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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                    FORM 10-K

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

                   For the fiscal year ended December 31, 2004
                                       OR

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

                        For the transition period from to

                        Commission File Number 000-25781

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                              NET PERCEPTIONS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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

                 DELAWARE                                41-1844584
       (STATE OR OTHER JURISDICTION         (I.R.S. EMPLOYER IDENTIFICATION NO.)
    OF INCORPORATION OR ORGANIZATION)

ONE LANDMARK SQUARE, STAMFORD, CONNECTICUT                 06901
 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                (ZIP CODE)

                                 (203) 428-2040
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

       TITLE OF EACH CLASS             NAME OF EACH EXCHANGE ON WHICH REGISTERED
       -------------------             -----------------------------------------
              None                                   Not applicable

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                    COMMON STOCK, PAR VALUE $.0001 PER SHARE
                                (TITLE OF CLASS)

                         PREFERRED STOCK PURCHASE RIGHTS
                                (TITLE OF CLASS)

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

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

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

The aggregate market value of voting and non-voting stock held by non-affiliates
of the  registrant,  based upon the last sale price of the  registrant's  Common
Stock,  par value $0.0001 per share,  reported on the Nasdaq Small Cap Market on
June 30, 2004 was $14,559,511.

As  of  March  15,  2005,  there  were  outstanding  28,917,745  shares  of  the
registrant's Common Stock, $0.0001 par value.

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<PAGE>

                              NET PERCEPTIONS, INC.
                           ANNUAL REPORT ON FORM 10-K
                      FOR THE YEAR ENDED DECEMBER 31, 2004

                                TABLE OF CONTENTS


                                                                            PAGE
                                                                            ----
PART I

      ITEM 1.   BUSINESS                                                      3
      ITEM 2.   PROPERTIES                                                    8
      ITEM 3.   LEGAL PROCEEDINGS                                             8
      ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS           9

PART II

      ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
                MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES            10
      ITEM 6.   SELECTED CONSOLIDATED FINANCIAL DATA                         11
      ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                AND RESULTS OF OPERATIONS                                    12
      ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   20
      ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                  21
      ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                AND FINANCIAL DISCLOSURE                                     38
      ITEM 9A.  CONTROLS AND PROCEDURES                                      38

PART III

      ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT           38
      ITEM 11.  EXECUTIVE COMPENSATION                                       38
      ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                MANAGEMENT AND RELATED STOCKHOLDER MATTERS                   38
      ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS               39
      ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES                       39

PART IV

       ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES                      39

     SIGNATURES                                                              41

EXHIBIT INDEX                                                                42



                                       2

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FORWARD-LOOKING STATEMENTS

This report contains certain forward-looking  statements,  including information
about or related to our future results, certain projections and business trends.
Assumptions  relating  to  forward-looking  statements  involve  judgments  with
respect  to,  among  other  things,  future  economic,  competitive  and  market
conditions  and  future  business  decisions,  all of  which  are  difficult  or
impossible to predict accurately and many of which are beyond our control.  When
used in this  report,  the words  "estimate,"  "project,"  "intend,"  "believe,"
"expect"  and similar  expressions  are  intended  to  identify  forward-looking
statements.   Although  we  believe   that  our   assumptions   underlying   the
forward-looking  statements are reasonable,  any or all of the assumptions could
prove  inaccurate,  and we may  not  realize  the  results  contemplated  by the
forward-looking statements. Management decisions are subjective in many respects
and  susceptible to  interpretations  and periodic  revisions  based upon actual
experience and business developments,  the impact of which may cause us to alter
our business strategy or capital expenditure plans that may, in turn, affect our
results of operations. In light of the significant uncertainties inherent in the
forward-looking  information  included in this report, you should not regard the
inclusion of such  information  as our  representation  that we will achieve any
strategy, objectives or other plans. The forward-looking statements contained in
this report speak only as of the date of this report,  and we have no obligation
to update publicly or revise any of these forward-looking statements.

These and other  statements,  which are not historical  facts, are based largely
upon our current  expectations  and  assumptions  and are subject to a number of
risks and  uncertainties  that could cause actual  results to differ  materially
from those  contemplated  by such  forward-looking  statements.  These risks and
uncertainties  include,  among others, our planned effort to redeploy our assets
and use our  cash  and cash  equivalent  assets  to  enhance  stockholder  value
following the sale of  substantially  all of our electronic  commerce  business,
which  represented  substantially all of our revenue  generating  operations and
related assets,  and the risks and uncertainties set forth in the section headed
"Factors  That May  Affect  Our  Future  Results"  of Part I of this  report and
described in  "Management's  Discussion and Analysis of Financial  Condition and
Results of Operations" of Part II of this report.  The Company cannot  guarantee
its future performance.

References in this report to "Net  Perceptions,"  the "Company," "we," "our" and
"us" refer to Net  Perceptions,  Inc.  and,  if so  indicated  or the context so
requires,  includes our wholly owned  subsidiary  Knowledge  Discovery One, Inc.
(which we refer to in this  report as "KD1"),  prior to its merger with and into
the Company on September 9, 2003.

                                     PART I

ITEM 1.  BUSINESS

OVERVIEW

Net Perceptions was formerly a provider of software solutions designed to enable
customers to improve their marketing,  selling and merchandising  effectiveness.
We are  currently  seeking to redeploy  our cash and cash  equivalent  assets to
enhance  stockholder value and are seeking,  analyzing and evaluating  potential
acquisition  and merger  candidates.  We were  incorporated  in Delaware in July
1996.  Our  principal  corporate  office  is  located  at One  Landmark  Square,
Stamford, Connecticut 06901 and our telephone number is (203) 428-2040.

On April 21,  2004,  we  announced  the  simultaneous  signing and closing of an
investment into the Company by Olden Acquisition LLC ("Olden"),  an affiliate of
Kanders &  Company,  Inc.,  an  entity  owned and  controlled  by the  Company's
Executive Chairman,  Warren B. Kanders, for the purpose of initiating a strategy
to redeploy  our assets and use our cash and cash  equivalent  assets to enhance
stockholder value.

As part of our asset redeployment strategy, we are currently working to identify
suitable  merger or acquisition  opportunities  that can serve as a platform for
future growth.  Although we are not targeting  specific business  industries for
potential  mergers or  acquisitions,  we plan to seek businesses with cash flow,
experienced  management teams, and operations in markets offering  stability and
growth potential.

We are  attempting  to limit our cash  expenditure  rate by, among other things,
awarding executive management only non-cash deferred equity compensation at this
time. In connection with the consummation of an asset redeployment  transaction,
it is expected that  management  and/or Kanders & Company,  Inc. will be awarded
cash and/or equity  compensation  based upon the completion of the  redeployment
transaction.

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<PAGE>

BUSINESS

On March 31,  2004,  we and  Thalveg  Data Flow,  LLC,  ("Thalveg")  executed an
amendment  to the  patent  purchase  agreement  which had been  entered  into on
December 30, 2003,  and we completed the sale of our patent  portfolio  provided
for therein for a purchase  price of $1.8 million in cash.  The patent  purchase
agreement,  as amended,  includes a royalty-free,  non-exclusive license back to
us. The license is transferable,  subject to certain restrictions  applicable to
the transferee relating to revenues that can be generated by products covered by
the  license.  This  transaction  did not involve any of our other  intellectual
property rights or assets, including our proprietary software products.

In addition, on March 31, 2004 we announced that we had granted to a software
company a non-exclusive source code license to a portion of the Company's
intellectual property and sold certain technology related to a product
discontinued in 2002. The aggregate consideration for this sale and license was
$325,000 which was recognized as license revenue in the first quarter of 2004.

On April 1, 2004, we entered into an agreement with Tornago, Inc. ("Tornago"), a
corporation  formed by three former non-officer  employees,  to fulfill existing
prepaid  customer  support  obligations  in exchange for future cash payments of
approximately  $60,000.  This  amount  represented   approximately  60%  of  the
remaining  prepaid deferred  maintenance  revenue amounts under the existing end
user  contracts  when measured from April 1, 2004.  The Company will continue to
recognize  the  deferred  revenue as earned and the  payments to Tornago will be
reflected as cost of revenue. Under the terms of the agreement, Tornago received
a non-transferable  license to relevant  intellectual property solely to provide
support  and  consulting  services  to end  users  of our  products.  Under  the
agreement,  we will  receive a 15%  royalty on any  follow-on  services  sold by
Tornago through April 1, 2006. In connection with the agreement with Tornago, we
terminated the  employment of the remaining  members of our  engineering  staff,
effective  March 31, 2004, and paid  severance to these  employees in accordance
with  existing  agreements.  While we expect to continue to service our existing
customers  through  Tornago  and may  continue  to derive a  declining  level of
revenues  from  software  licenses  and  royalties,   software  maintenance  and
professional services relating to existing customers,  we are no longer directly
marketing or  supporting  our products and have not retained any employees to do
so.

On April 21, 2004,  we  announced  the  simultaneous  signing and closing of the
investment  into the Company by Olden,  for the purpose of initiating a strategy
to redeploy  our assets and use our cash and cash  equivalent  assets to enhance
stockholder  value.  We  issued  and  sold to  Olden a 2%  ten-year  Convertible
Subordinated  Note, which is convertible  after one year (or earlier upon a call
by the Company and in certain  other  circumstances)  at a  conversion  price of
$0.45  per  share  of  Company  common  stock  into  approximately  19.9% of the
outstanding common equity of the Company as of the closing date. Proceeds to the
Company  from  this  transaction  totaled   approximately  $2.5  million  before
transaction costs of $288,000.

As previously  disclosed in our Report on Form 8-K filed with the Securities and
Exchange  Commission on September 1, 2004, our securities were delisted from the
Nasdaq  SmallCap  Market  effective with the opening of business on September 3,
2004.   The  delisting   followed  a   determination   by  the  Nasdaq   Listing
Qualifications  Panel  that the  Company  was a  "public  shell"  and  should be
delisted due to policy concerns raised under Nasdaq  Marketplace  Rules 4300 and
4300(a)(3).  The  Company's  common  stock  is now  quoted  on the  Pink  Sheets
Electronic Quotation Service under the symbol "NETP.PK."

PRIOR BUSINESS

We previously  developed and marketed software  solutions designed to enable our
customers to interact more  intelligently  with their  customers.  Our solutions
integrated and analyzed  information  about customers,  products and transaction
activity to generate  specific actions our customers could take to improve their
marketing,  selling and  merchandising  effectiveness.  We combined our software
products  with  industry   expertise   and   professional   services  to  create
industry-specific  solutions  that were designed to integrate with and add value
to  existing  custom  or  purchased  systems,  including  customer  relationship
management, or CRM, systems and processes.

Our initial  product was shipped in January 1997.  From  inception  through late
2000, we expanded our  organization by hiring  personnel in key areas. Our total
number of employees was 315 on December 31, 2000. During 2001, 2002 and 2003, we
instituted  certain  restructuring  plans to align our cost  structure  with our
business  outlook  and  general  economic  conditions.  In  connection  with our
restructuring activities,  our total number of employees was reduced to 98 as of
December 31, 2001, 52 as of December 31, 2002, and nine as of December 31, 2003.
As of  December  31,  2004,  the  Company  has four  employees,  two of whom are
executive officers.

We have sustained losses on an annual basis since inception.  As of December 31,
2004, we had an accumulated deficit of $222.2 million.  Our net loss was $61,000
for the year ended December 31, 2004,  compared to a net loss of $5.3 million in
the  prior  year.  The  losses  referred  to in  this  paragraph  resulted  from
significant  costs incurred  related to  restructuring  activities,  significant


                                       4
<PAGE>

costs for outside  professional  services  related to the exploration of various
strategic  alternatives  for the  Company,  as well as a decline in our revenues
since the third quarter of 2000.

In February 2003, we engaged U.S.  Bancorp Piper Jaffray to act as our financial
advisor in connection  with the potential  sale of the Company.  On September 2,
2003, we paid a return of capital cash distribution to stockholders of record as
of August 18, 2003 in the amount of $1.50 per share or a total of  approximately
$42.2 million, which was reflected as a reduction to additional paid-in capital.

On October 21, 2003, we announced  that our board of directors  had  unanimously
approved a Plan of Complete Liquidation and Dissolution, referred to as the plan
of  liquidation.  The  plan  of  liquidation  was  submitted  to  the  Company's
stockholders  for  approval and  adoption at a special  meeting of  stockholders
originally  scheduled for March 12, 2004, which was adjourned and was reconvened
on March 23, 2004. At the reconvened  special  meeting,  the proposal to approve
and adopt the plan of  liquidation  did not  receive the  affirmative  vote of a
majority of the 28,145,338  shares of common stock  outstanding as of the record
date for the special meeting required to approve the proposal. Of the 15,773,134
shares  represented  in person or by proxy at the  reconvened  special  meeting,
13,810,233 shares voted in favor of the proposal, 1,925,694 shares voted against
and 37,207 shares abstained.

EMPLOYEES

All of our employees are based in the United States. As of December 31, 2004, we
had four  employees,  two of whom are  executive  officers,  and all of whom are
located in our  Stamford,  Connecticut  headquarters.  None of our employees are
represented  by  a  labor  union  or  are  subject  to a  collective  bargaining
agreement.  We  have  not  experienced  any  work  stoppages  and  consider  our
relationship with our employees to be good.

                   FACTORS THAT MAY AFFECT OUR FUTURE RESULTS

In  addition  to other  information  in this  annual  report on Form  10-K,  the
following risk factors should be carefully considered in evaluating our business
because such factors may have a significant  impact on our  business,  operating
results, liquidity and financial condition. However, the risks and uncertainties
described  below  are  not  the  only  ones  we  face.   Additional   risks  and
uncertainties not presently known to us or which are currently deemed immaterial
may also impair our financial  condition.  If any of these risks actually occur,
our financial condition could be materially adversely affected.

                        RISKS RELATED TO NET PERCEPTIONS

WE CONTINUE TO INCUR OPERATING LOSSES.

We are not profitable and have incurred an accumulated deficit of $222.2 million
from our inception  through  December 31, 2004. Our current  ability to generate
revenues and to achieve  profitability and positive cash flow will depend on our
ability to redeploy  our assets and use our cash and cash  equivalent  assets to
reposition  our  business  whether  it is through a merger or  acquisition.  Our
ability to become profitable will depend, among other things, (i) on our success
in identifying and acquiring a new operating  business,  (ii) on our development
of new products or services relating to our new operating business, and (iii) on
our success in distributing and marketing our new products or services.

WE MAY BE UNABLE TO REDEPLOY OUR ASSETS SUCCESSFULLY.

As part of our  strategy  to limit  operating  losses and enable the  Company to
redeploy  its  assets  and use its cash and cash  equivalent  assets to  enhance
stockholder  value,  we  have  sold  our  electronic  commerce  business,  which
represented  substantially all of our revenue-generating  operations and related
assets.  We are pursuing a strategy of identifying  suitable merger partners and
acquisition  candidates that will serve as a platform  company.  Although we are
not targeting specific business industries for potential  acquisitions,  we plan
to seek businesses with cash flow,  experienced management teams, and operations
in markets offering stability and growth opportunities. We may not be successful
in  acquiring  such a business or in  operating  any  business  that we acquire.
Failure  to  redeploy  successfully  will  result  in our  inability  to  become
profitable.

Even if we identify an appropriate acquisition opportunity,  we may be unable to
negotiate  favorable  terms for that  acquisition.  We may be unable to  select,
manage  or  absorb  or  integrate  any  future  acquisitions  successfully.  Any
acquisition, even if effectively integrated, may not benefit our stockholders.


                                       5
<PAGE>

Any  acquisitions  that we attempt or  complete  may  involve a number of unique
risks including:  (i) executing  successful due diligence;  (ii) our exposure to
unforeseen liabilities of acquired companies; and (iii) our ability to integrate
and absorb the acquired company successfully.  We may be unable to address these
problems successfully.

WE WILL INCUR  SIGNIFICANT  COSTS IN CONNECTION  WITH OUR EVALUATION OF SUITABLE
MERGER PARTNERS AND ACQUISITION CANDIDATES.

As part of our plan to redeploy our assets, our management is seeking, analyzing
and evaluating potential acquisition and merger candidates. We have incurred and
will continue to incur  significant  costs,  such as due diligence and legal and
other  professional  fees and expenses,  as part of these  redeployment  efforts
during due diligence and negotiation of potential acquisitions.  Notwithstanding
these  efforts  and  expenditures,  we cannot  give any  assurance  that we will
identify an appropriate acquisition opportunity in the near term, or at all.

WE WILL LIKELY HAVE NO OPERATING  HISTORY IN OUR NEW LINE OF BUSINESS,  WHICH IS
YET TO BE DETERMINED,  AND THEREFORE WE WILL BE SUBJECT TO THE RISKS INHERENT IN
ESTABLISHING A NEW BUSINESS.

We have not  identified  what our new line of business  will be;  therefore,  we
cannot fully  describe  the specific  risks  presented by such  business.  It is
likely  that we will have had no  operating  history in the new line of business
and it is possible that the target company may have a limited  operating history
in  its  business.  Accordingly,  there  can be no  assurance  that  our  future
operations will generate  operating or net income,  and as such our success will
be subject to the risks, expenses,  problems and delays inherent in establishing
a new  line of  business  for the  Company.  The  ultimate  success  of such new
business cannot be assured.

WE MAY BE UNABLE TO REALIZE THE BENEFITS OF OUR NET  OPERATING  LOSS ("NOL") AND
TAX CREDIT CARRYFORWARDS.

NOLs may be carried forward to offset federal and state taxable income in future
years and  eliminate  income taxes  otherwise  payable on such  taxable  income,
subject to certain  adjustments.  Based on current federal  corporate income tax
rates, our NOL and other  carryforwards  could provide a benefit to us, if fully
utilized,  of significant future tax savings.  However, our ability to use these
tax  benefits  in future  years will  depend  upon the  amount of our  otherwise
taxable income.  If we do not have sufficient  taxable income in future years to
use the tax benefits  before they expire,  we will lose the benefit of these NOL
carryforwards  permanently.  Consequently,  our ability to use the tax  benefits
associated with our substantial NOL will depend  significantly on our success in
identifying  suitable merger partners and/or  acquisition  candidates,  and once
identified,  successfully  consummate a merger with and/or  acquisition of these
candidates.

Additionally,  if  we  underwent  an  ownership  change,  the  NOL  carryforward
limitations  would  impose an annual  limit on the amount of the taxable  income
that may be offset by our NOL  generated  prior to the ownership  change.  If an
ownership change were to occur, we may be unable to use a significant portion of
our NOL to offset taxable income.  In general,  an ownership change occurs when,
as of any testing date,  the  aggregate of the increase in percentage  points of
the total  amount of a  corporation's  stock owned by  "5-percent  stockholders"
within  the  meaning  of  the  NOL  carryforward  limitations  whose  percentage
ownership of the stock has increased as of such date over the lowest  percentage
of the stock owned by each such  "5-percent  stockholder" at any time during the
three-year  period  preceding  such date is more than 50 percentage  points.  In
general,  persons  who own 5% or more of a  corporation's  stock are  "5-percent
stockholders,"  and all other  persons  who own less than 5% of a  corporation's
stock are treated,  together, as a single, public group "5-percent stockholder,"
regardless of whether they own an aggregate of 5% of a corporation's stock.

The amount of NOL and tax credit carryforwards that we have claimed has not been
audited or otherwise  validated by the U.S.  Internal Revenue  Service.  The IRS
could challenge our  calculation of the amount of our NOL or our  determinations
as to when a prior change in  ownership  occurred  and other  provisions  of the
Internal  Revenue Code, may limit our ability to carry forward our NOL to offset
taxable income in future years.  If the IRS was  successful  with respect to any
such challenge,  the potential tax benefit of the NOL  carryforwards to us could
be substantially reduced.

WE COULD BE REQUIRED TO REGISTER AS AN INVESTMENT  COMPANY UNDER THE  INVESTMENT
COMPANY ACT OF 1940, WHICH COULD  SIGNIFICANTLY LIMIT OUR ABILITY TO OPERATE AND
ACQUIRE AN ESTABLISHED BUSINESS.

The  Investment  Company Act of 1940 (the  "Investment  Company  Act")  requires
registration, as an investment company, for companies that are engaged primarily


                                       6
<PAGE>

in  the  business  of  investing,   reinvesting,   owning,  holding  or  trading
securities.  We have  sought  to  qualify  for an  exclusion  from  registration
including  the  exclusion  available to a company that does not own  "investment
securities"  with a value  exceeding  40% of the value of its total assets on an
unconsolidated  basis,  excluding  government  securities  and cash items.  This
exclusion,  however, could be disadvantageous to us and/or our stockholders.  If
we were unable to rely on an exclusion under the Investment Company Act and were
deemed to be an investment company under the Investment Company Act, we would be
forced to comply  with  substantive  requirements  of  Investment  Company  Act,
including:  (i)  limitations on our ability to borrow;  (ii)  limitations on our
capital structure; (iii) restrictions on acquisitions of interests in associated
companies;  (iv) prohibitions on transactions with affiliates;  (v) restrictions
on specific investments; (vi) limitations on our ability to issue stock options;
and (vii) compliance with reporting,  record keeping,  voting,  proxy disclosure
and other rules and  regulations.  Registration  as an investment  company would
subject us to restrictions that would significantly impair our ability to pursue
our  fundamental  business  strategy of acquiring and  operating an  established
business.  In the event the Securities  and Exchange  Commission or a court took
the position that we were an investment  company,  our failure to register as an
investment company would not only raise the possibility of an enforcement action
by the Securities and Exchange Commission or an adverse judgment by a court, but
also could threaten the validity of corporate actions and contracts entered into
by us during the period we were deemed to be an unregistered investment company.
Moreover,  the  Securities  and Exchange  Commission  could seek an  enforcement
action  against us to the extent we were not in compliance  with the  Investment
Company Act during any point in time.

                        RISKS RELATED TO OUR COMMON STOCK

OUR COMMON STOCK IS NO LONGER LISTED ON THE NASDAQ SMALL CAP MARKET

On  September 3, 2004,  our common stock was delisted  from the Nasdaq Small Cap
Market.   The  delisting   followed  a  determination   by  the  Nasdaq  Listing
Qualifications  Panel  that the  Company  was a  "public  shell"  and  should be
delisted due to policy concerns raised under Nasdaq  Marketplace  Rules 4300 and
4300(a)(3).  Additional information concerning the delisting is set forth in the
Company's  Report on Form 8-K filed with the Securities and Exchange  Commission
on  September  1, 2004.  The  Company's  common  stock is now quoted on the Pink
Sheets  Electronic  Quotation Service under the symbol "NETP.PK." As a result of
the  delisting,  stockholders  may find it more  difficult  to dispose of, or to
obtain accurate quotations as to the price of our common stock, the liquidity of
our stock may be reduced,  making it difficult for a stockholder  to buy or sell
our stock at  competitive  market  prices or at all,  we may lose  support  from
institutional  investors  and/or market  makers that  currently buy and sell our
stock and the price of our common stock could decline.

WE ARE VULNERABLE TO VOLATILE MARKET CONDITIONS.

The market prices of our common stock have been highly volatile.  The market has
from time to time experienced significant price and volume fluctuations that are
unrelated to the operating performance of particular  companies.  Please see the
table  contained in Item 5 of this Report which sets forth the range of high and
low closing prices of our common stock for the calendar quarters indicated.

WE DO NOT EXPECT TO PAY DIVIDENDS ON OUR COMMON STOCK IN THE FORESEEABLE FUTURE.

Although our stockholders may receive  dividends if, as and when declared by our
Board of Directors, we do not intend to pay dividends on our common stock in the
foreseeable future.  Therefore,  you should not purchase our common stock if you
need immediate or future income by way of dividends from your investment.

OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AUTHORIZES THE ISSUANCE OF
SHARES OF PREFERRED STOCK.

Our Amended and Restated Certificate of Incorporation provides that our Board of
Directors  will be  authorized  to  issue  from  time to time,  without  further
stockholder  approval,  up to 5,000  shares  of  preferred  stock in one or more
series  and to fix or  alter  the  designations,  preferences,  rights  and  any
qualifications,  limitations  or  restrictions  of the  shares  of each  series,
including the dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption,  including  sinking fund  provisions,  redemption  price or
prices, liquidation preferences and the number of shares constituting any series
or  designations  of any  series.  Such  shares of  preferred  stock  could have
preferences  over our common  stock with respect to  dividends  and  liquidation
rights. We may issue additional  preferred stock in ways, which may delay, defer
or prevent a change in  control of the  Company  without  further  action by our
stockholders.  Such shares of preferred  stock may be issued with voting  rights
that may adversely affect the voting power of the holders of our common stock by
increasing  the number of outstanding  shares having voting  rights,  and by the
creation of class or series voting rights.


                                       7
<PAGE>

WE MAY ISSUE A  SUBSTANTIAL  AMOUNT OF EQUITY  AND CASH  COMPENSATION  AND OTHER
SHARES OF OUR COMMON  STOCK IN THE FUTURE  WHICH  COULD  CAUSE  DILUTION  TO OLD
INVESTORS AND OTHERWISE ADVERSELY AFFECT OUR STOCK PRICE.

A key  element of our growth  strategy is to make  acquisitions.  As part of our
acquisition  strategy,  we may  issue  additional  shares  of  common  stock  as
consideration  for  such  acquisitions.   In  addition,  we  have  limited  cash
compensation to management  pending  consummation of a redeployment  transaction
and expect to award cash and equity  compensation  to  management  in connection
with such a transaction.  These issuances  could be  significant.  To the extent
that we make  acquisitions and issue our shares of common stock as consideration
or as  compensation  to management,  your equity interest in us will be diluted.
Any such issuance will also increase the number of outstanding  shares of common
stock that will be eligible for sale in the future.  Persons receiving shares of
our common stock in  connection  with these  acquisitions  may be more likely to
sell off their common stock,  which may influence the price of our common stock.
In addition,  the  potential  issuance of additional  shares in connection  with
anticipated  acquisitions could lessen demand for our common stock and result in
a lower price than might otherwise be obtained. We may issue common stock in the
future for other purposes as well, including in connection with financings,  for
compensation  purposes,  in connection with strategic  transactions or for other
purposes.  Cash payments as  compensation  or otherwise  can also  significantly
diminish  cash that is  available  to the Company for working  capital and other
purposes, which could have a material adverse effect on the Company.

ITEM 2. PROPERTIES

Our corporate headquarters is currently located in Stamford,  Connecticut, where
we occupy space made available to us by Kanders & Company, Inc., an entity owned
and  controlled by the Company's  Executive  Chairman,  Warren B. Kanders.  This
arrangement is subject to termination at any time.

The Company  believes that its current  facilities are suitable and adequate for
its present and anticipated near-term needs.

ITEM 3. LEGAL PROCEEDINGS

Except as set forth below,  we are not a party to nor are any of our  properties
subject to any pending legal,  administrative or judicial proceedings other than
routine litigation incidental to our business.

Initial and Follow-On Public Offering Securities Litigation

On  November  2, 2001,  Timothy J. Fox filed a purported  class  action  lawsuit
against the Company,  FleetBoston Robertson Stephens, Inc., the lead underwriter
of the Company's April 1999 initial public offering,  several other underwriters
who participated in the initial public offering, Steven J. Snyder, the Company's
then  president  and  chief  executive  officer,  and  Thomas M.  Donnelly,  the
Company's  then chief  financial  officer.  The  lawsuit was filed in the United
States  District  Court  for the  Southern  District  of New  York  and has been
assigned  to  the  judge  who  is  also  the  pretrial  coordinating  judge  for
substantially similar lawsuits involving more than 300 other issuers. An amended
class action  complaint,  captioned In re Net  Perceptions,  Inc. Initial Public
Offering Securities Litigation, 01 Civ. 9675 (SAS), was filed on April 22, 2002,
expanding  the  basis for the  action to  include  allegations  relating  to the
Company's March 2000 follow-on  public offering in addition to those relating to
its initial public offering.

The amended  complaint  generally  alleges that the defendants  violated federal
securities  laws by not  disclosing  certain  actions  taken by the  underwriter
defendants  in  connection  with  the  Company's  initial  public  offering  and
follow-on public offering.  The amended complaint alleges  specifically that the
underwriter  defendants,  with the Company's direct  participation and agreement
and without  disclosure  thereof,  conspired to and did raise and increase their
underwriters'  compensation  and the market prices of the Company's common stock
following its initial public  offering and in its follow-on  public  offering by
requiring their  customers,  in exchange for receiving  allocations of shares of
the Company's common stock sold in its initial public offering, to pay excessive
commissions on transactions in other securities,  to purchase  additional shares
of the Company's  common stock in the initial  public  offering  aftermarket  at
pre-determined  prices above the initial public offering price,  and to purchase
shares of the  Company's  common stock in its  follow-on  public  offering.  The
amended  complaint seeks  unspecified  monetary  damages and  certification of a
plaintiff  class  consisting  of all persons who acquired the  Company's  common
stock between  April 22, 1999 and December 6, 2000.  The  plaintiffs  have since
agreed to dismiss  the  claims  against  Mr.  Snyder  and Mr.  Donnelly  without
prejudice,  in return for their  agreement  to toll any  statute of  limitations
applicable  to those  claims;  and  those  claims  have been  dismissed  without
prejudice.  On July 15, 2002, all of the issuer  defendants filed a joint motion
to dismiss the  plaintiffs'  claims in all of the related cases. On February 19,
2003, the court ruled against the Company on this motion.


                                       8
<PAGE>

The parties  have  negotiated  a  settlement  that is subject to approval by the
Court. On February 15, 2005, the Court issued an Opinion and Order preliminarily
approving the settlement, provided that the defendants and plaintiffs agree to a
modification  narrowing  the scope of the bar  order  set forth in the  original
settlement agreement.

The Company  believes that the allegations  against it are without merit.  After
reviewing  this   proceeding   (including  the  probable   outcome,   reasonably
anticipated costs and expenses,  availability and limits of insurance  coverage)
the Company  believes  the outcome of this  proceeding  will not have a material
adverse effect on our liquidity,  financial  condition or results of operations.
However,  the results of complex legal proceedings are difficult to predict.  An
unfavorable  resolution of the proceeding  could adversely  affect the Company's
business, results of operations, liquidity or financial condition.

Blakstad Litigation

On October 29, 2003,  a purported  class  action  lawsuit was filed  against the
Company,  its current  directors and unnamed  defendants in the District  Court,
Fourth  Judicial  District,  of the  State  of  Minnesota,  County  of  Hennepin
captioned Don Blakstad,  on Behalf of Himself and All others Similarly Situated,
vs. Net Perceptions,  Inc., John F. Kennedy,  Ann L. Winblad,  John T. Riedl and
Does 1-25,  inclusive,  File No. 03-17820.  The complaint  alleged,  among other
things,  that defendants  breached their fiduciary duties of loyalty,  due care,
independence,  good faith and fair  dealing  and  sought to enjoin the  proposed
liquidation  of the Company and to recover  reasonable  attorneys'  and experts'
fees.  On November 24, 2003,  defendants  filed a motion to dismiss the lawsuit,
and by order  dated  March 8,  2004,  the court  dismissed  the  complaint  with
prejudice.  By letter dated March 9, 2004,  the plaintiff  requested the court's
permission to file a motion to reconsider the decision  dismissing the complaint
with prejudice.  On March 18, 2004, the court denied the plaintiff's request. On
April 9, 2004, the plaintiff  filed a notice of appeal and statement of the case
with the Court of  Appeals of the State of  Minnesota  and,  on April 22,  2004,
defendants filed their statement of the case with the Court of Appeals.  In June
2004 plaintiffs  informed  counsel for defendants of their desire to dismiss the
appeal,  and, on June 3, 2004,  the parties  submitted to the Court of Appeals a
stipulation of voluntary  dismissal  "without any right to further  appeal." The
Court of Appeals dismissed the appeal by order dated June 8, 2004.

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

No  matters  were  submitted  to a vote of  security  holders  during the fourth
quarter of the fiscal year covered by this report.



                                       9
<PAGE>

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S  COMMON EQUITY,  RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock was previously  listed on the Nasdaq National Market System and
the Nasdaq  SmallCap  Market until  September 3, 2004, when our common stock was
delisted from the Nasdaq SmallCap Market following a determination by the Nasdaq
Listing Qualifications Panel that the Company was a "public shell" and should be
delisted due to policy concerns raised under Nasdaq  Marketplace  Rules 4300 and
4300(a)(3).  Additional information concerning the delisting is set forth in the
Company's  Report on Form 8-K filed with the Securities and Exchange  Commission
on  September  1, 2004.  The  Company's  common  stock is now quoted on the Pink
Sheets Electronic Quotation Service under the symbol "NETP.PK".

The  following  table sets forth,  for the indicated  periods,  the high and low
closing  sales  prices for our common  stock as reported by the Nasdaq  National
Market System and the Nasdaq  SmallCap Market prior to September 3, 2004 and the
range of high and low bids for our common  stock as  reported by the Pink Sheets
Electronic  Quotation  Service on and after September 3, 2004. The quotes listed
below on and after September 3, 2004 reflect inter-dealer prices or transactions
solely between  market-makers,  without retail mark-up,  mark-down or commission
and may not represent actual transactions.

                                                    PRICE RANGE OF
                                                     COMMON STOCK
                                                    --------------
                                                     HIGH     LOW
                                                    -----    -----
                 2003
                 First Quarter                      $1.56    $1.22
                 Second Quarter                     $1.68    $1.41
                 Third Quarter                      $1.88    $0.36
                 Fourth Quarter                     $0.51    $0.32

                 2004
                 First Quarter                      $0.43    $0.39
                 Second Quarter                     $1.03    $0.41
                 Third Quarter                      $0.92    $0.68
                 Fourth Quarter                     $0.91    $0.72

                 2005
                 First Quarter                      $0.86    $0.70
                 (through March 15, 2005)

As of March 15, 2005, there were 217 stockholders of record  registered with our
transfer agent,  Wells Fargo Bank Minnesota,  N.A.  Because many of these shares
are held by brokers and other  institutions  on behalf of  stockholders,  we are
unable to estimate the total number of  stockholders  represented  by the record
holders.

DIVIDENDS

We currently  anticipate  that we will retain our cash and all potential  future
earnings for use in our business and do not anticipate that we will pay any cash
dividends in the foreseeable future. The payment of any future dividends will be
at the  discretion of our Board of Directors  and will depend upon,  among other
things,  our  results of  operations,  capital  requirements,  general  business
conditions,  contractual restrictions on payment of dividends, if any, legal and
regulatory restrictions on the payment of dividends, and other factors our Board
of Directors deems relevant.


                                       10
<PAGE>

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

In the tables below we provide you with selected  historical  financial  data of
the Company,  which should be read in conjunction with the financial  statements
and the notes to the  financial  statements  and  "Management's  Discussion  and
Analysis of Financial  Condition and Results of Operations,"  which are included
elsewhere in this report. The statement of operations data for each of the years
in the periods ended  December 31, 2004,  2003,  and 2002, and the balance sheet
data at December  31, 2004 and 2003,  are derived  from,  and are  qualified  by
reference  to, the  audited  financial  statements  included  elsewhere  in this
report.  The statement of operations  data for the years ended December 31, 2001
and 2000 and the balance  sheet data at  December  31, 2001 and 2000 are derived
from audited  financial  statements  not included in this report,  and have been
reclassified   to  conform  with  current   period   presentation   relating  to
reimbursable expenses that were previously recorded net to cost of revenue.

                      FIVE YEAR CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                       YEAR ENDED DECEMBER 31,
                                                                       -----------------------
                                                        2004         2003        2002          2001         2000
                                                        ----         ----        ----          ----         ----
                                                                (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                  <C>          <C>          <C>          <C>          <C>
STATEMENT OF  OPERATIONS DATA
Revenues:
  Product                                            $     405    $     962    $   1,703    $   2,979    $  25,087
  Service and maintenance                                  522        1,622        3,541        7,535       12,342
                                                     ---------    ---------    ---------    ---------    ---------
   Total revenues                                          927        2,584        5,244       10,514       37,429
                                                     ---------    ---------    ---------    ---------    ---------
Cost of revenues:
  Product                                                   --           12          292          943        1,807
  Service and maintenance                                  220          755        2,101        5,143       11,532
                                                     ---------    ---------    ---------    ---------    ---------
   Total cost of revenues                                  220          767        2,393        6,086       13,339
                                                     ---------    ---------    ---------    ---------    ---------
Gross margin                                               707        1,817        2,851        4,428       24,090
                                                     ---------    ---------    ---------    ---------    ---------
Operating expenses:
  Sales and marketing                                       --        1,347        4,550       15,215       25,589
  Research and development                                 250        2,112        5,933       10,572       19,354
  General and administrative                             2,428        2,261        2,819        6,198       11,146
  Lease abandonment expense                                 --           --           --          225        1,250
  Restructuring related charges and impairments(1)          (7)       2,251          768       15,551           --

  Gain on sale of patents                               (1,800)          --           --           --           --
  Amortization of intangibles                               --           --          110        9,650       25,394
  Impairment of goodwill and other intangibles(2)           --           --        6,546       75,298           --
                                                     ---------    ---------    ---------    ---------    ---------
   Total operating expenses                                871        7,971       20,726      132,709       82,733
                                                     ---------    ---------    ---------    ---------    ---------
Loss from operations                                      (164)      (6,154)     (17,875)    (128,281)     (58,643)
Other income, net                                          103          861        1,141        4,483        5,096
                                                     ---------    ---------    ---------    ---------    ---------
Net loss                                             $     (61)   $  (5,293)   $ (16,734)   $(123,798)   $ (53,547)
                                                     =========    =========    =========    =========    =========
Basic and diluted net loss per share                 $    0.00    $   (0.19)   $   (0.61)   $   (4.59)   $   (2.12)
                                                     =========    =========    =========    =========    =========
Shares used in computing basic and diluted net
  loss per share                                        28,574       27,683       27,216       26,951       25,209
                                                     =========    =========    =========    =========    =========
Cash distributions paid (3)                          $      --    $    1.50    $      --    $      --    $      --
BALANCE SHEET DATA
Cash, cash equivalents and short-term investments    $  14,444    $  11,932    $  62,959    $  73,605    $  68,880
Working capital                                         14,306       11,600       57,031       64,321       66,364
Total assets                                            14,723       12,803       65,796       88,878      211,834
Long-term liabilities, net of current portion            2,517           --          510          577        1,951
Total stockholders' equity                              12,028       11,635       58,342       75,407      198,518
</TABLE>

(1) In 2001,  we  incurred  a  restructuring  related  charge of $15.6  million,
    consisting  of charges  relating  to  facility  consolidation  and  employee
    terminations,  losses and  estimated  losses on the  disposal  of assets and
    other  restructuring  related charges.  In 2002, we incurred a restructuring
    related  charge of  $768,000  consisting  primarily  of charges  relating to
    employee  terminations.  In 2003, we incurred a restructuring related charge
    of $2.3 million,  consisting of charges relating to facility  consolidation,
    lease terminations and employee terminations. See Note 5 to the Consolidated
    Financial Statements.

(2) At March 31, 2001, we performed an impairment assessment of the goodwill and
    other  intangible  assets  recorded in connection  with the  acquisition  of
    Knowledge  Discovery  One,  Inc.  ("KD1").  As a result  of our  review,  we
    recorded a $75.3  million  impairment  charge to reduce  goodwill  and other
    intangible  assets to their estimated fair values.  At December 31, 2002, we
    performed an additional  impairment assessment of the remaining goodwill and
    other intangible  assets recorded in connection with the acquisition of KD1.


                                       11
<PAGE>

    As a result of our review,  we recorded a $6.5 million  impairment charge to
    reduce goodwill and other intangible assets to zero value. See Note 4 to the
    Consolidated Financial Statements.

(3) On  September  2, 2003,  we paid a return of capital  cash  distribution  to
    stockholders  of  record as of August  18,  2003 in the  amount of $1.50 per
    share. See Note 8 to the Consolidated Financial Statements.

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

OVERVIEW

AS PART OF OUR  PREVIOUSLY  ANNOUNCED  STRATEGY  TO LIMIT  OPERATING  LOSSES AND
ENABLE THE COMPANY TO REDEPLOY  ITS ASSETS AND USE ITS CASH AND CASH  EQUIVALENT
ASSETS  TO  ENHANCE   STOCKHOLDER  VALUE,  ALL  OF  OUR  OPERATIONS  OTHER  THAN
ADMINISTRATIVE FUNCTIONS HAVE BEEN TERMINATED.  THE INFORMATION APPEARING BELOW,
WHICH RELATES TO PRIOR PERIODS,  IS THEREFORE NOT INDICATIVE OF THE RESULTS THAT
MAY BE EXPECTED FOR ANY  SUBSEQUENT  PERIODS.  THE YEAR ENDED  DECEMBER 31, 2004
PRIMARILY REFLECTS, AND FUTURE PERIODS PRIOR TO A REDEPLOYMENT OF OUR ASSETS ARE
EXPECTED  TO  PRIMARILY  REFLECT,   GENERAL  AND  ADMINISTRATIVE   EXPENSES  AND
TRANSACTION  EXPENSES  ASSOCIATED  WITH  THE  CONTINUING  ADMINISTRATION  OF THE
COMPANY AND ITS EFFORTS TO REDEPLOY ITS ASSETS.

The following  discussion and analysis  should be read in  conjunction  with the
consolidated  financial statements and notes thereto appearing elsewhere in this
report.

We were  incorporated  in  Delaware in July 1996,  and our  initial  product was
shipped in January  1997.  From  inception  through  late 2000,  we expanded our
organization by hiring personnel in key areas. Our total number of employees was
315 on December 31, 2000.  During 2001,  2002 and 2003,  we  instituted  certain
restructuring  plans to align our cost structure  with our business  outlook and
general economic  conditions.  In connection with our restructuring  activities,
our total number of employees  was reduced to 98 as of December 31, 2001,  52 as
of December 31, 2002, and nine as of December 31, 2003. As of December 31, 2004,
the Company has four employees, two of whom are executive officers.

We have sustained losses on an annual basis since inception.  As of December 31,
2004, we had an accumulated deficit of $222.2 million.  Our net loss was $61,000
for the year ended December 31, 2004,  compared to a net loss of $5.3 million in
the  prior  year.  The  losses  referred  to in  this  paragraph  resulted  from
significant  costs incurred  related to  restructuring  activities,  significant
costs for outside  professional  services  related to the exploration of various
strategic  alternatives  for the  Company,  as well as a decline in our revenues
since the third quarter of 2000.

In February 2003, we engaged U.S.  Bancorp Piper Jaffray to act as our financial
advisor in connection  with the potential  sale of the Company.  On September 2,
2003, we paid a return of capital cash distribution to stockholders of record as
of August 18, 2003 in the amount of $1.50 per share or a total of  approximately
$42.2 million, which was reflected as a reduction to additional paid-in capital.
We also reduced our workforce by 12 positions to ten full-time employees.

On October 21, 2003, we announced  that our board of directors  had  unanimously
approved a Plan of Complete Liquidation and Dissolution, referred to as the plan
of  liquidation.  The  plan  of  liquidation  was  submitted  to  the  Company's
stockholders  for  approval and  adoption at a special  meeting of  stockholders
originally  scheduled for March 12, 2004, which was adjourned and was reconvened
on March 23, 2004. At the reconvened  special  meeting,  the proposal to approve
and adopt the plan of liquidation did not receive the affirmative vote of 75% of
the 28,145,338  shares of common stock outstanding as of the record date for the
special  meeting  required to approve the  proposal.  Of the  15,773,134  shares
represented in person or by proxy at the reconvened special meeting,  13,810,233
shares voted in favor of the proposal, 1,925,694 shares voted against and 37,207
shares abstained.

On March 31,  2004,  we and  Thalveg  Data Flow,  LLC,  ("Thalveg")  executed an
amendment  to the  patent  purchase  agreement  which had been  entered  into on
December 30, 2003,  and we completed the sale of our patent  portfolio  provided
for therein for a purchase  price of $1.8 million in cash.  The patent  purchase
agreement,  as amended,  includes a royalty-free,  non-exclusive license back to
us. The license is transferable,  subject to certain restrictions  applicable to
the transferee relating to revenues that can be generated by products covered by
the  license.  This  transaction  did not involve any of our other  intellectual
property rights or assets, including our proprietary software products.


                                       12
<PAGE>

In addition,  on March 31, 2004, we announced  that we had granted to a software
company a  non-exclusive  source  code  license  to a portion  of the  Company's
intellectual   property  and  sold  certain  technology  related  to  a  product
discontinued in 2002. The aggregate  consideration for this sale and license was
$325,000 which was recognized as license revenue in the first quarter of 2004.

On April 1, 2004, we entered into an agreement with Tornago, Inc. ("Tornago"), a
corporation  formed by three former non-officer  employees,  to fulfill existing
prepaid  customer  support  obligations  in exchange for future cash payments of
approximately  $60,000.  This  amount  represented   approximately  60%  of  the
remaining  prepaid deferred  maintenance  revenue amounts under the existing end
user  contracts  when measured from April 1, 2004.  The Company will continue to
recognize  the  deferred  revenue as earned and the  payments to Tornago will be
reflected as cost of revenue. Under the terms of the agreement, Tornago received
a non-transferable  license to relevant  intellectual property solely to provide
support  and  consulting  services  to end  users  of our  products.  Under  the
agreement,  we will  receive a 15%  royalty on any  follow-on  services  sold by
Tornago through April 1, 2006. In connection with the agreement with Tornago, we
terminated the  employment of the remaining  members of our  engineering  staff,
effective  March 31, 2004, and paid  severance to these  employees in accordance
with  existing  agreements.  While we expect to continue to service our existing
customers  through  Tornago  and may  continue  to derive a  declining  level of
revenues  from  software  licenses  and  royalties,   software  maintenance  and
professional services relating to existing customers,  we are no longer directly
marketing or  supporting  our products and have not retained any employees to do
so.

On April 21, 2004,  we  announced  the  simultaneous  signing and closing of the
investment into the Company by Olden Acquisition LLC ("Olden"),  for the purpose
of  initiating  a  strategy  to  redeploy  our  assets and use our cash and cash
equivalent assets to enhance stockholder value.

Period-to-period  comparisons of our operating results should not be relied upon
as predictive of future  performance.  Our prospects must be considered in light
of the foregoing and the risks  identified  below under the heading  "Risks That
May Affect Future Results." We may not be successful in addressing these risks.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of financial  condition and results of operations is
based upon our consolidated  financial  statements,  which have been prepared in
accordance with accounting  principles  generally accepted in the United States.
The preparation of these financial  statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities,  revenues and
expenses,  and related  disclosure of contingent  assets and liabilities.  On an
on-going basis, we evaluate our estimates, including those related to bad debts,
investments,  intangible assets,  restructuring  liabilities,  contingencies and
litigation.  We base our estimates on historical experience and on various other
assumptions  that are believed to be  reasonable  under the  circumstances,  the
results of which form the basis for making  judgments  about the carrying values
of assets and  liabilities  that are not readily  apparent  from other  sources.
Actual results may differ from these estimates  under  different  assumptions or
conditions.

We  believe  the  following  critical  accounting  policies  affect  significant
judgments and estimates used in the  preparation of our  consolidated  financial
statements.  Events occurring  subsequent to the preparation of the consolidated
financial  statements,  such as those  described  in the  section of this report
entitled  "Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations - Overview," may cause us to re-evaluate these policies.

Revenue Recognition. Our revenues are recognized in accordance with the American
Institute of Certified  Public  Accountants  Statement of Position ("SOP") 97-2,
"Software Revenue  Recognition," as amended by SOP 98-4 and SOP 98-9, as well as
Technical  Practice  Aids issued from time to time by the American  Institute of
Certified Public  Accountants and in accordance with the Securities and Exchange
Commission Staff Accounting  Bulletin ("SAB") No. 104,  "Revenue  Recognition in
Financial  Statements."  We derive  revenues  from software  licenses,  software
maintenance  and  professional  services.  Maintenance  includes  telephone  and
Web-based technical support,  bug fixes and rights to unspecified  upgrades on a
when-and-if  available basis.  Professional  services include project  planning,
implementation and testing, consulting, and ongoing customer support.

For software  arrangements that include multiple software products,  maintenance
or services,  we allocate the total  arrangement fee using the residual  method.
Under the residual  method,  the fair value of the  undelivered  maintenance and
services  elements,  as determined by  vendor-specific  objective  evidence,  is
deferred and the remaining (residual)  arrangement fee is recognized as software
product   revenue.   For  software   arrangements   in  which  we  do  not  have
vendor-specific objective evidence of undelivered elements,  revenue is deferred
until the earlier of when  vendor-specific  objective evidence is determined for
the  undelivered  elements  or  when  all  elements  for  which  we do not  have
vendor-specific objective evidence have been delivered.


                                       13
<PAGE>

Revenues from license fees are recognized  when a  non-cancelable  agreement has
been executed, the product has been shipped or electronically  delivered,  there
are no  uncertainties  surrounding  product  acceptance,  the  fee is  fixed  or
determinable and collection of the related receivable is considered probable. If
the fee due  from  the  customer  is not  fixed or  determinable,  revenues  are
recognized  as  payments  become due from the  customer.  If we do not  consider
collection  to be  probable,  then  revenues  are  recognized  when  the  fee is
collected.

License revenues  related to license terms of less than  twenty-four  months are
recognized  ratably over the term of the license period.  When we offer products
and services on a hosted basis, up front set-up fees are deferred and recognized
ratably over the estimated service period.

We  recognize  revenues  allocable to  maintenance  ratably over the term of the
agreement.  We  evaluate  arrangements  that  include  professional  and/or data
processing  services to determine  whether  those  services are essential to the
functionality of other elements of the  arrangement.  If services are considered
essential,   revenues  from  the  arrangement  are  recognized   using  contract
accounting,  generally  on a  percentage-of-completion  basis.  When  we do  not
consider the  professional  services to be essential,  we recognize the revenues
allocable to the services as they are performed.

Revenue  recognition  rules for software  companies are very complex.  We follow
specific and detailed  guidelines in determining the proper amount of revenue to
be recorded;  however,  certain  judgments affect the application of our revenue
recognition policy.

The most significant judgments for revenue recognition typically involve whether
there  are any  significant  uncertainties  regarding  customer  acceptance  and
whether collectibility can be considered probable. In addition, our transactions
often  consist  of  multiple  element  arrangements  that  must be  analyzed  to
determine the relative  fair value of each element,  the amount of revenue to be
recognized  upon  shipment,  if any, and the period and  conditions  under which
deferred revenue should be recognized.

Allowance for doubtful  accounts.  We maintain  allowances for doubtful accounts
for  estimated  losses  resulting  from the  inability of our  customers to make
required  payments.  If  the  financial  condition  of  our  customers  were  to
deteriorate,  resulting  in an  impairment  of their  ability to make  payments,
additional  allowances may be required.  Actual collection  results could differ
materially  from  those   estimated  and  have  a  significant   impact  on  our
consolidated financial statements.

Litigation.  We have not recorded an estimated  liability related to the pending
class action lawsuit in which we are named. For a discussion of this matter, see
the  section  of  this  report   entitled  "Legal   Proceedings."   Due  to  the
uncertainties  related to both the  likelihood  and the amount of any  potential
loss,  no  estimate  was  made  of the  liability  that  could  result  from  an
unfavorable outcome. As additional information becomes available, we will assess
the potential  liability and make or revise our estimate(s)  accordingly,  which
could materially impact our results of operations and financial position.


                                       14
<PAGE>

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

The following  table sets forth certain items in our statements of operations as
a percentage of total revenues for the periods indicated:

                                          YEAR ENDED DECEMBER 31,
                                       ---------------------------
                                       2004       2003        2002
                                       ----       ----        ----
   Revenues:
     Product                             44%        37%        32%
     Service and maintenance             56         63         68
                                       ----       ----       ----
      Total revenues                    100        100        100
   Cost of revenues:
     Product                             --          1          6
     Service and maintenance             24         29         40
                                       ----       ----       ----
      Total cost of revenues             24         30         46
   Gross margin                          76         70         54
   Operating expenses:
     Sales and marketing                 --         52         87
     Research and development            27         82        113
     General and administrative         262         87         54
     Restructuring related charges
      and impairments                    (1)        87         14
     Gain on sale of patents           (194)        --         --
     Amortization of intangibles         --         --          2
     Impairment of goodwill and
      other intangibles                  --         --        125
                                       ----       ----       ----
      Total operating expenses           94        308        395
                                       ----       ----       ----
   Loss from operations                 (18)      (238)      (341)
                                       ----       ----       ----
   Other income, net                     11         33         22
                                       ----       ----       ----
   Net loss                              (7)%     (205)%     (319)%
                                       ====       ====       ====


COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2004,  2003
AND 2002

THE  COMPANY HAS  TERMINATED  ITS  OPERATING  ACTIVITIES  AND IS NOW  EVALUATING
ALTERNATIVE  WAYS TO REDEPLOY  ITS ASSETS INTO NEW  BUSINESSES.  THE  DISCUSSION
BELOW IS  THEREFORE  NOT  MEANINGFUL  TO AN  UNDERSTANDING  OF  FUTURE  REVENUE,
EARNINGS,  OPERATIONS,  BUSINESS OR  PROSPECTS OF THE COMPANY  FOLLOWING  SUCH A
REDEPLOYMENT OF ITS ASSETS.

REVENUES

Total revenues.  Total revenues decreased 65% to $0.9 million for the year ended
December 31, 2004 from $2.6 million in 2003.  Total  revenues  decreased  50% to
$2.6  million for the year ended  December  31, 2003 from $5.2  million in 2002.
Revenues  from sales in the United  States were $0.9 million in 2004 compared to
$2.3 million in 2003 and $4.5 million in 2002 representing  100%, 89% and 86% of
total revenues, respectively. There were no revenues from international sales in
2004, compared to $284,000,  or 11% of total revenues,  in 2003 and $719,000, or
14% of total  revenues,  in 2002. As a result of the  downsizing of our business
and operations, we no longer maintain a direct sales force.  International sales
have generally been denominated in United States dollars.

As  described  in  this  Item 7  under  "Overview",  we are no  longer  actively
marketing  our  products,  and we do not expect that future  revenues from these
product or services related to these products, if any, will be significant.

Product revenues.  Product revenues decreased 58% to $405,000 for the year ended
December  31, 2004,  compared to $962,000 for the year ended  December 31, 2003.
Product  revenues  declined  44% in 2003  from  $1.7  million  in 2002.  Product
revenues  comprised  44% of total  revenues for 2004 compared to 37% and 32% for
2003 and 2002,  respectively.  We do not expect  any  product  revenues  for the
foreseeable future.

Service and  maintenance  revenues.  Service and  maintenance  revenues  consist
primarily of professional and maintenance  services.  Our  professional  service
revenues include business  consulting,  implementation  support, and educational


                                       15
<PAGE>

services and are generally  offered on a time and materials  basis.  Maintenance
revenues are generally derived from annual service agreements and are recognized
ratably  over  the  term of the  agreement.  Service  and  maintenance  revenues
decreased  68% to $0.5  million for the year ended  December  31, 2004 from $1.6
million for the year ended December 31, 2003.  Service and maintenance  revenues
decreased  54% in 2003  from  $3.5  million  in 2002.  Service  and  maintenance
revenues  comprised  56%,  63% and 68% of total  revenues  for the  years  ended
December  31,  2004,  2003 and 2002,  respectively.  The decrease in service and
maintenance  revenues  reflects a decline in our customer  base. As described in
this Item 7 under "Overview", we entered into an agreement on April 1, 2004 with
Tornago,  Inc. to fulfill our existing prepaid customer support obligations.  We
do not anticipate  entering into additional  service and maintenance  agreements
with  customers.  Therefore,  we expect there will be no service and maintenance
revenues in 2005.

COST OF REVENUES

Cost of product  revenues.  Cost of product revenues  consists  primarily of the
cost of  royalties  paid to  third-party  vendors and  amortization  of acquired
technology  costs.  For the year  ended  December  31,  2004 the cost of product
revenues was zero.  Cost of product  revenues  decreased  96% to $12,000 for the
year ended December 31, 2003 from $292,000 for the year ended December 31, 2002.
Cost of product revenue in 2004, 2003 and 2002 represented 0%, 1% and 17% of the
product revenues,  respectively. As a result of the termination of the Company's
revenue  generating  operations in  connection  with its efforts to redeploy its
assets as discussed earlier, we do not expect to incur costs of product revenues
for the foreseeable future.

Cost of  service  and  maintenance  revenues.  Cost of service  and  maintenance
revenues  consists  primarily  of  personnel-related  and  infrastructure  costs
incurred in providing  telephone and Web-based support of our software products,
as  well  as  professional,  consulting  and  educational  related  services  to
customers.  Cost of service and maintenance  revenues  decreased 71% to $220,000
for the year ended  December 31, 2004 from $755,000 for the year ended  December
31, 2003.  Cost of service and  maintenance  revenue  decreased 64% in 2003 from
$2.1 million in 2002. Cost of service and maintenance  revenue in 2004, 2003 and
2002  represented  24%,  47%  and 59% of the  related  service  and  maintenance
revenues,  respectively.  The  decrease  in cost  of  services  and  maintenance
revenues in absolute dollars and as a percentage of revenues is primarily due to
continued headcount reductions in our technical  organization as a result of our
restructuring  efforts.  As  described  above in this  Item 7 under  "Overview",
because  we entered  into a contract  with  Tornago to fulfill  certain  prepaid
support obligations and in connection therewith terminated the employment of the
remaining  members of our engineering  staff, we expect that our cost of service
and maintenance revenues will decrease in 2005.

OPERATING EXPENSES

In the first  quarter of 2003,  we reduced our  operating  expenses  through the
closure of three  remote  offices  and a reduction  in  workforce  affecting  22
employees.  On August 6, 2003,  we reduced our  workforce  by an  additional  12
employees.  At December  31,  2003 we had nine  full-time  employees,  which was
determined to be the minimum number  necessary at that time to serve  customers,
preserve  the value of our  intellectual  property  and  administer  our limited
ongoing  business  affairs.  In March 2004, we terminated  the employment of the
remaining  members of our  engineering  staff. At December 31, 2004, we had four
employees, two of whom are executive officers. As described in this Item 7 under
"Overview",  we are no longer actively  marketing our products and do not expect
to incur any  operating  expenses in 2005 relating to sales and marketing of our
products.

Sales and  marketing.  Sales  and  marketing  expenses  consisted  primarily  of
salaries,   other  employee-related  costs,   commissions  and  other  incentive
compensation,  travel and entertainment and expenditures for marketing  programs
such as  collateral  materials,  trade  shows,  public  relations  and  creative
services. Sales and marketing expenses decreased 100% to zero for the year ended
December 31, 2004 compared to $1.3 million  recorded for the year ended December
31, 2003.  Sales and marketing  expenses  decreased 70% in 2003 compared to $4.6
million  in 2002.  Sales and  marketing  expenses  were 0%, 52% and 87% of total
revenues for the years ended December 31, 2004, 2003 and 2002, respectively. The
decrease in sales and marketing expenses in absolute dollars is primarily due to
headcount  reductions as a result of our restructuring  efforts and our decision
to no longer actively market our products.

Research and development.  Research and development expenses consisted primarily
of salaries,  other  employee-related  costs and consulting  fees related to the
development of our products.  Research and development expenses decreased 88% to
$250,000 for the year ended  December 31, 2004  compared to $2.1 million for the
year ended December 31, 2003. Research and development expenses decreased 64% in
2003 compared to $5.9 million in 2002.  Research and  development  expenses were
27%, 82% and 113% of total revenues for the years ended December 31, 2004,  2003
and 2002,  respectively.  The decrease in research and  development  expenses in
absolute dollars is primarily due to continued headcount  reductions as a result
of our restructuring efforts and no future support of the products. As described
above in this Item 7 under  "Overview",  we  terminated  the  employment  of the
remaining  members of our  engineering  staff effective March 31, 2004 and we do
not expect to incur future  research and  development  costs for the foreseeable
future.


                                       16
<PAGE>

General  and  administrative.   General  and  administrative   expenses  consist
primarily of salaries,  other  employee-related  costs,  provision  for doubtful
accounts and professional  service fees.  Current  executive  management did not
receive salaries in 2004.  General and  administrative  expenses increased 7% to
$2.4 million for the year ended  December 31, 2004  compared to $2.3 million for
the year ended December 31, 2003. General and administrative  expenses decreased
20% in 2003  compared  to $2.8  million  in  2002.  General  and  administrative
expenses were 262%,  87% and 54% of total  revenue for the years ended  December
31,   2004,   2003  and  2002,   respectively.   The  increase  in  general  and
administrative  expenses in absolute  dollars during the year ended December 31,
2004 was primarily due to the increased  professional  fees  associated with the
settlement or other resolution of our existing obligations and liabilities,  the
exploration  of  asset  dispositions,   and  our  continued   consideration  and
evaluation of strategic alternatives. The decrease in general and administrative
expenses  in  absolute  dollars  during the year  ended  December  31,  2003 was
primarily  due to headcount  reductions  as part of our  restructuring  efforts,
offset by increased  professional  fees  associated with the settlement or other
resolution  of  our  existing   obligations  and   liabilities,   our  continued
exploration  of  asset  dispositions,   and  our  continued   consideration  and
evaluation of strategic alternatives.  Although we expect  personnel-related and
other general and  administrative  expenses to decline in 2005,  continued  high
levels of outside  professional  fees,  and other costs,  such as directors  and
officers liability  insurance,  associated with continuing as a public reporting
company, may offset any such decrease.

Restructuring  related charges and impairments.  For the year ended December 31,
2004,  the  Company  reduced its  accrual by $7,000  relating  to  restructuring
charges.  During 2003 and 2002, we continued  instituting certain  restructuring
plans to better align our cost structure  with our business  outlook and general
economic  conditions that we started in 2001. Under the restructuring  plans, we
recorded restructuring related charges totaling $2.3 million and $768,000 during
2003 and 2002,  respectively.  These amounts  represented  (1)%,  87% and 14% of
total  revenues  for  the  years  ended  December  31,  2004,   2003  and  2002,
respectively. All restructuring related charges had been paid as of December 31,
2004.

Sale of patents.  On March 31, 2004, we and Thalveg Data Flow, LLC,  ("Thalveg")
executed an amendment to the patent  purchase  agreement  which had been entered
into on December 30, 2003,  and we  completed  the sale of our patent  portfolio
provided for therein for a purchase  price of $1.8  million in cash.  The patent
purchase agreement, as amended,  includes a royalty-free,  non-exclusive license
back to us.  The  license  is  transferable,  subject  to  certain  restrictions
applicable  to the  transferee  relating to revenues  that can be  generated  by
products  covered by the license.  This  transaction  did not involve any of our
other intellectual property rights or assets, including our proprietary software
products. There was no comparable amount for 2003 and 2002.

Amortization  of  intangibles.  Amortization  expense  was $0 for the year ended
December  31, 2004 and 2003.  This is  compared  to $110,000  for the year ended
December 31, 2002. These amounts represented 0%, 0% and 2% of total revenues for
the  years  ended  December  31,  2004,  2003  and  2002,  respectively.   Total
amortization  was $0  during  2004 due to the  $6.5  million  impairment  charge
recorded in the fourth quarter of 2002 to reduce  goodwill and other  intangible
assets to zero value.

Other income,  net. Other income,  net,  consists of interest  income,  interest
expense,  foreign currency  transaction losses or gains and other expenses.  Net
other  income  decreased  88% in 2004 to $0.1 million from $0.9 million in 2003.
Net other income  decreased  25% in 2003  compared to $1.1 million in 2002.  The
decrease in net other income for the year ended  December  31, 2004  compared to
the same period in 2003 was due to lower cash balances and lower interest rates.
The decrease in net other income for the year ended  December 31, 2003  compared
to the same  period  in 2002 was  primarily  due to  lower  cash and  investment
balances  as a result  of the  special  cash  distribution  to  stockholders  on
September 2, 2003 and lower interest rates. The decrease in net other income for
2002 compared to 2001 was  attributable  to a decrease in interest income earned
and the $1.6 million loss on investment  resulting from our sale of $2.1 million
in WorldCom bonds upon  announcement  of accounting  issues by WorldCom,  offset
against $200,000 received as a result of a related dispute settlement.

PROVISION FOR INCOME TAXES

We have incurred  significant  operating  losses for all periods from  inception
through  December 31, 2004.  For income tax purposes,  the Company has available
federal net operating loss  carry-forwards  of approximately  $121.4 million and
research and development  credit  carry-forwards  of  approximately  $151,000 at
December 31, 2004.  The net operating loss and research and  development  credit
carry-forwards  expire in 2011  through  2024 if not  previously  utilized.  The
utilization of these  carry-forwards may be subject to limitations based on past
and future changes in ownership of the Company pursuant to Internal Revenue Code
Section  382. If the Company  were to be acquired at its recent stock value such
that  Section  382 is  applicable,  this would  eliminate  the  ability to use a
substantial majority of these carry-forwards.  Future tax benefits have not been
recognized in the financial  statements,  as their utilization is not considered
probable based on the weight of available information.


                                       17
<PAGE>

SELECTED CONSOLIDATED QUARTERLY OPERATING RESULTS

The following tables set forth quarterly  unaudited  financial data for 2004 and
2003, as well as the percentage of our total revenues  represented by each item.
This unaudited financial data has been prepared on the same basis as the audited
financial  statements  included in this  report and  includes  all  adjustments,
consisting only of normal recurring accruals that are considered necessary for a
fair  presentation of such information when read in conjunction with our audited
financial  statements and notes thereto appearing  elsewhere in this report. You
should not draw any conclusions from the operating results for any quarter.

<TABLE>
<CAPTION>
                                                DEC. 31   SEP. 30    JUN. 30    MAR. 31    DEC. 31    SEP. 30    JUN. 30    MAR. 31
                                                  2004      2004       2004       2004       2003       2003       2003       2003
                                                -------   -------    -------    -------    -------    -------    -------    -------
                                                                 (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                                                                 (UNAUDITED)
<S>                                             <C>       <C>        <C>        <C>        <C>        <C>        <C>        <C>
RESULTS OF OPERATIONS:
Revenues:
 Product                                        $    --   $    --    $    51    $   354    $   386    $    95    $   343    $   138
 Service and maintenance                             30        25        321        146        231        343        570        478
                                                -------   -------    -------    -------    -------    -------    -------    -------
Total revenues                                       30        25        372        500        617        438        913        616
                                                -------   -------    -------    -------    -------    -------    -------    -------
Cost of revenues:
 Product                                             --        --         --         --          4         --          8         --
 Service and maintenance                              4        11        103        102        120        164        255        216
                                                -------   -------    -------    -------    -------    -------    -------    -------
Total cost of revenues                                4        11        103        102        124        164        263        216
                                                -------   -------    -------    -------    -------    -------    -------    -------
Gross margin                                         26        14        269        398        493        274        650        400
                                                -------   -------    -------    -------    -------    -------    -------    -------
Operating expenses:
 Sales and marketing                                 --        --         --         --          3        157        481        706
 Research and development                            --        --         --        250        496        427        524        665
 General and administrative                         332       170        898      1,028        981        568        276        436

 Gain on sale of patents                             --        --         --     (1,800)        --         --         --         --
 Restructuring related charges and impairments       --        --         --         (7)        --      1,051         --      1,200
 Amortization of intangibles                         --        --         --         --         --         --         --         --
 Impairment of goodwill and other intangibles        --        --         --         --         --         --         --         --
                                                -------   -------    -------    -------    -------    -------    -------    -------
Total operating expenses                            332       170        898       (529)     1,480      2,203      1,281      3,007
                                                -------   -------    -------    -------    -------    -------    -------    -------
(Loss)/Income from operations                      (306)     (156)      (629)       927       (987)    (1,929)      (631)    (2,607)
 Other income (expense), net                        (50)       63         39         51         22        216        415        208
                                                -------   -------    -------    -------    -------    -------    -------    -------
Net (loss)/income                               $  (356)  $   (93)   $  (590)   $   978    $  (965)   $(1,713)   $  (216)   $(2,399)
                                                =======   =======    =======    =======    =======    =======    =======    =======
Basic and diluted net (loss)/income per share   $ (0.01)  $ (0.00)   $ (0.02)   $  0.03    $ (0.03)   $ (0.06)   $ (0.01)   $ (0.09)
                                                =======   =======    =======    =======    =======    =======    =======    =======
</TABLE>


                                       18
<PAGE>

<TABLE>
<CAPTION>
                                DEC. 31   SEP. 30    JUN. 30    MAR. 31    DEC. 31    SEP. 30    JUN. 30    MAR. 31
                                  2004      2004       2004       2004       2003       2003       2003       2003
                                -------   -------    -------    -------    -------    -------    -------    -------
                                                                     (UNAUDITED)
<S>                             <C>          <C>        <C>         <C>       <C>        <C>         <C>       <C>
PERCENTAGE OF TOTAL REVENUES
Revenues:
  Product                          --%        --%         14%        71%        62%        22%        38%        22%
  Service and maintenance          100        100         86         29         38         78         62         78
                                ------     ------     ------     ------     ------     ------     ------     ------
Total revenues                     100        100        100        100        100        100        100        100
                                ------     ------     ------     ------     ------     ------     ------     ------
Cost of revenues:
  Product                           --         --         --         --          1         --          1         --
  Service and maintenance           13         44         28         20         19         37         28         35
                                ------     ------     ------     ------     ------     ------     ------     ------
Total cost of revenues              13         44         28         20         20         37         29         35
                                ------     ------     ------     ------     ------     ------     ------     ------
Gross margin                        87         56         72         80         80         63         71         65
                                ------     ------     ------     ------     ------     ------     ------     ------
Operating expenses:
  Sales and marketing               --         --         --         --         --         36         53        115
  Research and development          --         --         --         50         81         97         57        108
  General and administrative     1,107        680        241        205        159        130         30         71
  Gain on sale of patent
   rights                           --         --         --       (360)        --         --         --         --
  Restructuring related
   charges and impairments          --         --         --         (1)        --        240         --        194
  Amortization of intangibles       --         --         --         --         --         --         --         --
  Impairment of goodwill and
   other intangibles                --         --         --         --         --         --         --         --
                                ------     ------     ------     ------     ------     ------     ------     ------
Total operating expenses         1,107        680        241       (106)       240        503        150        488
                                ------     ------     ------     ------     ------     ------     ------     ------
(Loss)/income from operations   (1,020)      (624)      (169)       186       (160)      (440)       (69)      (423)
  Other income (expense), net     (167)       252         10         10          3         49         45         34
                                ------     ------     ------     ------     ------     ------     ------     ------
Net (loss)/income               (1,187)%     (372)%     (159)%      196%      (157)%     (391)%      (24)%     (389)%
                                ======     ======     ======     ======     ======     ======     ======     ======
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

Since inception,  we have financed our operations  primarily through the sale of
equity  securities.  At December 31, 2004, we had $14.4 million of cash and cash
equivalents compared to $11.9 million at December 31, 2003. The overall increase
of $2.5 million in cash and cash  equivalents is primarily due to the investment
in the Company by Olden Acquisition LLC in the second quarter of 2004.

Cash  provided  by  operations  was $0.1  million  for the twelve  months  ended
December 31, 2004. The cash provided was primarily  attributable  to adjustments
for non-cash expenses,  decreases in accounts receivables and prepaids and other
assets and increases in accrued  liabilities and deferred revenue.  Cash used in
operations  was $9.4  million for 2003 and $9.8  million for 2002.  Cash used in
operations for 2003 and 2002 resulted primarily from net losses, as adjusted for
non-cash  expenses.  In  addition,  in 2003 the  Company  used $5.4  million  to
terminate its obligations  under three real estate leases.  The decrease in cash
used in  operations  in the twelve months of 2003 as compared to the same period
in 2002 is principally a function of the reduced operating  expenses and cost of
revenues that have resulted from the  restructuring  plans  described  below, as
adjusted  for  non-cash  expenses.  We do not expect to receive any  significant
amounts of cash from future  operations,  and we expect that we will continue to
incur legal fees, transaction costs and other ongoing costs that will constitute
a material use of cash.

There was no cash provided by or used by investing  activities for 2004. A total
of $22.9 million in net cash was provided by investing activities for the twelve
months ended December 31, 2003,  compared to $34.6 million of cash provided from
investing  activities in the same period for 2002.  Prior to September 2003, our
investing   activities  consisted  primarily  of  net  purchases  of  short-term
investments and marketable securities.  Since the special cash distribution paid
on September 2, 2003, we have held all of our cash in money market  accounts and
we plan to continue this policy.

Cash  provided  by  financing  activities  during 2004 was  attributable  to the
issuance  of  long-term  debt and  stock  option  exercises.  Cash  provided  by
financing  activities was approximately $2.4 million during 2004 compared to net
cash  used in  financing  activities  of  $41.3  million  for  2003 and net cash


                                       19
<PAGE>

generated of $33,000 for 2002. Net cash was used in financing  activities during
2003 due to the $42.2  million  cash  distribution  paid on  September  2, 2003,
partially  offset by  proceeds  from sales of our common  stock  pursuant to the
exercise of options.  Net cash in  financing  activities  in 2002 was  primarily
attributable to proceeds from sales of our common stock pursuant to the exercise
of options, offset by principal payments on capital leases.

As described in Item 1 under "Prior  Business",  on September 2, 2003, we paid a
return of capital cash  distribution  to stockholders of record as of August 18,
2003 in the amount of $1.50 per share, or an aggregate  amount of  approximately
$42.2 million.

During 2003 and 2002, we instituted certain  restructuring plans to better align
our cost structure with our business  outlook and general  economic  conditions.
Under  the  restructuring  plans,  we  recorded  restructuring  related  charges
totaling $2.3 million and $768,000 during 2003 and 2002,  respectively.  A total
of  approximately  $6.9 million was charged  against the  restructuring  reserve
during 2003, and in 2004 the balance of approximately $37,000 was fully utilized
bringing the restructuring liability to zero.

Capital expenditures were $0 for the twelve months ended December 31, 2004, 2003
and 2002. Capital  expenditures were higher in years prior to 2002 and reflected
a significantly larger employee base and level of operations. As of December 31,
2004, we had no long-term  commitments  for capital  expenditures  and we do not
anticipate entering into any further commitments for capital expenditures.

CONTRACTUAL OBLIGATIONS

The  Company  had no  contractual  obligations  and  commercial  commitments  at
December 31, 2004. The operating  lease  obligation for the vacated  facility in
San Francisco, California was terminated in August 2004.

We believe that  existing  cash and  investments  will be sufficient to meet our
expected working capital needs for at least the next twelve months.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial  Accounting  Standards Board issued SFAS 123(R),
"Share Based Payment".  SFAS 123(R) requires that the compensation cost relating
to share-based payment transactions be recognized in financial statements.  That
cost  will be  measured  based on the  fair  value of the  equity  or  liability
instruments  issued.  Public entities will be required to apply Statement 123(R)
as of the first  interim or annual  reporting  period that begins after June 15,
2005. We are currently  evaluating the impact of this statement.  We believe the
adoption of this  statement,  effective July 1, 2005, will have an impact on our
consolidated financial statements

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Through  December  31,  2004,  the  majority  of our  recognized  revenues  were
denominated  in United States  dollars and were  primarily from customers in the
United States,  and our exposure to foreign  currency  exchange rate changes has
been  immaterial.  As  described  elsewhere  in this  report,  we are no  longer
actively marketing our products. Accordingly, we do not consider significant our
exposure to foreign  currency  exchange rate changes arising from revenues being
denominated in foreign currencies.

All of our  investments  are now  held in  money  market  accounts  in  order to
preserve   principal.   Therefore,   due  to  the  conservative  nature  of  our
investments, our future interest income sensitivity is limited.

We do not  have  any  derivative  financial  instruments  and do  not  hold  any
instruments for trading purposes.


                                       20
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                              NET PERCEPTIONS, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                            PAGE
                                                                            ----

Report of Independent Registered Public Accounting Firm                      22
Consolidated Balance Sheets                                                  23
Consolidated Statements of Operations                                        24
Consolidated Statement of Stockholders' Equity and Comprehensive Income      25
Consolidated Statements of Cash Flows                                        26
Notes to the Consolidated Financial Statements                               27



                                       21
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of
Net Perceptions, Inc.:

In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated statements of operations, of stockholders' equity and comprehensive
income and of cash flows present fairly, in all material respects, the financial
position of Net  Perceptions,  Inc.  and its  subsidiaries  ("the  Company")  at
December 31, 2004 and 2003,  and the results of their  operations and their cash
flows for each of the three  years in the  period  ended  December  31,  2004 in
conformity with accounting principles generally accepted in the United States of
America.  These  financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements  based on our audits.  We conducted our audits of these statements in
accordance with the standards of the Public Company  Accounting  Oversight Board
(United States).  Those standards  require that we plan and perform the audit to
obtain reasonable  assurance about whether the financial  statements are free of
material  misstatement.  An audit includes examining,  on a test basis, evidence
supporting the amounts and  disclosures in the financial  statements,  assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.

As discussed in Note 1 to the consolidated financial statements, the Company has
curtailed substantially all of its business operations.


/s/ PricewaterhouseCoopers LLP
Minneapolis, Minnesota
March 29, 2005



                                       22
<PAGE>

                              NET PERCEPTIONS, INC.

                           CONSOLIDATED BALANCE SHEETS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


                                                               DECEMBER 31,
                                                         ----------------------
                                                            2004         2003
                                                         ---------    ---------

              ASSETS
Current assets:
  Cash and cash equivalents                              $  14,444    $  11,932

  Accounts receivable, net                                      --          355
  Prepaid expenses and other current assets                     40          481
                                                         ---------    ---------
   Total current assets                                     14,484       12,768
Other assets                                                   239           35
                                                         ---------    ---------
   Total assets                                          $  14,723    $  12,803
                                                         =========    =========

     LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accrued liabilities                                    $     178    $     751
  Deferred revenue                                              --          380
  Accrued restructuring costs                                   --           37
                                                         ---------    ---------
   Total current liabilities                                   178        1,168
Note Payable                                                 2,517           --
                                                         ---------    ---------
   Total liabilities                                         2,695        1,168
                                                         ---------    ---------

Commitments and contingencies (Note 9)

  Stockholders' equity:
  Preferred stock -- $.0001 par value; 5,000 shares
    authorized; no shares issued or outstanding                 --           --
  Common stock -- $.0001 par value; 100,000 shares
    authorized; 29,282 and 28,145 shares issued and
    28,574 and 28,145 oustanding at December 31, 2004 and
    2003 respectively,                                           2            2
  Additional paid-in capital                               234,350      233,761
  Unearned stock compensation                                 (135)          --
  Accumulated deficit                                     (222,189)    (222,128)
                                                         ---------    ---------
   Total stockholders' equity                               12,028       11,635
                                                         ---------    ---------
   Total liabilities and stockholders' equity            $  14,723    $  12,803
                                                         =========    =========

        See accompanying notes to the consolidated financial statements.


                                       23
<PAGE>

                              NET PERCEPTIONS, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                                                --------------------------------
                                                                  2004        2003         2002
                                                                --------    --------    --------
<S>                                                             <C>         <C>         <C>
Revenues:
  Product                                                       $    405    $    962    $  1,703
  Service and maintenance                                            522       1,622       3,541
                                                                --------    --------    --------
   Total revenues                                                    927       2,584       5,244
                                                                --------    --------    --------
Cost of revenues:
  Product                                                             --          12         292
  Service and maintenance                                            220         755       2,101
                                                                --------    --------    --------
   Total cost of revenues                                            220         767       2,393
                                                                --------    --------    --------
Gross margin                                                         707       1,817       2,851
                                                                --------    --------    --------
Operating expenses:
  Sales and marketing                                                 --       1,347       4,550
  Research and development                                           250       2,112       5,933
  General and administrative                                       2,428       2,261       2,819
  Gain on sale of patents                                         (1,800)         --          --
  Restructuring related charges and impairments                       (7)      2,251         768
  Amortization of intangibles                                         --          --         110
  Impairment of goodwill and other intangibles                        --          --       6,546
                                                                --------    --------    --------
   Total operating expenses                                          871       7,971      20,726
                                                                --------    --------    --------
Loss from operations                                                (164)     (6,154)    (17,875)
                                                                --------    --------    --------
Other income (expense):
  Interest income                                                    172         610       2,108
  Interest expense                                                   (75)         --         (24)
  Other income (expense)                                               6         251        (943)
                                                                --------    --------    --------
   Total other income, net                                           103         861       1,141
                                                                --------    --------    --------
Net loss                                                        $    (61)   $ (5,293)   $(16,734)
                                                                ========    ========    ========
Basic and diluted net loss per share                            $  (0.00)   $  (0.19)   $  (0.61)
                                                                ========    ========    ========
Shares used in computing basic and diluted net loss per share     28,574      27,683      27,216
                                                                ========    ========    ========
</TABLE>

        See accompanying notes to the consolidated financial statements.


                                       24
<PAGE>

                              NET PERCEPTIONS, INC.

     CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                 ACCUMULATED                                           COMPREHEN-
                                                      ADDITIONAL     OTHER       UNEARNED                    TOTAL       SIVE
                                    COMMON STOCK       PAID-IN   COMPREHENSIVE     STOCK     ACCUMULATED STOCKHOLDERS'  INCOME/
                                 SHARES     AMOUNT     CAPITAL   INCOME (LOSS) COMPENSATION    DEFICIT      EQUITY      (LOSS)
                                --------    -------   ---------    ---------    ---------    ---------    ---------    ---------
<S>                               <C>       <C>       <C>          <C>          <C>          <C>          <C>          <C>
Balance, December 31, 2001        27,129    $     2   $ 274,869    $     637    $      --    $(200,101)   $  75,407    $(123,522)
Exercise of stock options            136         --          64           --           --           --           64           --
Repurchase of unvested
  common stock                        (1)        --          (1)          --           --           --           (1)          --
Compensation relating to
  stock options                       --         --          54           --           --           --           54           --
Issuance of common stock
  under employee stock
  purchase plan                       68         --          67           --           --           --           67           --
Change in unrealized gain
  (loss) on available-for-sale
  investments                         --         --          --         (515)          --           --         (515)        (515)
Net loss                              --         --          --           --           --      (16,734)     (16,374)     (16,374)
                                --------    -------   ---------    ---------    ---------    ---------    ---------    ---------
Balance, December 31, 2002        27,332          2     275,053          122           --     (216,835)      58,342      (17,249)
Exercise of stock options            801         --         894           --           --           --          894           --
Issuance of common stock
  under employee stock
  purchase plan                       12         --          12           --           --           --           12           --
Change in unrealized gain
  (loss) on available-for-sale
  investments                         --         --          --         (122)          --           --         (122)        (122)
Cash Distribution to
  Stockholders                        --         --     (42,198)          --           --           --      (42,198)          --
Net loss                              --         --          --           --           --       (5,293)      (5,293)      (5,293)
                                --------    -------   ---------    ---------    ---------    ---------    ---------    ---------
Balance, December 31, 2003        28,145          2     233,761           --           --     (222,128)      11,635       (5,415)

Exercise of stock options            529         --         153           --           --           --          153           --
Discount on note payable
  related to beneficial
  conversion feature                  --         --          56           --           --           --           56           --
Restricted stock grants and
  related compensation               608         --         380           --         (135)          --          245           --

Net loss                              --         --          --           --           --          (61)         (61)         (61)
------------------------------  --------    -------   ---------    ---------    ---------    ---------    ---------    ---------

Balance, December 31, 2004        29,282    $     2   $ 234,350    $      --    $    (135)   $(222,189)   $  12,028    $     (61)
                                ========    =======   =========    =========    =========    =========    =========    =========
</TABLE>

        See accompanying notes to the consolidated financial statements.


                                       25
<PAGE>

                              NET PERCEPTIONS, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                        YEAR ENDED DECEMBER 31,
                                                                                   --------------------------------
                                                                                     2004        2003         2002
                                                                                   --------    --------    --------
<S>                                                                                <C>         <C>         <C>
Cash flows from operating activities:
  Net loss                                                                         $    (61)   $ (5,293)   $(16,734)
  Reconciliation of net loss to net cash used by operating activities:
    Depreciation and amortization                                                        --         484       2,196
    Provision for doubtful accounts                                                     (22)        (54)         79
    Amortization of debt issuance costs                                                  49          --          --
    Amortization of discount on notes payable                                            40          --          --
    Stock based compensation                                                            245          --          42
    Restructuring related charges and impairments                                        (7)      2,251         768
    Impairment of goodwill and other intangibles                                         --          --       6,546
    Amortization of premiums on investments                                              --         183         372
    Changes in assets and liabilities:
     Accounts receivable                                                                377          88         841
     Prepaid expenses and other current assets                                          441         146       1,674
     Other assets                                                                        35         690         457
     Accounts payable                                                                    --         (52)       (262)
     Accrued liabilities                                                               (573)     (6,993)     (4,619)
     Deferred revenue                                                                  (380)       (370)     (1,085)
     Other liabilities                                                                  (30)       (510)        (67)
                                                                                   --------    --------    --------
       Net cash provided by (used in) operating activities                              114      (9,430)     (9,792)
                                                                                   --------    --------    --------
Cash flows from investing activities:
  Purchases of short-term investments and marketable securities                          --     (16,121)    (47,555)
  Sales and maturities of short-term investments and marketable securities               --      39,046      82,114
                                                                                   --------    --------    --------
       Net cash provided by investing activities                                         --      22,925      34,559
                                                                                   --------    --------    --------
Cash flows from financing activities:
  Proceeds from issuance of stock under employee stock purchase plan                     --          12          67
  Proceeds from exercise of stock options and warrants, net of stock repurchases        153         894          63
  Cash distribution to stockholders                                                      --     (42,198)         --

  Proceeds from issuance of convertible subordinate note, net of offering costs
    of $288                                                                           2,245          --          --
  Principal payments under capital lease obligations and notes payable                   --          --         (97)
                                                                                   --------    --------    --------
       Net cash (used in) provided by financing activities                            2,398     (41,292)         33
                                                                                   --------    --------    --------
Net (decrease) increase in cash and cash equivalents                                  2,512     (27,797)     24,800
Cash and cash equivalents at beginning of year                                       11,932      39,729      14,929
                                                                                   --------    --------    --------
Cash and cash equivalents at end of year                                           $ 14,444    $ 11,932    $ 39,729
                                                                                   ========    ========    ========

Supplemental schedule of cash-flow information:
  Interest paid                                                                    $     --    $     --    $     24
</TABLE>

        See accompanying notes to the consolidated financial statements.


                                       26
<PAGE>

                              NET PERCEPTIONS, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1. ORGANIZATION

Net  Perceptions,  Inc. (the "Company") was  incorporated in Delaware on July 3,
1996.  The Company  developed and marketed  software  solutions that enabled its
customers to interact  more  intelligently  with their  customers.  On April 21,
2004, we announced the  simultaneous  signing and closing of an investment  into
the Company by Olden  Acquisition LLC, an affiliate of Kanders & Company,  Inc.,
an entity owned and controlled by the Company's  Executive  Chairman,  Warren B.
Kanders, for the purpose of initiating a strategy to redeploy our assets and use
our cash and cash equivalent assets to enhance stockholder value.

The Company has curtailed  substantially  all of its business  operations and at
March 1, 2005 had four employees.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

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

Use of estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting  principles  in the United States of America  requires  management to
make  estimates  and  assumptions  that  affect the  reported  amounts  therein.
Management's  estimates are based on historical  experience and on various other
assumptions  that  are  believed  to  be  reasonable  under  the  circumstances.
Management's  estimates and assumptions are evaluated on an on-going basis.  Due
to the inherent  uncertainty  involved in making  estimates,  actual results may
differ from those estimates.

Revenue recognition

The Company  recognizes  revenues in accordance  with the American  Institute of
Certified  Public  Accountants  ("AICPA")  Statement of Position  ("SOP")  97-2,
"Software  Revenue  Recognition,"  as  amended  by SOP  98-4,  "Deferral  of the
Effective  Date of a Provision of SOP 97-2" and SOP 98-9,  "Modification  of SOP
97-2, Software Revenue Recognition with Respect to Certain  Transactions" and in
accordance with the Securities and Exchange Commission Staff Accounting Bulletin
("SAB") No. 104,  "Revenue  Recognition  in Financial  Statements."  The Company
derives revenues from software licenses,  software  maintenance and professional
services.  Maintenance  includes telephone and Web-based technical support,  bug
fixes and rights to  unspecified  upgrades  on a  when-and-if  available  basis.
Professional  services include project  planning and management,  implementation
and  testing,  data  analysis,  data  warehousing,  user and  partner  training,
consulting, product hosting and ongoing customer support.

For  software  arrangements  that  include  multiple  elements  (e.g.,  software
products,  and/or  maintenance  or  services),  the Company  allocates the total
arrangement fee using the residual method.  Under the residual method,  the fair
value of the  undelivered  maintenance  and service  elements,  as determined by
vendor-specific  objective  evidence,  is deferred and the remaining  (residual)
arrangement  fee  is  recognized  as  software  product  revenue.   In  software
arrangements  in which  the  Company  does not  have  vendor-specific  objective
evidence of undelivered elements,  revenue is deferred until the earlier of when
vendor-specific objective evidence is determined for the undelivered elements or
when all elements have been delivered.

Revenues from license fees are recognized  when a  non-cancelable  agreement has
been executed, the product has been shipped or electronically  delivered,  there
are no  uncertainties  surrounding  product  acceptance,  the  fee is  fixed  or
determinable and collection of the related receivable is considered probable. If
the fee due  from  the  customer  is not  fixed or  determinable,  revenues  are
recognized  as payments  become due from the  customer.  If the Company does not
consider collection to be probable, then revenues are recognized when the fee is
collected.


                                       27
<PAGE>

License revenues related to license terms with less than twenty-four  months are
recognized ratably over the term of the license period.  When the Company offers
products and services on a hosted  basis,  up front set-up fees are deferred and
recognized ratably over the estimated service period.

Revenues  allocable to maintenance  are recognized  ratably over the term of the
agreement.  The Company evaluates  arrangements that include professional and/or
data  processing  services to determine  whether those services are essential to
the functionality of other elements of the arrangement. If professional services
are considered  essential,  revenues from the arrangement  are recognized  using
contract  accounting,  generally on a  percentage-of-completion  basis. When the
Company does not consider the  professional  services to be essential,  revenues
allocable to the services are recognized as they are performed.

Under general contract terms, the Company includes an indemnification  clause in
its software licensing agreement that indemnifies the licensee against liability
and damages  arising  from any claims of patent,  copyright,  trademark or trade
secret  infringement  by  the  Company's  software.  The  Company  has  incurred
insignificant  costs as a result of this type of indemnification  clause and the
Company  does  not  maintain  a  product  warranty  liability  related  to  such
indemnification clauses.

Concentrations of credit risk and significant customers

Financial  instruments  that  potentially  subject  the  Company to credit  risk
consist  primarily  of  accounts  receivable.  The  Company  granted  credit  to
customers in the ordinary course of business. Three customers accounted for 54%,
11% and 6% of total  revenues  for 2004.  As of  December  31, 2004 there was no
accounts  receivable.  Three  customers  accounted for 14%, 13% and 10% of total
2003  revenues  and one customer  accounted  for 84% of accounts  receivable  at
December 31, 2003. One customer  accounted for 22% of total 2002  revenues.  and
three  customers  accounted  for  33%,  27% and 20% of  accounts  receivable  at
December 31, 2002.

Cash equivalents, short-term investments and marketable securities

Cash  equivalents,  short-term  investments  and marketable  securities  consist
principally of commercial paper, government agency notes and money market funds.
Cash equivalents are all highly liquid temporary cash investments purchased with
original  maturities of 90 days or less. The Company  determines the appropriate
classification of short-term  investments and marketable  securities at the time
of purchase and  reevaluates  such  designation  as of each balance  sheet date.
Available-for-sale  securities  are stated at fair market value with  unrealized
holding  gains or losses  recorded  as a  separate  component  of  stockholders'
equity.  As of December 31, 2004 and 2003,  substantially  all of the  Company's
cash was held in money market accounts.

Fair value of financial instruments

The carrying amounts of the Company's financial instruments,  which include cash
equivalents, short-term investments, marketable securities, accounts receivable,
accounts payable,  accrued liabilities and note payable,  approximate their fair
values at December 31, 2004 and 2003.

Property and equipment

Property and equipment are stated at cost.  Depreciation  and  amortization  are
computed using the  straight-line  method over the estimated useful lives of the
individual  assets;  or the shorter of the estimated  useful lives or underlying
lease term (in the case of leasehold  improvements and capital lease equipment).
Estimated useful lives generally range from three to ten years.

Long-lived assets

In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144,
"Accounting  for the  Impairment of Disposal of Long-Lived  Assets," the Company
reviews  long-lived  assets  for  impairment   whenever  events  or  changes  in
circumstances  indicate  that the  carrying  amount may not be  recoverable.  An
impairment  loss shall be recognized only if the carrying amount of a long-lived
asset (asset group) is not recoverable and exceeds its fair value.  The carrying
amount of a long-lived  asset (asset group) is not recoverable if it exceeds the
sum of the undiscounted  cash flows expected to result from the use and eventual
disposition of the asset (asset group).  That  assessment  shall be based on the
carrying  amount  of the  asset  (asset  group)  at the  date it is  tested  for
recoverability, whether in use or under development. An impairment loss shall be
measured as the amount by which the carrying amount of a long-lived asset (asset
group) exceeds its fair value.


                                       28
<PAGE>

Other assets

Other  assets  consist  primarily  of  costs  associated  with the  issuance  of
long-term debt related to the investment in the Company by Olden Acquisition LLC
in the second quarter of 2004.

Research and development

Research and development expenditures, which include software development costs,
are expensed as  incurred.  SFAS No. 86,  "Accounting  for the Costs of Computer
Software to Be Sold, Leased or Otherwise  Marketed," requires the capitalization
of  certain  software  development  costs  once  technological   feasibility  is
established, which the Company defines as the completion of a working model. The
period between achieving technological  feasibility and the general availability
of such software had been short and software  development  costs  qualifying for
capitalization were insignificant.  Accordingly,  the Company did not capitalize
any software development costs.

Income taxes

The Company  calculates  income taxes in accordance  with the provisions of SFAS
No. 109,  "Accounting for Income Taxes," which requires the use of the liability
method of  accounting  for  income  taxes.  Income  taxes are  deferred  for all
temporary  differences  between the financial  statement and income tax basis of
assets and liabilities.  Deferred taxes are recorded using the enacted tax rates
scheduled by tax law to be in effect when the temporary differences are expected
to settle or be  realized.  Deferred  tax  assets  are  reduced  by a  valuation
allowance to the extent that utilization is considered uncertain.

Advertising expense

The Company recognized advertising expense as incurred.  Advertising expense has
been insignificant since inception.

Net loss per share

Net loss per share is computed  under SFAS No. 128,  "Earnings Per Share." Basic
net loss per share is computed  using the  weighted-average  number of shares of
common  stock   outstanding,   excluding  shares  of  common  stock  subject  to
repurchase.  Such shares of common stock subject to repurchase  aggregated 0, 0,
and 1 shares at December 31,  2004,  2003 and 2002,  respectively  (see Note 8).
Diluted  net loss per share does not differ  from basic net loss per share since
potential  shares of common  stock from  conversion  of preferred  stock,  stock
options  and  warrants  and  outstanding  shares  of  common  stock  subject  to
repurchase are anti-dilutive for all periods presented. Options to purchase 188,
2,029,  and 2,757 shares of the Company's  common stock were  outstanding  as of
December 31, 2004, 2003 and 2002,  respectively,  and could  potentially  dilute
earnings per share in future periods.

Comprehensive income (loss)

Comprehensive   income   (loss),   as  defined  by  SFAS  No.  130,   "Reporting
Comprehensive   Income,"   includes   net  loss  and  items   defined  as  other
comprehensive  income.  SFAS  No.  130  requires  that  items  defined  as other
comprehensive  income (loss), such as foreign currency  translation  adjustments
and unrealized gains and losses on certain  investments in debt  securities,  be
separately classified in the financial statements. Such disclosures are included
in the consolidated statements of stockholders' equity and comprehensive loss.

Stock-based compensation

The Company  accounts for  stock-based  employee  compensation  arrangements  in
accordance  with the provisions of Accounting  Principles  Board Opinion No. 25,
"Accounting  for Stock Issued to  Employees",  and complies with the  disclosure
provisions of "SFAS" No. 123, "Accounting for Stock-Based Compensation" and SFAS
No. 148, "Accounting for Stock-Based  Compensation-Transition  and Disclosure-an
amendment of Financial Accounting Standards Board Statement No. 123".

The  Company has adopted the  disclosure-only  provisions  of SFAS No. 123.  For
purposes of the pro forma  disclosures  below,  the estimated  fair value of the


                                       29
<PAGE>

Company's  stock  options is  amortized  to expense  over the  options'  vesting
period.  Had  compensation  cost for the Company's stock options been recognized
based on the fair value at the grant date consistent with the provisions of SFAS
No. 123, the  Company's  net income  (loss) would have been  adjusted to the pro
forma amounts indicated below:

                                                     YEAR ENDED DECEMBER 31
                                               --------------------------------
                                                  2004        2003       2002
                                               --------    --------    --------

Net loss, as reported                          $    (61)   $ (5,293)   $(16,734)
Add: Stock-based employee compensation
  expense included in reported net loss             245          --          54
Deduct: Total stock-based employee
  compensation expense determined under
  fair value based method for all
  awards, net of related tax effects               (277)     (1,274)     (2,358)
                                               --------    --------    --------
Pro forma net loss                             $    (93)   $ (6,597)   $(19,038)
                                               ========    ========    ========
Basic and diluted net loss per share:
  As reported                                  $  (0.00)   $  (0.19)   $  (0.61)
                                               ========    ========    ========
  Pro forma                                    $  (0.00)   $  (0.24)   $  (0.69)
                                               ========    ========    ========

Compensation  expense  for pro forma  purposes  is  reflected  over the  vesting
period.  The fair value of each option  grant is  estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2004, 2003 and 2002, respectively: dividend yield
of 0% for option grants in all years; risk-free interest rates of 3.0%, 3.0% and
3.9%; expected lives of ten years for option grants in all years; and volatility
factors  of 50%,  50% and  70%.  The  weighted-average  fair  value  of  options
adjustments  during 2004, 2003 and 2002 using the  Black-Scholes  option-pricing
model was $0.31, $0.16 and $0.77 per share, respectively.

Recently issued accounting pronouncements

In December  2004,  the  Financial  Accounting  Standards  Board issued SFAS No.
123(R),  "Share Based Payments." SFAS 123(R) requires that the compensation cost
relating  to  share-based  payment   transactions  be  recognized  in  financial
statements.  That cost will be measured based on the fair value of the equity or
liability  instruments  issued.  Public  entities  will  be  required  to  apply
Statement  123(R) as of the first interim or annual reporting period that begins
after June 15, 2005. We are currently  evaluating the impact of this  statement.
We believe the adoption of this statement,  effective July 1, 2005, will have an
impact on our consolidated financial statements


3. FINANCIAL STATEMENT COMPONENTS

Certain balance sheet components consist of the following:

Rollforward of the allowance for doubtful accounts:


                   Balance December 31, 2001      $      149
                     Provision                            79
                     Write-offs                         (151)
                     Recoveries                            8
                                                  ----------
                   Balance, December 31, 2002             85
                     Provision                           (54)
                     Write-offs                           (3)
                     Recoveries                            2
                                                  ----------
                   Balance, December 31, 2003             30
                     Provision                           (22)
                     Write-offs                           (8)
                                                  ----------
                   Balance, December 31, 2004     $       --
                                                  ----------


                                       30
<PAGE>

Property and equipment consist of the following:

                                                             DECEMBER 31,
                                                          -----------------
                                                            2004      2003
                                                          -------   -------
        Computer hardware                                 $    --   $   128
        Leasehold improvements                                 --        --
        Purchased computer software                            --       458


        Furniture, fixtures and equipment                      --        82
                                                          -------   -------
                                                               --       668

        Less: Accumulated depreciation and amortization        --      (668)
                                                          -------   -------
                                                          $    --   $    --
                                                          =======   =======

Depreciation  and  amortization  expense  was $0,  $484 and $1,940 for the years
ended December 31, 2004, 2003 and 2002, respectively.

Accrued liabilities consist of the following:

                                                          DECEMBER 31,
                                                     --------------------
                                                      2004          2003
                                                     ------        ------

          Accrued wages and benefits                 $   --        $  225
          Other accrued liabilities, primarily
            professional fees                           178           526
                                                     ------        ------
                                                     $  178        $  751
                                                     ======        ======

4. GOODWILL AND OTHER INTANGIBLE ASSETS - ADOPTION OF SFAS NO. 141 AND NO. 142

Effective  January 1, 2002,  in  accordance  with SFAS No. 141 and No. 142,  the
Company  ceased  amortizing  goodwill and certain  other  identified  intangible
assets that had a net book value of approximately  $6,500 as of January 1, 2002.
The adoption of these statements  resulted in the Company not recognizing $3,100
of  amortization  expense for 2002 that would have been  recognized  had the old
standards  been in effect.  At  December  31,  2002,  the Company  performed  an
impairment  assessment of the  remaining  goodwill and other  intangible  assets
recorded in connection  with the acquisition of KDI. As a result of this review,
the Company  recorded a $6,500  impairment  charge to reduce  goodwill and other
intangible assets to zero value.

5. RESTRUCTURING RELATED CHARGES AND IMPAIRMENTS

During  2003 and 2002,  continuing  from 2001,  the Company  instituted  certain
restructuring plans to better align its cost structure with its business outlook
and general  economic  conditions.  Under the  restructuring  plans, the Company
recorded  restructuring related charges totaling $2,251 and $768 during 2003 and
2002, respectively.

In the first quarter of 2002 the Company further reduced its workforce by 15% or
15 positions,  and recorded $367 in related employee  termination costs.  During
the second quarter of 2002 the Company recorded restructuring related charges of
$401, of which $139 related to employee  termination costs due to a reduction in
workforce by 18 positions or 21%,  $291  represented  the  write-down of certain
fixed  assets  and $(29) was a reversal  of  previously  recorded  restructuring
related charges resulting from revised estimates of other costs.

The  Company  recorded  restructuring  related  charges  of  $1,200 in the first
quarter  of 2003  related  primarily  to the  closure  of  operations  in  three
satellite offices, employee termination costs due to a reduction of workforce by
22 positions and $413 for estimated losses on the disposal of fixed assets.  The
Company recorded additional restructuring related charges of $1,051 in the third
quarter of 2003 related  primarily to the termination of three real estate lease
agreements, and employee termination costs due to a reduction of workforce by 12
positions.   The  aggregate  cash  payments  for  the  lease  terminations  were
approximately $5.4 million.

As of December 31, 2004 the Company had no outstanding  lease  obligations.  The
operating lease obligation for the San Francisco  facility  terminated in August
2004 according to the terms of the lease.


                                       31
<PAGE>

The following table presents a summary of the restructuring  related  activities
and accrued restructuring charges as of December 31, 2004:

<TABLE>
<CAPTION>
                                                                            EMPLOYEE                   FIXED
                                                                LEASE       SEVERANCE                  ASSET
                                                             COMMITMENTS       AND                   DISPOSALS
                                                             AND RELATED   TERMINATION               AND OTHER
                                                                ITEMS         COSTS     SUBTOTAL        COSTS       TOTAL
                                                               -------      -------      -------      -------      -------
<S>                                                            <C>          <C>          <C>          <C>          <C>
ACCRUED RESTRUCTURING AS OF DECEMBER 31, 2001                  $ 6,896      $   111      $ 7,007      $   426      $ 7,433
                                                               -------      -------      -------      -------      -------
Restructuring Related Charges and Impairments                       --          506          506          262          768
Restructuring Payments                                          (4,024)        (547)      (4,571)         (66)      (4,637)
Sublease Income and Proceeds from the Sale of Fixed Assets       1,299           --        1,299           68        1,367
Non Cash Asset Disposals                                            --           --           --         (642)        (642)
Reclassification of Accrued Lease Exit Costs                       383           --          383           --          383
                                                               -------      -------      -------      -------      -------
ACCRUED RESTRUCTURING AS OF DECEMBER 31, 2002                  $ 4,554      $    70      $ 4,624      $    48      $ 4,672
                                                               -------      -------      -------      -------      -------
Restructuring Related Charges and Impairments                    1,249          589        1,838          413        2,251
Restructuring Payments                                          (8,094)        (652)      (8,746)         (51)      (8,797)
Sublease Income and Proceeds from the Sale of Fixed Assets       1,832           --        1,832          165        1,997
Non Cash Asset Disposals and Deferred Rent Write-Off               489           --          489         (575)         (86)
                                                               -------      -------      -------      -------      -------
ACCRUED RESTRUCTURING AS OF DECEMBER 31, 2003                  $    30      $     7      $    37      $    --      $    37
                                                               -------      -------      -------      -------      -------
Restructuring Payments                                             (30)          --          (30)          --          (30)
Restructuring Related (Reversal)                                    --           (7)          (7)          --           (7)
                                                               -------      -------      -------      -------      -------
ACCRUED RESTRUCTURING AS OF DECEMBER 31, 2004                  $    --      $    --      $    --      $    --      $    --
                                                               =======      =======      =======      =======      =======
</TABLE>

6. INCOME TAXES

For income tax purposes,  the Company has available  federal net operating  loss
carry-forwards  of  approximately  $121,400 and research and development  credit
carry-forwards of $151 at December 31, 2004. The net operating loss and research
and  development  credit  carry-forwards  expire  in  2011  through  2023 if not
previously  utilized.  The utilization of these carry-forwards may be subject to
limitations  based  on past and  future  changes  in  ownership  of the  Company
pursuant to Internal Revenue Code Section 382. Future tax benefits have not been
recognized  in the  financial  statements,  as their  utilization  is considered
uncertain based on the weight of available information.

Deferred income taxes reflect the tax effects of temporary  differences  between
the carrying amounts of assets and liabilities for financial  reporting purposes
and the amounts  used for income tax  purposes.  Significant  components  of the
Company's deferred tax assets (liabilities) are as follows:

                                                                DECEMBER 31,
                                                          ---------------------
                                                             2004        2003
                                                          ---------   ---------
      Deferred tax assets:
        Net operating loss carry-forwards                 $  43,273   $  45,134
        Restructuring related costs                              --          20
        Research and development credit carry-forwards          151         196
        Accrued vacation and other current liabilities           12         843
        Accounts receivable allowance                            --          12
                                                          ---------   ---------
         Total deferred tax assets                           43,436      46,205
      Valuation allowance                                   (43,436)    (46,205)
                                                          ---------   ---------
         Total net deferred income taxes                  $      --   $      --
                                                          =========   =========

7. NOTE PAYABLE

On April 21, 2004, the Company closed on an investment into the Company by Olden
Acquisition LLC ("Olden"),  for the purpose of initiating a strategy to redeploy
the Company's  assets and use the Company's cash and cash  equivalent  assets to
enhance  stockholder  value.  The Company issued and sold to Olden a 2% ten-year
Convertible  Subordinated  Note, which is convertible after one year (or earlier
upon a call by the Company and in certain other  circumstances)  at a conversion


                                       32
<PAGE>

price of $0.45 per share of Company common stock into approximately 19.9% of the
outstanding common equity of the Company as of the closing date. Proceeds to the
Company from this transaction  totaled  approximately  $2,533 before transaction
costs of $288. The  transaction  costs are being  amortized over ten years,  the
term of the debt. Interest on the note accrues  semi-annually but is not payable
currently or upon  conversion  of the note.  The note matures on April 21, 2014.
The convertible  subordinated note was deemed to include a beneficial conversion
feature.  At the date of issue,  the  Company  allocated  $56 to the  beneficial
conversion feature and is amortizing the beneficial  conversion feature over one
year (the period after which the note is convertible).  As of December 31, 2004,
$16  remains  to be  amortized  of the  note  discount  due  to  the  beneficial
conversion  feature.  Also in  connection  with this  transaction,  the  Company
entered into a Registration Rights Agreement,  which requires the Company,  upon
request of the  purchaser  of the note or its  assignee,  to register  under the
Securities  Act of 1933,  as amended,  the resale of the shares of common  stock
into which the note is  convertible.  In connection with this  transaction,  the
board of directors  adopted an amendment to the Company's  Rights Agreement such
that the transaction would not trigger the rights thereunder.

8. STOCKHOLDERS' EQUITY

The Company is authorized to issue two classes of stock designated as common and
preferred.  As of December 31, 2004, the total number of shares that the Company
was authorized to issue was 105,000  shares,  of which 100,000 were common stock
and 5,000 were preferred  stock. On August 6, 2003 the Company  announced a cash
distribution to stockholders of $1.50 per share, payable on September 2, 2003 to
stockholders  of record as of August 18, 2003. On September 2, 2003, the Company
distributed $42,198 to the common stockholders that was reflected as a reduction
to additional paid in capital.

Stock option plans

In April 2000, the Company's board of directors adopted the 2000 Stock Plan (the
"2000 Plan"),  which provides for the issuance of nonqualified  stock options to
employees who are not officers.  The options allow the holder to purchase shares
of the  Company's  common  stock at fair market  value on the date of the grant.
During fiscal year 2002, no options were granted under the 2000 Plan.  The total
number of options  available  for future  grants  under the 2000 Plan was 447 at
December 31, 2004. Stock options granted under the 2000 Plan typically vest over
four years and generally expire ten years from the date of grant.

In February  1999,  the  Company's  board of  directors  adopted the 1999 Equity
Incentive  Plan (the "1999  Plan"),  which  provides  for the  issuance  of both
incentive  and  nonqualified  stock  options.  The  options  allow the holder to
purchase  shares of the Company's  common stock at fair market value on the date
of the grant. For options granted to holders of more than 10% of the outstanding
common  stock,  the option price at the date of the grant must be at least equal
to 110% of the fair market value of the stock.  During  fiscal year 2003,  1,000
options were granted under the 1999 Plan. Each year,  beginning  January 1, 2000
and ending  January 1, 2002,  the number of shares of common stock  reserved for
issuance  under the 1999 Plan  will,  in  accordance  with the terms of the 1999
Plan,  be  increased  automatically  by the lesser of 5% of the total  number of
common  shares then  outstanding  or 1,500  shares.  Accordingly,  the number of
shares of common stock  reserved for issuance under the 1999 Plan increased by 0
and 1,356  shares in 2003 and 2002,  respectively.  The total  number of options
available  for future grants under the 1999 Plan was 2,524 at December 31, 2002.
Stock  options  granted under the 1999 Plan  typically  vest over four years and
generally expire ten years from the date of grant.

In February 1999, the Company's board of directors adopted the 1999 Non-Employee
Director  Option Plan (the "1999  Non-Employee  Plan") under which  nonqualified
stock  options are granted to  non-employee  directors of the Company.  The 1999
Non-Employee  Plan was  amended  and  restated  in April  2001.  Under  the 1999
Non-Employee  Plan,  60, 195,  and 30 options  were granted in fiscal year 2003,
2002 and 2001,  respectively.  As of December 31, 2003, 0 options were available
for future grant under the 1999  Non-Employee  Plan. Stock options granted under
the 1999  Non-Employee  Plan to a director  upon his or her initial  election or
appointment  typically become  exercisable over a two-year period after issuance
and expire ten years from the date of grant.  Stock  options  granted  under the
1999  Non-Employee  Plan to a director at each annual  meeting of the  Company's
stockholders typically are immediately exercisable and expire ten years from the
date of grant.  The Company did not issue stock  options to its directors at its
2004 annual meeting of stockholders.

The Company's 1996 stock option plan (the "1996 Plan") provides for the issuance
of both  incentive and  nonqualified  stock options to employees.  The incentive
options  allow the holder to purchase  shares of the  Company's  common stock at
fair market value on the date of the grant, subject to certain repurchase rights
held by the  Company.  For  options  granted  to holders of more than 10% of the
outstanding  common stock,  the option price at the date of the grant must be at
least equal to 110% of the fair market value of the stock. Stock options granted
under the 1996 Plan are  immediately  exercisable  but are  subject  to  certain
discretionary repurchase rights by the Company (all of which rights have expired
with respect to options  outstanding  under the 1996 Plan), and generally expire
ten years from the date of grant.  Upon  adoption of the 1999 Plan,  the Company
ceased granting options under the 1996 Plan.

Deferred  compensation  related to stock options granted below fair market value
in 1999 and 1998  totaled  $2,826.  Such  compensation  is  considered  deferred


                                       33
<PAGE>

compensation  and amortized over the four-year  repurchase  period of the common
stock underlying the related options. Related amortization of stock compensation
expense was $0, $42 and $173 in fiscal years 2003, 2002 and 2001, respectively.

Stock compensation  expense related to accelerated  vesting of stock options was
$12 in 2002.

Stock compensation  expense recorded in the functional expense categories within
operating expenses in 2004, 2003 and 2002, was allocated as follows:

                                               2004     2003     2002
                                               ----     ----    -----
            Sales and marketing                $ --     $ --    $  24
            Research and development             --       --        8
            General and administrative          245       --       10
            Restructuring                        --       --       12
                                               ----     ----    -----
                                               $245     $ --    $  54
                                               ====     ====    =====

As a result of the  September  2, 2003 cash  distribution  paid to  stockholders
discussed above,  the board of directors  approved an adjustment to the exercise
price of all of our outstanding  options to take effect on the close of business
on  September  3, 2003.  The  adjustment  was to in no event reduce the exercise
price of any  options  to less than  $0.01 per share or  increase  the number of
shares  subject to such  options to a number  exceeding  the number of shares of
common stock that are  registered  and available for issuance.  In addition,  no
adjustment  was made to any options with exercise  prices above $2.00 per share.
As a result of the adjustment,  870 stock options with an average exercise price
of $1.51 were adjusted to 3,715 stock options with an average  exercise price of
$0.32. In accordance with FIN 44, "Accounting for Certain Transactions involving
Stock  Compensation  an  interpretation  of APB  Opinion  No.  25," there was no
accounting  consequence  due to the changes  made to the  exercise  price or the
number of shares other than future  potential  dilution to stockholders  because
the aggregate intrinsic value of each award immediately after the change was not
greater than the aggregate  intrinsic value of the award immediately  before the
change and the ratio of the  exercise  price per share to the  market  value per
share was not reduced.

A summary of activity of the Company's stock option plans is presented below:

<TABLE>
<CAPTION>
                                                         YEARS ENDING DECEMBER 31,
                                     --------------------------------------------------------------
                                            2004                   2003                2002
                                     ------------------    -------------------  -------------------
                                                WEIGHTED              WEIGHTED             WEIGHTED
                                                AVERAGE               AVERAGE              AVERAGE
                                                EXERCISE              EXERCISE             EXERCISE
                                     SHARES      PRICE     SHARES      PRICE    SHARES       PRICE
                                     ------      -----     ------      -----     ------      -----
<S>                                   <C>        <C>        <C>        <C>        <C>        <C>
Outstanding at beginning of year      2,029      $1.83      2,757      $3.26      3,719      $4.97
Granted                                 150       0.66         61       1.63        275       1.37
9/3/03 pre adjustment options            --         --       (870)      1.51         --         --
9/3/03 post adjustment options           --         --      3,715       0.32         --         --
Exercised                              (529)      0.29       (801)      1.12       (136)      0.47
Canceled                             (1,462)      2.43     (2,833)      1.54     (1,101)      8.91
                                     ------                ------                ------
Outstanding at end of year              188      $0.59      2,029      $1.83      2,757      $3.26
                                     ======                ======                ======
</TABLE>

The following  table  summarizes  information  about  fixed-price  stock options
outstanding at December 31, 2004:

<TABLE>
<CAPTION>
                                 OPTIONS OUTSTANDING               OPTIONS EXERCISABLE
                  --------------------------------------------  ---------------------------
                           WEIGHTED-AVERAGE
   RANGE OF                   REMAINING       WEIGHTED-AVERAGE             WEIGHTED-AVERAGE
EXERCISE PRICES    SHARES  CONTRACTUAL LIFE    EXERCISE PRICE   SHARES    EXERCISE PRICE
---------------   -------  ----------------   ----------------  ------   ------------------
<S>                  <C>        <C>              <C>               <C>       <C>
$0.23 -- $0.23        6         6.25             $   0.23          6         $   0.23
$0.35 -- $0.48       82         8.83                 0.43         49             0.39
$0.74 -- $0.75      100         9.54                 0.75         24             0.74
                   ----                                          ---
Total               188         9.13             $   0.59         79         $   0.49
                   ====                                          ===
</TABLE>


                                       34
<PAGE>

Employee Stock Purchase Plan

In February  1999, the Company's  board of directors  adopted the Employee Stock
Purchase  Plan (the  "Purchase  Plan").  The initial  number of shares of common
stock  reserved  for  issuance  under the  Purchase  Plan was 1,000.  Each year,
beginning  January 1, 2000 and ending  January 1, 2004,  the number of shares of
common stock  reserved for issuance  under the Purchase  Plan was, in accordance
with the terms of the Purchase Plan, automatically increased by the lesser of 2%
of the total number of common shares then outstanding or 600 shares.  The number
of shares  of common  stock  reserved  for  issuance  under  the  Purchase  Plan
increased by 300 in each of 2003 and 2002.  The Company  terminated the Purchase
Plan  effective  October  27,  2003.  During  2003 and 2002,  12 and 68  shares,
respectively, were issued under the Purchase Plan.

Stockholders' rights plan

In  June  2001,  the  Company  entered  into a  Rights  Agreement  (the  "Rights
Agreement"),  commonly  known as a "poison  pill."  Under the Rights  Agreement,
stockholders of record on June 14, 2001 were  distributed  Rights (the "Rights")
to  acquire  one  one-thousandth  of a share  of the  Company's  Series A Junior
Participating  Preferred Stock (the "Preferred  Stock"),  at a rate of one Right
for each share of the  Company's  common  stock  (the  "Common  Stock")  held by
stockholders  on such date.  Each share of common  stock  issued  after the June
14th, 2001 record date has an attached Right. The Rights trade together with the
Common Stock and generally become exercisable on the tenth day after a person or
group (i) acquires 15% of more of the outstanding Common Stock or (ii) commences
a tender  offer or  exchange  offer that would  result in such a person or group
owning  15% or more of the  Common  Stock.  In the event  that a person or group
acquires 15% or more of the Common Stock (a "Stock Acquisition"), each Right not
owned by the 15% or more stockholder (the "Acquiring Person") and its affiliates
would become  exercisable  for, upon payment of the exercise  price of the Right
(currently,  $15),  either Preferred Stock or Common Stock in an amount equal to
the then  current  exercise  price  of the  Right  divided  by one half the then
current market price of the Common Stock. Alternatively, in the event of certain
business combinations following a Stock Acquisition, each Right not owned by the
Acquiring Person and its affiliates  would become  exercisable for, upon payment
of the exercise price of the Right,  common stock of the Acquiring  Person in an
amount equal to the then current exercise price of the Right divided by one half
the market price of the Acquiring  Person's  common stock. At any time until ten
days following a Stock  Acquisition,  the Rights are redeemable by the Company's
board of  directors  at a price of $.01 per  Right.  The  Rights  have no voting
privileges.  The Rights  will  terminate  upon the  earlier of the date of their
redemption or ten years from the date of issuance.

On December 22, 2003, the board of directors  adopted an amendment to the Rights
Agreement.  The amendment provides,  in effect, that the rights issued under the
Rights   Agreement   will  not  be  separately   distributed  to  the  Company's
stockholders and become  exercisable solely as a result of the commencement of a
tender  offer or  exchange  offer for all  outstanding  shares of the  Company's
common  stock.  In addition,  the  amendment  provides  that the rights will not
"flip-in" and entitle a holder to purchase shares of the Company's  common stock
at a discount  upon  consummation  of such an offer  that  results in the bidder
beneficially  owning at least  85% of the  outstanding  shares of the  Company's
common  stock,  excluding  for purposes of  determining  the number of shares of
common stock  outstanding  those shares owned by directors who are also officers
of the Company and shares owned by stock plans sponsored by the Company in which
Company employee participants do not have the right to determine  confidentially
whether  shares of Company  common stock held subject to such stock plan(s) will
be  tendered  in a  tender  offer  or  exchange  offer.  Also,  pursuant  to the
amendment,  the  rights  will not be  triggered  by a  subsequent  merger of the
Company with such a bidder in which the Company's  stockholders receive the same
consideration  as was paid or issued in the tender offer or exchange offer.  The
amendment  was  intended to remove the Rights  Agreement as an  impediment  to a
bidder  completing  its offer and a  subsequent  merger,  while  also  affording
protection  to  stockholders  who did not tender  their  shares in the  bidder's
first-step tender or exchange offer, if the holders of a substantial majority of
the Company's  stock elected to accept the bidder's  offer.  The amendment  also
clarified that stockholders who entered into voting agreements or understandings
solely  regarding  voting on the plan of  liquidation  would not be deemed,  for
purposes of the Rights  Agreement,  to beneficially  own the shares owned by the
other parties to such agreements or understandings. This aspect of the amendment
was intended to allow  stockholders  to freely  consult  with one another,  form
groups, and enter into agreements, with respect to voting at the special meeting
on the plan of  liquidation,  without  triggering  the  rights  under the Rights
Agreement.  However, since the plan of liquidation did not receive the requisite
stockholder  vote  required  for  approval,  this aspect of the  amendment is no
longer applicable.

On April 21,  2004,  in  connection  with the closing of the  investment  in the
Company by Olden,  the board of directors  adopted an amendment to the Company's
Rights  Agreement  such  that the  transaction  would  not  trigger  the  rights
thereunder.

On April 21, 2004,  the Company  granted  restricted  stock to Nigel Ekern,  the
Company's Chief Administrative Officer, and Gray Hudkins, formerly the Company's
Director  of  Corporate  Development,  in the  amount  of 364  and  243  shares,
respectively, of the Company's common stock under the Company's incentive plans,
vesting over three years.  The fair value of $292 for the restricted  stock will
be  amortized  over the  three-year  vesting  period.  On October 1, 2004,  Gray
Hudkins  resigned and the Company  accelerated  o the vesting of his  restricted
stock  grant  resulting  in  additional  compensation  expense of $88 as well as


                                       35
<PAGE>

immediate expensing of the remaining  unamortized balance of the original grant.
The  Company  recorded  total  compensation  expense  of  $245  relating  to the
restricted stock grants during the year ended December 31, 2004.

9. COMMITMENTS AND CONTINGENCIES

Operating leases

The Company had entered into operating  lease  commitments for its office space.
In  connection  with the  restructuring  described  in Note 5, the  Company  had
terminated all of its office leases as of December 31, 2004.

Our corporate headquarters is currently located in Stamford,  Connecticut, where
we occupy space made  available to us at no cost by Kanders & Company,  Inc., an
entity owned and  controlled  by the  Company's  Executive  Chairman,  Warren B.
Kanders. This arrangement is subject to termination at any time.

Rent  expense  totaled $7, $300 and $720 for the years ended  December 31, 2004,
2003 and 2002, respectively.

Contingencies

Initial and Follow-On Public Offering Securities Litigation

On  November  2, 2001,  Timothy J. Fox filed a purported  class  action  lawsuit
against the Company,  FleetBoston Robertson Stephens, Inc., the lead underwriter
of the Company's April 1999 initial public offering,  several other underwriters
who participated in the initial public offering, Steven J. Snyder, the Company's
then  president  and  chief  executive  officer,  and  Thomas M.  Donnelly,  the
Company's  chief financial  officer.  The lawsuit was filed in the United States
District  Court for the Southern  District of New York and has been  assigned to
the judge who is also the pretrial  coordinating judge for substantially similar
lawsuits  involving  more  than 300  other  issuers.  An  amended  class  action
complaint,  captioned  In re  Net  Perceptions,  Inc.  Initial  Public  Offering
Securities  Litigation,  01 Civ.  9675  (SAS),  was  filed  on April  22,  2002,
expanding  the  basis for the  action to  include  allegations  relating  to the
Company's March 2000 follow-on  public offering in addition to those relating to
its initial public offering.

The amended  complaint  generally  alleges that the defendants  violated federal
securities  laws by not  disclosing  certain  actions  taken by the  underwriter
defendants  in  connection  with  the  Company's  initial  public  offering  and
follow-on public offering.  The amended complaint alleges  specifically that the
underwriter  defendants,  with the Company's direct  participation and agreement
and without  disclosure  thereof,  conspired to and did raise and increase their
underwriters'  compensation  and the market prices of the Company's common stock
following its initial public  offering and in its follow-on  public  offering by
requiring their  customers,  in exchange for receiving  allocations of shares of
the Company's common stock sold in its initial public offering, to pay excessive
commissions on transactions in other securities,  to purchase  additional shares
of the Company's  common stock in the initial  public  offering  aftermarket  at
pre-determined  prices above the initial public offering price,  and to purchase
shares of the  Company's  common stock in its  follow-on  public  offering.  The
amended  complaint seeks  unspecified  monetary  damages and  certification of a
plaintiff  class  consisting  of all persons who acquired the  Company's  common
stock between  April 22, 1999 and December 6, 2000.  The  plaintiffs  have since
agreed to dismiss  the  claims  against  Mr.  Snyder  and Mr.  Donnelly  without
prejudice,  in return for their  agreement  to toll any  statute of  limitations
applicable  to those  claims;  and  those  claims  have been  dismissed  without
prejudice.  On July 15, 2002, all of the issuer  defendants filed a joint motion
to dismiss the  plaintiffs'  claims in all of the related cases. On February 19,
2003, the court ruled against the Company on this motion.

The parties  have  negotiated  a  settlement  that is subject to approval by the
Court. On February 15, 2005, the Court issued an Opinion and Order preliminarily
approving the settlement, provided that the defendants and plaintiffs agree to a
modification  narrowing  the scope of the bar  order  set forth in the  original
settlement agreement.

The Company  believes that the allegations  against it are without merit.  After
reviewing  this   proceeding   (including  the  probable   outcome,   reasonably
anticipated costs and expenses,  availability and limits of insurance  coverage)
the Company  believes  the outcome of this  proceeding  will not have a material
adverse effect on our liquidity,  financial  condition or results of operations.
However,  the results of complex legal proceedings are difficult to predict.  An
unfavorable  resolution of the proceeding  could adversely  affect the Company's
business, results of operations, liquidity or financial condition.


                                       36
<PAGE>

Blakstad Litigation

On October 29, 2003,  a purported  class  action  lawsuit was filed  against the
Company,  its current  directors and unnamed  defendants in the District  Court,
Fourth  Judicial  District,  of the  State  of  Minnesota,  County  of  Hennepin
captioned Don Blakstad,  on Behalf of Himself and All others Similarly Situated,
vs. Net Perceptions,  Inc., John F. Kennedy,  Ann L. Winblad,  John T. Riedl and
Does 1-25,  inclusive,  File No. 03-17820.  The complaint  alleged,  among other
things,  that defendants  breached their fiduciary duties of loyalty,  due care,
independence,  good faith and fair  dealing  and  sought to enjoin the  proposed
liquidation  of the Company and to recover  reasonable  attorneys'  and experts'
fees.  On November 24, 2003,  defendants  filed a motion to dismiss the lawsuit,
and by order  dated  March 8,  2004,  the court  dismissed  the  complaint  with
prejudice.  By letter dated March 9, 2004,  the plaintiff  requested the court's
permission to file a motion to reconsider the decision  dismissing the complaint
with prejudice.  On March 18, 2004, the court denied the plaintiff's request. On
April 9, 2004, the plaintiff  filed a notice of appeal and statement of the case
with the Court of  Appeals of the State of  Minnesota  and,  on April 22,  2004,
defendants filed their statement of the case with the Court of Appeals.  In June
2004 plaintiffs  informed  counsel for defendants of their desire to dismiss the
appeal,  and, on June 3, 2004,  the parties  submitted to the Court of Appeals a
stipulation of voluntary  dismissal  "without any right to further  appeal." The
Court of Appeals dismissed the appeal by order dated June 8, 2004.

10.  401(K) PLAN

The Company had a 401(k) employee retirement plan under which eligible employees
could  contribute  up to 20% of their  annual  compensation,  subject to certain
limitations.  Employees vested  immediately in their  contributions and earnings
thereon.  The plan  allowed  for,  but did not  require,  the  Company  to match
employee   contributions.   The   Company   did  not  make  any  such   matching
contributions.  The Company  terminated this 401(k) employee  retirement plan on
September 30, 2003,  effective upon the  distribution  of all assets held by the
plan to the plan participants.

11. SEGMENT DATA

The Company views its  operations  and manages its business as one segment,  the
development  and marketing of computer  software and related  services.  Factors
used  to  identify  the  Company's   single   operating   segment   include  the
organizational  structure of the Company and the financial information available
for evaluation by the chief operating  decision maker in making  decisions about
how to allocate resources and assess performance.  In addition, the Company does
not allocate operating  expenses to any segments,  nor does it allocate specific
assets to any  segments.  Therefore,  segment  information  is  identical to the
consolidated balance sheet and consolidated statement of operations.

Sales to customers  located outside of the United States totaled 0%, 11% and 14%
of total revenues in 2004, 2003 and 2002  respectively.  International  sales to
customers  in any one  individual  foreign  country  did not exceed 10% of total
revenues in 2004,  2003 or 2002.  As of December  31,  2004,  the Company had no
international assets.

12. RELATED PARTY TRANSACTIONS

We occupy space made  available to us at no cost by Kanders & Company,  Inc., an
entity owned and  controlled  by the  Company's  Executive  Chairman,  Warren B.
Kanders.  This arrangement can be terminated at any time.

In December 2000, the Company  entered into a full recourse  secured  promissory
note and security agreement with a now former officer of the Company.  Under the
terms of the agreement, up to $300 could be loaned to the officer prior to April
15, 2001 solely to pay federal income tax owed by the officer in connection with
the  officer's  exercise  in March 2000 of an option to  purchase  shares of the
Company's  stock.  Amounts  outstanding  under the note bear  interest at 8% per
annum and are partially  secured by 33,000 shares of the Company's stock held by
the officer and pledged to the Company.  On April 11, 2001, $258 was loaned to a
now  former  officer  to pay  alternative  minimum  tax  relating  to the option
exercise under the terms of the note. Principal and interest owed by the officer
shall  be  forgiven  if  the  officer's  employment  is  terminated  other  than
voluntarily  or for cause,  or if there is a change in control of the Company as
defined in the agreement. Additionally,  one-third of the original principal and
accrued  interest  will be  forgiven  for each  year  that the  officer  remains
continuously  employed  by the  Company  subsequent  to April  2001.  Otherwise,
principal  and accrued  interest  are payable by the officer in April 2004.  The
principal  balance of the loan is being  amortized  to expense  ratably over the
term of the agreement  commencing  in April 2001.  As of December 31, 2003,  the
balance of $21 is included in prepaid  expenses and other current assets.  As of
April 1, 2004, the note was completely forgiven in accordance with its terms.


                                       37
<PAGE>

13. SUBSEQUENT EVENTS

In February 2005,  the Company  received $228 from the settlement of the lawsuit
with i2  Technologies  Inc.  The  Company  intends  to  record  the gain on this
settlement in the first quarter of 2005.

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

None.

ITEM 9A. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

The Company's  management  carried out an evaluation,  under the supervision and
with  the  participation  of the  Company's  Chief  Administrative  Officer  and
Controller,  its principal  executive officer and principal  financial  officer,
respectively of the  effectiveness  of the design and operation of the Company's
disclosure  controls and procedures (as such term is defined in Rules  13a-15(e)
and 15d-15(e) under the Securities  Exchange Act of 1934 (the "Exchange Act") as
of December  31, 2004,  pursuant to Exchange  Act Rule  13a-15.  Based upon that
evaluation,  the Company's Chief Administrative Officer and Controller concluded
that the Company's  disclosure  controls and  procedures as of December 31, 2004
are effective.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

No changes in the Company's internal control over financial  reporting have come
to  management's  attention  during the fourth  quarter ended  December 31, 2004
evaluation that have materially affected, or are reasonably likely to materially
affect the Company's internal control over financial reporting.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information set forth under the caption "Election of Directors" in our Proxy
Statement used in connection  with our 2005 Annual Meeting of  Stockholders,  is
incorporated herein by reference.

The  Company   has  adopted  a  code  of  ethics  that   applies  to  its  Chief
Administrative  Officer and  Controller,  its  principal  executive  officer and
principal  financial  officer,  and to all of its other officers,  directors and
employees.  The code of ethics may be  accessed at  www.netperceptions.com,  our
Internet  website,  at the tab "Corporate  Governance".  The Company  intends to
disclose future amendments to, or waivers from,  certain  provisions of its code
of ethics,  if any, on the above website within four business days following the
date of such amendment or waiver.

Other  information  required  by  Item  10,  including   information   regarding
directors,  membership  and  function  of the  audit  committee,  including  the
financial  expertise of its members,  and Section  16(a)  compliance,  appearing
under the captions  "Election of  Directors",  "Information  Regarding  Board of
Directors and  Committees"  and "Other  Matters" in our Proxy  Statement used in
connection with our 2005 Annual Meeting of Stockholders,  is incorporated herein
by reference.

ITEM 11. EXECUTIVE COMPENSATION

The  information  set forth under the caption  "Executive  Compensation"  in our
Proxy Statement used in connection with our 2005 Annual Meeting of Stockholders,
is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The  information  set forth under the caption  "Principal  Stockholders"  in our
Proxy Statement used in connection with our 2005 Annual Meeting of Stockholders,
is incorporated herein by reference.


                                       38
<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information set forth under the caption "Certain  Relationships  and Related
Transactions"  in our Proxy  Statement  used in connection  with our 2005 Annual
Meeting of Stockholders, is incorporated herein by reference.

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

The  information  set forth under the  caption  "Principal  Accountant  Fees and
Services" in our Proxy Statement used in connection with our 2005 Annual Meeting
of Stockholders, is incorporated herein by reference.

                                     PART IV

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

    (a) Financial Statements

        1. The financial  statements  filed as part of this report are listed on
the Index to Consolidated Financial Statements on page 21.

        2.  All  schedules  for  which  provision  is  made  in  the  applicable
accounting  regulations  of the  Securities  and  Exchange  Commission  are  not
required.  The information required to be set forth therein is not applicable or
is shown in the Consolidated  Financial  Statements or notes thereto included in
this report.

3. The following Exhibits are hereby filed as part of this Annual Report on Form
10-K:

EXHIBIT
 NUMBER                                DESCRIPTION
-------                                -----------

2.1         Patent Purchase Agreement, dated December 30, 2003, between Thalveg
            Data Flow LLC and Net Perceptions, Inc., as amended on March 31,
            2004 (1)

3.1(a)      Amended and Restated Certificate of Incorporation (2).

3.1(b)      Certificate of Amendment to the Amended and Restated Certificate of
            Incorporation (3).

3.2         Amended and Restated Bylaws as amended through August 5, 2003 (4).

4.1         Amended and Restated Investor's Rights Agreement, dated December 18,
            1997, among Net Perceptions, Inc. and the investors and founders
            named therein, as amended (2).

4.2         Specimen common stock certificate (2).

4.3         Specimen common stock certificate (including Rights Agreement
            Legend) (5).

4.4         Rights Agreement between Net Perceptions, Inc. and Wells Fargo Bank
            Minnesota, as Rights Agent (6).

4.5         Amendment No. 1 to Rights Agreement dated as of December 22, 2003
            (7).

4.6         Form of Certificate of Designation of Series A Junior Participating
            Preferred Stock (attached as Exhibit A to the Rights Agreement filed
            as Exhibit 4.4 hereto) (6).

4.7         Form of Rights Certificate (attached as Exhibit B to the Rights
            Agreement filed as Exhibit 4.4 hereto) (6).

10.1*       Form of Indemnification Agreement entered into between Net
            Perceptions, Inc. and its directors and officers (2).

10.2*       1996 Stock Plan (2).

10.3*       1999 Equity Incentive Plan (2).

10.4*       Amended and Restated 1999 Non-Employee Director Option Plan, as
            amended through April 2, 2001 (8).

10.5*       Employee Stock Purchase Plan (2).

10.8*       2000 Stock Plan (9).

10.9*       Change in Control Severance Plan and Summary Plan Description (2).

21.1        List of Subsidiaries.

23.1        Consent of PricewaterhouseCoopers LLP, independent registered public
            accounting firm.

31.1        Certification of principal executive officer pursuant to Exchange
            Act Rules Rule 13(a)-14(a) and15(a)-14(a), as adopted pursuant to
            Section 302 of the Sarbanes-Oxley Act of 2002.

31.2        Certification of principal financial officer pursuant to Exchange
            Act Rules Rule 13(a)-14(a) and15(a)-14(a), as adopted pursuant to
            Section 302 of the Sarbanes-Oxley Act of 2002.

32.1        Certification of principal executive officer pursuant to 18 U.S.C.
            Section 1350, as adopted pursuant to Section 906 of the
            Sarbanes-Oxley Act of 2002.

32.2        Certification of principal financial officer pursuant to 18 U.S.C.
            Section 1350, as adopted pursuant to Section 906 of the
            Sarbanes-Oxley Act of 2002.


                                       39
<PAGE>

------------
* Represents a management contract or compensatory plan or arrangement.

(1)  Incorporated by reference to Net Perceptions' Current Report on Form 8-K
     filed April 1, 2004.

(2)  Incorporated by reference to Net Perceptions' Registration Statement on
     Form S-1 (Registration No. 333-71919).

(3)  Incorporated by reference to Net Perceptions' Annual Report on Form 10-K
     for the Fiscal Year Ended December 31, 2002.

(4)  Incorporated by reference to Net Perceptions' Quarterly Report on Form 10-Q
     for the Quarter Ended June 30, 2003.

(5)  Incorporated by reference to Net Perceptions' Quarterly Report on Form 10-Q
     for the Quarter Ended June 30, 2001.

(6)  Incorporated by reference to Net Perceptions' Registration Statement on
     Form 8-A filed June 6, 2001.

(7)  Incorporated by reference to Net Perceptions' Current Report on Form 8-K
     filed December 23, 2003.

(8)  Incorporated by reference to Net Perceptions' Quarterly Report on Form 10-Q
     for the Quarter Ended March 31, 2001.

(9)  Incorporated by reference to Net Perceptions' Quarterly Report on Form 10-Q
     for the Quarter Ended June 30, 2000.

(b)  The exhibits are listed in Item 15. (a)(3) above.

(c)  None.


                                       40
<PAGE>

                                   SIGNATURES

    Pursuant  to the  requirements  of  Section  13 or 15(d)  of the  Securities
Exchange Act of 1934, as amended,  the  registrant  has caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

                                                    NET PERCEPTIONS, INC.

                                                    By: /s/ NIGEL P. EKERN
                                                        ------------------------
                                                        Nigel P. Ekern
                                                        Chief Administrative
                                                        Officer
Date: March 31, 2005

    Pursuant to the  requirements  of the  Securities  Exchange Act of 1934,  as
amended, this report has been signed below by the following persons on behalf of
the registrant in the capacities indicated on March 31, 2005.

          SIGNATURE                               TITLE
-----------------------------    ----------------------------------------------

/s/ NIGEL P. EKERN               Chief Administrative Officer (Principal
-----------------------------    Executive Officer)
Nigel P. Ekern

/s/ SUSAN LUCKFIELD              Controller (Principal Financial Officer)
-----------------------------
Susan Luckfield

/s/ WARREN B. KANDERS            Executive Chairman of the Board of Directors
-----------------------------
Warren B. Kanders

/s/ GIANMARIA C. DELZANNO        Director
-----------------------------
Gianmaria C. Delzanno

/s/ DAVID A. JONES               Director
-----------------------------
David A. Jones

/s/ NICHOLAS SOKOLOW             Director
-----------------------------
Nicholas Sokolow



                                       41
<PAGE>

                                  EXHIBIT INDEX

       EXHIBIT
        NUMBER                               DESCRIPTION
     -----------    ------------------------------------------------------------
         21.1       List of Subsidiaries.

         23.1       Consent   of    PricewaterhouseCoopers    LLP,   independent
                    registered public accounting firm.

         31.1       Certification  of principal  executive  officer  pursuant to
                    Exchange  Act  Rules  Rule  13(a)-14(a)  and15(a)-14(a),  as
                    adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
                    2002

         31.2       Certification  of principal  financial  officer  pursuant to
                    Exchange  Act  Rules  Rule  13(a)-14(a)  and15(a)-14(a),  as
                    adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
                    2002

         32.1       Certification of principal  executive officer pursuant to 18
                    U.S.C.  Section 1350, as adopted  pursuant to Section 906 of
                    the Sarbanes-Oxley Act of 2002.

         32.2       Certification of principal financial officer  pursuant to 18
                    U.S.C. Section 1350, as adopted  pursuant to  Section 906 of
                    the Sarbanes-Oxley Act of 2002.



                                       42