<PAGE>

================================================================================

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                               -----------------

                                   FORM 10-Q

[Mark One]

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934
     For the quarterly period ended March 31, 2002

                                      OR

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934
     For the transition period from __________  to __________

                       Commission File Number: 000-27803

                               -----------------

                                SCIQUEST, INC.
            (Exact name of registrant as specified in its charter)

                               -----------------

                      Delaware                 56-2127592
                   (State or other          (I.R.S. Employer
                    Jurisdiction           Identification No.)
                 of incorporation or
                    organization)

     5151 McCrimmon Parkway, Suite 216, Morrisville, North Carolina 27560
              (Address of principal executive offices) (Zip Code)

                                (919) 659-2100
             (Registrant's telephone number, including area code)

                               -----------------

   Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes  [X]    No  [_]

   As of May 7, 2002, 29,558,513 shares of Common Stock, $.001 par value, were
outstanding.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

<PAGE>

                                SCIQUEST, INC.

                               TABLE OF CONTENTS

<TABLE>
<C>                                                                                                      <S>
PART I--FINANCIAL INFORMATION:
ITEM 1:  FINANCIAL STATEMENTS
        Consolidated Balance Sheets at March 31, 2002 (unaudited) and December 31, 2001.........          3
        Consolidated Statements of Operations for the Three Months Ended March 31, 2002 and 2001
        (unaudited).............................................................................          4
        Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2002
        and 2001 (unaudited)....................................................................          5
        Notes to Consolidated Financial Statements (unaudited)..................................          6
ITEM 2:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS...................................................................         19
ITEM 3:  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..................................... 34

PART II--OTHER INFORMATION:
ITEM 1:  LEGAL PROCEEDINGS.............................................................................. 35
ITEM 2:  CHANGES IN SECURITIES.......................................................................... 35
ITEM 3:  DEFAULTS IN SECURITIES......................................................................... 35
ITEM 4:  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................ 35
ITEM 5:  OTHER INFORMATION.............................................................................. 36
ITEM 6:  EXHIBITS AND REPORTS ON FORM 8-K............................................................... 36
SIGNATURES.............................................................................................. 37
</TABLE>

                                      2

<PAGE>

                                    PART I

Item 1.  Financial Statements
                                SciQuest, Inc.

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                         March 31,    December 31,
                                                                                           2002           2001
                                                                                       -------------  -------------
                                                                                        (unaudited)
<S>                                                                                    <C>            <C>
                                       Assets
Current assets:
   Cash and cash equivalents.......................................................... $  22,122,630  $  25,369,945
   Short-term investments.............................................................    14,020,943      8,542,471
   Accounts receivable, net...........................................................     2,630,709      4,838,426
   Prepaid expenses and other current assets..........................................     2,820,562      2,832,759
                                                                                       -------------  -------------
       Total current assets...........................................................    41,594,844     41,583,601
                                                                                       -------------  -------------

Long-term investments.................................................................     6,241,926     11,729,107
Property and equipment, net...........................................................     4,219,746      5,060,517
Capitalized software and web site development costs, net..............................    10,320,071      9,747,278
Goodwill, net.........................................................................            --     38,257,357
Other intangible assets, net..........................................................       101,583      8,989,247
Other long-term assets................................................................        43,525        558,450
                                                                                       -------------  -------------
       Total assets................................................................... $  62,521,695  $ 115,925,557
                                                                                       =============  =============

                        Liabilities and Stockholders' Equity
Current liabilities:
   Accounts payable................................................................... $     185,120  $     203,571
   Accrued liabilities................................................................     2,978,414      3,906,340
   Deferred revenues..................................................................     1,397,259      2,144,961
   Current maturities of long-term debt and capital lease obligations.................     1,281,780      1,297,320
                                                                                       -------------  -------------
       Total current liabilities......................................................     5,842,573      7,552,192
                                                                                       -------------  -------------
Long-term debt and capital lease obligations, less current maturities.................       945,833      1,187,736
                                                                                       -------------  -------------
Commitments and contingencies.........................................................            --             --

Stockholders' equity:
   Common stock, $0.001 par value; 90,000,000 shares authorized; 29,477,802 and
     29,175,527 shares issued as of March 31, 2002 and December 31, 2001,
     respectively.....................................................................        29,478         29,176
   Additional paid-in capital.........................................................   318,587,402    317,931,597
   Deferred compensation..............................................................      (436,008)      (558,609)
   Deferred customer acquisition costs................................................    (3,748,856)    (4,098,906)
   Accumulated other comprehensive loss...............................................       (19,383)       (18,144)
   Treasury stock, at cost, 304,000 shares as of March 31, 2002 and December 31, 2001.      (281,088)      (281,088)
   Accumulated deficit................................................................  (258,398,256)  (205,818,397)
                                                                                       -------------  -------------
       Total stockholders' equity.....................................................    55,733,289    107,185,629
                                                                                       -------------  -------------
       Total liabilities and stockholders' equity..................................... $  62,521,695  $ 115,925,557
                                                                                       =============  =============
</TABLE>

  The accompanying notes are an integral part of these financial statements.

                                      3

<PAGE>

                                SciQuest, Inc.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                                            Three Months Ended March 31,
                                                                                            ---------------------------
                                                                                                2002           2001
                                                                                            ------------   ------------
<S>                                                                                         <C>            <C>
Revenues:
   License fees and other professional services............................................ $  1,677,539   $    900,394
   E-commerce (net of $0 and $54,896, respectively, of non-cash buyer incentive
     warrants).............................................................................           --     11,686,801
                                                                                            ------------   ------------
       Total revenues......................................................................    1,677,539     12,587,195
                                                                                            ------------   ------------
Cost of revenues:
   Cost of license fees and other professional services (includes $895,577 and $593,471,
     respectively, of amortization of capitalized software costs)..........................    1,540,067      1,006,809
   Cost of e-commerce......................................................................           --     11,282,025
                                                                                            ------------   ------------
       Total cost of revenues..............................................................    1,540,067     12,288,834
                                                                                            ------------   ------------
       Gross profit........................................................................      137,472        298,361
                                                                                            ------------   ------------
Operating expenses:
   Development (includes $69,462 and $122,847, respectively, of stock-based employee
     compensation).........................................................................    1,875,373      4,213,167
   Sales and marketing (includes $33,150 and $134,856, respectively, of stock-based
     employee compensation and $664,963 and ($223,443), respectively, of stock-based
     customer acquisition expenses (benefits)).............................................    1,881,506      4,332,804
   General and administrative (includes $13,195 and $254,598, respectively, of stock-based
     employee compensation and $1,833,333 and $10,229,547, respectively, of
     amortization of intangibles)..........................................................    3,842,679     15,331,074
   Impairment of intangible assets.........................................................    7,155,914             --
                                                                                            ------------   ------------
       Total operating expenses............................................................   14,755,472     23,877,045
                                                                                            ------------   ------------
Operating loss.............................................................................  (14,618,000)   (23,578,684)
                                                                                            ------------   ------------
Other income (expense):
   Interest income.........................................................................      317,232      1,173,710
   Interest expense........................................................................      (27,472)       (53,249)
   Other income (expense), net.............................................................        5,738          2,169
                                                                                            ------------   ------------
       Total other income (expense), net...................................................      295,498      1,122,630
                                                                                            ------------   ------------
Loss before cumulative effect of accounting change.........................................  (14,322,502)   (22,456,054)
Cumulative effect of accounting change for impairment of goodwill..........................  (38,257,357)            --
                                                                                            ------------   ------------
Net loss................................................................................... $(52,579,859)  $(22,456,054)
                                                                                            ============   ============
Net loss per common share--basic and diluted:..............................................
   Before cumulative effect of accounting change........................................... $      (0.49)  $      (0.78)
   Cumulative effect of accounting change..................................................        (1.32)            --
                                                                                            ------------   ------------
       Net loss per share--basic and diluted............................................... $      (1.81)  $      (0.78)
                                                                                            ============   ============
Weighted average common shares outstanding--basic and diluted..............................   29,012,078     28,797,934
                                                                                            ============   ============
</TABLE>


  The accompanying notes are an integral part of these financial statements.

                                      4

<PAGE>

                                SciQuest, Inc.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                                Three Months Ended March 31,
                                                                                ---------------------------
                                                                                    2002           2001
                                                                                ------------   ------------
<S>                                                                             <C>            <C>
Cash flows from operating activities
   Net loss.................................................................... $(52,579,859)  $(22,456,054)
   Adjustments to reconcile net loss to net cash used in operating activities:
     Depreciation and amortization.............................................    3,687,383     12,907,353
     Bad debt expense..........................................................       12,000             --
     Non-cash buyer incentive warrants.........................................       (3,653)        16,028
     Accounting change-impairment of goodwill..................................   38,257,357             --
     Impairment of intangible assets...........................................    7,155,914             --
     Amortization of deferred compensation.....................................      115,807        512,301
     Amortization of deferred customer acquisition costs.......................      668,616       (184,576)
     Amortization of discount on investments...................................       63,842        (21,895)
     Loss from disposal of fixed assets........................................       52,517             --
     Changes in operating assets and liabilities:                                                        --
       Accounts receivable.....................................................    2,226,264      4,732,865
       Prepaid expenses and other current assets...............................       23,758         70,069
       Other assets............................................................      514,925        690,895
       Accounts payable........................................................      (18,451)       300,162
       Accrued liabilities.....................................................     (928,826)      (910,535)
       Deferred revenue........................................................     (809,444)       503,922
                                                                                ------------   ------------
          Net cash used in operating activities................................   (1,561,850)    (3,839,465)
                                                                                ------------   ------------
Cash flows from investing activities
   Purchase of property and equipment and capitalized software.................     (696,258)    (3,590,730)
   Proceeds from sale of equipment.............................................      122,000             --
   Cash paid for acquisitions..................................................     (816,399)            --
   Maturity of investments.....................................................    4,954,650     20,990,742
   Purchase of investments, including restricted cash..........................   (5,009,783)    (1,442,048)
                                                                                ------------   ------------
          Net cash provided by (used in) investing activities..................   (1,445,790)    15,957,964
                                                                                ------------   ------------
Cash flows from financing activities
   Repayment of notes payable..................................................     (208,334)            --
   Repayment of capital lease obligations......................................      (49,109)      (186,496)
   Proceeds from exercise of common stock warrants and options.................       19,007         26,040
                                                                                ------------   ------------
          Net cash used in financing activities................................     (238,436)      (160,456)
                                                                                ------------   ------------
Effect of exchange rate changes on cash and cash equivalents...................       (1,239)       (17,379)
                                                                                ------------   ------------
Net increase (decrease) in cash and cash equivalents...........................   (3,247,315)    11,940,664
Cash and cash equivalents at beginning of period...............................   25,369,945     20,162,831
                                                                                ------------   ------------
Cash and cash equivalents at end of period..................................... $ 22,122,630   $ 32,103,495
                                                                                ============   ============
</TABLE>

  The accompanying notes are an integral part of these financial statements.


                                      5

<PAGE>

                                SciQuest, Inc.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.  The Company

  Nature of Operations

   SciQuest, Inc. ("SciQuest" or the "Company"), which began operations in
1995, is a technology and solutions company that provides integrated e-commerce
and research asset management solutions for research enterprises and their
supply chain partners worldwide. SciQuest develops and sells software that
improves the efficiency of research scientists in pharmaceutical, biotechnology
and chemical companies. SciQuest software helps scientists and their support
staff find, acquire and manage scientific supplies, such as chemicals, testing
materials and proprietary compounds. SciQuest generates revenues from
scientific organizations by charging license, subscription and maintenance fees
for the use of its technology. SciQuest also offers professional services
related to these solutions, for activities such as project implementation and
training. In addition, SciQuest receives revenue from scientific supply
manufacturers for converting their paper catalogs into an electronic format,
enhancing or enriching the data and distributing the information as directed by
the suppliers.

   Historically, the Company has earned revenues from e-commerce transactions
generated by purchases made through the SciQuest web sites. Effective May 1,
2001, the Company ceased taking title to products sold through our e-commerce
solution. In addition, SciQuest, Inc. has historically earned revenue for
advertising on its web sites and advertising in the printed catalogue of
scientific products (the "Source Book"), which is prepared and distributed by
the Company's subsidiary, BioSupplyNet, Inc. ("BioSupplyNet"). The Company
anticipates it will continue to earn advertising revenue from the Source Book,
primarily all of which has historically been recognized, and is expected to
continue to be recognized, in the second quarter of each fiscal year. The
Company also recognizes revenues from its subsidiary, EMAX Solution Partners,
Inc. ("EMAX"), which provides customized electronic research solutions designed
to integrate chemical information systems to improve productivity and
compliance for pharmaceutical, scientific and research companies.

  Liquidity

   The accompanying financial statements have been prepared on a basis which
assumes that the Company will continue as a going concern and which
contemplates the realization of assets and the satisfaction of liabilities and
commitments in the normal course of business. The Company had an accumulated
deficit of $258,398,000 at March 31, 2002, incurred a net loss of $52,580,000
for the quarter then ended, and expects to incur additional losses in 2002.
During the two years ended December 31, 2001 the Company incurred cumulative
losses from operations of $177.1 million and used $76.6 million of net cash in
operating activities.

   The Company has funded its operations primarily through private placements
of preferred stock during 1998 and 1999 and its 1999 initial public offering.
As of March 31, 2002, the Company had total cash and investments of $42.4
million, which is comprised of cash and cash equivalents of $22.1 million,
short-term investments of $14.0 million and long-term investments of $6.3
million.

   The Company has recently restructured its operations and has transitioned
from an e-commerce transaction company to a software and related service
provider. As a result, there is only limited operating history under the
current business model with which to estimate future performance. The Company's
cash flow is dependent on its ability to control expenses and achieve revenue
growth which is dependent on the Company's ability to sell software licenses
and related services as well as development of new products and service
offerings. Additionally, 70% of the Company's revenue for the three months
ended March 31, 2002 was generated by four customers and the Company expects
that large individual transactions with major customers may represent an
increasing percentage of revenues.

   There are significant uncertainties, based on recent economic conditions and
the Company's limited operating experience as a software and related services
provider, as to whether debt or equity financing will be available if the
Company is required to seek additional funds. If the Company is able to secure
funds in the debt or equity markets, it may not be able to do so on terms that
are favorable or acceptable to the Company. Additional equity financing would
likely result in substantial dilution to existing stockholders. If the Company
is unable to raise additional capital to continue to support

                                      6

<PAGE>

                                SciQuest, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

operations, it may be required to scale back, delay or discontinue one or more
product offerings, which could have a material adverse affect on the Company's
business. Reduction or discontinuation of any one of the Company's business
components or product offerings could result in additional charges, which would
be reflected in the period of the reduction or discontinuation.

   Based on average quarterly operating expenses (excluding non-cash expenses)
incurred in the three quarters after the June 2001 restructuring and budgeted
expenditures for 2002, the Company believes cash and investments at March 31,
2002 will be sufficient to satisfy requirements for more than the next year.
However, lower than expected cash flows as a result of lower revenue or
increased expenses could require the Company to raise additional capital in
order to maintain its operations. There is no assurance that the Company will
be able to raise funds on favorable terms, or at all.

2.  Summary of Significant Accounting Policies

  Unaudited Interim Financial Information

   The unaudited interim consolidated financial statements as of and for the
three months ended March 31, 2002 and March 31, 2001 have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission (the "SEC") for interim financial reporting. These consolidated
financial statements are unaudited and, in the opinion of management, include
all adjustments necessary to present fairly the consolidated balance sheets,
statements of operations and statements of cash flows for the periods presented
in accordance with generally accepted accounting principles. The consolidated
balance sheet at December 31, 2001 has been derived from the audited
consolidated financial statements at that date. Certain information and
footnote disclosures have been omitted in accordance with the rules and
regulations of the SEC. These interim consolidated financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto for the year ended December 31, 2001 included in the Company's Form
10-K, filed with the SEC on March 15, 2002. The results of operations for the
three months ended March 31, 2002 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2002.

  Use of Estimates

   The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

  Principles of Consolidation

   As of December 31, 2001, the Company reorganized its corporate structure and
dissolved Internet Auctioneers International, Inc., Intralogix, Inc.,
SciCentral, Inc., and merged BioSupplyNet, Inc. and EMAX Solution Partners,
Inc. with SciQuest, Inc. The consolidated financial statements include the
accounts of SciQuest, Inc. and its wholly-owned subsidiaries, EMAX Solution
Partners (UK) Limited, Textco, Inc. ("Textco") and SciQuest Europe Limited. All
significant intercompany accounts and transactions have been eliminated.

   The consolidated financial statements prior to 2002 include the accounts of
SciQuest, Inc. and its wholly-owned subsidiaries, BioSupplyNet, Inc., Internet
Auctioneers International, Inc., Intralogix, Inc., SciCentral, Inc., EMAX
Solution Partners, Inc. and SciQuest Europe Limited. All significant
intercompany accounts and transactions have been eliminated.

  Cash and Cash Equivalents

   The Company considers all highly liquid investments with a maturity of three
months or less at the date of purchase to be cash equivalents.

  Investments

   The Company considers all investments that are not considered cash
equivalents and with a maturity of less than one year from the balance sheet
date to be short-term investments. The Company considers all investments with a
maturity of

                                      7

<PAGE>

                                SciQuest, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

greater than one year to be long-term investments. All investments are
considered as held-to-maturity and are carried at amortized cost, as the
Company has both the positive intent and ability to hold them to maturity.
Interest income includes interest, amortization of investment purchases
premiums and discounts, and realized gains and losses on sales of securities.
Realized gains and losses on sales of investment securities are determined
based on the specific identification method.

  Restricted Cash

   At March 31, 2002, restricted cash of $1,849,218 and $1,456,239 included in
cash and cash equivalents and long-term investments, respectively, is comprised
of certificates of deposit and money market accounts which serve as collateral
for the Company's lease commitments, acquisition earn-out commitments, officer
loans guaranteed by the Company and other debt.

  Accounts Receivable

   The Company bears all risk of loss on credit sales including those of
scientific products in e-commerce transactions. Accounts receivable is
presented net of an allowance for doubtful accounts.

  Property and Equipment

   Property and equipment is primarily comprised of furniture and computer
equipment which are recorded at cost and depreciated using the straight-line
method over their estimated useful lives which are usually seven years and
three to five years for furniture and computer software and equipment,
respectively. Property and equipment includes certain equipment under capital
leases. These items are depreciated over the shorter of the lease period or the
estimated useful life of the equipment.

   Expenses for repairs and maintenance are charged to operations as incurred.
Upon retirement or sale, the cost of the disposed assets and the related
accumulated depreciation are removed from the accounts, and any resulting gain
or loss is credited or charged to operations.

  Development Costs

   Development costs include expenses incurred by the Company to develop,
enhance, manage, monitor and operate the Company's web sites and costs of
managing and integrating data on the Company's web sites and developing
software to be licensed. The Company accounts for the software development
component of internal use software development costs in accordance with SOP No.
98-1 which requires certain costs associated with the development of the
Company's web sites and internal applications to be capitalized and amortized
to development expense over the useful life of the related applications, which
generally range from three months to one year. Capitalized development costs
are amortized over the estimated life of the related application.

  Capitalized Software Costs

   Software development costs related to software products sold to customers
are required to be capitalized beginning when a product's technological
feasibility has been established and ending when a product is available for
general release to customers. Capitalized software costs result from the
acquisitions of EMAX, Textco, Inc. and Groton NeoChem (see Note 3) as
determined by valuations prepared by management and from developing
standardized versions of software products for sale. Capitalized software costs
are amortized over the period of expected benefit, which is typically three to
four years.

  Intangible Assets

   Intangible assets consist of goodwill and certain other intangible assets
acquired in the Company's various acquisitions. Goodwill is recorded as an
asset and reviewed annually for impairment. Prior to 2002, goodwill was
amortized over a period of three to five years. All other intangible assets are
amortized over the period the Company expects to benefit from their use,
typically a period of two to three years.

                                      8

<PAGE>

                                SciQuest, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The Company evaluates the recovery of goodwill and other intangible assets
according to the applicable accounting standards in order to determine whether
an impairment has occurred. For goodwill, an impairment is recognized whenever
the carrying value of the goodwill and its related assets exceeds fair value,
which is normally measured as the sum of the estimated future discounted cash
flows attributable to the business component to which the asset relates. (See
Note 8).

  Fair Value of Financial Instruments

   The carrying values of cash and cash equivalents, accounts payable and
accounts receivable at March 31, 2002 and December 31, 2001 approximated their
fair values due to the short-term nature of these items. The Company considers
its short-term and long-term investments to be held-to-maturity, and therefore
these investments are carried at amortized cost.

  Impairment of Long-Lived Assets

   The Company evaluates the recoverability of its property and equipment and
intangible assets in accordance with Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS No. 144"). SFAS No. 144 requires long-lived assets to be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An impairment is
recognized in the event that the net book value of an asset exceeds the future
undiscounted cash flows attributable to such asset or the business to which
such asset relates and the net book value exceeds fair value. The impairment
amount is measured as the amount by which the carrying amount of a long-lived
asset (asset group) exceeds its fair value.

   In March 2000, the Company acquired all of the outstanding common and
preferred stock of EMAX Solution Partners, Inc. (EMAX) and allocated
$22,000,000 of the purchase price to trademarks. Subsequently, the value of the
trademarks was being amortized to expense over a three-year period. During the
first quarter of 2002, the Company discontinued utilizing the EMAX trademarks
and, accordingly, determined that the carrying value of the trademarks had been
impaired. As a result, the company recognized a charge to income of $7,155,914,
the unamortized balance at March 31, 2002, ($0.25 per share) in the first
quarter of 2002. As part of the restructuring plan during the year ended
December 31, 2001, an impairment of approximately $6.7 million of long-lived
assets was recognized related to the elimination of unprofitable business
lines. (See Notes 5 and 8).

   The Company adopted Statement of Financial Accounting Standards No. 142,
"Goodwill and other Intangible Assets," ("SFAS No. 142") effective January 1,
2002. This statement addresses accounting and reporting for acquired goodwill
and intangible assets. In accordance with the transitional provisions of SFAS
No. 142, the Company determined that the carrying value of goodwill and related
assets exceeded their fair value. As a result, the Company recognized a charge
to income of $38,257,357 ($1.32 per share), as the cumulative effect of a
change in accounting principle during the first quarter of 2002.

  Revenue Recognition

   SciQuest generates revenues from scientific organizations by charging
license, subscription and maintenance fees for the use of its technology.
SciQuest also offers professional services related to these solutions, for
activities such as project implementation and training. In addition, SciQuest
receives revenue from scientific supply manufacturers for converting their
paper catalogs into an electronic format, enhancing or enriching the data and
distributing the information as directed by the suppliers. Until the third
quarter of 2001, the Company earned much of its revenues from the sale of
scientific products through its e-commerce web sites. The Company is no longer
offering order-processing services and expects no substantial transaction
revenues in the future. With the acquisition of EMAX in March 2000, the Company
began deriving revenues from custom software development and implementation
services, from sales of software licenses, and from support and maintenance
contracts.

   Prior to May 1, 2001, the Company took legal title to the products that were
purchased from its suppliers and that, in turn, were sold to its customers in
e-commerce transactions. Therefore, through April 2001, revenues received from
the sale of scientific products in e-commerce transactions and from the sale of
scientific equipment were recorded as product revenues on a gross basis and
were recognized by the Company upon delivery to the customer. As of May 1,
2001, the Company no longer took legal title to these products. Instead, the
Company acted as an agent on behalf of the customer, and title passed directly
from the supplier to the customer.

                                      9

<PAGE>

                                SciQuest, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Since the Company has acted as an agent for the customer and not as the
primary obligor in the transaction for orders on or after May 1, 2001, the
Company no longer records sales of scientific products and scientific equipment
in e-commerce transactions on a gross basis. For each sale, the Company
recognizes revenue in the amount of the net commission that it earns for
processing the transaction and/or payment for services. As a result of this
change in the way the Company does business, much lower revenues from
e-commerce transactions are being recorded; however, the calculation of gross
profit dollars from e-commerce transactions remains the same, although the
gross margin as a percentage of related net revenue increases.

   As a result, the e-commerce revenues of $11,686,801 for the three months
ended March 31, 2001 were comprised of orders taken prior to May 1, 2001, which
were recorded on a gross basis. During the second half 2001, the Company phased
out order processing services provided to customers, thereby eliminating
e-commerce transaction volume during 2002.

   Advertising revenues are recognized ratably over the period in which the
advertisement is displayed, provided that the Company has no significant
remaining obligations to the advertiser and that collection of the resulting
receivable is probable. Revenues from advertising included in the Source Book
are recognized at the date the Source Book is published and distributed to the
purchasers of scientific products as the Company has met all of its obligations
to the advertisers at that date. Source Book revenue is included in license
fees and other professional services and has historically been recognized in
the second quarter of each fiscal year.

   During 2001, the Company began generating revenues by charging license,
subscription and maintenance fees for the use of its technology and by charging
scientific supply manufacturers for data conversion and maintenance services.
The related revenues for access to the technology and supplier data conversion
and maintenance services are recognized ratably over the period of the
agreements.

   With the acquisition of EMAX in March 2000, revenues from the sale of
software licenses and custom development and implementation services under
fixed-fee contracts are recognized using the percentage-of-completion method
over the term of the development and implementation services. Revenues from the
sale of standardized versions of the EMAX software are recognized upon customer
acceptance in accordance with Statement of Position 97-2, "Software Revenue
Recognition." Revenues from implementation services are recognized concurrently
with the effort and costs incurred by the Company, at billable rates specified
in the terms of the contract. Losses expected to be incurred on custom
development and implementation services contracts in process, for which the fee
is fixed, are charged to income in the period in which the estimated losses are
initially identified. The Company sells maintenance contracts to provide
updates and standard enhancements to its software products. Maintenance fee
revenue is recognized ratably over the term of the arrangements, generally one
year.

  Cost of Revenues

   Cost of e-commerce revenues represents the purchase price to the Company of
the scientific products sold through its e-commerce web sites and of scientific
equipment, shipping and handling fees and the cost of maintaining such web
sites. Prior to May 1, 2001, the Company generally took legal title to the
scientific products and equipment purchased at the date of shipment and
relinquished title to its customers upon delivery. Effective May 1, 2001, the
Company discontinued taking legal title to these products and began recording
revenue on a net basis for the remainder of 2001. There were no e-commerce
transactions in 2002.

   The cost of software licensing, implementation and maintenance revenues
consists primarily of personnel costs for employees who work directly on the
development and implementation of customized electronic research solutions and
who provide maintenance to customers, and also consists of the amortization of
capitalized software development costs. Cost of advertising and subscription
revenue includes the cost of preparing the advertisements for display on the
Company's web sites and the cost of publishing and distributing the Source
Book. Advertising production costs are recorded as cost of revenues the first
time an advertisement appears on the Company's web sites.

                                      10

<PAGE>

                                SciQuest, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Sales and Marketing Expenses

   Sales and marketing expenses consist primarily of costs, including salaries
and sales commissions, of all personnel involved in the sales process. Sales
and marketing expenses also include costs of advertising, trade shows and
certain indirect costs and amortization of deferred customer acquisition costs.
All costs of advertising the services and products offered by the Company are
expensed as incurred.

  Deferred Customer Acquisition Costs

   Deferred customer acquisition costs relate to common stock warrants given to
several key suppliers and buyers of scientific products. The amount of deferred
customer acquisition costs is and will be adjusted in each reporting period
based on changes in the fair value of the underlying common stock until such
date as the warrants are fully vested and non-forfeitable. Deferred customer
acquisition costs will be amortized as a non-cash charge to sales and marketing
expense over the term of the related contractual relationship using a
cumulative catch-up method. The terms of the contractual relationships range
from three to five years.

   In addition, the Company has agreed to issue to certain major enterprise
buyers additional incentive warrants, the number of which will be based on each
buyer's volume of purchases during the years 2000, 2001 and 2002. The value of
these warrants will be determined using the Black-Scholes Model at the issuance
date, adjusted periodically using the cumulative catch-up approach. Deferred
customer acquisition costs are presented net of accumulated amortization.

  Income Taxes

   The Company accounts for income taxes using the liability method which
requires the recognition of deferred tax assets or liabilities for the
temporary differences between financial reporting and tax bases of the
Company's assets and liabilities and for tax carryforwards at enacted statutory
tax rates in effect for the years in which the differences are expected to
reverse.

   The effect on deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date. In addition, valuation
allowances are established when necessary to reduce deferred tax assets to the
amounts expected to be realized.

  Stock Based Compensation

   The Company accounts for non-cash stock based compensation in accordance
with the provisions of Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees", and its related interpretations, which states
that no compensation expense is recognized for stock options or other
stock-based awards to employees that are granted with an exercise price equal
to or above the estimated fair value per share of the Company's common stock on
the grant date. In the event that stock options are granted with an exercise
price below the estimated fair market value of the Company's common stock at
the grant date, the difference between the fair market value of the Company's
common stock and the exercise price of the stock option is recorded as deferred
compensation. Deferred compensation is amortized to compensation expense over
the vesting period of the related stock option.

   The Company has adopted the disclosure requirements of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", which requires certain pro forma disclosures as if compensation
expense was determined based on the fair value of the options granted at the
date of the grant.

  Credit Risk, Significant Customers and Concentrations

   Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents, accounts
receivable and investments. Cash and cash equivalents are deposited with high
credit quality financial institutions which invest primarily in U.S. Government
securities, highly rated commercial paper and certificates of deposit
guaranteed by banks which are members of the FDIC. The counterparties to the
agreements relating to the Company's investments consist primarily of the U.S.
Government and various major corporations with high credit standings.

                                      11

<PAGE>

                                SciQuest, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   During the three months ended March 31, 2002, four customers comprised 24%,
20%, 14% and 12%, respectively, of the Company's revenue. Generating revenue
from large sales and installations of software increase short-term
concentrations of credit risk with respect to accounts receivable. This credit
risk is typically limited due to the contractual structure and short-term
nature of each engagement and because most customers are located in the United
States. At March 31, 2002, one customer comprised 58% of the gross accounts
receivable balance. This customer is within the final 9 months of a multi-year
equipment financing arrangement with the Company that began during the year
ended December 31, 2000. Substantially all of the Company's revenues are from
sales transactions originating in the United States.

  Comprehensive Income (Loss)

   Effective January 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income,"
("SFAS No. 130"). Comprehensive income, as defined, includes all changes in
equity during a period from non-owner sources. The Company's only item of other
comprehensive income during the three months ended March 31, 2002 and 2001 was
foreign currency translation.

  Segment Reporting

   As a result of the acquisition of EMAX, the Company determined that it had
separately reportable operating segments in 2000 and 2001, as defined by
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131"). SFAS No.
131 supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise", replacing the "industry segment" approach with the "management"
approach. The management approach designates the internal organization that is
used by management for making operating decisions and assessing performance as
the source of the Company's reportable segments. SFAS No. 131 also requires
disclosures about products and services, geographic areas, and major customers.
The adoption of SFAS No. 131 did not affect results of operations or financial
position but did affect the disclosure of segment information (see Note 4).

   As discussed previously, in 2001 the Company discontinued the e-commerce
business segment. Accordingly, beginning January 1, 2002, the Company has only
one reportable business segment--license fees and other professional services.

  Net Income (Loss) Per Common Share

   Basic net income (loss) per common share is computed by dividing net income
(loss) available to common stockholders by the weighted average number of
common shares outstanding. Diluted net income (loss) per common share is
computed by dividing net income (loss) available to common stockholders by the
weighted average number of common shares and dilutive potential common share
equivalents then outstanding. Potential common shares consist of shares
issuable upon the exercise of stock options and warrants and shares issuable
upon conversion of Class B common stock and convertible preferred stock. The
calculation of the net loss per share available to common stockholders for the
three months ended March 31, 2002 and 2001 does not include any potential
shares of common stock equivalents, as their impact would be anti-dilutive.

   In September 2001, the Board of Directors authorized a stock repurchase
program. The program authorizes the Company to purchase up to $5 million of
common stock over the next twelve months from time to time in the open market
or in privately negotiated transactions depending on market conditions. As of
March 31, 2002, the Company had purchased and placed in treasury, at cost,
304,000 shares of its common stock.

  Reclassifications

   Certain prior period amounts have been reclassified to conform with the
current period presentation.

  Recent Accounting Pronouncements

   In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 141, "Business Combinations," ("SFAS No.
141"). SFAS No. 141 supersedes APB Opinion No. 16, "Business Combinations," and
FASB Statement No. 38, "Accounting for Preacquisition Contingencies of
Purchased Enterprises." SFAS No. 141 requires: (1) that all business
combinations be accounted for by the purchase method, thereby eliminating the
pooling method, (2) that assets (including intangible assets) be recognized and
valued apart from goodwill, and (3) that additional

                                      12

<PAGE>

                                SciQuest, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

disclosures be made regarding business combinations and the resulting
allocation of purchase price. The provisions of SFAS No. 141 apply to all
business combinations initiated after June 30, 2001 and to all purchase method
acquisitions dated on or after July 1, 2001. The Company's adoption of SFAS No.
141 did not have a material impact on the consolidated financial position or
results of operations.

   In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets,"
("SFAS No. 142") . SFAS No. 142 supersedes APB Opinion No. 17, "Intangible
Assets" and primarily addresses accounting for goodwill and other intangible
assets subsequent to their acquisition. The major provisions include: (1) the
ceasing of amortization of goodwill and indefinite lived intangible assets, (2)
the testing for impairment of goodwill and indefinite lived intangible assets
at least annually, and (3) the removal of the restriction that the maximum
amortization period of intangible assets with finite lives be limited to 40
years. The provisions of SFAS No. 142 are effective for fiscal years beginning
after December 15, 2001 (with the exception that any goodwill or intangible
assets acquired after June 30, 2001 will be subject immediately to the
statement's provisions) with application being required at the beginning of an
entity's fiscal year. Any impairment losses from the initial application are to
be reported as a cumulative effect of a change in accounting principle in
accordance with APB Opinion No. 20, "Accounting Changes." The Company has
recorded an impairment of $38,257,357 in the first quarter of 2002 related to
the initial application of this standard (see Note 8).

   In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 143, "Accounting for Asset Retirement
Obligations," ("SFAS No. 143"). SFAS No. 143 requires recording the fair value
of a liability for an asset retirement obligation in the period in which it is
incurred, and a corresponding increase in the carrying value of the related
long-lived asset. Over time, the liability is accreted using the original
discount rate when the liability was initially recognized, and the capitalized
cost is depreciated over the useful life of the related asset. Upon settlement
of the liability, it is either settled for its recorded amount or a gain or
loss upon settlement is recorded. The provisions of SFAS No. 143 will be
effective for fiscal years beginning after June 15, 2002. The adoption of SFAS
No. 143 is not expected to have any impact on the Company's financial
statements or results of operations.

   In October 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," ("SFAS No. 144"). SFAS No. 144 supersedes FASB
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," ("SFAS No. 121") and APB Opinion No. 30,
"Reporting the Results of Operations--Reporting the Effects of Disposal of a
Segment of Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," ("APB No. 30"). SFAS No. 144, while retaining the
fundamental recognition and measurement provision of SFAS No. 121, establishes
a "primary-asset" approach to determining the cash flow estimation period for a
group of assets and liabilities. Similarly, SFAS No. 144 retains the basic
provisions of APB No. 30, but broadens the presentation to include a component
of an entity. In addition, discontinued operations are no longer measured on a
net realizable value basis and future operating losses are no longer recognized
before they occur. Rather, discontinued operations are carried at the lower of
carrying amount or fair value less cost to sell. Application of the provisions
of SFAS No. 144 is required for fiscal years beginning after December 15, 2001.
The adoption of SFAS No. 144 did not have a material impact on the Company's
financial statements or results of operations. However, the Company has
recognized an impairment of $7,155,914 during the first quarter of 2002 related
to abandoned trademarks under SFAS No. 144 (see Note 8).

  Employee Stock Purchase Plan

   During 2000, the Board of Directors reserved 1,100,000 shares of the
Company's common stock for issuance under the Employee Stock Purchase Plan (the
"ESPP"). The ESPP has two 24-month offering periods (each an "Offering Period")
annually, beginning May 1 and November 1, respectively. The first Offering
Period under the ESPP ended on November 1, 2000. Eligible employees can elect
to make deductions from 1% to 20% of their compensation during each payroll
period of an Offering Period. Special limitations apply to eligible employees
who own 5% or more of the outstanding common stock of the Company. None of the
contributions made by eligible employees to purchase the Company's common stock
under the ESPP are tax deductible to the employees. On April 30 and October 31
(the "Purchase Date") of each year, the total payroll

                                      13

<PAGE>

                                SciQuest, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

deductions by an eligible employee for that six-month period will be used to
purchase common stock of the Company at a price equal to 85% of the lesser of
(a) the reported closing price of the Company's common stock on the enrollment
date of the Offering Period, or (b) the reported closing price of the common
stock on the Purchase Date.

3.  Acquisitions

  Textco, Inc

   On February 19, 2002, the Company purchased all of the outstanding stock of
Textco, Inc. in exchange for the issuance of 218,737 shares of the Company's
common stock with a value of approximately $329,000 based on the average market
price over the period covering 2-days before and after the acquisition date,
cash payments in the amount of $393,000 (including $118,000 for
acquisition-related expenses) and the assumption of $37,000 in net liabilities
of Textco. This acquisition was accounted for using the purchase method of
accounting under SFAS No. 141. The results of Textco's operations have been
included in the consolidated financial statements since the date of acquisition.

   Of the total purchase price, $609,000 was allocated to the developed
software costs and $106,000 was allocated to non-competition agreements. These
assets are being amortized over a period of two to three years. An
insignificant amount of purchase price was allocated to the tangible assets.

   The purchase of Textco expands SciQuest's software product offerings into
the early stages of drug discovery research via biological research software
and increases penetration into targeted biotechnology, pharmaceutical and
research organizations. Textco's products are used by molecular biologists.
Installations include commercial and academic research organizations and
research universities. Textco's two primary products, Gene Construction Kit and
Gene Inspector, provide users with an intuitive, graphical technology for gene
cloning projects, DNA sequence analyses and experiment tracking via electronic
notebooks.

   The merger agreement includes incentive payments upon achievement of
cumulative revenue targets during the first year. Cash of $180,000 and 269,215
shares of common stock related to the incentive payments have been placed in
escrow. The cash is included the Company's restricted cash disclosures. These
contingently issuable shares will not be considered outstanding common shares
or included in the computation of basic earnings per share until all necessary
conditions for their issuance have been met. Due to the antidilutive effect,
these shares will not be included in the computation of dilutive earnings per
share.

  Groton NeoChem

   On March 18, 2002, the Company purchased substantially all of the assets of
Groton NeoChem for cash payments in the amount of $423,000 (including $123,000
for acquisition-related expenses) and the assumption of $26,000 in net
liabilities. This acquisition was accounted for using the purchase method of
accounting under SFAS No. 141. The results of Groton NeoChem's operations have
been included in the consolidated financial statements since the date of
acquisition.

   Of the total purchase price, approximately $448,000 was allocated to the
developed software costs, which are being amortized over a period of three
years. An insignificant amount of purchase price was allocated to the tangible
assets.

   The Groton NeoChem products are an additional step in the Company's strategy
of building a comprehensive set of enterprise solutions for high-throughput
research. These solutions facilitate the capture, organization, management,
analysis and presentation of data by integrating advanced software and
analytical instrument technology.

   The employment agreements of key personnel include incentive payments of up
to $240,000 upon achievement of cumulative revenue targets during the first
year. The payments may be made in the form of cash, stock or a combination of
both depending upon certain Company and employee elections.

                                      14

<PAGE>

                                SciQuest, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


4.  Business Segment Data

   As a result of the acquisition of EMAX, the Company operated in two business
segments during 2001--e-commerce transactions and license fees and other
professional services. As discussed in Note 2, the Company operated in only one
business segment in 2002 as a result of management's decision to evolve the
business into a pure software and related services provider. The remaining
segment is license fees and other professional services. Substantially all
operations are in the United States.

<TABLE>
<CAPTION>
                                      Three Months Ended March 31, 2001
                                  ----------------------------------------
                                                License fees
                                                 and other
                                                professional
                                   E-Commerce     services    Consolidated
                                  ------------  ------------  ------------
     <S>                          <C>           <C>           <C>
     Total assets................ $ 90,320,911  $ 90,375,201  $180,696,112
                                  ============  ============  ============
     Revenues--external customers $ 11,686,801  $    900,394  $ 12,587,195
     Operating loss.............. $(10,992,359) $(12,586,325) $(23,578,684)
     Interest income, net........                                1,122,630
                                                              ------------
     Loss before income taxes....                             $(22,456,054)
                                                              ============
</TABLE>

5.  Restructuring

   In November 2000, the Company announced a restructuring of its e-commerce
business. The restructuring included the elimination of certain unprofitable
business lines and a resultant reduction in its workforce of approximately 10
percent of the employees located in the United States. The total restructuring
charge was $2.2 million and included a write-off of approximately $0.8 million
of assets relating to the unprofitable business lines to be eliminated. The
majority of the write-down of net assets related to Internet Auctioneers
International, Inc. and BioSupplyNet, Inc. and consisted of impairment of
intangibles. The restructuring liability was fully utilized during the year
ended December 31, 2001.

   In June 2001, the Company announced a restructuring of the business to
essentially eliminate outsourced procurement services. The restructuring
includes the elimination of certain unprofitable business lines and a resultant
reduction in workforce of approximately one-half of the employees located in
the United States. The total restructuring charge was $10.7 million and
included approximately $1.6 million for employee separation benefits, $6.7
million of asset writedowns and approximately $2.4 million of other costs and
lease obligations relating to the unprofitable business lines to be eliminated.

   Per SEC Staff Accounting Bulletin 100 and Emerging Issues Task Force Issue
No. 94-3, the following table summarizes information about the Company's
restructuring plan of June 2001:

<TABLE>
<CAPTION>
                                                                           Impairment   Remaining
                                                                            Expenses   Liability at
                                                            Restructuring and Charges   March 31,
                                                                Plans     to Liability     2002
                                                            ------------- ------------ ------------
<S>                                                         <C>           <C>          <C>
Number of employees........................................          108          106            2
                                                             ===========   ==========   ==========
Involuntary termination benefits...........................  $ 1,630,293   $1,516,401   $  113,892
Other costs and lease obligations..........................    2,346,239    1,151,654    1,194,585
Write-down of net assets of business lines to be eliminated    6,673,468    6,673,468           --
                                                             -----------   ----------   ----------
Total......................................................  $10,650,000   $9,341,523   $1,308,477
                                                             ===========   ==========   ==========
</TABLE>

6.  Strategic Relationships

   In October, November, and December 1999, the Company entered into strategic
relationships with a number of key suppliers and buyers of scientific products.
As a part of these arrangements, the Company issued to these companies

                                      15

<PAGE>

                                SciQuest, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

4,101,680 warrants to purchase the Company's common stock at an exercise price
of $0.01 per share of which 3,541,101 warrants are issued and outstanding at
March 31, 2002. At March 31, 2002 and December 31, 2001, the Company has
deferred customer acquisition costs of $8,051,648 and $7,733,082, respectively,
with accumulated amortization of $4,302,792 and $3,634,176, respectively,
related to these warrants. The amount of deferred customer acquisition costs
will be adjusted in future reporting periods based on changes in the fair value
of the warrants until such date as the warrants are fully vested and
non-forfeitable. Deferred customer acquisition costs will be amortized to
operating expense over the term of the related contractual relationship, which
in the case of the buyer agreements is three years and in the case of the
supplier agreements is four or five years, using a cumulative catch-up method.
The Company recognized $668,616, and $(184,576) in stock based non-cash
customer acquisition expense (benefit) during the three months ended March 31,
2002 and 2001, respectively, related to the amortization of deferred customer
acquisition costs. These amounts include approximately $0 and $100,000 of
amortization of prepaid customer acquisition fees for the three months ended
March 31, 2002 and 2001, respectively.

   In addition, the Company has agreed to issue to certain major enterprise
buyers additional incentive warrants, the number of which will be based on each
purchaser's volume of purchases through the Company's market place during the
years 2000, 2001 and 2002. These incentive warrants are issued annually on
February 15 through 2003, at an exercise price equal to the price per share of
common stock in the Company's initial public offering of $16 per share, and
will be exercisable upon issuance.

   Based on purchasing volume during the year ended December 31, 2000,
incentive warrants to purchase approximately 58,000 shares of common stock were
issued on February 15, 2001, resulting in a non-cash charge to revenue and the
recognition of additional paid-in capital of approximately $52,000 representing
the estimated fair value of the warrants determined by using the Black-Scholes
valuation model at the issuance date. Until such date as they are
non-forfeitable, the value of these incentive warrants will be adjusted to
their estimated fair value at each balance sheet date with the adjustment being
charged to operating expense. For the three months ended March 31, 2002 and
2001, this adjustment resulted in a benefit of approximately $3,700 and
$39,000, respectively. No incentive warrants were granted related to purchases
during 2001.

7.  Legal Proceedings

   On September 10, 2001 SciQuest was named as a defendant in a purported class
action lawsuit filed in the United States District Court, Southern District of
New York. The lawsuit is captioned Patricia Figuerido and Robert Wallace v.
Sciquest.com, Inc., et al. No. 01 CV 8467. The case has been consolidated for
pretrial purposes with over 100 other lawsuits filed against other issuers,
their officers, and underwriters of their initial public offerings under the
caption In re Initial Public Offering Securities Litigation, 21 MC 92 (SAS).
The case includes claims against SciQuest, three of its officers, and seven
investment banking firms who either served as underwriters, or are the
successors in interest to underwriters, of the Company's initial public
offering. The complaint alleges that the prospectus used in the Company's
initial public offering contained material misstatements or omissions regarding
the underwriters' activities in connection with the initial public offering.
The court has adjourned defendants' time to answer or respond to all complaints
in the consolidated proceedings until further order of the court. The Company
intends to vigorously defend the action.

   During 2001, a customer filed an action seeking a declaratory judgment that
its license entitled it to permit non-customer employees to use the Company's
licensed software. In addition, the complaint alleges breach by the Company of
an agreement pursuant to which the Company was to upgrade the software to a
newer version. The complaint seeks damages alleged to exceed $1,000,000. The
litigation arises out of the Company's discovery that the customer had
permitted non-customer employees to use the software. After attempts proved
unsuccessful to amicably resolve the dispute, the Company suspended work on the
upgrade and the customer failed to pay for the work performed. The Company
intends to vigorously defend the action and has asserted its counterclaims
seeking damages in excess of $2,000,000 for copyright infringement and breach
of contract and to recover the amounts due for work previously billed, but
unpaid.

   It is too early in each matter to reasonably predict the probability of the
outcome or to estimate a range of possible losses. Future losses may have a
material adverse effect on the Company's consolidated financial position,
liquidity or consolidated results of operations.

                                      16

<PAGE>

                                SciQuest, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


8.  Goodwill and Other Intangible Assets

   The Company adopted Statement of Financial Accounting Standards No. 142,
"Goodwill and other Intangible Assets," ("SFAS No. 142") effective January 1,
2002. This statement addresses accounting and reporting for acquired goodwill
and intangible assets. In accordance with the transitional provisions of SFAS
No. 142, the Company determined that the carrying value of goodwill and related
assets exceeded their fair value. As a result, the Company recognized a charge
to income of $38,257,357 ($1.32 per share), as the cumulative effect of a
change in accounting principle during the first quarter of 2002. As of the end
of each period presented, all of the Company's intangible assets had definitive
lives and were being amortized accordingly.

   The Company evaluates the recoverability of its intangible assets subject to
amortization in accordance with Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
No. 144"). SFAS No. 144 requires long-lived assets to be reviewed for
impairment whenever events or changes in circumstances indicate that their
carrying amount may not be recoverable. An impairment is recognized in the
event that the net book value of an asset exceeds the sum of the future
undiscounted cash flows attributable to such asset or the business to which
such asset relates and the net book value exceeds fair value. The impairment
amount is measured as the amount by which the carrying amount of a long-lived
asset (asset group) exceeds its fair value.

   In March 2000, the Company acquired all of the outstanding common and
preferred stock of EMAX Solution Partners, Inc. (EMAX) and allocated
$22,000,000 of the purchase price to trademarks. Subsequently, the value of the
trademarks was being amortized to expense over a three-year period. During the
first quarter of 2002, the Company discontinued utilizing the EMAX trademarks
and, accordingly, determined that the carrying value of the trademarks had been
impaired. As a result, the Company recognized a charge to income of $7,155,914,
the unamortized balance at March 31, 2002, ($0.25 per share) in the first
quarter of 2002.

   Other intangible assets are comprised of the following:

<TABLE>
<CAPTION>
                               March 31, 2002         December 31, 2001
                            --------------------  ------------------------
                             Gross                  Gross
                            Carrying Accumulated   Carrying   Accumulated
                             Amount  Amortization   Amount    Amortization
                            -------- ------------ ----------- ------------
     <S>                    <C>      <C>          <C>         <C>
     Non-compete agreements $106,000   $(4,417)   $        -- $         --
     Trademarks............       --        --     22,000,000  (13,010,753)
                            --------   -------    ----------- ------------
        Total.............. $106,000   $(4,417)   $22,000,000 $(13,010,753)
                            ========   =======    =========== ============
</TABLE>

<TABLE>
<CAPTION>
                                           Aggregate Expense for the
                                              Three Months Ended
                                           -------------------------
                                            March 31,    March 31,
                                              2002         2001
                                            ----------   ----------
           <S>                             <C>          <C>
           Non-compete agreements......... $    4,417   $       --
           Trademarks.....................  1,833,333    1,833,333
                                            ----------   ----------
              Total....................... $1,837,750   $1,833,333
                                            ==========   ==========
           Estimated Amortization Expense:
           For the year ended 12/31/03.... $   53,000
                                            ==========
</TABLE>

                                      17

<PAGE>

                                SciQuest, Inc.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Following is a schedule of the goodwill account activity by segment for each
period presented:

<TABLE>
<CAPTION>
                                             Three Months Ended
                                               March 31, 2002
                                         --------------------------
                                         License fees
                                          And other
                                         Professional
                                           services       Total
                                         ------------  ------------
            <S>                          <C>           <C>
            Balance, beginning of period $ 38,257,357  $ 38,257,357
            Amortization................           --            --
            Impairment losses...........  (38,257,357)  (38,257,357)
                                         ------------  ------------
               Total.................... $         --  $         --
                                         ============  ============
</TABLE>

<TABLE>
<CAPTION>
                                             Three Months Ended
                                               March 31, 2001
                                    ------------------------------------
                                                License fees
                                                 And other
                                        E-      Professional
                                     Commerce     services      Total
                                    ----------  ------------ -----------
       <S>                          <C>         <C>          <C>
       Balance, beginning of period $2,750,525  $69,894,300  $72,644,825
       Amortization................   (330,063)  (8,066,150)  (8,396,213)
       Impairment losses...........         --           --           --
                                    ----------  -----------  -----------
          Total.................... $2,420,462  $61,828,150  $64,248,612
                                    ==========  ===========  ===========
</TABLE>

   Following is a reconciliation of the reported net loss to the adjusted net
loss reflecting the impact of the adoption of SFAS No. 142 on all periods
presented:

<TABLE>
<CAPTION>
                                                                                   For the Three Months
                                                                                      Ended March 31,
                                                                                --------------------------
                                                                                    2002          2001
                                                                                ------------  ------------
<S>                                                                             <C>           <C>
Reported net loss
   Reported net loss........................................................... $(52,579,859) $(22,456,054)
   Add back: Cumulative effect of accounting change for impairment of goodwill.   38,257,357            --
                                                                                ------------  ------------
   Reported net loss before cumulative effect of accounting change.............  (14,322,502)  (22,456,054)
   Add back: Goodwill amortization.............................................           --     8,396,213
                                                                                ------------  ------------
   Adjusted net loss........................................................... $(14,322,502) $(14,059,841)
                                                                                ============  ============
Loss per share-basic and diluted
   Reported net loss........................................................... $      (1.81) $      (0.78)
   Add back: Cumulative effect of accounting change for impairment of goodwill.         1.32            --
                                                                                ------------  ------------
   Reported net loss before cumulative effect of accounting change.............        (0.49)        (0.78)
   Add back: Goodwill amortization.............................................           --          0.29
                                                                                ------------  ------------
   Adjusted net loss........................................................... $      (0.49) $      (0.49)
                                                                                ============  ============
</TABLE>

                                      18

<PAGE>

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

   The following discussion should be read in conjunction with the consolidated
financial statements and accompanying notes, which appear elsewhere in this
report.

   Some of the statements contained in this Management's Discussion and
Analysis of Financial Condition and Results of Operations and elsewhere in this
report contain forward-looking information. You can identify these statements
by forward-looking words such as "expect," "anticipate," "believe," "goal,"
"plan," "intend," "estimate," "predict," "project," "potential," "continue,"
"may," "will," and "should" or similar words. They include statements
concerning:

  .   future growth and spending trends in the pharmaceutical and biotechnology
      industries;

  .   expansion of our product and service offerings;

  .   future sources of revenues and anticipated revenue growth;

  .   future development expenses;

  .   future sales and marketing expenses;

  .   future general and administrative expenses;

  .   future stock-based customer acquisition costs;

  .   future operating expenses;

  .   future interest income;

  .   future cash flows;

  .   future operating losses;

  .   the effect of changes in our accounting policies;

  .   future licensing of software from third parties

  .   the length of our sales cycle;

  .   our international expansion;

  .   the effects of our restructuring program; and

  .   the adequacy of our existing liquidity and capital resources.

   You should be aware that these statements are subject to known and unknown
risks, uncertainties and other factors, including those discussed in the
section entitled "Factors That May Affect Future Results," that could cause the
actual results to differ materially from those suggested by the forward-looking
statements.

Overview

   SciQuest is a software, information and services company that provides
solutions to enhance research operations for pharmaceutical, biotechnology and
other research-based organizations. SciQuest is focused on enabling researchers
and their organizations to reduce costs, improve efficiencies, increase quality
and speed the process of research. Our software products can be utilized
independently or integrated with leading software, automation equipment and
supplier systems to enhance innovation, reduce costs and improve operational
effectiveness.

   We were incorporated in November 1995 and commenced operations in January
1996. During 1996, we focused on developing our business model and the required
technology. We did not begin to recognize any revenues until 1997. We launched
our public e-commerce marketplace in 1999. Beginning with our acquisition of
EMAX in 2000, we have offered software products to the scientific products
industry. In 2001, we discontinued our order-processing services as we focused
on providing software products and services.

                                      19

<PAGE>

   As part of a restructuring program announced in November 2000, we reduced
our workforce by approximately 10%. In connection with this reduction, we
recorded a charge of approximately $2.2 million in the fourth quarter of 2000
related to separation benefits paid to those affected employees and the
write-down of assets related to unprofitable business lines. In the first and
second quarters of 2001, we further reduced the number of full-time employees
by approximately 100 and 130 people, respectively. The second quarter reduction
was part of a restructuring program announced in June 2001, which included
charges of approximately $1.6 million for separation benefits to those affected
employees, $6.7 million of assets and approximately $2.4 million of other costs
and lease obligations relating to the unprofitable business lines to be
eliminated. As a result, we expect our operating expenses and our cash outflow
from operations to be lower in 2002 as compared to prior years.

   On February 19, 2002, we purchased all of the outstanding stock of Textco,
Inc. in exchange for the issuance of 218,737 shares of our common stock with a
value of approximately $329,000 based on the average market price over the
period covering 2-days before and after the acquisition date, cash payments in
the amount of $393,000 (including $118,000 for acquisition-related expenses)
and the assumption of $37,000 in net liabilities of Textco. This acquisition
was accounted for using the purchase method of accounting under SFAS No. 141.
The results of Textco's operations have been included in the consolidated
financial statements since the date of acquisition.

   Of the total purchase price, $609,000 was allocated to the developed
software costs and $106,000 was allocated to non-competition agreements. These
assets are being amortized over a period of two to three years. An
insignificant amount of purchase price was allocated to the tangible assets.

   The purchase of Textco expands SciQuest's software product offerings into
the early stages of drug discovery research via biological research software
and increases penetration into targeted biotechnology, pharmaceutical and
research organizations. Textco's products are used by molecular biologists.
Installations include commercial and academic research organizations and
research universities. Textco's two primary products, Gene Construction Kit and
Gene Inspector, provide users with an intuitive, graphical technology for gene
cloning projects, DNA sequence analyses and experiment tracking via electronic
notebooks.

   The merger agreement includes incentive payments upon achievement of
cumulative revenue targets during the first year. Cash of $180,000 and 269,215
shares of common stock related to the incentive payments have been placed in
escrow. The cash is included in our restricted cash disclosures. These
contingently issuable shares will not be considered outstanding common shares
or included in the computation of basic earnings per share until all necessary
conditions for their issuance have been met. Due to the antidilutive effect,
these shares will not be included in the computation of dilutive earnings per
share.

   On March 18, 2002, we purchased substantially all of the assets of Groton
NeoChem for cash payments in the amount of $423,000 (including $123,000 for
acquisition-related expenses) and the assumption of $26,000 in net liabilities.
This acquisition was accounted for using the purchase method of accounting
under SFAS No. 141. The results of Groton NeoChem's operations have been
included in the consolidated financial statements since the date of acquisition.

   Of the total purchase price, approximately $448,000 was allocated to the
developed software costs, which are being amortized over a period of three
years. An insignificant amount of purchase price was allocated to the tangible
assets.

   The Groton NeoChem products are an additional step in our strategy of
building a comprehensive set of enterprise solutions for high-throughput
research. These solutions facilitate the capture, organization, management,
analysis and presentation of data by integrating advanced software and
analytical instrument technology.

   The employment agreements of key personnel include incentive payments of up
to $240,000 upon achievement of cumulative revenue targets during the first
year. The payments may be made in the form of cash, stock or a combination of
both depending upon certain Company and employee elections.

                                      20

<PAGE>

   The Textco and Groton NeoChem acquisitions were not significant. Therefore,
pro forma financial information has not been presented for these acquisitions.

   SciQuest generates revenues from scientific organizations by charging
license, subscription and maintenance fees for the use of its technology.
SciQuest also offers professional services related to these solutions, for
activities such as project implementation and training. In addition, SciQuest
receives revenue from scientific supply manufacturers for converting their
paper catalogs into an electronic format, enhancing or enriching the data and
distributing the information as directed by the suppliers.

   Revenues consist of (1) sales of software licenses and fees for
implementation, customization and maintenance services related to these
software licenses, (2) sales of scientific products in e-commerce transactions
originating on our web sites (during 1999 through 2001), (3) sales of
scientific equipment (during 2000), (4) advertising revenues from our web
sites, and (5) advertising revenues from the Source Book. We expect that sales
of software licenses and fees for implementation, customization and maintenance
services related to these software licenses will be the primary source of
revenues in future periods.

   Advertising revenues are recognized ratably over the period in which the
advertisement is displayed. Revenues from advertising included in the Source
Book are recognized at the date the Source Book is published and distributed,
which historically has been in the second quarter of the fiscal year.

   We realize revenue from the sale of licenses to our software products, the
implementation and customization of our software products and the sale of
maintenance and support contracts. We recognize revenues from the sale of
licenses to our software products and implementation and customization of these
software products on a percentage-of-completion basis over the period of the
customization and implementation services, which generally ranges from three to
nine months. We recognize revenues from the sale of maintenance and support
contracts ratably over the period of the maintenance and support agreements,
which is typically twelve months. Revenues from the sale of standardized
versions of software are recognized upon customer acceptance in accordance with
Statement of Position 97-2, "Software Revenue Recognition."

Change in Business Procedure Affecting Revenue Reporting

   Prior to May 1, 2001, we took legal title to the scientific products that we
purchased from our suppliers and that, in turn, were sold to our customers in
e-commerce transactions. As of May 1, 2001, we no longer took legal title to
these products. Instead, we acted as an agent on behalf of the customer, and
title passed directly from the supplier to the customer. This change allowed us
to reduce or eliminate some of our general and administrative expenses, such as
product insurance, regulatory compliance, sales tax filings and other related
order processing costs. We continue to be responsible for the collection of the
receivable and to bear the resulting credit risk.

   Since we acted as an agent for the customer and not as the primary obligor
in the transaction for orders after May 1, 2001, we no longer recorded sales of
scientific products and scientific equipment in e-commerce transactions on a
gross basis. For each sale, we recognized revenue in the amount of the net
commission that we earned for processing the transaction and/or payment for
services. As a result of this change in our method of reporting revenue, we
recorded much lower gross revenues from e-commerce transactions after May 1,
2001; however, our gross profit from e-commerce transactions was not materially
affected although our gross margin as a percentage of related net revenue
increased.

   During the second half of 2001, we finalized the process of discontinuing
our order-processing services to our customers. Thus the level of e-commerce
transactions were reduced and eventually eliminated during the last half of
2001.

Critical Accounting Policies

   Our consolidated financial statements are prepared in accordance with
generally accepted accounting principles utilized in the U.S. Our significant
accounting policies are fully described in Note 2 to the consolidated financial
statements included under Item 8 of Form 10-K. However, certain of our
accounting policies are particularly important to the portrayal of our
financial position and results of operations and require a higher degree of
judgment and complexity. While the estimates and judgments associated with the
application of these policies may be affected by different assumptions and
conditions, we believe the estimates and judgments associated with the reported
amounts are appropriate in the circumstances. The following is a summary of our
more significant accounting policies and how they impact our financial
statements.

                                      21

<PAGE>

   Licenses fees and other professional services revenue.  We sell software
licenses and provide professional services to implement and configure the
software to customer needs. We record the revenue from the sale of software
licenses and custom development and implementation services under fixed-fee
contracts using the percentage-of-completion method over the term of the
development and implementation services. Therefore, the amount of revenue
recognized is sensitive to the estimates to complete the remaining services.
These estimates are reviewed and revised monthly. Estimates are based on
project managers' detailed implementation plans predicated on significant
historical experience. If increases in projected cost to complete are
sufficient to create an overall loss on an in-process contract, the entire
estimated loss is charged against income in the period the estimated loss is
initially identified. Revenue from the sale of standardized versions of our
software is recorded upon customer acceptance. We also sell maintenance
contracts, which are recognized over the term of the arrangement.

   Development costs.  Development costs include expenses to develop, enhance,
manage, monitor and operate our web sites and costs of managing and integrating
data on our web sites and developing hosted software to be licensed. We
capitalize these costs and amortize them over the estimated life of the
application. The amount being capitalized and the amount amortized is dependent
upon our ability to track and capture all application development costs
associated with these multiple projects and our ability to estimate accurately
their useful lives, respectively.

   Capitalized software costs.  Software development costs related to software
products sold to customers are required to be capitalized beginning when a
product's technological feasibility has been established and ending when a
product is available for general release to customers. These capitalized costs
are then amortized over a period of two to four years. The amount being
capitalized and the amount amortized is dependent upon our ability to track and
capture all application development costs associated with these multiple
projects and our ability to estimate accurately their useful lives,
respectively.

   Deferred customer acquisition costs.  Deferred customer acquisition costs
relate to common stock warrants given to several key suppliers and buyers of
scientific products. The amount of deferred customer acquisition costs is and
will be adjusted in each reporting period based on changes in the fair value of
the underlying common stock until the warrants are fully vested and
non-forfeitable. Deferred customer acquisition costs will be amortized as a
non-cash charge to sales and marketing expense over the term of the related
contractual relationship using a cumulative catch-up method. The terms of the
contractual relationships range from three to five years. The value of these
warrants is adjusted each reporting period based upon the closing trading price
of our common stock at each balance sheet date. As discussed above, changes in
our closing trading price from one reporting period to the next will affect our
amortization of these costs, and consequently, our results of operations.
Because the amortization of these costs is dependent upon the trading price of
our common stock, we cannot predict the future impact of this amortization on
our results from operations.

   Allowance for doubtful accounts.  We bear all risk of loss on credit sales
of products in e-commerce transactions as well as sales of licenses and
professional services. The allowance for doubtful accounts at March 31, 2002
represents approximately 29% of current and long-term accounts receivable.
Management's estimate is developed from analysis of each individual customer
account. One customer represents approximately 58% of the gross accounts
receivable balance. Based on current economic conditions and historical
experience, we believe that the allowance is adequate. However, if general
economic conditions worsen, it could negatively impact the ability of customers
to pay their obligations to us.

   Goodwill and intangible asset valuation.  We have historically evaluated the
recoverability of goodwill and other intangible assets recorded on our balance
sheet based on the estimated future undiscounted cash flows attributable to the
assets or asset groups to which such goodwill and intangible assets relate. We
writedown the carrying value of goodwill and or any intangible asset when the
carrying value exceeds the anticipated undiscounted cash flows. We base the
estimated future cash flows on actual operating budgets and other assumptions
that management deems reasonable. However, because we have recently changed our
revenue model from e-commerce transactions to a software and related services
model, there is very little history with which to base future estimated cash
flows. If future operations are below our current expectations, we may need to
revise these cash flow estimates downward, which may then require a writedown.
Any resulting writedown may be material to our financial position and results
of operations.

                                      22

<PAGE>

   New accounting standards require a change in the methodology for measuring
impairment by estimating fair value by using a discounted cash flow approach
rather than an undiscounted cash flow approach (see Notes 2 and 8 to the
Financial Statements). The assumptions used in discounting cash flows
attributable to the reporting units or asset groups to which goodwill and
intangible assets relate, could have a material impact on our estimates of the
recoverability and fair value of these assets and, in turn, impact the
necessity and magnitude of a future impairment charge.

   We adopted Statement of Financial Accounting Standards No. 142, "Goodwill
and other Intangible Assets," ("SFAS No. 142") effective January 1, 2002. This
statement addresses accounting and reporting for acquired goodwill and
intangible assets. In accordance with the transitional provisions of SFAS No.
142, we determined that the carrying value of goodwill and related assets
exceeded their fair value. As a result, we recognized a charge to income of
$38,257,357 ($1.32 per share), as the cumulative effect of a change in
accounting principle during the first quarter of 2002. As of the end of each
period presented, all of our intangible assets had definitive lives and were
being amortized accordingly.

   We evaluate the recoverability of our intangible assets subject to
amortization in accordance with Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
No. 144"). SFAS No. 144 requires long-lived assets to be reviewed for
impairment whenever events or changes in circumstances indicate that their
carrying amount may not be recoverable. An impairment is recognized in the
event that the net book value of an asset exceeds the sum of the future
undiscounted cash flows attributable to such asset or the business to which
such asset relates and the net book value exceeds fair value. The impairment
amount shall be measured as the amount by which the carrying amount of a
long-lived asset (asset group) exceeds its fair value.

   In March 2000, we acquired all of the outstanding common and preferred stock
of EMAX Solution Partners, Inc. (EMAX) and allocated $22,000,000 of the
purchase price to trademarks. Subsequently, the value of the trademarks was
being amortized to expense over a three year period. During the first quarter
of 2002, we discontinued utilizing the EMAX trademark and, accordingly,
determined that the carrying value of the trademarks had been impaired. As a
result, we recognized a charge to income of $7,155,914, the unamortized balance
at March 31, 2002, ($0.25 per share) in the first quarter of 2002.

   Gross versus net e-commerce revenues presentation.  As noted above, prior to
May 1, 2001, we took legal title to the products that we purchased from our
suppliers and that in turn, were sold to customers in e-commerce transactions.
Because we were the primary obligor in these transactions, we recorded the
revenue on a gross basis, whereby we recorded the price at which we sold the
products to the customer as gross revenue and the amount we paid the supplier
was recorded as cost of sales. Subsequent to May 1, 2001, when we stopped
taking legal title to the product, we were no longer the primary obligor.
Instead, we acted as an agent on behalf of the customer, and title passed
directly from the supplier to the customer. Therefore, we no longer recorded
the revenue on a gross basis. For each sale, we recognize revenue in the amount
of the net commission that we earned for processing the transaction. In
addition, during 2001, we completed the transition away from the e-commerce
transaction processing business model. As a result of the above, we recognized
no revenues from e-commerce transactions in 2002.

Three Months Ended March 31, 2002 and 2001

  Revenues

   Revenues for the three months ended March 31, 2002 and 2001 have been
derived primarily from the sale of licenses to our software products and the
implementation and customization of our software products and from the sale of
scientific products and scientific equipment in e-commerce transactions.
Operational results from the acquisitions of Textco and Groton NeoChem were not
significant for the three months ended March 31, 2002.

   During the three months ended March 31, 2002 and 2001, we recognized $1.7
million and $0.9 million, respectively, of revenue from fees from licenses and
other professional services.

   E-commerce transaction revenues were $11.7 million for the three months
ended March 31, 2001. As we previously discussed, we discontinued our
order-processing services during the second half of 2001. As a result, there
are no e-commerce transaction revenues in 2002.


                                      23

<PAGE>

   During the three months ended March 31, 2002, four customers accounted for
24%, 20%, 14% and 12%, respectively, of gross revenues. There can be no
assurance that these customers will continue to purchase at these levels.

  Cost of Revenues

   Cost of revenues for license fees and other professional services primarily
consist of personnel costs for employees who work directly on the development
and implementation of customized electronic research solutions and who provide
maintenance to customers as well as the amortization of capitalized software
development costs. Cost of e-commerce revenues primarily consists of the
purchase price of scientific products sold in these transactions and related
shipping costs for these products.

   Cost of revenues for license fees and other professional services for the
three months ended March 31, 2002 and 2001was $1.5 million and $1.0 million,
respectively, of which $0.9 million and $0.6 million, respectively, related to
the amortization of capitalized software development costs.

   Cost of e-commerce revenues was $11.3 million for the three months ended
March 31, 2001. We discontinued our order-processing services during the second
half of 2001, and therefore there are no costs of e-commerce revenues in 2002.

  Gross Profit

   Gross profit decreased to $0.1 million for the three months ended March 31,
2002 from $0.3 million for the three months ended March 31, 2001.

   Gross profit from licenses and professional fees was $0.1 million and $(0.1)
million, for the three months ended March 31, 2002 and 2001, respectively.

   Gross profit on the sale of scientific products was $0.4 million, which
represented a gross margin percentage of approximately 3.5%, for the three
months ended March 31, 2001. There were no sales of scientific products in 2002.

  Operating Expenses

   Development Expenses.  Development expenses consist primarily of personnel
and related costs to develop, operate and maintain our software, aggregate data
and the amortization of capitalized development costs. Development costs
decreased to $1.9 million for the three months ended March 31, 2002 from $4.2
million for the three months ended March 31, 2001. This decrease resulted from
decreased expenses required to develop our e-commerce fulfillment system and
list suppliers' products on our web sites as we transitioned out of the
order-processing business model. We reduced our development costs related to
our e-commerce business as we focused on selling software and services. During
the three months ended March 31, 2002 and 2001, we capitalized approximately
$0.7 million and $2.9 million, respectively, of certain costs related to
software and web site development projects. We expect our development expenses
to continue to be lower in 2002 as compared to 2001.

   Included in development cost is the amortization of non-cash stock-based
employee compensation expense, which totaled $0.1 million and $0.1 million for
the three months ended March 31, 2002 and 2001, respectively. This is primarily
due to stock options that had been issued to employees with exercise prices
less than fair value on the date of grant since December 31, 1999. Deferred
compensation recorded due to the issuance of such stock options is charged to
stock-based employee compensation expense over the vesting term of the options.

   Sales and Marketing Expenses.  Sales and marketing expenses consist
primarily of salaries and other related costs for sales and marketing
personnel, travel expenses, public relations expenses and marketing materials.
Sales and marketing expenses decreased to $1.9 million for the three months
ended March 31, 2002 from $4.3 million for the three months ended March 31,
2001. This decrease resulted primarily from reducing the number of sales and
marketing personnel to market our products and services and from reducing
advertising and promotion expenses for our e-commerce marketplace. Sales and
marketing expenses for the three months ended March 31, 2002 and 2001 include
$0.1 million and $0.1 million, respectively, of amortization of non-cash stock
based employee compensation. Also included in sales and marketing expenses for
the three months ended March 31, 2002 and 2001 is amortization expense
(benefit) of non-cash stock based customer acquisition costs of $0.7 million
and ($0.2) million, respectively.

                                      24

<PAGE>

   Stock-based customer acquisition costs represent the amortization of
deferred customer acquisition costs that were initially recorded in November
1999 upon the issuance of common stock warrants to key suppliers and customers.
The value of these warrants is adjusted each reporting period based upon the
closing trading price of our common stock at each balance sheet date. Decreases
in our closing trading price from one reporting period to the next will likely
result in a benefit, and increases in our closing trading price will likely
result in charges to expense. Because the amortization of these costs is
dependent upon the trading price of our common stock, we cannot predict the
future impact of this amortization on our results from operations.

   We expect our sales and marketing expenses, apart from the amortization of
stock-based customer acquisition costs, to continue to be lower in 2002 than in
2001 due to our reduction in the number of personnel in our sales and marketing
departments.

   General and Administrative Expenses.  General and administrative expenses
consist primarily of personnel and related costs for our customer care
department and general corporate functions, including finance, accounting,
legal, human resources, investor relations, facilities, amortization of
intangibles and non-cash stock based employee compensation. General and
administrative expenses decreased to $3.8 million for the three months ended
March 31, 2002 from $15.3 million for the three months ended March 31, 2001.
General and administrative expenses in 2001 includes amortization of goodwill
and other intangible assets of $10.2 million while 2002 includes only $1.8
million of amortization of other intangible assets relating primarily to our
acquisition of EMAX Solutions in March 2000. There was no goodwill amortization
during the first three months of 2002 as a result of the change in accounting
for goodwill as discussed in Note 8 of the financial statements. General and
administrative expenses are also lower because of reduced personnel and related
costs in these functional areas. General and administrative expenses also
include a charge of $0.1 million and $0.3 million relating to non-cash stock
based employee charges in the three months ended March 31, 2002 and 2001.
General and administrative expenses before these non-cash charges decreased by
$2.9 million, primarily due to reduced personnel. We expect general and
administrative expenses to continue to be lower in 2002 than in 2001, as we
realize the savings impact of the previous reductions in personnel.

   Impairment of Other Intangible Assets.  We evaluate the recoverability of
our intangible assets subject to amortization in accordance with Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144 requires
long-lived assets to be reviewed for impairment whenever events or changes in
circumstances indicate that their carrying amount may not be recoverable. An
impairment is recognized in the event that the net book value of an asset
exceeds the sum of the future undiscounted cash flows attributable to such
asset or the business to which such asset relates and its net book value
exceeds fair value. The impairment amount is measured as the amount by which
the carrying amount of a long-lived asset (asset group) exceeds its fair value.

   In March 2000, we acquired all of the outstanding common and preferred stock
of EMAX and allocated $22,000,000 of the purchase price to trademarks.
Subsequently, we have amortized the value of the trademarks to expense over a
three-year period. During the first quarter of 2002, we discontinued utilizing
the EMAX trademarks and, accordingly, determined that the carrying value of the
trademarks had been impaired. As a result, we recognized a charge to income of
$7,155,914, the unamortized balance at March 31, 2002, ($0.25 per share) in the
first quarter of 2002. (See Note 8 to the Notes to Consolidated Financial
Statements for additional discussion).

  Other Income (Expense)

   Other income (expense) consists of interest income earned on cash deposited
in money market accounts and invested in short and long term U.S. Government
obligations partially reduced by interest expense incurred on capital lease and
debt obligations. Net interest income decreased to $0.3 million for the three
months ended March 31, 2002 from $1.1 million for the three months ended March
31, 2001. This decrease resulted from our use of cash and investments to fund
operations during 2001 and the first quarter of 2002 as well as a reduction in
interest rates between the comparative periods. We expect net interest income
to continue to be lower in 2002 than in 2001.

                                      25

<PAGE>

  Cumulative Effect of Accounting Change

   We adopted Statement of Financial Accounting Standards No. 142, "Goodwill
and other Intangible Assets," ("SFAS No. 142") effective January 1, 2002. This
statement addresses accounting and reporting for acquired goodwill and
intangible assets. In accordance with the transitional provisions of SFAS No.
142, we determined that the carrying value of goodwill and related assets
exceeded their fair value. As a result, we recognized a charge to income of
$38,257,357 ($1.32 per share), as the cumulative effect of a change in
accounting principle during the first quarter of 2002.

Liquidity and Capital Resources

   We have primarily funded our operations through private placements of our
preferred stock during 1998 and 1999 and our initial public offering which
closed in November 1999. As of March 31, 2002, we had total cash and
investments of $42.4 million, which is comprised of cash and cash equivalents
of $22.1 million, short-term investments of $14.0 million and long-term
investments of $6.3 million.

   Cash used in operating activities was $1.6 million and $3.8 million during
the three months ended March 31, 2002 and 2001, respectively. Cash used in
operating activities was principally for the development of our web sites, the
development of our e-commerce marketplace, our sales and marketing efforts,
administrative and operations to support our growth and payments to our
suppliers for purchases of scientific products.

   Cash (provided) used by investing activities during the three months ended
March 31, 2002 and 2001 was $1.4 million and ($16.0) million, respectively.
Cash used in investing activities has primarily been comprised of purchases of
investments in US government obligations, commercial paper and corporate bonds,
net of maturities, purchases of computer equipment and the capitalization of
certain costs associated with the development of our web sites and with the
development of EMAX's electronic research software systems. During the three
months ended March 31, 2002, we paid approximately $0.8 million related to
acquisitions. Cash was primarily provided from the maturity of investments.

   Cash used by financing activities during the three months ended March 31,
2002 and 2001 was $0.2 million and $0.2 million, respectively. During the three
months ended March 31, 2002, we repaid loan obligations of $0.2 million.

   During the three months ended March 31, 2002, we incurred an operating loss
of $14.6 million. During the two years ended December 31, 2001 we incurred
cumulative operating losses of $177.1 million and used $76.6 million of cash in
operations. We have reduced our spending to an average of $2.2 million for net
cash used in operating activities in each of the last three quarters following
our restructuring. Based on this spending level, adjusted for our anticipated
additional capital needs, we believe that our existing cash and investments of
$42.4 million at March 31, 2002 will be sufficient to satisfy our cash
requirements for more than the next year. There are significant uncertainties,
based on recent economic conditions and our limited operating experience as a
software and related services provider, as to whether debt or equity financing
will be available if we are required to seek additional funds. Even if we are
able to secure funds in the debt or equity markets, we may not be able to do so
on terms that are favorable or acceptable to us. Any additional equity
financing, if available, could result in substantial dilution to our existing
stockholders.

   If we are unable to raise additional capital to continue to support our
operations, we might be required to scale back, delay or discontinue one or
more of our product offerings, which could have a material adverse affect on
our business. Reduction or discontinuation of any one of our business
components or product offerings could result in additional charges, which would
be reflected in the period of the reduction or discontinuation.

New Accounting Pronouncements

   In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 141, "Business Combinations," which requires:
(1) that all business combinations be accounted for by the purchase method,
thereby eliminating the pooling method, (2) that assets (including intangible
assets) be recognized and valued apart from goodwill, and (3) that additional
disclosures be made regarding business combinations and the resulting
allocation of purchase price. Our adoption of this standard did not have a
material impact on the consolidated financial position or results of operations.

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   In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets,"
("SFAS No. 142") the major provisions of which include: (1) the ceasing of
amortization of goodwill and indefinite lived intangible assets, (2) the
testing for impairment of goodwill and indefinite lived intangible assets at
least annually, and (3) the removal of the restriction that the maximum
amortization period of intangible assets with finite lives be limited to 40
years. The provisions of SFAS No. 142 are effective beginning with our 2002
fiscal year. Any impairment losses from the initial application are to be
reported as a cumulative effect of a change in accounting principle in
accordance with APB 20, "Accounting Changes." We adopted SFAS No. 142, Goodwill
and other Intangible Assets, effective January 1, 2002. In accordance with the
transitional provisions of SFAS No. 142, we determined that the carrying value
of goodwill and related assets exceeded their fair value. As a result, we
recognized a charge to income of $38,257,357 ($1.32 per share), as the
cumulative effect of a change in accounting principle during the first quarter
of 2002. As of the end of each period presented, all of our intangible assets
had definitive lives and were being amortized accordingly.

   In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 143, "Accounting for Asset Retirement
Obligations," ("SFAS No. 143"). SFAS No. 143 requires recording the fair value
of a liability for an asset retirement obligation in the period in which it is
incurred, and a corresponding increase in the carrying value of the related
long-lived asset. Over time, the liability is accreted using the original
discount rate when the liability was initially recognized, and the capitalized
cost is depreciated over the useful life of the related asset. Upon settlement
of the liability, it is either settled for its recorded amount or a gain or
loss upon settlement is recorded. The provisions of SFAS No. 143 will be
effective for fiscal years beginning after June 15, 2002. The adoption of SFAS
No. 143 is not expected to have any impact on our financial statements or
results of operations.

   In October 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," ("SFAS No. 144"). SFAS No. 144, while retaining
the fundamental recognition and measurement provision of SFAS No. 121,
establishes a "primary-asset" approach to determining the cash flow estimation
period for a group of assets and liabilities. Similarly, SFAS No. 144 retains
the basic provisions of APB No. 30, but broadens the presentation to include a
component of an entity. In addition, discontinued operations are no longer
measured on a net realizable value basis and future operating losses are no
longer recognized before they occur. Rather, discontinued operations are
carried at the lower of carrying amount or fair value less cost to sell.
Application of the provisions of SFAS No. 144 is required beginning with our
2002 fiscal year. The adoption of SFAS No. 144 did not have a material impact
on our financial statements or results of operations. However, we did recognize
an impairment of $7,155,914 during the first quarter of 2002 related to
abandoned trademarks under SFAS No. 144 (see Note 8 to the Notes to
Consolidated Financial Statements for additional discussion).

Factors That May Affect Future Results

   Our future operating results may vary substantially from period to period
based on a number of factors. The price of our common stock will fluctuate in
the future, and an investor in our common stock is subject to a variety of
risks, including but not limited to the specific risks identified below.
Current and prospective investors are strongly urged to carefully consider the
various cautionary statements and risks set forth below and elsewhere in this
report.

Since we have a limited operating history with our current business model,
forecasting future performance may be difficult.

   Our business model has evolved considerably since our company's inception.
For instance, we launched our public e-commerce marketplace in April 1999.
Beginning with our acquisition of EMAX in March 2000, we have increasingly
focused our efforts on providing software products and services to enhance
research operations for pharmaceutical, biotechnology and other research-based
organizations. We have since discontinued our order processing services.
Accordingly, we have only a limited operating history on which to evaluate our
current business model. As a result of our limited operating history and the
evolving nature of our business model, we may be unable to accurately forecast
our revenues. We incur expenses based predominantly on operating plans and
estimates of future revenues. Revenues to be generated from newly developed and
evolving activities will be particularly difficult to forecast accurately. Our
expenses are to a large extent fixed. We may be unable to adjust our spending
in a timely manner to compensate for any unexpected revenue shortfalls.
Accordingly, a failure to meet our revenue projections will have an immediate
and negative impact on profitability. Finally, we cannot be certain that our
evolving business model will be successful, particularly in light of our
limited operating history.

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We have a history of losses and anticipate incurring losses in the future. We
may not achieve profitability.

   We incurred a net loss of $52.6 million for the three months ended March 31,
2002. To date, we have not realized any profits, and as of March 31, 2002, we
had an accumulated deficit of $258.4 million. We expect to incur substantial
operating losses and continued negative cash flow from operations for the
foreseeable future. In fact, we expect to continue generating losses through at
least 2002.  We may not be able to increase revenues sufficiently to achieve
profitability.

Our future profitability and cash flows are dependent upon our ability to
control expenses.

   Our operating plan to achieve profitability is based upon estimates of our
future expenses. For instance, we significantly reduced our development
expenses, certain sales and marketing expenses and general and administrative
expenses during 2001. If our future expenses are greater than anticipated, our
ability to achieve profitability when expected may be negatively impacted. In
addition, greater than anticipated expenses may negatively impact our cash
flows, which could cause us to expend our capital faster than anticipated.
While we expect our existing capital to be sufficient for more than the next
year, lower than expected cash flows due to increased expenses could require us
to raise additional capital in order to maintain our operations. There can be
no assurance that we will be able to raise such funds on favorable terms, or at
all.

Our future profitability and cash flows are also dependent upon our ability to
achieve revenue growth.

   Our operating plan to achieve profitability is based upon estimates of our
revenues and assumes that will achieve license fee and related revenues that
substantially exceed historical levels. Our ability to achieve this projected
revenue growth is largely dependent on the results of our sales efforts. In
2001, we restructured our sales force to increase the focus on sales of our
software products and services and reduce certain sales and marketing expenses.
We cannot assure you that our sales force will be successful in achieving the
sales levels required to achieve profitability. If our future revenues are less
than anticipated, our ability to achieve profitability when expected may be
negatively impacted. In addition, lower than anticipated revenues may
negatively impact our cash flows, which could cause us to expend our capital
faster than anticipated. While we expect our existing capital to be sufficient
for more than the next year, lower than expected cash flows as a result of
lower revenues could require us to raise additional capital in order to
maintain our operations. There can be no assurance that we will be able to
raise such funds on favorable terms, or at all.

Revenues from e-commerce transactions have historically comprised a significant
portion of our revenues. The failure to replace these revenues with license fee
revenues could have a material adverse effect on our revenues and earnings.

   As we have shifted our focus to providing technology solutions and away from
processing e-commerce transactions, our revenues from e-commerce transactions
have decreased significantly and are expected to be inconsequential in 2002.
Consequently, our revenues are now dependent on sales of software licenses and
related revenues. We cannot assure you that we will be successful in growing
software license revenue. As part of our revenue generation efforts, we have
entered into a reseller arrangement with CambridgeSoft. However, we cannot
assure you that we will generate significant revenue from this arrangement. If
we are not able to replace revenues from e-commerce transactions with software
license revenues, our revenues and earnings will be materially and adversely
affected.

We are investing significantly in developing new product and service offerings
with no guarantee of success.

   Expanding our product and service offerings is an important component of our
business strategy. As such, we are expending a significant amount of our
resources in this development effort. For instance, we have recently introduced
products such as SelectSite SRA(TM) (Source and Requisition Application), and
SelectSite APA(TM) (Advanced Procurement Application). Any new offerings that
are not favorably received by prospective customers could damage our reputation
or brand name. Expansion of our services will require us to devote a
significant amount of time and money and may strain our management, financial
and operating resources. We cannot assure you that our development efforts will
result in commercially viable products or services. In addition, we may bear
development costs in current periods that do not generate revenues until future
periods, if at all. To the extent that we incur expenses that do not result in
increased current or future revenues, our earnings may be materially and
adversely affected.

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<PAGE>

Sales to larger customers may result in long sales cycles and decrease our
profit margins.

   Sales to large enterprise buyers are an important element of our business
strategy. As we sell sophisticated solutions to larger organizations, we expect
the average time from initial contact to final approval to be significant.
During this sales cycle, we may expend substantial funds and management
resources without any corresponding revenue. If approval is delayed or does not
occur, our financial condition and operating results for a particular period
may be adversely affected. Approvals are subject to delays over which we have
little or no control, including the following:

  .   potential customers' internal approval processes;

  .   budgetary constraints for information technology spending;

  .   implementation of systems integration solutions;

  .   customers' concerns about implementing a new strategy and method of doing
      business; and

  .   seasonal and other timing effects.

   Sales to large accounts may result in lower profit margins than other sales
as larger customers typically have greater leverage in negotiating the price
and other terms of business relationships. We also typically incur costs
associated with customization of our products and services with a sale to a
large account. If we do not generate sufficient revenues to offset any lower
margins or these increased costs, our operating results may be materially and
adversely affected. Also, the time between billing and receipt of revenues is
often longer when dealing with larger accounts due to increased administrative
overhead.

We have relied, and continue to rely, on a limited number of large customers
for a significant portion of our revenues. Losing one or more of these
customers may adversely affect our revenues.

   We expect that for the foreseeable future we will generate a significant
portion of our revenues from a limited number of large customers. During the
three months ended March 31, 2002, four customers accounted for 24%, 20%, 14%
and 12%, respectively, of our total revenues. In addition, large individual
transactions with these customers may represent an increasing percentage of our
revenues. These large transactions are often non-recurring, making it difficult
to predict future transactions.  The failure of one or more large transactions
to occur in any given period may materially and adversely affect our revenues
for that period. If we lose any of our large customers or if we are unable to
add new large customers, our revenues will not increase as expected. In
addition, our reputation and brand name would be harmed. This customer
concentration may also increase our accounts receivable credit risk from time
to time. At March 31, 2001, one customer comprised 58% of our gross accounts
receivable balance. The failure by this or any other larger customer to make
payments when due would negatively impact our cash flows.

Unless a broad range of purchasers and suppliers of scientific products adopt
our products and services, we will not be successful.

   Our success will require, among other things, that our solutions gain broad
market acceptance by purchasers and suppliers of scientific products. For
example, purchasers may continue managing assets and purchasing products
through their existing methods and may not adopt new technology solutions
because of:

  .   their comfort with current purchasing and asset management procedures;

  .   the costs and resources required to adopt new business procedures;

  .   reductions in capital expenditures or information technology spending;

  .   security and privacy concerns; or

  .   general reticence about technology or the Internet.

If we do not successfully market the SciQuest brand, our business may suffer.

   We believe that establishing, maintaining and enhancing the SciQuest brand
is critical in expanding our customer base. Some of our competitors already
have well-established brands. Promotion of our brand will depend largely on
continuing our sales and marketing efforts and providing high-quality products
and services to our enterprise customers. We reduced our spending on sales and
marketing significantly beginning in the fourth quarter of 2000 and during 2001
and expect to continue

                                      29

<PAGE>

this reduction from prior levels throughout 2002. This reduction in spending
could materially and adversely affect our sales and marketing efforts. We
cannot be certain that we will be successful in marketing the SciQuest brand.
If we are unable to successfully promote our brand, or if we incur substantial
expenses in attempting to do so, our revenues and earnings could be materially
and adversely affected.

If we are not able to successfully integrate our systems with the internal
systems of our customers, our operating costs and relationships with our
suppliers and buyers will be adversely affected.

   A key component of all services is the efficiencies created for suppliers
and buyers through our products and services. In order to create these
efficiencies, it will often be necessary that our systems integrate with
customers' internal systems, such as inventory, customer service, technical
service, freight programs and financial systems. In addition, there is little
uniformity in the systems used by our customers. If these systems are not
successfully integrated, relationships with our customers would be adversely
affected, which could have a material adverse effect on our financial condition
and results of operations.

If we are unable to adapt our products and services to rapid technological
change, our revenues and profits could be materially and adversely affected.

   Rapid changes in technology, products and services, user profiles and
operating standards occur frequently. These changes could render our
proprietary technology and systems obsolete. We must continually improve the
performance, features and reliability of our products and services,
particularly in response to our competition.

   Our success will depend, in part, on our ability to:

  .   enhance our existing products and services;

  .   develop new services and technology that address the increasingly
      sophisticated and varied needs of our target markets; and
  .   respond to technological advances and emerging industry standards and
      practices on a cost-effective and timely basis.

   We cannot be certain of our success in accomplishing the foregoing. If we
are unable, for technical, legal, financial or other reasons, to adapt to
changing market conditions or buyer requirements, our market share could be
materially adversely affected.

The market for technology solutions in the scientific products industry is
highly competitive, which makes achieving market share and profitability more
difficult.

   The market for technology solutions in the pharmaceutical and biotechnology
industries is new, rapidly evolving and intensely competitive. Competition is
likely to intensify as this market matures.

   As competitive conditions intensify, competitors may:

  .   devote greater resources to marketing and promotional campaigns;

  .   devote substantially more resources to product development;

  .   secure exclusive arrangements with customers that impede our sales; and

  .   enter into strategic or commercial relationships with larger, more
      established and well-financed companies.

   In addition, new technologies and the expansion of existing technologies may
increase competitive pressures. As a result of increased competition, we may
experience reduced operating margins, as well as loss of market share and brand
recognition. We may not be able to compete successfully against current and
future competitors. These competitive pressures could have a material adverse
effect on our revenue growth and earnings.

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<PAGE>

Our future revenue growth may be adversely affected by a significant reduction
in spending in the pharmaceutical and biotechnology industries.

   We derive our revenue from the pharmaceutical and biotechnology industries,
primarily through fees for our software products and services. We expect our
future growth to depend indirectly on spending levels in this industry. In
addition, many companies have reduced spending on information technology
products in response to current economic conditions. Any significant reduction
in spending in the pharmaceutical or biotechnology industries may have a
material adverse effect on our revenues.

Our computer and telecommunications systems are in a single location, which
makes them more vulnerable to damage or interruption.

   Substantially all of our computer and telecommunications systems are located
in the same geographic area. These systems are vulnerable to damage or
interruption from fire, flood, power loss, telecommunications failure,
break-ins and similar events. While we have business interruption insurance,
this coverage may not adequately compensate us for lost business. Although we
have implemented network security measures, our systems, like all systems, are
vulnerable to computer viruses, physical or electronic break-ins and similar
disruptions. These disruptions could lead to interruptions, delays and loss of
data with respect to our hosted products. Any of these occurrences could have a
material adverse effect on our revenues.

If we are unable to protect our intellectual property rights, our business
could be materially and adversely affected.

   Any misappropriation of our technology or the development of competing
technology could seriously harm our business. We regard a substantial portion
of our software products as proprietary and rely on a combination of copyright,
trademark and trade secrets, customer license agreements and employee and
third-party confidentiality agreements to protect our proprietary rights. These
protections may not be adequate, and we cannot assure you that they will
prevent misappropriation of our intellectual property, particularly in foreign
countries where the laws may not protect proprietary rights as fully as do the
laws of the United States. Other companies could independently develop similar
or competing technology without violating our proprietary rights. The process
of enforcing our intellectual property rights through legal proceedings would
likely be burdensome and expensive, and our ultimate success could involve a
high degree of risk.

We will be liable for any third party claims that may rise against EMAX
including claims related to important proprietary rights regarding EMAX's
technology. These claims could adversely affect our business.

   In our acquisition of EMAX, we acquired important proprietary rights that
are embodied in its software technology. This software technology is not
patented and existing copyright laws offer only limited practical protection.
By virtue of this acquisition, we will be liable for any valid third-party
claims that may arise against EMAX in relation to their proprietary rights or
contracts with suppliers and customers. While we have investigated EMAX's
proprietary rights and business practices, we cannot be certain that ownership,
infringement or other claims will not arise against EMAX. A successful claim by
a third party could result in significant liability on our part and could
materially and adversely affect the value of the technology that we are
acquiring. As a precaution, a portion of the purchase price for EMAX has been
deposited into an escrow fund. If we become liable for any claims against EMAX,
we may be entitled to compensation from this escrow fund. However, this escrow
fund will terminate in March 2002 and may not be sufficient to adequately
compensate us for any claims that do arise.

Our products, trademarks and other proprietary rights may infringe on the
proprietary rights of third parties, which may expose us to litigation.

   While we believe that our products, trademarks and other proprietary rights
do not infringe upon the proprietary rights of third parties, we cannot
guarantee that third parties will not assert infringement claims against us in
the future or that any such assertion will not require us to enter into a
license agreement or royalty agreement with the party asserting a claim. Even
the successful defense of an infringement claim could result in substantial
costs and diversion of our management's efforts.

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We are dependent on proprietary technology licensed from third parties, the
loss of which could be costly.

   We license a portion of the content for our products and services from third
parties.  These third-party content licenses may not be available to us on
favorable terms, or at all, in the future. In addition, we must be able to
successfully integrate this content in a timely and cost-effective manner to
create an effective finished product. If we fail to obtain necessary content on
favorable terms or are unable to successfully integrate this content or if we
are unable to continue to license our order fulfillment transaction systems on
favorable terms, it could have a material adverse effect on our business
operations.

Product defects or software errors in our products could adversely affect our
business due to costly redesigns, production delays and customer
dissatisfaction.

   Design defects or software errors in our products may cause delays to
product introductions or reduce customer satisfaction, either of which could
materially and adversely affect our product sales and revenues. Our software
products are highly complex and may contain design defects or software errors
from time to time that may be difficult to detect or correct. Although we have
license agreements with our customers that contain provisions designed to limit
our exposure to potential claims and liabilities arising from customers, these
provisions may not effectively protect us against all claims. In addition,
claims arising from customer dissatisfaction could significantly damage our
reputation and sales efforts.

If we are not able to effectively manage revenue growth with fewer personnel,
our business may suffer.

   We rapidly expanded our operations in 2000, which placed a significant
strain on our management, operational and financial resources as well as our
ability to achieve profitability. In November 2000, we commenced a
restructuring program that resulted in a significant reduction of our
workforce. We further reduced our workforce in the first half of 2001. This
staff reduction could adversely affect our ability to manage and continue the
growth of our operations. If we are unable to manage the growth of our business
effectively, our earnings could be materially and adversely affected.

   Many of our key executives and other employees have been employed by us for
two years or less. If our employees do not work well together or some of our
employees do not succeed in their designated roles, our financial condition and
results of operations could be materially and adversely affected. We cannot be
certain that our management, operational and financial resources will be
adequate to support our future operations.

If we fail to attract and retain key employees, our business may suffer.

   A key factor of our success will be the continued services and performance
of our executive officers and other key personnel. If we lose the services of
any of our executive officers, our financial condition and results of
operations could be materially and adversely affected. We do not have long-term
employment agreements with any of our key personnel. Our success also depends
upon our ability to identify, hire and retain other highly skilled technical,
managerial, editorial, marketing and customer service professionals.
Competition for such personnel is intense. We cannot be certain of our ability
to identify, hire and retain sufficiently qualified personnel. For example, we
may encounter difficulties in attracting a sufficient number of qualified
software developers. Failure to identify, hire and retain necessary technical,
managerial, editorial, merchandising, marketing and buyer service personnel
could have a material adverse effect on our financial condition and results of
operations.

The failure to integrate successfully businesses that we have acquired or may
acquire could adversely affect our business.

   We have acquired and intend to continue to acquire complementary businesses.
In particular, we acquired BioSupplyNet, Inc. in 1998, SciCentral, Inc.,
Intralogix, Inc. and EMAX in 2000, and Textco and the assets of Groton NeoChem
in 2002. An element of our strategy is to broaden the scope and content of our
products and services through the acquisition of existing products,
technologies, services and businesses. Acquisitions entail numerous risks,
including:

  .   the integration of new operations, products, services and personnel;

  .   the diversion of resources from our existing businesses, sites and
      technologies;

  .   the inability to generate revenues from new products and services
      sufficient to offset associated acquisition costs;

  .   the maintenance of uniform standards, controls, procedures and policies;

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<PAGE>

  .   accounting effects that may adversely affect our financial results;

  .   the impairment of employee and customer relations as a result of any
      integration of new management personnel;

  .   dilution to existing stockholders from the issuance of equity securities;
      and

  .   liabilities or other problems associated with an acquired business.

   We may have difficulty in effectively assimilating and integrating these
businesses, or any future joint ventures, acquisitions or alliances, into our
operations. Any difficulties in the process could disrupt our ongoing business,
distract our management and employees, increase our expenses and otherwise
adversely effect our business. Any problems we encounter in connection with our
acquisitions could have a material adverse effect on our business. Our planned
growth from international customers will require financial resources and
management attention and could have a negative effect on our earnings.

Our planned growth from international customers will require financial
resources and management attention and could have a negative effect on our
earnings.

   We intend to invest resources and capital to expand internationally,
particularly in Europe. The expansion will require financial resources and
management attention and could have a negative effect on our earnings. We
cannot assure you that we will be successful in creating international demand
for our solutions and services. In addition, our international business may be
subject to a variety of risks, including, among other things, increased costs
associated with maintaining international marketing efforts, applicable
government regulation, fluctuations in foreign currency, difficulties in
collecting international accounts receivable and the enforcement of
intellectual property rights. We cannot assure you that these factors will not
have an adverse effect on future international sales and earnings. In addition,
the business customs and regulations in foreign countries may require changes
in our business model. In addition, we are currently contemplating registering
our trademarks in other countries. We cannot assure you that we will be able to
do so.

Significant fluctuation in the market price of our common stock could result in
securities class action claims against us.

   Significant price and value fluctuations have occurred with respect to the
securities of technology companies. Our common stock price has been volatile
and is likely to be volatile in the future. In the past, following periods of
downward volatility in the market price of a company's securities, class action
litigation has often been pursued against such companies. If similar litigation
were pursued against us, it could result in substantial costs and a diversion
of our management's attention and resources.

The price of our common stock could result in the delisting of our stock from
the Nasdaq National Market, which could adversely affect the trading of our
common stock.

   Our common stock is currently quoted on the Nasdaq National Market. In order
to satisfy Nasdaq's minimum listing maintenance requirements, we must satisfy
various financial tests, including maintaining a minimum closing bid price of
at least $1.00. If the minimum closing bid price of our common stock were to be
below $1.00 for more than 30 consecutive trading days, Nasdaq could commence
action to delist our common stock from the Nasdaq National market. For 77
trading days in 2001, the closing bid price of our common stock was less than
$1.00. Subsequent to the tragic terrorist attacks of September 11, 2001, Nasdaq
placed a moratorium on the minimum bid price requirement, which prevented our
common stock from being delisted. Since October 30, 2001, our common stock has
maintained closing bid prices above $1.00. However, we cannot assure you that
the closing bid price of our common stock will remain above $1.00 in the
future. If our common stock is delisted from the Nasdaq National Market, it
would be listed on either the Nasdaq SmallCap Market or on the OTC Bulletin
Board, both of which are viewed by most investors as less desirable and less
liquid marketplaces. Thus, delisting from the Nasdaq National Market could make
trading our common stock more difficult for investors, potentially leading to
further declines in share prices.

New accounting rules could be proposed that could adversely affect our reported
financial results.

   Our financial statements are prepared based on generally accepted accounting
principles and SEC accounting rules. These principles and rules are subject to
change from time to time for various reasons. While we believe we meet all
current

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financial reporting requirements, we cannot predict at this time whether any
initiatives will be proposed or adopted that would require us to change our
accounting policies. Any change to generally accepted accounting principles or
SEC rules could adversely affect our reported financial results.

Item 3:  Quantitative and Qualitative Disclosures About Market Risk

   Most of our cash equivalents, short-term and long-term investments and
capital lease obligations are at fixed interest rates, therefore the fair value
of these investments is affected by changes in market interest rates. However,
because our investment portfolio is primarily comprised of investments in U.S.
Government obligations and high-grade commercial paper, an immediate 10% change
in market interest rates would not have a material effect on the fair market
value of our portfolio. Therefore, we would not expect our operating results or
cash flows to be affected to any significant degree by a sudden change in
market interest rates.

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                                    PART II
                               OTHER INFORMATION

Item 1.  Legal Proceedings.

   On September 10, 2001 SciQuest was named as a defendant in a purported class
action lawsuit filed in the United States District Court, Southern District of
New York. The lawsuit is captioned Patricia Figuerido and Robert Wallace v.
Sciquest.com, Inc., et al. No. 01 CV 8467. The case has been consolidated for
pretrial purposes with over 100 other lawsuits filed against other issuers,
their officers, and underwriters of their initial public offerings under the
caption In re Initial Public Offering Securities Litigation, 21 MC 92 (SAS).
The case includes claims against SciQuest, three of its officers, and seven
investment banking firms who either served as underwriters, or are the
successors in interest to underwriters, of our initial public offering. The
complaint alleges that the prospectus used in our initial public offering
contained material misstatements or omissions regarding the underwriters'
activities in connection with the initial public offering. The court has
adjourned defendants' time to answer or respond to all complaints in the
consolidated proceedings until further order of the court.

   It is too early in this matter to reasonably predict the probability of the
outcome or to estimate a range of possible losses. Adverse judgments in this
matter could have a material adverse effect on our consolidated financial
position, liquidity or consolidated results of operations.

Item 2.  Changes in Securities.

   Not applicable.

Item 3.  Defaults In Securities.

   Not applicable.

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

   (a)  Our Annual Meeting of Stockholders was held on May 1, 2002. There were
present at the annual meeting, in person or by proxy, holders of 23,643,396
shares of the Common Stock entitled to vote.

   (b)  The following directors were elected to hold office until the indicated
annual meeting of stockholders, or until their successors are elected and
qualified, with the vote for each director being reflected below:

<TABLE>
<CAPTION>
                                        Term                Votes
             Name                    Expiration Votes For  Withheld
             ----                    ---------- ---------- --------
             <S>                     <C>        <C>        <C>
             M. Scott Andrews.......    2005    23,560,382  83,014
             Louis M. Sherwood, M.D.    2003    23,563,792  79,604
</TABLE>

   The affirmative vote of a plurality of the shares of Common Stock cast, in
person or by proxy, at the Annual Meeting was required to elect each director.
Bruce J. Boehm and Lloyd Segal will continue as directors until the election
and qualification of successor directors at the 2003 annual meeting of
stockholders. Noel J. Fenton and Stephen J. Wiehe will continue as directors
until the election and qualification of a successor director at the 2004 annual
meeting of stockholders.

   (c)  The appointment of PricewaterhouseCoopers LLP as independent auditor
for the year ending December 31, 2002, was ratified with 23,587,718 affirmative
votes cast, 33,529 negative votes cast and 22,149 abstentions. The appointment
of PricewaterhouseCoopers LLP required the affirmative vote of a majority of
the shares represented at the Annual Meeting for purposes of such proposal.

                                      35

<PAGE>

Item 5.  Other Information.

   None.

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

   (a)  The following exhibits are filed as a part of, or are incorporated by
reference into, this report on Form 10-Q:

<TABLE>
<CAPTION>
Exhibit
Number                                                     Description
------                                                     -----------
<C>        <S>

   3.1*    Amended and Restated Certificate of Incorporation of SciQuest.com.

   3.2*    Amended and Restated Bylaws of SciQuest.com.

   4.1*    See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated Certificate of Incorporation and Amended
             and Restated Bylaws of SciQuest.com defining rights of the holders of Common Stock of SciQuest.com.

   4.2*    Specimen Stock Certificate.

  10.1*    SciQuest.com, Inc. Stock Option Plan dated as of September 4, 1997.

  10.2*    Amendment No. 1 to SciQuest.com, Inc. Stock Option Plan dated as of September 11, 1998.

  10.3*    Amendment No. 2 to SciQuest.com, Inc. Stock Option Plan dated as of February 26, 1999.

  10.4*    Amendment No. 3 to SciQuest.com, Inc. Stock Option Plan dated as of March 1, 1999.

  10.5*    Amendment No. 4 to SciQuest.com, Inc. Stock Option Plan dated as of August 27, 1999.

  10.6*    Sublease Agreement by and between Applied Innovation, Inc. and SciQuest.com dated March 11,1999.

  10.7*    Registration Rights Agreement by and among SciQuest.com, the holders of Series B Preferred Stock and the
             purchasers of Series D Preferred Stock dated May 18, 1999, as amended.

  10.8*    Lease Agreement by and between Duke-Weeks Realty Limited Partnership and SciQuest.com dated as of
             October 19, 1999.

  10.9**   Form of Strategic Alliance Plus Agreement.

 10.10*    Amendment No. 5 to SciQuest.com, Inc. Stock Option Plan.

 10.11*    SciQuest.com, Inc. 1999 Stock Incentive Plan dated as of October 12, 1999.

 10.12**   First Amendment to 1999 Stock Incentive Plan.

 10.13**   Merger Agreement by and among SciQuest.com, Lujack Subsidiary, Inc., Intralogix, Inc., Mary T. Romac,
             Timothy M. Brady and Dale L. Young dated January 14, 2000.

 10.14**   Merger Agreement by and among SciQuest.com, SciCentral Acquisition Subsidiary, Inc., SciCentral.com, Inc.
             and the shareholders of SciCentral.com, Inc. dated February 2, 2000.

 10.15**   Agreement and Plan of Merger and Reorganization between SciQuest.com, ESP Acquisition, Inc. and EMAX
             Solution Partners, Inc. dated March 13, 2000.

 10.16**   SciQuest.com, Inc. 2000 Employee Stock Purchase Plan.

 10.17***  Second Amendment to 1999 Stock Incentive Plan.

 10.18**** Form of Services Agreement.

 10.19     Form of Master License and Services Agreement

 10.20     Executive Employment Agreement by and between SciQuest, Inc. and Stephen J. Wiehe, dated February 5, 2002
</TABLE>
--------
  * Incorporated by reference to SciQuest's Registration Statement on Form S-1
  (Reg. No. 333-87433).
  ** Incorporated by reference to SciQuest's Registration Statement on Form S-1
  (Reg. No. 333-32582).
 *** Incorporated by reference to SciQuest's Annual Report on Form 10-K for the
 year ended December 31, 2000.
**** Incorporated by reference to SciQuest's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2001.

   (b) Reports on Form 8-K.

   None.

                                      36

<PAGE>

                                  SIGNATURES

   Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


<TABLE>
<C>                   <C> <S>
                      SCIQUEST, INC.

Date May 10, 2002     By:          /S/  STEPHEN J. WIEHE
                          ---------------------------------------
                                     Stephen J. Wiehe
                                  Chief Executive Officer
                               (Principal Executive Officer)
</TABLE>

Date May 10, 2002     By:          /S/  JAMES J. SCHEUER
                          ---------------------------------------
                                     James J. Scheuer
                                  Chief Financial Officer
                            (Principal Financial and Accounting
                                         Officer)

                                      37