverse stock
split

At December 31, 2002 and 2001, approximately
17,000 and 35 shares, were subject to repurchase. The stock
repurchase arrangement vests over a period of seventeen months.
For the fiscal years ended December 31, 2002, 2001, and
2000, 0, 18,851, and 26,060 shares were repurchased.

Shares of common stock available for future
grants under all stock option plans was 24,913 at
December 31, 2002. We have reserved a sufficient number of
shares of our common stock in connection with these stock option
programs.



| |                         
| | ------------------------
| | Stock Repurchase Program

In September 2001, our Board of Directors
authorized a stock repurchase program to repurchase shares for
an amount not to exceed $2 million through March 2003.
Purchases may be made in the open market or in privately
negotiated transactions from time to time at managements
discretion. Under the stock repurchase program to date, we
repurchased approximately 29,000 shares of our common stock
at a cost of approximately $237,000 during the period from
September 26, 2001 through December 31, 2002.

The par value method of accounting is used for
our common stock repurchases. The excess of the cost of shares
acquired over the par value is allocated to additional paid-in
capital.



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



| |                
| | ---------------
| | 1998 Stock Plan

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, 2002,
1,019,957 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 $15.172 per
share. For the fiscal year ended December 31, 2002,
625 shares of common stock have been issued upon exercise
of options or pursuant to stock purchase rights at exercise or
purchase prices ranging between $1.550 and $2,850 per share
and 18,742 shares of common stock remained available for
future issuance under the

50



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##### Table of Contents







NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


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 83,333 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 1,157,192 shares. Unless
terminated earlier by our Board of Directors, the 1998 Stock
Plan will terminate in January 2008.



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

On February 10, 2000, the Company assumed
the Promedix 1998 Stock Plan. Approximately 67,567 outstanding
and unexercised options of Promedix converted into 85,447
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, 2002, no 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,
87,439 outstanding and unexercised options of SpecialtyMD
converted into 9,169 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, 2002, no shares of common stock remained
available for future issuance under the SpecialtyMD 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, 155,296 outstanding and unexercised
options of privately-held NexPrise, Inc. converted into 124,239
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, 2002, 50,769 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 $5.649 per share. For the fiscal year ended
December 31, 2002, 3,905 shares of common stock have
been issued upon exercise of options or pursuant to stock
purchase rights at exercise or purchase prices ranging between
$1.950 and $6.600 per share and no shares of common stock
remain 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, 136,584 outstanding and unexercised
options of privately-held NexPrise, Inc. converted into 109,267
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, 2002, 109,266 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 $4.011 per share and no shares of
common stock remain available for future issuance under the
Nonstatutory Stock Plan.



| |                      
| | ---------------------
| | InfoPrise Stock Plans

On February 4, 2002 in connection with the
acquisition of privately-held InfoPrise, Inc., the Company
assumed the privately-held InfoPrise, Incs 2000 Equity
Incentive Plan. Under the 2000 Equity Incentive Plan, 90,500
outstanding and unexercised options of privately-held InfoPrise,
Inc. converted into 60,335 options of the Companys common
stock having the same terms and conditions as the privately-held
InfoPrise, Inc. options after giving effect to the 0.6667
exchange ratio in the merger. As of December 31, 2002,

51



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NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


59,631 shares of common stock were issuable
upon the exercise of outstanding options granted under the 2000
Equity Incentive Plan at a weighted average exercise price of
$1.050 per share. For the fiscal year ended
December 31, 2002, 696 shares of common stock have
been issued upon exercise of options or pursuant to stock
purchase rights at an exercise or purchase price of
$1.050 per share and no shares of common stock remain
available for future issuance under the 2000 Equity Incentive
Plan.

On February 4, 2002 the Company assumed the
privately-held InfoPrise, Inc. 2000 NonEmployee Equity Incentive
Plan. Under the 2000 NonEmployee Equity Incentive Plan, 5,547
outstanding and unexercised options of privately-held InfoPrise,
Inc. converted into 3,698 options of the Companys common
stock having the same terms and conditions as the privately-held
InfoPrise, Inc.s options after giving effect to the 0.6667
exchange ratio in the merger. For the fiscal year ended
December 31, 2002, 1,124 shares of common stock have
been issued upon exercise of options or pursuant to stock
purchase rights and no shares of common stock remain available
for future issuance under the 2000 NonEmployee Equity Incentive
Plan.



| |                           
| | --------------------------
| | 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 1,666 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 additional option to
purchase 1,666 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 10 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 10 years.

As of December 31, 2002, 8,330 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 $5.354 per share. For the fiscal year
ended December 31, 2002, no shares of common stock have
been issued upon exercise of options or pursuant to stock
purchase rights at exercise or purchase prices ranging between
$1.520 and $11.70 per share. As of December 31, 2002,
6,171 shares of common stock remain 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
50,000 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 13,333 shares, or  1/2% of NexPrises
outstanding common stock on the last day of the immediately
preceding fiscal year. Stockholders 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
107,587 shares. As of December 31, 2002,
27,549 shares have been issued under the 1999 Employee
Stock Purchase Plan.

52



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NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


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 end automatically on
termination of employment. If not terminated earlier, the
Purchase Plan will have a term of 20 years.



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

The Company follows the provisions of Accounting
Principles Board Opinion No. 25 (or APB 25) to account
for employee stock options because the alternative fair value
method of accounting prescribed by FAS 123, Accounting
for Stock-Based Compensation, requires the use of option
valuation models that were not developed for use in valuing
employee stock options. Under APB 25, Accounting for
Stock Issued to Employees, no compensation expense is
recognized because the exercise price of our employee stock
options equals the market price of the underlying stock on the
date of grant.

The information regarding net income (loss) and
earnings (loss) per share prepared in accordance with
FAS 123 has been determined as if we had accounted for our
employee stock options and employee stock plan under the fair
value method prescribed by FAS 123 and the earnings (loss)
per share method under FAS 128. The resulting effect on net
income (loss) and earnings (loss) per share pursuant to
FAS 123 is not likely to be representative of the effects
on net income (loss) and earnings (loss) per share pursuant to
FAS 123 in future years, due to subsequent years including
additional grants and years of vesting.

See Note 2 Significant Accounting policies
for pro forma information as required by SFAS 123 and
SFAS 148 regarding net income and earnings per share as if
the company had accounted for its stock options under the fair
value method of SFAS 123.

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

|                                   |                          |                          |       |                |   |        |       |                |  |        |     |                |   |   |        |        |  |  |     |      |   |   |        |        | 
|---------------------------------- | ------------------------ | ------------------------ | ----- | -------------- | - | ------ | ----- | -------------- |  | ------ | --- | -------------- | - | - | ------ | ------ |  |  | --- | ---- | - | - | ------ | ------ | 
|                                   |                          |                         
|                                   |                          | Years Ended December 31,
|                                   |                          |                         
|                                   |                          |                          |       |                |   |       
|                                   |                          | 2002                     |       | 2001           |   | 2000  
|                                   |                          |                          |       |                |   |       
|                                   |                          |                          |       | Weighted-      |   |        |       | Weighted-      |  |        |     | Weighted-     
|                                   |                          |                          |       | Average        |   |        |       | Average        |  |        |     | Average       
|                                   |                          | Shares                   |       | Exercise Price |   | Shares |       | Exercise Price |  | Shares |     | Exercise Price
|                                   |                          |                          |       |                |   |        |       |                |  |        |     |               
|Outstanding at beginning of period |                          |                          | 842   |                |   | $      | 25.50 |                |  |        | 758 |                |   | $ | 420.90 |        |  |  | 186 |      |   | $ | 261.00 |       
|                                   | Acquired  Promedix.com  |                          |       |               |   |        | $     |               |  |        |     |               |   |   | $      |       |  |  |     | 86   |   |   | $      | 172.20 | 
|                                   | Acquired  SpecialtyMD   |                          |       |               |   |        | $     |               |  |        |     |               |   |   | $      |       |  |  |     | 9    |   |   | $      | 39.45  | 
|                                   | Acquired  NexPrise Inc  |                          |       |               |   |        | $     |               |  |        |     | 234            |   |   | $      | 4.80   |  |  |     |     |   |   | $      |       | 
|                                   | Acquired  InfoPrise Inc |                          |       | 64             |   |        | $     | 1.05           |  |        |     |               |   |   | $      |       |  |  |     |     |   |   | $      |       | 
|                                   | Granted                  |                          |       | 673            |   |        | $     | 2.97           |  |        |     | 737            |   |   | $      | 6.30   |  |  |     | 736  |   |   | $      | 516.75 | 
|                                   | Exercised                |                          |       | (6             | ) |        | $     | 2.44           |  |        |     | (41            | ) |   | $      | 4.50   |  |  |     | (54  | ) |   | $      | 33.15  | 
|                                   | Canceled                 |                          |       | (325           | ) |        | $     | 23.47          |  |        |     | (846           | ) |   | $      | 361.20 |  |  |     | (205 | ) |   | $      | 553.65 | 
|                                   |                          |                          |       |                |   |        |       |                |  |        |     |                |   |   |        |        |  |  |     |      |   |   |        |       
|Outstanding at end of period       |                          |                          | 1,248 |                |   | $      | 13.05 |                |  |        | 842 |                |   | $ | 25.50  |        |  |  | 758 |      |   | $ | 420.90 |       
|                                   |                          |                          |       |                |   |        |       |                |  |        |     |                |   |   |        |        |  |  |     |      |   |   |        |       
|Exercisable at end of period       |                          |                          | 329   |                |   |        |       |                |  |        | 283 |                |   |   |        |        |  |  | 122 |      |   |   |        |       
|                                   |                          |                          |       |                |   |        |       |                |  |        |     |                |   |   |        |        |  |  |     |      |   |   |        |       

53



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##### Table of Contents







NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


The following table summarizes information about
stock options outstanding as of December 31, 2002 (in
thousands, except per share data):

|                         |  |             |       |                  |  |                |      |             |  |                |        |  |  |  |     |  |  |   |        | 
|------------------------ |  | ----------- | ----- | ---------------- |  | -------------- | ---- | ----------- |  | -------------- | ------ |  |  |  | --- |  |  | - | ------ | 
|                         |  |             |       |                  |  |               
|                         |  | Outstanding |       |                  |  |               
|                         |  |             |       |                 
|                         |  |             |       | Weighted         |  |                |      | Exercisable
|                         |  |             |       | Average          |  |                |      |            
|                         |  |             |       | Remaining        |  | Weighted-      |      |             |  | Weighted-     
|                         |  | Number of   |       | Contractual Life |  | Average        |      | Number of   |  | Average       
|Range of Exercise Prices |  | Shares      |       | (Years)          |  | Exercise Price |      | Shares      |  | Exercise Price
|                         |  |             |       |                  |  |                |      |             |  |               
|$  0.95 - $  1.55        |  |             | 91    |                  |  |                | 8.40 |             |  | $              | 1.10   |  |  |  | 46  |  |  | $ | 1.03   | 
|$  1.79 - $  1.79        |  |             | 462   |                  |  |                | 9.96 |             |  | $              | 1.79   |  |  |  | 24  |  |  | $ | 1.79   | 
|$  1.95 - $  5.55        |  |             | 160   |                  |  |                | 8.59 |             |  | $              | 4.79   |  |  |  | 127 |  |  | $ | 4.66   | 
|$  5.63 - $  8.25        |  |             | 235   |                  |  |                | 8.86 |             |  | $              | 7.19   |  |  |  | 58  |  |  | $ | 7.37   | 
|$  8.70 - $  8.70        |  |             | 1     |                  |  |                | 8.33 |             |  | $              | 8.70   |  |  |  | 1   |  |  | $ | 8.70   | 
|$  9.75 - $  9.75        |  |             | 252   |                  |  |                | 8.79 |             |  | $              | 9.75   |  |  |  | 40  |  |  | $ | 9.75   | 
|$ 11.70 - $450.00        |  |             | 45    |                  |  |                | 7.51 |             |  | $              | 202.49 |  |  |  | 32  |  |  | $ | 191.66 | 
|$628.13 - $628.13        |  |             | 2     |                  |  |                | 7.27 |             |  | $              | 628.13 |  |  |  | 1   |  |  | $ | 628.13 | 
|                         |  |             |       |                  |  |                |      |             |  |                |        |  |  |  |     |  |  |   |        | 
|                         |  |             | 1,248 |                  |  |                | 9.14 |             |  | $              | 13.07  |  |  |  | 329 |  |  | $ | 25.76  | 
|                         |  |             |       |                  |  |                |      |             |  |                |        |  |  |  |     |  |  |   |        | 

14.     Deferred
Stock-based Compensation

In connection with the acquisition of InfoPrise
completed in February 2002, the Company assumed the outstanding
options granted under the InfoPrise stock option plans. The
Company recorded deferred compensation of $132,293 for the
difference between the exercise price of the unvested options
assumed and the fair value of the common stock underlying those
options as of the date the acquisition was consummated. That
charge is being amortized over the remaining vesting period of
the options. Additionally, the Company recorded deferred
compensation of $184,178 with respect to the issuance of
restricted common stock. That charge is being amortized over the
remaining vesting period of the stock.

In fiscal 2001 the Company recorded deferred
compensation for options assumed under the NexPrise acquisition
of $686,897 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. In 2001 the Company reversed $873,354 of deferred
compensation charges in connection with employee terminations.
The write-down affected equity; amounts expensed previously were
not reversed. The remaining deferred stock compensation balance
is being amortized over the vesting periods of the stock options.

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.

The Company recognized approximately $349,000,
$273,000 and $532,000 in stock compensation expense from
continuing operations during the years ended December 31,
2002, 2001 and 2000. Deferred compensation is reduced in the
period of forfeiture for any accrued but unvested compensation
arising from the early termination of an option holders
services. In 2002 the Company reversed $143,000 of deferred
compensation in connection with terminated employees. At
December 31, 2002, unamortized deferred stock compensation
was $416,249.

15.     Employee
Savings and Retirement Plan

NexPrise has a 401(k) Plan that allows eligible
employees to contribute up to 60% 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

54



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##### Table of Contents







NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


determined by the Board of Directors. NexPrise
did not make any contributions to the plan during the years
ended December 31, 2002, 2001 and 2000.

16.     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, 2002, 2001 or 2000.

As of December 31, 2002, the Company had net
operating loss carry forwards for federal income tax purposes of
approximately $160 million which expire in the years 2013
through 2022 and federal research and development tax credits of
approximately $1.6 million which expire in the years 2013
through 2023. In addition, the Company had approximately
$15 million in State net operating loss carry forwards that
will expire beginning in 2007 and approximately $3 million
in state research and development credits that will not expire.
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 increased by $11.7 million during 2002, decreased
by $34.7 million during 2001 and increased by
$61.9 million during 2000. Approximately $7 million of
the valuation allowance at December 31, 2002 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,             
|                        |                       |                          
|                        |                       | 2002                      |         | 2001  
|                        |                       |                           |         |       
|Deferred Tax Assets:    |                       |                           |         |        |        |   |         |       
|                        | Net operating loss    |                           | $       | 57,000 |        |   | $       | 47,300 |       
|                        | Research credits      |                           |         | 3,500  |        |   |         | 2,135  |       
|                        | Reserves and accruals |                           |         | 1,360  |        |   |         | 744    |       
|                        |                       |                           |         |        |        |   |         |       
|                        |                       | Total deferred tax assets |         |        | 61,860 |   |         |        | 50,179 | 
|Valuation allowance     |                       |                           | (61,860 | )      |        |   | (50,179 | )     
|                        |                       |                           |         |        |        |   |         |       
|Net deferred tax assets |                       | $                         |        |        |        | $ |        |       
|                        |                       |                           |         |        |        |   |         |       

17.     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. Cash and cash
equivalents are deposited with a federally insured commercial
bank in the United States.

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 2002 and 2001, the Company
reduced its reserve for bad debt by approximately $17,000 in
2002 and expensed $100,000 of related to receivables from
customers in 2001. In 2000 the Company wrote-off approximately
$5.1 million of bad debts related to receivables from
marketplace companies.

55



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##### Table of Contents







NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


The Companys customer base consists of
businesses located primarily in North America. The Company
maintains allowances for potential credit losses and
historically, such losses have been within managements
expectations. Accounts receivable by customers comprising more
than 10% of total amounts are as follows:

|           |  |              |    |      |  |  |    |  
|---------- |  | ------------ | -- | ---- |  |  | -- | -
|           |  |             
|           |  | % of Net    
|           |  | Accounts    
|           |  | Receivable  
|           |  | as of       
|           |  | December 31,
|           |  |             
|           |  | 2002         |    | 2001
|           |  |              |    |     
|Customer A |  |              | 30 | %    |  |  | 15 | %
|Customer B |  |              | 0  | %    |  |  | 10 | %
|Customer C |  |              | 21 | %    |  |  | 11 | %

18.     Contingencies

In 2001, several class action lawsuits, including
one derivative suit, 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 initial
public offering 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. Although the Company has insurance to
cover these claims, the recovery of all future costs is not
assured. The Company has also been served with a stockholder
derivative action but is named solely as a nominal defendant
against whom no recovery is sought.

A subtenant has attempted to renegotiate its
sublease agreement with us. We have drawn upon the
subtenants security deposit to cover our expenses and are
working to resolve the issue with these subtenants or to find
replacement tenants. If we are unable to successfully resolve
this situation our sublease income may not be enough to pay what
we may be liable for in ongoing lease payments. The Company has
accrued for expected additional costs as a result of the
potential loss of this sublease income.

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.



| |                                                                              
| | -----------------------------------------------------------------------------
| | Discontinued Marketplace Companies Formerly
    Known as Promedix and Chemdex

Contracts with Promedix and Chemdex customers and
suppliers contained, in some cases, cancellation notification
periods longer than the Company provided. In some cases, shorter
notification periods caused inconvenience to customers and
suppliers, and the Company has been notified by several
suppliers 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, 2002, no customer or supplier of Promedix or
Chemdex had filed a formal complaint with 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 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

56



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NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


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 its 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, the Company has relied upon its
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 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. Other
than the foregoing, the Company is unaware of any current
investigations, inquiries, citations, fines or allegations of
violations or non-compliance relating to regulatory requirements
pending by government agencies or by third parties against us.
It is possible, however, that there may be such 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.

19.     Segment
Reporting

The Company is operating in one segment, as a
provider of collaborative solutions for business process
automation. 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 shut
down, are classified as discontinued operations
(Note 20) and are not reported as part of segment
reporting.

20.     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 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 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

57



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NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


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 $0,
$24.2 million and $99.3 million for 2002, 2001 and
2000. 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,
2002 accrued liabilities relating to discontinued operations
amounted to approximately $336,000. This amount is comprised of
accruals for estimated costs to settle lease and other
contractual obligations.

21.     Quarterly
Results of Operations (unaudited)

|                                                            |                                                         |                    |         |          |  |          |         |         |  |           |         |          |  |          |        |         |   |   |        |       |  |   |        |       |  |   |        |       |  |   |         |        | 
|----------------------------------------------------------- | ------------------------------------------------------- | ------------------ | ------- | -------- |  | -------- | ------- | ------- |  | --------- | ------- | -------- |  | -------- | ------ | ------- | - | - | ------ | ----- |  | - | ------ | ----- |  | - | ------ | ----- |  | - | ------- | ------ | 
|                                                            |                                                         |                   
|                                                            |                                                         | Three Months Ended
|                                                            |                                                         |                   
|                                                            |                                                         | March 31,          |         | June 30, |  | Sept 30, |         | Dec 31, |  | March 31, |         | June 30, |  | Sept 30, |        | Dec 31,
|                                                            |                                                         | 2001               |         | 2001     |  | 2001     |         | 2001    |  | 2002      |         | 2002     |  | 2002     |        | 2002   
|                                                            |                                                         |                    |         |          |  |          |         |         |  |           |         |          |  |          |        |        
|                                                            |                                                         |                   
|                                                            |                                                         | (In thousands)    
|Net revenues                                                |                                                         | $                  |        |          |  | $        |        |         |  | $         | 350     |          |  | $        | 692    |         |   |   | 674    |       |  |   | 653    |       |  |   | 728    |       |  |   | 747     |       
|Cost of revenues                                            |                                                         |                    |        |          |  |          |        |         |  |           | (265    | )        |  |          | (532   | )       |   |   | (537   | )     |  |   | (645   | )     |  |   | (628   | )     |  |   | (583    | )     
|                                                            | Gross profit                                            |                    |         |         |  |          |         |        |  |           |         | 85       |  |          |        | 160     |   |   |        | 137   |  |   |        | 8     |  |   |        | 100   |  |   |         | 164    | 
|Operating Expenses:                                         |                                                         |                    |         |          |  |          |         |         |  |           |         |          |  |          |        |         |   |   |        |       |  |   |        |       |  |   |        |       |  |   |         |       
|                                                            | Research and development                                |                    |         | 13,401   |  |          |         | 5,391   |  |           |         | 3,280    |  |          |        | 2,508   |   |   |        | 1,799 |  |   |        | 1,560 |  |   |        | 1,044 |  |   |         | 892    | 
|                                                            | Amortization of In process research and
    development |                    |         |         |  |          |         |        |  |           |         | 2,300    |  |          |        |        |   |   |        | 399   |  |   |        |      |  |   |        |      |  |   |         |       | 
|                                                            | Sales and marketing                                     |                    |         | 4,984    |  |          |         | 2,330   |  |           |         | 1,648    |  |          |        | 2,088   |   |   |        | 1,671 |  |   |        | 1,589 |  |   |        | 1,274 |  |   |         | 935    | 
|                                                            | General and administrative                              |                    |         | 6,187    |  |          |         | 3,210   |  |           |         | 2,506    |  |          |        | 2,164   |   |   |        | 1,723 |  |   |        | 1,457 |  |   |        | 1,117 |  |   |         | 790    | 
|                                                            | Restructuring and settlement charges                    |                    |         |         |  |          |         | 14,650  |  |           |         | 5,299    |  |          |        | (3,406  | ) |   |        |      |  |   |        |      |  |   |        |      |  |   |         |       | 
|                                                            | Impairment of goodwill                                  |                    |         |          |  |          |         |         |  |           |         |          |  |          |        |         |   |   |        |       |  |   |        |       |  |   |        |       |  |   |         | 11,652 | 
|                                                            |                                                         |                    |         |          |  |          |         |         |  |           |         |          |  |          |        |         |   |   |        |       |  |   |        |       |  |   |        |       |  |   |         |       
|                                                            | Total operating expenses                                |                    |         | 24,572   |  |          |         | 25,581  |  |           |         | 15,033   |  |          |        | 3,354   |   |   |        | 5,592 |  |   |        | 4,606 |  |   |        | 3,435 |  |   |         | 14,269 | 
|                                                            |                                                         |                    |         |          |  |          |         |         |  |           |         |          |  |          |        |         |   |   |        |       |  |   |        |       |  |   |        |       |  |   |         |       
|Operating loss                                              |                                                         |                    | (24,572 | )        |  |          | (25,581 | )       |  |           | (14,948 | )        |  |          | (3,194 | )       |   |   | (5,455 | )     |  |   | (4,598 | )     |  |   | (3,335 | )     |  |   | (14,105 | )     
|Interest expenses                                           |                                                         |                    | (4,022  | )        |  |          | (1,209  | )       |  |           | (190    | )        |  |          | (225   | )       |   |   | (177   | )     |  |   | (192   | )     |  |   | (190   | )     |  |   | (190    | )     
|Interest income and other, net                              |                                                         |                    | 2,491   |          |  |          | 1,226   |         |  |           | 495     |          |  |          | 214    |         |   |   | 20     |       |  |   | 74     |       |  |   | 63     |       |  |   | 59      |       
|Gain (loss) on investment                                   |                                                         |                    |        |          |  |          | (585    | )       |  |           |        |          |  |          | (298   | )       |   |   | (1,349 | )     |  |   | (1,131 | )     |  |   | 1,060  |       |  |   |        |       
|Equity Loss                                                 |                                                         |                    | (2,736  | )        |  |          | (2,905  | )       |  |           | (1,948  | )        |  |          | (1,343 | )       |   |   |       |       |  |   |       |       |  |   |       |       |  |   |        |       
|                                                            |                                                         |                    |         |          |  |          |         |         |  |           |         |          |  |          |        |         |   |   |        |       |  |   |        |       |  |   |        |       |  |   |         |       
|Income (loss) from continuing operations                    |                                                         |                    | (28,839 | )        |  |          | (29,054 | )       |  |           | (16,591 | )        |  |          | (4,846 | )       |   |   | (6,961 | )     |  |   | (5,847 | )     |  |   | (2,402 | )     |  |   | (14,236 | )     
|                                                            |                                                         |                    |         |          |  |          |         |         |  |           |         |          |  |          |        |         |   |   |        |       |  |   |        |       |  |   |        |       |  |   |         |       
|Extraordinary item  gain from
    retirement of bonds, net |                                                         |                    | 125,840 |          |  |          | 33,322  |         |  |           |        |          |  |          | 600    |         |   |   |       |       |  |   |       |       |  |   |       |       |  |   |        |       
|                                                            |                                                         |                    |         |          |  |          |         |         |  |           |         |          |  |          |        |         |   |   |        |       |  |   |        |       |  |   |        |       |  |   |         |       
|Net income (loss)                                           |                                                         | $                  | 97,001  |          |  | $        | 4,268   |         |  | $         | (16,591 | )        |  | $        | (4,246 | )       |   | $ | (6,961 | )     |  | $ | (5,847 | )     |  | $ | (2,402 | )     |  | $ | (14,236 | )     
|                                                            |                                                         |                    |         |          |  |          |         |         |  |           |         |          |  |          |        |         |   |   |        |       |  |   |        |       |  |   |        |       |  |   |         |       

58



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NEXPRISE, INC.

SCHEDULE II VALUATION AND QUALIFYING
ACCOUNTS

For the Years Ended December 31, 2002,
2001 and 2000


|                                 |  |                |       |            |  |            |       |         |  |   |       |  |  |   |       | 
|-------------------------------- |  | -------------- | ----- | ---------- |  | ---------- | ----- | ------- |  | - | ----- |  |  | - | ----- | 
|                                 |  |                |       | Amount     |  |            |       |        
|                                 |  | Beginning      |       | Charged to |  |            |       | Ending 
|Description                      |  | Balance        |       | Expenses   |  | Write-offs |       | Balance
|                                 |  |                |       |            |  |            |       |        
|                                 |  |               
|                                 |  | (In thousands)
|Allowance for Doubtful Accounts: |  |                |       |            |  |            |       |         |  |   |       |  |  |   |       | 
|Year ended December 31, 2002     |  | $              | 182   |            |  | $          | (17   | )       |  | $ | 63    |  |  | $ | 102   | 
|Year ended December 31, 2001     |  | $              | 4,646 |            |  | $          | 20    |         |  | $ | 4,484 |  |  | $ | 182   | 
|Year ended December 31, 2000     |  | $              |      |            |  | $          | 9,713 |         |  | $ | 5,067 |  |  | $ | 4,646 | 

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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 March 17, 2003.



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



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

| |                                   
| | ----------------------------------
| |                                   
| | Ted Drysdale                      
| | President, Chief Executive Officer
| | and Chairman of the Board         

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) |  | March 17, 2003
|                                        
|/s/ JEROME NATOLIJerome Natoli           |  | Chief Financial Officer (Principal Financial and
    Accounting Officer)                                    |  | March 17, 2003
|                                        
|/s/ DAVID PERRYDavid Perry               |  | Vice Chairman of the Board of Directors                                                                     |  | March 17, 2003
|                                        
|/s/ JOHN GLANCYJohn Glancy               |  | Director                                                                                                    |  | March 17, 2003
|                                        
|/s/ THOMAS INSLEYThomas Insley           |  | Director                                                                                                    |  | March 17, 2003
|                                        
|/s/ GARY LENZGary Lenz                   |  | Director                                                                                                    |  | March 17, 2003
|                                        
|/s/ DONALD WESTERHEIDEDonald Westerheide |  | Director                                                                                                    |  | March 17, 2003
|                                        
|/s/ DANIEL JESSDaniel Jess               |  | Director                                                                                                    |  | March 17, 2003

60



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CERTIFICATIONS

I, Ted Drysdale, Chief Executive Officer of the
registrant, certify that:



| |                                                                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.     I have reviewed
    this annual report on Form 10-K of NexPrise, Inc.;                                                                                                                                                                                                                                                                                   
|
| | 2.     Based on my
    knowledge, this annual report does not contain any untrue
    statement of a material fact or omit to state a material fact
    necessary in order to make the statements made, in light of the
    circumstances under which such statements were made, not
    misleading with respect to the period covered by this annual
    report;
|
| | 3.     Based on my
    knowledge, the financial statements, and other financial
    information included in this annual report, fairly present in
    all material respects the financial condition, results of
    operations and cash flows of the registrant as of, and for, the
    periods presented in this annual report;                                
|
| | 4.     The
    registrants other certifying officers and I are
    responsible for establishing and maintaining disclosure controls
    and procedures (as defined in Exchange Act Rules 13a-14 and
    15d-14) for the registrant and we have:                                                                                                                



| |                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | (b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | (c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5.     The
    registrants other certifying officers and I have
    disclosed, based on our most recent evaluation, to the
    registrants auditors and the audit committee of the
    registrants board of directors (or persons performing the
    equivalent function):



| |                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | (b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    



| |                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6.     The
    registrants other certifying officers and I have
    indicated in this annual report whether or not there were
    significant changes in internal controls or in other factors
    that could significantly affect the internal controls subsequent
    to the date of our most recent evaluation, including any
    corrective actions with regard to significant deficiencies and
    material weaknesses.



| |                                   
| | ----------------------------------
| | /s/ TED DRYSDALE                  
| |                                   
| | Ted Drysdale                      
| | President, Chief Executive Officer
| | and Chairman of the Board         

Date: March 17, 2003

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##### Table of Contents



I, Jerome Natoli, Chief Financial Officer of the
registrant, certify that:



| |                                                                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.     I have reviewed
    this annual report on Form 10-K of NexPrise, Inc.;                                                                                                                                                                                                                                                                                   
|
| | 2.     Based on my
    knowledge, this annual report does not contain any untrue
    statement of a material fact or omit to state a material fact
    necessary in order to make the statements made, in light of the
    circumstances under which such statements were made, not
    misleading with respect to the period covered by this annual
    report;
|
| | 3.     Based on my
    knowledge, the financial statements, and other financial
    information included in this annual report, fairly present in
    all material respects the financial condition, results of
    operations and cash flows of the registrant as of, and for, the
    periods presented in this annual report;                                
|
| | 4.     The
    registrants other certifying officers and I are
    responsible for establishing and maintaining disclosure controls
    and procedures (as defined in Exchange Act Rules 13a-14 and
    15d-14) for the registrant and we have:                                                                                                                



| |                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | (b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | (c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5.     The
    registrants other certifying officers and I have
    disclosed, based on our most recent evaluation, to the
    registrants auditors and the audit committee of the
    registrants board of directors (or persons performing the
    equivalent function):



| |                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | (b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    



| |                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6.     The
    registrants other certifying officers and I have
    indicated in this annual report whether or not there were
    significant changes in internal controls or in other factors
    that could significantly affect the internal controls subsequent
    to the date of our most recent evaluation, including any
    corrective actions with regard to significant deficiencies and
    material weaknesses.



| |                        
| | -----------------------
| | /s/ JEROME NATOLI      
| |                        
| | Jerome Natoli          
| | Chief Financial Officer

Date: March 17, 2003

62



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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(1)                                                                                                                                                                                                                                                                                           
|        | 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(2)                                                                    
|        | 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(3)
|        | 2.11   |             |  | Form of Certificate of Ownership and Merger
    between Ventro Corporation and Ventro Merger Subsidiary(4)                                                                                                                                                                                                                                                                        
|        | 3.1    |             |  | Amended and Restated Certificate of Incorporation
    of NexPrise(5)                                                                                                                                                                                                                                                                                                              
|        | 3.2    |             |  | Amended and Restated Bylaws of NexPrise(6)                                                                                                                                                                                                                                                                                                                                        
|        | 3.3    |             |  | Certificate of Amendment of Amended and Restated
    Certificate of Incorporation(7)                                                                                                                                                                                                                                                                                              
|        | 4.1    |             |  | Specimen of NexPrise Common Stock Certificate(1)                                                                                                                                                                                                                                                                                                                                  
|        | 4.2    |             |  | Third Amended and Restated Investors Rights
    Agreement dated March 24, 1999(5)                                                                                                                                                                                                                                                                                                
|        | 4.3    |             |  | Amendment dated May 12, 1999 to Third
    Amended and Restated Investors Rights Agreement(5)                                                                                                                                                                                                                                                                                     
|        | 4.4    |             |  | Form of Indenture between NexPrise and State
    Street Bank and Trust Company of California, N.A.(1)                                                                                                                                                                                                                                                                             
|        | 4.5    |             |  | Form of Note(1)                                                                                                                                                                                                                                                                                                                                                                   
|        | 4.6    |             |  | Form of convertible promissory notes(3)                                                                                                                                                                                                                                                                                                                                           
|        | 10.1   |             |  | Form of Indemnification Agreement between
    NexPrise and each of its officers and directors(6)                                                                                                                                                                                                                                                                                  
|        | **10.2 |             |  | Form of Change of Control Agreement between
    NexPrise, each of its officers and certain employees(5)                                                                                                                                                                                                                                                                           
|        | **10.4 |             |  | 1998 Stock Plan, as amended, and form of option
    agreement(1)                                                                                                                                                                                                                                                                                                                  
|        | **10.6 |             |  | 1999 Directors Stock Plan(5)                                                                                                                                                                                                                                                                                                                                                     
|        | 10.10  |             |  | Standard Office Lease dated June 11, 1998
    between NexPrise and Fabian Partners II, a California
    General Partnership, as amended(5)                                                                                                                                                                                                                                        
|        | 10.11  |             |  | Master Lease Agreement dated January 20,
    1999, as amended, between NexPrise and Comdisco, Inc.(5)                                                                                                                                                                                                                                                                             
|        | 10.12  |             |  | Warrant to Purchase Shares of Common Stock of
    NexPrise dated March 24, 1999 between NexPrise and Galen
    Partners III, L.P.(5)                                                                                                                                                                                                                                              
|        | 10.13  |             |  | Warrant to Purchase Shares of Common Stock of
    NexPrise dated March 24, 1999 between NexPrise and Galen
    Partners International III, L.P.(5)                                                                                                                                                                                                                                
|        | 10.14  |             |  | Warrant to Purchase Shares of Common Stock of
    NexPrise dated March 24, 1999 between NexPrise and Galen
    Employee Fund III, L.P.(5)                                                                                                                                                                                                                                         
|        | 10.15  |             |  | Payment Plan Agreement dated February 22,
    1999 and related agreements between NexPrise and Oracle Credit
    Corporation(5)                                                                                                                                                                                                                                                   
|        | 10.16  |             |  | Office Lease dated August 13, 1999 between
    NexPrise and Alza Corporation for space located at
    1010 Joaquin Road, Mountain View, California(1)                                                                                                                                                                                                                             
|        | 10.18  |             |  | Form of warrant to purchase common stock of
    Healthcare Transaction Systems, Inc.(1)                                                                                                                                                                                                                                                                                           
|        | 10.21  |             |  | Termination Agreement dated April 21, 2001
    between NexPrise and Broadlane, Inc.(8)                                                                                                                                                                                                                                                                                            
|        | 10.22  |             |  | NexPrise, Inc. 1997 Stock Plan(2)                                                                                                                                                                                                                                                                                                                                                 
|        | 10.23  |             |  | Form of NexPrise, Inc. Nonstatutory Stock Option
    Agreement(2)                                                                                                                                                                                                                                                                                                                 

63



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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.(4)
|        | **10.25 |             |  | Form of offer letter between NexPrise and each of
    its officers(4)                                                                                                   
|        | **10.26 |             |  | Addendum to Letter Agreement between NexPrise and
    David Zechnich dated January 24, 2002(4)                                                                          
|        | **10.27 |             |  | Employment Agreement between NexPrise and David
    Perry dated November 16, 2001(4)                                                                                    
|        | **10.28 |             |  | Net Proceeds Income Agreement between NexPrise
    and DPP Ventures dated November 19, 2001(4)                                                                          
|        | 10.29   |             |  | InfoPrise, Inc. 2000 Non-Equity Incentive Plan(7)                                                                                                                       
|        | 10.30   |             |  | InfoPrise, Inc. 2000 Equity Incentive Plan(7)                                                                                                                           
|        | 10.31   |             |  | Form of Secured Promissory Note between NexPrise
    and John Lynch and Tom Anthony dated April 30, 2002(9)                                                             
|        | 10.32   |             |  | Form of Stock Pledge Agreement between NexPrise
    and John Lynch and Tom Anthony dated April 30, 2002(9)                                                              
|        | 21.1*   |             |  | Subsidiaries of NexPrise                                                                                                                                                
|        | 23.1*   |             |  | Consent of Ernst & Young LLP,
    Independent Auditors                                                                                                                  
|        | 99.1*   |             |  | Certification of Chief Executive Officer                                                                                                                                
|        | 99.2*   |             |  | Certification of Chief Financial Officer                                                                                                                                



---



|    |                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | 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)                                                                                      
|   
|(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 14, 2001.                                                                                                              
|   
|(3) | 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.                                                                                                                   
|   
|(4) | Incorporated by reference to the corresponding
    Exhibit filed as an Exhibit to Registrants Annual Report
    on Form 10-K filed with the Commission on February 25,
    2002.                                                                                                                          
|   
|(5) | 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.
|   
|(6) | 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.                                                                                                               
|   
|(7) | Incorporated by reference to the corresponding
    Exhibit filed as an Exhibit to Registrants Quarterly
    Report on Form 10-Q filed with the Commission on
    May 1, 2002.                                                                                                                             
|   
|(8) | 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.                                                                                                                    
|   
|(9) | Incorporated by reference to the corresponding
    Exhibit filed as an Exhibit to Registrants Quarterly
    Report on Form 10-Q filed with the Commission on
    August 7, 2002.                                                                                                                          
|   
|*   | Filed herewith                                                                                                                                                                                                                                                                                             



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

64