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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington D.C. 20549


FORM 20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934


|                                                |  |                                
|----------------------------------------------- |  | -------------------------------
|For the Fiscal Year Ended
    December 31, 2003 |  | Commission File
    No. 0-29154

IONA Technologies PLC

(Exact name of Registrant as specified in its
charter and translation of Registrants name into
English)


Ireland

(Jurisdiction of incorporation or
organization)


The IONA Building

Shelbourne Road, Ballsbridge


Dublin 4, Ireland


(Address of principal executive
offices)


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

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

Ordinary Shares,
0.0025 Par
Value Per Share

(Title of Class)


Securities for which there is a reporting
obligation pursuant to Section 15(d) of the
Act:     None

Indicate number of shares outstanding of each
of the issuers

classes of capital or common stock as of
December 31, 2003:


33,713,760* Ordinary Shares,
0.0025 Par
Value

* Excludes an aggregate of 291,947 ordinary
shares issuable as of December 31, 2003 pursuant to
contractual obligations of the registrant.

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, and (2) has been
subject to such filing requirements for the past 90 days.

Yes     X                    No

Indicate by check mark which financial statement
item the registrant has elected to follow:

Item 17                    Item 18     X




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This annual report on Form 20-F was not
prepared for filing in Ireland in compliance with Irish law or
the listing rules of the Irish Stock Exchange.

Unless otherwise provided herein or required
by the context, references to we, us,
IONA or the Company in this annual
report shall mean IONA Technologies PLC and its world-wide
subsidiaries, collectively.

We have a secondary listing on the Irish Stock
Exchange. For this reason, we are not subject to the same
ongoing regulatory requirements as those which would apply to an
Irish company with a primary listing on the Irish Stock
Exchange, including the requirement that certain transactions
require the approval of shareholders. For further information,
shareholders should consult their own financial
advisor.

Our financial statements are presented in
U.S. dollars and are prepared in accordance with accounting
principles generally accepted in the United States. All
references in this annual report to dollars and
$ are to U.S. dollars, and all references to
euro or
 are
to European Union euro. Except as otherwise stated herein, all
monetary amounts in this annual report have been presented in
dollars.

Except for amounts contained in or derived
from our Consolidated Financial Statements and unless otherwise
indicated, all conversions of amounts herein from euro to
dollars have been made at an exchange rate of 1.2597 dollars to
one euro, based upon the noon buying rate in New York City
for cable transfers in foreign currencies for customs purposes
by the Federal Reserve Bank of New York as of
December 31, 2003.

The terms
Orbix®and IONA® used in
this annual report are our registered trademarks. The term
ArtixTM is our trademark.
CORBA® is a registered trademark of the Object
Management Group, Inc. in the United States and other
countries. J2EETM is a trademark
of Sun Microsystems, Inc. Java Community
ProcessSM is a servicemark of Sun
Microsystems, Inc. JBoss® is a registered
trademark of JBoss, Inc. All other trademarks appearing in
this annual report are the property of their respective
holders.



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TABLE OF CONTENTS

|        |  |                                                                           |  |      |    | 
|------- |  | ------------------------------------------------------------------------- |  | ---- | -- | 
|        |  |                                                                           |  | Page
|        |  |                                                                           |  |     
|ITEM 1. |  | IDENTITY OF DIRECTORS,
    SENIOR MANAGEMENT AND ADVISORS                 |  |      | 1  | 
|       
|ITEM 2. |  | OFFER STATISTICS AND
    EXPECTED TIMETABLE                               |  |      | 1  | 
|       
|ITEM 3. |  | KEY INFORMATION                                                           |  |      | 2  | 
|        |  | A.  Selected
    Financial Data                                           |  |      | 2  | 
|        |  | B.  Capitalization
    and Indebtedness                                   |  |      | 3  | 
|        |  | C.  Reasons for
    the Offer and Use of Proceeds                         |  |      | 3  | 
|        |  | D.  Risk
    Factors                                                      |  |      | 4  | 
|       
|ITEM 4. |  | INFORMATION ON THE
    COMPANY                                            |  |      | 12 | 
|        |  | A.  History and
    Development of the Company                            |  |      | 12 | 
|        |  | B.  Business
    Overview                                                 |  |      | 12 | 
|        |  | C.  Organizational
    Structure                                          |  |      | 19 | 
|        |  | D.  Property,
    Plant and Equipment                                     |  |      | 20 | 
|       
|ITEM 5. |  | OPERATING AND FINANCIAL
    REVIEW AND PROSPECTS                          |  |      | 21 | 
|        |  | A.  Operating
    Results                                                 |  |      | 21 | 
|        |  | B.  Liquidity and
    Capital Resources                                   |  |      | 35 | 
|        |  | C.  Research and
    Development, Patents and Licenses, etc.              |  |      | 36 | 
|        |  | D.  Trend
    Information                                                 |  |      | 36 | 
|        |  | E.  Off-Balance
    Sheet Arrangements                                    |  |      | 37 | 
|        |  | F.  Tabular
    Disclosure of Contractual Obligations                     |  |      | 37 | 
|        |  | G.  Safe Harbor                                                           |  |      | 37 | 
|       
|ITEM 6. |  | DIRECTORS, SENIOR MANAGEMENT
    AND EMPLOYEES                            |  |      | 38 | 
|        |  | A.  Directors and
    Senior Management                                   |  |      | 38 | 
|        |  | B.  Compensation                                                          |  |      | 40 | 
|        |  | C.  Board
    Practices                                                   |  |      | 42 | 
|        |  | D.  Employees                                                             |  |      | 44 | 
|        |  | E.  Share
    Ownership                                                   |  |      | 44 | 
|       
|ITEM 7. |  | MAJOR SHAREHOLDERS AND
    RELATED PARTY TRANSACTIONS                     |  |      | 48 | 
|        |  | A.  Major
    Shareholders                                                |  |      | 48 | 
|        |  | B.  Related Party
    Transactions                                        |  |      | 49 | 
|        |  | C.  Interests of
    Experts and Counsel                                  |  |      | 49 | 
|       
|ITEM 8. |  | FINANCIAL INFORMATION                                                     |  |      | 49 | 
|        |  | A.  Consolidated
    Financial Statements and Other Financial Information |  |      | 49 | 
|        |  | B.  Significant
    Changes                                               |  |      | 49 | 
|       
|ITEM 9. |  | THE OFFER AND LISTING                                                     |  |      | 50 | 
|        |  | A.  Offer and
    Listing Details                                         |  |      | 50 | 
|        |  | B.  Plan of
    Distribution                                              |  |      | 51 | 
|        |  | C.  Markets                                                               |  |      | 51 | 
|        |  | D.  Selling
    Shareholders                                              |  |      | 51 | 
|        |  | E.  Dilution                                                              |  |      | 51 | 
|        |  | F.  Expenses of
    the Issue                                             |  |      | 51 | 



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|                                                   |  |                                                                                  |  |      |      | 
|-------------------------------------------------- |  | -------------------------------------------------------------------------------- |  | ---- | ---- | 
|                                                   |  |                                                                                  |  | Page
|                                                   |  |                                                                                  |  |     
|ITEM 10.                                           |  | ADDITIONAL INFORMATION                                                           |  |      | 52   | 
|                                                   |  | A.  Share
    Capital                                                            |  |      | 52   | 
|                                                   |  | B.  Memorandum and
    Articles of Association                                   |  |      | 52   | 
|                                                   |  | C.  Material
    Contracts                                                       |  |      | 52   | 
|                                                   |  | D.  Exchange
    Controls                                                        |  |      | 52   | 
|                                                   |  | E.  Taxation                                                                     |  |      | 53   | 
|                                                   |  | F.  Dividends and
    Paying Agents                                              |  |      | 62   | 
|                                                   |  | G.  Statements by
    Experts                                                    |  |      | 62   | 
|                                                   |  | H.  Documents on
    Display                                                     |  |      | 62   | 
|                                                   |  | I.   Subsidiary
    Information                                                  |  |      | 62   | 
|                                                  
|ITEM 11.                                           |  | QUANTITATIVE AND QUALITATIVE
    DISCLOSURES ABOUT MARKET RISK                   |  |      | 63   | 
|                                                  
|ITEM 12.                                           |  | DESCRIPTION OF SECURITIES
    OTHER THAN EQUITY SECURITIES                       |  |      | 63   | 
|                                                  
|ITEM 13.                                           |  | DEFAULTS, DIVIDENDS
    ARREARAGES AND DELINQUENCIES                             |  |      | 64   | 
|                                                  
|ITEM 14.                                           |  | MATERIAL MODIFICATIONS TO
    THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |  |      | 64   | 
|                                                  
|ITEM 15.                                           |  | CONTROLS AND PROCEDURES                                                          |  |      | 64   | 
|                                                  
|ITEM 16.                                           |  | [RESERVED]                                                                       |  |      | 64   | 
|                                                  
|ITEM 16A.                                          |  | AUDIT COMMITTEE FINANCIAL
    EXPERT                                             |  |      | 64   | 
|                                                  
|ITEM 16B.                                          |  | CODE OF ETHICS                                                                   |  |      | 64   | 
|                                                  
|ITEM 16C.                                          |  | PRINCIPAL ACCOUNTANT FEES
    AND SERVICES                                       |  |      | 65   | 
|                                                  
|ITEM 16D.                                          |  | EXEMPTIONS FROM THE LISTING
    STANDARDS FOR AUDIT COMMITTEE                    |  |      | 66   | 
|                                                  
|ITEM 16E.                                          |  | PURCHASE OF EQUITY
    SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS        |  |      | 66   | 
|                                                  
|ITEM 17.                                           |  | FINANCIAL STATEMENTS                                                             |  |      | 67   | 
|                                                  
|ITEM 18.                                           |  | FINANCIAL STATEMENTS                                                             |  |      | 67   | 
|                                                  
|ITEM 19.                                           |  | EXHIBITS                                                                         |  |      | F-31 | 
|EX-2.2 AMENDED AND RESTATED DEPOSIT AGREEMENT     
|EX-8.1 ACTIVE SUBSIDIARIES OF IONA TECHNOLOGIES   
|EX-11.1 CODE OF BUSINESS CONDUCT                  
|EX-12.1 CERTIFICATION OF PRINCIPAL EXEC. OFFICER  
|EX-12.2 CERT. OF PRINCIPAL FINANCIAL OFFICER      
|EX-13.1 SECTION 906 CERTIFICATION OF C.E.O.       
|EX-13.2 SECTION 906 CERTIFICATION OF C.F.O.       
|EX-14.1 CONSENT OF ERNST & YOUNG                  
|EX-14.2 AUDIT COMMITTEE CHARTER                   
|EX-14.3 NOMINATING & CORP. GOVERNANCE CHARTER     
|EX-14.4 DESCRIPTION OF AMERICAN DEPOSITORY RECEIPT





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This annual report, and other reports, proxy
statements and other communications to shareholders, as well as
oral statements made by our officers or agents, contain
forward-looking statements within the meaning of the safe
harbor provisions of the Private Securities Litigation
Reform Act of 1995 that relate to future events or our future
financial performance. In some cases, you can identify
forward-looking statements by terminology, such as
may, will, should,
could, expect, plan,
anticipate, believe,
estimate, project, predict,
intend, potential, or
continue or the negative of such terms or other
comparable terminology, although not all forward-looking
statements contain such terms. In addition, these
forward-looking statements include, but are not limited to,
statements regarding, among other things, our future revenues,
operating income (loss), net income (loss) per ordinary share
and per ADS, products and services, sources of liquidity,
markets and plans and objectives of management. Such statements
are neither promises nor guarantees but rather are subject to a
number of risks and uncertainties which could cause actual
results to differ materially from those described in the
forward-looking statements. Factors that may cause such
variation are discussed in Item 5 Operating and
Financial Review and Prospects, Item 3.D. Risk
Factors and our reports filed with the Securities and
Exchange Commission.

PART I






|        |                                                          
|------- | ---------------------------------------------------------
|Item 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
    ADVISORS

Not required.






|        |                                            
|------- | -------------------------------------------
|Item 2. | OFFER STATISTICS AND EXPECTED
    TIMETABLE

Not required.

-1-



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|        |                
|------- | ---------------
|Item 3. | KEY INFORMATION





|   |                        
|-- | -----------------------
|A. | Selected Financial Data

The following selected consolidated financial
data as of December 31, 2003 and 2002, and for each of the
years ended December 31, 2003, 2002 and 2001, have been
derived from, and should be read in conjunction with, our
audited Consolidated Financial Statements and Notes thereto set
forth in Item 18 of this annual report. These financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States
(U.S. GAAP). The selected financial data as of
December 31, 2001, 2000 and 1999 and for each of the years
ended December 31, 2000 and 1999 have been derived from our
audited consolidated financial statements not appearing in this
annual report, which have also been prepared in accordance with
U.S. GAAP.

|                                               |                                                  |                                       |   |        |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |        |         | 
|---------------------------------------------- | ------------------------------------------------ | ------------------------------------- | - | ------ | ------- | ---- | - | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- |  | - | ------ | ------- | 
|                                               |                                                  |                                      
|                                               |                                                  | Year Ended December 31,              
|                                               |                                                  |                                      
|                                               |                                                  | 2003                                  |   | 2002   |         | 2001 |   | 2000    |         | 1999
|                                               |                                                  |                                       |   |        |         |      |   |         |         |     
|                                               |                                                  |                                      
|                                               |                                                  | (In thousands, except per share data)
|Consolidated Statement of Operations
    Data: |                                                  |                                       |   |        |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |       
|Revenue:                                       |                                                  |                                       |   |        |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |       
|                                               | Product revenue                                  |                                       | $ | 35,737 |         |      | $ | 73,452  |         |      | $ | 118,178 |         |  | $ | 105,533 |         |  | $ | 71,265 |        
|                                               | Service revenue                                  |                                       |   | 38,453 |         |      |   | 49,778  |         |      |   | 62,526  |         |  |   | 47,530  |         |  |   | 34,175 |        
|                                               |                                                  |                                       |   |        |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |       
|                                               |                                                  | Total revenue                         |   |        | 74,190  |      |   |         | 123,230 |      |   |         | 180,704 |  |   |         | 153,063 |  |   |        | 105,440 | 
|                                               |                                                  |                                       |   |        |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |       
|Cost of revenue:                               |                                                  |                                       |   |        |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |       
|                                               | Cost of product revenue                          |                                       |   | 527    |         |      |   | 1,685   |         |      |   | 3,190   |         |  |   | 3,457   |         |  |   | 2,389  |        
|                                               | Cost of service revenue                          |                                       |   | 14,275 |         |      |   | 25,458  |         |      |   | 34,926  |         |  |   | 26,484  |         |  |   | 21,113 |        
|                                               |                                                  |                                       |   |        |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |       
|                                               |                                                  | Total cost of revenue                 |   |        | 14,802  |      |   |         | 27,143  |      |   |         | 38,116  |  |   |         | 29,941  |  |   |        | 23,502  | 
|                                               |                                                  |                                       |   |        |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |       
|                                               |                                                  | Gross profit                          |   |        | 59,388  |      |   |         | 96,087  |      |   |         | 142,588 |  |   |         | 123,122 |  |   |        | 81,938  | 
|Operating expenses:                            |                                                  |                                       |   |        |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |       
|                                               | In-process research and development              |                                       |   |       |         |      |   |        |         |      |   | 3,600   |         |  |   |        |         |  |   |       |        
|                                               | Research and development                         |                                       |   | 27,134 |         |      |   | 38,256  |         |      |   | 40,260  |         |  |   | 26,906  |         |  |   | 21,195 |        
|                                               | Sales and marketing                              |                                       |   | 41,500 |         |      |   | 72,888  |         |      |   | 88,419  |         |  |   | 63,669  |         |  |   | 43,794 |        
|                                               | General and administrative                       |                                       |   | 10,270 |         |      |   | 13,252  |         |      |   | 15,318  |         |  |   | 12,046  |         |  |   | 10,454 |        
|                                               | Amortization of other non-current assets(1)      |                                       |   | 796    |         |      |   | 10,115  |         |      |   | 14,151  |         |  |   | 2,858   |         |  |   | 390    |        
|                                               | Amortization of goodwill(1)                      |                                       |   |       |         |      |   |        |         |      |   | 61,403  |         |  |   | 4,973   |         |  |   | 64     |        
|                                               | Restructuring                                    |                                       |   | 20,525 |         |      |   | 20,763  |         |      |   | 5,705   |         |  |   |        |         |  |   |       |        
|                                               | Impairment of goodwill                           |                                       |   |       |         |      |   | 276,808 |         |      |   |        |         |  |   |        |         |  |   |       |        
|                                               | Impairment of intangible assets and fixed assets |                                       |   | 3,271  |         |      |   | 32,336  |         |      |   |        |         |  |   |        |         |  |   | 1,671  |        
|                                               | Settlement of litigation                         |                                       |   |       |         |      |   |        |         |      |   |        |         |  |   | 1,350   |         |  |   |       |        
|                                               |                                                  |                                       |   |        |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |       
|                                               |                                                  | Total operating expenses              |   |        | 103,496 |      |   |         | 464,418 |      |   |         | 228,856 |  |   |         | 111,802 |  |   |        | 77,568  | 
|                                               |                                                  |                                       |   |        |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |       

-2-



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|                                                                                                     |  |                                       |         |      |  |      |          |      |  |      |         |   |  |   |        |   |  |   |        |  
|---------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------- | ---- |  | ---- | -------- | ---- |  | ---- | ------- | - |  | - | ------ | - |  | - | ------ | -
|                                                                                                     |  |                                      
|                                                                                                     |  | Year Ended December 31,              
|                                                                                                     |  |                                      
|                                                                                                     |  | 2003                                  |         | 2002 |  | 2001 |          | 2000 |  | 1999
|                                                                                                     |  |                                       |         |      |  |      |          |      |  |     
|                                                                                                     |  |                                      
|                                                                                                     |  | (In thousands, except per share data)
|Income (loss) from operations                                                                        |  |                                       | (44,108 | )    |  |      | (368,331 | )    |  |      | (86,268 | ) |  |   | 11,320 |   |  |   | 4,370  |  
|Interest income, net                                                                                 |  |                                       | 483     |      |  |      | 1,069    |      |  |      | 2,504   |   |  |   | 4,116  |   |  |   | 2,556  |  
|Net exchange gain (loss)                                                                             |  |                                       | 337     |      |  |      | (502     | )    |  |      | (468    | ) |  |   | (384   | ) |  |   | (379   | )
|Gain on sale of investment and other income                                                          |  |                                       |        |      |  |      |         |      |  |      | 164     |   |  |   | 1,912  |   |  |   |       |  
|                                                                                                     |  |                                       |         |      |  |      |          |      |  |      |         |   |  |   |        |   |  |   |        |  
|Income (loss) before provision for (benefit of)
    income taxes                                     |  |                                       | (43,288 | )    |  |      | (367,764 | )    |  |      | (84,068 | ) |  |   | 16,964 |   |  |   | 6,547  |  
|Provision for (benefit of) income taxes                                                              |  |                                       | 948     |      |  |      | 1,543    |      |  |      | (568    | ) |  |   | 2,799  |   |  |   | 1,088  |  
|                                                                                                     |  |                                       |         |      |  |      |          |      |  |      |         |   |  |   |        |   |  |   |        |  
|Net income (loss) available to Ordinary
    Shareholders                                             |  | $                                     | (44,236 | )    |  | $    | (369,307 | )    |  | $    | (83,500 | ) |  | $ | 14,165 |   |  | $ | 5,459  |  
|                                                                                                     |  |                                       |         |      |  |      |          |      |  |      |         |   |  |   |        |   |  |   |        |  
|Basic net income (loss) per Ordinary Share and
    per ADS                                           |  | $                                     | (1.33   | )    |  | $    | (11.58   | )    |  | $    | (3.27   | ) |  | $ | 0.67   |   |  | $ | 0.28   |  
|                                                                                                     |  |                                       |         |      |  |      |          |      |  |      |         |   |  |   |        |   |  |   |        |  
|Shares used in computing basic net income (loss)
    per Ordinary Share and per ADS (in thousands)   |  |                                       | 33,335  |      |  |      | 31,890   |      |  |      | 25,556  |   |  |   | 21,177 |   |  |   | 19,797 |  
|                                                                                                     |  |                                       |         |      |  |      |          |      |  |      |         |   |  |   |        |   |  |   |        |  
|Diluted net income (loss) per Ordinary Share and
    per ADS                                         |  | $                                     | (1.33   | )    |  | $    | (11.58   | )    |  | $    | (3.27   | ) |  | $ | 0.60   |   |  | $ | 0.26   |  
|                                                                                                     |  |                                       |         |      |  |      |          |      |  |      |         |   |  |   |        |   |  |   |        |  
|Shares used in computing diluted net income
    (loss) per Ordinary Share and per ADS (in thousands) |  |                                       | 33,335  |      |  |      | 31,890   |      |  |      | 25,556  |   |  |   | 23,520 |   |  |   | 21,224 |  
|                                                                                                     |  |                                       |         |      |  |      |          |      |  |      |         |   |  |   |        |   |  |   |        |  



---



|    |                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------
|(1) | Certain amounts reported in all prior periods
    have been reclassified to conform with the presentation in 2003.

|                                                                      |  |                                       |        |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|--------------------------------------------------------------------- |  | ------------------------------------- | ------ | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                                                      |  |                                      
|                                                                      |  | At December 31,                      
|                                                                      |  |                                      
|                                                                      |  | 2003                                  |        | 2002 |  | 2001 |         | 2000 |  | 1999
|                                                                      |  |                                       |        |      |  |      |         |      |  |     
|                                                                      |  |                                      
|                                                                      |  | (In thousands, except per share data)
|Consolidated Balance Sheet Data:                                      |  |                                       |        |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Cash, cash equivalents, restricted cash and
    marketable securities |  | $                                     | 56,649 |      |  | $    | 81,650  |      |  | $    | 53,697  |  |  | $ | 95,640  |  |  | $ | 70,183  | 
|Working capital                                                       |  | $                                     | 30,417 |      |  | $    | 63,766  |      |  | $    | 40,262  |  |  | $ | 99,234  |  |  | $ | 77,841  | 
|Total assets                                                          |  | $                                     | 90,038 |      |  | $    | 131,604 |      |  | $    | 437,698 |  |  | $ | 202,559 |  |  | $ | 144,342 | 
|Ordinary Shares (number)                                              |  |                                       | 34,006 |      |  |      | 32,835  |      |  |      | 27,817  |  |  |   | 21,990  |  |  |   | 20,451  | 
|Ordinary Share value (par value)                                      |  | $                                     | 94     |      |  | $    | 91      |      |  | $    | 80      |  |  | $ | 66      |  |  | $ | 63      | 
|Total shareholders equity                                            |  | $                                     | 33,112 |      |  | $    | 74,905  |      |  | $    | 375,766 |  |  | $ | 151,307 |  |  | $ | 111,721 | 




B.     Capitalization
and Indebtedness

Not required.




C.     Reasons for
the Offer and Use of Proceeds

Not required.

-3-



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D.     Risk
Factors

A further decline in information technology
spending may result in a decrease in our revenues or lower
growth rates.

The slowdown in global economies has negatively
affected the level of spending of our customers on information
technology (IT) solutions. We cannot predict if or when the
growth rate of worldwide economies will rebound, or when or if
demand for IT solutions will increase. A further decline or lack
of growth in the demand for IT solutions may result in decreased
revenues or lower growth rates because our sales depend in part
on our customers level of funding for new or additional IT
systems or services. Continuation of the current economic
downturn may cause our customers to reduce or eliminate IT
spending, which would substantially reduce the number of new
software licenses we sell. An economic downturn may also cause
price erosion for our products, which would reduce the average
sales price for these licenses.

In addition, actual or threatened terrorist
attacks, military actions and events or effects occurring in
response to those developments may reduce the amount or delay
the timing of capital expenditures by corporations for IT
solutions. Accordingly, we cannot be assured that we will be
able to increase or maintain our revenues.

Our lengthy and variable sales cycle makes it
difficult to predict our operating results.

It is difficult to forecast the timing and
recognition of our revenues because our prospective customers
often dedicate a significant amount of time to evaluating our
products before licensing them. The period between initial
customer contact and purchase by a customer may extend twelve
months or more. During the evaluation process, prospective
customers may decide not to purchase or may scale down proposed
orders of our products for various reasons including:



| |   |                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------
| |  | reduced demand for our products or for
    integration software generally;                                            
|
| |  | introduction of products by our competitors;                                                                          
|
| |  | lower prices offered by our competitors;                                                                              
|
| |  | changes in budgets and purchasing
    priorities; and                                                                 
|
| |  | changes by prospective customers in their
    approach with respect to the integration of enterprise
    applications.

We may experience fluctuations in quarterly
revenue that could adversely impact our operating
results.

Our revenues and operating results are difficult
to predict and may fluctuate significantly from quarter to
quarter. Historically, our product revenue in the first quarter
of each year has declined from the fourth quarter of the prior
year. Revenue in any quarter depends substantially upon our
ability to sign contracts and our ability to recognize revenues
in that quarter in accordance with revenue recognition policies.
Therefore, you should not rely on period to period comparisons
of revenues or results of operations as an indication of future
performance. If our quarterly revenues or operating results fall
below expectations of investors or securities analysts, the
price of our ordinary shares and ADSs could fall substantially.

Our quarterly revenues may fluctuate as a result
of a variety of factors, including the following:



| |   |                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a significant number of our prospective customers
    decide whether to enter into license agreements with us within
    the last month of each quarter;
|
| |  | the size of transactions can vary significantly;                                                                                                        
|
| |  | the demand for our products may change;                                                                                                                 
|
| |  | customers may unexpectedly postpone orders due to
    changes in their strategic priorities, project objectives,
    budget or personnel;               

-4-



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| |   |                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | customer evaluations and purchasing processes
    vary significantly from company to company, and a
    customers internal approval and expenditure authorization
    process can be difficult and time consuming to complete, even
    after selection of a vendor;
|
| |  | the number, timing and significance of product
    enhancements and new product announcements by us and our
    competitors may affect purchase decisions; and                                                                                                       
|
| |  | we may have to defer revenues under our revenue
    recognition policies.                                                                                                                                                                                            

Fluctuations in our quarterly revenues may
adversely affect our operating results. In each fiscal quarter
our expense levels, operating costs and hiring plans are based
on projections of future revenues and are relatively fixed. If
our actual revenues fall below expectations, we could experience
a reduction in operating results.

We have experienced significant variations in
profitability and anticipate that we will continue to do so in
the future.

Our levels of profitability have varied
significantly on a quarterly and annual basis. These variations
were attributable to fluctuations in revenue and costs,
including costs associated with the development and introduction
of new products and services, charges associated with
acquisitions, and certain non-recurring expenses attributable to
the settlement of litigation, restructuring and impairment of
goodwill, other non-current assets and fixed assets. There can
be no certainty that we will not experience similar variations
in profitability in future periods for these or other factors,
and any such variation could have a significant impact on the
market value of our ordinary shares and ADSs.

Our future revenue depends upon the evolution
and adoption of Web services and related integration and
infrastructure solutions.

We believe that there is an emerging demand for
Web services and related integration and infrastructure
solutions. Therefore, we have invested significant amounts in
developing and introducing products to meet the development,
deployment and integration requirements of enterprises using Web
services for integration and service-oriented architectures. If
the enterprise adoption of Web services for these purposes does
not evolve as we anticipate or fails to grow as quickly as we
expect, we may be unable to implement our strategy or achieve
the growth rate that we target.

The acceptance of our recently launched Artix
family of products also depends upon the development and
proliferation of Web services standards for application
integration. If these standards do not continue to develop or
are not widely accepted, the demand for our products and
services may not materialize. Consequently, our business
prospects and financial condition would suffer.

If we fail to keep pace with rapidly evolving
technology and changing customer needs, our business will
suffer.

The market for enterprise infrastructure software
is characterized by rapidly changing technology, evolving
industry standards and changing customer needs. Therefore, our
success will depend upon our ability to enhance our existing
products and to introduce and market new products to meet
changing customer requirements on a timely and cost-effective
basis. If we experience delays in the introduction of new or
enhanced products, or if we are unable to anticipate or respond
adequately to these changes, our products could be rendered
obsolete and our business could be materially harmed.

Potential defects in our products or our
failure to provide services for our customers could cause our
sales to decrease, cause us to lose customers and damage our
reputation.

The products that we offer include newly-launched
products with a short track record. These products may contain
defects that may be detected at any point in the products
life cycle. We have in the past discovered errors in certain of
our product enhancements and new products and have experienced
delays in generating revenue while correcting these errors. Our
products are often used in combination with products

-5-



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of other vendors. As a result, it may be
difficult to identify the source of any problem. If defects
occur, we could experience, among other things:




| |   |                                             
| | - | --------------------------------------------
| |  | loss of customers;                          
|
| |  | injury to our reputation;                   
|
| |  | loss or delay of market acceptance or sales;
|
| |  | increased service or warranty costs; or     
|
| |  | legal action by our customers.              

In addition, we may not be able to avoid or limit
liability for disputes relating to product performance or
provision of services.

If we do not manage our expenses and
geographically dispersed operations successfully, we may be
unable to respond to changing market conditions.

The IT integration market is becoming
increasingly volatile. To address this volatility and global
economic conditions generally, we have taken measures to bring
our workforce, staffing and structure in line with perceived
current demand for our products. If we misjudge our personnel
needs or cannot successfully manage our expenses, then our
business, financial condition and results of operations would be
materially adversely affected. Our future operating results will
depend substantially upon the ability of our officers and key
employees to anticipate changing business conditions and manage
personnel and other costs while increasing sales.

We face additional risks in managing
geographically dispersed operations. Some of our key executives
and managers are based in our Dublin, Ireland headquarters
and others in our wholly-owned U.S. subsidiarys
Waltham, Massachusetts office. Accordingly, our ability to
compete successfully will depend in part on the ability of a
limited number of key executives located in geographically
dispersed offices to integrate management, to address the needs
of our worldwide customer base and to respond to changes in our
market. In addition, our ability to manage our operations and
financial performance would be materially adversely affected if
terrorist attacks or military or other political events prohibit
or restrict the travel of our personnel.

We may be required to delay the recognition of
revenue until future periods which could adversely impact our
operating results.

We may have to defer revenue recognition due to
several factors, including whether:



| |   |                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------
| |  | we are required to accept extended payment terms;                                                  
|
| |  | the transaction involves contingent payment terms
    or fees;                                     
|
| |  | the transaction involves acceptance criteria or
    there are identified product-related issues; or
|
| |  | license agreements include products that are
    under development or other undelivered elements.  

Because of the factors listed above and other
specific requirements under U.S. GAAP for software revenue
recognition, we must have very precise terms in our license
agreements to recognize revenue when we initially deliver our
products or perform services. Negotiation of mutually acceptable
terms and conditions can extend the sales cycle, and sometimes
we do not obtain terms and conditions that permit revenue
recognition at the time of delivery or even as work on the
project is completed.

We depend on large transactions to derive a
significant portion of our revenue, and the delay or loss of any
large customer order could adversely affect our quarterly or
annual operating results.

We derive a significant portion of our revenue
from large transactions. Customers face complex decisions
regarding approaches to the development, deployment and
integration of enterprise applications,

-6-



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competitive product offerings, rapidly changing
software technologies, and limited internal resources. We must
often negotiate terms and conditions in large sales
transactions. These terms and conditions can extend the sales
cycle and, in certain situations, result in deferred recognition
of revenue from the sale. Prospective sales are subject to
delays or cancellation over which we have little or no control.
If any large customer order anticipated for a particular quarter
is not realized or is delayed, we may experience an unplanned
shortfall in revenue, which could significantly and adversely
affect our operating results.


We currently derive most of our revenue from a
limited number of products.

To date, we have derived most of our revenue from
the licensing of our products that currently compose our Orbix
products and fees from related services. We expect these
products to continue to account for a substantial majority of
our revenue for the foreseeable future. As a result, a reduction
in demand for, or sales of, these products would have a material
adverse effect on our business, financial condition and results
of operations. In addition, our business will depend, in
significant part, on the successful development, introduction
and customer acceptance of new and enhanced versions of our
products. We may not successfully develop, introduce or market
new products or enhancements or additions to our existing
products. Any failure to do so would materially adversely affect
our business, financial condition and results of operations.

If we do not successfully expand and manage
our direct sales force and other distribution channels, we may
not be able to increase our sales.

To date, we have sold our products primarily
through our direct sales force, software vendors and system
integrators. We plan to continue to invest in, and rely on sales
through, these distribution channels and other indirect
channels. We experience lower profit margins on the distribution
of our products through third-party distribution channels. We
may not be able to expand or manage successfully our direct
sales force or other distribution channels. Further, any such
expansion may not result in an increase in revenue or operating
income. If we fail to expand or manage successfully our direct
sales force or other distribution channels, our business,
financial condition and results of operations would materially
suffer.

Our inability to create and preserve
relationships with software vendors, system integrators or other
third parties that market and sell our products could reduce our
revenues.

Our ability to achieve revenue growth will depend
in large part on expanding our sales channels, as well as
leveraging our existing strategic alliances. If our
relationships with these software vendors or system integrators
deteriorate or terminate, or if we are unable to form new
relationships, we may lose important sales and marketing
opportunities. Our distribution arrangements could give rise to
disputes regarding marketing strategy, exclusive territories and
customer relationships which could negatively affect our
business or result in costly litigation. In addition, if these
software vendors and system integrators are unable to recruit
and adequately train a sufficient number of consulting personnel
to support the implementation of our software products, or they
otherwise do not adequately perform implementation services, we
may lose customers. These system integrators may increase their
promotion of competing enterprise integration solutions or may
otherwise discontinue their relationships with or support of us.
Our relationships with software vendors and system integrators
are an important part of our business, and a deterioration of
these relationships could adversely impact our business and
operating results.

We also may enter into joint arrangements with
strategic partners to develop new products or enhancements, or
to license our offerings as part of integrated products. Our
business may be adversely affected if these strategic partners
change their business priorities or experience difficulties in
their operations, which in either case causes them to terminate
or reduce their support for these joint arrangements.

-7-



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We operate in highly competitive markets and
we may be unable to compete successfully.

The market for enterprise infrastructure software
solutions is highly competitive. We expect this competition to
increase. Our products compete with offerings from a number of
established infrastructure vendors, as well as offerings from
new software companies. Some of these companies offer products
that compete with single components of our product set, while
other companies market a set of products designed to solve broad
integration problems.

We compete principally against vendors of:



| |   |                                                     
| | - | ----------------------------------------------------
| |  | enterprise infrastructure software;                 
|
| |  | enterprise application integration
    software; and
|
| |  | Web services integration software.                  

We believe that our ability to compete depends in
part on a number of factors outside of our control, including:



| |   |                                                                                              
| | - | ---------------------------------------------------------------------------------------------
| |  | the demand for our products;                                                                 
|
| |  | the development by others of software that is
    competitive with our products;             
|
| |  | the price at which others offer comparable
    products;                                     
|
| |  | the ability of our competitors to respond
    effectively to customer needs;                 
|
| |  | the ability of our competitors to market their
    products aggressively and effectively; and
|
| |  | the ability of our competitors to hire, retain
    and motivate key personnel.               

In addition, a number of our competitors have
substantially greater technical, financial, sales, marketing,
customer support, professional services and other resources, as
well as greater name recognition, than we do. As a result, our
competitors may be able to adapt more quickly to new or emerging
technologies and changes in customer requirements, to devote
greater resources to the promotion and sale of their products,
or to establish more successful strategic relationships with
industry leaders and other third parties than we can. Further,
certain of our larger competitors may be able to offer
competitive products or technologies as part of their broader
product or service offerings or may make strategic acquisitions
or establish cooperative relationships among themselves or with
third parties, thereby increasing the ability of their products
to address the needs of our current and prospective customers.
Accordingly, it is possible that new competitors or alliances
among our current and potential competitors may emerge and
rapidly gain significant market share. This type of competition
could materially adversely affect our ability to license
products and provide services on terms favorable to us. In
addition, among our smaller competitors, the competition for
remaining market share is intense. Due to competitive pressures,
we could be forced to reduce the price of our products and
related services. Lower sales or reduced prices would negatively
impact our operating results and financial condition.

Many of our competitors have a significant
installed base that includes our current and potential
customers. Once a customer has installed the products of one of
our competitors, it may be difficult to convince the customer to
adopt or purchase our products. If we are unable to further
penetrate our existing customer base or sell to new clients, our
business prospects and financial condition would suffer.

If we are unable to attract and retain highly
qualified personnel, our future results would be adversely
affected.

We depend to a significant extent upon a limited
number of senior executives. We face intense competition for
highly qualified personnel. If we fail to attract, retain or
assimilate key personnel, our business, financial condition and
results of operations would materially suffer.

-8-



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We face various risks associated with our
international operations that could cause our operating results
to suffer.

We are incorporated in Ireland and substantial
portions of our product development, marketing, sales and
administrative functions are located in Ireland. Our sales are
derived, and our operations are conducted, worldwide. We expect
that operations outside of the United States will continue to
account for a significant portion of our business. Because of
the international character of our business, we are subject to
risks such as:



| |   |                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | fluctuations in currency exchange rates;                                                                                                              
|
| |  | political and economic conditions in various
    jurisdictions;                                                                                       
|
| |  | unexpected changes in regulatory requirements,
    tariffs and other trade barriers;                                                                  
|
| |  | failure to enter into relationships with local
    resellers, system integrators or other third party vendors, or
    to introduce localized products;
|
| |  | difficulties in staffing and managing foreign
    operations;                                                                                         
|
| |  | longer accounts receivable payment
    cycles; and                                                                                                    
|
| |  | differing laws affecting the enforceability of
    intellectual property rights and product liability.                                                

If any of these risks materializes, revenue
derived from customers outside the United States could decrease,
and our business, financial condition and results of operations
could materially suffer.

We may be unable to identify or complete
suitable acquisitions, and any acquisitions we do complete may
create business difficulties or dilute our
shareholders.

As part of our business strategy, we may pursue
strategic acquisitions. We may be unable to identify suitable
acquisition candidates. We cannot assure you that we will be
able to make acquisitions on commercially acceptable terms or at
all. If we acquire a business, technology or product, we may
have difficulty integrating that business, technology or product
with our existing operations or our software. These difficulties
could disrupt our ongoing business, distract our management and
workforce, increase our expenses and adversely affect our
operating results. In addition, the key personnel of an acquired
entity may decide not to work for us. We may also incorrectly
judge the value or worth of an acquired business, technology or
product. Furthermore, we may incur significant debt or be
required to issue equity securities to pay for future
acquisitions or investments. The issuance of equity securities
may be dilutive to our shareholders.

If our effective tax rate increases, our
business and financial results would be adversely
impacted.

We have significant operations and generate a
substantial portion of our taxable income in Ireland. In
general, the tax rate in Ireland on trading income, which is
12.5% as of January 1, 2003, is significantly lower than
U.S. tax rates. Moreover, our Irish taxable income derived
from software substantially developed in Ireland is taxed at a
10% effective tax rate. If our operations no longer qualify for
these lower tax rates or if the tax laws were rescinded or
changed, our effective tax rate would increase and our business,
financial condition and results of operations could be
materially adversely affected. In addition, if U.S., U.K.,
German, Australian or other tax authorities were to challenge
successfully the manner in which we recognize profits or, more
generally, the jurisdiction in which our income is subject to
taxation, our effective tax rate could increase and our cash
flow and results of operations could be materially adversely
affected. If our revenues fail to grow we will become
increasingly dependent on favorable tax rates to maintain our
earnings.

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Our U.S. holders of our ordinary shares
or ADSs could suffer adverse tax consequences if we are
characterized as a passive foreign investment company.

If, for any taxable year, our passive income or
our assets that produce passive income exceed levels provided by
law, we may be characterized as a passive foreign investment
company, or PFIC, for U.S. federal income tax purposes.
This characterization could result in adverse U.S. tax
consequences to the holders of our ordinary shares or ADSs.
U.S. persons should consult with their own U.S. tax
advisors with respect to the U.S. tax consequences of
investing in our ordinary shares or ADSs.

The rights of shareholders in Irish
corporations may be more limited than the rights of shareholders
in U.S. corporations.

The rights of holders of our ordinary shares and,
therefore, some of the rights of the holders of our ADSs are
governed by Irish law and the laws of the European Union. As a
result, the rights of our shareholders differ from, and may be
more limited than, the rights of shareholders in typical
U.S. corporations. In particular, Irish law
significantly limits the circumstances under which shareholders
of Irish corporations may bring derivative actions.

We have a limited ability to protect our
intellectual property rights, and others could obtain and use
our technology without our authorization.

We regard certain of our technologies as
proprietary, and we rely primarily on a combination of patent,
copyright, trademark and trade secret laws, employee and
third-party non-disclosure agreements, and technical measures to
establish and protect our proprietary rights. The laws of
various countries in which our products may be licensed may not
protect our proprietary rights to the same extent as the laws of
the United States and Ireland. While we generally enter into
confidentiality agreements and limit access to, and distribution
of, our proprietary information, it is possible for a third
party to copy or otherwise obtain and use our technology without
authorization. Third parties may reproduce our software products
without our consent. In addition, it is possible that our means
of protecting our proprietary rights will not be adequate. Any
unauthorized reproduction of our software or inadequate
protection of our proprietary rights could have a material
adverse effect on our business, financial condition or results
of operations.

If we do not have the right to use third-party
technology, we may have to stop selling and shipping products
and incur significant development or license expenses.

We use and incorporate third-party technology in
our products. If we do not have adequate rights to use this
technology or our rights terminate, we could be required to:



| |   |                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | stop using the third-party technology;                                                                                                                                  
|
| |  | stop selling and shipping our products in which
    the third-party technology is used; or                                                                              
|
| |  | incur significant expenses to identify and obtain
    replacement technology or develop similar technology or to
    obtain a new license to the third-party technology.

We may not be able to develop technology or
identify other technology with functionality similar to this
third-party technology. In addition, we may not be able to
obtain a license to this third-party technology on acceptable
terms or at all, and we may be liable for damages in the event
of any unauthorized use. If any of these events occur, our
business, financial condition and results of operations could be
materially adversely affected.

We may be exposed to significant liability if
we infringe upon the intellectual property or proprietary rights
of others.

Third parties have notified us, and others may
notify us, from time to time, that they believe we are
infringing certain of their patents and other intellectual
property rights. The cost of responding to any such

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assertion may be material, whether or not the
assertion is valid. In the event that any such assertion is
resolved adversely to us, we could be required to:




| |   |                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------
| |  | discontinue the use of certain processes;                                                              
|
| |  | cease the use and sale of infringing products and
    services;                                        
|
| |  | expend significant resources to develop
    non-infringing technology;                                 
|
| |  | obtain licenses to competing technology; or                                                            
|
| |  | indemnify customers under certain clauses
    relating to intellectual property rights in our licenses.

We may be unable to obtain licenses on acceptable
terms or at all. We may become a party to litigation, and the
court may assess damages. If we fail to obtain licenses, adverse
or protracted litigation arises out of any such assertion or
damages are assessed, our business, financial condition or
results of operations could be materially adversely affected.

Legislative actions, higher insurance costs
and potential new accounting pronouncements may affect our
future financial position and results of operations.

To comply with the Sarbanes-Oxley Act of 2002, as
well as recent changes to Nasdaq listing standards, we may be
required to hire additional personnel and utilize additional
outside legal, accounting and advisory services, all of which
will cause our general and administrative costs to increase.
Insurers may increase premiums as a result of high claims rates
experienced by them over the past year, and so our future
premiums for our various insurance policies, including our
directors and officers insurance policies, could be
subject to increase. Proposed changes in the accounting rules,
including legislative and other proposals to account for
employee stock options as a compensation expense among others,
could materially increase the expenses that we report under
generally accepted accounting principles and adversely affect
our operating results.

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|        |                           
|------- | --------------------------
|Item 4. | INFORMATION ON THE COMPANY





|   |                                           
|-- | ------------------------------------------
|A. | History and Development of the
    Company



| |                  
| | -----------------
| | About the Company

We are an Irish resident public limited company
(company number 171387) and operate under Irish company law. We
were incorporated in Ireland on March 19, 1991 under the
legal and commercial name IONA Technologies Limited and
re-registered under the legal and commercial name IONA
Technologies PLC in February 1997. Our registered office and
principal place of business is The IONA Building, Shelbourne
Road, Ballsbridge, Dublin 4, Ireland. Our telephone number
at that location is +353 1 6372000.

The principal place of business in the United
States of our wholly-owned subsidiary, IONA Technologies, Inc.,
is 200 West Street, Waltham, MA, 02451, USA.



| |                                                   
| | --------------------------------------------------
| | Important Company Events and Company
    Takeovers

In 2001, we acquired Netfish Technologies, Inc.
(Netfish). The total consideration consisted of 4,221,216
newly-issued ordinary shares, 815,102 ordinary shares issuable
upon the exercise of replacement options and $30.9 million
of closing costs incurred in connection with the merger. Of the
newly-issued ordinary shares, 504,598 were held back by us as a
source of indemnification payments that may become due to us. If
we made no claims for indemnification, 75% of the 504,598
ordinary shares, or 378,448 shares, would have been
distributed to the former holders of Netfish shares in May 2002
and 25% of the 504,598 ordinary shares, or 126,150 shares,
would have been distributed in May 2003. In May 2002, we held
back 142,045 ordinary shares to cover indemnification claims
made by us. In May 2003, an additional 126,150 ordinary shares
were held back to cover the indemnification claims that we
previously made. If pending indemnification claims are resolved
in a manner unfavorable to us, up to 268,195 ordinary shares
held back by us could be distributed to the former holders of
Netfish shares.



| |                    
| | -------------------
| | Certain Investments

During 2003, 2002 and 2001 we invested
$1.2 million, $5.2 million and $5.4 million,
respectively, for the purchase of furniture, fixtures and
equipment, for further investment in our management information
systems and for capital expenditures.

During 2003, 2002 and 2001 we invested
$0.1 million, $0.2 million and $15.5 million,
respectively, in technology, which had reached technological
feasibility. In addition, our research and development
expenditures in 2003, 2002 and 2001 were approximately
$27.1 million, $38.3 million, and $40.3 million,
respectively.






|   |                  
|-- | -----------------
|B. | Business Overview

Overview

IONA is in the integration software business. We
make software work together so our customers can make better
decisions, run their businesses more efficiently and improve
their business results. Our software products enable our
customers to build, maintain and scale their disparate computing
environments while preserving and extending existing information
technology (IT) investments. We also offer professional
services, including ongoing customer support and maintenance as
well as high-level design consultation, education and product
implementation.

IONA was founded in 1991 in Dublin, Ireland. We
have a history of providing standards-based solutions to IT
organizations with complex, heterogeneous computing environments
and challenging integration problems. We have a proven record of
technology leadership and continuous product improvement.

-12-



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We generate revenue from product licenses as well
as from professional services. Since our inception, we have
licensed our products, directly and indirectly, to more than
4,500 enterprise or divisional customers worldwide. On
December 31, 2003, we employed more than 350 people in 22
offices worldwide.

Industry Background

Large organizations have spent the last several
decades investing in IT, seeking improved productivity and
agility through business process automation. As they have
invested in computing assets over time, few organizations have
addressed how to make their various computing investments work
well together or considered the architectural and technology
choices that would make it easier to retire or replace assets.
As a result, these organizations have a mix of applications and
infrastructure technologies based on different programming
languages, running on different operating systems on different
hardware platforms and managed and mediated by various
middleware technologies. Some of these systems are off-the-shelf
applications acquired from commercial software vendors. Other
systems are the product of in-house custom development. Many of
the most critical systems remain in use long after their
underlying technologies are succeeded by newer technologies.

This mix of applications and technologies
severely impedes an organizations ability to compete. For
example, telecommunication providers retain existing customers
and attract new customers largely on their abilities to respond
efficiently to market changes, to innovate around product offers
and product bundles, to empower customers with self-service
opportunities, and to provide responsive and effective customer
service. All of these abilities are, at their core, driven by
IT. A telecommunication provider who cannot make its IT
investments work together in a timely fashion may be unable to
respond to a new Federal Communications Commission regulation or
a competitors offering.

In the 1990s, as integration became a more
pressing issue for large organizations, two solutions emerged.
Enterprise Application Integration, or EAI, software promised to
connect applications together by translating one systems
outputs so that another system would regard them as valid
inputs. CORBA, an open industry standard, promised to make
applications interoperable by exposing them as platform neutral
services with interfaces based on a consensual standard.

CORBA proved to be very popular for building and
integrating systems where high performance, high transaction
volumes, and high scalability were required, and for
organizations with a long-term strategy for computing asset
reuse and ongoing interoperability. For example, many of the
worlds telephone network management systems are built on,
and interoperate using, CORBA. A telephone call traverses
numerous telephone network systems, interacting at extremely
high speed with a number of billing applications, switches, and
other systems, all integrated with CORBA.

A growing number of organizations are now
evaluating Web services technologies for their suitability as an
integration solution. Descended from the World Wide Web, the
most successful experiment in interoperability, Web services
emanate from a collection of industry standards that specify how
computer systems, or parts of systems, can be represented as
business services. These standards also describe how data and
transactions can be exchanged between computer systems, and how
services can be discovered and identified.

Web services hold the potential for giving
computer systems ease of interaction by leveraging these
worldwide standards for use in enterprise IT. As a result, large
organizations, and integration solution vendors, are eager to
exploit the potential of the Web services standards. Despite the
relative immaturity of these standards, Web services allow
applications to more easily interoperate and share data. Web
services facilitate the implementation and management of dynamic
business applications and systems in a less disruptive, less
costly and faster manner than in existing integration solutions.
Web services also allow organizations to broadly service-enable
their IT assets in a systematic fashion. Service-oriented
architecture, or SOA, describes an approach to building
applications focused particularly on system integration and
reuse of business functionality.

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Web services are naturally suited to SOAs. The
architectural impact of Web services, coupled with their broad
accessibility, make Web services intriguing to organizations
using SOAs. These organizations tend to be large and
sophisticated and demand enterprise-wide integration solutions.
For organizations focused on using SOAs, simple interoperability
is not enough. Integration projects require additional,
sophisticated security, availability, reliability and management
capabilities, among others. Web services standards address many
of these advanced requirements.

IONAs Opportunity

Our opportunity is to provide standards-based
solutions to organizations wanting to use Web services and other
technologies to solve enterprise integration problems or to
develop and deliver SOAs.

We are a leader in Web services technology, with
a history of delivering award-winning Web services-based
integration products. We are also influential in the evolution
of the Web services standards and how they relate to the
delivery of enterprise integration capabilities. We also have a
history of promoting SOAs. Our focus on SOAs is one of our core
competencies. As more organizations deploy SOAs, we are well
positioned to explain and deliver the benefits of an
architectural approach to integration.

We have a history of promoting large-scale,
standards-based integration solutions for our customers. Our
standards-based solutions allow our customers across a wide
variety of industries to develop and deploy integration projects
involving hundreds of systems, and tens of thousands of users.

We have had an uncompromising commitment to
industry standards since their inception. Our early support for
CORBA was augmented by solutions built on later-evolving
standards such as J2EE, XML and Web services. We are actively
involved in industry organizations and standards-setting bodies,
particularly the Object Management Group, World Wide Web
Consortium, the Organization for the Advancement of Structured
Information Standards (OASIS), the TeleManagement Forum and the
Web Services Interoperability Organization. IONA is a member of
the Executive Committee of the Java Community Process (JCP)
Program 2.0, an open community-based process to further
develop and revise Java technology specifications.

Our deep commitment to industry standards
mitigates our customers risk of being locked into a
proprietary solution from a single vendor. Therefore, our
standards-based solutions provide our customers a lower total
cost of ownership of software, developer training,
implementation services, and ongoing support.

Similarly, our demonstrated SOA expertise
facilitates the connection of our customers IT assets to a
common backbone which empowers our customers to leverage and
reuse those existing assets. The best SOAs are based on
standards, which insulate the customers integration
investments from future changes in technology, products, selling
channels and business processes. As other integration vendors
announce their product visions around Web services and SOAs, our
solutions are helping customers solve enterprise integration
challenges with these technologies.

Strategy

Our objective is to be the leading provider of
standards-based enterprise integration solutions. To achieve
this objective, we intend to pursue the following strategies:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Maintain Technological
    Leadership.We have a history of
    technological leadership and dedication to continuous product
    improvement. Our CORBA-based Orbix product family is the leading
    enterprise CORBA solution. Our Web services-based Artix product
    family continues the Orbix tradition by addressing the
    integration and mobile computing needs of large IT organizations
    through high performance, standards-based solutions. We will
    continue to invest heavily in research and development. By
    promoting and embracing existing and emerging industry
    standards, we intend to facilitate the broad acceptance of our
    products. We may acquire businesses, products or technologies
    that we believe will enhance and expand our current product
    offerings.

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Expand Our Customer Base, While Retaining Our
    Existing Customers.Many of our
    customers are large companies in a variety of industries that
    are deeply invested in both our products and our architectural
    approach to integration. The strategic importance of our
    products allows us, working with our partners, to develop strong
    relationships with our customers key technology decision
    makers. In addition, our strategic selling approach facilitates
    broad adoption of our products throughout a customers IT
    organization. All of these factors combine to represent an
    opportunity for us to continue to present new generations of
    technology solutions to our enterprise customers in the
    telecommunications, government and financial services
    industries. At the same time, the broader popularity of Web
    services gives us an opportunity to go outside of our
    traditional customer base to attract new customers with complex,
    costly and heterogeneous computing environments. We believe
    these new customers are interested in the reductions in IT cost
    and complexity that Web services and SOA can deliver. We also
    believe these new customers will find our traditional
    architectural approach, combined with our new generation of Web
    services integration solutions, compelling and competitive.
|
| |  | Leverage and Expand Strategic
    Alliances.We understand that
    relationships with leading software and other technology
    vendors, as well as system integrators, create opportunities to
    gain customers in broader markets than those otherwise available
    to us. We are focused on leveraging our established
    relationships and forging new alliances to enhance our
    marketing, selling and implementation initiatives. We believe
    that many of these vendors and system integrators seek to
    partner with strong infrastructure technology providers that
    will enable them to more rapidly satisfy customer needs. We have
    existing relationships with leading software and technology
    vendors, such as Business Objects, Hewlett-Packard and
    Manugistics, and global system integrators, such as
    BearingPoint, Computer Sciences Corporation (CSC) and EDS.
    We believe that these relationships better enable us to sell
    additional products to our existing customer base, acquire new
    customers and enhance our market presence.                                                                                                                                                                                                                                                                                                              

Products

We offer two product families, Artix and Orbix.
While our two product families are built upon different
technology foundations, each promotes a SOA and standards-based
approach to enterprise integration. In addition, both product
families allow our customers to reduce the cost and complexity
of enterprise IT and extend the life and value of IT investments.

Artix

We launched Artix in October 2003. Artix is our
family of high-speed integration products built upon Web
services standards. Artix is designed for organizations with
complex and heterogeneous computing environments. These
organizations use Artix to represent IT assets as Web services,
making it easy to integrate these assets or to consolidate
assets without disrupting operations.

Artix makes Web services, a promising but
relatively immature technology standard, immediately useful in
an enterprise context. For example, Artix empowers organizations
to incorporate the proven enterprise features of their existing
computing environments to add security, reliability,
availability and management features to Web services. Artix lets
organizations reuse existing middleware and application
functionality to create secure, manageable Web services
integration projects.

Artix is available on a wide range of hardware
and software platforms including many variants of Unix as well
as Microsoft platforms. Artix Mainframe is a mainframe-based
version of Artix that gives organizations the ability to
Web service enable IBMs Information Management Service, or
IMS, and Customer Information Control System, or CICS,
applications. IMS and CICS support large-scale,
transaction-intensive mainframe applications. Organizations with
large investments in CICS and IMS are committed to the ongoing
use of their mainframes, and need a secure means of reusing and
extending the life of those investments.

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Artix Mobile is a Web services-based process
integration broker that improves mobile workers
productivity by allowing them to work with enterprise
applications and data regardless of their Internet connectivity.
Artix Mobile transparently detects network
connectionswired or wirelessand transparently and
securely synchronizes data and documents between the mobile
users computer and enterprise applications.

Orbix

Orbix is our original high performance
infrastructure for mission-critical applications. Orbix is a
comprehensive and proven platform for extending or integrating
the most demanding component-based systems. Orbix encourages a
services-oriented approach to component development and
integration, with immediate benefits to productivity, efficiency
and operational expense.

Orbix is engineered to support the integration of
CORBA with other technologies, especially J2EE and Web services.
Orbix has been used to encourage the reuse of legacy systems by
replacing their proprietary application interfaces with
standards-based interfaces; to build new, service-oriented
systems in Java or C++; to extend the value of mainframe assets
by exposing them as services; and to non-intrusively augment
existing systems with new functionality.

Like Artix, Orbix meets the needs of enterprise
IT organizations by providing a set of enterprise qualities of
service for security, asynchronous messaging, management,
transactions, load balancing, and fault tolerance.

Services

We provide a variety of support and consulting
services to our customers. Our professional services personnel
provide our customers, partners and internal field organizations
with educational services, as well as product and architectural
consulting services. These personnel are senior technologists,
with substantial expertise in leading integration and
development technologies, including CORBA, J2EE and XML. Our
customer support personnel are dedicated to the ongoing support
and maintenance of our products. In addition to telephone-based
and on-site product support, we also provide customers with a
self-help support option in the form of a comprehensive online
database of technical information and advice.

Our customers are encouraged to purchase
annualized customer support agreements. Most product support is
provided through a combination of telephone and e-mail support
from our Dublin, Ireland headquarters and our
U.S. subsidiarys office in Waltham, Massachusetts.
Our original equipment manufacturers, value-added resellers and
independent software vendors depend on our customer service team
to provide backup for the front-line support that these vendors
provide to their customers.

As of December 31, 2003, our services
organization was comprised of 62 employees.

JBoss

The JBoss Group markets the industrys
leading open-source J2EE application server, JBoss. Through
our strategic alliance with the JBoss Group, we provide
enterprise-level JBoss users with J2EE consulting, training, and
support services. Our services and our history as a provider of
enterprise J2EE products, help JBoss users integrate the
JBoss platform into complex, heterogeneous, mission-critical
environments.

Product Development

Our technology and products have traditionally
been the result of internal development by our engineers and
strategic acquisitions. Product development is concentrated
primarily in our Dublin, Ireland headquarters and our
U.S. subsidiarys offices in Waltham, Massachusetts.
Our product management organization collaborates with our
marketing and sales organizations to increase sales of products
and to develop customer and indirect sales relationships.

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As of December 31, 2003, we had 123
employees dedicated to research and development. Our research
and development expenditures in 2003, 2002 and 2001 were
approximately $27.1 million, $38.3 million, and
$40.3 million, representing 36.6%, 31.0%, and 22.3% of
total revenue in 2003, 2002 and 2001, respectively. We expect to
continue investing significant resources in research and
development in the future.

Customers

Since our inception, we have licensed, directly
or indirectly, our products to more than 4,500 enterprise
or divisional customers worldwide. These customers operate in a
wide variety of industries including telecommunications,
finance, manufacturing, banking, government, medical, computing,
research and software. The following is a selected list of
customers across some of our targeted industries:

|                     |  |                           |  |                                         
|-------------------- |  | ------------------------- |  | ----------------------------------------
|Financial            |  | Telecom                   |  | Government                              
|                     |  |                           |  |                                         
|ABN AMRO             |  | BellSouth                 |  | U.S. Dept. of Energy                    
|Credit Suisse Group  |  | Con Edison Communications |  | Lombardia Informatica                   
|JPMorgan Chase       |  | Ericsson                  |  | U.S. Dept. of Transportation            
|Lehman Brothers      |  | Nokia                     |  | N.A.S.A.                                
|Winterthur Insurance |  | Omnitel                   |  | U.S. Environmental
    Protection Agency

No customer accounted for more than ten percent
of our total revenue in 2003, 2002 or 2001.

We derive a significant amount of our total
revenue from customers located outside the United States. Total
revenue from customers located outside the United States were
approximately 48.3%, 38.8%, and 33.8% of total revenue for 2003,
2002 and 2001, respectively. We expect revenue from customers
located outside the United States to continue to represent a
significant percentage of our total revenue for the foreseeable
future.

Sales and Marketing

We market our products and services through our
marketing and direct sales organizations and through indirect
channels including software vendors, system integrators,
original equipment manufacturers, and value-added resellers. As
of December 31, 2003, our sales and marketing organization
consisted of 115 professionals.

Our direct sales force consists of account
managers and field and telesales personnel, complemented by
technical pre-sales and high-level product specialists who are
available for customer visits. Our sales force and executive
team maintain relationships with customers senior
management for large-scale projects. Our sales force also
maintains contact at the developer level to understand and serve
the developers requirements.

Our sales organization is divided into three
geographical regions: the Americas, Asia-Pacific and
Europe/Middle East/Africa. In addition, we dedicate members of
our sales force to developing strategic relationships with our
indirect channel partners.

Our indirect distribution channels include
leading software vendors, such as Business Objects and
Manugistics; global system integrators, such as BearingPoint and
Accenture; leading original equipment manufacturers, such as
Intel and Hewlett-Packard; and resellers and distributors. We
believe that relationships with leading software and other
technology vendors, as well as system integrators, provide
opportunities to gain customers in markets where our products
and services are in demand.

Our marketing teams execute global marketing
programs designed to create demand for our products and
services. We rely on a variety of marketing programs for demand
creation, including trade shows, limited duration evaluation
software, direct marketing communications, Web casts, public
relations, product literature and collateral, trade advertising,
and a corporate Web site.

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Competition

Our sector of the software industry is very
dynamic and very competitive. The growing industry enthusiasm
for Web services has increased competition levels as consumers
begin to appreciate the potential value of Web services and Web
services technology providers.

We compete with a variety of software vendors,
including established providers of broad infrastructure
platforms, new and narrowly focused software companies, and even
shareware and freeware providers. In some cases, these
vendors offerings are narrowly defined and compete with
our products in a limited set of features or problems. Other
vendors target roughly the same range of IT problems as we do.
Still others have broad infrastructural offerings that compete
with our products in specific scenarios.

We compete against:



| |   |                                                             
| | - | ------------------------------------------------------------
| |  | Enterprise application infrastructure providers;            
|
| |  | Enterprise application integration software
    vendors; and
|
| |  | Web services integration companies.                         

We believe that the principal competitive factors
that affect the market for our products include:



| |   |                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------
| |  | Potential customers perception of our
    market leadership in a demanding and fast-moving technology
    environment;
|
| |  | Our continued conformity to industry standards,
    and customers ongoing preference for standards-based
    products;
|
| |  | Breadth of product offerings;                                                                                          
|
| |  | Product features and functionality;                                                                                    
|
| |  | Product ease-of-adoption and ease-of-use;                                                                              
|
| |  | Product quality;                                                                                                       
|
| |  | Our customer service and support;                                                                                      
|
| |  | Security, reliability, availability and other
    enterprise qualities of service;                                     
|
| |  | Product and service pricing;                                                                                           
|
| |  | Our reputation and financial viability.                                                                                

Patents and Proprietary Technology

We regard much of our intellectual property as
proprietary to us and rely primarily on a combination of
copyright, trademark, patent and trade secret laws, employee and
third-party non-disclosure agreements and technical measures to
establish and protect our proprietary rights. We own numerous
registered trademarks and trademark applications pending in the
United States, the European Union, Australia and Asia, as well
as other jurisdictions throughout the world.

While we generally use negotiated, signed license
agreements or shrink-wrap type licenses to restrict copying and
use of our software products, we do not generally embed
mechanisms in our software to prevent unauthorized use or
copying of our software. We do not rely significantly on patents
or other registered intellectual property rights to protect our
software. We also have a number of U.S. and international patent
and trademark applications pending. Because shrink-wrap type
licenses are not signed by licensees, they may be unenforceable
under the laws of certain jurisdictions. In addition, the laws
of various countries in which our products may be sold may not
protect proprietary rights to the same extent as the laws of the
United States and Ireland.

We license from time to time technologies and
products from third parties for incorporation in our products.

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We generally enter into confidentiality
agreements with our employees and consultants, and limit access
to, and distribution of, our proprietary information to
customers and potential customers.

Employees

As of December 31, 2003, we had
353 full-time employees, with 166 based in the
Americas, 151 based in Europe/Middle East/Africa and
36 based in Asia-Pacific. These employees include
123 in product development and management, 62 in
services, 18 in marketing, 97 in sales and 53 in
finance and administration. Our employees are not represented by
any collective bargaining organizations, and we have not
experienced any work stoppages. Our relations with our employees
are good.

Legal Proceedings

We are not a party to any legal proceedings that,
if resolved or determined adversely to us, would have a material
adverse effect on our business, financial condition and results
of operation. We, however, are subject to claims and litigation
in the ordinary course of business. In the event that any such
claims or litigation are resolved against us, such outcomes or
resolutions could have a material adverse effect on our
business, financial condition or results of operations.

Government Regulations

We have significant operations and generate a
substantial portion of our taxable income in Ireland. In
general, the tax rate in Ireland on trading income, which is
12.5% as of January 1, 2003, is significantly lower than
U.S. tax rates. Moreover, our Irish taxable income derived
from software substantially developed in Ireland is taxed at a
10% effective tax rate. Therefore, our effective tax rate is
affected by the percentage of revenue that qualifies for this
favorable tax treatment. We anticipate that we will continue to
benefit from this tax treatment, although the extent of the
benefit could vary from period to period, and our tax treatment
may change in the future. Any variation in the amount of our
benefit from this tax treatment could have a material adverse
effect on our business, financial condition and results of
operations.

For more information regarding the impact of tax
regimes on our business, please see Item 3.D. Risk
FactorsIf our effective tax rate increases, our business
and financial results would be adversely impacted and
Item 10.E. Taxation.

Principal Markets

For a description of the principal markets in
which we compete, including a breakdown of total revenues by
category of activity and geographic market for each of the last
three financial years, see Item 5 Operating and
Financial Review and Prospects.

Seasonality and Raw Materials

Historically, our product revenue in the first
quarter of each year has declined from the fourth quarter of the
prior year. Our products and services do not materially depend
on the availability of raw materials.






|   |                         
|-- | ------------------------
|C. | Organizational Structure

IONA Technologies PLC has 31 direct and
indirect subsidiaries, of which two are significantIONA
Technologies, Inc. (IONA U.S.), incorporated in Delaware
and IONA Technologies Finance (IONA Finance), incorporated in
the Cayman Islands. IONA U.S. and IONA Finance are
wholly-owned by IONA Technologies PLC.

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|   |                                   
|-- | ----------------------------------
|D. | Property, Plants and
    Equipment

Our headquarters are currently located in a
leased facility in Dublin, Ireland. This facility consists
of approximately 55,900 square feet of office space, under
a lease expiring on July 31, 2023, subject to our right to
terminate the lease on July 31, 2013. As of
December 31, 2003, we occupied 23,397 square feet of
the office space and sublet approximately 18,280 square
feet with the remainder deemed idle. The principal
U.S. office of our wholly-owned subsidiary, IONA
Technologies, Inc., is located in a leased facility in
Waltham, Massachusetts. This facility consists of approximately
65,500 square feet of office space, under a lease expiring
in 2006, subject to our right to renew for an additional term of
five years expiring in 2011. As of December 31, 2003, we
occupied approximately 30,718 square feet and sublet
approximately 28,782 square feet with the remainder deemed
idle. In addition, our wholly-owned subsidiaries maintain
offices in Colorado, Virginia, Newfoundland (Canada), Frankfurt
(Germany), Milan, Paris, and Tokyo. We believe that these
facilities are adequate for our present operations and that
additional facilities to support our present and future
operations are available on commercially reasonable terms. We do
not expect in the near future to move to new, or expand into
additional, facilities. However, in the event of any such move
or expansion there could be a material adverse effect on our
business, financial condition and results of operation or a
disruption in the development or marketing of products. For more
information, please see Item 3.D. Risk Factors.

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|        |                                                 
|------- | ------------------------------------------------
|Item 5. | OPERATING AND FINANCIAL REVIEW AND
    PROSPECTS

The following discussion and analysis of
financial condition and results of operations should be read in
conjunction with the condensed consolidated financial statements
for the periods specified and associated notes included in
Item 3.A. Selected Financial Data. The
following discussion and analysis of financial condition and
results of operations contains forward-looking statements within
the meaning of the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995 that relate to
future events or our future financial performance. In some
cases, you can identify forward-looking statements by
terminology, such as may, will,
should, could, expect,
plan, anticipate, believe,
estimate, project, predict,
intend, potential, or
continue or the negative of such terms or other
comparable terminology, although not all forward-looking
statements contain such terms. In addition, these
forward-looking statements include, but are not limited to,
statements regarding, among other things ,our plans, objectives,
expectations and intentions. These forward-looking statements
are neither promises nor guarantees but rather are subject to a
number of risks and uncertainties which could cause actual
results to differ materially from those described in the
forward-looking statements, including risks and uncertainties
relating to IONAs cost reduction efforts; the launch of
IONAs integration software; growth in market demand for
Web services and integration; IONAs sales model; volume,
timing and seasonal patterns of product sales; impact of
competitive products and pricing; development, launch and market
acceptance of new and improved products; the integration of any
future acquisitions; undetected errors in software; and general
economic conditions, including their effect on the acquisition
of new accounts and the time required to close sales
transactions. Further reference should be made to Item 3.D.
Risk Factors.






|   |                  
|-- | -----------------
|A. | Operating Results

Overview

IONA is in the integration software business. We
make software work together so our customers can make better
decisions, run their businesses more efficiently and improve
their business results. Our software products enable our
customers to build, maintain and scale their disparate computing
environments while preserving and extending existing information
technology (IT) investments. We also offer professional
services, including ongoing customer support and maintenance as
well as high-level design consultation, education and product
implementation.

Our revenue is derived from product license fees
and charges for support and professional services. We recognize
revenues in accordance with the provisions of the American
Institute of Certified Public Accountants Statement of Position
(SOP) 97-2, Software Revenue Recognition, as
amended by SOP 98-4 and SOP 98-9 and related
interpretations. In accordance with U.S. GAAP, we recognize
software license revenue when persuasive evidence of an
arrangement exists, delivery has occurred, our fee is fixed or
determinable, and collectibility is probable. We recognize
customer support revenue over the term of the support agreement,
generally 12 months. We recognize professional service
revenue when the services are performed.

Our customers are corporate IT departments of
large organizations with complex, heterogeneous computing
environments and challenging integration problems. Our customers
operate worldwide in a variety of industries including
telecommunications, finance, manufacturing, banking, government,
medical, computing, research and software. No single customer
accounted for more than 10% of total revenue in 2003, 2002, or
2001.

To date, we have derived most of our revenue from
the licensing of our enterprise integration software products
that currently comprise our Orbix products, and fees from
related services. We expect that our other products will
increasingly contribute to our revenue. We market our product
and services through our direct marketing and sales
organizations and through indirect channels, including software
vendors, system integrators, original equipment manufacturers,
value-added resellers and, to a lesser extent, third-party
distributors. Our total revenue is dependent on the growth in
demand for our software. In general, product revenue in the
first quarter of each year declines from the fourth quarter of
the prior year in line with traditional seasonal trends.

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Our total revenue was approximately
$74.2 million in 2003, $123.2 million in 2002 and
$180.7 million in 2001. Total revenue from customers
located outside the United States was approximately
$35.9 million, or 48.3% of total revenue, in 2003,
$47.8 million, or 38.8% of total revenue, in 2002 and
$61.0 million, or 33.8% of total revenue, in 2001. As a
percentage of total revenue, product revenue was approximately
48.2% in 2003, 59.6% in 2002 and 65.4% in 2001.

Our gross margins are affected by the mix of
product and service revenue and the mix of distribution channels
used by us. We typically realize significantly higher gross
margins on product revenue than on service revenue. Product
gross margins as a percentage of product revenue was
approximately 98.5%, 97.7% and 97.3% in 2003, 2002 and 2001,
respectively. Service gross margins as a percentage of service
revenue was approximately 62.9%, 48.9% and 44.1% in 2003, 2002
and 2001, respectively. The increase in service gross margin
from 2002 to 2003 was primarily attributable to a reduction in
service personnel, as a result of our restructuring plans,
coupled with higher utilization rates.

We have significant operations and generate a
substantial portion of our taxable income in Ireland. In general
the tax rate in Ireland on trading income, which is 12.5% as of
January 1, 2003, is significantly lower than U.S. tax
rates. Moreover, our Irish taxable income derived from software
substantially developed in Ireland is taxed at a 10% effective
tax rate. Therefore, our effective tax rate is affected by the
percentage of revenue that qualifies for such favorable tax
treatment. We anticipate that we will continue to benefit from
this tax treatment, although the extent of the benefit could
vary from period to period, and our tax treatment may change in
the future.

Impact of Acquisitions

In 2001, we acquired Netfish
Technologies, Inc. (Netfish). The total consideration
consisted of 4,221,216 newly-issued ordinary shares, 815,102
ordinary shares issuable upon the exercise of replacement
options and $30.9 million of closing costs incurred in
connection with the merger. Of the newly-issued ordinary shares,
504,598 were held back by us as a source of indemnification
payments that may become due to us. If we made no claims for
indemnification, 75% of the 504,598 ordinary shares, or
378,448 shares, would have been distributed to the former
holders of Netfish shares in May 2002 and 25% of the 504,598
ordinary shares, or 126,150 shares, would have been
distributed in May 2003. In May 2002, we held back 142,045
ordinary shares to cover indemnification claims made by us. In
May 2003, an additional 126,150 ordinary shares were held back
to cover the indemnification claims that we previously made. If
pending indemnification claims are resolved in a manner
unfavorable to us, up to 268,195 ordinary shares held back by us
could be distributed to the former holders of Netfish shares.

In 2001, we acquired Object-Oriented
Concepts, Inc. (OOC). The total consideration consisted of
$3.0 million in cash, 730,453 newly-issued ordinary shares
and 178,131 ordinary shares issuable upon the exercise of
replacement options. Of the newly-issued ordinary shares,
262,129 were subject to return to us as a purchase price
adjustment upon the failure of OOC to achieve certain
performance targets. In 2001, 174,735 ordinary shares no longer
subject to return were recorded as additional purchase price
based on fair market value at the time the performance targets
were achieved. In 2002, the remaining 87,394 ordinary shares
were no longer subject to return to us and were recorded as
additional purchase price. The aggregate purchase price plus
related expenses have been allocated to the acquired assets and
liabilities at their estimated fair values at the date of the
acquisition based primarily on an independent valuation.

In 2001, we obtained from Software AG, Inc.
a non-exclusive license to Sagavista application integration
software for $10.0 million and hired a substantial portion
of the Software AG, Inc. engineering team responsible for
the development of the technology.

In 2000, we acquired Genesis Development
Corporation (Genesis). At the time of acquisition, 176,156
ordinary shares were subject to return to us as a purchase price
adjustment upon the failure of Genesis to achieve certain
performance targets. The contingency was resolved in May 2001
and, consequently, the ordinary shares no longer subject to
return were recorded as additional purchase price based on their
fair market value at the time the contingency was resolved.

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In accordance with Statement of Financial
Accounting Standards No. 142, Goodwill and Other
Intangible Assets (SFAS 142), in October 2002, we
completed our assessment of the carrying value of purchased
technologies and completed the relevant impairment tests as
required by Statement of Financial Accounting Standards
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (SFAS 144). Due to unfavorable
market conditions and changes in our product strategy, it was
determined that the carrying values of purchased technologies
exceeded their fair value resulting in the recording of a
non-cash impairment charge of $28,586,000.

Our assessment included an independent analysis
of the carrying values of purchased technologies, recorded in
connection with the acquisitions of Object Oriented
Concepts, Inc., Netfish Technologies, Inc. and
Software AG, including an initial comparison of the carrying
value for each purchased technology to the future undiscounted
cash flows associated with the technology. As a result of this
analysis, it was determined due to the excess carrying value
associated with each purchased technology that further
impairment testing was required. We recorded non-cash impairment
losses in October 2002, for the purchased technologies recorded
in connection with the acquisitions of Object Oriented
Concepts, Inc., Netfish Technologies, Inc., and
Software AG of approximately $4,461,000, $11,496,000 and
$6,250,000 respectively. These impairment losses (reflected in
the consolidated statement of operations as impairment of
intangible assets and fixed assets) represent the amount by
which the carrying value of each purchased technology exceeded
its estimated fair value, calculated by discounting future cash
flows for each purchased technology to a present value using a
rate of return which reflected the relative risk of the
investment and the time value of money. In addition in 2002, as
a result of changes in product strategy, in reaction to market
conditions, which resulted in changes to our product suite and
the elimination of certain other purchased technologies from our
product suite, an impairment loss of approximately $6,379,000
was recorded, equivalent to the carrying values of these
purchased technologies.

Critical Accounting Policies and
Estimates

Our consolidated financial statements are
prepared in accordance with accounting principles generally
accepted in the United States (U.S. GAAP). These accounting
principles require us to make certain estimates, judgments and
assumptions. We believe that the estimates, judgments and
assumptions upon which we rely are reasonable based upon
information available to us at the time that these estimates,
judgments and assumptions are made. These estimates, judgments
and assumptions can affect the reported amounts of assets and
liabilities as of the date of the consolidated financial
statements, as well as the reported amounts of revenues and
expenses during the periods presented. To the extent there are
material differences between these estimates, judgments or
assumptions and actual results, our financial statements will be
affected. The significant accounting policies that we believe
are the most critical to aid in fully understanding and
evaluating our reported financial results include the following:



| |   |                                            
| | - | -------------------------------------------
| |  | Revenue Recognition;                       
|
| |  | Allowances for Doubtful Accounts;          
|
| |  | Restructuring Charge;                      
|
| |  | Legal Contingencies;                       
|
| |  | Accounting for Income Taxes;               
|
| |  | Impairment of Other Non-Current Assets; and
|
| |  | Foreign Currency.                          

In many cases, the accounting treatment of a
particular transaction is specifically dictated by
U.S. GAAP and does not require managements judgment
in its application. There are also areas in which
managements judgment in selecting among available
alternatives would not produce a materially different result.

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| |                    
| | -------------------
| | Revenue Recognition

We recognize the majority of our revenue pursuant
to software license agreements. While the basis for software
license revenue recognition is substantially governed by the
provisions of SOP 97-2, Software Revenue
Recognition, issued by the American Institute of Certified
Public Accountants and as amended by SOP 98-4 and
SOP 98-9 and related interpretations, we exercise judgment
and use estimates in connection with the determination of the
amount of software license and services revenues to be
recognized in each accounting period.

For software license arrangements that do not
require significant modification or customization of the
underlying software, we recognize revenue when: (1) we
enter into a legally binding arrangement with a customer for the
license of software; (2) we deliver the products or perform
the services; (3) customer payment is deemed fixed or
determinable and free of contingencies or significant
uncertainties; and (4) collection is probable.
Substantially all of our license revenues are recognized in this
manner.

For arrangements with multiple elements, we
allocate revenue to each element of a transaction based upon its
fair value as determined by vendor specific objective
evidence. Vendor specific objective evidence of fair value
for each element of an arrangement is based upon the normal
pricing and discounting practices for each element when sold
separately, including the renewal rate for support services. If
we cannot objectively determine the fair value of any
undelivered element included in the multiple element
arrangement, we defer revenue until all elements are delivered,
services have been performed, or until fair value can be
objectively determined. When the fair value of a delivered
element cannot be established, we use the residual method to
record license revenue, provided the fair value of all
undelivered elements is determinable. Under the residual method,
the fair value of the undelivered elements is deferred and the
remaining portion of the arrangement fee is allocated to the
delivered elements and is recognized as revenue.

We assess whether fees are fixed or determinable
at the time of sale and recognize revenue if all other revenue
recognition requirements are met. Our standard payment terms are
net 30; payment terms, however, may vary based on the country in
which the agreement is executed. Payments that extend beyond
30 days from the contract date but that are due within
twelve months are generally deemed to be fixed or determinable
based on our successful collection history on such arrangements,
and thereby satisfy the required criteria for revenue
recognition.

While most of our arrangements include payment
terms of less than one year, we have, in the past, provided
payment terms of more than one year to credit worthy customers.
We had established a history of collection, without concessions,
on these receivables with payment terms that extended beyond one
year. Provided all other revenue recognition criteria had been
met, we recognized license revenue for these arrangements upon
delivery.

We assess whether collection is probable at the
time of the transaction based on a number of factors, including
the customers past transaction history and credit
worthiness. If we determine that the collection of the fee is
not probable, we defer the fee and recognize revenue at the time
collection becomes probable, which is generally upon the receipt
of cash.

We generally deliver products F.O.B shipping or
electronically, and our software arrangements typically do not
contain acceptance provisions. Accordingly, delivery is usually
satisfied when the product leaves our premises, or if shipped
electronically, when the customer has been provided with access
codes to allow them to take immediate possession of the software.

Revenue for consulting services is generally
recognized on a time and material basis. Revenue from royalty
arrangements in excess of guaranteed amounts is recognized upon
notification of such royalties payable by the customer.

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| |                     
| | --------------------
| | Restructuring Charge

During 2003, 2002 and 2001, we recorded
restructuring charges to align our cost structure with changing
market conditions. Our restructuring plan resulted in a
reduction in headcount and the closure and consolidation of
excess facilities.

We were required to make certain estimates and
assumptions in assessing the operating lease charges arising
from a reduction in facility requirements. The operating lease
charges were calculated by taking into consideration
(1) the committed annual rental charge associated with the
vacant square footage, (2) an assessment of the sublet
rents that could be achieved based on current market conditions,
vacancy rates and future outlook following consultation with
third party realtors, (3) an assessment of the period of
time the facility would remain vacant before being sub-let,
(4) an assessment of the percentage increases in the
primary lease rent at each review, and (5) the application
of a discount rate of 4% over the remaining period of the lease
or break clause.

These estimates are reviewed at the end of each
period and would be revised if estimated future vacancy rates
and sublease rates vary from our original estimates.
Historically, our estimates and assumptions used to determine
the liability have been consistent with actual results
experienced. Revisions to our estimates of this liability could
materially impact our operating results and financial position
in future periods if anticipated events and assumptions, such as
the timing and amounts of sublease rental income, either change
or do not materialize.



| |                                 
| | --------------------------------
| | Allowances for Doubtful Accounts

We maintain allowances for doubtful accounts, as
a reduction of accounts receivable, based on our analyses of the
likelihood our customers will not pay us all the amounts due us.
In circumstances where there is knowledge of a specific
customers inability to meet its financial obligations, a
specific reserve is recorded against amounts due to reduce the
net recognized receivable to the amount that is reasonably
believed to be collectable. For all our customers we perform
analyses, which includes a review of their credit profiles, the
terms and conditions of the contracts with our customers, and
the current economic trends and payment history. We reassess
these allowances each accounting period. Historically, our
actual losses and credits have been consistent with these
provisions. If actual payment experience with our customers is
different than our estimates, adjustments to these allowances
may be necessary resulting in additional charges to our
statement of operations.



| |                    
| | -------------------
| | Legal Contingencies

We are involved in various claims and legal
proceedings. Periodically, we review the status of each
significant matter and assess our potential financial exposure,
in consultation with external counsel, based on the facts and
circumstances available to us and the probability of potential
loss arising from the claim. If the potential loss from any
claim or legal proceeding is considered probable and the amount
can be estimated, we accrue a liability for the estimated loss.
Because of uncertainties related to these matters, accruals are
based only on the best information available at the time. As
additional information becomes available, we reassess the
potential liability related to our pending claims and litigation
and may revise our estimates. Such revisions in the estimates of
the potential liabilities could have a material impact on our
results of operations and financial position.



| |                            
| | ---------------------------
| | Accounting for Income Taxes

Significant judgment is required in determining
our worldwide income tax expense provision. In the ordinary
course of a global business, there are many transactions and
calculations where the ultimate tax outcome is uncertain. Some
of these uncertainties arise as a consequence of income sharing
and cost reimbursement arrangements among related entities, the
process of identifying items of income and expense that qualify
for preferential tax treatment and segregation of foreign and
domestic income and expense to avoid double taxation. Although
we believe that our estimates are reasonable, no assurance can
be given that the final tax outcome of these matters will not be
different than that which is reflected in our

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historical income tax provisions and accruals.
Such differences could have a material effect on our income tax
provision and net income in the period in which such
determination is made.


We record a valuation allowance to reduce our
deferred tax assets by the amount of tax benefits we estimate
are not expected to be realized. Tax benefits will not be
realized if we do not generate sufficient taxable income in the
future to apply the deferred tax balance. As of
December 31, 2003, a valuation allowance equal to the value
of the deferred tax assets was maintained. In the event we
determined we could realize our deferred tax assets in the
future in excess of its net recorded amount, an adjustment to
the deferred tax assets would increase income in the period such
a determination was made.

In addition, we operate within multiple taxing
jurisdictions and may be subject to audits in these
jurisdictions. These audits can involve complex issues that may
require an extended period of time for resolution. In
managements opinion, adequate provisions for income taxes
have been made.



| |                                           
| | ------------------------------------------
| | Impairment of Other Non-Current
    Assets

Other Non-Current Assets represents costs of
technology acquired from acquisitions which have reached
technological feasibility. The costs of technology have been
capitalized and are amortized to the statement of operations
over the period during which benefits are expected to accrue,
currently estimated at four years. We are required to test our
non-current assets for impairment whenever events or
circumstances indicate that the value of the assets may be
impaired. Factors we consider important, which could trigger
impairment include:



| |   |                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------
| |  | significant underperformance relative to expected
    historical or projected future operating results;          
|
| |  | significant changes in the manner of our use of
    the acquired assets or the strategy for our overall business;
|
| |  | significant negative industry or economic trends;                                                                
|
| |  | significant decline in our stock price for a
    sustained period; and                                           
|
| |  | significant decline in our market capitalization
    relative to net book value.                                 

Where events and circumstances are present which
indicate that the carrying value may not be recoverable, we will
recognize an impairment loss. Such impairment loss is measured
by comparing the fair value of the asset with its carrying
value. The determination of the value of such intangible assets
requires management to make assumptions regarding future
business conditions and operating results in order to estimate
future cash flows to determine the fair value of the respective
assets. If the assets carrying value is not recoverable
through the related cash flows, the asset is considered to be
impaired. The impairment is measured by the difference in the
assets carrying amount and its fair value, based on the
best information available, including market prices or
discounted cash flow analysis. If these estimates or the related
assumptions change in the future, we could be required to record
additional impairment charges.



| |                 
| | ----------------
| | Foreign Currency

The U.S. dollar is the functional currency
for the Company. A percentage of our revenues, expenses, assets
and liabilities are denominated in currencies other than our
functional currency. Assets and liabilities denominated in
foreign currencies are translated at year end exchange rates
while revenues and expenses are translated at rates
approximating those ruling at the dates of the related
transactions. Resulting gains and losses are included in net
income (loss) for the year. Fluctuations in exchange rates may
have a material adverse effect on our results of operations,
particularly our operating margins, and could also result in
exchange gains and losses. We cannot accurately predict the
impact of future exchange rate fluctuations on our results of
operations. We have in the past sought to hedge the risks
associated with fluctuations in exchange rates of the Irish
pound and the euro to the dollar. However, because the majority
of our sales and expenses are currently U.S. dollar-based,
we no longer enter into foreign currency forward exchange
contracts to manage exposure related to transactions denominated
in foreign currencies. In the

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future, we may undertake transactions to hedge
the risks associated with fluctuations in exchange rates if the
risk from foreign currency exposure increases as a result of a
decrease in the percentage of U.S. dollar-based
transactions. We had no derivative or hedging transactions in
2003, 2002 or 2001.


Taxation

We have significant operations and generate a
substantial portion of our taxable income in Ireland. In
general, the tax rate in Ireland on trading income, which is
12.5% as of January 1, 2003, is significantly lower than
U.S. tax rates. Moreover, our Irish taxable income derived
from software substantially developed in Ireland is taxed at a
10% effective tax rate. Therefore, our effective tax rate is
affected by the percentage of revenue that qualifies for such
favorable tax treatment. See Item 10.E.
Taxation. We anticipate that we will continue to
benefit from this tax treatment, although the extent of the
benefit could vary from period to period, and our tax treatment
may change in the future. Any variation in the amount of our
benefit from this tax treatment could have a material adverse
effect on our business, financial condition and results of
operations. See Item 3.D. Risk FactorsIf our
effective tax rate increases, our business and financial results
would be adversely impacted.

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Results of Operations

The following table sets forth certain operating
data as a percentage of total revenue for the periods indicated:

|                     |                                                         |                          |       |       |       |      |        |        |       |  |       |       |       | 
|-------------------- | ------------------------------------------------------- | ------------------------ | ----- | ----- | ----- | ---- | ------ | ------ | ----- |  | ----- | ----- | ----- | 
|                     |                                                         |                         
|                     |                                                         | Year Ended December 31, 
|                     |                                                         |                         
|                     |                                                         | 2003                     |       | 2002  |       | 2001
|                     |                                                         |                          |       |       |       |     
|Revenue:             |                                                         |                          |       |       |       |      |        |        |       |  |       |      
|                     | Product revenue                                         |                          |       | 48.2  | %     |      |        | 59.6   | %     |  |       | 65.4  | %    
|                     | Service revenue                                         |                          |       | 51.8  |       |      |        | 40.4   |       |  |       | 34.6  |      
|                     |                                                         |                          |       |       |       |      |        |        |       |  |       |      
|                     |                                                         | Total revenue            |       |       | 100.0 |      |        |        | 100.0 |  |       |       | 100.0 | 
|                     |                                                         |                          |       |       |       |      |        |        |       |  |       |      
|Cost of revenue:     |                                                         |                          |       |       |       |      |        |        |       |  |       |      
|                     | Cost of product revenue                                 |                          |       | 0.7   |       |      |        | 1.4    |       |  |       | 1.8   |      
|                     | Cost of service revenue                                 |                          |       | 19.3  |       |      |        | 20.6   |       |  |       | 19.3  |      
|                     |                                                         |                          |       |       |       |      |        |        |       |  |       |      
|                     |                                                         | Total cost of revenue    |       |       | 20.0  |      |        |        | 22.0  |  |       |       | 21.1  | 
|                     |                                                         |                          |       |       |       |      |        |        |       |  |       |      
|                     |                                                         | Gross profit             |       |       | 80.0  |      |        |        | 78.0  |  |       |       | 78.9  | 
|Operating expenses:  |                                                         |                          |       |       |       |      |        |        |       |  |       |      
|                     | In-process research and development                     |                          |       |      |       |      |        |       |       |  |       | 2.0   |      
|                     | Research and development                                |                          |       | 36.6  |       |      |        | 31.0   |       |  |       | 22.3  |      
|                     | Sales and marketing                                     |                          |       | 55.9  |       |      |        | 59.1   |       |  |       | 48.9  |      
|                     | General and administrative                              |                          |       | 13.8  |       |      |        | 10.8   |       |  |       | 8.5   |      
|                     | Amortization of other non-current assets                |                          |       | 1.1   |       |      |        | 8.2    |       |  |       | 7.8   |      
|                     | Amortization of goodwill                                |                          |       |      |       |      |        |       |       |  |       | 34.0  |      
|                     | Restructuring                                           |                          |       | 27.7  |       |      |        | 16.9   |       |  |       | 3.1   |      
|                     | Impairment of goodwill                                  |                          |       |      |       |      |        | 224.6  |       |  |       |      |      
|                     | Impairment of intangible assets and fixed assets        |                          |       | 4.4   |       |      |        | 26.3   |       |  |       |      |      
|                     |                                                         |                          |       |       |       |      |        |        |       |  |       |      
|                     |                                                         | Total operating expenses |       |       | 139.5 |      |        |        | 376.9 |  |       |       | 126.6 | 
|                     |                                                         |                          |       |       |       |      |        |        |       |  |       |      
|Loss from operations |                                                         |                          | (59.5 | )     |       |      | (298.9 | )      |       |  | (47.7 | )    
|                     | Interest income, net                                    |                          |       | 0.7   |       |      |        | 0.9    |       |  |       | 1.4   |      
|                     | Net exchange gain (loss)                                |                          |       | 0.5   |       |      |        | (0.4   | )     |  |       | (0.3  | )    
|                     | Gain on sale of investment and other income             |                          |       |      |       |      |        |       |       |  |       | 0.1   |      
|                     |                                                         |                          |       |       |       |      |        |        |       |  |       |      
|                     | Loss before provision for (benefit of) income
    taxes |                          |       | (58.3 | )     |      |        | (298.4 | )     |  |       | (46.5 | )    
|                     | Provision for (benefit of) income taxes                 |                          |       | 1.3   |       |      |        | 1.3    |       |  |       | (0.3  | )    
|                     |                                                         |                          |       |       |       |      |        |        |       |  |       |      
|                     | Net Loss                                                |                          |       | (59.6 | )%    |      |        | (299.7 | )%    |  |       | (46.2 | )%   
|                     |                                                         |                          |       |       |       |      |        |        |       |  |       |      
|Gross profit:        |                                                         |                          |       |       |       |      |        |        |       |  |       |      
|                     | Product (as a percentage of product revenue)            |                          |       | 98.5  | %     |      |        | 97.7   | %     |  |       | 97.3  | %    
|                     | Service (as a percentage of service revenue)            |                          |       | 62.9  | %     |      |        | 48.9   | %     |  |       | 44.1  | %    

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



| |              
| | -------------
| | Total Revenue

Total revenue decreased by 39.8% to
$74.2 million in 2003 from $123.2 million in 2002.
Total revenue from customers located outside of the United
States represented 48.3% of total revenue in 2003 and 38.8% of
total revenue in 2002, or $35.9 million and
$47.8 million, respectively. The total number of revenue
transactions over $250,000 decreased from 84 in 2002 to 62 in
2003, and there was a corresponding decrease in average deal
size from approximately $53,000 to $51,000. No customer
accounted for more than 10% of our total revenues in 2003 or
2002.

Product Revenue.Product revenue decreased by 51.3% to $35.7 million in 2003
from $73.5 million in 2002. The decrease in product revenue
was attributable to decreased sales of our products, resulting

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from the effects of the macroeconomic
climates continuing impact on IT spending and the software
market as a whole.


Service Revenue.We
provide professional services, consisting of consulting and
training, technical support for all of our products and, to a
limited extent, product customization and enhancement.
Consulting services provided by us include training and
assisting customers with the effective use and deployment of our
products. Customer support generally includes support by means
of telephone, e-mail, facsimile and customer on-site assistance
as well as access to certain product upgrades. Service revenue
decreased by 22.8% to $38.5 million in 2003 from
$49.8 million in 2002. The decrease in service revenue was
principally due to the effects of the macroeconomic
climates continuing impact on IT spending and the software
market as a whole, which resulted in a decrease in demand for
consultancy services.



| |                
| | ---------------
| | Cost of Revenue

Cost of Product
Revenue.Cost of product revenue
consists primarily of product media and duplication, manuals,
packaging materials, shipping and handling expenses, third-party
royalties and, to a lesser extent, the salaries and benefits of
certain personnel and related operating costs of computer
equipment. Cost of product revenue was $0.5 million,
resulting in a product gross margin of 98.5%, in 2003 compared
to $1.7 million, resulting in a product gross margin of
97.7%, in 2002. The increase in product gross margin was
primarily attributable to shipping and material efficiencies and
lower third-party royalty expenses due to a decrease in the
proportion of products sold that contain third-party software
embedded with our software product offerings.

Cost of Service
Revenue.Cost of service revenue
consists primarily of personnel costs for consultancy, training,
customer support, product customization and enhancement, and
related operating costs of computer equipment and non-billable
travel expenses. Cost of service revenue was $14.3 million,
resulting in a service gross margin of 62.9%, in 2003 compared
to $25.5 million, resulting in a service gross margin of
48.9%, in 2002. The increase in service gross margin was
primarily attributable to a reduction in service personnel, as a
result of our restructuring plans, coupled with higher
utilization rates. The number of service personnel decreased
from 102 in 2002 to 62 in 2003.



| |                   
| | ------------------
| | Operating Expenses

Research and
Development.Research and development
expenses consist primarily of salaries and benefits of research
and development personnel, costs of third-party contractors,
personnel-related overhead allocation, depreciation expenses
arising from the acquisition of computer equipment, software
license fees, and related indirect costs. Research and
development expenses were $27.1 million, or 36.6% of total
revenue, in 2003 compared to $38.3 million, or 31.0% of
total revenue, in 2002. The decrease in research and development
expenses in dollar amount was primarily the result of cost
reduction measures and restructuring plans implemented by
management in 2002 and 2003 (as described below in
Restructuring) with the increase in research and
development expenses as a percentage of total revenue due to
declining revenues. The number of research and development
personnel decreased from 197 in 2002 to 123 in 2003. We expect
that research and development expenses will decrease in dollar
amount in 2004 as we realize the full year effect from the
reduction in personnel and other cost reductions from our
restructuring plans implemented in 2003.

Sales and Marketing.Sales and marketing expenses consist primarily of salaries,
sales commissions and benefits earned by sales and marketing
personnel, personnel-related overhead allocation, travel,
entertainment, advertising and promotional expenses, and related
indirect costs. Sales and marketing expenses were
$41.5 million, or 55.9% of total revenue, in 2003 compared
to $72.9 million, or 59.1% of total revenue, in 2002. The
decrease in sales and marketing expenses in dollar amount was
primarily the result of cost reduction measures and
restructuring plans implemented by management in 2002 and 2003
(as described below in Restructuring), in addition
to a decrease in promotional and public relations activities of
approximately $4.3 million, as well as a decrease in sales
commissions of approximately $3.0 million that resulted
from lower license revenue during 2003. The number of sales and
marketing

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personnel decreased from 234 in 2002 to 115 in
2003. We expect that sales and marketing expenses will decrease
in dollar amount in 2004 as we realize the full year effect from
the reduction in personnel and other cost reductions from our
restructuring plans implemented in 2003.


General and
Administrative.General and
administrative expenses consist primarily of salaries and
benefits of financial, administrative and management personnel,
general office administration expenses (rent and occupancy,
telephone and other office supply costs), and related indirect
costs. General and administrative expenses also include
professional fees, liability insurance and depreciation. General
and administrative expenses were $10.3 million, or 13.8% of
total revenue, in 2003 compared to $13.3 million, or 10.8%
of total revenue, in 2002. The decrease in general and
administrative expenses in dollar amount was primarily the
result of cost reduction measures and restructuring plans
implemented by management in 2002 and 2003 (as described below
in Restructuring) with the increase in general and
administrative expenses as a percentage of total revenue due to
declining revenues. The number of general and administrative
personnel decreased from 95 in 2002 to 53 in 2003. We expect
that general and administrative expenses will decrease in dollar
amount in 2004 as we realize the full year effect from the
reduction in personnel and other cost reductions from our
restructuring plans implemented in 2003, as well as a reduction
in professional fees and liability insurance premiums.

Amortization of Other Non-Current
Assets.Amortization of other
non-current assets consists of the amortization of purchased
technologies acquired by us, which have reached technological
feasibility. Effective January 1, 2002, we adopted
SFAS 142, which changed the accounting for goodwill and
intangible assets with indefinite lives, but required intangible
assets such as purchased technologies to continue to be
amortized over their useful economic lives. Upon adoption of
SFAS 142 in January 2002, the net carrying amount of
assembled workforce of $6.9 million was reclassified from
other non-current assets to goodwill. SFAS 142 requires
intangible assets that are amortizable to be reviewed for
impairment in accordance with SFAS 144.

In October 2002, and again in October 2003, we
completed our assessment of the carrying value of purchased
technologies and the relevant impairment tests as required by
SFAS 144. This assessment resulted in a non-cash impairment
charge of $28,586,000 and $80,000 in 2002 and 2003,
respectively, representing the amount by which the carrying
value exceeded the fair value of purchased technologies.

Amortization of other non-current assets was
$0.8 million, or 1.1% of total revenue in 2003, compared to
$10.1 million, or 8.2% of total revenue in 2002. The
decrease in amortization of other non-current assets is
primarily attributable to the reduction in the carrying value of
purchased technologies resulting from the impairment charge
recorded in October 2002. Other non-current assets are amortized
on a straight-line basis over 4 years.

Restructuring.In
2003, our management and board of directors approved
restructuring plans, which included consolidation of excess
facilities, a reduction in workforce and other related costs.
Total restructuring costs of $20.5 million were recorded
related to these initiatives. Restructuring expenses included
approximately $11.0 million representing the cost of
involuntary employee separation and related costs for
approximately 278 employees worldwide. Employee separations
affected the majority of business functions, job classes and
geographies. In addition, the restructuring plans included costs
totaling approximately $9.5 million associated with the
closure and consolidation of office space, principally in the
United States and Ireland. Cash outlays associated with
restructuring plans initiated in 2003, 2002 and 2001 totaled
approximately $16.8 million during 2003, including
approximately $11.2 million in severance and related
benefits paid to employees worldwide and $5.6 million in
facility closure costs.

In 2002, our management and board of directors
approved restructuring plans, which included consolidation of
excess facilities, a reduction in workforce and other related
costs. Total restructuring costs of $20.8 million were
recorded related to these initiatives. Restructuring expenses
included approximately $12.3 million representing the cost
of involuntary employee separation and related costs for
approximately 300 employees worldwide. Employee separations
affected the majority of business functions, job classes and
geographies, with most of the reductions in sales and marketing,
engineering and professional services functions in the United
States and Europe. In addition, the restructuring plans included
costs totaling

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approximately $8.1 million associated with
the closure and consolidation of office space, principally in
the United States and approximately $0.4 million of other
related costs. Cash outlays associated with restructuring plans
initiated in 2002 and 2001 totaled approximately
$11.2 million during 2002, including approximately
$9.3 million in severance and related benefits paid to
employees worldwide, $1.5 million in facility closure costs
and $0.4 million in other costs.


Impairment of
Goodwill.Effective January 1,
2002, we adopted the new rules on accounting for goodwill and
other non-current assets in accordance with SFAS 142. There
was no impairment of goodwill upon adoption of SFAS 142. In
October 2002, as required by SFAS 142, we completed the
annual impairment test and assessment of the carrying value of
goodwill. As a result of unfavorable market conditions and a
decline in our market capitalization, this assessment resulted
in a non-cash impairment charge of $276.8 million,
equivalent to the carrying value of goodwill at October 1,
2002.

Impairment of Intangible Assets and Fixed
Assets.In 2003, we recorded a
$3.3 million impairment of intangible assets and fixed
assets. As a result of unfavorable market conditions and changes
in our product strategy, which we identified as indicators of
impairment under SFAS 144, we recorded a non-cash
impairment charge of $0.1 million, representing the amount
by which the carrying value exceeded the fair value of purchased
technologies. We also recorded a $3.2 million charge for
the fixed assets and related costs, for fixed assets no longer
in use in 2003, as a result of the restructuring activities in
2003.

In 2002, we recorded a $32.3 million
impairment of intangible assets and fixed assets. As a result of
unfavorable market conditions and changes in our product
strategy, we recorded a non-cash impairment charge of
$28.6 million, representing the amount by which the
carrying value exceeded the fair value of purchased
technologies. We also recorded a $3.7 million charge for
the fixed assets and related costs of which $1.6 million
was primarily attributable to our implementation of a new sales
force automation system that replaced an existing system. The
remainder of the write-offs relate to fixed assets no longer in
use in 2002, resulting in the reduction of their net book value
to nil.



| |                     
| | --------------------
| | Loss from Operations

We generated an operating loss of
$44.1 million, or 59.5% of total revenue, in 2003 compared
to an operating loss of $368.3 million, or 298.9% of total
revenue, in 2002. The operating loss in 2003 and 2002 reflects
the decrease in total revenue primarily as a result of general
economic conditions affecting the software market as a whole,
the non-cash impairment loss of $3.3 million and
$309.1 million, and restructuring charge of
$20.5 million and $20.8 million incurred in each of
the two years.



| |                  
| | -----------------
| | Other Income, Net

Interest income, net, primarily represents
interest earned on cash and investment balances. Interest
income, net was $0.5 million in 2003 compared to
$1.1 million in 2002. The decrease in interest income, net
was due primarily to lower average balances held in these
accounts and lower interest rates realized during 2003.

Net exchange gain was $0.3 million in 2003
compared to a net exchange loss of $0.5 million in 2002.
The net exchange gain for 2003 was primarily due to the
weakening of the U.S. dollar against the yen.

There were no sales of investments in 2003 or
2002.



| |             
| | ------------
| | Income Taxes

Income taxes were $0.9 million in 2003
compared to $1.5 million in 2002. See Factors
Affecting Future ResultsIf our effective tax rate
increases, our business and financial results would be adversely
impacted.

At December 31, 2003, we had a net operating
loss carryforward of approximately $105.4 million for
U.S. federal income tax purposes, including approximately
$65.0 million pre-acquisition losses from the Netfish
acquisition, which will expire in tax years 2011 through 2023 if
not previously utilized. At

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December 31, 2003, we also had net operating
loss carryforwards of approximately $105.9 million and
$2.9 million for Irish and Australian tax purposes,
respectively, both of which carry forward indefinitely.


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



| |              
| | -------------
| | Total Revenue

Total revenue decreased by 31.8% to
$123.2 million in 2002 from $180.7 million in 2001.
Total revenue from customers located outside the United States
represented 38.8% of total revenue in 2002 and 33.8% of total
revenue in 2001, or $47.8 million and $61.0 million,
respectively. No customer accounted for more than 10% of our
total revenues in 2002 or 2001.

Product Revenue.Product revenue decreased by 37.8% to $73.5 million in 2002
from $118.2 million in 2001. The decrease in product
revenue was primarily attributable to decreased sales of our
products as a result of general economic conditions affecting
the software market as a whole.

Service Revenue.Service revenue decreased by 20.4% to $49.8 million in 2002
from $62.5 million in 2001. The decrease in service revenue
was principally due to general economic conditions affecting the
software market as a whole as well as decreased consulting
revenue resulting from our efforts to develop and leverage our
relationships with system integrators.



| |                
| | ---------------
| | Cost of Revenue

Cost of Product
Revenue.Cost of product revenue was
$1.7 million, resulting in a product gross margin of 97.7%,
in 2002 compared to $3.2 million, resulting in a product
gross margin of 97.3%, in 2001. The increase in product gross
margin was primarily attributable to a decrease in third-party
royalties as a percentage of product revenue.

Cost of Service
Revenue.Cost of service revenue was
$25.5 million, resulting in a service gross margin of
48.9%, in 2002 compared to $34.9 million, resulting in a
service gross margin of 44.1%, in 2001. The increase in service
gross margin was primarily attributable to efficiencies in our
service delivery structure.



| |                   
| | ------------------
| | Operating Expenses

In-process Research and
Development.In 2001, in connection
with our acquisition of Netfish, we recorded a $3.6 million
charge, or 2.0% of total revenue, to account for acquired
in-process research and development, for which technological
feasibility had not been established and for which alternative
future uses did not exist. There were no events that required a
charge to in-process research and development in 2002.

Research and
Development.Research and development
expenses were $38.3 million, or 31.0% of total revenue, in
2002 compared to $40.3 million, or 22.3% of total revenue,
in 2001. The decrease in research and development expenses in
dollar amount was primarily the result of cost reduction
measures and restructuring plans implemented by management in
2002 (as described below in Restructuring) with the
increase in research and development expenses as a percentage of
total revenue due to declining revenues.

Sales and Marketing.Sales and marketing expenses were $72.9 million, or 59.1%
of total revenue, in 2002 compared to $88.4 million, or
48.9% of total revenue, in 2001. The decrease in sales and
marketing expenses in dollar amount was primarily the result of
compensation expense related to revenue, cost reduction measures
and restructuring plans implemented by management in 2002 (as
described below in Restructuring) with the increase
in sales and marketing expenses as a percentage of total revenue
due to declining revenues.

General and
Administrative.General and
administrative expenses were $13.3 million, or 10.8% of
total revenue, in 2002 compared to $15.3 million, or 8.5%
of total revenue, in 2001. The decrease in general and
administrative expenses in dollar amount was primarily the
result of cost reduction measures

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and restructuring plans implemented by management
in 2002 (as described below in Restructuring) with
the increase in general and administrative expenses as a
percentage of total revenue due to declining revenues.


Amortization of Other Non-Current
Assets.Amortization of other
non-current assets consists of the amortization of purchased
technologies acquired by IONA, which have reached technological
feasibility. Effective January 1, 2002, we adopted the new
rules on accounting for goodwill and other intangible assets in
accordance with SFAS 142, which changed the accounting for
goodwill and intangible assets with indefinite lives, but
required intangible assets such as purchased technologies to
continue to be amortized over their useful economic lives. Upon
adoption of SFAS 142 in January 2002, the net carrying
amount of assembled workforce of $6.9 million was
reclassified from other non-current assets to goodwill.
SFAS 142 requires intangible assets that are amortizable to
be reviewed for impairment in accordance with Financial
Accounting Standards Board Statement No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS 144).

In October 2002, we completed the assessment of
the carrying value of purchased technologies and the relevant
impairment tests as required by SFAS 144, which resulted in
a non-cash impairment charge of $28.6 million, representing
the amount by which the carrying value exceeded the fair value
of purchased technologies. Amortization of other non-current
assets was $10.1 million, or 8.2% of total revenue in 2002,
compared to $14.2 million, or 7.8% of total revenue in
2001. The decrease in amortization of other non-current assets
is primarily attributable to the reduction in the carrying value
of purchased technologies resulting from the impairment charge
recorded in October 2002. The increase in amortization of other
non-current assets as a percentage of total revenue is due to
declining revenues.

Amortization of
Goodwill.Amortization of goodwill,
including assembled workforce, arose from acquisitions in
previous years. Effective January 1, 2002, we adopted the
new rules on accounting for goodwill and other intangible assets
in accordance with SFAS 142. Upon adoption of
SFAS 142, the net carrying amount of assembled workforce of
$6.9 million was reclassified from other non-current assets
to goodwill. Under the new rules, goodwill and intangible assets
deemed to have indefinite lives are no longer amortized but are
subject to annual impairment tests in accordance with
SFAS 142. Amortization of goodwill was nil in 2002 compared
to $61.4 million or 34.0% of total revenue in 2001, as a
result of the adoption of SFAS 142 on January 1, 2002.

Restructuring.In
2002, our management and board of directors approved
restructuring plans, which included consolidation of excess
facilities, a reduction in workforce and other related costs.
Total restructuring costs of $20.8 million were recorded
related to these initiatives. Restructuring expenses included
approximately $12.3 million representing the cost of
involuntary employee separation and related costs for
approximately 300 employees worldwide. Employee separations
affected the majority of business functions, job classes and
geographies, with most of the reductions in sales and marketing,
engineering and professional services functions in the United
States and Europe. In addition, the restructuring plans included
costs totaling approximately $8.1 million associated with
the closure and consolidation of office space, principally in
the United States and approximately $0.4 million of other
related costs. Cash outlays associated with restructuring plans
initiated in 2002 and 2001 totaled approximately
$11.2 million during 2002, including approximately
$9.3 million in severance and related benefits paid to
employees worldwide, $1.5 million in facility closure costs
and $0.4 million in other costs.

In 2001, our management and board of directors
approved restructuring plans, which included initiatives to
integrate the operations of the recently acquired companies,
consolidate duplicative facilities and reduce overhead. Total
accrued restructuring costs of $5.7 million were recorded.
Restructuring expenses consist of involuntary employee
separation benefits related to the reduction of approximately
195 employees worldwide and costs associated with the closure
and consolidation of office space principally in the United
States. In 2001, we substantially completed these restructuring
plans, resulting in payments of $3.7 million in severance
and related benefits to employees worldwide and approximately
$0.7 million in facility closure costs. In 2002, cash
outlays related to the 2001 restructuring plan totaled
approximately $0.7 million.

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Impairment of
Goodwill.Effective January 1,
2002, we adopted the new rules on accounting for goodwill and
other non-current assets in accordance with SFAS 142. There
was no impairment of goodwill upon adoption of SFAS 142. In
October 2002, as required by SFAS 142, we completed the
annual impairment test and assessment of the carrying value of
goodwill. As a result of unfavorable market conditions and a
decline in our market capitalization, this assessment resulted
in a non-cash impairment charge of $276.8 million,
equivalent to the carrying value of goodwill at October 1,
2002. No impairment of goodwill occurred in 2001.

Impairment of Intangible Assets and Fixed
Assets.In 2002, we recorded a
$32.3 million impairment of intangible assets and fixed
assets. As a result of unfavorable market conditions and changes
in our product strategy, which we identified as indicators of
impairment under SFAS 144, we recorded a non-cash
impairment charge of $28.6 million, representing the amount
by which the carrying value exceeded the fair value of purchased
technologies. We also recorded a $3.7 million charge for
the fixed assets and related costs of which $1.6 million
was primarily attributable to our implementation of a new sales
force automation system that replaced an existing system. The
remainder of the write-offs relate to fixed assets no longer in
use in 2002, resulting in the reduction of their net book value
to nil. No impairment of intangible assets or fixed assets
occurred in 2001.



| |                     
| | --------------------
| | Loss from Operations

We generated an operating loss of
$368.3 million, or 298.9% of total revenue, in 2002
compared to an operating loss of $86.3 million, or 47.7% of
total revenue, in 2001. The operating loss in 2002 reflects the
decrease in total revenue primarily as a result of general
economic conditions affecting the software market as a whole and
the non-cash impairment loss incurred during the year.



| |                  
| | -----------------
| | Other Income, Net

Interest income, net, primarily represents
interest earned on cash and investment balances. Interest
income, net was $1.1 million in 2002 compared to
$2.5 million in 2001. The decrease in interest income, net
was due primarily to declining interest rates during 2002.

Net exchange loss was $0.5 million in 2002
compared to $0.5 million in 2001. The net exchange loss for
2002 was primarily due to the weakness of the dollar against the
euro.

Gain on sale of investment and other income was
$0.2 million in 2001, as a result of the sale of the
remaining shares of our investment in a publicly-owned company
in 2001. There were no sales of investments in 2002.



| |             
| | ------------
| | Income Taxes

Income taxes were $1.5 million in 2002
compared to an income tax benefit of $0.6 million in 2001.
Deferred tax assets were not recognized in respect of the net
operating loss carryforwards in either year because realization
was not sufficiently assured.

If tax authorities were to challenge successfully
the manner in which profits are recognized within IONA or, more
generally, the jurisdiction in which income is subject to
taxation, our prevailing effective tax rate could increase and
our cash flows and results of operations could be materially
adversely affected.

At December 31, 2002, we had a net operating
loss carryforward of approximately $104.5 million for
U.S. federal income tax purposes, including approximately
$65.0 million pre-acquisition losses from the Netfish
acquisition, which will expire in tax years 2011 through 2022 if
not previously utilized. At December 31, 2002, we also had
net operating loss carryforwards of approximately
$64.0 million and $2.9 million for Irish and
Australian tax purposes, respectively, both of which carry
forward indefinitely. At December 31, 2001, we had a net
operating loss carryforward of approximately $95.6 million
for U.S. federal income tax purposes, including
approximately $65.0 million pre-acquisition losses from the
Netfish acquisition. At December 31, 2001, we had a net
operating loss carryforward of approximately $2.0 million
for Australian tax purposes, which carries forward indefinitely.

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Exposure to
Currency Fluctuations

Our consolidated financial statements are
prepared in U.S. dollars, our functional currency. A
percentage of our revenues, expenses, assets and liabilities are
denominated in currencies other than our functional currency.
Fluctuations in exchange rates may have a material adverse
effect on our results of operations, particularly our operating
margins, and could also result in exchange gains and losses. As
a result of currency fluctuations, we recognized an exchange
gain of $0.3 million in 2003 and an exchange loss of
$0.5 million in 2002. We cannot accurately predict the
impact of future exchange rate fluctuations on our results of
operations. We have in the past sought to hedge the risks
associated with fluctuations in exchange rates of the Irish
pound and the euro to the dollar. However, because the majority
of our sales and expenses are currently made in
U.S. dollar, we no longer enter into foreign currency
forward exchange contracts to manage exposure related to
transactions denominated in foreign currencies. In the future,
we may undertake transactions to hedge the risks associated with
fluctuations in exchange rates if the risk from foreign currency
exposure increases due to a decrease in the percentage of
U.S. dollar-based transactions. See also Item 11
Quantitative and Qualitative Disclosure About Market
Risk. We had no derivative or hedging transactions in 2003.






|   |                                    
|-- | -----------------------------------
|B. | Liquidity and Capital
    Resources

At December 31, 2003, we had cash and cash
equivalents, restricted cash, and marketable securities of
$56.6 million, representing a decrease of
$25.0 million from December 31, 2002.

Net cash used in operating activities was
$3.4 million in 2003 and $66.8 million in 2002,
compared to net cash provided by operating activities of
$38.1 million in 2001. The decrease in cash used in
operating activities from 2002 to 2003 reflects primarily
decreases in net loss, accounts receivable, prepaid expenses and
other assets, and the sale of marketable securities, and an
increase in restricted cash and other accrued liabilities
relating to restructuring charges, partially offset by a
decrease in deferred revenue. The increase in cash used in
operating activities from 2001 to 2002 reflects primarily
increases in net loss and the purchase of marketable securities,
and a decrease in deferred revenue, partially offset by a
decrease in accounts receivable and non-cash impairment charges.

As of December 31, 2003, we had
approximately $3.7 million of irrevocable letters of credit
outstanding in connection with facility leases and the
satisfaction of amounts owed to a previous landlord, of which
approximately $0.7 million renews annually for the duration
of the lease terms, which expire in July 2006 and May 2007 and
$3.0 million is payable upon demand. The investments
pledged for security of the letters of credit are presented as
restricted cash in the consolidated balance sheets.

To the extent that non-cash items increase or
decrease our future operating results, there will be no
corresponding impact on our cash flows. After excluding the
effects of these non-cash charges, the primary changes in cash
flows relating to operating activities result from changes in
working capital. Our primary source of operating cash flows is
the collection of accounts receivable from our customers. Our
operating cash flows are also impacted by the timing of payments
to our vendors for accounts payable. We generally pay our
vendors and service providers in accordance with the invoice
terms and conditions. The timing of cash payments in future
periods will be impacted by the terms of accounts payable
arrangements and managements assessment of our cash
inflows.

Net cash used in investing activities was
$1.2 million, $5.4 million and $54.4 million in
2003, 2002 and 2001, respectively. The decrease from 2002 to
2003 related primarily to a decrease in capital investments. The
decrease from 2001 to 2002 related primarily in
$33.9 million of cash used in 2001 to acquire Netfish
Technologies, Inc. and Object Oriented Concepts, Inc.
and $15.5 million of cash used in 2001 for technology
purchases for technology that had reached technological
feasibility. We expect capital expenditures in fiscal 2004 to
remain flat.

Net cash provided by financing activities was
$2.2 million, $66.0 million and $7.6 million in
2003, 2002, and 2001, respectively. In 2003, net cash provided
by financing activities resulted primarily from the proceeds
from the exercise of stock options and the sale of stock under
our 1999 Employee Stock

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Purchase Plan. In 2002, net cash provided by
financing activities resulted primarily from the proceeds from
the completion of our public offering in February 2002 of
$63.4 million and $2.6 million from the proceeds from
the exercise of stock options and the sale of stock under our
1999 Employee Stock Purchase Plan. In 2001, net cash provided by
financing activities resulted primarily from the proceeds from
the exercise of stock options and the sale of stock under our
1999 Employee Stock Purchase Plan.


We are obligated to make average lease payments
of approximately $2.5 million per year through 2023
(subject to an option to exit in 2013) with respect to our
Dublin, Ireland facility; approximately $1.8 million
per year through 2006 with respect to our
U.S. subsidiarys Waltham, Massachusetts facility;
approximately $0.4 million per year through 2006 with
respect to our U.S. subsidiarys San Mateo,
California facility; approximately $0.2 million per year
through 2004 with respect to our U.S. subsidiarys
Reston, Virginia facility; approximately $0.2 million per
year through 2007 with respect to our New York,
New York facility; approximately $0.2 million per year
through 2014 (subject to an option to exit in 2009) with respect
to our Reading, U.K. facility; approximately $0.1 million
in 2004 with respect to our Tokyo, Japan facility; approximately
$0.1 million per year through 2005 with respect to our
McLean, Virginia facility; and less than $0.1 million per
year through 2009 (subject to an option to exit in 2004) with
respect to our Frankfurt, Germany facility.

As of December 31, 2003, future minimum
lease payments under contractual operating lease obligations
includes approximately $11.0 million provided for as
accrued restructuring costs and is included in other accrued
liabilities and other non-current liabilities on the
consolidated balance sheets.

At December 31, 2003 and 2002 we had
$52.9 million and $80.4 million in cash, cash
equivalents and marketable securities, respectively. We
anticipate our operating expenses to remain relatively stable
for the foreseeable future and as a result we intend to fund our
operating expenses through cash flows from operations. We expect
to use our cash resources to fund capital expenditures as well
as acquisitions or investments in complementary businesses,
technologies or product lines. We believe that our current cash,
cash equivalents and marketable securities and cash flows from
operations will be sufficient to meet our anticipated cash
requirements for working capital and capital expenditures for at
least the next twelve months. The foregoing estimate of the
period of time through which our current sources of liquidity
will be sufficient to finance our operations is a
forward-looking statement that involves risks and uncertainties,
and actual results could vary.

It is possible that, when needed, adequate
funding may not be available to us or, if available, may not be
available on terms favorable to us. In addition, we may decide
to issue additional equity or debt securities for such funding,
which could dilute the ownership of existing shareholders. Any
shortfall in our capital resources could result in our limiting
the introduction or marketing of new products and services,
which could have a material adverse effect on our business,
financial condition and results of operations.






|   |                                                         
|-- | --------------------------------------------------------
|C. | Research and Development, Patents and
    Licenses, etc.

For a discussion of our research and development
activities, patents and licenses, please see Item 4.B.
Business OverviewProduct Development and
Business OverviewPatents and Proprietary
Technology.

The total amount spent in the last three years on
IONA-sponsored research and development activities is
$105.7 million excluding intangible assets and in-process
research and development. Of that amount, $27.1 million was
spent in 2003, $38.3 million was spent in 2002 and
$40.3 million was spent in 2001.






|   |                  
|-- | -----------------
|D. | Trend Information

For information about our expectations regarding
our future operating expenses and capital resources, please see
Items 5.A. Operating Results and 5.B.
Liquidity and Capital Resources.

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|   |                                   
|-- | ----------------------------------
|E. | Off-Balance Sheet
    Arrangements

Not Applicable.






|   |                                                  
|-- | -------------------------------------------------
|F. | Tabular Disclosure of Contractual
    Obligations

We lease office space under non-cancelable
operating leases with various expiration dates through 2013.
Future minimum lease payments under all operating leases as of
December 31, 2003 are as follows:

|                            |  |                             |        |           |  |       |       |       |  |           |        |  |  |   |       |  |  |   |        | 
|--------------------------- |  | --------------------------- | ------ | --------- |  | ----- | ----- | ----- |  | --------- | ------ |  |  | - | ----- |  |  | - | ------ | 
|                            |  |                            
|                            |  | Payment Due by period      
|                            |  |                            
|                            |  |                             |        | Less than |  | 1-3   |       | 3-5   |  | More than
|Contractual Obligations     |  | Total                       |        | 1 Year    |  | Years |       | Years |  | 5 Years  
|                            |  |                             |        |           |  |       |       |       |  |          
|                            |  |                            
|                            |  | (U.S. dollars in thousands)
|Operating Lease Obligations |  | $                           | 34,974 |           |  | $     | 6,648 |       |  | $         | 10,357 |  |  | $ | 5,801 |  |  | $ | 12,168 | 

As of December 31, 2003, approximately
$11,040,000 of the $34,974,000 contractual operating lease
obligations have been accrued as a result of our restructuring
plans in 2003, 2002, and 2001.

As of December 31, 2003, approximately
$2,864,000 of contractual severance obligations have been
accrued as a result of our restructuring plans in 2003 and 2002.






|   |            
|-- | -----------
|G. | Safe Harbor

The safe harbor provided in Section 27A of
the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended applies to
forward-looking information provided pursuant to Item 5.F
above.

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|        |                                               
|------- | ----------------------------------------------
|Item 6. | DIRECTORS, SENIOR MANAGEMENT AND
    EMPLOYEES



A.     Directors
and Senior Management

The names of our executive officers and directors
as of April 30, 2004, and certain biographical information
furnished by them, are set forth below.

|                         |  |     |    |          |  |                                      
|------------------------ |  | --- | -- | -------- |  | -------------------------------------
|Name                     |  | Age |    | Position
|                         |  |     |    |         
|Kevin Melia            |  |     | 56 |          |  | Chairman of the Board                
|Christopher J. Horn+     |  |     | 47 |          |  | Chief Executive Officer and Director 
|Peter M. Zotto+          |  |     | 59 |          |  | Chief Operating Officer              
|Daniel Demmer+           |  |     | 39 |          |  | Chief Financial Officer              
|Eric Newcomer+           |  |     | 49 |          |  | Chief Technology Officer             
|Sean Baker               |  |     | 45 |          |  | Chief Scientific Officer and Director
|Christopher M. Mirabile+ |  |     | 37 |          |  | General Counsel and Secretary        
|William Burgess         |  |     | 57 |          |  | Non-Executive Director               
|John Conroy            |  |     | 44 |          |  | Non-Executive Director               
|Ivor Kenny*             |  |     | 74 |          |  | Non-Executive Director               
|James D. Maikranz*       |  |     | 57 |          |  | Non-Executive Director               
|Francesco Violante*      |  |     | 53 |          |  | Non-Executive Director               



---



|  |                                                                                           
|- | ------------------------------------------------------------------------------------------
| | Member of Audit Committee                                                                 
| 
|* | Member of Compensation Committee                                                          
| 
| | Member of Nominating and Corporate Governance
    Committee                               
| 
|+ | Designated as an executive officer of IONA by the
    Board of Directors in November 2003.

Kevin Meliahas
served as our Chairman of the Board since May 2003.
Mr. Melia served as a non-executive director from May 1994
through May 2003. Mr. Melia served as Chairman of the Board
of Manufacturers Services Limited, an electronics
manufacturing outsourcing company from January 2002 to January
2003. From June 1994 to January 2002, Mr. Melia served as
Chief Executive Officer of Manufacturers Services Limited.
From January 1992 to June 1994, he was Chief Financial Officer
of Sun Microsystems, a workstation manufacturer. In addition,
from January 1993 until February 1994, Mr. Melia was
President of Sun Microsystems Computer Co., a division of Sun
Microsystems. He is also a non-executive director of eircom PLC,
Lightbridge, Inc., Manugistics Group, Inc., and
RadiSys Corp.

Christopher J. Hornhas served as our Chief Executive
Officer since May 2003. Dr. Horn has served as an executive
director since May 2003. Dr. Horn served as our Chairman of
the Board since our inception through May 2003. Dr. Horn
co-founded IONA in March 1991. He was the initial developer of
IONAs Orbix product and served as our President and Chief
Executive Officer from our inception until May 2000.
Dr. Horn received his Doctorate in Computer Science from
Trinity College, Dublin. Dr. Horn is Chairman of the Irish
Management Institute (IMI) in Dublin and serves as a
director for the charitable organization UNICEF Ireland.
Dr. Horn received an honorary Doctor of Science from
Trinity College, Dublin and the Gold Medal for Industry from the
Industry and Commerce Committee of the Royal Dublin Society in
2001.

Peter M. Zottohas
served as our Chief Operating Officer since October 2003.
Mr. Zotto is the founder of Claright, a consulting firm
specializing in providing marketing expertise to small to
mid-sized companies, and served as president of Claright from
April 2001 through October 2003. From September 1999 through
March 2001, Mr. Zotto was Chief Executive Officer of WBT
Systems, Inc., an e-learning software company.
Mr. Zotto held a number of executive management positions
at Digital Equipment Corporation from 1992 though 1999,
including Workstations General Manager and Vice President, EMEA
Sales and Marketing. Mr. Zotto holds a B.A. in Political
Science from the University of New Hampshire and is a graduate
of the Executive Management Program at Harvard Business School.

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Daniel Demmerhas
served as our Chief Financial Officer since May 2000.
Mr. Demmer served as our Vice President Finance and
Treasurer from February 1998 until May 2000. From 1987 to 1997,
Mr. Demmer worked at Digital Equipment Corporation in a
variety of positions including Director of Corporate Financial
Planning and Analysis and Assistant Corporate Controller.
Mr. Demmer holds a B.S. in Finance from the University of
Maryland.

Eric Newcomerhas
served as Chief Technology Officer of IONA since April 2002.
From November 1999 to March 2002, he served as our Vice
President of Engineering, Web Services Integration Products.
Before joining IONA, Mr. Newcomer was a Senior Member of
Technical Staff and Manager of the COM+ Expertise Center,
Enterprise Application Server Engineering, NT Program Office, at
Digital Equipment Corporation/ Compaq Computer from October 1997
to October 1999. Mr. Newcomer is a member of the XML
Protocols and Web Services Architecture working groups at the
W3C and IONAs Advisory Committee representative to
UDDI.org. Mr. Newcomer is the author of Understanding
Web Servicespublished in May 2002 by Addison Wesley,
co-author of Principles of Transaction Processingpublished in January 1997 by Morgan Kaufman and the author
of numerous whitepapers and articles. Mr. Newcomer received
his B.A. in American Studies from Antioch College, with a minor
in computer science.

Sean Bakerhas
served as our Chief Scientific Officer since May 2003.
Dr. Baker has served as an executive director since March
1991. Dr. Baker co-founded IONA in March 1991, and served
as our Senior Vice President from March 1991 until 1996, as our
Executive Vice President, Customer Services from 1996 until
1999, as our Chief Scientific Officer from 1999 until November
2000, as our Executive Vice President and Chief Technology
Officer from November 2000 until September 2001, and as our
Chief Corporate Scientist from September 2001 though May 2003.
Dr. Baker currently serves as a director of Telekinesys
Research Limited. From 1981 to 1994, Dr. Baker held a
tenured post in the Computer Science Department at Trinity
College, Dublin, where he received his Doctorate in computer
science.

Christopher M. Mirabilehas served as our General Counsel and
Secretary since September 2003. Mr. Mirabile served as our
Senior Counsel from 1997 to 2000 and as our Corporate Counsel
from 2000 until 2003. Prior to joining IONA, Mr. Mirabile
was a lawyer in the business practice group at Testa,
Hurwitz & Thibeault, LLP of Boston, Massachusetts.
Before beginning his legal practice, Mr. Mirabile was a
management consultant with Price Waterhouses Strategic
Consulting Group. Mr. Mirabile received his J.D. from
Boston College Law School and his B.A. from Colgate University.

William Burgesshas
served as a non-executive director since January 2003. From 1991
to 2002, Mr. Burgess served as Managing Director of IBM
Ireland, an Irish subsidiary of IBM Corporation.
Mr. Burgess joined IBM in 1967 and held a variety of
positions in sales, technology and management. Mr. Burgess
also serves as a director of Ulster Bank Limited and Ulster Bank
Ireland Limited, wholly-owned subsidiaries of the Royal Bank of
Scotland. Mr. Burgess holds a degree in engineering from
Trinity College, Dublin.

John Conroyhas
served as a non-executive director since May 2001.
Mr. Conroy has served as Chief Executive Officer and
director of Merrion Capital Group Ltd., a Dublin-based stock
brokerage and corporate finance company, since 1999.
Mr. Conroy also serves as a director for several Merrion
Capital Group affiliates, Parima Limited and eircomplc,
an Irish communications company. Prior to joining Merrion
Capital Group, Mr. Conroy was Head of Equities for NCB
Stockbrokers Limited from 1997 to 1999. Mr. Conroy is a
chartered engineer and holds an M.B.A. from Trinity College,
Dublin.

Ivor Kennyhas
served as a non-executive director since August 1999.
Dr. Kenny, as a Senior Research Fellow at University
College Dublin, works with international organizations on their
business strategies. He is also the author of eleven books on
strategic leadership. He is a director of Independent News and
Media PLC and a former Chairman of Smurfit Paribas Bank and of
Odyssey PLC. He was a director of Kerry Group PLC until May
2001. He is also President of the International Management
Centres. He was Director General of the Irish Management
Institute from 1962 to 1983, Chancellor of the International
Academy of Management from 1982 to 1987, Executive-in-Residence
at Indiana University in 1986 and a Fulbright Fellow at American
universities.

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James D. Maikranzhas served as a non-executive director
since July 2001. Mr. Maikranz served J.D. Edwards, a
provider of collaborative software solutions, from October 1998
to March 2001, most recently as senior vice president of
worldwide sales. Prior to joining J.D. Edwards,
Mr. Maikranz served SAP, a provider of e-business software
solutions, from January 1992 until September 1998, most recently
as senior vice president of sales. Mr. Maikranz has also
served in senior executive positions for Computer Application
Specialists, an oil and gas industry firm, and Info Services, a
provider of HR software applications. Mr. Maikranz was a
founder and member of the Board of Directors of Chaptec Company
and Splash Pond. Mr. Maikranz has also been an advisory
board member for I2 and is currently on the board of directors
for Servigisitcs, Inc., Recruitsoft, Inc., and
DataSynapse, Inc.

Francesco Violantehas served as a non-executive director
since May 2001. Mr. Violante served as Regional Vice
President of EDS Europe from October 2000 to May 2003. Since May
2003, Mr. Violante has served as Managing Director of
SITA, Inc., a global airline reservation systems company,
and prior to that as Senior Vice President from October 1999 to
September 2000. Mr. Violante served as Chief Information
Officer of Telecom Italia from September 1998 to October 1999.
Mr. Violante has also held numerous executive management
positions at Compaq Europe and Digital Equipment Corporation.




B.     Compensation

The following table sets forth information
concerning the aggregate compensation paid to or accrued on
behalf of our directors and executive officers as a group for
the fiscal year ended December 31, 2003:

|                                                                 |  |            |           |          |  |                        |         |                     |  |  |           |  |  |   |        | 
|---------------------------------------------------------------- |  | ---------- | --------- | -------- |  | ---------------------- | ------- | ------------------- |  |  | --------- |  |  | - | ------ | 
|                                                                 |  |            |           |          |  |                       
|                                                                 |  |            |           |          |  | Long-Term Compensation
|                                                                 |  |            |           |          |  |                       
|                                                                 |  |            |           |          |  | Number of              |         | Pension Retirement 
|                                                                 |  | Salary and |           |          |  | Securities Underlying  |         | and                
|                                                                 |  | Fees($)    |           | Bonus($) |  | Options(#)             |         | Similar Benefits($)
|                                                                 |  |            |           |          |  |                        |         |                    
|All directors and executive officers as a group
    (16 persons) |  | $          | 2,028,961 |          |  | $                      | 168,097 |                     |  |  | 1,252,460 |  |  | $ | 69,092 | 

The following table sets forth information
concerning total compensation earned by or paid to our directors
for the fiscal year ended December 31, 2003:

|                    |  |        |         |       |  |            |       |       |  |   |         |  |  |   |         | 
|------------------- |  | ------ | ------- | ----- |  | ---------- | ----- | ----- |  | - | ------- |  |  | - | ------- | 
|                    |  |        |         |       |  | Directors |       |      
|Name                |  | Salary |         | Bonus |  | Fees       |       | Total
|                    |  |        |         |       |  |            |       |      
|Kevin Melia         |  |        |        |       |  |            |      |       |  | $ | 129,000 |  |  | $ | 129,000 | 
|Christopher J. Horn |  | $      | 180,298 |       |  | $          |      |       |  | $ | 71,958  |  |  | $ | 252,256 | 
|Barry S. Morris(1)  |  | $      | 142,816 |       |  | $          |      |       |  |   |        |  |  | $ | 142,816 | 
|Sean Baker          |  | $      | 136,673 |       |  | $          | 8,847 |       |  |   |        |  |  | $ | 145,520 | 
|William Burgess     |  |        |        |       |  |            |      |       |  | $ | 48,000  |  |  | $ | 48,000  | 
|John Conroy         |  |        |        |       |  |            |      |       |  | $ | 57,000  |  |  | $ | 57,000  | 
|Ivor Kenny          |  |        |        |       |  |            |      |       |  | $ | 66,000  |  |  | $ | 66,000  | 
|James D. Maikranz   |  |        |        |       |  |            |      |       |  | $ | 51,000  |  |  | $ | 51,000  | 
|Francesco Violante  |  |        |        |       |  |            |      |       |  | $ | 54,000  |  |  | $ | 54,000  | 



---



|    |                                                                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Mr. Morris resigned as our Chief Executive
    Officer and a Director in May 2003. In addition to the
    compensation Mr. Morris received in 2003 (set forth in the
    table above), he is entitled to receive severance in an
    aggregate amount of $370,370 which is payable in equal quarterly
    installments during 2003 and 2004.

In 2003, Dr. Horn, who served as our
non-executive Chairman until May 2003, received special
remuneration of $59,979 for serving as Chairman of the Board.
Also in 2003, Mr. Melia, who has served as our
non-executive Chairman of the Board since May 2003, also
received special remuneration in 2003 in the amount of $63,000
for his service as the Chairman of the Board. In addition, each
non-executive director received fees of $3,000 per month
and $1,500 per meeting attended for service on our Board of
Directors, subject to an annual maximum of $48,000 per
person. Each committee chairman received $3,000 per meeting
of the committee of which he served as chairman, subject to an
annual maximum of $12,000 per person. Each committee member
(other than the chairmen) received $1,500 per committee

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##### Table of Contents



meeting attended, subject to an annual per person
maximum of $6,000 per committee. All directors were
reimbursed for reasonable out-of-pocket travel expenses incurred
by them in attending meetings of the Board of Directors or
committee meetings.


The following table sets forth information
concerning share options granted to our directors and executive
officers during the fiscal year ended December 31, 2003.

|                        |  |                      |         |           |  |                 |           |  |  |  |      | 
|----------------------- |  | -------------------- | ------- | --------- |  | --------------- | --------- |  |  |  | ---- | 
|                        |  | Number of Options    |         | Exercise  |  |                
|                        |  | To Purchase Ordinary |         | Price Per |  |                
|Name                    |  | Shares Granted(1)    |         | Share     |  | Expiration Date
|                        |  |                      |         |           |  |                
|Kevin Melia             |  |                      | 103,000 |           |  | $               | 3.16-4.76 |  |  |  | 2013 | 
|Christopher J. Horn     |  |                      |        |           |  |                 |          |  |  |  |     | 
|Barry S. Morris(2)      |  |                      | 322,191 |           |  | $               | 1.99      |  |  |  | 2004 | 
|Peter M. Zotto          |  |                      | 300,000 |           |  | $               | 3.00      |  |  |  | 2013 | 
|Steven Fisch(3)         |  |                      |        |           |  | $               |          |  |  |  |     | 
|Daniel Demmer           |  |                      | 205,350 |           |  | $               | 1.99-2.20 |  |  |  | 2013 | 
|Eric Newcomer           |  |                      | 89,632  |           |  | $               | 1.99-2.20 |  |  |  | 2013 | 
|Sean Baker              |  |                      | 59,700  |           |  | $               | 1.99-2.20 |  |  |  | 2013 | 
|David James(4)          |  |                      | 147,683 |           |  | $               | 1.99      |  |  |  | 2004 | 
|Christopher M. Mirabile |  |                      | 72,361  |           |  | $               | 1.99-2.68 |  |  |  | 2013 | 
|Susan H. Alexander(5)   |  |                      | 160,000 |           |  | $               | 1.99      |  |  |  | 2003 | 
|William Burgess         |  |                      | 30,000  |           |  | $               | 3.27      |  |  |  | 2013 | 
|John Conroy             |  |                      | 21,000  |           |  | $               | 3.16      |  |  |  | 2013 | 
|Ivor Kenny              |  |                      | 3,000   |           |  | $               | 3.16      |  |  |  | 2013 | 
|James D. Maikranz       |  |                      | 3,000   |           |  | $               | 3.16      |  |  |  | 2013 | 
|Francesco Violante      |  |                      | 3,000   |           |  | $               | 3.16      |  |  |  | 2013 | 



---



|    |                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes options to purchase our ordinary shares
    that were granted pursuant to the option exchange program, or,
    in the case of Mr. Morris, by agreement with us. For more
    information about the option exchange program please see
    Item 6.E. Share Ownership.
|   
|(2) | Mr. Morris resigned as our Chief Executive
    Officer and Director in May 2003.                                                                                                                                                                                               
|   
|(3) | Mr. Fisch resigned as our Chief Operating
    Officer in May 2003.                                                                                                                                                                                                             
|   
|(4) | Mr. James resigned as our Executive Vice
    President, Corporate Development in May 2003.                                                                                                                                                                                     
|   
|(5) | Ms. Alexander resigned as our General
    Counsel and Secretary in September 2003.                                                                                                                                                                                             

All of the share options listed above were
granted under the 1997 Share Option Scheme or the
1997 Director Share Option Scheme. For a brief description
of each of these option schemes and of arrangements for future
grants of options to our executive officers, please see
Item 6.E. Share Ownership.

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|   |                
|-- | ---------------
|C. | Board Practices

The following table sets forth certain
information concerning our directors and executive officers as
of December 31, 2003.

|                        |  |                               |  |                        |                |                     |  |  |                | 
|----------------------- |  | ----------------------------- |  | ---------------------- | -------------- | ------------------- |  |  | -------------- | 
|                        |  |                               |  |                        |                | Termination/Renewal
|Name                    |  | Office(s) Held                |  | Commencement of Office |                | Date of Office(1)  
|                        |  |                               |  |                        |                |                    
|Kevin Melia             |  | Non-Executive Director        |  |                        | May 1994       |                     |  |  | 2005           | 
|                        |  | Chairman                      |  |                        | May 2003       |                     |  |  | Not applicable | 
|Christopher J. Horn     |  | Non-Executive Director        |  |                        | March 1991     |                     |  |  | May 2003       | 
|                        |  | Chairman                      |  |                        | May 2000       |                     |  |  | May 2003       | 
|                        |  | Director                      |  |                        | May 2003       |                     |  |  | 2006           | 
|                        |  | Chief Executive Officer       |  |                        | May 2003       |                     |  |  | Not applicable | 
|Peter M. Zotto          |  | Chief Operating Officer       |  |                        | October 2003   |                     |  |  | Not applicable | 
|Daniel Demmer           |  | Chief Financial Officer       |  |                        | May 2000       |                     |  |  | Not applicable | 
|Eric Newcomer           |  | Chief Technology Officer      |  |                        | April 2002     |                     |  |  | Not applicable | 
|Sean Baker              |  | Director                      |  |                        | March 1991     |                     |  |  | 2005           | 
|                        |  | Chief Corporate Scientist     |  |                        | September 2001 |                     |  |  | May 2003       | 
|                        |  | Chief Scientific Officer      |  |                        | May 2003       |                     |  |  | Not applicable | 
|Christopher M. Mirabile |  | General Counsel and Secretary |  |                        | September 2003 |                     |  |  | Not applicable | 
|William Burgess         |  | Non-Executive Director        |  |                        | January 2003   |                     |  |  | 2006           | 
|John Conroy             |  | Non-Executive Director        |  |                        | May 2001       |                     |  |  | 2006           | 
|Ivor Kenny              |  | Non-Executive Director        |  |                        | August 1999    |                     |  |  | 2004           | 
|James D. Maikranz       |  | Non-Executive Director        |  |                        | July 2001      |                     |  |  | 2005           | 
|Francesco Violante      |  | Non-Executive Director        |  |                        | May 2001       |                     |  |  | 2004           | 



---



|    |                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Unless otherwise indicated, the date of
    termination or renewal is the date of our Annual General Meeting
    in the calendar year listed. In November 2003, our Board of
    Directors redesignated our executive officers to include only
    those individuals listed in Item 6.A. above.

We have not entered into any service agreements
with our non-executive directors. We pay each non-executive
director (other than the non-executive Chairman of the Board of
Directors) fees of $3,000 per month and $1,500 per
meeting attended for service on our Board of Directors, subject
to an annual maximum of $48,000 per person. In addition, we
pay each committee chairman $3,000 per meeting of the
committee of which he served as chairman, subject to an annual
maximum of $12,000 per person. We pay each committee member
(other than the chairmen) $1,500 per committee meeting
attended, subject to an annual per person maximum of
$6,000 per committee. We pay our non-executive Chairman of
the Board of Directors $3,000 per month and $3,000 per
meeting attended for which he served as Chairman, subject to an
annual maximum of $72,000. In addition, we pay our non-executive
Chairman of the Board annual special remuneration of $84,000 for
serving as Chairman of the Board of Directors.

In February 2003, our Board of Directors adopted
the Non-Executive Directors Change in Control Plan, a copy of
which is filed as Exhibit 4.12 to our annual report on
Form 20-F for the year ending December 31, 2002 and
incorporated herein by reference. Under this plan, if there is a
change in control of IONA, all of the unvested stock options
held by our non-executive directors will vest and our
non-executive directors will receive additional fees equal to
two times the fees payable to them for the year in which the
change occurs or for the previous year, whichever are higher.

The executive directors each have contracts of
employment. For more information concerning benefits provided to
our executive officers upon termination of employment, please
see Item 10.C. Material Contracts.

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| |                 
| | ----------------
| | Board Committees

Audit Committee.The
Audit Committee oversees our accounting and financial reporting
process and the audits of our financial statements; recommends
independent accounting firms to shareholders for appointment;
and approves the fees and other compensation to be paid to the
auditors. During the fiscal year ended December 31, 2003,
the Audit Committee was composed of Mr. Conroy,
Dr. Kenny and Mr. Melia. Mr. Melia served as
Chairman of the Audit Committee. In February 2004, the Board
elected new members of the Audit Committee and adopted a new
charter, a copy of which is an exhibit to this annual report. As
of February 2004, the Audit Committee is composed of
Mr. Conroy, Mr. Melia, and Mr. Burgess.
Mr. Burgess serves as Chairman of the Audit Committee. The
responsibilities of the Audit Committee are set forth in its
charter and include reviewing our annual and quarterly financial
statements and taking steps to ensure that an independent
accounting firm reviews our financial statements prior to our
filing them with the Securities and Exchange Commission, the
Irish Stock Exchange or other regulatory bodies. The Audit
Committee also reviews the terms of all material transactions
and arrangements between us and our affiliates at least once
each year. The Audit Committee also reviews the performance of
our independent accounting firm, their independence and
objectivity, and the nature and extent of any non-audit work
carried out by them for us and reviews the scope and results of
our audit and its costs, effectiveness and the adequacy of the
internal financial and accounting controls.

Compensation
Committee.The Compensation Committee
establishes and reviews overall policy and structure with
respect to compensation matters, including the determination of
compensation arrangements for our executive directors, executive
officers and key employees. The Compensation Committee consults
the Chairman and/or the Chief Executive Officer about their
proposals relating to the remuneration of other executive
directors and has access to professional advice inside and
outside the Company. The Compensation Committee is also
responsible for the administration and award of options to
purchase shares pursuant to our Executive Share Option Scheme
and our 1997 Share Option Scheme and administration of our
1997 Director Share Option Scheme and 1999 Employee Share
Purchase Plan. During the fiscal year ended December 31,
2003, the Compensation Committee was composed of Dr. Kenny,
Mr. Melia and Mr. Violante. Dr. Kenny served as
Chairman of the Compensation Committee. The Board elected new
members of the Compensation Committee in February 2004 and
adopted amendments to the Compensation Committee Charter in
April 2004. As of February 2004, the Compensation Committee is
composed of Dr. Kenny, Mr. Maikranz, and
Mr. Violante. Dr. Kenny continues to serve as Chairman
of the Compensation Committee.

Nominating and Corporate Governance
Committee.In March 2004, the Board of
Directors changed the Nominating Committee into the Nominating
and Corporate Governance Committee and adopted a new charter, a
copy of which is an exhibit to this annual report. The
Nominating and Corporate Governance Committee reviews the
composition, size and organization of the Board of Directors and
makes recommendations to the Board of Directors with regard to
any new appointments or adjustments deemed necessary. The
Nominating and Corporate Governance Committee reviews and
assesses the adequacy of the Code of Business Conduct at least
annually and monitors compliance with the Code of Business
Conduct. For the period of January 2003 through May 2003, the
Nominating Committee was composed of the Chairman of the Board,
who served as the Chairman of the Committee, two
(2) non-executive directors, and our then Chief Executive
Officer, who served ex officio. The members of the
Nominating Committee during this period were Dr. Horn,
Mr. Maikranz, Mr. Conroy and Mr. Morris
(ex officio). Dr. Horn served as Chairman of
the Nominating Committee. For the remaining portion of the
fiscal year ended December 31, 2003, the Nominating
Committee was composed of Dr. Horn, Mr. Maikranz and
Mr. Conroy. Dr. Horn continued to serve as Chairman of
the Nominating Committee. In February 2004, the Board elected
new members of the Nominating Committee. The current members of
the Nominating and Corporate Governance Committee are
Mr. Melia, Dr. Kenny and Mr. Conroy.
Mr. Melia serves as Chairman of the Nominating and
Corporate Governance Committee.

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##### Table of Contents






D.     Employees

For a discussion regarding our employees, please
see Item 4.B. Business OverviewEmployees.

The following table sets forth information
concerning the number of persons employed by us at the end of
each of our last three fiscal years:

|                                   |       |                    |     |      |  |      |     |     |  |  |     |     | 
|---------------------------------- | ----- | ------------------ | --- | ---- |  | ---- | --- | --- |  |  | --- | --- | 
|                                   |       |                   
|                                   |       | As of December 31,
|                                   |       |                   
|                                   |       | 2003               |     | 2002 |  | 2001
|                                   |       |                    |     |      |  |     
|Product Development and Management |       |                    | 123 |      |  |      | 197 |     |  |  | 244 |    
|Services                           |       |                    | 62  |      |  |      | 102 |     |  |  | 176 |    
|Marketing                          |       |                    | 18  |      |  |      | 25  |     |  |  | 48  |    
|Sales                              |       |                    | 97  |      |  |      | 209 |     |  |  | 317 |    
|Finance and Administration         |       |                    | 53  |      |  |      | 95  |     |  |  | 122 |    
|                                   |       |                    |     |      |  |      |     |     |  |  |     |    
|                                   | Total |                    |     | 353  |  |      |     | 628 |  |  |     | 907 | 
|                                   |       |                    |     |      |  |      |     |     |  |  |     |    




E.     Share
Ownership

The following table sets forth certain
information as of April 30, 2004 concerning the share
ownership and outstanding share options of those individuals
serving as directors and executive officers during the fiscal
year ended December 31, 2003.

|                        |  |              |           |               |  |                 |       |                |  |                 |         |  |  |   |            |  |  |  |           | 
|----------------------- |  | ------------ | --------- | ------------- |  | --------------- | ----- | -------------- |  | --------------- | ------- |  |  | - | ---------- |  |  |  | --------- | 
|                        |  | Number of    |           |               |  | Number of       |       |                |  |                
|                        |  | Ordinary     |           | Percentage of |  | Ordinary Shares |       |                |  |                
|                        |  | Shares       |           | Outstanding   |  | Which May be    |       | Range of       |  |                
|                        |  | Beneficially |           | Ordinary      |  | Acquired Under  |       | Exercise Price |  | Expiration Date
|Name                    |  | Owned        |           | Shares(1)     |  | Option Schemes  |       | of Options     |  | of Options     
|                        |  |              |           |               |  |                 |       |                |  |                
|Kevin Melia             |  |              | 24,444    |               |  |                 | *     |                |  |                 | 163,250 |  |  | $ | 2.25-74.50 |  |  |  | 2009-2013 | 
|Christopher J. Horn     |  |              | 2,278,414 |               |  |                 | 6.66% |                |  |                 | 1,126   |  |  | $ | 0.50-18.75 |  |  |  | 2006-2009 | 
|Barry S. Morris(2)      |  |              | 3,624     |               |  |                 | *     |                |  |                 |        |  |  | $ |           |  |  |  |          | 
|Peter M. Zotto          |  |              |          |               |  |                 |      |                |  |                 | 300,000 |  |  | $ | 3.00       |  |  |  | 2013      | 
|Steven Fisch(3)         |  |              |          |               |  |                 |      |                |  |                 |        |  |  | $ |           |  |  |  |          | 
|Daniel Demmer           |  |              |          |               |  |                 |      |                |  |                 | 205,113 |  |  | $ | 1.99-7.33  |  |  |  | 2013-2014 | 
|Eric Newcomer           |  |              | 5,234     |               |  |                 | *     |                |  |                 | 119,632 |  |  | $ | 1.99-7.33  |  |  |  | 2013-2014 | 
|Sean Baker              |  |              | 1,170,885 |               |  |                 | 3.42% |                |  |                 | 75,626  |  |  | $ | 0.50-7.33  |  |  |  | 2006-2013 | 
|David James(4)          |  |              | 21,710    |               |  |                 | *     |                |  |                 |        |  |  | $ |           |  |  |  |          | 
|Christopher M. Mirabile |  |              | 200       |               |  |                 | *     |                |  |                 | 92,101  |  |  | $ | 1.99-7.33  |  |  |  | 2013-2014 | 
|Susan H. Alexander(5)   |  |              |          |               |  |                 |      |                |  |                 |        |  |  | $ |           |  |  |  |          | 
|John Conroy             |  |              | 13,000    |               |  |                 | *     |                |  |                 | 54,000  |  |  | $ | 2.25-43.15 |  |  |  | 2011-2013 | 
|Ivor Kenny              |  |              | 8,000     |               |  |                 | *     |                |  |                 | 53,334  |  |  | $ | 2.25-74.50 |  |  |  | 2009-2013 | 
|James Maikranz          |  |              |          |               |  |                 |      |                |  |                 | 36,000  |  |  | $ | 2.25-33.80 |  |  |  | 2011-2013 | 
|Francesco Violante      |  |              |          |               |  |                 |      |                |  |                 | 36,000  |  |  | $ | 2.25-43.15 |  |  |  | 2011-2013 | 
|William Burgess         |  |              |          |               |  |                 |      |                |  |                 | 30,000  |  |  | $ | 3.27       |  |  |  | 2013      | 



---



| |   |                                                            
| | - | -----------------------------------------------------------
| | * | Represents less than 1% of outstanding ordinary
    shares.



|    |                                                                                                                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The percentage of outstanding ordinary shares is
    based on 34,223,199 ordinary shares outstanding as of
    April 30, 2004, which excludes an aggregate of up to
    291,947 ordinary shares issuable as of April 30, 2004 to
    the former Netfish shareholders prior to reduction for
    indemnification payments to which we may be entitled.
|   
|(2) | Mr. Morris resigned as our Chief Executive
    Officer and Director in May 2003.                                                                                                                                                                                                                                                                     

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---



##### Table of Contents





|    |                                                                                           
|--- | ------------------------------------------------------------------------------------------
|(3) | Mr. Fisch resigned as our Chief Operating
    Officer in May 2003.                        
|   
|(4) | Mr. James resigned as our Executive Vice
    President, Corporate Development in May 2003.
|   
|(5) | Ms. Alexander resigned as our General
    Counsel and Secretary in September 2003.        



| |               
| | --------------
| | Exchange Offer

In the fourth quarter of 2002, we made an offer
to our employees, including executive officers other than our
then Chief Executive Officer and Chief Operating Officer, to
exchange their outstanding options to purchase our ordinary
shares that had an exercise price of more than $3.00 per
share. Eligible options included options granted under the
1997 Share Option Scheme, the Genesis Development
Corporation 1997 Stock Option Plan, the Object-Oriented
Concepts, Inc. Stock Option Plan and the Netfish
Technologies, Inc. 1999 Stock Option Plan. In exchange for
eligible options, employees received a commitment for new stock
options to be granted under the 1997 Share Option Scheme on
May 15, 2003. Only those participants in the option
exchange who were employees of IONA on May 15, 2003 were
eligible to receive the new grant. Participating executive
officers were required to forfeit, without exchange, all options
granted on or after April 16, 2002. A total of 4,815,444
options were accepted for exchange under the offer and
accordingly were canceled in November 2002. An additional
869,150 options were canceled without exchange. We granted new
options to purchase 3,156,807 shares on May 15, 2003.
The new options have an exercise price equal to $1.99 per
share (the fair market value of our ordinary shares on the date
of grant, as determined by the last reported sale price of our
ordinary shares on the Nasdaq National Market on the trading day
immediately prior to the grant date).

The following is a brief description of each of
our share option schemes:



| |                              
| | -----------------------------
| | Executive Share Option Scheme

In 1995, we adopted the Executive Share Option
Scheme, under which we reserved 1,125,500 ordinary shares for
issuance. Options under the Executive Share Option Scheme may
only be granted to our directors and full-time employees or
those of one of our subsidiaries and must have an exercise price
that is not less than the par value of the ordinary shares.
Options lapse when not exercised:



| |   |                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | within seven years of the date of grant;                                                                                                                    
|
| |  | twelve months after the death of an
    optionee; or                                                                                                        
|
| |  | prior to termination of the optionees
    employment for any reason, although our Board of Directors has
    discretion to delay lapse in individual cases.

As of December 31, 2003, an aggregate of
69,311 of our ordinary shares remain issuable upon the exercise
of options outstanding and options available for grant under the
Executive Share Option Scheme.



| |                         
| | ------------------------
| | 1997 Share Option Scheme

Our Board of Directors and shareholders approved
the 1997 Share Option Scheme in 1997, and approved
amendments in 1998, 2000 and 2001 to increase the number of
ordinary shares reserved for issuance under the 1997 Share
Option Scheme. The 1997 Share Option Scheme, as amended,
provides for the issuance of up to 12,900,000 of our ordinary
shares pursuant to share option grants to our employees,
consultants, directors and officers. Generally, under the
1997 Share Option Scheme, options are not transferable by
the option holder except by will or by the laws of descent and
distribution. Options granted under the 1997 Share Option
Scheme expire ten years from the date of grant or five years
from the date of grant in the case of an incentive stock option
granted to an employee holding more than 10% of our total
combined voting power.

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##### Table of Contents



Subject to the provisions of the 1997 Share
Option Scheme, the Compensation Committee has the authority to
select the optionees and determine the terms of the options
granted, including:



| |   |                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the number of shares subject to each option;                                                                                                                                                                                                                                                                                                                 
|
| |  | the date the option becomes exercisable;                                                                                                                                                                                                                                                                                                                     
|
| |  | the exercise price of the option (which in the
    case of an incentive stock option cannot be less than the market
    price of the ordinary shares as of the date of grant or, in the
    case of an employee holding more than 10% of the combined voting
    power of IONA, 110% of the market price of the ordinary shares
    as of the date of grant);
|
| |  | the duration of the option; and                                                                                                                                                                                                                                                                                                                              
|
| |  | the time, manner and form of payment upon
    exercise of an option.                                                                                                                                                                                                                                                                                         

As of December 31, 2003, an aggregate of
10,375,706 of our ordinary shares remain issuable upon the
exercise of options outstanding and options available for grant
under the 1997 Share Option Scheme.



| |                                      
| | -------------------------------------
| | 1997 Director Share Option
    Scheme

Our Board of Directors and shareholders approved
the 1997 Director Share Option Scheme in 1997, and approved
an amendment in 2002 to increase the number of ordinary shares
reserved for issuance under the 1997 Director Share Option
Scheme from 250,000 to 500,000 shares. The
1997 Director Share Option Scheme provides for the
automatic grant of options at periodic intervals to our
non-employee directors.

Under the 1997 Director Share Option Scheme,
each of our directors who is not also one of our employees or
officers will automatically receive an option to purchase 30,000
ordinary shares on the date such person is first elected to our
Board of Directors. In addition, each non-employee director will
automatically receive (1) an option to purchase an
additional 21,000 ordinary shares at the time of each annual
meeting of shareholders at which such director is re-elected by
rotation and (2) an option to purchase an additional 3,000
ordinary shares at the time of each other annual meeting of
shareholders following which such person will continue to serve
as a director without re-election, provided, however, that such
person has participated in no fewer than 75% of the meetings of
our Board of Directors held in the period measured from the date
of the previous annual meeting of shareholders and provided also
that no option to purchase ordinary shares will be granted to a
non-employee director unless at least one year has elapsed since
the date on which the non-employee director was granted an
option to purchase 30,000 ordinary shares on his first election
to our Board of Directors. The exercise price per share for all
options granted under the 1997 Director Share Option Scheme
will be equal to the fair market value of the ordinary shares on
the date of grant. All options granted under the
1997 Director Share Option Scheme are exercisable in three
equal annual installments, beginning on the date of grant of the
option. The options accelerate and become exercisable in full,
however, in the event the optionholders service on our
Board of Directors ceases by reason of his or her death or
permanent disability or in the event of an acquisition of IONA.
The term of each option will be for a period of ten years from
the date of grant. As of December 31, 2003, an aggregate of
446,000 ordinary shares remain issuable upon the exercise of
options outstanding and options available for grant under the
1997 Director Share Option Scheme.



| |                                                           
| | ----------------------------------------------------------
| | Genesis Development Corporation 1997 Stock
    Option Plan

In connection with our 2000 acquisition of
Genesis Development Corporation (Genesis), all of the
outstanding stock options under the Genesis Development
Corporation 1997 Stock Option Plan were converted into options
to purchase our ordinary shares. As of December 31, 2003,
an aggregate of 35,053 of our ordinary shares remained reserved
for issuance upon exercise of these converted Genesis stock
options. We do not intend to grant any more options under the
Genesis 1997 Stock Option Plan.

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| |                                                     
| | ----------------------------------------------------
| | Object-Oriented Concepts, Inc. Stock
    Option Plan

In connection with our 2001 acquisition of
Object-Oriented Concepts, Inc. (OOC), all of the
outstanding stock options under the Object-Oriented
Concepts, Inc. Stock Option Plan were converted into
options to purchase our ordinary shares. As of December 31,
2003, an aggregate of 35,682 of our ordinary shares remained
reserved for issuance upon exercise of these converted OOC stock
options. We do not intend to grant any more options under the
OOC Stock Option Plan.



| |                                                      
| | -----------------------------------------------------
| | Netfish Technologies, Inc. 1999 Stock
    Option Plan

In connection with our 2001 acquisition of
Netfish Technologies, Inc. (Netfish), all of the
outstanding stock options under the Netfish
Technologies, Inc. 1999 Stock Option Plan were converted
into options to purchase our ordinary shares. As of
December 31, 2003, an aggregate of 485,117 of our ordinary
shares remained reserved for issuance upon exercise of these
converted Netfish stock options. An aggregate of
518,536 shares were available for future grant or issuance
under Netfish 1999 Stock Option Plan as of December 31,
2003. We do not intend to grant any more options under the
Netfish 1999 Stock Option Plan.



| |                                      
| | -------------------------------------
| | 1999 Employee Share Purchase
    Plan

In 1999, we established a qualified Employee
Share Purchase Plan. Our Board of Directors and shareholders
approved in 2003 an amendment to the 1999 Employee Share
Purchase Plan to increase the number of our ordinary shares
issuable under the plan to 2,000,000. All of our employees and
employees of our participating subsidiaries who are employed
full-time for more than five months in any calendar year are
eligible to participate. The purchase price per ordinary share
for each payment period (a six-month period commencing
February 1 and August 1 and ending July 31 and
January 31, respectively, in each year) is the lesser of
(1) 85% of the average market price of our ADSs on the
first business day of the payment period and (2) 85% of the
average market price of our ADSs on the last business day of the
payment period, in either event rounded up to the nearest cent.
In each payment period, an employee may authorize payroll
deductions in an amount not less than 1% but not more than 10%
of the employees salary for participation in the 1999
Employee Share Purchase Plan. Rights under the 1999 Employee
Share Purchase Plan terminate in certain specified events
including retirement, resignation and death. Once enrolled, an
employee may withdraw from the 1999 Employee Share Purchase Plan
(in whole but not in part) at any time prior to the last day of
a six month payment period by delivering a written withdrawal
notice to IONA. An employee who has previously withdrawn must
file a new authorization at least ten days before the first day
of the next payment period in which he or she wishes to
participate. Unless terminated sooner, the 1999 Employee Share
Purchase Plan terminates on June 9, 2009. As of
December 31, 2003, 823,221 shares have been issued
under the 1999 Employee Share Purchase Plan.

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---



##### Table of Contents








|        |                                                      
|------- | -----------------------------------------------------
|Item 7. | MAJOR SHAREHOLDERS AND RELATED PARTY
    TRANSACTIONS




A.     Major
Shareholders

The following table sets forth, as of
April 30, 2004, the number of ordinary shares owned by all
shareholders who we know to own beneficially more than five
percent (5%) of our ordinary shares.

In addition, Bank of Ireland Nominees Ltd. is
currently the nominee holder of Deutsche Bank Trust Company
Americas, as depositary under the Amended and Restated Deposit
Agreement dated as of April 26, 2004 among us, the
depositary and the holders and beneficial owners of American
Depositary Shares, or ADSs, evidenced by American Depositary
Receipts, or ADRs, issued thereunder. Bank of Ireland Nominees
Ltd. is not the beneficial owner of the shares as determined in
accordance with the rules of the Securities and Exchange
Commission. As of April 30, 2004, the nominee holder of the
depositary was the holder of record of 28,547,967 ADSs
representing the 28,547,967 ordinary shares deposited under the
deposit agreement.

Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission and is
based on 34,223,199 ordinary shares outstanding as of
April 30, 2004, which excludes an aggregate of up to
291,947 ordinary shares issuable as of April 30, 2004 to
the former Netfish shareholders prior to reduction for
indemnification payments to which we may be entitled. For the
purposes of calculating the number of ordinary shares and the
percentage beneficially owned by a person or entity, ordinary
shares issuable by us to that person or entity pursuant to
options which may be exercised within 60 days of
April 30, 2004 are deemed to be beneficially owned and
outstanding. Except as otherwise indicated, each shareholder
named in the following table has sole voting and investment
power with respect to the shares set forth opposite that
shareholders name.

|                                                         |  |                    |           |                    |  |  |     |  
|-------------------------------------------------------- |  | ------------------ | --------- | ------------------ |  |  | --- | -
|                                                         |  | Number of          |           | Percentage of     
|                                                         |  | Ordinary Shares    |           | Ordinary Shares   
|Name of Beneficial Owner                                 |  | Beneficially Owned |           | Beneficially Owned
|                                                         |  |                    |           |                   
|Christopher J. Horn(1)                                   |  |                    | 2,339,540 |                    |  |  | 6.8 | %
|Mellon Financial Corporation(2)                          |  |                    | 2,135,000 |                    |  |  | 6.2 | %
|Schroder Investment Management International
    Ltd.(3) |  |                    | 3,341,440 |                    |  |  | 9.8 | %
|Gartmore Investment Limited(4)                           |  |                    | 2,338,733 |                    |  |  | 6.8 | %



---



|    |                                                                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes 1,126 ordinary shares subject to
    outstanding share options that are exercisable within the 60-day
    period following April 30, 2004.                                                                                                                  
|   
|(2) | Mellon Financial Corporation filed a
    Schedule 13G on February 4, 2004, in which Mellon
    Financial Corporation reported that its direct and indirect
    subsidiaries beneficially owned an aggregate of 2,135,000 ADRs
    as of December 31, 2003.           
|   
|(3) | Schroder Investments Management International
    Ltd. filed a Schedule 13G on February 13, 2004, in
    which Schroder Investments Management International Ltd.
    reported that it beneficially owned an aggregate of 3,341,440
    ADRs as of December 31, 2003.
|   
|(4) | Gartmore Investment Limited reported to us on
    May 3, 2004 that it and its affiliates, Gartmore Fund
    Managers and Gartmore Global Partners, beneficially owned an
    aggregate of 2,338,733 ADRs as of April 29, 2004.                                       

We are not directly or indirectly owned or
controlled by another corporation, by any foreign government or
by any other natural or legal person.

Our major shareholders do not have different
voting rights.

As of April 30, 2004, 0.2% of our ordinary
shares are held of record in ordinary share form by 38
U.S. holders, excluding up to 291,947 ordinary shares
issuable as of April 30, 2004 to the former Netfish
shareholders.

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---



##### Table of Contents








|   |                           
|-- | --------------------------
|B. | Related Party Transactions

For information concerning fees we paid to our
directors in 2003, please see Item 6.B.
Compensation. For information concerning fees that
we currently pay to our non-executive directors for their
service in their capacity as directors, please see
Item 6.C. Board Practices. For information
concerning agreements with our executive officers, please see
Item 10.C. Material Contracts.

In August 2003, we entered into a consulting
agreement with a company called Claright, founded by
Mr. Zotto, our Chief Operating Officer. Under this
agreement, Mr. Zotto, prior to his becoming an employee of
IONA, was hired through Claright to provide marketing and
related consulting services to IONA. The consulting arrangement
was terminated in October 2003, prior to Mr. Zotto being
hired as our Chief Operating Officer. We paid Claright fees in
the amount of $101,750 for such services.

In July 2003, we engaged K Capital Source
Limited (K Capital) to provide us with capital market
communication and advisory services. Mark Kenny, a principal of
K Capital, is the son of one of our directors,
Dr. Ivor Kenny. Under our agreement with K Capital, we
pay $40,000 per fiscal quarter for such services. No
amounts relating to services rendered were outstanding as of
December 31, 2003.






|   |                                     
|-- | ------------------------------------
|C. | Interests of Experts and
    Counsel

Not required.






|        |                      
|------- | ---------------------
|Item 8. | FINANCIAL INFORMATION






|   |                                                                      
|-- | ---------------------------------------------------------------------
|A. | Consolidated Financial Statements and Other
    Financial Information

Please see Item 18 Financial
Statements for our Consolidated Financial Statements. In
addition, for information regarding the percentages and amounts
of our revenues from customers located in the United States and
outside of the United States, please see Item 5.A.
Operating Results and Note 18 of Notes to
Consolidated Financial Statements.

Legal Proceedings

As of the date of this annual report, we are not
a party to any legal proceeding, which, if resolved or
determined adversely to us, would have a material adverse effect
on our business, financial condition and results of operation.
We, however, have in the past been and may in the future be
subject to claims and litigation in the ordinary course of
business. In the event that any such claims or litigation are
resolved against us, such outcomes or resolutions could have a
material adverse effect on our business, financial condition or
results of operations.

Dividend Distribution Policy

We do not expect to pay dividends in the
foreseeable future.






|   |                    
|-- | -------------------
|B. | Significant Changes

No significant change has occurred since
December 31, 2003.

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##### Table of Contents








|        |                      
|------- | ---------------------
|Item 9. | THE OFFER AND LISTING






|   |                          
|-- | -------------------------
|A. | Offer and Listing Details



| |                         
| | ------------------------
| | Market Price Information

Our ordinary shares have been listed as a
secondary listing on the Official List of the Irish Stock
Exchange since December 19, 1997. By virtue of such listing
being a secondary listing, we are not subject to the same
ongoing regulatory requirements as those which would apply to an
Irish company with a primary listing on the Irish Stock
Exchange, including the requirement that certain transactions
receive the approval of shareholders. For further information,
shareholders should consult their own financial advisors. The
following table sets forth the high and low sales prices of our
ordinary shares for the fiscal years, the fiscal quarters and
the months indicated:

|                             |                |      |        |       |  |   |       |       | 
|---------------------------- | -------------- | ---- | ------ | ----- |  | - | ----- | ----- | 
|                             |                | High |        | Low  
|                             |                |      |        |      
|Year Ended December 31, 1999 |                |     | 50.75  |       |  |  | 11.70 |      
|Year Ended December 31, 2000 |                |     | 106.00 |       |  |  | 40.64 |      
|Year Ended December 31, 2001 |                |     | 73.50  |       |  |  | 8.30  |      
|Year Ended December 31, 2002 |                |     | 29.75  |       |  |  | 1.70  |      
|Year Ended December 31, 2003 |                |     | 4.95   |       |  |  | 1.27  |      
|Year Ended December 31, 2002 |                |      |        |       |  |   |       |      
|                             | First Quarter  |      |       | 29.75 |  |   |      | 15.50 | 
|                             | Second Quarter |      |       | 19.20 |  |   |      | 5.10  | 
|                             | Third Quarter  |      |       | 5.90  |  |   |      | 1.75  | 
|                             | Fourth Quarter |      |       | 3.50  |  |   |      | 1.70  | 
|Year Ended December 31, 2003 |                |      |        |       |  |   |       |      
|                             | First Quarter  |      |       | 3.15  |  |   |      | 1.80  | 
|                             | Second Quarter |      |       | 2.15  |  |   |      | 1.27  | 
|                             | Third Quarter  |      |       | 3.00  |  |   |      | 1.80  | 
|                             | Fourth Quarter |      |       | 4.95  |  |   |      | 2.20  | 
|Year Ended December 31, 2004 |                |      |        |       |  |   |       |      
|                             | First Quarter  |      |       | 7.54  |  |   |      | 4.17  | 
|Month Ended                  |                |      |        |       |  |   |       |      
|                             | November 2003  |      |       | 4.50  |  |   |      | 3.70  | 
|                             | December 2003  |      |       | 4.95  |  |   |      | 3.85  | 
|                             | January 2004   |      |       | 6.20  |  |   |      | 4.17  | 
|                             | February 2004  |      |       | 6.00  |  |   |      | 5.12  | 
|                             | March 2004     |      |       | 7.54  |  |   |      | 5.70  | 
|                             | April 2004     |      |       | 7.50  |  |   |      | 4.92  | 

Our American Depositary Receipts (ADRs),
evidencing American Depositary Shares (ADSs), which represent
ordinary shares deposited with the Depositary under the Deposit
Agreement dated as of April 26, 2004 among IONA, Deutsche
Bank Trust Company Americas and the holders from time to time of
ADRs, have been traded in the United States on the Nasdaq
National Market (Nasdaq) since our initial public offering on
February 25, 1997. Currently, our ADRs are trading under
the symbol IONA. Deutsche Bank Trust Company
Americas serves as Depositary for our ADRs. Currently, each ADR

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---



##### Table of Contents



evidences one ADS and each ADS represents one
ordinary share. The following table sets forth the high and low
sales prices of our ADRs for the fiscal years, the fiscal
quarters and the months indicated:


|                             |                |      |        |       |  |   |       |       | 
|---------------------------- | -------------- | ---- | ------ | ----- |  | - | ----- | ----- | 
|                             |                | High |        | Low  
|                             |                |      |        |      
|Year Ended December 31, 1999 |                | $    | 55.25  |       |  | $ | 12.13 |      
|Year Ended December 31, 2000 |                | $    | 102.00 |       |  | $ | 38.00 |      
|Year Ended December 31, 2001 |                | $    | 66.44  |       |  | $ | 6.90  |      
|Year Ended December 31, 2002 |                | $    | 27.14  |       |  | $ | 1.65  |      
|Year Ended December 31, 2003 |                | $    | 5.90   |       |  | $ | 1.23  |      
|Year Ended December 31, 2002 |                |      |        |       |  |   |       |      
|                             | First Quarter  |      | $      | 66.44 |  |   | $     | 25.25 | 
|                             | Second Quarter |      | $      | 17.11 |  |   | $     | 5.00  | 
|                             | Third Quarter  |      | $      | 5.61  |  |   | $     | 1.65  | 
|                             | Fourth Quarter |      | $      | 3.464 |  |   | $     | 1.67  | 
|Year Ended December 31, 2003 |                |      |        |       |  |   |       |      
|                             | First Quarter  |      | $      | 3.44  |  |   | $     | 1.97  | 
|                             | Second Quarter |      | $      | 2.65  |  |   | $     | 1.23  | 
|                             | Third Quarter  |      | $      | 3.542 |  |   | $     | 2.00  | 
|                             | Fourth Quarter |      | $      | 5.90  |  |   | $     | 2.40  | 
|Year Ended December 31, 2004 |                |      |        |       |  |   |       |      
|                             | First Quarter  |      | $      | 9.46  |  |   | $     | 5.01  | 
|Month Ended                  |                |      |        |       |  |   |       |      
|                             | November 2003  |      | $      | 5.38  |  |   | $     | 4.22  | 
|                             | December 2003  |      | $      | 5.90  |  |   | $     | 4.61  | 
|                             | January 2004   |      | $      | 8.00  |  |   | $     | 5.01  | 
|                             | February 2004  |      | $      | 7.545 |  |   | $     | 6.48  | 
|                             | March 2004     |      | $      | 9.46  |  |   | $     | 6.08  | 
|                             | April 2004     |      | $      | 9.19  |  |   | $     | 5.28  | 






|   |                     
|-- | --------------------
|B. | Plan of Distribution

Not required.






|   |        
|-- | -------
|C. | Markets

Our ordinary shares have been listed as a
secondary listing on the Official List of the Irish Stock
Exchange since December 19, 1997. Our ADRs have been traded
in the United States on Nasdaq since our initial public offering
on February 25, 1997.






|   |                     
|-- | --------------------
|D. | Selling Shareholders

Not required.






|   |         
|-- | --------
|E. | Dilution

Not required.






|   |                      
|-- | ---------------------
|F. | Expenses of the Issue

Not required.

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|         |                       
|-------- | ----------------------
|Item 10. | ADDITIONAL INFORMATION






|   |              
|-- | -------------
|A. | Share Capital

Not required.






|   |                                           
|-- | ------------------------------------------
|B. | Memorandum and Articles of
    Association

Our Memorandum of Association, as amended, filed
as Exhibit 3.3 to our Registration Statement on
Form F-1 (File No. 333-6396) and our Restated Articles
of Association, as amended, filed as Exhibit 4.2 to our
Registration Statement on Form S-8 (File
No. 333-11384) are incorporated herein by reference. In
addition, we incorporate by reference the Description of
Share Capital included in our Registration Statement on
Form F-3 (File No. 333-81212). The Transfer Agent and
Registrar for our ordinary shares is Computershare Investor
Services (Ireland) Limited, Ireland. The Transfer Agent and
Registrar for our ADRs is Deutsche Bank Trust Company Americas.






|   |                   
|-- | ------------------
|C. | Material Contracts

We have entered into Change in Control Agreements
with each of our executive officers, the form of which is filed
as Exhibit 4.13 to our annual report on Form 20-F for
the year ending December 31, 2002 and incorporated herein
by reference. Under each of these agreements, if there is a
change in control of IONA and the surviving company does not
assume IONAs stock option plans or provide the executive
officer with comparable substitute options, the executive
officers unvested stock options will vest. In addition, if
the executive officers employment is terminated
(1) without cause within the period beginning three months
prior to the announcement of the change in control and ending
two years after the change in control or (2) by the
executive officer for good reason within two years after the
change in control, the executive officers unvested stock
options will vest and the executive officer will be entitled to
continued health, vision and dental insurance benefits and a
severance payment. The executive officers severance
payment will equal two times the sum of the executive
officers highest annual base salary during the period
commencing immediately prior to the change of control through
the date of termination and highest annual target bonus during
the period commencing the calendar year prior to the change of
control through the calendar year of the date of termination.

For information on additional material contracts,
please see Item 4, Information on the Company.






|   |                  
|-- | -----------------
|D. | Exchange Controls

Irish exchange control regulations ceased to
apply from and after December 31, 1992. Except as indicated
below, there are no restrictions on non-residents of Ireland
dealing in domestic securities, which includes shares or
depositary receipts of Irish companies such as us, and dividends
and redemption proceeds (subject to the withholding where
appropriate of withholding tax as described under
Item 10.E. Taxation) are freely transferable to
non-resident holders of such securities.

The Financial Transfers Act, 1992 was enacted in
December 1992. This Act gives power to the Minister for Finance
of Ireland to make provision for the restriction of financial
transfers between Ireland and other countries. Financial
transfers are broadly defined and include all transfers which
would be movements of capital or payments within the meaning of
the treaties governing the European Communities. The acquisition
or disposal of ADRs representing shares issued by an Irish
incorporated company, like our ADRs, and associated payments may
fall within this definition. In addition, dividends or interest
payments or payments on redemption or purchase of shares,
debentures or other securities in an Irish incorporated company
and payments on a liquidation of an Irish incorporated company
would fall within this definition. Currently, orders under this
Act prohibit any financial transfers with respect to funds,
financial assets or economic resources belonging to: certain
persons or entities associated Osama bin Laden, the al-Qaeda
network and the Taliban of Afghanistan; certain persons related
to governmental functions in Burma/Myanmar; senior members of
the Zimbabwean government; Slobodan Milosevic and the persons
associated with Slobodan Milosevic; any person, entity or body
listed in EC Counter Terrorism

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measures (Article 1 of Council Decision
2002/974/EC); or any imports from, exports to or the provision
of non-financial services which promote the economy of Iraq
unless permission for the transfer has been given by the Central
Bank of Ireland.


We do not anticipate that orders under the
Financial Transfers Act, 1992 will have a material effect on our
business, results of operations or financial condition.






|   |         
|-- | --------
|E. | Taxation

Irish Tax Considerations

The following is a general summary of certain
Irish tax consequences applicable to Irish Holders and
U.S. Holders (as defined below in this summary) in respect
of the purchase, ownership and disposition of ordinary shares or
ADSs evidenced by ADRs.

This summary is based on Irish taxation laws
currently in force, regulations promulgated thereunder, the
current provisions of the Ireland-United States Double Taxation
Convention (the Treaty), specific proposals to amend any of the
forgoing publicly announced prior to the date hereof and the
currently published administrative practices of the Irish
Revenue Commissioners, all as of the date of this annual report.
Taxation laws are subject to change, from time to time, and no
representation is or can be made as to whether such laws will
change, or what impact, if any, such changes will have on the
statements contained in this summary. It is assumed that any
proposed amendments will be enacted in the form proposed. No
assurance can be given that proposed amendments will be enacted
as proposed, or that legislative or judicial changes, or changes
in administrative practice, will not modify or change the
statements expressed herein.

This summary is of a general nature only. It does
not constitute legal or tax advice nor does it discuss all
aspects of Irish taxation that may be relevant to any particular
Irish Holder or U.S. Holder of ordinary shares or ADSs.



| |                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | HOLDERS OF ORDINARY SHARES OR ADSs ARE ADVISED
    TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE
    APPLICATION OF IRISH TAXATION LAWS TO THEIR PARTICULAR
    CIRCUMSTANCES IN RELATION TO THE PURCHASE, OWNERSHIP OR
    DISPOSITION OF ORDINARY SHARES OR ADSs.

The summary only applies to Irish Holders and
U.S. Holders that legally and beneficially hold their
ordinary shares or ADSs evidenced by ADRs as capital assets
(i.e. investments) and does not address special classes of
holders including, but not limited to, dealers in securities,
insurance companies, pension schemes, employee share ownership
trusts, collective investment undertakings, charities,
tax-exempt organizations, financial institutions and close
companies, each of which may be subject to special rules not
discussed below.



|    |                                                         
|--- | --------------------------------------------------------
|(i) | Irish Tax Considerations Applicable to Irish
    Holders

For the purposes of this summary, an Irish
Holder means a holder of ordinary shares or ADSs evidenced
by ADRs that (i) beneficially owns the ordinary shares or
ADSs registered in their name; (ii) in the case of
individual holders, are resident, ordinarily resident and
domiciled in Ireland under Irish taxation laws; (iii) in
the case of holders that are companies, are resident in Ireland
under Irish taxation laws; and (iv) are not also resident
in any other country under any double taxation agreement entered
into by Ireland.

For Irish taxation purposes, Irish Holders
of ADSs will be treated as the owners of the underlying ordinary
shares represented by such ADSs.



| |                      
| | ---------------------
| | Taxation of Dividends

We do not expect to pay dividends in the
foreseeable future. Should we begin paying dividends, such
dividends will generally be subject to dividend withholding tax
(DWT) in Ireland at the standard rate of

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##### Table of Contents



income tax (currently 20%). Where DWT applies, we
will be responsible for withholding such tax at source.


Corporate Irish Holders will generally be
entitled to claim an exemption from DWT by delivering a
declaration to us in the form prescribed by the Irish Revenue
Commissioners. Such corporate Irish Holders will generally not
otherwise be subject to Irish tax in respect of dividends
received.

Individual Irish Holders will be subject to
income tax on the gross amount of any dividend (that is the
amount of the dividend received plus any DWT withheld), at their
marginal rate of tax (currently either 20% or 42% depending on
the individuals circumstances). Individual Irish Holders
will be able to claim a credit against their resulting income
tax liability in respect of DWT withheld.

Individual Irish Holders may, depending on their
circumstances, also be subject to the Irish health levy of 2%
and pay related social insurance contribution of up to 3% in
respect of their dividend income.



| |                                     
| | ------------------------------------
| | Disposals of Ordinary Shares or ADSs

Irish Holders that acquire ordinary shares or
ADSs will generally be considered, for Irish tax purposes, to
have acquired their ordinary shares or ADSs at a base cost equal
to the amount paid for the ordinary shares or ADSs. On
subsequent dispositions, ordinary shares or ADSs acquired at an
earlier time will generally be deemed, for Irish tax purposes,
to be disposed of on a first in first out basis
before ordinary shares or ADSs acquired at a later time.

Irish Holders that dispose of their ordinary
shares or ADSs will be subject to Irish capital gains tax
(CGT) to the extent that the proceeds realized from such
disposition exceed the indexed base cost of the ordinary shares
or ADSs disposed of and any incidental expenses. The current
rate of CGT is 20%. Indexation of the base cost of the ordinary
shares or ADSs will only be available up to December 31,
2003, and only in respect of ordinary shares or ADSs held for
more than 12 months prior to their disposal.

Irish Holders that have unutilized capital losses
from other sources in the current, or any previous tax year, can
generally apply such losses to reduce gains realized on the
disposal of the ordinary shares or ADSs.

An annual exemption allows individuals to realize
chargeable gains of up
to 1,270 in
each tax year without giving rise to CGT. This exemption is
specific to the individual and cannot be transferred between
spouses. Irish Holders are required, under Irelands
self-assessment system, to file a tax return reporting any
chargeable gains arising to them in a particular tax year.

Where disposal proceeds are received in a
currency other than euro they must be translated into euro
amounts to calculate the amount of any chargeable gain or loss.
Similarly, acquisition costs denominated in a currency other
than euro must be translated at the date of acquisition into
euro amounts.

Irish Holders that realize a loss on the
disposition of ordinary shares or ADSs will generally be
entitled to offset such allowable losses against capital gains
realized from other sources in determining their CGT liability
in a year. Allowable losses which remain unrelieved in a year
may generally be carried forward indefinitely for CGT purposes
and applied against capital gains in future years.

Transfers between spouses will not give rise to
any chargeable gain or loss for CGT purposes with the acquiring
spouse acquiring the same pro rata base cost and acquisition
date as that of the transferring spouse.



| |                         
| | ------------------------
| | Capital Acquisitions Tax

A gift or inheritance of ordinary shares or ADSs
will fall within the charge to Irish capital acquisitions tax
(CAT). CAT is currently chargeable at a rate of 20% on the value
of gifts or inheritances above specified tax free thresholds.
Different classes of tax free thresholds apply depending upon
the relationship between the donor and the recipient. These tax
free thresholds are also affected by the value of previous gifts
or inheritances received since December 5, 1991. CAT is
generally payable by the

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recipient of the gift or inheritance. Gifts or
inheritances between spouses are not subject to Irish CAT.
Effective January 1, 2003, gifts of up to
3,000 of the
total value of all gifts received from any one individual in any
year up to December 31 can be received without triggering a
charge to CAT. This exemption does not generally apply to
inheritances. Where a charge to CGT and CAT arises on the same
event, CAT payable on the event can be reduced by the amount of
the CGT payable.




| |           
| | ----------
| | Stamp Duty

Irish stamp duty, which is a tax imposed on
certain documents, is payable on all transfers of ordinary
shares (other than transfers made between spouses, transfers
made between 90% associated companies, or certain other exempt
transfers) regardless of where the document of transfer is
executed. Irish stamp duty is also payable on electronic
transfers of ordinary shares.

A transfer of ordinary shares made as part of a
sale or gift will generally be stampable at the ad valorem rate
of 1% of the value of the consideration received for the
transfer, or, if higher, the market value of the shares
transferred. A minimum stamp duty of
1.00 will apply
to a transfer of ordinary shares. Where the consideration for a
sale is expressed in a currency other than euro, the duty will
be charged on the euro equivalent calculated at the rate of
exchange prevailing at the date of the transfer.

Transfers of ordinary shares where no beneficial
interest passes (e.g. a transfer of shares from a
beneficial owner to a nominee), will generally be exempt from
stamp duty if the transfer form contains an appropriate
certification, otherwise a nominal stamp duty rate of
12.50 will apply.

Transfers of ADRs (representing ADSs) by Irish
Holders are generally exempt from Irish stamp duty.

Transfers of ordinary shares from the Depositary
or the Depositarys custodian upon surrender of ADRs for
the purposes of withdrawing the underlying ordinary shares from
the ADS/ADR system, and transfers of ordinary shares to the
Depositary or the Depositarys custodian for the purposes
of transferring ordinary shares onto the ADS/ADR system, will be
stampable at the ad valorem rate of 1% of the value of the
shares transferred if the transfer relates to a sale or
contemplated sale or any other change in the beneficial
ownership of ordinary shares. Such transfers will be exempt from
Irish stamp duty if the transfer does not relate to or involve
any change in the beneficial ownership in the underlying
ordinary shares and the transfer form contains the appropriate
certification. In the absence of an appropriate certification,
stamp duty will be applied at the nominal rate of
12.50.

The person accountable for the payment of stamp
duty is the transferee or, in the case of a transfer by way of
gift or for consideration less than the market value, both
parties to the transfer. Stamp duty is normally payable within
30 days after the date of execution of the transfer. Late
or inadequate payment of stamp duty will result in liability for
interest, penalties and fines.



|     |                                                        
|---- | -------------------------------------------------------
|(ii) | Irish Tax Considerations Applicable to
    U.S. Holders

Solely for the purposes of this summary of Irish
Tax Considerations, a U.S. Holder means a
holder of ordinary shares or ADSs evidenced by ADRs that
(i) beneficially owns the ordinary shares or ADSs
registered in their name; (ii) is resident in the United
States for the purposes of the Treaty; (iii) in the case of
an individual holder, is not also resident or ordinarily
resident in Ireland for Irish tax purposes; (iv) in the
case of a corporate holder, is not a resident in Ireland for
Irish tax purposes and is not ultimately controlled by persons
resident in Ireland; and (v) is not engaged in any trade or
business and does not perform independent personal services
through a permanent establishment or fixed base in Ireland.

For Irish taxation purposes, and for the purposes
of the Treaty, U.S. Holders of ADSs will be treated as the
owners of the underlying ordinary shares represented by such
ADSs.

-55-



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##### Table of Contents





| |                      
| | ---------------------
| | Taxation of Dividends

We do not expect to pay dividends in the
foreseeable future. Should we begin paying dividends, such
dividends will generally be subject to dividend withholding tax
(DWT) in Ireland at the standard rate of income tax
(currently 20%). Where DWT applies, we will be responsible for
withholding such tax at source.

Dividends paid by us to U.S. Holders of
ordinary shares will be exempt from DWT if, prior to the payment
of such dividends, the recipient U.S. Holder delivers to us
a declaration, a certificate of residency and, in the case of
U.S. Holders that are corporations, an auditors
certificate, each in the form prescribed by the Irish Revenue
Commissioners.

Special DWT arrangements may be available to
U.S. Holders of ADSs evidenced by ADRs, as the Depositary
for the ADSs (Deutsche Bank Trust Company Americas, the
depositary under the Deposit Agreement dated as of
April 26, 2004 among IONA, Deutsche Bank Trust Company
Americas and the holders from time to time of ADSs issued
thereunder) has entered into an intermediary agreement with the
Irish Revenue Commissioners for DWT purposes. Under such an
agreement, it is possible for the Depositary to receive
dividends from us and pass such dividends onto U.S. Holders
of ADSs on a gross basis, without DWT, if either:



| |   |                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the ADR register maintained by the Depositary
    shows the U.S. Holder as having a U.S. address on the
    register; or                                                                                                                            
|
| |  | where there is an intermediary between the
    Depositary and the beneficial holder of ADSs, the Depositary
    receives confirmation from the intermediary that the beneficial
    owners address in the intermediarys records is in
    the U.S.

Where the above procedures have not been complied
with and DWT is withheld from dividend payments to
U.S. Holders of ordinary shares or ADSs evidenced by ADRs,
such U.S. Holders can apply to the Irish Revenue
Commissioners claiming a full refund of DWT paid by filing a
declaration, a certificate of residency and, in the case of
U.S. Holders that are corporations, an auditors
certificate, each in the form prescribed by the Irish Revenue
Commissioners.

The DWT rate applicable to U.S. Holders is
reduced to 5% under the terms of the Treaty for corporate
U.S. Holders holding 10% or more of our voting shares, and
to 15% for other U.S. Holders. While this will, subject to
the application of Article 23 of the Treaty, generally
entitle U.S. Holders to claim a partial refund of DWT from
the Irish Revenue Commissioners, U.S. Holders will, in most
circumstances, likely prefer to seek a full refund of DWT under
Irish domestic legislation.



| |                                                          
| | ---------------------------------------------------------
| | Capital Gains on Disposals of Ordinary Shares
    or ADSs

U.S. Holders will not be subject to Irish
capital gains tax (CGT) on the disposal of ordinary shares or
ADSs provided that such ordinary shares or ADSs are quoted on a
stock exchange at the time of disposition. A stock exchange for
this purpose includes, among others, the Irish Stock Exchange
(the ISE) or the Nasdaq National Market (NASDAQ). While it is
our intention to continue the quotation of our ordinary shares
on the ISE and the quotation of ADSs on NASDAQ, no assurances
can be given in this regard.

If, for any reason, our ADSs cease to be quoted
on NASDAQ and our ordinary shares cease to be quoted on the ISE,
U.S. Holders will not be subject to CGT on the disposal of
their ordinary shares or ADSs provided that the ordinary shares
or ADSs do not, at the time of the disposal, derive the greater
part of their value from land, buildings, minerals, or mineral
rights or exploration rights in Ireland.



| |                               
| | ------------------------------
| | Irish Capital Acquisitions Tax

A gift or inheritance of ordinary shares or ADSs
will fall within the charge to Irish capital acquisitions tax
(CAT) because our ordinary shares are considered to be Irish
property for CAT purposes. CAT is currently chargeable at a rate
of 20% on the value of gifts or inheritances above specified tax
free

-56-



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thresholds. Different classes of tax free
thresholds apply depending upon the relationship between the
donor and the recipient. These tax free thresholds are also
affected by the value of previous gifts or inheritances received
since December 5, 1991. Gifts or inheritances between
spouses are not subject to CAT.


Effective January 1, 2003, gifts of up to
3,000 of the
total value of all gifts received from any one individual in any
year up to December 31 can be received without triggering a
charge to CAT. This exemption does not generally apply to
inheritances.

In a case where an inheritance of ordinary shares
or ADSs is subject to both CAT and U.S. federal estate tax,
the Estate Tax Convention between Ireland and the
U.S. should allow for the crediting, in whole or in part,
of the CAT against the U.S. federal estate tax payable.
Similar relief is not available in a case where a gift of
ordinary shares or ADSs evidenced by ADRs is subject both to CAT
and U.S. federal gift tax as the Estate Tax Convention only
applies to estate taxes.



| |           
| | ----------
| | Stamp Duty

Irish Stamp Duty will apply to transfers of
ordinary shares or ADSs by U.S. Holders on the same basis
as outlined above for Irish Holders.

Certain U.S. Federal Income Tax
Considerations

The following discussion summarizes certain of
the material U.S. federal income tax considerations for
U.S. Holders from the purchase, ownership and disposition
of our ordinary shares or ADSs which evidence the ADRs. The
following discussion assumes that, for U.S. federal income
tax purposes, U.S. Holders will be treated as the owners of
our underlying ordinary shares represented by the ADSs. The
following discussion is based on the Internal Revenue Code of
1986, as amended (the Code), current and proposed Treasury
Regulations, judicial decisions and published administrative
positions of the Internal Revenue Service, all as in effect on
the date of this Annual Report, and all of which are subject to
change, possibly with retroactive effect. In particular,
numerous provisions of current U.S. federal income tax law
(including certain tax rates referred to herein) are scheduled
to change in future years, without further legislative action,
as a result of sunset provisions included as part of
legislation passed in 2001 and 2003. For purposes of this
discussion, a person is a U.S. Holder if such person holds
ordinary shares or ADSs and if such person is:



| |   |                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a citizen or resident of the United States,
    including an alien individual who is a lawful permanent resident
    of the United States or who meets the substantial presence
    residency test under U.S. federal income tax laws;                                                 
|
| |  | a corporation (or other entity treated as a
    corporation for U.S. federal income tax purposes) that is
    created or organized under the laws of the United States, any of
    the fifty states or the District of Columbia, unless otherwise
    provided by Treasury Regulations;
|
| |  | an estate the income of which is includible in
    gross income for U.S. federal income tax purposes
    regardless of source; or                                                                                                                                                      
|
| |  | a trust, if a U.S. court is able to exercise
    primary supervision over its administration and one or more
    U.S. persons have the authority to control all substantial
    decisions of the trust.                                                                                

This discussion does not address all aspects of
U.S. federal income taxation that may be relevant to a
U.S. Holder based on such holders particular
situation. For example, the following discussion does not
address the application of the alternative minimum tax rules or
rules applicable to U.S. Holders in special circumstances.
Special rules may apply to a U.S. Holder who is:



| |   |                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------
| |  | a bank, thrift, insurance company, regulated
    investment company, or other financial institution or financial
    service company;
|
| |  | a broker or dealer in securities or foreign
    currency;                                                                            

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| |   |                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a person who has a functional currency other than
    the U.S. dollar;                                                                                                                                            
|
| |  | a partnership or other flow-through entity
    (including a limited liability company treated as a partnership
    for U.S. federal income tax purposes);                                                         
|
| |  | an S corporation;                                                                                                                                                                                                 
|
| |  | a person subject to alternative minimum tax;                                                                                                                                                                      
|
| |  | a person who owns our ordinary shares or ADSs
    evidenced by ADRs as part of a straddle, hedging transaction,
    conversion transaction, constructive sale transaction or other
    risk-reduction transaction;
|
| |  | a tax-exempt entity;                                                                                                                                                                                              
|
| |  | investors who own (directly, indirectly or
    through attribution) 10% or more of our outstanding voting
    shares;                                                                                             
|
| |  | a person who has ceased to be a U.S. citizen
    or to be taxed as a resident alien; or                                                                                                                           
|
| |  | a person who acquired our ordinary shares or ADSs
    evidenced by ADRs in connection with employment or the
    performance of services generally.                                                               

The following discussion does not address any
aspect of state, local or non-U.S. tax laws or any aspect
of U.S. estate or gift taxation and does not address
aspects of U.S. federal income taxation applicable to
U.S. Holders holding options, warrants, or other rights to
acquire our ordinary shares. Further, this discussion generally
considers only U.S. Holders that hold their ordinary shares
or ADSs as capital assets and does not consider the tax
treatment of holders who are partnerships or who hold ordinary
shares or ADSs through a partnership or other pass-through
entity. This discussion does not apply to any person who is
not a U.S. Holder or to any person who does not hold
ordinary shares or ADSs.

This discussion also assumes that we will not be
treated as a controlled foreign corporation. Under the Code, a
controlled foreign corporation generally means any foreign
corporation if, on any day during its taxable year, more than
50% of either the total combined voting power of all classes of
stock of the corporation entitled to vote, or the total value of
the stock of the corporation, is owned, directly, indirectly or
by attribution, by U.S. persons who each, in turn, own
directly, indirectly or by attribution, 10% or more of the total
combined voting power of all classes of stock of the corporation
entitled to vote. Further, this discussion assumes that we are
not a collapsible corporation as defined in the
Code. If a partnership (or an entity treated as a partnership)
holds our ordinary shares, the tax treatment of a partner will
generally depend upon the status of the partner and upon the
activities of the partnership. If you are a partner in a
partnership (or an interest holder in an entity treated as a
partnership), you should consult your tax advisor.



| |                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | U.S. HOLDERS OF OUR ORDINARY SHARES OR
    ADSs ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT
    TO THE U.S. FEDERAL, STATE, LOCAL OR NON-U.S. TAX
    CONSEQUENCES OF THE PURCHASE, OWNERSHIP OR DISPOSITION OF
    ORDINARY SHARES OR ADSs APPLICABLE IN THEIR PARTICULAR TAX
    SITUATIONS.



| |          
| | ---------
| | Dividends

We have never paid dividends, and do not expect
to pay dividends in the foreseeable future. In general, and
subject to the discussion below under Foreign Investment
Company and Passive Foreign Investment
Company, if we make certain distributions on our ordinary
shares and with respect to ADSs, U.S. Holders will be
required to include in gross income as dividend the gross amount
(i.e., including the amount of any Irish tax withheld) of the
distributions, on the date the distributions are received (or
treated as received) to the extent the distributions are paid
out of our current or accumulated earnings and profits, as
determined for U.S. federal income tax purposes. Under new
U.S. tax rules, distributions by certain qualified foreign
corporations are eligible for a new reduced federal income tax
rate. Qualified foreign corporations include foreign
corporations that are eligible for benefits under a
comprehensive

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income tax treaty that the Internal Revenue
Service determines is satisfactory. Distributions from foreign
corporations also qualify for the reduced tax rate if the
distributions are received with respect to stock that is
readily tradable on an established securities market in
the United States. Accordingly, provided that these rules are
satisfied, dividends paid to an individual U.S. Holder will
be taxed at a maximum rate of 15%, provided that the shares or
ADSs with respect to which such dividends are paid are held by
the individual U.S. Holder for more than 60 days
during the 121-day period beginning 60 days before the date
that the relevant share or ADS becomes ex-dividend with respect
to such dividend. Dividends that are not eligible for the
treatment described above (including dividends received when we
are a passive foreign investment company or a foreign personal
holding company, as described below) generally will be taxable
to U.S. Holders as ordinary income, and the special tax
consequences described below may apply to such dividends.
Distributions in excess of earnings and profits will be applied
against and will reduce a U.S. Holders adjusted tax
basis in our ordinary shares or ADSs and, to the extent in
excess of such basis, will be treated as capital gain.
Distributions generally will not be eligible for the dividends
received deduction allowed to U.S. corporations.


Distributions of current or accumulated earnings
and profits paid in a foreign currency to a U.S. Holder
will generally be includible in the income of a U.S. Holder
in a U.S. dollar amount calculated by reference to the
exchange rate on the date the distributions are received (or
treated as received). A U.S. Holder who receives a foreign
currency distribution and converts the foreign currency into
U.S. dollars subsequent to receipt will have exchange gain
or loss based on any appreciation or depreciation in the value
of the foreign currency against the U.S. dollar, which
generally will be U.S. source ordinary income or loss.

U.S. Holders who are able, under Irish
domestic tax legislation, to claim a refund or exemption of
Irish tax withheld should not expect to obtain a credit against
U.S. federal income tax liability for that withheld tax.
For more information, please see Irish Tax
Consequences.

Because the tax rules that apply to the
availability or use of foreign tax credits and deductions for
foreign taxes are complex, U.S. Holders should consult
with, and rely solely upon, their personal tax advisors with
respect to such matters.



| |                                    
| | -----------------------------------
| | Sale, Exchange or Other Disposition

Subject to the discussion below under
Foreign Investment Company and Passive Foreign
Investment Company, a U.S. Holder generally will
recognize capital gain or loss for U.S. federal income tax
purposes upon the sale or other disposition of ordinary shares
or ADSs evidenced by ADRs in an amount equal to the difference
between the amount realized on the sale or other disposition and
the U.S. Holders adjusted tax basis in his, her or
its ordinary shares or ADSs. The capital gain or loss recognized
on such sale or other disposition will be long-term capital gain
or loss if the ordinary shares or ADSs have been held for more
than one year at the time of sale or other disposition. In the
case of individuals, long-term capital gains are generally taxed
at a maximum rate of 15%. The deductibility of capital losses is
subject to limitations. In general, any gain or loss recognized
by a U.S. Holder on the sale or other disposition of
ordinary shares or ADSs will be U.S. source income or loss
for foreign tax credit purposes.



| |                         
| | ------------------------
| | Personal Holding Company

A foreign corporation may be classified as a
personal holding company for U.S. federal income tax
purposes if both of the following two tests are satisfied:



| |   |                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | at any time during the last half of the
    companys taxable year, five or fewer individuals (without
    regard to their citizenship or residency) actually or
    constructively own, under attribution rules, more than 50% of
    the stock of the corporation by value; and
|
| |  | 60% or more of the foreign corporations
    gross income derived from U.S. sources or effectively
    connected with a U.S. trade or business, as specifically
    adjusted, is from passive sources such as dividends, interest,
    rent and royalty payments.                

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In general, a personal holding company is
currently taxed at a rate of 15% on its undistributed personal
holding company income, which is generally calculated based on
the corporations taxable income, after making certain
adjustments. We cannot provide any assurance that either test
has not been and will not be satisfied because it is difficult
to make accurate predictions of future income and the amount of
our shares an individual will actually or constructively own.



| |                                 
| | --------------------------------
| | Foreign Personal Holding Company

A foreign corporation may be classified as a
foreign personal holding company for U.S. federal income
tax purposes if both of the following two tests are satisfied:



| |   |                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | five or fewer individuals (who are
    U.S. citizens or residents) actually or constructively own,
    under attribution rules, more than 50% of all classes of the
    corporations stock measured by voting power or value at
    any time during the corporations taxable year; and                    
|
| |  | the corporation receives at least 60% (50% if
    previously a foreign personal holding company) of its gross
    income regardless of source, as specifically adjusted, from
    passive sources such as dividends, interest, gains from the sale
    or exchange of securities, rent and royalty payments.

If a corporation is classified as a foreign
personal holding company, a portion of its undistributed foreign
personal holding company income, as defined for
U.S. federal income tax purposes, is imputed to all of its
shareholders who are U.S. Holders on the last taxable day
of the corporations taxable year, or, if earlier, the last
day on which it is treated as a foreign personal holding
company. The imputed income is taxable at ordinary income rates
as a dividend, even if no cash dividend is actually paid.
U.S. Holders who dispose of their ordinary shares or ADSs
before that date generally would not be subject to
U.S. federal income tax under these rules. We cannot
provide any assurance that we have not been and will not be
classified as a foreign personal holding company because it is
difficult to make accurate predictions of future income and the
amount of our shares a U.S. citizen or resident will
actually or constructively own.



| |                           
| | --------------------------
| | Foreign Investment Company

A foreign corporation may be classified as a
foreign investment company for U.S. federal income tax
purposes if, at any time during a taxable year when 50% or more
by vote or value of the corporations outstanding stock is
owned, directly or indirectly, by U.S. Holders, it is:



| |   |                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | registered as a management company or unit
    investment trust under the Investment Company Act of 1940, as
    amended; or                                                                                                                              
|
| |  | engaged, or holding itself out as being engaged,
    primarily in the business of investing, reinvesting, or trading
    in securities, commodities, or any interest, including a futures
    or forward contract or option, in securities or commodities.

In general, if a corporation is classified as a
foreign investment company at any time during the period a
U.S. Holder holds the corporations stock, any gain
from the sale or exchange of stock in that corporation by the
U.S. Holder will be taxable as ordinary income to the
extent of the U.S. Holders ratable share of the
corporations accumulated earnings and profits. We cannot
provide assurance that we have not been and will not be
classified a foreign investment company because it is difficult
to make accurate predictions of the amount of our capital stock
U.S. Holders will directly or indirectly own.



| |                                   
| | ----------------------------------
| | Passive Foreign Investment Company

In general, a foreign corporation may be
classified as a passive foreign investment company for
U.S. federal income tax purposes if:



| |   |                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------
| |  | 75% or more of its gross income in a taxable year
    falls within specific categories of passive income; or

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| |   |                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the average percentage of our assets, in a
    taxable year (ordinarily determined based on their market value)
    which produce passive income or are held for the production of
    positive income is at least 50%.

If we were classified as a passive foreign
investment company, and a U.S. Holder did not make a
qualifying election either to treat us as a qualified
electing fund or to mark our ordinary shares or ADSs to
market, as described below:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Excess distributions by us to a U.S. Holder
    would be taxed in a special way. Excess
    distributions are amounts received by a U.S. Holder
    with respect to our ordinary shares or ADSs in any taxable year
    that exceed 125% of the average distributions received by such
    U.S. Holder from us in the shorter of either the three
    previous years or the U.S. Holders holding period for
    the ordinary shares or ADSs before the current taxable year.
    Excess distributions must be allocated ratably to each day that
    a U.S. Holder has held our ordinary shares or ADSs. A
    U.S. Holder would be required to include amounts allocated
    to the current taxable year and years before we became a passive
    foreign investment company as ordinary income. In addition,
    amounts allocated to each taxable year beginning with the year
    we first became a passive foreign investment company would be
    taxed at the highest rate in effect for that year on ordinary
    income and the tax would be subject to an interest charge at the
    rate applicable to deficiencies for income tax.
|
| |  | The entire amount of gain that is realized by a
    U.S. Holder upon the sale or other disposition of our
    ordinary shares or ADSs evidenced by ADRs would also be
    considered an excess distribution and would be subject to tax as
    described above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | The adjusted tax basis in our ordinary shares or
    ADSs evidenced by ADRs acquired from a decedent who was a
    U.S. Holder of the ordinary shares or ADSs would not be
    increased to equal the fair market value of such ordinary shares
    or ADSs as of the date of the decedents death but would
    instead be equal to the decedents adjusted tax basis, if
    lower. A U.S. Holder could not avoid this result by
    electing to mark our ordinary shares or ADSs to market.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

If a U.S. Holder has made a qualified
electing fund election for all taxable years during which the
U.S. Holder owned our ordinary shares or ADSs and we were a
passive foreign investment company, the passive foreign
investment company rules described above would not apply to the
U.S. Holder. Instead, that U.S. Holder would be
required to include in income for each taxable year a pro rata
share of our ordinary earnings as ordinary income and a pro rata
share of our net capital gain as long-term capital gain. The
qualified electing fund election is made on a
shareholder-by-shareholder basis and can be revoked only with
the consent of the Internal Revenue Service. A U.S. Holder
generally makes a qualified electing fund election by attaching
a completed Internal Revenue Service Form 8621, including a
passive foreign investment company annual information statement,
to a timely filed U.S. federal income tax return. Even if a
qualified electing fund election is not made, a shareholder in a
passive foreign investment company who is a U.S. Holder
must file a completed Internal Revenue Service Form 8621
every year.

Alternatively, if a U.S. Holder is eligible
to elect to mark our ordinary shares or ADSs evidenced by ADRs
to market annually and makes a mark to market election, the
following rules generally would apply for each of the
U.S. Holders taxable years:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | if the fair market value of the
    U.S. Holders ordinary shares or ADSs exceeds the
    U.S. Holders adjusted tax basis in such ordinary
    shares or ADSs as of the close of the U.S. Holders
    taxable year, the U.S. Holder would recognize the amount of
    the excess as ordinary income;                                                                                                                                                                                  
|
| |  | if the fair market value of the
    U.S. Holders ordinary shares or ADSs is less than the
    U.S. Holders adjusted tax basis in those ordinary
    shares or ADSs as of the close of the U.S. Holders
    taxable year, the U.S. Holder might recognize the amount of
    the difference as ordinary loss. Losses would be allowed only
    for the amount of net mark to market gain previously included by
    the U.S. Holder under the election for prior taxable
    years; and

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| |   |                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | if the U.S. Holder has elected to mark our
    ordinary shares or ADSs to market for all taxable years during
    which the U.S. Holder owned our ordinary shares or ADSs and
    we were a passive foreign investment company, the excess
    distribution rules generally would not apply to the
    U.S. Holder.

U.S. Holders who hold ordinary shares or
ADSs evidenced by ADRs during a period when we are a passive
foreign investment company will be subject to the preceding
rules, even if we cease to be a passive foreign investment
company, subject to exceptions for U.S. Holders who made a
qualified electing fund election or mark to market election.
U.S. Holders are urged to consult their tax advisors about
the passive foreign investment company rules, including the
specific rules and requirements applicable to making qualified
electing fund and mark to market elections.



| |                                                           
| | ----------------------------------------------------------
| | Status of IONA as a Passive Foreign Investment
    Company

Passive foreign investment company status is
determined as of the end of each taxable year and is dependent
upon a number of factors, including the value of a
corporations assets and the amount and character of its
gross income. The determination of whether we are or will become
a passive foreign investment company will be affected by how
rapidly we use our cash and investment assets in our business.
If the market price of our ordinary shares or ADSs is relatively
low, we may be classified as a passive foreign investment
company. Therefore, we cannot provide any assurance that we are
not or will not become a passive foreign investment company.



| |                                                 
| | ------------------------------------------------
| | Backup Withholding and Information
    Reporting

Dividends on our ordinary shares or ADSs, and
payments of the proceeds of a sale of our ordinary shares or
ADSs, paid within the United States or through certain
U.S. related financial intermediaries are subject to
information reporting and may be subject to backup withholding
at a current rate of 28% if a U.S. Holder fails to:



| |   |                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------
| |  | furnish its taxpayer identification number
    (social security or employer identification number) and certify
    that such number is correct;
|
| |  | certify that such U.S. Holder is not subject
    to backup withholding; or                                                                     
|
| |  | otherwise comply with the applicable requirements
    of the backup withholding rules.                                                         

Any amounts withheld under the backup withholding
rules from a payment to a U.S. Holder will be allowed as a
credit against such U.S. Holders U.S. federal
income tax and may entitle the U.S. Holder to a refund,
provided that the required information is furnished to the IRS.
U.S. Holders should consult their tax advisors regarding
their qualification for exemption from backup withholding and
the procedure for obtaining such an exemption if applicable.






|   |                            
|-- | ---------------------------
|F. | Dividends and Paying Agents

Not required.






|   |                      
|-- | ---------------------
|G. | Statements by Experts

Not required.






|   |                     
|-- | --------------------
|H. | Documents on Display

The documents concerning IONA referred to in this
document and required to be made available to the public are
available at our registered offices at The IONA Building,
Shelbourne Road, Ballsbridge, Dublin 4, Ireland.






|   |                       
|-- | ----------------------
|I. | Subsidiary Information

Not required.

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|         |                                                               
|-------- | --------------------------------------------------------------
|Item 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
    MARKET RISK

The following discussion regarding our market
risk contains forward-looking statements within the meaning of
the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 that relate to future events or
our future financial performance. In some cases, you can
identify forward-looking statements by terminology, such as
may, will, should,
could, expect, plan,
anticipate, believe,
estimate, project, predict,
intend, potential, or
continue or the negative of such terms or other
comparable terminology, although not all forward-looking
statements contain such terms. These forward-looking statements
are neither promises nor guarantees but rather are subject to a
number of risks and uncertainties which could cause actual
results to differ materially from those described in the
forward-looking statements, including risks of exchange rate
fluctuations, interest rate fluctuations and general market
volatility, that could cause actual results to differ materially
from those discussed in the forward-looking
statements.

Prior to 1999, we had undertaken transactions to
hedge the risks associated with fluctuations in exchange rates
of the Irish pound and the euro to the dollar. Because the
majority of our sales and expenses are currently made in
U.S. dollar, we no longer enter into foreign currency
forward exchange contracts to manage exposure related to
transactions denominated in foreign currencies. In the future,
we may undertake transactions to hedge the risks associated with
fluctuations in exchange rates if the risk from foreign currency
exposure increases due to a decrease in the percentage of
U.S. dollar-based transactions. Any market value gains or
losses recognized on hedges of payables in the future will be
offset against foreign exchange gains or losses on those
payables. The gain or loss and premium or discount on forward
contracts designated as hedges of firm commitments will be
deferred until the hedged transaction is completed and included
in the measurement of the value of the hedged transaction. At
December 31, 2003, we had no foreign exchange contracts
outstanding.

Our trading portfolio of investments is not
considered to be subject to material market (interest rate) risk
because of the relatively short-term maturities of investments
included in the portfolio.

For further discussion of our market risk, please
see Item 5.A. Operating Results Exposure to
Currency Fluctuations.






|         |                                                           
|-------- | ----------------------------------------------------------
|Item 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY
    SECURITIES

Not required.

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PART II






|         |                                                     
|-------- | ----------------------------------------------------
|Item 13. | DEFAULTS, DIVIDENDS ARREARAGES AND
    DELINQUENCIES

None.






|         |                                                                                 
|-------- | --------------------------------------------------------------------------------
|Item 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF
    SECURITY HOLDERS AND USE OF PROCEEDS

During the fiscal quarter ended June 29,
1997, IONA paid $380,000 to redeem all of its outstanding
redeemable Preference Shares,
0.0025 par
value per share, and paid all accrued and unpaid dividends
payable thereon to the date of redemption.

Certain of our ordinary shares are held by
Deutsche Bank Trust Company Americas under a Deposit Agreement
dated April 26, 2004.



| |                                                 
| | ------------------------------------------------
| | Use of Proceeds from Initial Public
    Offering

On February 24, 1997, our Registration
Statement on Form F-1 (File No. 333-6396) became
effective. Our net proceeds from the related offering were
$59,574,654. We have filed Form SR disclosing the sale of
securities and the use of proceeds therefrom through
May 24, 1997. Except for the information regarding the use
of proceeds, no information disclosed in such Form SR has
changed. The following are the uses of proceeds from the
effective date of the Registration Statement through
December 31, 2003:

|                                                                                                    |  |   |            | 
|--------------------------------------------------------------------------------------------------- |  | - | ---------- | 
|Purchase and installation of furniture and
    fixtures                                             |  | $ | 13,907,000 | 
|Purchase and installation of machinery and
    equipment                                            |  | $ | 32,568,000 | 
|Short-term debt instruments                                                                         |  | $ | 12,719,654 | 
|Redemption of outstanding Preference Shares and
    payment of accrued and unpaid dividends thereon |  | $ | 380,000    | 






|         |                        
|-------- | -----------------------
|Item 15. | CONTROLS AND PROCEDURES

Our Chief Executive Officer, Christopher J. Horn,
and our Chief Financial Officer, Daniel Demmer, (our principal
executive officer and principal financial officer, respectively)
have concluded, based on their evaluation as of a date within
90 days prior to the filing date of this report, that our
disclosure controls and procedures (as defined in
U.S. Exchange Act Rules 13a-14(c)) are effective to
ensure that information required to be disclosed by us in the
reports filed or submitted by us under the Securities Exchange
Act of 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in the Securities and
Exchange Commissions rules and forms, and include controls
and procedures designed to ensure that information required to
be disclosed by IONA in such reports is accumulated and
communicated to our management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure. There were no
significant changes in our internal controls or in other factors
that could significantly affect these controls subsequent to the
date of such evaluation including any corrective actions with
regard to significant deficiencies and material weaknesses.






|         |           
|-------- | ----------
|Item 16. | [RESERVED]






|          |                                 
|--------- | --------------------------------
|Item 16A. | AUDIT COMMITTEE FINANCIAL EXPERT

Our Board of Directors has determined that
Mr. Kevin Melia is an audit committee financial
expert as defined in Item 16A of Form 20-F.






|          |               
|--------- | --------------
|Item 16B. | CODE OF ETHICS

We have adopted a Code of Business Conduct that
applies to all of our employees, including our Chief Executive
Officer and Chief Financial Officer. This code attached as
Exhibit 11.1 to this Annual Report on Form 20-F.

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|          |                                           
|--------- | ------------------------------------------
|Item 16C. | PRINCIPAL ACCOUNTANT FEES AND
    SERVICES



| |             
| | ------------
| | Auditor Fees

Ernst & Young billed to us the following
aggregate fees for professional and other services in each of
the last two fiscal years:

|                      |       |              |         |         |  |   |         |           | 
|--------------------- | ----- | ------------ | ------- | ------- |  | - | ------- | --------- | 
|                      |       |             
|                      |       | Year Ended  
|                      |       | December 31,
|                      |       |             
|                      |       | 2003         |         | 2002   
|                      |       |              |         |        
|Audit Fees(1)         |       | $            | 390,000 |         |  | $ | 514,000 |          
|Audit-Related Fees(2) |       |              | 54,000  |         |  |   | 75,000  |          
|Tax Fees(3)           |       |              | 445,000 |         |  |   | 714,000 |          
|All Other Fees(4)     |       |              |        |         |  |   |        |          
|                      | Total |              | $       | 889,000 |  |   | $       | 1,303,000 | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Audit Fees are fees billed by
    Ernst & Young for professional services rendered for
    the audit of the annual financial statements or services that
    are normally provided in connection with statutory and
    regulatory filings or engagements, including the audit of our
    consolidated and annual financial statements. Audit Fees also
    include fees billed for statutory audits of IONA (including its
    subsidiaries); the provision of comfort letters and consents;
    attestation services relating to internal controls; and the
    review of documents filed with the SEC.
|   
|(2) | Audit-Related Fees consist of the
    fees billed by Ernst & Young for assurance and related
    services that are reasonably related to the performance of the
    audit or review of the financial statements and not reported
    under Audit Fees. Audit-Related Fees includes fees
    for employee benefit plan audits; consultations concerning
    financial accounting and reporting standards; advisory services
    associated with our financial reporting; and translation of
    foreign entity financial statements to local GAAP.                                                      
|   
|(3) | Tax Fees include fees billed by
    Ernst & Young for professional services rendered for
    tax compliance, tax advice, and tax planning. Tax fees also
    includes fees for the review, preparation and amending of
    federal and local tax returns of the United States, Ireland and
    other foreign countries.                                                                                                                                                                                                                                                                                  
|   
|(4) | All Other Fees include fees billed by
    Ernst & Young for products and services other than the
    Audit Fees, Audit-Related Fees and Tax Fees.                                                                                                                                                                                                                                                                                                                                                                                                                                                        



| |                                                           
| | ----------------------------------------------------------
| | Audit Committees Pre-approval Policies
    and Procedures

Our Audit Committee has adopted a pre-approval
policy (the Policy) for audit and non-audit services
which sets forth the manner in which certain proposed services
to be performed by our independent auditor may be pre-approved.
Under the Policy, the Audit Committee annually pre-approves a
catalog of specific audit and non-audit services that may be
performed by our auditors in the categories of Audit Services,
Audit-Related Services, Tax Services and All Other Services. In
addition, the Policy sets forth an annual budget for each
specific cataloged service that may not be exceeded without
obtaining separate pre-approval from the Audit Committee. Our
Chief Financial Officer receives all requests for independent
auditor services that are pre-approved under the Policy and must
determine if each such request is pre-approved under the Policy
pursuant to the catalog.

Pursuant to the Policy, any proposed service not
pre-approved under a catalog or any proposal exceeding the
allotted budget must be submitted to the Audit Committee for
approval at the next scheduled Audit Committee meeting. In the
event that time constraints necessitate pre-approval prior to
the Audit Committees next scheduled meeting, the Chairman
of the Audit Committee will have the authority to grant such
pre-approval pursuant to the Policy.

The Chief Financial Officer is responsible for
monitoring the services of the independent auditor, periodically
reporting the monitoring results and determining whether such
services are in compliance with the Policy. The Chief Financial
Officer and any member of management are required under the
Policy to immediately report any breach of the Policy to the
Chairman of the Audit Committee.

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|          |                                                              
|--------- | -------------------------------------------------------------
|Item 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR
    AUDIT COMMITTEE

Not Applicable.






|          |                                                                        
|--------- | -----------------------------------------------------------------------
|Item 16E. | PURCHASE OF EQUITY SECURITIES BY THE ISSUER
    AND AFFILIATED PURCHASE

Not Applicable.

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PART III






|         |                     
|-------- | --------------------
|Item 17. | FINANCIAL STATEMENTS

Not applicable. Please see Item 18
Financial Statements.






|         |                     
|-------- | --------------------
|Item 18. | FINANCIAL STATEMENTS

INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                                                                                                                     |  |      |     | 
|------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | --- | 
|                                                                                                                                     |  | Page
|                                                                                                                                     |  |     
|Report of Independent Auditors                                                                                                       |  |      | F-1 | 
|Consolidated Balance Sheets at December 31,
    2003 and 2002                                                                        |  |      | F-2 | 
|Consolidated Statements of Operations for each of
    the three years in the period ended December 31, 2003                          |  |      | F-3 | 
|Consolidated Statements of Changes in
    Shareholders Equity for each of the three years in the
    period ended December 31, 2003 |  |      | F-4 | 
|Consolidated Statements of Cash Flows for each of
    the three years in the period ended December 31, 2003                          |  |      | F-5 | 
|Notes to Consolidated Financial Statements                                                                                           |  |      | F-6 | 

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REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders of

IONA Technologies PLC


We have audited the accompanying consolidated
balance sheets of IONA Technologies PLC as of
December 31, 2003 and 2002, and the related consolidated
statements of operations, changes in shareholders equity
and cash flows for each of the three years in the period ended
December 31, 2003. These consolidated financial statements
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of IONA Technologies PLC at
December 31, 2003 and 2002, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2003, in conformity with
accounting principles generally accepted in the United States.

As discussed in Note 1 to the consolidated
financial statements, the Company changed its method of
accounting for amortization of goodwill and other identifiable
intangible assets.

/s/ Ernst & Young

Ernst & Young

Dublin, Ireland


January 20, 2004


F-1



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##### Table of Contents



IONA TECHNOLOGIES PLC

CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands, except share
and per share data)


|                                                                                                                                  |                                                                                                                                                                                                  |                                          |                                            |          |   |        |        |          |   |         | 
|--------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------- | ------------------------------------------ | -------- | - | ------ | ------ | -------- | - | ------- | 
|                                                                                                                                  |                                                                                                                                                                                                  |                                         
|                                                                                                                                  |                                                                                                                                                                                                  | December 31,                            
|                                                                                                                                  |                                                                                                                                                                                                  |                                         
|                                                                                                                                  |                                                                                                                                                                                                  | 2003                                     |                                            | 2002    
|                                                                                                                                  |                                                                                                                                                                                                  |                                          |                                            |         
|ASSETS                                                                                                                            |                                                                                                                                                                                                  |                                          |                                            |          |   |        |        |         
|Current assets:                                                                                                                   |                                                                                                                                                                                                  |                                          |                                            |          |   |        |        |         
|                                                                                                                                  | Cash and cash equivalents                                                                                                                                                                        |                                          | $                                          | 19,926   |   |        | $      | 22,287   |  
|                                                                                                                                  | Restricted cash (Note 6)                                                                                                                                                                         |                                          |                                            | 3,745    |   |        |        | 1,223    |  
|                                                                                                                                  | Marketable securities (Note 2)                                                                                                                                                                   |                                          |                                            | 32,978   |   |        |        | 58,140   |  
|                                                                                                                                  | Accounts receivable, net of allowance for
    doubtful accounts of $1,093 at December 31, 2003 and $1,132
    at December 31, 2002                                                               |                                          |                                            | 23,255   |   |        |        | 29,733   |  
|                                                                                                                                  | Prepaid expenses and other assets                                                                                                                                                                |                                          |                                            | 2,929    |   |        |        | 4,537    |  
|                                                                                                                                  |                                                                                                                                                                                                  |                                          |                                            |          |   |        |        |         
|                                                                                                                                  |                                                                                                                                                                                                  |                                          | Total current assets                       |          |   | 82,833 |        |          |   | 115,920 | 
|Property and equipment, net (Note 12)                                                                                             |                                                                                                                                                                                                  |                                          | 6,265                                      |          |   |        | 12,987 |         
|Other non-current assets, net (Note 10)                                                                                           |                                                                                                                                                                                                  |                                          | 940                                        |          |   |        | 2,697  |         
|                                                                                                                                  |                                                                                                                                                                                                  |                                          |                                            |          |   |        |        |         
|                                                                                                                                  |                                                                                                                                                                                                  |                                          | Total assets                               |          | $ | 90,038 |        |          | $ | 131,604 | 
|                                                                                                                                  |                                                                                                                                                                                                  |                                          |                                            |          |   |        |        |         
|                                                                                                                                  |                                                                                                                                                                                                  | LIABILITIES AND SHAREHOLDERS
    EQUITY |                                            |          |   |        |        |          |   |        
|Current liabilities:                                                                                                              |                                                                                                                                                                                                  |                                          |                                            |          |   |        |        |         
|                                                                                                                                  | Accounts payable                                                                                                                                                                                 |                                          | $                                          | 2,483    |   |        | $      | 2,447    |  
|                                                                                                                                  | Accrued payroll and related expenses                                                                                                                                                             |                                          |                                            | 7,260    |   |        |        | 8,103    |  
|                                                                                                                                  | Other accrued liabilities (Note 7)                                                                                                                                                               |                                          |                                            | 18,763   |   |        |        | 15,641   |  
|                                                                                                                                  | Deferred revenue                                                                                                                                                                                 |                                          |                                            | 23,910   |   |        |        | 25,963   |  
|                                                                                                                                  |                                                                                                                                                                                                  |                                          |                                            |          |   |        |        |         
|                                                                                                                                  |                                                                                                                                                                                                  |                                          | Total current liabilities                  |          |   | 52,416 |        |          |   | 52,154  | 
|Other non-current liabilities (Note 5)                                                                                            |                                                                                                                                                                                                  |                                          | 4,510                                      |          |   |        | 4,545  |         
|Redeemable Preference Shares,
    0.0025 par
    value, 101,250,000 shares authorized; None issued and
    outstanding (Note 13) |                                                                                                                                                                                                  |                                          |                                           |          |   |        |       |         
|Shareholders equity:                                                                                                             |                                                                                                                                                                                                  |                                          |                                            |          |   |        |        |         
|                                                                                                                                  | Ordinary Shares,
    0.0025 par
    value; 150,000,000 shares authorized; 34,005,707 and
    32,834,968 shares issued and outstanding at
    December 31, 2003 and 2002, respectively (Note 13) |                                          |                                            | 94       |   |        |        | 91       |  
|                                                                                                                                  | Additional paid-in capital                                                                                                                                                                       |                                          |                                            | 493,260  |   |        |        | 491,165  |  
|                                                                                                                                  | Accumulated deficit                                                                                                                                                                              |                                          |                                            | (460,163 | ) |        |        | (415,927 | )
|                                                                                                                                  | Deferred stock-based compensation                                                                                                                                                                |                                          |                                            | (79      | ) |        |        | (424     | )
|                                                                                                                                  |                                                                                                                                                                                                  |                                          |                                            |          |   |        |        |         
|                                                                                                                                  |                                                                                                                                                                                                  |                                          | Total shareholders equity                 |          |   | 33,112 |        |          |   | 74,905  | 
|                                                                                                                                  |                                                                                                                                                                                                  |                                          |                                            |          |   |        |        |         
|                                                                                                                                  |                                                                                                                                                                                                  |                                          | Total liabilities and shareholders equity |          | $ | 90,038 |        |          | $ | 131,604 | 
|                                                                                                                                  |                                                                                                                                                                                                  |                                          |                                            |          |   |        |        |         

The accompanying notes are an integral part of
these statements.

F-2



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##### Table of Contents



IONA TECHNOLOGIES PLC

CONSOLIDATED STATEMENTS OF
OPERATIONS

(U.S. dollars in thousands, except share
and per share data)


|                                                                                            |                                                  |                          |         |        |         |      |          |         |         |   |         |         |         | 
|------------------------------------------------------------------------------------------- | ------------------------------------------------ | ------------------------ | ------- | ------ | ------- | ---- | -------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                                                            |                                                  |                         
|                                                                                            |                                                  | Year Ended December 31, 
|                                                                                            |                                                  |                         
|                                                                                            |                                                  | 2003                     |         | 2002   |         | 2001
|                                                                                            |                                                  |                          |         |        |         |     
|Revenue:                                                                                    |                                                  |                          |         |        |         |      |          |         |         |   |         |        
|                                                                                            | Product revenue                                  |                          | $       | 35,737 |         |      | $        | 73,452  |         |   | $       | 118,178 |        
|                                                                                            | Service revenue                                  |                          |         | 38,453 |         |      |          | 49,778  |         |   |         | 62,526  |        
|                                                                                            |                                                  |                          |         |        |         |      |          |         |         |   |         |        
|                                                                                            |                                                  | Total revenue (Note 18)  |         |        | 74,190  |      |          |         | 123,230 |   |         |         | 180,704 | 
|                                                                                            |                                                  |                          |         |        |         |      |          |         |         |   |         |        
|Cost of Revenue:                                                                            |                                                  |                          |         |        |         |      |          |         |         |   |         |        
|                                                                                            | Cost of product revenue                          |                          |         | 527    |         |      |          | 1,685   |         |   |         | 3,190   |        
|                                                                                            | Cost of service revenue                          |                          |         | 14,275 |         |      |          | 25,458  |         |   |         | 34,926  |        
|                                                                                            |                                                  |                          |         |        |         |      |          |         |         |   |         |        
|                                                                                            |                                                  | Total cost of revenue    |         |        | 14,802  |      |          |         | 27,143  |   |         |         | 38,116  | 
|                                                                                            |                                                  |                          |         |        |         |      |          |         |         |   |         |        
|                                                                                            |                                                  | Gross profit             |         |        | 59,388  |      |          |         | 96,087  |   |         |         | 142,588 | 
|                                                                                            |                                                  |                          |         |        |         |      |          |         |         |   |         |        
|Operating expenses:                                                                         |                                                  |                          |         |        |         |      |          |         |         |   |         |        
|                                                                                            | In-process research and development              |                          |         |       |         |      |          |        |         |   |         | 3,600   |        
|                                                                                            | Research and development                         |                          |         | 27,134 |         |      |          | 38,256  |         |   |         | 40,260  |        
|                                                                                            | Sales and marketing                              |                          |         | 41,500 |         |      |          | 72,888  |         |   |         | 88,419  |        
|                                                                                            | General and administrative                       |                          |         | 10,270 |         |      |          | 13,252  |         |   |         | 15,318  |        
|                                                                                            | Amortization of other non-current assets         |                          |         | 796    |         |      |          | 10,115  |         |   |         | 14,151  |        
|                                                                                            | Amortization of goodwill                         |                          |         |       |         |      |          |        |         |   |         | 61,403  |        
|                                                                                            | Restructuring (Note 5)                           |                          |         | 20,525 |         |      |          | 20,763  |         |   |         | 5,705   |        
|                                                                                            | Impairment of goodwill                           |                          |         |       |         |      |          | 276,808 |         |   |         |        |        
|                                                                                            | Impairment of intangible assets and fixed assets |                          |         | 3,271  |         |      |          | 32,336  |         |   |         |        |        
|                                                                                            |                                                  |                          |         |        |         |      |          |         |         |   |         |        
|                                                                                            |                                                  | Total operating expenses |         |        | 103,496 |      |          |         | 464,418 |   |         |         | 228,856 | 
|                                                                                            |                                                  |                          |         |        |         |      |          |         |         |   |         |        
|Loss from operations                                                                        |                                                  |                          | (44,108 | )      |         |      | (368,331 | )       |         |   | (86,268 | )      
|Interest income, net                                                                        |                                                  |                          | 483     |        |         |      | 1,069    |         |         |   | 2,504   |        
|Net exchange gain (loss)                                                                    |                                                  |                          | 337     |        |         |      | (502     | )       |         |   | (468    | )      
|Gain on sale of investment and other income                                                 |                                                  |                          |        |        |         |      |         |         |         |   | 164     |        
|                                                                                            |                                                  |                          |         |        |         |      |          |         |         |   |         |        
|Loss before provision for (benefit of) income
    taxes (Note 17)                           |                                                  |                          | (43,288 | )      |         |      | (367,764 | )       |         |   | (84,068 | )      
|Provision for (benefit of) income taxes
    (Note 17)                                       |                                                  |                          | 948     |        |         |      | 1,543    |         |         |   | (568    | )      
|                                                                                            |                                                  |                          |         |        |         |      |          |         |         |   |         |        
|Net loss                                                                                    |                                                  | $                        | (44,236 | )      |         | $    | (369,307 | )       |         | $ | (83,500 | )      
|                                                                                            |                                                  |                          |         |        |         |      |          |         |         |   |         |        
|Basic net loss per Ordinary Share and per ADS                                               |                                                  | $                        | (1.33   | )      |         | $    | (11.58   | )       |         | $ | (3.27   | )      
|                                                                                            |                                                  |                          |         |        |         |      |          |         |         |   |         |        
|Shares used in computing basic net loss per
    Ordinary Share and per ADS (in thousands)   |                                                  |                          | 33,335  |        |         |      | 31,890   |         |         |   | 25,556  |        
|                                                                                            |                                                  |                          |         |        |         |      |          |         |         |   |         |        
|Diluted net loss per Ordinary Share and per ADS                                             |                                                  | $                        | (1.33   | )      |         | $    | (11.58   | )       |         | $ | (3.27   | )      
|                                                                                            |                                                  |                          |         |        |         |      |          |         |         |   |         |        
|Shares used in computing diluted net loss per
    Ordinary Share and per ADS (in thousands) |                                                  |                          | 33,335  |        |         |      | 31,890   |         |         |   | 25,556  |        
|                                                                                            |                                                  |                          |         |        |         |      |          |         |         |   |         |        

The accompanying notes are an integral part of
these statements.

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##### Table of Contents



IONA TECHNOLOGIES PLC

CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS EQUITY

(U.S. dollars in thousands, except share
data)


|                                                                                                                                 |  |           |            |         |  |            |    |             |  |              |         |               |  |               |          |   |  |   |         |   |  |   |      |   |  |   |          |  
|-------------------------------------------------------------------------------------------------------------------------------- |  | --------- | ---------- | ------- |  | ---------- | -- | ----------- |  | ------------ | ------- | ------------- |  | ------------- | -------- | - |  | - | ------- | - |  | - | ---- | - |  | - | -------- | -
|                                                                                                                                 |  |           |            |         |  |            |    |             |  |              |         | Accumulated   |  |              
|                                                                                                                                 |  |           |            |         |  | Additional |    | Accumulated |  | Deferred     |         | Other         |  | Total        
|                                                                                                                                 |  | Number of |            | Share   |  | Paid-in    |    | Earnings    |  | Stock-Based  |         | Comprehensive |  | Shareholders
|                                                                                                                                 |  | Shares    |            | Capital |  | Capital    |    | (Deficit)   |  | Compensation |         | Income        |  | Equity       
|                                                                                                                                 |  |           |            |         |  |            |    |             |  |              |         |               |  |              
|Balance at December 31, 2000                                                                                                     |  |           | 21,990,324 |         |  | $          | 66 |             |  | $            | 114,281 |               |  | $             | 36,880   |   |  | $ | (195    | ) |  | $ | 275  |   |  | $ | 151,307  |  
|                                                                                                                                 |  |           |            |         |  |            |    |             |  |              |         |               |  |               |          |   |  |   |         |   |  |   |      |   |  |   |          |  
|Amortization of deferred stock-based
    compensation(a)                                                                         |  |           |           |         |  |            |   |             |  |              |        |               |  |               |         |   |  |   | 1,780   |   |  |   |     |   |  |   | 1,780    |  
|Employee share purchase plan                                                                                                     |  |           | 105,756    |         |  |            |   |             |  |              | 2,373   |               |  |               |         |   |  |   |        |   |  |   |     |   |  |   | 2,373    |  
|Issuance of Ordinary Shares                                                                                                      |  |           | 24,375     |         |  |            |   |             |  |              |        |               |  |               |         |   |  |   |        |   |  |   |     |   |  |   |         |  
|Issuance of Ordinary Shares on exercise of
    warrants                                                                          |  |           | 19,018     |         |  |            |   |             |  |              |        |               |  |               |         |   |  |   |        |   |  |   |     |   |  |   |         |  
|Issuance of Ordinary Shares in connection with
    acquisitions                                                                  |  |           | 4,951,669  |         |  |            | 12 |             |  |              | 269,431 |               |  |               |         |   |  |   |        |   |  |   |     |   |  |   | 269,443  |  
|Expense of Ordinary Shares issued in connection
    with acquisitions                                                            |  |           |           |         |  |            |   |             |  |              | (1,563  | )             |  |               |         |   |  |   |        |   |  |   |     |   |  |   | (1,563   | )
|Fair value of options issued in connection with
    acquisitions less amounts allocated to deferred stock-based
    compensation |  |           |           |         |  |            |   |             |  |              | 29,195  |               |  |               |         |   |  |   |        |   |  |   |     |   |  |   | 29,195   |  
|Proportion of intrinsic value of unvested options
    at consummation dates allocated to deferred stock-based
    compensation   |  |           |           |         |  |            |   |             |  |              | 10,380  |               |  |               |         |   |  |   | (10,380 | ) |  |   |     |   |  |   |         |  
|Reversal of deferred stock-based compensation on
    expiry or forfeiture of options                                             |  |           |           |         |  |            |   |             |  |              | (3,973  | )             |  |               |         |   |  |   | 3,973   |   |  |   |     |   |  |   |         |  
|Compensation on acceleration of options as part
    of restructuring                                                             |  |           |           |         |  |            |   |             |  |              | 233     |               |  |               |         |   |  |   |        |   |  |   |     |   |  |   | 233      |  
|Issuance of Ordinary Shares on exercise of
    options, net(a)                                                                   |  |           | 725,569    |         |  |            | 2  |             |  |              | 6,771   |               |  |               |         |   |  |   |        |   |  |   |     |   |  |   | 6,773    |  
|Net loss                                                                                                                         |  |           |           |         |  |            |   |             |  |              |        |               |  |               | (83,500  | ) |  |   |        |   |  |   |     |   |  |   | (83,500  | )
|Unrealized loss on investment                                                                                                    |  |           |           |         |  |            |   |             |  |              |        |               |  |               |         |   |  |   |        |   |  |   | (111 | ) |  |   | (111     | )
|Reclassification adjustment for gains included in
    net loss                                                                   |  |           |           |         |  |            |   |             |  |              |        |               |  |               |         |   |  |   |        |   |  |   | (164 | ) |  |   | (164     | )
|Comprehensive loss                                                                                                               |  |           |           |         |  |            |   |             |  |              |        |               |  |               |         |   |  |   |        |   |  |   |     |   |  |   | (83,775  | )
|                                                                                                                                 |  |           |            |         |  |            |    |             |  |              |         |               |  |               |          |   |  |   |         |   |  |   |      |   |  |   |          |  
|Balance at December 31, 2001                                                                                                     |  |           | 27,816,711 |         |  | $          | 80 |             |  | $            | 427,128 |               |  | $             | (46,620  | ) |  | $ | (4,822  | ) |  | $ |     |   |  | $ | 375,766  |  
|Amortization of deferred stock-based
    compensation(a)                                                                         |  |           |           |         |  |            |   |             |  |              |        |               |  |               |         |   |  |   | 1,230   |   |  |   |     |   |  |   | 1,230    |  
|Employee share purchase plan                                                                                                     |  |           | 331,205    |         |  |            | 1  |             |  |              | 1,985   |               |  |               |         |   |  |   |        |   |  |   |     |   |  |   | 1,986    |  
|Issuance of Ordinary Shares                                                                                                      |  |           |           |         |  |            |   |             |  |              |        |               |  |               |         |   |  |   |        |   |  |   |     |   |  |   |         |  
|Issuance of Ordinary Shares in connection with
    Secondary Offering                                                            |  |           | 4,600,000  |         |  |            | 10 |             |  |              | 65,379  |               |  |               |         |   |  |   |        |   |  |   |     |   |  |   | 65,389   |  
|Expense of Ordinary Shares issued in connection
    with Secondary Offering                                                      |  |           |           |         |  |            |   |             |  |              | (1,997  | )             |  |               |         |   |  |   |        |   |  |   |     |   |  |   | (1,997   | )
|Issuance of Ordinary Shares in connection with
    acquisitions                                                                  |  |           |           |         |  |            |   |             |  |              | 1,219   |               |  |               |         |   |  |   |        |   |  |   |     |   |  |   | 1,219    |  
|Reversal of deferred stock-based compensation on
    expiry or forfeiture of options                                             |  |           |           |         |  |            |   |             |  |              | (3,168  | )             |  |               |         |   |  |   | 3,168   |   |  |   |     |   |  |   |         |  
|Issuance of Ordinary Shares on exercise of
    options, net(a)                                                                   |  |           | 87,052     |         |  |            |   |             |  |              | 619     |               |  |               |         |   |  |   |        |   |  |   |     |   |  |   | 619      |  
|Net loss                                                                                                                         |  |           |           |         |  |            |   |             |  |              |        |               |  |               | (369,307 | ) |  |   |        |   |  |   |     |   |  |   | (369,307 | )
|                                                                                                                                 |  |           |            |         |  |            |    |             |  |              |         |               |  |               |          |   |  |   |         |   |  |   |      |   |  |   |          |  
|Balance at December 31, 2002                                                                                                     |  |           | 32,834,968 |         |  | $          | 91 |             |  | $            | 491,165 |               |  | $             | (415,927 | ) |  | $ | (424    | ) |  | $ |     |   |  | $ | 74,905   |  
|Amortization of deferred stock-based
    compensation(a)                                                                         |  |           |           |         |  |            |   |             |  |              |        |               |  |               |         |   |  |   | 199     |   |  |   |     |   |  |   | 199      |  
|Employee share purchase plan                                                                                                     |  |           | 325,819    |         |  |            | 1  |             |  |              | 576     |               |  |               |         |   |  |   |        |   |  |   |     |   |  |   | 577      |  
|Reversal of deferred stock-based compensation on
    expiry or forfeiture of options                                             |  |           |           |         |  |            |   |             |  |              | (146    | )             |  |               |         |   |  |   | 146     |   |  |   |     |   |  |   |         |  
|Issuance of Ordinary Shares on exercise of
    options(a)                                                                        |  |           | 844,920    |         |  |            | 2  |             |  |              | 1,665   |               |  |               |         |   |  |   |        |   |  |   |     |   |  |   | 1,667    |  
|Net loss                                                                                                                         |  |           |           |         |  |            |   |             |  |              |        |               |  |               | (44,236  | ) |  |   |        |   |  |   |     |   |  |   | (44,236  | )
|                                                                                                                                 |  |           |            |         |  |            |    |             |  |              |         |               |  |               |          |   |  |   |         |   |  |   |      |   |  |   |          |  
|Balance at December 31, 2003                                                                                                     |  |           | 34,005,707 |         |  | $          | 94 |             |  | $            | 493,260 |               |  | $             | (460,163 | ) |  | $ | (79     | ) |  | $ |     |   |  | $ | 33,112   |  
|                                                                                                                                 |  |           |            |         |  |            |    |             |  |              |         |               |  |               |          |   |  |   |         |   |  |   |      |   |  |   |          |  



|    |                                 
|--- | --------------------------------
|(a) | See Note 14 to these statements.

The accompanying notes are an integral part of
these statements.

F-4



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##### Table of Contents



IONA TECHNOLOGIES PLC

CONSOLIDATED STATEMENTS OF CASH
FLOWS

(U.S. dollars in thousands)


|                                                          |                                                                                               |                                                                     |                                      |                                                         |        |         |        |          |         |          |         |         |         |          |         |  
|--------------------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------------- | ------------------------------------ | ------------------------------------------------------- | ------ | ------- | ------ | -------- | ------- | -------- | ------- | ------- | ------- | -------- | ------- | -
|                                                          |                                                                                               |                                                                    
|                                                          |                                                                                               | Year Ended December 31,                                            
|                                                          |                                                                                               |                                                                    
|                                                          |                                                                                               | 2003                                                                |                                      | 2002                                                    |        | 2001   
|                                                          |                                                                                               |                                                                     |                                      |                                                         |        |        
|CASH FLOWS FROM OPERATING ACTIVITIES:                     |                                                                                               |                                                                     |                                      |                                                         |        |         |        |          |         |          |         |        
|                                                          | Net loss                                                                                      |                                                                     | $                                    | (44,236                                                 | )      |         | $      | (369,307 | )       |          | $       | (83,500 | )      
|                                                          | Adjustments to reconcile net loss to net cash
    (used in) provided by operating activities: |                                                                     |                                      |                                                         |        |         |        |          |         |          |         |         |        
|                                                          |                                                                                               | Depreciation and amortization                                       |                                      |                                                         | 5,462  |         |        |          | 17,717  |          |         |         | 79,719  |         
|                                                          |                                                                                               | In-process research and development                                 |                                      |                                                         |       |         |        |          |        |          |         |         | 3,600   |         
|                                                          |                                                                                               | Stock-based compensation                                            |                                      |                                                         | 199    |         |        |          | 1,230   |          |         |         | 2,013   |         
|                                                          |                                                                                               | Loss (profit) on marketable securities                              |                                      |                                                         | 15     |         |        |          | (204    | )        |         |         | (1,341  | )       
|                                                          |                                                                                               | Impairment of intangible assets and fixed assets
    and technology |                                      |                                                         | 3,271  |         |        |          | 32,336  |          |         |         | 3,349   |         
|                                                          |                                                                                               | Impairment of goodwill                                              |                                      |                                                         |       |         |        |          | 276,808 |          |         |         |        |         
|                                                          |                                                                                               | Changes in operating assets and liabilities:                        |                                      |                                                         |        |         |        |          |         |          |         |         |         |         
|                                                          |                                                                                               |                                                                     | Restricted cash deposits             |                                                         |        | (2,522  | )      |          |         | (145     | )       |         |         | (128     | )      
|                                                          |                                                                                               |                                                                     | Profit on sale of investments        |                                                         |        |        |        |          |         |         |         |         |         | (164     | )      
|                                                          |                                                                                               |                                                                     | Loss on disposal of assets           |                                                         |        |        |        |          |         |         |         |         |         | 154      |        
|                                                          |                                                                                               |                                                                     | Purchase of marketable securities    |                                                         |        | (59,210 | )      |          |         | (145,790 | )       |         |         | (218,400 | )      
|                                                          |                                                                                               |                                                                     | Sale of marketable securities        |                                                         |        | 84,357  |        |          |         | 111,964  |         |         |         | 253,078  |        
|                                                          |                                                                                               |                                                                     | Accounts receivable                  |                                                         |        | 6,478   |        |          |         | 14,474   |         |         |         | 4,901    |        
|                                                          |                                                                                               |                                                                     | Prepaid expenses and other assets    |                                                         |        | 2,600   |        |          |         | (684     | )       |         |         | (642     | )      
|                                                          |                                                                                               |                                                                     | Accounts payable                     |                                                         |        | 36      |        |          |         | (982     | )       |         |         | 1,229    |        
|                                                          |                                                                                               |                                                                     | Accrued payroll and related expenses |                                                         |        | 3,122   |        |          |         | (4,031   | )       |         |         | (1,733   | )      
|                                                          |                                                                                               |                                                                     | Other liabilities                    |                                                         |        | (878    | )      |          |         | 6,169    |         |         |         | (11,951  | )      
|                                                          |                                                                                               |                                                                     | Deferred revenue                     |                                                         |        | (2,053  | )      |          |         | (6,389   | )       |         |         | 7,908    |        
|                                                          |                                                                                               |                                                                     |                                      |                                                         |        |         |        |          |         |          |         |        
|                                                          |                                                                                               |                                                                     |                                      | Net cash (used in) provided by operating
    activities |        | $       | (3,359 | )        |         | $        | (66,834 | )       |         | $        | 38,092  |  
|                                                          |                                                                                               |                                                                     |                                      |                                                         |        |         |        |          |         |          |         |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                     |                                                                                               |                                                                     |                                      |                                                         |        |         |        |          |         |          |         |        
|                                                          |                                                                                               | Purchase of property and equipment                                  |                                      | $                                                       | (1,248 | )       |        | $        | (5,205  | )        |         | $       | (5,408  | )       
|                                                          |                                                                                               | Payments for acquisitions, net of cash received                     |                                      |                                                         |       |         |        |          |        |          |         |         | (33,913 | )       
|                                                          |                                                                                               | Purchase of other non-current assets                                |                                      |                                                         | (110   | )       |        |          | (180    | )        |         |         | (15,500 | )       
|                                                          |                                                                                               | Proceeds from sale of investments                                   |                                      |                                                         |       |         |        |          |        |          |         |         | 400     |         
|                                                          |                                                                                               | Proceeds from disposal of assets                                    |                                      |                                                         | 112    |         |        |          |        |          |         |         | 12      |         
|                                                          |                                                                                               |                                                                     |                                      |                                                         |        |         |        |          |         |          |         |        
|                                                          |                                                                                               |                                                                     |                                      | Net cash used in investing activities                   |        | $       | (1,246 | )        |         | $        | (5,385  | )       |         | $        | (54,409 | )
|                                                          |                                                                                               |                                                                     |                                      |                                                         |        |         |        |          |         |          |         |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                     |                                                                                               |                                                                     |                                      |                                                         |        |         |        |          |         |          |         |        
|                                                          |                                                                                               | Issuance of shares, net of issuance costs                           |                                      | $                                                       | 2,244  |         |        | $        | 65,997  |          |         | $       | 7,583   |         
|                                                          |                                                                                               |                                                                     |                                      |                                                         |        |         |        |          |         |          |         |        
|                                                          |                                                                                               |                                                                     |                                      | Net cash provided by financing activities               |        | $       | 2,244  |          |         | $        | 65,997  |         |         | $        | 7,583   |  
|                                                          |                                                                                               |                                                                     |                                      |                                                         |        |         |        |          |         |          |         |        
|NET DECREASE IN CASH AND CASH EQUIVALENTS                 |                                                                                               | $                                                                   | (2,361                               | )                                                       |        | $       | (6,222 | )        |         | $        | (8,734  | )      
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD          |                                                                                               |                                                                     | 22,287                               |                                                         |        |         | 28,509 |          |         |          | 37,243  |        
|                                                          |                                                                                               |                                                                     |                                      |                                                         |        |         |        |          |         |          |         |        
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                |                                                                                               | $                                                                   | 19,926                               |                                                         |        | $       | 22,287 |          |         | $        | 28,509  |        
|                                                          |                                                                                               |                                                                     |                                      |                                                         |        |         |        |          |         |          |         |        
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:         |                                                                                               |                                                                     |                                      |                                                         |        |         |        |          |         |          |         |        
|                                                          | Interest paid                                                                                 |                                                                     | $                                    |                                                        |        |         | $      |         |         |          | $       | 3       |        
|                                                          |                                                                                               |                                                                     |                                      |                                                         |        |         |        |          |         |          |         |        
|                                                          | Income taxes paid                                                                             |                                                                     | $                                    | 874                                                     |        |         | $      | 938      |         |          | $       | 2,291   |        
|                                                          |                                                                                               |                                                                     |                                      |                                                         |        |         |        |          |         |          |         |        
|SUPPLEMENTAL DISCLOSURE OF NON-CASH FLOW
    INFORMATION: |                                                                                               |                                                                     |                                      |                                                         |        |         |        |          |         |          |         |        
|                                                          | Shares and options issued in connection with
    acquisitions                                 |                                                                     | $                                    |                                                        |        |         | $      | 1,219    |         |          | $       | 309,018 |        
|                                                          |                                                                                               |                                                                     |                                      |                                                         |        |         |        |          |         |          |         |        

The accompanying notes are an integral part of
these statements.

F-5



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##### Table of Contents



IONA TECHNOLOGIES PLC

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS




|   |                                                                
|-- | ---------------------------------------------------------------
|1. | Organization and Summary of Significant
    Accounting Policies



| |             
| | ------------
| | Organization

IONA Technologies PLC (IONA) is
organized as a public limited company under the laws of Ireland.
IONA Technologies PLC and its subsidiaries, all of which are
wholly-owned (collectively, the Company), provide
enterprise integration software. The Company also provides
professional services, consisting of customer consulting and
training and, to a limited extent, product customization and
enhancement, as well as customer technical support. The
Companys major customers, based on revenues earned, are
corporate information technology departments of
U.S. businesses. The Company also earns significant
revenues from similar customers in European countries and the
rest of the world.



| |                                                          
| | ---------------------------------------------------------
| | Basis of Presentation and Principles of
    Consolidation

The accompanying consolidated financial
statements are prepared in accordance with generally accepted
accounting principles in the United States. The preparation of
financial statements requires management to make estimates and
assumptions that affect the amounts reported in the financial
statements and the accompanying footnotes. Actual results could
differ from those estimates.

The accompanying consolidated financial
statements include IONA and its wholly-owned subsidiaries in the
United States, British West Indies, Europe, Australia, Japan,
China, Canada and Korea after eliminating all material
intercompany accounts and transactions.



| |                             
| | ----------------------------
| | Companies Acts, 1963 to 2001

The financial information relating to IONA and
its subsidiaries included in this document does not comprise
full group accounts as referred to in Regulation 40 of the
European Communities (Companies: Group Accounts) Regulations
1992, copies of which are required by that Act to be annexed to
a Companys annual return. The auditors have made reports
without qualification under Section 193 of the Companies
Act, 1990 in respect of the group financial statements for the
years ended December 31, 2002 and 2001. Copies of full
group accounts for each of the years ended December 31,
2002 and 2001 have been so annexed to the relevant annual
returns, and a copy of the full group accounts for the year
ended December 31, 2003 together with the report of the
auditors thereon will in due course be annexed to the relevant
annual return, which will be filed after the annual general
meeting of IONA in 2004.



| |                             
| | ----------------------------
| | Foreign Currency Translation

The U.S. dollar is the functional currency
for the Company. In accordance with Statement of Financial
Accounting Standards No. 52, Foreign Currency
Translation (SFAS 52), assets and
liabilities denominated in foreign currencies are translated at
year end exchange rates while revenues and expenses are
translated at rates approximating those ruling at the dates of
the related transactions. Resulting gains and losses are
included in net income (loss) for the year.



| |                    
| | -------------------
| | Revenue Recognition

The Companys revenue is derived from
product license fees and charges for services. The Company
follows the revenue recognition criteria of Statement of
Position 97-2, Software Revenue Recognition, as
amended by SOP 98-4 and SOP 98-9 issued by the
Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants and related
interpretations (collectively, SOP 97-2). Under
the terms of SOP 97-2 where an arrangement to deliver
software does not require significant

F-6



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##### Table of Contents



IONA TECHNOLOGIES PLC


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

production, modification or customization, the
Company recognizes software revenues when all of the following
criteria are met:



| |   |                                               
| | - | ----------------------------------------------
| |  | persuasive evidence of an arrangement exists; 
|
| |  | delivery has occurred;                        
|
| |  | vendors fee is fixed or
    determinable; and
|
| |  | collectibility is probable.                   

For arrangements with multiple elements, the
Company allocates revenue to each element of a transaction based
upon its fair value as determined by vendor specific
objective evidence. Vendor specific objective evidence of
fair value for each element of an arrangement is based upon the
normal pricing and discounting practices for each element when
sold separately, including the renewal rate for support
services. If the Company cannot objectively determine the fair
value of any undelivered element included in the multiple
element arrangement, the Company defers revenue until all
elements are delivered, services have been performed, or until
fair value can be objectively determined. When the fair value of
a delivered element cannot be established, the Company uses the
residual method to record license revenue, provided the fair
value of all undelivered elements is determinable. Under the
residual method, the fair value of the undelivered elements is
deferred and the remaining portion of the arrangement fee is
allocated to the delivered elements and is recognized as revenue.

The Company assesses whether fees are fixed or
determinable at the time of sale and recognizes revenue if all
other revenue recognition requirements are met. The
Companys standard payment terms are net 30; however,
terms may vary based on the country in which the agreement is
executed. Payments that extend beyond 30 days from the
contract date but that are due within twelve months are
generally deemed to be fixed or determinable based on the
Companys successful collection history on such
arrangements, and thereby satisfy the required criteria for
revenue recognition.

While most of the Companys arrangements
include payment terms of less than one year, the Company has, in
the past, provided payment terms of more than one year to credit
worthy customers. The Company had established a history of
collection, without concessions, on these receivables with
payment terms that extend beyond one year. Provided all other
revenue recognition criteria had been met, the Company
recognized license revenue for these arrangements upon delivery.

Revenue for consulting services is generally
recognized as the services are performed. Revenue from royalty
arrangements in excess of guaranteed amounts are recognized upon
notification of such royalties payable by the customer.



| |                                 
| | --------------------------------
| | Allowances for Doubtful Accounts

The Company makes judgments on its ability to
collect outstanding receivables and provide allowances for the
portion of receivables when collection becomes doubtful.
Provisions are made based upon a specific review of all
significant outstanding receivables. In determining the
provision, the Company

F-7



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##### Table of Contents



IONA TECHNOLOGIES PLC


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

analyzes the historical collection experience and
current economic trends. The following is a summary of the
allowance for doubtful accounts for the periods indicated (in
thousands):

|                             |                                 |              |   |           |  |              |   |            |  |  |   |     |  |  |   |       | 
|---------------------------- | ------------------------------- | ------------ | - | --------- |  | ------------ | - | ---------- |  |  | - | --- |  |  | - | ----- | 
|                             |                                 | Balance at   |   |           |  |              |   | Balance at
|                             |                                 | Beginning of |   |           |  |              |   | End of    
|                             |                                 | Period       |   | Additions |  | Deduction(A) |   | Period    
|                             |                                 |              |   |           |  |              |   |           
|Year ended December 31, 2003 |                                 |              |   |           |  |              |   |            |  |  |   |     |  |  |   |      
|                             | Allowance for doubtful accounts |              | $ | 1,132     |  |              | $ | 857        |  |  | $ | 896 |  |  | $ | 1,093 | 
|Year ended December 31, 2002 |                                 |              |   |           |  |              |   |            |  |  |   |     |  |  |   |      
|                             | Allowance for doubtful accounts |              |   | 1,321     |  |              |   |           |  |  |   | 189 |  |  |   | 1,132 | 
|Year ended December 31, 2001 |                                 |              |   |           |  |              |   |            |  |  |   |     |  |  |   |      
|                             | Allowance for doubtful accounts |              |   | 926       |  |              |   | 395        |  |  |   |    |  |  |   | 1,321 | 



---

(A) Actual write-offs of uncollectible
accounts receivables.




| |                
| | ---------------
| | Cost of Revenue

Cost of revenue includes the costs of products
and services. Cost of product revenue includes shipping,
handling, materials (such as diskettes, packaging and
documentation) and the portion of development costs associated
with product development arrangements. Cost of service revenue
includes the salary costs for personnel engaged in consultancy,
training and customer support, and telephone and other support
costs.



| |                 
| | ----------------
| | Cash Equivalents

The Company considers all highly liquid
investments with insignificant interest rate risk and purchased
with a maturity of three months or less to be cash equivalents.



| |                      
| | ---------------------
| | Marketable Securities

Marketable securities consist of commercial
paper, corporate bonds, and U.S. government agency fixed
income securities. Marketable securities are stated at market
value, and by policy, IONA invests primarily in high grade
marketable securities to reduce risk of loss. All marketable
securities are defined as trading securities under the
provisions of Statement of Financial Accounting Standards
No. 115, Accounting for Certain Investments in Debt
and Equity Securities (SFAS 115), and
unrealized holding gains and losses are reflected in the
Consolidated Statements of Operations.

Investments

Investments consist of equity securities and are
stated at market value. All investments are defined as
available-for-sale securities under the provisions of
SFAS 115, and any unrealized holding gains and losses are
reported as a separate component of shareholders equity,
as accumulated other comprehensive income (loss). At
December 31, 2003, the Company did not hold any investments.

Research and Development

Research and development expenditures are
generally charged to operations as incurred. Statement of
Financial Accounting Standards No. 86, Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed (SFAS 86), requires
capitalization of certain software development costs subsequent
to the establishment of technological feasibility. Based on the
Companys product development process, technological
feasibility is established upon completion of a working model.

F-8



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##### Table of Contents



IONA TECHNOLOGIES PLC


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

Development costs incurred by the Company between
completion of the working model and the point at which the
product is ready for general release have been insignificant.

The Company expensed $3,600,000 during the year
ended December 31, 2001, representing the full amount of
the cost of acquired in-process research and development for
which technological feasibility had not been established and for
which alternative uses did not exist. The Company did not
proceed with any research and development activities on the
projects making up these costs.



| |         
| | --------
| | Goodwill

Goodwill represents the excess of the purchase
price over the fair value of the net assets acquired in various
business acquisitions as described in Note 4 and
Note 11, and until January 1, 2002 was amortized on a
straight line-basis over four years.

The Financial Accounting Standards Board issued
Statements No. 141, Business Combinations
(SFAS 141), and No. 142, Goodwill
and Other Intangible Assets (SFAS 142) in
June 2001. Under those rules, goodwill and intangible assets
deemed to have indefinite lives are no longer amortized but are
subject to annual impairment tests in accordance with these
Statements. Other intangible assets will continue to be
amortized over their useful economic lives. The Statements are
effective for fiscal years beginning after December 15,
2001.

The Company adopted the new rules on accounting
for goodwill and other intangible assets on January 1,
2002. On adoption, the Company reclassified the net carrying
amount of assembled workforce of $6,872,000 from other
non-current assets to goodwill. There was no impairment of
goodwill upon adoption of SFAS 142.

In October 2002, and as described in
Note 11, the Company completed its annual impairment test
and assessment of the carrying value of goodwill as required by
SFAS 142. As a result of unfavorable market conditions and
a decline in IONAs market capitalization, this assessment
resulted in a non-cash impairment charge of $276,808,000,
equivalent to the carrying value of goodwill at October 1,
2002.



| |                         
| | ------------------------
| | Other Non-Current Assets

Other non-current assets represent costs of
technology purchased or acquired on acquisitions, which have
reached technological feasibility. The costs of technology have
been capitalized and will be written off over their useful
economic life of four years in accordance with SFAS 86.

The Financial Accounting Standards Board issued
Statement No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144),
in August 2001. SFAS 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets
and supersedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of, and the accounting and reporting provisions
of APB Opinion No. 30, Reporting the Results of
Operations for a disposal of a segment of a business.
SFAS 144 is effective for fiscal years beginning after
December 15, 2001, with earlier application encouraged. The
Company adopted SFAS 144 as of January 1, 2002. Where
events and circumstances are present which indicate that the
carrying value may not be recoverable, the Company recognizes an
impairment loss. Factors the Company considers important, which
could trigger impairment include:



| |   |                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------
| |  | significant underperformance relative to expected
    historical or projected future operating results;          
|
| |  | significant changes in the manner of our use of
    the acquired assets or the strategy for our overall business;
|
| |  | significant negative industry or economic trends;                                                                

F-9



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##### Table of Contents



IONA TECHNOLOGIES PLC


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



| |   |                                                                                 
| | - | --------------------------------------------------------------------------------
| |  | significant decline in our stock price for a
    sustained period; and          
|
| |  | significant decline in our market capitalization
    relative to net book value.

In October 2003 and 2002, the Company identified
indicators of impairment and its assessment resulted in a
non-cash impairment charge of $80,000 and $28,586,000 in 2003
and 2002, respectively, representing the amount by which the
carrying value exceeded the fair value of purchased technologies.

Amortization expense for intangible assets which
are amortizable in accordance with SFAS 142, was $796,000,
$10,115,000 and $14,151,000 in 2003, 2002 and 2001, respectively.



| |                       
| | ----------------------
| | Property and Equipment

Property and equipment is stated at cost.
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets as follows:

|                       |  |  |                | 
|---------------------- |  |  | -------------- | 
|Computer equipment     |  |  | 3 years        | 
|Office equipment       |  |  | 5 years        | 
|Furniture and fixtures |  |  | 3 to 10  years | 

Depreciation expense was $4,666,000, $7,198,000
and $7,341,000 in 2003, 2002 and 2001, respectively.

During the year ended December 31, 2003, the
Company recorded a $3,191,000 charge for the impairment of fixed
assets and related costs for fixed assets no longer in use in
2003, as a result of the restructuring activities in 2003.

During the year ended December 31, 2002, the
Company recorded a $3,750,000 charge for the impairment of fixed
assets and related costs, of which $1,600,000 was primarily
attributable to the implementation of a new sales force
automation system that replaced an existing system. The
remainder of $2,150,000 related to fixed assets no longer in use
in 2002, resulting in a reduction of their net book value to nil.



| |                           
| | --------------------------
| | Software Development Costs

The Company capitalizes certain software
development costs associated with the development of the
Companys website and other internal financial software.
These costs incurred are accounted for in accordance with
Statement of Position 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal
Use (SOP 98-1). In accordance with
SOP 98-1, internal and external costs incurred to develop
internal-use computer software during the application
development stage are capitalized. Application development stage
costs generally include software configuration, coding,
installation and testing. Costs incurred for maintenance,
testing minor upgrades and enhancements are expensed as
incurred. Capitalized internal-use software development costs
are included in fixed assets, and are amortized on a
straight-line basis over the estimated useful lives of the
related software, typically 3 years.

The Company capitalized approximately $189,000
and $1,417,000 of software development costs during 2003 and
2002, respectively. Amortization associated with the capitalized
software development costs totaled approximately $544,000 and
$1,123,000 during 2003 and 2002, respectively.



| |                             
| | ----------------------------
| | Concentration of Credit Risk

The Company sells its products to companies in
various industries throughout the world and maintains reserves
for potential credit losses. To date such losses have been
within managements expectations. The Company had an
allowance for doubtful accounts of approximately $1,093,000 and
$1,132,000 at

F-10



---



##### Table of Contents



IONA TECHNOLOGIES PLC


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

December 31, 2003 and 2002, respectively.
The Company generally requires no collateral from its customers.
No customer accounted for more than ten percent of our total
revenue in 2003, 2002 or 2001.

The Company invests its excess cash in low-risk,
short-term deposit accounts with high credit-quality banks in
the United States, British West Indies and Ireland. At
December 31, 2003, $32,978,000 was invested in marketable
securities held for trading purposes, comprised of $11,591,000
in commercial paper, $5,980,000 in corporate bonds and
$15,407,000 in U.S. government agency securities, under the
management of two financial institutions. The Company performs
periodic evaluations of the relative credit standing of all of
the financial institutions with which it deals and considers the
related credit risk to be minimal.



| |                     
| | --------------------
| | Compensated Absences

The Company does not accrue for the liability
associated with employees absences from employment because
of illness, holiday, vacation or other reasons as the amount of
compensation is not reasonably estimable.



| |                            
| | ---------------------------
| | Accounting for Income Taxes

The Company uses the asset and liability method
in accounting for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 Accounting for
Income Taxes (SFAS 109). Under this
method, deferred tax assets and liabilities are determined based
on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax
rates and laws which will be in effect when the differences are
expected to reverse.



| |                                           
| | ------------------------------------------
| | Accumulated Other Comprehensive
    Income

Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income
(SFAS 130) establishes guidelines for the
reporting and display of comprehensive income and its components
in financial statements. Comprehensive income includes
unrealized gain or loss on equity securities classified as
available-for-sale in accordance with SFAS 115, and is
included as a component of shareholders equity. At
December 31, 2003, the Company did not hold any such
investments.



| |                         
| | ------------------------
| | Stock-Based Compensation

At December 31, 2003, the Company has five
stock-based employee compensation plans, which are more fully
described in Note 14.

The Company has elected to follow Accounting
Principles Board Opinion No. 25 Accounting for Stock
Issued to Employees (APB 25) and related
interpretations in accounting for its employee stock options.
Accordingly, compensation cost for stock options is measured as
the excess, if any, of the fair market value of IONAs
shares at the date of the grant over the amount an employee must
pay to acquire the shares. This cost is deferred and charged to
expense ratably over the vesting period (generally four years).

Where shares are issued at less than fair market
value, the excess of the fair market value over the amount the
employee must pay to acquire the shares is charged to expense as
stock compensation and credited to additional paid-in capital in
the period of transfer.

In December 2002, the Statement of Financial
Accounting Standards Board issued Statement No. 148,
Accounting for Stock- Based Compensation-Transition and
Disclosure (SFAS 148). SFAS 148
amends FASB Statement No. 123, Accounting for
Stock-Based Compensation, (SFAS 123) to
provide alternate methods of transition for a voluntary change
to the fair value based

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##### Table of Contents



IONA TECHNOLOGIES PLC


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

method of accounting for stock-based employee
compensation. While the statement does not amend SFAS 123
to require companies to account for employee stock options using
the fair value method, the disclosure requirements of
SFAS 148 in annual and interim financial statements are
applicable to all companies with stock-based compensation,
regardless of whether they account for that compensation using
the fair value method of SFAS 123 or the intrinsic value
method of APB 25. SFAS 148 is effective for fiscal
years ending after December 15, 2002.

Pro forma information regarding net loss and loss
per share is required by SFAS 123 and has been determined
as if the Company had accounted for its stock options under the
fair value method of SFAS 123. The fair value for these
options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average
assumptions: risk-free interest rates ranging from 4% to 4.25%
for 2003, 4% for 2002, and 5% for 2001; dividend yields of 0%
for 2003, 2002 and 2001; volatility factors of the expected
market price of IONAs Ordinary Shares ranging from 0.885
to 1.102 for 2003, 1.15 for 2002, and 1.10 for 2001; and a
weighted-average expected life of the option of five years in
2003, 2002 and 2001.

The fair value for rights to purchase awards
under the 1999 Employee Share Purchase Plan was estimated at the
date of grant using the following weighted-average assumptions:
risk-free interest rates of 2% for 2003, 2% for 2002, and 2% for
2001; dividend yields of 0% for 2003, 2002 and 2001; volatility
factors of the expected market price of IONAs Ordinary
Shares ranging from 1.06 to 1.102 for 2003, 1.15 for 2002, and
1.10 for 2001; and a weighted-average expected life of the
option of six months in 2003, 2002 and 2001.

The following table illustrates the effect on net
loss and loss per share if the Company had applied the fair
value recognition provisions of SFAS 123 to stock-based
employee compensation:

|                                                                                                                                                    |                     |                         |         |       |   |      |          |        |   |   |          |       |  
|--------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------- | ----------------------- | ------- | ----- | - | ---- | -------- | ------ | - | - | -------- | ----- | -
|                                                                                                                                                    |                     |                        
|                                                                                                                                                    |                     | Year Ended December 31,
|                                                                                                                                                    |                     |                        
|                                                                                                                                                    |                     | 2003                    |         | 2002  |   | 2001
|                                                                                                                                                    |                     |                         |         |       |   |     
|Net loss, as reported                                                                                                                               |                     | $                       | (44,236 | )     |   | $    | (369,307 | )      |   | $ | (83,500  | )    
|Add: Stock-based compensation expense included in
    reported net loss, net of related tax effects                                                 |                     |                         | 199     |       |   |      | 1,230    |        |   |   | 2,013    |      
|Deduct: Total stock-based employee compensation
    expense determined under fair value based method for all awards,
    net of related tax effects |                     |                         | (33,645 | )     |   |      | (59,916  | )      |   |   | (38,060  | )    
|                                                                                                                                                    |                     |                         |         |       |   |      |          |        |   |   |          |      
|Pro forma net loss                                                                                                                                  |                     | $                       | (77,682 | )     |   | $    | (427,993 | )      |   | $ | (119,547 | )    
|                                                                                                                                                    |                     |                         |         |       |   |      |          |        |   |   |          |      
|Loss per share:                                                                                                                                     |                     |                         |         |       |   |      |          |        |   |   |          |      
|                                                                                                                                                    | Basicas reported   |                         | $       | (1.33 | ) |      | $        | (11.58 | ) |   | $        | (3.27 | )
|                                                                                                                                                    |                     |                         |         |       |   |      |          |        |   |   |          |      
|                                                                                                                                                    | Basicpro forma     |                         | $       | (2.33 | ) |      | $        | (13.42 | ) |   | $        | (4.68 | )
|                                                                                                                                                    |                     |                         |         |       |   |      |          |        |   |   |          |      
|                                                                                                                                                    | Dilutedas reported |                         | $       | (1.33 | ) |      | $        | (11.58 | ) |   | $        | (3.27 | )
|                                                                                                                                                    |                     |                         |         |       |   |      |          |        |   |   |          |      
|                                                                                                                                                    | Dilutedpro forma   |                         | $       | (2.33 | ) |      | $        | (13.42 | ) |   | $        | (4.68 | )
|                                                                                                                                                    |                     |                         |         |       |   |      |          |        |   |   |          |      

The pro-forma net loss disclosures have been
restated as follows: i) the effects of stock-based
compensation expense included in reported net loss, net of
related tax effects have been added back in the years ended
December 31, 2002 and 2001. The designated shares are
subject to the fair value disclosures of SFAS 123. This
resulted in a decrease in pro forma stock-based compensation
expense of $1,230,000 in 2002 and $233,000 in 2001 and a
decrease in pro forma basic and diluted loss per share of $0.04
for 2002 and $0.01 in 2001; and ii) stock-based employee
compensation expense determined under the fair value based
method for the year ended December 31, 2002 have been
restated to include the effects of stock-

F-12



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##### Table of Contents



IONA TECHNOLOGIES PLC


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

based compensation expense for those shares
participating in the option exchange offer. For pro-forma
disclosure purposes, such option exchange offers should be
accounted as a modification under the requirements of
SFAS 123. This inclusion resulted in an increase in pro
forma stock-based compensation expense of $16,880,000 included
in reported net loss, net of related tax effects and an increase
in pro forma basic and diluted loss per share of $0.53 in 2002.

On May 8, 2001, a wholly-owned subsidiary of
IONA merged with and into Netfish Technologies, Inc.
(Netfish), for total consideration of 5,036,318
newly-issued Ordinary Shares and replacement options, and
$30,885,000 of closing costs incurred in connection with the
merger. The portion of the total intrinsic value, measured at
the consummation date, of replacement unvested options granted
by IONA in exchange for outstanding unvested options held by
Netfish employees, that the future vesting period bears to the
total vesting period ($10,380,000) was, in accordance with the
requirements of FASB Interpretation No. 44 Accounting
for Certain Transactions Involving Stock Compensation,
accounted for as deferred stock-based compensation and is
charged to expense as stock compensation ratably over the
remaining vesting period of each tranche of unvested options.
During the years ended December 31, 2003, 2002 and 2001,
the Company reversed $146,000, $3,168,000 and $3,973,000,
respectively, of deferred stock-based compensation related to
the unvested replacement options of terminated Netfish employees
and unvested replacement options accepted for exchange under the
Exchange Offer, as described in Note 14. Stock compensation
expense recognized for vested options of Netfish Employees was
$199,000, $1,230,000 and $1,584,000 for the years ended
December 31, 2003, 2002 and 2001, respectively.

On July 1, 1999, IONA acquired the
outstanding shares of Aurora Technologies, Inc.
(Aurora) for consideration of $520,000 payable in
cash and the issuance of 48,750 shares to certain
individuals in two equal installments on the first and second
anniversary of the acquisition, provided they remain employees
of the Company at the anniversary dates. The value of these
shares, $780,000, was accounted for as deferred stock-based
compensation and was credited to additional paid-in capital and
charged to expense as stock compensation on a straight-line
basis over the 2 year period in which the stock was issued.
At December 31, 2001, deferred stock-based compensation for
Aurora was fully amortized.

During 2001, the Company accelerated the vesting
of stock options granted to certain employees whose employment
was terminated. The Company recognized compensation expense of
$233,000 in accordance with the requirements of FASB
Interpretation No. 44 Accounting for Certain
Transactions Involving Stock Compensation.

Stock compensation expense of $199,000,
$1,230,000, and $2,013,000 for the periods ended
December 31, 2003, 2002 and 2001, respectively can be
attributed to the following income statement lines: cost of
services nil, $283,000 and $406,000; research and development
$199,000, $803,000 and $849,000; sales and marketing nil,
$122,000 and $283,000; restructuring nil, nil and $233,000; and
general and administrative nil, $22,000, and $242,000,
respectively.



| |                          
| | -------------------------
| | Defined Contribution Plan

The Company sponsors and contributes to a defined
contribution plan for certain employees and directors.
Contribution amounts by the Company are determined by management
and allocated to employees on a pro rata basis based on
employees contributions. The Company contributed
approximately $1,433,000, $1,888,000 and $1,916,000 to the plan
in the years ended December 31, 2003, 2002 and 2001,
respectively. The decrease in Company contributions is due to a
reduction in workforce as a result of restructuring plans in
2003, 2002 and 2001.

F-13



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##### Table of Contents



IONA TECHNOLOGIES PLC


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



| |                                  
| | ---------------------------------
| | Advertising and Promotion Expense

All costs associated with advertising and
promoting products are expensed as incurred. Advertising and
promotion expense was $2,013,000, $6,272,000 and $10,077,000 for
the years ended December 31, 2003, 2002 and 2001,
respectively.



| |                          
| | -------------------------
| | Accounting Pronouncements

The Financial Accounting Standards Board issued
Statement No. 146, Accounting for Costs Associated
with Exit or Disposal Activities
(SFAS 146), in June 2002. SFAS 146
provides guidance on the recognition and measurement of
liabilities associated with exit or disposal activities and
requires that such liabilities be recognized when incurred. In
many cases, those costs will be recognized as liabilities in
periods following a commitment to a plan, not at the date of
commitment. SFAS 146 also changes the recognition of
one-time termination benefits, such as severance pay or other
termination indemnities, whenever the benefit arrangement
requires employees to render future service beyond a
minimum retention period. SFAS 146 also
addresses the accounting for other costs associated with an exit
or disposal activity, such as costs to consolidate or close
facilities and relocate employees. A liability for such costs
has to be recognized and measured at its fair value in the
period in which it is incurred. SFAS 146 is effective for
exit or disposal activities that are initiated after
December 31, 2002. The timing of recognition of costs of
restructuring plans initiated and implemented by the Company in
2003 has been in accordance with SFAS 146.

The Financial Accounting Standards Board issued
FASB Interpretation No. 45 Guarantors
Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness
of Others (FIN 45), in November 2002.
FIN 45 requires a guarantor to recognize, at the inception
of a guarantee, a liability for the fair value of the obligation
undertaken by it in issuing the guarantee. It also expands the
disclosure requirements in the financial statements of the
guarantor with respect to its obligations under certain
guarantees that it has issued. The Company is required to adopt
the initial recognition and initial measurement accounting
provisions of this interpretation on a prospective basis to
guarantees issued or modified after December 31, 2002. The
disclosure requirements are required to and have been adopted by
the Company as of December 31, 2002. Application of
FIN 45 had no material impact on the consolidated financial
statements of the Company as it had no guarantees in 2003 or
2002.

The Financial Accounting Standards Board issued
FASB Interpretations No. 46, Consolidation of
Variable Interest Entities (FIN 46), in
January 2003. This interpretation clarifies the application of
Accounting Research Bulletin No. 51, Consolidated
Financial Statements, to certain entities in which equity
investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional
subordinated financial support from other parties. The
provisions of FIN 46 were revised in December 2003 to be
effective for financial statement periods ended after
December 15, 2003. The adoption of FIN 46 did not have
a material impact on the consolidated financial statements of
the Company as it had no variable interest entities in 2003.

The Financial Accounting Standards Board issued
Statement No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities
(SFAS 149), in April 2003. SFAS 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. This statement
requires contracts with comparable characteristics to be
accounted for similarly. In particular, this Statement
(a) clarifies under what circumstances a contract with an
initial net investment meets the characteristic of a derivative
as discussed in SFAS No. 133, (b) clarifies when a
derivative contains a financing component and (c) amends
the definition of an underlying to conform it to
language used in FASB Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements for

F-14



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##### Table of Contents



IONA TECHNOLOGIES PLC


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

Guarantees, Including Indirect Guarantees of
Indebtedness of Others. This Statement is effective for
contracts entered into or modified after June 30, 2003 and
for hedging relationships designated after June 30, 2003.
Application of the new rules had no material impact on the
consolidated financial statements of the Company as it had no
derivative or hedging transactions in 2003.

The Financial Accounting Standards Board issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity (SFAS 150), in May 2003.
SFAS 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. SFAS 150
is effective for financial instruments entered into or modified
after May 31, 2003. Application of SFAS 150 had no
material impact on the consolidated financial statements of the
Company as it had no financial instruments in 2003.



|   |                      
|-- | ---------------------
|2. | Marketable Securities

Marketable securities are considered to be
trading securities per SFAS 115 and are carried on the
balance sheet at their market value.

|                                  |                             |                             |        |             |  |        |     |     |   |   |        |        | 
|--------------------------------- | --------------------------- | --------------------------- | ------ | ----------- |  | ------ | --- | --- | - | - | ------ | ------ | 
|                                  |                             |                            
|                                  |                             | As of December 31, 2003    
|                                  |                             |                            
|                                  |                             |                             |        | Unrealized  |  | Market
|                                  |                             | Cost                        |        | Gain (loss) |  | Value 
|                                  |                             |                             |        |             |  |       
|                                  |                             |                            
|                                  |                             | (U.S. dollars in thousands)
|Commercial paper                  |                             | $                           | 11,591 |             |  | $      |    |     |   | $ | 11,591 |       
|Corporate bonds                   |                             |                             | 5,979  |             |  |        | 1   |     |   |   | 5,980  |       
|U.S. government agency securities |                             |                             | 15,450 |             |  |        | (43 | )   |   |   | 15,407 |       
|                                  |                             |                             |        |             |  |        |     |     |   |   |        |       
|                                  | Total marketable securities |                             | $      | 33,020      |  |        | $   | (42 | ) |   | $      | 32,978 | 
|                                  |                             |                             |        |             |  |        |     |     |   |   |        |       

|                                  |                             |                             |        |             |  |        |    |    |  |   |        |        | 
|--------------------------------- | --------------------------- | --------------------------- | ------ | ----------- |  | ------ | -- | -- |  | - | ------ | ------ | 
|                                  |                             |                            
|                                  |                             | As of December 31, 2002    
|                                  |                             |                            
|                                  |                             |                             |        | Unrealized  |  | Market
|                                  |                             | Cost                        |        | Gain (loss) |  | Value 
|                                  |                             |                             |        |             |  |       
|                                  |                             |                            
|                                  |                             | (U.S. dollars in thousands)
|Commercial paper                  |                             | $                           | 54,049 |             |  | $      |   |    |  | $ | 54,049 |       
|U.S. government agency securities |                             |                             | 4,029  |             |  |        | 62 |    |  |   | 4,091  |       
|                                  |                             |                             |        |             |  |        |    |    |  |   |        |       
|                                  | Total marketable securities |                             | $      | 58,078      |  |        | $  | 62 |  |   | $      | 58,140 | 
|                                  |                             |                             |        |             |  |        |    |    |  |   |        |       

The change in unrealized (loss) gain included in
net loss is as follows:

|                                      |  |                             |      |      |  |      |     |   |  |   |      |  
|------------------------------------- |  | --------------------------- | ---- | ---- |  | ---- | --- | - |  | - | ---- | -
|                                      |  | 2003                        |      | 2002 |  | 2001
|                                      |  |                             |      |      |  |     
|                                      |  |                            
|                                      |  | (U.S. dollars in thousands)
|Unrealized gain at beginning of year  |  | $                           | 62   |      |  | $    | 102 |   |  | $ | 353  |  
|Included in net loss for the year     |  |                             | (104 | )    |  |      | (40 | ) |  |   | (251 | )
|                                      |  |                             |      |      |  |      |     |   |  |   |      |  
|Unrealized (loss) gain at end of year |  | $                           | (42  | )    |  | $    | 62  |   |  | $ | 102  |  
|                                      |  |                             |      |      |  |      |     |   |  |   |      |  



|   |            
|-- | -----------
|3. | Investments

Investments consist of equity securities and are
stated at market value. The Company sold its remaining
investment in 2001 and realized gains of $164,000. There were no
purchases or sales of available-for-sale securities in 2002 or
2003.

F-15



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##### Table of Contents



IONA TECHNOLOGIES PLC


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

The change in unrealized gain on investments is
as follows:

|                                            |  |                           |   |      |  |      |   |  |  |   |      |  
|------------------------------------------- |  | ------------------------- | - | ---- |  | ---- | - |  |  | - | ---- | -
|                                            |  | 2003                      |   | 2002 |  | 2001
|                                            |  |                           |   |      |  |     
|                                            |  |                          
|                                            |  | (US dollars in thousands)
|Unrealized gain at beginning of year        |  | $                         |  |      |  | $    |  |  |  | $ | 275  |  
|Included in comprehensive loss for the year |  |                           |  |      |  |      |  |  |  |   | (275 | )
|                                            |  |                           |   |      |  |      |   |  |  |   |      |  
|Unrealized gain at end of year              |  | $                         |  |      |  | $    |  |  |  | $ |     |  
|                                            |  |                           |   |      |  |      |   |  |  |   |      |  



|   |             
|-- | ------------
|4. | Acquisitions



| |                           
| | --------------------------
| | Netfish Technologies, Inc.

In May 2001, a wholly-owned subsidiary of IONA
merged with and into Netfish, for a total consideration of
5,036,318 newly-issued Ordinary Shares and replacement options,
and $30,885,000 of closing costs incurred in connection with the
merger. Of the 4,221,216 newly-issued Ordinary Shares, 504,598
were held back by the Company in 2001 as a source of
indemnification payments that may become due to the Company. If
the Company made no claims for indemnification, 75% of the
504,598 Ordinary Shares, or 378,448 shares, would have been
distributed to the former holders of Netfish shares in May 2002
and 25% of the 504,598 Ordinary Shares, or 126,150 shares,
would be distributed in May 2003. In May 2002, the Company held
back 142,045 Ordinary Shares to cover indemnification claims
made by the Company. In May 2003, an additional 126,150 ordinary
shares were held back to cover the indemnification claims that
the Company previously made. If pending indemnification claims
are resolved in a manner unfavorable to the Company, up to
268,195 Ordinary Shares held back by the Company could be
distributed to the former holders of Netfish shares. The
aggregate purchase price plus related expenses have been
allocated to the acquired assets and liabilities at their
estimated fair values at the date of acquisition based primarily
on an independent valuation, and to acquired in-process research
and development for which technological feasibility had not been
established and for which alternative future uses did not exist
based on an independent valuation.

The acquisition was accounted for using the
purchase method of accounting, and accordingly, the assets,
liabilities, and operating results have been included in the
accompanying consolidated financial statements from the date of
acquisition.

The total purchase price for Netfish consisted of
4,221,216 newly-issued Ordinary Shares at a fair market value of
$55.00 per share, the fair value of 815,102 replacement
options of IONA shares, and $30,885,000 in cash to pay
Netfishs related disposal expenses. The aggregate purchase
price plus related direct acquisition costs and net liabilities
assumed, less the amount allocated to deferred stock-based
compensation expense, totaling $294,001,000 was allocated to the
acquired assets and liabilities as follows:

|                                    |  |               |         | 
|----------------------------------- |  | ------------- | ------- | 
|                                    |  | (U.S. dollars
|                                    |  | in thousands)
|                                    |  |              
|Goodwill                            |  | $             | 265,701 | 
|In-process research and development |  |               | 3,600   | 
|Completed technology                |  |               | 17,800  | 
|Assembled workforce                 |  |               | 6,900   | 
|                                    |  |               |         | 
|                                    |  | $             | 294,001 | 
|                                    |  |               |         | 

In 2001, the Company expensed $3,600,000 in
respect of acquired in-process research and development, based
upon an independent valuation of the current fair value of
specifically identified Netfish research and development
projects for which technological feasibility had not been
established and for which alternative future uses did not exist.
In estimating such current fair value, the estimated future
after-tax cash flows attributable to the identified projects
were considered, and were then discounted to

F-16



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##### Table of Contents



IONA TECHNOLOGIES PLC


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

present value utilizing discount rates
commensurate with the risks of reaching technological
feasibility, completing the in-process projects, and achieving
estimated cash flows (the discount rate averaged 25%).

The fair value of Netfishs tangible assets
at acquisition date was approximately $4,797,000 and its
liabilities assumed totaled approximately $15,428,000. Until
January 1, 2002, both other non-current assets and goodwill
recorded in connection with the Netfish acquisition were
amortized on a straight-line basis over their useful economic
lives of four years. Upon adoption of SFAS 142 on
January 1, 2002, goodwill is no longer amortized, as
described in Note 1. On adoption, the Company reclassified
the net carrying value of assembled workforce of $5,750,000 from
other non-current assets to goodwill.



| |                               
| | ------------------------------
| | Object-Oriented Concepts, Inc.

In February 2001, a wholly-owned subsidiary of
IONA merged with and into Object-Oriented Concepts, Inc., a
Delaware corporation (OOC), pursuant to which OOC
became a wholly-owned subsidiary of IONA resulting in the
issuance of 908,584 newly-issued Ordinary Shares and replacement
options. Of the 730,453 newly issued Ordinary Shares, 262,129
were subject to return to the Company as a purchase price
adjustment upon the failure to achieve certain performance
targets. In 2001, 174,735 ordinary shares no longer subject to
return were recorded as additional purchase price based on fair
market value at the time the performance targets were achieved.
In 2002, the remaining 87,394 Ordinary Shares were no longer
subject to return to us and were recorded as additional purchase
price. The aggregate purchase price plus related expenses have
been allocated to the acquired assets and liabilities at their
estimated fair values at the date of acquisition based primarily
on an independent valuation.

The acquisition was accounted for using the
purchase method of accounting, and accordingly, the assets,
liabilities, and operating results have been included in the
accompanying consolidated financial statements from the date of
acquisition.

The total purchase price for OOC consisted of
730,453 newly-issued Ordinary Shares at a fair market value of
$59.68, the fair value of 178,131 replacement options and
$3,000,000 in cash. The aggregate purchase price plus related
direct acquisition costs of $40,258,000, net of tangible assets
acquired of $719,000 has been allocated to the acquired assets
and liabilities as follows:

|                     |  |               |        | 
|-------------------- |  | ------------- | ------ | 
|                     |  | (U.S. dollars
|                     |  | in thousands)
|                     |  |              
|Goodwill             |  | $             | 30,488 | 
|Completed technology |  |               | 9,250  | 
|Assembled workforce  |  |               | 520    | 
|                     |  |               |        | 
|                     |  | $             | 40,258 | 
|                     |  |               |        | 

Certain of the performance targets applicable to
the 262,129 newly issued Ordinary Shares subject to return were
achieved in August 2001. Accordingly, the Company allocated
$2,810,000 of additional purchase price to goodwill,
representing the fair market value of 174,735 Ordinary Shares no
longer subject to return, at the time these performance targets
were achieved.

In February 2002, the performance targets
applicable to the remaining 87,394 newly-issued Ordinary Shares
issued in connection with the acquisition of OOC and subject to
return were achieved. Accordingly, the Company allocated
$1,219,000 of additional purchase price to goodwill,
representing the fair market value of 87,394 Ordinary Shares no
longer subject to return, at the time these performance targets
were achieved.

The fair value of OOCs tangible assets at
acquisition date was approximately $1,400,000 and its
liabilities assumed totaled approximately $700,000. Until
January 1, 2002, both other non-current assets and goodwill
recorded in connection with the OOC acquisition were initially
being amortized on a straight-

F-17



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##### Table of Contents



IONA TECHNOLOGIES PLC


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

line basis over their useful economic lives of
four years. Upon adoption of SFAS 142 on January 1,
2002, goodwill is no longer amortized as described in
Note 1. On adoption, the Company reclassified the net
carrying value of assembled workforce of $361,000 from other
non-current assets to goodwill.



| |                  
| | -----------------
| | Software AG, Inc.

In February 2001, IONA acquired the
non-exclusive license rights to certain portions of Software
AG, Inc.s enterprise application integration
technology for $10,000,000. The software had reached
technological feasibility, and accordingly the cost had been
capitalized and was being written off over its useful economic
life of four years, in accordance with SFAS 86. As of
January 1, 2002, the Company adopted the provisions of
SFAS 142, which requires purchased technology to be
measured for impairment in accordance with SFAS 144 as
described in Note 1.



| |                                
| | -------------------------------
| | Genesis Development Corporation

In June 2000, a wholly-owned subsidiary of IONA
merged with and into Genesis Development Corporation, a
Pennsylvania corporation (Genesis), pursuant to
which Genesis became a wholly-owned subsidiary of IONA,
resulting in the issuance of 331,744 newly-issued Ordinary
Shares and 126,423 Ordinary Shares issuable upon assumed Genesis
stock options. Of the 331,744 newly-issued Ordinary Shares,
176,156 Ordinary Shares were subject to return to IONA as a
purchase price adjustment upon the failure to achieve certain
performance targets. The contingency was resolved in May 2001.
Accordingly, the Company allocated $6,518,000 of additional
purchase price to goodwill, representing the fair market value
of these 176,156 Ordinary Shares no longer subject to return, at
the time the contingency was resolved.

The acquisition was accounted for under the
purchase method of accounting, and accordingly, the assets,
liabilities, and operating results have been included in the
accompanying consolidated financial statements from the date of
acquisition.

The initial total purchase costs of $16,195,000,
comprising the fair value of the shares issued not subject to
relinquishment, the intrinsic value of the options issued and
related costs, was allocated, based on their respective fair
values, to other non-current assets (assembled workforce) of
$1,238,000, goodwill of $14,026,000 and net assets acquired of
$930,000. The fair value of Genesis assets at acquisition
date was approximately $2,109,000 and its liabilities assumed
totaled approximately $1,179,000. Until January 1, 2002,
both other non-current assets and goodwill were being amortized
on a straight-line basis over their useful economic lives of
four years. Upon adoption of SFAS 142 on January 1,
2002 goodwill is no longer amortized, as described in
Note 1. On adoption, the Company reclassified the net
carrying value of assembled workforce of $791,000 from other
non-current assets to goodwill.



| |                      
| | ---------------------
| | Pro Forma Disclosures

The following unaudited pro forma summary
presents the consolidated results of operations of the Company
as if the foregoing acquisitions had occurred on January 1,
2001 and does not purport to be indicative of what would have
occurred had the acquisition been made as of the beginning of
2001 or of results which may occur in the future. The pro forma
results give effect to certain purchase accounting adjustments,
including additional amortization expense from goodwill and
other non-current assets, additional compensation expense on
deferred stock-based compensation arising on the exchange of

F-18



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##### Table of Contents



IONA TECHNOLOGIES PLC


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

unvested options held by Netfish employees in
exchange for unvested options granted by IONA, and the issuance
of additional Ordinary Shares in connection with the
acquisitions.

|                                                              |  |                  |          |  
|------------------------------------------------------------- |  | ---------------- | -------- | -
|                                                              |  | Year Ended      
|                                                              |  | December 31,    
|                                                              |  | 2001            
|                                                              |  |                 
|                                                              |  | (U.S. dollars in
|                                                              |  | thousands,      
|                                                              |  | except for loss 
|                                                              |  | per share       
|                                                              |  | information)    
|Revenue                                                       |  | $                | 184,471  |  
|Loss before provision for income taxes                        |  |                  | (136,244 | )
|Net loss                                                      |  |                  | (135,804 | )
|Basic and diluted net loss per Ordinary Share and
    per ADS |  |                  | (5.31    | )



|   |              
|-- | -------------
|5. | Restructuring

During 2002 and 2001, the Companys
management and board of directors approved restructuring plans,
which included consolidation of excess facilities, a reduction
in workforce, and other related costs. Total restructuring costs
of $20,763,000 and $5,705,000 were recorded related to these
initiatives in 2002 and 2001, respectively. The restructuring
charges in 2002 and 2001 were accounted for in accordance with
EITF 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity.

During 2003, the Companys management and
board of directors approved further restructuring plans to
streamline its cost structure. These restructuring plans
included a reduction in workforce, the closure and consolidation
of office space, and other related costs. Total restructuring
costs of $20,525,000 were recorded related to this initiative.
Restructuring charges included approximately $11,034,000
representing the cost of involuntary employee separation and
related costs for approximately 278 employees worldwide and
costs totaling approximately $9,491,000 associated with the
closure and consolidation of office space. The restructuring
charge recorded in 2003 was accounted for in accordance with
SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities.

Cash outlays associated with the restructuring
plans initiated in 2003, 2002 and 2001 totaled approximately
$16,817,000 during 2003, including approximately $11,141,000 in
severance and related benefits paid to employees worldwide and
$5,676,000 in facility closure costs.

Amounts of restructuring costs remaining accrued
at December 31, 2003 of $13,904,000 relate to remaining
separation and facility closure and consolidation costs. The
Company expects cash outlays of $9,394,000 will be made in the
next twelve months, with the remaining cash outlays of
$4,510,000 to be made through the end of 2013.

Historically, the Companys estimates and
assumptions used to determine the liability have been consistent
with actual results experienced.

The Company was required to make certain
estimates and assumptions in assessing the amount accrued for
excess facilities arising from these restructurings. The charge
was calculated by taking into consideration (1) the
committed annual rental charge associated with the vacant square
footage, (2) an assessment of the sublet rents that could be
achieved based on current market conditions, vacancy rates and
future outlook, (3) an assessment of the period of time the
facility would remain vacant before being sub-let, (4) an
assessment of the percentage increases in the primary lease rent
at each review, and

F-19



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##### Table of Contents



IONA TECHNOLOGIES PLC


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(5) the application of a discount rate of 4%
over the remaining period of the lease or break clause. The
following sets forth our accrued restructuring costs as of
December 31, 2003.

|                             |  |                             |        |           |  |       |         |   |  |   |         |  
|---------------------------- |  | --------------------------- | ------ | --------- |  | ----- | ------- | - |  | - | ------- | -
|                             |  | Excess Facilities           |        | Severance |  | Total
|                             |  |                             |        |           |  |      
|                             |  |                            
|                             |  | (U.S. dollars in thousands)
|2001 charges                 |  | $                           | 2,023  |           |  | $     | 3,682   |   |  | $ | 5,705   |  
|Cash outlays in 2001         |  |                             | (657   | )         |  |       | (3,682  | ) |  |   | (4,339  | )
|                             |  |                             |        |           |  |       |         |   |  |   |         |  
|Balance at December 31, 2001 |  |                             | 1,366  |           |  |       |        |   |  |   | 1,366   |  
|2002 charges                 |  |                             | 8,512  |           |  |       | 12,251  |   |  |   | 20,763  |  
|Cash outlays in 2002         |  |                             | (2,653 | )         |  |       | (9,280  | ) |  |   | (11,933 | )
|                             |  |                             |        |           |  |       |         |   |  |   |         |  
|Balance at December 31, 2002 |  |                             | 7,225  |           |  |       | 2,971   |   |  |   | 10,196  |  
|2003 charges                 |  |                             | 9,491  |           |  |       | 11,034  |   |  |   | 20,525  |  
|Cash outlays in 2003         |  |                             | (5,676 | )         |  |       | (11,141 | ) |  |   | (16,817 | )
|                             |  |                             |        |           |  |       |         |   |  |   |         |  
|Balance at December 31, 2003 |  | $                           | 11,040 |           |  | $     | 2,864   |   |  | $ | 13,904  |  
|                             |  |                             |        |           |  |       |         |   |  |   |         |  



|   |                
|-- | ---------------
|6. | Restricted Cash

At December 31, 2003, the Company has
approximately $3,745,000 in restricted cash deposits with
Citizens Bank which includes $745,000 of annual renewable letter
of credit facilities for certain leased facilities and
$3,000,000 payable upon demand for use towards satisfaction of
amounts owed to a previous landlord. Should IONA not renew these
letter of credit facilities or default on its rental
obligations, $745,000 will be payable to the lessors. At
December 31, 2002, the Company had approximately $1,223,000
in restricted cash deposits, which relate primarily to annual
renewable letter of credit facilities with Citizens Bank for the
Waltham, Massachusetts, Santa Clara, California, and
New York, New York leased facilities.



|   |                          
|-- | -------------------------
|7. | Other Accrued Liabilities

Other accrued liabilities consist of the
following:

|                                |  |                    |        |      |  |   |        | 
|------------------------------- |  | ------------------ | ------ | ---- |  | - | ------ | 
|                                |  |                   
|                                |  | As of December 31,
|                                |  |                   
|                                |  | 2003               |        | 2002
|                                |  |                    |        |     
|                                |  |                   
|                                |  | (U.S. dollars in  
|                                |  | thousands)        
|Restructuring (Note 5)          |  | $                  | 9,394  |      |  | $ | 5,651  | 
|Income and other taxes payable  |  |                    | 3,899  |      |  |   | 2,181  | 
|Other                           |  |                    | 5,470  |      |  |   | 7809   | 
|                                |  |                    |        |      |  |   |        | 
|Total other accrued liabilities |  | $                  | 18,763 |      |  | $ | 15,641 | 
|                                |  |                    |        |      |  |   |        | 



|   |                                    
|-- | -----------------------------------
|8. | Fair Value of Financial Instruments

The carrying amount of cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities
approximates fair value due to the short term maturities of
these investments. The fair value of trading securities are
based on quoted market prices at year end.

F-20



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##### Table of Contents



IONA TECHNOLOGIES PLC


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

The estimated fair value of the Companys
financial instruments are as follows:

|                              |  |                             |        |       |  |          |        |       |  |   |        |  |  |   |        | 
|----------------------------- |  | --------------------------- | ------ | ----- |  | -------- | ------ | ----- |  | - | ------ |  |  | - | ------ | 
|                              |  |                            
|                              |  | As of December 31,         
|                              |  |                            
|                              |  |                             |        |      
|                              |  | 2003                        |        | 2002 
|                              |  |                             |        |      
|                              |  |                            
|                              |  | (U.S. dollars in thousands)
|                              |  | Carrying                    |        | Fair  |  | Carrying |        | Fair 
|                              |  | Amount                      |        | Value |  | Amount   |        | Value
|                              |  |                             |        |       |  |          |        |      
|Non Derivatives               |  |                             |        |       |  |          |        |       |  |   |        |  |  |   |        | 
|Cash and cash equivalents     |  | $                           | 19,926 |       |  | $        | 19,926 |       |  | $ | 22,287 |  |  | $ | 22,287 | 
|Restricted cash               |  |                             | 3,745  |       |  |          | 3,745  |       |  |   | 1,223  |  |  |   | 1,223  | 
|Marketable securitiestrading |  |                             | 32,978 |       |  |          | 32,978 |       |  |   | 58,140 |  |  |   | 58,140 | 

The carrying amounts in the table are included in
the consolidated balance sheets under the indicated captions.



|   |                            
|-- | ---------------------------
|9. | Operating Lease Commitments

The Company leases office space under
non-cancelable operating leases with various expiration dates
through 2013. Rent expense under all operating leases was
approximately $9,374,000, $8,716,000 and $10,190,000 in 2003,
2002 and 2001, respectively. Rental income under all operating
subleases was approximately $908,000, $1,088,000 and $726,000 in
2003, 2002 and 2001, respectively. Future minimum lease payments
under all operating leases as of December 31, 2003 are as
follows (U.S. dollars in thousands):

|                         |                              |   |        |        | 
|------------------------ | ---------------------------- | - | ------ | ------ | 
|Year ending December 31, |                              |  
|2004                     |                              | $ | 6,648  |       
|2005                     |                              |   | 6,000  |       
|2006                     |                              |   | 4,357  |       
|2007                     |                              |   | 2,935  |       
|2008                     |                              |   | 2,866  |       
|Thereafter               |                              |   | 12,168 |       
|                         |                              |   |        |       
|                         | Total minimum lease payments |   | $      | 34,974 | 
|                         |                              |   |        |       

As of December 31, 2003, approximately
$11,040,000 of the $34,974,000 contractual operating lease
obligations have been accrued as a result of our restructuring
plans in 2003, 2002, and 2001.

Total minimum lease rental income to be received
under the operating sub-leases as of December 31, 2003 is
approximately $5,778,000.



|    |                         
|--- | ------------------------
|10. | Other Non-Current Assets

Other non-current assets consist of the following:

|                                   |                                     |                    |        |       |  |   |        |       | 
|---------------------------------- | ----------------------------------- | ------------------ | ------ | ----- |  | - | ------ | ----- | 
|                                   |                                     |                   
|                                   |                                     | As of December 31,
|                                   |                                     |                   
|                                   |                                     | 2003               |        | 2002 
|                                   |                                     |                    |        |      
|                                   |                                     |                   
|                                   |                                     | (U.S. dollars in  
|                                   |                                     | thousands)        
|Purchased technology               |                                     | $                  | 3,253  |       |  | $ | 3,263  |      
|Security deposits and other assets |                                     |                    | 231    |       |  |   | 1,289  |      
|                                   |                                     |                    |        |       |  |   |        |      
|                                   | Total other non-current assets      |                    | $      | 3,484 |  |   | $      | 4,552 | 
|Accumulated amortization           |                                     |                    | (2,544 | )     |  |   | (1,855 | )    
|                                   |                                     |                    |        |       |  |   |        |      
|                                   | Total other non-current assets, net |                    | $      | 940   |  |   | $      | 2,697 | 
|                                   |                                     |                    |        |       |  |   |        |      

F-21



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##### Table of Contents



IONA TECHNOLOGIES PLC


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



|    |                                                                        
|--- | -----------------------------------------------------------------------
|11. | Goodwill, Indefinite Lived Intangible,
    and Other Non-Current Assets

Net loss and net loss per share for the years
ended December 31, 2003, 2002 and 2001, adjusted to exclude
amortization of goodwill, is as follows:

|                                                             |  |                             |         |      |  |      |          |   |  |   |         |  
|------------------------------------------------------------ |  | --------------------------- | ------- | ---- |  | ---- | -------- | - |  | - | ------- | -
|                                                             |  |                            
|                                                             |  | Years Ended December 31,   
|                                                             |  |                            
|                                                             |  | 2003                        |         | 2002 |  | 2001
|                                                             |  |                             |         |      |  |     
|                                                             |  |                            
|                                                             |  | (U.S. dollars in thousands,
|                                                             |  | except per share data)     
|Reported net loss                                            |  | $                           | (44,236 | )    |  | $    | (369,307 | ) |  | $ | (83,500 | )
|SFAS No. 142 effectGoodwill                                 |  |                             |        |      |  |      |         |   |  |   | 61,403  |  
|                                                             |  |                             |         |      |  |      |          |   |  |   |         |  
|Adjusted net loss                                            |  | $                           | (44,236 | )    |  | $    | (369,307 | ) |  | $ | (22,097 | )
|Reported basic loss per Ordinary Share and per ADS           |  | $                           | (1.33   | )    |  | $    | (11.58   | ) |  | $ | (3.27   | )
|SFAS No. 142 effectGoodwill                                 |  |                             |        |      |  |      |         |   |  |   | 2.40    |  
|Adjusted basic net loss per Ordinary Share and
    per ADS   |  | $                           | (1.33   | )    |  | $    | (11.58   | ) |  | $ | (0.87   | )
|Reported diluted net loss per Ordinary Share and
    per ADS |  | $                           | (1.33   | )    |  | $    | (11.58   | ) |  | $ | (3.27   | )
|SFAS No. 142 effectGoodwill                                 |  |                             |        |      |  |      |         |   |  |   | 2.40    |  
|Adjusted diluted net loss per Ordinary Share and
    per ADS |  | $                           | (1.33   | )    |  | $    | (11.58   | ) |  | $ | (0.87   | )

Identifiable intangible assets comprise goodwill,
which is not amortizable, and certain intangible other
non-current assets, which are amortizable. Other non-current
asset amortization for the years ended December 31, 2003,
2002 and 2001 was $796,000, $10,115,000 and $14,151,000,
respectively. Other non-current asset amortization is estimated
to be approximately $527,000 in 2004 and $182,000 in 2005.

Intangible assets are analyzed as follows:

|                                      |  |                             |         |                             |  |              |         |     |  |          |        |            |  |              |     |     |  |   |         |  |  |   |         |  |  |   |        |  |  |   |       | 
|------------------------------------- |  | --------------------------- | ------- | --------------------------- |  | ------------ | ------- | --- |  | -------- | ------ | ---------- |  | ------------ | --- | --- |  | - | ------- |  |  | - | ------- |  |  | - | ------ |  |  | - | ----- | 
|                                      |  |                             |         |                            
|                                      |  | As of December 31, 2003     |         | As of December 31, 2002    
|                                      |  |                             |         |                            
|                                      |  | Gross                       |         |                             |  | Gross        |         |    
|                                      |  | Carrying                    |         | Impairment                  |  | Accumulated  |         |     |  | Carrying |        | Impairment |  | Accumulated  |     |    
|                                      |  | Amount                      |         | Loss                        |  | Amortization |         | Net |  | Amount   |        | Loss       |  | Amortization |     | Net
|                                      |  |                             |         |                             |  |              |         |     |  |          |        |            |  |              |     |    
|                                      |  |                             |         |                            
|                                      |  | (U.S. dollars in thousands) |         | (U.S. dollars in thousands)
|Goodwillnon amortizable:             |  |                             |         |                             |  |              |         |     |  |          |        |            |  |              |     |     |  |   |         |  |  |   |         |  |  |   |        |  |  |   |       | 
|Goodwill                              |  | $                           | 343,248 |                             |  | $            | 276,808 |     |  | $        | 66,440 |            |  | $            |    |     |  | $ | 343,248 |  |  | $ | 276,808 |  |  | $ | 66,440 |  |  | $ |      | 
|Other non-current assetsamortizable: |  |                             |         |                             |  |              |         |     |  |          |        |            |  |              |     |     |  |   |         |  |  |   |         |  |  |   |        |  |  |   |       | 
|Purchased technology                  |  |                             | 3,373   |                             |  |              | 80      |     |  |          | 2,584  |            |  |              | 709 |     |  |   | 53,944  |  |  |   | 28,586  |  |  |   | 23,950 |  |  |   | 1,408 | 
|                                      |  |                             |         |                             |  |              |         |     |  |          |        |            |  |              |     |     |  |   |         |  |  |   |         |  |  |   |        |  |  |   |       | 
|Total identifiable intangible assets  |  | $                           | 346,621 |                             |  | $            | 276,888 |     |  | $        | 69,024 |            |  | $            | 709 |     |  | $ | 397,192 |  |  | $ | 305,394 |  |  | $ | 90,390 |  |  | $ | 1,408 | 
|                                      |  |                             |         |                             |  |              |         |     |  |          |        |            |  |              |     |     |  |   |         |  |  |   |         |  |  |   |        |  |  |   |       | 

In October 2002, the Company completed its annual
impairment test and assessment of the carrying value of goodwill
as required by SFAS 142. Goodwill was tested for
impairment, by comparing the fair value of the Company, as
calculated based on IONAs market capitalization as of
October 1, 2002, to the carrying value of the Company, and
then comparing the implied fair value of goodwill to the
carrying value at that date. As a result of unfavorable market
conditions and a decline in IONAs market capitalization,
the Company recorded a non-cash impairment charge of
$276,808,000, equivalent to the carrying value of goodwill,
which reduced the carrying value of goodwill to nil.

In October 2002, and again in October 2003, in
accordance with SFAS 142, the Company completed its
assessment of the carrying value of purchased technologies and
completed the relevant impairment tests as required by
SFAS 144. Due to unfavorable market conditions and changes
in the Companys product strategy, it was determined that
the carrying values of purchased technologies exceeded their
fair value

F-22



---



##### Table of Contents



IONA TECHNOLOGIES PLC


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

resulting in the Company recording a non-cash
impairment charge of $80,000 and $28,586,000 in 2003 and 2002,
respectively.

The Companys 2002 assessment included an
independent analysis of the carrying values of purchased
technologies, recorded in connection with the acquisitions of
Object Oriented Concepts, Inc., Netfish
Technologies, Inc. and Software AG, Inc., including an
initial comparison of the carrying value for each purchased
technology to the future undiscounted cash flows associated with
the technology. As a result of this analysis, it was determined
due to the excess carrying value associated with each purchased
technology that further impairment testing was required. The
Company recorded non-cash impairment losses in October 2002, for
the purchased technologies recorded in connection with the
acquisitions of Object Oriented Concepts, Inc., Netfish
Technologies, Inc., and Software AG of approximately
$4,461,000, $11,496,000 and $6,250,000, respectively. These
impairment losses (reflected in the consolidated statements of
operations as impairment of intangible assets and fixed assets)
represent the amount by which the carrying value of each
purchased technology exceeded its estimated fair value,
calculated by discounting future cash flows for each purchased
technology to a present value using a rate of return which
reflected the relative risk of the investment and the time value
of money. In addition, as a result of changes in product
strategy in reaction to market conditions, which resulted in
changes to the Company product suite and the elimination of
certain other purchased technologies from the Company product
suite, an impairment loss, equivalent to the carrying values of
these purchased technologies, of approximately $80,000 and
$6,379,000 was recorded in 2003 and 2002, respectively.



|    |                       
|--- | ----------------------
|12. | Property and Equipment

Property and equipment consists of the following:

|                         |                                   |                    |         |        |  |   |         |        | 
|------------------------ | --------------------------------- | ------------------ | ------- | ------ |  | - | ------- | ------ | 
|                         |                                   |                   
|                         |                                   | As of December 31,
|                         |                                   |                   
|                         |                                   | 2003               |         | 2002  
|                         |                                   |                    |         |       
|                         |                                   |                   
|                         |                                   | (U.S. dollars in  
|                         |                                   | thousands)        
|Computer equipment       |                                   | $                  | 13,204  |        |  | $ | 17,879  |       
|Office equipment         |                                   |                    | 648     |        |  |   | 3,149   |       
|Furniture and fixtures   |                                   |                    | 6,783   |        |  |   | 11,207  |       
|                         |                                   |                    |         |        |  |   |         |       
|                         | Total property and equipment      |                    | $       | 20,635 |  |   | $       | 32,235 | 
|Accumulated depreciation |                                   |                    | (14,370 | )      |  |   | (19,248 | )     
|                         |                                   |                    |         |        |  |   |         |       
|                         | Total property and equipment, net |                    | $       | 6,265  |  |   | $       | 12,987 | 
|                         |                                   |                    |         |        |  |   |         |       

During the year ended December 31, 2003, the
Company recorded a $3,191,000 charge for the impairment of fixed
assets and related costs for fixed assets no longer in use in
2003, as a result of the restructuring activities in 2003.

During the year ended December 31, 2002, the
Company recorded a $3,750,000 charge for the impairment of fixed
assets and related costs, of which $1,600,000 was primarily
attributable to the implementation of a new sales force
automation system that replaced an existing system. The
remainder of $2,150,000 relates to fixed assets no longer in use
in 2002, resulting in the reduction of their net book value to
nil.



|    |                                                          
|--- | ---------------------------------------------------------
|13. | Redeemable Preference Shares and
    Shareholders Equity

IONAs authorized share capital is divided
into Redeemable Preference Shares (Preference
Shares) of
0.0025 par
value per share and Ordinary Shares of
0.0025 par
value per share.

F-23



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##### Table of Contents



IONA TECHNOLOGIES PLC


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

The Preference Shares confer on the holders
thereof the right to receive notice of and to attend all general
meetings of IONA but not the right to vote on any resolution
proposed therefor. They confer on the holders thereof the right
to be paid out of the profits available for distribution, in
priority to any payment of dividend on any other class of shares
in IONA, a fixed cumulative preference dividend at a rate of
6% per annum on the amount paid up on the Preference
Shares. Upon winding up of IONA, the Preference Shares confer
upon the holders thereof the right to repayment of the capital
paid thereon, together with payment of all arrears of
preferential dividend, whether declared or not, to the date of
redemption of the Preference Shares in priority to payment of
any dividend or repayment of capital to the holders of the
Ordinary Shares in the capital of IONA. Such Preference Shares
do not, however, confer upon the holders thereof any further
rights to participate in the assets of IONA.

Dividends may only be declared and paid out of
profits available for distribution determined in accordance with
accounting principles generally accepted in Ireland and
applicable Irish Company Law. Any dividends on the Ordinary
Shares, if and when declared, will be declared and paid in
U.S. dollars. The amount of retained earnings available for
distribution as dividends at December 31, 2003, 2002 and
2001, at the exchange rates in effect on those dates, was nil.



|    |                    
|--- | -------------------
|14. | Share Option Scheme

The Company has elected to follow Accounting
Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (APB 25) and related
interpretations in accounting for its stock options. Under
APB 25, the Company has recognized compensation expense of
$199,000, $1,230,000, and $1,780,000 during 2003, 2002 and 2001,
respectively, for those instances in which the exercise prices
of IONAs stock options were less than the estimated market
price of the underlying shares on the date of grant and for the
stock compensation arising on the Aurora and Netfish
acquisitions (Note 4).

During 2001, IONA accelerated the vesting of
stock options granted to certain employees whose employment was
terminated. The Company recognized compensation expense of
$233,000 in 2001 in accordance with the requirements of FASB
Interpretation No. 44 Accounting for Certain
Transactions Involving Stock Compensation.

IONAs Executive Share Option Scheme has
authorized the grant of options to purchase up to an aggregate
of 1,125,500 Ordinary Shares to personnel. All options granted
have seven year terms and generally vest in equal installments
on each of the first, second, third and fourth anniversaries of
the date of grant.

During 1997, IONAs Board of Directors
and shareholders approved the 1997 Share Option Scheme
which provides for the grant of share options to employees,
consultants, directors and officers of the Company. The
1997 Share Option Scheme initially provided for the
issuance of up to 2,250,000 of IONAs Ordinary Shares. In
1998, IONAs Board of Directors and shareholders
approved an amendment to the 1997 Share Option Scheme,
providing for an increase in the number of Ordinary Shares that
may be issued under the 1997 Share Option Scheme to an
aggregate of 4,750,000. In 2000, IONAs Board of
Directors and shareholders approved an amendment to the
1997 Share Option Scheme, providing for an increase in the
number of Ordinary Shares that may be issued under the
1997 Share Option Scheme to an aggregate of 8,900,000.

In 2001, IONAs Board of Directors and
shareholders approved an amendment to the 1997 Share Option
Scheme, providing for an increase in the number of shares that
may be issued under the 1997 Share Option Scheme to an
aggregate of 12,900,000. Options granted under the
1997 Share Option Scheme expire ten years from the date of
grant or five years from the date of grant in the case of an
incentive stock option granted to an employee holding more than
10% of the total combined voting power of IONA.

F-24



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##### Table of Contents



IONA TECHNOLOGIES PLC


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

During 1997, IONAs Board of Directors
and shareholders also approved the 1997 Director Share
Option Scheme which provides for the grant of options to
purchase a maximum of 250,000 Ordinary Shares of IONA to
non-employee directors of IONA. In July 2002, the Board of
Directors and shareholders approved an amendment to the
1997 Director Share Option Scheme to increase the number of
Ordinary Shares issuable under that scheme from 250,000 to
500,000 shares.

In the fourth quarter of 2002, the Company made
an offer to its employees, including executive officers other
than the Chief Executive Officer and Chief Operating Officer, to
exchange their outstanding options to purchase IONAs
ordinary shares that had an exercise price of more than
$3.00 per share. Eligible options included options granted
under the 1997 Share Option Scheme, the Genesis Development
Corporation 1997 Stock Option Plan, the Object-Oriented
Concepts, Inc. Stock Option Plan and the Netfish
Technologies, Inc. 1999 Stock Option Plan. In exchange for
eligible options, employees received a commitment for new stock
options to be granted under the 1997 Share Option Scheme on
or after May 15, 2003. Only those participants in the
option exchange who were employees of the Company on the date
the new options were granted were eligible to receive the new
grant. Participating executive officers were required to
forfeit, without exchange, all options granted on or after
April 16, 2002. A total of 4,815,444 options were accepted
for exchange under the offer and accordingly were canceled in
November 2002. An additional 869,150 options were canceled
without exchange. The Company granted new options to purchase
approximately 3,191,884 shares on May 15, 2003. The
new options granted under the offer have an exercise price of
$1.99, which represented the fair market value of IONAs
Ordinary Shares, as determined by the last reported sale price
of IONAs Ordinary Shares on the Nasdaq National Market on
May 14, 2003.

A summary of IONAs stock option activity,
and related information for the years ended December 31,
2003, 2002 and 2001 follows:

|                                |  |                               |            |                |  |         |       |                |  |         |            |                |  |   |       |  |  |  |            |   |  |   |       | 
|------------------------------- |  | ----------------------------- | ---------- | -------------- |  | ------- | ----- | -------------- |  | ------- | ---------- | -------------- |  | - | ----- |  |  |  | ---------- | - |  | - | ----- | 
|                                |  |                              
|                                |  | As of Year Ended December 31,
|                                |  |                              
|                                |  |                               |            |                |  |        
|                                |  | 2003                          |            | 2002           |  | 2001   
|                                |  |                               |            |                |  |        
|                                |  |                               |            | Weighted-      |  |         |       | Weighted-      |  |         |            | Weighted-     
|                                |  |                               |            | Average        |  |         |       | Average        |  |         |            | Average       
|                                |  | Options                       |            | Exercise Price |  | Options |       | Exercise Price |  | Options |            | Exercise Price
|                                |  |                               |            |                |  |         |       |                |  |         |            |               
|Outstandingbeginning of period |  |                               | 820,994    |                |  | $       | 14.57 |                |  |         | 7,465,061  |                |  | $ | 28.33 |  |  |  | 4,712,476  |   |  | $ | 34.16 | 
|Granted                         |  |                               | 5,817,534  |                |  |         | 2.19  |                |  |         | 2,875,950  |                |  |   | 8.01  |  |  |  | 5,006,333  | * |  |   | 22.43 | 
|Forfeitures                     |  |                               | (1,689,831 | )              |  |         | 4.21  |                |  |         | (9,432,965 | )              |  |   | 23.58 |  |  |  | (1,528,179 | ) |  |   | 35.19 | 
|Exercised                       |  |                               | (844,920   | )              |  |         | 1.98  |                |  |         | (87,052    | )              |  |   | 7.11  |  |  |  | (725,569   | ) |  |   | 9.36  | 
|                                |  |                               |            |                |  |         |       |                |  |         |            |                |  |   |       |  |  |  |            |   |  |   |       | 
|Outstandingend of period       |  |                               | 4,103,777  |                |  | $       | 3.87  |                |  |         | 820,994    |                |  | $ | 14.57 |  |  |  | 7,465,061  |   |  | $ | 28.33 | 
|                                |  |                               |            |                |  |         |       |                |  |         |            |                |  |   |       |  |  |  |            |   |  |   |       | 
|Exercisable at end of period    |  |                               | 1,171,027  |                |  | $       | 7.55  |                |  |         | 339,889    |                |  | $ | 20.55 |  |  |  | 1,926,650  |   |  | $ | 27.79 | 
|                                |  |                               |            |                |  |         |       |                |  |         |            |                |  |   |       |  |  |  |            |   |  |   |       | 



---



|  |                                                                                                                                                                                               
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Included in this number are 815,102 replacement
    options, having a weighted average exercise price of $7.92,
    issued to former holders of Netfish options at the date of
    acquisition

F-25



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##### Table of Contents



IONA TECHNOLOGIES PLC


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

|                                                                                                                                                                                  |  |                               |      |                |  |       |      |                |  |       |      |                |  |   |      |  |  |   |       |  |  |   |       | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------- | ---- | -------------- |  | ----- | ---- | -------------- |  | ----- | ---- | -------------- |  | - | ---- |  |  | - | ----- |  |  | - | ----- | 
|                                                                                                                                                                                  |  |                              
|                                                                                                                                                                                  |  | As of Year Ended December 31,
|                                                                                                                                                                                  |  |                              
|                                                                                                                                                                                  |  |                               |      |                |  |      
|                                                                                                                                                                                  |  | 2003                          |      | 2001           |  | 2001 
|                                                                                                                                                                                  |  |                               |      |                |  |      
|                                                                                                                                                                                  |  |                               |      | Weighted-      |  |       |      | Weighted-      |  |       |      | Weighted-     
|                                                                                                                                                                                  |  | Fair                          |      | Average        |  | Fair  |      | Average        |  | Fair  |      | Average       
|                                                                                                                                                                                  |  | Value                         |      | Exercise Price |  | Value |      | Exercise Price |  | Value |      | Exercise Price
|                                                                                                                                                                                  |  |                               |      |                |  |       |      |                |  |       |      |               
|Weighted-average fair value of options granted
    during the year for options whose exercise price equals the
    market price of the Ordinary Shares on the date of grant       |  | $                             | 1.92 |                |  | $     | 2.19 |                |  | $     | 6.58 |                |  | $ | 8.01 |  |  | $ | 21.12 |  |  | $ | 26.16 | 
|Weighted-average fair value of options granted
    during the year for options whose exercise price is less than
    the market price of the Ordinary Shares on the date of grant |  |                               |     |                |  |       |     |                |  |       |     |                |  |   |     |  |  | $ | 41.62 |  |  | $ | 7.92  | 

Exercise prices for options outstanding as of
December 31, 2003 ranged from $0.32 to $74.50 per
share. An analysis of options outstanding at December 31,
2003 is as follows.

|                                                                |       |                     |           |                     |  |                |     |           |  |                |       |      |  |  |         |           |  |   |       |      | 
|--------------------------------------------------------------- | ----- | ------------------- | --------- | ------------------- |  | -------------- | --- | --------- |  | -------------- | ----- | ---- |  |  | ------- | --------- |  | - | ----- | ---- | 
|                                                                |       |                     |           |                    
|                                                                |       | Options Outstanding |           | Options Exercisable
|                                                                |       |                     |           |                    
|                                                                |       |                     |           | Weighted            |  |                |     |          
|                                                                |       |                     |           | Average             |  |                |     |          
|                                                                |       |                     |           | Remaining           |  | Weighted       |     |           |  | Weighted      
|                                                                |       | Number of           |           | Contractual Life    |  | Average        |     | Number of |  | Average       
|Exercise Price                                                  |       | shares              |           | (in years)          |  | Exercise Price |     | shares    |  | Exercise Price
|                                                                |       |                     |           |                     |  |                |     |           |  |               
|Less than $5.00 per share                                       |       |                     | 3,810,887 |                     |  |                | 9.5 |           |  | $              | 2.30  |      |  |  | 897,427 |           |  | $ | 2.18  |     
|Greater than $5.00 per share and less than
    $15.00 per share |       |                     | 160,149   |                     |  |                | 6.6 |           |  |                | 12.17 |      |  |  | 143,735 |           |  |   | 12.45 |     
|Greater than $15.00 per share                                   |       |                     | 132,741   |                     |  |                | 7.3 |           |  |                | 39.03 |      |  |  | 129,865 |           |  |   | 39.24 |     
|                                                                |       |                     |           |                     |  |                |     |           |  |                |       |      |  |  |         |           |  |   |       |     
|                                                                | Total |                     |           | 4,103,777           |  |                |     | 9.3       |  |                | $     | 3.87 |  |  |         | 1,171,027 |  |   | $     | 7.55 | 
|                                                                |       |                     |           |                     |  |                |     |           |  |                |       |      |  |  |         |           |  |   |       |     



|    |                                  
|--- | ---------------------------------
|15. | 1999 Employee Share Purchase Plan

In August 1999, the Company established a
qualified Employee Share Purchase Plan, the terms of which allow
for qualified employees (as defined) to participate in the
purchase of designated shares of the Companys Ordinary
Shares at a price equal to the lower of 85% of the closing price
at the beginning or end of each semi-annual stock purchase
period. As of December 31, 2003, 2002, and 2001, 823,221,
497,402, and 166,197 shares have been issued under the
plan, respectively.

F-26



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##### Table of Contents



IONA TECHNOLOGIES PLC


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



|    |                                    
|--- | -----------------------------------
|16. | Net Loss Per Ordinary Share And ADS

The following sets forth the computation of basic
and diluted net income (loss) per Ordinary Share and ADS:

|             |                                                                                                                     |                                        |   |         |   |      |   |          |   |  |   |         |  
|------------ | ------------------------------------------------------------------------------------------------------------------- | -------------------------------------- | - | ------- | - | ---- | - | -------- | - |  | - | ------- | -
|             |                                                                                                                     |                                       
|             |                                                                                                                     | Year Ended December 31,               
|             |                                                                                                                     |                                       
|             |                                                                                                                     | 2003                                   |   | 2002    |   | 2001
|             |                                                                                                                     |                                        |   |         |   |     
|             |                                                                                                                     |                                       
|             |                                                                                                                     | (U.S. dollars in thousands, except per
|             |                                                                                                                     | share data)                           
|Numerator:   |                                                                                                                     |                                        |   |         |   |      |   |          |   |  |   |        
|             | Numerator for basic and diluted net loss per
    Ordinary Share and ADSloss available to Ordinary
    Shareholders |                                        | $ | (44,236 | ) |      | $ | (369,307 | ) |  | $ | (83,500 | )
|             |                                                                                                                     |                                        |   |         |   |      |   |          |   |  |   |        
|Denominator: |                                                                                                                     |                                        |   |         |   |      |   |          |   |  |   |        
|             | Denominator for basic earnings per
    shareweighted average Ordinary Shares and ADS                               |                                        |   | 33,335  |   |      |   | 31,890   |   |  |   | 25,556  |  
|             | Effect of employee stock options                                                                                    |                                        |   |        |   |      |   |         |   |  |   |        |  
|             |                                                                                                                     |                                        |   |         |   |      |   |          |   |  |   |        
|             | Denominator for diluted net loss per Ordinary
    Share and ADS                                                     |                                        |   | 33,335  |   |      |   | 31,890   |   |  |   | 25,556  |  
|             |                                                                                                                     |                                        |   |         |   |      |   |          |   |  |   |        
|             | Basic net loss per Ordinary Share and ADS                                                                           |                                        | $ | (1.33   | ) |      | $ | (11.58   | ) |  | $ | (3.27   | )
|             |                                                                                                                     |                                        |   |         |   |      |   |          |   |  |   |        
|             | Diluted net loss per Ordinary Share and ADS                                                                         |                                        | $ | (1.33   | ) |      | $ | (11.58   | ) |  | $ | (3.27   | )
|             |                                                                                                                     |                                        |   |         |   |      |   |          |   |  |   |        

All outstanding stock options granted have been
excluded from the calculation of the diluted net loss per share
because all such securities were anti-dilutive. The total number
of shares related to the outstanding options excluded from the
calculations of diluted net loss per share were approximately
700,000, 334,000 and 1,321,000 for the years ended
December 31, 2003, 2002 and 2001, respectively.



|    |             
|--- | ------------
|17. | Income Taxes

Loss before provision for (benefit of) income
taxes consists of the following:

|              |       |                             |         |         |   |      |          |          |   |   |         |         |  
|------------- | ----- | --------------------------- | ------- | ------- | - | ---- | -------- | -------- | - | - | ------- | ------- | -
|              |       |                            
|              |       | Year Ended December 31,    
|              |       |                            
|              |       | 2003                        |         | 2002    |   |     
|              |       |                             |         |         |   | 2001
|              |       |                            
|              |       | (U.S. dollars in thousands)
|Ireland       |       | $                           | (43,355 | )       |   | $    | (361,284 | )        |   | $ | (69,452 | )      
|Rest of World |       |                             | 67      |         |   |      | (6,480   | )        |   |   | (14,616 | )      
|              |       |                             |         |         |   |      |          |          |   |   |         |        
|              | Total |                             | $       | (43,288 | ) |      | $        | (367,764 | ) |   | $       | (84,068 | )
|              |       |                             |         |         |   |      |          |          |   |   |         |        

F-27



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##### Table of Contents



IONA TECHNOLOGIES PLC


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

The provision for (benefit of) income taxes
consists of the following:

|          |               |                                               |   |      |     |      |   |       |       |  |   |        |      |  
|--------- | ------------- | --------------------------------------------- | - | ---- | --- | ---- | - | ----- | ----- |  | - | ------ | ---- | -
|          |               |                                              
|          |               | Year Ended December 31,                      
|          |               |                                              
|          |               | 2003                                          |   | 2002 |     | 2001
|          |               |                                               |   |      |     |     
|          |               |                                              
|          |               | (U.S. dollars in thousands)                  
|Current:  |               |                                               |   |      |     |      |   |       |       |  |   |       
|          | Ireland       |                                               | $ | 392  |     |      | $ | 126   |       |  | $ | (1,195 | )   
|          | Rest of World |                                               |   | 556  |     |      |   | 1,417 |       |  |   | 627    |     
|          |               |                                               |   |      |     |      |   |       |       |  |   |       
|          |               | Total current                                 |   |      | 948 |      |   |       | 1,543 |  |   |        | (568 | )
|Deferred: |               |                                               |   |      |     |      |   |       |       |  |   |       
|          | Ireland       |                                               |   |     |     |      |   |      |       |  |   |       |     
|          | Rest of World |                                               |   |     |     |      |   |      |       |  |   |       |     
|          |               |                                               |   |      |     |      |   |       |       |  |   |       
|          |               | Total deferred                                |   |      |    |      |   |       |      |  |   |        |     |  
|          |               |                                               |   |      |     |      |   |       |       |  |   |       
|          |               | Total provision for (benefit of) income taxes |   | $    | 948 |      |   | $     | 1,543 |  |   | $      | (568 | )
|          |               |                                               |   |      |     |      |   |       |       |  |   |       

The provision for (benefit of) income taxes
differs from the amount computed by applying the statutory
income tax rate to income (loss) before taxes. The sources and
tax effects of the differences are as follows:

|                                                                                                                             |                                               |                             |        |      |  |      |         |       |  |   |         |      |  
|---------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------- | --------------------------- | ------ | ---- |  | ---- | ------- | ----- |  | - | ------- | ---- | -
|                                                                                                                             |                                               |                            
|                                                                                                                             |                                               | Year Ended December 31,    
|                                                                                                                             |                                               |                            
|                                                                                                                             |                                               | 2003                        |        | 2002 |  | 2001
|                                                                                                                             |                                               |                             |        |      |  |     
|                                                                                                                             |                                               |                            
|                                                                                                                             |                                               | (U.S. dollars in thousands)
|Income taxes (benefit) computed at the Irish
    statutory income tax rate of 12.5% for 2003, 16% for 2002, 20%
    for 2001 |                                               | $                           | (5,411 | )    |  | $    | (58,842 | )     |  | $ | (16,813 | )   
|Income (loss) from Irish manufacturing operations
    benefited at lower rates                                               |                                               |                             | 1,047  |      |  |      | 2,649   |       |  |   | 585     |     
|Operating losses not utilized                                                                                                |                                               |                             | 4,952  |      |  |      | 7,759   |       |  |   | 7,012   |     
|Income (loss) subject to different rates of tax                                                                              |                                               |                             | (142   | )    |  |      | (1,803  | )     |  |   | (3,467  | )   
|Income (loss) not subject to tax                                                                                             |                                               |                             | (59    | )    |  |      | (163    | )     |  |   | (450    | )   
|Non-deductible expenses                                                                                                      |                                               |                             | 524    |      |  |      | 51,920  |       |  |   | 12,540  |     
|Other individually immaterial items                                                                                          |                                               |                             | 37     |      |  |      | 23      |       |  |   | 25      |     
|                                                                                                                             |                                               |                             |        |      |  |      |         |       |  |   |         |     
|                                                                                                                             | Total provision for (benefit of) income taxes |                             | $      | 948  |  |      | $       | 1,543 |  |   | $       | (568 | )
|                                                                                                                             |                                               |                             |        |      |  |      |         |       |  |   |         |     

The effect on basic and diluted net income (loss)
per Ordinary Share and per ADS of the Irish manufacturing
operations being taxed at (benefited at) a lower rate than the
Irish Statutory income tax rate was an increase in net loss per
share of $0.03 and $0.03 respectively for the year ended
December 31, 2003 and an increase in net loss per share of
$0.08 and $0.08 respectively for the year ended
December 31, 2002, and an increase in net income per share
of $0.02 and $0.02 respectively for the year ended
December 31, 2001.

|                          |                                  |                             |         |        |  |      |         |        |  |   |         |        | 
|------------------------- | -------------------------------- | --------------------------- | ------- | ------ |  | ---- | ------- | ------ |  | - | ------- | ------ | 
|                          |                                  |                            
|                          |                                  | Year Ended December 31,    
|                          |                                  |                            
|                          |                                  | 2003                        |         | 2002   |  | 2001
|                          |                                  |                             |         |        |  |     
|                          |                                  |                            
|                          |                                  | (U.S. dollars in thousands)
|Deferred tax assets:      |                                  |                             |         |        |  |      |         |        |  |   |         |       
|                          | Net operating loss carryforwards |                             | $       | 53,620 |  |      | $       | 41,690 |  |   | $       | 17,500 | 
|                          |                                  |                             |         |        |  |      |         |        |  |   |         |       
|Total deferred tax assets |                                  |                             | 53,620  |        |  |      | 41,690  |        |  |   | 17,500  |       
|Valuation allowance       |                                  |                             | (53,620 | )      |  |      | (41,690 | )      |  |   | (17,500 | )     
|                          |                                  |                             |         |        |  |      |         |        |  |   |         |       
|Net deferred tax assets   |                                  | $                           |        |        |  | $    |        |        |  | $ |        |       
|                          |                                  |                             |         |        |  |      |         |        |  |   |         |       

F-28



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##### Table of Contents



IONA TECHNOLOGIES PLC


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

The movement on the valuation allowance is as
follows:

|                             |                                                                           |                             |        |       |  |      |        |        |  |   |        |       | 
|---------------------------- | ------------------------------------------------------------------------- | --------------------------- | ------ | ----- |  | ---- | ------ | ------ |  | - | ------ | ----- | 
|                             |                                                                           |                            
|                             |                                                                           | Year Ended December 31,    
|                             |                                                                           |                            
|                             |                                                                           | 2003                        |        | 2002  |  | 2001
|                             |                                                                           |                             |        |       |  |     
|                             |                                                                           |                            
|                             |                                                                           | (U.S. dollars in thousands)
|Balance at beginning of year |                                                                           | $                           | 41,690 |       |  | $    | 17,500 |        |  | $ | 685    |      
|Additions:                   |                                                                           |                             |        |       |  |      |        |        |  |   |        |      
|                             | Charged to expense                                                        |                             |        | 4,952 |  |      |        | 7,759  |  |   |        | 7,012 | 
|                             | Matching increase in tax value of disqualifying
    disposition           |                             |        | 160   |  |      |        | 1,877  |  |   |        | 9,803 | 
|                             | Revision to losses forward on resolution of
    certain tax uncertainties |                             |        | 6,818 |  |      |        |       |  |   |        |      | 
|                             | Related to preacquisition losses of Netfish                               |                             |        |      |  |      |        | 14,554 |  |   |        |      | 
|                             |                                                                           |                             |        |       |  |      |        |        |  |   |        |      
|Balance at end of year       |                                                                           | $                           | 53,620 |       |  | $    | 41,690 |        |  | $ | 17,500 |      
|                             |                                                                           |                             |        |       |  |      |        |        |  |   |        |      

At December 31, 2003 the Company has a net
operating loss carryforward of approximately $105,400,000,
including approximately $65,000,000 pre-acquisition losses from
the Netfish acquisition, for U.S. federal income tax
purposes which will expire in the tax years 2011 through 2023 if
not previously utilized. Utilization of the U.S. net
operating loss carryforward may be subject to an annual
limitation due to the change in ownership rules provided by the
Internal Revenue Code of 1986. This limitation and other
restrictions provided by the Internal Revenue Code of 1986 may
reduce the net operating loss carryforward such that it would
not be available to offset future taxable income of the
U.S. subsidiaries.

At December 31, 2003 approximately
$29,600,000 of the net operating loss carryforwards in the
United States result from disqualifying dispositions. The tax
value of the disqualifying dispositions has not been recognized
in the tax reconciliation note as it is not expected that it
will reverse. At December 31, 2003, $11,800,000 of the
valuation allowance related to disqualifying dispositions.

At December 31, 2003 the Company also had
net operating loss carryforwards totaling approximately
$105,900,000 for Irish income tax purposes which carry forward
indefinitely.

At December 31, 2003 the Company also had
net operating loss carryforwards totaling approximately
$2,900,000 for Australian income tax purposes which carry
forward indefinitely.

The utilization of these net operating loss
carryforwards is limited to the future profitable operation of
the Company in the related tax jurisdictions in which such
carryforwards arose. Valuation allowances of 100% have been
provided against the net operating loss carryforwards because of
the history of operating losses in the related tax jurisdictions.



|    |                                    
|--- | -----------------------------------
|18. | Industry and Geographic Information

Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise
and Related Information (SFAS 131),
established standards for reporting information about operating
segments. Operating segments are defined as components of an
enterprise about which separate financial information is
available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in
assessing performance. The Company has one reportable segment:
enterprise infrastructure software. The Company also provides
professional services, consisting of consulting and training,
customer support of all its products, and, to a limited extent,
product customization and enhancements.

The accounting policies of the reportable segment
are the same as those described in the summary of significant
accounting policies.

F-29



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##### Table of Contents



IONA TECHNOLOGIES PLC


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

The following is a summary of enterprise-wide
geographic areas information:

Revenues from external customers, all
attributable to foreign countries:

|                   |                    |                             |        |        |  |      |        |         |  |   |         |         | 
|------------------ | ------------------ | --------------------------- | ------ | ------ |  | ---- | ------ | ------- |  | - | ------- | ------- | 
|                   |                    |                            
|                   |                    | Year Ended December 31,    
|                   |                    |                            
|                   |                    | 2003                        |        | 2002   |  | 2001
|                   |                    |                             |        |        |  |     
|                   |                    |                            
|                   |                    | (U.S. dollars in thousands)
|Americas           |                    | $                           | 38,338 |        |  | $    | 75,472 |         |  | $ | 119,698 |        
|European Countries |                    |                             | 24,657 |        |  |      | 33,696 |         |  |   | 42,357  |        
|Rest of World      |                    |                             | 11,195 |        |  |      | 14,062 |         |  |   | 18,649  |        
|                   |                    |                             |        |        |  |      |        |         |  |   |         |        
|                   | Consolidated total |                             | $      | 74,190 |  |      | $      | 123,230 |  |   | $       | 180,704 | 
|                   |                    |                             |        |        |  |      |        |         |  |   |         |        

Revenues are attributed to countries based on the
location of customers.

Long Lived Assets:

|                    |               |                    |   |       |       |      |   |       |        |  |   |         |         | 
|------------------- | ------------- | ------------------ | - | ----- | ----- | ---- | - | ----- | ------ |  | - | ------- | ------- | 
|                    |               |                   
|                    |               | As of December 31,
|                    |               |                   
|                    |               | 2003               |   | 2002  |       | 2001
|                    |               |                    |   |       |       |     
|Country of Domicile |               |                    |   |       |       |      |   |       |        |  |   |        
|                    | Ireland       |                    | $ | 4,647 |       |      | $ | 8,213 |        |  | $ | 325,465 |        
|Foreign Countries   |               |                    |   |       |       |      |   |       |        |  |   |        
|                    | Americas      |                    |   | 2,152 |       |      |   | 6,540 |        |  |   | 8,779   |        
|                    | Rest of World |                    |   | 406   |       |      |   | 931   |        |  |   | 1,260   |        
|                    |               |                    |   |       |       |      |   |       |        |  |   |        
|                    |               | Consolidated total |   | $     | 7,205 |      |   | $     | 15,684 |  |   | $       | 335,504 | 
|                    |               |                    |   |       |       |      |   |       |        |  |   |        



|    |                           
|--- | --------------------------
|19. | Related Party Transactions

In August 2003, the Company entered into a
consulting agreement with a company called Claright, founded by
Mr. Peter Zotto, the Companys Chief Operating
Officer. Under this agreement, Mr. Zotto, prior to his
becoming an employee of IONA, was hired through Claright to
provide marketing and related consulting services to IONA. The
consulting arrangement was terminated in October 2003, prior to
Mr. Zotto being hired as IONAs Chief Operating
Officer. The Company paid Claright fees of approximately
$101,750 for such services.

In July 2003, the Company engaged K Capital
Source Limited (K Capital) to provide it with capital market
communication and advisory services. Mark Kenny, a principal of
K Capital, is the son of one of the Companys directors,
Dr. Ivor Kenny. Under IONAs agreement with K Capital,
the Company pays $40,000 per fiscal quarter for such
services. No amounts relating to services rendered were
outstanding as of December 31, 2003.

F-30



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##### Table of Contents








|         |         
|-------- | --------
|Item 19. | EXHIBITS

|            |       |                        |  |                                                                                                                                                                                                                                                                                                                       
|----------- | ----- | ---------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |       | Description of Exhibit
|            |       |                       
|            | 1.1   |                        |  | Restated Articles of Association, as amended, of
    IONA Technologies PLC (filed as Exhibit 4.2 to IONAs
    Registration Statement on Form S-8 (File
    No. 333-11384) and incorporated herein by reference)                                                                                                      
|            | 1.2   |                        |  | Memorandum of Association, as amended, of IONA
    Technologies PLC (filed as Exhibit 3.3 to IONAs
    Registration Statement on Form F-1 (File No. 333-6396)
    and incorporated herein by reference)                                                                                                              
|            | 2.1   |                        |  | Specimen Certificate representing Ordinary Shares
    (filed as Exhibit 4.1 to IONAs Registration Statement
    on Form F-1 (File No. 333-6396) and incorporated
    herein by reference)                                                                                                                            
|            | 2.2   |                        |  | Amended and Restated Deposit Agreement dated as
    of April 26, 2004, by and among IONA Technologies PLC,
    Deutsche Bank Trust Company Americas and Holders and Beneficial
    Owners of American Depositary Shares Evidenced by American
    Depositary Receipts                                                 
|            | 4.1   |                        |  | Agreement and Plan of Reorganization dated as of
    February 14, 2001, by and among IONA Technologies PLC, NV
    Acquisition Corp. and Netfish Technologies, Inc. (filed as
    Exhibit 4.4 to IONAs annual report on Form 20-F
    for the year ending December 31, 2000 and incorporated
    herein by reference)
|            | 4.2   |                        |  | Lease dated July 31, 1998, by and between
    AIB Custodial Nominees Limited and IONA Technologies PLC (filed
    as Exhibit 4.5 to IONAs annual report on
    Form 20-F for the year ending December 31, 2000 and
    incorporated herein by reference)                                                             
|            | 4.3   |                        |  | Lease dated March 2, 1999, by and between
    Boston Properties Limited Partnership and IONA
    Technologies, Inc. (filed as Exhibit 4.6 to
    IONAs annual report on Form 20-F for the year ending
    December 31, 2000 and incorporated herein by reference)                                                    
|            | 4.4  |                        |  | Executive Share Option Scheme (filed as
    Exhibit 10.1 to IONAs Registration Statement on
    Form F-1 (File No. 333-6396) and incorporated herein
    by reference)                                                                                                                                               
|            | 4.5  |                        |  | 1997 Share Option Scheme, as amended (filed
    as Exhibit 4.4 to IONAs Registration Statement on
    Form S-8 (File No. 333-12326) and incorporated herein
    by reference)                                                                                                                                        
|            | 4.6  |                        |  | 1997 Director Share Option Scheme (filed as
    Exhibit 10.3 to IONAs Registration Statement on
    Form F-1 (File No. 333-6396) and incorporated herein
    by reference)                                                                                                                                           
|            | 4.7  |                        |  | 1999 Employee Share Purchase Plan, as amended
    (filed as Exhibit 4.5 to IONAs Registration Statement
    on Form S-8 (File No. 333-11384) and incorporated
    herein by reference)                                                                                                                               
|            | 4.8  |                        |  | Genesis Development Corporation 1997 Stock Option
    Plan (filed as Exhibit 4.5 to IONAs Registration
    Statement on Form S-8 (File No. 333-12326) and
    incorporated herein by reference)                                                                                                                      
|            | 4.9  |                        |  | Object-Oriented Concepts, Inc. Stock Option
    Plan (filed as Exhibit 4.4 to IONAs Registration
    Statement on Form S-8 (File No. 333-13224) and
    incorporated herein by reference)                                                                                                                            
|            | 4.10 |                        |  | Netfish Technologies, Inc. 1999 Stock Option
    Plan (filed as Exhibit 4.5 to IONAs Registration
    Statement on Form S-8 (File No. 333-13494) and
    incorporated herein by reference)                                                                                                                           
|            | 4.11 |                        |  | Letter agreement regarding severance payments
    dated August 8, 2002 by and between Steven Fisch and IONA
    Technologies, Inc. (filed as Exhibit 4.11 to
    IONAs annual report on Form 20-F for the year ending
    December 31, 2002 and incorporated herein by reference)                                    
|            | 4.12 |                        |  | Non-Executive Directors Change in Control Plan
    (filed as Exhibit 4.12 to IONAs annual report on
    Form 20-F for the year ending December 31, 2002 and
    incorporated herein by reference)                                                                                                                    

F-31



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##### Table of Contents



|            |       |                        |  |                                                                                                                                                                                                                                                                                                                                                                          
|----------- | ----- | ---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |       | Description of Exhibit
|            |       |                       
|            | 4.13 |                        |  | Form of Change of Control Agreement by and among
    IONA Technologies, Inc., IONA Technologies PLC and
    each of Christopher J. Horn, Peter M. Zotto, Daniel Demmer, Eric
    Newcomer and Christopher M. Mirabile (filed as Exhibit 4.13
    to IONAs annual report on Form 20-F for the year
    ending December 31, 2002 and incorporated herein by
    reference)
|            | 8.1   |                        |  | Active Subsidiaries of IONA Technologies PLC                                                                                                                                                                                                                                                                                                                             
|            | 11.1  |                        |  | Code of Business Conduct                                                                                                                                                                                                                                                                                                                                                 
|            | 12.1  |                        |  | Certification of Principal Executive Officer                                                                                                                                                                                                                                                                                                                             
|            | 12.2  |                        |  | Certification of Principal Financial Officer                                                                                                                                                                                                                                                                                                                             
|            | 13.1  |                        |  | Certification of Chief Executive Officer pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                   
|            | 13.2  |                        |  | Certification of Chief Financial Officer pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                   
|            | 14.1  |                        |  | Consent of Ernst & Young                                                                                                                                                                                                                                                                                                                                                 
|            | 14.2  |                        |  | Audit Committee Charter                                                                                                                                                                                                                                                                                                                                                  
|            | 14.3  |                        |  | Nominating and Corporate Governance Committee
    Charter                                                                                                                                                                                                                                                                                                                
|            | 14.4  |                        |  | Description of American Depositary Receipts                                                                                                                                                                                                                                                                                                                              



---



|  |                                                                                       
|- | --------------------------------------------------------------------------------------
| | Indicates a management contract or any
    compensatory plan, contract or arrangement.

F-32



---



##### Table of Contents



SIGNATURES

The registrant hereby certifies that it meets all
of the requirements for filing on Form 20-F and that it has
duly caused and authorized the undersigned to sign this annual
report on its behalf.

IONA TECHNOLOGIES PLC



|    |                        
|--- | -----------------------
|By: | /s/ Christopher J. Horn




Christopher J. Horn


Chief Executive Officer and
Director


Date: May 14, 2004

F-33



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##### Table of Contents



EXHIBIT INDEX

|            |       |                        |  |                                                                                                                                                                                                                                                                                                                       
|----------- | ----- | ---------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |       | Description of Exhibit
|            |       |                       
|            | 1.1   |                        |  | Restated Articles of Association, as amended, of
    IONA Technologies PLC (filed as Exhibit 4.2 to IONAs
    Registration Statement on Form S-8 (File
    No. 333-11384) and incorporated herein by reference)                                                                                                      
|            | 1.2   |                        |  | Memorandum of Association, as amended, of IONA
    Technologies PLC (filed as Exhibit 3.3 to IONAs
    Registration Statement on Form F-1 (File No. 333-6396)
    and incorporated herein by reference)                                                                                                              
|            | 2.1   |                        |  | Specimen Certificate representing Ordinary Shares
    (filed as Exhibit 4.1 to IONAs Registration Statement
    on Form F-1 (File No. 333-6396) and incorporated
    herein by reference)                                                                                                                            
|            | 2.2   |                        |  | Amended and Restated Deposit Agreement dated as
    of April 26, 2004, by and among IONA Technologies PLC,
    Deutsche Bank Trust Company Americas and Holders and Beneficial
    Owners of American Depositary Shares Evidenced by American
    Depositary Receipts                                                 
|            | 4.1   |                        |  | Agreement and Plan of Reorganization dated as of
    February 14, 2001, by and among IONA Technologies PLC, NV
    Acquisition Corp. and Netfish Technologies, Inc. (filed as
    Exhibit 4.4 to IONAs annual report on Form 20-F
    for the year ending December 31, 2000 and incorporated
    herein by reference)
|            | 4.2   |                        |  | Lease dated July 31, 1998, by and between
    AIB Custodial Nominees Limited and IONA Technologies PLC (filed
    as Exhibit 4.5 to IONAs annual report on
    Form 20-F for the year ending December 31, 2000 and
    incorporated herein by reference)                                                             
|            | 4.3   |                        |  | Lease dated March 2, 1999, by and between
    Boston Properties Limited Partnership and IONA
    Technologies, Inc. (filed as Exhibit 4.6 to
    IONAs annual report on Form 20-F for the year ending
    December 31, 2000 and incorporated herein by reference)                                                    
|            | 4.4  |                        |  | Executive Share Option Scheme (filed as
    Exhibit 10.1 to IONAs Registration Statement on
    Form F-1 (File No. 333-6396) and incorporated herein
    by reference)                                                                                                                                               
|            | 4.5  |                        |  | 1997 Share Option Scheme, as amended (filed
    as Exhibit 4.4 to IONAs Registration Statement on
    Form S-8 (File No. 333-12326) and incorporated herein
    by reference)                                                                                                                                        
|            | 4.6  |                        |  | 1997 Director Share Option Scheme (filed as
    Exhibit 10.3 to IONAs Registration Statement on
    Form F-1 (File No. 333-6396) and incorporated herein
    by reference)                                                                                                                                           
|            | 4.7  |                        |  | 1999 Employee Share Purchase Plan, as amended
    (filed as Exhibit 4.5 to IONAs Registration Statement
    on Form S-8 (File No. 333-11384) and incorporated
    herein by reference)                                                                                                                               
|            | 4.8  |                        |  | Genesis Development Corporation 1997 Stock Option
    Plan (filed as Exhibit 4.5 to IONAs Registration
    Statement on Form S-8 (File No. 333-12326) and
    incorporated herein by reference)                                                                                                                      
|            | 4.9  |                        |  | Object-Oriented Concepts, Inc. Stock Option
    Plan (filed as Exhibit 4.4 to IONAs Registration
    Statement on Form S-8 (File No. 333-13224) and
    incorporated herein by reference)                                                                                                                            
|            | 4.10 |                        |  | Netfish Technologies, Inc. 1999 Stock Option
    Plan (filed as Exhibit 4.5 to IONAs Registration
    Statement on Form S-8 (File No. 333-13494) and
    incorporated herein by reference)                                                                                                                           
|            | 4.11 |                        |  | Letter agreement regarding severance payments
    dated August 8, 2002 by and between Steven Fisch and IONA
    Technologies, Inc. (filed as Exhibit 4.11 to
    IONAs annual report on Form 20-F for the year ending
    December 31, 2002 and incorporated herein by reference)                                    
|            | 4.12 |                        |  | Non-Executive Directors Change in Control Plan
    (filed as Exhibit 4.12 to IONAs annual report on
    Form 20-F for the year ending December 31, 2002 and
    incorporated herein by reference)                                                                                                                    



---



##### Table of Contents



|            |       |                        |  |                                                                                                                                                                                                                                                                                                                                                                          
|----------- | ----- | ---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |       | Description of Exhibit
|            |       |                       
|            | 4.13 |                        |  | Form of Change of Control Agreement by and among
    IONA Technologies, Inc., IONA Technologies PLC and
    each of Christopher J. Horn, Peter M. Zotto, Daniel Demmer, Eric
    Newcomer and Christopher M. Mirabile (filed as Exhibit 4.13
    to IONAs annual report on Form 20-F for the year
    ending December 31, 2002 and incorporated herein by
    reference)
|            | 8.1   |                        |  | Active Subsidiaries of IONA Technologies PLC                                                                                                                                                                                                                                                                                                                             
|            | 11.1  |                        |  | Code of Business Conduct                                                                                                                                                                                                                                                                                                                                                 
|            | 12.1  |                        |  | Certification of Principal Executive Officer                                                                                                                                                                                                                                                                                                                             
|            | 12.2  |                        |  | Certification of Principal Financial Officer                                                                                                                                                                                                                                                                                                                             
|            | 13.1  |                        |  | Certification of Chief Executive Officer pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                   
|            | 13.2  |                        |  | Certification of Chief Financial Officer pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                   
|            | 14.1  |                        |  | Consent of Ernst & Young                                                                                                                                                                                                                                                                                                                                                 
|            | 14.2  |                        |  | Audit Committee Charter                                                                                                                                                                                                                                                                                                                                                  
|            | 14.3  |                        |  | Nominating and Corporate Governance Committee
    Charter                                                                                                                                                                                                                                                                                                                
|            | 14.4  |                        |  | Description of American Depositary Receipts                                                                                                                                                                                                                                                                                                                              



---



|  |                                                                                       
|- | --------------------------------------------------------------------------------------
| | Indicates a management contract or any
    compensatory plan, contract or arrangement.