UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

ý    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For
the fiscal year ended December 31, 2003

OR

o    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For
the transition period from
 to

Commission
File Number 000-30654

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

Illinois
(State or other jurisdiction of incorporation or organization)

36-3644751
(I.R.S. Employer Identification No.)


One Tower Lane, 28th Floor
Oakbrook Terrace, Illinois 60181
(Address of principal executive offices, including zip code)

(630) 472-9600
(Registrant's telephone number, including area code)

Securities
registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Shares, par value $0.01 per share
(Title of Class)

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 / /

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

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

The
aggregate market value of the registrant's voting shares held by non-affiliates of the registrant (based upon the per share closing sale price of $2.56 on June 30, 2003, and for
the purpose of this calculation only, the assumption that all of the registrant's directors and executive officers are affiliates) was approximately $21,000,000.

The
number of shares outstanding of the registrant's Common Shares, par value $0.01 per share, as of March 1, 2004, was 17,216,583.

DOCUMENTS
INCORPORATED BY REFERENCE

Portions
of the following documents are incorporated by reference into this report:
Notice of Annual Meeting of Shareholders and Proxy Statement for the Annual Meeting of Shareholders
(the "2004 Proxy Statement") (Part III)

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FORWARD-LOOKING STATEMENTS

Except for historical information, the matters discussed in this Annual Report on Form 10-K are forward-looking statements made pursuant to the safe harbor
provisions for forward-looking statements described in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on the Company's current expectations and are
subject to a number of risks, uncertainties, and assumptions relating to the Company's operations, financial condition, and results of operations. Should one or more of these risks or uncertainties
materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from results expressed or implied in any forward-looking statement made by the Company in
this Annual Report. These and other risks are detailed elsewhere in this Annual Report under "Risk Factors Associated With Apropos' Business and Future Operating Results." The Company does not
undertake any obligation to revise these forward-looking statements to reflect future events or circumstances.

Part I

ITEM 1.    BUSINESS.

The Company

Apropos Technology, Inc. ("Apropos" or the "Company") develops, markets, and supports a leading real-time, multi-channel interaction management application
platform for managing customer interactions across a variety of communications channels, including E-mail, Fax, Web, and Voice. Apropos' solution enhances customer relationship management
applications, such as sales, marketing, and service, through intelligent, value-based management of all interactions. The Company's product offers on-line customers the flexibility to
interact with businesses over the Internet, through E-mail or Web Collaboration, and also provides real-time access to human assistance through either an interactive Web Chat
or Voice interaction, to help in completing a sales or service transaction.

The
Company's interaction management software enables customers to prioritize, route, and respond to customer interactions across multiple communications channels based on a single set of business
rules. Apropos' customers can establish business rules to manage customer interactions based on their business value or service level. For example, customers can, on a real-time basis;
(1) route specific types of customer interactions to an agent based on that agent's particular skills and (2) adjust the number of interactions and agents assigned to a queue to ensure
maximum responsiveness to the customer. Customers can also monitor the status of each interaction and the performance of each contact center agent. Apropos' solution provides comprehensive
real-time and historical reporting on each customer interaction and on the contact center resources necessary to manage those interactions.

The
Company commenced operations in 1989. From inception until 1995, the Company generated modest revenues from consulting services while its primary operating activities consisted of research and
development. In March 1995, the Company began shipping its first software product. The Company's customers utilize its solution for a variety of applications such as sales, customer service,
help desk, and field service. The Company has a diverse customer base in excess of 300 customers located in over 20 countries.

The
Company was incorporated in 1989 in Illinois. Its principal executive offices are located at One Tower Lane, 28th Floor, Oakbrook Terrace, Illinois 60181, and its telephone number at
that address is (630) 472-9600. Apropos maintains a Web site atwww.apropos.com.Information contained on the Company's Web site is not
incorporated into this Annual Report.

The Apropos Solution

Introduction

The Company believes that to provide superior service and enhance customer loyalty and retention, businesses need to offer customers the maximum flexibility in choosing how they
interact with their business. Businesses need a multi-channel solution that can support their business initiatives while maintaining or improving service levels. As a result, businesses face
significant challenges in managing and optimizing traditional Voice and new Internet-based customer interactions. These challenges include:



Capabilities

The Company's product is designed to interoperate with leading communications systems and business applications, with scalability to support high interaction volume. Apropos has
a patented "universal queuing" capability, which allows voice, email and other

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communication
media to be blended into a single queuing environment. Each interaction type may be prioritized uniquely based on the business value of each interaction.

The
Company believes that a comprehensive solution that provides high quality service across multiple communication channels is required for businesses to meet the emerging needs of customer contact
centers The Company's solution provides the following benefits to its customers:

Seamless management of multiple communication channels through one business rules driven interface.Apropos' solution is designed to allow
customers to manage customer interactions on a real-time basis across a variety of communication channels, through one business rules driven interface. Customers can establish business
rules to manage customer interactions based on their business value or service level with the assurance that these business rules will operate consistently across all interaction types.

Comprehensive real-time information.Apropos' solution provides real-time information on the overall performance of
the contact center. Supervisors receive information that enables them to react immediately to changing business conditions. For example, if one or more agents are servicing E-mail
interactions and a supervisor is notified that a queue of incoming Voice calls has exceeded pre-defined thresholds, the supervisor can reassign these E-mail agents to handle
the Voice calls with a simple mouse click.

Integrated decision management reporting capabilities.Apropos' Decision Manager application enables customers to view historical reports
through an advanced Web-based interface, providing information on critical aspects of the contact center's operation, including agent performance, interaction volume, interaction types,
and interaction disposition. Decision Manager provides "cradle-to-grave" reporting on each interaction, from initial customer contact to closure, allowing customers to better
understand the entire interaction cycle. The application also combines customer interaction information across multiple communication channels in a single integrated report allowing customers to
better understand and manage their business.

Interoperability.Apropos' solution is designed to operate within the existing infrastructure of an enterprise, including traditional Voice
and VoIP systems, E-mail, and Web servers. The product also allows access to system functionality through a comprehensive
suite of Application Programming Interfaces ("APIs"). As industry consolidation continues, the Company believes that the capacity to interoperate with a variety of different communications
environments and applications provides a significant benefit to its customers.

Modularity.The modular design of Apropos' solution allows its customers to add functionality as their needs evolve. For example, customers
may initially choose to implement the Company's solution for their traditional voice-based call center and then add other media types, such as E-mail and Web, as they further develop their
business strategies. The Company believes the ability to easily add functionality is extremely important to its customers as they transition from traditional Voice-based call centers to multi-channel
contact centers.

Scalability.Apropos' solution is designed to allow for scalability, providing a variety of system configurations that can complement the
deployment needs of its customer base. The Apropos solution uses proprietary internal messaging technology to enable the distribution of various system applications across wide area, local area, and
IP-based networks. As a customer's business grows, the Company's solution can be configured for additional capacity with demonstrated capabilities supporting up to 10,000 concurrent
agents.

Rapid implementation.Apropos has developed a repeatable consulting, design, and delivery methodology ("Apropos Methods") that is followed by
its application consultants, professional services team, and partners, based on Apropos' experience in implementing multi-channel contact centers. Apropos Methods allows the Company's customers to
accurately estimate the resources required to implement their multi-channel contact center solution. In addition, the Company provides several unique tools to insure rapid implementation and
integration with its customers' business applications. Apropos Methods also allows the Company to quickly and effectively train its partners in the implementation requirements of its solution.

Flexibility.A customer can configure and administer Apropos' solution through its Web-based application interface. This approach
is easier and more cost-effective than traditional hardware-based systems, which may require code modifications and recompilation. Customers can configure the Company's solution over a
number of locations and can connect remote users, such as agents working from home.

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Lower total cost of ownership.Apropos' integrated software-based solution results in a lower total cost of ownership in comparison to
multiple point products, which require integration and maintenance of various and disparate hardware and software products.

Support of converged Voice and data networks.Apropos' solution supports its customers' desires to transition from traditional circuit-
switched communications infrastructure to IP-based infrastructures. The ability to support both traditional circuit-switched voice and IP-based voice enables the Company's
customers to take advantage of the benefits of high performance converged Voice and data networks, without requiring total displacement of their existing infrastructure.

Software Products

The Company provides its solution via a product suite consisting of a number of desktop applications that provide access to interaction management functionality, data, and
operational performance information. These applications have been continuously refined over multiple product releases to maximize ease of use and access to value-added features.

Over
the past decade, Apropos Technology has delivered innovative products and solutions. With Apropos Version 6, released in June 2003, Apropos introduced an advanced
open-architecture product suite that provides access to the product's powerful interaction and transaction management capabilities by external systems and applications through a defined,
consistent interface. With architectural enhancements based on Java and Web-compliant standards, Version 6 is highly scalable and customizable. With advanced new features for interaction
handling, system monitoring, and reporting, Apropos continues to offer one of the most innovative solutions available in the market today.

Apropos
Version 6 is a comprehensive enterprise software suite of modular interaction management products designed to handle real-time interactions both inside and outside the contact
center. Features of the product include:





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Version
6 uses Apropos' patented universal queue technology and a highly scalable interaction processing engine to provide self-service options, intelligent prioritized routing and
queuing, and interaction management for all types of media and contact types:



Version
6 has seven desktop applications that can be categorized by user, management and administrative functions:

User Applications



Management Applications



Administrative Applications



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Technology

The Company's Version 6 software is based on Apropos' proprietary interaction management system, which integrates, prioritizes and distributes electronic communications across a
variety of formats and media of transmission. The technologies that provide these capabilities include multi-channel integration technologies, an interaction distribution engine, specific technologies
to manage different media types (voice, e-mail, web, etc.), messaging software, application integration software, decision management and reporting software, and administration and
configuration technology.

Apropos
Version 6 architecture is build on open industry standards and employs leading technologies, such as the C++ and Java programming languages, with foundation software from Microsoft (Microsoft
Foundation Classes) and Java (Java SDK 1.4x).

Third Party Software

The Company sells third party software, which is included with its product. This software includes:



The
Company has commercial agreements with iNet Software (Crystal Clear); Intel Corporation (NetMerge); Nuance Software; Scansoft (RealSpeak); and Optus Software (FACSys) for the purchase and
distribution of their respective software. The Company purchases PC Anywhere from a third party reseller. If one or more of these third parties ceases to sell their software, the Company will need to
modify its product to use an alternative supplier or eliminate the affected product function, either of which could have a material adverse effect on its business, financial condition and results of
operations.

Product Offerings

The Company's current product is Apropos Version 6-Multi-Channel Interaction Management Suite Enterprise Edition. Like previous versions, Version 6 provides
management of customer interactions within a single, fully-integrated solution. The Apropos solution provides business-rules driven prioritization and escalation, so companies can individually manage
each interaction based on its value to the business. In addition, Apropos provides real-time information on all interaction types to enable contact center managers to better manage,
monitor, and report on contact center activity. Key new features include secured Web chat and collaboration, speech recognition, and vastly improved agent scalability. This version is now built on a
J2EE architecture with a complete set of Java based APIs. These open APIs enable our product to be embedded within existing business applications.

In
order to further penetrate global markets, the Company's current version of its software provides a localization kit for the agent and resource manager applications. This localization kit will
allow the Company's customers and resellers to develop their own localized version of the Apropos product.

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Services

Professional Services

The Company believes the professional services used to implement its product are paramount to customer satisfaction. The Company provides application consulting, project
management, integration services, installation services, and training to its customers.

In
addition to its software offerings, the Company provides its customers with a full range of professional services to assist the customer in implementing and utilizing the software. The Company has
developed an implementation methodology, Apropos Methods, which is focused on delivering high quality solutions to its customers. Through the use of Apropos Methods, each project is delivered in a
consistent and repeatable manner. This methodology helps manage the risk of project overruns, budget overages, and the delivery of a solution that does not meet the Company's customer's expectations.

The
Company ensures the proper implementation and execution of its product suite through its own learning center. The Company provides instructor-led technical education about its core and
related technology. Apropos offers courses that support performance requirements of customers, partners, and employees. The Company also provides Internet-based and instructor-led courses
to its customers' contact center management, supervisors, and agents.

Customer Support and Enhancement Services

The Company provides support for its solution as well as support for its customer's specific integration of the Apropos solution. Apropos' customer service professionals can be
reached via phone, fax, E-mail, or Web-based communications. The Company provides product support for the current version plus the previous version of the Company's products.
Customers on older versions are encouraged to upgrade to the current version. The center is staffed with trained professionals who have experience in the software and communications industries. The
Company uses its solution to manage its own multi-channel contact center, so the Company can understand its customer's needs from a user's perspective. The Company generally has annual renewable
support agreements with its customers. As of December 31, 2003, approximately 87.0% of Apropos' customers had an active support agreement.

Sales and Distribution

The Company sells its products and services to customers directly and indirectly via resellers and original equipment manufacturers (OEMs). Under these indirect selling
arrangements, the Company typically does not provide services to the end-customer.

Direct sales force.The Company has a direct sales force in the United States that consists of regional sales managers and application
consultants. Regional sales managers have direct responsibility for selling and account management, while application consultants provide analysis and design of the solution to ensure the sales
proposal covers all aspects of the customers' needs.

The
Company currently has regional sales managers in California, New Jersey, North Carolina, and Virginia, in addition to its corporate headquarters in Illinois. The Company has application
consultants to support the direct sales force. The Company's international direct sales are managed from its offices in Windsor, United Kingdom. The Company's international sales force as of
December 31, 2003 includes three salespersons and one application consultant.

Resellers.The Company currently has a network of 7 resellers that distribute and implement its solution. The Company's value-added
resellers, or VARs, are an extension of its direct sales force and have taken the Company's solution into their portfolio. The VARs have extensive experience in the contact center market and customer
relationship management industry. The Company currently has resellers in the following countries: Australia, Canada, China (Hong Kong), Japan, South Africa and the United States.

OEMs.The Company currently has two partners who brand its solution under their corporate name. Mitel Corporation sells and markets the
Company's solution under the name Mitel Call Center Commander. PeopleSoft sells and markets the Company's solution under its own name.

The
Company plans to expand the number of VAR and OEM partners in North America, Europe, Asia, and Australia. The Company believes these efforts will result in increased sales and market penetration
of its solution.

The
Company will continue its emphasis on developing and selling software and de-emphasizing sales of services, which has significantly lower profit margins. As the Company develops and
expands its strategic partners, it will pursue outsourcing the implementation function to VARs, OEMs, and system integrators.

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Marketing

The Company's marketing efforts are focused on developing and executing sales lead generation programs that result in qualified customer leads, developing market awareness of
its products and services, and developing marketing programs that support its strategic partners.

The
Company has developed several marketing programs to accomplish these goals, including:



The
Company's Global Alliance Program provides a wide array of opportunities to expand and enhance the product and service offerings of the Company's strategic partners. The Company targets enterprise
application companies and system integrators to participate in the program. In some cases, the Company participates in similar programs sponsored by these partners. The programs provide for joint
software development or joint marketing opportunities to generate sales leads and referrals. The Company's application partners consist of enterprise software providers, such as Onyx Software
Corporation, PeopleSoft, Inc., Peregrine Systems, Inc., Remedy, a BMC software company, SAP, Siebel Systems, Inc and XP Systems, Inc. Service partners consist of system
integrators that provide professional services resources to implement the Company's solution.

The
Company believes building market and brand awareness of Apropos and its product will be essential, as it competes against larger traditional contact center suppliers. The Company intends to
continue to build its market and brand awareness by expanding its channel and partnership efforts.

Customers

The Company has a diverse base of over 300 customers that utilize its solution for a variety of applications, such as customer service and support, help desks, and field service
management. During 2003, approximately 35.0% of the Company's software revenues were derived from new customers. Notable new customers for 2003 include eBay, Inc., Unisys Corporation,
Electrolux and Bank of America. Contributors to 2003 revenues from the Company's existing customer base include Nokia Corporation, Veritas Software Corporation, Fannie Mae and Schlumberger Network
Solutions. The Company has customers in many different industries and is not dependent on any specific industry. The Company had no customers during 2003, 2002 or 2001 that represented more than 10%
of its total revenues.

New
orders for the Company's product increasingly include Voice and Internet-based functionality, such as E-mail and Web. During 2003, approximately 79.0% of new customers selected the
Company's multi-channel product solution.

Revenues
from the Company's international sales as a percentage of total revenue were 23.0%, 27.3%, and 21.0% in 2003, 2002 and 2001, respectively.

The
Company intends to expand its customer base by, among other things, expanding the number of its strategic partners and leveraging their distribution capabilities to sell the Company's product and
increasing the Company's co-marketing activities with its strategic partners.

Competition

Competitive global markets and the increasing acceptance of the Internet as an important medium for business and customer interaction have led to greater customer demands for
higher levels of service, responsiveness, convenience, personalization, and quality. With the growth of Internet-based communications and commerce, businesses must provide consistent high quality
customer care and service across a variety of communications media. Providing an appropriate level of service in this environment is more complex than in the past when customer interactions were
primarily voice-based and businesses provided service to their customers through traditional voice call centers.

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In
the future, the Company believes that an increasing number of customer interactions will be through Internet-based communications, such as E-mail and Web-based contacts.

The
market for the Company's product is highly competitive. The Company makes no assurance that it will be able to compete successfully against current and future competitors. The Company's
competition comes from several different market segments, including:



The
Company believes that the principal competitive factors in its market include product performance and features, quality of customer support and service, time to implement, product scalability,
sales and distribution capabilities, and overall cost of ownership. Although the Company believes that its solution currently competes favorably with respect to these factors, the Company's market is
relatively new and evolving rapidly. The Company may not be able to maintain its competitive position against current and potential competitors, especially those with greater financial, marketing,
service, support, and technical resources.

Many
of the Company's current and potential competitors have longer operating histories, greater financial, technical, marketing, customer service and other resources, greater name recognition, and a
larger installed base of customers than Apropos does. In the past several years, large, well-capitalized companies have acquired or invested in a number of the Company's current and
potential competitors. As a result, these competitors may be able (1) to respond to new or emerging technologies and changes in customer requirements faster and more effectively than Apropos
can, and (2) to devote greater resources to the development, promotion, and sale of products than Apropos can. Current competitors have merged with or acquired other competitors or established
cooperative relationships with other competitors to increase and expand the features and capabilities of their products. If these competitors were to acquire additional market share, it could have a
material adverse effect on the Company's business, financial condition, and results of operations.

Research and Development

The Company believes that its product development capabilities are essential to its strategy of expanding its leading technology position. As of December 31, 2003, the
Company's engineering team consists of 30 engineers and software developers with experience in Voice communications, E-mail, and Web technology. The Company believes the combination of
diverse technical and communications expertise contributes to the highly integrated functionality of its product. The Company spent $5.3 million, $7.9 million, and $8.1 million in
2003, 2002 and 2001, respectively, on research and development.

The
Company has invested significant time and resources in creating a structured process for undertaking all product development. A formal product introduction process is used as a framework for
defining, developing, and delivering products to the market.

Intellectual Property and Other Proprietary Rights

To protect the Company's proprietary rights, it relies primarily on a combination of:



The
Company has not signed agreements containing protective contractual provisions in every case and the contractual provisions that are in place and the protection they provide vary and may not
provide the Company with adequate protection in all circumstances. Despite the Company's efforts to protect its proprietary rights, unauthorized parties may copy aspects of its products and obtain and
use information that the Company regards as proprietary. Other parties may breach confidentiality agreements and other protective contracts entered into with the Company, and the Company may not
become aware of these breaches or have adequate remedies for them.

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Apropos
generally requires its employees to enter into confidentiality agreements containing non-disclosure, non-competition, and non-solicitation provisions. When
they begin employment, the Company's employees also generally sign offer letters specifying the basic terms and conditions of their employment.

Apropos
currently has nine patents granted in the United States and one patent granted in each of Ireland, the Netherlands, and the United Kingdom. These patents cover a system and method for:



The
Company also has two pending U.S. patent applications that relate to the systems and methods described above. None of the Company's patents expire before June 2012.

The
Company has several pending U.S. trademark applications.

Employees

As of December 31, 2003, Apropos had 96 employees worldwide, including 27 in sales and marketing, 30 in research and development, 26 in service and support, and 13 in
finance and administration.

The
Company's future success also depends on its continuing ability to attract, train, and retain highly qualified technical, sales, and managerial personnel. The Company can give no assurance that it
can retain or attract key personnel in the future. None of its employees are represented by a labor union. The Company has not experienced any work stoppages and considers its relations with its
employees to be good.

Executive Officers of the Company.

Kevin
G. Kerns; age 45; Chief Executive Officer and President.

Mr. Kerns
joined Apropos in January 1996 as President and Chief Operating Officer. He was appointed as a director in 1996. In 1998, Mr. Kerns was named Chief Executive Officer.
From 1989 through 1995, Mr. Kerns established and led a strategic software consulting firm, Mandalay Associates, based in Dallas, Texas.

Francis
J. Leonard; age 48; Chief Financial Officer and Vice President.

Mr. Leonard
joined Apropos in July 2000 as Chief Financial Officer. Prior to joining Apropos, Mr. Leonard was employed at BT Office Products, a distributor of office products and
furniture, from 1995 to 2000. Mr. Leonard served as VP Finance, Chief Financial Officer from 1997 to 2000, and prior to that as Corporate Controller, Chief Accounting Officer.

Jeffry
Finochiaro; age 44; Senior Vice President of Sales and ServicesAmericas.

Mr. Finochiaro
joined Apropos in January 2002 as Senior Vice President of SalesAmericas. Prior to joining Apropos, Mr. Finochiaro, a Director at Deloitte Consulting,
was responsible for business development for the firm's energy/utility practice for the North and South America region from 2000 to 2002. Prior to Deloitte Consulting, Mr. Finochiaro was Vice
President of Business Development for NeoForma, a healthcare supply chain solutions company, from 1999 to 2000. At McHugh Software, a provider of logistics software solutions, Mr. Finochairo
was the Senior Vice President of Worldwide Sales from 1996 to 1999.

SEC Filings

The Company makes available free of charge on its website, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with

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or
furnished to the Securities and Exchange Commission. The Company's website address iswww.apropos.com. The Company's Internet website and the
information contained therein are not incorporated into this Annual Report on Form 10-K.

ITEM 2.    FACILITIES.

The Company leases approximately 43,100 square feet of office space in its headquarters building in Oakbrook Terrace, Illinois. The lease expires in May 2006. As of
December 31, 2003, future minimum lease payments under this lease approximated $3.1 million. During the third quarter of 2003, the Company ceased using approximately 22,000 square feet
of this space and is currently attempting to sublease the space. The Company leased space for its European headquarters in Buckinghamshire, United Kingdom, which consisted of approximately 3,600
square feet. This lease was due to expire in April 2005. As of December 31, 2003, future minimum lease payments under this lease approximated $0.6 million. In January 2004,
the Company terminated this lease. In late January 2004, the Company moved to a location in Windsor, United Kingdom that consisted of approximately 800 square feet. The two year lease has
minimum lease payments of $0.2 million.

Apropos
believes the facilities currently being utilized are adequate for its needs and that additional space will be available as needed.

ITEM 3.    LEGAL PROCEEDINGS.

In November 2001, the Company was named as a defendant in several shareholder class action litigations that have been filed in federal court in Chicago against the
Company, certain of its current and former directors and officers, and the underwriters of the Company's initial public offering. These litigations are allegedly brought on behalf of purchasers of the
Company's stock, and assert that the Company violated the federal securities laws by making misstatements and omissions in its Registration Statement and Prospectus in connection with the Company's
initial public offering in February 2000. The plaintiffs seek unspecified damages. In April 2002 an amended consolidated complaint was filed which supersedes the original, separate
complaints. On February 25, 2004, the Company along with all other defendants, signed an agreement in principle to settle this litigation in consideration of a payment of $4.5 million,
to be paid by the Company's insurer. No settlement monies will be due from the Company itself. Consummation of the proposed settlement is conditioned upon, among other things, negotiating, executing,
and filing with the Court final settlement documents, and final approval by the Court. If the proposed settlement described above is not consummated, the Company intends to defend the litigation
vigorously.

The
Company has been named as a nominal defendant in a shareholder derivative action filed in February 2002 against certain of its present and former directors and officers. The complaint
alleges, among other things, that the alleged conduct challenged in the securities cases pending against the Company in Chicago (described above) constitutes a breach of the defendants' fiduciary
duties to the Company. The complaint seeks unspecified money damages and other relief ostensibly on behalf of the Company. In August 2002, the plaintiffs filed an amended complaint. The court
has entered an order staying the action in its entirety pending the outcome of the above-described securities cases in Chicago. Although legal proceedings are inherently uncertain and their ultimate
outcome cannot be predicted with certainty, the Company believes the allegations are without merit and intends to defend the litigation vigorously.

In
November 2001, the Company was named as a defendant in shareholder class action litigation that has been filed in federal court in New York City against the Company and certain of its
current and former officers and the underwriters of the Company's initial public offering ("IPO"). This lawsuit alleges, among other things, that the underwriters of the Company's IPO improperly
required their customers to pay the underwriters excessive commissions and to agree to buy additional shares of the Company's stock in the aftermarket as conditions of receiving shares in the
Company's IPO. The lawsuit further claims that these supposed practices of the underwriters should have been disclosed in the Company's IPO prospectus and registration statement. In April 2002,
an amended complaint was filed which, like the original complaint, alleges violations of the registration and antifraud provisions of the federal securities laws and seeks unspecified damages. The
Company understands that various other plaintiffs have filed substantially similar class action cases against approximately 300 other publicly traded companies and their public offering underwriters
in New York City, which along with the case against the Company have all been transferred to a single federal district judge for purposes of coordinated case management. In July 2002, the
Company, together with the other issuers named as defendants in these coordinated proceedings, filed a collective motion to dismiss the consolidated amended complaints against them on various legal
grounds common to all or most of the issuer defendants. In October 2002, the Court approved a stipulation providing for the dismissal of the individual defendants without prejudice. In
February 2003, the Court issued a decision granting in part and denying in part the motion to dismiss the litigation filed by the Company and the other issuer defendants. The claims against the
Company under the antifraud provisions of the securities laws were dismissed with prejudice; the claims under the registration provisions of the securities laws were not dismissed as to the Company or
virtually any other issuer defendant.

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In
June 2003, the Company elected to participate in a proposed settlement agreement with the plaintiffs in this litigation. If ultimately approved by the Court, this proposed settlement would
result in a dismissal, with prejudice, of all claims in the litigation against the Company and against any of the other issuer defendants who elect to participate in the proposed settlement, together
with the current or former officers and directors of participating issuers who were named as individual defendants. The proposed settlement does not provide for the resolution of any claims against
the underwriter defendants, and the litigation as against those defendants is continuing. The proposed settlement provides that the class members in the class action cases brought against the
participating issuer defendants will be guaranteed a recovery of $1 billion by insurers of the participating issuer defendants. If recoveries totaling $1 billion or more are obtained by
the class members from the underwriter defendants, however, the monetary obligations to the class members under the proposed settlement will be satisfied. In addition, the Company and any other
participating issuer defendants will be required to assign to the class members certain claims that they may have against the underwriters of their IPOs.

The
proposed settlement contemplates that any amounts necessary to fund the settlement or settlement-related expenses would come from participating issuers' directors and officers liability insurance
policy proceeds as opposed to funds of the participating issuer defendants themselves. A participating issuer defendant could be required to contribute to the costs of the settlement if that issuer's
insurance coverage were insufficient to pay that issuer's allocable share of the settlement costs. The Company expects that its insurance proceeds will be sufficient for these purposes and that it
will not otherwise be required to contribute to the proposed settlement. Consummation of the proposed settlement is conditioned upon, among other things, negotiating, executing, and filing with the
Court final settlement documents, and final approval by the Court. If the proposed settlement described above is not consummated, the Company
intends to continue to defend the litigation vigorously. Moreover, if the proposed settlement is not consummated, the Company believes that the underwriters may have an obligation to indemnify it for
the legal fees and other costs of defending this suit.

While
the Company cannot guarantee the outcome of the above proceedings, the Company believes that the final result of these actions will have no material effect on its consolidated financial
condition, results of operations or cash flows.

The
Company is a party in various other disputes and litigation that have arisen in the course of the Company's business. In the opinion of management, although legal proceedings can not be predicted
with certainty, the ultimate outcome of these disputes and lawsuits are not expected to have a material impact on the Company's financial condition or results of operations, or cash flows.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

12

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Part II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.

Apropos' Common Shares trade on the Nasdaq National Market under the symbol "APRS." The following table sets forth for the periods indicated the high and low sale prices of the
Company's Common Shares, as reported by Nasdaq. Such quotations reflect inter-dealer prices without markup, markdown or commissions and may not necessarily represent actual transactions.

| |                | Price range of Common Shares
| | -------------- | ----------------------------
|
|
|
|
|
| |                |                             
| | First quarter  |                             
| | Second quarter |                             
| | Third quarter  |                             
| | Fourth quarter |                             
|

At March 1, 2004, there were 111 shareholders of record and 17,216,583 Common Shares outstanding.

The
Company has not paid any dividends in the past and does not intend to pay cash dividends on its Common Shares for the foreseeable future. Instead, the Company intends to retain any earnings for
use in the operation and expansion of its business. The Company's board of directors will make any future determination of the payment of dividends based upon various factors then existing, including,
but not limited to, the Company's financial condition, operating results, and current and anticipated cash needs. The payment of dividends may be limited by capital and financing agreements that the
Company may enter into in the future.

On
February 23, 2000, Apropos consummated its initial public offering of its Common Shares, $0.01 par value. The 3,977,500 Common Shares sold in the offering at $22.00 per Share were registered
under the Securities Act of 1933, as amended, on a Registration Statement on Form S-1 (Reg. No. 333-90873) that was declared effective by the SEC on
February 16, 2000. The net offering proceeds to Apropos, after deducting underwriter discounts and commissions and expenses payable by the Company, were approximately $79.3 million. From
the effective date of such Registration Statement to December 31, 2003, approximately $10.2 million of the net proceeds were used for the repayment of debt and approximately
$29.8 million were used for general corporate purposes including operating losses, working capital, and capital expenditures. The balance of the net proceeds was held primarily in cash and cash
equivalents at December 31, 2003. Other than repayment of approximately $2.0 million in the aggregate of debt in favor of William Blair Capital Partners V, L.P., ARCH Venture Fund III,
L.P., and The Ohio Partners, Ltd., none of the Company's expenses or use of proceeds from this Offering were direct or indirect payments to directors, officers, general partners of the Company
or its associates, persons owning 10.0% or more of any class of equity securities in the Company, or affiliates of the Company.

13

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ITEM 6.    SELECTED FINANCIAL DATA.

The following selected consolidated financial data should be read in conjunction with "Item 8. Financial Statements and Supplementary Data" and "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operation," both included herein. The consolidated statement of operations data and the consolidated balance sheet data are
derived from the audited consolidated financial statements of the Company.

|                                                         |                                 | Year ended December 31 |       
|-------------------------------------------------------- | ------------------------------- | ---------------------- | ------
|
|
|                                                         |                                 |                        |       
|Consolidated Statement of Operations Data:               |                                 |                        |       
|Revenue:                                                 |                                 |                        |       
|                                                         | Software licenses               |                        | $7,903
|                                                         | Services and other (1)          |                        | 12,232
|                                                         |                                
|Total revenue                                            |                                 | 20,135                 |       
|Cost of goods and services:                              |                                 |                        |       
|                                                         | Cost of software                |                        | 407   
|                                                         | Cost of services and other (1)  |                        | 4,227 
|                                                         |                                
|Total cost of goods and services                         |                                 | 4,634                  |       
|                                                         |                                
|Gross margin                                             |                                 | 15,501                 |       
|Operating expenses:                                      |                                 |                        |       
|                                                         | Sales and marketing             |                        | 7,519 
|                                                         | Research and development        |                        | 5,349 
|                                                         | General and administrative      |                        | 5,611 
|                                                         | Stock compensation charge       |                        | 282   
|                                                         | Restructuring and other charges |                        | 2,875 
|                                                         |                                
|Total operating expenses                                 |                                 | 21,636                 |       
|                                                         |                                
|Operating loss                                           |                                 | (6,135                 | )     
|Other income (expense)                                   |                                 | 461                    |       
|                                                         |                                
|Net loss                                                 |                                 | $(5,647                | )     
|                                                         |                                
|Basic and diluted loss per common share                  |                                 | $(0.34                 | )     
|Weighted-average number of Common Shares outstanding (2) |                                 | 16,787                 |       
|                                                         |                                

|                                                  |  | December 31 | 
|------------------------------------------------- |  | ----------- | 
|
|
|                                                  |  |             | 
|Consolidated Balance Sheet Data:                  |  |             | 
|Cash, cash equivalents and short-term investments |  | $39,265     | 
|Working capital (deficit)                         |  | 37,264      | 
|Total assets                                      |  | 43,941      | 
|Debt and capital lease obligations (3)            |  |            | 
|Convertible preferred shares                      |  |            | 
|Total shareholders' equity (deficit)              |  | 37,824      | 
|                                                  | 

(1)  2001 - 1999 have been restated to include rebillable travel costs as revenue and cost of services.

(2)  1999 has been restated to reflect a seven-for-four stock split effective upon the consummation of the Company's initial public offering.

(3)  Includes current portions.

14

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion should be read in conjunction with the Company's consolidated financial statements and notes to those consolidated financial statements included
elsewhere in this Annual Report.

Overview

The Company develops, markets, and supports a leading real-time, multi-channel interaction management application for managing customer interactions across a variety
of communication channels, including E-mail, Fax, Web, and Voice. Apropos' solution enhances customer relationship management applications, such as sales, marketing, and service, through
intelligent, value-based management of all interactions. The Company's product offers on-line customers the flexibility to interact with businesses over the Internet, through
E-mail or Web collaboration, and also provides access to human assistance through either an interactive Web Chat or Voice interaction, to help in completing a sales or service transaction.

The
Company's operations commenced in January 1989, and, from inception to early 1995, operating activities consisted primarily of research and development and consulting. As an integral part
of the Company's growth strategy, during February 2000, the Company completed an initial public offering of 3,977,500 Common Shares (the "IPO") resulting in net proceeds to the Company of
approximately $79.3 million.

Critical Accounting Policies

Revenue.The Company recognizes revenue from the sale of software upon delivery. The Company recognizes revenue from fees for professional
services when they are completed. The Company recognizes support and maintenance services ratably over the term of its maintenance contracts, which are typically annual contracts. Training services
are recognized as such services are completed.

The
Company derives revenue principally from the sale of software licenses and from fees for implementation, technical support, and training services.

The
Company markets its solution to its customers primarily through its direct sales force, value-added resellers, and original equipment manufacturers, or OEMs, in North America, Europe, South
America, Asia, Africa, and Australia. Revenue generated via resellers and OEMs accounted for 24.7%, 19.5%, and 21.0% of the Company's total revenue for 2003, 2002 and 2001, respectively.
Management expects that revenue derived from sales to resellers and OEMs may increase as a percentage of total revenue as the Company expands its product capabilities and focuses its sales
efforts on its distribution channels.

The
Company relies on its customers and resellers to submit purchase orders for its product and services. In addition, the Company enters into general sales contracts with its customers and resellers;
however, none of its customers or resellers is obligated to purchase its product or its services pursuant to these contracts. All of the Company's sales contracts contain provisions regarding the
following:



Typically,
these contracts provide that the exclusive remedy for breach of the Company's specified warranty is either a refund of the price paid or modification of the product to satisfy the warranty.

The
Company has generally experienced a product sales cycle of six to nine months. The Company considers the life of the sales cycle to begin on the first face-to-face meeting
with the prospective customer and end when product is shipped. The length of the sales cycle for customer orders depends on a number of factors including:



15

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The
Company's OEM contracts contain additional provisions regarding product technical specifications, labeling instructions, and other instructions regarding customization and rebranding. The
Company's OEM contracts contain volume discounts.

Sales
to customers outside the United States accounted for 23.0%, 27.3%, and 21.0% of the Company's total revenue during 2003, 2002 and 2001, respectively. Management expects the portion of the
Company's total revenue derived from sales to customers outside the United States to be comparable in the foreseeable future.

Cost of goods and services.Cost of goods and services consists primarily of:



The
Company recognizes costs of software, implementation services, support and training services as they are incurred.

Operating expenses.The Company generally recognizes its operating expenses as they are incurred. Sales and marketing expenses consist
primarily of compensation, commission, and travel expenses along with other marketing expenses, including trade shows, public relations, telemarketing campaigns, and other promotional expenses.
Research and development expenses consist primarily of compensation expenses for personnel and, to a lesser extent, independent contractors. General and administrative expenses consist primarily of
compensation for administrative, financial, and information technology personnel and a number of non-allocable costs, including professional fees, legal fees, accounting fees, and bad
debts.

The
Company maintains an allowance for doubtful accounts to reflect the expected uncollectability of accounts receivable based on past collection history and specific risks identified among
uncollected accounts. Accounts receivable are charged to the allowance for doubtful accounts when the Company has determined that the receivable will not be collected. Accounts receivable balances are
determined to be delinquent when the amount is past due based on the contractual terms with the customer.

Stock compensation charge.Stock compensation charge represents the difference at the grant date between the exercise price and the
pre-IPO deemed fair value of the Common Shares underlying the options. This amount is being amortized over the vesting period of the individual options, which is typically four years.
Subsequent to the IPO, the exercise price of all options granted is equal to the fair market value of the underlying Common Shares, resulting in no compensation charge.

Other income and expenses.Other income and expense relates primarily to interest earned and/or owed. Interest income is generated by the
investment of cash raised in rounds of equity financing, most notably the IPO in February 2000. Interest expense is generated primarily from outstanding debt and certain capitalized
obligations, including any capital leases.

Income taxes.The Company provides for income taxes under the liability method, which requires recognition of deferred tax liabilities and
assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, a valuation allowance is required against net deferred
tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Management evaluates the recoverability of the deferred
tax assets and the level of the valuation allowance. At such time as it is determined that it is more likely than not that deferred tax assets are realizable, the valuation allowance will be
appropriately reduced.

Results of Operations

Fourth Quarter 2003 First Quarterly Profit

The Company reported its first quarterly profit in the fourth quarter of 2003. Revenue from software licenses for the fourth quarter 2003 was at its highest level in over two
years. In addition, as a result of previous cost reduction initiatives over the last eighteen months,

16

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quarterly
operating expenses have been lowered to under $4.0 million. The combination of improved revenues and a realigned operating cost structure led to basic earnings per share of $0.05 for
the fourth quarter of 2003.

Summary table

The following table sets forth, for the periods indicated, the percentage of total revenue represented by certain items included in the Company's "Consolidated Statements of
Operations" in the consolidated financial statements. Percentages are calculated from operating results rounded to the nearest thousand and may not equal calculations from the numbers referenced below
in this section which may be rounded to the nearest hundred thousand. Operating performance for any period is not necessarily indicative of performance for any future periods.

|                                 |                                 | Year ended December 31 |     
|-------------------------------- | ------------------------------- | ---------------------- | ----
|
|
|                                 |                                 |                        |     
|Revenue:                         |                                 |                        |     
|                                 | Software licenses               |                        | 39.3
|                                 | Services and other              |                        | 60.7
|                                 |                                
|Total revenue                    |                                 | 100.0                  |     
|Cost of goods and services:      |                                 |                        |     
|                                 | Cost of software                |                        | 2.0 
|                                 | Cost of services and other      |                        | 21.0
|                                 |                                
|Total cost of goods and services |                                 | 23.0                   |     
|                                 |                                
|Gross margin                     |                                 | 77.0                   |     
|Operating expenses:              |                                 |                        |     
|                                 | Sales and marketing             |                        | 37.3
|                                 | Research and development        |                        | 26.6
|                                 | General and administrative      |                        | 27.9
|                                 | Stock compensation charge       |                        | 1.4 
|                                 | Restructuring and other charges |                        | 14.3
|                                 |                                
|Total operating expenses         |                                 | 107.5                  |     
|                                 |                                
|Operating loss                   |                                 | (30.5                  | )   
|Other income                     |                                 | 2.3                    |     
|                                 |                                
|Net loss                         |                                 | (28.2                  | )%  
|                                 |                                

Year Ended December 31, 2003, Compared to Year Ended December 31, 2002

Revenue.Total revenue decreased 3.6% to $20.1 million in 2003, from $20.9 million in 2002. Revenue from international sales
decreased by 18.9% to $4.6 million in 2003, from $5.7 million in 2002.

Revenue
from software licenses decreased 4.3% to $7.9 million in 2003, from $8.3 million in 2002. The Company attributes this decrease primarily to general market conditions within the
Company's business segment. The Company added fewer new customers in the year ended December 31, 2003 compared to the year ended December 31, 2002. Revenue from software licenses from
new customers totaled 35% for 2003 compared to 56% for 2002.

Revenue
from services and other, consisting of professional services, customer support and rebillable expenses, decreased 3.2% to $12.2 million in 2003, from $12.6 million in 2002. An
increase in customer support revenue to $9.0 million in 2003 from $7.9 million in 2002 as a result of the Company's expanding customer base was principally offset by lower professional
services due to fewer customers purchasing new systems and a related decrease in rebillable travel revenue.

17

---

Gross margin.Gross margins increased to 77.0% of total revenue in 2003, from 70.7% of total revenue in 2002. This improvement is due
primarily to a smaller professional services organization with higher utilization rates. This improvement was also due to a lesser extent by lower rebillable travel costs, which provides no gross
margin.

Gross
margins from software licenses represented 94.9% of software revenue in 2003, and 95.4% of software revenue in 2002. The cost of software licenses consists primarily of third party software used
in conjunction with the Company's software.

Gross
margins from services and other represented 65.4% of services and other revenue in 2003, and 54.5% of services and other revenue in 2002. This improvement is due primarily to a smaller
professional services organization with higher utilization rates. This improvement was also due to a lesser extent by lower rebillable travel costs, which provides no gross margin.

Operating expenses.Operating expenses decreased 29.7% to $21.6 million in 2003, from $30.8 million in 2002. This decrease is
primarily the result of reduced staffing levels. As a percentage of total revenue, operating expenses were 107.5% in 2003 and 147.2% in 2002. Offsetting this decrease to a lesser extent was an
increase in restructuring and other charges to $2.4 million in 2003 from $0.9 million in 2002. Total operating headcount decreased by 46.6% to 70 employees at December 31, 2003,
from 131 employees at December 31, 2002.

Sales
and marketing expenses decreased 44.2% to $7.5 million in 2003, from $13.5 million in 2002. The decrease in sales and marketing expenses resulted primarily from lower personnel
costs, as a result of fewer personnel, and streamlined marketing programs.

Research
and development expenses decreased 32.1% to $5.3 million in 2003, from $7.9 million in 2002. The decrease in research and development expenses related primarily from reductions
in personnel, and to a lesser extent by a decreased use of outside consultants.

General
and administrative expenses decreased 30.9% to $5.6 million in 2003, from $8.1 million in 2002. The decrease in general and administrative expenses was primarily due to lower
personnel costs related to fewer personnel and compensation charge related to the 2002 loan forgiveness, lower bad debt expense, lower professional fees, lower facility costs and lower depreciation.
These decreases were offset to a lesser extent by higher insurance costs.

Stock
compensation charge decreased 33.6% to $282,000 in 2003, from $425,000 in 2002. The decrease from the prior period primarily reflects cancelled options resulting from employees that are no
longer employed by the Company and full vesting of the underlying options. The stock compensation charge primarily represents the difference at the grant date between the exercise price and the
pre-IPO deemed fair value of the Common Shares underlying the options. This amount is being amortized over the vesting period of the individual options, which is typically four years.

Restructuring
and other charges increased 230.8% to $2.9 million in 2003, from $0.9 million for 2002. In 2003, the Company conducted two reviews of its operations to better align its
operating cost structure with its revenue levels. Both the first and third quarter reviews focused on staffing levels while the third quarter review also focused on facility needs and
long-lived assets utilized in the business. As a result of these reviews, the Company recorded a charge of $2.9 million during 2003. This charge was comprised of three components: a
charge related to staff reductions of $1.2 million, a facility termination charge of $1.3 million and an asset impairment charge of $0.4 million. The charge for staff reductions
impacting 63 people was based on the severance payments and residual benefits to be paid. The facility termination charge related to leased space that the Company ceased using on August 31,
2003. This facility termination charge is comprised of future lease obligations and related expenses offset by anticipated income from subletting the space. This facility termination charge also
includes $47,000 related to disposal of assets that were abandoned as part of the exit plan. The asset impairment charge related to software infrastructure systems and furniture and fixtures. As a
result of these staff reductions, these assets no longer provided benefit to the Company and therefore were abandoned. The asset impairment charge of $345,000 was based on the net book value of the
assets as of September 30, 2003, the date of abandonment. In the third quarter of 2002, the Company recorded a Restructuring and other charges of $869,000. This charge related to staff
reductions of 18 persons, including involuntary terminations of three senior level positions with contractual obligations, and former employee settlement costs.

Other income and expense.Interest income was $0.5 million in 2003, and $1.0 million in 2002. The decrease in interest income
is a result of lower cash, cash equivalents, and short-term investment balances and a decline in investment yields.

Income taxes.There has been no provision or benefit for income taxes for any period since 1995 due to the Company's operating losses. As of
December 31, 2003, the Company had approximately $53.0 million of domestic net operating loss carryforwards for federal income

18

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tax
purposes, which expire beginning 2011 through 2023 and foreign operating losses of approximately $8.5 million with no carry forward limits. The Company's use of these net operating losses
may be limited in future periods.

Net loss per share.Net loss per share decreased 62.4% to $0.34 in 2003, from $0.90 in 2002. This decrease in the loss per share is the
result of lower operating expenses; offset by lower revenue and lower investment income. The number of shares used to compute net loss per share increased 0.4% to 16.8 million in 2003, from
16.7 million in 2002. This increase was from shares issued in connection with the Company's employee stock purchase plan and stock option exercises.

Year Ended December 31, 2002, Compared to Year Ended December 31, 2001

Revenue.Total revenue decreased 6.8% to $20.9 million in 2002, from $22.4 million in 2001. Revenue from international sales
increased by 21.3% to $5.7 million in 2002, from $4.7 million in 2001.

Revenue
from software licenses decreased 19.2% to $8.3 million in 2002, from $10.2 million in 2001. The Company attributes this decrease in revenue principally to continued weakness in
the economic environment in 2002. Indicative of the lower activity, total new system purchases were 36 and 39 for 2002 and 2001, respectively. Revenue from software licenses from new customers totaled
56% for 2002 compared to 49% for 2001. The Company also believes that revenue was impacted by an increasing emphasis on customers meeting only current needs with limited funding and limited expansion
of infrastructure.

Revenue
from services and other, consisting of professional services, customer support, hardware and rebillable expenses, increased 3.7% to $12.6 million in 2002, from $12.2 million in
2001. An increase in customer support revenue to $7.9 million in 2002 from $6.4 million in 2001 as a result of the Company's expanding customer base was principally offset by lower
professional services due to fewer customers purchasing new systems and a related decrease in rebillable travel revenue.

Gross margin.Gross margins increased to 70.7% of total revenue in 2002, from 65.4% of total revenue in 2001. This increase was the result of
higher staff utilization for professional services and customer support. Both periods include rebillable travel, which has no gross margin.

Gross
margins from software licenses represented 95.4% of software revenue in 2002, and 95.2% of software revenue in 2001. The cost of software licenses consists primarily of third party software used
in conjunction with the Company's software.

Gross
margins from services and other represented 54.5% of services and other revenue in 2002, and 40.4% of services and other revenue in 2001. This improvement is due primarily to improved
utilization of the streamlined professional services organization, including customer support.

Operating expenses.Operating expenses decreased 9.7% to $30.8 million in 2002, from $34.1 million in 2001. This decrease is
primarily the result of reduced staffing levels. As a percentage of total revenue, operating expenses were 147.2% in 2002 and 152.0% in 2001. Total operating headcount decreased by 8.4% to 131
employees at December 31, 2002, from 143 employees at December 31, 2001.

Sales
and marketing expenses decreased 18.7% to $13.5 million in 2002, from $16.6 million in 2001. The decrease in sales and marketing expenses resulted primarily from lower personnel
costs and reduced marketing activities, including tradeshows, public relations activities, and advertisements.

Research
and development expenses decreased 2.5% to $7.9 million in 2002, from $8.1 million in 2001. The decrease in research and development expenses related primarily to lower
consulting, recruiting and travel expenses. This decrease was offset to a lesser extent by higher facility allocation costs.

General
and administrative expenses increased 8.8% to $8.1 million in 2002, from $7.5 million in 2001. The increase was due primarily to higher insurance costs, increased professional
service fees, compensation costs related to loan forgiveness and higher facility allocation costs. This increase was offset to a lesser extent by lower legal fees and bad debt expense.

Stock
compensation charge decreased 36.4% to $425,000 in 2002, from $668,000 in 2001. The decrease from the prior period primarily reflects the impact of cancelled options resulting from employees
that are no longer employed by the Company. The stock compensation

19

---

charge
primarily represents the difference at the grant date between the exercise price and the pre-IPO deemed fair value of the Common Shares underlying the options. This amount is being
amortized over the vesting period of the individual options, which is typically four years.

Restructuring
and other charges decreased 33.1% to $869,000 in 2002, from $1,298,000 for 2001. The charge in 2002 related to staff reductions, including involuntary terminations of three senior level
positions with contractual obligations, and former employee settlement costs. As of December 31, 2002, there was approximately $420,000 included in Accrued expenses for undisbursed payments
related to the restructuring charge. The Company estimates these funds will be disbursed over the next two quarters. A charge was recorded in third quarter of 2001 of $1,298,000 to decrease its
operating expense structure. The restructuring component of the 2001 charge was $879,000 and related principally to severance and other transition costs associated with the workforce reduction of 77
persons, or 30% of the then
worldwide workforce. The other component of the charge of $419,000 related to assets written off that were no longer considered strategic or no longer provided future benefit to the Company. All the
costs associated with the restructuring charge were disbursed by December 31, 2001.

Other income and expense.Interest income was $1.0 million in 2002, and $2.7 million in 2001. The decrease in interest income
is a result of lower cash, cash equivalents, and short-term investment balances and the impact of interest rate reductions initiated by the Federal Reserve Board since January 1,
2001.

Income taxes.There has been no provision or benefit for income taxes for any period since 1995 due to the Company's operating losses. As of
December 31, 2002, the Company had approximately $48.8 million of domestic net operating loss carryforwards for federal income tax purposes, which expire beginning 2011 through 2022 and
foreign operating losses of approximately $7.6 million with no carry forward limits. The Company's use of these net operating losses may be limited in future periods.

Net loss per share.Net loss per share decreased 11.8% to $0.90 in 2002, from $1.02 in 2001. This decrease in the loss per share is the
result of lower operating expenses; offset by lower revenue and lower investment income. The number of shares used to compute net loss per share increased 1.5% to 16.7 million in 2002, from
16.5 million in 2001. This increase was from shares issued in connection with the Company's employee stock purchase plan and stock option exercises.

Liquidity and Capital Resources

In the fourth quarter of 2003, the Company reported its first quarter of positive cash flows. The Company's operating activities generated cash from operations during the fourth
quarter of $0.2 million. Our cash and investment balances increased from the prior quarter by $363,000 to $39.2 million at December 31, 2003.

The
Company's annual operating activities resulted in net cash outflows of $3.0 million in 2003, $11.8 million in 2002, and $9.2 million in 2001. The operating cash outflows for
2003, 2002 and 2001 were primarily impacted by net losses experienced by the Company. Management efforts to reduce and realign its operating cost structure, particularly in 2003, led to lower
operating cash outflows. In addition to lower operating expenses, a significant source of cash in 2002 and 2001 was from collection of prior year receivable balances. An improvement in receivables
management, as evidenced by a decrease in days sales outstanding, led to cash being provided from accounts receivable of $1.3 million and $6.0 million in 2002 and 2001, respectively.
Operating activities for all three years was offset by non-cash charges for amortization of stock-based compensation and depreciation Additionally, operating activities in 2003 were offset
by a non-cash charge of $0.4 million which related to asset impairment and $1.2 million for facility termination costs.

The
Company's investing activities resulted in net cash inflows of $21.6 million in 2003, $13.3 million in 2002 and $16.6 million in 2001. This inflow was primarily the result of
a decision by management to reduce the length of maturity on the Company's investments. The decision caused many investments to be classified as cash and cash equivalents instead of
short-term investments. The inflow for 2003, 2002 and 2001 were offset by capital expenditures of $138,000, $285,000 and $936,000, respectively.

Financing
activities generated net inflows of $406,000, $256,000 and $297,000 for 2003, 2002, 2001, respectively. The inflows in 2003, 2002 and 2001 were primarily from proceeds from the sale of stock
through the Company's stock option plan and employee stock purchase plan.

20

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As
of December 31, 2003, the Company had no long-term obligations other than operating leases related to facilities utilized by the Company. The following table summarizes the
minimum lease payments for these operating leases as of December 31, 2003:

|in thousands |  | Operating leases
|------------ |  | ----------------
|
|             |  |                 
|2004         |  | $1,710          
|2005         |  | 1,428           
|2006         |  | 537             
|             |  | $3,675          
|            

In the third quarter of 2003, the Company recorded a charge, net of anticipated sublet rental income, related to excess facility space with future minimum
payments of $1.5 million. The Company estimates these funds will be disbursed over the remaining life of the lease through the second quarter of 2006.

In
late January 2004, the Company reached an agreement to terminate the facility lease for the U.K. operations. This lease had future minimum lease payments of $0.6 million through
May 2005. In late January 2004, the Company signed a lease for a new facility. The new lease has minimum lease payments of $0.2 million for two years.

The
Company believes that its capital requirements, in large part, depend on future results of operations and, ultimately, achievement of profitability. The Company expects to devote resources to
research and development efforts, expand sales channels, marketing lead
generation programs, fund capital expenditures, and provide for working capital and other general corporate purposes. Management believes that the existing cash and short-term investment
balances will be sufficient to meet the working capital and capital expenditure requirements for at least the next twelve months.

Recently Issued Accounting Standards

There have been no recently issued accounting standards that would have a material effect on the financial position or results of operations of the Company.

Inflation

The impact of inflation on the Company's operating results has been moderate in recent years, reflecting generally lower rates of inflation in the economy. While inflation has
not had a material impact on operating results, there is no assurance that the Company's business will not be affected by inflation in the future.

Risk Factors Associated With Apropos' Business and Future Operating Results

Apropos' future operating results may vary substantially from period to period. The price of the Company's Common Shares has and will fluctuate in the future, and an investment
in the Company's Common Shares is subject to a variety of risks, including but not limited to the specific risks identified below. Inevitably, some investors in the Company's securities will
experience gains while others will experience losses depending on the prices at which they purchase and sell the Company's securities. Prospective and existing investors are strongly urged to
carefully consider the various cautionary statements and risks set forth in this Annual Report.



The Company's limited operating history makes evaluating the Company's business difficult.

The
Company's limited operating history makes it difficult to forecast its future operating results. The Company commenced operations in January 1989, but did not begin shipping its principal
product and generating revenue from that product until March 1995. Therefore, the Company has only a limited operating history upon which investors may evaluate its business. Prospective and
existing investors must
consider the numerous risks and uncertainties an early stage company like Apropos faces in a rapidly changing software and technology industry. These risks include the Company's inability to:



21

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If
the Company is unsuccessful in addressing these risks, sales of its product and services, as well as its ability to maintain or increase its customer base, will be substantially diminished.

The Company has not been profitable since 1994.

While the Company reported a profit for the fourth quarter of 2003, it has not reported an annual profit since 1994. The Company incurred net losses in the most recent years of
$5.7 million in 2003, $15.0 million in 2002, and $16.7 million in 2001. The Company intends to continue to make necessary investments in its research and development, marketing,
and sales operations. As a result, the Company may experience losses and negative cash flow from its operations in future periods. Even if it does achieve profitability, the Company makes no assurance
that it will be able to sustain or increase profitability on a quarterly or annual basis in the future.

The Company has never been able to fully fund operations from cash generated by its business, and it may not be able to do so in the future.

While the Company reported its first quarterly profit and also able to fully fund operations from cash generated by its business in the fourth quarter of 2003, it has not been
able to fully fund its annual operations since 1994. The Company has principally financed its operations through the private placement of convertible preferred shares, bank borrowings,
short-term loans, and most recently through its IPO. If the Company does not generate sufficient cash resources from its business to fund operations, its growth could be limited unless it
is able to obtain additional capital through equity or debt financings. The Company's inability to grow as
planned may reduce its chances of achieving profitability, which, in turn, could have a material adverse effect on the market price of its Common Shares.

The Company's lengthy sales cycle has contributed and may continue to contribute to the quarter-to-quarter variability and unpredictability of its
revenue and operating results which could adversely affect the market price of its Common Shares.

The Company has generally experienced a lengthy product sales cycle, averaging approximately six to nine months. The Company considers the life of the sales cycle to begin on
the first face-to-face meeting with the prospective customer and end when the product is delivered. The Company's prospective customers' decisions to license its product often
require significant investment and executive level decision-making, and depend on a number of factors.

The
lengthy sales cycle is one of the factors that has caused, and may in the future continue to cause, the Company's software revenue and operating results to vary significantly from quarter to
quarter, which makes it difficult for the Company to forecast software license revenue and could cause volatility in the market price of its Common Shares. Excessive delay in the product sales cycle
could materially and adversely affect the Company's business, financial condition, and results of operations.

The Company's future business prospects depend in part on the Company's ability to maintain and improve its current product and to develop new products and product features.

The Company believes that its future business prospects depend in large part on its ability to maintain and improve its current product and to develop new products and product
features on a timely basis. The Company's product will have to achieve market acceptance, maintain technological competitiveness, and meet an expanding range of customer requirements. As a result of
the complexities inherent in the Company's product, major new products and product features require long development and testing periods. The Company may not be successful in developing and marketing,
on a timely and cost effective basis, new products or product features that respond to technological change involving industry standards or customer requirements. Significant delays in the general
availability of new releases of the Company's product or significant problems in the installation or implementation of new releases of its product could have a material adverse effect on the Company's
business, financial condition, and results of operations.

The Company may not be able to modify its product in a timely and cost effective manner to respond to technological change.

Future versions of hardware and software platforms embodying new technologies and the emergence of new industry standards could render the Company's product obsolete or
noncompetitive. The market for the Company's product is characterized by:



22

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The
Company's product is designed to work in conjunction with and on a variety of hardware and software platforms used by its customers. However, the Company's software may not operate correctly on
evolving versions of hardware and software platforms, programming languages, database environments, and other systems that its customers use. Also, the Company must constantly modify and improve its
product to keep pace with changes made to these platforms and to database systems and other applications. This may result in uncertainty relating to the timing and nature of new product announcements,
introductions, or modifications, which may cause confusion in the market and harm the Company's business. If the Company fails to promptly modify or improve its products in response to evolving
industry standards or customer demands, its product could rapidly become obsolete, which would materially and adversely affect the Company's business, financial condition, and results of operations.

Competition could reduce the Company's market share and decrease its revenue.

The market for the Company's product is highly competitive and the Company expects competition to increase in the future. In addition, because the Company's industry is evolving
and characterized by rapid technological change, it is difficult for the Company to predict whether, when, and by whom new competing technologies or new competitors may be introduced into its markets.
Currently, the Company's competition comes from platform providers, interaction management solution providers, and stand-alone point solution providers.

The
Company makes no assurance that it will be able to compete successfully against current or future competitors. In addition, increased competition or other competitive pressures may result in price
reductions, reduced profit margins, or loss of market share, each of which could have a material adverse effect on the Company's business, financial condition, and results of operations.

Demand for communications and interaction management software for multi-channel contact centers may grow more slowly than the Company currently anticipates.

The Company's revenue has been generated from licenses of its product and related support and professional services. If the demand for communications and interaction management
software does not continue to grow as anticipated within the Company's targeted markets, the Company's ability to expand its business as planned could be materially and adversely affected.

If the Company fails to establish and maintain strategic relationships, the Company's ability to increase its revenue and profitability will suffer.

The Company currently has strategic relationships with resellers, original equipment manufacturers, or OEMs, system integrators, and enterprise application providers. Apropos
depends on these relationships to:



The
Company believes that its success depends, in part, on its ability to develop and maintain strategic relationships with resellers, OEMs, system integrators, and enterprise application providers.
The Company generally does not have long-term or exclusive agreements with these strategic partners. If any of the Company's strategic relationships are discontinued, sales of its products
and services and its ability to maintain or increase its customer base may be substantially diminished.

If the Company's strategic partners fail to market Apropos' product and services effectively or provide poor customer service, the Company's reputation will suffer and it could
lose customers.

If the Company's strategic partners fail to market Apropos' product and services effectively, the Company could lose market share. Some of the Company's strategic partners also
provide professional services to Apropos' customers in connection with the implementation of its

23

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product.
Additionally, if a strategic partner provides poor customer service, the value of the Company's brand could be diminished. Therefore, the Company must maintain relationships with strategic
partners throughout the world that are capable of providing high-quality sales and service efforts. If the Company loses a strategic partner in a key market, or if a current or future
strategic partner fails to adequately provide customer service, the Company's reputation will suffer and sales of its product and services could be substantially diminished.

The Company may have difficulties successfully managing its growth, which may reduce its chances of achieving and maintaining profitability.

The Company's revenues increased to $20.1 million in 2003 from $9.4 million in 1998. The Company's goal is to expand its business operations in the future. The
Company has also increased its number of employees over this five-year period; however, over the past three years the numbers of employees has actually declined. The Company's existing
management, operational, financial, and human resources, and management information systems and controls may be inadequate to support future growth. If the Company is not able to manage its growth
successfully, it will not grow as planned and the Company's business could be adversely affected.

Infringement of the Company's proprietary rights could affect its competitive position, harm its reputation or increase its operating costs.

The Company considers its products to be proprietary. In an effort to protect its proprietary rights, the Company relies primarily on a combination of patent, copyright,
trademark and trade secret laws, as well as licensing and other agreements with consultants, suppliers, strategic partners, resellers, and its customers, and employee and third party
non-disclosure agreements. These laws and agreements provide only limited protection of Apropos' proprietary rights. In addition, the Company has not signed agreements containing these
types of protective provisions in every case, and the contractual provisions that are in place and the protection they provide vary and may not provide the Company with adequate protection in all
circumstances. Although the Company has patented or filed patent applications for some of the inventions embodied in its software, the Company's means of protecting its proprietary rights may not be
adequate. It may be possible for a third party to copy or otherwise obtain and use the Company's technology without authorization and without its detection and without infringing its patents. A third
party could also develop similar technology independently. In addition, the laws of some countries in which the Company sells its product do not protect its software and intellectual property rights
to the same extent as the laws of the United States. Unauthorized copying, use, or reverse engineering of the Company's product could materially adversely affect its business, financial condition, and
results of operations.

Infringement claims could adversely affect the Company.

A third party could claim that the Company's technology infringes its proprietary rights. As the number of software products in the Company's target market increases and the
functionality of these products overlap, the Company believes that software developers may face infringement claims. Although the Company does not believe that its product infringes any patents, if
certain software and technology patents were interpreted broadly, claims of infringement against the Company, if successful, could have a material adverse effect on its business, financial condition,
and results of operations. Infringement claims, even if without merit, can be time consuming and expensive to defend. A third party asserting infringement claims against the Company or its customers
with respect to the Company's current or future products may require the Company to enter into costly royalty arrangements or litigation, or otherwise materially and adversely affect its business,
financial condition, and results of operations. If a negotiated resolution of any matter is required, it could involve payment of license fees, which would increase the Company's costs. The Company
makes no assurance that the terms of any licensing arrangement would be favorable to the Company. A resolution could also require a redesign of the Company's product or the removal of some of the
Company's product features. If a negotiated resolution were not achieved, Apropos would vigorously defend itself. If the Company did not prevail, damages could be awarded and an injunction could be
issued requiring Apropos to cease certain activities. If infringement is deemed to be willful, a court may triple the awarded damages. Any of these activities could have a material adverse effect on
the Company's business, financial condition, and results of operations. Regardless of the outcome, litigation may result in substantial expense and significant diversion of the Company's management
and technical personnel.

The Company may not be able to hire and retain the personnel it needs to sustain its business.

The Company depends on the continued services of its executive officers and other key personnel. The loss of services of any of the Company's executive officers or key personnel
could have a material adverse effect on its business, financial condition, and results of operations.

24

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The
Company needs to attract and retain highly-skilled technical and managerial personnel. If the Company is unable to attract and retain qualified technical and managerial personnel, its results of
operations could suffer and the Company may never achieve profitability.

The
Company's financial success depends to a large degree on the ability of its direct sales force to increase sales. Therefore, the Company's ability to increase revenue in the future depends
considerably upon its success in recruiting, training, and retaining direct sales personnel. Also, it may take a new salesperson a number of months before he or she becomes a productive member of the
Company's direct sales force. The Company's business will be harmed if it fails to hire and retain qualified sales personnel, or if newly hired salespersons fail to develop the necessary sales skills
or develop these skills more slowly than the Company anticipates.

The Company's international operations and expansion involve financial and operational risks.

The Company intends to maintain its international operations, which may include entry to additional international markets. The possible expansion of the Company's international
operations will require management attention and financial resources to establish additional foreign operations, hire additional personnel, and recruit additional international resellers. Revenue from
international expansion may be inadequate to cover the expenses of international expansion.

The
Company's possible expansion into new international markets may take longer than anticipated and could directly impact how quickly the Company increases product sales into these markets.
International markets may take additional time and resources to penetrate successfully. The Company's product needs to be conformed to the language and infrastructure requirements of other countries.
In addition, the acceptance of new technologies, such as E-mail and Web-based forms of communication, may not occur as rapidly as in North America. This could have a material
adverse impact on the Company's business, financial condition, and results of operations.

Other
risks the Company may encounter in conducting international business activities generally could include the following:



The Company's product and the third party software it sells with its product could have defects for which the Company is potentially liable and that could result in loss of
revenue, increased costs, loss of the Company's credibility, or delay in acceptance of the Company's product in the marketplace.

The Company's product, including applications supplied by others, may contain errors or defects, especially when first introduced or when new versions are released. Despite
internal product testing, the Company has in the past discovered software errors in some of the versions of its product after their introduction to the marketplace. Errors in new products or versions
could be found after commencement of commercial shipments, and this could result in additional development costs, diversion of technical and other resources from the Company's other development
efforts, or the loss of credibility with current or future customers. This could result in a loss of revenue or delay in market acceptance of the Company's product, which could have a material adverse
effect on its business, financial condition, and results of operations.

In
addition, the Company has warranted to some of its customers, resellers, and OEMs that its software is free of viruses. If a virus infects a customer's computer software, the customer could
assert claims against the Company that could be costly and could have a material adverse effect on the Company's business, financial condition, and results of operations. The Company's license
agreements with its customers typically contain provisions designed to limit its exposure to potential product liability and some contract claims.

25

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The
Company's license agreements also typically limit its customer's entire remedy to either a refund of the price paid or modification of the Company's product to satisfy the warranty. However, not
all of these agreements contain these types of provisions, and, where present, these provisions vary as to their terms and may not be effective under the laws of some jurisdictions. The Company also
does not have executed license agreements with all of its customers. A product liability, warranty, or other claim brought against the Company could have a material adverse effect on the Company's
business, financial condition, and results of operations. Performance interruptions at the Company's customer's system, most of which currently do not have back-up systems, could
negatively affect demand for Apropos' products or give rise to claims against the Company.

The
third party software the Company sells with its product may also contain errors or defects. Typically, the Company's license agreements transfer any warranty from the original manufacturer of
third party software to its customers to the extent permitted, but in some cases the Company provides warranties regarding third party software. Product liability, warranty, or other claims brought
against the Company with respect to such warranties could have a material adverse affect on its business, financial condition, and results of operations.

The Company depends on Microsoft Corporation technologies and other third party software on which its product relies.

The Company's software almost exclusively runs on Microsoft Windows NT and Windows 2000 servers. A decline in market acceptance for Microsoft
technologies or the increased acceptance of other server technologies could cause the Company to incur significant development costs and could have a material adverse effect on the Company's ability
to market its current product. Although the Company believes that Microsoft technologies will continue to be widely used by businesses, the Company cannot assure prospective and existing investors
that businesses will adopt these technologies as anticipated or will not in the future migrate to other computing technologies that the Company does not currently support. In addition, the Company's
products and technologies must continue to be compatible with new developments in Microsoft technologies.

The
Company sells third party software with its product. If one or more of these third parties ceases to sell their software, the Company will need to modify its product to use an alternative supplier
or eliminate the affected product function, either of which could have a material adverse effect on the Company's business, financial condition, and results of operations.

The Company may not be able to obtain adequate financing to implement its growth strategy.

Successful implementation of the Company's growth strategy will likely require continued access to capital. If it does not generate sufficient cash from operations, the
Company's growth could be limited unless the Company is able to obtain capital through additional debt or equity financings. The Company makes no assurance that debt or equity financings will be
available as required to fund growth and other needs.

Even
if financing is available, it may not be on terms that are favorable to the Company or sufficient for its needs. If the Company is unable to obtain sufficient financing, it may be unable to fully
implement its growth strategy.

If the Company's customers do not perceive its product or services to be effective or of high quality, its brand and name recognition would suffer.

The Company believes that establishing and maintaining brand and name recognition is critical for attracting and expanding its targeted customer base. The Company also believes
that the importance of reputation and name recognition will increase as competition in its market increases. Promotion and enhancement of the Company's name will depend on the effectiveness of its
marketing and advertising efforts and on its success in continuing to provide high-quality products and services, neither of which can be assured. If the Company's customers do not
perceive its product or services to be effective or of high-quality, the Company's brand and name recognition would suffer which would have a material adverse effect on its business.

The growth of the Company's business may be impeded without increased use of the Internet.

The use of the Internet as a commercial marketplace is still evolving. Demand and market acceptance for recently introduced products and services available over the Internet is
still uncertain. In addition, governmental regulation of the Internet, such as imposing sales and other taxes, access charges, pricing controls, and inhibiting cross-border commerce, may reduce the
use of the Internet by businesses for

26

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their
electronic commerce and customer service needs. To date, governmental regulations have not materially restricted commercial use of the Internet. However, the legal and regulatory environment
that pertains to the Internet is uncertain and may change. New regulations could reduce the use of the Internet by the Company's customers and their customers. The lack of acceptance of the Internet
as a forum for conducting business could reduce growth in demand for the Company's product and limit the growth of its revenue.

Natural MicroSystems, Inc. may become unwilling or unable to continue to supply the Company with Voice processing boards, requiring it to find a substitute supplier that
could prove difficult or costly.

Natural MicroSystems, Inc. is the Company's sole supplier of the Voice processing boards that are necessary for the operation of its Version 4 and 5 product utilizing
enhanced agents. While the Company has adapted its Version 6 product to perform with readily available Voice processing boards, introducing a new supplier of Voice processing boards for earlier
product versions could result in unforeseen additional product development or customization costs and could also introduce hardware and software compatibility problems. These problems could affect
product shipments, be costly to correct, or damage the Company's reputation in the markets in which it operates, and could have a material adverse affect on its business, financial condition, and
results of operations.



The Company's share price has been and may continue to be highly volatile and could drop unexpectedly.

The
price for the Company's Common Shares has been and may continue to be highly volatile and subject to wide fluctuations in response to the following factors:



The
shares of many technology companies have experienced significant fluctuations in trading price and volume. Often these fluctuations have been unrelated to operating performance. Declines in the
market price of the Company's Common Shares could also materially and adversely affect employee morale and retention, the Company's access to capital, and other aspects of its business.

If the Company's share price continues to be volatile, it may become subject to securities litigation, which is expensive and could divert its resources.

In the past, following periods of market volatility in the price of a company's securities, security holders have instituted class action litigation. Many companies in the
Company's industry have been subject to this type of litigation. The Company has become involved in this type of litigation and may get involved again in the future, and regardless of the outcome, it
could incur substantial legal costs and management's attention could be diverted, causing the Company's business to suffer. See "Item 3. Legal Proceedings" for a description of claims received by the
Company relating to shareholder class action litigation.

27

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ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Interest Rate Risk

The Company's exposure to market risk for changes in interest rates relate primarily to the change in the amount of interest income the Company can earn on its investments. The
Company does not use derivative financial instruments in its investment portfolio. The Company considers all investments with original maturities of less than one year, but greater than
90 days, from the respective balance sheet date to be short-term investments. The Company had invested balances, which includes short-term investments and other
investments with original maturities of less than ninety days, classified as cash equivalents, of $39.3 million at December 31, 2003. The Company's short-term investments
consist primarily of readily marketable debt securities. These investments are subject to interest rate risk and will fall in value if market interest rates increase. The Company believes a
hypothetical increase in market interest rates by 10.0% from levels at December 31, 2003, would cause the fair value of these short-term investments to fall by an immaterial amount.
Since the Company has shortened its average maturity holding period and would not likely have to sell any investments before maturity, the Company has the ability to avoid realizing losses on these
investments due to a sudden change in market interest rates. On the other hand, declines in the interest rates will reduce interest income.

Foreign Currency Risk

The Company develops products in the United States and sells these products in North America, Europe, South America, Asia, Africa, and Australia. As a result, its financial
results could be affected by various factors, including changes in foreign currency exchange rates or weak economic conditions in foreign markets. As sales are generally made in U.S. dollars or
British pound sterling, a strengthening of the dollar or pound could make the Company's products less competitive in foreign markets. Given the level of income the Company currently derives from its
foreign operations, the Company considers this exposure to be minimal. The Company believes a 10.0% change in exchange rates would not have a significant impact on its future earnings.

28

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Report of Independent Auditors

Shareholders and Board of Directors
Apropos Technology, Inc.

We
have audited the accompanying consolidated balance sheets of Apropos Technology, Inc. as of December 31, 2003 and 2002, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2003. Our audits also included the financial statement schedule listed in the Index at Item
15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our
audits.

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

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Apropos Technology, Inc. at December 31, 2003
and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.

/s/    Ernst &
Young LLP

Chicago,
Illinois
January 29, 2004,
except for Note 13,
as to which the date is
February 25, 2004

29

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Apropos Technology, Inc.  Consolidated Balance Sheets

|                                            |                                                                                                                                                                                                                  | December 31 |        
|------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | -------
|
|
|                                            |                                                                                                                                                                                                                  |             |        
|Assets                                      |                                                                                                                                                                                                                  |             |        
|Current assets:                             |                                                                                                                                                                                                                  |             |        
|                                            | Cash and cash equivalents                                                                                                                                                                                        |             | $38,265
|                                            | Short-term investments                                                                                                                                                                                           |             | 1,000  
|                                            | Accounts receivable, less allowances for doubtful accounts of $265 at December 31, 2003 and $474 at December 31, 2002                                                                                            |             | 2,895  
|                                            | Inventory                                                                                                                                                                                                        |             | 73     
|                                            | Prepaid expenses and other current assets                                                                                                                                                                        |             | 588    
|                                            |                                                                                                                                                                                                                 
|Total current assets                        |                                                                                                                                                                                                                  | 42,821      |        
|Equipment, net                              |                                                                                                                                                                                                                  | 921         |        
|Other assets                                |                                                                                                                                                                                                                  | 199         |        
|                                            |                                                                                                                                                                                                                 
|Total assets                                |                                                                                                                                                                                                                  | $43,941     |        
|                                            |                                                                                                                                                                                                                 
|Liabilities and shareholders' equity        |                                                                                                                                                                                                                  |             |        
|Current liabilities:                        |                                                                                                                                                                                                                  |             |        
|                                            | Accounts payable                                                                                                                                                                                                 |             | $81    
|                                            | Accrued expenses                                                                                                                                                                                                 |             | 1,179  
|                                            | Accrued compensation and related accruals                                                                                                                                                                        |             | 377    
|                                            | Accrued restructuring, current portion                                                                                                                                                                           |             | 438    
|                                            | Advance payments from customers                                                                                                                                                                                  |             | 186    
|                                            | Deferred revenue                                                                                                                                                                                                 |             | 3,296  
|                                            |                                                                                                                                                                                                                 
|Total current liabilities                   |                                                                                                                                                                                                                  | 5,557       |        
|Accrued restructuring, less current portion |                                                                                                                                                                                                                  | 560         |        
|Commitments and contingencies               |                                                                                                                                                                                                                  |            |        
|Shareholders' equity:                       |                                                                                                                                                                                                                  |             |        
|                                            | Preferred shares, $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding                                                                                                                 |             |       
|                                            | Common shares, $0.01 par value, 60,000,000 shares authorized, 17,257,225 shares issued and 16,946,114 shares outstanding at December 31, 2003; 16,971,940 issued and 16,660,829 outstanding at December 31,
2002 |             | 173    
|                                            | Additional paid-in capital                                                                                                                                                                                       |             | 102,263
|                                            | Treasury stock, at cost                                                                                                                                                                                          |             | (392   
|                                            | Accumulated deficit                                                                                                                                                                                              |             | (64,220
|                                            |                                                                                                                                                                                                                 
|Total shareholders' equity                  |                                                                                                                                                                                                                  | 37,824      |        
|                                            |                                                                                                                                                                                                                 
|Total liabilities and shareholders' equity  |                                                                                                                                                                                                                  | $43,941     |        
|                                            |                                                                                                                                                                                                                 

See notes to consolidated financial statements.

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Apropos Technology, Inc.  Consolidated Statements of Operations

|                                              |                                 | Year Ended December 31 |       
|--------------------------------------------- | ------------------------------- | ---------------------- | ------
|
|
|                                              |                                 |                        |       
|Revenue:                                      |                                 |                        |       
|                                              | Software licenses               |                        | $7,903
|                                              | Services and other              |                        | 12,232
|                                              |                                
|Total revenue                                 |                                 | 20,135                 |       
|Cost of goods and services:                   |                                 |                        |       
|                                              | Cost of software                |                        | 407   
|                                              | Cost of services and other      |                        | 4,227 
|                                              |                                
|Total cost of goods and services              |                                 | 4,634                  |       
|                                              |                                
|Gross margin                                  |                                 | 15,501                 |       
|Operating expenses:                           |                                 |                        |       
|                                              | Sales and marketing             |                        | 7,519 
|                                              | Research and development        |                        | 5,349 
|                                              | General and administrative      |                        | 5,611 
|                                              | Stock compensation charge       |                        | 282   
|                                              | Restructuring and other charges |                        | 2,875 
|                                              |                                
|Total operating expenses                      |                                 | 21,636                 |       
|                                              |                                
|Loss from operations                          |                                 | (6,135                 | )     
|Other income (expense):                       |                                 |                        |       
|                                              | Interest income                 |                        | 482   
|                                              | Other, net                      |                        | (21   
|                                              |                                
|Total other income                            |                                 | 461                    |       
|                                              |                                
|Net loss                                      |                                 | $(5,674                | )     
|                                              |                                
|Basic and diluted net loss per share          |                                 | $(0.34                 | )     
|Weighted-average number of shares outstanding |                                 | 16,787                 |       
|                                              |                                

See notes to consolidated financial statements.

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Apropos Technology, Inc.  Consolidated Statements of Shareholders' Equity

|in thousands, except share quantities |                              | Common Shares |         | Additional paid-in capital |         | Treasury stock |   | Accumulated deficit |     | Shareholders' equity |  
|------------------------------------- | ---------------------------- | ------------- | ------- | -------------------------- | ------- | -------------- | - | ------------------- | --- | -------------------- | -
|
|
|                                      |                              |               |         |                            |         |                |   |                     |     |                      |  
|Balance at December 31, 2000          |                              | 16,342,593    |         | 16,342,593                 |         | 163            |   | 99,866              |     |                     |  
|Issuance of Common Shares:            |                              |               |         |                            |         |                |   |                     |     |                      |  
|                                      | Exercise of options          |               | 162,964 |                            | 162,964 |                | 2 |                     | 121 |                      | 
|                                      | Employee stock purchase plan |               | 120,515 |                            | 120,515 |                | 1 |                     | 246 |                      | 
|Stock compensation charge             |                              |               |         |                            |         |                |   | 668                 |     |                     |  
|Net loss                              |                              |               |         |                            |         |                |   |                     |     |                      |  
|                                      |                             
|Balance at December 31, 2001          |                              | 16,626,072    |         | 16,626,072                 |         | 166            |   | 100,901             |     |                     |  
|Issuance of Common Shares:            |                              |               |         |                            |         |                |   |                     |     |                      |  
|                                      | Exercise of options          |               | 232,766 |                            | 232,766 |                | 3 |                     | 92  |                      |  
|                                      | Employee stock purchase plan |               | 113,102 |                            | 113,102 |                | 1 |                     | 160 |                      |  
|Treasury stock acquired               |                              |               |         | (311,111                   | )       |                |   |                     |     | (392                 | )
|Stock compensation charge             |                              |               |         |                            |         |                |   | 425                 |     |                      |  
|Net loss                              |                              |               |         |                            |         |                |   |                     |     |                      |  
|                                      |                             
|Balance at December 31, 2002          |                              | 16,971,940    |         | 16,660,829                 |         | 170            |   | 101,578             |     | (392                 | )
|Issuance of Common Shares:            |                              |               |         |                            |         |                |   |                     |     |                      |  
|                                      | Exercise of options          |               | 210,930 |                            | 210,930 |                | 2 |                     | 289 |                      |  
|                                      | Employee stock purchase plan |               | 74,355  |                            | 74,355  |                | 1 |                     | 114 |                      |  
|Stock compensation charge             |                              |               |         |                            |         |                |   | 282                 |     |                      |  
|Net loss                              |                              |               |         |                            |         |                |   |                     |     |                      |  
|                                      |                             
|Balance at December 31, 2003          |                              | 17,257,225    |         | 16,946,114                 |         | $173           |   | $102,263            |     | $(392                | )
|                                      |                             

See notes to consolidated financial statements.

32

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Apropos Technology, Inc.  Consolidated Statements of Cash Flows

|                                                                            |                                                                                     | Year Ended December 31                    |    
|--------------------------------------------------------------------------- | ----------------------------------------------------------------------------------- | ----------------------------------------- | ---
|
|
|                                                                            |                                                                                     |                                           |    
|Cash flows used in operating activities                                     |                                                                                     |                                           |    
|Net loss                                                                    |                                                                                     | $(5,674                                   | )  
|Adjustments to reconcile net loss to net cash used in operating activities: |                                                                                     |                                           |    
|                                                                            | Depreciation                                                                        |                                           | 998
|                                                                            | Stock compensation charge                                                           |                                           | 282
|                                                                            | Provision for doubtful accounts                                                     |                                           | 35 
|                                                                            | Non-cash compensation for loan forgiveness                                          |                                           |   
|                                                                            | Non-cash portion of restructuring and other charges                                 |                                           | 392
|                                                                            | Changes in operating assets and liabilities:                                        |                                           |    
|                                                                            |                                                                                     | Accounts receivable                       |    
|                                                                            |                                                                                     | Inventory                                 |    
|                                                                            |                                                                                     | Prepaid and other current assets          |    
|                                                                            |                                                                                     | Notes receivable from officers            |    
|                                                                            |                                                                                     | Other assets                              |    
|                                                                            |                                                                                     | Accounts payable                          |    
|                                                                            |                                                                                     | Accrued expenses                          |    
|                                                                            |                                                                                     | Accrued restructuring                     |    
|                                                                            |                                                                                     | Accrued compensation and related accruals |    
|                                                                            |                                                                                     | Advance payments from customers           |    
|                                                                            |                                                                                     | Deferred revenue                          |    
|                                                                            |                                                                                    
|Net cash used in operating activities                                       |                                                                                     | (3,054                                    | )  
|                                                                            |                                                                                    
|Cash flows provided by investing activities                                 |                                                                                     |                                           |    
|Proceeds from maturities and sales of short-term investments                |                                                                                     | 27,188                                    |    
|Purchases of short-term investments                                         |                                                                                     | (5,470                                    | )  
|Purchases of equipment                                                      |                                                                                     | (138                                      | )  
|                                                                            |                                                                                    
|Net cash provided by investing activities                                   |                                                                                     | 21,580                                    |    
|                                                                            |                                                                                    
|Cash flows provided by financing activities                                 |                                                                                     |                                           |    
|Payments on capital lease obligations                                       |                                                                                     |                                          |    
|Proceeds from exercise of options                                           |                                                                                     | 291                                       |    
|Proceeds from employee stock purchase plan                                  |                                                                                     | 115                                       |    
|                                                                            |                                                                                    
|Net cash provided by financing activities                                   |                                                                                     | 406                                       |    
|                                                                            |                                                                                    
|Net increase in cash and cash equivalents                                   |                                                                                     | 18,932                                    |    
|Cash and cash equivalents, beginning of year                                |                                                                                     | 19,333                                    |    
|                                                                            |                                                                                    
|Cash and cash equivalents, end of year                                      |                                                                                     | $38,265                                   |    
|                                                                            |                                                                                    
|Supplemental disclosures of cash flow information:                          |                                                                                     |                                           |    
|                                                                            | Cash paid for interest                                                              |                                           | $ 
|                                                                            | Fair value of Common shares received as collateral for Note receivable from officer |                                           | $ 
|                                                                            |                                                                                    

See notes to consolidated financial statements.

33

---



Apropos Technology, Inc.  Notes to Consolidated Financial Statements

1.    NATURE OF BUSINESS

Apropos Technology, Inc. (the Company) is engaged in one business segment, developing, marketing, and supporting a leading real-time, multi-channel
interaction management application for managing customer interactions across a variety of communication channels, including E-mail, Fax, Web, and Voice. The Company's solution enhances
customer relationship management applications, such as sales, marketing, and service, through intelligent, value-based management of all interactions.

Principal
operations of the Company commenced during 1995. During 1997, the Company established a wholly-owned subsidiary in the United Kingdom, Apropos Technology, Limited. The purpose of this entity
is to market and distribute the Company's product throughout Europe.

2.    SIGNIFICANT ACCOUNTING POLICIES

Consolidation

The consolidated financial statements include the accounts and transactions of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.

Use of Estimates

In order to prepare the Company's financial statements in conformity with accounting principles generally accepted in the United States, management is required to make estimates
and assumptions that affect the amounts reported in the financial statements and related notes. Actual results could differ from those estimates.

Financial Instruments and Concentrations of Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash, short-term investments, accounts
receivable, and accounts payable, which have fair values that approximate their respective carrying amounts. The Company invests its excess cash primarily in readily marketable debt securities. The
Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral.

Cash Equivalents

The Company considers all highly liquid investments with an original maturity of 90 days or less to be cash equivalents.

Short-Term Investments

The Company considers all investments with original maturities of less than one year, but greater than 90 days, from the respective balance sheet date to be
short-term investments. The Company has categorized its marketable securities as "available-for-sale." The amortized cost of all securities approximates the fair
value of the securities at December 31, 2003 and 2002. The Company's short-term investment portfolio, including instruments with original maturities less than 90 days,
consists primarily of highest-grade commercial paper, bank certificate of deposits, government agency bonds and money market accounts.

Accounts Receivable

Accounts receivable consist primarily of amounts due to us from our normal business activities. The Company maintains an allowance for doubtful accounts to reflect the expected
uncollectability of accounts receivable based on past collection history and specific risks identified among uncollected accounts. Accounts receivable are charged to the allowance for doubtful
accounts when the Company has determined that the receivable will not be collected. Accounts receivable balances are determined to be delinquent when the amount is past due based on the contractual
terms with the customer.

Inventory

Inventories are stated at the lower of cost (first-in, first-out method) or market. Inventory consists of finished goods, primarily third party software
and hardware.

34

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Equipment

Equipment is carried at cost, less accumulated depreciation. Depreciation is determined using the straight-line method over the estimated useful lives of the assets
of two to seven years. Repairs and maintenance costs are charged to expense as incurred.

Advance Payments From Customers and Deferred Revenues

Advance payments from customers represent payments received from customers upon product order. Deferred revenue primarily represents payments received from customers for
customer support and enhancement services prior to revenue recognition.

Income Taxes

The Company provides for income taxes under the liability method, which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of
events that have been included in the financial statements or tax returns. Deferred tax liabilities and assets are determined based on the difference between the financial statement basis of assets
and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Under this method, a valuation allowance is required against net deferred tax assets
if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

Management
evaluates the recoverability of the deferred tax assets and the level of the valuation allowance. At such time as it is determined that it is more likely than not that deferred tax assets
are realizable, the valuation allowance will be appropriately reduced.

Revenue Recognition

The Company generates software revenues from licensing the right to use its software products and also generates service revenues from implementation and installation services,
ongoing maintenance (post-contract technical support and product upgrades),
training services, and professional services performed for resellers and its customers. The Company provides a warranty for 90 days on all software licenses, which runs concurrent with the
customer maintenance agreement. The Company's policy is to not allow returns of software licenses. The Company issues product upgrades on a when and if available basis.

Revenue
from software license agreements is recognized upon shipment of the software if:



Shipment
is further defined in certain contracts as delivery of the product master or first copy for noncancelable product licensing arrangements under which the reseller has certain software
distribution rights. Software licenses are shipped to resellers upon receipt of a purchase order from an end customer. The Company recognizes revenue from the sale of software licenses placed through
a reseller upon shipment of the license to the reseller or the end customer. The reseller is the Company's customer and is obligated to pay for the software license upon shipment. As a result, the
reseller assumes any credit risk from the reseller's end customer and any risk that the end customer declines receipt of the software license.

Revenue
from ongoing customer maintenance is recognized ratably over the post-contract support term, which is typically twelve months. Revenue from training services and professional
services are recognized when the services are completed. Implementation and installation services are typically completed within 120 days. Amounts received prior to revenue recognition and for
prepaid customer support and enhancement services are classified as deferred revenue.

The
Company provides a master copy of its software license to its OEMs. Generally, the Company recognizes revenue from an OEM upon notification from the OEM that delivery of the software
license to an end customer has occurred. In cases where minimum guaranteed payment terms are in excess of twelve months, the Company recognizes revenue from the arrangements as the payments become
due.

Advertising

Advertising costs are generally expensed as incurred. Advertising expenses were approximately $18,000, $147,000, and $265,000 for the years ended December 31, 2003, 2002
and 2001, respectively.

35

---

Research and Development

Research and development expenditures are charged to operations as incurred. SFAS No. 86, "Accounting for the Costs of Computer Software To Be Sold, Leased, or Otherwise
Marketed," requires capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based on the Company's product development process, technological
feasibility is established upon completion of a working model. Costs incurred by the Company between completion of the working model and the point at which the product is ready for general release
have not been significant. Through December 31, 2003, all software development costs have been expensed.

Stock-Based Compensation

At December 31, 2003, the Company has one stock-based employee compensation plan and one employee stock purchase plan, which are described more fully in Note 8.
The Company accounts for these plans under the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations. No compensation cost is recognized for shares purchased under the Employee Stock Purchase Plan or for stock options issued under the stock-based employee compensation plan, as
all options granted after the IPO under this plan have an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on
net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," to stock-based employee
compensation.

|                                                                                                                                             |  | Year ended December 31 |  
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | -
|
|
|                                                                                                                                             |  |                        |  
|Net loss, as reported                                                                                                                        |  | $5,674                 |  
|Less: Stock-based employee compensation expense included in reported net loss                                                                |  | (282                   | )
|Add: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects |  | 1,256                  |  
|                                                                                                                                             |  |                        |  
|Net loss, pro forma                                                                                                                          |  | $6,648                 |  
|                                                                                                                                             |  |                        |  
|Basic and diluted net loss per share, as reported                                                                                            |  | $0.34                  |  
|Basic and diluted net loss per share, pro forma                                                                                              |  | $0.40                  |  
|                                                                                                                                             | 

Foreign Currency Translation

The functional currency of the Company's foreign subsidiaries is the United States dollar. Foreign monetary assets and liabilities are translated at the current exchange rates
at each balance sheet date. Nonmonetary balance sheet accounts are measured and recorded at the rate in effect at the date of the transaction. Revenues and expenses are translated at weighted average
exchange rates in effect during the year. The effects of foreign currency remeasurement are reported in current operations and have not been material to date.

Basic and Diluted Net Loss Per Common Share

Basic net loss per common share is based upon the net loss and upon the weighted-average number of common shares outstanding during the period. Diluted net loss per common share
adjusts for the effect of common share equivalents, such as convertible securities, stock options and warrants, only in the periods presented in which such effect would have been dilutive. The
weighted-average number of shares from outstanding options and warrants to purchase Common Shares using the treasury stock method for 2003, 2002 and 2001 were 888,952, 419,272 and 644,526,
respectively. Diluted net loss per share is not presented separately as the effect of the common share equivalents is anti-dilutive for each of the years presented. Accordingly, diluted
net loss per common share is the same as basic net loss per common share.

Recently Issued Accounting Standards

There have been no recently issued accounting standards that would have a material effect on the financial position or results of operations of the Company.

3.    NOTES RECEIVABLE FROM RELATED PARTIES

During the second quarter of 2001, the Company made loans totaling $722,000 to two executives who were subject to personal alternative minimum tax liabilities resulting from the
exercise of incentive stock options. One executive with an outstanding balance was involuntarily terminated at September 30, 2002 and the respective loan balance was adjusted to the net
realizable value of $61,000. This loan was

36

---

repaid
in the first quarter of 2003. The amount realized in excess of the September 30, 2002 net realizable value was credited to restructuring and other charges.

On
December 27, 2002, by resolution of the Board of Directors, the loan for the one remaining executive was terminated. As part of the loan termination agreement, the executive assigned all of
the original collateral of 311,111 shares to the Company, which are currently being held as treasury shares. In addition, the Company retained rights to certain future alternative minimum tax
recoveries which are not estimable at this time. The value of the original collateral consideration of 311,111 shares was $392,000 at the date of the loan termination agreement. This consideration was
not sufficient to offset the original loan amount resulting in loan forgiveness of $256,000. The loan termination agreement also provided for a tax equalization payment. The loan forgiveness charge
and related tax equalization payment totaled $465,000, which has been included in General and administrative charges in the 2002 Statement of Operations.

4.    EQUIPMENT

Equipment consisted of the following:

|                               |  |              |  | December 31 |  
|------------------------------ |  | ------------ |  | ----------- | -
|
|
|
|                               |  |              |  |             |  
|Computer equipment             |  | 2 to 3 years |  | $3,004      |  
|Software                       |  | 3 to 5 years |  | 1,231       |  
|Furniture and fixtures         |  | 5 to 7 years |  | 1,228       |  
|Office equipment               |  | 3 to 5 years |  | 453         |  
|Leasehold improvements         |  | 5 to 7 years |  | 183         |  
|                               | 
|                               |  |              |  | 6,099       |  
|Less: Accumulated depreciation |  |              |  | (5,178      | )
|                               | 
|Equipment, net                 |  |              |  | $921        |  
|                               | 

5.    WARRANTS AND DEBT INSTRUMENTS

During 1999, the Company amended its 1998 credit agreement (the "Revolving Agreement") with a bank that provided for a secured revolving line of credit facility with interest at
the prime rate plus 1.0%. Borrowings under the Revolving Agreement were repaid in full during February 2000. Pursuant to the amendment, the Company issued detachable warrants to the bank,
expiring in May 2006, allowing the bank to purchase 30,625 Common Shares at an exercise price of $3.97 per share. These warrants were not exercised as of December 31, 2003.

During
1999, the Company issued subordinated convertible promissory notes with a stated interest rate of 10.0%, together with warrants, to certain preferred shareholders. The notes were repaid in full
during February 2000, with net proceeds received by the Company from its IPO. The warrants allow the noteholders to purchase an aggregate of 75,649 Common Shares at an exercise price of $3.97
per share and expire in June 2009. These warrants were not exercised as of December 31, 2003.

During
1999, a secured bridge loan was made to the Company by Access Technology Partners, L.P., a fund of investors that is managed by an entity associated with J.P. Morgan Chase & Co., and
ARCH Venture Fund III, L.P., a common shareholder in the Company. The secured bridge loan with a stated interest rate of 9.25% was repaid in full during February 2000, with net proceeds
received by the Company from its IPO. The Company granted to Access Technology Partners, L.P. and ARCH Venture Fund III, L.P. warrants to purchase 236,250 and 26,250 Common Shares at an exercise price
of $5.34 per share, respectively. These warrants expire in November 2006. While ARCH Venture Fund III, L.P. exercised its warrants in 2000, Access Technology Partners, L.P. has not exercised
any of their warrants as of December 31, 2003.

The
Company has a letter of credit arrangement with a bank that is secured by all assets of the Company. At December 31, 2003 and 2002, outstanding letters of credit were $885,000.

37

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6.    INCOME TAXES

The difference between the amount of income tax benefit recorded and the amount of income tax benefit calculated using the U.S. federal statutory rate of 34.0% is due to net
operating losses not being benefited. Accordingly, there is no provision for income taxes for the years ended December 31, 2003, 2002 and 2001.

At
December 31, 2003, the Company had domestic net operating loss carryforwards aggregating approximately $53.0 million expiring in years 2011 through 2023. Based on Internal Revenue
Code regulations relating to changes in ownership in the Company, utilization of a portion of the net operating loss carryforwards is subject to annual limitations. At December 31, 2003, the
Company had foreign net operating loss carryforwards aggregating approximately $8.5 million, which may be limited. For financial reporting purposes, the entire amount of deferred tax assets has
been offset by a valuation allowance due to uncertainty regarding the realization of the asset. The valuation allowance increased $2,283,000, $5,858,000 and $6,657,000 during the years ended
December 31, 2003, 2002 and 2001, respectively. The Company has not paid any income taxes for the years indicated.

Significant
components of the Company's deferred tax assets and liabilities are as follows:

|                              |                                                  | December 31 |        
|----------------------------- | ------------------------------------------------ | ----------- | -------
|
|
|                              |                                                  |             |        
|Deferred tax assets:          |                                                  |             |        
|                              | Net operating loss carryforwards                 |             | $23,233
|                              | Research and development tax credit carryforward |             | 1,717  
|                              | Other                                            |             | 650    
|                              |                                                 
|                              |                                                  |             | 25,600 
|                              | Less: Valuation allowance                        |             | (25,600
|                              |                                                 
|Net deferred income tax asset |                                                  | $          |        
|                              |                                                 

7.    SHAREHOLDERS' EQUITY

The Company has authorized total capital shares of 65,000,000, of which 60,000,000 shares have been designated as common shares and 5,000,000 shares have been designated as
preferred shares. Both classes of shares have a par value of $0.01. The Company's Board of Directors has the authority, without shareholder approval, to issue one or more series of preferred shares
and to establish the rights and preferences of such preferred shares.

Treasury
stock is accounted for by the cost method. In December 2002, the Board of Directors authorized 311,111 shares originally assigned as loan collateral against a note receivable from
officer, as detailed in Note 3, to be assigned to the Company. These shares are held in treasury for use in connection with the Company's stock plans and for general corporate purposes.

At
December 31, 2003, the Company had reserved Common Shares for future issuance as follows:

|                   
|-------------------
|                   
|Stock option plan  
|Stock purchase plan
|Warrants           
|                   
|Total              
|                   

38

---

8.    STOCK PLANS

Stock Option Plan

The Company's 2000 Omnibus Incentive Plan (the Plan) provides for the issuance of incentive stock options and nonqualified stock options to eligible directors and employees of
the Company. The options typically have a term of ten years and generally vest ratably over a period of up to four years with initial vesting occurring on the first anniversary from the grant date and
monthly thereafter. The Plan also provides for the issuance of stock appreciation rights, performance stock, performance units, restricted stock, and other stock and cash awards.

Information
related to the Plan is as follows:

|                                                       |  | Year ended December 31
|------------------------------------------------------ |  | ----------------------
|
|
|
|
|                                                       |  |                       
|Options outstanding, beginning of period               |  | 2,238,753             
|Options granted                                        |  | 1,167,551             
|Options exercised                                      |  | (210,930              
|Options canceled                                       |  | (659,605              
|                                                      
|Options outstanding, end of period                     |  | 2,535,769             
|                                                      
|Option price range at end of period                    |  | $0.10-$22.00          
|Weighted-average fair value of options granted in 2003 |  | $0.83                 
|Options available for grant at period end              |  | 1,455,914             
|Exercisable at December 31, 2003                       |  | 1,101,841             
|                                                      

The outstanding options at December 31, 2003, have a weighted-average remaining contractual life of 8.1 years.

|Options outstanding |  | Options exercisable
|------------------- |  | -------------------
|
|
|                    |  |                    
|$0.10               |  | 2,625              
|$0.21               |  | 26,944             
|$0.40               |  | 21,015             
|$0.63-0.91          |  | 108,386            
|$0.95-1.39          |  | 1,013,820          
|$1.45-2.15          |  | 597,499            
|$2.20-3.30          |  | 604,273            
|$3.68-4.13          |  | 34,500             
|$5.56-8.13          |  | 102,907            
|$8.81-13.00         |  | 13,300             
|$20.44-22.00        |  | 10,500             
|                    |  |                    
|                    |  | 2,535,769          
|                    |  |                    

39

---

The Company accounts for this plan under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and
related Interpretations. No stock-based employee compensation cost is reflected in the net income, as all options granted under this plan have an exercise price equal to the market value of the
underlying common stock on the date of grant. The table in Note 2 illustrates the effect on net loss and loss per share if the Company has applied the fair value recognition provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation. Had the Company applied the fair value recognition provisions of SFAS No. 123, the Company would
have recorded additional expense of $933,000, $862,000 and $271,000 for 2003, 2002 and 2001 respectively.

The
fair value of stock options used to compute the pro forma net loss is the estimated fair value at the grant date using the Black-Scholes method for valuing stock options with the following
assumptions:

|Weighted Average Assumptions       |  | 2003 |   | 2002 |   | 2001 |  
|---------------------------------- |  | ---- | - | ---- | - | ---- | -
|
|                                   |  |      |   |      |   |      |  
|Dividend yield                     |  | 0.0  | % | 0.0  | % | 0.0  | %
|Risk-free interest rate            |  | 2.5  | % | 3.8  | % | 4.1  | %
|Volatility factor                  |  | 71.0 | % | 76.0 | % | 88.0 | %
|Expected holding period (in years) |  | 4.0  |   | 4.0  |   | 4.0  |  
|                                   | 

The stock compensation charge included in the Statement of operations primarily represents the difference at the grant date between the exercise price and the
pre-IPO deemed fair value of the Common Shares underlying the options. This amount is being amortized over the vesting period of the individual options, which is typically four years.
Utilizing the intrinsic value method of APB Opinion No. 25, the Company recognized $282,000, $425,000, and $668,000 of stock compensation expense during the years ended December 31,
2003, 2002 and 2001, respectively. This non-cash expense results in a corresponding increase to Additional paid in capital. Subsequent to the IPO, the exercise price of all options granted
is equal to the fair market value of the underlying Common Shares, resulting in no compensation charge.

Employee Stock Purchase Plan

Under the Company's Employee Stock Purchase Plan, eligible employees are given the opportunity to purchase the Company's Common Shares at 85% of the closing price of the
Company's Common Stock on the Nasdaq National Market on either the first or last day of the offering period, whichever is lower. The offering periods begin on January 1 and July 1 of
each year and conclude on June 30 and
December 31, respectively. From an authorization of 1,000,000 shares, a total of 348,920 shares have been issued through December 31, 2003, of which 74,355, 113,102 and 120,515 were
issued during 2003, 2002 and 2001 respectively.

Under
APB Opinion No. 25, no compensation cost is recognized for shares purchased under this plan. The table in Note 2 illustrates the effect on net income and earnings per share if the
Company has applied the fair value recognition provisions of SFAS No. 123, to the employee purchase rights under this plan. Had the Company applied the fair value recognition provisions of SFAS
No. 123, the Company would have recorded additional expense of $41,000, $58,000 and $113,000 for 2003, 2002 and 2001 respectively. The fair value of employee purchase rights was estimated using
the Black-Scholes option pricing model for 2003, 2002 and 2001, respectively:

|Weighted Average Assumptions       |  | 2003 |   | 2002 |   | 2001 |  
|---------------------------------- |  | ---- | - | ---- | - | ---- | -
|
|                                   |  |      |   |      |   |      |  
|Dividend yield                     |  | 0.0  | % | 0.0  | % | 0.0  | %
|Risk-free interest rate            |  | 1.2  | % | 1.8  | % | 4.3  | %
|Volatility factor                  |  | 61.8 | % | 64.0 | % | 88.0 | %
|Expected holding period (in years) |  | 0.0  |   | 0.0  |   | 0.0  |  
|                                   | 

9.    RESTRUCTURING AND OTHER CHARGES

In the third quarter of 2003, the Company conducted an extensive review of its operations to better align its operating cost structure with current revenue levels. This review
focused on staffing levels, facility needs and long-lived assets utilized in the business. As a result of this review, the Company recorded a Restructuring and other charges of
$2.4 million. This charge was comprised of three components: a charge related to staff reductions of $738,000, a facility termination charge of $1.3 million and an asset impairment
charge of $345,000. The staff reduction charge related to staff reductions of 33 persons in July 2003. The charge for staff reductions was based on the severance payments and residual benefits
to be paid. The facility termination charge related to leased space that the Company ceased using on August 31, 2003. This facility termination charge is comprised of the present value of
future lease obligations and related

40

---

expenses
offset by anticipated income from subletting the space. This facility termination charge also includes $47,000 related to disposal of assets that were abandoned as part of the exit plan. The
asset impairment charge related to software infrastructure systems and furniture and fixtures. As a result of these staff reductions, these assets no longer provided benefit to the Company and
therefore were abandoned. The asset impairment charge of $345,000 was based on the net book value of the assets as of September 30, 2003, the date of abandonment.

In
the first quarter of 2003, the Company recorded a charge of $448,000. This charge related to staff reductions of 30 persons. As of December 31, 2003, these funds were fully disbursed.

In
the third quarter of 2002, the Company recorded a Restructuring and other charges of $869,000. This charge related to staff reductions of 18 persons, including involuntary terminations of three
senior level positions with contractual obligations, and former employee settlement costs. As of December 31, 2002, there was approximately $420,000 included in Accrued restructuring in the
Balance Sheet for undisbursed payments related to this restructuring charge.

In
the third quarter of 2001, the Company recorded a charge of $1,298,000 as it took steps to decrease its operating expense structure. The review of operating expenses focused on staff reductions,
lower facility commitments, streamlined marketing programs and non-productive assets. The restructuring component of the charge was $879,000 and related principally to severance and other
transition costs associated with the workforce reduction of 77 persons, or 30% of the then worldwide workforce. The other component of the charge of $419,000 related to assets written off that were no
longer considered strategic or no longer provide future benefit to the Company. All the costs associated with the restructuring charge were disbursed by December 31, 2001.

A
summary of the restructuring and other charge, is as follows:

|In thousands                    |  | Employee
termination costs |   | Facility
termination costs |   | Asset
impairment
charge |   | Other |   | Total  |  
|------------------------------- |  | -------------------------- | - | -------------------------- | - | ----------------------- | - | ----- | - | ------ | -
|
|                                |  |                            |   |                            |   |                         |   |       |   |        |  
|Balance as of December 31, 2000 |  | $                         |   | $                         |   | $                      |   | $    |   | $     |  
|2001 Provision                  |  | 879                        |   |                           |   | 419                     |   |      |   | 1,298  |  
|2001 Cash Payments              |  | (879                       | ) |                           |   |                        |   |      |   | (879   | )
|2001 Non-cash charge offs       |  |                           |   |                           |   | (419                    | ) |      |   | (419   | )
|                                | 
|Balance as of December 31, 2001 |  |                           |   |                           |   |                        |   |      |   |       |  
|                                | 
|2002 Provision                  |  | 790                        |   |                           |   |                        |   | 79    |   | 869    |  
|2002 Cash Payments              |  | (394                       | ) |                           |   |                        |   | (55   | ) | (449   | )
|2002 Non-cash charge offs       |  |                           |   |                           |   |                        |   |      |   |       |  
|                                | 
|Balance as of December 31, 2002 |  | 396                        |   |                           |   |                        |   | 24    |   | 420    |  
|                                | 
|2003 Provision                  |  | 1,186                      |   | 1,344                      |   | 345                     |   | 30    |   | 2,905  |  
|2003 Adjustments                |  |                           |   |                           |   |                        |   | (30   | ) | (30    | )
|2003 Cash Payments              |  | (1,576                     | ) | (316                       | ) |                        |   | (13   | ) | (1,905 | )
|2003 Non-cash charge offs       |  |                           |   | (47                        | ) | (345                    | ) |      |   | (392   | )
|                                | 
|Balance as of December 31, 2003 |  | $6                         |   | $981                       |   | $                      |   | $11   |   | $998   |  
|                                | 

Included in Accrued restructuring at December 31, 2003 is approximately $17,000 related to the staff reductions in the third quarter of 2002, which the
Company estimates will be disbursed over the next quarter. The remaining $981,000, of which $560,000 is classified as non-current, related to the facility termination costs which the
Company estimates will be disbursed over remaining life of the lease through the second quarter of 2006.

41

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In
late January 2004, the U.K. operations moved into new premises that are more suitable for their current staffing levels. The old facility, which had a lease March 2005, was in use
through the move. The lease termination charge of approximately $340,000, consisting of forfeiture of the rent deposit, abandoned assets, and other direct disposal costs, will be reported as a
restructuring charge in the first quarter of 2004.

10.    LEASE COMMITMENTS

At December 31, 2003, the Company was obligated for future minimum lease payments under operating leases that have initial or remaining noncancelable terms in excess of
one year, as follows:

|in thousands |  | Operating leases
|------------ |  | ----------------
|
|             |  |                 
|2004         |  | $1,710          
|2005         |  | 1,428           
|2006         |  | 537             
|            
|             |  | $3,675          
|            

Rent expense for operating leases was approximately $1,467,000, $1,949,000, and $1,790,000 for the years ended December 31, 2003, 2002 and 2001,
respectively.

In
late January 2004, the Company reached an agreement to terminate the facility lease for the U.K. operations. This lease had future minimum lease payments of $0.6 million through
May 2005. In late January 2004, the Company signed a lease for a new facility. The new lease has minimum lease payments of $0.2 million for two years.

At
December 31, 2003, the Company has no capital lease obligations.

11.    401(k) PROFIT-SHARING PLAN

The Company provides retirement benefits to eligible employees under a 401(k) profit-sharing plan. The Plan provides for deferred salary contributions by the plan participants
and a Company contribution. Company contributions, if any, are at the discretion of the Board of Directors and are not to exceed the amount deductible under applicable income tax laws. No Company
contributions have been made since inception of the Plan.

12.    GEOGRAPHIC INFORMATION

Revenues derived from customers outside of North America accounted for 23.0%, 27.3%, and 21.0% of the Company's total revenues in 2003, 2002 and 2001, respectively.

The
Company attributes its revenues to countries based on the country in which the customer is located. The Company's long-lived assets located outside the United States are not considered
material.

13.    LITIGATION AND CONTINGENCIES

In November 2001, the Company was named as a defendant in several shareholder class action litigations that have been filed in federal court in Chicago against the
Company, certain of its current and former directors and officers, and the underwriters of the Company's initial public offering. These litigations are allegedly brought on behalf of purchasers of the
Company's stock, and assert that the Company violated the federal securities laws by making misstatements and omissions in its Registration Statement and Prospectus in connection with the Company's
initial public offering in February 2000. The plaintiffs seek unspecified damages. In April 2002 an amended consolidated complaint was filed which supersedes the original, separate
complaints. On February 25, 2004, the Company along with all other defendants, signed an agreement in principle to settle this litigation in consideration of a payment of $4.5 million,
to be paid by the Company's insurer. No settlement monies will be due from the Company itself. Consummation of the proposed settlement is conditioned upon, among other things, negotiating, executing,
and filing with the Court final settlement documents, and final approval by the Court. If the proposed settlement described above is not consummated, the Company intends to defend the litigation
vigorously.

The
Company has been named as a nominal defendant in a shareholder derivative action filed in February 2002 against certain of its present and former directors and officers. The complaint
alleges, among other things, that the alleged conduct challenged in the securities

42

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cases
pending against the Company in Chicago (described above) constitutes a breach of the defendants' fiduciary duties to the Company. The complaint seeks unspecified money damages and other relief
ostensibly on behalf of the Company. In August 2002, the plaintiffs filed an amended complaint. The court has entered an order staying the action in its entirety pending the outcome of the
above-described securities cases in Chicago. Although legal proceedings are inherently uncertain and their ultimate outcome cannot be predicted with certainty, the Company believes the allegations are
without merit and intends to defend the litigation vigorously.

In
November 2001, the Company was named as a defendant in shareholder class action litigation that has been filed in federal court in New York City against the Company and certain of its
current and former officers and the underwriters of the Company's initial public offering ("IPO"). This lawsuit alleges, among other things, that the underwriters of the Company's IPO improperly
required their customers to pay the underwriters excessive commissions and to agree to buy additional shares of the Company's stock in the aftermarket as conditions of receiving shares in the
Company's IPO. The lawsuit further claims that these supposed practices of the underwriters should have been disclosed in the Company's IPO prospectus and registration statement. In April 2002,
an amended complaint was filed which, like the original complaint, alleges violations of the registration and antifraud provisions of the federal securities laws and seeks unspecified damages. The
Company understands that various other plaintiffs have filed substantially similar class action cases against approximately 300 other publicly traded companies and their public offering underwriters
in New York City, which along with the case against the Company have all been transferred to a single federal district judge for purposes of coordinated case management. In July 2002, the
Company, together with the other issuers named as defendants in these coordinated proceedings, filed a collective motion to dismiss the consolidated amended complaints against them on various legal
grounds common to all or most of the issuer defendants. In October 2002, the Court approved a stipulation providing for the dismissal of the individual defendants without prejudice. In
February 2003, the Court issued a decision granting in part and denying in part the motion to dismiss the litigation filed by the Company and the other issuer defendants. The claims against the
Company under the antifraud provisions of the securities laws were dismissed with prejudice; the claims under the registration provisions of the securities laws were not dismissed as to the Company or
virtually any other issuer defendant.

In
June 2003, the Company elected to participate in a proposed settlement agreement with the plaintiffs in this litigation. If ultimately approved by the Court, this proposed settlement would
result in a dismissal, with prejudice, of all claims in the litigation against the Company and against any of the other issuer defendants who elect to participate in the proposed settlement, together
with the current or former officers and directors of participating issuers who were named as individual defendants. The proposed settlement does not provide for the resolution of any claims against
the underwriter defendants, and the litigation as against those defendants is continuing. The proposed settlement provides that the class members in the class action cases brought against the
participating issuer defendants will be guaranteed a recovery of $1 billion by insurers of the participating issuer defendants. If recoveries totaling $1 billion or more are obtained by
the class members from the underwriter defendants, however, the monetary obligations to the class members under the proposed settlement will be satisfied. In addition, the Company and any other
participating issuer defendants will be required to assign to the class members certain claims that they may have against the underwriters of their IPOs.

The
proposed settlement contemplates that any amounts necessary to fund the settlement or settlement-related expenses would come from participating issuers' directors and officers liability insurance
policy proceeds as opposed to funds of the participating issuer defendants themselves. A participating issuer defendant could be required to contribute to the costs of the settlement if that issuer's
insurance coverage were insufficient to pay that issuer's allocable share of the settlement costs. The Company expects that its insurance proceeds will be sufficient for these purposes and that it
will not otherwise be required to contribute to the proposed settlement. Consummation of the proposed settlement is conditioned upon, among other things, negotiating, executing, and filing with the
Court final
settlement documents, and final approval by the Court. If the proposed settlement described above is not consummated, the Company intends to continue to defend the litigation vigorously. Moreover, if
the proposed settlement is not consummated, the Company believes that the underwriters may have an obligation to indemnify it for the legal fees and other costs of defending this suit.

While
the Company cannot guarantee the outcome of the above proceedings, the Company believes that the final result of these actions will have no material effect on its consolidated financial
condition, results of operations or cash flows.

The
Company is a party in various other disputes and litigation that have arisen in the course of the Company's business. In the opinion of management, although legal proceedings can not be predicted
with certainty, the ultimate outcome of these disputes and lawsuits are not expected to have a material impact on the Company's financial condition or results of operations, or cash flows.

43

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14.    QUARTERLY DATA (UNAUDITED)

The following table presents unaudited quarterly operating results for each of the Company's fiscal quarters in 2003 and 2002.

|in thousands, except per share amounts |  | 2003   |   | 2002   |  
|-------------------------------------- |  | ------ | - | ------ | -
|
|
|
|
|                                       |  |        |   |        |  
|Total revenues                         |  | $5,157 |   | $4,656 |  
|Gross profit                           |  | 3,930  |   | 3,348  |  
|Net income (loss)                      |  | (1,971 | ) | (1,464 | )
|Basic income (loss) per share          |  | $(0.12 | ) | $(0.09 | )
|Diluted income (loss) per share        |  | $(0.12 | ) | $(0.09 | )
|                                       |  |        |  

44

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ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A.    CONTROLS AND PROCEDURES.

The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company's disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act) as of December 31, 2003. Based on this evaluation, the
Company's Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2003, the Company's disclosure controls and procedures were (1) designed to ensure that
material information relating to the Company, including its consolidated subsidiaries, is made known to the Company's Chief Executive Officer and Chief Financial Officer by others within those
entities, particularly during the period in which this report was being prepared and (2) effective, in that they provide reasonable assurance that information required to be disclosed by the
Company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.

No
change in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal
quarter ended December 31, 2003 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

Part III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information required by Item 405 of Regulation S-K concerning compliance with Section 16(a) of the Exchange Act is incorporated by reference from
the section in the 2004 Proxy Statement captioned "Section 16(a) Beneficial Ownership Reporting Compliance."

Furthermore,
the audit committee financial expert is set forth in the Company's 2004 Proxy Statement (under the caption "Corporate Governance"), and is hereby incorporated by reference.

Directors of the Company.

The information in response to this Item 401 of Regulation S-K, as it relates to directors, is incorporated by reference from the "Proposal
No. 1Election of Directors" section of the 2004 Proxy Statement.

Executive Officers of the Company.

The information in response to this Item 401 of Regulation S-K, as it relates to executive officers is set forth at the end of "Item. 1 Business."

The
Company's code of ethics is posted on its Internet webside at www.apropos.com. You can also receive a copy free of charge by sending a written request to the Company's executive offices at One
Tower Lane, 28th Floor, Oakbrook Terrace, IL 60181.

ITEM 11.    EXECUTIVE COMPENSATION.

The information in response to this item is incorporated by reference from the sections of the 2004 Proxy Statement captioned "Executive Compensation," "Report of the
Compensation Committee of the Board of Directors," and "Stock Price Performance Graph."

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The information in response to this Item 403 of Regulation S-K is incorporated by reference from the section of the 2004 Proxy Statement captioned "Securities
Beneficially Owned by Principal Shareholders and Management."

45

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Equity Compensation Plan Information

|Plan Category                                              |  | Number of securities to be
issued upon exercise of
outstanding options, warrants
and rights |  | Weighted average
exercise price of
outstanding options,
warrants and rights |  | Number of securities
remaining available
for future issuance
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- |  | ------------------------------------------------------------
|
|                                                           |  |                                                                                             |  |                                                                             |  |                                                             
|Equity compensation plans approved by security holders     |  | 2,878,293                                                                                   |  | $2.41                                                                       |  | 2,106,994                                                   
|Equity compensation plans not approved by security holders |  |                                                                                            |  |                                                                            |  |                                                            
|Total                                                      |  | 2,878,293                                                                                   |  | $2.41                                                                       |  | 2,106,994                                                   
|                                                          

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information in response to this item is incorporated by reference from the section of the 2004 Proxy Statement entitled "Transactions with Related Parties."

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information in response to this item and our audit committee's pre-approval policy for audit services is incorporated by reference from the sections of the 2004
Proxy Statement entitled "Audit Committee Report" and "Audit and Non-Audit Fees."

46

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Part IV

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

A.    Exhibits and Financial Statement Schedules.



All
other schedules are omitted because they are not applicable or not required or because the required information is included in the consolidated financial statements or notes thereto.



|Exhibit No. |      | Description of Exhibit                                                                                                                                                                         
|----------- | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
|3.1         | *    | Amended and Restated Articles of Incorporation.                                                                                                                                                
|3.2         | ***  | Amended and Restated Bylaws.                                                                                                                                                                   
|4.1         | *    | Specimen Common Share Certificate of the Registrant.                                                                                                                                           
|10.1        | #    | Employment Agreement dated January 1, 2000, between the Registrant and Kevin G. Kerns, as amended.                                                                                             
|10.2        | *    | 2000 Omnibus Incentive Plan.                                                                                                                                                                   
|10.3        | **   | Amendment No. 1 to the 2000 Omnibus Incentive Plan, as Amended and Restated.                                                                                                                   
|10.4        | *    | Employee Stock Purchase Plan of 2000.                                                                                                                                                          
|10.5        | *    | Form of Indemnity Agreement with directors.                                                                                                                                                    
|10.6        | *    | Registration Rights Agreement dated March 19, 1996, between the Registrant and ARCH Venture Fund II, L.P., ARCH II Parallel Fund, L.P. and William Blair Capital Partners V., L.P., as amended.
|10.7        | *    | Amended and Restated Registration Rights Agreement dated November 5, 1999, by and among Silicon Valley Bank, Access Technology Partners, L.P., ARCH Venture Fund III, L.P., and the Registrant.
|10.8        | **** | Employment Agreement dated November 26, 2002, between the Registrant and John Repko.                                                                                                           
|10.9        | **** | Employment Agreement dated November 27, 2002, between the Registrant and Frank Leonard.                                                                                                        
|10.10       | **** | Employment Agreement dated November 27, 2002, between the Registrant and Jeffrey K. Cordes.                                                                                                    
|10.11       | **** | Employment Agreement dated December 23, 2002, between the Registrant and Jeffry Finochairo.                                                                                                    
|21          | #    | Subsidiaries of the Registrant.                                                                                                                                                                
|23          | #    | Consent of Ernst & Young LLP.                                                                                                                                                                  
|31.1        | #    | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                       
|31.2        | #    | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                       
|32.1        | #    | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                       
|           

*  Previously filed with the Commission as an exhibit to the Company's Registration Statement on Form S-1, as amended (File No. 333-90873), and
incorporated herein by reference.

**  Previously filed with the Commission as an exhibit to the Company's Report on Form 10-K on March 30, 2002, and incorporated herein by
reference.

***  Previously filed with the Commission as an exhibit to the Company's Report on Form 10-Q on November 14, 2002, and incorporated herein
by reference.

****  Previously filed with the Commission as an exhibit to the Company's Report on Form 10-K on March 31, 2003, and incorporated herein by
reference.

#  Filed herewith.

B.    Reports on Form 8-K.

The Company filed the following reports on Form 8-K during the quarter ended December 31, 2003:



C.    Exhibits.

See A.3. of this Item 14.

47

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Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized, on March 30, 2004.

| |  | Apropos Technology, Inc.                                       
| |  | ---------------------------------------------------------------
| |  | /s/FRANCIS J. LEONARDChief Financial Officer and Vice President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities
indicated on March 30, 2004.

|Names and Signatures                    |  | Titles                                                                                 
|--------------------------------------- |  | ---------------------------------------------------------------------------------------
|
|                                        |  |                                                                                        
|/s/KEVIN G. KERNSKevin G. Kerns         |  | Director, Chief Executive Officer and President (Principal Executive Officer)          
|/s/FRANCIS J. LEONARDFrancis J. Leonard |  | Chief Financial Officer and Vice President (Principal Financial and Accounting Officer)
|/s/KENNETH D. BARWICKKenneth D. Barwick |  | Director                                                                               
|/s/DAVID N. CAMPBELLDavid N. Campbell   |  | Director                                                                               
|/s/KEITH L. CRANDELLKeith L. Crandell   |  | Director                                                                               
|/s/JAIME W. ELLERTSONJaime W. Ellertson |  | Director                                                                               
|/s/DONALD DELOACHDonald DeLoach         |  | Director                                                                               

48

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Schedule IIValuation and Qualifying Accounts  Apropos Technology, Inc.

|(in thousands)Description                             |                                 | Balance at beginning of period |      | Additions charged to costs and expenses |     | Charged to other accountsdescribe |   | Deductionsdescribe |      | Balance at end of perioddescribe
|----------------------------------------------------- | ------------------------------- | ------------------------------ | ---- | --------------------------------------- | --- | ---------------------------------- | - | ------------------- | ---- | ---------------------------------
|
|                                                      |                                 |                                |      |                                         |     |                                    |   |                     |      |                                  
|Year ended December 31, 2001                          |                                 |                                |      |                                         |     |                                    |   |                     |      |                                  
|Reserves and allowances deducted from asset Accounts: |                                 |                                |      |                                         |     |                                    |   |                     |      |                                  
|                                                      | Allowance for doubtful accounts |                                | $462 |                                         | 491 |                                    |  |                     | *276 |                                  
|                                                     
|Year ended December 31, 2002                          |                                 |                                |      |                                         |     |                                    |   |                     |      |                                  
|Reserves and allowances deducted from asset Accounts: |                                 |                                |      |                                         |     |                                    |   |                     |      |                                  
|                                                      | Allowance for doubtful accounts |                                | $677 |                                         | 315 |                                    |  |                     | *518 |                                  
|                                                     
|Year ended December 31, 2003                          |                                 |                                |      |                                         |     |                                    |   |                     |      |                                  
|Reserves and allowances deducted from asset Accounts: |                                 |                                |      |                                         |     |                                    |   |                     |      |                                  
|                                                      | Allowance for doubtful accounts |                                | $474 |                                         | 35  |                                    |  |                     | *244 |                                  
|                                                     

* Write-offs, net of recoveries.

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