##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




---

Form 10-K



---

|   |  |                                                                                                     
|-- |  | ----------------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 19341933    
|  
|   |  | For the fiscal year ended December 31,
    2003                                                     
|  
|OR
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 19341934
|  
|   |  | For the transition period
    from           to           .                                         

Commission File Number: 0-26811



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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.     þ

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 30, 2003, the aggregate market value
of the Common Stock held by non-affiliates of the registrant was
approximately $9,134,000.

At March 01, 2004, the number of shares of
Common Stock outstanding was 3,237,718.

DOCUMENTS INCORPORATED BY REFERENCE

Definitive Proxy Statement for the Companys
2004 Annual Meeting of

Stockholders  Part III of this
Form 10-K.




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NEXPRISE, INC.

FORM 10-K ANNUAL REPORT

For the Fiscal Year Ended December 31,
2003


|             |  |                                                                                                                             |  |      |    | 
|------------ |  | --------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|             |  |                                                                                                                             |  | 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
    and Issuer Purchases of Equity Securities |  |      | 6  | 
|Item 6       |  | Selected Financial Data                                                                                                     |  |      | 7  | 
|Item 7       |  | Managements Discussion
    and Analysis of Financial Condition and Result of Operations                                    |  |      | 8  | 
|Item 7A      |  | Quantitative and Qualitative
    Disclosure About Market Risk                                                               |  |      | 24 | 
|Item 8       |  | Financial Statements and
    Supplementary Data                                                                             |  |      | 24 | 
|Item 9       |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure                                    |  |      | 24 | 
|Item 9A      |  | Controls and Procedures                                                                                                     |  |      | 24 | 
|PART III    
|Item 10      |  | Directors and Executive
    Officers of the Registrant                                                                      |  |      | 25 | 
|Item 11      |  | Executive Compensation                                                                                                      |  |      | 25 | 
|Item 12      |  | Security Ownership of
    Certain Beneficial Owners and Management and Related Stockholder
    Matters                      |  |      | 25 | 
|Item 13      |  | Certain Relationships and
    Related Transactions                                                                          |  |      | 25 | 
|Item 14      |  | Principal Auditor Fees and
    Services                                                                                     |  |      | 25 | 
|PART IV     
|Item 15      |  | Exhibits, Financial
    Statement Schedules and Reports on Form 8-K                                                         |  |      | 26 | 
|             |  | Signatures                                                                                                                  |  |      | 59 | 
|             |  | Certifications                                                                                                              |  |      |    | 
|             |  | Exhibit Index                                                                                                               |  |      | 60 | 
|EXHIBIT 23.1
|EXHIBIT 31.1
|EXHIBIT 31.2
|EXHIBIT 32.1





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##### Table of Contents






PART 1






|        |         
|------- | --------
|Item 1. | Business

Overview

NexPrise, Inc. (the Company,
NexPrise, us, our or
we), is a seller of business process automation and
management 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.

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. The
information on our website does not constitute part of this
Annual Report.

For 2004, 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.

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
2003, approximately 19% of our revenues were from
Trelleborg-YSH, Inc, approximately 16% were from Sikorsky
Aircraft Corporation, approximately 13% were from entities of
The Boeing Company and approximately 12% were from entities of
Textron Corporation. 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 Trelleborg-YSH, Inc. and
approximately 10% were from Decoma International, Inc. The
Company maintains allowances for potential credit losses and,
historically, those losses have been within managements
expectations.

NexPrises backlog was approximately
$2.7 million at December 31, 2003. 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 revenue for any
succeeding period.

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. In 2003 we sold our
product through a direct sales force distributed in various
strategic locations. Technical Account Managers were responsible
for pre-sales technical support and also the successful
deployment of our product at the customer site. Expenses for
technical support and customer service are included in cost of
revenues. In 2004 we plan to augment the direct sales model with
an indirect model, whereby process templates will be available
for customers to download and configure and then deploy in our
hosted environment. It is our belief that this indirect model
will prove to be an efficient and scalable delivery mechanism
and, over time, we expect indirect sales to contribute
significantly to the Companys growth and profitability.

1



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##### Table of Contents



Research and Development

Our research and development organization is
focused on developing and enhancing our product for customers.
As of March 01, 2004, our research and development
organization included 20 employees responsible for software and
system development. Expenses for research and development were
$2.6 million in 2003. Research and development expenses in
2002 and 2001 were $5.3 million and $24.6 million,
respectively. In addition, we incurred $399,000 of acquired
in-process research and development related to the acquisition
of InfoPrise in 2002 and $2.3 million of acquired
in-process research and development related to the acquisition
of NexPrise in 2001. 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
applications that offer improved workflow, efficient integration
into multiple data sources, rapid configuration and
reconfiguration and a development studio that 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 principal applications are Document Manager,
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.                                                                                                  

2



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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                                                                

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 further 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.

Asset Sale

In September 2003, the Company sold its interest
in Ingenuity Systems for $1 million in cash to parties
unaffiliated with NexPrise. The transaction resulted in a net
gain on investment of approximately $287,000 for the year ended
December 31, 2003.

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 three U.S. patent applications and one
foreign application on our proprietary technology. The three
U.S. patents have been issued. The one foreign application
is currently pending. We own three trademark registrations in
the United States, four trademark registrations in foreign
jurisdictions, and one Community Trademark Application.

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

3



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against us and our failure or inability to
license the infringed technology, our business and operating
results would be significantly harmed.


Employees

As of March 01, 2004, we had 33 full-time
employees, including 20 in research and development, 8 in sales
and marketing and support and 5 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
March 01, 2004.

|              |  |     |    |          |  |                                                                              
|------------- |  | --- | -- | -------- |  | -----------------------------------------------------------------------------
|Name          |  | Age |    | Position
|              |  |     |    |         
|Ted Drysdale  |  |     | 55 |          |  | President, Chief Executive Officer and Chairman
    of the Board of Directors
|Jerome Natoli |  |     | 41 |          |  | Chief Financial Officer                                                      
|Raj Tolani    |  |     | 44 |          |  | Vice President, Engineering                                                  
|John Lynch    |  |     | 37 |          |  | 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., 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 manufacturing software company, and from April 1996 to
September 1998, he served as Chief Executive Officer and
Co-Founder of Objectlogic, a developer of visualization and
markup software.

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 Computer Vision. 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.

4



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##### Table of Contents








|        |           
|------- | ----------
|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 Palo Alto, California, and
occupy approximately 1,200 square feet with a month to month
rental obligation. At December 31, 2003, the Company
maintains four small sales offices with short term lease
obligations in a number of domestic locations.






|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

Starting 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 1999 through December 6, 2000. One of the lawsuits
also names as a defendant the underwriters for the
Companys offering of convertible notes. The lawsuits
generally allege that the Company and certain individuals
violated the 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. Litigation, Master File No. Civ.
01-1287 SBA, and a consolidated complaint was filed. On
July 30, 2002, the Company and other defendants named in
the action filed motions to dismiss. On March 31, 2003, the
Court granted in part and denied in part the motions to dismiss.
The plaintiffs filed an amended complaint May 15, 2003. On
July 14, 2003 the Company, the individual defendants and
the underwriter defendants filed motions to dismiss certain
allegations of the amended complaint. On October 14, 2003
the Court heard oral argument on the motions, and granted the
motion of the Company and the individual defendants and granted
in part and denied in part the motion of the underwriter
defendants. Plaintiffs were given leave to amend their
complaint. On November 26, 2003, plaintiffs filed an
amended complaint. On December 19, 2003 the Company, the
individual defendants and the underwriter defendants filed
motions to dismiss new allegations added in the amended
complaint. On January 23, 2004 the Court heard oral
argument on the motions, and granted the motion of the Company,
the individual defendants, and the underwriter defendants to
dismiss the new allegations with prejudice. The Court has set a
trial date for January 20, 2005 with respect to the
remaining issues. No discovery has taken place. 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.
Litigation 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) (IPO Allocation
Litigation). 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. In
recent months in the IPO Allocation Litigation, counsel for the
plaintiffs, liaison counsel for the issuer defendants and
counsel for insurers of the issuer defendants have taken part in
continuing discussions mediated by a former federal district
court judge to explore a possible settlement of the claims
against all of the issuer defendants, including the Company. In
June 2003, a memorandum of understanding was entered into by and
among the plaintiffs, liaison counsel for the issuer defendants
and counsel for the insurers which would result in dismissal of
the action against the

5



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##### Table of Contents



issuers, including the Company, on terms that
would not require any current payment by the Company and are
believed by the Companys board of directors to carry only
a remote risk that any future payment by the Company would be
required. In addition, the plaintiffs would release the Company
and its officers and directors from the claims that have been
asserted against them in the IPO Allocation Litigation as a part
of the proposed settlement. On June 30, 2003, the Companys
board of directors approved the memorandum of understanding and
authorized the Company to enter into the proposed settlement.
The memorandum of understanding and proposed settlement are
expected to be submitted to the Court for its required approval
shortly. The IPO Allocation Litigation in general, and the
litigation against the Company in particular, are in an early
phase, and no date has yet been set by the court for completion
of pre-trial discovery or trial.


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.




PART II






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

Common Stock

Our common stock traded under the symbol
NXPS on the Nasdaq National Market until
April 25, 2003 and then phased down to the Nasdaq SmallCap
Market using the same symbol. Effective December 5, 2003,
our common stock transitioned to the OTC Bulletin Board under
the symbol NXPS.OB. 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. 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 following table shows the high and low sale
prices of the Companys common stock as reported by Nasdaq
and the OTC Bulletin Board. The quotations furnished by the OTC
Bulletin Board reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual
transactions. The historical price per share data has been
adjusted to reflect the reverse stock split.

|                              |                |                    |   |      |  |      |   |      |  |  |   |      |  |  |   |      | 
|----------------------------- | -------------- | ------------------ | - | ---- |  | ---- | - | ---- |  |  | - | ---- |  |  | - | ---- | 
|                              |                |                   
|                              |                | Common Stock Price
|                              |                |                   
|                              |                |                    |   |     
|                              |                | 2003               |   | 2002
|                              |                |                    |   |     
|                              |                | High               |   | Low  |  | High |   | Low 
|                              |                |                    |   |      |  |      |   |     
|(Price Range of Common Stock) |                |                    |   |      |  |      |   |      |  |  |   |      |  |  |   |     
|                              | Fourth Quarter |                    | $ | 2.84 |  |      | $ | 1.15 |  |  | $ | 2.95 |  |  | $ | 1.34 | 
|                              | Third Quarter  |                    | $ | 3.40 |  |      | $ | 2.65 |  |  | $ | 4.58 |  |  | $ | 1.68 | 
|                              | Second Quarter |                    | $ | 4.20 |  |      | $ | 2.77 |  |  | $ | 7.25 |  |  | $ | 3.40 | 
|                              | First Quarter  |                    | $ | 4.14 |  |      | $ | 1.30 |  |  | $ | 6.60 |  |  | $ | 3.90 | 

On March 1, 2004 there were approximately
376 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.

6



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##### Table of Contents



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.






|        |                        
|------- | -----------------------
|Item 6. | Selected 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, 2003 and 2002 and the selected consolidated
statements of operations data for years ended December 31,
2003, 2002 and 2001 have been derived from audited consolidated
financial statements included elsewhere in this document. The
consolidated balance sheet data as of December 31, 2001,
2000, and 1999 and the consolidated statements of operation data
for the years ended December 31, 2000 and 1999 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 for an explanation of how shares used in
computing basic and diluted net loss per share were determined.

|                                                               |  |                                       |         |      |  |      |         |      |  |      |        |  |  |   |          |   |  |   |         |  
|-------------------------------------------------------------- |  | ------------------------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------ |  |  | - | -------- | - |  | - | ------- | -
|                                                               |  |                                      
|                                                               |  | December 31,                         
|                                                               |  |                                      
|                                                               |  | 2003                                  |         | 2002 |  | 2001 |         | 2000 |  | 1999
|                                                               |  |                                       |         |      |  |      |         |      |  |     
|                                                               |  |                                      
|                                                               |  | (In thousands, except per share data)
|Consolidated Statement of Operations
    Data:                 |  |                                       |         |      |  |      |         |      |  |      |        |  |  |   |          |   |  |   |         |  
|Net revenues                                                   |  | $                                     | 3,489   |      |  | $    | 2,802   |      |  | $    | 1,042  |  |  | $ |         |   |  | $ |        |  
|Income (loss) from continuing operations                       |  | $                                     | (14,876 | )    |  | $    | (29,446 | )    |  | $    | 80,432 |  |  | $ | (93,536  | ) |  | $ | (5,421  | )
|Gain (loss) from discontinued operations                       |  | $                                     | 334     |      |  | $    |        |      |  | $    |       |  |  | $ | (524,561 | ) |  | $ | (43,152 | )
|Net income (loss)                                              |  | $                                     | (14,542 | )    |  | $    | (29,446 | )    |  | $    | 80,432 |  |  | $ | (618,097 | ) |  | $ | (48,573 | )
|                                                               |  |                                       |         |      |  |      |         |      |  |      |        |  |  |   |          |   |  |   |         |  
|Basic income (loss) per share from continuing
    operations   |  | $                                     | (4.60   | )    |  | $    | (9.21   | )    |  | $    | 26.11  |  |  | $ | (32.40   | ) |  | $ | (5.25   | )
|Basic gain (loss) per share from discontinued
    operations   |  | $                                     | 0.10    |      |  | $    |        |      |  | $    |       |  |  | $ | (181.73  | ) |  | $ | (42.30  | )
|Basic net income (loss) per share                              |  | $                                     | (4.50   | )    |  | $    | (9.21   | )    |  | $    | 26.11  |  |  | $ | (214.13  | ) |  | $ | (47.55  | )
|                                                               |  |                                       |         |      |  |      |         |      |  |      |        |  |  |   |          |   |  |   |         |  
|Diluted income (loss) per share from continuing
    operations |  | $                                     | (4.60   | )    |  | $    | (9.21   | )    |  | $    | 25.91  |  |  | $ | (32.40   | ) |  | $ | (5.25   | )
|Diluted gain (loss) per share from discontinued
    operations |  | $                                     | 0.10    |      |  | $    |        |      |  | $    |       |  |  | $ | (181.73  | ) |  | $ | (42.30  | )
|Diluted net income (loss) per share                            |  | $                                     | (4.50   | )    |  | $    | (9.21   | )    |  | $    | 25.91  |  |  | $ | (214.13  | ) |  | $ | (47.55  | )
|                                                               |  |                                       |         |      |  |      |         |      |  |      |        |  |  |   |          |   |  |   |         |  
|Weighted average common shares
    outstanding  basic         |  |                                       | 3,232   |      |  |      | 3,196   |      |  |      | 3,081  |  |  |   | 2,887    |   |  |   | 1,021   |  
|Weighted average common shares
    outstanding  diluted       |  |                                       | 3,232   |      |  |      | 3,196   |      |  |      | 3,104  |  |  |   | 2,887    |   |  |   | 1,021   |  

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|                                                  |  |                    |        |      |  |      |        |      |  |      |        |  |  |   |         |   |  |   |         | 
|------------------------------------------------- |  | ------------------ | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------- | - |  | - | ------- | 
|                                                  |  |                   
|                                                  |  | As of December 31,
|                                                  |  |                   
|                                                  |  | 2003               |        | 2002 |  | 2001 |        | 2000 |  | 1999
|                                                  |  |                    |        |      |  |      |        |      |  |     
|                                                  |  |                   
|                                                  |  | (In thousands)    
|Consolidated Balance Sheet Data:                  |  |                    |        |      |  |      |        |      |  |      |        |  |  |   |         |   |  |   |         | 
|Cash, cash equivalents and short-term investments |  | $                  | 5,991  |      |  | $    | 10,275 |      |  | $    | 21,715 |  |  | $ | 192,022 |   |  | $ | 103,095 | 
|Working capital                                   |  | $                  | 4,023  |      |  | $    | 8,120  |      |  | $    | 15,792 |  |  | $ | 158,352 |   |  | $ | 82,130  | 
|Total assets                                      |  | $                  | 7,913  |      |  | $    | 23,004 |      |  | $    | 52,625 |  |  | $ | 257,308 |   |  | $ | 163,933 | 
|Long term obligations                             |  | $                  | 11,843 |      |  | $    | 11,843 |      |  | $    | 8,803  |  |  | $ | 250,206 |   |  | $ | 494     | 
|Total liabilities                                 |  | $                  | 15,237 |      |  | $    | 16,070 |      |  | $    | 17,182 |  |  | $ | 304,381 |   |  | $ | 38,914  | 
|Total stockholders equity (deficit)              |  | $                  | (7,324 | )    |  | $    | 6,934  |      |  | $    | 35,443 |  |  | $ | (47,073 | ) |  | $ | 125,019 | 






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|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 automation
and management 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, located in Carlsbad, California, 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. All operating results presented
for periods following the above date are derived from the
combined operations of NexPrise and InfoPrise.

Our key objectives for 2003 were to increase
revenue and backlog while conserving cash. In 2003, revenue
increased 25% over 2002, to $3.5 million, while backlog
increased 42% to $2.7 million. Cash used in operations
decreased to $5.3 million from $14.8 million in 2002.
Although these results have some merit, particularly in light of
the 2003 economic climate, they did not put the Company on a
path where achieving cash flow break-even utilizing existing
assets was assured. Therefore, in January 2004, the Company
eliminated several positions, primarily in the sales and
marketing functions, to reduce operating expenses. At the same
time, our product development team is focusing on enhancing our
solutions so they can be more easily configured by customers and
indirect channel partners, will require less involvement by our
technical personnel and can be delivered efficiently via the
Internet. It will take several quarters before the business
flowing through this indirect channel has a significant impact
on operating results, but the reduced variable cost per
incremental revenue dollar is expected to significantly improve
our operating margin and allow our business to scale more
readily. Management believes that its restructuring activities
have reduced the Companys ongoing operating

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expenses such that quarterly use of cash in 2004
will be between $500,000 and $1.2 million and the Company
will have sufficient working capital to support planned
activities through 2004 and beyond. Our plan is to achieve cash
flow break-even in 2005 using this indirect channel, our
continuing direct sales efforts and the aforementioned reduction
in expenses.


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.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. Our revenue recognition
policy is in accordance with Statement of Position
(SOP) No. 97-2, Software Revenue Recognition,
as amended, Staff Accounting Bulletin 101 and
EITF 00-21, Revenue Arrangements with Multiple Deliverables.

Term license revenue includes bundled term
licenses, post contract support and, in most cases, 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. In
instances where maintenance is bundled with licenses of software
products, such maintenance terms are typically one year.

Perpetual license revenue is recognized using the
residual method described in SOP No. 98-9 for arrangements
in which licenses are sold with multiple elements. We allocate
revenues on these licenses based upon the fair value of each
undelivered element (for example, undelivered maintenance and
support, training and consulting). The determination of fair
value is based upon vendor specific objective evidence
(VSOE). VSOE of the fair value of maintenance for
license agreements with and without stated renewal rates is
based on the Companys price list. VSOE of the fair value
of maintenance for license agreements that do not include stated
renewal rates is determined by reference to the price paid by
the Companys customers when maintenance is sold
separately. Past history has shown that the rate the Company
charges for maintenance on license agreements with a stated
renewal rate is similar to the rate the Company charges for
maintenance on license agreements without a stated renewal rate.
Revenue for training or consulting is based upon separate sales
of these services. When software services are considered
essential or the arrangement involves significant customization
or modification of the software, both the net license and
service revenues under the arrangement are recognized under the
percentage of completion method of contract accounting, based on
input measures of hours, or completed contract method. Assuming
all other revenue recognition criteria are met, the difference
between the total arrangement fee and the amount deferred for
each undelivered element is recognized as license revenue.

NexPrise did not establish VSOE for maintenance
prior to March 31, 2003, and therefore recognized the
revenue from license agreements entered into prior to
March 31, 2003 ratably over the maintenance period.
NexPrise established VSOE in the three months ended
June 30, 2003. The Company must maintain VSOE on
maintenance for perpetual licenses or risks an end to
recognition of perpetual license revenue using the residual
method.

Revenue for training or consulting services is
recognized based upon contract completion or on a time and
materials basis.

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Long Lived Assets.The Company reviews the carrying value of property, plant and
equipment 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.

No indicators of impairment were found in the
first, second or third quarters of 2003. In the fourth quarter
of 2003 a reduction in our revenue forecast and a reduction in
the estimated useful lives of the intangible assets due to our
fourth quarter decision to adopt a plan to transition toward an
indirect channel solution led us to conclude there were
indicators the intangible assets were impaired. The resulting
analysis of discounted cash flows led to an impairment charge of
approximately $6.4 million, leaving approximately $139,000
of intangible assets to be amortized evenly over their revised
remaining estimated useful lives, which is through the end of
2004.

During 2004 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 or results of
operations. 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, 2003.

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Results of Operations

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

|                                   |                                               |              |         |        |   |      |         |        |  |   |         |        | 
|---------------------------------- | --------------------------------------------- | ------------ | ------- | ------ | - | ---- | ------- | ------ |  | - | ------- | ------ | 
|                                   |                                               |             
|                                   |                                               | December 31,
|                                   |                                               |             
|                                   |                                               | 2003         |         | 2002   |   | 2001
|                                   |                                               |              |         |        |   |     
|Net revenues                       |                                               | $            | 3,489   |        |   | $    | 2,802   |        |  | $ | 1,042   |       
|Costs and expenses                 |                                               |              |         |        |   |      |         |        |  |   |         |       
|                                   | Cost of product licenses and services         |              |         | 1,137  |   |      |         | 1,498  |  |   |         | 249    | 
|                                   | Cost of amortization of purchased technology  |              |         | 1,964  |   |      |         | 895    |  |   |         | 548    | 
|                                   | Research and development                      |              |         | 2,637  |   |      |         | 5,295  |  |   |         | 24,580 | 
|                                   | In process research and development           |              |         |       |   |      |         | 399    |  |   |         | 2,300  | 
|                                   | Sales and marketing                           |              |         | 3,849  |   |      |         | 5,469  |  |   |         | 11,050 | 
|                                   | General and administrative                    |              |         | 2,658  |   |      |         | 5,087  |  |   |         | 14,067 | 
|                                   | Settlements, restructurings and other charges |              |         | (493   | ) |      |         |       |  |   |         | 16,543 | 
|                                   | Impairment of goodwill                        |              |         |       |   |      |         | 11,652 |  |   |         |       | 
|                                   | Write-down of intangible assets               |              |         | 6,385  |   |      |         |       |  |   |         |       | 
|                                   |                                               |              |         |        |   |      |         |        |  |   |         |       
|                                   | Total costs and expenses                      |              |         | 18,137 |   |      |         | 30,295 |  |   |         | 69,337 | 
|                                   |                                               |              |         |        |   |      |         |        |  |   |         |       
|Operating loss                     |                                               |              | (14,648 | )      |   |      | (27,493 | )      |  |   | (68,295 | )     
|Interest expense                   |                                               |              | (756    | )      |   |      | (749    | )      |  |   | (5,646  | )     
|Interest income and other, net     |                                               |              | 241     |        |   |      | 216     |        |  |   | 4,426   |       
|Sale of investment                 |                                               |              | 287     |        |   |      | 1,800   |        |  |   |        |       
|Investment loss                    |                                               |              |        |        |   |      | (187    | )      |  |   | (1,201  | )     
|Equity loss                        |                                               |              |        |        |   |      | (3,033  | )      |  |   | (8,614  | )     
|Gain from retirement of bonds, net |                                               |              |        |        |   |      |        |        |  |   | 159,762 |       
|                                   |                                               |              |         |        |   |      |         |        |  |   |         |       
|Loss from continuing operations    |                                               |              | (14,876 | )      |   |      | (29,446 | )      |  |   | 80,432  |       
|Gain from discontinued operations  |                                               |              | 334     |        |   |      |        |        |  |   |        |       
|                                   |                                               |              |         |        |   |      |         |        |  |   |         |       
|Net income (loss)                  |                                               | $            | (14,542 | )      |   | $    | (29,446 | )      |  | $ | 80,432  |       
|                                   |                                               |              |         |        |   |      |         |        |  |   |         |       

Revenues.NexPrise
reported approximately $3.5 million of revenue for the year
ended December 31, 2003, an increase of approximately 25%
from the $2.8 million of revenue reported for the year ended
December 31, 2002. This revenue is made up primarily of
subscriptions and services, perpetual licenses and maintenance
for the Companys business process automation and
collaborative commerce products. The growth in 2003 was driven
by approximately $500,000 of net incremental revenue from
existing customers and approximately $240,000 of revenue from
customers newly contracted in 2003. The revenue in 2001 reflects
sales generated subsequent to our August 8, 2001
acquisition of privately-held NexPrise, Inc. Approximately 7% of
the reported revenue for the twelve months ended
December 31, 2003 consisted of perpetual license revenue
that was recognized when the software was delivered.
Approximately 7% of the revenue recognized for the twelve months
ended December 31, 2003 consisted of consulting and
training. The remaining 86% of revenue recognized for the twelve
months ended December 31, 2003 consisted of revenue being
recognized ratably over the contract term and is made up of
bundled subscriptions and perpetual licenses with maintenance
sold prior to the establishment of VSOE for maintenance.

Cost of Product Licenses and
Services.Cost of product licenses and
services was approximately 32.6% of revenue in 2003, a decrease
of approximately 21 percentage points compared with the
53.5% in 2002. Cost of product licenses and services was
approximately 23.9% in 2001. Cost of product licenses and
services consists primarily of outsourced hosting services for
our customers, personnel and other expenses associated with
providing maintenance services, configuration services,
technical support services and royalties payable to third
parties whose software is incorporated in our solution. The
decrease in cost of product licenses and services as a percent
of revenue in 2003 as compared with 2002 was driven by lower
hosting, maintenance and technical support services costs
realized when the Company changed its hosting environment in the
second half of 2002. The increase in cost of product licenses
and services as a percentage of revenue in 2002 as compared with
2001

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is due to higher hosting expenses, maintenance
and technical support costs. In 2004, the cost of product
licenses and services as a percent of revenue is not expected to
change significantly from the level reported for 2003.


Cost of Purchased Technology and Write Down of
Intangible Assets.Amortization of the
purchased technology intangible assets acquired in the purchases
of NexPrise in August, 2001 and InfoPrise in February, 2002 was
approximately $2 million in 2003, $895,000 in 2002 and
$548,000 in 2001. Purchased technology has been amortized based
on forecast revenue and was scheduled to be fully amortized in
2005. In accordance with our policy for assessing the carrying
value of our long lived assets, in each quarter of 2003 we
compared the carrying value of the intangible assets with the
undiscounted cash flows expected to be generated by those assets
over their remaining estimated useful lives. No indicators of
impairment were found in the first, second or third quarters of
2003. In the fourth quarter of 2003 a reduction in our revenue
forecast and a reduction in the estimated useful lives of the
intangible assets due to a decision in the fourth quarter to
adopt a plan to transition toward an indirect channel solution
led us to conclude there were indicators the intangible assets
were impaired. The resulting analysis of discounted cash flows
led to an impairment charge of approximately $6.4 million,
leaving approximately $139,000 of intangible assets to be
amortized evenly over their revised remaining estimated useful
lives, which is through the end of 2004. Of that value,
approximately $137,000 is purchased technology related to the
acquisitions of NexPrise and InfoPrise and approximately $2,000
is for a non-compete agreement signed at the time of the
NexPrise acquisition.

Research and
Development.Research and development
expenses consist primarily of personnel and other expenses
associated with developing, updating, and enhancing software.
Research and development expenses were approximately
$2.6 million during 2003, down approximately
$2.7 million from 2002. The decrease with respect to 2002
is primarily due to reduced depreciation and personnel expenses.
Depreciation is lower because fewer assets are now deployed for
research and development. The lower personnel costs result from
reductions in force that occurred in the first half of 2002.
Research and development expenses in 2002 decreased by
approximately $21.9 million from 2001. The decrease in 2002
from 2001 is due to reductions in workforce that took place
throughout 2001. To date, all software development costs have
been expensed in the period incurred. 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 based on
estimates and forecasts and 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 were
approximately $3.8 million during 2003, down approximately
$1.6 million from 2002. Sales and marketing expenses in
2002 were approximately $5.5 million in 2002, down
approximately $5.6 million from 2001. The decreases were
driven by reductions in workforce that took place during 2002
and 2001 and reduced spending on marketing programs.

General and
Administrative.General and
administrative expenses consist primarily of salaries, fees for
professional services and facilities expenses. General and
administrative expenses were approximately $2.7 million in
2003, down approximately $2.4 million from 2002. General
and administrative expenses were approximately $5.1 million
in 2002, down approximately $9 million from 2001. The
decreases were primarily due to reduced infrastructure costs,
lower legal expenses and reductions in workforce made in the
first and fourth quarters of 2002 and throughout 2001.

Settlements, Restructurings and
Other.In 2003, the Company reversed a
restructuring and settlement accrual related to the
Companys cancellation of a contract that was originally
part of a restructuring in 2001. The reversal was made in
accordance with Company policy, as two years had passed since
the related activity had ceased and no actual charges had been,
or are now expected to be, paid. The reversal resulted in a
credit of $493,000 being reported on the restructuring line of
the statement of operations. The Company did not report

12



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##### Table of Contents



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.


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 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 at that time. No
impairment was found, as the value of the undiscounted cash
flows expected to be generated by these assets over their
estimated lives as of December 31, 2002 exceeded their
carrying value of $9.2 million. The results of the 2003
impairment tests for intangible assets is described in Cost
of Purchased Technology and Write Down of Intangible
Assetsabove.

Interest Expense.Interest expense in 2003 was approximately $756,000, up
approximately $7,000 from 2002. Interest expense was
approximately $749,000 in 2002, down approximately
$4.9 million from 2001. 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, 2003. In addition,
the remaining deferred offering costs of approximately $152,000
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 from 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 2003 was approximately $241,000, a decrease of approximately
$25,000 from 2002. Interest income and other, net, in 2002 was
approximately $216,000, a decrease of approximately
$4.2 million from 2001. Interest income and other, net, has
been derived primarily from earnings on investments in cash
equivalents and short-term investments. The increase in 2003 is
due to the reversal of estimated taxes associated with the gain
from retirement of bonds in 2001. All tax returns have been
filed and no liability was incurred. The decrease in interest
income and other in 2003 and 2002 is primarily attributable to
lower cash, cash equivalent and investment balances and a
decline in interest rates.

Investment Gains and
Losses.The 2002 gain on investment in
strategic partners resulted from the sale of the Companys
shares of Amphire Solutions. The gain on other investment in
2003 reflects a $287,000 net gain from the Companys sale
of its interest in Ingenuity Systems. The losses on other
investments in 2002 and 2001 reflect write-downs for impairment
deemed to be other than temporary in investments accounted for
using the cost method. The equity losses in 2002 and 2001 are
our share of losses incurred by the marketplace companies in
which we had a significant ownership percentage.

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Gain from Retirement of Bonds,
Net.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 bonds, 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.

Loss from Continuing
Operations.As a result of the changes
described above, the loss from continuing operations was
approximately $14.9 million in 2003, down approximately
$14.6 million from 2002 and down approximately $64.5
million from 2001.

Discontinued
Operations.In December 2000, the
Companys Board of Directors adopted a formal plan for and
announced the shut down of all business operations associated
with the Companys life sciences and specialty medical
products marketplaces. The shutdown of Chemdex, Promedix and
SpecialtyMD was completed by March 31, 2001. In fiscal
2003, the Company paid $2,000 of liabilities related to
discontinued operations and reversed an accrual of $334,000
related to an estimated liability accrued upon the
Companys cancellation of a contract that had been part of
operations discontinued in 2000 and which ceased functioning in
2001. The reversal was made in accordance with Company policy,
as two years had passed since the related activities ceased and
no actual charges had, or are now expected to be, paid.

Revenues from discontinued operations were
approximately $24.2 million for the year ended
December 31, 2001. 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, 2003 there remained no accrued liabilities
relating to discontinued operations.

Liquidity and Capital Resources

As of December 31, 2003, NexPrise had
approximately $6 million of cash, cash equivalents and
short-term investments; working capital was approximately
$4.0 million.

Net cash used in operating activities was
approximately $5.3 million for the year ended
December 31, 2003 compared to $14.8 million of net
cash used in operating activities for the year ended
December 31, 2002. Net cash used in operating activities
for the year ended December 31, 2003 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 a write-down of intangible assets which
totaled $6.4 million, depreciation and amortization of
$2.9 million and investment losses of $613,000. These cash
flows used in operating activities were partially offset by
decreases in other current assets and gains of approximately
$400,000 from the sale of an investment. The actions taken in
the past 12 months to reduce expenditures are expected to
decrease the ongoing use of cash by operating activities to
between $500,000 and $1.2 million per quarter in 2004.

Net cash provided by investing activities totaled
$3.0 million for the year ended December 31, 2003,
compared to net cash provided by investing activities of
$4.5 million for the year ended December 31, 2002.
During the year ended December 31, 2003, the Company had
net sales and maturities of approximately $2.1 million of
short-term investments and received cash of approximately
$1.0 million as part of the sale of an investment.

Net cash provided in financing activities was
$11,000 for the year ended December 31, 2003 compared to
net cash used in financing activities of $112,000 for the year
ended December 31, 2002. The Company received $11,000 from
the issuance of stock options and employee stock purchase shares
in the year ended December 31, 2003.

Management believes the Company has adequate cash
to sustain operations at least through 2004 and is managing its
business to achieve positive cash flow utilizing existing
assets. Managements key objectives for 2003 were to
increase revenue and backlog while conserving cash. In 2003,
revenue increased 25% over 2002 while backlog increased 42% to
$2.7 million. Cash used in operations decreased to
$5.3 million from $14.8 million in 2002. Although
these results have merit, particularly in light of the 2003
economic climate, they did not put the Company on a path where
achieving cash flow break-even utilizing existing assets was
assured. To reduce operating expenses, the Company eliminated
several positions, primarily in the sales and marketing
functions, in January 2004. At the same time, our product
development team is focusing on

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enhancing our solutions so they can be more
easily configured by customers and indirect channel partners,
will require less involvement by our technical personnel and can
be delivered efficiently via the Internet. It will take several
quarters before the business flowing through this indirect
channel has a significant impact on operating results, but the
reduced variable cost per incremental revenue dollar is expected
to significantly improve our operating margin and allow our
business to scale more readily. Our plan is to achieve cash flow
break-even in 2005 using this indirect channel, our continuing
direct sales efforts and the aforementioned reduction in
expenses.


As of December 31, 2003, the Company had
working capital of approximately $4.0 million, including
cash, cash equivalents and short-term investments of
$6.0 million. At December 31, 2003, the Company had a
stockholders deficit of approximately $7.3 million.
During the year ended December 31, 2003, the Company used
cash, cash equivalents and short term investments to fund
operating activities of approximately $5.3 million and
received cash proceeds of $1.0 million on the sale of an
investment. During the fourth quarter of 2003, the Company used
cash and cash equivalents in operating activities of
approximately $1.7 million. Management believes that its
restructuring activities have reduced its ongoing operating
expenses such that the quarterly use of cash in 2004 will be
between $500,000 and $1.2 million and the Company will have
sufficient working capital to support planned activities through
2004 and beyond. 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.

Contractual Obligations

The following table summarizes the companys
contractual obligations and commercial commitments as of
December 31, 2003 (in thousands):

|                              |  |                        |        |           |  |           |     |           |  |         |        |  |  |   |   |  |  |   |   | 
|----------------------------- |  | ---------------------- | ------ | --------- |  | --------- | --- | --------- |  | ------- | ------ |  |  | - | - |  |  | - | - | 
|                              |  |                       
|                              |  | Payments Due By Period
|                              |  |                       
|                              |  |                        |        | Less Than |  |           |     | After    
|Contractual Obligations       |  | Total                  |        | 1 Year    |  | 1-3 Years |     | 3-5 Years |  | 5 Years
|                              |  |                        |        |           |  |           |     |           |  |        
|Long-term debt                |  | $                      | 11,843 |           |  | $         |    |           |  | $       | 11,843 |  |  | $ |  |  |  | $ |  | 
|Hosting agreement             |  |                        | 76     |           |  |           | 76  |           |  |         |       |  |  |   |  |  |  |   |  | 
|Capital (finance) lease       |  |                        |       |           |  |           |    |           |  |         |       |  |  |   |  |  |  |   |  | 
|Purchase obligations          |  |                        |       |           |  |           |    |           |  |         |       |  |  |   |  |  |  |   |  | 
|Other long-term-liabilities   |  |                        |       |           |  |           |    |           |  |         |       |  |  |   |  |  |  |   |  | 
|Operating leases              |  |                        | 642    |           |  |           | 208 |           |  |         | 434    |  |  |   |  |  |  |   |  | 
|                              |  |                        |        |           |  |           |     |           |  |         |        |  |  |   |   |  |  |   |   | 
|Total contractual obligations |  | $                      | 12,561 |           |  | $         | 284 |           |  | $       | 12,277 |  |  | $ |  |  |  | $ |  | 
|                              |  |                        |        |           |  |           |     |           |  |         |        |  |  |   |   |  |  |   |   | 

Recent Accounting Pronouncements

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 apply to
revenue arrangements entered into in fiscal periods beginning
after June 15, 2003. The adoption of EITF Issue
No. 00-21 has not had a significant impact on the
Companys results of operations or financial condition.

In January 2003, the Financial Accounting
Standards Board issued Interpretation No. 46,
Consolidation of Variable Interest Entities
(FIN 46). Variable interest entities are often created for
a single specified purpose, for example, to facilitate
securitization, leasing, hedging, research and development, or
other transactions or arrangements. In December 2003, the FASB
issued Interpretation No. 46 (revised December 2003)
(FIN 46R) which replaces FIN 46. This interpretation of
Accounting Research Bulletin No. 51, Consolidated
Financial Statements, defines what these variable interest
entities are and provides guidelines on identifying them and
assessing an enterprises interests in a variable interest
entity to decide whether to consolidate that entity.
FIN 46R applies at different dates to different types of
enterprises and entities, and special provisions apply to
enterprises that have fully or partially applied FIN 46 prior to
issuance of FIN 46R. Generally, application of FIN 46R
is required in financial statements of public entities that have
interests in variable interest entities or potential variable
interest entities commonly referred to as special-purpose
entities

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for periods ending after December 15, 2003.
Application by public entities for all other types of entities
is required in financial statements for periods ending after
March 15, 2004. The adoption of FIN 46 or FIN 46R
did not have a material impact on our results of operations or
financial condition.


In May 2003, the FASB issued SFAS No. 150,
Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. SFAS
No. 150 clarifies the accounting for certain financial
instruments with characteristics of both liabilities and equity
and requires that those instruments be classified as
liabilities. Previously, many of those financial instruments
were classified as equity. SFAS 150 is effective for
financial instruments entered into or modified after
May 31, 2003 and otherwise is effective at the beginning of
the first interim period beginning after September 15,
2003. The adoption of SFAS 150 did not have a material
impact on the Companys consolidated financial statements.

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.

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 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.



| |                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our Common Stock is not Listed on an
    Exchange or the Nasdaq System, and Trading is Restricted by the
    Additional Regulations on the Sale of Penny Stocks

Our common stock is neither listed on any
exchange nor quoted on Nasdaq but is reported on the OTC
Bulletin Board. Accordingly, our shares are subject to the
regulations regarding trading in penny stocks, which
are those securities trading for less than $5.00 per share. The
following is a list of the primary restrictions on the sale of
penny stocks:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Prior to the sale of penny stock by a
    broker-dealer to a new purchaser, the broker-dealer must
    determine whether the purchaser is suitable to invest in penny
    stocks. To make that determination, a broker-dealer must obtain,
    from a prospective investor, information regarding the
    purchasers financial condition and investment experience
    and objectives. Subsequently, the broker-dealer must deliver to
    the purchaser a written statement setting forth the basis of the
    suitability finding.
|
| |  | A broker-dealer must obtain from the purchaser a
    written agreement to purchase the securities. This agreement
    must be obtained for every purchase until the purchaser becomes
    an established customer.                                                                                                                                                                                                                                                                                                                 
|
| |  | The Securities Exchange Act of 1934 requires that
    prior to effecting any transaction in any penny stock, a
    broker-dealer must provide the purchaser with a risk
    disclosure document that contains, among other things, a
    description of the penny stock market and how it functions and
    the risks associated with such investment. These disclosure
    rules are applicable to both purchases and sales by investors.                                                                                         
|
| |  | A dealer that sells penny stock must send to the
    purchaser, within ten days after the end of each calendar month,
    a written account statement including prescribed information
    relating to the security.                                                                                                                                                                                                                                                                                                                 

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As a result of the foregoing, an investors
ability to convert shares of our common stock into cash or to
sell to a third party may be very limited. We can provide no
assurance that our current market-makers will continue to make a
market in our securities, or that any market for our securities
will continue.



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



| |                                                                  
| | -----------------------------------------------------------------
| | Our Business Involves a Lengthy and
    Unpredictable Sales Cycle

The sales cycle for the target customers for the
software and services we offer tends to be lengthy and 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.



| |                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 and proposed accounting changes and
to implement other corporate governance practices that are now
expected of publicly-traded companies, we may be required to
hire additional personnel and will utilize additional outside
legal, accounting and advisory services, all of which would
cause our general and administrative costs to increase beyond
what we currently have planned. Insurers may also increase
premiums for liability coverage as a result of the high

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claims rates incurred in past years, and so our
premiums for our various insurance policies, including our
directors and officers insurance policies, may
increase. Proposed changes to accounting rules, including
proposals to account 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, or a party
who circumvents these security measures could misappropriate
business-critical proprietary information or cause interruptions
in our services or operations. As a result, we could be exposed
to litigation and possible liability to our customers. 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.



| |                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Adopting a Business Model That Includes the
    Sale of Perpetual Licenses to our Software Products May Not
    Result in Continued Immediate Recognition of License
    Revenue

We expect to sell a greater proportion of
perpetual software licenses and fewer subscriptions to term
licenses in coming quarters. In order to recognize revenue for
perpetual software licenses in the period in which the license
is delivered a number of criteria must be met, including the
establishment of vendor specific objective evidence
(VSOE) for the prices of the elements of the arrangement.
If NexPrise is unable to meet these criteria, revenue for
arrangements that include a perpetual license will be recognized
ratably over the term of the contract and, therefore, revenue
growth in the period in which the licenses are sold will be less
than it would have been had the criteria been met.



| |                                                                                      
| | -------------------------------------------------------------------------------------
| | We May Not Be Able to Sustain VSOE and May
    Not be Able to Use the Residual Method

We established VSOE for maintenance in the second
quarter of 2003 and began recognizing perpetual license revenue
upon delivery of the license. If we are unable to continuously
meet the criteria required to maintain VSOE on maintenance, we
may not be able to recognize perpetual license revenue using the
residual method.



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

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| |                                                                          
| | -------------------------------------------------------------------------
| | Our Operating Results Fluctuate
    Significantly from Quarter-to-Quarter

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



| |   |                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our lengthy sales cycle and the resulting
    unpredictability of the timing of obtaining new customers;                                                        
|
| |  | the timing of deploying services for new
    customers;                                                                                                         
|
| |  | whether our customers purchase perpetual licenses
    or subscriptions;                                                                                         
|
| |  | the timing and magnitude of operating expenses
    and capital expenditures;                                                                                    
|
| |  | costs associated with 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.



| |                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 ipTeam and nProcesssolutions. Our future
operating results will depend on continued demand for ipTeam and
the nProcess Platform. ipTeam was commercially launched
in 1998 and nProcess was launched in June 2002. 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 nProcessPlatform 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

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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 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 $14.5 million during the
twelve months ended December 31, 2003. As of
December 31, 2003 we had an accumulated deficit of
approximately $639 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 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 Oracle,
IBM, PeopleSoft and SAP may expand their product offerings to be
competitive with us in the future.

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.



| |                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 new provider will provide service 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 operations and
theirs are susceptible to

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outages due to fire, floods, power loss,
telecommunications failures, break-ins and similar events. In
addition, the majority of our 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 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.




| |                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 adopted
a number of changes in personnel, including significant
workforce reductions and transfers of several employees. The
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.



| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | 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 we will find it very difficult to attract new
customers. 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, as new versions
of these products are released, we will need to adapt our
technology to keep pace with changes made to hardware and
software configurations and network infrastructures.

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



| |                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We 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

21



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code for our software, documentation and other
written materials under trade secret copyright laws. Finally, we
seek to avoid disclosure of our intellectual property by
requiring employees and consultants with access to our
proprietary information to execute confidentiality agreements
with us and by restricting access to our source code.


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

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, other than a
subpoena we received in February, 2001 from the U.S. Department
of Justice, Drug Enforcement Administration, for certain
billing, invoice, and shipping records concerning sales to an
unaffiliated purchaser, which we complied with. 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 and their primary contractors,
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 and 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 has been costly, may require
additional expenditures and will require a significant
commitment of time and resources by our senior management.



| |                                                                     
| | --------------------------------------------------------------------
| | 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 U.S.
military action in the Middle East, have put further pressure on
economic conditions. The potential turmoil that may result from
such events contribute 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.



| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | 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 stock reached a high of $7.25 and
a low of $1.34 during fiscal 2002. Our stock reached a high of
$4.20 and a low of $1.15 during fiscal 2003. On March 1,
2004 the last quoted price on the OTC Bulletin Board was $1.70.

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|         |                                                              
|-------- | -------------------------------------------------------------
|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, 2003, 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, 2003. The
sensitivity analysis at December 31, 2003 indicated that a
potential loss in the fair values of our interest rate sensitive
investment instruments was not material.

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.






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

Under the supervision and with the participation
of our management, including our principal executive officer and
principal financial officer, we conducted an evaluation of the
effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended,
as of the end of the period covered by this report (the
Evaluation Date). Based on this evaluation, our
principal executive officer and principal financial officer
concluded as of the Evaluation Date that our disclosure controls
and procedures were effective as of the end of the period
covered by this Annual Report.

There has been no change in our internal control
of financial reporting during the quarter ended
December 31, 2003 that has materially, or is reasonably
likely to materially affect, our internal control over financial
reporting.




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 2004 annual meeting,
which the Company expects to file with the SEC within 120 days
following the end of the fiscal year ended December 31,
2003.

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

The information required by this Item with
respect to a code of ethics is incorporated herein by reference
from the information provided under the heading Board
Meetings and Committees 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.






|         |                                        
|-------- | ---------------------------------------
|Item 14. | Principal Auditor Fees and
    Services

Information regarding principal auditor fees and
services is set forth under Principal Auditor Fees and
Services in the Proxy Statement, which information is
incorporated herein by reference.

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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,
2003 and 2002

Consolidated Statements of Operations for the
years ended December 31, 2003, 2002 and 2001

Consolidated Statements of Stockholders
Equity (Deficit) for the years ended December 31, 2003,
2002 and 2001

Consolidated Statements of Cash Flows for the
years ended December 31, 2003, 2002 and 2001

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 58.

(a)(3) Exhibits. See the
Exhibit Index on page 60 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

A Report on Form 8-K was filed on
October 1, 2003 (Item 5). The report contained
information announcing NexPrise, Incs sale of its interest
in Ingenuity Systems, issued on September 30, 2003.

A Report on Form 8-K was furnished on
October 21, 2003 (Item 12). The report contained
information announcing NexPrise, Inc. earnings release issued on
October 17, 2003.

A Report on Form 8-K was furnished on
December 03, 2003 (Item 5). The report contained
information announcing NexPrise, Inc. move to the OTC Bulletin
Board on December 05, 2003.

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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, 2003 and 2002, 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, 2003. Our
audits also included the financial statement schedule listed in
Item 15(a)(2). 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, 2003 and 2002 and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2003 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 1 to the consolidated
financial statements, effective January 1, 2003, the Company
adopted Statement of Financial Accounting Standards No. 145,
Rescission of FASB Statements No. 4, 44 and 64, Amendment of
FASB Statement No. 13, and Technical Corrections(SFAS
No. 145).





| |                      
| | ---------------------
| | /S/ ERNST & YOUNG LLP

San Jose, California

February 17, 2004


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NEXPRISE, INC

CONSOLIDATED BALANCE SHEETS

|                                                   |                                                                                                              |                                                          |        |              |        |   |        |          |        | 
|-------------------------------------------------- | ------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------- | ------ | ------------ | ------ | - | ------ | -------- | ------ | 
|                                                   |                                                                                                              | December 31,                                             |        | December 31,
|                                                   |                                                                                                              | 2003                                                     |        | 2002        
|                                                   |                                                                                                              |                                                          |        |             
|                                                   |                                                                                                              |                                                         
|                                                   |                                                                                                              | (In thousands, except                                   
|                                                   |                                                                                                              | per share value)                                        
|ASSETS                                            
|Current assets:                                    |                                                                                                              |                                                          |        |              |        |   |        |         
|                                                   | Cash and cash equivalents                                                                                    |                                                          | $      | 991          |        |   | $      | 3,225    |       
|                                                   | Short-term investments                                                                                       |                                                          |        | 5,000        |        |   |        | 7,050    |       
|                                                   | Accounts receivable  net of reserves
    of $69 and $102 respectively                                       |                                                          |        | 743          |        |   |        | 560      |       
|                                                   | Prepaid expenses                                                                                             |                                                          |        | 321          |        |   |        | 671      |       
|                                                   | Other current assets                                                                                         |                                                          |        | 362          |        |   |        | 841      |       
|                                                   |                                                                                                              |                                                          |        |              |        |   |        |         
|                                                   |                                                                                                              | Total current assets                                     |        |              | 7,417  |   |        |          | 12,347 | 
|Property and equipment, net                        |                                                                                                              |                                                          | 40     |              |        |   | 339    |         
|Intangible assets, net                             |                                                                                                              |                                                          | 139    |              |        |   | 9,150  |         
|Other long-term assets, net                        |                                                                                                              |                                                          | 317    |              |        |   | 1,168  |         
|                                                   |                                                                                                              |                                                          |        |              |        |   |        |         
|                                                   |                                                                                                              | Total assets                                             |        | $            | 7,913  |   |        | $        | 23,004 | 
|                                                   |                                                                                                              |                                                          |        |              |        |   |        |         
|                                                  
|LIABILITIES AND STOCKHOLDERS EQUITY
    (DEFICIT)
|Current liabilities:                               |                                                                                                              |                                                          |        |              |        |   |        |         
|                                                   | Accounts payable                                                                                             |                                                          | $      | 94           |        |   | $      | 160      |       
|                                                   | Accrued compensation                                                                                         |                                                          |        | 552          |        |   |        | 646      |       
|                                                   | Accrued expenses                                                                                             |                                                          |        | 1,158        |        |   |        | 2,374    |       
|                                                   | Deferred revenue                                                                                             |                                                          |        | 1,590        |        |   |        | 711      |       
|                                                   | Accrued liabilities relating to discontinued
    operations                                                  |                                                          |        |             |        |   |        | 336      |       
|                                                   |                                                                                                              |                                                          |        |              |        |   |        |         
|                                                   |                                                                                                              | Total current liabilities                                |        |              | 3,394  |   |        |          | 4,227  | 
|Notes payable                                      |                                                                                                              |                                                          | 11,843 |              |        |   | 11,843 |         
|Commitments and contingencies                      |                                                                                                              |                                                          |        |              |        |   |        |         
|Stockholders equity (deficit):                    |                                                                                                              |                                                          |        |              |        |   |        |         
|                                                   | Preferred stock, no par value; 2,500 shares
    authorized; none issued or outstanding                       |                                                          |        |             |        |   |        |         |       
|                                                   | Common stock, $.0002 par value; 175,000 shares
    authorized; 3,237 and 3,226 shares issued and outstanding |                                                          |        | 10           |        |   |        | 10       |       
|                                                   | Additional paid-in capital                                                                                   |                                                          |        | 631,774      |        |   |        | 631,764  |       
|                                                   | Deferred compensation                                                                                        |                                                          |        | (143         | )      |   |        | (416     | )     
|                                                   | Accumulated deficit                                                                                          |                                                          |        | (639,118     | )      |   |        | (624,576 | )     
|                                                   | Accumulated other comprehensive income                                                                       |                                                          |        | 153          |        |   |        | 152      |       
|                                                   |                                                                                                              |                                                          |        |              |        |   |        |         
|                                                   |                                                                                                              | Total stockholders equity (deficit)                     |        |              | (7,324 | ) |        |          | 6,934  | 
|                                                   |                                                                                                              |                                                          |        |              |        |   |        |         
|                                                   |                                                                                                              | Total liabilities and stockholders equity
    (deficit) |        | $            | 7,913  |   |        | $        | 23,004 | 
|                                                   |                                                                                                              |                                                          |        |              |        |   |        |         

See accompanying notes to the consolidated
financial statements.

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NEXPRISE, INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                                                       |                                               |                       |         |        |   |      |         |        |  |   |         |        | 
|------------------------------------------------------------------------------------------------------ | --------------------------------------------- | --------------------- | ------- | ------ | - | ---- | ------- | ------ |  | - | ------- | ------ | 
|                                                                                                       |                                               |                      
|                                                                                                       |                                               | December 31,         
|                                                                                                       |                                               |                      
|                                                                                                       |                                               | 2003                  |         | 2002   |   | 2001
|                                                                                                       |                                               |                       |         |        |   |     
|                                                                                                       |                                               |                      
|                                                                                                       |                                               | (In thousands, except
|                                                                                                       |                                               | per share value)     
|Net revenues                                                                                           |                                               | $                     | 3,489   |        |   | $    | 2,802   |        |  | $ | 1,042   |       
|Costs and expenses                                                                                     |                                               |                       |         |        |   |      |         |        |  |   |         |       
|                                                                                                       | Cost of product licenses and services         |                       |         | 1,137  |   |      |         | 1,498  |  |   |         | 249    | 
|                                                                                                       | Cost of amortization of purchased technology  |                       |         | 1,964  |   |      |         | 895    |  |   |         | 548    | 
|                                                                                                       | Research and development                      |                       |         | 2,637  |   |      |         | 5,295  |  |   |         | 24,580 | 
|                                                                                                       | In process research and development           |                       |         |       |   |      |         | 399    |  |   |         | 2,300  | 
|                                                                                                       | Sales and marketing                           |                       |         | 3,849  |   |      |         | 5,469  |  |   |         | 11,050 | 
|                                                                                                       | General and administrative                    |                       |         | 2,658  |   |      |         | 5,087  |  |   |         | 14,067 | 
|                                                                                                       | Settlements, restructurings and other charges |                       |         | (493   | ) |      |         |       |  |   |         | 16,543 | 
|                                                                                                       | Impairment of goodwill                        |                       |         |       |   |      |         | 11,652 |  |   |         |       | 
|                                                                                                       | Write-down of intangible assets               |                       |         | 6,385  |   |      |         |       |  |   |         |       | 
|                                                                                                       |                                               |                       |         |        |   |      |         |        |  |   |         |       
|                                                                                                       | Total costs and expenses                      |                       |         | 18,137 |   |      |         | 30,295 |  |   |         | 69,337 | 
|                                                                                                       |                                               |                       |         |        |   |      |         |        |  |   |         |       
|Operating loss                                                                                         |                                               |                       | (14,648 | )      |   |      | (27,493 | )      |  |   | (68,295 | )     
|Interest expense                                                                                       |                                               |                       | (756    | )      |   |      | (749    | )      |  |   | (5,646  | )     
|Interest income and other, net                                                                         |                                               |                       | 241     |        |   |      | 216     |        |  |   | 4,426   |       
|Sale of investment                                                                                     |                                               |                       | 287     |        |   |      | 1,800   |        |  |   |        |       
|Investment loss                                                                                        |                                               |                       |        |        |   |      | (187    | )      |  |   | (1,201  | )     
|Equity loss                                                                                            |                                               |                       |        |        |   |      | (3,033  | )      |  |   | (8,614  | )     
|Gain from retirement of bonds, net                                                                     |                                               |                       |        |        |   |      |        |        |  |   | 159,762 |       
|                                                                                                       |                                               |                       |         |        |   |      |         |        |  |   |         |       
|Income (loss) from continuing operations                                                               |                                               |                       | (14,876 | )      |   |      | (29,446 | )      |  |   | 80,432  |       
|Gain from discontinued operations                                                                      |                                               |                       | 334     |        |   |      |        |        |  |   |        |       
|                                                                                                       |                                               |                       |         |        |   |      |         |        |  |   |         |       
|Net income (loss)                                                                                      |                                               | $                     | (14,542 | )      |   | $    | (29,446 | )      |  | $ | 80,432  |       
|                                                                                                       |                                               |                       |         |        |   |      |         |        |  |   |         |       
|Basic income (loss) per share from continuing
    operations                                           |                                               | $                     | (4.60   | )      |   | $    | (9.21   | )      |  | $ | 26.11   |       
|Basic gain per share from discontinued operations                                                      |                                               |                       | 0.10    |        |   |      |        |        |  |   |        |       
|                                                                                                       |                                               |                       |         |        |   |      |         |        |  |   |         |       
|Basic net income (loss) per share                                                                      |                                               | $                     | (4.50   | )      |   | $    | (9.21   | )      |  | $ | 26.11   |       
|                                                                                                       |                                               |                       |         |        |   |      |         |        |  |   |         |       
|Weighted average common shares outstanding used
    in computing net income (loss) per share  basic   |                                               |                       | 3,232   |        |   |      | 3,196   |        |  |   | 3,081   |       
|                                                                                                      
|Diluted income (loss) per share from continuing
    operations                                         |                                               | $                     | (4.60   | )      |   | $    | (9.21   | )      |  | $ | 25.91   |       
|Diluted gain per share from discontinued
    operations                                                |                                               |                       | 0.10    |        |   |      |        |        |  |   |        |       
|                                                                                                       |                                               |                       |         |        |   |      |         |        |  |   |         |       
|Diluted net income (loss) per share                                                                    |                                               | $                     | (4.50   | )      |   | $    | (9.21   | )      |  | $ | 25.91   |       
|                                                                                                       |                                               |                       |         |        |   |      |         |        |  |   |         |       
|Weighted average common shares outstanding used
    in computing net income (loss) per share  diluted |                                               |                       | 3,232   |        |   |      | 3,196   |        |  |   | 3,104   |       

See accompanying notes to the consolidated
financial statements.

29



---



##### Table of Contents



NEXPRISE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(DEFICIT)

|                                                            |                              |                |       |            |  |          |    |              |  |                   |         |               |  |       |        |   |  |   |          |         |   |   |      |     |   |   |         |         |  
|----------------------------------------------------------- | ---------------------------- | -------------- | ----- | ---------- |  | -------- | -- | ------------ |  | ----------------- | ------- | ------------- |  | ----- | ------ | - |  | - | -------- | ------- | - | - | ---- | --- | - | - | ------- | ------- | -
|                                                            |                              |                |       |            |  |          |    |              |  |                   |         |              
|                                                            |                              | Common Stock   |       | Additional |  |          |    |              |  | Accumulated other |         |              
|                                                            |                              |                |       | Paid in    |  | Deferred |    | Accumulated  |  | comprehensive     |         |              
|                                                            |                              | Shares         |       | Amount     |  | Capital  |    | Compensation |  | Deficit           |         | income/(loss) |  | Total
|                                                            |                              |                |       |            |  |          |    |              |  |                   |         |               |  |      
|                                                            |                              |               
|                                                            |                              | (In thousands)
|Balance as of December 31, 2000                             |                              |                | 3,060 |            |  | $        | 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 (comprehensive income)                     |                              |                |      |            |  |          |   |              |  |                   |        |               |  |       |       |   |  |   |         |         |   |   | 711  |     |   |   | 711     |        
|Components of other comprehensive income (loss):            |                              |                |       |            |  |          |    |              |  |                   |         |               |  |       |        |   |  |   |          |         |   |   |      |     |   |   |         |        
|                                                            | Foreign exchange translation |                |       |           |  |          |    |             |  |                   |         |              |  |       |        |  |  |   |          |        |   |   |      | (29 | ) |   |         | (29     | )
|                                                            | Net income                   |                |       |           |  |          |    |             |  |                   |         |              |  |       |        |  |  |   |          | 80,432  |   |   |      |    |   |   |         | 80,432  |  
|                                                            |                              |                |       |            |  |          |    |              |  |                   |         |               |  |       |        |   |  |   |          |         |   |   |      |     |   |   |         |        
|                                                            | Total comprehensive income   |                |       |            |  |          |    |              |  |                   |         |               |  |       |        |   |  |   |          |         |   |   |      |     |   |   |         | 81,114  |  
|                                                            |                              |                |       |            |  |          |    |              |  |                   |         |               |  |       |        |   |  |   |          |         |   |   |      |     |   |   |         |        
|Balance as of December 31, 2001                             |                              |                | 3,083 |            |  |          | 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     | )      
|Components of other comprehensive income (loss):            |                              |                |       |            |  |          |    |              |  |                   |         |               |  |       |        |   |  |   |          |         |   |   |      |     |   |   |         |        
|                                                            | Foreign exchange translation |                |       |           |  |          |    |             |  |                   |         |              |  |       |        |  |  |   |          |        |   |   |      | 79  |   |   |         | 79      |  
|                                                            | Net loss                     |                |       |           |  |          |    |             |  |                   |         |              |  |       |        |  |  |   |          | (29,446 | ) |   |      |    |   |   |         | (29,446 | )
|                                                            |                              |                |       |            |  |          |    |              |  |                   |         |               |  |       |        |   |  |   |          |         |   |   |      |     |   |   |         |        
|                                                            | Total comprehensive loss     |                |       |            |  |          |    |              |  |                   |         |               |  |       |        |   |  |   |          |         |   |   |      |     |   |   |         | (29,367 | )
|                                                            |                              |                |       |            |  |          |    |              |  |                   |         |               |  |       |        |   |  |   |          |         |   |   |      |     |   |   |         |        
|Balance as of December 31, 2002                             |                              |                | 3,226 |            |  |          | 10 |              |  |                   | 631,764 |               |  |       | (416   | ) |  |   | (624,576 | )       |   |   | 152  |     |   |   | 6,934   |        
|Issuance of stock upon exercise of options                  |                              |                | 9     |            |  |          |   |              |  |                   | 8       |               |  |       |       |   |  |   |         |         |   |   | -    |     |   |   | 8       |        
|Issuance of stock under employee stock plan                 |                              |                | 2     |            |  |          |   |              |  |                   | 3       |               |  |       |       |   |  |   |         |         |   |   |     |     |   |   | 3       |        
|Amortization of deferred compensation                       |                              |                |      |            |  |          |   |              |  |                   |        |               |  |       | 272    |   |  |   |         |         |   |   |     |     |   |   | 272     |        
|Deferred stock based compensation for cancelled
    options |                              |                |      |            |  |          |   |              |  |                   | (1      | )             |  |       | 1      |   |  |   |         |         |   |   |     |     |   |   |        |        
|Components of other comprehensive income (loss):            |                              |                |       |            |  |          |    |              |  |                   |         |               |  |       |        |   |  |   |          |         |   |   |      |     |   |   |         |        
|                                                            | Foreign exchange translation |                |       |           |  |          |    |             |  |                   |         |              |  |       |        |  |  |   |          |        |   |   |      | 1   |   |   |         | 1       |  
|                                                            | Net loss                     |                |       |           |  |          |    |             |  |                   |         |              |  |       |        |  |  |   |          | (14,542 | ) |   |      |    |   |   |         | (14,542 | )
|                                                            |                              |                |       |            |  |          |    |              |  |                   |         |               |  |       |        |   |  |   |          |         |   |   |      |     |   |   |         |        
|                                                            | Total comprehensive loss     |                |       |            |  |          |    |              |  |                   |         |               |  |       |        |   |  |   |          |         |   |   |      |     |   |   |         | (14,541 | )
|                                                            |                              |                |       |            |  |          |    |              |  |                   |         |               |  |       |        |   |  |   |          |         |   |   |      |     |   |   |         |        
|Balance as of December 31, 2003                             |                              |                | 3,237 |            |  | $        | 10 |              |  | $                 | 631,774 |               |  | $     | (143   | ) |  | $ | (639,118 | )       |   | $ | 153  |     |   | $ | (7,324  | )      
|                                                            |                              |                |       |            |  |          |    |              |  |                   |         |               |  |       |        |   |  |   |          |         |   |   |      |     |   |   |         |        

See accompanying notes to the consolidated
financial statements.

30



---



##### Table of Contents



NEXPRISE, INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                                                               |                                                         |                                                         |         |       |        |      |         |        |         |   |          |          |         |  
|------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------- | ------------------------------------------------------- | ------- | ----- | ------ | ---- | ------- | ------ | ------- | - | -------- | -------- | ------- | -
|                                                                                                                               |                                                         |                                                        
|                                                                                                                               |                                                         | For the Years Ended                                    
|                                                                                                                               |                                                         |                                                        
|                                                                                                                               |                                                         | 2003                                                    |         | 2002  |        | 2001
|                                                                                                                               |                                                         |                                                         |         |       |        |     
|                                                                                                                               |                                                         |                                                        
|                                                                                                                               |                                                         | (In thousands)                                         
|Operating Activities                                                                                                           |                                                         |                                                         |         |       |        |      |         |        |         |   |          |         
|Income (loss) from continuing operations                                                                                       |                                                         | $                                                       | (14,876 | )     |        | $    | (29,446 | )      |         | $ | 80,432   |         
|Gain from discontinued operations                                                                                              |                                                         |                                                         | 334     |       |        |      |        |        |         |   |         |         
|Adjustments to reconcile net loss to net cash
    used in operating activities:                                                |                                                         |                                                         |         |       |        |      |         |        |         |   |          |         
|                                                                                                                               | - Depreciation                                          |                                                         |         | 306   |        |      |         | 1,706  |         |   |          | 6,365    |        
|                                                                                                                               | - Write-off of goodwill                                 |                                                         |         |      |        |      |         | 11,652 |         |   |          |         |        
|                                                                                                                               | - Amortization of other intangibles                     |                                                         |         | 2,626 |        |      |         | 2,311  |         |   |          | 3,848    |        
|                                                                                                                               | - Amortization of deferred stock-based
    compensation |                                                         |         | 272   |        |      |         | 349    |         |   |          | 273      |        
|                                                                                                                               | - Restructuring and settlement charges                  |                                                         |         | (493  | )      |      |         |       |         |   |          | 3,906    |        
|                                                                                                                               | - Equity losses & write-down of
    investments         |                                                         |         | 613   |        |      |         | 3,220  |         |   |          | 9,815    |        
|                                                                                                                               | - Gain on sale of investment                            |                                                         |         | (400  | )      |      |         | (1,800 | )       |   |          |         |        
|                                                                                                                               | - Gain from retirement of convertible notes             |                                                         |         | (100  | )      |      |         |       |         |   |          | (159,762 | )      
|                                                                                                                               | - Write-off loss on disposal of fixed assets            |                                                         |         | 30    |        |      |         |       |         |   |          |         |        
|                                                                                                                               | - Write down of intangible assets                       |                                                         |         | 6,385 |        |      |         |       |         |   |          |         |        
|                                                                                                                               | - Non-cash charges related to stock-option grants       |                                                         |         |      |        |      |         | 29     |         |   |          |         |        
|Changes in operating assets and
    liabilities:                                                                               |                                                         |                                                         |         |       |        |      |         |        |         |   |          |         
|                                                                                                                               | - Accounts receivable                                   |                                                         |         | (183  | )      |      |         | 200    |         |   |          | (352     | )      
|                                                                                                                               | - Due from marketplace companies                        |                                                         |         |      |        |      |         |       |         |   |          | (54      | )      
|                                                                                                                               | - Prepaid expenses                                      |                                                         |         | 350   |        |      |         | (122   | )       |   |          | 1,639    |        
|                                                                                                                               | - Other current assets                                  |                                                         |         | 569   |        |      |         | 549    |         |   |          | 766      |        
|                                                                                                                               | - Other long term assets                                |                                                         |         | (352  | )      |      |         | (224   | )       |   |          | 100      |        
|                                                                                                                               | - Discontinued assets and liabilities                   |                                                         |         |      |        |      |         | 183    |         |   |          | (9,797   | )      
|                                                                                                                               | - Accounts payable                                      |                                                         |         | (66   | )      |      |         | (582   | )       |   |          | (2,266   | )      
|                                                                                                                               | - Accrued compensation                                  |                                                         |         | (94   | )      |      |         | (344   | )       |   |          | (2,685   | )      
|                                                                                                                               | - Accrued expenses                                      |                                                         |         | (723  | )      |      |         | (2,245 | )       |   |          | (9,913   | )      
|                                                                                                                               | - Deferred revenue                                      |                                                         |         | 879   |        |      |         | 186    |         |   |          | 143      |        
|                                                                                                                               | - Other liabilities                                     |                                                         |         | (336  | )      |      |         | (379   | )       |   |          |         |        
|                                                                                                                               |                                                         |                                                         |         |       |        |      |         |        |         |   |          |         
|                                                                                                                               |                                                         | Net cash used in operating activities                   |         |       | (5,259 | )    |         |        | (14,757 | ) |          |          | (77,542 | )
|                                                                                                                               |                                                         |                                                         |         |       |        |      |         |        |         |   |          |         
|Investing Activities                                                                                                           |                                                         |                                                         |         |       |        |      |         |        |         |   |          |         
|Purchase of property and equipment                                                                                             |                                                         |                                                         | (37     | )     |        |      |        |        |         |   | (1,672   | )       
|Purchases of short-term investments                                                                                            |                                                         |                                                         |        |       |        |      | (24,601 | )      |         |   | (291,767 | )       
|Sale and maturities of short-term investments                                                                                  |                                                         |                                                         | 2,050   |       |        |      | 27,502  |        |         |   | 378,575  |         
|Decrease in restricted cash                                                                                                    |                                                         |                                                         |        |       |        |      | 520     |        |         |   | 5,167    |         
|Investments in marketplace companies                                                                                           |                                                         |                                                         |        |       |        |      |        |        |         |   | (6,000   | )       
|Cash received on sale of investment                                                                                            |                                                         |                                                         | 1,000   |       |        |      |        |        |         |   |         |         
|Cash acquired on purchase of Infoprise                                                                                         |                                                         |                                                         |        |       |        |      | 1,029   |        |         |   |         |         
|Purchase of Nexprise, net of cash                                                                                              |                                                         |                                                         |        |       |        |      |        |        |         |   | (23,074  | )       
|                                                                                                                               |                                                         |                                                         |         |       |        |      |         |        |         |   |          |         
|                                                                                                                               |                                                         | Net cash provided by investing activities               |         |       | 3,013  |      |         |        | 4,450   |   |          |          | 61,229  |  
|                                                                                                                               |                                                         |                                                         |         |       |        |      |         |        |         |   |          |         
|Financing Activities                                                                                                           |                                                         |                                                         |         |       |        |      |         |        |         |   |          |         
|Principal payments on capital lease obligations                                                                                |                                                         |                                                         |        |       |        |      | (114    | )      |         |   | (380     | )       
|Payments for repurchase of convertible
    subordinated notes                                                                  |                                                         |                                                         |        |       |        |      |        |        |         |   | (60,931  | )       
|Net proceeds from issuance (repurchase) of
    ESPP, Stock Options and Common stock,                                           |                                                         |                                                         | 11      |       |        |      | 2       |        |         |   | (159     | )       
|                                                                                                                               |                                                         |                                                         |         |       |        |      |         |        |         |   |          |         
|                                                                                                                               |                                                         | Net cash provided by (used in) financing
    activities |         |       | 11     |      |         |        | (112    | ) |          |          | (61,470 | )
|                                                                                                                               |                                                         |                                                         |         |       |        |      |         |        |         |   |          |         
|Foreign currency translation                                                                                                   |                                                         |                                                         | 1       |       |        |      | 79      |        |         |   |         |         
|Net decrease in cash and cash equivalents                                                                                      |                                                         |                                                         | (2,234  | )     |        |      | (10,340 | )      |         |   | (77,783  | )       
|Cash and cash equivalents at beginning of period                                                                               |                                                         |                                                         | 3,225   |       |        |      | 13,565  |        |         |   | 91,348   |         
|                                                                                                                               |                                                         |                                                         |         |       |        |      |         |        |         |   |          |         
|Cash and cash equivalents at end of period                                                                                     |                                                         |                                                         | 991     |       |        |      | 3,225   |        |         |   | 13,565   |         
|                                                                                                                               |                                                         |                                                         |         |       |        |      |         |        |         |   |          |         
|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 shares in connection with acquisitions                                                                             |                                                         | $                                                       |        |       |        |      |        |        |         | $ | 1,974    |         
|Unrealized accounting loss on available-for-sale
    securities                                                                |                                                         | $                                                       |        |       |        |      |        |        |         | $ | 711      |         
|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                                                                                                         |                                                         | $                                                       | 600     |       |        |      | 528     |        |         | $ | 7,641    |         

See accompanying notes to the consolidated
financial statements.

31



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##### Table of Contents



NEXPRISE, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2003, 2002 and
2001




|   |                        
|-- | -----------------------
|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 automation and management 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 January 2002, we changed our name to
NexPrise, Inc. On February 4, 2002, we acquired
privately-held InfoPrise, located in Carlsbad, California, 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. All operating results
presented for periods following the above date are derived from
the combined operations of NexPrise and InfoPrise.

Cash used in operations decreased to
$5.3 million from $14.7 million in 2002. To reduce
operating expenses, the Company eliminated several positions,
primarily in the sales and marketing functions, in January 2004.
Management believes that its restructuring activities, including
the elimination of several positions in January, 2004, have
reduced its ongoing operating expenses such that the Company
will have sufficient working capital to support planned
activities through 2004 and beyond.

As of December 31, 2003, the Company had
working capital of approximately $4.0 million, including
cash, cash equivalents and short-term investments of
$6.0 million. At December 31, 2003, the Company had a
stockholders deficit of approximately $7.3 million.
During the year ended December 31, 2003, the Company used
cash, cash equivalents and short term investments to fund
operating activities of approximately $5.3 million and
received cash proceeds of $1.0 million on the sale of an
investment. During the fourth quarter of 2003, the Company used
cash and cash equivalents in operating activities of
approximately $1.7 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.

On January 1, 2003, the Company adopted
Statement of Financial Accounting Standards No. 145,
Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections (SFAS No. 145). SFAS
No. 145 allows only those gains and losses on the
extinguishment of debt that meet the criteria of extraordinary
items to be treated as such in the consolidated financial
statements. Accordingly, the Company is now reporting the gain
from retirement of Convertible Notes in operating results. As a
result of adopting SFAS No. 145, the Company reclassified
the $159.8 million previously recorded in 2001 as
extraordinary gain as a component of operating results.



|   |                                               
|-- | ----------------------------------------------
|2. | Summary of Significant Accounting
    Policies



| |                      
| | ---------------------
| | Basis of Presentation

The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries.
Intercompany accounts and transactions have been eliminated.
While the quarterly financial information is unaudited, the
financial statements included in this Form 10-K reflect all
adjustments (consisting of normal recurring adjustments) that
the Company considers necessary for a fair presentation of

32



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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the results of operations for the interim periods
covered and of the financial condition of the Company at the
date of the interim balance sheet.



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



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

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. Our revenue
recognition policy is in accordance with SOP No. 97-2,
Software Revenue Recognition, as amended, Staff Accounting
Bulletin 101 and EITF 00-21, Revenue Arrangements with Multiple
Deliverables.

Term license revenue includes bundled term
licenses, post contract support and, in most cases, 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. In
instances where maintenance is bundled with licenses of software
products, such maintenance terms are typically one year.

Perpetual license revenue is recognized using the
residual method described in Statement of Position
(SOP) No. 98-9 for arrangements in which
licenses are sold with multiple elements. We allocate revenues
on these licenses based upon the fair value of each undelivered
element (for example, undelivered maintenance and support,
training and consulting). The determination of fair value is
based upon vendor specific objective evidence
(VSOE). VSOE of the fair value of maintenance for
license agreements with and without stated renewal rates is
based on the Companys price list. VSOE of the fair value
of maintenance for license agreements that do not include stated
renewal rates is determined by reference to the price paid by
the Companys customers when maintenance is sold
separately. Past history has shown that the rate the Company
charges for maintenance on license agreements with a stated
renewal rate is similar to the rate the Company charges for
maintenance on license agreements without a stated renewal rate.
Revenue for training or consulting is based upon separate sales
of these services. When software services are considered
essential or the arrangement involves significant customization
or modification of the software, both the net license and
service revenues under the arrangement are recognized under the
percentage of completion method of contract accounting, based on
input measures of hours, or completed contract method. Assuming
all other revenue recognition criteria are met, the difference
between the total arrangement fee and the amount deferred for
each undelivered element is recognized as license revenue.

NexPrise did not establish VSOE for maintenance
prior to March 31, 2003, and therefore recognized the
revenue from license agreements entered into prior to
March 31, 2003 ratably over the maintenance period.
NexPrise established VSOE on maintenance in the three months
ended June 30, 2003.

Revenue for training or consulting services is
recognized based upon contract completion or on a time and
materials basis.

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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                  
| | -----------------
| | 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. This impairment analysis is required to be performed
at least annually for goodwill and purchased intangibles with
indefinite useful lives. Also, potential impairment of
long-lived assets other than goodwill and purchased intangible
assets with indefinite useful lives is evaluated using the
guidance provided by SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets.



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

There were no internally developed software costs
capitalized at December 31, 2003 and 2002. To date,
substantially all software development costs have been expensed
as incurred because the time from working model to saleable
model is very short.



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

34



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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

In December 2002, the Financial Accounting
Standards Board (FASB) issued SFAS No. 148,
Accounting for Stock-Based Compensation 
Transition and Disclosure  an amendment of FASB
Statement No. 123. SFAS 148 provides alternative
methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee
compensation. In addition, SFAS 148 amends the disclosure
requirements of SFAS 123 to require prominent disclosure in both
annual and interim financial statements about the method of
accounting for stock-based compensation and the effect of the
method used on reported results. The transition guidance and
disclosure provisions of SFAS 148 are effective for the
Companys financials statements issued for 2003.

The Company has elected to follow Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees, in accounting for its employee stock options.
Accordingly, no compensation expense is recognized in the
Companys financial statements in connection with employee
stock awards where the exercise price of the award is equal to
the fair market value of the stock on the date of grant. When
stock options are granted with an exercise price that is lower
than the fair market value of the stock on the date of grant,
the difference is recorded as deferred compensation and
amortized to expense on a straight-line basis over the vesting
term of the stock options.

Pro forma information regarding net loss and net
loss per share is required by FAS 123. This information is
required to be determined as if the Company had accounted for
its employee stock options (including shares issued under the
Employee Stock Purchase Plan, collectively called
stock-based awards), under the fair value method of
FAS 123. Stock-based awards have been valued using the
Black-Scholes option-pricing model. Among other things, the
Black-Scholes model considers the expected volatility of the
Companys stock price, determined in accordance with FAS
123, in arriving at an option valuation.

The fair value of the Companys stock-based
awards to employees was estimated assuming no expected dividends
and the following weighted-average assumptions:

|                            |                              |      |      |      |   |      |      |      |   |   |      |      |  
|--------------------------- | ---------------------------- | ---- | ---- | ---- | - | ---- | ---- | ---- | - | - | ---- | ---- | -
|                            |                              | 2003 |      | 2002 |   | 2001
|                            |                              |      |      |      |   |     
|Option value information(a) |                              |      |      |      |   |      |      |      |   |   |      |     
|Fair value per option(b)    |                              | $    | 1.66 |      |   | $    | 2.36 |      |   | $ | 9.86 |     
|Valuation assumptions       |                              |      |      |      |   |      |      |      |   |   |      |     
|                            | Expected option term (years) |      |      | 3    |   |      |      | 3    |   |   |      | 4    |  
|                            | Expected volatility          |      |      | 0.80 | % |      |      | 1.42 | % |   |      | 1.90 | %
|                            | Expected dividend yield      |      |      | 0    | % |      |      | 0    | % |   |      | 0    | %
|                            | Risk-free interest rate      |      |      | 2.18 | % |      |      | 1.92 | % |   |      | 3.84 | %



---



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

The Black-Scholes option-pricing 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 volatility of the
stock price. Because the Companys stock-based awards have
characteristics significantly different from those of traded
options and because changes in the subjective input assumptions
can materially affect the fair value estimates, in the opinion
of management, the existing models do not necessarily provide a
reliable single measure of the fair value of its stock-based
awards.

For purposes of pro forma disclosures, the
estimated fair value of the stock-based awards is amortized
straight line over the life of the award. The pro forma
stock-based employee compensation expense has no

35



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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

impact on the Companys cash flow. In the
future, the Company may elect, or be required, to use a
different valuation model, which could result in a significantly
different impact on pro forma net income (loss). For purposes of
this reconciliation, the Company adds back to previously
reported net income all stock-based employee compensation
expense that relates to acquisitions, then deducts the pro forma
stock-based employee compensation expense determined under the
fair value method for all awards. The Companys pro forma
information is as follows (in thousands, except per share
amounts) and fiscal years 2002 and 2001 have been amended to
include the intrinsic value compensation expense and to include
the estimated fair value of all stock grants at year end not
only those granted in that year as had been previously reported:

|                                                                                                                                  |             |              |         |       |   |      |         |        |   |   |         |       | 
|--------------------------------------------------------------------------------------------------------------------------------- | ----------- | ------------ | ------- | ----- | - | ---- | ------- | ------ | - | - | ------- | ----- | 
|                                                                                                                                  |             |             
|                                                                                                                                  |             | December 31,
|                                                                                                                                  |             |             
|                                                                                                                                  |             | 2003         |         | 2002  |   | 2001
|                                                                                                                                  |             |              |         |       |   |     
|Net income (loss)                                                                                                                 |             | $            | (14,542 | )     |   | $    | (29,446 | )      |   | $ | 80,432  |      
|Add: Intrinsic value compensation expense                                                                                         |             |              | 272     |       |   |      | 348     |        |   |   | 273     |      
|Less: Total stock based employee compensation
    expense determined under fair value based method for all awards,
    net of tax |             |              | (7,526  | )     |   |      | (10,924 | )      |   |   | (52,511 | )    
|                                                                                                                                  |             |              |         |       |   |      |         |        |   |   |         |      
|Pro-forma net income (loss)                                                                                                       |             | $            | (21,796 | )     |   | $    | (40,022 | )      |   | $ | 28,194  |      
|                                                                                                                                  |             |              |         |       |   |      |         |        |   |   |         |      
|Weighted-average shares used in computing basic
    net income (loss) per share                                                   |             |              | 3,232   |       |   |      | 3,196   |        |   |   | 3,081   |      
|                                                                                                                                  |             |              |         |       |   |      |         |        |   |   |         |      
|Weighted-average shares used in computing diluted
    net income (loss) per share                                                 |             |              | 3,232   |       |   |      | 3,196   |        |   |   | 3,104   |      
|                                                                                                                                  |             |              |         |       |   |      |         |        |   |   |         |      
|Basic net income (loss) per share:                                                                                                |             |              |         |       |   |      |         |        |   |   |         |      
|                                                                                                                                  | As reported |              | $       | (4.50 | ) |      | $       | (9.21  | ) |   | $       | 26.11 | 
|                                                                                                                                  | Pro forma   |              | $       | (6.74 | ) |      | $       | (12.52 | ) |   | $       | 9.15  | 
|Proforma net income (loss) per share:                                                                                             |             |              |         |       |   |      |         |        |   |   |         |      
|                                                                                                                                  | As reported |              | $       | (4.50 | ) |      | $       | (9.21  | ) |   | $       | 25.91 | 
|                                                                                                                                  | Pro forma   |              | $       | (6.74 | ) |      | $       | (12.52 | ) |   | $       | 9.08  | 



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

Advertising costs are charged to expense when
incurred. Advertising expense was $0, $0 and $0 for the years
ended December 31, 2003, 2002 and 2001.



| |                                           
| | ------------------------------------------
| | 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 Income (Loss) Per Share

Net income (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

36



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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

shares and potentially dilutive shares
outstanding during the period. If NexPrise had reported income
from continuing operations instead of losses, diluted earnings
per share would have included the shares used in the computation
of basic net income (loss) per share as well as an
additional 168,000 and 29,000 common share equivalents related
to the outstanding options and warrants (determined using the
treasury stock method) for the periods ended December 31,
2003 and 2002. 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 income
(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):

|                                                                                          |  |      |         |      |  |      |         |   |  |   |        |  
|----------------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------ | -
|                                                                                          |  | 2003 |         | 2002 |  | 2001
|                                                                                          |  |      |         |      |  |     
|Income (loss) from continuing operations                                                  |  | $    | (14,876 | )    |  | $    | (29,446 | ) |  | $ | 80,432 |  
|Gain from discontinued operations                                                         |  |      | 334     |      |  |      |        |   |  |   |       |  
|                                                                                          |  |      |         |      |  |      |         |   |  |   |        |  
|Net income (loss)                                                                         |  | $    | (14,542 | )    |  | $    | (29,446 | ) |  | $ | 80,432 |  
|                                                                                          |  |      |         |      |  |      |         |   |  |   |        |  
|Shares used:                                                                              |  |      |         |      |  |      |         |   |  |   |        |  
|Basic:                                                                                    |  |      |         |      |  |      |         |   |  |   |        |  
|Weighted-average shares of common stock
    outstanding                                   |  |      | 3,232   |      |  |      | 3,213   |   |  |   | 3,082  |  
|Less: weighted-average common shares subject to
    repurchase                            |  |      |        |      |  |      | (17     | ) |  |   | (1     | )
|                                                                                          |  |      |         |      |  |      |         |   |  |   |        |  
|Weighted-average shares used in computing basic
    net income (loss) per common share    |  |      | 3,232   |      |  |      | 3,196   |   |  |   | 3,081  |  
|                                                                                          |  |      |         |      |  |      |         |   |  |   |        |  
|Diluted:                                                                                  |  |      |         |      |  |      |         |   |  |   |        |  
|Weighted-average shares used in computing basic
    net income (loss) per common share    |  |      | 3,232   |      |  |      | 3,196   |   |  |   | 3,081  |  
|Add: dilutive common stock equivalents                                                    |  |      |        |      |  |      |        |   |  |   | 23     |  
|                                                                                          |  |      |         |      |  |      |         |   |  |   |        |  
|Weighted-average shares used in computing
    dilutive net income (loss) per common share |  |      | 3,232   |      |  |      | 3,196   |   |  |   | 3,104  |  
|                                                                                          |  |      |         |      |  |      |         |   |  |   |        |  
|                                                                                         
|Basic income (loss) per share from continuing
    operations                              |  | $    | (4.60   | )    |  | $    | (9.21   | ) |  | $ | 26.11  |  
|Basic gain per share from discontinued operations                                         |  |      | 0.10    |      |  |      |        |   |  |   |       |  
|                                                                                          |  |      |         |      |  |      |         |   |  |   |        |  
|Basic net income (loss) per common share                                                  |  | $    | (4.50   | )    |  | $    | (9.21   | ) |  | $ | 26.11  |  
|                                                                                          |  |      |         |      |  |      |         |   |  |   |        |  
|                                                                                         
|Diluted income (loss) per share from continuing
    operations                            |  | $    | (4.60   | )    |  | $    | (9.21   | ) |  | $ | 25.91  |  
|Diluted gain per share from discontinued
    operations                                   |  |      | 0.10    |      |  |      |        |   |  |   |       |  
|                                                                                          |  |      |         |      |  |      |         |   |  |   |        |  
|Diluted net income (loss) per common share                                                |  | $    | (4.50   | )    |  | $    | (9.21   | ) |  | $ | 25.91  |  
|                                                                                          |  |      |         |      |  |      |         |   |  |   |        |  



| |      
| | -----
| | 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
or results of operations. In reviewing these claims and
litigation, management

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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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, 2003.



| |                                          
| | -----------------------------------------
| | Guarantors Accounting for
    Guarantees

The Company from time-to-time enters into certain
types of contracts that contingently require the Company to
indemnify parties against third party claims. These contracts
primarily relate to: (i) certain real estate leases, under
which the Company may be required to indemnify property owners
for environmental and other liabilities, and other claims
arising from the Companys use of the applicable premises;
(ii) certain agreements with the Companys officers,
directors and employees and third parties, under which the
Company may be required to indemnify such persons for
liabilities arising out of their duties to the Company and
(iii) agreements under which the Company indemnifies
customers and partners for claims arising from intellectual
property infringement.

Generally, a maximum obligation is not explicitly
stated. Because the obligated amounts of these types of
agreements often are not explicitly stated, the overall maximum
amount of the obligations cannot be reasonably estimated.
Historically, the Company has not been obligated to make
significant payments for these obligations, and no liabilities
have been recorded for these obligations on its balance sheet as
of December 31, 2003 and 2002.

The Company warrants to its customers that its
software products will operate substantially in conformity with
product documentation and that the physical media will be free
from defect. The specific terms and conditions of the warranties
are generally 30 days but may vary depending upon the
country in which the software is sold. The Company accrues for
known warranty issues if a loss is probable and can be
reasonably estimated, and accrues for estimated incurred but
unidentified warranty issues based on historical activity. To
date the Company has had no material warranty claims. Due to
thorough product testing, the short time between product
shipments and the detection and correction of product failures,
no history of material warranty claims, and the fact that no
significant warranty issues have been identified, the Company
has not recorded a warranty accrual to date.

The Company has entered into certain real estate
leases that require the Company to indemnify property owners
against certain environmental and other liabilities and other
claims.



| |                          
| | -------------------------
| | Environmental Liabilities

The Company only engages in the development,
marketing and distribution of software, and it has never had any
environmental related claim. Therefore, the likelihood of
incurring a loss related to these environmental indemnifications
is remote and thus the Company is unable to reasonably estimate
the amount. Therefore, the company has not recorded a related
liability in accordance with the recognition and measurement
provisions of FAS 143, Accounting for Asset Retirement
Obligations (FAS 143).




| |                                  
| | ---------------------------------
| | Other Liabilities and Other Claim

The Company is responsible for certain costs of
restoring leased premises to their original condition, and in
accordance with the recognition and measurement provisions of
FAS 143, the Company measured the fair value of these
obligations and determined them to be immaterial.


38



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##### Table of Contents



NEXPRISE, INC.


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, 2003. Management evaluates the
realizability of the deferred tax assets quarterly and assesses
the need for a valuation allowance quarterly.



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

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 apply to
revenue arrangements entered into in fiscal periods beginning
after June 15, 2003. The adoption of EITF Issue
No. 00-21 has not had a significant impact on the
Companys results of operations or financial condition.

In January 2003, the Financial Accounting
Standards Board issued Interpretation No. 46,
Consolidation of Variable Interest Entities (FIN 46).
Variable interest entities are often created for a single
specified purpose, for example, to facilitate securitization,
leasing, hedging, research and development, or other
transactions or arrangements. In December 2003, the FASB issued
Interpretation No. 46 (revised December 2003) (FIN 46R)
which replaces FIN 46. This interpretation of Accounting
Research Bulletin No. 51, Consolidated Financial
Statements, defines what these variable interest entities
are and provides guidelines on identifying them and assessing an
enterprises interests in a variable interest entity to
decide whether to consolidate that entity. FIN 46R applies at
different dates to different types of enterprises and entities,
and special provisions apply to enterprises that have fully or
partially applied FIN 46 prior to issuance of FIN 46R.
Generally, application of FIN 46R is required in financial
statements of public entities that have interests in variable
interest entities or potential variable interest entities
commonly referred to as special-purpose entities for periods
ending after December 15, 2003. Application by public
entities for all other types of entities is required in
financial statements for periods ending after March 15,
2004. The adoption of FIN 46 or FIN 46R did not have a material
impact on our results of operations or financial condition.

In May 2003, the FASB issued SFAS No. 150,
Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. SFAS
No. 150 clarifies the accounting for certain financial
instruments with characteristics of both liabilities and equity
and requires that those instruments be classified as
liabilities. Previously, many of those financial instruments
were classified as equity. SFAS 150 is effective for financial
instruments entered into or modified after May 31, 2003 and
otherwise is effective at the beginning of the first interim
period beginning after September 15, 2003. The adoption of
SFAS 150 did not have a material impact on the Companys
consolidated financial statements.



|   |                                   
|-- | ----------------------------------
|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

39



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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 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 at that time. No
impairment was found, as the value of the undiscounted cash
flows expected to be generated by these assets over their
estimated lives as of December 31, 2002 exceeded their
carrying value of $9.2.

In accordance with our policy for assessing the
carrying value of our long lived assets, in each quarter of 2003
we compared the carrying value of the intangible assets with the
undiscounted cash flows expected to be generated by those assets
over their remaining estimated useful lives. No indicators of
impairment were found in the first, second or third quarters of
2003. In the fourth quarter of 2003 a reduction in our revenue
forecast and a reduction in the estimated useful lives of the
intangible assets due to our fourth quarter decision to adopt a
plan to transition toward an indirect channel solution led us to
conclude there were indicators the intangible assets were
impaired. The resulting analysis of discounted cash flows led to
an impairment charge of approximately $6.4 million, leaving
approximately $139,000 of intangible assets to be amortized
evenly over 2004. Of that value, approximately $137,000 is
purchased technology related to the acquisitions of NexPrise and
InfoPrise and approximately $2,000 is for a non-compete
agreement signed at the time of the NexPrise acquisition. During
2004, 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 are as
follows:

|                                           |  |   |         |  
|------------------------------------------ |  | - | ------- | -
|Beginning balance, January 1, 2002         |  | $ | 11,652  |  
|Goodwill acquired during fiscal 2002       |  |   |        |  
|Impairment charge during fiscal 2002       |  |   | (11,652 | )
|                                           |  |   |         |  
|Ending balance, December 31, 2002 and 2003 |  | $ |        |  
|                                           |  |   |         |  

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

40



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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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, 2003 |        | December 31, 2002
|                               |  |                   |        |                  
|                               |  | Gross             |        |                   |  | Gross      |        |        
|                               |  | Carrying          |        | Accumulated       |  |            |        | Net     |  | Carrying |        | Accumulated  |  | Net    
|                               |  | Amount            |        | Amortization      |  | Write-down |        | Balance |  | Amount   |        | Amortization |  | Balance
|                               |  |                   |        |                   |  |            |        |         |  |          |        |              |  |        
|NexPrise purchased technology  |  | $                 | 7,600  |                   |  | $          | (3,275 | )       |  | $        | (4,233 | )            |  | $       | 92  |  |  | $ | 7,600  |  |  | $ | (1,431 | ) |  | $ | 6,169 | 
|NexPrise in-process R&D        |  |                   | 2,300  |                   |  |            | (2,300 | )       |  |          |       |              |  |         |    |  |  |   | 2,300  |  |  |   | (2,300 | ) |  |   |      | 
|NexPrise trade name            |  |                   | 1,700  |                   |  |            | (1,700 | )       |  |          |       |              |  |         |    |  |  |   | 1,700  |  |  |   | (1,204 | ) |  |   | 496   | 
|NexPrise non-compete agreement |  |                   | 500    |                   |  |            | (403   | )       |  |          | (95    | )            |  |         | 2   |  |  |   | 500    |  |  |   | (236   | ) |  |   | 264   | 
|                               |  |                   |        |                   |  |            |        |         |  |          |        |              |  |         |     |  |  |   |        |  |  |   |        |   |  |   |       | 
|Total NexPrise intangibles     |  |                   | 12,100 |                   |  |            | (7,678 | )       |  |          | (4,328 | )            |  |         | 94  |  |  |   | 12,100 |  |  |   | (5,171 | ) |  |   | 6,929 | 
|InfoPrise purchased technology |  |                   | 2,234  |                   |  |            | (132   | )       |  |          | (2,057 | )            |  |         | 45  |  |  |   | 2,234  |  |  |   | (13    | ) |  |   | 2,221 | 
|InfoPrise in-process R&D       |  |                   | 399    |                   |  |            | (399   | )       |  |          |        |              |  |         |    |  |  |   | 399    |  |  |   | (399   | ) |  |   |      | 
|                               |  |                   |        |                   |  |            |        |         |  |          |        |              |  |         |     |  |  |   |        |  |  |   |        |   |  |   |       | 
|Total InfoPrise intangibles    |  |                   | 2,633  |                   |  |            | (531   | )       |  |          | (2,057 | )            |  |         | 45  |  |  |   | 2,633  |  |  |   | (412   | ) |  |   | 2,221 | 
|                               |  |                   |        |                   |  |            |        |         |  |          |        |              |  |         |     |  |  |   |        |  |  |   |        |   |  |   |       | 
|Total intangible assets        |  | $                 | 14,733 |                   |  | $          | (8,209 | )       |  | $        | (6,385 | )            |  | $       | 139 |  |  | $ | 14,733 |  |  | $ | (5,583 | ) |  | $ | 9,150 | 
|                               |  |                   |        |                   |  |            |        |         |  |          |        |              |  |         |     |  |  |   |        |  |  |   |        |   |  |   |       | 

NexPrise purchased technology was amortized based
on forecast revenue over 5 years. InfoPrise purchased
technology was amortized based on forecast revenue over
3 years. The NexPrise trade name and non-compete intangible
assets were amortized using a straight line method over 2 and
3 year periods, respectively. All remaining NexPrise and
InfoPrise intangible assets will be fully amortized using a
straight line method over their remaining useful lives, which
extend through the end of 2004. 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 year ended December 31, 2004
is $139,000.

Expenses for the amortization and write-down of
goodwill and other intangible assets was $9.0 million,
$13.9 million and $3.3 million for the years ended
December 31, 2003, 2002 and 2001 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, 2003, 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. The Company determined the value of the
intangible assets associated with the InfoPrise purchase through
the use of estimates, forecasts and an independent valuation
study.

41



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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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
customers , 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.

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 |             |  |  |           | 
|                                    |  |   |        |             |  |  |           | 

42



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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following unaudited pro forma information
shows the results of operations of the Company for the
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  |  
|Net income (loss)                    |  |                     | (29,546 | )    |  |   | 65,530 |  
|Basic net income (loss) per share    |  |                     | (9.24   | )    |  |   | (30.58 | )
|Diluted net income (loss) per share: |  |                     | (9.24   | )    |  |   | 21.11  |  



|   |                      
|-- | ---------------------
|5. | Financial Instruments

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

|                       |                              |                   |       |                   |  |   |        |        | 
|---------------------- | ---------------------------- | ----------------- | ----- | ----------------- |  | - | ------ | ------ | 
|                       |                              | December 31, 2003 |       | December 31, 2002
|                       |                              |                   |       |                  
|                       |                              | Amortized Cost    |       | Amortized Cost   
|                       |                              | and Estimated     |       | and Estimated    
|                       |                              | Fair Value        |       | Fair Value       
|                       |                              |                   |       |                  
|Money Market Funds     |                              | $                 | 962   |                   |  | $ | 3,019  |       
|Municipal bonds/notes  |                              |                   | 5,000 |                   |  |   | 7,050  |       
|                       |                              |                   |       |                   |  |   |        |       
|                       | Total short-term investments |                   | $     | 5,962             |  |   | $      | 10,069 | 
|                       |                              |                   |       |                   |  |   |        |       
|Report as:             |                              |                   |       |                   |  |   |        |       
|Cash equivalents       |                              | $                 | 962   |                   |  | $ | 3,019  |       
|Short-term investments |                              | $                 | 5,000 |                   |  | $ | 7,050  |       
|                       |                              |                   |       |                   |  |   |        |       
|                       |                              |                   | 5,962 |                   |  |   | 10,069 |       
|                       |                              |                   |       |                   |  |   |        |       

All available-for-sale securities as of
December 31, 2003 and 2002 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):

|                                               |  |      |      |      |  |   |        |  
|---------------------------------------------- |  | ---- | ---- | ---- |  | - | ------ | -
|                                               |  | 2003 |      | 2002
|                                               |  |      |      |     
|Computer equipment                             |  | $    | 529  |      |  | $ | 1,611  |  
|Furniture and equipment                        |  |      | 111  |      |  |   | 641    |  
|Purchased software                             |  |      | 117  |      |  |   | 1,045  |  
|Leased equipment and software                  |  |      |     |      |  |   | 1,132  |  
|Leasehold improvements                         |  |      | 12   |      |  |   | 54     |  
|                                               |  |      |      |      |  |   |        |  
|                                               |  |      | 769  |      |  |   | 4,483  |  
|Less accumulated depreciation and amortization |  |      | (729 | )    |  |   | (4,144 | )
|                                               |  |      |      |      |  |   |        |  
|                                               |  | $    | 40   |      |  | $ | 339    |  
|                                               |  |      |      |      |  |   |        |  

43



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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                     
|-- | --------------------
|7. | Other Current Assets

Other current assets of $362,000 and $841,000 as
of December 31, 2003 and 2002, respectively, are comprised
primarily of prepaid royalties, current deposits and other
receivables.



|   |            
|-- | -----------
|8. | Investments

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 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. The Company 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 disputed. 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.

The following table outlines the Companys
equity investment activity with its marketplace companies for
the years ended December 31, 2001, 2002 and 2003 ($ in
thousands):

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

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

|                        |  |              |   |            |  |             |  |            |  |              |   |              |  |  |   |  |  |  |   |  |  |  |     |  
|----------------------- |  | ------------ | - | ---------- |  | ----------- |  | ---------- |  | ------------ | - | ------------ |  |  | - |  |  |  | - |  |  |  | --- | -
|                        |  | Carrying     |   |            |  |             |  |            |  | Carrying     |   |             
|                        |  | Value at     |   |            |  |             |  |            |  | Value at     |   | Percentage  
|                        |  | December 31, |   | Additional |  | Equity Loss |  |            |  | December 31, |   | at Ownership
|                        |  | 2002         |   | Investment |  | of Investee |  | Settlement |  | 2003         |   | December 31,
|Activity in 2003        |  | ($)          |   | ($)        |  | ($)         |  | ($)        |  | ($)          |   | 2003        
|                        |  |              |   |            |  |             |  |            |  |              |   |             
|Ketera (fka MarketMile) |  |              |  |            |  |             |  |            |  |              |  |              |  |  |  |  |  |  |  |  |  |  | 0.5 | %

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

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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

primarily in the first quarter of the year. These
amounts were included in settlements with the marketplace
companies.

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 11 and 13)



|   |                       
|-- | ----------------------
|9. | Other Long-term Assets

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

|                                                                                                                  |                              |      |     |      |  |   |     |       | 
|----------------------------------------------------------------------------------------------------------------- | ---------------------------- | ---- | --- | ---- |  | - | --- | ----- | 
|                                                                                                                  |                              | 2003 |     | 2002
|                                                                                                                  |                              |      |     |     
|Deposits and other                                                                                                |                              | $    | 128 |      |  | $ | 323 |      
|Deferred debt offering costs, net of accumulated
    amortization of $508 and $461 in 2003 and 2002, respectively |                              |      | 107 |      |  |   | 154 |      
|Employee notes receivable and interest                                                                            |                              |      | 82  |      |  |   | 78  |      
|Long term investments                                                                                             |                              |      |    |      |  |   | 613 |      
|                                                                                                                  |                              |      |     |      |  |   |     |      
|                                                                                                                  | Total other longterm assets |      | $   | 317  |  |   | $   | 1,168 | 
|                                                                                                                  |                              |      |     |      |  |   |     |      

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.

On September 30, 2003, the Company sold its
interest in Ingenuity Systems, a long-term investment accounted
for under the cost method, to an unrelated party for cash
proceeds of $1 million. As a result, a net gain for fiscal
year 2003 of $287,000 was recorded representing the proceeds of
the sale less the carrying value of $613,000 and a fee under a
net proceeds income agreement payable to DDP Ventures in the
amount of $100,000. DDP Ventures is a related party owned by a
former Chief Executive Officer of the Company and pursuant to
the Net Proceeds Agreement signed in 2001, DDP Ventures is
entitled to 10% of the net proceeds received by the Company for
the liquidation of each of certain named investment assets.

45



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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                 
|--- | ----------------
|10. | Accrued Expenses

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

|                            |  |      |       |      |  |   |       | 
|--------------------------- |  | ---- | ----- | ---- |  | - | ----- | 
|                            |  | 2003 |       | 2002
|                            |  |      |       |     
|Accrued marketing expenses  |  | $    | 7     |      |  | $ | 16    | 
|Accrued consulting expenses |  |      | 71    |      |  |   | 93    | 
|Accrued interest payable    |  |      | 406   |      |  |   | 296   | 
|Accrued professional fees   |  |      | 385   |      |  |   | 253   | 
|Accrued acquisition costs   |  |      |      |      |  |   | 154   | 
|Accrued restructuring costs |  |      |      |      |  |   | 505   | 
|Other accrued liabilities   |  |      | 289   |      |  |   | 1,057 | 
|                            |  |      |       |      |  |   |       | 
|                            |  | $    | 1,158 |      |  | $ | 2,374 | 
|                            |  |      |       |      |  |   |       | 



|    |                               
|--- | ------------------------------
|11. | 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 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.

46



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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                             |  |            |       |              |  |           |        |             |  |       |        |  |  |   |        |   |  |   |        |  
|---------------------------- |  | ---------- | ----- | ------------ |  | --------- | ------ | ----------- |  | ----- | ------ |  |  | - | ------ | - |  | - | ------ | -
|                             |  |            |       | Estimated    |  |           |        |             |  |      
|                             |  |            |       | Excess Lease |  |           |        | Marketplace |  |      
|                             |  | Workforce  |       | 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 were 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 were 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 were less than originally estimated and the
realization of 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 |        |             |  |      
|                    |  | Reductions |     | Settlement   |  | of 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 |  |  | $ |  | 
|                    |  |            |     |              |  |           |        |             |  |       |     |   |  |   |     |  |  |   |   | 

During the year ended December 31, 2003, the
Company paid approximately $12,000 in severance payments. Also,
the Company reversed the remaining accrual of $493,000 related
to the Companys cancellation of a contract as part of a
restructuring in 2001. The reversal was made in accordance with
Company policy, as two years had passed since the related
activity ceased and no actual charges had been, or are now
expected to be, paid.

47



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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

At December 31, 2003 and 2002 the Company
had accruals and reserves of $0 and $505,000, respectively. An
analysis of the 2002 and 2003 activity is as follows (in
thousands):

|                              |  |       |         |  
|----------------------------- |  | ----- | ------- | -
|                              |  | Total
|                              |  |      
|2001 provision                |  | $     | 16,543  |  
|Activity                      |  |       | (14,510 | )
|                              |  |       |         |  
|Accruals at December 31, 2001 |  |       | 2,033   |  
|Activity                      |  |       | (1,528  | )
|                              |  |       |         |  
|Accruals at December 31, 2002 |  | $     | 505     |  
|Activity                      |  |       | (505    | )
|                              |  |       |         |  
|Accruals at December 31, 2003 |  | $     |        |  
|                              |  |       |         |  



|    |            
|--- | -----------
|12. | Commitments

The Company leases its office facilities under
non-cancelable operating leases expiring through 2006. Minimum
annual operating lease commitments as of December 31, 2003
are as follows (in thousands):

|     |  |   |     | 
|---- |  | - | --- | 
|2004 |  | $ | 208 | 
|2005 |  |   | 214 | 
|2006 |  |   | 220 | 
|     |  |   |     | 
|     |  | $ | 642 | 
|     |  |   |     | 

In November 1999, the Company entered in a
facilities sublease agreement for its former headquarters. The
sublease term commenced on December 1, 1999 and ended on
December 31, 2003. Late in 2001 and 2002, the Company
signed agreements terminating certain lease agreements. See
Settlements and Restructuring.

Rent expense for the years ended
December 31, 2003, 2002 and 2001 approximated $1,275,000,
$2,058,000 and $3,936,000. This was offset by sublease income
for the years ended December 31, 2003, 2002 and 2001 of
approximately $1,231,000, $1,192,000 and $1,200,000.



|    |                                                         
|--- | --------------------------------------------------------
|13. | Financing Arrangements, Gain from Retirement
    of Debt

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.

During 2001, the Company repurchased
$241.2 million of the convertible subordinated Notes for
cash and assigned an $11 million promissory note from
Broadlane Inc. as consideration for the Notes and the accrued
interest thereon. The transaction resulted in an extraordinary
gain of $159.7 million (the extraordinary item was
reclassed to other income in accordance with
SFAS No. 145, see below). The gain consisted of a gain
of $170 million due to the discount, offset by the
write-off of $7.7 million in issue costs associated with

48



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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the original issuance of the Notes in April 2000
as well as $2.9 million of costs associated with the
retirement of the Notes. On January 1, 2003, the Company
adopted SFAS No. 145. Accordingly, the Company is now
reporting the gain from retirement of the bonds in operating
results. As a result of adopting SFAS No. 145, the
Company reclassified the $159.8 million previously recorded
in 2001 as extraordinary gain as a component of operating
results.

At December 31, 2003, $8.8 million of
convertible Notes remained outstanding and the remaining
unamortized issue costs were approximately $152,000.

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.



|    |                     
|--- | --------------------
|14. | Stockholders Equity



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

The Board of Directors has the authority, within
the limitations and restrictions in the Amended and Restated
Certificate of Incorporation, to issue 2,500,000 shares of
preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including
dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or
the designation of any series, without further vote or action by
the stockholders. No preferred stock was issued or outstanding
at December 31, 2003 or 2002.



| |         
| | --------
| | 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, 2003 no shares of the
Companys common stock were subject to repurchase. At
December 31, 2002 there were approximately 17,000 shares of
common stock subject to repurchase. The stock repurchase
arrangement vested over a period of seventeen months. No shares
were repurchased in the fiscal years ended December 31,
2003 and December 31, 2002. In the fiscal year ended
December 31, 2001, 18,851 shares were repurchased.

Shares of common stock available for future
grants under all stock option plans was 61,077 at
December 31, 2003.



| |                         
| | ------------------------
| | 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.
Under the stock repurchase program, we repurchased approximately
29,000 shares of our common stock at a cost of approximately
$237,000 during the

49



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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

period from September 26, 2001 through
December 31, 2002. The Company did not repurchase any
shares in 2003.

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, 2003, 1,065,460 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 $14.243 per share. For the fiscal year ended
December 31, 2003, no shares of common stock have been
issued upon exercise of options or pursuant to stock purchase
and 56,572 shares of common stock remained available for future
issuance under the 1998 Stock Plan. The 1998 Stock Plan was
originally adopted by the Board of Directors in January 1998 and
approved by the stockholders in March 1998. In May 1999 the
Board of Directors authorized an automatic annual increase on
the first day of each of our fiscal years beginning in 2000,
2001, 2002, 2003, and 2004 equal to the lesser of 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 1,240,525
shares. Unless terminated earlier by our Board of Directors, the
1998 Stock Plan will terminate in January 2008.



| |                     
| | --------------------
| | 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, 2003, 43,485 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
$5.782 per share. For the fiscal year ended December 31,
2003, no 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 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, 2003, 100,676 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 $4.272 per share. For the fiscal year ended
December 31, 2003, 8,590 shares of common stock have been
issued upon exercise of options

50



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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

or pursuant to stock purchase rights at exercise
or purchase prices ranging between $0.95 to $4.650 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, 2003,
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, 2003, no 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 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, 2003, no shares of common stock were issuable
upon the exercise of outstanding 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, 2003, 9,996 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 $3,736 per share. For the fiscal year ended
December 31, 2003, 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
$5.55 per share. As of December 31, 2003, 4,505 shares of
common stock remain available for future issuance under the 1999
Directors Stock Plan.

51



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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 120,920 shares. As of
December 31, 2003, 29,956 shares have been issued under the
1999 Employee Stock Purchase Plan.

The Employee Stock Purchase Plan was terminated
by the NexPrise Board of Directors effective February 17,
2004.



| |                      
| | ---------------------
| | Stock Option Activity

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

|                                   |                          |                          |       |           |   |        |       |           |  |        |       |           |   |   |       |       |  |  |     |      |   |   |        |        | 
|---------------------------------- | ------------------------ | ------------------------ | ----- | --------- | - | ------ | ----- | --------- |  | ------ | ----- | --------- | - | - | ----- | ----- |  |  | --- | ---- | - | - | ------ | ------ | 
|                                   |                          |                         
|                                   |                          | Years Ended December 31,
|                                   |                          |                         
|                                   |                          |                          |       |           |   |       
|                                   |                          | 2003                     |       | 2002      |   | 2001  
|                                   |                          |                          |       |           |   |       
|                                   |                          |                          |       | Weighted- |   |        |       | Weighted- |  |        |       | Weighted-
|                                   |                          |                          |       | Average   |   |        |       | Average   |  |        |       | Average  
|                                   |                          |                          |       | Exercise  |   |        |       | Exercise  |  |        |       | Exercise 
|                                   |                          | Shares                   |       | Price     |   | Shares |       | Price     |  | Shares |       | Price    
|                                   |                          |                          |       |           |   |        |       |           |  |        |       |          
|Outstanding at beginning of period |                          |                          | 1,248 |           |   | $      | 13.05 |           |  |        | 842   |           |   | $ | 25.50 |       |  |  | 758 |      |   | $ | 420.90 |       
|                                   | Acquired  NexPrise Inc  |                          |       |          |   |        | $     |          |  |        |       |          |   |   | $     |      |  |  |     | 234  |   |   | $      | 4.80   | 
|                                   | Acquired  InfoPrise Inc |                          |       |          |   |        | $     |          |  |        |       | 64        |   |   | $     | 1.05  |  |  |     |     |   |   | $      |       | 
|                                   | Granted                  |                          |       | 74        |   |        | $     | 3.17      |  |        |       | 673       |   |   | $     | 2.97  |  |  |     | 737  |   |   | $      | 6.30   | 
|                                   | Exercised                |                          |       | (9        | ) |        | $     | 0.95      |  |        |       | (6        | ) |   | $     | 2.44  |  |  |     | (41  | ) |   | $      | 4.50   | 
|                                   | Canceled                 |                          |       | (34       | ) |        | $     | 17.02     |  |        |       | (325      | ) |   | $     | 23.47 |  |  |     | (846 | ) |   | $      | 361.20 | 
|                                   |                          |                          |       |           |   |        |       |           |  |        |       |           |   |   |       |       |  |  |     |      |   |   |        |       
|Outstanding at end of period       |                          |                          | 1,279 |           |   | $      | 12.47 |           |  |        | 1,248 |           |   | $ | 13.05 |       |  |  | 842 |      |   | $ | 25.50  |       
|                                   |                          |                          |       |           |   |        |       |           |  |        |       |           |   |   |       |       |  |  |     |      |   |   |        |       
|Exercisable at end of period       |                          |                          | 750   |           |   |        |       |           |  |        | 329   |           |   |   |       |       |  |  | 283 |      |   |   |        |       
|                                   |                          |                          |       |           |   |        |       |           |  |        |       |           |   |   |       |       |  |  |     |      |   |   |        |       

52



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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table summarizes information about
stock options outstanding as of December 31, 2003 (in
thousands, except per share data):

|                         |  |             |       |             |  |                |      |           |  |                |        |  |  |  |     |  |  |   |        | 
|------------------------ |  | ----------- | ----- | ----------- |  | -------------- | ---- | --------- |  | -------------- | ------ |  |  |  | --- |  |  | - | ------ | 
|                         |  |             |       |            
|                         |  | Outstanding |       | Exercisable
|                         |  |             |       |            
|                         |  |             |       | Weighted    |  |                |      |          
|                         |  |             |       | Average     |  |                |      |          
|                         |  |             |       | Remaining   |  |                |      |          
|                         |  |             |       | Contractual |  | Weighted-      |      |           |  | Weighted-     
|                         |  | Number      |       | Life        |  | Average        |      | Number    |  | Average       
|Range of Exercise Prices |  | of Shares   |       | (years)     |  | Exercise Price |      | of Shares |  | Exercise Price
|                         |  |             |       |             |  |                |      |           |  |               
|$  0.95 - $  1.55        |  |             | 82    |             |  |                | 7.38 |           |  | $              | 1.11   |  |  |  | 56  |  |  | $ | 1.07   | 
|$  1.79 - $  1.79        |  |             | 459   |             |  |                | 8.96 |           |  | $              | 1.79   |  |  |  | 231 |  |  | $ | 1.79   | 
|$  1.95 - $  4.65        |  |             | 184   |             |  |                | 8.23 |           |  | $              | 4.05   |  |  |  | 120 |  |  | $ | 4.55   | 
|$  5.55 - $  6.60        |  |             | 147   |             |  |                | 8.13 |           |  | $              | 5.98   |  |  |  | 104 |  |  | $ | 6.06   | 
|$  8.25 - $  8.70        |  |             | 112   |             |  |                | 7.60 |           |  | $              | 8.26   |  |  |  | 41  |  |  | $ | 8.27   | 
|$  9.75 - $  9.75        |  |             | 252   |             |  |                | 7.79 |           |  | $              | 9.75   |  |  |  | 156 |  |  | $ | 9.75   | 
|$ 14.53 - $450.00        |  |             | 41    |             |  |                | 6.46 |           |  | $              | 215.57 |  |  |  | 40  |  |  | $ | 217.66 | 
|$628.13 - $628.13        |  |             | 2     |             |  |                | 6.27 |           |  | $              | 628.13 |  |  |  | 2   |  |  | $ | 628.13 | 
|                         |  |             |       |             |  |                |      |           |  |                |        |  |  |  |     |  |  |   |        | 
|$  0.95 - $628.13        |  |             | 1,279 |             |  |                | 8.23 |           |  | $              | 12.47  |  |  |  | 750 |  |  | $ | 17.89  | 
|                         |  |             |       |             |  |                |      |           |  |                |        |  |  |  |     |  |  |   |        | 



|    |                                  
|--- | ---------------------------------
|15. | 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 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 $272,000,
$349,000 and $273,000 in stock compensation expense from
continuing operations during the years ended December 31,
2003, 2002 and 2001. 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 2003 the Company reversed $1,000 of deferred
compensation in connection with terminated employees. At
December 31, 2003, unamortized deferred stock compensation
was $142,913.



|    |                                     
|--- | ------------------------------------
|16. | 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

53



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##### Table of Contents



NEXPRISE, INC.


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, 2003, 2002 and 2001.



|    |             
|--- | ------------
|17. | 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, 2003, 2002 or 2001.

As of December 31, 2003, the Company had net
operating loss carry forwards for federal income tax purposes of
approximately $167.8 million which expire in the years 2013
through 2023 and federal research and development tax credits of
approximately $1.2 million which expire in the years 2013
through 2023. In addition, the Company had approximately
$16.7 million in State net operating loss carry forwards
that will expire beginning in 2012 and approximately $1.9
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 decreased by $810,000 during 2003 and increased by
$11.7 million during 2002. 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,             
|                        |                       |                          
|                        |                       | 2003                      |         | 2002  
|                        |                       |                           |         |       
|Deferred Tax Assets:    |                       |                           |         |        |        |   |         |       
|                        | Net operating loss    |                           | $       | 58,100 |        |   | $       | 57,000 |       
|                        | Research credits      |                           |         | 1,800  |        |   |         | 3,500  |       
|                        | Reserves and accruals |                           |         | 1,300  |        |   |         | 1,360  |       
|                        |                       |                           |         |        |        |   |         |       
|                        |                       | Total deferred tax assets |         |        | 61,200 |   |         |        | 61,860 | 
|Valuation allowance     |                       |                           | (61,200 | )      |        |   | (61,860 | )     
|                        |                       |                           |         |        |        |   |         |       
|Net deferred tax assets |                       | $                         |        |        |        | $ |        |       
|                        |                       |                           |         |        |        |   |         |       



|    |                                                 
|--- | ------------------------------------------------
|18. | 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 2003 and 2002, the Company
reduced its reserve for bad debt by approximately $0 in 2003 and
$17,000 in 2002.

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

54



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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

expectations. Revenue and accounts receivable by
customers comprising more than 10% of total amounts are as
follows:

|           |  |                     |    |                  |  |      |    |      |  |      |    |   |  |  |    |   |  |  |    |  
|---------- |  | ------------------- | -- | ---------------- |  | ---- | -- | ---- |  | ---- | -- | - |  |  | -- | - |  |  | -- | -
|           |  |                     |    |                  |  |      |    |     
|           |  |                     |    | % of Net        
|           |  | % of Total Revenues |    | Accounts        
|           |  | for the Year Ended  |    | Receivable as of
|           |  | December 31,        |    | December 31,    
|           |  |                     |    |                 
|           |  | 2003                |    | 2002             |  | 2001 |    | 2003 |  | 2002
|           |  |                     |    |                  |  |      |    |      |  |     
|Customer A |  |                     | 16 | %                |  |      | 13 | %    |  |      | 14 | % |  |  |    |   |  |  | 30 | %
|Customer B |  |                     | 12 | %                |  |      |    |      |  |      |    |   |  |  | 10 | % |  |  | 21 | %
|Customer C |  |                     | 19 | %                |  |      | 12 | %    |  |      |    |   |  |  | 23 | % |  |  |    |  
|Customer D |  |                     |    |                  |  |      | 10 | %    |  |      |    |   |  |  | 35 | % |  |  |    |  
|Customer E |  |                     | 13 | %                |  |      | 17 | %    |  |      | 15 | % |  |  |    |   |  |  |    |  

19.     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. These lawsuits have been consolidated as In
re Ventro Corp. Sec. Litigation, Master File No. Civ.
01-1287 SBA. On March 31, 2003, the Court granted in part
and denied in part motions to dismiss the consolidated complaint
filed against the Company and other defendants. The plaintiffs
filed an amended complaint May 15, 2003. On July 14,
2003 the Company, the individual defendants and the underwriter
defendants filed motions to dismiss certain allegations of the
amended complaint. On October 14, 2003 the Court heard oral
argument on the motions, and granted the motion of the Company
and the individual defendants and granted in part and denied in
part the motion of the underwriter defendants. Plaintiffs were
given leave to amend their complaint. On November 26, 2003,
plaintiffs filed an amended complaint. On December 19, 2003
the Company, the individual defendants and the underwriter
defendants filed motions to dismiss new allegations added in the
amended complaint. On January 23, 2004 the Court heard oral
argument on the motions, and granted the motion of the Company,
the individual defendants, and the underwriter defendants to
dismiss the new allegations with prejudice. The Court has set a
trial date for January 20, 2005 with respect to the
remaining issues.

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. In June 2003, a memorandum of understanding was
entered into by and among the plaintiffs, liaison counsel for
the issuer defendants and counsel for the insurers which would
result in dismissal of the action against the issuers, including
the Company, on terms that would not require any current payment
by the Company and are believed by the Companys board of
directors to carry only a remote risk that any future payment by
the Company would be required. In addition, the plaintiffs would
release the Company and its officers and directors from the
claims that have been asserted against them as a part of the
proposed settlement. On June 30, 2003, the Companys
board of directors approved the memorandum of understanding and
authorized the Company to enter into the proposed settlement.
The memorandum of understanding and proposed settlement are
expected to be submitted to the Court for its required approval
shortly.

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 could 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 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

55



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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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, 2003, 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 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.

56



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##### Table of Contents



NEXPRISE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                  
|--- | -----------------
|20. | 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.



|    |                        
|--- | -----------------------
|21. | 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.

At December 31, 2002, accrued liabilities
relating to discontinued operations amounted to approximately
$336,000. This amount was comprised of accruals for estimated
costs to settle lease and other contractual obligations. During
2003 the Company paid approximately $2,000 for liabilities
relating to discontinued operations and reversed an accrual of
$334,000 related to an estimated liability accrued upon the
Companys cancellation of a contract that had been part of
operations discontinued in 2000 and which ceased functioning in
2001. The reversal was made in accordance with Company policy,
as two years had passed since the related activities ceased and
no actual charges had been, or are now expected to be, paid. At
December 31, 2003 there was no remaining discontinued
operations accrual.



|    |                                                
|--- | -----------------------------------------------
|22. | Quarterly Results of Operations
    (unaudited)

|                                |                                                         |                                   |        |          |   |          |        |         |   |           |        |          |   |          |         |         |   |   |        |       |   |   |        |       |     |   |        |       |   |   |        |       |   | 
|------------------------------- | ------------------------------------------------------- | --------------------------------- | ------ | -------- | - | -------- | ------ | ------- | - | --------- | ------ | -------- | - | -------- | ------- | ------- | - | - | ------ | ----- | - | - | ------ | ----- | --- | - | ------ | ----- | - | - | ------ | ----- | - | 
|                                |                                                         |                                  
|                                |                                                         | Three Months Ended               
|                                |                                                         |                                  
|                                |                                                         | March 31,                         |        | June 30, |   | Sept 30, |        | Dec 31, |   | March 31, |        | June 30, |   | Sept 30, |         | Dec 31,
|                                |                                                         | 2002                              |        | 2002     |   | 2002     |        | 2002    |   | 2003      |        | 2003     |   | 2003     |         | 2003   
|                                |                                                         |                                   |        |          |   |          |        |         |   |           |        |          |   |          |         |        
|                                |                                                         |                                  
|                                |                                                         | (In thousands)                   
|Net revenues                    |                                                         |                                   | 674    |          |   |          | 653    |         |   |           | 728    |          |   |          | 747     |         |   |   | 721    |       |   |   | 1,002  |       |     |   | 814    |       |   |   | 952    |      
|Operating Expenses:             |                                                         |                                   |        |          |   |          |        |         |   |           |        |          |   |          |         |         |   |   |        |       |   |   |        |       |     |   |        |       |   |   |        |      
|                                | Cost of product licenses and services                   |                                   |        | 316      |   |          |        | 424     |   |           |        | 407      |   |          |         | 351     |   |   |        | 281   |   |   |        | 305   |     |   |        | 238   |   |   |        | 313   |  
|                                | Cost of amortization of purchased technology            |                                   |        | 221      |   |          |        | 221     |   |           |        | 221      |   |          |         | 232     |   |   |        | 491   |   |   |        | 491   |     |   |        | 491   |   |   |        | 491   |  
|                                | Research and development                                |                                   |        | 1,799    |   |          |        | 1,560   |   |           |        | 1,044    |   |          |         | 892     |   |   |        | 794   |   |   |        | 556   |     |   |        | 749   |   |   |        | 538   |  
|                                | Amortization of in process research and
    development |                                   |        | 399      |   |          |        |        |   |           |        |         |   |          |         |        |   |   |        |      |   |   |        |      |     |   |        |      |   |   |        |      |  
|                                | Sales and marketing                                     |                                   |        | 1,671    |   |          |        | 1,589   |   |           |        | 1,274    |   |          |         | 935     |   |   |        | 967   |   |   |        | 954   |     |   |        | 1,068 |   |   |        | 860   |  
|                                | General and administrative                              |                                   |        | 1,723    |   |          |        | 1,457   |   |           |        | 1,117    |   |          |         | 790     |   |   |        | 699   |   |   |        | 917   |     |   |        | 631   |   |   |        | 411   |  
|                                | Restructuring and settlement charges                    |                                   |        |         |   |          |        |        |   |           |        |         |   |          |         |        |   |   |        |      |   |   |        | (493  | )   |   |        |      |   |   |        |      |  
|                                | Impairment of goodwill                                  |                                   |        |          |   |          |        |         |   |           |        |          |   |          |         | 11,652  |   |   |        |      |   |   |        |      |     |   |        |      |   |   |        |      |  
|                                | Write-down of intangible assets                         |                                   |        |         |   |          |        |        |   |           |        |         |   |          |         |        |   |   |        |      |   |   |        |      |     |   |        |      |   |   |        | 6,385 |  
|                                |                                                         |                                   |        |          |   |          |        |         |   |           |        |          |   |          |         |         |   |   |        |       |   |   |        |       |     |   |        |       |   |   |        |      
|                                | Total operating expenses                                |                                   |        | 6,129    |   |          |        | 5,251   |   |           |        | 4,063    |   |          |         | 14,852  |   |   |        | 3,232 |   |   |        | 2,730 |     |   |        | 3,177 |   |   |        | 8,998 |  
|                                |                                                         |                                   |        |          |   |          |        |         |   |           |        |          |   |          |         |         |   |   |        |       |   |   |        |       |     |   |        |       |   |   |        |      
|Operating loss                  |                                                         |                                   | (5,455 | )        |   |          | (4,598 | )       |   |           | (3,335 | )        |   |          | (14,105 | )       |   |   | (2,511 | )     |   |   | (1,728 | )     |     |   | (2,363 | )     |   |   | (8,046 | )    
|Interest expenses               |                                                         |                                   | (177   | )        |   |          | (192   | )       |   |           | (190   | )        |   |          | (190    | )       |   |   | (189   | )     |   |   | (189   | )     |     |   | (189   | )     |   |   | (189   | )    
|Interest income and other, net  |                                                         |                                   | 20     |          |   |          | 74     |         |   |           | 63     |          |   |          | 59      |         |   |   | 33     |       |   |   | 128    |       |     |   | 57     |       |   |   | 23     |      
|Gain (loss) on investment       |                                                         |                                   | (1,349 | )        |   |          | (1,131 | )       |   |           | 1,060  |          |   |          |        |         |   |   |       |       |   |   | (113   | )     |     |   | 400    |       |   |   |       |      
|                                |                                                         |                                   |        |          |   |          |        |         |   |           |        |          |   |          |         |         |   |   |        |       |   |   |        |       |     |   |        |       |   |   |        |      
|Loss from continuing operations |                                                         |                                   | (6,961 | )        |   |          | (5,847 | )       |   |           | (2,402 | )        |   |          | (14,236 | )       |   |   | (2,667 | )     |   |   | (1,902 | )     |     |   | (2,095 | )     |   |   | (8,212 | )    
|                                |                                                         |                                   |        |          |   |          |        |         |   |           |        |          |   |          |         |         |   |   |        |       |   |   |        |       |     |   |        |       |   |   |        |      
|Discontinued operations:        |                                                         |                                   |        |          |   |          |        |         |   |           |        |          |   |          |         |         |   |   |        |       |   |   |        |       |     |   |        |       |   |   |        |      
|                                |                                                         | Gain from discontinued operations |        |          |  |          |        |         |  |           |        |          |  |          |         |         |  |   |        |       |  |   |        |       | 334 |   |        |       |  |   |        |       |  | 
|                                |                                                         |                                   |        |          |   |          |        |         |   |           |        |          |   |          |         |         |   |   |        |       |   |   |        |       |     |   |        |       |   |   |        |      
|Net income (loss)               |                                                         | $                                 | (6,961 | )        |   | $        | (5,847 | )       |   | $         | (2,402 | )        |   | $        | (14,236 | )       |   | $ | (2,667 | )     |   | $ | (1,568 | )     |     | $ | (2,095 | )     |   | $ | (8,212 | )    
|                                |                                                         |                                   |        |          |   |          |        |         |   |           |        |          |   |          |         |         |   |   |        |       |   |   |        |       |     |   |        |       |   |   |        |      

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NEXPRISE, INC.

SCHEDULE II     VALUATION
AND QUALIFYING ACCOUNTS

For the years ended December 31, 2003,
2002 and 2001


|                                 |  |                |       |            |  |            |     |         |  |   |       |  |  |   |     | 
|-------------------------------- |  | -------------- | ----- | ---------- |  | ---------- | --- | ------- |  | - | ----- |  |  | - | --- | 
|                                 |  |                |       | Amount     |  |            |     |        
|                                 |  | Beginning      |       | Charged to |  |            |     | Ending 
|Description                      |  | Balance        |       | Expenses   |  | Write-offs |     | Balance
|                                 |  |                |       |            |  |            |     |        
|                                 |  |               
|                                 |  | (In thousands)
|Allowance for Doubtful Accounts: |  |                |       |            |  |            |     |         |  |   |       |  |  |   |     | 
|Year ended December 31, 2003     |  | $              | 102   |            |  | $          |    |         |  | $ | 33    |  |  | $ | 69  | 
|Year ended December 31, 2002     |  | $              | 182   |            |  | $          | (17 | )       |  | $ | 63    |  |  | $ | 102 | 
|Year ended December 31, 2001     |  | $              | 4,646 |            |  | $          | 20  |         |  | $ | 4,484 |  |  | $ | 182 | 

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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on March 29, 2004.



| |               
| | --------------
| | 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 29, 2004
|                                        
|/s/ JEROME NATOLIJerome Natoli           |  | Chief Financial Officer (Principal Financial and
    Accounting Officer)                                    |  | March 29, 2004
|                                        
|/s/ DAVID PERRYDavid Perry               |  | Vice Chairman of the Board of Directors                                                                     |  | March 29, 2004
|                                        
|/s/ THOMAS INSLEYThomas Insley           |  | Director                                                                                                    |  | March 29, 2004
|                                        
|/s/ DONALD WESTERHEIDEDonald Westerheide |  | Director                                                                                                    |  | March 29, 2004
|                                        
|/s/ DANIEL JESSDaniel Jess               |  | Director                                                                                                    |  | March 29, 2004

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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)                                                                                                                                                                                                                                                                                                             
|        | 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)                                                                                                                                                                                                      

60



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##### Table of Contents



|        |      |             |  |                                                                                                                                                                                                                                
|------- | ---- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | **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 (10)                                                                                                                                                                                                  
|        | 23   | .1*         |  | Consent of Ernst & Young LLP, Independent
    Auditors                                                                                                                                                                         
|        | 31   | .1*         |  | Certification of Chief Executive Officer of
    Registrant pursuant to Rule 13a-4(a) or Rule 15d-14(a) adopted
    under the Securities Exchange Act of 1934, as amended, and
    Section 302 of the Sarbanes-Oxley Act of 2002
|        | 31   | .2*         |  | Certification of Chief Financial Officer of
    Registrant pursuant to Rule 13a-4(a) or Rule 15d-14(a)
    adopted under the Securities Exchange Act of 1934, as amended,
    and Section 302 of the Sarbanes-Oxley Act of 2002
|        | 32   | .1*         |  | Certification of Chief Executive Officer and
    Chief Financial Officer of Registrant furnished pursuant to 18
    U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002              



---



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



|     |                                                                                                                                                                                          
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | 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
    March 18, 2003.



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



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

61