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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-K



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|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------



For the fiscal year ended December 31, 2003



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from              to



Commission File Number 000-25269



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VERTICALNET, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Pennsylvania                                                   |  | 23-2815834                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|400 CHESTER FIELD PARKWAY MALVERN, PENNSYLVANIA                |  | 19355                               
|(Address of principal executive offices)                       |  | (Zip Code)                          



Registrants
telephone number, including area code: (610) 240-0600



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Securities registered pursuant to Section 12(b) of the Act: NONE



Securities registered pursuant to Section 12(g) of the Act:



Common Stock, par value $.01 per share



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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. ̈



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



As of June 30, 2003 (the last day of our most recently completed second quarter), the aggregate market value of the common stock held by non-affiliates of
the registrant was $17,468,445. Such aggregate market value was computed by reference to the closing sale price per share of $1.56 as reported on The Nasdaq Stock Market on such date. For purposes of making this calculation only, the registrant has
defined affiliates as including all officers, directors, and beneficial owners of more than five percent of the common stock of the Company.



The number of shares outstanding of the registrants common stock as of March 15, 2004 was 25,603,978.



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VERTICALNET, INC.



FORM 10-K

For the Fiscal Year Ended December 31, 2003



INDEX



|                                                          |  |                                                                                                              |  |     
|--------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|                                                          |  |                                                                                                              |  | Page
|Cautionary Statement Regarding Forward-Looking Statements |  | ii                                                                                                          
|                                                          | 
|Informational Note Regarding Prior Stock Splits           |  | ii                                                                                                          
|                                                          |  |                                                                                                             
|                                                          |  | PART I                                                                                                       |  |     
|ITEM 1.                                                   |  | Business                                                                                                     |  | 1   
|ITEM 2.                                                   |  | Properties                                                                                                   |  | 6   
|ITEM 3.                                                   |  | Legal Proceedings                                                                                            |  | 7   
|ITEM 4.                                                   |  | Submission of Matters to a Vote of Security Holders                                                          |  | 8   
|                                                          |  |                                                                                                             
|                                                          |  | PART II                                                                                                      |  |     
|ITEM 5.                                                   |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 9   
|ITEM 6.                                                   |  | Selected Financial Data                                                                                      |  | 10  
|ITEM 7.                                                   |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 10  
|ITEM 7A.                                                  |  | Quantitative and Qualitative Disclosure About Market Risk                                                    |  | 28  
|ITEM 8.                                                   |  | Financial Statements and Supplementary Data                                                                  |  | 29  
|ITEM 9.                                                   |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 66  
|ITEM 9A.                                                  |  | Controls and Procedures                                                                                      |  | 66  
|                                                          |  |                                                                                                             
|                                                          |  | PART III                                                                                                     |  |     
|ITEM 10.                                                  |  | Directors and Executive Officers of the Registrant                                                           |  | 67  
|ITEM 11.                                                  |  | Executive Compensation                                                                                       |  | 71  
|ITEM 12.                                                  |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 79  
|ITEM 13.                                                  |  | Certain Relationships and Related Transactions                                                               |  | 81  
|ITEM 14.                                                  |  | Principal Accountant Fees and Services                                                                       |  | 81  
|                                                          |  |                                                                                                             
|                                                          |  | PART IV                                                                                                      |  |     
|ITEM 15.                                                  |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                                              |  | 83  
|                                                          | 
|Signatures                                                |  | 87                                                                                                          



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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS



The information in this report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements contained in this report that are not statements of
historical fact may be deemed forward-looking statements. Words such as may, might, will, would, should, could, project, estimate, pro forma,
predict, potential, strategy, anticipate, plan to, believe, continue, intend, expect, and words of similar expression (including the negative
of any of the foregoing) are intended to identify forward-looking statements. Additionally, forward-looking statements in this report include statements relating to the design, development, and implementation of our products; the strategies
underlying our business objectives; the benefits to our customers, and their trading partners, of our products; our liquidity and capital resources; and the impact of our acquisitions and investments on our business, financial condition, and
operating results.



Our forward-looking statements are
not meant to predict future events or circumstances and may not be realized because they are based upon current expectations that involve risks and uncertainties. Actual results and the timing of certain events may differ materially from those
currently expected as a result of these risks and uncertainties. Factors that may cause or contribute to a difference between the expected or desired results and actual results include, but are not limited to, the availability of and terms of equity
and debt financing to fund our business; our reliance on the development of our enterprise software business; our ability to continue to remain listed on the Nasdaq SmallCap Market; competition in our target markets; economic conditions in general
and in our specific target markets; our ability to use and protect our intellectual property; and our ability to attract and retain qualified personnel, as well as the risks discussed in the section of this report entitled Factors Affecting
our Business Condition. Given these uncertainties, investors are cautioned not to place undue reliance on our forward-looking statements. We disclaim any obligation to update these factors or to announce publicly the results of any revisions
to any of the forward-looking statements contained in this report to reflect future events or developments.



INFORMATIONAL NOTE REGARDING PRIOR STOCK SPLITS



Information in this report has been adjusted to reflect two separate stock splits of our common stock. A two-for-one stock split was effected on March 31, 2000 and a one-for-ten reverse stock split was effected on
July 15, 2002. All references to shares and per share amounts have been adjusted retroactively for these splits.



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PART I



Item 1.Business



Verticalnet, Inc., which was incorporated on July 28, 1995 under the laws of Pennsylvania, is referred to throughout this report as Verticalnet, the Company, the registrant,
we, us, or through similar expressions.



We are a provider of Supply Management solutions to Global 2000 companies. We provide a full scope of Supply Management software, services, and domain expertise in areas that include: Spend Analysis, Advanced eSourcing, eProcurement,
Contract Management, and Supplier Scorecards. Our solutions enable our customers to harness the power of their data to achieve lower prices, improved contract compliance, better supplier service, and shorter sourcing cycles. As a result, we help our
customers recognize significant and sustainable savings in materials costs, inventory levels, and administrative costs  resulting in improved profitability.



With the completion of the Atlas Commerce, Inc. (Atlas Commerce) acquisition in December 2001 and the sale of
our Small/Medium Business (SMB) unit (formerly referred to as Verticalnet Markets) in June 2002, we completed the business transformation from our origins as an operator of online public vertical communities to a business solely focused
on delivering sourcing and supply chain software and services to enterprise customers. As a result of the Tigris Corp. (Tigris) acquisition in January 2004, we enhanced our capability to serve this market by expanding our spend analysis
and strategic sourcing domain expertise while adding additional technology tools in the area of bid optimization and advanced sourcing tools. See Managements Discussion and Analysis of Financial Condition and Results of Operations -
Company Overview for a discussion of the significant changes in our business in 2003.



Competitive Advantage



We believe our solutions are differentiated by the breadth of our Supply Management offering, the depth of our services expertise, our strong capabilities especially in Spend Analysis and Advanced Category Sourcing, and our Bid Analysis
Optimization functionality. We believe that we are unique in our ability to deliver solutions, which consist of the right mix of software, services, and domain expertise, to deliver maximum value to our clients.



Software - Our solutions have been highly rated by industry analysts
including AMR Research. We believe that we are differentiated in our approach to applying sourcing-specific analytics on top of an end-to-end transactional platform. This allows us to help supply managers decide which strategies to select, and then
help implement them.



Services - We offer a services approach
across all of our solutions for companies that are looking for business process improvement or assistance with complex data problems. Our services teams have focused skill sets and experience which enable them to address highly complex client
sourcing needs.



Domain expertise - Verticalnet has been
offering Spend Analysis and Advanced Sourcing solutions to companies since 1996. Our personnel offer a depth of experience in Supply Management that we believe is very beneficial to our customers. We believe that our personnel offer an extensive
depth of experience in spend analysis, the strategic sourcing process in general, and particularly in the strategic sourcing of important categories such as transportation, packaging, services, and commercial printing. We believe that this expertise
enables us to deliver rapid value to our clients.



Our Solutions



Our solutions consist of a tailored mix of software,
services, and process expertise designed to meet the specific needs of our customers. Supply Management encompasses the lifecycle of strategic sourcing and procurement. Our solutions are bundled into four process steps of Supply Management: Supply
Strategy, Supply Selection, Supply Execution, and Supply Performance.



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Verticalnet Supply Strategy



Verticalnets Supply Strategy solutions help companies understand their spending across disparate locations and
divisions including aggregating spending information by supplier, location, and item. Additionally, they provide organizations with concrete recommendations into sourcing opportunities to drive savings, as well as the ability to track compliance
with negotiated contracts. Verticalnet Supply Strategy solutions consist of the following three offerings:



Verticalnet Spend Analysis provides our clients with enterprise-wide visibility into spending across multiple systems, divisions, and locations and
enables procurement organizations to quickly identify which spending categories they should focus on to generate savings. Our Spend Analysis solution can be delivered as a behind-the-firewall software implementation, via an Application Service
Provider (ASP) model, or as an outsourced service, depending on our customers requirements.



Verticalnet Sourcing Analysis enables companies to analyze sourcing projects to identify, evaluate, and quantify maximum opportunities to improve sourcing
effectiveness. Our software extracts, cleanses, and classifies sourcing data from multiple disparate systems and enables procurement professionals to analyze the data to measure key sourcing metrics including: negotiated savings by commodity,
negotiated savings by project, on-contract versus off-contract spending, and diversity spending.



Verticalnet Sourcing Advisory Services enable sourcing organizations to utilize a combination of sourcing expertise and diagnostic tools to identify
process improvements and technical enhancements to generate added organizational efficiency and alignment.



Verticalnet Supply Selection



Verticalnet Supply Selection enables companies to quickly execute iterations of sourcing negotiation to select the best mix of suppliers  balancing price, performance, and risk and selecting a portfolio of suppliers to deliver the
lowest cost of ownership. Verticalnets Supply Selection solution consists of the following two products:



Verticalnet eSourcing  Verticalnet eSourcing is a self-service software application that can be delivered as an ASP model, or installed at the
customer site. Key features of the solution include electronic requests for information (RFI), requests for quote (RFQ), and requests for proposal (RFP). An increasingly common term for this type of application is RFX. Additionally, our
eSourcing solution includes reverse auction functionality. This solution enables companies to complete rapid sourcing cycles in a fraction of the time it takes to complete manual bid processes. Additionally, RFX and auction events can be analyzed to
include both price- and non-price-factors, ensuring an optimal solution for our customers. Verticalnets consulting organization can also work with clients, when needed, to manage these events and provide services that include supplier
discovery and qualification, market research, process management, and bid analysis.



Verticalnet Advanced Sourcing  For large, complex categories that include freight, packaging, printed materials, and services, Verticalnet offers its Advanced Sourcing solution. The Advanced Sourcing solution is
a mix of services and technology tools that provides for enhanced bid collection and bid optimization technology to award complex bids across multiple items, shipping lanes, etc. Verticalnets Advanced Sourcing solution has been tailored
specifically for the largest and most complicated categories including transportation, packaging, commercial printing, and services. For these categories, Verticalnets Advanced Sourcing solution can often double the savings versus stand-alone
eSourcing tools.



Verticalnets Optimization technology is
available with all of the Supply Selection solutions. Our Optimization solution dramatically accelerates the analysis process, offering easy to use, yet advanced technology designed to unlock greater value from the sourcing process through
comprehensive assessment of supplier award scenarios, what-if analysis, and bid optimization.



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Verticalnet Supply Execution



Verticalnet Supply Execution solutions are designed to streamline purchasing processes, improve supplier collaboration, and
ensure compliance with negotiated contracts. Verticalnet Supply Execution consists of the following four products:



Verticalnet Supply Planning provides suppliers with visibility into expected supply requirements. Suppliers can commit to the requirements, or quickly
raise supply issues. Transparency of information improves supplier performance and reduces inventory requirements.



Verticalnet Contract Management enables companies to create a central repository of contracts that can be accessed online. The entire contract lifecycle
is managed, ensuring that contracts are online, available, and renegotiated in a timely fashion  maximizing use of negotiated agreements.



Verticalnet Contract Activation enables centralized procurement organizations to disseminate centrally negotiated contracts to decentralized purchasing
organizations or professionals. Contracts that are negotiated centrally, or in a single division, can easily be populated into the systems of other divisions, maximizing the use of contracts and facilitating the sharing of favorable contracts.



Verticalnet eProcurement automates the requisitioning process
for frequently used items. Online catalogs, approval workflow, and automated order tracking reduce the administrative costs of purchasing, reduces rogue purchasing, and improves contract compliance.



Verticalnet Supply Performance



Verticalnet Supply Performance solutions are designed to enable companies to
measure enterprise-wide supplier performance and take corrective action measures for under performing suppliers. The results of Supply Performance feed the strategy process, delivering many of the non-price factors used in Supply Strategy and Supply
Selection. Verticalnets Supply Performance solutions consist of the following two products:



Supplier Scorecards extract performance data from disparate systems across the enterprise to present a single view of supplier performance that can be
analyzed to determine the root cause of supplier performance issues. Supplier Scorecards can also be securely shared with suppliers over the Internet, so that suppliers can proactively manage and correct performance issues.



Supplier Corrective Action Request automates the process of documenting
supplier performance issues. Performance issues are documented and corrective actions are initiated and tracked ensuring resolution.



Services



We offer a full complement of consulting, technology, custom development, training, and customer support services. Our team is committed to delivering a
quick and efficient implementation with seamless integration and a smooth operation so that our customers can achieve their targeted return on investment.



Consulting



Verticalnets and Tigris consulting organizations have completed hundreds of Supply Management consulting engagements with FORTUNE 1000
companies. Our consultants have particular expertise at managing large volumes of customer data to perform spending analysis and complete strategic sourcing engagements for large, complex purchasing categories such as packaging; transportation;
maintenance, repair and operational (MRO); services; and printed materials.



Our consultants have also performed many supply chain optimization consulting engagements for large clients. Our consulting organization consists of approximately 42 consultants based out of our New York and



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Chicago offices. Our consulting personnel possess both real world experience and strong academic backgrounds in the fields of engineering, operations
research, and computer science which enable them to deliver rigorous data-driven approaches for solving complex sourcing problems.



Technology Services



Our consulting and integration services help customers plan, implement, and manage our software products so they achieve their business objectives. At the
heart of our technology services are straightforward methodologies and tools that make software implementations smooth and efficient. Our methodology approaches implementation in well-defined, manageable phases  rolling out categories,
suppliers and customers over discrete intervals and targets the first actual customer transaction generally in less than 90 days.



Our project teams are experienced at building and implementing private exchanges for Global 2000 companies. Our teams are also focused with clearly
defined goals, roles, and responsibilities. Customers may choose to use our technology services exclusively, or use our services with their own internal resources or in association with our network of systems integration and consulting partners.



Custom Development



Verticalnet offers custom development for customers that desire to build
additional capabilities into Verticalnets applications. Verticalnets Solution Center works with clients to define custom development requirements and build the required functionality on top of our Collaborative Supply Chain Foundation.
Often, new capabilities developed for customers can be built into future versions of the Verticalnet software.



Verticalnets software platform was built to be flexible and extensible. Our customers find that their complex supply chain problems can be solved by
taking advantage of the features of the platform. Verticalnets Solution Center was developed to enable our customers to build out additional functionality to meet these complex requirements. Our Solution Center approach allows Verticalnet to
complete customization projects more quickly and cost effectively than internal IT organizations or traditional custom development firms. Additionally, the resulting custom developed applications are fully integrated with, and built on the same data
model as, the customers existing Verticalnet implementation.



Training



Our training services help
organizations develop the knowledge and skills required to successfully deploy, maintain, and use our products. Participants engage in discussions, work on projects, and gain hands-on experience using our software. We tailor our training to meet the
needs of the customer. We can deliver training in a variety of formats, including:



| |  | Pre-designed courses
| | - | --------------------



| |  | Train-the-trainer instruction and/or
| | - | ------------------------------------



| |  | On-site instructor-led training
| | - | -------------------------------



Customer Support



Our customer support services provide the information, tools, and assistance that our customers need, including support representatives to respond to
service requests ranging from simple technical inquiries to mission critical problems.



Sales and Marketing



Our sales operation
headquarters are now located in New York City. Our direct sales organization focuses on selling supply management solutions to large companies, typically with over $1 billion in revenues. We typically target companies in manufacturing, consumer
products, pharmaceuticals, and retail where supply



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management is a critical driver of corporate profitability. Our sales team members have deep experience in either enterprise software sales or in solution
based sales. Our direct sales force is teamed with pre-sales consultants that work with prospects to select the proper solution to meet customer requirements and deliver the greatest value.



We also use selective indirect sales channels, such as third-party alliances,
to market our solutions, and increase the market penetration of our solutions through joint marketing and sales activities. Such relationships allow us to extend the reach of our sales efforts without increasing headcount.



We support our sales activities by conducting a variety of marketing programs
and participate in industry conferences. We maintain relationships with recognized industry analysts including AMR Research and Aberdeen Group. These firms advise our target client base as well as provide us with critical feedback into our product
management process. We also conduct lead-generation programs including telesales, web seminars, advertising, direct mail, email marketing, public relations, and ongoing client communication programs.



Proprietary Rights



We regard our software as proprietary and rely on a combination of trade secret, patent, copyright and trademark laws,
license agreements and other contractual arrangements, confidentiality and non-disclosure agreements with our employees, our clients, consulting partners and others to help protect proprietary rights in our products. We distribute our supply
management applications under software license agreements, which typically grant clients perpetual nonexclusive, nontransferable licenses to our software products. Under such typical license agreements, we retain all rights to our products.



Use of the licensed software is usually restricted to
clients internal operations and to designated users. Use is subject to terms and conditions that prohibit unauthorized reproduction or transfer of the software. We also seek to protect the source code of our software as a trade secret and as
an unpublished, copyrighted work.



We typically enter into
master service or professional service agreements and/or statements of work with our customers who purchase our services. These agreements also have similar provisions to protect our intellectual and proprietary rights to the tools we may use to
provide our services.



Research and Development



We direct our efforts in research and development to new products,
enhancements of the capabilities in existing products, and expansion of our supply management capabilities. Our internal research and development team has developed most of our current products. In addition we obtained some underlying technology
through acquisition. In developing new products or enhancements, we work closely with current and prospective clients, as well as with industry experts, to ensure that our products address critical supply chain needs of todays businesses. We
believe that this collaboration is necessary to develop and improve our software and products. Our product group works closely with our marketing, sales, and services groups to develop products that meet real customer needs. As of March 15, 2004,
our research and development staff consisted of 23 employees.



In August 2003, we entered into an agreement with Symphony Service Corp., a U.S. based company, to provide software development services at a global development center in Bangalore, India. As of March 15, 2004, there were 24 software
developers providing development expertise at this location.



Competition



The markets for our solutions are highly competitive. Our
competitors are diverse and offer a variety of solutions targeting various segments of the extended supply chain as well as the enterprise as a whole. More specifically, we compete with:



| |  | Large enterprise resource planning (ERP) software vendors, including Oracle, Peoplesoft and SAP, who have added or are attempting to add capabilities for strategic
sourcing to their products;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  | e-Sourcing solution providers, such as Ariba, FreeMarkets, Frictionless Commerce, and B2E Markets;
| | - | --------------------------------------------------------------------------------------------------



| |  | Consulting organizations with significant sourcing practices such as Accenture, McKinsey & Co, and BearingPoint;
| | - | ----------------------------------------------------------------------------------------------------------------



| |  | Internal efforts by corporate information technology departments or procurement organizations.
| | - | ----------------------------------------------------------------------------------------------



We believe that the principal competitive factors affecting our market include breadth and depth of solutions, depth of industry or category
expertise, specific product features and performance, ability to implement solutions, value of solutions, corporate viability, and a base of reference customers. Although we believe that our solutions currently compete favorably with respect to
these factors, our market is evolving rapidly, and we may not be able to maintain our competitive position against current and potential competitors, especially those with greater financial, marketing, service, support, technical, and other
resources.



SMB Business



In June 2002, we completed the sale of certain of the assets of the SMB unit
to Corry Publishing for $2.35 million in cash consideration, plus up to an additional $6.5 million as an earn-out over the four-year period after the closing date. Additionally, during the quarter ended June 30, 2002, other assets in the SMB unit
were sold under a separate agreement. Together, the transactions substantially finalized the operations of the SMB unit as part of Verticalnet.



Employees



As of March 15, 2004, we had 111 employees. We consider our relationship with our employees to be good. None of our employees are covered by collective
bargaining agreements.



Website Disclosures



We maintain a website at www.verticalnet.com and make available free of
charge on this website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably
practicable after the Company electronically files such material with, or furnishes it to, the Securities and Exchange Commission (SEC). The material on our website is not part of this report.



Item 2.Properties



Our corporate headquarters is located in Malvern, Pennsylvania. We maintain locations throughout the United States. The locations of these facilities and their respective size and lease status are as follows:



|                           |  |                  |  |                 |  |                
|-------------------------- |  | ---------------- |  | --------------- |  | ---------------
|Location                   |  | Type of Facility |  | Size (in sq/ft) |  | OwnershipStatus
|Malvern, Pennsylvania      |  | Headquarters     |  | 4,800           |  | Leased         
|Endicott, New York         |  | Development      |  | 7,700           |  | Leased         
|Washington, DC             |  | Office (a)       |  | 3,200           |  | Leased         
|New York, New York (b)     |  | Office           |  | 6,900           |  | Leased         
|Chicago, Illinois (b)      |  | Office           |  | 8,300           |  | Leased         
|London, United Kingdom (b) |  | Office (c)       |  | 100             |  | Leased         

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|(a) | We are currently subleasing this property to an unrelated third party for $9,400 per month.
|--- | -------------------------------------------------------------------------------------------

|(b) | Acquired as part of the Tigris acquisition on January 30, 2004. See Note 20 to our consolidated financial statements regarding this subsequent event.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | We currently sublease this facility from an unrelated third party on a month to month basis.
|--- | --------------------------------------------------------------------------------------------



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Item 3.Legal Proceedings



On June 12, 2001, a class action lawsuit was filed against us and several of our officers and directors in U.S. Federal Court for the Southern District of
New York in an action captioned CJA Acquisition, Inc. v. Verticalnet, et al., C.A. No. 01-CV-5241 (the CJA Action). Also named as defendants were four underwriters involved in the issuance and initial public offering of our common stock
in February 1999  Lehman Brothers Inc., Hambrecht & Quist LLC, Volpe Brown Whelan & Company LLC, and WIT Capital Corporation. The complaint in the CJA Action alleges violations of Sections 11 and 15 of the Securities Act of 1933 and
Section 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated there under, based on, among other things, claims that the four underwriters awarded material portions of the initial shares to certain favored customers in exchange for
excessive commissions. The plaintiff also asserts that the underwriters engaged in a practice known as laddering, whereby the clients or customers agreed that in exchange for IPO shares they would purchase additional shares at
progressively higher prices after the IPO. With respect to Verticalnet, the complaint alleges that the Company and its officers and directors failed to disclose in the prospectus and the registration statement the existence of these purported
excessive commissions and laddering agreements. After the CJA Action was filed, several copycat complaints were filed in U.S. Federal Court for the Southern District of New York. Those complaints, whose allegations mirror those found in
the CJA Action, include Ezra Charitable Trust v. Verticalnet, et al., C.A. No. 01-CV-5350; Kofsky v. Verticalnet, et al., C.A. No. 01-CV-5628; Reeberg v. Verticalnet, C.A. No. 01-CV-5730; Lee v. Verticalnet, et al., C.A. No. 01-CV-7385; Hoang v.
Verticalnet, et al., C.A. No. 01-CV-6864; Morris v. Verticalnet, et al., C.A. No. 01-CV-9459, and Murphy v. Verticalnet, et al., C.A. No. 01-CV-8084. None of the complaints state the amount of any damages being sought, but do ask the court to award
rescissory damages. All of the foregoing suits were amended and consolidated into a single complaint that was filed with the U.S. Federal Court on April 19, 2002. This amended complaint contains additional factual allegations concerning
the events discussed in the original complaints, and asserts that, in addition to Sections 11 and 15 of the Securities Act, the Company and our officers and directors also violated Sections 10(b), 20(a), and Rule 10b-5 of the Exchange Act in
connection with the IPO. In addition to this amended and consolidated complaint, the plaintiffs in this lawsuit and in the hundreds of other similar suits filed against other companies in connection with IPOs that occurred in the late 1990s have
filed master allegations that primarily focus on the conduct of the underwriters of the IPOs, including our IPO. On October 9, 2002, the U.S. Federal Court for the Southern District of New York entered an order dismissing, without
prejudice, the claims against the individual Verticalnet officers and directors who had been named as defendants in the various complaints. In February 2003, the District Court entered an order denying a motion made by the defendants to dismiss the
actions in their entirety, but granting the motion as to certain of the claims against some defendants. However, the District Court did not dismiss any claims against Verticalnet. On or about June 5, 2003, Verticalnets counsel, with the
approval of the Companys directors, executed a Memorandum of Understanding on behalf of Verticalnet with respect to a proposed settlement of the plaintiffs claims against Verticalnet. This proposed resolution of the litigation has been
publicly announced (although not yet formally accepted by the plaintiffs) and widely reported in the press. The proposed settlement, if approved by the District Court, would result in, among other things, the dismissal of all claims against
Verticalnet, its officers, and directors. It is expected that the proposed resolution will be reviewed by the District Court in early 2004. Under the present terms of the proposed settlement described above, Verticalnet would also assign its claims
against the underwriters to the plaintiffs in the consolidated actions.



On May 15, 2003, Silicon Valley Bank commenced a lawsuit against certain of the Companys subsidiaries in the U.S. District Court for the Eastern District of Pennsylvania, captioned Silicon Valley Bank v. Tradeum, Inc. and Verticalnet
Solutions, LLC, C.A. No. 03-2949, in connection with a letter of credit provided by Silicon Valley Bank for a lease of office space in San Francisco. In October 2003, the Company executed a settlement agreement with Silicon Valley Bank, pursuant to
which the Company paid $480,000 to Silicon Valley Bank and Silicon Valley Bank released the Company and its subsidiaries from further claims. As a result of the settlement the lawsuit was dismissed.



In July 2000, we entered into an Opportunity Grant Program Contract with the
Commonwealth of Pennsylvania Department of Community and Economic Development (PaDCED) whereby we received a grant



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in the amount of $1.0 million from the Commonwealth. The grant was conditioned upon, among other things, the creation of 1,000 full time jobs and that we
would operate in our former Horsham facility for at least five years. In July 2000, Atlas Commerce entered into an Opportunity Grant Program Contract with the PaDCED whereby Atlas Commerce received a grant in the amount of $400,000 from the
Commonwealth, which amount was increased to $600,000 in June 2001. The grant was conditioned upon, among other things, the creation of 250 full time jobs and that Atlas Commerce would operate in its Malvern facility for at least five years. Both
contracts contain a provision that requires repayment of the grant amount in the event the conditions are not met.



In November 2002, the PaDCED requested that we repay the entire grant amount of $1.0 million for the July 2000 grant to Verticalnet. The Company responded
to the PaDCED that it believes it had substantially complied with the conditions. In September 2003, the PaDCED filed a Complaint-Civil Action in the Montgomery County Court of Common Pleas, although the Complaint has not yet been served upon us.
The Complaint seeks to recover the total amount of the grant to Verticalnet. Although we would prefer to amicably resolve the matter, we will vigorously defend any action to recover the grant amount.



We are also a party to various litigations and claims that arise in the
ordinary course of business. In the opinion of management, the ultimate resolutions with respect to all of the above actions will not have a material adverse effect on our financial position, liquidity, or results of operations.



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 2003.



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PART II



|Item 5. |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|------- |  | ------------------------------------------------------------------------------------------------------------



Our common stock is traded on the Nasdaq SmallCap Market under the symbol
VERT. The following table sets forth, for the periods indicated, the range of the high and low closing sales prices of our common stock as reported by NASDAQ:



|                 |  |      |       |     |   |     
|---------------- |  | ---- | ----- | --- | - | ----
|                 |  | High |       | Low
|Fiscal Year 2003 |  |      |       |     |   |     
|First Quarter    |  | $    | 1.16  |     | $ | 0.63
|Second Quarter   |  |      | 2.06  |     |   | 0.70
|Third Quarter    |  |      | 1.74  |     |   | 1.02
|Fourth Quarter   |  |      | 1.51  |     |   | 1.12
|                 |  |     
|Fiscal Year 2002 |  |      |       |     |   |     
|First Quarter    |  | $    | 17.30 |     | $ | 6.50
|Second Quarter   |  |      | 7.40  |     |   | 1.60
|Third Quarter    |  |      | 1.70  |     |   | 0.61
|Fourth Quarter   |  |      | 1.95  |     |   | 0.66



The share price data
set forth above reflects a one-for-ten reverse stock split approved by the Companys board of directors. The commencement date for the reverse stock split was July 15, 2002.



At March 15, 2004, we had 516 shareholders of record.



We have never declared or paid any cash dividends on our common stock. We do not anticipate paying any cash dividends in the
foreseeable future. We currently intend to retain future earnings, if any, to finance our operations and expand our business. Any future determination to pay cash dividends will be at the discretion of the board of directors and will be dependent
upon our financial condition, operating results, capital requirements, and other factors the board of directors deems relevant.



Unregistered Offerings



In August 2003, we completed a $1.1 million private placement of our common stock. The Company issued 1,140,000 shares of common stock at a purchase price
of $1.00 per share, along with warrants to purchase 456,000 shares of common stock at an exercise price of $1.20 per share, which were valued at approximately $485,000. The Company received approximately $936,000 in net proceeds from this
transaction.



In October 2003, we completed a $1.8 million
private placement of our common stock. The Company issued 1,800,000 shares of common stock at a purchase price of $1.00 per share along with warrants to purchase 720,000 shares of common stock at an exercise price of $1.35 per share. The Company
received approximately $1.6 million in net proceeds from this transaction.



In January 2004, we completed a $7.7 million private placement of our common stock. The Company issued 3,798,592 shares of common stock at a purchase price of $2.02 per share along with warrants to purchase 1,218,209
shares of common stock at an exercise price of $3.72 per share. The Company received approximately $7.1 million in net proceeds from this transaction.



9



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Item 6.Selected Financial Data



The following selected consolidated financial data should be read in conjunction with the consolidated financial statements and the related notes thereto
(see Item 8 of this report), as well as Managements Discussion and Analysis of Financial Condition and Results of Operations (see Item 7 of this report).



|                                                                |  |                                       |         |   |      |   |         |      |  |   |          |   |  |   |          |  
|--------------------------------------------------------------- |  | ------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | -------- | - |  | - | -------- | -
|                                                                |  | Year Ended December 31,               |        
|                                                                |  | 2003                                  |         |   | 2002 |   |         | 2001 |  |   | 2000     |  
|                                                                |  | (in thousands, except per share data) |        
|Consolidated Statement of Operations Data (a):                  |  |                                       |         |   |      |   |         |      |  |   |          |   |  |   |          |  
|Revenues                                                        |  | $                                     | 9,633   |   |      | $ | 43,724  |      |  | $ | 36,119   |   |  | $ | 7,906    |  
|Loss from continuing operations (b)                             |  |                                       | (11,015 | ) |      |   | (30,859 | )    |  |   | (670,197 | ) |  |   | (145,794 | )
|Basic income (loss) per common share from continuing operations |  | $                                     | (0.70   | ) |      | $ | 5.52    |      |  | $ | (69.92   | ) |  | $ | (18.17   | )
|Diluted loss per common share from continuing operations        |  | $                                     | (0.70   | ) |      | $ | (2.56   | )    |  | $ | (69.92   | ) |  | $ | (18.17   | )

---

|(a) | Information presented relates to continuing operations. Information for the year ended December 31, 1999 is not relevant as the Companys sole business in that year is now
presented as a discontinued operation.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Effective January 1, 2002, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. See
Note 1 to the consolidated financial statements.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                          |  |                    |       |      |   |        |  |   |         |   |      |   |         |  |   |        
|----------------------------------------- |  | ------------------ | ----- | ---- | - | ------ |  | - | ------- | - | ---- | - | ------- |  | - | -------
|                                          |  | As of December 31,
|                                          |  | 2003               |       | 2002 |   | 2001   |  |   | 2000    |   | 1999
|                                          |  | (in thousands)    
|Consolidated Balance Sheet Data:          |  |                    |       |      |   |        |  |   |         |   |      |   |         |  |   |        
|Total assets (c)                          |  | $                  | 9,123 |      | $ | 18,453 |  | $ | 125,631 |   |      | $ | 923,284 |  | $ | 318,981
|Long-term debt, excluding current portion |  |                    |      |      |   | 7,293  |  |   | 22,255  |   |      |   | 45,287  |  |   | 116,750
|Convertible redeemable preferred stock    |  |                    |      |      |   |       |  |   | 102,180 |   |      |   | 94,760  |  |   |       
|Total shareholders equity (deficit)      |  |                    | 4,421 |      |   | 1,642  |  |   | (91,339 | ) |      |   | 605,402 |  |   | 178,397

---

|(c) | Total assets as of December 31, 2000 and 1999 include assets related to discontinued operations.
|--- | ------------------------------------------------------------------------------------------------



Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations



The following discussion and analysis of our financial condition and results of operations should be read in conjunction
with Selected Financial Data appearing in Item 6 of this report and our consolidated financial statements and related notes appearing under Item 8 of this report. This discussion and analysis contains forward-looking statements that
involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements, as described under Cautionary Statement Regarding Forward-Looking Statements in this report. All share
and per share amounts have been adjusted to reflect the reverse stock split that occurred in July 2002.



Company Overview



We
are a provider of Supply Management solutions to Global 2000 companies. We provide a full scope of Supply Management software, services, and domain expertise in areas that include: Spend Analysis, Advanced eSourcing, eProcurement, Contract
Management, and Supplier Scorecards. Our solutions enable our customers to harness the power of their data to achieve lower prices, improved contract compliance, better supplier service, and shorter sourcing cycles. As a result, we help our
customers recognize significant and sustainable savings in materials costs, inventory levels, and administrative costs  resulting in improved profitability.



Our professional services and consulting groups provide customers with project management, architecture and design, custom
development services, and training. Our customers typically pay for professional services at an hourly rate for the time it takes us to complete the project. We strive to maintain effective staffing levels and



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to limit the amount of turnover of our professional services staff. If we are not successful in maintaining effective staffing levels, our ability to achieve
our service revenue and profitability objectives may be adversely affected.



Verticalnet offers custom development for customers that desire to build additional capabilities into Verticalnets applications. Verticalnets Solution Center works with clients to define custom development
requirements and build the required functionality on top of our software platform. Often, new capabilities developed for customers can be built into future versions of the Verticalnet software.



Verticalnets software platform was built to be flexible and extensible.
Many of our customers find that their complex supply chain problems can be solved by taking advantage of the features of the platform. Verticalnets Solution Center was developed to enable our customers to build out additional functionality to
meet these complex requirements. Our Solution Center approach allows Verticalnet to complete customization projects more quickly and cost effectively than internal IT organizations or traditional custom development firms. Additionally, the resulting
custom developed applications are fully integrated with, and built on the same data model as, the customers existing Verticalnet implementation.



Historically, we derived our revenue primarily from the sale of our software, as well as implementation and development services. As a result of the
January 2004 acquisition of Tigris, we expect to derive additional revenues through spend analysis and other supply chain consulting services. In addition, we expect to see an increase in our overall operating expenses as a result of adding new full
time employees as well as additional office locations. However, we believe that future revenue growth will exceed the expected costs increases. We expect such changes to first decrease our operating losses and eventually result in the Company
generating an operating profit.



Recent Developments



| |  | In January 2003, the Company amended the lease agreement with its primary landlord resulting in annual savings of $2.7 million of operating expenses and reducing the Companys
off- balance sheet obligations by $16.4 million, which consisted of both future minimum lease payments and related operating expenses over the life of lease. The amended agreement terminated the Companys financial obligation for the lease of
the 700 Dresher Road and 300 Chester Field Parkway locations. Additionally, the agreement provided for occupancy of the 400 Chester Field Parkway premises until May 31, 2003 with options to continue the lease on a quarterly basis. We have exercised
the option to continue the lease for an additional 90 days on four occasions, and the lease is currently set to expire on May 31, 2004. The Company is anticipating moving its corporate headquarters sometime in 2004.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In July 2003, the Company completed the repurchase of $6.4 million of our 51/4% convertible subordinated debentures due September 2004 for total
consideration of $5.8 million. This consideration included 2,694,100 shares of common stock, with a fair market value of $4.4 million, $1.3 million of cash, and change of control warrants to purchase 305,120 shares of common stock. The warrants are
exercisable only upon a change of control, expire on September 27, 2004, and were valued at approximately $124,000 in the aggregate. Additionally the Company paid $21,000 in cash for accrued but unpaid interest on the debentures and approximately
$55,000 of deferred offering costs attributable to the portion of debt repurchased was written off against additional paid-in capital. In connection with the repurchase, the Company recorded a charge to operations in the third quarter of 2003 of
$5.7 million representing the inducement for conversion of the convertible debentures, in accordance with SFAS No. 84, Induced Conversions of Convertible Debt.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In August 2003, we completed a $1.1 million private placement of our common stock. The Company issued 1,140,000 shares of common stock at a purchase price of $1.00 per share, along
with warrants to purchase 456,000 shares of common stock at an exercise price of $1.20 per share, which were valued at approximately $485,000. The Company received approximately $936,000 in net proceeds from this transaction.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  | In October 2003, we completed a $1.8 million private placement of our common stock. The Company issued 1,800,000 shares of common stock at a purchase price of $1.00 per share, along
with warrants to purchase 720,000 shares of common stock at an exercise price of $1.35 per share. The Company received approximately $1.6 million in net proceeds from this transaction.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In December 2003, we signed software license agreements with Wyeth Pharmaceuticals and Illinois Tool Works. In addition, we will be providing professional services and maintenance
to both of these customers.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In January 2004, we completed a $7.7 million private placement of our common stock. The Company issued 3,798,592 shares of common stock at a purchase price of $2.02 per share, along
with warrants to purchase 1,218,209 shares of common stock at an exercise price of $3.72 per share. The Company received approximately $7.1 million in net proceeds from this transaction.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Tigris Corp. Acquisition



In January 2004, we acquired all of the outstanding capital stock of Tigris
Corp., a privately-held strategic sourcing and supply chain consultancy based in New York City. The acquisition brings together Verticalnets Spend Analysis and Supply Management software with Tigris extensive spend analysis and strategic
sourcing expertise. The aggregate purchase price was approximately $12.1 million, including transaction costs of approximately $300,000. The consideration included $3.5 million in cash, 1,870,450 shares of our common stock valued at approximately
$5.7 million, issuance of employee options to purchase 751,670 shares of our common stock valued at $2.2 million and assumed debt of approximately $346,000.



Critical Accounting Policies and Estimates



Accounting policies, methods, and estimates are an integral part of the consolidated financial statements prepared by management and are based upon
managements current judgments. Those judgments are normally based on knowledge and experience with regard to past and current events and assumptions about future events. Certain accounting policies, methods, and estimates are particularly
sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ from managements current judgments. While there are a number of accounting policies, methods, and
estimates affecting our financial statements as described in Note 1 to our consolidated financial statements, areas that are particularly significant include revenue recognition policies, the assessment of the recoverability of long-lived assets,
the valuation of non-publicly traded investments, and estimates made in calculating restructuring reserves for operating leases related to facilities that we no longer utilize. Management has reviewed these critical accounting policies and estimates
with the audit committee.



Revenue Recognition



Software licensing and related services revenues
other than from Converge (see Note 9 to our consolidated financial statements) have been principally derived from the licensing of our products, from maintenance and support contracts, and from the delivery of professional services. Customers who
license our products also generally purchase maintenance contracts which provide software updates and technical support over a stated term, which is usually a twelve-month period. Customers may also purchase custom development and implementation
services from us.



The license agreements for our products do
not provide for a right of return other than during the warranty period, and historically product returns have not been significant. We do not recognize revenue for refundable fees or agreements with cancellation rights until such rights to refund
or cancellation have expired. Our products are either acquired under a perpetual license model or under a time-based subscription license model.



We recognize revenue in accordance with Statement of Position (SOP) 97-2, Software Revenue Recognition, as amended by SOP 98-9, Modification
of SOP 97-2, Software Revenue Recognition, With Respect



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to Certain Transactions. We recognize revenue when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery of the
product has occurred; the fee is fixed or determinable; and collectibility is probable. We consider all arrangements with payment terms extending beyond one year to not be fixed or determinable, and revenue under these agreements is recognized as
payments become due from the customer. If collectibility is not considered probable, revenue is recognized when the fee is collected.



SOP 97-2, as amended, generally requires revenue earned on software arrangements involving multiple elements to be allocated to each element based on the
relative fair values of the elements. Our determination of fair value of each element in multi-element arrangements is based on vendor-specific objective evidence (VSOE). We limit our assessment of VSOE for each element to either the
price charged when the same element is sold separately or the price established by management, having the relevant authority to do so, for an element not yet sold separately.



If evidence of fair value for all undelivered elements exists but evidence does not exist for one or more delivered
elements, then revenue is recognized using the residual method. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue. Revenue allocated to
maintenance and support is recognized ratably over the maintenance term and revenue allocated to training and other service elements is recognized as the services are performed. The proportion of revenue recognized upon delivery of the software may
vary from quarter to quarter depending upon the relative mix of licensing arrangements, the extent of services that will be required to implement the software, and the availability of VSOE of fair value for all of the undelivered elements.



Arrangements that include professional services are evaluated
to determine whether those services are essential to the functionality of software elements of the arrangement. When services are not considered essential, the revenue allocable to the professional services is recognized as the services are
performed. If we provide professional services that are considered essential to the functionality of the software products, both the software product revenue and professional service revenue are recognized in accordance with the provisions of SOP
81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts. To date, most of our professional services have been considered essential to the functionality of the software and therefore, the majority of our contracts
that involved licenses and professional services were recognized on a percentage of completion basis.



Deferred revenue includes amounts received from customers for which revenue has not been recognized, which in most cases relates to maintenance or license
fees that are deferred until they can be recognized.



Recoverability of Other Intangible Assets and Investments



As discussed in Note 1 to our consolidated financial statements, we regularly perform reviews to determine whether events or circumstances indicate that the carrying value of long-lived assets, including intangible
assets, may not be recoverable. Factors we consider important that could trigger an impairment review include, but are not limited to, significant underperformance relative to historical or projected future operating results, significant changes in
the manner of use of the acquired assets or the strategy for our overall business, significant negative industry or economic trends, a significant decline in our stock price for a sustained period, and our market capitalization relative to net book
value. When we determine that an impairment review is necessary for intangible assets based upon the existence of one or more of the above indicators of impairment, we perform an undiscounted cash flow analysis to evaluate whether future cash flows
from the long-lived asset are below the current carrying value of the asset. If the result from this analysis indicates that an impairment charge is required for the asset, we measure the impairment based on a projected discounted cash flow method
using a discount rate commensurate with the risk inherent in our current business model. Significant judgment is required in the development of projected cash flows for these purposes, including assumptions regarding the appropriate level of
aggregation of cash flows, the discount rate to be used as well as the underlying forecasts of expected future revenue and expense.



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We have recorded significant impairment charges for goodwill and intangible assets in the past and to the
extent that events or circumstances cause our assumptions to change, additional charges may be required in future periods and such charges could be material. We have also recorded significant impairment charges for non-publicly traded investments
which we review quarterly for potential impairment.



Restructuring Reserves for Operating Leases



As discussed in Note 6 to our consolidated financial statements, we have recorded restructuring charges in connection with certain facilities which are leased under long-term operating leases. These charges relate to facilities and portions
of facilities we no longer utilize and either seek to terminate early or sublease. Lease termination costs for the facilities were estimated for the remaining lease obligations based on current negotiations with each respective landlord and
brokerage fees offset by estimated sublease income. Estimates related to sublease costs and income are based on assumptions regarding the period required to locate and contract with suitable sub-lessees and sublease rates which can be achieved using
market trend information analyses provided by a commercial real estate brokerage retained by us. We review these estimates each reporting period and to the extent that these assumptions change due to continued negotiations with landlords or changes
in the market, the ultimate restructuring expenses for these facilities could vary.



RESULTS OF CONTINUING OPERATIONS



The following discussion and comparison regarding results of continuing operations do not include the results of the SMB unit or our former Verticalnet
Exchanges unit, which were sold in June 2002 and January 2001, respectively.



The following table sets forth statement of operations data expressed as a percentage of total revenue for the periods indicated:



|                                                       |  |      |    |  |      |    |  |       |   
|------------------------------------------------------ |  | ---- | -- |  | ---- | -- |  | ----- | --
|                                                       |  | 2003 |    |  | 2002 |    |  | 2001  |   
|Revenues:                                              |  |      |    |  |      |    |  |       |   
|Software license                                       |  | 4    | %  |  | 82   | %  |  | 71    | % 
|Services and maintenance                               |  | 96   | %  |  | 18   | %  |  | 29    | % 
|                                                       |  |      |    |  |      |    |  |       |   
|Total revenues                                         |  | 100  | %  |  | 100  | %  |  | 100   | % 
|                                                       |  |      |    |  |      |    |  |       |   
|Cost of revenues:                                      |  |      |    |  |      |    |  |       |   
|Cost of software license                               |  | 8    | %  |  | 2    | %  |  | 11    | % 
|Cost of services and maintenance                       |  | 26   | %  |  | 13   | %  |  | 60    | % 
|                                                       |  |      |    |  |      |    |  |       |   
|Total cost of revenues                                 |  | 34   | %  |  | 15   | %  |  | 71    | % 
|                                                       |  |      |    |  |      |    |  |       |   
|Gross profit                                           |  | 66   | %  |  | 85   | %  |  | 29    | % 
|                                                       |  |      |    |  |      |    |  |       |   
|Research and development                               |  | 43   | %  |  | 21   | %  |  | 66    | % 
|Sales and marketing                                    |  | 25   | %  |  | 12   | %  |  | 50    | % 
|General and administrative                             |  | 50   | %  |  | 21   | %  |  | 68    | % 
|Restructuring and asset impairment charges (reversals) |  | (5   | )% |  | 68   | %  |  | 752   | % 
|Amortization expense                                   |  |     |    |  | 5    | %  |  | 301   | % 
|                                                       |  |      |    |  |      |    |  |       |   
|                                                       |  | 113  | %  |  | 126  | %  |  | 1237  | % 
|                                                       |  |      |    |  |      |    |  |       |   
|Operating loss                                         |  | (47  | )% |  | (41  | )% |  | (1208 | )%
|                                                       |  |      |    |  |      |    |  |       |   



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Revenues



|                         |  |                         |       |                        |   |        |                        |   |        |  |   |         |   |   |     |    |   |   |        |   |  |     |   
|------------------------ |  | ----------------------- | ----- | ---------------------- | - | ------ | ---------------------- | - | ------ |  | - | ------- | - | - | --- | -- | - | - | ------ | - |  | --- | --
|(in thousands)           |  | Year ended December 31, |       | 2003 vs 2002Difference |   |        | 2002 vs 2001Difference |  
|                         |  | 2003                    |       | 2002                   |   | 2001   |                        | $ |        |  | % |         |   | $ |     |    | % |  
|Revenues:                |  |                         |       |                        |   |        |                        |   |        |  |   |         |   |   |     |    |   |   |        |   |  |     |   
|Software license         |  | $                       | 378   |                        | $ | 36,043 |                        | $ | 25,732 |  | $ | (35,665 | ) |   | (99 | )% |   | $ | 10,311 |   |  | 40  | % 
|Services and maintenance |  |                         | 9,255 |                        |   | 7,681  |                        |   | 10,387 |  |   | 1,574   |   |   | 20  | %  |   |   | (2,706 | ) |  | (26 | )%
|                         |  |                         |       |                        |   |        |                        |   |        |  |   |         |   |   |     |    |   |   |        |   |  |     |   
|Total revenues           |  | $                       | 9,633 |                        | $ | 43,724 |                        | $ | 36,119 |  | $ | (34,091 | ) |   | (78 | )% |   | $ | 7,605  |   |  | 21  | % 
|                         |  |                         |       |                        |   |        |                        |   |        |  |   |         |   |   |     |    |   |   |        |   |  |     |   



Revenues in the
ongoing business are comprised of software license revenues and services and maintenance revenues.



The decrease in software license revenues of $35.7 million in 2003 relates primarily to changes in our agreement with Converge, and a more difficult macro
economic market for software companies. During the years ended December 31, 2003, 2002, and 2001, we recognized total revenues of approximately $459,000, $33.8 million, and $29.8 million, respectively, under the agreements with Converge, including
$19.6 million in software license revenue recognized during the fourth quarter of 2002, as a result of the second amendment to the amended and restated subscription license agreement. See Note 9 to our consolidated financial statements for a
discussion of our relationship with Converge.



During 2003 we
were able to reduce our operating loss as compared to the years ended in 2002 and 2001 in spite of the reduction in revenue recognized from Converge, as we have obtained other sources of revenue and have significantly reduced our overall cost
structure.



The increase in software license revenues in 2002
was primarily due to the completion of Verticalnets transformation to a supply chain solutions supplier and restructuring of the Converge license agreement. Prior to December 2003, Verticalnet had not signed a new software license since March
2002. In December 2003, Verticalnet signed two new software license agreements, one with Illinois Tool Works and the other with Wyeth Pharmaceuticals. No revenue was recognized in 2003 for either of these agreements. The Company expects to recognize
revenue related to these two agreements in 2004.



The increase
in services and maintenance revenues of $1.6 million between 2003 and 2002 is due to additional sales to our existing customer base, other than Converge. The decline in services and maintenance revenues between 2002 and 2001 was due primarily to the
restructured Converge agreement, partially offset by service revenues generated principally from new customers acquired during the first quarter of 2002.



Revenue Concentration



During 2003, two customers, other than Converge, accounted for 77% or $7.4 million of total revenue. During 2003, 2002, and 2001 Converge accounted for
approximately 5%, 77%, and 83% of total revenue, respectively.



Cost of Revenues



|                                 |  |                         |       |                        |   |       |                        |   |        |  |   |        |   |   |     |    |   |   |         |   |  |     |   
|-------------------------------- |  | ----------------------- | ----- | ---------------------- | - | ----- | ---------------------- | - | ------ |  | - | ------ | - | - | --- | -- | - | - | ------- | - |  | --- | --
|(in thousands)                   |  | Year ended December 31, |       | 2003 vs 2002Difference |   |       | 2002 vs 2001Difference |  
|                                 |  | 2003                    |       | 2002                   |   | 2001  |                        | $ |        |  | % |        |   | $ |     |    | % |  
|Cost of revenues:                |  |                         |       |                        |   |       |                        |   |        |  |   |        |   |   |     |    |   |   |         |   |  |     |   
|Cost of software license         |  | $                       | 726   |                        | $ | 928   |                        | $ | 4,151  |  | $ | (202   | ) |   | (22 | )% |   | $ | (3,223  | ) |  | (78 | )%
|Cost of services and maintenance |  |                         | 2,524 |                        |   | 5,602 |                        |   | 21,618 |  |   | (3,078 | ) |   | (55 | )% |   |   | (16,016 | ) |  | (74 | )%
|                                 |  |                         |       |                        |   |       |                        |   |        |  |   |        |   |   |     |    |   |   |         |   |  |     |   
|Total cost of revenues           |  | $                       | 3,250 |                        | $ | 6,530 |                        | $ | 25,769 |  | $ | (3,280 | ) |   | (50 | )% |   | $ | (19,239 | ) |  | (75 | )%
|                                 |  |                         |       |                        |   |       |                        |   |        |  |   |        |   |   |     |    |   |   |         |   |  |     |   



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The cost of software license is comprised primarily of royalties on technology contained in our products
that is licensed from third parties, and the cost of acquired technology, which is the non-cash amortization of currently used technologies that were acquired through acquisitions. The cost of services and maintenance includes the cost of the
Companys consultants who are primarily responsible for the software implementations and configurations. Also included is the cost of the Companys customer support function, which is provided to customers as part of recurring maintenance
fees.



The cost of software license decreased in 2003 compared
to 2002, primarily due to the decrease in the amortization of the technology acquired in our acquisitions of Isadra, Inc. (Isadra) in August 1999 and Tradeum, Inc. (Tradeum) in March 2000, which had been fully amortized as of
December 31, 2002. The decrease in 2002 as compared to 2001 was primarily due to the decrease in the amortization of the technology acquired in the Isadra and Tradeum acquisitions, partially offset by the cost of acquired technology in relation to
the Atlas Commerce acquisition, which occurred in December 2001.



The cost of services and maintenance decreased in 2003 primarily due to reduced facilities and infrastructure costs and a significant reduction in headcount as a result of the restructuring actions that occurred during 2002. For the year
ended December 31, 2002, the decrease was primarily due to reduced third-party consulting cost and a significant reduction in headcount as a result of the restructuring actions taken during the latter part of 2001 and 2002. In addition, as a result
of the headcount reductions, travel and entertainment expense declined approximately $100,000 for the year ended December 31, 2002 as compared to the same period in 2001.



OPERATING EXPENSES



|                                                       |  |                         |        |                        |      |   |                        |  |   |         |  |   |         |   |   |      |    |   |   |          |   |  |     |   
|------------------------------------------------------ |  | ----------------------- | ------ | ---------------------- | ---- | - | ---------------------- |  | - | ------- |  | - | ------- | - | - | ---- | -- | - | - | -------- | - |  | --- | --
|(in thousands)                                         |  | Year ended December 31, |        | 2003 vs 2002Difference |      |   | 2002 vs 2001Difference | 
|                                                       |  | 2003                    |        |                        | 2002 |   | 2001                   |  | $ |         |  | % |         |   | $ |      |    | % |  
|Research and development                               |  | $                       | 4,131  |                        |      | $ | 8,975                  |  | $ | 23,757  |  | $ | (4,844  | ) |   | (54  | )% |   | $ | (14,782  | ) |  | (62 | )%
|Sales and marketing                                    |  |                         | 2,400  |                        |      |   | 5,305                  |  |   | 18,146  |  |   | (2,905  | ) |   | (55  | )% |   |   | (12,841  | ) |  | (71 | )%
|General and administrative                             |  |                         | 4,827  |                        |      |   | 9,039                  |  |   | 24,425  |  |   | (4,212  | ) |   | (47  | )% |   |   | (15,386  | ) |  | (63 | )%
|Restructuring and asset impairment charges (reversals) |  |                         | (480   | )                      |      |   | 29,855                 |  |   | 271,445 |  |   | (30,335 | ) |   | (102 | )% |   |   | (241,590 | ) |  | (89 | )%
|Amortization expense                                   |  |                         |       |                        |      |   | 2,112                  |  |   | 108,862 |  |   | (2,112  | ) |   | (100 | )% |   |   | (106,750 | ) |  | (98 | )%
|                                                       |  |                         |        |                        |      |   |                        |  |   |         |  |   |         |   |   |      |    |   |   |          |   |  |     |   
|Total operating expenses                               |  | $                       | 10,878 |                        |      | $ | 55,286                 |  | $ | 446,635 |  | $ | (44,408 | ) |   | (80  | )% |   | $ | (391,349 | ) |  | (88 | )%
|                                                       |  |                         |        |                        |      |   |                        |  |   |         |  |   |         |   |   |      |    |   |   |          |   |  |     |   



Research and
Development



Research and development costs consist
primarily of salaries and fringe benefits cost of the Companys product strategy, development, and testing employees. Research and development costs decreased in 2003 as compared to 2002, primarily due to headcount reductions associated with
the restructuring actions that occurred during 2002, which accounted for approximately $3.1 million, as well as a reduction in facilities, depreciation, and infrastructure costs attributable to the research and development group, which accounted for
$1.7 million.



Research and development costs decreased in 2002
as compared to 2001 primarily due to headcount reductions associated with the restructuring actions taken during the latter part of 2001 and 2002. Salary and fringe related cost accounted for $7.4 million of the decrease. In addition, third-party
consulting cost decreased approximately $2.8 million during the year ended December 31, 2002, as compared to the prior period in 2001. Facilities, travel, recruiting, and infrastructure costs attributable to the research and development group
contributed approximately $4.6 million to the overall decrease in 2002 as compared to 2001.



Sales and Marketing



Sales and marketing expenses consist primarily of salaries and fringe benefits cost, as well as commissions for sales and marketing employees and related travel expenses. The significant decrease in sales and marketing



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expense in 2003 as compared to the prior year is primarily related to headcount reductions, which resulted in salary and fringe benefits decreasing by $1.5
million. For the year ended December 31, 2003, facilities and infrastructure costs attributable to the group decreased by approximately $411,000, while direct marketing expenses, such as advertising, public relations, and trade shows, declined
approximately $711,000.



The significant decrease in sales and
marketing expense for the year ended December 31, 2002 as compared to the prior year is primarily headcount related, as salary and fringe reductions amounted to approximately $5.8 million. In addition, travel related expense declined $1.7 million
and direct marketing expense such as advertising, public relations, and trade shows declined approximately $1.9 million. The remaining $3.4 million related to decreases in facilities and infrastructure costs attributable to the group.



General and Administrative



General and administrative expenses consist primarily of salaries and
related costs for our executive, administrative, finance, legal, and human resources personnel. The significant decrease in general and administrative expenses in 2003 as compared to the prior year is primarily a result of the restructuring actions
undertaken in 2002. For the year ended December 31, 2003, headcount related cost reductions accounted for approximately $940,000 of the decline, a decrease in depreciation expense accounted for $2.6 million of the decline and a decrease in other
general and administrative expenses, such as rent, contributed $672,000.



General and administrative expenses declined approximately $8.1 million between 2001 and 2002 primarily as a result of headcount cost reductions. Professional services expense declined approximately $2.0 million in
2002 as compared to 2001 due to a decrease in the Companys use of outside legal and accounting services as a result of the Companys reduced size. General and administrative facilities and infrastructure related reductions accounted for
approximately $5.1 million of the decline between 2001 and 2002. In addition, during the year ended December 31, 2002, we settled certain litigation and tax related issues for which accruals had been established. The settlement of these items
resulted in a reversal of the remaining accrual and thus reduced general and administrative expense during 2002 by $1.5 million. These were one-time reductions, and were not part of the operating cost structure.



Restructuring and Asset Impairment Charges (Reversals)



|                                                             |  |      |      |   |      |   |        |  |   |        
|------------------------------------------------------------ |  | ---- | ---- | - | ---- | - | ------ |  | - | -------
|(in thousands)                                               |  | 2003 |      |   | 2002 |   | 2001  
|Goodwill and other intangible asset impairments              |  | $    |     |   |      | $ | 27,595 |  | $ | 242,791
|Facility leases and severance obligations, net               |  |      | (489 | ) |      |   | 1,549  |  |   | 25,835 
|Write off of obsolete software                               |  |      | 9    |   |      |   | 711    |  |   | 2,819  
|                                                             |  |      |      |   |      |   |        |  |   |        
|Total restructuring and asset impairment charges (reversals) |  | $    | (480 | ) |      | $ | 29,855 |  | $ | 271,445
|                                                             |  |      |      |   |      |   |        |  |   |        



On October 22, 2003,
we reached an agreement with Silicon Valley Bank in connection with a letter of credit they had provided pertaining to a lease of office space in San Francisco, which was the subject of a lawsuit. The Company paid $480,000 to Silicon Valley Bank and
Silicon Valley Bank released the Company and our subsidiaries from further claims. As a result, the restructuring accrual was adjusted during the year ended December 31, 2003, to reflect the agreed upon settlement. As of December 31, 2003, remaining
accrued restructuring expenses of $3,000 relates primarily to lease termination costs. These amounts are expected to adequately cover actual amounts to be paid. Differences, if any, between the estimated amounts accrued and the actual amounts paid
will be reflected in operating expenses in future periods.



Goodwill impairment charges during the years ended December 31, 2002 and 2001 related to the goodwill recorded in the acquisitions of Atlas Commerce, Tradeum, and Isadra. See Note 6 to our consolidated financial statements.



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Amortization Expense



Amortization expense for the year ended December 31 2001 primarily reflects the amortization of goodwill from purchase
business combinations prior to the adoption of SFAS No 142, Goodwill and Other Intangible Assets. Amortization expense also includes the non-cash amortization of deferred costs related to the warrants and Series A convertible redeemable preferred
stock issued to Microsoft Corporation in 2000. Pursuant to the Companys adoption of SFAS No. 142, the Company discontinued its amortization of goodwill beginning January 1, 2002.



Interest and Other Expense, Net



Interest and other expense, net was comprised of the following (in thousands):



|                                                             |  |                         |         |   |      |   |         |      |  |   |          |  
|------------------------------------------------------------ |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | -------- | -
|                                                             |  | Year Ended December 31, |        
|                                                             |  | 2003                    |         |   | 2002 |   |         | 2001 | 
|Inducement charges                                           |  | $                       | (5,707  | ) |      | $ | (2,869  | )    |  | $ |         |  
|Interest income (expense)                                    |  |                         | (1,046  | ) |      |   | (2,597  | )    |  |   | 37       |  
|Realized gain (loss) on investments                          |  |                         | (51,019 | ) |      |   |        |      |  |   | (3,829   | )
|Transaction gains                                            |  |                         | 120     |   |      |   | 939     |      |  |   | 910      |  
|Realized gain on forward sale                                |  |                         | 51,132  |   |      |   |        |      |  |   |         |  
|Equity investment loss                                       |  |                         |        |   |      |   |        |      |  |   | (2,312   | )
|Gain on early extinguishment of debt                         |  |                         |        |   |      |   | 5,411   |      |  |   |         |  
|Impairment charges  investments                             |  |                         |        |   |      |   | (11,564 | )    |  |   | (231,327 | )
|In-process research and development charge                   |  |                         |        |   |      |   |        |      |  |   | (420     | )
|Other income (expense) items including terminated deal costs |  |                         |        |   |      |   | (2,087  | )    |  |   | 3,029    |  
|                                                             |  |                         |         |   |      |   |         |      |  |   |          |  
|Interest and other expense, net                              |  | $                       | (6,520  | ) |      | $ | (12,767 | )    |  | $ | (223,912 | )
|                                                             |  |                         |         |   |      |   |         |      |  |   |          |  



In July 2003, we
completed the repurchase of $6.4 million of our 51/4% convertible subordinated debentures for total
consideration of $5.8 million in cash, stock, and warrants. This consideration included $1.3 million in cash, common stock with a fair market value of $4.4 million, and change of control warrants valued at $124,000. Additionally, we made a payment
for accrued but unpaid interest of approximately $21,000, also in cash. In connection with the transaction, we wrote-off, against additional paid-in capital, approximately $55,000 in deferred debt offering costs attributable to the portion of debt
repurchased. The Company recorded a charge to operations of $5.7 million representing the inducement for conversion of the convertible debentures, in accordance with SFAS No. 84, Induced Conversion of Convertible Debt.



In December 2002, we completed the repurchase of $720,000 of the convertible
subordinated debentures for total consideration of $113,000. We recognized a gain of $607,000 in connection with the repurchase.



In connection with the September 2002 settlement, the put/call agreement between Verticalnet and British Telecommunications Plc. (BT) was
terminated, as well as BTs put right under this agreement that would have required us to repurchase BTs 10% interest in Verticalnet Europe. Separately, the Company and BT also agreed to terminate a reseller agreement between the parties,
including a $1.5 million prepaid license obligation. As a result of this settlement, the Company recorded a $4.8 million gain representing the difference between the fair value of the consideration issued in the settlement transaction and the
carrying value of the amounts due to BT (see Note 7 to our consolidated financial statements).



For the year ended December 31, 2002, we recorded impairment charges of $9.6 million related to our total Converge investment, which includes $3.5 million invested by the Company during February 2002. During the year
ended December 31, 2001, we recorded an impairment charge of $207.2 million related to our Converge investment based upon an independent valuation.



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During the years ended December 31, 2002 and 2001, we recorded additional impairment charges of
approximately $2.0 million and $12.0 million for other than temporary declines in the fair values of our other cost method investments.



During the year ended December 31, 2001, we recognized an impairment charge of approximately $10.5 million on our Ariba investment for an other than
temporary decline, based on the difference between the original recorded cost of the investment and the fair market value of the shares as of the forward sale contract date.



During the year ended December 31, 2001, we recorded impairment charges (net of cash returned from the sale or liquidation
of investments) of approximately $1.6 million on our equity method investments.



LIQUIDITY AND CAPITAL RESOURCES



The following table highlights key financial measurements as of and during the years ended December 31:



|                                                    |  |      |        |   |      |   |         |  
|--------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------- | -
|(in thousands)                                      |  | 2003 |        |   | 2002 |  
|Cash and cash equivalents                           |  | $    | 4,408  |   |      | $ | 7,979   |  
|Accounts receivable, net                            |  | $    | 2,438  |   |      | $ | 1,586   |  
|Working capital                                     |  | $    | 2,683  |   |      | $ | 3,939   |  
|Current ratio                                       |  |      | 1.57   |   |      |   | 1.41    |  
|Total debt, including current portion               |  | $    | 757    |   |      | $ | 7,708   |  
|                                                    |  |     
|Cash flow activities:                               |  |      |        |   |      |   |         |  
|Net cash used in operating activities               |  | $    | (7,636 | ) |      | $ | (26,503 | )
|Net cash provided by investing activities           |  |      | 2,897  |   |      |   | 1,755   |  
|Net cash provided by (used in) financing activities |  |      | 1,224  |   |      |   | (17,777 | )



Historically, the
Company has funded itself through the sale of equity and debt instruments, as well as revenue from operations.



Operating activities



The reduction in the net cash used in operating activities was primarily a function of the restructuring efforts undertaken in 2001 and 2002 to reduce the
Companys cost structure and streamline operations. Included in the net cash used in operating activities in 2003 was approximately $3.0 million that was paid related to prior accrued restructuring costs.



Investing activities



During the year ended December 31, 2003, net cash provided by investing
activities was $2.9 million and primarily consisted of the $1.7 million release of previously restricted funds, $979,000 from the sale of short-term investments, and $292,000 from the sale of property and equipment.



Financing activities



Net cash provided by financing activities for the year ended December 31,
2003 of $1.2 million primarily relates to $2.5 million of net proceeds from the issuance of common stock and warrants, offset by $1.3 million of cash used for the repurchase of the Companys convertible subordinated debentures.



In August 2003, we completed a $1.1 million private placement of our common
stock. The Company issued 1,140,000 shares of common stock at a purchase price of $1.00 per share, along with warrants to purchase 456,000 shares of common stock at an exercise price of $1.20 per share, which were valued at $485,000 million. The
Company received approximately $936,000 in net proceeds from this transaction. As the warrants originally included a requirement for net cash settlement if the Company was unable to register the shares to be issued upon



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exercise of the warrants, these warrants were required to be recorded as a liability until such time as the registration requirements expired. Verticalnet
subsequently signed waiver letter agreements with certain warrantholders, which resulted in the warrants being modified to provide for a cashless exercise in the event of a Non-Registration Event, as defined therein, and the elimination of the net
cash settlement (i.e., put) provision. In addition, certain penalty provisions were modified to provide that the warrantholders would receive no liquidated damages in the event of a Non-Registration Event. Upon the elimination of the net cash
settlement provision, the fair value of the warrants ($346,000) was reclassified from other current liabilities to additional paid-in capital.



On October 9, 2003, we completed a $1.8 million private placement of our common stock. The Company issued 1,800,000 shares of common stock at a purchase
price of $1.00 per share, along with warrants to purchase 720,000 shares of common stock at an exercise price of $1.35 per share. The Company received approximately $1.6 million in net proceeds from this transaction.



In January 2004, we completed a $7.7 million private placement of our common
stock. The Company issued 3,798,592 shares of common stock at a purchase price of $2.02 per share, along with warrants to purchase 1,218,209 shares of common stock at an exercise price of $3.72 per share. The Company received approximately $7.1
million in net proceeds from this transaction. In January 2004, the Company also used $3.5 million of its available cash as part of the purchase consideration for Tigris.



In February 2004, 320,000 warrants from the August 2003 private placement were exercised at $1.20 per share. The Company
received approximately $346,000 in net proceeds from the exercise of these warrants.



We believe that our level of liquid assets as of March 15, 2004 will be sufficient to finance our capital requirements and anticipated operating losses through at least March 31, 2005. However, to the extent that the
current levels of liquid assets prove to be insufficient, we may need to further reduce our operating costs or obtain additional debt or equity financing. Additionally, we may, if the capital markets present attractive opportunities, raise cash
through the sale of debt or equity. We can provide no assurance that we will be successful in obtaining any required or desired financing either on acceptable terms or at all.



Part of our growth strategy is to pursue strategic acquisitions of businesses. We have made acquisitions in the past, and
intend to make acquisitions in the future. Historically, we have financed our acquisitions with the proceeds of our private placements, cash on hand, and shares of our common stock. We expect to finance any future acquisitions with proceeds from our
recent common stock offering, cash generated by operations, additional sales or issuances of shares of our common stock, or a combination of the foregoing.



Contractual Commitments



The following table outlines future contractual commitments, including the effects of the additional liabilities and contractual obligations assumed as
part of the Tigris acquisition (see Notes 11, 12, and 20 to our consolidated financial statements).



Expected Cash Payment by Period

(in thousands)



|                     |  |      |       |      |   |      |  |      |     |      |   |               |  |       |     |  |   |     |  |   |      
|-------------------- |  | ---- | ----- | ---- | - | ---- |  | ---- | --- | ---- | - | ------------- |  | ----- | --- |  | - | --- |  | - | -----
|                     |  | 2004 |       | 2005 |   | 2006 |  | 2007 |     | 2008 |   | Due after2009 |  | Total
|Convertible notes    |  | $    | 728   |      | $ |     |  | $    |    |      | $ |              |  | $     |    |  | $ |    |  | $ | 728  
|Operating leases     |  |      | 656   |      |   | 644  |  |      | 556 |      |   | 329           |  |       | 290 |  |   | 580 |  |   | 3,055
|Capital leases (a)   |  |      | 76    |      |   | 58   |  |      | 31  |      |   |              |  |       |    |  |   |    |  |   | 165  
|Purchase obligations |  |      | 218   |      |   | 182  |  |      |    |      |   |              |  |       |    |  |   |    |  |   | 400  
|Other obligations    |  |      | 29    |      |   |     |  |      |    |      |   |              |  |       |    |  |   |    |  |   | 29   
|                     |  |      |       |      |   |      |  |      |     |      |   |               |  |       |     |  |   |     |  |   |      
|Total                |  | $    | 1,707 |      | $ | 884  |  | $    | 587 |      | $ | 329           |  | $     | 290 |  | $ | 580 |  | $ | 4,377
|                     |  |      |       |      |   |      |  |      |     |      |   |               |  |       |     |  |   |     |  |   |      

---

|(a) | Capital lease balances excludes future interest obligations.
|--- | ------------------------------------------------------------



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Off-Balance Sheet Arrangements



We do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships,
such as special purpose entities (SPEs) or variable interest entities (VIEs), which would have been established for the purpose of facilitating off-balance sheet arrangements or other limited purposes. As of December 31,
2003, we were not involved with any unconsolidated SPEs or VIEs. As of December 31, 2003, we have no derivatives.



Recent Accounting Pronouncements



In April 2003, the Financial Accounting Standards Board (FASB) issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and
Hedging Activities. SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging
activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, except for certain items and for hedging relationships
designated after June 30, 2003. The adoption of SFAS No. 149 did not have an impact on our consolidated financial statements.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150
establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or
an asset in some circumstances). Many of those instruments were previously classified as equity. Some of the provisions of SFAS No. 150 are consistent with the current definition of liabilities in FASB Concepts Statement No. 6, Elements of Financial
Statements. The remaining provisions of SFAS No. 150 are consistent with the FASBs proposal to revise that definition to encompass certain obligations that a reporting entity can or must settle by issuing its own equity shares,
depending on the nature of the relationship established between the holder and the issuer. While the FASB still plans to revise that definition through an amendment to Concepts Statement No. 6, it has decided to defer issuing that amendment until it
has concluded its deliberations on the next phase of this project. That next phase will deal with certain compound financial instruments including puttable shares, convertible bonds, and dual-indexed financial instruments. SFAS No. 150 is effective
for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have an impact on the Companys
financial position, results of operations, or cash flows.



FACTORS AFFECTING
OUR BUSINESS CONDITION



We may require additional
capital for our operations and obligations, and, as a result, we are exploring alternatives to preserve and enhance value.



Although, based on our most recent projections, we believe our current level of liquid assets and the expected cash flows from contractual revenue
arrangements will be sufficient to finance our capital requirements and anticipated operating losses through at least March 31, 2005, any projection of future long-term cash needs and cash flows are inherently subject to uncertainty. There is no
assurance that our resources will be sufficient for anticipated or unanticipated working capital and capital expenditure requirements during this period. We may need, or find it advantageous, to raise additional funds in the future to fund our
growth, pursue sales and licensing opportunities, develop new or enhanced products and services, respond to competitive pressures, or acquire complementary businesses, technologies, or services.



If we are ultimately unable, for any reason, to receive cash payments
expected from our customers, our business, financial condition, and results of operations will be materially and adversely affected.



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We may not generate an operating profit.



As of December 31, 2003, our accumulated deficit was approximately $1.2
billion. We may never again generate an operating profit or, even if we do become profitable from operations at some point, we may be unable to sustain that profitability.



We receive most of our revenue from a few customers.



For the year ended December 31, 2003, two customers accounted for $7.4
million or 77% of our total revenues. Any termination of our professional services by either of these customers could have a material adverse effect on our business, operating results, and financial conditions.



We have contractual obligations to provide consulting services over
many periods.



We maintain a professional services and
consulting workforce to fulfill contracts that we enter into with our customers that may extend to multiple periods. Our profitability is largely a function of performing to customer contractual arrangements within the estimated costs to perform
these obligations. If we exceed these estimated costs, our profitability under these contracts may be negatively impacted. In addition, if we are not able to obtain sufficient work to keep all of our professionals on revenue generating projects; it
may adversely affect our business, financial condition, and results of operations.



If we fail to meet client expectations in the performance of our services, our business could suffer.



Our failure to meet client expectations in the performance of our services, including the quality, cost, and timeliness of our services, may adversely
affect our ability to attract and retain clients. If a client is not satisfied with our services, we will generally spend additional human and other resources at our own expense to ensure client satisfaction. Such expenditures will typically result
in a lower margin on such engagements and could materially adversely affect our business, financial condition, and results of operations.



We may be unable to maintain our listing on the Nasdaq Stock Market, which could cause our stock price to fall and decrease the liquidity of our
common stock.



Our common stock is currently listed on
the Nasdaq Stock Market, which has requirements for the continued listing of stock. In May 2002, we transferred our listing from the Nasdaq National Market to the Nasdaq SmallCap Market due to our inability to comply with the Nasdaq National Market
bid price and shareholders equity requirements. Continued listing on the Nasdaq SmallCap Market requires us to maintain $2.5 million in shareholders equity and our common stock to maintain a minimum bid price of $1.00 per share. We will
not meet the continued listing standard if the closing price of our common stock is less than $1.00 for 30 consecutive trading days. Our stock was trading above $1.00 as of March 23, 2004.



On April 8, 2003, we received a letter from Nasdaq stating that Nasdaq was
reviewing our eligibility for continued listing on the Nasdaq SmallCap Market due to (i) the Companys failure to maintain the minimum shareholders equity of $2.5 million, and (ii) Nasdaqs belief that the members of the
Companys Audit Committee were not independent within the meaning of the Nasdaq rules. The letter stated that delisting procedures would begin if Nasdaq believed the Companys plan to achieve and maintain compliance with listing standards
was inadequate. On April 22, 2003, the Company responded to Nasdaq and asserted that (i) the Company had a plan to improve the Companys shareholders equity sufficient to meet Nasdaq listing requirements, and (ii) that the Company
believed that under existing law and proposed SEC and Nasdaq rules, the members of the Companys Audit Committee were independent, and that no further modification of the Audit Committee would be required until the annual meeting in 2004. On
June 5, 2003, we received a letter from Nasdaq rejecting our request that our stock remain listed on the Nasdaq SmallCap Market. The Company filed an immediate appeal, which stayed the delisting until a hearing could be held before a hearing panel.
On July 24, 2003, the Company attended a hearing convened by Nasdaq before a Listing Qualifications Panel to consider the delisting of Verticalnets common stock. On August 5, 2003, we received a letter from Nasdaq informing us that the Listing
Qualifications Panel had determined to continue the listing of our securities on the Nasdaq SmallCap



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Market, subject to our completion of certain matters, including (i) the timely filing of the our Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 2003, which contained a pro forma balance sheet reflecting the repurchase of $6.4 million of the Companys 51/4% convertible subordinated debentures due September 2004 and the $1.1 million private placement of our common stock (see Note 14 to our consolidated financial statements); (ii) submitting documentation evidencing the election of
independent directors and audit committee members, and (iii) timely filing a Quarterly Report for the third calendar quarter of 2003 which evidences shareholders equity in excess of $2.5 million. After the filing of our Form 10-Q for the
quarterly period ended September 30, 2003, we received a letter from the Listing Qualifications Panel dated November 19, 2003 stating that Verticalnet had demonstrated compliance with the current requirements necessary for listing on the Nasdaq
SmallCap Market. The Panel also notified the Company that its common stock would continue to be listed on the Nasdaq SmallCap Market provided the Company files a Form 10-K for the year ending December 31, 2003 on or before March 30, 2004 evidencing
shareholders equity of at least $2.5 million. As of December 31, 2003, our shareholders equity was $4.4 million, and met the minimum net worth requirement. We expect to remain in compliance with the Panels terms for continued
listing. However, there can be no assurance that we will continue to be able to meet the minimum shareholders equity balance in the future.



On March 30, 2004, the Company was notified by Nasdaq that Nasdaq listing qualifications analysts had concluded the Company failed to comply with Nasdaq
listing standards as a result of the Companys January 2004 private placement and the subsequent acquisition of Tigris Corp. Specifically, Nasdaq believes that the Company failed to obtain shareholder approval of the issuance of shares of its
common stock as consideration in the transactions in accordance with Nasdaq Marketplace Rule 4350(i)(1)(c), and, as a result, the Companys common stock could be subject to delisting from the Nasdaq SmallCap Market. Nasdaq Marketplace Rule
4350(i)(1) requires shareholder approval in certain circumstances where shares are issued by the Company are in excess of 20 percent of the Companys outstanding shares. Neither the number of shares issued in the January 23, 2004 private
placement nor the number of shares issued in the subsequent January 30, 2004 Tigris acquisition exceeded 20 percent of the Companys outstanding shares of common stock. However, Nasdaq has determined that the number of shares issued in the two
transactions (including the options assumed by the Company as a result of the acquisition) should be aggregated for the purposes of the 20 percent test. If aggregated, the number of shares issued in the two transactions could exceed 20 percent of
the Companys outstanding shares.



The Nasdaq Listing
Qualifications Staff has referred this deficiency to the Listing Qualifications Panel that considered the Companys earlier compliance issues, and retains jurisdiction over this matter. The Company will make a submission to the Panel in which
it will present its interpretation of the aggregation rules and, if necessary, a plan for bringing the Company into compliance with all Nasdaq listing standards. There can be no assurance that the Listing Qualification Panel will accept the
Companys plan for obtaining compliance. In the event the Panel does not accept the Companys plan for obtaining compliance, the Companys common stock could be subject to immediate delisting from the SmallCap Market or other remedy
or penalty.



If our stock is delisted from the Nasdaq
Stock Market or our share price declines significantly, then our stock may be deemed to be penny stock.



If our common stock is considered penny stock, it would be subject to rules that impose additional sales practices on broker-dealers who sell our
securities. Because of these additional obligations, some brokers may be unwilling to effect transactions in our stock. This could have an adverse effect on the liquidity of our common stock and the ability of investors to sell the common stock. For
example, broker-dealers must make a special suitability determination for the purchaser and have received the purchasers written consent to the transaction prior to sale. Also, a disclosure schedule must be prepared prior to any transaction
involving a penny stock and



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disclosure is required about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities.
Monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.



If our stock is delisted from the Nasdaq Stock Market, we may be unable to license our products and sell our services
to prospective or existing customers.



If our stock is
delisted, our prospective and existing customers may lose confidence that we can continue as a viable business to provide support necessary to further develop our solution and provide ongoing maintenance and consulting services. Prospective and
existing customers could consider alternative solutions or significantly reduce the value they are willing to pay for our solution to compensate for the potential added risk to their business. If our stock is delisted, our ability to meet our
revenue goals could be adversely impacted, resulting in deterioration of the financial condition of our business.



Our ability to complete the business repositioning and financial restructuring of the Company depends on our key management and experienced software
personnel, whom we may not be able to retain.



We
believe that our ability to complete a successful business repositioning and financial restructuring of the Company depends on continued employment of our senior management team and on maintaining a highly trained product development staff. If one
or more members of our senior management team were unable or unwilling to continue in their present positions, our prospects for reorganizing the Company could be materially adversely affected. If we are unable to retain trained technical personnel,
it could limit our ability to design and develop products, which could reduce our attractiveness to potential customers, investors, or acquirers.



We may not be able to hire or retain enough additional personnel to meet our hiring needs.



Our success also depends on having highly trained professional services and
development personnel. We may need to hire additional personnel if our business grows. A shortage in the number of trained consultants and developers could limit our ability to implement our software if we are able to license software to new
customers or if our present customers ask us to perform more services for them. Competition for personnel, particularly for employees with technical expertise, could be strong. Our business, financial condition, and operating results will be
materially adversely affected if we cannot hire and retain suitable personnel.



Fluctuations in our quarterly operating results may cause our stock price to decline.



Our quarterly operating results are difficult to forecast and could vary significantly. If our operating results in a future quarter or quarters do not
meet the expectations of securities analysts or investors, the price of our common stock may fall. Our quarterly operating results will be substantially dependent on software licenses and professional services booked and delivered in that quarter.
Any delay in the recognition of revenue for any of our license transactions or professional services could cause significant variations in our quarterly operating results and could cause our revenues to fall significantly short of anticipated
levels. We also expect that our quarterly operating results will fluctuate significantly due to other factors, many of which are beyond our control, including:



| |  | anticipated lengthy sales cycle for our products;
| | - | -------------------------------------------------



| |  | the size and timing of individual license transactions;
| | - | -------------------------------------------------------



| |  | intense and increased competition in our target markets;
| | - | --------------------------------------------------------



| |  | our ability to develop, introduce, and bring to market new products and services, or enhancements to our existing products and services, on a timely basis; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | risks associated with past acquisitions.
| | - | ----------------------------------------



If we are able to grow our business, we may not be able to manage the growth successfully.



If we are able to grow our business, such growth could place a significant
strain on our resources and systems. To manage our growth, we must implement systems and train and manage our employees. In addition, we may not be able to limit our exposure to non-creditworthy customers.



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We may seek to acquire another business or raise additional capital, which could dilute the
ownership of our existing shareholders.



We may seek
to grow our business by acquiring another business. In addition, we may seek to raise additional capital. We may be required to incur debt or issue equity securities to pay for acquisitions or to raise additional capital, which may be dilutive to
our existing shareholders.



New versions and releases of
our products may contain errors or defects.



Our
enterprise software products may contain undetected errors or failures when first introduced or as new versions are released. This may result in loss of, or delay in, market acceptance of our products. Errors in new releases and new products after
their introduction could result in delays in release, lost revenues, and customer frustration during the period required to correct these errors. We may in the future discover errors and defects in new releases or new products after they are shipped
or released.



We utilize third-party software that we
incorporate into and include with our products and solutions, and impaired relations with these third-parties, defects in third-party software, or their inability or failure to enhance their software over time could have a material adverse effect on
our operating performance and financial condition.



We
incorporate and include third-party software into and with our products and solutions. We are likely to incorporate and include additional third-party software into and with our products and solutions as we expand our product offerings. If our
relations with any of these third-party software providers are impaired, and if we are unable to obtain or develop a replacement for the software, our business could be harmed. Our products may be impacted if errors occur in the third-party software
that we utilize. It may be more difficult for us to correct any defects in third-party software because the software is not within our control. Accordingly, our business could be adversely affected in the event of any errors in this software. There
can be no assurance that these third parties will continue to invest the appropriate levels of resources in their products and services to maintain and enhance the capabilities of their software.



We have begun to shift a significant portion of our product development
operations to India, which poses significant risks.



Since September we have had a relationship with an entity to provide software development services in Bangalore, India. We have continued to increase the proportion of our product development work being performed by contractors in India in
order to take advantage of cost efficiencies associated with Indias lower wage scale. However, we may not achieve the cost savings and other benefits we anticipate from this program and we may not be able to find sufficient numbers of
developers with the necessary skill sets in India to meet our needs. We have a heightened risk exposure to changes in the economic, security, and political conditions of India. Economic and political instability, military actions, and other
unforeseen occurrences in India could impair our ability to develop and introduce new software applications and functionality in a timely manner, which could put our products at a competitive disadvantage whereby we lose existing customers and fail
to attract new customers.



Our target markets are
evolving and characterized by rapid technological change, which we may not be able to keep pace with.



The markets for our products and services are evolving and characterized by rapid technological change, changing customer needs, evolving industry
standards, and frequent new product and service announcements. The introduction of products employing new technologies and emerging industry standards could render our existing products or services obsolete or unmarketable. If we are unable to
respond to these developments successfully or do not respond in a cost-effective way, our business, financial condition, and operating results will suffer. To be successful, we must continually improve and enhance the responsiveness, services, and
features of our enterprise software products and introduce and deliver new product and service offerings and new releases of existing products. We may fail to improve or enhance our software products or introduce and deliver new



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releases or new offerings on a timely and cost-effective basis or at all. If we experience delays in the future with respect to our software products, or if
our improvements, enhancements, offerings, or releases to these products do not achieve market acceptance, we could experience a delay or loss of revenues and customer dissatisfaction. Our success will also depend in part on our ability to acquire
or license third-party technologies that are useful in our business, which we may not be able to do.



We may ultimately be unable to compete in the markets for the products and services we offer.



The markets for our enterprise software products and services are intensely
competitive, which may result in low or negative profit margins and difficulty in achieving market share, either of which could seriously harm our business. We expect the intensity of competition to increase. Our enterprise software products and
services face competition from software companies whose products or services compete with a particular aspect of the solution we provide, as well as several major enterprise software developers. Many of our competitors have longer operating
histories, greater brand recognition, and greater financial, technical, marketing, and other resources than we do, and may have well-established relationships with our existing and prospective customers. This may place us at a disadvantage in
responding to our competitors pricing strategies, technological advances, advertising campaigns, strategic partnerships, and other initiatives. Our competitors may also develop products or services that are superior to or have greater market
acceptance than ours. If we are unable to compete successfully against our competitors, our business, financial condition, and operating results would be negatively impacted.



We have had decreases in the fair value, and in some cases a complete loss, of our equity investments.



We hold investments in equity instruments of
privately held companies. Such items are included in other investments on our consolidated balance sheet. For the year ended December 31, 2002, we recorded an aggregate of $11.6 million in impairment charges for other than temporary declines in the
fair value of our cost method, equity method, and available-for-sale investments, $9.6 million of which was a write-down of the fair value of our equity investment in, and note receivable from, Converge, Inc., for which we entered into a sale
agreement as of September 30, 2002. As of December 31, 2003, we held cost method investments with a carrying value of $606,000. We may never realize any return on our equity interests that we continue to hold, and we may suffer a complete loss of
these interests, which could materially and adversely affect our business, financial condition, and operating results.



If we do not develop the Verticalnet brand in the supply management solution industry, our revenues might not increase.



We must establish and continuously strengthen the
awareness of the Verticalnet brand in the supply management solution industry. If our brand awareness as a maker of supply management solution software does not develop, or if developed, is not sustained as a respected brand, it could
decrease the attractiveness of our products and services to potential customers, which could result in decreased revenues.



Our interests may conflict with those of Internet Capital Group, our largest shareholder, which may affect our business strategy and operations
negatively.



As a result of its stock ownership and
board representation, Internet Capital Group, Inc. (Internet Capital Group) is in a position to affect our business strategy and operations, including corporate actions such as mergers or takeover attempts, in a manner that could
conflict with the interests of our public shareholders. At December 31, 2003, Internet Capital Group beneficially owned 2,526,864 shares, or approximately 13%, of our common stock, which includes 62,703 shares of our common stock underlying warrants
issued to Internet Capital Group prior to our initial public offering. One representative of Internet Capital Group is a member of our board of directors. We may compete with Internet Capital Group and its partner companies for enterprise software
opportunities, in part through acquisitions and investments. Internet Capital Group, therefore, may seek to



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acquire or invest in companies that we would find attractive. While we may partner with Internet Capital Group on future acquisitions or investments, neither
we nor they have any current contractual obligations to do so. We do not have any contracts or other understandings that would govern resolution of this potential conflict. This competition, and the potential conflict posed by the designated
director, may deter companies from partnering with us and may limit our business opportunities.



Internet Capital Group may have to buy or sell our stock to avoid registration under the Investment Company Act of 1940, which may negatively affect
our stock price.



To avoid registration under the
Investment Company Act of 1940, Internet Capital Group may need to own more than 25% of our voting securities and continue to have a representative on our board of directors. Under the Investment Company Act, a company is considered to control
another company if it owns more than 25% of that companys voting securities and is the largest shareholder of such company. A company may be required to register as an investment company if more than 45% of its total assets consist of, and
more than 45% of its income/loss and revenue attributable to it over the last four quarters is derived from, ownership interests in companies it does not control. Internet Capital Group has publicly stated that it is not feasible to be regulated as
an investment company because the Investment Company Act rules are inconsistent with their corporate strategy. As of December 31, 2003, Internet Capital Groups ownership interest in us was approximately 13%. Now that its ownership interest has
fallen below 25%, Internet Capital Group may need to purchase additional voting securities to return to an ownership interest of at least 25% to avoid having to register as an investment company. The possible need of Internet Capital Group to
maintain a 25% ownership position could adversely influence its decisions regarding actions that may otherwise be in the best interests of our public shareholders. If Internet Capital Group sells all or part of its investment in us, whether to
comply with the Investment Company Act of 1940, to raise additional capital or otherwise, it could adversely affect our common stocks market price.



We may not be able to protect our proprietary rights and may infringe the proprietary rights of others.



Proprietary rights are important to our success and our competitive
position. We may be unable to register, maintain, and protect our proprietary rights adequately or to prevent others from claiming violations of their proprietary rights. Although we file copyright registrations for the source code underlying our
software, enforcement of our rights might be too difficult and costly for us to pursue effectively. We have filed patent applications for the proprietary technology underlying our software, but our ability to fully protect this technology is
contingent upon the ultimate issuance of the corresponding patents. Effective patent, copyright, and trade secret protection of our software may be unavailable or limited in certain countries.



Several lawsuits have been brought against us and the outcome of these
lawsuits is uncertain.



Several lawsuits have been
brought against us and the underwriters of our stock in our initial public offering. These lawsuits allege, among other things, that the underwriters engaged in sales practices that had the effect of inflating our stock price, and that our
prospectus for that offering was materially misleading because it did not disclose these sales practices. We intend to vigorously defend against these lawsuits. No assurance can be given as to the outcome of these lawsuits.



Shares eligible for future sale by our current or future shareholders
may cause our stock price to decline.



If our
shareholders or option and warrant holders sell substantial amounts of our common stock in the public market, including shares issued in completed or future acquisitions or upon the exercise of outstanding options and warrants, then the market price
of our common stock could fall. As of December 31, 2003, the holders of 3,476,192 shares of common stock and warrants to purchase 1,238,703 shares of common stock have demand and/or piggyback registration rights. The exercise of such rights could
adversely affect the market price of our common stock. We also have filed a shelf registration statement to facilitate our acquisition strategy, as well as registration statements to register shares of common stock under our stock option and
employee stock purchase plans. Shares issued pursuant to existing or future shelf registration statements, upon exercise of stock options and warrants, and in connection with our employee stock purchase plan will be eligible for resale in the public
market without restriction.



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Anti-takeover provisions and our right to issue preferred stock could make a third-party
acquisition of us difficult.



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



Our common stock price is likely to remain highly volatile.



The market for stocks of technology companies has been highly volatile since our initial public offering in 1999. Throughout this period, the market price
of our common stock has reached extreme highs and lows, and our daily trading volume has been, and will likely continue to be, highly volatile. Investors may not be able to resell their shares of our common stock following periods of price or
trading volume volatility because of the markets adverse reaction to such volatility. Factors that could cause volatility in our stock price and trading volume, in some cases regardless of our operating performance, include, among other
things:



| |  | general economic conditions, including suppressed demand for technology products and services;
| | - | ----------------------------------------------------------------------------------------------



| |  | actual or anticipated variations in quarterly operating results;
| | - | ----------------------------------------------------------------



| |  | announcements of technological innovations;
| | - | -------------------------------------------



| |  | new products or services;
| | - | -------------------------



| |  | changes in the market valuations of other software or technology companies;
| | - | ---------------------------------------------------------------------------



| |  | failure to meet analysts or investors expectations;
| | - | -----------------------------------------------------



| |  | announcements by us or our competitors of significant acquisitions, strategic partnerships, or joint ventures;
| | - | --------------------------------------------------------------------------------------------------------------



| |  | our cash position and cash commitments;
| | - | ---------------------------------------



| |  | our prospects for enterprise software sales and new customers; and
| | - | ------------------------------------------------------------------



| |  | additions or departures of key personnel.
| | - | -----------------------------------------



Acquisitions may disrupt or otherwise have a negative impact on our business.



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



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



| |  | we may acquire companies in markets in which we have little experience;
| | - | -----------------------------------------------------------------------



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



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



| |  | our acquisitions may not result in any return on our investment and we may lose our entire investment.
| | - | ------------------------------------------------------------------------------------------------------



Item 7A.Quantitative and Qualitative Disclosure About Market Risk



Our exposure to market risk related changes in interest rates relates primarily to our cash and cash equivalents. We have invested in instruments that
meet high quality credit standards, as specified in our investment policy. The policy also limits the amount of credit exposure we may have to any one issue, issuer, or



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type of investment. Due to the nature of our investment portfolio, we believe that a sudden change in interest rates would not have a material effect on the
value of the portfolio since in most cases the average yield on our investments is less than 1% at December 31, 2003. The impact on our future interest income and future changes in investment yields will depend largely on the gross amount of our
investment portfolio.



We have invested in equity instruments
of privately held companies for business and strategic purposes. These investments are included in other investments and are accounted for under the cost method when ownership is less than 20% and we do not have the ability to exercise significant
influence over operations. As of December 31, 2003 we hold cost method equity investments with a carrying value of approximately $606,000. For these investments in privately held companies, our policy is to regularly review the assumptions
underlying the operating performance and cash flow forecasts in assessing the recoverability of the carrying values. We identify and record impairment losses when events and circumstances indicate that such assets might be impaired.



We received Ariba, Inc. (Ariba) common stock in connection with
Aribas acquisition of Tradex Technologies, Inc. In July 2000, we entered into forward sale contracts relating to our investment in Ariba. Under these contracts, we pledged our shares of Aribas common stock to the counter-party for a
three-year period in return for approximately $47.4 million of cash. In July 2003, the three-year period concluded, and we elected to deliver the pledged Ariba shares to satisfy the forward sale, rather than delivering cash. As of the date of this
filing, we have not been advised whether the pledged shares have been delivered to the counter-party. We have no further obligations under the forward sale contract. We have no derivatives as of December 31, 2003.



Item 8.Financial Statements and Supplementary Data



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                         |  |     
|-------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                         |  | Page
|Consolidated Financial Statements:                                                                       |  |     
|                                                                                                         | 
|Independent Auditors Report                                                                             |  | 30  
|                                                                                                         | 
|Consolidated Balance Sheets, December 31, 2003 and 2002                                                  |  | 31  
|                                                                                                         | 
|Consolidated Statements of Operations, Years ended December 31, 2003, 2002, and 2001                     |  | 32  
|                                                                                                         | 
|Consolidated Statements of Cash Flows, Years ended December 31, 2003, 2002, and 2001                     |  | 33  
|                                                                                                         | 
|Consolidated Statements of Shareholders Equity (Deficit), Years ended December 31, 2003, 2002, and 2001 |  | 34  
|                                                                                                         | 
|Consolidated Statements of Other Comprehensive Loss, Years ended December 31, 2003, 2002, and 2001       |  | 35  
|                                                                                                         | 
|Notes to Consolidated Financial Statements                                                               |  | 36  
|                                                                                                         | 
|Financial Statement Schedule:                                                                            |  |     
|                                                                                                         | 
|Schedule IIValuation and Qualifying Accounts                                                            |  | 88  



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INDEPENDENT AUDITORS REPORT



To the Board of
Directors and Shareholders

Verticalnet, Inc.:



We have audited the accompanying consolidated balance sheets of Verticalnet, Inc. and subsidiaries as of December 31, 2003 and 2002, and the related
consolidated statements of operations, cash flows, shareholders equity (deficit), and other comprehensive loss for each of the years in the three-year period ended December 31, 2003. In connection with our audits of the consolidated financial
statements, we also have audited the financial statement schedule as of and for the three years ended December 31, 2003. These consolidated financial statements and financial statement schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.



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



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



As discussed in Note 1 to the consolidated financial statements, effective January 1, 2002, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets, as required for goodwill and intangible assets resulting from business combinations.



KPMG LLP



Philadelphia, Pennsylvania

January 30, 2004, except

as to Notes 2 and 20, which are

as of
February 13, 2004



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VERTICALNET, INC.



CONSOLIDATED
BALANCE SHEETS

(IN THOUSANDS EXCEPT PER SHARE DATA)



|                                                                                                                                                            |  |              |            |   |      |   |            |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ---------- | - | ---- | - | ---------- | -
|                                                                                                                                                            |  | December 31, |           
|                                                                                                                                                            |  | 2003         |            |   | 2002 |  
|Assets                                                                                                                                                      |  |              |            |   |      |   |            |  
|Current assets:                                                                                                                                             |  |              |            |   |      |   |            |  
|Cash and cash equivalents                                                                                                                                   |  | $            | 4,408      |   |      | $ | 7,979      |  
|Accounts receivable, net of allowance for doubtful accounts of zero at December 31, 2003 and $1,684 at December 31, 2002                                    |  |              | 2,438      |   |      |   | 1,586      |  
|Prepaid expenses and other current assets                                                                                                                   |  |              | 539        |   |      |   | 3,892      |  
|                                                                                                                                                            |  |              |            |   |      |   |            |  
|Total current assets                                                                                                                                        |  |              | 7,385      |   |      |   | 13,457     |  
|                                                                                                                                                            |  |             
|Property and equipment, net                                                                                                                                 |  |              | 116        |   |      |   | 912        |  
|Other investments                                                                                                                                           |  |              | 606        |   |      |   | 606        |  
|Intangible assets, net of accumulated amortization of $1,800 at December 31, 2003 and $900 at December 31, 2002                                             |  |              | 900        |   |      |   | 1,800      |  
|Other assets                                                                                                                                                |  |              | 116        |   |      |   | 1,678      |  
|                                                                                                                                                            |  |              |            |   |      |   |            |  
|Total assets                                                                                                                                                |  | $            | 9,123      |   |      | $ | 18,453     |  
|                                                                                                                                                            |  |              |            |   |      |   |            |  
|Liabilities and Shareholders Equity                                                                                                                        |  |              |            |   |      |   |            |  
|Current liabilities:                                                                                                                                        |  |              |            |   |      |   |            |  
|Current portion of long-term debt and convertible notes                                                                                                     |  | $            | 757        |   |      | $ | 415        |  
|Accounts payable and accrued expenses                                                                                                                       |  |              | 2,806      |   |      |   | 7,652      |  
|Deferred revenues                                                                                                                                           |  |              | 992        |   |      |   | 279        |  
|Other current liabilities                                                                                                                                   |  |              | 147        |   |      |   | 1,172      |  
|                                                                                                                                                            |  |              |            |   |      |   |            |  
|Total current liabilities                                                                                                                                   |  |              | 4,702      |   |      |   | 9,518      |  
|                                                                                                                                                            |  |             
|Long-term debt and convertible notes                                                                                                                        |  |              |           |   |      |   | 7,293      |  
|                                                                                                                                                            |  |              |            |   |      |   |            |  
|Total liabilities                                                                                                                                           |  |              | 4,702      |   |      |   | 16,811     |  
|                                                                                                                                                            |  |              |            |   |      |   |            |  
|Commitments and contingencies (see Notes 2, 12, and 13)                                                                                                     |  |              |            |   |      |   |            |  
|                                                                                                                                                            |  |             
|Shareholders equity:                                                                                                                                       |  |              |            |   |      |   |            |  
|Preferred stock $.01 par value, 10,000,000 shares authorized, none issued at December 31, 2003 and December 31, 2002                                        |  |              |           |   |      |   |           |  
|Common stock $.01 par value, 100,000,000 shares authorized, 19,454,126 shares issued at December 31, 2003 and 13,708,546 shares issued at
December 31, 2002 |  |              | 195        |   |      |   | 137        |  
|Additional paid-in capital                                                                                                                                  |  |              | 1,184,691  |   |      |   | 1,170,742  |  
|Deferred compensation                                                                                                                                       |  |              | (405       | ) |      |   | (239       | )
|Accumulated other comprehensive loss                                                                                                                        |  |              | (783       | ) |      |   | (736       | )
|Accumulated deficit                                                                                                                                         |  |              | (1,178,472 | ) |      |   | (1,167,457 | )
|                                                                                                                                                            |  |              |            |   |      |   |            |  
|                                                                                                                                                            |  |              | 5,226      |   |      |   | 2,447      |  
|Treasury stock at cost, 65,636 shares at December 31, 2003 and December 31, 2002                                                                            |  |              | (805       | ) |      |   | (805       | )
|                                                                                                                                                            |  |              |            |   |      |   |            |  
|Total shareholders equity                                                                                                                                  |  |              | 4,421      |   |      |   | 1,642      |  
|                                                                                                                                                            |  |              |            |   |      |   |            |  
|Total liabilities and shareholders equity                                                                                                                  |  | $            | 9,123      |   |      | $ | 18,453     |  
|                                                                                                                                                            |  |              |            |   |      |   |            |  



See accompanying notes
to consolidated financial statements.



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VERTICALNET, INC.



CONSOLIDATED
STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)



|                                                         |  |                         |         |   |      |   |         |      |  |   |          |  
|-------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | -------- | -
|                                                         |  | Year ended December 31, |        
|                                                         |  | 2003                    |         |   | 2002 |   |         | 2001 | 
|Revenues:                                                |  |                         |         |   |      |   |         |      |  |   |          |  
|Software license                                         |  | $                       | 378     |   |      | $ | 36,043  |      |  | $ | 25,732   |  
|Services and maintenance                                 |  |                         | 9,255   |   |      |   | 7,681   |      |  |   | 10,387   |  
|                                                         |  |                         |         |   |      |   |         |      |  |   |          |  
|Total revenues                                           |  |                         | 9,633   |   |      |   | 43,724  |      |  |   | 36,119   |  
|                                                         |  |                         |         |   |      |   |         |      |  |   |          |  
|Cost of revenues:                                        |  |                         |         |   |      |   |         |      |  |   |          |  
|Cost of software license                                 |  |                         | 726     |   |      |   | 928     |      |  |   | 4,151    |  
|Cost of services and maintenance                         |  |                         | 2,524   |   |      |   | 5,602   |      |  |   | 21,618   |  
|                                                         |  |                         |         |   |      |   |         |      |  |   |          |  
|Total cost of revenues                                   |  |                         | 3,250   |   |      |   | 6,530   |      |  |   | 25,769   |  
|                                                         |  |                         |         |   |      |   |         |      |  |   |          |  
|Gross profit                                             |  |                         | 6,383   |   |      |   | 37,194  |      |  |   | 10,350   |  
|                                                         |  |                         |         |   |      |   |         |      |  |   |          |  
|Research and development                                 |  |                         | 4,131   |   |      |   | 8,975   |      |  |   | 23,757   |  
|Sales and marketing                                      |  |                         | 2,400   |   |      |   | 5,305   |      |  |   | 18,146   |  
|General and administrative                               |  |                         | 4,827   |   |      |   | 9,039   |      |  |   | 24,425   |  
|Restructuring and asset impairment charges (reversals)   |  |                         | (480    | ) |      |   | 29,855  |      |  |   | 271,445  |  
|Amortization expense                                     |  |                         |        |   |      |   | 2,112   |      |  |   | 108,862  |  
|                                                         |  |                         |         |   |      |   |         |      |  |   |          |  
|                                                         |  |                         | 10,878  |   |      |   | 55,286  |      |  |   | 446,635  |  
|                                                         |  |                         |         |   |      |   |         |      |  |   |          |  
|Operating loss                                           |  |                         | (4,495  | ) |      |   | (18,092 | )    |  |   | (436,285 | )
|Interest and other expense, net                          |  |                         | (6,520  | ) |      |   | (12,767 | )    |  |   | (233,912 | )
|                                                         |  |                         |         |   |      |   |         |      |  |   |          |  
|Loss from continuing operations                          |  |                         | (11,015 | ) |      |   | (30,859 | )    |  |   | (670,197 | )
|Discontinued operations:                                 |  |                         |         |   |      |   |         |      |  |   |          |  
|Income (loss) from operations of discontinued operations |  |                         |        |   |      |   | 8,508   |      |  |   | (86,752  | )
|Loss on disposal of discontinued operations              |  |                         |        |   |      |   | (165    | )    |  |   | (3,903   | )
|                                                         |  |                         |         |   |      |   |         |      |  |   |          |  
|Net loss                                                 |  |                         | (11,015 | ) |      |   | (22,516 | )    |  |   | (760,852 | )
|                                                         |  |                         |        
|Preferred stock dividends and accretion                  |  |                         |        |   |      |   | (3,861  | )    |  |   | (7,420   | )
|Repurchase of convertible redeemable preferred stock     |  |                         |        |   |      |   | 101,041 |      |  |   |         |  
|                                                         |  |                         |         |   |      |   |         |      |  |   |          |  
|Income (loss) attributable to common shareholders        |  | $                       | (11,015 | ) |      | $ | 74,664  |      |  | $ | (768,272 | )
|                                                         |  |                         |         |   |      |   |         |      |  |   |          |  
|Basic income (loss) per common share:                    |  |                         |         |   |      |   |         |      |  |   |          |  
|Income (loss) from continuing operations                 |  | $                       | (0.70   | ) |      | $ | 5.52    |      |  |   | (69.92   | )
|Income (loss) from discontinued operations               |  |                         |        |   |      |   | 0.71    |      |  |   | (8.95    | )
|Loss on disposal of discontinued operations              |  |                         |        |   |      |   | (0.01   | )    |  |   | (0.40    | )
|                                                         |  |                         |         |   |      |   |         |      |  |   |          |  
|Income (loss) per common share                           |  | $                       | (0.70   | ) |      | $ | 6.22    |      |  | $ | (79.27   | )
|                                                         |  |                         |         |   |      |   |         |      |  |   |          |  
|Diluted income (loss) per common share:                  |  |                         |         |   |      |   |         |      |  |   |          |  
|Loss from continuing operations                          |  | $                       | (0.70   | ) |      | $ | (2.56   | )    |  |   | (69.92   | )
|Income (loss) from discontinued operations               |  |                         |        |   |      |   | 0.70    |      |  |   | (8.95    | )
|Loss on disposal of discontinued operations              |  |                         |        |   |      |   | (0.01   | )    |  |   | (0.40    | )
|                                                         |  |                         |         |   |      |   |         |      |  |   |          |  
|Loss per common share                                    |  | $                       | (0.70   | ) |      | $ | (1.87   | )    |  | $ | (79.27   | )
|                                                         |  |                         |         |   |      |   |         |      |  |   |          |  
|Weighted average common shares outstanding:              |  |                         |         |   |      |   |         |      |  |   |          |  
|Basic                                                    |  |                         | 15,675  |   |      |   | 12,004  |      |  |   | 9,692    |  
|Diluted                                                  |  |                         | 15,675  |   |      |   | 12,068  |      |  |   | 9,692    |  



See accompanying notes
to consolidated financial statements.



32



---

##### Table of Contents

VERTICALNET, INC.



CONSOLIDATED
STATEMENTS OF CASH FLOWS

(IN THOUSANDS)



|                                                                                     |  |                         |         |   |      |   |         |      |  |   |          |  
|------------------------------------------------------------------------------------ |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | -------- | -
|                                                                                     |  | Year ended December 31, |        
|                                                                                     |  | 2003                    |         |   | 2002 |   |         | 2001 | 
|Operating activities:                                                                |  |                         |         |   |      |   |         |      |  |   |          |  
|Net loss                                                                             |  | $                       | (11,015 | ) |      | $ | (22,516 | )    |  | $ | (760,852 | )
|Adjustments to reconcile net loss to net cash used in operating activities:          |  |                         |         |   |      |   |         |      |  |   |          |  
|Depreciation and amortization                                                        |  |                         | 1,467   |   |      |   | 10,314  |      |  |   | 135,622  |  
|Non-cash restructuring charges (reversals)                                           |  |                         | (489    | ) |      |   |        |      |  |   | 37,475   |  
|Inducement expense related to debt conversion                                        |  |                         | 5,707   |   |      |   | 2,869   |      |  |   |         |  
|Goodwill and intangible asset impairment                                             |  |                         |        |   |      |   | 27,595  |      |  |   | 284,353  |  
|Write-down related to cost method, equity method, and available-for-sale investments |  |                         |        |   |      |   | 11,600  |      |  |   | 231,327  |  
|Other non-cash items                                                                 |  |                         | (160    | ) |      |   | 1,475   |      |  |   | 3,107    |  
|Loss on disposal of property and equipment                                           |  |                         | 8       |   |      |   | 2,548   |      |  |   | 286      |  
|Loss from equity method investments                                                  |  |                         |        |   |      |   |        |      |  |   | 2,312    |  
|Loss on disposal of discontinued operations                                          |  |                         |        |   |      |   | 165     |      |  |   | 3,903    |  
|Realized loss (gain) on investments                                                  |  |                         | (111    | ) |      |   | (35     | )    |  |   | 3,829    |  
|Gain on debt retirement                                                              |  |                         |        |   |      |   | (607    | )    |  |   |         |  
|In-process research and development charge                                           |  |                         |        |   |      |   |        |      |  |   | 420      |  
|Gain on BT settlement                                                                |  |                         |        |   |      |   | (4,804  | )    |  |   |         |  
|Change in assets and liabilities, net of effect of acquisitions:                     |  |                         |         |   |      |   |         |      |  |   |          |  
|Accounts receivable                                                                  |  |                         | (852    | ) |      |   | 93      |      |  |   | 30,231   |  
|Prepaid expenses and other assets                                                    |  |                         | 1,272   |   |      |   | 6,586   |      |  |   | 15,200   |  
|Accounts payable and accrued expenses                                                |  |                         | (4,176  | ) |      |   | (18,586 | )    |  |   | (46,123  | )
|Deferred revenues                                                                    |  |                         | 713     |   |      |   | (41,773 | )    |  |   | (12,347  | )
|Other current liabilities                                                            |  |                         |        |   |      |   | (1,427  | )    |  |   |         |  
|                                                                                     |  |                         |         |   |      |   |         |      |  |   |          |  
|Net cash used in operating activities                                                |  |                         | (7,636  | ) |      |   | (26,503 | )    |  |   | (71,257  | )
|                                                                                     |  |                         |         |   |      |   |         |      |  |   |          |  
|Investing activities:                                                                |  |                         |         |   |      |   |         |      |  |   |          |  
|Acquisitions, net of cash acquired                                                   |  |                         |        |   |      |   |        |      |  |   | (26,616  | )
|Proceeds from sale of cost, equity method, and available-for sale investments        |  |                         |        |   |      |   | 2,285   |      |  |   | 22,085   |  
|Proceeds from sale of short-term investments                                         |  |                         | 979     |   |      |   |        |      |  |   |         |  
|Purchase of cost, equity method, and available-for sale investments                  |  |                         |        |   |      |   | (4,475  | )    |  |   | (3,500   | )
|Restricted cash                                                                      |  |                         | 1,685   |   |      |   | 2,009   |      |  |   | 7,165    |  
|Proceeds from sale of assets                                                         |  |                         | 292     |   |      |   | 419     |      |  |   | 500      |  
|Capital expenditures                                                                 |  |                         | (59     | ) |      |   | (833    | )    |  |   | (14,784  | )
|Discontinued operation - investing activities                                        |  |                         |        |   |      |   | 2,350   |      |  |   |         |  
|                                                                                     |  |                         |         |   |      |   |         |      |  |   |          |  
|Net cash provided by (used in) investing activities                                  |  |                         | 2,897   |   |      |   | 1,755   |      |  |   | (15,150  | )
|                                                                                     |  |                         |         |   |      |   |         |      |  |   |          |  
|Financing activities:                                                                |  |                         |         |   |      |   |         |      |  |   |          |  
|Payments to repurchase convertible redeemable preferred stock                        |  |                         |        |   |      |   | (5,000  | )    |  |   |         |  
|Payments to repurchase convertible notes                                             |  |                         | (1,289  | ) |      |   | (2,508  | )    |  |   |         |  
|Settlement of put arrangement involving common stock                                 |  |                         |        |   |      |   | (1,014  | )    |  |   |         |  
|Payments to settle BT put/call obligation                                            |  |                         |        |   |      |   | (8,374  | )    |  |   |         |  
|Principal payments on long-term debt and obligations under capital leases            |  |                         | (114    | ) |      |   | (1,323  | )    |  |   | (2,802   | )
|Proceeds from issuance of common stock and warrants, net                             |  |                         | 2,524   |   |      |   |        |      |  |   | 15,000   |  
|Proceeds from exercise of stock options and employee stock purchase plan             |  |                         | 103     |   |      |   | 442     |      |  |   | 1,357    |  
|                                                                                     |  |                         |         |   |      |   |         |      |  |   |          |  
|Net cash provided by (used in) financing activities                                  |  |                         | 1,224   |   |      |   | (17,777 | )    |  |   | 13,555   |  
|                                                                                     |  |                         |         |   |      |   |         |      |  |   |          |  
|Effect of exchange rate fluctuation on cash and cash equivalents                     |  |                         | (56     | ) |      |   | 252     |      |  |   | (699     | )
|                                                                                     |  |                         |         |   |      |   |         |      |  |   |          |  
|Net decrease in cash                                                                 |  |                         | (3,571  | ) |      |   | (42,273 | )    |  |   | (73,551  | )
|Cash and cash equivalents - beginning of year                                        |  |                         | 7,979   |   |      |   | 50,252  |      |  |   | 123,803  |  
|                                                                                     |  |                         |         |   |      |   |         |      |  |   |          |  
|Cash and cash equivalents - end of year                                              |  | $                       | 4,408   |   |      | $ | 7,979   |      |  | $ | 50,252   |  
|                                                                                     |  |                         |         |   |      |   |         |      |  |   |          |  
|Supplemental disclosure of cash flow information                                     |  |                         |         |   |      |   |         |      |  |   |          |  
|Cash paid during the year for interest                                               |  | $                       | 233     |   |      | $ | 2,233   |      |  | $ | 1,379    |  
|Supplemental schedule of non-cash investing and financing activities                 |  |                         |         |   |      |   |         |      |  |   |          |  
|Issuance of common stock and warrants to repurchase convertible debt                 |  | $                       | 10,815  |   |      | $ | 14,357  |      |  | $ |         |  
|Issuance of common stock as consideration for an acquisition                         |  |                         |        |   |      |   |        |      |  |   | 42,250   |  
|Preferred dividends paid through issuance of additional securities                   |  |                         |        |   |      |   | 3,861   |      |  |   | 7,420    |  
|Issuance of common stock to BT under put/call obligation                             |  |                         |        |   |      |   | 2,955   |      |  |   |         |  



See accompanying notes
to consolidated financial statements.



33



---

##### Table of Contents

VERTICALNET, INC.



CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIT)

(IN THOUSANDS)



|                                                                            |  |              |   |  |                          |     |   |                      |   |           |                                   |  |   |                    |   |  |               |         |   |                                   |   |            |   |  |   |      |   |  |   |          |  
|--------------------------------------------------------------------------- |  | ------------ | - |  | ------------------------ | --- | - | -------------------- | - | --------- | --------------------------------- |  | - | ------------------ | - |  | ------------- | ------- | - | --------------------------------- | - | ---------- | - |  | - | ---- | - |  | - | -------- | -
|                                                                            |  | Common Stock |   |  | AdditionalPaid-inCapital |     |   | DeferredCompensation |   |           | AccumulatedOtherComprehensiveLoss |  |   | AccumulatedDeficit |   |  | TreasuryStock |         |   | TotalShareholdersEquity(Deficit) |  
|                                                                            |  | Shares       |   |  | Amount                   |     |   |                      |   |           |                                   | 
|Balance, December 31, 2000                                                  |  | 8,806        |   |  | $                        | 88  |   |                      | $ | 1,004,941 |                                   |  | $ | (363               | ) |  | $             | (14,370 | ) |                                   | $ | (384,089   | ) |  | $ | (805 | ) |  | $ | 605,402  |  
|Convertible redeemable preferred stock dividends accrued and accretion      |  |             |   |  |                          |    |   |                      |   | (7,420    | )                                 |  |   |                   |   |  |               |        |   |                                   |   |           |   |  |   |     |   |  |   | (7,420   | )
|Exercise and acceleration of options                                        |  | 152          |   |  |                          | 2   |   |                      |   | 1,488     |                                   |  |   |                   |   |  |               |        |   |                                   |   |           |   |  |   |     |   |  |   | 1,490    |  
|Shares issued through employee stock purchase plan                          |  | 26           |   |  |                          |    |   |                      |   | 335       |                                   |  |   |                   |   |  |               |        |   |                                   |   |           |   |  |   |     |   |  |   | 335      |  
|Shares issued pursuant to private investment (Note 14)                      |  | 276          |   |  |                          | 3   |   |                      |   | 14,997    |                                   |  |   |                   |   |  |               |        |   |                                   |   |           |   |  |   |     |   |  |   | 15,000   |  
|Shares issued to BT                                                         |  | 499          |   |  |                          | 5   |   |                      |   | 45        |                                   |  |   |                   |   |  |               |        |   |                                   |   |           |   |  |   |     |   |  |   | 50       |  
|Shares issued as consideration for acquisitions                             |  | 1,542        |   |  |                          | 15  |   |                      |   | 41,128    |                                   |  |   |                   |   |  |               |        |   |                                   |   |           |   |  |   |     |   |  |   | 41,143   |  
|Unearned compensation                                                       |  |             |   |  |                          |    |   |                      |   | (163      | )                                 |  |   | 163                |   |  |               |        |   |                                   |   |           |   |  |   |     |   |  |   |         |  
|Amortization of unearned compensation                                       |  |             |   |  |                          |    |   |                      |   |          |                                   |  |   | 102                |   |  |               |        |   |                                   |   |           |   |  |   |     |   |  |   | 102      |  
|Net loss                                                                    |  |             |   |  |                          |    |   |                      |   |          |                                   |  |   |                   |   |  |               |        |   |                                   |   | (760,852   | ) |  |   |     |   |  |   | (760,852 | )
|Other comprehensive income                                                  |  |             |   |  |                          |    |   |                      |   |          |                                   |  |   |                   |   |  |               | 13,411  |   |                                   |   |           |   |  |   |     |   |  |   | 13,411   |  
|                                                                            |  |              |   |  |                          |     |   |                      |   |           |                                   |  |   |                    |   |  |               |         |   |                                   |   |            |   |  |   |      |   |  |   |          |  
|Balance, December 31, 2001                                                  |  | 11,301       |   |  |                          | 113 |   |                      |   | 1,055,351 |                                   |  |   | (98                | ) |  |               | (959    | ) |                                   |   | (1,144,941 | ) |  |   | (805 | ) |  |   | (91,339  | )
|Convertible redeemable preferred stock dividends accrued and accretion      |  |             |   |  |                          |    |   |                      |   | (3,861    | )                                 |  |   |                   |   |  |               |        |   |                                   |   |           |   |  |   |     |   |  |   | (3,861   | )
|Exercise and acceleration of options                                        |  | 154          |   |  |                          | 1   |   |                      |   | 395       |                                   |  |   |                   |   |  |               |        |   |                                   |   |           |   |  |   |     |   |  |   | 396      |  
|Shares issued through employee stock purchase plan                          |  | 19           |   |  |                          |    |   |                      |   | 46        |                                   |  |   |                   |   |  |               |        |   |                                   |   |           |   |  |   |     |   |  |   | 46       |  
|Repurchase of convertible redeemable preferred stock and warrants (Note 14) |  |             |   |  |                          |    |   |                      |   | 101,041   |                                   |  |   |                   |   |  |               |        |   |                                   |   |           |   |  |   |     |   |  |   | 101,041  |  
|Shares issued to settle BT put/call obligation (Note 7)                     |  | 1,200        |   |  |                          | 12  |   |                      |   | 2,943     |                                   |  |   |                   |   |  |               |        |   |                                   |   |           |   |  |   |     |   |  |   | 2,955    |  
|Repurchase of convertible notes (Note 11)                                   |  | 1,271        |   |  |                          | 13  |   |                      |   | 14,344    |                                   |  |   |                   |   |  |               |        |   |                                   |   |           |   |  |   |     |   |  |   | 14,357   |  
|Settlement of put arrangement involving common stock                        |  | (236         | ) |  |                          | (2  | ) |                      |   | 45        |                                   |  |   |                   |   |  |               |        |   |                                   |   |           |   |  |   |     |   |  |   | 43       |  
|Unearned compensation                                                       |  |             |   |  |                          |    |   |                      |   | 438       |                                   |  |   | (438               | ) |  |               |        |   |                                   |   |           |   |  |   |     |   |  |   |         |  
|Amortization of unearned compensation                                       |  |             |   |  |                          |    |   |                      |   |          |                                   |  |   | 297                |   |  |               |        |   |                                   |   |           |   |  |   |     |   |  |   | 297      |  
|Net loss                                                                    |  |             |   |  |                          |    |   |                      |   |          |                                   |  |   |                   |   |  |               |        |   |                                   |   | (22,516    | ) |  |   |     |   |  |   | (22,516  | )
|Other comprehensive income                                                  |  |             |   |  |                          |    |   |                      |   |          |                                   |  |   |                   |   |  |               | 223     |   |                                   |   |           |   |  |   |     |   |  |   | 223      |  
|                                                                            |  |              |   |  |                          |     |   |                      |   |           |                                   |  |   |                    |   |  |               |         |   |                                   |   |            |   |  |   |      |   |  |   |          |  
|Balance, December 31, 2002                                                  |  | 13,709       |   |  |                          | 137 |   |                      |   | 1,170,742 |                                   |  |   | (239               | ) |  |               | (736    | ) |                                   |   | (1,167,457 | ) |  |   | (805 | ) |  |   | 1,642    |  
|Exercise of restricted units                                                |  | 9            |   |  |                          |    |   |                      |   | 1         |                                   |  |   |                   |   |  |               |        |   |                                   |   |           |   |  |   |     |   |  |   | 1        |  
|Exercise of stock options                                                   |  | 102          |   |  |                          | 1   |   |                      |   | 101       |                                   |  |   |                   |   |  |               |        |   |                                   |   |           |   |  |   |     |   |  |   | 102      |  
|Issuance of common stock and warrants, net (Note 14)                        |  | 2,940        |   |  |                          | 30  |   |                      |   | 2,009     |                                   |  |   |                   |   |  |               |        |   |                                   |   |           |   |  |   |     |   |  |   | 2,039    |  
|Repurchase of convertible notes (Note 11)                                   |  | 2,694        |   |  |                          | 27  |   |                      |   | 10,788    |                                   |  |   |                   |   |  |               |        |   |                                   |   |           |   |  |   |     |   |  |   | 10,815   |  
|Reclassification of warrants (Note 14)                                      |  |             |   |  |                          |    |   |                      |   | 346       |                                   |  |   |                   |   |  |               |        |   |                                   |   |           |   |  |   |     |   |  |   | 346      |  
|Unearned compensation                                                       |  |             |   |  |                          |    |   |                      |   | 704       |                                   |  |   | (704               | ) |  |               |        |   |                                   |   |           |   |  |   |     |   |  |   |         |  
|Amortization of unearned compensation                                       |  |             |   |  |                          |    |   |                      |   |          |                                   |  |   | 538                |   |  |               |        |   |                                   |   |           |   |  |   |     |   |  |   | 538      |  
|Net loss                                                                    |  |             |   |  |                          |    |   |                      |   |          |                                   |  |   |                   |   |  |               |        |   |                                   |   | (11,015    | ) |  |   |     |   |  |   | (11,015  | )
|Other comprehensive loss                                                    |  |             |   |  |                          |    |   |                      |   |          |                                   |  |   |                   |   |  |               | (47     | ) |                                   |   |           |   |  |   |     |   |  |   | (47      | )
|                                                                            |  |              |   |  |                          |     |   |                      |   |           |                                   |  |   |                    |   |  |               |         |   |                                   |   |            |   |  |   |      |   |  |   |          |  
|Balance, December 31, 2003                                                  |  | 19,454       |   |  | $                        | 195 |   |                      | $ | 1,184,691 |                                   |  | $ | (405               | ) |  | $             | (783    | ) |                                   | $ | (1,178,472 | ) |  | $ | (805 | ) |  | $ | 4,421    |  
|                                                                            |  |              |   |  |                          |     |   |                      |   |           |                                   |  |   |                    |   |  |               |         |   |                                   |   |            |   |  |   |      |   |  |   |          |  



See accompanying notes
to consolidated financial statements.



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VERTICALNET, INC.



CONSOLIDATED
STATEMENTS OF OTHER COMPREHENSIVE LOSS

(IN THOUSANDS)



|                                                                   |  |                         |         |   |      |   |         |      |  |   |          |  
|------------------------------------------------------------------ |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | -------- | -
|                                                                   |  | Year Ended December 31, |        
|                                                                   |  | 2003                    |         |   | 2002 |   |         | 2001 | 
|Net loss                                                           |  | $                       | (11,015 | ) |      | $ | (22,516 | )    |  | $ | (760,852 | )
|Unrealized gain                                                    |  |                         |        |   |      |   | 1,553   |      |  |   | 20,030   |  
|Reclassification adjustment for realized gain included in net loss |  |                         | (51,132 | ) |      |   |        |      |  |   |         |  
|Foreign currency translation adjustment                            |  |                         | (58     | ) |      |   | 252     |      |  |   | (699     | )
|Unrealized gain (loss) on investments:                             |  |                         |         |   |      |   |         |      |  |   |          |  
|Unrealized gain (loss)                                             |  |                         | 11      |   |      |   | (1,582  | )    |  |   | (18,106  | )
|Reclassification adjustment for realized loss included in net loss |  |                         | 51,132  |   |      |   |        |      |  |   | 12,186   |  
|                                                                   |  |                         |         |   |      |   |         |      |  |   |          |  
|Comprehensive loss                                                 |  | $                       | (11,062 | ) |      | $ | (22,293 | )    |  | $ | (747,441 | )
|                                                                   |  |                         |         |   |      |   |         |      |  |   |          |  







See accompanying notes to consolidated financial statements.



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VERTICALNET, INC.



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



(1) Summary of Significant Accounting
Policies



Description of Company



Verticalnet, Inc., which was incorporated on July 28, 1995 under the laws of
Pennsylvania, is referred to throughout this report as Verticalnet, the Company, the registrant, we, us, or through similar expressions.



We are a provider of Supply Management solutions to Global 2000 companies. We
provide a full scope of Supply Management software, services, and domain expertise in areas that include: Spend Analysis, Advanced eSourcing, eProcurement, Contract Management, and Supplier Scorecards. Our solutions enable our customers to harness
the power of their data to achieve lower prices, improved contract compliance, better supplier service, and shorter sourcing cycles. As a result, we help our customers recognize savings in materials costs, inventory levels, and administrative costs
 resulting in improved profitability.



With the
completion of the Atlas Commerce, Inc. (Atlas Commerce) acquisition in December 2001 and the sale of our Small/Medium Business (SMB) unit (formerly referred to as Verticalnet Markets) in June 2002, we completed the business
transformation from our origins as an operator of online public vertical communities to a business solely focused on delivering sourcing and supply chain software and services to enterprise customers. As a result of the Tigris Corp.
(Tigris) acquisition in January 2004, we enhanced our capability to serve this market by enhancing our spend analysis and strategic sourcing domain expertise plus we added additional technology tools in the area of bid optimization and
advanced sourcing tools.



On January 31, 2001, we completed the
sale of our Verticalnet Exchanges business unit, which focused on trading electronic components and hardware in open and spot markets. The operating results of this unit through January 31, 2001 have been reflected as a discontinued operation in our
consolidated financial statements.



Basis of Presentation



Our consolidated financial statements include the
accounts of our wholly-owned and majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Certain prior year amounts have been reclassified for comparability with the current
years financial statement presentation.



On July 1, 2002,
the Company announced that its board of directors had approved a one-for-ten reverse stock split effective with the commencement of trading on July 15, 2002. All references in the consolidated financial statements to shares and per share amounts
have been adjusted retroactively for this split.



Use of
Estimates



The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the allowance for doubtful accounts,
inventory write-downs for discontinued operations, carrying values for intangible assets and non-publicly held investments, restructuring charges for abandoned operating leases, warrant liabilities, and litigation accruals.



Cash and Cash Equivalents



Cash and cash equivalents include cash, money market investments, and other
highly-liquid investments with purchased maturities of three months or less. Cash equivalents were approximately $394,000 and $5.9 million at December 31, 2003 and December 31, 2002, respectively.



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VERTICALNET, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Restricted Cash



Restricted cash represents certificates of deposit held pursuant to building lease agreements and other financing
arrangements. At December 31, 2002, we had approximately $1.1 million and $544,000 of restricted cash classified in current and non-current other assets, respectively, on the consolidated balance sheet. As of December 31, 2003, all restricted cash
balances have been released and are now included as part of cash and cash equivalents.



Investments



We account
for debt and marketable equity securities in accordance with Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. Realized gains or losses and other than temporary
declines in the fair value of available-for-sale securities are reported in interest and other expense, net, as incurred.



We hold equity instruments of privately-held companies for business and strategic purposes. These investments are included in other investments on the
consolidated balance sheet and are accounted for under the cost method since our ownership percentage is less than 20% and we do not have the ability to exercise significant influence over the investees. For these non-publicly traded investments,
our policy is to regularly review the market conditions and the assumptions underlying the operating performance and cash flow forecasts in assessing the recoverability of the carrying values.



Investments in privately-owned companies whose results are not consolidated,
but over whom we exercise significant influence, are accounted for under the equity method of accounting and included in other investments on the consolidated balance sheet. Determining whether we exercise significant influence with respect to a
particular investment depends on an evaluation of several factors including, among others, representation on the investees board of directors, as well as our overall ownership level of the investee, including voting rights associated with our
holdings in common, preferred and other convertible instruments in the investee. Our share of the earnings or losses of equity method investees is reflected in interest and other expense, net in our consolidated statement of operations.



Property and Equipment



Property and equipment are originally stated at cost. Leasehold improvements
are amortized on a straight-line basis over the lesser of the estimated useful life of the asset or the lease term. Property and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets as follows:



|                                |  |            
|------------------------------- |  | -----------
|Computer equipment and software |  | 1.5-3 years
|Office equipment and furniture  |  | 5 years    



Capitalized
Software



Under the provisions of Statement of Position
(SOP) 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, we capitalize costs associated with internally developed and/or purchased software systems for new products and enhancements to existing
products that have reached the application development stage and meet recoverability tests. Capitalized costs include external direct costs of materials and services utilized in developing or obtaining internal-use software, payroll and
payroll-related expenses for employees who are directly associated with and devote time to the internal-use software project and interest costs incurred, if material, while developing internal-use software. Capitalization of such costs begins



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VERTICALNET, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



when the preliminary project stage is complete and ceases no later than the point at which the project is substantially complete and ready for its intended
purpose. These capitalized costs are amortized on a straight-line basis over the economic useful life, beginning when the asset is ready for its intended use.



Under the provisions of SFAS No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed, certain development costs
of our software products are capitalized subsequent to the establishment of technological feasibility and up to the time the product becomes available for general release. Amortization is provided on a product-by-product basis on the straight-line
method over the remaining estimated economic life of the product.



There were no software costs capitalized during the year ended December 31, 2003. Software costs capitalized under SOP 98-1 and SFAS No. 86 were $676,000 and $2.1 million during the years ended December 31, 2002 and 2001, respectively. The
carrying value of the software was regularly reviewed and an impairment charge was recognized if the value of the estimated undiscounted cash flow benefits related to the asset was less than the remaining unamortized cost. Approximately $2.7 million
and $4.0 million of impairment charges related to capitalized software costs were recognized during the years ended December 31, 2002 and 2001, respectively. As a result, as of December 31, 2003 and 2002, there are no capitalized software costs on
the consolidated balance sheet. Amortization expense related to previously capitalized software costs for the years ended December 31, 2003, 2002, and 2001 was approximately zero, $493,000 and $2.7 million, respectively.



Intangible Assets and Other Long-Lived Assets



We adopted SFAS No. 142, Goodwill and Other Intangible Assets, effective
January 1, 2002. Under SFAS No. 142, goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead are tested for impairment annually, or more frequently if
certain indicators arise. In addition, SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective useful lives to their estimated residual values, and reviewed for impairment in accordance with
SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets. With the adoption of SFAS No. 142, we ceased amortization of goodwill as of January 1, 2002 (see Note 8 for additional discussion).



We performed a goodwill impairment test as of September 30, 2002 under SFAS
No. 142. This test required a comparison of the fair value of a reporting unit with its carrying amount, including goodwill. For purposes of this test, we did not consider the market capitalization of the Company, which consists of only one
reporting unit, to be representative of its fair value due to the volatility of the market price. Accordingly, we estimated the fair value of the business based upon the amounts we could reasonably expect to realize from the sale of the assets of
the business. As a result of this test, the Company recorded a goodwill impairment charge of approximately $27.6 million, which represented the full amount of unamortized goodwill at the time of the test. Of this amount, approximately $21.6 million
related to the December 2001 acquisition of Atlas Commerce and approximately $6.0 million related to the Companys acquisition of Isadra, Inc. (Isadra) in August 1999.



The Company adopted SFAS No. 144 on January 1, 2002. The adoption of SFAS No. 144 did not affect the Companys
consolidated financial statements. In accordance with SFAS No. 144, long-lived assets, other than goodwill, are reviewed for impairment whenever, in managements judgment, conditions indicate a possible loss. Such impairment tests compare
estimated undiscounted cash flows to the reduced value of the asset. If an impairment is indicated, the asset is written down to its fair market value based on an estimate of its discounted cash flows.



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VERTICALNET, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Self Insurance



Through September 30, 2003, we were self-insured for certain losses related to employee medical benefits. Stop-loss coverage
was purchased in order to limit our exposure. Self-insurance losses are accrued based on our estimates of the aggregate liability for uninsured claims incurred using certain actuarial assumptions followed in the insurance industry. At December 31,
2003 and 2002, the accrued liability for self-insured losses is included in accounts payable and accrued expenses on the consolidated balance sheet and is approximately $50,000 and $455,000, respectively.



Financial Instruments



In accordance with the requirements of SFAS No. 107, Disclosures about Fair
Value of Financial Instruments, we have determined the estimated fair value of our financial instruments using available market information and valuation methodologies. As of December 31, 2003 and 2002, our financial instruments consist of cash
equivalents, available-for-sale investments, accounts receivable, accounts payable, capital leases, and convertible notes. Considerable judgment is required to develop the estimates of fair value; thus, the estimates are not necessarily indicative
of the amounts that could be realized in a current market exchange. However, we believe the carrying values of these assets and liabilities, with the exception of the convertible notes, is a reasonable estimate of their fair market values at
December 31, 2003 and 2002 due to the short maturities of such items. The reasonable fair estimate of the convertible notes, as of December 31, 2003 and 2002, is approximately $728,000 and $2.0 million, respectively, based on arms length
transactions near those dates with third parties and adjusted for additional premiums that may be required to induce remaining bondholders to sell their bonds back to the Company.



Concentration of Credit Risk



Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash
equivalents in bank deposits accounts and trade receivables. Cash and cash equivalents are held with high quality financial institutions. We periodically perform credit evaluations of our customers and maintain reserves for potential losses, if
necessary. We do not anticipate losses from these receivables in excess of the provided allowances.



Revenue Recognition



Through December 31, 2002, our software licensing and related services revenues were substantially derived from one customer, Converge, Inc.
(Converge). The original arrangement with Converge entailed a right to use our existing software as well as any future software that we developed, the provision of professional services, and maintenance and support services over the life
of our agreements with them. Due to the type of professional services that we were providing to Converge, as well as the fact that Converge was entitled to use, free of charge, any of our future software products, revenue related to Converge was
being recognized on a straight-line basis over the term of the arrangements. However, as of November 5, 2002, the amended and restated subscription license agreement was amended to relieve the Company of any obligation to provide future software
products. As such, all remaining deferred license fees ($19.6 million) were recognized during the fourth quarter of 2002 (see Note 9).



Total revenues from Converge were approximately $459,000, $33.8 million, and $29.8 million for the years ended December 31, 2003, 2002, and 2001,
respectively.



During the year ended December 31, 2003, two
customers, other than Converge, accounted for $7.4 million or 77% of total revenue.



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VERTICALNET, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Software licensing and related services revenues other than from Converge have been principally
derived from the licensing of our products, from maintenance and support contracts, and from the delivery of professional services. Customers who license our products also generally purchase maintenance contracts which provide software updates and
technical support over a stated term, which is usually a twelve-month period. Customers may also purchase custom development and implementation services from us.



The license agreements for our products do not provide for a right of return other than during the warranty period, and
historically product returns have not been significant. We do not recognize revenue for refundable fees or agreements with cancellation rights until such rights to refund or cancellation have expired. Our products are either acquired under a
perpetual license model or under a time-based subscription license model.



We recognize revenue in accordance with SOP 97-2, Software Revenue Recognition, as amended by SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions. We recognize
revenue when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery of the product has occurred; the fee is fixed or determinable; and collectibility is probable. We consider all arrangements with payment terms
extending beyond one year to not be fixed or determinable, and revenue under these agreements is recognized as payments become due from the customer. If collectibility is not considered probable, revenue is recognized when the fee is collected.



SOP 97-2, as amended, generally requires revenue earned on
software arrangements involving multiple elements to be allocated to each element based on the relative fair values of the elements. Our determination of fair value of each element in multi-element arrangements is based on vendor-specific objective
evidence (VSOE). We limit our assessment of VSOE for each element to either the price charged when the same element is sold separately or the price established by management, having the relevant authority to do so, for an element not yet
sold separately.



If evidence of fair value for all undelivered
elements exists but evidence does not exist for one or more delivered elements, then revenue is recognized using the residual method. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the
arrangement fee is recognized as revenue. Revenue allocated to maintenance and support is recognized ratably over the maintenance term and revenue allocated to training and other service elements is recognized as the services are performed. The
proportion of revenue recognized upon delivery of the software may vary from quarter to quarter depending upon the relative mix of licensing arrangements, the extent of services that will be required to implement the software, and the availability
of VSOE of fair value for all of the undelivered elements.



Arrangements that include professional services are evaluated to determine whether those services are essential to the functionality of software elements of the arrangement. When services are not considered essential, the revenue allocable
to the professional services is recognized as the services are performed. If we provide professional services that are considered essential to the functionality of the software products, both the software product revenue and professional service
revenue are recognized in accordance with the provisions of SOP 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts. To date, most of our professional services have been considered essential to the
functionality of the software and therefore, the majority of our contracts that involved licenses and professional services were recognized on a percentage of completion basis.



Deferred revenue includes amounts billed to customers for which revenue has not been recognized, which in most cases relates
to maintenance or license fees that are deferred until they can be recognized. The majority of our deferred revenue at December 31, 2003 is related to two software licenses arrangements that were billed in December 2003.



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VERTICALNET, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The majority of our deferred revenue at December 31, 2001 was related to license fee payments
received from Converge. Such amounts were to be recognized as revenue on a straight line basis over the contract term, which was scheduled to end on December 31, 2003. This revenue comprised the majority of our revenue for 2002. The Converge license
agreement was amended in November 2002, at which time we recognized the remaining deferred revenue related to Converge (see Note 9).



At December 31, 2003, approximately $505,000 of the accounts receivable balance related to contract retainage in accordance with professional services
agreements with our customers. We believe the amount will be collected in 2004 in accordance with the contract terms. At December 31, 2002, approximately $447,000 of the accounts receivable balance was unbilled due to customer payment terms.



Research and Development



Research and development costs consist primarily of salaries and benefits,
consulting, and other related expenses, which are expensed as incurred.



Advertising Costs



We expense advertising
costs as incurred and report such costs as a component of sales and marketing expense. Advertising expenses for continuing operations were approximately zero, $468,000, and $2.3 million for the years ended December 31, 2003, 2002, and 2001,
respectively.



Stock Options



Stock-based employee compensation is recognized using the intrinsic value
method in accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Under the intrinsic value method, compensation expense is recorded on the date of grant
only if the current market price of the stock exceeded the exercise price. For disclosure purposes, pro forma net income (loss) attributable to common shareholders and income (loss) per common share data are provided in accordance with SFAS No. 123,
Accounting for Stock-Based Compensation, as if the fair value method had been applied. The following table illustrates the effect on our net income (loss) attributable to common shareholders and income (loss) per common share if the Company had
applied the fair value recognition provisions of SFAS No. 123 (in thousands, except for per share data):



|                                                                                                                  |  |                         |         |   |      |   |         |      |  |   |          |  
|----------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | -------- | -
|                                                                                                                  |  | Year Ended December 31, |        
|                                                                                                                  |  | 2003                    |         |   | 2002 |   |         | 2001 | 
|Income (loss) attributable to common shareholders:                                                                |  |                         |         |   |      |   |         |      |  |   |          |  
|As reported                                                                                                       |  | $                       | (11,015 | ) |      | $ | 74,664  |      |  | $ | (768,272 | )
|Add: Stock-based employee compensation included in reported net income (loss) attributable to common shareholders |  |                         | 538     |   |      |   | 297     |      |  |   | 102      |  
|Deduct: Stock-based employee compensation expense determined under fair-value-based method for all awards         |  |                         | (13,972 | ) |      |   | (49,588 | )    |  |   | (20,535  | )
|                                                                                                                  |  |                         |         |   |      |   |         |      |  |   |          |  
|Pro forma                                                                                                         |  | $                       | (24,449 | ) |      | $ | 25,373  |      |  | $ | (788,705 | )
|                                                                                                                  |  |                         |         |   |      |   |         |      |  |   |          |  
|Income (loss) per common share  basic:                                                                           |  |                         |         |   |      |   |         |      |  |   |          |  
|As reported                                                                                                       |  | $                       | (0.70   | ) |      | $ | 6.22    |      |  | $ | (79.27   | )
|Pro forma                                                                                                         |  | $                       | (1.56   | ) |      | $ | 2.11    |      |  | $ | (81.38   | )
|                                                                                                                  |  |                         |        
|Loss per common share  diluted:                                                                                  |  |                         |         |   |      |   |         |      |  |   |          |  
|As reported                                                                                                       |  | $                       | (0.70   | ) |      | $ | (1.87   | )    |  | $ | (79.27   | )
|Pro forma                                                                                                         |  | $                       | (1.56   | ) |      | $ | (5.95   | )    |  | $ | (81.38   | )



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VERTICALNET, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The per share weighted-average fair value of options issued by us during 2003, 2002 and 2001 was
$0.79, $34.00, and $12.00, respectively.



The following range
of assumptions were used to determine the fair value of stock options:



|                             |  |           |   |  |           |   |  |           |  
|---------------------------- |  | --------- | - |  | --------- | - |  | --------- | -
|                             |  | 2003      |   |  | 2002      |   |  | 2001      |  
|Dividend yield               |  | 0         | % |  | 0         | % |  | 0         | %
|Expected volatility          |  | 108       | % |  | 157       | % |  | 120       | %
|Average expected option life |  | 4.0 years |   |  | 4.0 years |   |  | 4.0 years |  
|Risk-free interest rate      |  | 3.3       | % |  | 3.0       | % |  | 4.2       | %



Foreign Currency
Translation



We translate the assets and liabilities of
international subsidiaries into U.S. dollars at the current rates of exchange in effect as of each balance sheet date. Revenues and expenses are translated using average rates in effect during the period. Gains and losses from translation
adjustments are included in accumulated other comprehensive loss on the consolidated balance sheet. Foreign currency transaction gains or losses are recognized in current operations and have not been significant to our operating results in any
period. The effect of foreign currency rate changes on cash and cash equivalents has not been significant in any period.



Accounting for Derivatives



We account for derivatives in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, which
provides accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. All derivatives, whether designated in hedging relationships or not, are
recorded on the consolidated balance sheet at fair value. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in interest and
other expense, net. If the derivative is designated as a cash flow hedge, the effective portion of changes in the fair value of the derivative is recorded in accumulated other comprehensive loss and is recognized in interest and other expense, net
when the hedged item affects earnings. The ineffective portion of changes in the fair value of cash flow hedges is recognized immediately in interest and other expense, net. We held no derivatives at December 31, 2003.



Income Taxes



We record income taxes using the asset and liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and the tax effect of net operating
loss carryforwards.



Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
in the period that includes the enactment date. A valuation allowance is recorded against deferred tax assets if it is more likely than not that such assets will not be realized.



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VERTICALNET, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Comprehensive Loss



We report comprehensive loss in accordance with the provisions of SFAS No. 130, Reporting Comprehensive Income, which
establishes standards for reporting comprehensive loss and its components in financial statements. Comprehensive loss, as defined, includes all changes in equity during a period from non-owner sources.



Computation of Historical Net Income (Loss) Per Common Share



Basic income (loss) per share is computed using the
weighted average number of common shares outstanding during the period. Diluted income (loss) per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period, including
incremental common shares issuable upon the exercise of stock options and warrants (using the treasury stock method) and the conversion of our 51/4% convertible subordinated debentures and our former Series A 6.00% convertible redeemable preferred stock (using the if-converted method). Common equivalent shares are excluded from the calculation if
their effect is anti-dilutive.



Adoption of New
Pronouncements



In April 2002, the Financial Accounting
Standards Board (FASB) issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections. SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt, required that
gains and losses from extinguishments of debt be included in the determination of net income and be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. Although SFAS No. 145 became effective January 1,
2003, the Company elected to early adopt the provisions of SFAS No. 145 in 2002. During the third quarter of 2002, in connection with the settlement of obligations involving British Telecommunications Plc. (BT), the Company recognized a
$4.8 million gain representing the difference between the fair value of the consideration issued in the settlement transaction and the carrying value of the amounts due BT. As a result of the early adoption of SFAS No. 145, the Company evaluated the
classification of this gain in accordance with the provisions of APB Opinion No. 30, Reporting the Results of Operations  Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, and determined that the gain did not meet the criteria for classification as an extraordinary item. As a result, the gain was included in interest and other expense, net in the accompanying consolidated statement of
operations for the year ended December 31, 2002 (see Note 18).



In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, except for certain
items and for hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 did not have an impact on our consolidated financial statements.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that
is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. Some of the provisions of SFAS No. 150 are consistent with the current definition of liabilities in FASB Concepts
Statement No. 6, Elements of Financial Statements. The remaining provisions of SFAS No. 150 are consistent with the FASBs proposal to revise that definition to encompass certain obligations that a reporting entity can or must settle by
issuing its own equity



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VERTICALNET, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



shares, depending on the nature of the relationship established between the holder and the issuer. While the FASB still plans to revise that definition
through an amendment to Concepts Statement No. 6, it has decided to defer issuing that amendment until it has concluded its deliberations on the next phase of this project. That next phase will deal with certain compound financial instruments
including puttable shares, convertible bonds, and dual-indexed financial instruments. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have an impact on the Companys financial position, results of operations, or cash flows.



(2) Liquidity



We believe that our current level of liquid assets, including the proceeds from the 2004 transactions noted below, will be sufficient to finance our
capital requirements and anticipated operating losses through at least March 31, 2005. However, to the extent that the current levels of liquid assets prove to be insufficient, we may need to further reduce our operating costs or obtain additional
debt or equity financing. Additionally, we may, if the capital markets present attractive opportunities, raise cash through the sale of debt or equity. We can provide no assurance that we will be successful in obtaining any required or desired
financing either on acceptable terms or at all.



In January
2004, we completed a $7.7 million private placement of our common stock. The Company issued 3,798,592 shares of common stock along at a purchase price of $2.02 per share, with warrants to purchase 1,218,209 shares of common stock at an exercise
price of $1.35 per share. The Company received approximately $7.1 million in net proceeds from this transaction. In February 2004, holders of 320,000 warrants purchased as part of our August 2003 private placement exercised their warrants to
purchase common shares at $1.20 per share. The Company received approximately $346,000 in net proceeds from the exercise of these warrants. See Note 20 to these consolidated financial statements regarding these subsequent events.



(3) Acquisitions



Tigris



On January 30, 2004, we acquired Tigris, a privately-held strategic sourcing and supply chain consulting firm based in New York City. The aggregate
purchase price was approximately $12.1 million, including transaction costs of approximately $300,000. The consideration included $3.5 million in cash, 1,870,450 shares of our common stock valued on the date of closing at approximately $5.7 million
issued to Tigris sole shareholder, issuance of employee options to purchase 751,670 shares of our common stock valued as of the date of acquisition at $2.2 million and assumed debt of approximately $346,000. See Note 20 to these consolidated
financial statements regarding this subsequent event.



Atlas
Commerce



On December 28, 2001, we acquired all of the
outstanding capital stock of Atlas Commerce, a privately-held software company that provided private exchange software and strategic sourcing applications. As a result of the acquisition, we accelerated our enterprise software business by offering
an integrated collaborative sourcing solution that represents a combination of both companies technologies. Atlas Commerces results of operations were consolidated starting January 1, 2002. The aggregate purchase price was approximately
$26.8 million, including transaction costs. The consideration included $3.5 million in cash, 1,430,571 shares of our common stock valued at approximately $19.5 million and issuance of employee options to purchase 163,007 shares of our common stock
valued as of the date of acquisition at $1.4 million based on an independent valuation. Included in the stock consideration were 14,808 shares of our common stock that were issued to a



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VERTICALNET, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



former Atlas Commerce executive in January 2002. Approximately 247,939 of these shares were originally held in escrow and were released on March 31, 2003. A
portion of the value of the common stock given as consideration was reduced by an illiquidity discount ranging from 5% to 10% based on restrictions detailed in a registration and lock up agreement executed in connection with the transaction.



The merger agreement for the Atlas Commerce acquisition
provided a put option to Atlas Commerces former common shareholders. These shareholders had the ability to put a maximum of approximately $1.1 million worth of our common shares back to us for cash. The put arrangement covered 72,888 shares of
our common stock at the acquisition date. The maximum obligation was recorded in temporary equity as of December 31, 2001, pursuant to the guidance in Emerging Issues Task Force (EITF) Issue No. 00-19, Accounting for Derivative Financial
Instruments Indexed to and Potentially Settled in a Companys Own Stock. On August 1, 2002, the Company completed the repurchase of 235,981 shares of common stock from former holders of Atlas Commerce common shares under the terms of the put
agreement. The aggregate purchase price for the put shares was $1.0 million. These shares were retired upon repurchase. The effect of this transaction and the expiration of the put terms for the unexercised portion are reflected in the consolidated
balance sheet as of December 31, 2002.



Of the $3.2 million of
acquired intangible assets, $420,000 was assigned to in-process research and development and charged to expense as a non-recurring charge upon consummation of the acquisition since the in-process research and development had not yet reached
technological feasibility and had no alternative future use. The remaining $2.8 million of acquired intangible assets have a weighted-average useful life of 35 months. These intangibles include developed technology of approximately $1.9 million with
a useful life of 36 months and customer contracts of approximately $890,000 with a weighted average useful life of 32 months. The $21.6 million of goodwill related to this transaction was written off due to impairment in September 2002.



(4) In-Process Research and Development



In various software company acquisitions, we have allocated a portion of the
purchase price to in-process research and development (IPR&D). These allocations to IPR&D, which were determined by independent valuations, represented the estimated fair value based on risk-adjusted cash flows related to the
incomplete research and development projects. At the date of these acquisitions, the development of these projects had not yet reached technological feasibility, and the research and development in progress had no alternative future uses.
Accordingly, these costs were expensed as of the date of the acquisition.



Atlas Commerce



In
connection with the acquisition of Atlas Commerce in December 2001 (refer to Note 3), we allocated $420,000 of the purchase price to IPR&D. At the acquisition date, Atlas Commerce was developing new code and technology for version 3.3 of their
Metaprise Platform and Application product. The project under development was specifically reviewed in terms of overall objectives, progress toward the objectives and the uniqueness of the developments under these objectives. The new code and
technology under development were approximately 20% complete, based on project man-months and costs.



The discounted cash flow analysis used to value the IPR&D was based on managements forecast of future revenues, gross profit, selling costs,
maintenance development costs, and administrative expenses. Forecasted revenue and costs were then allocated to IPR&D based on managements estimate that approximately 80% of the technology in a specific version of the software was taken
from the previous release and the remaining 20% was newly developed. A risk-adjusted discount rate of 60% was used to discount the forecasted cash flows allocated to IPR&D.



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VERTICALNET, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(5) Discontinued Operations



SMB



On June 28, 2002, we completed the sale of the SMB unit to Vert Markets, Inc., an affiliate of Corry Publishing, Inc. The SMB unit generated revenue from
e-enablement and e-commerce, as well as advertising and services. As consideration for the transaction, we received cash of $2.35 million. In addition, we may receive up to an additional $6.5 million based on a four-year performance-based earn-out
provision. We recorded a loss on disposal of approximately $165,000 in the year ended December 31, 2002 for the sale of the SMB unit.



The results of the SMB unit have been shown as a discontinued operation and prior periods have been restated. Revenues and losses from this discontinued
operation are as follows:



|                                                                   |  |                         |        |   |      |   |         |  
|------------------------------------------------------------------ |  | ----------------------- | ------ | - | ---- | - | ------- | -
|                                                                   |  | Year Ended December 31, |       
|                                                                   |  | 2002                    |        |   | 2001 |  
|                                                                   |  | (in thousands)          |       
|E-commerce, advertising, software, maintenance, and other revenues |  | $                       | 18,982 |   |      | $ | 86,161  |  
|Income (loss) from discontinued operations                         |  |                         | 8,508  |   |      |   | (86,752 | )
|Loss on disposal of discontinued operations                        |  |                         | (165   | ) |      |   |        |  



Microsoft
Relationship



On March 29, 2000, we entered into a
commercial arrangement (the Original Microsoft Agreement) with Microsoft Corporation (Microsoft), which was terminated and replaced on April 26, 2001 (the New Microsoft Agreement). Collectively, under the Original
and New Microsoft Agreements, during the years ended December 31, 2002 and 2001, we recognized approximately $16.9 million and $60.0 million, respectively, in e-enablement and advertising revenue. During the year ended December 31, 2001, we
recognized $17.9 million of expense for advertising, software licensing, and support.



We received approximately $40.0 million during the year ended December 31, 2001 from Microsoft under these agreements. Under the terms of the Original Microsoft Agreement we paid approximately $500,000 to Microsoft
during the year ended December 31, 2001. Under the Original Microsoft Agreement we also made royalty payments to Microsoft of approximately $200,000 for the year ended December 31, 2001, related to additional storefronts and e-commerce centers sold
by us.



As a result of the sale of the SMB unit, there was no
activity under these agreements subsequent to June 2002 and revenues and expenses recognized under these agreements are presented in income (loss) from discontinued operations in the consolidated financial statements for the years ended December 31,
2002 and 2001.



Verticalnet Exchanges



On January 31, 2001, we completed the sale of our Verticalnet Exchanges
segment to Converge, a private company. Verticalnet Exchanges was comprised of NECX.com LLC, a business purchased in December 1999, and its subsequent acquisitions of R.W. Electronics, Inc. and F&G Capital, Inc. d/b/a American IC Exchange
(AICE). As consideration for the sale to Converge, we received 10,371,319 shares of Series B convertible preferred stock and 1,094,751 shares of non-voting common stock, representing approximately 18.0% and 1.9%, respectively, of
Converges equity at the closing of the transaction. In the second quarter of 2001 following a



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VERTICALNET, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



post-closing audit, the final net worth and working capital adjustment calculation was performed. The calculation, which was based on a comparison of
Verticalnet Exchanges net worth and working capital as of October 31, 2000 and as of the closing date, resulted in us making an aggregate payment of $12.8 million to Converge.



The sale of Verticalnet Exchanges was treated as a non-monetary exchange pursuant to the guidance in APB Opinion No. 29,
Accounting for Nonmonetary Transactions, and EITF Issue No. 00-05, Determining Whether a Nonmonetary Transaction is an Exchange of Similar Productive Assets. Accordingly, we used the fair value of Verticalnet Exchanges of $215.0 million, as
determined by an independent appraisal, to value our investment in Converge. We accounted for our investment in Converge under the cost method of accounting for investments. We recorded an estimated loss on disposal of Verticalnet Exchanges of $82.0
million during the year ended December 31, 2000, which included a loss from operations of $9.0 million for the month of January 2001. During the year ended December 31, 2001, we recorded an additional $3.9 million loss on disposal due to the final
calculation of the net worth and working capital adjustment payment. Also in January 2001, in connection with the sale of Verticalnet Exchanges to Converge, we settled AICEs remaining earn out provisions by issuing 110,155 shares of our common
stock, valued at approximately $10.0 million, which was considered in calculating our original loss on disposal.



The sale of Verticalnet Exchanges represented the disposal of a business segment. Accordingly, the results of this segment have been shown as a
discontinued operation. There were no revenues or losses from the discontinued operation of the Verticalnet Exchanges segment for the year ended December 31, 2001.



(6) Restructuring and Asset Impairment Charges (Reversals)



During the year ended December 31, 2003, we continued to make payments under previous restructuring charges incurred in
connection with strategic and organizational initiatives designed to realign business operations, eliminate acquisition related redundancies, and reduce costs. The aggregate remaining restructuring accrual at December 31, 2003 of $3,000, included in
accrued expenses on the consolidated balance sheet, is expected to be adequate to cover the actual amount to be paid. Differences, if any, between the estimated amount accrued and the actual amount paid will be reflected in operating expenses in
future periods. The Company expects to complete all payments relating to this restructuring accrual by the first quarter of 2004.



The following tables provide a summary by category and a roll-forward of the changes in the restructuring accrual for the years ended December 31, 2003,
2002, and 2001 (in thousands):



2003:



|                                        |  |                            |       |              |   |        |             |  |   |                            |   |  |   |  
|--------------------------------------- |  | -------------------------- | ----- | ------------ | - | ------ | ----------- |  | - | -------------------------- | - |  | - | -
|                                        |  | Accrual atDecember 31,2002 |       | Cashpayments |   |        | Adjustments |  |   | Accrual atDecember 31,2003
|Lease termination costs                 |  | $                          | 3,484 |              | $ | (2,999 | )           |  | $ | (482                       | ) |  | $ | 3
|Employee severance and related benefits |  |                            | 50    |              |   | (40    | )           |  |   | (10                        | ) |  |   | 
|Other exit costs                        |  |                            |      |              |   | (3     | )           |  |   | 3                          |   |  |   | 
|                                        |  |                            |       |              |   |        |             |  |   |                            |   |  |   |  
|                                        |  | $                          | 3,534 |              | $ | (3,042 | )           |  | $ | (489                       | ) |  | $ | 3
|                                        |  |                            |       |              |   |        |             |  |   |                            |   |  |   |  



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VERTICALNET, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



2002:



|                                        |  |                            |       |              |   |        |             |  |   |                            |   |  |   |      
|--------------------------------------- |  | -------------------------- | ----- | ------------ | - | ------ | ----------- |  | - | -------------------------- | - |  | - | -----
|                                        |  | Accrual atDecember 31,2001 |       | Cashpayments |   |        | Adjustments |  |   | Accrual atDecember 31,2002
|Lease termination costs                 |  | $                          | 4,763 |              | $ | (2,594 | )           |  | $ | 1,315                      |   |  | $ | 3,484
|Employee severance and related benefits |  |                            | 2,294 |              |   | (2,856 | )           |  |   | 612                        |   |  |   | 50   
|Other exit costs                        |  |                            | 25    |              |   | (3     | )           |  |   | (22                        | ) |  |   |     
|                                        |  |                            |       |              |   |        |             |  |   |                            |   |  |   |      
|                                        |  | $                          | 7,082 |              | $ | (5,453 | )           |  | $ | 1,905                      |   |  | $ | 3,534
|                                        |  |                            |       |              |   |        |             |  |   |                            |   |  |   |      



2001:



|                                        |  |                                         |         |              |   |         |                 |  |   |             |   |  |                            |        |   |  |   |      
|--------------------------------------- |  | --------------------------------------- | ------- | ------------ | - | ------- | --------------- |  | - | ----------- | - |  | -------------------------- | ------ | - |  | - | -----
|                                        |  | Restructuringand assetimpairmentcharges |         | Cashpayments |   |         | Non-cashcharges |  |   | Adjustments |   |  | Accrual atDecember 31,2001
|Lease termination costs                 |  | $                                       | 10,972  |              | $ | (4,271  | )               |  | $ |            |   |  | $                          | (1,938 | ) |  | $ | 4,763
|Employee severance and related benefits |  |                                         | 14,565  |              |   | (12,113 | )               |  |   | (412        | ) |  |                            | 254    |   |  |   | 2,294
|Other exit costs                        |  |                                         | 298     |              |   | (248    | )               |  |   |            |   |  |                            | (25    | ) |  |   | 25   
|Asset disposals, net of cash received   |  |                                         | 36,627  |              |   |        |                 |  |   | (37,063     | ) |  |                            | 436    |   |  |   |     
|Goodwill and other intangible assets    |  |                                         | 284,547 |              |   |        |                 |  |   | (284,353    | ) |  |                            | (194   | ) |  |   |     
|                                        |  |                                         |         |              |   |         |                 |  |   |             |   |  |                            |        |   |  |   |      
|                                        |  | $                                       | 347,009 |              | $ | (16,632 | )               |  | $ | (321,828    | ) |  | $                          | (1,467 | ) |  | $ | 7,082
|                                        |  |                                         |         |              |   |         |                 |  |   |             |   |  |                            |        |   |  |   |      



On October 22, 2003,
we reached an agreement with Silicon Valley Bank in connection with a letter of credit they had provided pertaining to a lease of office space in San Francisco, which was the subject of a lawsuit. The Company paid Silicon Valley Bank $480,000 and
Silicon Valley Bank released the Company and its subsidiaries from further claims. As a result, the restructuring accrual was adjusted during the year ended December 31, 2003, to reflect the agreed upon settlement. Adjustments to the restructuring
accrual during the year ended December 31, 2003, are recorded in restructuring and asset impairment charges (reversals) in the consolidated statement of operations.



During the year ended December 31, 2002, we recorded adjustments of approximately $1.3 million related to lease termination
costs and $590,000, related to employee termination benefits and other exit costs, due to changes in estimates. For the year ended December 31, 2002, these adjustments included $0.4 million of lease termination costs reflected in income (loss) from
operations of discontinued operations. During the year ended December 31, 2002, the remaining $1.5 million of expenses are recorded in restructuring and asset impairment charges (reversals) in the consolidated statement of operations.



During the year ended December 31, 2001, we recorded restructuring and asset
impairment charges of approximately $345.5 million related to lease termination costs, employee termination benefits, asset disposals, asset impairment and other exit costs, inclusive of adjustments recorded in 2001. For the year ended December 31,
2001, this charge included an impairment of $284.4 million of identifiable assets and goodwill in accordance with SFAS No. 121, and $61.2 million for lease termination costs, employee termination benefits, and asset disposals. Of the total amount of
$345.5 million, $268.6 million related to continuing operations and is recorded in restructuring and asset impairment charges (reversals) in the consolidated statement of operations and the remaining $76.9 million is included in income (loss) from
operations of discontinued operations.



During the years ended
December 31, 2003, 2002, and 2001 the Company wrote-off approximately $9,000, $711,000, and $2.8 million, respectively, of purchased software.



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VERTICALNET, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(7) Detail of Certain Balance Sheet Accounts



Prepaid expenses and other current assets consist of the following balances (in thousands):



|                                 |  |              |     |      |   |      
|-------------------------------- |  | ------------ | --- | ---- | - | -----
|                                 |  | December 31,
|                                 |  | 2003         |     | 2002
|Corporate bonds                  |  | $            |    |      | $ | 975  
|Ariba common stock (see Note 10) |  |              |    |      |   | 1,047
|Restricted cash                  |  |              |    |      |   | 1,141
|Other                            |  |              | 539 |      |   | 729  
|                                 |  |              |     |      |   |      
|                                 |  | $            | 539 |      | $ | 3,892
|                                 |  |              |     |      |   |      



Property and equipment
consists of the following balances (in thousands):



|                                                |  |              |        |   |      |   |        |  
|----------------------------------------------- |  | ------------ | ------ | - | ---- | - | ------ | -
|                                                |  | December 31, |       
|                                                |  | 2003         |        |   | 2002 |  
|Software                                        |  | $            | 1,386  |   |      | $ | 1,386  |  
|Computer equipment                              |  |              | 933    |   |      |   | 914    |  
|Office equipment and furniture                  |  |              | 86     |   |      |   | 386    |  
|Leasehold improvements                          |  |              | 102    |   |      |   | 62     |  
|                                                |  |              |        |   |      |   |        |  
|                                                |  |              | 2,507  |   |      |   | 2,748  |  
|Less: accumulated depreciation and amortization |  |              | (2,391 | ) |      |   | (1,836 | )
|                                                |  |              |        |   |      |   |        |  
|Property and equipment, net                     |  | $            | 116    |   |      | $ | 912    |  
|                                                |  |              |        |   |      |   |        |  



Depreciation and
amortization related to property and equipment was $555,000, $5.1 million, and $3.2 million for the years ended December 31, 2003, 2002, and 2001, respectively.Amortization applicable to property and equipment under capital leases of
$106,000 and $193,000 for the years ended December 31, 2002 and 2001, respectively, are included in such expense.



During the year ended December 31, 2002, we recorded a charge of approximately $3.0 million related to the impairments of leasehold improvements for
abandoned facilities, as well as impairments to furniture, office and computer equipment, and software no longer being utilized in the ongoing operations of the business. For the year ended December 31, 2001, we recorded a $37.1 million
restructuring charge related to asset disposals, net of cash received.



Other assets consists of the following balances (in thousands):



|                                       |  |              |     |      |   |      
|-------------------------------------- |  | ------------ | --- | ---- | - | -----
|                                       |  | December 31,
|                                       |  | 2003         |     | 2002
|Deferred convertible debt costs        |  | $            | 4   |      | $ | 86   
|Ariba forward sale costs (see Note 10) |  |              |    |      |   | 836  
|Restricted cash                        |  |              |    |      |   | 544  
|Other                                  |  |              | 112 |      |   | 212  
|                                       |  |              |     |      |   |      
|                                       |  | $            | 116 |      | $ | 1,678
|                                       |  |              |     |      |   |      



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VERTICALNET, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Accounts payable and accrued expenses consists of the following balances (in thousands):



|                                 |  |              |       |      |   |      
|-------------------------------- |  | ------------ | ----- | ---- | - | -----
|                                 |  | December 31,
|                                 |  | 2003         |       | 2002
|Accounts payable                 |  | $            | 606   |      | $ | 894  
|Legal and settlement liabilities |  |              | 596   |      |   | 875  
|Taxes and interest payable       |  |              | 534   |      |   | 628  
|Compensation and related costs   |  |              | 190   |      |   | 218  
|Restructuring costs              |  |              | 3     |      |   | 3,534
|Acquisition related costs        |  |              |      |      |   | 85   
|Other                            |  |              | 877   |      |   | 1,418
|                                 |  |              |       |      |   |      
|                                 |  | $            | 2,806 |      | $ | 7,652
|                                 |  |              |       |      |   |      



Other current
liabilities consists of the following balances (in thousands):



|                                            |  |              |     |      |   |      
|------------------------------------------- |  | ------------ | --- | ---- | - | -----
|                                            |  | December 31,
|                                            |  | 2003         |     | 2002
|Warrant liability (see Note 14)             |  | $            | 147 |      | $ |     
|Ariba forward sale obligation (see Note 10) |  |              |    |      |   | 1,047
|Other                                       |  |              |    |      |   | 125  
|                                            |  |              |     |      |   |      
|                                            |  | $            | 147 |      | $ | 1,172
|                                            |  |              |     |      |   |      



We had a put/call
agreement with BT whereby we could purchase their remaining 10% interest in Verticalnet Europe at any time after March 12, 2002 and BT could sell its investment to us at any time after March 13, 2002. In March 2002, the Company paid $3.0 million in
cash, of which approximately $924,000 pertained to accrued interest, and issued 200,000 shares of Verticalnet common stock valued at $1.8 million, toward the BT put/call obligation. On September 12, 2002, the Company completed the repurchase of the
remaining 10% interest in Verticalnet Europe for consideration of $6.5 million in cash, of which $202,000 pertained to accrued interest, and 1,000,000 shares of Verticalnet common stock valued at $1.2 million.



In connection with the September 2002 settlement, the put/call agreement
between Verticalnet and BT was terminated, as well as BTs put right under this agreement that would have required us to repurchase the BT shares. Separately, the Company and BT also agreed to terminate a reseller agreement between the parties,
including a $1.5 million prepaid license obligation. As a result of this settlement, the Company recorded a $4.8 million gain representing the difference between the fair value of the consideration issued in the settlement transaction and the
carrying value of the amounts due to BT.



(8) Goodwill and Other Intangibles



We adopted SFAS No. 142 effective January 1, 2002. Under
SFAS No. 142, goodwill is no longer amortized but is reviewed for impairment annually, or more frequently if certain indicators arise. In addition, SFAS No. 142 requires reassessment of the useful lives of previously recognized intangible assets.
With the adoption of the statement, we ceased amortization of goodwill and assembled workforce as of January 1, 2002. The carrying amount of goodwill at December 31, 2001 was $27.6 million, all of which was written off when the Company performed its
impairment test as of September 30, 2002.



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VERTICALNET, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following table provides a reconciliation of reported loss attributable to common shareholders
for the year ended December 31, 2001 to the adjusted loss attributable to common shareholders excluding amortization expense relating to goodwill and assembled workforce (in thousands, except for per share data):



|                                                        |  |   |          |  
|------------------------------------------------------- |  | - | -------- | -
|Reported loss attributable to common shareholders       |  | $ | (768,272 | )
|Add back: Goodwill and assembled workforce amortization |  |   | 105,069  |  
|                                                        |  |   |          |  
|Adjusted loss attributable to common shareholders       |  | $ | (663,203 | )
|                                                        |  |   |          |  
|Basic and diluted loss per common share:                |  |   |          |  
|Reported loss attributable to common shareholders       |  | $ | (79.27   | )
|Goodwill and assembled workforce amortization           |  |   | 10.84    |  
|                                                        |  |   |          |  
|Adjusted loss attributable to common shareholder        |  | $ | (68.43   | )
|                                                        |  |   |          |  



The following table
reflects the components of amortizable intangible assets as of December 31, 2003 and 2002 (in thousands):



|                               |  |                      |       |                         |   |      
|------------------------------ |  | -------------------- | ----- | ----------------------- | - | -----
|                               |  | Gross CarryingAmount |       | AccumulatedAmortization
|2003:                          |  |                      |       |                         |   |      
|Amortizable intangible assets: |  |                      |       |                         |   |      
|Existing technology            |  | $                    | 1,925 |                         | $ | 1,283
|Customer contracts             |  |                      | 775   |                         |   | 517  
|                               |  |                      |       |                         |   |      
|                               |  | $                    | 2,700 |                         | $ | 1,800
|                               |  |                      |       |                         |   |      
|2002:                          |  |                      |       |                         |   |      
|Amortizable intangible assets: |  |                      |       |                         |   |      
|Existing technology            |  | $                    | 1,925 |                         | $ | 642  
|Customer contracts             |  |                      | 775   |                         |   | 258  
|                               |  |                      |       |                         |   |      
|                               |  | $                    | 2,700 |                         | $ | 900  
|                               |  |                      |       |                         |   |      



During the years ended
December 31, 2003, 2002, and 2001, we recognized $900,000, $1.0 million, and $105.1 million, respectively, in intangible asset amortization expense related to continuing operations.



The Company expects to recognize the remaining amortization expense of $900,000 during 2004.



(9) Strategic Relationships



Converge



In December 2000, we entered into a subscription license agreement and
professional services agreements with Converge, which among other things, provided for us to receive an aggregate of $108.0 million during the three-year term of the agreements. On October 9, 2001, Verticalnet and Converge terminated the
professional services agreements, amended and restated the subscription license agreement and entered into a maintenance and support agreement. The amended and restated subscription license agreement as well as the maintenance and support agreement
had a term of 18 months ending in March 2003.



The Company and
Converge entered into a first amendment to the amended and restated subscription license agreement and a first amendment to the maintenance and support agreement, both as of February 1, 2002. As a result of these amendments, the term of each
agreement was extended to December 31, 2003. As of May 2002, all license payments had been received and the remaining deferred license revenue was to be recognized on



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VERTICALNET, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



a straight-line basis through December 2003. The amendment to the maintenance agreement reduced our required level of service, accelerated the payment terms
and reduced Converges aggregate obligation by $500,000. The expected contractual maintenance payments under the new agreements plus the remaining deferred revenue under the original agreements were to be recognized on a straight-line basis
through December 2003. In order to secure the payments under the amended and restricted subscription license agreement, the Company also received a subordinated security interest in certain of Converges assets (the Security
Interest).



On February 15, 2002, we invested $3.5
million in Converge LLC, an indirect subsidiary of Converge and received a subordinated promissory note with a face value of $8.75 million. In connection with the investment, we also received a warrant to purchase 3,500,000 shares of preferred stock
in Converge Financial Corporation, a wholly-owned subsidiary of Converge and an indirect parent of Converge LLC, at an initial exercise price of $.01 per share. As noted above, we sold all of the Companys equity interests in, and notes
receivable from, Converge for cash consideration of approximately $1.9 million in September 2002.



In August 2002, Converge notified the Company that they would not be paying the remaining maintenance amounts through December 2003 according to the first
amendment to the maintenance and support agreement. Converge proposed an amended payment schedule that extended the payments terms through October 2006 for the remaining $1.8 million due. This amended payment schedule was not finalized. Due to the
risk of non-collection of all or a portion of the remaining amounts due, the Company began recognizing maintenance revenue from the Converge contract on a cash basis beginning in the fourth quarter of 2002. The remaining amount due from Converge of
$1.7 million was fully reserved for as of December 31, 2002.



In November 2002, the Company entered into a second amendment to the amended and restated subscription license agreement with Converge. This amendment eliminated the obligation of the Company to provide future Verticalnet products to
Converge at no cost for the term of the original subscription license agreement. As there remained no further obligation by Verticalnet under the license agreement with Converge, the remaining deferred license revenue balance of $19.6 million was
recognized during the fourth quarter of 2002. Since all amounts due under the amended and restated subscription license agreement had been collected, the revenue recognized did not represent additional cash inflows to the Company. This amendment did
not alter the maintenance and support agreement between the Company and Converge.



In March 2003, Converge informed the Company that Converge intended to sell substantially all the assets of Converge to PCG Trading, LLC (PCG Trading), and in connection with such sale transaction, PCG
Trading and certain of its affiliates intended to enter into a credit and security agreement with Fleet Capital Corporation (Fleet Capital). As a condition to (a) the completion of the sale transaction to PCG Trading and (b) the closing
of the Fleet Capital credit facility (collectively, the Sale Transactions), PCG Trading and Fleet Capital required that Verticalnets Security Interest and lien in all collateral be released. In connection with the Sale Transactions
and the subsequent dissolution and winding up of Converge, Converge also requested the termination of the amended and restated subscription license agreement effective as of October 1, 2001, by and among the Company and certain of its affiliates and
Converge and the maintenance and support agreement effective as of October 1, 2001, by and among the Company and certain of its affiliates and Converge, as amended.



In exchange for the right to use the software installed at Converge in accordance with the terms and conditions set forth in
the amended and restated subscription license agreement for a term of six (6) months from the consummation of the Sale Transactions, at which time such right shall terminate, PCG Trading agreed to pay the Company $330,000, payable $33,000 per month
for ten consecutive months beginning April 1, 2003, and the Company agreed to provide PCG Trading maintenance and support for the software installed at Converge pursuant to the amended and restated subscription license agreement for the six-month
period following the consummation of the Sale Transactions.



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VERTICALNET, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



In addition, the Security Interest, the amended and restated subscription license agreement and the
amended maintenance and support agreement were deemed terminated immediately preceding the consummation of the Sale Transactions. Both the Company and Converge agreed there would be no further obligations of the Company, Converge, or either of their
respective affiliates under the amended and restated subscription license agreement and the amended maintenance and support agreement as of, and following, the consummation of the Sale Transactions. The Security Interest of the Company in the
collateral or in any other assets of Converge, Converge LLC, or its affiliates was released and terminated as of the consummation of the Sale Transactions.



Below are the contractual payments, either made or still due from Converge/PCG Trading under the revised terms of the agreements, for the years ending
December 31, 2003, 2002, and 2001 (in thousands):



2003:



|                        |  |                                                    |       |                                               |        |   |                                                   |      |   |                                                    |   |   
|----------------------- |  | -------------------------------------------------- | ----- | --------------------------------------------- | ------ | - | ------------------------------------------------- | ---- | - | -------------------------------------------------- | - | --
|                        |  | Remainingcontractualpayments as ofDecember 31,2002 |       | Adjustmentsdue to March2003contractualchanges |        |   | Cash receivedduring theyear endedDecember 31,2003 |      |   | Remainingcontractualpayments as ofDecember 31,2003
|Maintenance and support |  | $                                                  | 1,658 |                                               | (1,166 | ) |                                                   | (459 | ) |                                                    | $ | 33
|                        |  |                                                    |       |                                               |        |   |                                                   |      |   |                                                    |   |   



2002:



|                        |  |                                                     |        |                                                    |   |      |                                                   |  |   |                                                     |   |  |   |      
|----------------------- |  | --------------------------------------------------- | ------ | -------------------------------------------------- | - | ---- | ------------------------------------------------- |  | - | --------------------------------------------------- | - |  | - | -----
|                        |  | Remaining contractualpayments as ofDecember 31,2001 |        | Adjustmentsdue toFebruary 2002contractualrevisions |   |      | Cash receivedduring theyear endedDecember 31,2002 |  |   | Remainingcontractual payments as ofDecember 31,2002
|Subscription license    |  | $                                                   | 9,000  |                                                    | $ |     |                                                   |  | $ | (9,000                                              | ) |  | $ |     
|Maintenance and support |  |                                                     | 3,750  |                                                    |   | (500 | )                                                 |  |   | (1,592                                              | ) |  |   | 1,658
|                        |  |                                                     |        |                                                    |   |      |                                                   |  |   |                                                     |   |  |   |      
|                        |  | $                                                   | 12,750 |                                                    | $ | (500 | )                                                 |  | $ | (10,592                                             | ) |  | $ | 1,658
|                        |  |                                                     |        |                                                    |   |      |                                                   |  |   |                                                     |   |  |   |      



2001:



|                        |  |                                             |         |                                                  |   |         |                                                   |  |   |                                                    |   |  |   |       
|----------------------- |  | ------------------------------------------- | ------- | ------------------------------------------------ | - | ------- | ------------------------------------------------- |  | - | -------------------------------------------------- | - |  | - | ------
|                        |  | Contractualpaymentsunder originalagreements |         | Adjustments due toOctober 2001contractualchanges |   |         | Cash receivedduring theyear endedDecember 31,2001 |  |   | Remainingcontractualpayments as ofDecember 31,2001
|Subscription license    |  | $                                           | 73,000  |                                                  | $ | (23,000 | )                                                 |  | $ | (41,000                                            | ) |  | $ | 9,000 
|Professional services   |  |                                             | 35,000  |                                                  |   | (23,750 | )                                                 |  |   | (11,250                                            | ) |  |   |      
|Maintenance and support |  |                                             |        |                                                  |   | 4,500   |                                                   |  |   | (750                                               | ) |  |   | 3,750 
|                        |  |                                             |         |                                                  |   |         |                                                   |  |   |                                                    |   |  |   |       
|                        |  | $                                           | 108,000 |                                                  | $ | (42,250 | )                                                 |  | $ | (53,000                                            | ) |  | $ | 12,750
|                        |  |                                             |         |                                                  |   |         |                                                   |  |   |                                                    |   |  |   |       



During the years ended
December 31, 2003, 2002, and 2001, we recognized revenues of approximately $459,000, $33.8 million, and $29.8 million, respectively, under the Converge agreements.



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VERTICALNET, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(10) Investments



Available-For-Sale



Investments categorized as available-for-sale securities were as follows (in thousands):



|                             |  |      |        |                             |   |                              |  |   |             |   |  |   |      
|---------------------------- |  | ---- | ------ | --------------------------- | - | ---------------------------- |  | - | ----------- | - |  | - | -----
|                             |  | Cost |        | GrossUnrealizedHoldingGains |   | GrossUnrealizedHoldingLosses |  |   | MarketValue
|December 31, 2003            |  |      |        |                             |   |                              |  |   |             |   |  |   |      
|Marketable equity securities |  | $    | 225    |                             | $ |                             |  | $ | (224        | ) |  | $ | 1    
|                             |  |      |        |                             |   |                              |  |   |             |   |  |   |      
|December 31, 2002            |  |      |        |                             |   |                              |  |   |             |   |  |   |      
|Marketable equity securities |  | $    | 52,862 |                             | $ |                             |  | $ | (51,809     | ) |  | $ | 1,053
|                             |  |      |        |                             |   |                              |  |   |             |   |  |   |      



In July 1999, we
acquired 414,233 shares of the Series C preferred stock of Tradex Technologies, Inc. (Tradex) for $1.0 million. In December 1999, Tradex entered into an Agreement and Plan of Reorganization with Ariba, Inc. (Ariba). On March
10, 2000, pursuant to the terms of an Agreement and Plan of Reorganization, our investment in Tradex was exchanged for 566,306 shares of Aribas common stock. In July 2000, we entered into forward sale contracts relating to our remaining
investment in Ariba. Under these contracts, we pledged our shares of Ariba common stock to the counter-party for a three-year period in return for approximately $47.4 million of cash. In July 2003, the three-year period concluded, and we elected to
deliver the pledged Ariba shares to satisfy the forward sale, rather than delivering cash. As of the date of this filing, we have not been advised whether the pledged shares have been delivered to the counter-party. We have no further obligations
under the forward sale contract.



The fair value of the
obligation in connection with the forward sale of $1.0 million and the investment in Ariba common stock of approximately $1.0 million was included in other current liabilities and prepaid expenses and other current assets, respectively, as of
December 31, 2002. In addition, the remaining carrying value (approximately $836,000) of the initial cost of the transaction (approximately $5.0 million), which was being amortized over the life of the agreement, was included in other assets at
December 31, 2002.



Our marketable equity securities are
classified as available-for-sale and are stated at fair market value based on quoted market prices. During the year ended December 31, 2001, we recognized an impairment charge, included in interest and other expense, net, of approximately $10.5
million on our Ariba investment for an other than temporary decline, based on the difference between the original recorded cost of the investment and the fair market value of the shares as of the forward sale contract date.



Proceeds from sales of available-for-sale investments were approximately
$21.5 million for the year ended December 31, 2001. There were no sales during the years ended December 31, 2003 and 2002. Realized gains and losses are computed on a specific identification basis.



Cost Method Investments



At December 31, 2003 and 2002, cost method investments were approximately
$606,000.



On September 30, 2002, the Company and its wholly
owned subsidiary, VNI Holdings, Inc. (VNI), entered into an agreement with another investor of Converge to sell all of the Companys equity interests in, and notes receivable from, Converge for cash consideration of approximately
$1.9 million. At the first closing on September 30, 2002, VNI transferred the notes receivable and a portion of the Converge equity to the buyer and



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VERTICALNET, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



received the entire $1.9 million cash consideration. Under the terms of the agreement, the Company was to transfer to the buyer all of the outstanding
capital stock of VNI, which owned all of the Companys remaining equity interest in Converge, at a second closing. If the Company was not able to transfer the stock of VNI, the Company could have been required to refund $125,000 to the buyer.
The Company was relieved of this obligation as part of the sale of Converges assets in the first quarter of 2003.



For the year ended December 31, 2002, we recorded impairment charges of $9.6 million related to our total Converge investment, which includes $3.5 million
invested by the Company during February 2002. These impairment charges are included in interest and other expense, net. During the year ended December 31, 2001, we recorded an impairment charge of $207.2 million related to our Converge investment
based upon an independent valuation.



During the year ended
December 31, 2002, we recorded additional impairment charges of approximately $2.0 million for other than temporary declines in the fair values of our other cost method investments. These impairment charges are included in interest and other
expense, net. During the year ended December 31, 2001, we recorded additional impairment charges of approximately $12.0 million, which are included in interest and other expense, net, for other than temporary declines in the fair values of our other
cost method investments.



During the year ended December 31,
2002, we sold a cost method investment for proceeds of approximately $2.3 million and realized an immaterial gain.



Equity Method Investments



During the year ended December 31, 2002, all of our equity method investments were either dissolved by mutual agreement of the investors or we sold our
ownership to the other investors. Our loss from the equity method investments was approximately $2.3 million for the year ended December 31, 2001. During the year ended December 31, 2001, we recorded impairment charges (net of cash returned from the
sale or liquidation of investments) of approximately $1.6 million.



(11)
Long-term Debt, and Convertible Notes



Long-term debt and
convertible notes consist of the following (in thousands):



|                                     |  |              |      |   |      |   |       |  
|------------------------------------ |  | ------------ | ---- | - | ---- | - | ----- | -
|                                     |  | December 31, |     
|                                     |  | 2003         |      |   | 2002 |  
|Capital leases                       |  | $            |     |   |      | $ | 573   |  
|Convertible notes                    |  |              | 728  |   |      |   | 7,135 |  
|Other                                |  |              | 29   |   |      |   |      |  
|                                     |  |              |      |   |      |   |       |  
|                                     |  |              | 757  |   |      |   | 7,708 |  
|Less: current portion                |  |              | (757 | ) |      |   | (415  | )
|                                     |  |              |      |   |      |   |       |  
|Long-term debt and convertible notes |  | $            |     |   |      | $ | 7,293 |  
|                                     |  |              |      |   |      |   |       |  



In 1999, we completed
the sale of $115.0 million of 51⁄4% convertible subordinated debentures in a private placement transaction pursuant to Section 4(2) of the Securities Act of 1933, resulting in net proceeds of $110.9 million. The debentures have a maturity date of
September 27, 2004 with semi-annual interest payments due on March 27 and September 27 of each year beginning March 27, 2000. The debentures are convertible into shares of our common stock at an initial conversion price of $200 per share, subject to
adjustment under certain



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VERTICALNET, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



circumstances. On February 11, 2000, we filed a registration statement with the Securities and Exchange Commission covering the convertible subordinated
debentures and the shares of common stock underlying the debentures. The registration statement was declared effective on April 7, 2000. We may redeem the debentures if the price of our common stock is above $340 per share for at least 20 trading
days during the 30-day trading period ending on the trading day before we mail notice that we intend to redeem the debentures.



In April 2000, approximately $93.3 million of the convertible subordinated debentures were converted into 466,475 shares of common stock. In connection
with the conversion, we made an inducement payment of approximately $11.2 million to the related debt holders and wrote off against additional paid-in capital approximately $2.9 million in deferred debt offering costs attributable to the portion of
debt converted to equity.



On July 30, 2002, we completed the
repurchase of $13.85 million of the convertible subordinated debentures for total consideration of $2.9 million. This consideration included $763,000, or 1,270,854 shares, in common stock consideration, and $2.1 million in cash consideration.
Additionally, we made a payment for accrued but unpaid interest of $246,000, also in cash. In connection with the transaction, we wrote off, against additional paid-in-capital, approximately $214,000 in deferred debt offering costs attributable to
the portion of debt repurchased. The Company also recorded a charge to operations of $2.9 million representing an inducement for conversion of the convertible debentures, in accordance with SFAS No. 84, Induced Conversions of Convertible Debt. This
charge is included in interest and other expense, net in the consolidated statement of operations for the year ended December 31, 2002.



In December 2002, we completed the repurchase of $720,000 of the convertible subordinated debentures for total consideration of $113,000. We recognized a
gain of $607,000 in connection with the repurchase.



In July
2003, we completed the repurchase of $6.4 million of our 51/4% convertible subordinated debentures for total
consideration of $5.8 million in cash, stock, and warrants. This consideration included $1.3 million in cash, 2,694,100 shares of common stock with a fair market value of $4.4 million and change of control warrants valued at $124,000. Additionally,
we made a payment for accrued but unpaid interest of approximately $21,000, also in cash. In connection with the transaction, we wrote-off, against additional paid-in capital, approximately $55,000 in deferred debt offering costs attributable to the
portion of debt repurchased. The Company recorded a charge to operations of $5.7 million representing the inducement for conversion of the convertible debentures, in accordance with SFAS No. 84. This charge is included in interest and other expense,
net in the consolidated statements of operations for the year ended December 31, 2003.



During 2003, the Company paid or settled its capital lease obligations.



(12) Commitments and Contingencies



Future minimum lease payments remaining under our operating leases for the fiscal years ending December 31 are as follows (in thousands):



|           |  |                  |      
|---------- |  | ---------------- | -----
|           |  | LeaseObligations
|2004       |  | $                | 656  
|2005       |  |                  | 644  
|2006       |  |                  | 556  
|2007       |  |                  | 329  
|2008       |  |                  | 290  
|Thereafter |  |                  | 580  
|           |  |                  |      
|Total      |  | $                | 3,055
|           |  |                  |      



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VERTICALNET, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



These future minimum lease payments include all facility leases for which we are contractually
committed to make payments as of December 31, 2003, including operating leases for facilities acquired as part of the January 2004 Tigris acquisition (see Note 20).



During 2003, we amended our lease with our primary landlord, which represented a reduction of approximately $16.4 million of
the original lease obligations. The amended agreement provided for occupancy of our main facility in Malvern, Pennsylvania until May 2003, with options to continue the lease on a quarterly basis. We have exercised options to continue the lease up to
at least May 31, 2004.



The Company incurred approximately
$326,000, $3.9 million and $3.1 million in rent expense for the years ended December 31, 2003, 2002, and 2001.



(13) Litigation



On
June 12, 2001, a class action lawsuit was filed against us and several of our officers and directors in U.S. Federal Court for the Southern District of New York in an action captioned CJA Acquisition, Inc. v. Verticalnet, et al., C.A. No. 01-CV-5241
(the CJA Action). Also named as defendants were four underwriters involved in the issuance and initial public offering of our common stock in February 1999  Lehman Brothers Inc., Hambrecht & Quist LLC, Volpe Brown Whelan &
Company LLC, and WIT Capital Corporation. The complaint in the CJA Action alleges violations of Sections 11 and 15 of the Securities Act of 1933 and Section 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated there under, based
on, among other things, claims that the four underwriters awarded material portions of the initial shares to certain favored customers in exchange for excessive commissions. The plaintiff also asserts that the underwriters engaged in a practice
known as laddering, whereby the clients or customers agreed that in exchange for IPO shares they would purchase additional shares at progressively higher prices after the IPO. With respect to Verticalnet, the complaint alleges that the
Company and its officers and directors failed to disclose in the prospectus and the registration statement the existence of these purported excessive commissions and laddering agreements. After the CJA Action was filed, several copycat
complaints were filed in U.S. Federal Court for the Southern District of New York. Those complaints, whose allegations mirror those found in the CJA Action, include Ezra Charitable Trust v. Verticalnet, et al., C.A. No. 01-CV-5350; Kofsky v.
Verticalnet, et al., C.A. No. 01-CV-5628; Reeberg v. Verticalnet, C.A. No. 01-CV-5730; Lee v. Verticalnet, et al., C.A. No. 01-CV-7385; Hoang v. Verticalnet, et al., C.A. No. 01-CV-6864; Morris v. Verticalnet, et al., C.A. No. 01-CV-9459, and Murphy
v. Verticalnet, et al., C.A. No. 01-CV-8084. None of the complaints state the amount of any damages being sought, but do ask the court to award rescissory damages. All of the foregoing suits were amended and consolidated into a single
complaint that was filed with the U.S. Federal Court on April 19, 2002. This amended complaint contains additional factual allegations concerning the events discussed in the original complaints, and asserts that, in addition to Sections 11 and 15 of
the Securities Act, the Company and our officers and directors also violated Sections 10(b), 20(a), and Rule 10b-5 of the Exchange Act in connection with the IPO. In addition to this amended and consolidated complaint, the plaintiffs in this lawsuit
and in the hundreds of other similar suits filed against other companies in connection with IPOs that occurred in the late 1990s have filed master allegations that primarily focus on the conduct of the underwriters of the IPOs, including
our IPO. On October 9, 2002, the U.S. Federal Court for the Southern District of New York entered an order dismissing, without prejudice, the claims against the individual Verticalnet officers and directors who had been named as defendants in the
various complaints. In February 2003, the District Court entered an Order denying a Motion made by the defendants to dismiss the actions in their entirety, but granting the Motion as to certain of the claims against some defendants. However, the
District Court did not dismiss any claims against Verticalnet. On or about June 5, 2003, Verticalnets counsel, with the approval of the Companys directors, executed a Memorandum of Understanding on behalf of Verticalnet with respect to a
proposed settlement of the plaintiffs claims against Verticalnet. This



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VERTICALNET, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



proposed resolution of the litigation has been publicly announced (although not yet formally accepted by the plaintiffs) and widely reported in the press.
The proposed settlement, if approved by the District Court, would result in, among other things, the dismissal of all claims against Verticalnet, its officers and directors. It is expected that the proposed resolution will be reviewed by the
District Court in early 2004. Under the present terms of the proposed settlement described above, Verticalnet would also assign its claims against the underwriters to the plaintiffs in the consolidated actions.



In July 2000, we entered into an Opportunity Grant Program Contract with the
Commonwealth of Pennsylvania Department of Community and Economic Development (PaDCED) whereby we received a grant in the amount of $1.0 million from the Commonwealth. The grant was conditioned upon, among other things, the creation of
1,000 full time jobs and that we would operate in our former Horsham facility for at least five years. In July 2000, Atlas Commerce entered into an Opportunity Grant Program Contract with the PaDCED whereby Atlas Commerce received a grant in the
amount of $400,000 from the Commonwealth, which amount was increased to $600,000 in June 2001. The grant was conditioned upon, among other things, the creation of 250 full time jobs and that Atlas Commerce would operate in its Malvern facility for
at least five years. Both contracts contain a provision that requires repayment of the grant amount in the event the conditions are not met.



In November 2002, the PaDCED requested that we repay the entire grant amount of $1.0 million for the July 2000 grant to Verticalnet. The Company responded
to the PaDCED that it believes it had substantially complied with the conditions. In September 2003, the PaDCED filed a Complaint-Civil Action in the Montgomery County Court of Common Pleas, although the Complaint has not yet been served upon us.
The Complaint seeks to recover the total amount of the grant to Verticalnet. Although we would prefer to amicably resolve the matter, we will vigorously defend any action to recover the grant amount.



We are also a party to various litigations and claims that arise in the
ordinary course of business. In the opinion of management, the ultimate resolutions with respect to all of the above actions will not have a material adverse effect on our financial position, liquidity, or results of operations.



(14) Capital Stock



At December 31, 2003, our amended and restated Articles of Incorporation provide us the authority to issue 100,000,000
shares of common stock and 10,000,000 shares of blank check preferred stock.



Common Stock



On
January 22, 2001, we sold approximately 276,000 shares of our common stock to Sumitomo for $15.0 million. Under the agreement, Sumitomo could not transfer the purchased shares for one year from the closing date of the transaction. Sumitomo was also
granted limited demand and piggyback registration rights exercisable after the first anniversary of the closing.



In August 2003, we completed a $1.1 million private placement of our common stock. The Company issued 1,140,000 shares of common stock along with warrants
to purchase 456,000 shares of common stock at $1.20 per share, which were valued at $485,000. The Company received approximately $936,000 in net proceeds from this transaction. As the warrants originally included a requirement for net cash
settlement if the Company was unable to register the shares to be issued upon exercise of the warrants, these warrants were required to be recorded as a liability until such time as the registration requirements expired. Verticalnet subsequently
signed Waiver Letter Agreements with certain warrantholders, which resulted in the warrants being modified to provide for a cashless exercise in the event of a Non-Registration Event, as defined, and the elimination of the net cash settlement



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VERTICALNET, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



provision. In addition, certain penalty provisions were modified to provide that the warrantholders would receive no liquidated damages in the event of a
Non-Registration Event. Upon the elimination of the net cash settlement (i.e., put) provision, the fair value of the warrants ($346,000) was reclassified from other current liabilities to additional paid-in capital. As of December 31, 2003,
remaining warrants with a fair value of $147,000 are included in other current liabilities in the accompanying consolidated balance sheet.



On October 9, 2003, we completed a $1.8 million private placement of our common stock. The Company issued 1,800,000 shares of common stock along with
warrants to purchase 720,000 shares of common stock at $1.35 per share. The Company received approximately $1.6 million in net proceeds from this transaction.



Series A 6.00% Convertible Redeemable Preferred Stock



In April 2000, Microsoft made a $100.0 million equity investment in Verticalnet through the purchase of 100,000 shares of our Series A 6.00%
convertible redeemable preferred stock (Series A Preferred Stock), which were initially convertible into 115,108 shares of our common stock, and the warrants described below.



Based on an independent valuation of the Series A convertible redeemable preferred stock and the warrants issued to
Microsoft, fair values of $89.5 million and $18.1 million were recorded, respectively. The fair value of the warrants was recorded as additional paid-in capital. The approximately $7.6 million excess of the fair value over the actual cash received
was recorded as a deferred cost in other assets and was amortized to expense on a straight-line basis over the period of the commercial agreement.



Based on the guidance in EITF Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Companys
Own Stock, for which a consensus was reached in the fourth quarter of 2000, the Series A convertible redeemable preferred stock was classified outside of shareholders equity (deficit).



On June 28, 2002, we completed the repurchase of all of our outstanding
shares of Series A 6.00% convertible redeemable preferred stock due 2010, plus accrued dividends thereon, for a purchase price of $5.0 million, and cancelled the common stock purchase warrant, dated April 7, 2000. The difference between the carrying
amount and the amount paid in the repurchase of approximately $101.0 million was recorded in additional paid-in capital and included in income attributable to common shareholders for the year ended December 31, 2002.



Warrants



Outstanding warrants as of December 31, 2003 consist of the following:



|              |  |                    |  |                |       |                 |               
|------------- |  | ------------------ |  | -------------- | ----- | --------------- | --------------
|Date Granted  |  | Number of Warrants |  | Exercise Price |       | Expiration Date
|April 1997    |  | 1,548              |  | $              | 1.90  |                 | April 2007    
|November 1998 |  | 36,467             |  |                | 8.80  |                 | November 2008 
|November 1998 |  | 24,688             |  |                | 40.00 |                 | November 2008 
|July 2003 (a) |  | 305,120            |  |                | 0.01  |                 | September 2004
|August 2003   |  | 456,000            |  |                | 1.20  |                 | August 2013   
|October 2003  |  | 720,000            |  |                | 1.35  |                 | October 2013  

---

|(a) | Warrants issued are only exercisable upon a change of control of the Company, as defined in the warrant agreement
|--- | -----------------------------------------------------------------------------------------------------------------





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VERTICALNET, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Stock Option Plans



Since 1996, the Company has established or acquired various long term incentive and equity compensation plans. The various
plans were established to provide additional incentives to our employees, non-employee directors, consultants, and advisors.



The exercise price for the options is determined by our board of directors and are generally issued at fair market value of the common stock on the date
of grant. Generally, the options vest over a two to four year period after the date of grant and expire ten years after the date of grant. Option holders that terminate their employment generally forfeit all non-vested options. As part of our 2003
bonus plan, quarterly bonuses consisting of option grants were issued with an exercise price at a 60% discount to the fair market value of the common stock on the date of grant, with the options vesting 100% after one year from the date of grant.
The corresponding unearned compensation is amortized to expense over the vesting period.



As of December 31, 2003, there were a total of 3,206,436 shares available for grant under the various equity compensation plans.



The following table summarizes the activity for our stock option plans:



|                                 |  |            |   |  |                                |       
|-------------------------------- |  | ---------- | - |  | ------------------------------ | ------
|                                 |  | Shares     |   |  | Weighted averageexercise price
|Outstanding at December 31, 2000 |  | 2,628,076  |   |  | $                              | 344.40
|Options granted                  |  | 2,716,281  |   |  |                                | 15.20 
|Options exercised                |  | (147,357   | ) |  |                                | 6.80  
|Options cancelled                |  | (2,357,269 | ) |  |                                | 281.30
|                                 |  |            |   |  |                                |       
|Outstanding at December 31, 2001 |  | 2,839,731  |   |  |                                | 100.20
|Options granted                  |  | 1,609,550  |   |  |                                | 3.96  
|Options exercised                |  | (154,248   | ) |  |                                | 2.56  
|Options cancelled                |  | (2,058,093 | ) |  |                                | 101.53
|                                 |  |            |   |  |                                |       
|Outstanding at December 31, 2002 |  | 2,236,940  |   |  |                                | 30.04 
|Options granted                  |  | 2,891,756  |   |  |                                | 0.77  
|Options exercised                |  | (111,480   | ) |  |                                | 0.93  
|Options cancelled                |  | (552,217   | ) |  |                                | 10.92 
|                                 |  |            |   |  |                                |       
|Outstanding at December 31, 2003 |  | 4,464,999  |   |  | $                              | 13.31 



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VERTICALNET, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following tables summarize information about stock options outstanding at December 31, 2003:



|                         |  |                     |  |                                          |  |                               |  |                   |          |                               |           |  |   |         
|------------------------ |  | ------------------- |  | ---------------------------------------- |  | ----------------------------- |  | ----------------- | -------- | ----------------------------- | --------- |  | - | --------
|Options Outstanding      |  | Options Exercisable
|Range of Exercise Prices |  | NumberOutstanding   |  | WeightedAverageRemainingContractual Life |  | WeightedAverageExercise Price |  | NumberExercisable |          | WeightedAverageExercise Price
|$       0.01             |  |                     |  | 250,000                                  |  | 9.0                           |  | $                 | 0.01     |                               | 231,250   |  | $ | 0.01    
|0.32                    |  | 0.80                |  | 1,936,292                                |  | 9.1                           |  |                   | 0.68     |                               | 363,557   |  |   | 0.78    
|0.83                    |  | 2.00                |  | 1,232,669                                |  | 8.9                           |  |                   | 1.11     |                               | 522,388   |  |   | 1.15    
|3.40                    |  | 6.58                |  | 410,574                                  |  | 6.5                           |  |                   | 4.17     |                               | 410,574   |  |   | 4.17    
|10.90                   |  | 27.40               |  | 520,360                                  |  | 7.4                           |  |                   | 15.31    |                               | 453,133   |  |   | 15.96   
|40.00                   |  | 60.78               |  | 19,258                                   |  | 6.6                           |  |                   | 48.52    |                               | 19,258    |  |   | 48.52   
|121.54                  |  | 291.88              |  | 22,540                                   |  | 6.3                           |  |                   | 219.32   |                               | 22,540    |  |   | 219.32  
|358.12                  |  | 675.00              |  | 70,700                                   |  | 6.2                           |  |                   | 540.96   |                               | 65,342    |  |   | 555.34  
|1,130.00                |  | 1,148.13            |  | 2,606                                    |  | 6.1                           |  |                   | 1,130.04 |                               | 2,450     |  |   | 1,130.04
|                         |  |                     |  |                                          |  |                               |  |                   |          |                               |           |  |   |         
|                         |  |                     |  | 4,464,999                                |  | 8.5                           |  |                   | 13.31    |                               | 2,090,492 |  |   | 26.20   
|                         |  |                     |  |                                          |  |                               |  |                   |          |                               |           |  |   |         



Employee Stock
Purchase Plan



In January 1999, our board of directors
adopted the Employee Stock Purchase Plan for all employees meeting its eligibility criteria. Under this plan, eligible employees may purchase shares of our common stock, subject to certain limitations, at 85% of the market value. Purchases are
limited to 10% of an employees eligible compensation, up to a maximum of 400 shares per purchase period. In April 2000, our board of directors approved an amendment, approved by the shareholders in June 2000, to increase the number of shares
reserved under the plan from 120,000 to 200,000. At December 31, 2003, approximately 128,893 of these shares remain available. No employees participated in the plan as of December 31, 2003.



(15) Income (Loss) Per Share



During the years ended December 31, 2003 and 2001, the dilutive earnings per
share calculations were the same as the basic earnings per share calculation as all potentially dilutive securities were anti-dilutive.



The following table sets forth the computation of income (loss) per common share for the year ended December 31, 2002 (in thousands, except for per share
data):



|                                                                 |  |                  |         |   |        |        |                 |   |       |  
|---------------------------------------------------------------- |  | ---------------- | ------- | - | ------ | ------ | --------------- | - | ----- | -
|                                                                 |  | Net Income(Loss) |         |   | Shares |        | Per ShareAmount |  
|Net loss                                                         |  | $                | (22,516 | ) |        |        |                 |   |       |  
|Less: Preferred stock dividends and accretion                    |  |                  | (3,861  | ) |        |        |                 |   |       |  
|Plus: Repurchase of convertible redeemable preferred stock       |  |                  | 101,041 |   |        |        |                 |   |       |  
|                                                                 |  |                  |         |   |        |        |                 |   |       |  
|Basic Earnings Per Share                                         |  |                  |         |   |        |        |                 |   |       |  
|Income attributable to common shareholders                       |  |                  | 74,664  |   |        | 12,004 |                 | $ | 6.22  |  
|                                                                 |  |                  |         |   |        |        |                 |   |       |  
|Effect of Dilutive Securities                                    |  |                  |         |   |        |        |                 |   |       |  
|Convertible redeemable preferred stock                           |  |                  | (97,180 | ) |        | 64     |                 |   |       |  
|                                                                 |  |                  |         |   |        |        |                 |   |       |  
|Diluted Earnings Per Share                                       |  |                  |         |   |        |        |                 |   |       |  
|Loss attributable to common shareholders and assumed conversions |  | $                | (22,516 | ) |        | 12,068 |                 | $ | (1.87 | )
|                                                                 |  |                  |         |   |        |        |                 |   |       |  



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VERTICALNET, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Potentially dilutive common shares of 6,012,462 in 2003, 2,335,318 in 2002, and 3,171,888 in 2001
were excluded because their effect was anti-dilutive. In addition, 247,939 common shares that were previously held in escrow in connection with the Atlas Commerce transaction are only included in the loss per common share calculation subsequent to
their release date of March 13, 2003.



(16) Defined Contribution Plan



In 1997, we established a defined contribution plan for
qualified employees as defined under the plan. Participants may contribute 1% to 15% of their pre-tax compensation, as defined, to the plan. Under the plan, we can make discretionary contributions. To date, we have not made any contributions to the
plan.



(17) Income Taxes



The Company incurred losses for both income tax and financial statement
purposes for all periods reported. Accordingly, no provision for income taxes has been recorded. The difference between the provision for income taxes and the amount computed by applying the federal statutory rate (34%) to income taxes is due to the
loss for which no tax benefit is currently recognizable.



The
components of the net deferred tax assets as of December 31, 2003 and 2002 consist of the following (in thousands):



|                                 |  |              |          |   |      |   |          |  
|-------------------------------- |  | ------------ | -------- | - | ---- | - | -------- | -
|                                 |  | December 31, |         
|                                 |  | 2003         |          |   | 2002 |  
|Deferred tax assets:             |  |              |          |   |      |   |          |  
|Net operating losses             |  | $            | 221,895  |   |      | $ | 220,614  |  
|Capital losses                   |  |              | 77,023   |   |      |   | 76,853   |  
|Accrued expenses                 |  |              | 574      |   |      |   | 3,595    |  
|Depreciation and amortization    |  |              | 32       |   |      |   | 2,287    |  
|Deferred revenue and other       |  |              | 396      |   |      |   | 317      |  
|Investment impairment            |  |              |         |   |      |   | 1,791    |  
|                                 |  |              |          |   |      |   |          |  
|Total gross deferred tax assets  |  |              | 299,920  |   |      |   | 305,457  |  
|Valuation allowance              |  |              | (299,827 | ) |      |   | (304,453 | )
|                                 |  |              |          |   |      |   |          |  
|                                 |  |              | 93       |   |      |   | 1,004    |  
|                                 |  |             
|Deferred tax liabilities:        |  |              |          |   |      |   |          |  
|Equity in affiliates/partnership |  |              | (93      | ) |      |   |         |  
|Gain on investment               |  |              |         |   |      |   | (1,004   | )
|                                 |  |              |          |   |      |   |          |  
|Total deferred tax liabilities   |  |              | (93      | ) |      |   | (1,004   | )
|                                 |  |              |          |   |      |   |          |  
|Net deferred tax asset           |  | $            |         |   |      | $ |         |  
|                                 |  |              |          |   |      |   |          |  



Deferred income taxes
reflect the net effects of net operating loss and capital loss carryforwards and temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In assessing the
realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. Due to the uncertainty of our ability to realize the benefit of the deferred tax assets, the gross deferred tax
assets are



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VERTICALNET, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



substantially offset by a valuation allowance at December 31, 2003 and 2002. The net change in the valuation allowance for deferred tax assets at December
31, 2003 and 2002 was a decrease of $4.6 million and $31.8 million, respectively.



As of December 31, 2003, we have approximately $535 million of net operating loss carryforwards for federal income tax purposes. These carryforwards will begin expiring in 2011 if not utilized. In addition, we have
net operating loss carryforwards of approximately $535 million in certain states with various expiration periods beginning in 2004. The majority of state net operating losses are subject to a $2.0 million annual limitation and begin expiring in
2006.



Under the Tax Reform Act of 1986, the utilization of a
corporations net operating loss carryforwards is limited following a change in ownership of greater than 50% within a three-year period. Due to our prior equity transactions, our net operating loss carryforwards are subject to an annual
limitation generally determined by multiplying our market value on the date of the ownership change by the federal long-term tax-exempt rate. Any amount exceeding the annual limitation may be carried forward to future years for the balance of the
net operating loss carryforward period.



Included in the
pre-limitation net operating loss carryforwards are losses that were generated by companies acquired in 1999 to 2001. The losses generated by acquired companies prior to their acquisition generally are available to offset future taxable income of
the acquiring company. However, upon the acquisition of these companies, their net operating losses of approximately $46.5 million became subject to an annual limitation of approximately $3.2 million.



As of December 31, 2003, we have approximately $220 million of capital loss
carryforwards for federal income tax purposes. These carryforwards will expire in 2007 if not utilized.



Additionally, at December 31, 2003, approximately $106.7 million of the gross deferred tax asset will reduce equity to the extent such assets are
subsequently realized.



(18) Interest and Other Expense, Net



Interest and other expense, net was comprised of the following (in
thousands):



|                                                             |  |                         |         |   |      |   |         |      |  |   |          |  
|------------------------------------------------------------ |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | -------- | -
|                                                             |  | Year Ended December 31, |        
|                                                             |  | 2003                    |         |   | 2002 |   |         | 2001 | 
|Inducement charges                                           |  | $                       | (5,707  | ) |      | $ | (2,869  | )    |  | $ |         |  
|Interest income (expense)                                    |  |                         | (1,046  | ) |      |   | (2,597  | )    |  |   | 37       |  
|Realized gain (loss) on investments                          |  |                         | (51,019 | ) |      |   |        |      |  |   | (3,829   | )
|Transaction gains                                            |  |                         | 120     |   |      |   | 939     |      |  |   | 910      |  
|Realized gain on forward sale                                |  |                         | 51,132  |   |      |   |        |      |  |   |         |  
|Equity investment loss                                       |  |                         |        |   |      |   |        |      |  |   | (2,312   | )
|Gain on early extinguishment of debt                         |  |                         |        |   |      |   | 5,411   |      |  |   |         |  
|Impairment charges  investments                             |  |                         |        |   |      |   | (11,564 | )    |  |   | (231,327 | )
|In-process research and development charge                   |  |                         |        |   |      |   |        |      |  |   | (420     | )
|Other income (expense) items including terminated deal costs |  |                         |        |   |      |   | (2,087  | )    |  |   | 3,029    |  
|                                                             |  |                         |         |   |      |   |         |      |  |   |          |  
|Interest and other expense, net                              |  | $                       | (6,520  | ) |      | $ | (12,767 | )    |  | $ | (223,912 | )
|                                                             |  |                         |         |   |      |   |         |      |  |   |          |  



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VERTICALNET, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(19) Summarized Quarterly Data (Unaudited)



The quarterly results of operations for the years ended December 31, 2003 and 2002 were as follows (in thousands, except per
share data):



|                                             |  |               |        |   |         |   |        |              |  |   |                 |   |  |   |        |  
|-------------------------------------------- |  | ------------- | ------ | - | ------- | - | ------ | ------------ |  | - | --------------- | - |  | - | ------ | -
|                                             |  | Quarter Ended |       
|                                             |  | March 31      |        |   | June 30 |   |        | September 30 |  |   | December 31 (a) |  
|2003                                         |  |               |        |   |         |   |        |              |  |   |                 |   |  |   |        |  
|Revenues                                     |  | $             | 3,430  |   |         | $ | 2,177  |              |  | $ | 1,845           |   |  | $ | 2,180  |  
|Loss from continuing operations              |  |               | (1,193 | ) |         |   | (1,170 | )            |  |   | (7,594          | ) |  |   | (1,058 | )
|Net loss                                     |  |               | (1,193 | ) |         |   | (1,170 | )            |  |   | (7,594          | ) |  |   | (1,058 | )
|Net loss attributable to common shareholders |  |               | (1,193 | ) |         |   | (1,170 | )            |  |   | (7,594          | ) |  |   | (1,058 | )
|Basic and diluted loss per common share      |  | $             | (0.09  | ) |         | $ | (0.09  | )            |  | $ | (0.46           | ) |  | $ | (0.06  | )

---

|(a) | The Companys results for the fourth quarter of 2003 were positively impacted by the reversal of $365,000 of accrued liabilities which were determined to be no longer
necessary.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                               |  |               |        |   |         |   |        |              |  |   |             |   |  |   |       
|-------------------------------------------------------------- |  | ------------- | ------ | - | ------- | - | ------ | ------------ |  | - | ----------- | - |  | - | ------
|                                                               |  | Quarter Ended
|                                                               |  | March 31      |        |   | June 30 |   |        | September 30 |  |   | December 31
|2002                                                           |  |               |        |   |         |   |        |              |  |   |             |   |  |   |       
|Revenues                                                       |  | $             | 8,005  |   |         | $ | 6,242  |              |  | $ | 6,584       |   |  | $ | 22,893
|Income (loss) from continuing operations                       |  |               | (5,763 | ) |         |   | (9,858 | )            |  |   | (32,595     | ) |  |   | 17,357
|Income from operations and disposal of discontinued operations |  |               | 7,481  |   |         |   | 862    |              |  |   |            |   |  |   |      
|Net income (loss)                                              |  |               | 1,718  |   |         |   | (8,996 | )            |  |   | (32,595     | ) |  |   | 17,357
|Net income (loss) attributable to common shareholders          |  |               | (199   | ) |         |   | 90,102 |              |  |   | (32,595     | ) |  |   | 17,357
|Basic income (loss) per common share:                          |  |               |        |   |         |   |        |              |  |   |             |   |  |   |       
|Continuing operations                                          |  | $             | (0.69  | ) |         | $ | 7.91   |              |  | $ | (2.66       | ) |  | $ | 1.30  
|Discontinued operations                                        |  |               | 0.67   |   |         |   | 0.09   |              |  |   |            |   |  |   |      
|Loss on disposal of discontinued operations                    |  |               |       |   |         |   | (0.01  | )            |  |   |            |   |  |   |      
|                                                               |  |               |        |   |         |   |        |              |  |   |             |   |  |   |       
|Income (loss) per common share                                 |  | $             | (0.02  | ) |         | $ | 7.99   |              |  | $ | (2.66       | ) |  | $ | 1.30  
|                                                               |  |               |        |   |         |   |        |              |  |   |             |   |  |   |       
|Diluted income (loss) per common share:                        |  |               |        |   |         |   |        |              |  |   |             |   |  |   |       
|Continuing operations                                          |  | $             | (0.69  | ) |         | $ | (0.86  | )            |  | $ | (2.66       | ) |  | $ | 1.30  
|Discontinued operations                                        |  |               | 0.67   |   |         |   | 0.09   |              |  |   |            |   |  |   |      
|Loss on disposal of discontinued operations                    |  |               |       |   |         |   | (0.02  | )            |  |   |            |   |  |   |      
|                                                               |  |               |        |   |         |   |        |              |  |   |             |   |  |   |       
|Income (loss) per common share                                 |  | $             | (0.02  | ) |         | $ | (0.79  | )            |  | $ | (2.66       | ) |  | $ | 1.30  
|                                                               |  |               |        |   |         |   |        |              |  |   |             |   |  |   |       



The basic income
(loss) per common share amounts and the fully diluted income (loss) per common share amounts noted above for the quarters ended March 31, 2002, June 30, 2002, and September 30, 2002 differ from the amounts previously reported in the respective Form
10-Qs. The differences are due to adjustments to the weighted average shares outstanding (for both the basic and diluted calculations) for the three quarters noted above, as well as an adjustment related to the treatment of the redemption of the
convertible redeemable preferred stock for the diluted calculation for the quarter ended June 30, 2002.



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VERTICALNET, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(20) Subsequent Events



In January 2004, we completed a $7.7 million private placement of our common stock. The Company issued 3,798,592 shares of
common stock along with warrants to purchase 1,218,209 shares of common stock at $3.72 per share. The Company received approximately $7.1 million in net proceeds from this transaction.



In January 2004, we acquired all of the outstanding capital stock of Tigris, a privately-held strategic sourcing and supply
chain consultancy based in New York City. The aggregate purchase price was approximately $12.1 million, including transaction costs of approximately $300,000. The consideration included $3.5 million in cash, 1,870,450 shares of our common stock
valued at approximately $5.7 million issued to Tigris sole shareholder, issuance of employee options to purchase 751,670 shares of our common stock valued at $2.2 million, and assumed debt of approximately $346,000.



The Company has engaged a third party valuation firm to value the intangibles
acquired in the Tigris acquisition. That firm has not yet completed its valuation work. In addition, the audit of Tigris historical results of operations has not yet been finalized. Therefore, it is not practicable to provide any information
concerning the purchase price allocation or pro forma results of operations.



In February 2004, holders of 320,000 warrants purchased as part of the August 2003 private placement, exercised their warrants to purchase common shares at $1.20 per share. The Company received approximately $346,000
in net proceeds from the exercise of these warrants. In addition, the Company is expected to record a $281,000 non-cash charge to earnings as a result of a mark to market adjustment relating to the fair value of the warrant liability at the time of
exercise. Upon the exercise of the warrants, the fair value of the warrants ($428,000) was reclassified from other current liabilities to additional paid-in capital.



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Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure



None.



Item 9A.Controls and Procedures



(a)Evaluation of disclosure controls and procedures. Our management, under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report have been designed and are functioning effectively to provide reasonable assurance that the information required to be disclosed by us
in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchanges Commissions rules and forms. We believe that a controls system, no
matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within
a company have been detected.



(b)Changes in internal controls. The evaluation referred to in paragraph (a) of this Item did not identify any changes in the Companys internal control over financial reporting that occurred during the quarter ended December 31, 2003 that
have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.



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##### Table of Contents

PART III



Item 10.Directors and Executive Officers of the Registrant



Directors



MICHAEL J. HAGAN, 41, co-founded Verticalnet in 1995 and has served as Chairman of the board since February 2002 and as a director since 1995. Mr.
Hagan has been Chairman and Chief Executive Officer of NutriSystem, Inc. since December 2002. Prior to that, he served as our President and Chief Executive Officer from January 2001 until February 2002, and Executive Vice President and Chief
Operating Officer from January 2000 to January 2001. Prior to our founding, Mr. Hagan was Vice President and Senior Manager at Merrill Lynch Asset Management from 1990 to 1995. Currently he serves as a trustee of American Financial Realty Trust and
Saint Josephs University. Mr. Hagan received a B.S. from St. Josephs University and was formerly a Certified Public Accountant.



JEFFREY C. BALLOWE, 48, has served as a director since July 1998. Mr. Ballowe is retired from Ziff-Davis, Inc. where he was President, Interactive
Media and Development Group. Before leaving Ziff Davis at the end of 1998, Ballowe led the launches of five magazines, ZDNet on the Web, ZDTV (now TechTV), and the initial ZD/Softbank investment in Yahoo!, Inc. Currently he serves as a director of
Onvia.com and as a member of the Advisory Board of the Internet Capital Group, Inc. He is the co-founder and past President of the not-for-profit Electronic Literature Organization and a member of the Board of Trustees of Lawrence University. He has
an MBA from the University of Chicago, an M.A. in French from the University of Wisconsin-Madison, and a B.A. from Lawrence University.



ROBERT F. BERNSTOCK, 53, has served as a director since December 2001. Mr. Bernstock has been the Executive Vice President of The Scotts Company
and President of North America since June 2003. Prior to that, he was Senior Vice President and General Manager, Air Care, Food & Branded Commercial Markets of The Dial Corporation starting in October 2002.He was the President and Chief
Executive Officer and a board member of Atlas Commerce from January 2001 to December 2001. Mr. Bernstock was President, Chief Executive Officer and a board member of Vlasic Foods International Inc. from March 1998 when Vlasic was spun-off from
Campbell Soup Company, to December 2000. Vlasic filed voluntarily for bankruptcy in January 2001 under Chapter 11 of the United States Bankruptcy Code. Mr. Bernstock served as Executive Vice President of Campbell Soup Company and President of its
Specialty Foods Division from July 1997 to March 1998. Prior to that, he was appointed PresidentU.S. Grocery Division and Senior Vice President of Campbell Soup Company in March 1996. Mr. Bernstock served as PresidentInternational
Grocery Division of Campbell Soup Company from August 1994 to February 1996. He served as PresidentInternational Soup Division of Campbell Soup Company from June 1993 to July 1994 and was Vice President of Campbell Soup Company. Mr. Bernstock
received his MBA from Harvard Business School and a B.A. from Hamilton College.



WALTER W. BUCKLEY, III, 43, has served as a director since 1996. Mr. Buckley is co-founder, chief executive officer, and chairman of the board of Internet Capital Group, Inc. Prior to joining Internet Capital
Group, Mr. Buckley was Vice President of Acquisitions for Safeguard Scientifics, Inc. between 1991 and 1996. Mr. Buckley directed many of Safeguards investments and was also responsible for developing and executing Safeguards multi-media
and Internet investment strategies. Mr. Buckley is also a member of the board of directors of ICG Commerce, Commercequest, eCredit, and Marketron. Mr. Buckley received his B.A. from the University of North Carolina, Chapel Hill.



NATHANAEL V. LENTZ, 41, has served as our President and Chief
Executive Officer since November 2002. He was our Senior Vice President of Strategy and Marketing from August 2000 to November 2002, during which time he had responsibility for guiding our transition from an operator of internet-marketplaces to a
provider of supply management solutions. Prior to that, Mr. Lentz was a Vice President and Partner of Mercer Management Consulting, where he was employed from September 1991 to May 1998 and January 1999 to August 2000. While at Mercer, Mr. Lentz
managed the San Francisco office and was a leader in their Global



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Process Industries and E-Commerce Practices. From May 1998 to November 1998, he was employed as Vice President of Strategic Development at CMC Industries, an
electronic manufacturing services company located in Santa Clara, CA. Mr. Lentz received his MBA from Stanford University where he was an Arjay Miller scholar and a B.A. from Brown University.



VINCENT J. MILANO, 40,has served as a director since August
2003. Mr. Milano is currently serving as Vice President, Chief Financial Officer of ViroPharma Inc., a position he has held since November 1997. In addition, Mr. Milano has served as Vice President, Finance & Administration of ViroPharma since
February 1997, as Treasurer since July 1996, and as Executive Director, Finance & Administration from April 1996 until February 1997. From 1985 until he joined ViroPharma, Mr. Milano was with KPMG LLP, independent certified public accountants,
where he was a Senior Manager since 1991. Mr. Milano is a Certified Public Accountant. Mr. Milano received his B.S. in accounting from Rider College.



JOHN N. NICKOLAS, 36, has served as a director since February 2003. Mr. Nickolas has been Director, Finance & Accounting with The Philadelphia
Phillies since July 2003. Prior to joining The Philadelphia Phillies, Mr. Nickolas had been a managing director with Internet Capital Group Inc. since January 1999. During his tenure at Internet Capital Group, Mr. Nickolas served in a variety of
roles including Chief Financial Officer of ICG Europe Ltd., a wholly owned subsidiary, and as a board member and Chief Financial Officer of Logistics.com, an Internet Capital Group partner company that was sold in December 2002. Prior to joining
Internet Capital Group, Mr. Nickolas served in various financial positions with Safeguard Scientifics, Inc. from 1994 through 1998, most recently as Corporate Controller. Prior to joining Safeguard, Mr. Nickolas was an audit manager in the
Philadelphia office of KPMG LLP. Mr. Nickolas graduated summa cum laude with a B.S. in Accounting from West Chester University.



GREGORY G. SCHOTT, 39, has served as a director since August 2003. Mr. Schott served as Senior Vice President of Marketing for Agile Software
Corporation from 2001 to 2002. From 1999 to 2001 Mr. Schott served as Vice President of Business Development for Agile. From 1997 to 1999, Mr. Schott served as Vice President of Marketing at Digital Generation Systems, Inc., a provider of digital
distribution systems to the broadcast advertising industry. From 1996 to 1997, Mr. Schott served as Vice President of Operations, from 1995 to 1996 as Director of Business Development and from 1994 to 1995 as Director of Operations, all at Digital
Generation Systems. From 1991 to 1994, Mr. Schott served as a management consultant at The Boston Consulting Group. Mr. Schott received a B.S. in Mechanical Engineering from North Carolina State University and an MBA from Stanford University.



MARK L. WALSH, 49, has served as a director since
August 1997. In November 2003, Mr. Walsh was named Chief Executive Officer of Progress Media, Inc. and Air America Radio, Inc. Prior to that, Mr. Walsh had been the Chief Technology Advisor to the Democratic National Committee since January 2002. He
served as Chairman of the Verticalnet board of directors from July 2000 until February 2002. Prior to that, he served as President and Chief Executive Officer from August 1997 to July 2000. Prior to joining Verticalnet, he was a Senior Vice
President and corporate officer at America Online, Inc. from 1995 to 1997. He founded and managed AOL Enterprise, the business-to-business division of AOL. Prior to his position with AOL, Mr. Walsh was the President of GEnie, General Electrics
online service. He currently serves on a number of private company and non-profit boards of directors and advisors. He received his MBA from Harvard Business School and B.A. from Union College.



Executive Officers



The following table sets forth the name, age, and position of each person who was serving as an executive officer as of
March 15, 2004.



|                    |  |     |  |                                                     
|------------------- |  | --- |  | ----------------------------------------------------
|Name                |  | Age |  | Position                                            
|Nathanael V. Lentz  |  | 41  |  | President and Chief Executive Officer               
|Gene S. Godick      |  | 38  |  | Executive Vice President and Chief Financial Officer
|Brent W. Habig      |  | 34  |  | Executive Vice President, Sales and Consulting      
|Christopher G. Kuhn |  | 52  |  | Vice President, General Counsel, and Secretary      



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Set forth below is biographical information about each of our executive officers, except for Mr. Lentz
whose biographical information is provided above under Directors.



Nathanael V. Lentz  see biographical description above.



Gene S. Godick - has served as our Executive Vice President and Chief Financial Officer since February 2003. Mr. Godick also previously served as
our Chief Financial Officer from June 1998 until October 2001 and as a financial consultant to the Company from November 2002 to February 2003. For the period from December 2001 through June 2002, Mr. Godick served as the Chief Financial Officer of
TargetRx, Inc., a privately owned company based in Horsham, Pennsylvania. From 1997 until 1998 he worked as a senior manager at KPMG LLP in their information, communications and entertainment practice, with a focus on high technology companies.
Prior to joining KPMG, Mr. Godick was President and Chief Financial Officer of Industrial Construction, Inc., a privately owned environmental remediation firm, from 1994 to 1997. From 1987 until 1994, Mr. Godick was an accountant and manager for
Arthur Andersen LLPs Enterprise Group, which provided services to emerging growth technology and software companies. Mr. Godick received a B.S. from Villanova University and is an inactive Certified Public Accountant in the state of
Pennsylvania.



Brent W. Habig  has served as our
Executive Vice President, Sales and Consulting since January 2004. Mr. Habig was previously President and Chief Executive Officer of Tigris Corp. which he founded in 1996. Prior to founding Tigris, Mr. Habig built and led a specialized technology
group to support Bristol-Myers Squibbs global strategic sourcing initiative. Mr. Habig graduated from Oberlin College with a degree in Chinese Literature and Piano Performance and a concentration in Biochemistry. He is a member of Phi Beta
Kappa. He also researched medical anthropology and lived in China for several years, in part through the esteemed Thomas J. Watson Fellowship. Mr. Habig is fluent in Mandarin Chinese.



Christopher G. Kuhn - has served as our Vice President, General Counsel, and Secretary since October 2002. From
February 2000 through October 2002, he was Verticalnets Vice President of Legal Affairs and Assistant Secretary. From December 1998 through February 2000 he was General Counsel of the Company. Prior to that, he was an attorney with the law
firm of Silberman & DiFilippo from 1989 to 1998. Mr. Kuhn received a B.A. from West Chester State College and a J.D. from the Delaware Law School.



Board Meetings During Fiscal 2003



The board of directors met nineteen times during fiscal 2003. Four of the meetings were regular meetings and the other fifteen were special meetings. No
incumbent director during the last full fiscal year attended fewer than 75 percent of the aggregate of the total number of meetings of the board of directors (held during the period for which he has been a director) and the total number of meetings
held by all committees of the board on which he served (during the periods that he served).



Committees of the Board Of Directors



The board of directors has the following standing committees:



Compensation Committee. The compensation committee is charged with reviewing Verticalnets general compensation policies; reviewing, approving, recommending, and administering Verticalnets incentive
compensation and stock option plans; and approving certain employment arrangements. In 2003, the compensation committee met two times. The compensation committee consists of Messrs. Ballowe and Bernstock.



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Audit Committee. The functions of the audit committee are to recommend the appointment of
independent auditors; review the arrangements for and scope of the audit by the independent auditors; review the audit reports of the independent auditors; and review procedures relating to the Companys internal controls. In fiscal 2003, the
audit committee met sixteen times. The following table sets forth the members of the audit committee during 2003.



|                           |  |                  |  |                 
|-------------------------- |  | ---------------- |  | ----------------
|Members of Audit Committee |  | Beginning        |  | Ending          
|Ballowe, Buckley           |  | January 1, 2003  |  | February 5, 2003
|Ballowe, Buckley, Nickolas |  | February 5, 2003 |  | August 1, 2003  
|Ballowe, Milano*, Schott   |  | August 1, 2003   |  | Present         

---

|* | Mr. Milano is an audit committee financial expert as defined by Item 401(h)(2) of Regulation S-K and is independent as such term is used in Item 7(2)(3)(iv)
of Schedule 14A under the Exchange Act.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Code of Values and
Conduct



We have adopted a Code of Values and Conduct
that applies to, among others, our principal executive officer, principal financial officer, and other persons performing similar functions. The Code of Values and Conduct is available on our website at www.verticalnet.com, attached hereto as
Exhibit 14.1, and will be provided in print to any shareholder upon receipt of a written request. Requests should be addressed to Investor Relations, 400 Chester Field Parkway, Malvern, PA 19355



Compliance with Section 16(a) of the Exchange Act



Section 16(a) of the Securities Exchange Act of 1934 requires officers,
directors and holders of more than 10% of Verticalnets common stock to file reports of ownership and changes of ownership with the Securities and Exchange Commission. To the best of Verticalnets knowledge, the reports for all officers,
directors, and holders of more than 10% of Verticalnets common stock were timely filed during fiscal 2003, except for the following reports:



|                   |  |                       |  |                          |  |                                                                          
|------------------ |  | --------------------- |  | ------------------------ |  | -------------------------------------------------------------------------
|Person             |  | Number ofLate Filings |  | Number ofFilingsNot Made |  | Explanation                                                              
|Jeffrey C. Ballowe |  | 1                     |  | 0                        |  | Company failed to timely file Form 4 with respect to annual option grant.



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Item 11.Executive Compensation



Summary Compensation Table



The following table sets forth information concerning total compensation earned or paid to Verticalnets chief executive officer during the 2003 fiscal year, its two other executive officers and two other most highly compensated
executives (the named executive officers), for services rendered to Verticalnet during each of the last three fiscal years.



Summary Compensation Table



|                                                                                 |  |              |  |                     |                       |                       |   |                            |  |                       |  |   |          |  |   |    
|-------------------------------------------------------------------------------- |  | ------------ |  | ------------------- | --------------------- | --------------------- | - | -------------------------- |  | --------------------- |  | - | -------- |  | - | ---
|                                                                                 |  |              |  | Annual Compensation |                       | Long TermCompensation |   | All OtherCompensation     
|Name and Principal Position                                                      |  | Fiscal Year  |  | AnnualSalary        |                       | Bonus                 |   | No. of StockOptionsGranted |  | RestrictedStockAwards | 
|Nathanael V. Lentz President and Chief Executive Officer (1)                     |  | 200320022001 |  | $                   | 360,013244,913240,000 |                       | $ | 72,000                   |  | 300,890100,00060,000  |  | $ | 93,000 |  | $ | 
|                                                                                 |  |              |  |                     |                       |                      
|Gene S. Godick Executive Vice President and Chief Financial Officer (2)          |  | 200320022001 |  |                     | 275,000216,989       |                       |   |                         |  | 319,237275,000       |  |   | 61,500 |  |   | 
|                                                                                 |  |              |  |                     |                       |                      
|Christopher G. Kuhn Vice President, General Counsel, and Secretary (5)           |  | 200320022001 |  |                     | 170,456141,230140,000 |                       |   |   14,00037,500            |  | 138,16915,00011,000   |  |   |       |  |   | 
|                                                                                 |  |              |  |                     |                       |                      
|John H. McNeill, Jr. Senior Vice President, Sales (3)                            |  | 20032002     |  |                     | 281,250216,147        |                       |   |   56,280                  |  | 130,093130,000        |  |   | 23,250  |  |   |  
|                                                                                 |  |              |  |                     |                       |                      
|Daniel J. Tiernan Senior Vice President, Professional Services and Alliances (4) |  | 20032002     |  |                     | 250,000227,039        |                       |   |                          |  | 135,076172,478        |  |   | 46,500  |  |   |  

---

|(1) | Mr. Lentz has served as President and Chief Executive Officer since November 2002.
|--- | ----------------------------------------------------------------------------------

|(2) | Mr. Godick returned to Verticalnet as Executive Vice President and Chief Financial Officer in February 2003.
|--- | ------------------------------------------------------------------------------------------------------------

|(3) | Mr. McNeill joined Verticalnet on December 28, 2001.
|--- | ----------------------------------------------------

|(4) | Mr. Tiernan joined Verticalnet on December 28, 2001.
|--- | ----------------------------------------------------

|(5) | Mr. Kuhn has served as General Counsel since October 2002.
|--- | ----------------------------------------------------------



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Option Grants in Last Fiscal Year



The table below shows information about stock options granted during fiscal 2003 to each of the named executive officers:



|                     |  |                                             |                       |  |                                      |         |  |                          |                              |                            |   |                              |  |                                                                                            |  |   |                                     |  |   |                                             |  |   |                                             
|-------------------- |  | ------------------------------------------- | --------------------- |  | ------------------------------------ | ------- |  | ------------------------ | ---------------------------- | -------------------------- | - | ---------------------------- |  | ------------------------------------------------------------------------------------------ |  | - | ----------------------------------- |  | - | ------------------------------------------- |  | - | --------------------------------------------
|                     |  | Individual Grants                           |                       |  |                                      |         |  |                         
|                     |  | Number ofSecuritiesUnderlyingOptionsGranted |                       |  | % of TotalOptionsGranted toEmployees |         |  | Exercise price per share |                              | Market Price on Grant Date |   | ExpirationDate               |  | Potential Realizable Value at Assumed Annual Rate of StockAppreciation for Option Terms(8)
|                     |  |                                             |                       |  |                                      | 0%      |  | 5%                       |                              | 10%                       
|Nathanael V. Lentz   |  | 25,76329,66127,55917,907118,13881,862       | (1)(2)(3)(4)(5)(6)    |  | 0.921.060.980.644.212.92             | %%%%%%  |  | $                        | 0.320.470.510.600.801.00     |                            | $ | 0.801.181.271.500.801.50     |  | 04/29/201310/28/201309/04/201306/23/201304/28/201306/23/2013                               |  | $ | 12,36621,05920,94516,11640,931     |  | $ | 25,32843,07142,95633,00959,437118,155       |  | $ | 45,21476,84076,72658,925150,625236,631      
|                     |  |                                             |                       |  |                                      |         |  |                         
|Gene S. Godick       |  | 11,00720,33918,89818,99355,033100,00094,967 | (1)(2)(3)(4)(5)(7)(6) |  | 0.390.720.670.681.963.563.38         | %%%%%%% |  |                          | 0.320.470.510.600.800.831.00 |                            |   | 0.801.181.271.500.800.851.50 |  | 04/29/201310/28/201309/04/201306/23/201304/28/201302/05/201306/23/2013                     |  |   | 5,28314,44114,36217,0942,00047,484 |  |   | 10,82129,53429,45635,01127,68855,456137,070 |  |   | 19,31752,69152,61362,49970,167137,468274,513
|                     |  |                                             |                       |  |                                      |         |  |                         
|Christopher G. Kuhn  |  | 7,31013,98311,8115,06559,06940,931          | (1)(2)(3)(4)(5)(6)    |  | 0.260.500.420.182.101.46             | %%%%%%  |  |                          | 0.320.470.510.600.801.00     |                            |   | 0.801.181.271.500.801.50     |  | 04/29/201310/28/201309/04/201306/23/201304/28/201306/23/2013                               |  |   | 3,5099,9288,9764,55920,466         |  |   | 7,18720,30518,4109,33729,71959,077          |  |   | 12,82936,22532,88216,66775,313118,316       
|                     |  |                                             |                       |  |                                      |         |  |                         
|John H. McNeill, Jr. |  | 8,3079,5346,4965,75659,06940,931            | (1)(2)(3)(4)(5)(6)    |  | 0.300.340.230.212.101.46             | %%%%%%  |  |                          | 0.320.470.510.600.801.00     |                            |   | 0.801.181.271.500.801.50     |  | 04/29/201310/28/201308/05/201306/23/201304/28/201306/23/2013                               |  |   | 3,9876,7694,9375,18020,466         |  |   | 8,16713,84410,12510,61029,71959,077         |  |   | 14,57924,69918,08518,94175,313118,316       
|                     |  |                                             |                       |  |                                      |         |  |                         
|Daniel J. Tiernan    |  | 9,23010,5938,8586,39559,06940,931           | (1)(2)(3)(4)(5)(6)    |  | 0.330.380.320.232.101.46             | %%%%%%  |  |                          | 0.320.470.510.600.801.00     |                            |   | 0.801.181.271.500.801.50     |  | 04/29/201310/28/201308/05/201306/23/201304/28/201306/23/2013                               |  |   | 4,4307,5216,7325,75620,466         |  |   | 9,07415,38213,80711,78829,71959,077         |  |   | 16,19927,44224,66121,04375,313118,316       

---

|(1) | 100% of the grant will vest on April 29, 2004
|--- | ---------------------------------------------

|(2) | 100% of the grant will vest on October 28, 2004.
|--- | ------------------------------------------------

|(3) | 100% of the grant will vest on August 5, 2004.
|--- | ----------------------------------------------

|(4) | 100% of the grant will vest on April 29, 2004
|--- | ---------------------------------------------

|(5) | 25% of the grant vested on October 28, 2003. The remainder of the grant will vest on April 28, 2004, October 28, 2004, and April 28, 2005
|--- | -----------------------------------------------------------------------------------------------------------------------------------------

|(6) | 25% of the grant vested on December 23, 2003. The remainder of the grant will vest on June 23, 2004, December 23, 2004, and June 23, 2005
|--- | -----------------------------------------------------------------------------------------------------------------------------------------



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|(7) | 12.5% of the grant vested on each of May 6, 2003, August 6, 2003, November 6, 2003, and February 6, 2004 and will vest on May 6, 2004, August 6, 2004, November 6, 2004, and February
6, 2005.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) | These columns show gains that may exist for the respective options, assuming that the market price for the common stock appreciates from the date of grant over a period of ten years
at annual rates of growth of 0%, 5%, and 10%, respectively. These rates of growth are mandated by rules of the Securities and Exchange Commission. There can be no assurance that the actual stock price appreciation over the ten-year option term will
be at the assumed 0%, 5%, and 10% levels or at any other defined level. If the market price of the common stock does not appreciate over the option term, no value will be realized from the option grants.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The table below sets forth information with respect to option exercises
during fiscal 2003 by each of the named executive officers and the status of their options at December 31, 2003:



Aggregated Option Exercises during Fiscal 2003 and Option Values on December 31, 2003



|                     |  |                                                |  |                               |        |                                          |         |                                                            |         |               |   |        |  |   |        
|-------------------- |  | ---------------------------------------------- |  | ----------------------------- | ------ | ---------------------------------------- | ------- | ---------------------------------------------------------- | ------- | ------------- | - | ------ |  | - | -------
|                     |  | Number ofSharesAcquiredUpon ExerciseOf Options |  | ValueRealizedUponExercise (1) |        | Number of UnexercisedOptions at 12/31/03 |         | Value of Unexercised In-The- Money Options at 12/31/03 (2)
|                     |  |                                                |  | Exercisable                   |        | Unexercisable                            |         | Exercisable                                                |         | Unexercisable
|Nathanael V. Lentz   |  |                                               |  | $                             |       |                                          | 194,758 |                                                            | 293,133 |               | $ | 18,782 |  | $ | 116,903
|                     |  |                                                |  |                               |        |                                         
|Gene S. Godick       |  |                                               |  |                               |       |                                          | 74,999  |                                                            | 244,238 |               |   | 21,876 |  |   | 95,522 
|                     |  |                                                |  |                               |        |                                         
|Christopher G. Kuhn  |  |                                               |  |                               |       |                                          | 54,027  |                                                            | 118,899 |               |   | 7,859  |  |   | 48,688 
|                     |  |                                                |  |                               |        |                                         
|John H. McNeill, Jr. |  |                                               |  |                               |       |                                          | 122,402 |                                                            | 145,095 |               |   | 9,828  |  |   | 44,489 
|                     |  |                                                |  |                               |        |                                         
|Danial J. Tiernan    |  | 25,000                                         |  |                               | 21,873 |                                          | 124,998 |                                                            | 172,578 |               |   | 8,953  |  |   | 48,988 

---

|(1) | Represents the difference between the market price on the exercise date and the exercise price, multiplied by the number of options exercised. Does not necessarily reflect the value
received if the individual sells the shares acquired by the option exercise, since the market price of the shares at the time of sale may be higher or lower than the market price on the date of exercise.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Represents the difference between the year-end stock price ($1.18 per share) and the exercise price associated with each option, multiplied by the number of shares underlying the
options.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Compensation of Directors



Verticalnet does not pay its directors cash compensation for regular service
on the board. However, they are reimbursed for expenses they incur in attending meetings. Additionally, each non-employee, non-investor director may receive options to purchase Verticalnet common stock which are granted by the Compensation Committee
and the board from time to time. Mr. Nickolas did not accept his initial grant in February 2003 pursuant to a policy established by his prior employer, Internet Capital Group. The options are generally non-qualified stock options granted at the
closing price per share on the date of grant. Options are fully vested on the date of grant. Options have a maximum term of ten years, except that a director has 90 days to exercise after leaving the board. In fiscal 2003, Verticalnet granted its
four non-employee, non-investor directors an aggregate of 15,000 stock options each.



Verticalnet pays the members of its audit committee $3,500 for each fiscal quarter that they serve on the committee. Verticalnet pays the members of its compensation committee $1,500 for each fiscal quarter that they
serve on the committee.



Report of the Compensation Committee



The compensation committee of the board of directors,
which reviews Verticalnets general compensation policies and approves incentive compensation and stock option plans, has furnished the following report on executive compensation for fiscal 2003. All matters approved by the Compensation
Committee were recommended to the full Board for final approval.



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Executive Officer Compensation



Verticalnets philosophy of executive officer compensation is designed
to align the interests of executive officers with the short- and long-term interests of Verticalnets shareholders to retain key executives and to attract new talented executives. Towards that goal, the compensation program for executives
consists of three key elements:



| |  | A base salary,
| | - | --------------



| |  | A performance-based annual bonus, and
| | - | -------------------------------------



| |  | Periodic grants of stock options and/or restricted stock.
| | - | ---------------------------------------------------------



The compensation committee believes that this approach best serves the interests of Verticalnet and its shareholders. Verticalnet operates in a challenging and
competitive environment, so the compensation committee must ensure that executive officers are compensated in a way that advances both the short- and long-term interests of shareholders. Under this approach, a significant portion of an executive
officers total compensation is tied to performance  namely, the annual bonus, stock options and restricted stock. The variable annual bonus permits individual performance to be recognized on an annual basis, and is based, in significant
part, on an evaluation of the contribution made by the executive officer to Verticalnets performance. Stock options and restricted stock relate a significant portion of long-term remuneration directly to stock price appreciation realized by
Verticalnets shareholders.



Base Salary: Base
salaries for Verticalnets executive officers, as well as changes in such salaries, are determined after considering numerous factors including:



| |  | Competitive salaries;
| | - | ---------------------



| |  | The nature of the officers position and its subjective importance to Verticalnets success;
| | - | --------------------------------------------------------------------------------------------



| |  | Level of experience;
| | - | --------------------



| |  | Expected amount of individual responsibility; and
| | - | -------------------------------------------------



| |  | General market conditions.
| | - | --------------------------



Annual Bonus: Annual bonuses for executive officers of Verticalnet are based on the achievement of goals pertaining to financial and operating
objectives, individual objectives, and goals relating to targets for areas of responsibility. The bonus plan weighs the objective goals more heavily than the subjective targets. During 2003 and 2002, because of the Companys financial
condition, the board and management agreed that no discretionary cash bonuses would be awarded to Verticalnets executive officers. Because of the Companys financial condition for most of 2003 and the Companys desire to retain and
provide incentive to the executive team, the compensation committee recommended to the Board that the executive officers receive a quarterly bonus (based on financial performance goals) in the form of option grants, the exercise price of which were
discounted from market price at the time of grant, in lieu of cash bonuses. This one-time bonus compensation plan was adopted for 2003 only, and has not been adopted for 2004.



The compensation committee reevaluates the performance targets each year to reflect Verticalnets goals for the coming
year.



Stock Options and Restricted Stock Units: The
compensation committee has utilized stock options and grants of restricted stock units to motivate and retain executive officers. The compensation committee believes that this form of compensation closely aligns the officers interests with
those of shareholders and provides an incentive to building long-term shareholder value. Options are typically granted annually and are subject to vesting provisions to encourage executive officers to remain employed with Verticalnet. Similarly,
restricted stock units are granted at the inception of employment and thereafter on a periodic basis. Each executive officer receives stock options and/or restricted stock units based upon that officers relative position, responsibilities and



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his or her anticipated performance and responsibilities. Additionally, the compensation committee reviews the prior level of grants to the executive officers
and to other members of senior management, including the number of shares that continue to be subject to vesting under outstanding options, in setting the level of options to be granted to the executive officers. Stock options are granted at the
market price on the date of grant and provide value only if the price of Verticalnets common stock is over the exercise price on the date of exercise. Restricted stock units are granted at a price of $.01 per share.



Compensation of the Chief Executive Officer



In 2003, Mr. Lentz received an annual salary of $350,000 and received
various grants totaling 300,890 options. Of the 300,890 options, 82,983 options were pursuant to the 2003 bonus compensation plan in lieu of a cash bonus and 217,907 options were annual grants. The compensation committee and the Board of Directors
believe that the salary, bonus, and benefits received by Mr. Lentz were merited by (i) the enhanced financial condition of the Company during 2003, (ii) Mr. Lentz experience and knowledge of the Company, and (iii) Mr. Lentz outstanding
leadership of the Company during the year.



Under the terms of
Mr. Lentz employment agreement, he would be eligible to receive a bonus of $75,000 if the Company were to be sold during the term of his employment; the bonus would increase by $75 for each $10,000 of the sale price of the Company in excess of
$5.0 million. Mr. Lentz voluntarily and irrevocably waived this provision of his employment agreement during 2003.



Internal Revenue Code Limits On Deductibility Of Compensation



Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public corporations for compensation over
$1.0 million paid for any fiscal year to the individuals named in the Summary Compensation Table. However, the statute exempts qualifying performance-based compensation from the deduction limit if certain requirements are met. The compensation
committee currently intends to structure performance-based compensation, including stock option grants and annual bonuses, to executive officers who may be subject to Section 162(m) in a manner that satisfies those requirements.



The compensation committee reserves the authority to award non-deductible
compensation as it may deem appropriate. Because of uncertainty surrounding the interpretation of Section 162(m), the committee can give no assurance, notwithstanding Verticalnets efforts, that compensation intended to satisfy the requirements
for deductibility under Section 162(m) will in fact do so.



THE COMPENSATION COMMITTEE

Jeffrey C. Ballowe, Chairman

Robert F. Bernstock



Compensation Committee Interlocks and Insider Participation



The compensation committee is charged with reviewing Verticalnets general compensation policies; reviewing, approving, recommending, and
administering Verticalnets incentive compensation and stock option plans; and approving certain employment arrangements. Mr. Jeffrey C. Ballowe and Mr. Robert Bernstock served as the members of the compensation committee during fiscal 2003.
Mr. Bernstock was appointed to the compensation committee effective January 1, 2003.



None of the executive officers, directors, or compensation committee members presently serve, or in the past served, on the compensation committee of any other company whose directors or executive officers served on
our compensation committee.



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Employment Agreements



The Company entered into employment agreements with the following executives during 2002 and 2003 on the terms as set forth below:



As of November 13, 2002, the Company entered into an employment agreement
with Nathanael V. Lentz with an initial salary of $350,000 per annum. The agreement has a term of two years, with automatic renewal unless either party gives at least one-year advance notice of non-renewal. The agreement has a target bonus of 50% of
salary, which is not guaranteed. If Mr. Lentz is terminated without cause (with one month advance notice of termination without cause), then he will receive, in exchange for a mutual general release: a lump sum payment equal to salary for one year
and a pro rata portion of any target bonus Mr. Lentz would have earned in the year of termination. If the termination is within 120 days of a sale of the Company, Mr. Lentz will receive the Sale Of The Company bonus described below. In addition, he
would receive healthcare coverage paid by the Company for one year; unvested options granted during 2001 would be accelerated for a period equal to six months plus one additional month for each month that the executive has been employed by the
Company; all vested options granted during 2001 would be exercisable for five years after termination of employment. Upon a change of control, Mr. Lentzs outstanding restricted stock units would become fully vested. If within two
years after a change of control, Mr. Lentz is terminated without cause or chooses to leave for good reason, then he will receive the termination without cause benefits above, and a change in control bonus equal to, if the change in
control occurs during the first year of employment, a pro rata portion of the target bonus for that year, and, if the change in control occurs after one year of employment, the entire target bonus for the year in which the change in control takes
place. In addition, the agreement provides for a Sale Of The Company bonus in the event the Company is sold during the term of his employment, equal to $75,000, plus an amount equal to $75 for every $10,000 of the purchase price in excess of $5.0
million. This provision was subsequently irrevocably and voluntarily waived during 2003. The agreement provides for a cap to the executives compensation if it produces a greater net benefit than an uncapped award would after accounting for the
increased tax obligation resulting from being an excess parachute payment under sections 280G and 4999 of the Internal Revenue Code. The agreement defines good reason after a change of control as (1) the executive is transferred more
than 50 miles without consent; or (2) a material reduction of authority, duties, or responsibilities after reasonable notice and a chance to cure; or (3) any failure of the Company materially to comply with and satisfy the terms of the agreement; or
(4) non-renewal of the agreement by the Company.



As of
February 3, 2003, the Company entered into an employment agreement with Gene S. Godick to be the Companys Chief Financial Officer with an initial salary of $300,000 per annum. The agreement has a term of two years, with automatic renewal
unless either party gives at least one-year advance notice of non-renewal. The agreement has a target bonus of 40% of salary, which is not guaranteed. The agreement provides for a grant of 100,000 stock options and 75,000 restricted stock units. If
Mr. Godick is terminated without cause (with one month advance notice of termination without cause), then he will receive, in exchange for a mutual general release: a lump sum payment equal to salary for one year; pro rata portion of any target
bonus Mr. Godick would have earned in the year of termination; and, if the termination is within 120 days of a sale of the Company, the Sale Of The Company bonus described below. In addition, the Company will pay healthcare coverage for one year and
all vested options granted would be exercisable for one year after termination of employment. Upon a change of control, Mr. Godicks outstanding stock options and restricted stock units would become fully vested. If within two years
after a change of control, the executive is terminated without cause or chooses to leave for good reason, then the executive will receive the termination without cause benefits above, and a change in control bonus equal, if
the change in control occurs prior to November 13, 2003, a pro rata portion of the target bonus for that year, and, if the change in control occurs after November 13, 2003, the entire target bonus for the year in which the change in control takes
place. In addition, the agreement provides for a Sale Of The Company bonus in the event the Company is sold during the term of his employment, equal to $50,000, plus an amount equal to $50 for every $10,000 of the purchase price in excess of $5.0
million. This provision was subsequently irrevocably and voluntarily waived during 2003. The agreement provides for a cap to the executives compensation if it produces a greater net benefit than an uncapped award would after accounting for the
increased tax obligation resulting from being an excess parachute payment under sections 280G and 4999 of



76



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##### Table of Contents

the Internal Revenue Code. The agreement defines good reason after a change of control as (1) the executive is transferred more than 50 miles
without consent; or (2) a material reduction of authority, duties or responsibilities after reasonable notice and a chance to cure; or (3) any failure of the Company materially to comply with and satisfy the terms of the agreement; or (4)
non-renewal of the agreement by the Company.



As of December
16, 2002, the Company entered into an employment agreement with Christopher G. Kuhn to be the Companys General Counsel with an initial salary of $165,000 per annum. The agreement has a term of one year, with automatic renewal unless either
party gives at least one-year advance notice of non-renewal. If Mr. Kuhn is terminated without cause (with one month advance notice of termination without cause), then he will receive, in exchange for a mutual general release: a lump sum payment
equal to salary for three months and a pro rata portion of any bonus Mr. Kuhn would have earned in the year of termination. In addition, the Company will pay healthcare coverage for six months; unvested options would be accelerated and all vested
options would be exercisable for 90 days after termination of employment. If within one year after a change of control, the executive is terminated without cause or chooses to leave for good reason, then the executive will receive the
termination without cause benefits above, except Mr. Kuhn will receive a lump sum payment equal to salary for six months. The agreement provides for a cap to the executives compensation if it produces a greater net benefit than an uncapped
award would after accounting for the increased tax obligation resulting from being an excess parachute payment under sections 280G and 4999 of the Internal Revenue Code. The agreement defines good reason after a change of control as (1)
the executive is transferred more than 50 miles without consent; or (2) a material reduction of authority, duties or responsibilities after reasonable notice and a chance to cure; or (3) any failure of the Company materially to comply with and
satisfy the terms of the agreement; or (4) non-renewal of the agreement by the Company.



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STOCK PERFORMANCE GRAPH



The graph below compares the cumulative total return of Verticalnets common stock with that of the Nasdaq Composite
Index and the Nasdaq Computer Index from February 11, 1999 (the date the common stock began to trade publicly) through December 31, 2003, Verticalnets fiscal year end. The graph assumes that you invested $100 at the close of market on February
11, 1999 in Verticalnet common stock and $100 was invested at that same time in each of the indexes. The comparison assumes that all dividends, if any, are reinvested. The comparisons in this graph are provided in accordance with Securities and
Exchange Commission disclosure requirements and are not intended to forecast or be indicative of the future performance of the common stock.



The Company has changed its comparative index from the Nasdaq Computer and Data Processing index to a comparable index, the Nasdaq Computer index. The
Computer and Data Processing index is no longer readily available to the Company and is therefore not depicted on this graph.



LOGO



|                   |  |          |  |          |  |          |  |          |  |          |  |          |  |          |  |          |  |         
|------------------ |  | -------- |  | -------- |  | -------- |  | -------- |  | -------- |  | -------- |  | -------- |  | -------- |  | --------
|COMPANY/INDEX NAME |  | 02/11/99 |  | 03/31/99 |  | 06/30/99 |  | 09/30/99 |  | 12/31/99 |  | 03/31/00 |  | 06/30/00 |  | 09/30/00 |  | 12/31/00
|Verticalnet, Inc.  |  | 100      |  | 229      |  | 231      |  | 163      |  | 723      |  | 599      |  | 326      |  | 310      |  | 59      
|NASDAQ U.S.        |  | 100      |  | 102      |  | 112      |  | 114      |  | 169      |  | 190      |  | 165      |  | 153      |  | 103     
|Nasdaq Computer    |  | 100      |  | 101      |  | 107      |  | 116      |  | 179      |  | 208      |  | 181      |  | 164      |  | 100     
|                   |  |          |  |          |  |          |  |          | 
|COMPANY/INDEX NAME |  |          |  | 03/31/01 |  | 06/30/01 |  | 09/30/01 |  | 12/31/01 |  | 03/31/02 |  | 06/30/02 |  | 09/30/02 |  | 12/31/02
|Verticalnet, Inc.  |  |          |  | 18       |  | 22       |  | 3        |  | 12       |  | 6        |  | 1        |  | 1        |  | 1       
|NASDAQ U.S.        |  |          |  | 77       |  | 90       |  | 62       |  | 81       |  | 77       |  | 61       |  | 49       |  | 56      
|Nasdaq Computer    |  |          |  | 68       |  | 84       |  | 52       |  | 76       |  | 70       |  | 53       |  | 40       |  | 48      
|                   |  |          |  |          |  |          |  |          | 
|COMPANY/INDEX NAME |  |          |  | 03/31/03 |  | 06/30/03 |  | 09/30/03 |  | 12/31/03 |  |          |  |          |  |          |  |         
|Verticalnet, Inc.  |  |          |  | 1        |  | 1        |  | 1        |  | 1        |  |          |  |          |  |          |  |         
|NASDAQ U.S.        |  |          |  | 56       |  | 67       |  | 74       |  | 83       |  |          |  |          |  |          |  |         
|Nasdaq Computer    |  |          |  | 47       |  | 58       |  | 65       |  | 72       |  |          |  |          |  |          |  |         



78



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##### Table of Contents

|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|-------- |  | ----------------------------------------------------------------------------------------------



STOCK OWNERSHIP



Except as set forth in the following table, Verticalnet knows of no single
person or group that is the beneficial owner of more than 5% of Verticalnets common stock as of March 15, 2004.



|                                                                            |  |                                          |     |  |                    |  
|--------------------------------------------------------------------------- |  | ---------------------------------------- | --- |  | ------------------ | -
|Name And Address Of Beneficial Owner                                        |  | Amount And Nature ofBeneficial Ownership |     |  | PercentofClass (4) |  
|Internet Capital Group, Inc. 435 Devon Park Drive Bldg. 600 Wayne, PA 19087 |  | 2,521,705                                | (1) |  | 9.8                | %
|                                                                            |  |                                         
|Brent W. Habig 261 5th Avenue New York, NY 10016                            |  | 1,823,852                                | (2) |  | 7.1                | %
|                                                                            |  |                                         
|Jeffrey Thorp 535 Madison Avenue, 7th Floor New York, NY 10022              |  | 1,775,000                                | (3) |  | 6.9                | %

---

|(1) | Includes 62,703 shares of common stock issuable upon the conversion of warrants. Excludes 5,159 shares owned by Walter W. Buckley III. Mr. Buckley disclaims beneficial ownership of
all shares held by Internet Capital Group. Mr. Buckley is the chief executive officer and chairman of the board of Internet Capital Group.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Shares acquired as part of the Tigris Corp. acquisition. Mr. Habig was the sole shareholder of Tigris Corp.
|--- | -----------------------------------------------------------------------------------------------------------

|(3) | Shares acquired as part of the January 2004 private placement, filed on Schedule 13G on January 30, 2004.
|--- | ---------------------------------------------------------------------------------------------------------

|(4) | As of March 15, 2004 there were 25,603,978 common shares outstanding
|--- | --------------------------------------------------------------------



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##### Table of Contents

The following table shows the amount of common stock of Verticalnet beneficially owned (unless otherwise
indicated) by Verticalnets directors, the executive officers of Verticalnet named in the Summary Compensation Table appearing in Item 11 of this Form 10-K and the directors and named executive officers of Verticalnet as a group. Except as
otherwise indicated, all information is as of March 15, 2004.



|                                                                   |  |                                                |  |                             |  |                                 |  
|------------------------------------------------------------------ |  | ---------------------------------------------- |  | --------------------------- |  | ------------------------------- | -
|Name                                                               |  | Aggregate Number ofShares BeneficallyOwned (1) |  | AcquirableWithin 60Days (2) |  | Percent ofSharesOutstanding (3) |  
|Michael J. Hagan                                                   |  | 178,005                                        |  | 80,769                      |  | 1.0                             | %
|                                                                   |  |                                                | 
|Nathanael V. Lentz                                                 |  |                                               |  | 379,082                     |  | 1.5                             | %
|                                                                   |  |                                                | 
|Jeffrey C. Ballowe                                                 |  | 48,630                                         |  | 22,464                      |  | *                               |  
|                                                                   |  |                                                | 
|Robert F. Bernstock                                                |  |                                               |  | 27,538                      |  | *                               |  
|                                                                   |  |                                                | 
|Walter W. Buckley, III (4) (5)                                     |  | 2,464,161                                      |  |                            |  | 9.6                             | %
|                                                                   |  |                                                | 
|John N. Nickolas                                                   |  |                                               |  |                            |  | *                               |  
|                                                                   |  |                                                | 
|Mark L. Walsh                                                      |  | 130,944                                        |  | 87,485                      |  | *                               |  
|                                                                   |  |                                                | 
|Gregory G. Schott                                                  |  |                                               |  | 7,500                       |  | *                               |  
|                                                                   |  |                                                | 
|Vincent J. Milano                                                  |  |                                               |  | 7,500                       |  | *                               |  
|                                                                   |  |                                                | 
|Gene S. Godick                                                     |  |                                               |  | 242,498                     |  | *                               |  
|                                                                   |  |                                                | 
|Christopher G. Kuhn                                                |  |                                               |  | 80,835                      |  | *                               |  
|                                                                   |  |                                                | 
|John H. McNeill, Jr.                                               |  |                                               |  | 198,966                     |  | *                               |  
|                                                                   |  |                                                | 
|Danial J. Tiernan                                                  |  |                                               |  | 240,624                     |  | *                               |  
|                                                                   |  |                                                |  |                             |  |                                 |  
|                                                                   |  |                                                | 
|All directors and named executive officers as a group (13 persons) |  | 2,821,740                                      |  | 1,375,261                   |  | 16.3                            | %
|                                                                   |  |                                                |  |                             |  |                                 |  

---

|* | Represents less than 1% of Verticalnets outstanding common stock.
|- | ------------------------------------------------------------------

|(1) | The number of shares shown includes shares that are individually or jointly owned, as well as shares over which the individual has either sole or shared investment or voting
authority.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Unless otherwise noted, reflects the number of shares that could be purchased by exercise of options available at March 15, 2004 or within 60 days thereafter under
Verticalnets stock option plans or warrants that are currently exercisable.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Based on 25,603,978 common shares outstanding at March 15, 2004.
|--- | ----------------------------------------------------------------

|(4) | Includes 2,459,002 shares owned by Internet Capital Group, for which Mr. Buckley serves as the president, chief executive officer, and chairman of the board, as disclosed in a
Schedule 13G filed February 14, 2002.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Includes 62,703 shares of common stock issuable upon the exercise of warrants held by Internet Capital Group. Mr. Buckley serves as the president, chief executive officer, and
chairman of the board of Internet Capital Group. Mr. Buckley disclaims beneficial ownership of Verticalnets warrants held by Internet Capital Group.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

DISCLOSURE OF EQUITY COMPENSATION PLAN INFORMATION AS OF DECEMBER 31, 2003



The following table provides information on all existing equity compensation
plans as of December 31, 2003.



Equity Compensation Plan
Information



|                                                            |  |                                                                                          |  |                                                                          |       |                                                                                                                                            |          
|----------------------------------------------------------- |  | ---------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------ | ----- | ------------------------------------------------------------------------------------------------------------------------------------------ | ---------
|Plan Category                                               |  | Number of securitiesto be issued uponexercise ofoutstanding options,warrants, and rights |  | Weighted-averageexercise price ofoutstandingoptions, warrants,and rights |       | Number of securitiesremaining availablefor future issuanceunder equitycompensation plans(excluding securitiesreflected in the
firstcolumn)
|Equity compensation plans approved by security holders:     |  |                                                                                          |  |                                                                          |       |                                                                                                                                            |          
|Amended and Restated 1996 Equity Compensation Plan          |  | 749,037                                                                                  |  | $                                                                        | 45.68 |                                                                                                                                            | 8,875    
|1999 Long Term Incentive Plan                               |  | 110,040                                                                                  |  |                                                                          | 0.72  |                                                                                                                                            | 833,931  
|1999 Equity Compensation Plan                               |  | 1,564,047                                                                                |  |                                                                          | 4.97  |                                                                                                                                            | 190,697  
|Verticalnet, Inc. 2000 Equity Compensation Plan             |  | 1,765,904                                                                                |  |                                                                          | 8.65  |                                                                                                                                            | 2,142,751
|                                                            |  |                                                                                          | 
|Equity compensation plans not approved by security holders: |  |                                                                                          |  |                                                                          |       |                                                                                                                                            |          
|Atlas Commerce Plan 1999 LTIP                               |  | 193,666                                                                                  |  |                                                                          | 8.76  |                                                                                                                                            | 26,702   
|1999 Isadra NQ Plan                                         |  | 82,305                                                                                   |  |                                                                          | 4.82  |                                                                                                                                            | 337      
|Isadra Rollover Plan                                        |  |                                                                                         |  |                                                                          |      |                                                                                                                                            | 3,143    
|                                                            |  |                                                                                          |  |                                                                          |       |                                                                                                                                            |          
|Total                                                       |  | 4,464,999                                                                                |  | $                                                                        | 13.31 |                                                                                                                                            | 3,206,436
|                                                            |  |                                                                                          |  |                                                                          |       |                                                                                                                                            |          



Item 13.Certain Relationships and Related Transactions



None.



Item 14.Principal Accountant Fees and Services



KPMG LLP audited Verticalnets financial statements for the fiscal year ended December 31, 2003 and 2002. The audit committee of the Board of
Directors, consistent with provisions of the Sarbanes-Oxley Act, has selected KPMG LLP as the Companys independent auditors for the fiscal year ending December 31, 2004.



Services to be performed by the independent auditors will be approved by the audit committee prior to the rendering of such
services after due consideration of the effect of the performance thereof on the independence of the auditors.



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##### Table of Contents

Fiscal 2003 and 2002 Audit Firm Fee Summary



The following table presents fees paid for professional audit services rendered by KPMG LLP for the audit of the
Companys annual financial statements for 2002 and 2003, and fees billed for other services rendered by KPMG LLP.



|                             |  |      |         |      |   |        
|---------------------------- |  | ---- | ------- | ---- | - | -------
|                             |  | 2002 |         | 2003
|Audit fees                   |  | $    | 282,700 |      | $ | 241,141
|Audit-related fees (1)       |  |      | 17,359  |      |   | 96,800 
|                             |  |      |         |      |   |        
|Audit and audit-related fees |  |      | 300,059 |      |   | 337,941
|Tax fees (2)                 |  |      | 64,344  |      |   | 17,950 
|All other fees (3)           |  |      |        |      |   | 1,600  
|                             |  |      |         |      |   |        
|Total fees                   |  | $    | 364,403 |      | $ | 357,491
|                             |  |      |         |      |   |        

---

|(1) | Audit-related fees consist principally of fees for reviewing filings with the Securities and Exchange Commission and performing due diligence services.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Tax fees consist of fees for tax consultation services.
|--- | -------------------------------------------------------

|(3) | Secretarial services performed during dissolution of a foreign subsidiary.
|--- | --------------------------------------------------------------------------



Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors



The audit committee is responsible for appointing, setting compensation for
and overseeing the work of the independent auditors. The audit committee has established a policy regarding pre-approval of the retention of the independent auditors for the performance of all audit and lawfully permitted non-audit services and
regarding pre-approval of the fees for such services. On an on-going basis, management communicates specific projects and categories of service for which the advance approval of the audit committee is requested. The audit committee reviews these
requests and advises management if the audit committee approves the engagement of the independent auditors to provide these services, as well as certain fee levels for these services. On a periodic basis, management reports to the audit committee
regarding the actual spending for such projects and services as compared to the pre-approved fee levels. The audit committee also has delegated the ability to pre-approve audit and lawfully permitted non-audit services to Mr. Milano, provided that
any pre-approvals by Mr. Milano are reported to the full audit committee at its next scheduled meeting.



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PART IV



Item 15.Exhibits, Financial Statement Schedules and Reports on Form 8-K



(a) Document filed as Part of this Report



1. Financial Statements.



See Item 8 of this report.



2. Financial Statement Schedules.



The following financial statement schedule is filed as part of this report under Schedule II immediately following the signature page: Schedule II 
Valuation and Qualifying Accounts. Schedule II should be read in conjunction with the consolidated financial statements and related notes thereto set forth under Item 8 of this report. Schedules other than those listed above have been omitted
because they are either not required, not applicable, or the information has otherwise been included.



3. Exhibits.



See paragraph(c) below.



(b) Reports on Form 8-K.



On October 17, 2003, we filed a current report on Form 8-K, dated October 15, 2003, regarding our press release of October 15, 2003, announcing a private
placement of common stock and warrants.



On November 14, 2003,
we furnished a current report on Form 8-K, dated November 13, 2003, regarding our press release of November 13, 2003, setting forth financial information for the quarter ended September 30, 2003.



(c) Exhibits



The following exhibits are filed as part of this report.



|              |  |                                                                                                                                                                   
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                       
|3.1           |  | Amended and Restated Articles of Incorporation (1)                                                                                                                
|              | 
|3.2           |  | Articles of Amendment to Amended and Restated Articles of Incorporation (2)                                                                                       
|              | 
|3.3           |  | Articles of Amendment to Amended and Restated Articles of Incorporation (2)                                                                                       
|              | 
|3.4           |  | Articles of Amendment to Amended and Restated Articles of Incorporation (9)                                                                                       
|              | 
|3.5           |  | Amended and Restated Bylaws (1)                                                                                                                                   
|              | 
|4.1           |  | Indenture, dated September 27, 1999, between Verticalnet, Inc. and Bankers Trust Company (3)                                                                      
|              | 
|4.2           |  | Registration Rights Agreement, dated September 27, 1999, between Verticalnet, Inc. and the initial purchasers of its 51/4% Convertible Subordinated Debentures (3)
|              | 
|4.3           |  | Registration and Lock-Up Agreement, dated as of December 28, 2001, by and among Verticalnet, Inc. and certain stockholders of Atlas Commerce, Inc. (7)            
|              | 
|10.1          |  | Common Stock Purchase Warrant to purchase 40,026 shares of Common Stock, dated November 25, 1998, issued to Progress Capital, Inc. (1)                            
|10.2          |  | Form of Common Stock Purchase Warrant, dated November 25, 1998, issued in connection with the Convertible Note (1)                                                



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|              |  |                                                                                                                                                                                                                                                                                                                                      
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                                          
|10.3          |  | Series A Preferred Stock Purchase Agreement, dated as of September 12, 1996, between Internet Capital Group, L.L.C. and Verticalnet, Inc. (1)                                                                                                                                                                                        
|              | 
|10.4          |  | Series D Investor Rights Agreement, dated as of May 8, 1998, by and among Verticalnet, Inc. and certain Investors (1)                                                                                                                                                                                                                
|              | 
|10.5          |  | Registration Rights Agreement, dated as of November 25, 1998, between Verticalnet, Inc. and the Convertible Note Holders (1)                                                                                                                                                                                                         
|              | 
|10.6          |  | Exchange, Registration and Lock-Up Agreement, dated as of September 12, 2002, between Verticalnet, Inc. and Ballinrobe Limited (10)                                                                                                                                                                                                  
|              | 
|10.7          |  | Asset Purchase Agreement, dated as of June 28, 2002, between Verticalnet, Inc., Verticalnet LLC, Vert Tech LLC, Corry Publishing, Inc. and Vert Markets Inc. (9)                                                                                                                                                                     
|              | 
|10.8          |  | Agreement of Merger, by and among Verticalnet, Inc., River Acquisition Co., Inc., Tigris Corp., and Brent Habig, dated January 30, 2004. (17)                                                                                                                                                                                        
|              | 
|10.9          |  | Registration And Lock-Up Agreement, by and among Verticalnet, Inc., and Brent Habig dated January 30, 2004. (17)                                                                                                                                                                                                                     
|              | 
|10.10         |  | Escrow Agreement, by and among Verticalnet, Inc., Brent Habig, and JP Morgan Trust Company, National Association, dated January 30, 2004. (17)                                                                                                                                                                                       
|              | 
|10.11         |  | Subscription License Agreement, dated as of December 19, 2000, among Verticalnet, Inc., Tradeum, Inc. d/b/a Verticalnet Solutions and Converge, Inc. (8)                                                                                                                                                                             
|              | 
|10.12         |  | First Amendment to Subscription License Agreement, dated as of January 31, 2001, among Verticalnet, Inc., Verticalnet Solutions LLC and Converge, Inc. (8)                                                                                                                                                                           
|              | 
|10.13         |  | Amended and Restated Subscription License Agreement, dated as of October 9, 2001, between Verticalnet, Inc., Verticalnet Enterprises LLC and Converge, Inc. (8)                                                                                                                                                                      
|              | 
|10.14         |  | Maintenance and Support Agreement, dated October 9, 2001, between Verticalnet, Inc., Verticalnet Enterprises LLC and Converge, Inc. (8)                                                                                                                                                                                              
|              | 
|10.15         |  | First Amendment to the Amended and Restated Subscription License Agreement, dated as of February 1, 2002, between Verticalnet, Inc., Verticalnet Enterprises LLC and Converge, Inc.
(8)                                                                                                                                              
|              | 
|10.16         |  | First Amendment to Maintenance and Support Agreement, dated as of February 1, 2002, between Verticalnet, Inc., Verticalnet Enterprises LLC and Converge, Inc. (8)                                                                                                                                                                    
|              | 
|10.17         |  | Second Amendment to Amended and Restated Subscription License Agreement, between Verticalnet, Inc., Verticalnet Enterprises LLC and Converge, Inc. (13)                                                                                                                                                                              
|              | 
|10.18         |  | Agreement Terminating Lease Agreements And Releasing Parties dated January 16, 2003, by and among Liberty Property Limited Partnership, Verticalnet, Inc. and Atlas Commerce, Inc. (700 Dresher
Road, Horsham, Pennsylvania; 300 Chester Field Parkway, Malvern, Pennsylvania; 400 Chester Field Parkway, Malvern, Pennsylvania) (16)
|              | 
|10.19         |  | Purchase Agreement, dated as of December 23, 2002, between Verticalnet, Inc. and Coda Convertible Fund III (16)                                                                                                                                                                                                                      
|              | 
|10.20         |  | Purchase Agreement, dated as of December 23, 2002, between Verticalnet, Inc. and James Nolen (16)                                                                                                                                                                                                                                    
|              | 
|10.21         |  | Purchase Agreement, dated as of December 23, 2002, between Verticalnet, Inc. and Jeremiah P. OGrady (16)                                                                                                                                                                                                                            



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|              |  |                                                                                                                                                    
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                        
|10.22         |  | Securities Purchase Agreement dated as of September, 2002 by and among VNI Holdings Inc., Verticalnet, Inc., and Pharos Capital Partners, L.P. (16)
|              | 
|10.23         |  | Amended and Restated 1996 Equity Compensation Plan (1)(6)                                                                                          
|              | 
|10.24         |  | 1999 Equity Compensation Plan (3)(6)(14)                                                                                                           
|              | 
|10.25         |  | Verticalnet, Inc. 2000 Equity Compensation Plan (4)(6)                                                                                             
|              | 
|10.26         |  | Amended and Restated Equity Compensation Plan for Employees (5)(6)                                                                                 
|              | 
|10.27         |  | 1999 Long Term Incentive Plan (6)(15)                                                                                                              
|              | 
|10.28         |  | Employment Agreement, dated February 7, 2002, between Verticalnet, Inc. and John A. Milana (6)(11)                                                 
|              | 
|10.29         |  | Amendment No. 1 to Employment Agreement of John A. Milana (6)(13)                                                                                  
|              | 
|10.30         |  | Employment Agreement, dated February 19, 2002, between Verticalnet, Inc. and Kevin S. McKay (6)(11)                                                
|              | 
|10.31         |  | Restricted Stock Unit Agreement, dated February 19, 2002 between Verticalnet, Inc. and Kevin S. McKay (6)(11)                                      
|              | 
|10.32         |  | Employment Agreement, dated December 23, 2002, between Verticalnet, Inc. and Nathanael V. Lentz (6) (16)                                           
|              | 
|10.33         |  | Employment Agreement, dated February 5, 2003, between Verticalnet, Inc. and Gene S. Godick (6) (16)                                                
|              | 
|10.34         |  | Employment Agreement, dated October 1, 2002, between Verticalnet, Inc. and Christopher G. Kuhn (6) (16)                                            
|              | 
|10.35         |  | Employment Agreement, dated January 30, 2004, between Verticalnet, Inc. and Brent Habig* (6)                                                       
|              | 
|14.1          |  | Code of Values and Conduct *                                                                                                                       
|              | 
|21            |  | Subsidiaries of the registrant *                                                                                                                   
|              | 
|23.1          |  | Consent of KPMG LLP*                                                                                                                               
|              | 
|31.1          |  | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*                                           
|              | 
|31.2          |  | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*                                           
|              | 
|32.1          |  | Certification by the Chief Executive Officer Relating to a Periodic Report Containing Financial Statements                                        
|              | 
|32.2          |  | Certification by the Chief Financial Officer Relating to a Periodic Report Containing Financial Statements                                        

---

|* | Filed herewith
|- | --------------

| | Furnished herewith
|- | ------------------

|(1) | Filed as an exhibit to the registrant Registration Statement on Form S-1 (Registration No. 333-68053) filed with the Commission on November 28, 1998, as amended
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Filed as an exhibit to the registrants report on Form 10-Q dated September 30, 2000.
|--- | -------------------------------------------------------------------------------------

|(3) | Filed as an exhibit to the registrants report on Form 10-Q dated September 30, 1999.
|--- | -------------------------------------------------------------------------------------



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|(4) | Filed as Annex B to the registrants definitive proxy statement on Schedule 14A, which was filed on April 27, 2000. This exhibit was approved by the registrants
shareholders at the registrants 2000 Annual Meeting.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Filed as an exhibit to the registrants report on Form 10-K dated December 31, 1999.
|--- | ------------------------------------------------------------------------------------

|(6) | Compensatory plans and arrangements for executives and others.
|--- | --------------------------------------------------------------

|(7) | Filed as an exhibit to the registrants report on Form 8-K dated January 4, 2002.
|--- | ---------------------------------------------------------------------------------

|(8) | Filed as an exhibit to the registrants report on Form 10-K dated December 31, 2001.
|--- | ------------------------------------------------------------------------------------

|(9) | Filed as an exhibit to the registrants report on Form 8-K dated July 15, 2002.
|--- | -------------------------------------------------------------------------------

|(10) | Filed as an exhibit to the registrants report on Form 8-K dated September 24, 2002.
|---- | ------------------------------------------------------------------------------------

|(11) | Filed as an exhibit to the registrants report on Form 10-Q dated March 31, 2002.
|---- | ---------------------------------------------------------------------------------

|(12) | Filed as an exhibit to the registrants report on Form 10-Q dated June 30, 2002.
|---- | --------------------------------------------------------------------------------

|(13) | Filed as an exhibit to the registrants report on Form 10-Q dated September 30, 2002.
|---- | -------------------------------------------------------------------------------------

|(14) | Filed as Annex B to the registrants definitive proxy statement on Schedule 14A, which was filed on May 9, 2002. This exhibit was approved by the registrants shareholders
at the registrants 2002 Annual Meeting.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(15) | Filed as Annex C to the registrants definitive proxy statement on Schedule 14A, which was filed on May 9, 2002. This exhibit was approved by the registrants shareholders
at the registrants 2002 Annual Meeting.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(16) | Filed as an exhibit to the registrants report on Form 10-K dated December 31, 2002.
|---- | ------------------------------------------------------------------------------------

|(17) | Furnished as an exhibit to the registrants report on Form 8-K dated February 17, 2004.
|---- | ---------------------------------------------------------------------------------------



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SIGNATURES



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



VERTICALNET, INC.By:

/s/    GENE S.
GODICKGene S. GodickExecutive Vice President and Chief Financial Officer




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



|                                                    |  |                                                                                                           |  |               
|--------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------- |  | --------------
|Signature                                           |  | Title                                                                                                     |  | Date          
|                                                    |  |                                                                                                          
|/s/    MICHAEL J.
HAGANMichael J.
Hagan             |  | Chairman of the Board and Director                                                                        |  | March 30, 2004
|                                                    |  |                                                                                                          
|/s/    NATHANAEL V.
LENTZNathanael V.
Lentz         |  | President, Chief Executive Officer and Director (principal executive officer)                             |  | March 30, 2004
|                                                    |  |                                                                                                          
|/s/    GENE S.
GODICKGene S.
Godick                 |  | Executive Vice President and Chief Financial Officer (principal financial officer and accounting officer) |  | March 30, 2004
|                                                    |  |                                                                                                          
|/s/    JEFFREY C.
BALLOWEJeffrey C.
Ballowe         |  | Director                                                                                                  |  | March 30, 2004
|                                                    |  |                                                                                                          
|/s/    ROBERT F.
BERNSTOCKRobert F.
Bernstock       |  | Director                                                                                                  |  | March 30, 2004
|                                                    |  |                                                                                                          
|/s/    WALTER W. BUCKLEY,
IIIWalter W. Buckley, III |  | Director                                                                                                  |  | March 30, 2004
|                                                    |  |                                                                                                          
|/s/    VINCENT J.
MILANOVincent J.
Milano           |  | Director                                                                                                  |  | March 30, 2004
|                                                    |  |                                                                                                          
|/s/    JOHN N.
NICKOLASJohn N.
Nickolas             |  | Director                                                                                                  |  | March 30, 2004
|                                                    |  |                                                                                                          
|/s/    GREGORY G.
SCHOTTGregory G.
Schott           |  | Director                                                                                                  |  | March 30, 2004
|                                                    |  |                                                                                                          
|/s/    MARK L.
WALSHMark L.
Walsh                   |  | Director                                                                                                  |  | March 30, 2004



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##### Table of Contents

VERTICALNET, INC.



SCHEDULE II
 VALUATION AND QUALIFYING ACCOUNTS

Years Ended December 31, 2003, 2002, and 2001

(in thousands)



|                                 |  |                                    |       |                            |   |            |  |   |           |   |  |                              |      |   |  |   |      
|-------------------------------- |  | ---------------------------------- | ----- | -------------------------- | - | ---------- |  | - | --------- | - |  | ---------------------------- | ---- | - |  | - | -----
|                                 |  | Balance at thebeginning ofthe year |       | Charge tocosts andexpenses |   | Write-offs |  |   | Other (1) |   |  | Balance at theend of theyear
|Allowance for doubtful accounts: |  |                                    |       |                            |   |            |  |   |           |   |  |                              |      |   |  |   |      
|December 31, 2001                |  | $                                  | 2,072 |                            | $ | 1,237      |  | $ | (2,308    | ) |  | $                            | (900 | ) |  | $ | 101  
|December 31, 2002                |  |                                    | 101   |                            |   | 2,917      |  |   | (1,330    | ) |  |                              | (4   | ) |  |   | 1,684
|December 31, 2003                |  |                                    | 1,684 |                            |   |           |  |   | (1,684    | ) |  |                              |     |   |  |   |     

---

|(1) | Primarily pertains to the SMB and JM Computer, Inc. (sold in March 2002) allowance balances at December 31, 2001 of ($837) and ($47), respectively.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------



88