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**UNITED STATESSECURITIES AND EXCHANGE COMMISSION****WASHINGTON, D.C. 20549**

**FORM 10-Q**
| **ý** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|------------|----------------------------------------------------------------------------------------------|

**For the Quarter Ended June 30,2001**

**Commission File Number000-31589**

**VASTERA, INC.**(Exact Name ofRegistrant as Specified in its Charter)

| **Delaware**                     | **54–1616513**     |
|----------------------------------|-------------------------|
| (State  or Other Jurisdiction of | (I.R.S.  Employer       |
| Incorporation  or Organization)  | Identification  Number) |

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**45025 Aviation Drive, Suite 300Dulles, VA 20166(703) 661-9006**(Address and phone number of principal executive offices)

Indicate bycheck number whether the registrant (1) has filed all reports required to befiled by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

Yes       ý         No        o

At August 8,2001 there were 38,036,701 shares of the registrant's Common Stock, $.01 parvalue per share, outstanding.

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**VASTERA, INC.**

**TABLE OF CONTENTS**

| **PART I  — FINANCIAL INFORMATION (UNAUDITED)**                                                       |                                                                                                             |
|------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------|
|                                                                                                       |                                                                                                             |
| ITEM 1 – Financial Statements                                                                         |                                                                                                             |
|                                                                                                       |                                                                                                             |
|                                                                                                       | Condensed  Consolidated Balance Sheets as of December 31, 2000 and June 30, 2001                                 |   |
|                                                                                                       |                                                                                                             |   |
|                                                                                                       | Condensed  Consolidated Statements of Operations for  the Three and Six Months Ended June 30, 2001 and 2000 |   |
|                                                                                                       |                                                                                                             |   |
|                                                                                                       | Condensed  Consolidated Statements of Cash Flows for  the Six Months Ended June 30, 2001 and 2000           |   |
|                                                                                                       |                                                                                                             |   |
|                                                                                                       | Notes  to Unaudited Condensed  Consolidated  Financial Statements                                           |   |
|                                                                                                       |                                                                                                             |   |
| ITEM  2 – Management’s Discussion and Analysis of Financial Condition and Results  of Operations |                                                                                                             |
|                                                                                                       |                                                                                                             |
| ITEM  3 – Quantitative and Qualitative Disclosures of Market Risk                                     |                                                                                                             |
|                                                                                                       |                                                                                                             |
| **PART II – OTHER INFORMATION**                                                                       |                                                                                                             |
|                                                                                                       |                                                                                                             |
| ITEM 1 – Legal Proceedings                                                                            |                                                                                                             |
| ITEM  2 – Changes in Securities and Use of Proceeds                                                   |                                                                                                             |
| ITEM 6 –  Exhibits and Reports on Form 8-K                                                            |                                                                                                             |
|                                                                                                       |                                                                                                             |
| **SIGNATURES**                                                                                             |                                                                                                             |

**PART I – FINANCIALINFORMATION (UNAUDITED)**

**Item1:              Financial Statements**

**VASTERA, INC.**

**CONDENSED CONSOLIDATED BALANCESHEETS**

**(In thousands, except per sharedata)**

|                                      | **December 31,  2000**                                                                                                                                                 |     | **June 30,  2001** |     |
|-------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|--------------------|----------|
|                                      |                                                                                                                                                                        |     |                    |     |
|                                      |                                                                                                                                                                   |     | (Unaudited)        |     |
|                                      |                                                                                                                                                                   |     |               |     |
| **Assets**                                |                                                                                                                                                                   |     |               |     |
| Current  assets:                          |                                                                                                                                                                   |     |               |     |
|                                      | Cash  and cash equivalents                                                                                                                                             | $        | 19,693             |     | $ | 5,730 |   |
|                                      | Short–term  investments                                                                                                                                           | 70,978   |               | 72,557   |   |
|                                      | Accounts  receivable, net of allowance for doubtful accounts of $665, and $961,  respectively                                                                          | 11,163   |               | 13,284   |   |
|                                      | Prepaid  expenses and other current assets                                                                                                                             | 1,653    |               | 2,556    |   |
|                                      |                                                                                                                                                                        |     |                    |     |
|                                      | Total  current assets                                                                                                                                                  | 103,487  |               | 94,127   |   |
| Property  and equipment, net              | 6,183                                                                                                                                                                  |     | 7,214              |     |
| Intangible  assets, net                   | 75,302                                                                                                                                                                 |     | 76,207             |     |
| Deposits  and other assets                | 538                                                                                                                                                                    |     | 682                |     |
|                                      |                                                                                                                                                                        |     |                    |     |
|                                      | Total  assets                                                                                                                                                          | $        | 185,510            |     | $ | 178,230 |   |
|                                      |                                                                                                                                                                        |     |                    |     |
|                                      |                                                                                                                                                                   |     |               |     |
| **Liabilities and Stockholders'  Equity** |                                                                                                                                                                   |     |               |     |
| Current  liabilities:                     |                                                                                                                                                                   |     |               |     |
|                                      | Line  of credit and capital lease obligations, current                                                                                                                 | $        | 1,837              |     | $ | 2,075 |   |
|                                      | Accounts  payable                                                                                                                                                      | 2,896    |               | 4,292    |   |
|                                      | Accrued  expenses                                                                                                                                                      | 3,422    |               | 4,348    |   |
|                                      | Accrued  compensation and benefits                                                                                                                                     | 3,683    |               | 2,114    |   |
|                                      | Deferred  revenue, current                                                                                                                                             | 10,171   |               | 9,511    |   |
|                                      |                                                                                                                                                                        |     |                    |     |
|                                      | Total  current liabilities                                                                                                                                             | 22,009   |               | 22,340   |   |
| Long–term  liabilities:              |                                                                                                                                                                   |     |               |     |
|                                      | Line  of credit and capital lease obligations, net of current portion                                                                                                  | 1,787    |               | 2,636    |   |
|                                      | Deferred  revenue, net of current portion                                                                                                                              | 2,704    |               | 2,364    |   |
|                                      |                                                                                                                                                                        |     |                    |     |
|                                      | Total  liabilities                                                                                                                                                     | 26,500   |               | 27,340   |   |
|                                      |                                                                                                                                                                        |     |                    |     |
| Commitments  and contingencies            |                                                                                                                                                                   |     |               |     |
|                                      |                                                                                                                                                                   |     |               |     |
| Stockholders'  equity:                    |                                                                                                                                                                   |     |               |     |
|                                      | Common  stock, $0.01 par value; 100,000 shares authorized; 36,336, and 37,896, shares  issued and outstanding as of December 31, 2000 and June 30, 2001,  respectively | 363      |               | 378      |   |
|                                      | Additional  paid–in capital                                                                                                                                       | 292,887  |               | 309,434  |   |
|                                      | Accumulated  other comprehensive loss                                                                                                                                  | 66       |               | 782      |   |
|                                      | Deferred  compensation                                                                                                                                                 | (8,927   | )                  | (6,128   | ) |
|                                      | Accumulated  deficit                                                                                                                                                   | (125,379 | )                  | (153,576 | ) |
|                                      |                                                                                                                                                                        |     |                    |     |
|                                      | Total  stockholders' equity                                                                                                                                            | 159,010  |               | 150,890  |   |
|                                      |                                                                                                                                                                        |     |                    |     |
|                                      |                                                                                                                                                                   |     |               |     |
|                                      | Total  liabilities and stockholders' equity                                                                                                                            | $        | 185,510            |     | $ | 178,230 |   |
|                                      |                                                                                                                                                                        |     |                    |     |
|                                           |                                                                                                                                                                        |          |                    |          |  |  |  |  |

The accompanying notes are an integral part ofthese condensed consolidated balance sheets.

**CONDENSED CONSOLIDATEDSTATEMENTS OF OPERATIONS****(UNAUDITED)(In thousands, except per share data)**

|                                                               | **Three Months Ended  June 30,**           |   | **Six Months Ended June  30,** |    |
|--------------------------------------------------------------------|--------------------------------------------|--------|--------------------------------|---------|
|                                                               | ****                                       |   | ****                           |    |
|                                                               | **2000**                                   |   | **2001**                       |    | **2000** |   | **2001** |   |
|                                                               |                                            |   |                                |    |  |   |  |   |
|                                                               |                                       |   |                           |    |   |   |   |   |
| **Revenues:**                                                      |                                       |   |                           |    |   |   |   |   |
|                                                               | Subscription/transaction  revenues         | $      | 3,012                          |    | $ | 9,712 |   | $ | 5,629 |   | $ | 18,186 |   |
|                                                               | Services  revenues                         | 4,144  |                           | 4,710   |   | 7,806 |   | 8,937 |   |
|                                                               |                                            |   |                                |    |  |   |  |   |
|                                                               | Total  revenues                            | 7,156  |                           | 14,422  |   | 13,435 |   | 27,123 |   |
|                                                               |                                            |   |                                |    |  |   |  |   |
| **Cost of revenues:**                                              |                                       |   |                           |    |   |   |   |   |
|                                                               | Cost  of subscription/transaction revenues | 377    |                           | 4,120   |   | 741 |   | 7,802 |   |
|                                                               | Cost  of services revenues                 | 3,229  |                           | 3,181   |   | 6,500 |   | 6,206 |   |
|                                                               |                                            |   |                                |    |  |   |  |   |
| **Operating expenses:**                                            |                                       |   |                           |    |   |   |   |   |
|                                                               | Sales  and marketing                       | 3,258  |                           | 4,593   |   | 6,645 |   | 8,912 |   |
|                                                               | Research  and development                  | 2,759  |                           | 3,757   |   | 6,157 |   | 7,291 |   |
|                                                               | General  and administrative                | 1,063  |                           | 2,351   |   | 2,357 |   | 4,394 |   |
|                                                               | Depreciation                               | 539    |                           | 789     |   | 1,000 |   | 1,502 |   |
|                                                               | Amortization                               | 120    |                           | 5,812   |   | 239 |   | 10,787 |   |
|                                                               | In  process research and development       | -      |                           | -       |   | - |   | 6,901 |   |
|                                                               | Stock–based  compensation             | 2,989  |                           | 1,587   |   | 5,611 |   | 3,263 |   |
|                                                               |                                            |   |                                |    |  |   |  |   |
|                                                               | Total  operating expenses                  | 10,728 |                           | 18,889  |   | 22,009 |   | 43,050 |   |
|                                                               |                                       |        |                           |         |   |  |   |  |   |
|                                                               | Loss  from operations                      | (7,178 | )                              | (11,768 | ) | (15,815 | ) | (29,935 | ) |
|                                                               | Other  income                              | 45     |                           | 851     |   | 72 |   | 1,738 |   |
|                                                               |                                            |   |                                |    |  |   |  |   |
| Net  loss                                                          | (7,133                                     | )      | (10,917                        | )       | (15,743 | ) | (28,197 | ) |
| Dividends  and accretion on redeemable convertible preferred stock | (1,319                                     | )      | -                              |    | (13,426 | ) | - |   |
|                                                               |                                            |   |                                |    |  |   |  |   |
| Net  loss applicable to common stockholders                        | $                                          | (8,452 | )                              | $       | (10,917 | ) | $ | (29,169 | ) | $ | (28,197 | ) |
|                                                               |                                            |   |                                |    |  |   |  |   |
|                                                               |                                       |   |                           |    |   |   |   |   |
| Basic  and diluted net loss per common share                       | $                                          | (1.29  | )                              | $       | (0.29 | ) | $ | (4.40 | ) | $ | (0.76 | ) |
|                                                               |                                            |   |                                |    |  |   |  |   |
|                                                               |                                       |   |                           |    |   |   |   |   |
| Weighted–average  common shares outstanding                   | 6,560                                      |   | 37,695                         |    | 6,629 |   | 37,054 |   |
|                                                               |                                            |   |                                |    |  |   |  |   |
|                                                               |                                       |   |                           |    |   |   |   |   |
| Pro  forma basic and diluted net loss per common share             | $                                          | (0.36  | )                              | $       | (0.29 | ) | $ | (0.82 | ) | $ | (0.76 | ) |
|                                                               |                                            |   |                                |    |  |   |  |   |
|                                                               |                                       |   |                           |    |   |   |   |   |
| Pro  forma weighted–average common shares outstanding         | 20,083                                     |   | 37,695                         |    | 19,260 |   | 37,054 |   |
|                                                               |                                            |   |                                |    |  |   |  |   |
|                                                                    |                                            |        |                                |         |  |  |  |  |  |  |  |  |  |  |

The accompanying notesare an integral part of these condensed consolidated financial statements.

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

**(In thousands)**

|                                                                           | **Six Months Ended  June 30,**                                               |    |
|--------------------------------------------------------------------------------|------------------------------------------------------------------------------|---------|
|                                                                           | ****                                                                         |    |
|                                                                           | **2000**                                                                     |    | **2001** |   |
|                                                                           |                                                                              |    |  |   |
|                                                                           |                                                                         |    |   |   |
| **Cash flows from operating  activities:**                                     |                                                                         |    |   |   |
|                                                                           | Net  loss                                                                    | $       | (15,743 | ) | $ | (28,197 | ) |
|                                                                           | Adjustments  to reconcile net loss to net cash used in operating activities: |    |   |   |   |
|                                                                           | Stock–based  compensation                                               | 5,611   |   | 3,263 |   |
|                                                                           | Depreciation  and amortization                                               | 1,239   |   | 12,289 |   |
|                                                                           | In  process research and development                                         | –  |   | 6,901 |   |
|                                                                           | Provision  for allowance for doubtful accounts                               | –  |   | 741 |   |
|                                                                           | Amortization  of revenue discount related to Ford contract                   | –  |   | 150 |   |
|                                                                           | Amortization  of revenue discount related to warrants issued to a customer   | 151     |   | – |   |
|                                                                           |                                                                         |    |   |   |
|                                                                           | Changes  in operating assets and liabilities:                                |    |   |   |   |
|                                                                           | Accounts  receivable                                                         | (4,593  | ) | (2,871 | ) |
|                                                                           | Prepaid  expenses and other current assets                                   | (1,424  | ) | (995 | ) |
|                                                                           | Deposits  and other assets                                                   | 97      |   | (60 | ) |
|                                                                           | Accounts  payable and accrued expenses                                       | 70      |   | (1,253 | ) |
|                                                                           | Accrued  compensation and benefits                                           | 214     |   | (2,949 | ) |
|                                                                           | Deferred  revenue                                                            | (195    | ) | (996 | ) |
|                                                                           |                                                                              |    |  |   |
|                                                                           | Net  cash used in operating activities                                       | (14,573 | ) | (13,977 | ) |
|                                                                           |                                                                              |    |  |   |
|                                                                           |                                                                         |    |   |   |
| **Cash flows from investing  activities:**                                     |                                                                         |    |   |   |
|                                                                           | Net  purchases of short-term investments                                     | (4,671  | ) | (439 | ) |
|                                                                           | Acquisition  of property and equipment                                       | (962    | ) | (873 | ) |
|                                                                           |                                                                              |    |  |   |
|                                                                           | Net  cash used in investing activities                                       | (5,633  | ) | (1,312 | ) |
|                                                                           |                                                                              |    |  |   |
|                                                                           |                                                                         |    |   |   |
| **Cash flows from financing  activities:**                                     |                                                                         |    |   |   |
|                                                                           | Proceeds  from issuance of redeemable convertible preferred stock            | 16,974  |   | – |   |
|                                                                           | Proceeds  from the exercise of stock options and preferred stock warrants    | 3,119   |   | 2,545 |   |
|                                                                           | Principal  payments on long–term debt                                   | (415    | ) | (1,030 | ) |
|                                                                           |                                                                         |         |   |  |   |
|                                                                           | Net  cash provided by (used in) financing activities                         | 19,678  |   | 1,515 |   |
|                                                                           |                                                                              |    |  |   |
| Effect  of foreign currency exchange rate changes on cash and cash equivalents | (59                                                                          | )       | (189 | ) |
|                                                                           |                                                                              |    |  |   |
|                                                                           | Net  decrease in cash and cash equivalents                                   | (587    | ) | (13,963 | ) |
| Cash  and cash equivalents, beginning of period                                | 961                                                                          |    | 19,693 |   |
|                                                                           |                                                                              |    |  |   |
| Cash  and cash equivalents, end of period                                      | $                                                                            | 374     |   | $ | 5,730 |   |
|                                                                           |                                                                              |    |  |   |
|                                                                                |                                                                              |         |  |  |  |  |  |  |

The accompanying notes are an integral part ofthese condensed consolidated financial statements.

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS****(Unaudited)**

**1.          Basis ofPresentation and Nature of Business:**

             The accompanying unauditedcondensed consolidated financial statements of Vastera, Inc. and itssubsidiaries (“Vastera” the “Company," "we," or "us")have been prepared on the same basis as audited financial statements andinclude all adjustments, including all normal recurring adjustments that arenecessary for a fair presentation of the financial position, results ofoperations and cash flows for the interim periods presented. The results ofoperations for the interim periods presented are not necessarily indicative ofthe results to be expected for any subsequent quarter or for the entire yearending December 31, 2001.  Allsignificant intercompany balances and transactions have been eliminated inconsolidation. Certain information and footnote disclosures normally includedin financial statements prepared in accordance with generally acceptedaccounting principles have been condensed or omitted pursuant to the Securitiesand Exchange Commission's (the “SEC”) rules and regulations.  The Company's interim financial statementsshould be read in conjunction with the Company's audited consolidated financialstatements and notes thereto, as filed with the SEC with the Company’s AnnualReport on Form 10-K and other reports filed with the SEC.

             Vastera is a leading provider ofweb-native solutions for global trade management.  The Company's offerings include a library of global tradecontent, web-native software solutions, management and implementation consultingand managed services. Managed services range from management of a specificglobal trade function to providing complete management of a client's globaltrade operations. Our customers utilize these offerings to manage their globaltrade processes. Global trade involves the shipment of goods between countriesand the management of information and business processes to complete shipment.

             The Company's operations aresubject to certain risks and uncertainties, including among others,uncertainties relating to product development, rapidly changing technology,current and potential competitors with greater financial, technological,production, and marketing resources, dependence on key management personnel,limited protection of intellectual property and proprietary rights, uncertaintyof future profitability and possible fluctuations in financial results.

**2.          Summary ofSignificant Accounting Policies:**

**Use of Estimates**

             The preparation of the unauditedcondensed consolidated financial statements in conformity with accounting principlesgenerally accepted in the United States requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosures of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. Actual results could differ from those estimates.

**Revenue Recognition**

             The Company's revenues consist ofsubscription/transaction revenues and services revenues.

*Subscription/TransactionRevenues*

             Subscription/transaction revenuesconsist of subscription–based revenues, transaction–based revenuesand perpetual software license revenues. The Company recognizes revenue fromthe sale of software products in accordance with Statement of Position("SOP") 97–2, "Software Revenue Recognition."

             Subscription–based revenuesare revenues derived from term-license arrangements in which our clientslicense our software products and obtain the right to unspecified enhancementson a when-and-if-available basis and ongoing support and content updateservices.  Revenues are recognizedratably over the contract term. Subscription arrangements typically range fromthree to five years.

             Transaction–based revenuesare revenues derived from agreements that provide for transaction fees based ona client’s usage of our software products or on the performance of our managedservices solutions. Revenues from the usage of our software products arerecognized as transactions occur. Managed services solutions include the processing of our clients’ customentries and the classification of our clients’ goods.  Managed services transaction arrangements are often subject toannual minimum transaction thresholds and revenues have been recognized basedon the lower of the cumulative actual transactions processed or the pro-rataminimum for the period.

             Perpetual software license revenuesare derived from perpetual software license arrangements and relatedmaintenance contracts. Maintenance contracts include the right to unspecifiedenhancements on a when-and-if available basis, ongoing support and contentupdate services. The content updates provided under maintenance arrangementsare significant and frequent and thus the entire arrangement is in substance asubscription. Revenues from perpetual software license sales are recognizedratably over the estimated economic life of the product. The Company hasestimated that the life of the product is three years, which is consistent withthe historical periods between major upgrades to the functionality andarchitecture of our products such that we would charge all customers a new feeto migrate to the new version. Revenues from maintenance contracts arerecognized ratably over the contract term, typically one year.

*Services Revenues*

             Services revenues are derived fromimplementation, management consulting and training services. Services areperformed on a time and materials basis or under fixed price arrangements andare recognized as the services are performed or using the percentage ofcompletion method of accounting.

**Concentrations of Credit Risk**

             Financial instruments thatpotentially subject the Company to concentrations of credit risk consistprimarily of cash equivalents, short-term investments, and accounts receivable.The Company limits the amount of investment exposure in any one financialinstrument and does not have any foreign currency investments. The Companysells products and services to customers across several industries throughoutthe world without requiring collateral. The Company does, however, routinelyassess the financial strength of its customers and maintains allowances foranticipated losses.

             As of December 31, 2000, nocustomer accounted for more than 10% of the Company’s accounts receivable.  As of June 30, 2001, one customer accountedfor approximately 12% of the Company’s accounts receivable.  Subsequent to June 30, 2001, the majority ofthis customer’s accounts receivable were collected.

**Unaudited Net Loss Per Common Share**

             Basic net loss per common share iscomputed by dividing net loss applicable to common stockholders by the weightedaverage number of common shares outstanding for the period. Diluted net lossper common share includes the potential dilution that could occur if securitiesor other contracts to issue common stock were exercised or converted intocommon stock. As of June 30, 2000 and 2001, options to purchase approximately6,505,000 and 7,828,000 shares of common stock, respectively, were outstanding;warrants to purchase approximately 687,000 shares of redeemable convertiblepreferred stock and 12,000 shares of common stock, respectively, wereoutstanding; and as of June 30, 2000, approximately 8,312,000 shares ofredeemable convertible preferred stock that were convertible into approximately13,825,000 shares of common stock were outstanding.  Due to the anti-dilutive nature of the options, warrants andredeemable convertible preferred stock, there is no effect on the calculationof weighted–average shares for diluted earnings per share. As a result,the basic and diluted loss per share amounts are identical.

             Unaudited pro forma loss per commonshare is computed using the pro forma weighted-average number of common sharesoutstanding for the period.  Pro formaweighted-average common shares included the assumed conversion of alloutstanding convertible preferred stock into common stock as of the beginningof the period presented.

**Comprehensive Income**

             As of December 31, 2000 and June30, 2001, accumulated other comprehensive income includes unrealized gains andlosses on investments and foreign currency translation adjustments.

**Recent Accounting Pronouncements**

             In June 2001, the FinancialAccounting Standards Board (“FASB”) issued Statement of Financial AccountingStandards (“SFAS”) No. 141 “Business Combinations” and SFAS No. 142 “Goodwilland Other Intangible Assets.” SFAS No. 141 requires business combinationsinitiated after June 30, 2001 to be accounted for using the purchase method ofaccounting, and broadens the criteria for recording intangible assets separatefrom goodwill.  Recorded goodwill andintangibles will be evaluated against these new criteria and may result incertain intangibles being subsumed into goodwill, or alternatively, amountsinitially recorded as goodwill may be separately identified and recognizedapart from goodwill. SFAS No. 142 requires the use of a nonamortizationapproach to account for purchased goodwill and certain intangibles.  Under a nonamortization approach, goodwilland certain intangibles will not be amortized into results of operations, butinstead will be reviewed for impairment and written down and charged to resultsof operations only in the periods in which the recorded value of goodwill andcertain intangibles is more than its fair value. The provisions of eachstatement, which apply to goodwill and intangible assets acquired prior to June30, 2001, will be adopted by the Company on January 1, 2002.  Management is currently evaluating theimpact these accounting standards.

**3.          Acquisition**

             On March 1, 2001, the Companyentered into a definitive agreement (the “Agreement”) to acquire Speed ChainNetwork, Inc., (“Speedchain”), a development stage company with no revenuessince its inception in 1999.  Speedchainwas a supply chain event management and global e-logistics solutionsprovider.  The acquisition was effectedon March 29, 2001 through the merger of Speedchain into a wholly ownedsubsidiary of the Company, Vastera Acquisition Corporation.  The acquisition was accounted for under thepurchase method of accounting and the operating results of Speedchain have beenincluded in the accompanying condensed consolidated financial statements fromthe date of acquisition.

             Under the terms of the Agreement, theCompany issued 944,485 shares of common stock in exchange for all of theoutstanding preferred stock and common stock of Speedchain.  The shares ofcommon stock issued by the Company were valued at $14.00 per share, the averageof the closing prices for the three days before and after March 1, 2001.  The Company also issued options to acquireapproximately 24,000 shares of its common stock in exchange for the vestedSpeedchain stock options it assumed in the business combination.  The options were valued at approximately$328,000 using the Black-Scholes model assuming 128% volatility, a risk freeinterest rate of 6.19%, and an exercise period of three years.  On March 29, 2001, the Company also issuedoptions to acquire approximately 64,000 shares of its common stock in exchangefor the unvested Speedchain stock options it assumed in the businesscombination. Accordingly, the Company recorded $465,000 of deferredcompensation that will be amortized on an accelerated basis over the remainingvesting period of these options.

             The aggregate purchase price wasdetermined as follows  (in thousands): 

|                         | **Value**                 |   |
|------------------------------|---------------------------|--------|
|                         | ****                      |   |
| Fair  value of common stock  | $                         | 13,223 |   |
| Fair  value of options       | 328                       |   |
| Assumed  liabilities         | 3,401                     |   |
| Transaction  costs and other | 1,860                     |   |
|                         |                           |   |
|                         | Aggregate  purchase price | $      | 18,812 |   |
|                         |                           |   |
|                              |                           |        |  |  |

             The acquisition resulted in anallocation of the purchase price to the net tangible and intangible assets ofSpeedchain, as well as the write-off of the portion of the purchase priceallocated to in-process research and development (“IPR&D”) projects.  The Company has allocated the purchase pricebased upon the fair values of the assets and the liabilities acquired andallocated to the purchase price accordingly.

             The purchase price has beenallocated on a preliminary basis as follows (in thousands): 

|                    | **Value** |   |
|-------------------------|-----------|--------|
|                    |           |   |
| Current  assets         | $         | 38     |   |
| Property  and equipment | 57        |   |
| Assembled  workforce    | 300       |   |
| In-process  R&D     | 6,901     |   |
| Goodwill                | 11,516    |   |
|                    |           |   |
|                    | $         | 18,812 |   |
|                    |           |   |

             The amounts allocated to assembledworkforce and goodwill are being amortized on a straight-line method over theestimated useful life of these assets, which are two years and four years,respectively.

             The Company valued IPR&Dprojects acquired in the acquisition at $6.9 million, based upon the results ofan independent appraisal of the development projects for which technologicalfeasibility has not been established and no alternative future uses exist.  The acquired IPR&D projects are targetedat the supply chain event management and e-logistics market.

             The value of the IPR&D projectsidentified was determined by estimating the future cash flows from each of therespective projects at the assumed date of commercial feasibility, discountingthese net cash flows back to their present value and then applying a percentageof completion to the calculated present value. The percentage of completion for the projects were determined usingmilestones representing management’s estimate of effort, value added and degreeof difficulty of the portion of the projects completed as of March 29, 2001, ascompared to the remaining research and development to be completed to bring theprojects to technical feasibility.   Speedchain’s projects started in February 2000 and, as of March 29,2001, the Company estimated the projects were 70% complete.

             Development of the technology remains asubstantial risk to the Company due to factors including the remaining effortnecessary to achieve technical feasibility, rapidly changing customer needs andcompetitive threats from other companies. Failure to bring these products to market in a timely manner couldadversely affect future sales and profitability of the combined company.  Additionally, the value of the otherintangible assets acquired may become impaired.

             In connection with the Speedchainacquisition, the Company recognized approximately $550,000 in liabilities asthe cost associated with closing redundant facilities and terminating certainemployees.  The accrual consistedprimarily of severance and other employee termination costs.  These activities resulted in the terminationof eight employees in connection with the elimination of duplicative positionsand the restructuring of certain operations. Substantially all of this accrual is expected to be paid out in 2001.

             The following unaudited pro formainformation has been prepared as if the acquisition of Speedchain had occurredas of January 1, 2000, excluding the one time $6.9 million IPR&D charge.

|                                               | **Pro Forma for the  Year Ended  December 31, 2000** |   | **Pro Forma for the  Six Months Ended  June 30, 2001** |   |
|----------------------------------------------------|------------------------------------------------------|--------|--------------------------------------------------------|--------|
|                                               | ****                                                 |   | ****                                                   |   |
|                                               | **(Unaudited)**                                      |   | **(Unaudited)**                                        |   |
|                                               |                                                 |   |                                                   |   |
| Total  revenues                                    | $                                                    | 32,970 |                                                   | $      | 27,123 |   |
| Net  loss                                          | (79,540                                              | )      | (24,185                                                | )      |
| Pro  forma basic and diluted loss per common share | (3.12                                                | )      | (0.64                                                  | )      |
|                                                    |                                                      |        |                                                        |        |  |  |

             The unaudited pro forma informationis not necessarily indicative of the results of operations that would haveoccurred had the acquisition been made at the beginning of the periodspresented or the future results of the combined operations.

**4.          SecuredRevolving Line of Credit and Equipment Line of Credit:**

             As of December 31, 2000 and June30, 2001, the outstanding balance under the equipment line of credit wasapproximately $2,925,000 and $4,185,000, respectively, and there were noamounts outstanding under the secured revolving line of credit.  The revolving line of credit was scheduledto expire on December 31, 2000 and was extended to April 30, 2001.  In May 2001, the Company renegotiated andamended its secured revolving line of credit and equipment line of credit.  As amended, the Company may now borrow up to$10,000,000 under the revolving line of credit, with a $2,500,000 sub-limit forthe issuance of letters of credit. Advances under the revolving line of credit are limited to the lesser of$10,000,000 or the sum of 80% of eligible accounts receivable, as defined inthe loan agreement.  The revolving lineof credit bears interest at the greater of the bank’s prime rate or theovernight federal funds rate, (6.75% as of June 30, 2001).  The revolving line of credit matures in May2002.

             The Company may borrow up to$6,439,649 under the equipment line of credit. The equipment line of credit bears interest at the bank’s prime rateplus 50 basis points, (7.25% as of June 30, 2001).  The equipment line of credit has two interest–only paymentperiods. Amounts borrowed until November 15, 2001 are subject to interest–onlypayments. After this date, the Company is required to make principal andinterest payments to repay these borrowings over a period of 30 months. Thesecond interest–only payment period applies to borrowings made fromNovember 16, 2001 to May 15, 2002. After May 15, 2002, the Company is requiredto make principal and interest payments to repay the borrowings from the secondinterest–only period over a period of 30 months, and no additionalborrowings may occur thereafter.

             The terms of the revolving line of creditand equipment line of credit require the Company to comply with certainfinancial covenants, including, but not limited to, restrictions andlimitations on future indebtedness, sale of assets, and material changes in theCompany’s business.  The financialcovenants include a minimum quick ratio, as defined in the loan agreement, of2.0 to 1.0 and a maximum ratio of total liabilities to tangible net worth of1.0 to 1.0 for 2001 and 1.5 to 1.0 for 2002 and thereafter.  The most restrictive of the financialcovenants is that the Company's negative operating income shall not be inexcess of the amounts specified below (in thousands): 

| **As of the quarter ended,** | **Negative Operating  Income** |   |
|------------------------------|--------------------------------|--------|
|                              |                                |   |
| March  31, 2001              | $                              | 6,500  |   |
| June  30, 2001               | 6,500                          |   |
| September  30, 2001          | 5,000                          |   |
| December  31, 2001           | 3,500                          |   |
| March  31, 2002              | 2,500                          |   |
| June  30, 2002               | 1,000                          |   |
| September  30, 2002          | 0                              |   |
| Thereafter                   | 0                              |   |
|                              |                                |        |  |

Negativeoperating income is defined in the loan agreement as loss from operations plus,to the extent they have been deducted in determining the loss from operations,the sum of non-cash expenses including amortization of goodwill, amortizationof intangibles, in-process research and development charges and stock-basedcompensation expenses, less the sum of non-cash items of income, plus netinterest income/expense, as calculated in accordance with generally acceptedaccounting principles.

**5.          Commitmentsand Contingencies:**

**Reimbursed Expenses**

             The Company reimburses Ford MotorCompany for certain expenses in connection with the acquisition of Ford’sglobal customs operations.  The Companyexpects to pay approximately $534,000 in fees to Ford each month for thereimbursement of expenses incurred by Ford for the use of facilities, the costsof leased employees and the maintenance and expenses related to the acquiredtechnology.

**Litigation**

             The Company is periodically a partyto disputes arising from normal business activities. In the opinion ofmanagement, resolution of these matters will not have a material adverse effectupon the financial position or future operating results of the Company.

**6.          Segment Information:**

             The Company has adopted SFASNo. 131, "Disclosures about Segments of an Enterprise and RelatedInformation".  The Company has tworeportable operating segments: subscription/transaction and services. Thesubscription/transaction segment generates revenues from subscription,transaction and software license agreements of its Global Trade ManagementSolutions. The services segment provides implementation, management consultingand training services to the Company’s customers. The Company evaluates itssegments' performance based on revenues and gross profit. The Company'sunallocated costs include corporate and other costs not allocated to thesegments for management's reporting purposes.

             The following table summarizes theCompany's two segments (in thousands): 

|       | **Three Months Ended  June 30,** |    | **Six Months Ended  June 30,** |    |
|------------|----------------------------------|---------|--------------------------------|---------|
|       | ****                             |    | ****                           |    |
|       | **2000**                         |    | **2001**                       |    | **2000** |   | **2001** |   |
|       | ****                             |    | ****                           |    | **** |   | **** |   |
|       | **(unaudited)**                  |    | **(unaudited)**                |    | **(unaudited)** |   | **(unaudited)** |   |
|       |                             |    |                           |    |   |   |   |   |
| Revenues:  |                             |    |                           |    |   |   |   |   |
|       | Subscription/transaction         | $       | 3,012                          |    | $ | 9,712 |   | $ | 5,629 |   | $ | 18,186 |   |
|       | Services                         | 4,144   |                           | 4,710   |   | 7,806 |   | 8,937 |   |
|       |                                  |    |                                |    |  |   |  |   |
|       | Total  revenues                  | 7,156   |                           | 14,422  |   | 13,435 |   | 27,123 |   |
|       |                                  |    |                                |    |  |   |  |   |
| Net  loss: |                             |    |                           |    |   |   |   |   |
|       | Subscription/transaction         | 2,635   |                           | 5,592   |   | 4,888 |   | 10,384 |   |
|       | Services                         | 915     |                           | 1,529   |   | 1,306 |   | 2,731 |   |
|       |                                  |    |                                |    |  |   |  |   |
|       | Gross  profit                    | 3,550   |                           | 7,121   |   | 6,194 |   | 13,115 |   |
|       |                                  |    |                                |    |  |   |  |   |
|       | Unallocated  expense             | (10,728 | )                              | (18,889 | ) | (22,009 | ) | (43,050 | ) |
|       | Interest  income                 | 113     |                           | 1,059   |   | 214 |   | 2,104 |   |
|       | Interest  expense                | (68     | )                              | (208    | ) | (142 | ) | (366 | ) |
|       |                                  |    |                                |    |  |   |  |   |
|       | Net  loss                        | $       | (7,133                         | )       | $ | (10,917 | ) | $ | (15,743 | ) | $ | (28,197 | ) |
|       |                                  |    |                                |    |  |   |  |   |
|            |                                  |         |                                |         |  |  |  |  |  |  |  |  |  |  |

             Under SFAS No. 131, theCompany is required to provide enterprise-wide disclosures about revenues byproduct and services, long-lived assets by geographic area, and revenues fromsignificant customers.

**Geographic Information**

             The Company sells its product andservices through its offices in the United States and through its subsidiariesin the United Kingdom, Canada and Mexico. Information regarding revenues andlong-lived assets attributable to the United States and to all foreigncountries is stated below. The geographic classification of product andservices revenues was based upon the location of the customer. Vastera'sproduct and services revenues were generated in the following geographicregions (in thousands): 

|                         | **Three Months Ended  June 30,** |   | **Six Months Ended  June 30,** |   |
|------------------------------|----------------------------------|--------|--------------------------------|--------|
|                         | ****                             |   | ****                           |   |
|                         | **2000**                         |   | **2001**                       |   | **2000** |   | **2001** |   |
|                         | ****                             |   | ****                           |   | **** |   | **** |   |
|                         | **(unaudited)**                  |   | **(unaudited)**                |   | **(unaudited)** |   | **(unaudited)** |   |
|                         |                             |   |                           |   |   |   |   |   |
| United  States               | $                                | 6,620  |                           | $      | 11,433 |   | $ | 12,388 |   | $ | 22,922 |   |
| Europe  and Asia             | 371                              |   | 1,588                          |   | 813 |   | 1,788 |   |
| Other  international regions | 165                              |   | 1,401                          |   | 234 |   | 2,413 |   |
|                         |                                  |   |                                |   |  |   |  |   |
|                         | Total  revenues                  | $      | 7,156                          |   | $ | 14,422 |   | $ | 13,435 |   | $ | 27,123 |   |
|                         |                                  |   |                                |   |  |   |  |   |
|                              |                                  |        |                                |        |  |  |  |  |  |  |  |  |  |

             Vastera's tangible long-lived assets werelocated as follows: 

|                         | **December 31,  2000**   |   | **June 30,  2001** |   |
|------------------------------|--------------------------|--------|--------------------|--------|
|                         |                          |   |                    |   |
| United  States               | $                        | 5,694  |               | $      | 6,757 |   |
| Europe  and Asia             | 489                      |   | 421                |   |
| Other  international regions | -                        |   | 36                 |   |
|                         |                          |   |                    |   |
|                         | Total  long-lived assets | $      | 6,183              |   | $ | 7,214 |   |
|                         |                          |   |                    |   |
|                              |                          |        |                    |        |  |  |  |

**Significant Customers**

             For the three months ended June 30,2001, one customer accounted for 37% of total revenues. For the six monthsended June 30, 2001, two customers accounted for 36% and 10% of totalrevenues.  For the three and six monthsended June 30, 2000, the Company did not have any customers that accounted forgreater than 10% of total revenues.

**7.          Stock-basedCompensation**

             The Company applies AccountingPrinciples Board (“APB”) Opinion No. 25, “Accounting for Stock Issued toEmployees,” and related interpretations in accounting for it stock optionplan.  Accordingly, the Company hasrecorded deferred compensation cost of approximately $6.4 million in thelast six months of 1999 and approximately $13.4 million in the first ninemonths of 2000. On March 29, 2001, the Company recorded approximately $465,000of deferred compensation in connection with the issuance of options to acquire64,000 shares of its common stock in exchange for the unvested Speedchain stockoptions it assumed in the related business combination.  These deferred compensation amountsrepresent the aggregate difference between the exercise price and the fairvalue for accounting purposes of the underlying shares of common stock at thedate of grant. This amount is included as a component of stockholders' equityand is being amortized on an accelerated basis over the applicable vestingperiod.

             Stock-based compensation, which hasbeen separately identified in the accompanying condensed consolidated statementof operations has not been included in costs of revenues, sales and marketing,research and development, and general and administrative expense as indicatedbelow:

 

|                                       | **Three Months Ended  June 30,** |   | **Six Months Ended  June 30,** |   |
|--------------------------------------------|----------------------------------|--------|--------------------------------|--------|
|                                       | ****                             |   | ****                           |   |
|                                       | **2000**                         |   | **2001**                       |   | **2000** |   | **2001** |   |
|                                       | ****                             |   | ****                           |   | **** |   | **** |   |
|                                       | **(unaudited)**                  |   | **(unaudited)**                |   | **(unaudited)** |   | **(unaudited)** |   |
|                                       |                             |   |                           |   |   |   |   |   |
| Cost  of subscription/transaction revenues | $                                | 11     |                           | $      | 52 |   | $ | 21 |   | $ | 107 |   |
| Cost  of services revenues                 | 416                              |   | 222                            |   | 780 |   | 457 |   |
| Sales  and marketing                       | 1,218                            |   | 637                            |   | 2,286 |   | 1,309 |   |
| Research  and development                  | 308                              |   | 154                            |   | 579 |   | 317 |   |
| General  and administrative                | 1,036                            |   | 522                            |   | 1,945 |   | 1,073 |   |
|                                       |                                  |   |                                |   |  |   |  |   |
|                                       | Total  stock-based compensation  | $      | 2,989                          |   | $ | 1,587 |   | 5,611 |   | $ | 3,263 |   |
|                                       |                                  |   |                                |   |  |   |  |   |
|                                            |                                  |        |                                |        |  |  |  |  |  |  |  |  |  |

**8.          SupplementalInformation:**

**Cash Flow Information**

             Cash paid for interest was$135,000, and $202,000 for the six months ended June 30, 2000 and 2001,respectively. 

             Noncash activities were as follows(in thousands):

|                                                                                        | **Six Months Ended  June 30,** |   |
|---------------------------------------------------------------------------------------------|--------------------------------|--------|
|                                                                                        | ****                           |   |
|                                                                                        | **2000**                       |   | **2001** |   |
|                                                                                        | ****                           |   | **** |   |
|                                                                                        |                           |   |   |   |
| Capitalized  lease obligations incurred                                                     | $                              | 1,781  |   | $ | 1,988 |   |
| Issuance  of common stock and stock options in acquisition                                  | -                              |   | 13,551 |   |
| Deferred  compensation in connection with stock options issued to employees in  acquisition | -                              |   | 465 |   |
| Assumed  liabilities, transaction costs and other, net of assets acquired in  acquisition   | -                              |   | 5,166 |   |
| Dividends  and accretion on redeemable convertible preferred stock                          | 5,311                          |   | - |   |
|                                                                                             |                                |        |  |  |  |  |

**Item 2:              Management’s Discussion andAnalysis of Financial Condition and Results of Operations**

*             This Quarterly Report on Form 10-Q containsforward-looking statements.  For thispurpose, any statements contained herein that are not statements of historicalfact may be deemed to be forward-looking statements.  Without limiting the foregoing, the words “anticipates,”“believes,” “expects,” “plans,” and similar phrases (as well as other words orexpressions referencing future events, conditions or circumstances) areintended to identify forward-looking statements.  Our actual results could differ materially from those projectedin the forward-looking statements as a result of various factors, including,but not limited to, the factors set forth in the caption “Risks Relating to OurBusiness.”  This discussion should beread in conjunction with the condensed consolidated financial statements andrelated notes for the periods specified. Further reference should be made to the Company’s Annual Report on Form10-K and other reports filed with the SEC.*

**Overview**

             We are a leading provider ofweb-native software products and services that facilitate international buyingand selling of goods by streamlining and optimizing global trade processes. Wecall these products and services our solutions. Global trade involves theshipment of goods across countries’ borders and the management of thisinformation and business processes required to complete these shipments. In1992, we introduced EMS-2000, a U.S-centric, DOS-based export managementsolution. In 1994, we introduced EMS-2000 Version 4, a multi-country, two-tier,Windows-based export management solution. In 1997, we introduced GlobalPassport, a multi-country, three-tier, client-server based, import/exportmanagement solution. In 2000, we introduced TradeSphere, a multi-country,multi-module suite of web-native global trade management solutions and weintroduced TradePrism.com, a trade portal that provides an Internet-baseddelivery mechanism for our global trade management capabilities. Since ourinception, we have continued to develop comprehensive solutions with features,functionality and services that allow companies to manage the complexities ofglobal trade.

             We provide our products andservices to over 200 clients from our offices in the United States, the UnitedKingdom, Mexico, and Canada.  Ourclients typically acquire a limited number of server and user subscriptions orlicenses to implement in a division or department. As they expandimplementation of our products globally and to their clients, suppliers andbusiness partners, additional subscriptions or licenses are acquired. Wecurrently market our products and services on a global basis through our directsales force and other channels, such as strategic alliances and partners. Weexpect revenues from our international operations to increase as we continue toexpand our international sales and services organizations.

             In January 2001 and March 2001, weexpanded the global trade management services we provide to Ford Motor Companyby assuming responsibility for administering and managing Ford’s global tradeoperations in Mexico and Canada, respectively. The contractual terms relatingto other foreign operations have not been finalized and are subject tonegotiation based upon the actual costs. These costs include personnel costs,administrative overhead and information technology processing costs.

             Our agreement with Ford U.S has aminimum term of four years and may continue for a total of ten years.  The guaranteed minimum revenues from theFord U.S. Imports operations are $11.6 million for 2001, 2002 and 2003 and $6.8million for 2004.  The agreements withFord Mexico and Ford Canada also have minimum terms of four years and each maycontinue for a total of ten years.  Onthe third anniversary of the agreement with each entity, either party mayterminate for any reason after providing the non-terminating party one-yearadvance notice.  Commencing upon thefourth anniversary of the agreement with each entity, either party mayterminate the agreement for any reason upon providing six months advancewritten notice.  These agreementsprovide us with a guaranteed, predictable and recurring revenue stream over thenext three to four years.  We expect toderive at least $16.5 million in revenues in 2001, 2002, and 2003 from ouragreements with Ford U.S., Ford Mexico and Ford Canada.  Our client relationship with Ford will havea significant impact on our total revenues and is expected to account forgreater than 10% of revenues for the foreseeable future.  For the three months ended June 30, 2001,Ford accounted for approximately 37% of our total revenues.  For the six months June 30, 2001, Ford andVisteon Corporation accounted for approximately 36% and 10% of our totalrevenues, respectively.

**Speedchain Acquisition**

             On March 1, 2001, the Companyentered into a definitive agreement (the “Agreement”) to acquire Speed ChainNetwork, Inc. (“Speedchain”), a development stage company with no revenuessince its inception in 1999.  Speedchainis a supply chain event management and global e-logistics solutionsprovider.  The acquisition was effectedon March 29, 2001 through the merger of Speedchain into a wholly ownedsubsidiary of the Company, Vastera Acquisition Corporation.  The acquisition was accounted for under thepurchase method of accounting and the operating results of Speedchain have beenincluded in the accompanying condensed consolidated financial statements fromthe date of acquisition.

             Under the terms of the Agreement,the Company issued 944,485 shares of common stock in exchange for all of theoutstanding preferred stock and common stock of Speedchain.  The shares ofcommon stock issued by the Company were valued at $14.00 per share, the averageof the closing prices for the three days before and after March 1, 2001.  The Company also issued options to acquireapproximately 24,000 shares of its common stock in exchange for the vestedSpeedchain stock options it assumed in the business combination.  The options were valued at approximately $328,000using the Black-Scholes model, assuming 128% volatility, a risk free interestrate of 6.19%, and an exercise period of three years.  On March 29, 2001, the Company also issued options to acquireapproximately 64,000 shares of its common stock in exchange for the unvestedSpeedchain stock options it assumed in the business combination. Accordingly,the Company recorded $465,000 of deferred compensation that will be amortizedon an accelerated basis over the remaining vesting period of these options.

             The Company valued IPR&Dprojects acquired in the acquisition at $6.9 million, based upon the results ofan independent appraisal of the development projects for which technologicalfeasibility has not been established and no alternative future uses exist.  The acquired IPR&D projects are targetedat the supply chain event management and e-logistics market.

             The value of the IPR&D projectsidentified was determined by estimating the future cash flows from each of therespective projects at the assumed date of commercial feasibility, discountingthese net cash flows back to their present value and then applying a percentageof completion to the calculated present value. The percentage of completion for the projects were determined usingmilestones representing management’s estimate of effort, value added and degreeof difficulty of the portion of the projects completed as of March 29, 2001, ascompared to the remaining research and development to be completed to bring theprojects to technical feasibility.  Speedchain’sprojects started in February 2000 and, as of March 29, 2001, the Companyestimated  the projects were 70%complete.

             Development of the technologyremains a substantial risk to the Company due to factors including theremaining effort necessary to achieve technical feasibility, rapidly changingcustomer needs and competitive threats from other companies.  Failure to bring these products to market ina timely manner could adversely affect future sales and profitability of thecombined company.  Additionally, thevalue of the other intangible assets acquired may become impaired.

**Source of Revenues and Revenue Recognition Policy**

             Our revenues are classified aseither subscription/transaction revenues or services revenues. In 2000, werenamed our software products and services as follows:

| • | our Global Passport software product is now  called TradeSphere;                                                                                          |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                      |
| • | our strategic and operational consulting  services are now called Trade Management Consulting; and                                                        |
|   |                                                                                                                                                      |
| • | our managed–services consisting of  Global e–Content, TradeSphere and our proprietary methodology and  services is now called Managed Services. |

             A description of our currentrevenue classifications follows:

*Subscription/TransactionRevenues*

             Subscription/transaction revenuesconsist of subscription–based revenues, transaction–based revenuesand perpetual software license revenues.

**             Subscription-basedRevenues.**  Subscription–based revenues arerevenues derived from term-license arrangements in which our clients licenseTradeSphere and TradePrism.com for a contract term and obtain the right tounspecified enhancements on a when-and-if-available basis, ongoing support andcontent update services, for the term of the arrangement.  Revenues are recognized ratably over thecontract term. Subscription arrangements typically range from three to fiveyears.  Payments on subscriptionarrangements are collected annually, quarterly or monthly.

**             Transaction-basedRevenues.**  Transaction–based revenues arerevenues derived from agreements that provide for transaction fees based on aclient’s usage of TradeSphere or TradePrism.com software products or on theperformance of our managed services solutions. Revenues from the usage of oursoftware products are recognized as transactions occur.  Managed services solutions include theprocessing of our clients’ custom entries and the classification of ourclients’ goods.  Managed servicestransaction arrangements are often subject to annual minimum transactionthresholds and revenues have been recognized based on the lower of thecumulative actual transactions processed or the pro-rata minimum for theperiod.  Payments on transactionrevenues are typically collected monthly.

**             PerpetualSoftware License Revenues.** Perpetual software license revenues arederived from sales of perpetual software licenses and the related maintenancecontracts. Maintenance contracts include the right to unspecified enhancementson a when-and-if available basis, ongoing support and content update services.The content updates provided under maintenance arrangements are significant andfrequent and thus the entire arrangement is in substance a subscription.Revenues from perpetual software license sales are recognized ratably over theestimated economic life of the product. The Company has estimated that the lifeof the product is three years, which is consistent with the historical periodsbetween major upgrades to the functionality and architecture of our productssuch that we would charge all customers a new fee to migrate to the newversion. Revenues from maintenance contracts are recognized ratably over thecontract term, typically one year. Payments on maintenance revenues are typically collected annually inadvance, but may also be collected quarterly in advance.

*Services Revenues*

             Our services revenues consist ofTradeSphere services revenues and Trade Management Consulting revenues.

**             TradeSphereServices Revenues.**  TradeSphere services revenues are derivedfrom implementation and training services. These revenues are provided oneither a time-and-materials or on a fixed–price basis and are recognizedas the services are performed or on the percentage-of-completion method ofaccounting.

**             TradeManagement Consulting Revenues.**  TradeManagement Consulting revenues are derived from management consulting services.These revenues are provided on either a time-and-materials or on a fixed–pricebasis and are recognized as the services are performed or on thepercentage-of-completion method of accounting.

             Our services revenues haveincreased due to the growth in our client base, expansion of our implementationorganization and expansion of our management consulting organization. Servicesrevenues are typically billed and collected monthly. In the future we expectservices revenues to decrease as a percentage of total revenues.

             Our sales cycle averages six tonine months on software sales and nine to twelve months on managed servicesagreements. Furthermore, we haveexperienced, and expect to continue to experience, significant variation in thesize of individual sales. As a result of this and other factors, our resultshave varied significantly in the past and are likely to be subject tosignificant fluctuations in the future. Since subscription/transaction revenuesare recognized ratably, and the timing of services revenues is dependent on thescope of the engagement, we believe that period-to-period comparisons of theresults of operations are not necessarily indicative of the results we expectfor any future period.

**Deferred Revenues**

             Deferred revenues include amountsbilled to clients for whom revenues have not been recognized and generallyresult from billed, but deferred subscription/transaction revenues and deferredservices not yet rendered. Deferred revenues will be recognized on a monthlybasis over the remaining economic life of the product or when the services areperformed. As we continue to increase our subscription and transaction-basedrevenues relative to our perpetual licenses, we expect our deferred revenues tofluctuate since subscription and transaction-based customers are billed and payratably (monthly or quarterly). We do not consider deferred revenue to be agood indicator of future revenues.

**Cost of Revenues**

             Cost of revenues includes the costof our subscription/transaction revenues and the cost of our services revenues.

             Cost of subscription/transactionrevenues includes royalties owed to third parties for technology productsintegrated into our software products as well as the cost of salaries andrelated expenses for our technical support and managed services organizations.We expect the cost of subscription/transaction revenues to continue to increaseas we further expand our offerings, build out our managed services trade hubsand integrate other technology products into our product offerings.

             Cost of services revenues includesthe cost of salaries and related expenses for implementation, managementconsulting and training services provided to clients, as well as, the cost ofthird parties contracted to provide either application consulting orimplementation services to our clients. The total cost of revenues mayfluctuate based on the mix of products and services sold.

             We expect our cost ofsubscription/transaction revenues to increase as a result of our transaction–basedmanaged services contracts signed with Ford, Visteon and others. In the shortterm, we expect our gross margins on subscription/transaction revenues tofluctuate as we phase in the global trade management of Ford, as we fullyintegrate Ford's technology with our technology and as we increase the numberof additional customers subscribing to our managed services.

**In-process Research and Development**

             For the six months ended June 30,2001, the Company incurred a one-time IPR&D charge of approximately $6.9million associated with the acquisition of Speedchain.  The Company valued IPR&D acquired in theSpeedchain acquisition consummated on March 29, 2001 at approximately $6.9million based upon the results of an independent appraisal of the developmentproject for which technological feasibility has not been established and noalternative future uses exist.  Theacquired IPR&D project is targeted at the supply chain event management ande-logistics market.

**Stock-based Compensation**

             Stock-based compensation representsthe aggregate difference between the exercise price and the fair value foraccounting purposes of the underlying common stock at the date of grant. OnMarch 29, 2001, $465,000 of deferred compensation was recorded in connectionwith the unvested stock options that were assumed in connection with theSpeedchain acquisition.  These amountsare included as a component of stockholders' equity and are being amortized onan accelerated basis over the applicable vesting period.

             For the three months ended June 30,2000 and 2001, we amortized approximately $3.0 million and $1.6 million ofdeferred compensation, respectively. For the six months ended June 30, 2000 and2001, we amortized approximately $5.6 million and $3.3 million of deferredcompensation, respectively. We expect to amortize deferred compensation ofapproximately $5.5 million, $2.7 million, $962,000 and $45,000 forthe years ended December 31, 2001, 2002, 2003 and 2004, respectively. Theamount of stock-based compensation expense to be recorded in future periodscould decrease if options are forfeited for which accrued but unvestedcompensation has been recorded.

**Beneficial Conversion**

             On February 4, 2000 andFebruary 29, 2000, pursuant to a stock purchase agreement with new andexisting investors, we issued approximately 1,569,000 shares of Series Econvertible preferred stock for approximately $17.0 million. We recorded abeneficial conversion feature as a dividend of approximately $8.1 millionin the first quarter of 2000 to reflect the difference between the underlyingconversion price per share of common stock and the estimated fair market valuefor accounting purposes of the common stock on the date of issuance.

**Comparison of the Three Months Ended June 30, 2000 to June30, 2001**

*Revenues*

**             Totalrevenues.**  Total revenues increased 102% fromapproximately $7.2 million for the three months ended June 30, 2000 toapproximately $14.4 million for the three months ended June 30, 2001.

**             Subscription/transactionrevenues.**  Subscription/transaction revenues increased222% from approximately $3.0 million for the three months ended June 30,2000 to approximately $9.7 million for the three months ended June 30,2001. We attribute this increase to continued growth in our managed servicesclient base, further market acceptance of our product offerings and ourincreased sales and marketing efforts.  Subscription/transaction revenues accounted for 42% of our totalrevenues for the three months ended June 30, 2000 and 67% for the three monthsended June 30, 2001.  We expectsubscription/transaction revenues to continue to account for at leasttwo-thirds of our total revenues.

**             Servicesrevenues.**  Services revenues increased 14% fromapproximately $4.1 million for the three months ended June 30, 2000 toapproximately $4.7 million for the three months ended June 30, 2001. Thisincrease resulted from increases in our client base as well as in our averagebilling rates. Services revenues accounted for 58% of our total revenues forthe three months ended June 30, 2000 and 33% for the three months ended June30, 2001.  We expect services revenuesto continue to account for up to one-third of our total revenues.

*Cost of Revenues*

**             Cost ofsubscription/transaction revenues.**  Thecost of subscription/transaction revenues increased from approximately $377,000for the three months ended June 30, 2000 to approximately $4.1 million for thethree months ended June 30, 2001. This increase resulted from our investment inour client support infrastructure and the growth of our managed services clientbase. The cost of subscription/transaction revenues as a percentage ofsubscription/transaction revenues was 13% for the three months ended June 30,2000 and 42% for the three months ended June 30, 2001. This increase as apercentage of subscription/transaction revenues reflected our expansion of ourtechnical support and managed services organization. We expect to realizeproductivity improvements from our investment in our support infrastructure andour managed services agreements.  As weenter into  large multi-year managedservices agreements in new industry verticals or new geographic regions thatmay require significant investments in the related infrastructure, the costsassociated with these managed services agreements may be greater in the initialyear than in the latter years as we realize productivity improvements fromthese infrastructure investments. Accordingly, we expect that our cost ofsubscription/transaction revenues may fluctuate as a percentage ofsubscription/transaction revenues on a quarter over quarter basis.

**             Cost ofservices revenues.**  The cost of services revenues decreased 1%from approximately $3.23 million for the three months ended June 30, 2000to approximately $3.18 million for the three months ended June 30, 2001.This decrease resulted from utilizing internal personnel for clientimplementations instead of third party consultants. The cost of servicesrevenues as a percentage of services revenues was 78% for three months endedJune 30, 2000 and 68% for three months ended June 30, 2001. This decrease reflectsthe productivity improvements that we have made in our implementation andtraining organizations.   We expect thecost of services revenues to decrease as a percentage of services revenues.

*Operating Expenses*

**             Sales andmarketing.**  Sales and marketing expenses consistprimarily of salaries, commissions and bonuses earned by sales and marketingpersonnel, sales training events, public relations, advertising, trade showsand travel expenses related to both promotional events and direct salesefforts. Sales and marketing expenses increased 41% from approximately$3.3 million for three months ended June 30, 2000 to approximately$4.6 million for the three months ended June 30, 2001. This increaseresulted from our continued investment in our sales and marketinginfrastructure, both domestically and internationally. These investmentsincluded significant personnel and related expenses, recruiting fees, travelexpenses and related facility and equipment costs. In addition, we increasedmarketing activities, including trade shows, public relations, direct mailcampaigns and other promotional activities during this period. Sales andmarketing expenses represented 46% of our total revenues for the three monthsended June 30, 2000 and 32% for the three months ended June 30, 2001. Webelieve that we will need to continue to increase our sales and marketingexpenses to expand our market position. As a result, we anticipate that salesand marketing expenses will continue to increase in absolute dollar amounts butdecrease as a percentage of total revenues in future years.

**             Researchand development.**  Research and development expenses consistprimarily of salaries, benefits and equipment for software developers, qualityassurance personnel, program managers and technical writers. Research anddevelopment expenses increased 36% from approximately $2.8 million for thethree months ended June 30, 2000 to approximately $3.8 million for thethree months ended June 30, 2001. This increase resulted from an increase inthe number of internal and contract software developers and quality assurancepersonnel needed to support our product development and testing activities.Research and development expenses represented 39% of our total revenues for thethree months ended June 30, 2000 and 26% for the three months ended June 30,2001.  We believe that we must continueto invest in research and development in order to develop new products andservices. As a result, we anticipate that research and development expenseswill continue to increase in absolute dollar amounts but decrease as apercentage of total revenues.

**             General andadministrative.**  General and administrative expenses consistprimarily of salaries, benefits and related costs for executive, finance,administrative and information services personnel. These expenses also includefees for legal, audit and accounting, and other professional services. Generaland administrative expenses increased 121% from approximately $1.1 millionfor the three months ended June 30, 2000 to approximately $2.4 million forthe three months ended June 30, 2001. This increase resulted from the additionof executive, finance and administrative personnel to support the growth of ourbusiness. General and administrative expenses represented 15% of our totalrevenues for the three months ended June 30, 2000 and 16% for the three monthsended June 30, 2001.  We believe ourgeneral and administrative expenses will continue to increase in absolutedollar amounts, but decrease as a percentage of total revenues as we expand ouradministrative staff, domestically and internationally, and incur expensesassociated with being a public company. We expect these expenses to includeannual and other public reporting costs, directors' and officers' liabilityinsurance, investor relations programs and additional legal, accounting andconsulting fees.

**             Depreciation.** Depreciation expense increased 46% from approximately $539,000 for thethree months ended June 30, 2000 to approximately $789,000 for the three monthsended June 30, 2001. This increase resulted from the depreciation of fixedassets purchased to build the infrastructure needed to support the growth ofour business. Depreciation expense represented 8% of our total revenues for thethree months ended June 30, 2000 and 5% for the three months ended June 30,2001.

**             Amortization.** Amortization expense increased approximately $5.7 million fromapproximately $120,000 for the three months ended June 30, 2000 toapproximately $5.8 million for the three months ended June 30, 2001. Thisincrease resulted from the amortization of goodwill and intangible assets fromthe acquisition of Ford’s global customs operations in July 2000 and theSpeedchain acquisition in March 2001. Amortization expense represented 2% ofour total revenues for the three months ended June 30, 2000 and 40% for thethree months ended June 30, 2001. In the aggregate, amortization for the yearended December 31, 2001 is expected to be approximately $22.7 million.  We expect the adoption of SFAS No. 141 andSFAS No. 142 to result in certain of our intangible assets being subsumed intogoodwill and will have the impact of reducing our amortization of goodwill andintangibles commencing January 1, 2002.

**             Stock-basedcompensation.**  Stock-based compensation expense decreasedfrom approximately $3.0 million for the three months ended June 30, 2000 toapproximately $1.6 million for the three months ended June 30, 2001.Deferred compensation of approximately $6.1 million at June 30, 2001 willbe amortized on an accelerated basis over the applicable vesting period.

**             Otherincome (expenses), net.**  Other income (expenses), net fluctuatesbased on our cash balances available for investment, borrowings under our lineof credit, interest expense related to our term loans and realized gains andlosses on investments. Other income (expenses), net increased fromapproximately $45,000 for the three months ended June 30, 2000 to approximately$851,000 for the three months ended June 30, 2001. This increase reflects theadditional interest expense on the equipment line of credit for three monthsended June 30, 2001, offset by the interest income earned on our proceeds fromour initial public offering completed in October 2000 currently maintained inshort-term investments.

**             Incometaxes.**  No provision for income taxes has beenrecorded for either the three months ended June 30, 2000 or 2001 due toaccumulated net operating losses. We have recorded a valuation allowance forthe full amount of our net deferred tax assets as a result of the uncertaintysurrounding the timing of the realization of these future tax benefits.

**Comparison of the Six Months Ended June 30, 2000 to June 30,2001**

*Revenues*

**             Totalrevenues.**  Total revenues increased 102% fromapproximately $13.4 million for the six months ended June 30, 2000 toapproximately $27.1 million for the six months ended June 30, 2001.

**             Subscription/transactionrevenues.**  Subscription/transaction revenues increased223% from approximately $5.6 million for the six months ended June 30, 2000to approximately $18.2 million for the six months ended June 30, 2001. Weattribute this increase to continued growth in our managed services clientbase, further market acceptance of our product offerings and our increasedsales and marketing efforts.  Subscription/transaction revenues accounted for 42% of our totalrevenues for the six months ended June 30, 2000 and 67% for the six monthsended June 30, 2001.  We expect subscription/transactionrevenues to continue to account for at least two-thirds of our total revenues.

**             Servicesrevenues.**  Services revenues increased 14% fromapproximately $7.8 million for the six months ended June 30, 2000 toapproximately $8.9 million for the six months ended June 30, 2001. Thisincrease resulted from increases in our client base as well as in our averagebilling rates. Services revenues accounted for 58% of our total revenues forthe six months ended June 30, 2000 and 33% for the six months ended June 30,2001.  We expect services revenues tocontinue to account for up to one-third of our total revenues.

*Cost of Revenues*

**             Cost ofsubscription/transaction revenues.**  Thecost of subscription/transaction revenues increased from approximately $741,000for the six months ended June 30, 2000 to approximately $7.8 million for thesix months ended June 30, 2001. This increase resulted from our investment inour client support infrastructure and the growth of our managed services clientbase. The cost of subscription/transaction revenues as a percentage ofsubscription/transaction revenues was 13% for the six months ended June 30,2000 and 43% for the six months ended June 30, 2001. This increase as apercentage of subscription/transaction revenues reflected our expansion of ourtechnical support and managed services organization. We believe the cost ofsubscription/transaction revenues will decrease as a percentage ofsubscription/transaction revenues on a quarter over quarter basis as we expectto realize productivity improvements from our investment in our support infrastructureand our managed services agreements.

**             Cost ofservices revenues.**  The cost of services revenues decreased 5%from approximately $6.5 million for the six months ended June 30, 2000 toapproximately $6.2 million for the six months ended June 30, 2001. Thisdecrease resulted from utilizing internal personnel for client implementationsinstead of third party consultants. The cost of services revenues as apercentage of services revenues was 83% for six months ended June 30, 2000 and69% for six months ended June 30, 2001. This decrease reflects the productivityimprovements that we have made in our implementation and trainingorganizations.   We expect the cost ofservices revenues to decrease as a percentage of services revenues.

*Operating Expenses*

**             Sales andmarketing.**  Sales and marketing expenses increased 34%from approximately $6.6 million for six months ended June 30, 2000 toapproximately $8.9 million for the six months ended June 30, 2001. Thisincrease resulted from our continued investment in our sales and marketinginfrastructure, both domestically and internationally. These investmentsincluded significant personnel and related expenses, recruiting fees, travelexpenses and related facility and equipment costs. In addition, we increasedmarketing activities, including trade shows, public relations, direct mailcampaigns and other promotional activities during this period. Sales andmarketing expenses represented 49% of our total revenues for the six monthsended June 30, 2000 and 33% for the six months ended June 30, 2001. We believethat we will need to continue to increase our sales and marketing expenses toexpand our market position. As a result, we anticipate that sales and marketingexpenses will continue to increase in absolute dollar amounts but decrease as apercentage of total revenues in future years.

**             Researchand development.**  Research and development expenses increased18% from approximately $6.2 million for the six months ended June 30, 2000to approximately $7.3 million for the six months ended June 30, 2001. Thisincrease resulted from an increase in the number of internal and contractsoftware developers and quality assurance personnel needed to support ourproduct development and testing activities. Research and development expensesrepresented 46% of our total revenues for the six months ended June 30, 2000and 27% for the six months ended June 30, 2001.  We believe that we must continue to invest in research anddevelopment in order to develop new products and services. As a result, weanticipate that research and development expenses will continue to increase inabsolute dollar amounts but decrease as a percentage of total revenues.

**             General andadministrative.**  General and administrative expensesincreased 86% from approximately $2.4 million for the six months endedJune 30, 2000 to approximately $4.4 million for the six months ended June30, 2001. This increase resulted from the addition of executive, finance andadministrative personnel to support the growth of our business. General andadministrative expenses represented 18% of our total revenues for the sixmonths ended June 30, 2000 and 16% for the six months ended June 30, 2001.  We believe our general and administrativeexpenses will continue to increase in absolute dollar amounts, but decrease asa percentage of total revenues as we expand our administrative staff,domestically and internationally, and incur expenses associated with being apublic company. We expect these expenses to include annual and other publicreporting costs, directors' and officers' liability insurance, investorrelations programs and additional legal, accounting and consulting fees.

**             Depreciation.** Depreciation expense increased 50% from approximately $1.0 million forthe six months ended June 30, 2000 to approximately $1.5 million for the sixmonths ended June 30, 2001. This increase resulted from the depreciation offixed assets purchased to build the infrastructure needed to support the growthof our business. Depreciation expense represented 7% of our total revenues forthe six months ended June 30, 2000 and 6% for the six months ended June 30,2001.

**             Amortization.** Amortization expense increased approximately $10.5 million fromapproximately $239,000 for the six months ended June 30, 2000 to approximately$10.8 million for the six months ended June 30, 2001. This increase resultedfrom the amortization of goodwill and intangible assets from the acquisition ofFord’s global customs operations in July 2000 and the Speedchain acquisition inMarch 2001. Amortization expense represented 2% of our total revenues for thesix months ended June 30, 2000 and 40% for the six months ended June 30, 20001.

**             Stock-basedcompensation.**  Stock-based compensation expense decreasedfrom approximately $5.6 million for the six months ended June 30, 2000 toapproximately $3.3 million for the six months ended June 30, 2001.Deferred compensation of approximately $6.1 million at June 30, 2001 willbe amortized on an accelerated basis over the applicable vesting period.

**             Otherincome (expenses), net.**  Other income (expenses), net fluctuatesbased on our cash balances available for investment, borrowings under our lineof credit, interest expense related to our term loans and realized gains andlosses on investments. Other income (expenses), net increased fromapproximately $72,000 for the six months ended June 30, 2000 to approximately$1.7 million for the six months ended June 30, 2001. This increase reflects theadditional interest expense on the equipment line of credit for six monthsended June 30, 2001, offset by the interest income earned on our proceeds fromour initial public offering completed in October 2000 currently maintained inshort-term investments.

**             Incometaxes.**  No provision for income taxes has beenrecorded for either the six months ended June 30, 2000 or 2001 due toaccumulated net operating losses. We have recorded a valuation allowance forthe full amount of our net deferred tax assets as a result of the uncertaintysurrounding the timing of the realization of these future tax benefits.

**Liquidity and Capital Resources**

             We had cash and cash equivalentsand short-term investments of $78.3 million as of June 30, 2001, a decrease of$12.4 million from December 31, 2000.

             The Company has a secured revolvingline of credit and an equipment line of credit with PNC Bank. As of December31, 2000 and June 30, 2001, the outstanding balance under the equipment line ofcredit was approximately $2,925,000 and $4,185,000, respectively, and therewere no amounts outstanding under the secured revolving line of credit.  The revolving line of credit was scheduledto expire on December 31, 2000 and was extended to April 30, 2001.  In May 2001, the Company renegotiated andamended its secured revolving line of credit and equipment line of credit.  As amended, the Company may now borrow up to$10,000,000 under the revolving line of credit, with a $2,500,000 sub-limit forthe issuance of letters of credit. Advances under the revolving line of credit are limited to the lesser of$10,000,000 or the sum of 80% of eligible accounts receivable, as defined inthe loan agreement.  The revolving lineof credit bears interest at the greater of the bank’s prime rate or theovernight federal funds rate, (6.75% as of June 30, 2001).  The revolving line of credit matures in May2002.

             The Company may borrow up to$6,439,649 under the equipment line of credit. The equipment line of credit bears interest at the bank’s prime rateplus 50 basis points, (7.25% as of June 30, 2001).  The equipment line of credit has two interest-only paymentperiods. Amounts borrowed until November 15, 2001 are subject to interest-onlypayments. After this date, the Company is required to make principal andinterest payments to repay these borrowings over a period of 30 months. Thesecond interest-only payment period applies to borrowings made from November16, 2001 to May 15, 2002. After May 15, 2002, the Company is required to makeprincipal and interest payments to repay the borrowings from the secondinterest-only period over a period of 30 months, and no additional borrowingsmay occur thereafter.

             The terms of the revolving line of creditand equipment line of credit require the Company to comply with certainfinancial covenants including, but not limited to, restrictions and limitationson future indebtedness, sale of assets and material changes in the Company’sbusiness.  The financial covenantsinclude a minimum quick ratio, as defined in the loan agreement, of 2.0 to 1.0and a maximum ratio of total liabilities to tangible net worth of 1.0 to 1.0for 2001 and 1.5 to 1.0 for 2002 and thereafter.  The most restrictive of the financial covenants is that theCompany's negative operating income shall not be in excess of the amountsspecified below (in thousands): 

| **As of the quarter ended,** | **Negative Operating  Income** |   |
|------------------------------|--------------------------------|--------|
|                              |                                |   |
|                         |                           |   |
| March  31, 2001              | $                              | 6,500  |   |
| June  30, 2001               | 6,500                          |   |
| September  30, 2001          | 5,000                          |   |
| December  31, 2001           | 3,500                          |   |
| March  31, 2002              | 2,500                          |   |
| June  30, 2002               | 1,000                          |   |
| September  30, 2002          | 0                              |   |
| Thereafter                   | 0                              |   |
|                              |                                |        |  |

Negativeoperating income is defined in the loan agreement as loss from operations plus,to the extent they have been deducted in determining the loss from operations,the sum of non-cash expenses including amortization of goodwill, amortizationof intangibles and stock-based compensation expenses, less the sum of non-cashitems of income, plus net interest income/expense, as calculated in accordancewith generally accepted accounting principles.

             Net cash used in operatingactivities totaled approximately $14.6 million for the six months ended June30, 2000 and $14.0 million for the six months ended June 30, 2001.  Net cash flows from operating activitiesreflect net losses of approximately $15.7 million for the six months ended June30, 2000 and $28.2 million for the six months ended June 30, 2001, and to alesser extent, are offset by the non-cash expenses relating to depreciation andamortization, stock-based compensation and provision for allowance for doubtfulaccounts. In addition, the net cash used in operations increased due to theincrease in accounts receivable and a decrease in accrued compensation anddeferred revenues.

             Net cash used in investingactivities was approximately $5.6 million for the six months ended June 30,2000 and $1.3 million for the six months ended June 30, 2001.  Our investing activities reflect theadditions of property and equipment and purchases of investments. We alsoanticipate that our capital expenditures will increase over the next severalyears as we expand our facilities and acquire equipment to support expansion ofour sales, marketing and research and development activities.

             Net cash provided by (used in)financing activities was approximately $19.7 million for the six months endedJune 30, 2000 and $1.5 million for the six months ended June 30, 2001.  The cash provided by financing activitiesfor the six months ended June 30, 2000 reflect the net proceeds from the saleof our redeemable convertible preferred stock.   The cash used in financing activities for the six months endedJune 30, 2001 reflect the principal payments on the equipment line of creditoffset by the proceeds from the exercise of preferred stock warrants and stockoptions.

             Amounts borrowed from one lendinginstitution for capital leases are due over 36 to 48-month repayment periodsand are collateralized by our software products. As of December 31, 2000and June 30, 2001, the outstanding balance under this capital lease agreementwas approximately $541,000 and $409,000 respectively.

             We expect to pay approximately$2.1 million, $2.0 million, $967,000 and $679,000 on our equipmentline of credit and lease agreements in 2001, 2002, 2003 and 2004, respectively.We will fund these commitments through our current cash resources and ourfuture cash flow from operations.

             We intend to continue the investment inthe business, particularly in the areas of research and development, sales andmarketing. Our future liquidity and capital requirements will depend onnumerous factors, including:

| • | The costs and timing of expansion of sales and  marketing activities;                              |
|--------|----------------------------------------------------------------------------------------------------|
|   |                                                                                               |
| • | The costs and timing of product development  efforts and the success of these development efforts; |
|   |                                                                                               |
| • | The extent to which our existing and new  products and services gain market acceptance;            |
|   |                                                                                               |
| • | The level and timing of revenues;                                                                  |
|   |                                                                                               |
| • | The costs involved in maintaining and  enforcing intellectual property rights;                     |
|   |                                                                                               |
| • | The timing of market developments; and                                                             |
|   |                                                                                               |
| • | Available borrowings under line of credit and  capital lease arrangements.                         |

             In addition, we may use cashresources to fund acquisitions of complementary businesses andtechnologies.  We believe that ourcurrent cash resources will be sufficient to meet our working capital andcapital expenditures for at least the next 12 months. Thereafter, we mayfind it necessary to obtain additional equity or debt financing. In the eventthat additional financing is required, we may not be able to raise it on termsacceptable to us, if at all.

             The Company reimburses Ford forcertain expenses in connection with the acquisition of Ford’s global customsoperations.  The Company expects to payapproximately $534,000 in fees to Ford each month for the reimbursement ofexpenses incurred by Ford for the use of facilities, the costs of leasedemployees and the maintenance and expenses related to the acquired technology.

**Recent Accounting Pronouncements**

             In June 2001, the FinancialAccounting Standards Board (“FASB”) issued Statement of Financial AccountingStandards (“SFAS”) No. 141 “Business Combinations” and SFAS No. 142 “Goodwilland Other Intangible Assets.” SFAS No. 141 requires business combinationsinitiated after June 30, 2001 to be accounted for using the purchase method ofaccounting, and broadens the criteria for recording intangible assets separatefrom goodwill.  Recorded goodwill andintangibles will be evaluated against these new criteria and may result incertain intangibles being subsumed into goodwill, or alternatively, amountsinitially recorded as goodwill may be separately identified and recognizedapart from goodwill. SFAS No. 142 requires the use of a nonamortizationapproach to account for purchased goodwill and certain intangibles.  Under a nonamortization approach, goodwilland certain intangibles will not be amortized into results of operations, butinstead will be reviewed for impairment and written down and charged to resultsof operations only in the periods in which the recorded value of goodwill andcertain intangibles is more than its fair value. The provisions of eachstatement, which apply to goodwill and intangible assets acquired prior to June30, 2001, will be adopted by the Company on January 1, 2002.  Management is currently evaluating theimpact of these accounting standards.

**Risks Relating to Our Business**

*             In addition to other information in the Form 10-Q, thefollowing risk factors should be carefully considered in evaluating Vastera andits business, because such factors may have a significant impact on Vastera’sbusiness, operating results and financial condition.  If any of the risk factors set forth in this Form 10-Q or inVastera’s other Securities and Exchange Commission filings actually occur, ourbusiness, financial conditions and results of operations could be materiallyand adversely impacted.  Actual resultscould differ materially from those projected in any forward-looking statements.*

**We have a history of losses and expect to incur losses in thefuture.**

             We incurred net losses ofapproximately $8.3 million in 1998, $10.5 million in 1999,$35.8 million in 2000 and $30.0 million for the six months ended June 30,2001. Our accumulated deficit as of June 30, 2001 was approximately$153.6 million. We expect to continue to incur losses in the foreseeablefuture. We believe that the success of our business depends on our ability tosignificantly increase revenue and to limit our operating expenses. If ourrevenues fail to grow at anticipated rates or our operating expenses increasewithout a corresponding increase in our revenues, or we fail to adjustoperating expense levels appropriately, we may not be able to achieve andmaintain profitability, which would increase the possibility that the value ofyour investment will decline.

**Our inability to provide our managed services successfully toexisting and future clients, including Ford with whom we have entered into asignificant contract, would substantially reduce our revenues, increase ourcosts, hurt our reputation in our industry and adversely affect our business.**

             As a critical element of ourstrategy, we intend to provide managed services to our current and futureclients. We plan to deliver services ranging from providing operationalmanagement for a single global trade process to managing a client's worldwidetrade operation. We expect that the revenues we receive from providing theseservices will increase as a percentage of our revenues over time and representa material portion of our revenues. If we are not able to successfully providethese services to existing or future clients, this strategy will have failed,and we will not realize significant expected future revenues.

             Furthermore, we have established acontractual relationship with Ford under which we acquired Ford's globalcustoms operations and will provide Ford with our managed services.  Through this relationship, Ford has becomeour single largest client, generating a significant portion of our revenues.For the three months ended June 30, 2001, we derived approximately 37% ourtotal revenues from Ford. Because the Ford contract is our largest to date, wecannot assure you that we have adequate resources to meet our obligations toFord.

             Any inability to perform under ouragreement with Ford or other agreements with existing and future clients wouldsignificantly reduce our revenues, increase our costs, hurt our reputation inour industry and adversely affect our business.

**The market for our recently developed web-native solutions isnewly emerging and dependent on the growth of the Internet, and if the Internetdoes not grow as fast or is not as effective as we anticipate, clients may notuse our products and our revenues may decline.**

             The market for our recentlydeveloped web-native solutions is newly emerging and we cannot be certain thatthis market will continue to develop and grow or that companies will choose touse our solutions rather than attempt to develop alternative platforms andapplications internally or through other means. The anticipated growth of theglobal trade market may depend on the growth of the Internet. Increased use ofthe Internet largely depends upon available Internet security, bandwidth andreliability. If use of the Internet by businesses does not increase as fast andis not as effective as we currently anticipate, the market for our web-nativesolutions may not grow as we expect and our revenues would be adverselyaffected.

**Any restriction on our ability to cost effectively andlegally access a foreign country's rules and regulations that are incorporatedinto our global trade content, Global eContent, or any failure to timely updateGlobal eContent to include changes in such rules and regulations, maycompromise the effectiveness of our solutions and adversely impact ourrevenues.**

             The success of our global trademanagement solutions for our clients depends on our ability to obtain or accessthe complex rules and regulations published by foreign governments governing aparticular country's import and export of goods. The foundation of oursolutions, Global eContent, is subject to rapid change at the initiative offoreign governments, based on factors beyond our control. Any changes in acountry's rules and regulations relating to global trade that we are unable toinclude in our Global eContent library may result in dissatisfied clients andpossible litigation. In addition, to the extent a foreign government restrictsour access to its rules and regulations, charges a fee for such access orgrants proprietary rights to such information to one or more of ourcompetitors, our solutions may not be useful to, or cost efficient for, our currentand future clients and our revenues could decrease.

**Our services agreement with Ford is subject to terminationfor any reason by either Ford or us after four years and, if it is terminated,we will not realize the revenues expected to be generated thereunder.**

             The services agreement between Fordand us has a 10-year term that may be terminated by either party for any reasonafter four years. If the services agreement is terminated prior toJuly 2010, we will not realize a material amount of revenues expected tobe generated thereunder. Any events adversely affecting our relationship withFord may result in us not being able to achieve the full marketing benefitassociated with having Ford as a principal client, which would reduce ourrevenues, increase our costs and hurt our reputation in our industry.

**Fluctuations in our operating results and the composition ofour revenues, particularly compared to the expectations of market analysts andinvestors, may lead to a reduced price of our common stock.**

             Our operating results have variedin the past and could fluctuate significantly in the future. We expect that ouroperating results will continue to vary in the future, based on a number offactors, including:

| • | Demand for our products and services;                                                                       |
|--------|-------------------------------------------------------------------------------------------------------------|
|   |                                                                                                        |
| • | Increases in our operating expenses;                                                                        |
|   |                                                                                                        |
| • | Competition in our industry;                                                                                |
|   |                                                                                                        |
| • | Economic conditions adversely affecting  technology companies in our industry;                              |
|   |                                                                                                        |
| • | Variability in the mix of our subscription and  transaction revenues and our consulting revenues;           |
|   |                                                                                                        |
| • | Timing of new solution introductions and  enhancements to our TradeSphere and TradePrism.com solutions; and |
|   |                                                                                                        |
| • | Continued business from our existing clients.                                                               |

          Due to the foregoing factors, our annual orquarterly results of operations may not meet the expectations of securitiesanalysts and investors, which could cause the price of our common stock todecline.

**Our ability to achieve or maintain profitability will beconstrained if we do not effectively manage our rapid growth.**

             We have significantly increased ouremployee base to meet increasing demand for our client solutions. The number ofour employees has increased by 114 employeesfrom 312 as of December 31, 2000 to 426 as of June 30, 2001. As we expandour operations, we expect to continue to increase the size of our employeebase. Our management and operations have been strained by this growth and willcontinue to be strained by our anticipated growth. To compete effectively andto manage future growth, we must continue to improve our financial andmanagement controls, reporting systems and procedures on a timely basis. Wemust also expand, train and manage our employee base.  If we are not successful in managing our growth, our ability toachieve or maintain profitability may be harmed.

**We may be unable to attract and retain key personnel, whichwould adversely affect our ability to develop and effectively manage ourbusiness.**

             Our future performance will dependlargely on the efforts and abilities of our senior executives, key technical,professional services, sales and marketing and managerial personnel. Thisdependence is particular to our business because personal relationships are acritical element of obtaining and maintaining clients. Our success will dependon our ability to attract and retain these key employees in the future. Theemployment of our key personnel, including our executives, is at will. Themarket for such persons is extremely competitive and we may not find qualifiedreplacements for personnel who leave us. In the past, we have experienceddifficulty in hiring qualified technical, professional services, sales,marketing and managerial personnel. In addition, we do not maintain key personlife insurance on any of our key personnel, and have no plans to do so. Theloss of, or the inability to attract, any one or more of our key personnel mayharm our ability to develop and effectively manage our business.

**If we are unable to obtain additional capital as needed orobtain additional capital on unfavorable terms in the future, our operationsand growth strategy may be adversely affected and the market price for ourcommon stock could decline.**

             Historically, we have financed ouroperations primarily through the sale of our equity securities. As of June 30,2001, we had cash and cash equivalents of approximately $5.7 million plusshort-term investments of approximately $72.6 million and an accumulateddeficit of approximately $153.6 million. While we believe that the net proceedsfrom our initial public offering, combined with current cash resources, will besufficient to meet our working capital and capital expenditures for at least 12months, we may need to raise additional debt or equity capital to fund theexpansion of our operations, to enhance our products and services, or to acquireor invest in complementary products, services, businesses or technologies. Ifwe raise additional funds through further issuances convertible debt or equitysecurities, our existing stockholders could suffer significant dilution, andany new equity securities we issue could have rights, preferences andprivileges superior to those of holders of our common stock, including sharesof common stock sold in the offering. Any debt financing secured by us in thefuture could involve restrictive covenants relating to our capital raisingactivities and other financial and operational matters, which may make it moredifficult for us to obtain additional capital and to pursue businessopportunities, including potential acquisitions. In addition, we may not be ableto obtain additional financing on terms favorable to us, if at all. If adequatefunds are not available on terms favorable to us, our operations and growthstrategy may be adversely affected and the market price for our common stockcould decline.

**Our international operations and planned expansion expose usto business risks that could limit the effectiveness of our growth strategy andcause our operating results to suffer.**

             We intend to expand ourinternational operations substantially and enter new international markets,including providing our services to divisions and subsidiaries of Fordoperating in foreign countries. This expansion will require significantmanagement attention and financial resources to translate successfully oursoftware products into various languages, to develop compliance expertiserelating to international regulatory agencies and to develop direct andindirect international sales and support channels. We face a number of risksassociated with conducting our business internationally that could negativelyimpact our operating results, including:

| • | language barriers, conflicting international  business practices and other difficulties relating to the management and  administration of a global business; |
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|   |                                                                                                                                                         |
| • | longer sales cycles associated with educating  foreign clients about the benefits of our products and services;                                              |
|   |                                                                                                                                                         |
| • | currency fluctuations and exchange rates;                                                                                                                    |
|   |                                                                                                                                                         |
| • | multiple and possibly overlapping tax  structures and the burdens of complying with a wide variety of foreign laws;                                          |
|   |                                                                                                                                                         |
| • | the need to consider characteristics unique to  technology systems used internationally; and                                                                 |
|   |                                                                                                                                                         |
| • | economic or political instability in some  international markets.                                                                                            |

             We may not succeed in our effortsor we may experience delays in the execution of our plan to enter newinternational markets, establish, maintain or increase international demand forour solutions or expand our international operations, which may harm our growthstrategy and could cause our operating results to suffer.

**Our lengthy and variable sales cycle makes it difficult forus to predict when or if sales will occur and, therefore, we may experience anunplanned shortfall in revenues.**

             Our products have a lengthy andunpredictable sales cycle that contributes to the uncertainty of our operatingresults. Clients typically view the purchase of our solutions as a significantand strategic decision. As a result, clients generally evaluate our solutionsand determine their impact on existing infrastructure over a lengthy period oftime. Our sales cycle has averaged approximately six to nine months forsoftware sales and nine to twelve months for managed services agreements,depending on a particular client's implementation requirements and whether theclient is new or is extending an existing implementation. The license of oursoftware products may be subject to delays if the client has lengthy internalbudgeting, approval and evaluation processes. We may incur significant sellingand marketing expenses during a client's evaluation period, including the costsof developing a full proposal and completing a rapid proof of concept or customdemonstration, before the client engages us. Larger clients may purchase oursolutions as a part of multiple simultaneous purchasing decisions, which mayresult in additional unplanned administrative processing and other delays. Inaddition, any prolonged decline in the demand for technology products andservices could reduce the market for our solutions, making sales moredifficult.  If revenues forecasted froma specific client for a particular quarter are not realized or are delayed toanother quarter, we may experience an unplanned shortfall in revenues, whichcould adversely affect our operating results.

**Any loss of our strategic alliances or failure to develop newrelationships would reduce our revenues.**

             We have established strategicalliances with a number of third parties including Accenture, Commerce One, EXETechnologies, IBM, JD Edwards, Manugistics Group, Inc., Microsoft, Oracle, SAP,Sun Microsystems and Yantra. We depend on these relationships for our worldwideimplementation, integration, development and promotion of our solutions. Wealso expect these relationships to provide us with marketing and salesopportunities. If we are unable to maintain successfully our existingrelationships or develop new relationships, our revenues may be reduced.

**Any loss of our licensed third-party technology may result inincreased costs of or delays in providing our solutions, which would harm ouroperating results.**

             We license technology from severalcompanies on a non-exclusive basis that is integrated into our TradeSphereproduct suite, including development tools and facilities from IBM (WebSphereand MQ Series) and Forte, which was acquired by Sun Microsystems. We anticipatethat we will continue to license technology from these and other third partiesin the future. This software may not continue to be available on commerciallyreasonable terms, or at all. While the term of our license with SunMicrosystems expires on December 23, 2002, and our license with IBM expires onJune 30, 2006, these licenses would be difficult and time-consuming toreplace. The loss of any of these technology licenses could result in delays inthe licensing of our TradeSphere products until equivalent technology, ifavailable, is identified, licensed and integrated, and would adversely affectour operating results.

**The dynamic and complex nature of Global eContent increasesthe likelihood that we may face costly product liability claims.**

             The foundation of our softwaresolutions and managed services, Global eContent, is a rules-based applicationthat provides comprehensive management of government trade regulations andprograms acquired, interpreted, and updated by Vastera’s in-country tradeexperts. Because of the dynamic and complex nature of Global eContent, we mayface product liability claims in connection with our current products andfuture products. Any provisions in our agreements with our clients designed tolimit our exposure to potential product liability claims and any productliability insurance may not be adequate to protect us from such claims underour agreements. A successful product liability claim brought against us couldharm our financial condition. Even if unsuccessful, any product liability claimcould result in costly litigation and divert management's attention andresources. In addition, the effective implementation of our products may dependupon the successful operation of third-party licensed products in conjunctionwith our products, and therefore any undetected errors in these licensedproducts may prevent the implementation or impair the functionality of ourproducts, delay new product introductions and injure our reputation.

**The uncertainty of future government regulation of theInternet and global trade may add to our operating costs.**

             We may face unanticipated operatingcosts because of the current uncertainty surrounding potential governmentregulation of the Internet and e-commerce. We believe that we are not currentlysubject to direct regulation of online commerce, other than regulationsapplicable to businesses generally. However, the Internet has rapidly emergedas a commerce medium, and governmental agencies have not yet been able to adaptall existing regulations to the Internet environment. Laws and regulations maybe introduced and court decisions reached that affect the Internet or otheronline services, covering issues such as user pricing, user privacy, freedom ofexpression, access charges, content and quality of products and services,advertising, intellectual property rights and information security. As anInternet company, it is unclear in which jurisdictions we are actuallyconducting business. Our failure to qualify to do business in a jurisdictionthat requires us to do so could subject us to fines or penalties and couldresult in our inability to enforce contracts in that jurisdiction. Even if wewere able to ascertain correctly in which jurisdictions we conduct business,many of these jurisdictions have yet to determine the application of theirexisting laws to web-based global trade or develop laws that apply to suchtrade. Complying with new regulation would increase our operating costs.

**We may be unable to expand the import and export trademanagement services provided to Ford into other geographic regions and otherproduct lines in the manner anticipated.**

             Under our agreement, we areproviding Ford with import and export trade management services in a phased ingeographical approach, which started with the United States, and presentlyincludes Mexico and Canada. If we are unable to perform the services providedin the United States, Mexico and Canada in accordance with our mutually agreedupon performance criteria or if Ford experiences business difficulties in othergeographical regions, Ford may not or may be unable to incorporate our servicesinto many of its operations in other geographic regions and product lines,which would reduce our future revenue growth. Additionally, in the past Fordmay not have complied fully with all of the regulatory requirements establishedby foreign governments, which may impede our ability to establish and leverageour operations under the Ford agreements in other geographic regions and whichin turn would reduce our future revenue growth. Any failure to receive therequisite government approvals in connection with providing Ford managedservices would adversely impact our operating results.

**We may be unable to protect our proprietary rightsadequately, which could result in their unauthorized use by our competitors andhave an adverse impact on our revenues.**

             Our success depends on our abilityto protect our proprietary rights. We rely primarily on:

| • | Copyright, trade secret and trademark laws;                                                                                                                                         |
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|   |                                                                                                                                                                                |
| • | Confidentiality agreements with employees and  third parties; and                                                                                                                   |
|   |                                                                                                                                                                                |
| • | Protective contractual provisions such as  those contained in license agreements with consultants, vendors and clients,  although we have not signed such agreements in every case. |

             Despite our efforts to protect ourproprietary rights, unauthorized parties may copy aspects of our products andobtain and use information we regard as proprietary. Other parties may breachconfidentiality agreements and other protective contracts. We may not becomeaware of these breaches or have adequate remedies available. We may need tolitigate claims against third parties who infringe our intellectual propertyrights, which could be costly.

             We have not secured registration ofall our marks in the United States and have pursued limited registration of ourintellectual property in foreign countries. The laws of some foreign countriesdo not protect our proprietary rights to the same extent, as do the laws of theUnited States. Effective copyright, trademark and trade secret protection maynot be available in other jurisdictions. If we cannot adequately protect ourproprietary rights, our competitors could benefit from the unauthorized use ofsuch rights, resulting in an adverse impact on our revenues. Even if we areable to protect our proprietary rights, we could incur significant costs todefend our rights.

**Our patent protection strategy is in development currentlyand any inadequacy in the protection of our technology could increase ouroperating costs.**

             We may also rely on patents toprotect our proprietary rights in the future. Any patent strategy we attempt toimplement may not be successful and could harm our business by disclosingunpatentable trade secrets. The laws that apply to the types of patents we mayseek are evolving and are subject to change. We presently have filedprovisional patent applications in the United States. These applications maynot result in patents or may take longer than we expect to result in patents.We may also decide to not file patent applications in all the countries inwhich we operate or intend to operate. Our decision to do so may inhibit ourability to protect our proprietary rights in those countries. Even if we areissued patents, we cannot assure you that they will provide us any meaningfulprotection or competitive advantage. If we try to enforce our patents, thirdparties may challenge our patents in court or before the United States Patentand Trademark Office. An unfavorable outcome in any such proceeding could requireus to cease using the technology or to license rights from prevailing thirdparties. There can be no assurance that any prevailing party would offer us alicense or that we could execute a license on terms that are commercially acceptable to us. Developing and enforcingour patent protection strategy may increase our operating costs.

**We may have to defend against intellectual propertyinfringement claims, which could be expensive and, if we are not successful,could result in substantial monetary liability and disrupt our business.**

             We cannot be certain that oursolutions do not or will not infringe valid patents, copyrights, trademarks orother intellectual property rights held by third parties. As a result, we maybe subject to legal proceedings and claims from time to time relating to theintellectual property of others in the ordinary course of our business.

             For example, at least one firm hasasserted that it is about to obtain a broad patent that might read on theentire area of international trade calculations or a large portion of commercerelated to the use of computers in international trade. An assessment of ourrisk related to this patent cannot be made until the U.S. Patent and TrademarkOffice issue such patent. If and when such patent is issued, we believe we willthen be able to determine the technology and business processes covered by itand its possible applicability to our business. We cannot assure you that wewill not be subject to lawsuits or other demands arising out of this or any otherpatents that may exist now or in the future.

             We may incur substantial expensesin defending against any third–party infringement claims, regardless oftheir merit. Successful infringement claims against us may result insubstantial monetary liability and may disrupt our business.

**Competition in our market could make it difficult to attractclients, cause us to reduce prices, resulting in reduced gross margins, orcause us to fail to gain market share or experience a loss of market share, anyof which could reduce our operating results.**

             The market for our products andservices is competitive, dynamic and subject to frequent technological changes.The intensity of competition and the pace of change are expected to increase inthe future. Our solutions face competition from a number of competitorsoffering products and services that vary in functionality including:

| • | Content aggregators such as Dun &  Bradstreet and TradeCompass;                                                 |
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|   |                                                                                                                     |
| • | International trade logistics providers such  as ClearCross, Capstan, Nextlinx and QRS Corporation;                      |
|   |                                                                                                                     |
| • | Trade consultants such as management  consulting firms, law firms and boutique consulting firms; and                     |
|   |                                                                                                                     |
| • | Outsourcing service providers, such as  third-party logistics providers, fourth-party logistics providers and  carriers. |

             We expect additional competitionfrom other established and emerging companies as the market for global tradesolutions evolves. Current or future competitors may develop or offer servicesthat are comparable or superior to ours at a lower price, which could harm ourrevenues and profitability. Increased competition could result in pricereductions, reduced gross margins and loss of market share or failure to gainmarket share, any of which would seriously harm our business. We may not beable to compete successfully against current and future competitors, which mayreduce our operating results and lower the value of your investment in ourcommon stock.

**Any future acquisitions may be difficult and disruptive, wemay not realize the expected benefits from any such acquisitions and ouroperating results may be harmed if we cannot address the challenges presentedby acquisitions.**

             In the past we have acquiredbusinesses to expand our operations or market presence and intend to continueour expansion by acquiring or investing in companies, assets or technologiesthat complement our business and offer opportunities for growth. Thesetransactions involve many risks and challenges that we might not successfullyovercome, including:

| • | Difficulties in assimilating technologies,  products, personnel and operations;                           |
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|   |                                                                                                      |
| • | Disruption of our ongoing business and  diversion of management's attention from other business concerns; |
|   |                                                                                                      |
| • | Risks of entering markets in which we have no  or limited prior experience;                               |
|   |                                                                                                      |
| • | Issuances of equity securities that may dilute  your ownership interest in our common stock;              |
|   |                                                                                                      |
| • | Cash payments to, or the assumption of debt or  other liabilities of, the companies we acquire; and       |
|   |                                                                                                      |
| • | Large write-offs related to goodwill and other  intangible assets.                                        |

             Our inability to address theserisks could negatively impact our operating results. In addition, in connectionwith our acquisition of Ford's global customs operations, we acquired, or arereceiving full-time services from, a number of Ford employees. Any failure tosuccessfully integrate these employees into our operations will increase ouroperating expenses and may adversely impact our revenues. Moreover, any futureacquisitions or investments, even if successfully completed, may not generate anyadditional revenue or provide any benefit to our business.

**Your ability to influence corporate matters may be limitedbecause our officers, directors and affiliates will be able to control, andFord will be able to influence, matters requiring stockholder approval and mayhave interests that differ from yours.**

             As of August 8, 2001, our officers,directors and affiliated entities, including Ford, together beneficially ownapproximately 42% of the outstanding shares of ourcommon stock.  In addition, Ford beneficiallyowns approximately 21% of the outstanding shares of our common stock.  As the single largest stockholder ofVastera, Ford may have significant influence over corporate acts requiringstockholder approval, including a merger or sale of the Company. As long asFord holds at least 5% of our common stock, it has the right to appoint anon-voting observer to our board of directors. Accordingly, these stockholders collectively will be able to control allmatters requiring stockholder approval and, thereby, our management andaffairs. In addition, this concentration of ownership may delay, deter orprevent acts that would result in a change of control, which in turn couldreduce the market price of our common stock. Our officers, directors and affiliatedentities, including Ford, may have interests that differ from your interestsand their decisions may negatively impact our future success.

**Our management has broad discretion over how to use theproceeds of our initial public offering; we may not use the proceeds in wayswith which our stockholders agree or that help achieve our growth strategy andour revenues may decline.**

             The net proceeds from our initialpublic offering were $86.1 million, at an offering price of $14.00 per shareand after deducting the underwriting discount and offering expenses.  Our management has broad discretion as tohow to apply the net proceeds of this offering.   We have used the net proceeds from the initial public offeringfor general corporate purposes, principally working capital for increaseddomestic and international sales and marketing expenditures, productdevelopment expenditures, expenditures related to the expansion of ourconsulting services organization and capital expenditures made in the ordinarycourse of business. The net proceeds have been invested in cash equivalents andshort-term investments.  If we fail touse these proceeds effectively, we may not achieve our growth strategy and ourrevenues may decline.

**Other companies may have difficulty acquiring us, even ifdoing so would benefit our stockholders, due to provisions of our corporatecharter and bylaws, Delaware law and Ford's significant ownership position.**

             Provisions in our certificate ofincorporation, in our bylaws and under Delaware law could make it moredifficult for other companies to acquire us, even if doing so would benefit ourstockholders. Our certificate of incorporation and bylaws contain the followingprovisions, among others, which may inhibit an acquisition of our company by athird party:

| • | a staggered board of directors, where  stockholders elect only a minority of the board each year; |
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|   |                                                                                              |
| • | advance notification procedures for matters to  be brought before stockholder meetings;           |
|   |                                                                                              |
| • | a limitation on who may call stockholder  meetings; and                                           |
|   |                                                                                              |
| • | a prohibition on stockholder action by written  consent.                                          |

             We are subject to provisions ofDelaware law that prohibit us from engaging in any business combination withany "interested stockholder," meaning generally a stockholder whobeneficially owns more than 15% of our stock, for a period of three years fromthe date this person became an interested stockholder, unless variousconditions are met, such as approval of the transaction by our board. Thiscould have the effect of delaying or preventing a change in control.Additionally, in connection with establishing our strategic relationship withFord, Ford acquired approximately 8,000,000 shares of common stock in us. As ofAugust 8, 2001, Ford beneficially owns 21% of us.  Because of Ford's significant holdings, other companies may bedeterred from acquiring us, even if being acquired would be in the bestinterest of our other stockholders.

**Item 3: Qualitative and Quantitative Disclosures AboutMarket Risk**

             We develop products in the UnitedStates and market our products in North America, and to a lesser extent,Europe, Canada, Mexico and the Asia-Pacific region. As a result, our financialresults could be affected by factors such as changes in foreign currencyexchange rates or weak economic conditions in foreign markets. As a majority ofsales are currently made in U.S. dollars, a strengthening of the dollar couldmake our products less competitive in foreign markets. We do not expect anymaterial adverse effect on our consolidated financial position, results ofoperations or cash flows due to movements in any specific foreign currency.

             We currently do not use financialinstruments to hedge operating expenses of our European, Mexican or Canadiansubsidiaries. We intend to assess the need to utilize financial instruments tohedge currency exposures on an ongoing basis. Our interest income is sensitiveto changes in the general level of U.S. interest rates, particularly since themajority of our investments are in short-term instruments. Due to the short-termnature of our investments, we believe that there is no material risk exposure.We do not hold or issue derivative securities, derivative commodity instrumentsor other financial instruments for trading purposes. Therefore, no quantitativetabular disclosures are required.

             We have a substantial amount ofintangible assets.  Although as of June30, 2001, we believe our intangible assets are recoverable, changes in theeconomy, the business in which we operate and our own relative performancecould change the assumptions used to evaluate intangible assetrecoverability.  We continue to monitorthese assumptions and their effect on the estimated recoverability of ourintangible assets.

**Part II – Other Information**

**Item 1:              Legal Proceedings**

             We are not a party to any materiallegal proceedings.

**Item 2:****              Changes in Securities and Use of Proceeds**

             We received net offering proceedsfrom our initial public offering of approximately $86.1 million. We have usedapproximately $13.8 million of the net proceeds from the initial publicoffering for general corporate purposes, principally working capital forincreased domestic and international sales and marketing expenditures, productdevelopment expenditures, expenditures related to the expansion of our consultingservices organization and capital expenditures made in the ordinary course ofbusiness. The remaining portions of the net proceeds have been invested incash, cash equivalents and short-term investments. We may also use a portion ofthe remaining net proceeds to expand internationally and to acquire or investin additional businesses, products and technologies that we believe willcomplement our current or future business. We issued 944,485 shares of commonstock in the quarter ending March 31, 2001 in connection with our acquisitionof Speedchain.

**Item 6:              Exhibitsand Reports on Form 8-K**

The followingexhibits are included herein:

             (a)         Exhibits.

             None.

             (b)        Reportson Form 8-K.

             The Company did not file anyreports on Form 8-K during the three months ended June 30, 2001.

**SIGNATURES**

             Pursuant to the requirements of theSecurities and Exchange Act of 1934, the registrant has duly caused this reportto be signed on its behalf by the undersigned thereunto duly authorized inDulles, Virginia on August 14, 2001.

|   | VASTERA, INC. |
|--------|---------------|
|   |          |   |
|   | By:           | /s/ Philip J. Balsamo |
|   |          |  |
|   |          | Philip J. Balsamo |
|   |          | Chief Financial Officer |
|   |          | (Principal Financial and Accounting Officer) |
|   |          |   |