<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                   FORM 10-Q
(Mark One)

[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934 for the quarterly period ended June 30, 1999
                                      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: 000-25269

                               VERTICALNET, INC.

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

                   Pennsylvania                        23-2815834
        -------------------------------            -------------------
        (State or other jurisdiction of             (I.R.S. Employer
         incorporation or organization)            Identification No.)

                               700 Dresher Road
                               Horsham, PA 19044
             -----------------------------------------------------
                   (Address of principal executive offices)

              Registrant's telephone number, including area code:
                                (215) 328-6100


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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:

         CLASS                       OUTSTANDING AT JUNE 30, 1999
------------------------    --------------------------------------------
Common Stock, $0.01 par                      16,946,943
 value
<PAGE>

                               VERTICALNET, INC.

                                   FORM 10-Q
          (FOR THREE MONTHS ENDED AND SIX MONTHS ENDED JUNE 30, 1999)

                               TABLE OF CONTENTS



<TABLE>
<CAPTION>
                                                                                                                     Page
                                                                                                                    -------
Part I
<S>           <C>                                                                                                   <C>
 Item 1.      Consolidated Financial Statements...................................................................        3
 Item 2.      Management's Discussion And Analysis Of Financial Condition And Results Of
               Operations.........................................................................................       11
 Item 3.      Quantitative And Qualitative Disclosure About Market Risk                                                  24

PART II
 Item 1.      Legal Proceedings...................................................................................       24
 Item 2.      Change in Securities And Use Of Proceeds............................................................       24
 Item 4.      Submission of Matters to a Vote of Security Holders.................................................       25
 Item 6.      Exhibits And Reports On Form 8-K....................................................................       25
</TABLE>




                                       2
<PAGE>
                        PART I.  FINANCIAL INFORMATION

                        ITEM 1.  FINANCIAL INFORMATION
                               VERTICALNET, INC.

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                        June 30,               December 31,
                                                                                          1999                     1998
                                                                                    -----------------        -----------------
                                                                                       (Unaudited)
<S>                                                                                 <C>                      <C>
                                    Assets
Current assets:
    Cash and cash equivalents                                                            $20,235,068               $5,662,849
    Short-term investments                                                                12,480,457                       -
    Accounts receivable, net of allowance for doubtful accounts of
        $185,947 in 1999 and $61,037 in 1998                                               4,446,631                1,794,728
    Loan receivable                                                                          390,000                       -
    Prepaid expenses and other assets                                                      2,555,708                  747,951
                                                                                    -----------------        -----------------
                 Total current assets                                                     40,107,864                8,205,528
                                                                                    -----------------        -----------------
Property and equipment, net                                                                1,816,460                1,072,063
Goodwill and other intangibles, net of accumulated amortization of
    $893,459 in 1999 and $282,900 in 1998                                                  8,159,583                2,451,991
Cash - restricted                                                                          1,220,261                       -
Long-term investments                                                                     14,376,407                       -
Deferred charges and other assets                                                            589,356                  613,393
                                                                                    -----------------        -----------------
                 Total assets                                                            $66,269,931              $12,342,975
                                                                                    =================        =================

                Liabilities and Shareholders' Equity (Deficit)
Current liabilities:
    Current portion of long-term debt                                                       $823,480                 $288,016
    Line of credit                                                                                -                 2,000,000
    Accounts payable                                                                       1,896,362                1,220,562
    Accrued expenses                                                                       2,372,080                1,582,038
    Deferred revenues                                                                      5,820,222                2,176,585
                                                                                    -----------------        -----------------
                 Total current liabilities                                                10,912,144                7,267,201
                                                                                    -----------------        -----------------
Long-term debt, net of current portion                                                       517,293                  351,924
                                                                                    -----------------        -----------------
Convertible notes                                                                                  -                5,000,000
                                                                                    -----------------        -----------------

Commitments and contingencies (Note 3)

Shareholders' Equity (Deficit):
    Preferred stock $.01 par value, 10,000,000 shares authorized,
         0 shares issued and outstanding in 1999 and 7,805,667
        shares issued and outstanding in 1998                                                     -                    78,057
    Common stock $.01 par value, 90,000,000 shares
        authorized, 16,946,943 issued and outstanding in 1999
        and 2,634,379 shares issued and outstanding in 1998                                  169,469                   26,344
    Additional paid-in capital                                                            87,503,466               19,566,368
    Deferred compensation                                                                   (885,405)                (594,033)
    Accumulated comprehensive loss                                                          (132,694)                      -
    Accumulated deficit                                                                  (31,662,355)             (19,292,886)
                                                                                    -----------------        -----------------
                                                                                          54,992,481                 (216,150)
    Treasury stock at cost, 198,363 shares in 1999 and
        161,289 shares in 1998                                                              (151,987)                 (60,000)
                                                                                    -----------------        -----------------
                 Total shareholders' equity (deficit)                                     54,840,494                 (276,150)
                                                                                    -----------------        -----------------
                 Total liabilities and shareholders' equity (deficit)                    $66,269,931              $12,342,975
                                                                                    =================        =================

                                   See accompanying notes to consolidated financial statements.
</TABLE>


                                       3
<PAGE>
                               VERTICALNET, INC.

                    CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)

<TABLE>
<CAPTION>


                                            Three months ended                   Six months ended
                                                June 30,                             June 30,
                                   ----------------------------------- ---------------------------------
                                         1999              1998             1999             1998
                                   ----------------- ----------------- ---------------- ----------------
<S>                               <C>                <C>                  <C>              <C>
Revenues                                $3,551,180          $587,422       $5,484,959         $964,793
                                   ----------------- ----------------- ---------------- ----------------
Costs and Expenses:
Editorial and operational                1,688,619           689,644        2,884,756        1,124,977
Product development                      1,485,066           385,378        2,694,704          578,258
Sales and marketing                      5,546,602         1,679,469        9,176,807        2,614,403
General and administrative               1,970,435           718,734        3,350,071        1,541,893
Amortization of goodwill                   335,902                -           610,469               -
                                   ----------------- ----------------- ---------------- ----------------
Operating loss                          (7,475,444)       (2,885,803)     (13,231,848)      (4,894,738)
                                   ----------------- ----------------- ---------------- ----------------

Interest, net                              714,733            14,291          862,379          (61,643)
                                   ----------------- ----------------- ---------------- ----------------
Net loss                               $(6,760,711)      $(2,871,512)    $(12,369,469)     $(4,956,381)
                                   ================= ================= ================ ================

Basic and diluted net loss per share        ($0.40)           ($1.13)          ($0.91)          ($1.96)
                                   ================= ================= ================ ================
Weighted average shares outstanding
    used in basic and diluted           16,848,309         2,540,014       13,520,933        2,533,475
    per-share calculation          ================= ================= ================ ================

          See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
                               VERTICALNET, INC.

           CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)

                        Six months ended June 30, 1999

<TABLE>
<CAPTION>


                                                                                            Additional                   Other
                                            Preferred Stock             Common Stock         Paid-In      Deferred   Comprehensive
                                          Shares       Amount       Shares       Amount      Capital    Compensation     Loss
                                      ------------ ------------- ------------ ------------ ------------ ------------ ------------
<S>                                   <C>          <C>           <C>          <C>          <C>          <C>          <C>
Balance, January 1, 1999                7,805,667   $   78,057     2,634,379   $   26,344   $19,566,368 $ (594,033) $          -
Conversion to common stock             (7,805,667)     (78,057)    9,734,846       97,349       (19,292)         -             -
Sale of common stock in
 initial public offering                        -            -     4,025,000       40,250    58,247,064          -             -
Notes converted to common stock                 -            -       312,500        3,125     4,996,875          -             -
Exercise of options                             -            -       143,125        1,430       124,570          -             -
Shares issued as consideration
 for acquisitions                               -            -        60,019          600     4,058,190          -             -
Exercise of warrants                            -            -        37,074          371        91,616          -             -
Deferred compensation                           -            -             -            -       438,075   (291,372)            -
Unrealized loss on marketable
 securities                                     -            -             -            -             -          -      (132,694)
Net loss                                        -            -             -            -             -          -             -
                                      ------------ ------------- ------------ ------------ ------------ ------------ ------------
Balance, June 30, 1999                          -   $        -    16,946,943   $  169,469   $87,503,466  $(885,405)    $(132,694)
                                      ============ ============= ============ ============ ============ ============ ============



                                                                           Total
                                         Accumulated    Treasury       Shareholders'
                                          Deficit        Stock       Equity (Deficit)
                                        -------------  ------------   ---------------
Balance, January 1, 1999                $(19,292,886)   $  (60,000)     $   (276,150)
Conversion to common stock                         -             -                 -
Sale of common stock in                                                            -
 initial public offering                           -             -        58,287,314
Notes converted to common stock                    -             -         5,000,000
Exercise of options                                -             -           126,000
Shares issued as consideration
 for acquisitions                                  -             -         4,058,790
Exercise of warrants                               -       (91,987)                -
Deferred compensation                              -             -           146,703
Unrealized loss on marketable
 securities                                        -             -          (132,694)
Net loss                                 (12,369,469)            -       (12,369,469)
                                        -------------  ------------  ---------------
Balance, June 30, 1999                  $(31,662,355)   $ (151,987)     $ 54,840,494
                                        =============  ============  ===============

         See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
                               VERTICALNET, INC

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)

<TABLE>
<CAPTION>

                                                                                         Six months ended
                                                                                             June 30,
                                                                                 --------------------------------
                                                                                       1999              1998
                                                                                 --------------    --------------
<S>                                                                              <C>               <C>
Cash flows from operating activities:
    Net loss                                                                       $(12,369,469)      $(4,956,381)
                                                                                 --------------    --------------
    Adjustments to reconcile net loss to net cash used in operating activities:
          Depreciation, amortization and other noncash charges                        1,262,219           192,709
          Change in assets net of effect of acquisitions:
              Accounts receivable                                                    (2,916,274)         (194,554)
              Prepaid expenses and other assets                                      (1,111,161)          (14,638)
          Change in liabilities net of effect of acquisitions:
              Accounts payable                                                          675,128           854,419
              Accrued expenses                                                          780,712           363,721
              Deferred revenues                                                       3,122,245           470,952
                                                                                 --------------    --------------
Net cash used in operating activities                                               (10,556,600)       (3,283,772)
                                                                                 --------------    --------------
Cash flows from investing activities:
    Acquisitions, net of cash acquired                                              (1,855,984)                 -
    Proceeds from sale and redemption of investments                                57,355,631                  -
    Restricted cash                                                                 (1,220,261)                 -
    Purchase of investments                                                        (84,430,150)                 -
    Advances                                                                          (390,000)          (461,968)
    Capital expenditures                                                              (630,655)          (242,803)
                                                                                 --------------    --------------
Net cash used in investing activities                                               (31,171,419)         (704,771)
                                                                                 --------------    --------------
Cash flows from financing activities:
    Loans from related party                                                                  -         1,550,000
    Repayment of line of credit                                                      (2,000,000)       (2,500,000)
    Repayment of loans from related parties                                                   -          (100,000)
    Principal payments on obligations under capital leases                             (285,067)          (71,785)
    Repayment of long-term debt                                                               -           (32,852)
    Net proceeds from issuance of common stock                                       58,459,305        13,741,962
    Proceeds from exercise of stock options                                             126,000                 -
                                                                                 --------------    --------------
Net cash provided by financing activities                                            56,300,238        12,587,325
                                                                                 --------------    --------------
Net increase in cash                                                                 14,572,219         8,598,782

Cash and cash equivalents--beginning of period                                        5,662,849           754,716
                                                                                 --------------    --------------
Cash and cash equivalents--end of period                                         $   20,235,068    $    9,353,498
                                                                                 ==============    ==============
Supplemental disclosure of cash flow information:
    Cash paid during the period for interest                                     $      159,288    $      119,160
Supplemental schedule of noncash investing and financing activities:
    Equipment acquired under capital leases                                      $      465,236    $       45,583
    Issuance of common stock as consideration for private placement fees         $            -    $      150,000
    Liabilities assumed in conjunction with the acquisitions                     $      371,553    $            -
    Issuance of common stock as consideration for acquisitions                   $    4,058,790    $            -
    Notes converted to common stock                                              $    5,000,000    $            -
    Warrant exercises                                                            $       91,987    $            -
    Financing agreement for directors and officers liability insurance           $      429,814    $            -

         See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>

                               VERTICALNET, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)
(1) The Company and Basis of Presentation


Description of Company

  VerticalNet, Inc. ("VerticalNet" or the "Company") is an owner and operator of
vertical trade communities, which are targeted business-to-business communities
of commerce on the Internet. The Company's vertical trade communities are Web
sites that act as industry-specific comprehensive sources of information,
interaction and electronic commerce. Vertical trade communities combine product
information; industry news; requests for proposals; directories; classifieds;
job listings; discussion forums; a variety of electronic commerce opportunities
for buyers and sellers; and other services, such as online professional
education courses and virtual trade shows. Each trade community is individually
branded, focuses on one business sector and caters to individuals with similar
professional interests. The virtual trade communities are designed to attract
technical and purchasing professionals with highly specialized product and
specification requirements and purchasing authority or influence. The Company
was founded on July 28, 1995 and as of July 30, 1999 operates 43 vertical trade
communities in ten major industry groups: environmental; advanced technologies;
service; communications; process; science; healthcare; manufacturing and metals,
food & packaging and food service/hospitality.

  On February 17, 1999, the Company completed its initial public offering (the
"IPO") of 4,025,000 shares of its common stock at $16.00 per share. Net proceeds
to the Company aggregated approximately $58,300,000 (net of underwriters'
commission and offering expenses of $6,100,000).  As of the closing date of the
offering, all of the convertible preferred stock outstanding was converted into
9,734,846 shares of common stock. In addition, the Company's $5.0 million
convertible notes were converted into 312,500 shares of common stock.

  The Company currently generates substantially all of its revenue from Internet
advertising including the development of "storefronts" (Web pages that focus on
advertisers' products and provide a link to the advertisers' Web sites).  The
advertising contracts do not extend beyond one year. Advertising revenues are
recognized ratably over the period of the advertising contract. Revenues from
educational courses are recognized in the period in which the course is
completed and revenues from the sale of books are recognized in the period in
which the books are shipped.  Auction revenues related to transaction fees are
recognized at the time that the auction is successfully concluded. All e-
commerce revenue, whether a transaction fee, a percentage of sale fee or a
minimum guaranteed fee, is recorded when earned.  Approximately $1.9 million at
June 30, 1999 and $1.0 million at December 31, 1998 included in the accounts
receivable balance is unbilled due to customer payment terms.

  The accompanying unaudited consolidated statements of the Company for the
three and six months ended June 30, 1999 and June 30, 1998, included herein,
have been prepared by the Company, without audit, pursuant to the rules and
regulations of the SEC. In the opinion of management, the accompanying unaudited
interim financial statements reflect all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the results of the Company's
operations and its cash flows for the three and six months ended June 30, 1999
and June 30, 1998. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations relating to interim financial statements. These consolidated
financial statements should be read in conjunction with financial statements and
notes thereto included in the Company's 1998 Annual Report on Form 10-K.

Computation of Historical Net Loss Per Share and Pro Forma Net Loss Per Share

  Basic net loss per share is computed using the weighted average number of
common shares outstanding during the period. Dilutive net loss per share is
computed using the weighted average number of common and dilutive common
equivalent shares outstanding during the period. Common equivalent shares
consist of the incremental common shares issuable upon the exercise of stock
options and warrants (using the treasury stock method) and the incremental
common shares issuable upon the conversion of the convertible preferred stock
(using the if-converted method). Common equivalent shares are excluded from the
calculation if their effect is anti-dilutive. Pursuant to SEC Staff Accounting
Bulletin No. 98, common stock and convertible preferred stock issued for nominal
consideration, prior to the anticipated effective date of an IPO, are required
to be included in the calculation of basic and diluted net loss per share as if
they were outstanding for all periods presented. To date, the Company has not
had any issuances or grants for nominal consideration.

                                       7
<PAGE>

  Pro forma net loss per share is computed using the weighted average number of
shares of common stock outstanding, including common equivalent shares from the
convertible preferred stock (using the if-converted method), which automatically
converted into common stock upon the completion of the IPO as if converted at
the original date of issuance, for both basic and diluted net loss per share,
even though inclusion is antidilutive.

  The following table sets forth the reconciliation between the weighted average
shares outstanding for basic and diluted and pro forma net loss per share
computations:


<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED JUNE 30,  SIX MONTHS ENDED JUNE 30,
                                                                ---------------------------  -------------------------
                                                                    1999           1998          1999         1998
                                                                -------------  ------------  ------------  -----------
<S>                                                             <C>            <C>           <C>           <C>
Weighted-average shares outstanding basic and diluted.....         16,848,309     2,540,014    13,520,933    2,533,475
   Effect of convertible preferred stock..................                  -     7,543,304     2,151,347    6,366,411
                                                                   ----------    ----------    ----------    ---------
Weighted-average shares outstanding pro forma.............         16,848,309    10,083,318    15,672,280    8,899,886
</TABLE>

The following table sets forth the computation of Net loss per share:

<TABLE>
<CAPTION>
                                                                 THREE MONTHS ENDED JUNE 30,     SIX MONTHS ENDED JUNE 30,
                                                                -----------------------------  -----------------------------
BASIC AND DILUTED NET LOSS PER SHARE                                 1999           1998            1999           1998
                                                                --------------  -------------  --------------  -------------
<S>                                                             <C>             <C>            <C>             <C>
Numerator: Net loss............................................   $(6,760,711)   $(2,871,512)   $(12,369,469)   $(4,956,381)
Denominator:
  Weighted-average shares outstanding basic and diluted........    16,848,309      2,540,014      13,520,933      2,533,475
Basic and diluted net loss per share...........................   $     (0.40)   $     (1.13)   $      (0.91)   $     (1.96)
                                                                  ===========    ===========    ============    ===========
PRO FORMA NET LOSS PER SHARE
Numerator: Net loss............................................   $(6,760,711)   $(2,871,512)   $(12,369,469)   $(4,956,381)
Denominator:
  Weighted-average shares outstanding basic and diluted........    16,848,309     10,083,318      15,672,280      8,899,886
Basic and diluted net loss per share...........................   $     (0.40)   $     (0.28)   $      (0.79)   $     (0.56)
                                                                  ===========    ===========    ============    ===========
</TABLE>


(2)  INVESTMENTS

  The Company principally invests its excess cash in debt instruments of the
United States Government and its agencies, and in high-quality corporate
issuers.  All highly liquid instruments with an original maturity of three
months or less are considered cash equivalents, those with original maturities
greater than three months and current maturities less than twelve months from
the balance sheet date are considered short-term investments, and those with
maturities greater than twelve months from the balance sheet date are considered
long-term investments.

  The Company accounts for investments in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."  The
Company's marketable investments are classified as available-for-sale as of the
balance sheet date and are reported at fair value, with unrealized gains and
losses, net of tax, recorded in shareholders' equity.  Realized gains or losses
and permanent declines in value, if any, on available-for-sale securities will
be reported in other income or expense, as incurred.


(3)  COMMITMENTS AND CONTINGENCIES

  On June 30, 1998, the Company entered into a three year Sponsorship Agreement
with Excite, Inc. ("Excite"). The Sponsorship Agreement provides for the Company
and Excite to sponsor and promote 30 co-branded Web pages and for each company
to sell advertising on the Web pages. Excite has guaranteed a minimum number of
advertising impressions for each of the three years. The agreement is terminable
by either party, as defined, and requires the Company to pay Excite $0.9
million, $2.0 million and $3.0 million, respectively, in years one, two and
three under the agreement. Such payments will be charged to expense as the
advertising impressions are provided by Excite. In addition, each company will
provide the other with $200,000 in barter advertising during the term of the
Sponsorship Agreement. As of December 31, 1998, each company has satisfied the
barter provisions under the Sponsorship Agreement.  In June 1999, the agreement
with Excite was terminated.  The Company's remaining commitment to Excite is
$150,000 as of June 30, 1999.

  On January 19, 1999, the Company entered into a one-year agreement with Compaq
Computer Corporation ("Compaq") and its Internet Web site known as AltaVista.
The agreement provides for the Company and AltaVista to sponsor and promote 31

                                       8
<PAGE>

co-branded Web pages. The agreement requires the Company to pay Compaq $1.0
million over the term of the agreement based on the number of advertising
impressions delivered. Such amount will be charged to expense as AltaVista
provides the advertising impressions.  As of June 30,1999, no payments have been
made by the Company. In addition, each company will provide the other with
$300,000 in barter advertising during the term of the agreement.  The Company
has satisfied its barter advertising obligation under this agreement.

  The Company has entered into non-cancelable obligations with several content
service providers and Internet search engines. Under these agreements, exclusive
of the AltaVista agreement discussed above, the Company's commitments are as
follows:

<TABLE>
<S>                                                                                                     <C>
   1999...............................................................................................      $1,648,000
   2000...............................................................................................         560,500
   2001...............................................................................................         123,500
   2002...............................................................................................          50,000
</TABLE>


  On April 21, 1999, the Company entered into a 10 year lease for its
headquarters.  The total obligation under the lease is $9.0 million and is
payable in monthly payments of $75,222 commencing in July 1999.  According to
the terms of the lease agreement, the Company is required to maintain
certificates of deposit for an agreed upon amount in an escrow account.  The
certificates of deposit with an aggregate balance of $1,220,261 were issued in
June 1999 and will mature in five equal installments of $244,052 on August 1,
2000 and the four subsequent years thereafter.  The certificates of deposit are
classified as a long-term asset included in restricted cash on the balance
sheet.

  The Company is a party to legal proceedings and claims, which arise in the
ordinary course of business.  In the opinion of management, the amount of any
ultimate liability with respect to these actions will not materially affect the
financial position, results of operations or cash flows of the Company.


(4)  ACQUISITIONS

  In September 1998, the Company acquired all of the outstanding capital stock
of Boulder Interactive Technology Services Company ("BITC") for $1.8 million in
cash. BITC operates a vertical trade community for professionals in the radio
frequency and wireless communications industry. The acquisition was accounted
for using the purchase method of accounting. The excess of the purchase price
over the fair value of the net assets acquired of approximately $1,864,000 was
recorded as goodwill and is being amortized over 36 months.

  In September 1998, the Company acquired all of the outstanding capital stock
of Informatrix Worldwide, Inc. ("Informatrix") for 46,154 shares of the
Company's common stock valued at $153,000. Informatrix operates a vertical
community in the property and casualty insurance industry that caters to risk
managers, agents, brokers and other professionals in the insurance industry. The
acquisition was accounted for under the purchase method of accounting. The
estimated excess of the purchase price over the fair value of the net assets
acquired of approximately $903,000 was recorded as goodwill and is being
amortized over 36 months. The purchase agreement also provided for the Company
to issue up to 11,538 additional shares of the Company's common stock to the
Informatrix shareholders in the event that Informatrix achieved certain sales
targets through December 1998. Through October 31, 1998, the former shareholders
of Informatrix earned, and the Company recorded the issuance of, 2,200 shares of
common stock which was valued at $7,294. Through December 1998, the former
shareholders of Informatrix earned an additional 1,538 shares of common stock
which was valued at $24,608 and recorded by the Company in March 1999.  The
additional consideration was accounted for as additional goodwill.

  In January 1999, the Company acquired certain assets and assumed certain
liabilities including the Safetyonline Web site from Coastal Video
Communications ("Coastal").  The Company paid $260,000 in cash, issued a $50,000
note, to be paid within 90 days of the closing of the purchase, and provided
Coastal an advertising commitment on the Company's Web site valued at $160,000.
As of June 30, 1999, the Company has paid the note to Coastal and has fulfilled
approximately $33,000 of its advertising commitment to Coastal.  The acquisition
was accounted for as a purchase and the estimated excess of the purchase price
over the fair value of the net assets acquired of approximately $550,000 was
recorded as goodwill and is being amortized over three years.  The results of
operations from Safetyonline are not material to the Company's consolidated
financial position or results of operations.

                                       9
<PAGE>

  In June 1999, the Company acquired certain assets, including the Oillink Web
site, and assumed certain liabilities of a sole proprietor.  The Company paid
$225,000 in cash and issued 2,921 shares of its common stock valued at $250,000.
The acquisition was accounted for as a purchase and the estimated excess of the
purchase price over the fair value of the net assets acquired of approximately
$484,000 was recorded as goodwill and is being amortized over 36 months.  The
results of operations from Oillink are not material to the Company's
consolidated financial position or results of operations.

  In June 1999, the Company acquired certain assets, including the ElectricNet
Web site, and assumed certain liabilities of a sole proprietor.  The Company
paid $975,000 in cash and issued 10,563 shares of its common stock valued at
$825,000. The acquisition was accounted for as a purchase and the estimated
excess of the purchase price over the fair value of the net assets acquired of
approximately $1.9 million was recorded as goodwill and is being amortized over
36 months.  The results of operations from ElectricNet are not material to the
Company's consolidated financial position or results of operations.

  On June 14, 1999, the Company acquired all of the outstanding capital stock of
Techspex, Inc. ("Techspex") for $211,000 in cash and 44,997 shares of  common
stock valued at $3.0 million. Techspex was the owner and operator of a vertical
trade community in the machine tools industry.  The Web site acts as a
comprehensive source of information, interaction and electronic commerce for the
machine tool industry providing a searchable database of machine tools, dealers
and tooling and accessory suppliers.  The acquisition was accounted for as a
purchase and the estimated excess of the purchase price over the fair value of
the net assets acquired of approximately $3.4 million was recorded as goodwill
and is being amortized over 36 months.

  The following unaudited pro forma financial information presents the combined
results of operations of VerticalNet, BITC, Informatrix and Techspex as if the
acquisitions occurred on January 1, 1998, after giving effect to certain
adjustments including amortization of goodwill. The unaudited pro forma
financial information does not necessarily reflect the results of operations
that would have occurred had VerticalNet, BITC, Informatrix and Techspex
constituted a single entity during such periods.

<TABLE>
<CAPTION>
                                                                            THREE MONTHS ENDED             SIX MONTHS ENDED
                                                                                 JUNE 30,                      JUNE 30,
                                                                       ----------------------------  -----------------------------
                                                                           1999           1998            1999           1998
                                                                       -------------  -------------  --------------  -------------
<S>                                                                    <C>            <C>            <C>             <C>
  Revenues...........................................................  $  3,598,820   $    839,495   $   5,636,217   $  1,427,390
  Net loss...........................................................   ($7,030,336)   ($3,758,400)   ($12,926,333)   ($6,659,123)
  Net loss per share.................................................        ($0.42)        ($1.43)         ($0.96)        ($2.54)
</TABLE>

  On May 24, 1999, the Company and Isadra, Inc. ("Isadra") signed an agreement
and Plan of Merger to acquire all of the outstanding capital stock of Isadra for
$3.0 million cash and 500,000 shares of common stock. The closing of this
transaction is subject to regulatory and shareholder approval by Isadra's
shareholders. Isadra has developed e-commerce software for vertical industries.
In connection with this transaction, the Company has agreed to lend up to $1.0
million prior to closing of this transaction. As of June 30, 1999, the Company
has advanced Isadra $390,000. In the event that this transaction does not close,
Isadra is obligated to repay the $1.0 million loan by October 31, 1999. The
acquisition will be accounted for using the purchase method of accounting. The
estimated excess of the purchase price over the fair value of the net assets
acquired of approximately $42.1 million is expected to be allocated among
existing technology, in-process research and development and goodwill, then
amortized over their respective lives.


(5)  COMPREHENSIVE INCOME (LOSS)

  The following presents a reconciliation of net loss to comprehensive loss for
the three months ended June 30, 1999 and June 30, 1998 and the six months ended
June 30, 1999 and June 30, 1998.

<TABLE>
<CAPTION>
                                                                            THREE MONTHS ENDED             SIX MONTHS ENDED
                                                                                 JUNE 30,                      JUNE 30,
                                                                       ----------------------------  -----------------------------
                                                                           1999           1998            1999           1998
                                                                       -------------  -------------  --------------  -------------
<S>                                                                    <C>            <C>            <C>             <C>
  Net loss...........................................................   $(6,760,711)   $(2,871,512)   $(12,369,469)   $(4,956,381)
  Other comprehensive loss:
    Unrealized loss on securities....................................      (132,694)             -        (132,694)             -
                                                                       -------------  -------------  --------------  -------------
  Comprehensive loss.................................................   $(6,893,405)   $(2,871,512)   $(12,502,163)   $(4,956,381)
                                                                       =============  =============  ==============  =============
</TABLE>

                                       10
<PAGE>

(6)  SUBSEQUENT EVENTS

  On July 29, 1999, the Company acquired all of the outstanding capital stock of
LabX  Technologies Inc. ("LabX") for $1.6 million in cash and 34,897 shares of
common stock valued at $ 3.2 million. LabX was the owner and operator of a
vertical trade community focused on electronic commerce of scientific and
laboratory equipment.  The Web site allows participants to communicate their
buying and selling requirements for laboratory equipment.  The acquisition was
accounted for as a purchase and the estimated excess of the purchase price over
the fair value of the net assets acquired of approximately $5.0 million will be
recorded as goodwill and be amortized over 36 months.

  On July 16, 1999, the Company acquired 414,233 shares of Tradex Inc.'s
("Tradex") Series C Preferred  Stock  at a cost  of $1.0 million.  The Company
currently owns 1.8% of Tradex and the investment will be accounted for under the
cost method of accounting.

  On July 16, 1999, the Company entered into a 3 year lease financing arragement
for office furniture.  The total obligation under the capital lease is $1.0
million and is payable in monthly payments of approximately $31,000, commencing
in July 1999.

  On July 21, 1999, the Board of Directors of the Company approved a two-for-one
stock split of the Company's common stock to be distributed in the form of a
stock dividend, payable on August 20, 1999, to shareholders of record at the
close of business on August 9, 1999.



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

                           FORWARD LOOKING STATEMENTS

  Certain statements contained herein constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements can be identified by the use of predictive,
future-tense or forward-looking terminology, such as "believes," "anticipates,"
"expects," "estimates," "plans," "may," "intends," "will," and words of similar
import. You are cautioned that any such forward-looking statements are not
guarantees of future performance and involve significant risks and
uncertainties.  You should not place undue reliance on these forward-looking
statements.  Actual results may differ materially from those projected in the
forward-looking statements for many reasons, including the various risks that
the Company faces as described below, elsewhere in this document and in other
documents that the Company files with the SEC.

  The following discussion of the financial condition and results of operations
of the Company should also be read in conjunction with the financial statements
and notes related thereto included elsewhere in this report.

                                    OVERVIEW

  We currently own and operate 43 vertical trade communities on the Internet.
Advertising revenues and Web site development fees contributed most of the
revenues for the three months ended June 30, 1999 and June 30, 1998.

  We sell storefront and banner advertising and event sponsorships on our
vertical trade communities. The duration of a storefront advertisement is
typically for a period of one year, while banner advertisements are typically
for a period of three months. All advertising revenues are recognized ratably
over the period in which the advertisement is displayed, provided that the
collection is reasonably assured. As of June 30, 1999, we had approximately $5.8
million of deferred revenue. We also generate revenues from career services,
auctions, education and electronic commerce, specifically the sale of books and
third party software.

  We offer for sale to our visitors:  books, software and other goods offered by
third party Web sites. Additionally, we offer auction sites with goods posted by
inventory-liquidators.  We receive a portion of the revenue from the products
sold on our "store" and our auction sites. This type of revenue sharing or
commission sharing relationship is typical of electronic commerce transactions
and relationships on the Internet. We receive either a fee per transaction, a
percentage of sales revenue or some other minimum guaranteed payment.

We plan to expand our electronic commerce relationships to include:

                                       11
<PAGE>

*  selling goods and services promoted on our advertisers' storefronts; and

*  selling goods and services from our owned and operated virtual store.

  We incurred net losses of approximately $6.8 million for the three months
ended June 30, 1999, $12.4 million for the six months ended June 30, 1999, $13.6
million for the year ended December 31, 1998, $4.8 million for the year ended
December 31, 1997 and $709,000 for the year ended December 31, 1996.  At June
30, 1999 we had an accumulated deficit of $31.7 million. The net losses and
accumulated deficit resulted from our lack of substantial revenues, the costs of
the significant infrastructure and other costs incurred for the development and
initial rollout of our vertical trade communities. Because of our aggressive
expansion plans, we expect to incur significant operating losses for the
foreseeable future. Although we have experienced revenue growth in recent
periods, such growth may not be sustainable and, therefore, these recent periods
should not be considered indicative of future performance. We may never achieve
significant revenues or profitability, or if we achieve significant revenues, it
may not be sustained.

                             RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998

  Revenues.  Revenues increased from $965,000 for the six months ended June 30,
1998 to $5.5 million for the six months ended June 30, 1999.  The increase in
revenues was due primarily to an increase in (i) the number of storefronts from
833 as of June 30, 1998 to 2,094 as of June 30, 1999 (ii) the number of vertical
trade communities from 17 as of June 30, 1998 to 43 as of June 30, 1999.
Advertising revenues, including the development of the storefronts, accounted
for the majority of revenues for the periods ended June 30, 1998 and June 30,
1999.  Barter transactions, in which the Company received advertising or other
services in exchange for advertising on its Web sites accounted for
approximately 24% of total revenues for the six months ended June 30, 1999 and
none for the six months ended June 30, 1998.  At June 30, 1999, we had deferred
revenues of $5.8 million.  We expect that advertising revenue will continue to
account for a substantial share of revenues for the foreseeable future.

  Editorial and Operational Expenses.  Editorial and operational expenses
consist primarily of Internet connection charges, cost of acquired content,
depreciation, salaries and benefits of operating and editorial personnel and
other related operating costs.  These expenses increased from $1.1 million for
the six months ended June 30, 1998 to $2.9 million for the six months ended June
30, 1999.  For these periods, expenses increased by $1.5 million for salaries
and benefits of operating and editorial personnel and $300,000 for depreciation,
Internet connection charges, acquired content, product costs and other related
operating costs.  The increases were primarily related to the increased number
of personnel and amount of equipment required to maintain and operate our
increased number of vertical trade communities.

  Product Development Expenses.  Product development expenses consist primarily
of salaries and benefits, consulting expenses and related equipment.  These
costs increased from $578,000 for the six months ended June 30, 1998 to $2.7
million for the six months ended June 30, 1999.  For these periods, expenses
increased by $1.4 million for salaries and benefit costs and by $722,000 for
consulting and equipment costs.  This increase in expenses was due to increased
staffing and the costs of enhancing the features, content and services of our
vertical trade communities, as well as increasing the overall number of vertical
trade communities.  To date, we have charged to expense all the product
development costs when such costs have been incurred.  We believe that continued
investment in product development is critical to attaining our goals, and
therefore expect product development expenses to increase significantly.

  Sales and Marketing Expenses.  Sales and marketing expenses consist primarily
of salaries and commissions for sales and marketing personnel, advertising and
travel and entertainment, including costs of attending trade shows.  These
expenses increased from $2.6 million for the six months ended June 30, 1998 to
$9.2 million for the six months ended June 30, 1999.  For these periods,
expenses increased by $2.4 million for advertising, $3.0 million for salaries,
commissions and benefits, and $1.2 million for travel and entertainment
expenses, including costs of attending trade shows.  This was primarily due to
increasing the number of sales and marketing personnel, increasing sales
commissions and increased expenses related to promoting our vertical trade
communities.  We expect these expenses will continue to grow significantly, as
we pursue an aggressive growth strategy and hire additional sales/marketing
personnel.

  General and Administrative Expenses.  General and administrative expenses
consist primarily of salaries and related costs for our executive,
administrative, finance, human resources and business development personnel, as
well as support services and

                                       12
<PAGE>

professional service fees. These expenses increased from $1.5 million for the
six months ended June 30, 1998 to $4.0 million (including goodwill amortization
of $610,000) for the six months ended June 30, 1999. For these periods, expenses
increased by $340,000 for general and administrative personnel, $644,000 for
depreciation and goodwill amortization, $379,000 for professional fees, $600,000
for facility costs and $537,000 for other general and administrative costs. The
increase was due primarily to increases in the number of personnel to support
and grow our business. We expect these expenses to grow as additional personnel
are hired and additional expenses are incurred. These expenses relate to growing
our business and operating as a public company.

  Interest, Net.  Interest income, net of expense of $176,000, includes income
from cash and cash equivalents and from investments and expenses related to our
financing obligations.  Interest income net of interest expense increased from
an expense of $62,000 for the six months ended June 30, 1998 to income of
$862,000 for the six months ended June 30, 1999.  The increase was primarily due
to a higher investment balance as a result of the initial public offering.
Currently, we invest the majority of our cash balances in debt instruments of
the United States Government and its agencies, and in high-quality corporate
issuers.


THREE MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998

  Revenues.  Revenues increased from $587,000 for the three months ended June
30, 1998 to $3.6 million for the three months ended June 30, 1999.  The increase
in revenues was due primarily to an increase in (i) the number of storefronts
from 833 as of June 30, 1998 to 2,094 as of June 30, 1999 (ii) the number of
vertical trade communities from 17 as of June 30, 1998 to 43 as of June 30,
1999.  Advertising revenues, including the development of the storefronts,
accounted for the majority of revenues for the periods ended June 30, 1998 and
June 30, 1999.  Barter transactions, in which the Company received advertising
or other services in exchange for advertising on its Web sites accounted for
approximately 21% of total revenues for the three months ended June 30, 1999 and
none for the three months ended June 30, 1998.  At June 30, 1999, we had
deferred revenues of $5.8 million.  We expect that advertising revenue will
continue to account for a substantial share of revenues for the foreseeable
future.

  Editorial and Operational Expenses.  These expenses increased from $690,000
for the three months ended June 30, 1998 to $1.7 million for the three months
ended June 30, 1999.  For these periods, expenses increased by $881,000 for
salaries and benefits of operating and editorial personnel and $129,000 for
depreciation, Internet connection charges, acquired content, product costs and
other related operating costs.  The increases were primarily related to the
increased number of personnel and amount of equipment required to maintain and
operate our increased number of vertical trade communities.

  Product Development Expenses  These costs increased from $385,000 for the
three months ended June 30, 1998 to $1.5 million for the three months ended June
30, 1999.  For these periods, expenses increased by $803,000 for salaries and
benefit costs and by $312,000 for consulting and equipment costs.  This increase
in expenses was due to increased staffing and the costs of enhancing the
features, content and services of our vertical trade communities, as well as
increasing the overall number of vertical trade communities.  To date, we have
charged to expense all the product development costs when such costs have been
incurred.  We believe that continued investment in product development is
critical to attaining our goals, and therefore expect product development
expenses to increase significantly.

  Sales and Marketing Expenses.  These expenses increased from $1.7 million for
the three months ended June 30, 1998 to $5.5 million for the three months ended
June 30, 1999.  For these periods, expenses increased by $1.4 million for
advertising, $1.9 million for salaries, commissions and benefits, and $500,000
for travel and entertainment expenses, including costs of attending trade shows.
This was primarily due to increasing the number of sales and marketing
personnel, increasing sales commissions and increased expenses related to
promoting our vertical trade communities.  We expect these expenses will
continue to grow significantly, as we pursue an aggressive growth strategy and
hire additional sales/marketing personnel.

General and Administrative Expenses.  These expenses increased from $719,000 for
the three months ended June 30, 1998 to $2.3 million (including goodwill
amortization of $336,000) for the three months ended June 30, 1999.  For these
periods, expenses increased by $132,000 for general and administrative
personnel, $359,000 for depreciation and goodwill amortization, $314,000 for
professional fees, $323,000 for facility costs and $453,000 for other general
and administrative costs.  The increase was primarily due to increases in the
number of personnel to support and grow our business.  We expect these expenses
to grow as additional personnel are hired and additional expenses are incurred.
These expenses relate to growing our business and operating as a public company.

                                       13
<PAGE>

  Interest, Net.  Interest income, net of expense of $7,000, includes income
from cash and cash equivalents and from investments and expenses related to our
financing obligations.  Interest income net of interest expense increased from
$14,000 for the three months ended June 30, 1998 to $715,000 for the three
months ended June 30, 1999.  The increase was primarily due to a higher
investment balance as a result of the initial public offering.  Currently, we
invest the majority of our cash balances in debt instruments of the United
States Government and its agencies, and in high-quality corporate issuers.


LIQUIDITY AND CAPITAL RESOURCES

   As of June 30, 1999, the Company's primary source of liquidity consisted of
cash and highly liquid, high-quality debt instruments. The Company's intent is
to make such funds, of which the majority have maturities of less than one year,
readily available for operating purposes. On February 17, 1999, the Company
completed its initial public offering of 4,025,000 shares of common stock,
resulting in the net proceeds of $58.3 million. At June 30, 1999, the Company
had cash and cash equivalents and investments in marketable debt securities
totaling $47.1 million compared to $5.7 million at December 31, 1998.

   We had a line of credit with a commercial bank for $500,000, which expired on
June 30, 1999.  The line of credit was not subsequently renewed.

   We have several capital leases with various financial institutions for
computer and communications equipment used in our operations with lease terms
ranging from three to five years.  Additionally, we have an insurance premium
financing agreement for our directors and officers liability insurance.  The
interest rates under the leases and insurance premium financing agreement range
from 8% to 20% and we are required to make total monthly payments of
approximately $69,000 under the terms of these agreements.

   For the six months ended June 30, 1999, cash used in operating activities was
$10.6 million.  Cash used in operating activities consisted mostly of net
operating losses and increases in accounts receivable and prepaid expenses,
partially offset by increases in deferred revenues, accrued expenses and
accounts payable.

   Net cash used in investing activities was $31.2 million for the six months
ended June 30, 1999.  Our investing activities included the purchases of
marketable securities for $27.1 million (net of sales maturities), capital
expenditures for $631,000, the acquisitions of Safetyonline, Techspex, Oillink
and ElectricNet for $1.9 million and a bridge loan to Isadra for $390,000.

   For the six months ended June 30, 1999, cash provided by financing activities
of $56.3 million was primarily due to our initial public offering which raised
net proceeds of $58.5 million and the exercise of stock options.  These amounts
were partially offset by the repayment of the $2.0 million line of credit that
was outstanding as of December 31, 1998 and principal payments on capital lease
obligations.

  On May 24, 1999, the Company and Isadra, Inc. ("Isadra") signed an agreement
and Plan of Merger to acquire all of the outstanding capital stock of Isadra for
$3.0 million cash and 500,000 shares of common stock. The closing of this
transaction is subject to regulatory and shareholder approval by Isadra's
shareholders. Isadra has developed e-commerce software for vertical industries.
In connection with this transaction, the Company has agreed to lend up to $1.0
million prior to closing of this transaction. As of June 30, 1999, the Company
has advanced Isadra $390,000. In the event that this transaction does not close,
Isadra is obligated to repay the $1.0 million loan by October 31, 1999. The
acquisition will be accounted for using the purchase method of accounting. The
estimated excess of the purchase price over the fair value of the net assets
acquired of approximately $42.1 million is expected to be allocated among
existing technology, in-process research and development and goodwill, then
amortized over their respective lives.

  On July 29, 1999, the Company acquired all of the outstanding capital stock of
LabX Technologies Inc. ("LabX") for $1.6 million in cash and 34,897 shares of
common stock valued at $3.2 million. LabX was the owner and operator of a
vertical trade community focused on electronic commerce of scientific and
labatory equipment. The Web site allows participants to communicate their buying
and selling requirements for labortory equipment. The acquisition was accounted
for as a purchase and the estimated excess of the purchase price over the fair
value of the net assets acquired of approximately $5.0 million will be recorded
as goodwill and be amortized over 36 months.

                                       14
<PAGE>

YEAR 2000 COMPLIANCE

We may realize exposure and risk if the systems on which we are dependent to
conduct our operations are not Year 2000 compliant. Our potential areas of
exposure include products purchased from third parties, information technology
including computers and software, and non-information technology including
telephone systems and other equipment used internally.

The internally developed production and operation systems for our Web sites have
recently undergone a complete re-engineering. All new programs have been
substantially tested and validated for Year 2000 compliance.

Our communications infrastructure was recently overhauled, including a full
conversion of our telephone and voicemail systems. We believe all non-
information technology equipment upon which we are materially dependent is Year
2000 compliant. Additionally, with respect to information technology, we have
resolved all Year 2000 compliance issues primarily through normal upgrades of
our software or replacements included in our capital expenditure budget and
these costs are not expected to be material to our financial position or results
of operations. Our original Year 2000 compliance cost estimate did not exceed
$250,000 and remains valid. However, such upgrades and replacements may not
successfully address our Year 2000 compliance issues as represented by our
distributors, vendors and suppliers.

We have completed our Year 2000 compliance assessment plan. This plan includes
assessing both our information and non-information technology as well as our
internally developed production and operation systems. Based on this assessment,
we believe that all non-information technology, all internally developed
production and operations systems and 95% of our technology are Year 2000
compliant. We believe that the remaining 5% of our information technology that
is not Year 2000 compliant will be addressed with the completion of our Unix
conversion in August 1999.

In addition, we have obtained verification from our key distributors, vendors
and suppliers that they are Year 2000 compliant or, if they are not fully
compliant, to provide a description of their plans to become so. We have
received certification from 100% of our distributors, vendors and suppliers that
they are complete or are in accordance with their scheduled Year 2000 compliance
plan. We will continue to monitor the status of all of our key vendors with the
intent of terminating and replacing those relationships which may jeopardize our
own Year 2000 compliance plan.

In the event that our production and operational facilities that support our Web
sites are disrupted, small portions of our Web sites may become unavailable. Our
review of our systems has shown that there is no single application that would
make our Web sites totally unavailable and we believe that we can quickly
address any difficulties that may arise.

Having completed a specific analysis of our Web-hosting facilities, all
functionalities are in compliance with our Year 2000 compliance assessment plan.
In the event that our Web-hosting facilities are not Year 2000 compliant, our
Web sites would be unavailable and we would not be able to deliver services to
our users.

We have developed a comprehensive list of contingency models to forecast the
worst-case scenario that might occur if technologies we are dependent upon are
not Year 2000 compliant and fail to operate effectively after the Year 2000. All
identified scenarios have been determined to be resolvable by an on-site staff
which will be maintained throughout the Year 2000 date changeover with the
exception of the Exodus hosting functionalities. Exodus has remitted Year 2000
certification and we are in the process of reviewing potential back-up sites
within our disaster recovery planning.

If our present efforts to address the Year 2000 compliance issues are not
successful, or if distributors, suppliers and other third parties with which we
conduct business do not successfully address such issues, our business,
operating results and financial position could be materially and adversely
affected.


FACTORS AFFECTING OUR BUSINESS CONDITION

  In addition to the other information included in this Report, the following
factors should be considered in evaluating our business and future prospects:

                                       15
<PAGE>

WE HAVE LIMITED OPERATING HISTORY UPON WHICH YOU MAY EVALUATE US

  We launched our first vertical trade community in October 1995. Accordingly,
we have a limited operating history upon which you may evaluate us. In addition,
our revenue model is evolving. Currently, our revenues are primarily generated
from the sale of advertising on our vertical trade communities. In the future,
we expect to generate revenue from multiple sources, including electronic
commerce and business services. We may not be able to sustain our current
revenues or successfully generate electronic commerce or business services
revenue. If we do not generate such revenue, our business, financial condition
and operating results will be materially adversely affected.

WE ANTICIPATE WE WILL INCUR CONTINUED LOSSES FOR THE FORESEEABLE FUTURE

  To date, we have not been profitable. We may never be profitable or, if we
become profitable, we may be unable to sustain profitability. We have incurred
significant losses since inception. We reported a net loss of $12.4 million for
the six months ended June 30, 1999.  We expect to continue to incur significant
losses for the foreseeable future. As of June 30, 1999, our accumulated deficit
was $31.7 million. Our limited operating history makes predicting our future
operating results, including operating expenses, difficult. Our revenues may not
grow or may not even continue at their current level.

WE EXPECT OUR OPERATING EXPENSES TO INCREASE

  Some of our expenses are fixed, including non-cancelable agreements, equipment
leases and real estate leases. If our revenues do not increase, we may not be
able to compensate by reducing expenses in a timely manner. In addition, we plan
to significantly increase our operating expenses to:

*  launch additional vertical trade communities;

*  increase our sales and marketing operations;

*  enter into additional sponsorship agreements;

*  broaden our customer support capabilities; and

*  pursue marketing and distribution alliances.

  Expenses will also increase due to the potential impact of goodwill and other
charges resulting from completed and future acquisitions.

  Additionally, leading Web sites, browser providers and other Internet
distribution channels may begin to charge us to provide access to our products
and services. If any of these expenses are not accompanied by increased
revenues, our business, financial condition and operating results would be
materially adversely affected.

FLUCTUATIONS IN OUR QUARTERLY RESULTS MAY ADVERSELY AFFECT OUR STOCK PRICE

  We expect that our quarterly operating results will fluctuate significantly
due to many factors, including:

*  the seasonality of our revenues;

*  the uncertain adoption of the Internet as an advertising medium;

*  potential dependence on development of the electronic commerce market;

*  intense competition;

*  our dependence on content providers;

*  license fees payable to content providers;

*  uncertain acceptance of our Internet content;

*  management of our growth; and

                                       16
<PAGE>

*  risks associated with potential acquisitions.

  Many of these factors are beyond our control.

  Due to the limited history of businesses relying on the Internet as a
commercial medium, we believe that period-to-period comparisons of our operating
results are not meaningful. Additionally, if our operating results in one or
more quarters do not meet the securities analysts' or our shareholders'
expectations, the price of our common stock could be materially adversely
affected.

MARKETING AND DISTRIBUTION ALLIANCES MAY NOT GENERATE THE EXPECTED NUMBER OF NEW
CUSTOMERS OR MAY BE TERMINATED

  We use marketing and distribution alliances with other Internet companies to
create traffic on our vertical trade communities and consequently, to generate
revenues. These marketing and distribution alliances allow us to link our
vertical trade communities to search engines such as those offered by Excite,
and on other Web sites such as AltaVista. The success of these relationships
depends on the amount of increased traffic we receive from the alliance
partners' Web sites. These arrangements may not generate the expected number of
new customers. We also cannot be assured that we will be able to renew these
marketing and distribution alliance agreements. If any of these agreements are
terminated, the traffic on our vertical trade communities could decrease or our
advertising revenues derived from the sales of advertising on co-branded pages
could decrease.  In June 1999, a three year Sponsorship Agreement with Excite,
Inc. ("Excite") entered into on June 30, 1998 was terminated.  The Company's
remaining commitment to Excite is $150,000 as of June 30, 1999.


ACQUISITIONS MAY DISRUPT OR OTHERWISE HAVE A NEGATIVE IMPACT ON OUR BUSINESS

  We have made, and plan to continue to make, investments in complementary
companies, technologies and assets. Future acquisitions are subject to the
following risks:

*  acquisitions may cause a disruption in our ongoing business, distract our
management and other resources and make it difficult to maintain our standards,
controls and procedures;

*  we may acquire companies in markets in which we have little experience;

*  we may not be able to successfully integrate the services, products and
personnel of any acquisition into our operations;

*  we may be required to incur debt or issue equity securities, which may be
dilutive to existing shareholders, to pay for acquisitions; and

*  our acquisitions may not result in any return on our investment and we may
lose our entire investment.

THE SEASONALITY OF OUR ADVERTISING REVENUES AND USAGE CAUSES OUR OVERALL
REVENUES TO BE SEASONAL

  Some of our revenue is seasonal, which causes our revenues to be lower in the
second and third quarters of each calendar year. As a result, after the
announcement of our results for the second and third quarters or each calendar
year, our stock price may be lower than at other times of the year. We
experience seasonality in our advertising revenue because advertising and media
buying tends to be highest in the first and fourth quarters of each calendar
year. We also experience seasonality in our traffic. User traffic on our
vertical trade communities and the Web sites of our partners is lower during the
summer and year-end vacation and holiday periods, when business usage of the Web
and our services typically declines.

WE CURRENTLY RELY HEAVILY ON ADVERTISING REVENUES AND IF OUR ADVERTISING
REVENUES DECLINE OUR BUSINESS WOULD BE ADVERSELY AFFECTED

  We currently rely on revenues generated from the sale of advertising on our
vertical trade communities for substantially all of our revenues. If we do not
continue to develop advertising and other sources of revenues, our business may
be materially adversely affected. Our ability to increase our advertising
revenues may depend, among other things, on many factors, including:

*  advertisers' acceptance of the Internet as a legitimate advertising medium;

                                       17
<PAGE>

*  the development of a large base of users on our vertical trade communities
who possess demographic characteristics attractive to advertisers; and

*  the expansion of our sales force.

  Additionally, for certain advertising customers the Company provides extended
payment terms over the customer's advertising contract.  To the extent that
these amounts are not collected, the Company's advertising revenues, bad debt
expense and cash flows could be adversely affected.

  Other factors could also affect our revenues. For example, widespread use of
"filter" software programs that limit access to storefront advertising from the
Internet user's browser could reduce advertising on the Internet, which would
materially adversely affect our business, financial condition and operating
results.

CHANGES IN INDUSTRY ADVERTISING RATES COULD ADVERSELY AFFECT OUR REVENUES

  Changes in industry pricing practices for advertising rates could materially
adversely affect our revenues in the future. Currently, we base our storefront
advertising rates on a variety of factors including the maturity of the
particular vertical trade community, the number of storefronts, the amount of
other advertising purchased and the length of the advertising contract. In the
future, advertising rates may be based on different parameters such as the
number of sales inquiries generated or visitors sent from our vertical trade
communities to advertisers' Web sites. These changes could materially adversely
affect our revenues.

ADOPTION OF THE INTERNET AS AN ADVERTISING MEDIUM IS UNCERTAIN

  The growth of Internet advertising requires validation of the Internet as an
effective advertising medium. This validation has yet to fully occur. Acceptance
of the Internet among advertisers will also depend on growth in the commercial
use of the Internet. If widespread commercial use of the Internet does not
develop, or if the Internet does not develop as an effective and measurable
medium for advertising, our business, financial condition and operating results
could be materially adversely affected.

  No standards have been widely accepted to measure the effectiveness of
Internet advertising. If such standards do not develop, existing advertisers may
not continue their current levels of Internet advertising and advertisers who
are not currently advertising on the Internet may be reluctant to do so. Our
business, financial condition and operating results would be adversely affected
if the market for Internet advertising fails to develop or develops slower than
expected.

WE MAY NOT DEVELOP SIGNIFICANT REVENUES FROM ELECTRONIC COMMERCE, WHICH COULD
ADVERSELY AFFECT OUR FUTURE GROWTH

  For the three months ended June 30, 1999, approximately 5% of our revenues
were generated from electronic commerce. If we do not generate increased revenue
from electronic commerce, our business, financial condition and operating
results could be materially adversely affected. To generate significant
electronic commerce revenues, we will have to continue to build or license an
electronic commerce platform.

OUR LONG-TERM SUCCESS DEPENDS ON THE DEVELOPMENT OF THE ELECTRONIC COMMERCE
MARKET, WHICH IS UNCERTAIN

  If electronic commerce does not grow or grows slower than expected, our
business will suffer. Our long-term success depends on widespread market-
acceptance of electronic commerce.

  A number of factors could prevent such acceptance, including the following:

*  electronic commerce is at an early stage and buyers may be unwilling to shift
their purchasing from traditional vendors to online vendors;

*  the necessary network infrastructure for substantial growth in usage of the
Internet may not be adequately developed;

*  increased government regulation or taxation may adversely affect the
viability of electronic commerce;

*  insufficient availability of telecommunication services or changes in
telecommunication services could result in slower response times; and

                                       18
<PAGE>

*  adverse publicity and consumer concern about the security of electronic
commerce transactions could discourage its acceptance and growth.

THERE IS INTENSE COMPETITION FOR THE INTERNET PRODUCTS AND SERVICES, ADVERTISING
AND SALES OF GOODS AND SERVICES THAT WE OFFER

  Competition for Internet products and services, advertising and electronic
commerce is intense. We expect that competition will continue to intensify.
Barriers to entry are minimal, and competitors can launch new Web sites at a
relatively low cost. We compete for a share of a customer's advertising budget
with online services and traditional off-line media, such as print publications
and trade associations. Although to date we believe there are no companies with
a larger portfolio of vertical trade communities than ours, several companies
offer competitive vertical trade communities. We expect that additional
companies will offer competing vertical trade communities on a standalone or
portfolio basis.

  Our competitors may develop Internet products or services that are superior
to, or have greater market acceptance than, our solutions. If we are unable to
compete successfully against our competitors, our business, financial condition
and operating results will be adversely affected.

  Many of our competitors have greater brand recognition and greater financial,
marketing and other resources than ours. This may place us at a disadvantage in
responding to our competitors' pricing strategies, technological advances,
advertising campaigns, strategic partnerships and other initiatives.

CONCERNS REGARDING SECURITY OF TRANSACTIONS AND TRANSMITTING CONFIDENTIAL
INFORMATION OVER THE INTERNET MAY NEGATIVELY IMPACT OUR ELECTRONIC COMMERCE
BUSINESS

  We believe that concern regarding the security of confidential information
transmitted over the Internet, such as credit card numbers, prevents many
potential customers from engaging in online transactions. If we do not add
sufficient security features to future product releases, our products may not
gain market acceptance or we may incur additional legal exposure. We have
included basic security features in some of our products to protect the privacy
and integrity of customer data, such as password requirements for access to
portions of our vertical trade communities. We do not currently use
authentication technology, which requires passwords and other information to
prevent unauthorized persons from accessing a customer's information, or
encryption, which transforms information into a "code" designed to be unreadable
by third parties, to protect confidential information such as credit card
numbers. However, we intend to license encryption technology to protect
confidential transaction data.

  Despite the measures we have taken, our infrastructure is potentially
vulnerable to physical or electronic break-ins, viruses or similar problems. If
a person circumvents our security measures, he or she could misappropriate
proprietary information or cause interruptions in our operations. Security
breaches that result in access to confidential information could damage our
reputation and expose us to a risk of loss or liability. We may be required to
make significant investments and efforts to protect against or remedy security
breaches. Additionally, as electronic commerce becomes more prevalent (and
consequently becomes the focus of our development of direct marketing products),
our customers will become more concerned about security. If we do not adequately
address these concerns, this could materially adversely affect our business,
financial condition and operating results.

WE MAY NOT HAVE OPPORTUNITIES TO ENTER INTO NEW PARTNERSHIPS OR MARKETING AND
DISTRIBUTION ALLIANCES

  We are interested in entering into additional partnerships with search engine
providers to increase traffic to our vertical trade communities, but we cannot
be assured that we will be able to enter into any new partnerships. If we are
unable to enter into new arrangements the traffic on our vertical trade
communities may not increase.

OUR BUSINESS DEPENDS ON THE GROWTH OF THE INTERNET, WHICH IS UNCERTAIN

  Our market is new and rapidly evolving. Our business would be adversely
affected if Internet usage does not continue to grow. Internet usage may be
inhibited by a number of reasons, such as:

*  infrastructure;

*  security concerns;

                                       19
<PAGE>

*  inconsistent quality of service; and

*  lack of availability of cost-effective, high-speed service.

  If Internet usage grows, the Internet infrastructure may not be able to
support the demands placed on it by this growth or its performance or
reliability may decline. In addition, Web sites may from time to time experience
interruptions in their service as a result of outages and other delays occurring
throughout the Internet network infrastructure. If these outages or delays
frequently occur in the future, Internet usage, as well as usage of our vertical
trade communities, could be adversely affected.

OUR INTERNET CONTENT MAY NOT ATTRACT USERS WITH DEMOGRAPHIC CHARACTERISTICS
VALUABLE TO OUR ADVERTISERS

  Our future success depends upon our ability to deliver compelling Internet
content about various industries that will attract users with demographic
characteristics valuable to our advertising customers. If we are unable to
develop Internet content that attracts a loyal user base possessing demographic
characteristics attractive to advertisers, it could have a material adverse
effect on our business, financial condition and operating results. In addition,
we may be unable to anticipate or respond to rapidly changing buyer preferences
to attract enough users to our vertical trade communities. Internet users can
freely navigate and instantly switch among a large number of Web sites. Many of
these Internet sites offer original content. Thus, it is difficult for us to
distinguish our content and attract users.

WE MAY NOT BE ABLE TO MAINTAIN RELATIONSHIPS WITH THE THIRD PARTIES WE DEPEND
UPON TO PROVIDE THE CONTENT FOR OUR VERTICAL TRADE COMMUNITIES, WHICH COULD
RESULT IN DECREASED TRAFFIC ON THE VERTICAL TRADE COMMUNITIES AND DECREASED
ADVERTISING REVENUE

  We rely on third parties, such as trade publications and news wires, to
provide some of the content for our vertical trade communities. It is critical
to our business that we maintain and build our existing relationships with
content providers. Many of our agreements with content providers are for initial
terms of one to two years. The content providers may choose not to renew the
agreements or may terminate the agreements early if we do not fulfill our
contractual obligations, including our payment obligations. If a significant
number of content providers terminate our agreements with them, it could result
in decreased traffic on our vertical trade communities and decreased advertising
revenue. Because our agreements with certain of our content providers are
nonexclusive, a competitor could offer content similar to or the same as ours.

THE LICENSEE FEES WE PAY TO CONTENT PROVIDERS MAY INCREASE

  If licensing fees increase, it could materially adversely affect our business,
financial condition and operating results. License fees to content providers may
increase as competition for such content increases. Our content providers may
not enter into new agreements with us on similar terms as our current
agreements.

IF WE DO NOT DEVELOP THE "VERTICALNET" BRAND AND OUR VERTICAL TRADE COMMUNITY
BRANDS OUR ADVERTISING REVENUES COULD DECREASE

  To be successful, we must establish and strengthen the brand awareness of the
"VerticalNet" brand as well as the brands associated with each individual
vertical trade community (e.g. wateronline.com). If our brand awareness is
weakened, it could decrease the attractiveness of our audiences to advertisers,
which could result in decreasing advertising revenues. We believe that brand
recognition will become more important in the future with the growing number of
Internet sites. Our brand awareness could be diluted, which could adversely
affect our business, financial condition and operating results if users do not
perceive our products and services to be of high quality.

WE ARE GROWING RAPIDLY AND EFFECTIVELY MANAGING OUR GROWTH MAY BE DIFFICULT

  We have grown and expect to continue to grow rapidly both by adding new
products and hiring new employees. This growth is likely to place a significant
strain on our resources and systems. To manage our growth, we must implement
systems and train and manage our employees.

  Many of our senior management have only recently joined us. Of our seven
executive officers, two have worked for us less than one year. We cannot assure
you that our management will be able to effectively or successfully manage our
growth.

WE MAY NOT BE ABLE TO PROTECT OUR PROPRIETARY RIGHTS AND WE MAY INFRINGE THE
PROPRIETARY RIGHTS OF OTHERS

                                       20
<PAGE>

  Proprietary rights are important to our success and our competitive position.
We have applied for several trademarks, of which only one has been issued to
date. Although we seek to protect our proprietary rights, our actions may be
inadequate to protect any trademarks and other proprietary rights or to prevent
others from claiming violations of their trademarks and other proprietary
rights. We currently have two pending trademark applications. Generally, our
domain names for our vertical trade communities are not protectable as
trademarks because they are too generic. In addition, effective copyright and
trademark protection may be unenforceable or limited in certain countries, and
the global nature of the Internet makes it impossible to control the ultimate
destination of our work. We also license content from third parties and it is
possible that we could become subject to infringement actions based upon the
content licensed from those third parties. We generally obtain representations
as to the origin and ownership of such licensed content; however, this may not
adequately protect us. Any of these claims, with or without merit, could subject
us to costly litigation and the diversion of our technical and management
personnel.

WE MAY NOT BE ABLE TO ACQUIRE OR MAINTAIN EASILY IDENTIFIABLE WEB ADDRESSES OR
PREVENT THIRD PARTIES FROM ACQUIRING WEB ADDRESSES SIMILAR TO OURS

  We currently hold various Internet Web addresses relating to our brand. These
Web addresses include wateronline.com, wirelessdesignonline.com,
pollutiononline.com and other Web addresses. We may not be able to prevent third
parties from acquiring Web addresses that are similar to our addresses, which
could materially adversely affect our business, financial condition and
operating results. The acquisition and maintenance of Web addresses generally is
regulated by governmental agencies and their designees. For example, in the
United States, the National Science Foundation has appointed Network Solutions,
Inc. as the exclusive registrar for the ".com," ".net" and ".org" generic top-
level addresses. The regulation of Web addresses in the United States and in
foreign countries is subject to change.  We may not be able to acquire or
maintain relevant Web addresses in all countries where we conduct business.
Furthermore, the relationship between regulations governing such addresses and
laws protecting trademarks is unclear.

WE MAY NOT BE ABLE TO EFFECT OUR GROWTH STRATEGY IF WE ARE NOT ABLE TO
CONSUMMATE FUTURE ACQUISITIONS

  Our acquisition strategy is subject to the risk of not being able to identify
additional suitable acquisition candidates available for sale at reasonable
prices or on reasonable terms. Additionally, regardless of whether suitable
candidates are available, we may not be able to consummate future acquisitions
for other reasons such as the availability of capital. If we are unable to
consummate future acquisitions, our business, financial condition and operating
results could be adversely affected.

WE MAY BE SUBJECT TO LEGAL LIABILITY FOR PUBLISHING OR DISTRIBUTING CONTENT OVER
THE INTERNET

  We may be subject to legal claims relating to the content in our vertical
trade communities, or the downloading and distribution of such content. For
example, persons may bring claims against us if material that is inappropriate
for viewing by young children can be accessed from our vertical trade
communities. Claims could also involve matters such as defamation, invasion of
privacy, and copyright infringement. Providers of Internet products and services
have been sued in the past, sometimes successfully, based on the content of
material. In addition, some of the content provided on our vertical trade
communities is drawn from data compiled by other parties, including governmental
and commercial sources, and we re-key the data. This data may have errors. If
our content is improperly used or if we supply incorrect information, it could
result in unexpected liability. Our insurance may not cover claims of this type,
or may not provide sufficient coverage. Our business, financial condition and
operating results could suffer a material adverse effect if costs resulting from
these claims are not covered by our insurance or exceed our coverage.

RISK OF FAILURE OF OUR COMPUTER AND COMMUNICATIONS HARDWARE SYSTEMS INCREASES
WITHOUT BACK-UP FACILITIES

  Our business depends on the efficient and uninterrupted operation of our
computer and communications hardware systems. Any system interruptions that
cause our vertical trade communities to be unavailable to Web browsers may
reduce the attractiveness of our vertical trade communities to advertisers and
could materially adversely affect our business, financial condition and
operating results. We maintain most of our computer systems in two Web-hosting
facilities in New Jersey. However, we do not have back-up or redundant
facilities for our computer systems. Interruptions could result from natural
disasters as well as power loss, telecommunications failure and similar events.

CAPACITY LIMITS ON OUR TECHNOLOGY, TRANSACTION PROCESSING SYSTEM AND NETWORK
HARDWARE AND SOFTWARE MAY BE DIFFICULT TO PROJECT AND WE MAY NOT BE ABLE TO
EXPAND AND UPGRADE OUR SYSTEMS TO MEET INCREASED USE

  As traffic in our vertical trade communities continues to increase, we must
expand and upgrade our technology, transaction processing systems and network
hardware and software. We may not be able to accurately project the rate of
increase in our

                                       21
<PAGE>

vertical trade communities. In addition, we may not be able to expand and
upgrade our systems and network hardware and software capabilities to
accommodate increased use of our vertical trade communities. If we do not
appropriately upgrade our systems and network hardware and software, our
business, financial condition and operating results will be materially adversely
affected.

OUR MARKET IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE, WHICH WE MAY NOT BE
ABLE TO KEEP UP WITH IN A COST-EFFECTIVE WAY

  Our market is characterized by rapid technological change and frequent new
product announcements. Significant technological changes could render our
existing vertical trade community technology obsolete. If we are unable to
successfully respond to these developments or do not respond in a cost-effective
way, our business, financial condition and operating results will be materially
adversely affected. To be successful, we must adapt to our rapidly changing
market by continually improving the responsiveness, services and features of our
vertical trade communities and by developing new features to meet customer
needs.  Our success will depend, in part, on our ability to license leading
technologies useful in our business, enhance our existing services and develop
new services and technology that address the needs of our customers. We will
also need to respond to technological advances and emerging industry standards
in a cost-effective and timely basis.

OUR SUCCESS IS DEPENDENT ON OUR KEY PERSONNEL WHO WE MAY NOT BE ABLE TO RETAIN
AND WE MAY NOT BE ABLE TO HIRE ENOUGH ADDITIONAL PERSONNEL TO MEET OUR HIRING
NEEDS

  We believe that our success will depend on continued employment of our senior
management team and key technical personnel. If one or more members of our
senior management team were unable or unwilling to continue in their present
positions, our business, financial condition and operating results could be
materially adversely affected. Most of our senior management do not have
employment agreements. We carry key person life insurance on certain, but not on
all, of our senior management personnel.

  Our success also depends on having a highly trained sales force and telesales
group. Our telesales group was formed recently. We will need to continue to hire
additional personnel as our business grows. A shortage in the number of trained
salespeople could limit our ability to increase sales in our existing vertical
trade communities and to sell as we launch new vertical trade communities.

  We plan to expand our employee base to manage our anticipated growth.
Competition for personnel, particularly for employees with technical expertise,
is intense. Our business, financial condition and operating results will be
materially adversely affected if we cannot hire and retain suitable personnel.

OUR SYSTEMS MAY NOT BE YEAR 2000 COMPLIANT, WHICH COULD CAUSE OUR VERTICAL TRADE
COMMUNITIES TO BE UNAVAILABLE FOR A PERIOD OF TIME AFTER JANUARY 1, 2000, WHICH
COULD IN TURN HAVE A NEGATIVE IMPACT ON OUR BUSINESS, OPERATING RESULTS AND
FINANCIAL POSITION

  We may realize exposure and risk if the systems on which we are dependent to
conduct our operations are not Year 2000 compliant. Our potential areas of
exposure include products purchased from third parties, computers, software and
other equipment used internally. If our present efforts to address the Year 2000
compliance issues are not successful, or if distributors, suppliers and other
third parties with which we conduct business do not successfully address such
issues, our business, operating results and financial position could be
materially and adversely affected.

  In the event that our Web-hosting facilities are not Year 2000 compliant, our
production Web sites would be unavailable and we would not be able to deliver
services to our users. In the event that our production and operational
facilities that support our Web sites are not Year 2000 compliant, small
portions of our Web sites may become unavailable.

THE INTERESTS OF OUR CONTROLLING SHAREHOLDERS MAY CONFLICT WITH OUR INTERESTS
AND THE INTERESTS OF OUR OTHER SHAREHOLDERS

  As a result of its stock ownership and board representation, Internet Capital
Group, LLC is in a position to affect significantly our corporate actions such
as mergers or takeover attempts in a manner that could conflict with the
interests of our public shareholders. At June 30, 1999, Internet Capital Group
owns 6,147,505 shares, or 36.3%, of common stock. Internet Capital Group also
owns warrants to purchase 119,656 shares of common stock. Two representatives of
Internet Capital Group remain on our board of directors.

SHARES ELIGIBLE FOR FUTURE SALE BY OUR CURRENT SHAREHOLDERS MAY ADVERSELY AFFECT
OUR STOCK PRICE

                                       22
<PAGE>

  If our shareholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options and warrants, in the
public market, then the market price of our common stock could fall.
Restrictions under the securities laws and certain lock-up agreements limit the
number of shares of common stock available for sale in the public market. In
connection with our recent initial public offering, the holders of 11,653,064
shares of common stock and warrants and options exercisable into an aggregate of
505,704 shares of common stock have agreed not to sell any such securities for
180 days after the initial public offering without the prior written consent of
Lehman Brothers, the lead underwriter of the initial public offering. However,
Lehman Brothers may, in its sole discretion, release all or any portion of the
securities subject to such lock-up agreements. The agreements expire on August
9, 1999.

  The holders of 10,047,346 shares of common stock and warrants to purchase
197,604 shares of common stock have demand and piggy-back registration rights.
The exercise of such rights could adversely affect the market price of our
common stock. We have also filed a registration statement to register all shares
of common stock under our stock option and employee stock purchase plans. That
registration statement was effective on February 10, 1999 and shares issued upon
exercise of stock options and employee stock purchase plans will be eligible for
resale in the public market without restriction.

ANTI-TAKEOVER PROVISIONS AND OUR RIGHT TO ISSUE PREFERRED STOCK COULD MAKE A
THIRD-PARTY ACQUISITION OF US DIFFICULT

  VerticalNet is a Pennsylvania corporation. Anti-takeover provisions of
Pennsylvania law could make it more difficult for a third party to acquire
control of us, even if such change in control would be beneficial to
shareholders. Our articles of incorporation provide that our board of directors
may issue preferred stock without shareholder approval. In addition, our bylaws
provide for a classified board, with each board member serving a staggered three
year term. The issuance of preferred stock and the existence of a classified
board could make it more difficult for a third-party to acquire us.

OUR COMMON STOCK PRICE IS LIKELY TO REMAIN HIGHLY VOLATILE

  The market price of our common stock has been and will likely continue to be
highly volatile as the stock market in general, and the market for Internet-
related and technology companies in particular, has been highly volatile.
Investors may not be able to resell their shares of our common stock following
periods of volatility because of the market's adverse reaction to such
volatility. The trading prices of many technology and Internet-related
companies' stocks have reached historical highs within the last 52 weeks and
have reflected relative valuations substantially above historical levels. During
the same period, such companies' stocks have also been highly volatile and have
recorded lows well below such historical highs. We cannot assure you that our
stock will trade at the same levels of other Internet stocks or that Internet
stocks in general will sustain their current market prices.

  Factors that could cause such volatility may include, among other things:

*  actual or anticipated variations in quarterly operating results;

*  announcements of technological innovations;

*  new sales formats or new products or services;

*  changes in financial estimates by securities analysts;

*  conditions or trends in the Internet industry;

*  changes in the market valuations of other Internet companies;

*  announcements by us or our competitors of significant acquisitions, strategic
partnerships or joint ventures;

*  capital commitments;

*  additions or departures of key personnel; and

*  sales of common stock.

  Many of these factors are beyond our control. These factors may materially
adversely affect the market price of our common stock, regardless of our
operating performance.

                                       23
<PAGE>

ITEM 3.  QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK

Interest Rate Risk

  Our exposure to market risk related changes in interest rates relates
primarily to our investment portfolio.  We invest in instruments that meet high
credit quality standards, as specified in our investment policy.  The policy
also limits the amount of credit exposure to any one issue, issuer and type of
investment.

   As of June 30, 1999, our investments consisted of  $15.9 million that were
cash equivalents,  $12.5 million having a maturity of less than one year, and
$14.4 million that had a maturity of greater than one year.  Due to the average
maturity and conservative nature of our investment portfolio, a sudden change in
interest rates would not have a material effect on the value of the portfolio.
Management estimates that had the average yield of the Company's investments
decreased by 100 basis points, the Company's interest income for the quarter
ended June 30, 1999 would have decreased by less than $119,000.  This estimate
assumes that the decrease occurred on the first day of 1999 and reduced the
yield of each investment instrument by 100 basis points.  The impact on the
Company's future interest income and future changes in investment yields will
depend largely on the gross amount of the Company's investments.

                          PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

See Note 3 to the Consolidated Financial Statements.


ITEM 2.  CHANGE IN SECURITIES AND USE OF PROCEEDS

CHANGE IN SECURITIES

During the quarter, the Company issued the following shares of its common stock:

        *  On June 14, 1999, 44,997 shares were issued pursuant to the
           acquisition of Techspex, in exchange for the outstanding capital
           stock of Techspex held by 5 shareholders;
        *  On June 9, 1999, 2,921 shares were issued to the owner of Oillink, in
           exchange for the assets and liabilities assumed; and
        *  On June 29, 1999, 10,563 shares were issued to the owner of
           ElectricNet, in exchange for the assets and

The shares were issued pursuant to an exemption by reason of Section 4(2) of the
Securities Act of 1933. These sales were made without general solicitation or
advertising. Each purchaser represented that he, she, or it was acquiring the
shares without a view to distribute and that he, she, or it was afforded an
opportunity to review all publically filed documents and to ask questions, and
receive answers from, officers of the Company.

USE OF PROCEEDS

  On February 10, 1999, the Company's Registration Statement on Form S-1
covering the Offering of 4,025,000 shares of the Company's Common Stock,
Commission file number 333-68053 was declared effective.

                                       24
<PAGE>

  The net proceeds of the Offering to the Company (after deducting the foregoing
expenses) was $58,287,314. From the effective date of the Registration Statement
to June 30, 1999, the net proceeds have been used for the following purposes:


        Construction of plant, building and facilities        $         -
        Purchase and installation of machinery
         and equipment                                                  -
        Purchase of real estate                                         -
        Acquisition of other business (including
         transaction costs)                                     1,532,500
        Repayment of indebtedness                                       -
        Working capital                                         9,662,882
        Temporary investments, including cash
         and cash equivalents                                  20,235,068
        Other purposes (for which at least $100,000
         has been used),including:
         Investments, including debt instruments
         of the United States Government and its
         agencies and in high quality corporate
         issuers                                               28,856,864
                                                              -----------
                                                              $58,287,314

  All of the foregoing payments were direct or indirect payments to persons
other than (i) directors, officers or their associates: (ii) persons owning ten
percent (10%) or more of the Company's common stock; or (iii) affiliates of the
Company


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were none.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

       (a)  Exhibits.

       The following is a list of exhibits filed as part of this Report on Form
10-Q.  Where so indicated by footnote, exhibits which were previously filed are
incorporated by reference.  For exhibits incorporated by reference, the location
of the exhibit in the previous filing is indicated parenthetically except for in
those situations where the exhibit number was the same as set forth below.

<TABLE>
<CAPTION>
  EXHIBIT
  NUMBER                                             DESCRIPTION
-----------  -------------------------------------------------------------------------------------------
<C>          <S>
        3.1  Amended and Restated Articles of Incorporation (1)
        3.2  Amended and Restated Bylaws (1)
       10.1  Amended and Restated 1996 Equity Compensation Plan*(2)
       10.2  Employment Agreement with Mark L. Walsh (1) (2)
       10.3  Employment Agreement with Barry E. Wynkoop (1) (2)
       10.4  Share Purchase Agreement dated September 1, 1998, between Boulder Interactive Technology
             Services Co. and VerticalNet, Inc. (1)
       10.5  Agreement and Plan of Merger dated September 30, 1998, among VerticalNet, Inc.,
             Informatrix Acquisition Corp., Informatrix Worldwide, Inc. and the Stockholders of
             Informatrix Worldwide, Inc. (1)
</TABLE>

                                       25
<PAGE>

<TABLE>
<CAPTION>
<S>          <C>
       10.6  Sponsorship Agreement dated June 30, 1998, between Excite!, Inc. and VerticalNet, Inc.
             (1)(3)
       10.7  Internet Services Agreement dated as of January 19, 1999 by and between Compaq Computer
             Corporation and VerticalNet, Inc. (1)
       10.8  Asset Purchase Agreement dated January 13, 1999 by and among VerticalNet, Inc., Coastal
             Video Communications Corp., Paul V. Michels and Philip P. Price (1)
       10.9  Common Stock Purchase Warrant to purchase 20,513 shares of Common Stock dated November 25,
             1998 issued to Progress Capital, Inc. (1)
      10.10  Form of Common Stock Purchase Warrant dated November 25, 1998 issued in connection with
             the Convertible Note (1)
      10.11  Form of Convertible Note dated November 25, 1998 (1)
      10.12  Series A Preferred Stock Purchase Agreement dated as of September 12, 1996 between
             Internet Capital Group, L.L.C. and Water Online, Inc. (1)
      10.13  Series D Investor Rights Agreement dated as of May 8, 1998 by and among VerticalNet, Inc.*
      10.14  Registration Rights Agreement dated as of November 25, 1998 between the Company and the
             Convertible Note Holders (1)
      10.15  Agreement of Lease between Liberty Property Limited Partnership and VerticalNet, Inc.*
      10.16  Agreement and Plan of Merger dated June 14, 1999 among the Company, TSX Acquisition Corp.,
             Techspex and the stockholders of Techspex (4)
         21  Subsidiaries (1)
        27*  Financial Data Schedule
</TABLE>


*   Filed herewith.
(1) Filed as an exhibit to the Registrant's Registration Statement on Form S-1
    (Registration No. 333-68053) filed with the Commission on November 27, 1998
    amended and incorporated herein by reference.
(2) Compensatory plans and arrangements for executives and others.
(3) Portions of this Exhibit have been omitted and filed separately with the
    Secretary of the Commission pursuant to the Registrant's Application
    Requesting Confidential Treatment under Rule 406 under the Act.
(4) Filed as an exhibit to the Registrant's report on Form 8-K dated June 29,
    1999.

        (b)    Reports on Form 8-K

  On June 29, 1999, the Company filed a report on Form 8-K, pursuant to Items 2
and 7 of such Form, regarding its acquisition of Techspex, Inc.

                                       26
<PAGE>


                                   SIGNATURES

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

Date:  August 3, 1999                 VerticalNet, Inc.
                                        (Registrant)


                                        /s/  Mark L. Walsh
                                      ----------------------------------------
                                        Mark L. Walsh
                                        President and Chief Executive Officer


                                        /s/  Gene S. Godick
                                      ----------------------------------------
                                        Gene S. Godick
                                        Chief Financial Officer


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