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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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Form 10-Q



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|x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended March 31, 2004



or



| ̈ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from  to



Commission file number: 000-30883



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I-MANY, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Delaware                                                       |  | 01-0524931                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)



399 Thornall Street

12th Floor

Edison, New Jersey 08837

(Address of principal executive offices)



(800) 832-0228

(Registrants telephone number, including area code)



---



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



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



On April 30, 2004, 40,889,340 shares of the
registrants common stock, $.0001 par value, were issued and outstanding.



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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS



This Quarterly Report on Form 10-Q contains forward-looking statements that
involve risks and uncertainties. Discussions containing forward-looking statements may be found in the information set forth under Managements Discussion and Analysis of Financial Condition and Results of Operations and
Certain Factors That May Affect Future Operating Results as well as in the Form 10-Q generally. The Company uses words such as believes, intends, expects, anticipates,
plans, estimates, should, may, will, scheduled and similar expressions to identify forward-looking statements. The Company uses these words to describe its present belief about
future events relating to, among other things, its expected marketing plans, future hiring, expenditures and sources of revenue. This Form 10-Q may also contain third party estimates regarding the size and growth of our market, which also are
forward-looking statements. Our forward-looking statements apply only as of the date of this Form 10-Q. The Companys actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including
the risks described above and elsewhere in this Form 10-Q.



Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance or achievements. The Company is under no duty to
update any of the forward-looking statements after the date of this Form 10-Q to conform these statements to actual results or to changes in our expectations, other than as required by law.



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##### Table of Contents

I-MANY, INC.



FORM 10-Q



TABLE OF CONTENTS



|         |  |                                                                                                    |  |     
|-------- |  | -------------------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                                    |  | PAGE
|PART I.  |  | UNAUDITED FINANCIAL INFORMATION                                                                    |  |     
|         |  |                                                                                                   
|Item 1.  |  | Condensed Consolidated Financial Statements                                                        |  |     
|         |  |                                                                                                   
|         |  | Condensed Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003                   |  | 4   
|         |  |                                                                                                   
|         |  | Condensed Consolidated Statements of Operations for the three months ended March 31, 2004 and 2003 |  | 5   
|         |  |                                                                                                   
|         |  | Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2004 and 2003 |  | 6   
|         |  |                                                                                                   
|         |  | Notes to Condensed Consolidated Financial Statements                                               |  | 8   
|         |  |                                                                                                   
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations              |  | 15  
|         |  |                                                                                                   
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                                         |  | 25  
|         |  |                                                                                                   
|Item 4.  |  | Controls and Procedures                                                                            |  | 26  
|         |  |                                                                                                   
|PART II. |  | OTHER INFORMATION                                                                                  |  |     
|         |  |                                                                                                   
|Item 1.  |  | Legal Proceedings                                                                                  |  | 27  
|         |  |                                                                                                   
|Item 2.  |  | Changes in Securities and Use of Proceeds                                                          |  | 27  
|         |  |                                                                                                   
|Item 3.  |  | Defaults upon Senior Securities                                                                    |  | 27  
|         |  |                                                                                                   
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                |  | 27  
|         |  |                                                                                                   
|Item 5.  |  | Other Information                                                                                  |  | 27  
|         |  |                                                                                                   
|Item 6.  |  | Exhibits and Reports on Form 8-K                                                                   |  | 27  
|         |  |                                                                                                   
|         |  | Signatures                                                                                         |  | 28  
|         |  |                                                                                                   
|         |  | Index to Exhibits                                                                                  |  | 29  



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PART I. UNAUDITED FINANCIAL INFORMATION



ITEM 1. UNAUDITED FINANCIAL STATEMENTS



I-MANY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share-related amounts)



|                                                                                                                |  |                |          |   |                   |   |          |  
|--------------------------------------------------------------------------------------------------------------- |  | -------------- | -------- | - | ----------------- | - | -------- | -
|                                                                                                                |  | March 31, 2004 |          |   | December 31, 2003 |  
|ASSETS                                                                                                          |  |                |          |   |                   |   |          |  
|Current assets:                                                                                                 |  |                |          |   |                   |   |          |  
|Cash and cash equivalents                                                                                       |  | $              | 19,141   |   |                   | $ | 21,864   |  
|Restricted cash                                                                                                 |  |                | 693      |   |                   |   | 871      |  
|Short-term investments                                                                                          |  |                | 2,530    |   |                   |   | 2,019    |  
|Accounts receivable, net of allowance                                                                           |  |                | 9,650    |   |                   |   | 10,057   |  
|Prepaid expenses and other current assets                                                                       |  |                | 1,191    |   |                   |   | 819      |  
|                                                                                                                |  |                |          |   |                   |   |          |  
|Total current assets                                                                                            |  |                | 33,205   |   |                   |   | 35,630   |  
|Property and equipment, net                                                                                     |  |                | 1,433    |   |                   |   | 1,879    |  
|Restricted cash                                                                                                 |  |                | 316      |   |                   |   | 377      |  
|Other assets                                                                                                    |  |                | 328      |   |                   |   | 330      |  
|Acquired intangible assets, net                                                                                 |  |                | 2,490    |   |                   |   | 2,822    |  
|Goodwill                                                                                                        |  |                | 8,531    |   |                   |   | 8,531    |  
|                                                                                                                |  |                |          |   |                   |   |          |  
|Total assets                                                                                                    |  | $              | 46,303   |   |                   | $ | 49,569   |  
|                                                                                                                |  |                |          |   |                   |   |          |  
|LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS EQUITY                                                |  |                |          |   |                   |   |          |  
|Current liabilities:                                                                                            |  |                |          |   |                   |   |          |  
|Accounts payable                                                                                                |  | $              | 1,923    |   |                   | $ | 1,483    |  
|Accrued expenses                                                                                                |  |                | 5,019    |   |                   |   | 5,989    |  
|Current portion of deferred revenue                                                                             |  |                | 7,414    |   |                   |   | 7,180    |  
|Current portion of capital lease obligations                                                                    |  |                | 637      |   |                   |   | 709      |  
|                                                                                                                |  |                |          |   |                   |   |          |  
|Total current liabilities                                                                                       |  |                | 14,993   |   |                   |   | 15,361   |  
|Deferred revenue, net of current portion                                                                        |  |                | 312      |   |                   |   | 3,816    |  
|Capital lease obligations, net of current portion                                                               |  |                | 65       |   |                   |   | 128      |  
|Other long-term liabilities                                                                                     |  |                | 1,370    |   |                   |   | 1,109    |  
|                                                                                                                |  |                |          |   |                   |   |          |  
|Total liabilities                                                                                               |  |                | 16,740   |   |                   |   | 20,414   |  
|                                                                                                                |  |                |          |   |                   |   |          |  
|Series A redeemable convertible preferred stock, $.01 value                                                     |  |                |          |   |                   |   |          |  
|Authorized  1,700 shares                                                                                       |  |                |          |   |                   |   |          |  
|Issued and outstandingnone                                                                                     |  |                |         |   |                   |   |         |  
|                                                                                                                |  |               
|Stockholders equity:                                                                                           |  |                |          |   |                   |   |          |  
|Undesignated preferred stock, $.01 par value                                                                    |  |                |          |   |                   |   |          |  
|Authorized - 5,000,000 shares; designated 1,700 shares                                                          |  |                |          |   |                   |   |          |  
|Issued and outstandingnone                                                                                     |  |                |         |   |                   |   |         |  
|Common stock, $.0001 par value                                                                                 |  |                |          |   |                   |   |          |  
|Authorized - 100,000,000 shares                                                                                 |  |                |          |   |                   |   |          |  
|Issued and outstanding  40,796,137 and 40,550,590 shares at March 31, 2004 and December 31, 2003, respectively |  |                | 4        |   |                   |   | 4        |  
|Additional paid-in capital                                                                                      |  |                | 150,480  |   |                   |   | 150,613  |  
|Deferred stock-based compensation                                                                               |  |                | (1,616   | ) |                   |   | (3,680   | )
|Accumulated other comprehensive income                                                                          |  |                | 56       |   |                   |   | 43       |  
|Accumulated deficit                                                                                             |  |                | (119,361 | ) |                   |   | (117,825 | )
|                                                                                                                |  |                |          |   |                   |   |          |  
|Total stockholders equity                                                                                      |  |                | 29,563   |   |                   |   | 29,155   |  
|                                                                                                                |  |                |          |   |                   |   |          |  
|Total liabilities and stockholders equity                                                                      |  | $              | 46,303   |   |                   | $ | 49,569   |  
|                                                                                                                |  |                |          |   |                   |   |          |  



See
notes to condensed consolidated financial statements.



4



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I-MANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)



|                                            |  |                              |        |   |      |   |        |  
|------------------------------------------- |  | ---------------------------- | ------ | - | ---- | - | ------ | -
|                                            |  | Three months ended March 31, |       
|                                            |  | 2004                         |        |   | 2003 |  
|Net revenues:                               |  |                              |        |   |      |   |        |  
|Product                                     |  | $                            | 4,908  |   |      | $ | 4,871  |  
|Services                                    |  |                              | 6,522  |   |      |   | 6,228  |  
|                                            |  |                              |        |   |      |   |        |  
|Total net revenues                          |  |                              | 11,430 |   |      |   | 11,099 |  
|                                            |  |                             
|Cost of revenues                            |  |                              | 3,902  |   |      |   | 3,705  |  
|                                            |  |                              |        |   |      |   |        |  
|Gross profit                                |  |                              | 7,528  |   |      |   | 7,394  |  
|                                            |  |                             
|Operating expenses:                         |  |                              |        |   |      |   |        |  
|Sales and marketing                         |  |                              | 2,231  |   |      |   | 5,137  |  
|Research and development                    |  |                              | 3,510  |   |      |   | 4,336  |  
|General and administrative                  |  |                              | 1,665  |   |      |   | 1,659  |  
|Depreciation                                |  |                              | 211    |   |      |   | 489    |  
|Amortization of acquired intangible assets  |  |                              | 331    |   |      |   | 662    |  
|Restructuring and other charges             |  |                              | 1,147  |   |      |   | 1,461  |  
|                                            |  |                              |        |   |      |   |        |  
|Total operating expenses                    |  |                              | 9,095  |   |      |   | 13,744 |  
|                                            |  |                              |        |   |      |   |        |  
|Loss from operations                        |  |                              | (1,567 | ) |      |   | (6,350 | )
|                                            |  |                             
|Other income, net                           |  |                              | 31     |   |      |   | 32     |  
|                                            |  |                              |        |   |      |   |        |  
|Net loss                                    |  | $                            | (1,536 | ) |      | $ | (6,318 | )
|                                            |  |                              |        |   |      |   |        |  
|Basic and diluted net loss per common share |  | $                            | (0.04  | ) |      | $ | (0.16  | )
|                                            |  |                              |        |   |      |   |        |  
|Weighted average shares outstanding         |  |                              | 40,652 |   |      |   | 40,337 |  
|                                            |  |                              |        |   |      |   |        |  



See
notes to condensed consolidated financial statements.



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I-MANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                            |  |                              |        |   |      |   |        |  
|--------------------------------------------------------------------------- |  | ---------------------------- | ------ | - | ---- | - | ------ | -
|                                                                            |  | Three Months Ended March 31, |       
|                                                                            |  | 2004                         |        |   | 2003 |  
|Cash Flows from Operating Activities:                                       |  |                              |        |   |      |   |        |  
|Net loss                                                                    |  | $                            | (1,536 | ) |      | $ | (6,318 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                              |        |   |      |   |        |  
|Depreciation and amortization                                               |  |                              | 542    |   |      |   | 1,151  |  
|Restructuring and other charges                                             |  |                              | 1,147  |   |      |   | 1,461  |  
|Amortization of deferred stock-based compensation                           |  |                              | 1,863  |   |      |   | 12     |  
|Provision for doubtful accounts                                             |  |                              | 70     |   |      |   | 75     |  
|Noncash marketing expense related to issuance of warrant                    |  |                              |       |   |      |   | 795    |  
|Changes in operating assets and liabilities:                                |  |                              |        |   |      |   |        |  
|Accounts receivable                                                         |  |                              | 337    |   |      |   | 1,825  |  
|Prepaid expense and other current assets                                    |  |                              | (372   | ) |      |   | (296   | )
|Accounts payable                                                            |  |                              | 440    |   |      |   | 751    |  
|Accrued expenses and other liabilities                                      |  |                              | (1,581 | ) |      |   | (1,911 | )
|Deferred revenue                                                            |  |                              | (3,270 | ) |      |   | (134   | )
|Deferred rent                                                               |  |                              | 15     |   |      |   | (4     | )
|                                                                            |  |                              |        |   |      |   |        |  
|Net cash used in operating activities                                       |  |                              | (2,345 | ) |      |   | (2,593 | )
|                                                                            |  |                              |        |   |      |   |        |  
|Cash Flows from Investing Activities:                                       |  |                              |        |   |      |   |        |  
|Purchases of property and equipment                                         |  |                              | (53    | ) |      |   |       |  
|Proceeds from disposition of property and equipment                         |  |                              | 12     |   |      |   |       |  
|Purchases of short-term investments                                         |  |                              | (1,510 | ) |      |   |       |  
|Redemptions of short-term investments                                       |  |                              | 1,000  |   |      |   |       |  
|(Increase) decrease in other assets                                         |  |                              | 2      |   |      |   | (3     | )
|                                                                            |  |                              |        |   |      |   |        |  
|Net cash used in investing activities                                       |  |                              | (549   | ) |      |   | (3     | )
|                                                                            |  |                              |        |   |      |   |        |  
|Cash Flows from Financing Activities:                                       |  |                              |        |   |      |   |        |  
|Payments on capital lease obligations                                       |  |                              | (135   | ) |      |   | (122   | )
|(Decrease) increase in restricted cash                                      |  |                              | 239    |   |      |   | (247   | )
|Proceeds from exercise of stock options                                     |  |                              | 67     |   |      |   | 4      |  
|                                                                            |  |                              |        |   |      |   |        |  
|Net cash (used in) provided by financing activities                         |  |                              | 171    |   |      |   | (365   | )
|                                                                            |  |                              |        |   |      |   |        |  
|Net decrease in cash and cash equivalents                                   |  |                              | (2,723 | ) |      |   | (2,961 | )
|Cash and cash equivalents, beginning of period                              |  |                              | 21,864 |   |      |   | 35,979 |  
|                                                                            |  |                              |        |   |      |   |        |  
|Cash and cash equivalents, end of period                                    |  | $                            | 19,141 |   |      | $ | 33,018 |  
|                                                                            |  |                              |        |   |      |   |        |  



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I-MANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(continued)



|                                                                  |  |   |      |   |  |   |    
|----------------------------------------------------------------- |  | - | ---- | - |  | - | ---
|Supplemental Disclosure of Cash Flow Information:                 |  |   |      |   |  |   |    
|Cash paid during the period for interest                          |  | $ | 9    |   |  | $ | 21 
|                                                                  |  |   |      |   |  |   |    
|Supplemental Disclosure of Noncash Activities:                    |  |   |      |   |  |   |    
|Issuance of warrant to purchase common stock                      |  | $ |     |   |  | $ | 795
|                                                                  |  |   |      |   |  |   |    
|Property and equipment acquired under capital leases              |  | $ |     |   |  | $ | 376
|                                                                  |  |   |      |   |  |   |    
|Decrease in deferred stock-based compensation, net of forfeitures |  | $ | (246 | ) |  | $ |   
|                                                                  |  |   |      |   |  |   |    



See
notes to condensed consolidated financial statements.



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I-MANY, INC.



NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS



(UNAUDITED)



NOTE 1. BASIS OF PRESENTATION



The accompanying unaudited interim condensed consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America applicable to interim financial reporting pursuant to the rules and regulations of the Securities and Exchange Commission
(SEC) for reporting on Form 10-Q. It is recommended that these condensed consolidated financial statements be read in conjunction with the financial statements and the related notes of I-many, Inc. (the Company) for the year
ended December 31, 2003 as reported in the Companys Annual Report on Form 10-K filed with the SEC. In the opinion of management, all adjustments (consisting of normal, recurring adjustments) considered necessary for the fair presentation of
these interim financial statements have been included. The results of operations for the three months ended March 31, 2004 may not be indicative of the results that may be expected for the year ending December 31, 2004, or for any other period.



NOTE 2. SIGNIFICANT ACCOUNTING POLICIES



Revenue Recognition:



Software license fees are recognized upon execution of a signed license
agreement and delivery of the software to customers provided there are no significant post-delivery obligations, the payment is fixed or determinable and collection is probable. If an acceptance period is required, revenues are deferred until
customer acceptance. In multiple-element arrangements, the total fee is allocated to the undelivered professional services, training and maintenance and support services based on the fair value of those elements, which is defined as the price
charged when those elements are sold separately. The residual amount is then allocated to the software license fee.



Service revenues include professional services, training, maintenance and support services and out-of-pocket reimbursable expenses. Professional service
revenues are recognized as the services are performed. If conditions for acceptance exist, professional service revenues are recognized upon customer acceptance. For fixed fee professional service contracts, anticipated losses are provided for in
the period in which the loss is probable and can be reasonably estimated. Training revenues are recognized as the services are provided. Included in training revenues are registration fees received from participants in the Companys off-site
user training conferences.



Maintenance and customer support
fees are recognized ratably over the term of the maintenance contract, which is generally twelve months. When maintenance and support is included in the total license fee, a portion of the total fee is allocated to maintenance and support based upon
the price paid by the customer when sold separately, generally as renewals in the second year.



Payments received from customers at the inception of a maintenance period are treated as deferred service revenues and recognized ratably over the maintenance period. Payments received from customers in advance of
product shipment or revenue recognition are treated as deferred revenues and recognized when the product is shipped to the customer or when otherwise earned. Substantially all of the amounts included in cost of revenues represent direct costs
related to the delivery of professional services, training and maintenance and customer support.



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The Company accounts for consideration given to a customer or reseller of its products as a reduction of
revenue in certain circumstances. To the extent that consideration earned by a customer or reseller during a reporting period exceeds revenue earned by the Company from the customer or reseller, such excess is reported as sales and marketing
expense.



Stock Options:



The Company uses the intrinsic value method to measure compensation expense
associated with the grants of stock options or awards to employees. The Company accounts for stock options and awards granted to non-employees using the fair value method.



Under the intrinsic value method, compensation associated with stock awards to employees is determined as the excess, if
any, of the current fair value of the underlying common stock on the measurement date over the price an employee must pay to exercise the award. The measurement date for employee awards is generally the date of grant. Under the fair value method,
compensation associated with stock awards to non-employees is determined based on the estimated fair value of the award itself, measured using either current market data or an established option pricing model. The measurement date for non-employee
awards is generally the date that performance of certain services is complete.



Had the Company used the fair value method to measure compensation related to stock awards to employees, reported loss and loss per share would have been as follows:



|                                                                                                                                    |  |                             |        |   |      |   |        |  
|----------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                                                                    |  | Three months endedMarch 31, |       
|(Amounts in thousands)                                                                                                              |  | 2004                        |        |   | 2003 |  
|Net loss, as reported                                                                                                               |  | $                           | (1,536 | ) |      | $ | (6,318 | )
|Add: stock-based compensation recorded                                                                                              |  |                             | 1,863  |   |      |   | 12     |  
|Deduct: total stock-based employee compensation determined under fair value based method for all awards, net of related tax
effects |  |                             | (2,858 | ) |      |   | (1,045 | )
|                                                                                                                                    |  |                             |        |   |      |   |        |  
|Pro forma net loss                                                                                                                  |  | $                           | (2,531 | ) |      | $ | (7,351 | )
|                                                                                                                                    |  |                             |        |   |      |   |        |  
|Basic and diluted loss per share:                                                                                                   |  |                             |        |   |      |   |        |  
|As reported                                                                                                                         |  | $                           | (0.04  | ) |      | $ | (0.16  | )
|                                                                                                                                    |  |                             |        |   |      |   |        |  
|Pro forma                                                                                                                           |  | $                           | (0.06  | ) |      | $ | (0.18  | )
|                                                                                                                                    |  |                             |        |   |      |   |        |  



Options terminate 10 years after grant
and vest over periods set by the Board of Directors at the time of grant. These vesting periods have generally been for four years, on a ratable basis, except for the grants of non-qualified stock options which have a more accelerated vesting period
as described below.



In July 2003, the Company granted to
certain of its employees non-qualified stock options, which had an exercise price that was below market value at the time of the grant. These options, which were granted as a retention tool to certain employees, vested on March 31, 2004. The
aggregate intrinsic value of these options, totaling $1.5 million less forfeitures of $213,000, was amortized ratably over the period from the date of grant to the vesting date and recorded as compensation expense. Of this amount, $454,000 was
recognized as compensation expense in the quarter ended March 31, 2004.



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In December 2003, the Company granted to certain of its employees non-qualified stock options which had
exercise prices that were below market value at the time of the grants. These options, which were granted in lieu of year-end bonuses, vested 50% on February 9, 2004 and the remaining 50% will vest on or about February 7, 2005. The aggregate
intrinsic value of these options, totaling $2.7 million less forfeitures of $225,000, is being amortized ratably over the period from the date of grant to the respective vesting dates and recorded as compensation expense. Of this amount, $998,000
was recognized in the quarter ended March 31, 2004 as compensation expense and $908,000 was recorded as deferred compensation in stockholders equity at March 31, 2004.



Also in December 2003, the Company granted to certain of its employees non-qualified stock options which had exercise prices
that were below market value at the time of the grants. These options, which were granted as a retention tool to those employees assigned to the health and life science business, will vest 50% on June 30, 2004 and 50% on December 31, 2004. The
aggregate intrinsic value of these options, totaling $1.2 million less forfeitures of $80,000, is being amortized ratably over the period from the date of grant to the respective vesting dates and recorded as compensation expense. Of this amount,
$395,000 was recognized in the quarter ended March 31, 2004 as compensation expense and $675,000 was recorded as deferred compensation in stockholders equity at March 31, 2004.



The Companys calculations of the fair value of stock options were made using the Black-Scholes option pricing model
with the following assumptions and resulted in the following weighted average fair value of options granted during the three months ended March 31:



|                                                                 |  |      |         |   |      |   |         |  
|---------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                 |  | 2004 |         |   | 2003 |  
|Risk-free interest rates                                         |  |      | 3.9     | % |      |   | 3.2     | %
|Dividend yield                                                   |  |      |        |   |      |   |        |  
|Volatility                                                       |  |      | 105     | % |      |   | 125     | %
|Expected term                                                    |  |      | 7 years |   |      |   | 7 years |  
|Weighted average fair value of options granted during the period |  | $    | 1.20    |   |      | $ | 1.20    |  



Goodwill and Intangible Assets:



Goodwill is tested for impairment using a two-step
approach. The first step is to compare the fair value of a reporting unit to its carrying amount, including goodwill. If the fair value of the reporting unit is greater than its carrying amount, goodwill is not considered impaired and the second
step is not required. If the fair value of the reporting unit is less than its carrying amount, the second step of the impairment test measures the amount of the impairment loss, if any, by comparing the implied fair value of goodwill to its
carrying amount. If the carrying amount of goodwill exceeds its implied fair value, an impairment loss is recognized equal to that excess. The implied fair value of goodwill is calculated in the same manner that goodwill is calculated in a business
combination, whereby the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets), with the excess purchase price over the amounts assigned to assets
and liabilities representing the implied fair value of goodwill. Goodwill will be tested for impairment at least annually, or on an interim basis if an event occurs or circumstances change that would likely reduce the fair value of a reporting unit
below its carrying value.



Identified intangible assets
(excluding goodwill) are amortized over their estimated useful lives and reviewed for impairment on an annual basis, or on an interim basis if an event or circumstance occurs between annual tests indicating that the assets might be impaired. The
impairment test will consist of comparing the cash flows expected to be generated by the



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identified intangible asset to its carrying amount. If the asset is considered to be impaired, an impairment loss will be
recognized in an amount by which the carrying amount of the asset exceeds its fair value. Identified intangible assets with indefinite useful lives will not be amortized until their lives are determined to be definite.



Deferred Tax Assets:



A deferred tax asset or liability is recorded for differences in the bases of assets and liabilities for book and tax
purposes and loss carry forwards based on enacted rates expected to be in effect when these items reverse. Valuation allowances are provided to the extent it is more likely than not that all or a portion of the deferred tax assets will not be
realized.



Product Indemnification:



The Companys agreements with customers generally include certain
provisions for indemnifying the customer against losses, expenses, and liabilities from damages that may be awarded against the customer in the event that our products are found to infringe upon a patent, copyright, trademark, or other proprietary
right of a third party. The agreements generally limit the scope of remedies for such indemnification obligations in a variety of industry-standard respects, including our right to replace an infringing product. To date, we have not had to reimburse
any of our customers for any losses related to these indemnification provisions and no claims are outstanding as of March 31, 2004. We do not expect that any significant impact on financial position or the results of operations will result from
these indemnification provisions.



NOTE 3.
RECLASSIFICATIONS



Certain prior year account balances have
been reclassified to be consistent with the current years presentation.



NOTE 4. NET LOSS PER SHARE



Basic net loss per share was determined by dividing the net loss applicable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share was the same as basic net
loss per share for all periods presented since the effect of any potentially dilutive securities was excluded, as they are anti-dilutive as a result of the Companys net losses. The total numbers of common equivalent shares excluded from the
diluted loss per share calculation were 6,000,850 and 11,768 for the three months ended March 31, 2004 and 2003, respectively.



NOTE 5. SIGNIFICANT CUSTOMERS



The Company had a certain customer which individually generated revenues comprising a significant percentage of total revenue, as follows:



|           |  |                              |   |  |     
|---------- |  | ---------------------------- | - |  | ----
|           |  | Three months ended March 31,
|           |  | 2004                         |   |  | 2003
|Customer A |  | 38                           | % |  | *   



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The Company had certain customers whose accounts receivable balances individually represented a
significant percentage of total receivables, as follows:



|           |  |           |   |  |      |  
|---------- |  | --------- | - |  | ---- | -
|           |  | March 31, |  
|           |  | 2004      |   |  | 2003 |  
|Customer A |  | 12        | % |  | *    |  
|Customer B |  | *         |   |  | 11   | %
|Customer C |  | *         |   |  | 10   | %

---

|* | was less than 10% of the Companys total
|- | ----------------------------------------



NOTE 6. STRATEGIC RELATIONSHIP AGREEMENT



In May 2000, the Company entered into a ten-year Strategic Relationship Agreement (the Initial P&G Agreement) with The Procter &
Gamble Company (P&G), pursuant to which P&G designated the Company as its exclusive provider of purchase contract management software for its commercial products group for a period of three years. In addition, P&G has agreed
to provide the Company with certain strategic marketing and business development services over the term of the P&G Agreement. P&G also entered into an agreement to license certain software and technology from the Company.



As consideration for entering into the Initial P&G Agreement, the Company
granted to P&G a fully exercisable warrant to purchase 875,000 shares of common stock. The warrant did not require any future product purchases or service performance. The warrant, which was exercisable for a period of two years at an exercise
price of $9.00 per share, was converted into 561,960 shares of common stock via a non-cash exercise during 2000. In addition, the Company had agreed to pay P&G a royalty of up to 10% of the revenue generated from the commercial products market,
as defined. As of December 31, 2002, no such royalties had been earned or paid.



In February 2003, the Initial P&G Agreement was amended (the Amended P&G Agreement) to delete the royalty provision, in exchange for which the Company granted to P&G a fully exercisable warrant
to purchase 1,000,000 shares of the Companys common stock. The warrant is exercisable for a period of three years at an exercise price of $1.20 per share. Using the Black-Scholes option pricing model and based upon an exercise price of $1.20
per share, a then-current stock market value of $1.11 per share and a volatility factor of 125%, the Company calculated the fair value of the fully exercisable warrant to purchase 1,000,000 shares of common stock as $795,000, which was recorded by
the Company in the first quarter of 2003 as a component of sales and marketing expense.



NOTE 7. SEGMENT DISCLOSURE



The Company measures operating results as two reportable segments, both of which provide multiple products and services that allow manufacturers,
purchasers and intermediaries to manage their complex contracts for the purchase and sale of goods. The Companys reportable segments are strategic business units that market to separate and distinct business groups: (i) health and life
sciences, which includes pharmaceutical manufacturers, and (ii) all other industries. The following table reflects the results of the segments consistent with the Companys information management system.



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|                                                  |  |                         |        |   |                  |   |        |              |  |   |        |   |  |   |        |  
|------------------------------------------------- |  | ----------------------- | ------ | - | ---------------- | - | ------ | ------------ |  | - | ------ | - |  | - | ------ | -
|(Amounts in thousands)                            |  | Health and LifeSciences |        |   | Other Industries |   |        | Undesignated |  |   | Totals |  
|At and for the three months ended March 31, 2004: |  |                         |        |   |                  |   |        |              |  |   |        |   |  |   |        |  
|                                                  |  |                         |        |  
|Revenues                                          |  | $                       | 8,949  |   |                  | $ | 2,481  |              |  | $ |       |   |  | $ | 11,430 |  
|Depreciation and amortization                     |  |                         | 374    |   |                  |   | 12     |              |  |   | 156    |   |  |   | 542    |  
|Segment income (loss)                             |  |                         | 1,953  |   |                  |   | (3,333 | )            |  |   | (156   | ) |  |   | (1,536 | )
|Segment assets                                    |  |                         | 32,930 |   |                  |   | 6,172  |              |  |   | 7,201  |   |  |   | 46,303 |  
|Expenditures for segment assets                   |  |                         | 53     |   |                  |   |       |              |  |   |       |   |  |   | 53     |  
|Goodwill                                          |  |                         | 2,580  |   |                  |   |       |              |  |   | 5,951  |   |  |   | 8,531  |  
|                                                  |  |                         |        |  
|At and for the three months ended March 31, 2003: |  |                         |        |   |                  |   |        |              |  |   |        |   |  |   |        |  
|                                                  |  |                         |        |  
|Revenues                                          |  | $                       | 6,468  |   |                  | $ | 4,631  |              |  | $ |       |   |  | $ | 11,099 |  
|Depreciation and amortization                     |  |                         | 587    |   |                  |   | 408    |              |  |   | 156    |   |  |   | 1,151  |  
|Segment loss                                      |  |                         | (2,500 | ) |                  |   | (3,662 | )            |  |   | (156   | ) |  |   | (6,318 | )
|Segment assets                                    |  |                         | 50,908 |   |                  |   | 20,430 |              |  |   | 7,826  |   |  |   | 79,164 |  
|Expenditures for segment assets                   |  |                         | 258    |   |                  |   | 118    |              |  |   |       |   |  |   | 376    |  
|Goodwill                                          |  |                         | 2,580  |   |                  |   | 14,767 |              |  |   | 5,951  |   |  |   | 23,298 |  



Undesignated amounts consist of
goodwill and acquired intangible asset values and related amortization amounts with respect to the Companys 2002 acquisition of Menerva Technologies, Inc. (Menerva).



NOTE 8. RESTRUCTURING AND OTHER CHARGES



In March 2004, the Company completed the reduction of its workforce that it had begun in July 2003 to streamline its
operations in advance of a planned (and subsequently terminated) sale of its health and life sciences operation. In the quarter ended March 31, 2004, the Company (i) accrued cease-use lease charges of $472,000 and $179,000 in connection with the
partial closing of its facilities in London, England and Portland, Maine, respectively, (ii) accrued an additional $47,000 in lease charges related to its closed Chicago office, (iii) incurred $171,000 in severance charges for employees whose
employment was terminated during the three-month period and (iv) recorded impairment charges of $278,000 with respect to property and equipment that were no longer in productive use. With respect to the partial closing of its London office, the
Company determined the fair value of the remaining liability (net of estimated sublease rentals) on its lease at the cease-use date. No sublease assumption was incorporated in the calculation of the cease-use lease accrual with respect to the
Portland office because the lease expired in April 2004.



In
the quarter ended March 31, 2003, the Company took actions to reduce its operating expenses in order to better align its cost structure with projected revenues. These actions included the closing of its Chicago, Illinois office. With respect to its
decision to close its Chicago office, the Company determined the fair value of the remaining liability (net of estimated sublease rentals) on its Chicago office lease at the cease-use date in late March 2003. The Company incurred an initial charge
of $1.2 million related to the Chicago office closing. Also in the quarter ended March 31, 2003, the Company recorded impairment losses of $261,000 with respect to property and equipment that was no longer in productive use.



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A rollforward of the Companys accrued liability for restructuring and other charges is as follows:



|                                                             |  |                         |      |   |                                  |   |       |       |  |   |       |  
|------------------------------------------------------------ |  | ----------------------- | ---- | - | -------------------------------- | - | ----- | ----- |  | - | ----- | -
|(Amounts in thousands)                                       |  | EmployeeSeverance Costs |      |   | Lease costs and assetimpairments |   |       | Total | 
|Balance at December 31, 2003                                 |  | $                       | 116  |   |                                  | $ | 1,395 |       |  | $ | 1,511 |  
|                                                             |  |                         |     
|Activity in three months ended March 31, 2004:               |  |                         |      |   |                                  |   |       |       |  |   |       |  
|Restructuring provisions                                     |  |                         | 171  |   |                                  |   | 698   |       |  |   | 869   |  
|Property and equipment impairments                           |  |                         |     |   |                                  |   | 278   |       |  |   | 278   |  
|Payments                                                     |  |                         | (245 | ) |                                  |   | (248  | )     |  |   | (493  | )
|Asset write-downs                                            |  |                         |     |   |                                  |   | (278  | )     |  |   | (278  | )
|                                                             |  |                         |      |   |                                  |   |       |       |  |   |       |  
|Balance at March 31, 2004                                    |  | $                       | 42   |   |                                  | $ | 1,845 |       |  | $ | 1,887 |  
|                                                             |  |                         |      |   |                                  |   |       |       |  |   |       |  
|Current portion  included in accrued expenses               |  |                         |      |   |                                  |   |       |       |  | $ | 664   |  
|                                                             |  |                         |      |   |                                  |   |       |       |  |   |       |  
|Noncurrent portion  included in other long-term liabilities |  |                         |      |   |                                  |   |       |       |  | $ | 1,223 |  
|                                                             |  |                         |      |   |                                  |   |       |       |  |   |       |  



NOTE
9. VALUATION AND QUALIFYING ACCOUNTS



A rollforward of the
Companys allowance for doubtful accounts at March 31 is as follows:



|                       |  |      |      |   |      |   |       |  
|---------------------- |  | ---- | ---- | - | ---- | - | ----- | -
|(Amounts in thousands) |  | 2004 |      |   | 2003 |  
|Balance at January 1,  |  | $    | 588  |   |      | $ | 1,391 |  
|Provisions             |  |      | 70   |   |      |   | 75    |  
|Write offs             |  |      | (129 | ) |      |   | (29   | )
|                       |  |      |      |   |      |   |       |  
|Balance at March 31,   |  | $    | 529  |   |      | $ | 1,437 |  
|                       |  |      |      |   |      |   |       |  



NOTE
10. SUBSEQUENT EVENT



On April 2, 2004, the Company completed
its acquisition of all of the outstanding capital stock of Pricing Analytics, Inc. (Pricing Analytics), a California corporation located in Redwood City, California, which markets software used to evaluate pricing strategies, for a
purchase price of up to $2.8 million. The initial merger consideration of $1.0 million is payable in four equal installments of $250,000 each, payable on April 2, 2004, July 1, 2004, October 1, 2004 and January 1, 2005. The first two installments
are payable in cash and the final two installments are payable in cash or common stock at the Companys election. In addition, upon achievement of certain revenue milestones through March 31, 2005, the former Pricing Analytics shareholders will
be entitled to additional consideration of up to $1.8 million, payable in cash or common stock at the Companys election. The Company assumed Pricing Analyticss liabilities of approximately $50,000 and incurred transaction costs of
approximately $80,000. The Pricing Analytics acquisition provides the Company with technology that the Company believes will enhance its product offerings to its customers in both the health and life sciences and other industries segments.



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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



You should read the following discussion of our financial condition and results of operations in conjunction with our financial statements and related
notes. In addition to historical information, the following discussion and other parts of this report contain forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated by such
forward-looking statements due to various factors, including, but not limited to, those set forth under Certain Factors That May Affect Our Future Operating Results and elsewhere in this report.



OVERVIEW



We provide software and related services that allow our clients to more
effectively manage their contract-based, business-to-business relationships through the entirety of the contract management lifecycle. We operate our business in two segments: health and life sciences and other industries. The health and life
sciences line of business markets and sells our products and services to companies in the life sciences industries, including pharmaceutical and medical product companies, wholesale distributors and managed care organizations. Our other industries
line of business targets all other industries, with an emphasis on consumer products, foodservice, disposables, consumer durables, industrial products, chemicals, apparel, and telecommunications.



Our primary products and services were originally developed to manage complex
contract purchasing relationships in the healthcare industry. Our software is currently licensed by 18 of the 20 largest pharmaceutical manufacturers, ranked according to 2002 annual healthcare revenues. As the depth and breadth of our product
suites have expanded, we have added companies in the other industries markets to our customer base.



We have generated revenues from both products and services. Product revenues  which through mid 2001 had been principally comprised of software
license fees generated from our I-many/CARS software suite and now includes licensing of our I-many ContractSphere® Enterprise Contract Management Product Suite, Government Pricing and Medicaid compliance software  accounted for 42.9% of net revenues in the
three months ended March 31, 2004 versus 43.9% of net revenues in the three months ended March 31, 2003. Service revenues include maintenance and support fees directly related to our licensed software products, professional service fees derived from
consulting, installation, business analysis and training services related to our software products and hosting fees. Service revenues accounted for 57.1% of net revenues in the three months ended March 31, 2004 versus 56.1% of net revenues in the
three months ended March 31, 2003.



Since June 2001, we have
implemented a number of employee headcount reductions, which have been partially offset by employee additions through acquisitions and selective hiring, and we have taken other measures to better align our cost structure with projected revenues. Our
aggregate spending on sales and marketing, research and development and general and administrative expenses has been reduced from $12.6 million in the quarter ended June 30, 2001 to $7.4 million in the quarter ended March 31, 2004. During 2003 and
the first quarter of 2004, actions taken to reduce our operating expenses included the closing of our Chicago, Illinois office, the significant downsizing of our London, England and Portland, Maine operations and selective other headcount
reductions. Our total employee headcount has decreased from 358 employees at December 31, 2002 to 170 employees at March 31, 2004.



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CRITICAL ACCOUNTING POLICIES



Revenue Recognition



We generate revenues from licensing our software and providing professional services, training and maintenance and support
services. Software license revenues are attributable to the addition of new customers and the expansion or renewal of existing customer relationships through licenses covering additional users, licenses of additional software products and license
renewals.



We recognize software license fees upon execution of
a signed license agreement and delivery of the software to customers, provided there are no significant post-delivery obligations, the payment is fixed or determinable and collection is probable. In multiple-element arrangements, we allocate the
total fee to professional services, training and maintenance and support services based on the fair value of those elements, which is defined as the price charged when those elements are sold separately. The residual amount is then allocated to the
software license fee. If an acceptance period is required, revenues are deferred until customer acceptance. In cases where collection is not deemed probable, we recognize the license fee as payments are received.



Service revenues include professional services, training and maintenance and
support services. Professional service revenues are recognized as the services are performed. If conditions for acceptance exist, professional service revenues are recognized upon customer acceptance. For fixed fee professional service contracts, we
provide for anticipated losses in the period in which the loss is probable and can be reasonably estimated. To date, losses incurred on fixed fee contracts have not been significant. Training revenues are recognized as the services are provided.
Included in training revenues are registration fees received from participants in our off-site User Training Conferences.



Maintenance and customer support fees are recognized ratably over the term of the maintenance contract, which is generally twelve months. When maintenance
and support is included in the total license fee, we allocate a portion of the total fee to maintenance and support based upon the price paid by the customer to purchase maintenance and support in the second year.



Payments received from customers at the inception of a maintenance period are
treated as deferred service revenues and recognized ratably over the maintenance period. Payments received from customers in advance of product shipment or revenue recognition are treated as deferred product revenues and recognized when the product
is shipped to the customer or when otherwise earned. Substantially all of the amounts included in cost of revenues represent direct costs related to the delivery of professional services, training and maintenance and customer support.



We account for consideration given to a customer or a reseller of our
products as a reduction of revenue in certain circumstances. To the extent that consideration earned by a customer or reseller during a reporting period exceeds revenue earned by the Company from the customer or reseller, such excess is reported as
sales and marketing expense.



Allowance for Doubtful Accounts



We record provisions for doubtful accounts based on a
detailed assessment of our accounts receivable and related credit risks. In estimating the allowance for doubtful accounts, management considers the age of the accounts receivables, our historical write-off experience, the credit worthiness of
customers and the economic conditions of the customers industries and general economic conditions, among other factors. Should any of these factors change, the estimates made by management will also change, which could affect the level of the
Companys future provision for doubtful accounts. If the assumptions we used to calculate these estimates do



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not properly reflect future collections, there could be an impact on future reported results of operations. The
provisions for doubtful accounts are included in general and administrative expenses in the consolidated statements of operations.



Acquired Intangible Assets



Acquired intangible assets (excluding goodwill) are amortized on a straight-line basis over their estimated useful lives and reviewed for impairment on an
annual basis, or on an interim basis if an event or circumstance occurs between annual tests indicating that the assets might be impaired. The impairment test will consist of comparing the cash flows expected to be generated by the acquired
intangible asset to its carrying amount. If the asset is considered to be impaired, an impairment loss will be recognized in an amount by which the carrying amount of the asset exceeds its fair value. Acquired intangible assets with indefinite
useful lives will not be amortized until their lives are determined to be definite.



Goodwill



Goodwill is tested for impairment
using a two-step approach. The first step is to compare the fair value of a reporting unit to its carrying amount, including goodwill. If the fair value of the reporting unit is greater than its carrying amount, goodwill is not considered impaired
and the second step is not required. If the fair value of the reporting unit is less than its carrying amount, the second step of the impairment test measures the amount of the impairment loss, if any, by comparing the implied fair value of goodwill
to its carrying amount. If the carrying amount of goodwill exceeds its implied fair value, an impairment loss is recognized equal to that excess. The implied fair value of goodwill is calculated in the same manner that goodwill is calculated in a
business combination, whereby the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets), with the excess purchase price over the amounts assigned to
assets and liabilities representing the implied fair value of goodwill. Goodwill will be tested for impairment at least annually, or on an interim basis if an event occurs or circumstances change that would likely reduce the fair value of a
reporting unit below its carrying value.



Deferred Tax Assets



A deferred tax asset or liability is recorded for
temporary differences in the basis of assets and liabilities for book and tax purposes and loss carry forwards based on enacted tax rates expected to be in effect when these temporary items are expected to reverse. Valuation allowances are provided
to the extent it is more likely than not that all or a portion of the deferred tax assets will not be realized.



Product Indemnifications



The Companys agreements with customers generally include certain provisions for indemnifying the customer against losses, expenses, and liabilities
from damages that may be awarded against the customer in the event that our products are found to infringe upon a patent, copyright, trademark, or other proprietary right of a third party. The agreements generally seek to limit the scope of remedies
for such indemnification obligations in a variety of industry-standard respects, including our right to replace an infringing product. To date, we have not had to reimburse any of our customers for any losses related to these indemnification
provisions and no claims are outstanding as of March 31, 2004. We do not expect that any significant impact on financial position or the results of operations will result from these indemnification provisions.



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RECENT EVENTS



On April 2, 2004, we completed our acquisition of all of the outstanding capital stock of Pricing Analytics, Inc. for a
purchase price of up to $2.8 million. The initial merger consideration of $1.0 million is payable in four equal installments of $250,000 each, payable on April 2, 2004, July 1, 2004, October 1, 2004 and January 1, 2005. The first two installments
are payable in cash and the final two installments are payable in cash or common stock at our election. In addition, upon achievement of certain revenue milestones through March 31, 2005, the former Pricing Analytics shareholders will be entitled to
additional consideration of up to $1.8 million, payable in cash or common stock at our election. The Company assumed Pricing Analyticss liabilities of approximately $50,000 and incurred transaction costs of approximately $80,000.



RESULTS OF OPERATIONS



COMPARISON OF THE THREE MONTH PERIODS ENDED MARCH 31, 2004
AND 2003



NET REVENUES



Net revenues increased by $331,000, or 2.9%, to $11.4 million for the
quarter ended March 31, 2004 from $11.1 million for the quarter ended March 31, 2003. Product revenues were substantially unchanged at $4.9 million, increasing by only $37,000. The number of license contracts (minimum price of $50,000) sold
decreased from 12 to 8 and the average deal size decreased by 54%. Offsetting the drops in number of deals and average deal size was the recognition of $3.4 million in license fees that had been previously deferred in the quarter ended September 30,
2003.



Revenues derived from outside the health and life
sciences segment decreased by $2.1 million, or 46%, to $2.5 million for the quarter ended March 31, 2004 from $4.6 million for the quarter ended March 31, 2003. Meanwhile, revenues in the health and life sciences segment were $2.5 million higher
than in the quarter ended March 31, 2003, attributable primarily to the aforementioned recognition of previously deferred license revenue. The reduction in new health and life sciences segment product revenues is due primarily to a reduced pipeline
of sales opportunities in this segment. We believe this decrease resulted from some normal quarterly fluctuation in our business as well as reduced sales opportunities in this segment brought about by our significant penetration in this market. Our
new products in the I-many ContractSphere®
Enterprise Contract Management Product Suite, which are targeted to customers in industries both within and outside the health and life sciences segment, remained in early-stage releases, which limited our ability to derive revenues from them and
hindered our ability to reduce our reliance on our older products. As economic conditions improve and this market begins to move past an early adopter stage, which currently appears to be the general but uncertain trend, we anticipate corresponding
improvement in demand for our products.



As a percentage of
total net revenues, product revenues decreased slightly to 42.9% for the quarter ended March 31, 2004, from 43.9% for the quarter ended March 31, 2003. Meanwhile, service revenues increased by $294,000, or 4.7%, to $6.5 million in the quarter ended
March 31, 2004 as compared to $6.2 million in the first quarter of 2003. This increase in service revenues, both in absolute terms and as a percentage of total net revenues, is mostly attributable to an increase in maintenance and support revenues
that resulted from a net increase in our billable installed customer base.



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COST OF REVENUES



Cost of revenues consists primarily of payroll and related costs and subcontractor costs for providing professional services
and maintenance and support services, and to a lesser extent, amounts due to third parties for royalties related to integrated technology. Historically, cost of product revenues has not been a significant component of total cost of revenues. Cost of
revenues increased by $197,000, or 5.3%, to $3.9 million for the quarter ended March 31, 2004, from $3.7 million for the quarter ended March 31, 2003. This increase is principally attributable to $409,000 in noncash compensation costs incurred
pursuant to non-qualified stock options issued during the second half of 2003, partially offset by a $228,000 reduction in salary and benefit costs resulting from headcount reductions in our client support department.



As a percentage of total net revenues, cost of revenues increased slightly to
34.1% for the quarter ended March 31, 2004, from 33.4% for the quarter ended March 31, 2003. This increase in cost of revenues as a percentage of total net revenues is attributable to the factors discussed above and to the decrease in product
revenues as a percent of total revenues. Product revenues have typically generated higher margins than service revenues and are expected to do so in the foreseeable future.



OPERATING EXPENSES



SALES AND MARKETING. Sales and marketing expenses consist primarily of payroll and related benefits for sales and marketing
personnel, commissions for sales personnel, travel costs, recruiting fees, expenses for trade shows and advertising and public relations expenses. Also, sales and marketing expenses included a one-time, non-cash charge of $795,000 in the quarter
ended March 31, 2003 related to the value associated with the granting of a common stock warrant to Procter & Gamble. Excluding the noncash warrant charge, sales and marketing expense decreased by $2.1 million, or 48.6%, to $2.2 million in the
three months ended March 31, 2004 from $4.3 million in the three months ended March 31, 2003. This decrease in sales and marketing expense is primarily attributable to a $1.4 million decrease in salary, commission and fringe benefit costs, which is
a direct result of significant reductions in sales force and related personnel  from 79 employees at March 31, 2003 to 31 at March 31, 2004. Other decreases in expenses included $230,000 in sales meeting costs and $188,000 in travel and
entertainment as spending in essentially all respects was reduced. As a percentage of total net revenues, sales and marketing expense (excluding the noncash warrant charge) decreased to 19.5% for the quarter ended March 31, 2004 from 39.1% for the
quarter ended March 31, 2003.



RESEARCH AND DEVELOPMENT.
Research and development expenses consist primarily of payroll and related costs for development personnel and external consulting costs associated with the development of our products and services. Research and development costs, including the
costs of developing computer software, are charged to operations as they are incurred. Research and development expenses decreased by $826,000, or 19.0%, to $3.5 million for the quarter ended March 31, 2004 from $4.3 million for the quarter ended
March 31, 2003. This decrease in research and development expenses is primarily attributable to a $1.3 million reduction in salary and fringe benefit costs and other spending decreases, which is a result of significant reductions in engineering
personnel  from 119 employees at March 31, 2003 to 46 at March 31, 2004, partially offset by $782,000 in noncash compensation costs incurred during the quarter ended March 31, 2004 pursuant to non-qualified stock options issued during the
second half of 2003. As a percentage of total net revenues, research and development expense decreased to 30.7% for the quarter ended March 31, 2004, from 39.1% for the quarter ended March 31, 2003.



GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries and related costs for personnel in our administrative, finance and human



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resources departments, and legal, accounting and other professional service fees. General and administrative expenses
were substantially unchanged at $1.7 million in first quarter of 2004, increasing by only $6,000 from the same period in 2003. Decreases of $159,000 in salary and benefit costs, resulting from headcount reductions, and of $236,000 in legal expenses,
attributable to high one-time costs incurred in the first quarter of 2003, were offset by $415,000 in noncash compensation costs incurred during the quarter ended March 31, 2004 pursuant to non-qualified stock options issued during the second half
of 2003. As a percentage of total net revenues, general and administrative expenses decreased to 14.6% for the quarter ended March 31, 2004 from 14.9% for the quarter ended March 31, 2003.



DEPRECIATION. Depreciation expense decreased by $278,000, or 56.9%, from
$489,000 in the first quarter of 2003 to $211,000 in the first quarter of 2004. This decrease is principally attributable to a significant drop-off in the level of furniture, equipment and software additions from the years 2000 ($3.9 million) and
2001 ($1.8 million) to the year 2003 ($651,000) and the quarter ended March 31, 2004 ($53,000), the majority of these asset additions being depreciated over a three-year life. Also during the quarter ended March 31, 2004, we incurred impairment
charges of $278,000 with respect to property and equipment that was no longer in productive use, further reducing the installed base of depreciable assets.



AMORTIZATION OF ACQUIRED INTANGIBLE ASSETS. Amortization of acquired intangibles related to our acquisitions amounted to $331,000 in the quarter ended
March 31, 2004, which represents a 50% decrease from the amortization of $662,000 recorded in the quarter ended March 31, 2003. This decrease is attributable to the discontinued amortization of acquired intangibles for Chi-Cor Information
Management, Inc. (Chicor) and BCL Vision Ltd. (BCL), pursuant to the full impairment write-offs of these assets in June 2003.



RESTRUCTURING AND OTHER CHARGES. In the quarter ended March 31, 2004, the Company recorded $1.1 million in charges related to ongoing efforts to
streamline operations and the partial closing of leased facilities in London, England and Portland, Maine. Included in this quarters charges were $698,000 in accrued cease-use lease charges, $171,000 in severance charges and $278,000 in
impairment charges with respect to property and equipment that was no longer in productive use. In the quarter ended March 31, 2003, the Company made the decision to close its Chicago office as part of its efforts to reduce operating expenses and
consolidate its operations. The Company incurred an initial charge of $1.2 million in the first quarter of 2003 related to the Chicago office closing, consisting of future office lease costs less estimated sublease receipts. An additional $261,000
of impairment charges was recorded with respect to property and equipment that was no longer in productive use.



OTHER INCOME, NET



Other income, net, decreased by $1,000 from $32,000 in the quarter ended March 31, 2003, to $31,000 in the quarter ended March 31, 2004. This decrease is
primarily the result of lower average cash balances during the quarter.



PROVISION FOR INCOME TAXES



We
incurred operating losses for all quarters in 2003 and the first quarter of 2004 and have consequently recorded a valuation allowance for the full amount of our net deferred tax asset, which consists principally of our net operating loss
carryforwards, as the future realization of the tax benefit is uncertain. No provision or benefit for income taxes has been recorded in the three-month periods ended March 31, 2004 and 2003.



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LIQUIDITY AND CAPITAL RESOURCES



In 2002 and 2003, we entered into several capital lease financing
arrangements with a financial institution. Under the terms of the financings, the aggregate proceeds were deposited in a restricted bank account. At March 31, 2004, $692,000 of the remaining aggregate proceeds are restricted, of which $627,000 is
classified as current restricted cash and $65,000 is classified as non-current restricted cash in the consolidated balance sheet. Also, in connection with the financing of our annual directors and officers insurance obligation, we deposited $655,000
in a restricted bank account during 2003, of which $66,000 remained and is classified as current restricted cash at March 31, 2004. The remaining non-current restricted cash balance of $251,000 at March 31, 2004 represents cash held on deposit as
security on a long-term lease obligation.



At March 31, 2004,
we had net working capital of $18.2 million, including cash and cash equivalents of $19.1 million and short-term investments of $2.5 million. Also on March 31, 2004, we had no long-term or short-term debt, other than obligations under capital lease
financings.



Net cash used in operating activities for the
three months ended March 31, 2004 was $2.3 million, as compared to net cash used in operating activities of $2.6 million in the three months ended March 31, 2003. For the three months ended March 31, 2004, net cash used in operating activities
consisted of the net loss of $1.5 million, as offset by non-cash items depreciation and amortization of $542,000, restructuring and other charges of $1.1 million and noncash stock-based compensation of $1.9 million, and decreases in accrued expenses
and deferred revenue of $1.6 million and $3.3 million, respectively. The decrease in accrued expenses resulted largely from a net reduction in the sales commission accrual, a consequence of the decrease in new license deals in the current quarter
relative to the fourth quarter of 2003, a decrease in the Companys self-insured medical claims obligation and payments against the restructuring liability. The $3.3 million decrease in deferred revenue is the result of the recognition into
revenue of previously-deferred license fees. For the three months ended March 31, 2003, net cash used in operating activities consisted of the net loss of $6.3 million, as offset by non-cash items depreciation and amortization of $1.2 million,
restructuring and other charges of $1.5 million and a warrant charge of $795,000. Also, a $1.8 million decrease in accounts receivable during the quarter ended March 31, 2003, which was principally attributable to a 23.4% drop in product revenues
from the previous quarter, was offset by a $1.9 million decrease in accrued expenses, which resulted largely from payouts of year end bonuses, commissions and other accrued salaries.



Net cash used in investing activities was $549,000 for the three months ended March 31, 2004 and $3,000 for the three months
ended March 31, 2003. Net cash used in investing activities for the three months ended March 31, 2004 consisted principally of $1.5 million in purchases of short-term investments, partially offset by a $1.0 million short-term investment redemption.



Net cash provided by financing activities was $171,000 in the
quarter ended March 31, 2004, mostly comprised of a decrease in restricted cash, partially offset by payments on existing capital leases. Net cash used in financing activities was $365,000 for the quarter ended March 31, 2003, primarily attributable
to increases in restricted cash, pursuant to a new capital lease financing arrangement, and payments on existing capital leases.



We currently anticipate that our cash and cash equivalents of $19.1 million and short-term investments of $2.5 million will be sufficient to meet our
anticipated needs for working capital, capital expenditures, and acquisitions for at least the next 12 months. Our future long-term capital needs will depend significantly on the rate of growth of our business, our profitability, possible
acquisitions, the timing of expanded product offerings and the success of these offerings if and when they are launched. Accordingly, any projections of future long-term cash needs and cash flows are subject to substantial uncertainty. If our
current balance of cash



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and cash equivalents is insufficient to satisfy our long-term liquidity needs, we may seek to sell additional equity or
debt securities to raise funds, and those securities may have rights, preferences or privileges senior to those of the rights of our common stock. In connection with such a sale of stock, our stockholders may experience dilution. In addition, we
cannot be certain that additional financing will be available to us on favorable terms when required, or at all. Our current stock price may make it difficult for us to raise additional equity financing.



CONTRACTUAL OBLIGATIONS



|                                   |  |                                           |        |                  |   |           |  |           |       |                  |   |       |  |   |      
|---------------------------------- |  | ----------------------------------------- | ------ | ---------------- | - | --------- |  | --------- | ----- | ---------------- | - | ----- |  | - | -----
|                                   |  | Payments due by Period - Amounts in $000s
|                                   |  | Total                                     |        | Less than 1 year |   | 1-3 years |  | 3-5 years |       | More than 5years
|Long-Term Debt                     |  | $                                         |       |                  | $ |          |  | $         |      |                  | $ |      |  | $ |     
|Capital Lease Obligations          |  |                                           | 725    |                  |   | 659       |  |           | 66    |                  |   |      |  |   |     
|Operating Leases                   |  |                                           | 10,759 |                  |   | 2,020     |  |           | 3,214 |                  |   | 3,002 |  |   | 2,523
|Unconditional Purchase Obligations |  |                                           |       |                  |   |          |  |           |      |                  |   |      |  |   |     
|                                   |  |                                           |        |                  |   |           |  |           |       |                  |   |       |  |   |      
|Total Contractual Obligations      |  | $                                         | 11,484 |                  | $ | 2,679     |  | $         | 3,280 |                  | $ | 3,002 |  | $ | 2,523
|                                   |  |                                           |        |                  |   |           |  |           |       |                  |   |       |  |   |      



CERTAIN FACTORS THAT MAY AFFECT OUR
FUTURE OPERATING RESULTS



In addition to other information in
this Form 10-Q, the following factors could cause actual results to differ materially from those indicated by forward-looking statements made in this Form 10-Q and presented elsewhere by management from time to time.



WE WILL NEED TO TARGET MARKETS OTHER THAN THE HEALTHCARE MARKET FOR OUR FUTURE GROWTH



We will need to continue efforts to reduce our reliance on
the health and life sciences market, which has traditionally been the primary source of our revenues. We will need to target both existing as well as new markets in order to grow our revenues and reach profitability. Revenues from our non-healthcare
customers have comprised 31.5%, 34.0% and 21.7%, respectively, of our consolidated revenues for the years ended December 31, 2002 and 2003 and for the quarter ended March 31, 2004. The Company must continue to evolve its products and marketing
strategies in order to be successful in these markets. We may not be successful in generating the revenue we expect from these markets. Although we have had some success in selling to markets outside of healthcare (e.g., foodservice), we have not
yet demonstrated that our product offerings have significant appeal in many of the markets we are targeting. While we believe that the contractual purchase relationships between manufacturers and customers in these markets have similar attributes to
those in the healthcare market, we cannot assure you that our assumptions are correct.



WE HAVE INCURRED SUBSTANTIAL LOSSES IN RECENT YEARS AND OUR RETURN TO PROFITABILITY IS UNCERTAIN



We incurred net losses of $27.3 million in the year ended December 31, 2002, $39.5 million in the year ended December 31, 2003 and $1.5 million in the
quarter ended March 31, 2004, and we had an accumulated deficit at March 31, 2004 of $119.4 million. Our recent results have been impacted by a number of factors that caused current and prospective customers to defer, or otherwise not make,
purchases from us, and we cannot assure you that we will not be affected by these factors in future periods. We cannot assure you that we will achieve sufficient revenues to become profitable in the future.



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IT IS DIFFICULT FOR US TO PREDICT WHEN OR IF SALES WILL OCCUR AND WE OFTEN INCUR SIGNIFICANT SELLING EXPENSES IN ADVANCE
OF OUR RECOGNITION OF ANY RELATED REVENUE



Our clients view
the purchase of our software applications and related professional services as a significant and strategic decision. As a result, clients carefully evaluate our software products and services. The length of this evaluation process is affected by
factors such as the clients need to rapidly implement a solution and whether the client is new or is extending an existing implementation. The license of our software products may also be subject to delays if the client has lengthy internal
budgeting, approval and evaluation processes which are quite common in the context of introducing large enterprise-wide technology solutions. We may incur significant selling and marketing expenses during a clients evaluation period, including
the costs of developing a full proposal and completing a rapid proof of concept or demonstration, before the client places an order with us. Clients may also initially purchase a limited number of licenses before expanding their implementations.
Larger clients may purchase our software products as part of multiple simultaneous purchasing decisions, which may result in additional unplanned administrative processing and other delays in the recognition of our license revenues. If revenues
forecasted from a significant client for a particular quarter are not realized or are delayed, as has occurred in recent quarters, we may experience an unplanned shortfall in revenues during that quarter. This may cause our operating results to be
below the expectations of public market analysts or investors, which could cause the value of our common stock to decline.



OUR FIXED COSTS HAVE LED, AND WILL CONTINUE TO LEAD, TO FLUCTUATIONS IN OPERATING RESULTS WHICH HAVE RESULTED, AND COULD IN THE FUTURE RESULT, IN A DECLINE OF OUR STOCK
PRICE



A significant percentage of our expenses, particularly
personnel costs and rent, are fixed costs and are based in part on expectations of future revenues. We may be unable to reduce spending in a timely manner to compensate for any significant fluctuations in revenues. Accordingly, shortfalls in
revenues, as we experienced in recent quarters, may cause significant variations in operating results in any quarter. Our stock price has been impacted by the failure of our quarterly results to meet the expectations of market analysts and
investors, and it could decline further.



ECONOMIC CONDITIONS MAY CONTINUE TO
WEAKEN OUR SALES



The recent downturn and uncertainty in
general economic and market conditions have negatively affected and may continue to negatively affect demand for our products and services. In addition, current world economic and political conditions have reduced the willingness of our customers
and prospective customers to commit funds to purchase our products and services. The resulting loss or delay in our sales has had and could continue to have a material adverse effect on our business, financial condition and results of operations.



WE HAVE MULTIPLE FACILITIES AND WE MAY EXPERIENCE DIFFICULTIES IN OPERATING
FROM THESE FACILITIES



We operate out of our corporate
headquarters in Edison, New Jersey, our primary engineering office in Redwood City, California and in facilities in Portland, Maine and London, England. The geographic distance between our offices could make it difficult for our management and other
employees to effectively communicate with each other and, as a result, could place a significant strain on our managerial, operational and financial resources. Also, we expect that a significant number of our sales and professional services
employees will continue to work remotely out of home offices, which will potentially add to this strain.



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WE MAY NOT BE SUCCESSFUL IN DEVELOPING OR ACQUIRING NEW TECHNOLOGIES OR BUSINESSES AND THIS COULD HINDER OUR EXPANSION
EFFORTS



We intend in the future to continue our product
research and development efforts at levels similar to current expenditures and to consider additional acquisitions of or new investments in complementary businesses, products, services or technologies. We cannot assure you that we will be successful
in our product development efforts or we will be able to identify appropriate acquisition or investment candidates. Even if we do identify suitable candidates, we cannot assure you that we will be able to make such acquisitions or investments on
commercially acceptable terms. Furthermore, we may incur debt or issue equity securities to pay for any future acquisitions. The issuance of equity securities could be dilutive to our existing stockholders and the issuance of debt could limit our
available cash and accordingly restrict our activities.



WE MAY MAKE ADDITIONAL
ACQUISITIONS AND WE MAY HAVE DIFFICULTY INTEGRATING THEM



Any
company that we acquire will have a culture different from ours as well as technologies, products and services that our employees will need to understand and integrate with our own. We have assimilated the employees, technologies and products of the
companies that we have previously acquired and will need to do the same with Pricing Analytics and with any other companies we may acquire, and that effort has been, and will likely continue to be difficult, time-consuming and may be unsuccessful.
If we are not successful, our investment in the acquired entity may be impaired or lost, and even if we are successful, the process of integrating an acquired entity may divert our attention from our core business.



IF WE DO ACQUIRE NEW TECHNOLOGIES OR BUSINESSES, OUR RESULTS OF OPERATIONS MAY BE ADVERSELY
AFFECTED



In connection with our acquisitions, we have
recorded substantial goodwill and other purchased intangible assets. In addition, we recorded charges for write-offs of a portion of the purchase prices of acquired companies as in-process research and development. The carrying values of acquired
intangible assets and goodwill are reviewed for impairment on a periodic basis. In the years ended December 31, 2002 and 2003, we recorded impairment charges of $13.3 million and $16.8 million, respectively, in connection with the write-off of
goodwill and other purchased intangible assets. We cannot assure you that future write-downs of any such assets will not affect future operating results.



WE HAVE MANY COMPETITORS AND POTENTIAL COMPETITORS AND WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY



The market for our products and services is competitive and subject to rapid change. We encounter significant competition
for the sale of our contract management software from the internal information systems departments of existing and potential clients, software companies that target the contract management markets and professional services organizations. Our
competitors vary in size and in the scope and breadth of products and services offered. We anticipate increased competition for market share and pressure to reduce prices and make sales concessions, which could materially and adversely affect our
revenues and margins.



Many of our existing competitors, as
well as a number of potential new competitors, have longer operating histories, greater name recognition, larger customer bases and significantly



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greater financial, technical and marketing resources than we do. Such competitors may also engage in more extensive
research and development, undertake more far-reaching marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to existing and potential employees and strategic partners. Our competitors could develop products or
services that are equal or superior to our solutions or that achieve greater market acceptance than our solutions. In addition, current and potential competitors have established or may establish cooperative relationships among themselves or with
third parties. We may not be able to compete successfully, and competitive pressures may require us to make concessions that will adversely affect our revenues and our margins, or reduce the demand for our products and services.



WE RELY SIGNIFICANTLY UPON CERTAIN KEY INDIVIDUALS AND OUR BUSINESS WILL SUFFER IF WE ARE
UNABLE TO RETAIN THEM



We depend on the services of our senior
management and key technical personnel. In particular, our success depends on the continued efforts of A. Leigh Powell, our Chief Executive Officer, and other key employees. The loss of the services of any key employee could have a material adverse
effect on our business, financial condition and results of operations.



THE BID
PRICE OF OUR COMMON STOCK ON THE NASDAQ NATIONAL MARKET HAS BEEN BELOW $1.00 PER SHARE, AND IF THE BID PRICE AGAIN FALLS BELOW $1.00 PER SHARE FOR AN EXTENDED PERIOD, OUR COMMON STOCK MAY BE DELISTED FROM THE NASDAQ NATIONAL MARKET WHICH COULD
REDUCE THE LIQUIDITY OF OUR COMMON STOCK AND ADVERSELY AFFECT OUR ABILITY TO RAISE ADDITIONAL NECESSARY CAPITAL



On April 11, 2003 we received written notification from Nasdaq that we were not in compliance with Nasdaq Marketplace Rule 4450(b)(4) because the closing
bid price of our common stock was below $1.00 for 30 consecutive trading days. We subsequently regained compliance when the bid price of our common stock closed at $1.00 per share or more for 10 consecutive trading days. If the closing bid price
again falls below $1.00 per share for 30 consecutive trading days and we do not regain compliance, we may be delisted from the Nasdaq National Market. The delisting of our common stock may result in the trading of the stock on the Nasdaq SmallCap or
the OTC Bulletin Board. Consequently, a delisting of our common stock from the Nasdaq National Market may reduce the liquidity of our common stock, adversely affect our ability to raise additional necessary capital and could adversely affect our
sales efforts.



ITEM 3. 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 Companys investment portfolio. The Company does not
use derivative financial instruments in its investment portfolio. The primary objective of the Companys investment activities is to preserve principal while maximizing yields without assuming significant risk. This is accomplished by investing
in diversified investments, consisting primarily of short-term investment-grade securities. Due to the nature of our investments, we believe there is no material risk exposure. A 10% change in interest rates, either positive or negative, would not
have had a significant effect on interest income in the quarters ended March 31, 2003 and 2004.



As of March 31, 2004, the Companys cash and cash equivalents consisted entirely of money market investments with remaining maturities of 90 days or
less when purchased and non-interest bearing checking accounts. Investments in marketable debt securities with maturities greater than 90 days and less than one year are classified as short-term investments. All of the



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Companys short-term investments are classified as held-to-maturity and have been recorded at amortized cost. At
March 31, 2004, the Company had $2.5 million of held-to-maturity investments that consisted of a US Government agency security and two corporate bonds. Under current investment guidelines, maturities on short-term investments are restricted to one
year or less.



FOREIGN CURRENCY EXCHANGE RISK



The Company operates in certain foreign locations, where the
currency used is not the U.S. dollar. However, these locations have not been, and are not currently expected to be, significant to our consolidated financial statements. Changes in exchange rates have not had a material effect on our business.



ITEM 4. CONTROLS AND PROCEDURES



|(a) | Evaluation of disclosure controls and procedures
|--- | ------------------------------------------------



Our management, with the participation of our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, evaluated the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act) as of March 31, 2004. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls
and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and our management necessarily applied its judgment in evaluating the cost-benefit relationship of possible controls and
procedures. Based on this evaluation, our CEO and CFO concluded that, as of March 31, 2004, our disclosure controls and procedures were (1) designed to ensure that material information relating to us, including our consolidated subsidiaries, is made
known to our CEO and CFO 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 us in the
reports that we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms.



|(b) | Changes in internal controls
|--- | ----------------------------



As a result of the notification provided during the quarter ended March 31, 2004 by the Companys former independent auditors, Deloitte and Touche
LLP, that it had concluded that a material weakness existed in the Companys system of internal control as it relates to the Companys interpretation of its contracts, the Company has modified the manner in which it undertakes its formal
contract reviews. There were no other significant changes in the Companys internal controls or, to the Companys knowledge, in other factors that could significantly affect the Companys internal controls and procedures subsequent to
the date of their most recent evaluation.



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PART II. OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



None



ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS



|(a) | Modification of Constituent Instruments
|--- | ---------------------------------------



None



(b) Change in Rights



None



|(c) | Changes in Securities
|--- | ---------------------



None



|(d) | Use of Proceeds
|--- | ---------------



The Company has continued to use the proceeds of its initial public offering in the manner and for the purposes described elsewhere in this Report on Form
10-Q.



ITEM 3. DEFAULTS UPON SENIOR SECURITIES



None



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



None



ITEM 5. OTHER INFORMATION



None



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



|(a) | The exhibits listed on the Exhibit Index are filed herewith.
|--- | ------------------------------------------------------------



(b) Reports on Form 8-K:



On February 4, 2004, we furnished a current report on Form 8-K pursuant to Item 12 thereof, reporting our financial results for the quarter ended December
31, 2003.



On March 9, 2004, we filed a current report on Form
8-K pursuant to Item 4 thereof, reporting that Deloitte & Touche LLP had declined to stand for re-election as our independent auditors for 2004.



On March 11, 2004, we filed a current report on Form 8-K/A pursuant to Item 4 thereof, to file as an exhibit a letter from Deloitte & Touche LLP
describing its agreement with the contents of our March 9, 2004 current report on Form 8-K.



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On April 2, 2004, we filed a current report on Form 8-K pursuant to Item 4 thereof, reporting that
Deloitte & Touche LLP had formally resigned as our auditors.



On April 2, 2004, we filed a current report on Form 8-K pursuant to Item 4 thereof, reporting that our audit committee had engaged BDO Seidman, LLP as our independent auditors for 2004.



On May 5, 2004, we furnished a current report on Form 8-K pursuant to Item 12
thereof, reporting our financial results for the quarter ended March 31, 2004.



SIGNATURES



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



|                   |  |     |  |                                      
|------------------ |  | --- |  | -------------------------------------
|                   |  |     |  | I-MANY, INC                          
|                   |  |    
|Date: May 10, 2004 |  | By: |  | /s/ Kevin M. Harris                  
|                   |  |     |  | Kevin M. Harris                      
|                   |  |     |  | Chief Financial Officer and Treasurer
|                   |  |    
|                   |  |     |  | /s/ Kevin M. Harris                  
|                   |  |     |  | Kevin M. Harris                      
|                   |  |     |  | Chief Financial Officer              



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INDEX TO EXHIBITS



|            |  |                                                                                                                                                                             
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT NO. |  | DESCRIPTION                                                                                                                                                                 
|3.1(i)(1)   |  | Amended and Restated Certificate of Incorporation                                                                                                                           
|            | 
|3.1(ii)(2)  |  | Certificate of Designation for Series A Preferred Stock                                                                                                                     
|            | 
|3.2(1)      |  | Amended and Restated Bylaws                                                                                                                                                 
|            | 
|31.1        |  | Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|            | 
|31.2        |  | Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|            | 
|32.1        |  | Section 906 Certifications                                                                                                                                                  

---

|(1) | Incorporated by reference to the Registrants Registration Statement on Form S-1, as amended (File No. 333-32346) originally filed with the SEC on March 13, 2000
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Incorporated by reference to the Registrants Annual Report on Form 10-K for the year ended December 31, 2002
|--- | -------------------------------------------------------------------------------------------------------------



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