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U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549



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FORM 10-QSB



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|x |  | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ---------------------------------------------------------------------------------



For the quarterly period ended September 30, 2003.



| ̈ |  | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
|- |  | ---------------------------------------------------------------



For the transition period from
 to .



Commission File Number: 000-28391



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SourcingLink.net, Inc.

(Exact name of small business issuer as specified in its charter)



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|DELAWARE                                                      |  | 98-0132465                      
|------------------------------------------------------------- |  | --------------------------------
|(State or other jurisdictionof incorporation or organization) |  | (IRS EmployerIdentification No.)



16855 WEST BERNARDO
DRIVE, SUITE 260, SAN DIEGO, CA 92127

(Address of principal executive offices)



(858) 385-8900

(Issuers telephone number)





(Former name, former address and former fiscal year, if changed since last report)



Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15 (d)
of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     x  YES ̈NO



Shares of common stock outstanding as of November 10, 2003: 12,698,794 shares



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SourcingLink.net, Inc.



CONTENTS



|        |  |                                                                                                               |  | Page
|------- |  | ------------------------------------------------------------------------------------------------------------- |  | ----
|PART I  |  | FINANCIAL INFORMATION                                                                                         |  |     
|        |  |                                                                                                              
|Item 1  |  | Financial Statements                                                                                          |  |     
|        |  |                                                                                                              
|        |  | Condensed Balance Sheets as of September 30, 2003 (unaudited) and March 31, 2003                              |  | 3   
|        |  |                                                                                                              
|        |  | Condensed Statements of Operations for the three and six months ended September 30, 2003 and 2002 (unaudited) |  | 4   
|        |  |                                                                                                              
|        |  | Condensed Statements of Cash Flows for the six months ended September 30, 2003 and 2002 (unaudited)           |  | 5   
|        |  |                                                                                                              
|        |  | Notes to Unaudited Financial Statements                                                                       |  | 6   
|        |  |                                                                                                              
|Item 2  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                         |  | 8   
|        |  |                                                                                                              
|Item 3  |  | Controls and Procedures                                                                                       |  | 21  
|        |  |                                                                                                              
|PART II |  | OTHER INFORMATION                                                                                             |  |     
|        |  |                                                                                                              
|Item 2  |  | Changes in Securities and Use of Proceeds                                                                     |  | 21  
|        |  |                                                                                                              
|Item 6  |  | Exhibits and Reports on Form 8-K                                                                              |  | 22  
|        |  |                                                                                                              
|        |  | Signature                                                                                                     |  | 22  



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PART I FINANCIAL INFORMATION



Item 1 Financial Statements



SourcingLink.net, Inc.



Condensed Balance Sheets



|                                           |  | September 30,2003 |             |   | March 31,2003 |  
|------------------------------------------ |  | ----------------- | ----------- | - | ------------- | -
|                                           |  | (Unaudited)       |             |   |               |  
|ASSETS                                     |  |                   |             |   |               |  
|Current assets:                            |  |                   |             |   |               |  
|Cash and cash equivalents                  |  | $                 | 851,000     |   |               | $
|Accounts receivable, net                   |  |                   | 299,000     |   |               |  
|Other current assets                       |  |                   | 83,000      |   |               |  
|                                           |  |                   |             |   |               |  
|Total current assets                       |  |                   | 1,233,000   |   |               |  
|                                           |  |                  
|Property and equipment, net                |  |                   | 95,000      |   |               |  
|Other non-current assets                   |  |                   | 46,000      |   |               |  
|                                           |  |                   |             |   |               |  
|Total assets                               |  | $                 | 1,374,000   |   |               | $
|                                           |  |                   |             |   |               |  
|LIABILITIES                                |  |                   |             |   |               |  
|Current liabilities:                       |  |                   |             |   |               |  
|Accounts payable and accrued liabilities   |  | $                 | 741,000     |   |               | $
|Deferred revenue                           |  |                   | 99,000      |   |               |  
|                                           |  |                   |             |   |               |  
|Total current liabilities                  |  |                   | 840,000     |   |               |  
|                                           |  |                   |             |   |               |  
|                                           |  |                  
|STOCKHOLDERS EQUITY                       |  |                   |             |   |               |  
|Common stock                               |  |                   | 13,000      |   |               |  
|Additional paid in capital                 |  |                   | 25,328,000  |   |               |  
|Accumulated deficit                        |  |                   | (24,807,000 | ) |               |  
|                                           |  |                   |             |   |               |  
|Total stockholders equity                 |  |                   | 534,000     |   |               |  
|                                           |  |                   |             |   |               |  
|Total liabilities and stockholders equity |  | $                 | 1,374,000   |   |               | $
|                                           |  |                   |             |   |               |  



The accompanying notes
are an integral part of these condensed financial statements.



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SourcingLink.net, Inc.



Condensed Statements Of Operations



(Unaudited)



|                                                                                    |  | Three months endedSeptember 30, |            |   | Six months endedSeptember 30, |  
|----------------------------------------------------------------------------------- |  | ------------------------------- | ---------- | - | ----------------------------- | -
|                                                                                    |  | 2003                            |            |   | 2002                          |  
|Revenue:                                                                            |  |                                 |            |   |                               |  
|Professional services                                                               |  | $                               | 377,000    |   |                               | $
|Subscribers                                                                         |  |                                 | 44,000     |   |                               |  
|                                                                                    |  |                                 |            |   |                               |  
|                                                                                    |  |                                 | 421,000    |   |                               |  
|                                                                                    |  |                                 |            |   |                               |  
|Cost of revenue:                                                                    |  |                                 |            |   |                               |  
|Professional services                                                               |  |                                 | 205,000    |   |                               |  
|Subscribers                                                                         |  |                                 | 32,000     |   |                               |  
|                                                                                    |  |                                 |            |   |                               |  
|                                                                                    |  |                                 | 237,000    |   |                               |  
|                                                                                    |  |                                 |            |   |                               |  
|Gross profit                                                                        |  |                                 | 184,000    |   |                               |  
|                                                                                    |  |                                 |            |   |                               |  
|Operating expenses:                                                                 |  |                                 |            |   |                               |  
|Selling, general and administrative                                                 |  |                                 | 512,000    |   |                               |  
|Product development                                                                 |  |                                 | 102,000    |   |                               |  
|                                                                                    |  |                                 |            |   |                               |  
|Total operating expenses                                                            |  |                                 | 614,000    |   |                               |  
|                                                                                    |  |                                 |            |   |                               |  
|Operating loss                                                                      |  |                                 | (430,000   | ) |                               |  
|                                                                                    |  |                                 |            |  
|Other income (expense), net                                                         |  |                                 | (5,000     | ) |                               |  
|Interest income                                                                     |  |                                 | 2,000      |   |                               |  
|                                                                                    |  |                                 |            |   |                               |  
|Net loss                                                                            |  | $                               | (433,000   | ) |                               | $
|                                                                                    |  |                                 |            |   |                               |  
|Net loss per share (basic and diluted)                                              |  | $                               | (0.04      | ) |                               | $
|                                                                                    |  |                                 |            |   |                               |  
|Weighted average number of shares used in per share calculation (basic and diluted) |  |                                 | 10,923,000 |   |                               |  
|                                                                                    |  |                                 |            |   |                               |  



The accompanying notes
are an integral part of these condensed financial statements.



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SourcingLink.net, Inc.



Condensed Statements of Cash Flows



(Unaudited)



|                                                                                                                        |  | Six months endedSeptember 30, |          
|----------------------------------------------------------------------------------------------------------------------- |  | ----------------------------- | ---------
|                                                                                                                        |  | 2003                          |          
|Cash flows from operating activities:                                                                                   |  |                               |          
|Net loss                                                                                                                |  | $                             | (804,000 
|Adjustments to reconcile net loss to net cash used in operating activities:                                             |  |                               |          
|Depreciation and amortization expense                                                                                   |  |                               | 48,000   
|Unrealized exchange gain                                                                                                |  |                               |         
|Loss on retirement of fixed assets                                                                                      |  |                               | 3,000    
|Gain recognition on accumulated foreign currency translation adjustments in connection with liquidation of a
subsidiary |  |                               |         
|Changes in operating assets and liabilitiesnet                                                                         |  |                               | (191,000 
|                                                                                                                        |  |                               |          
|Net cash used in operating activities                                                                                   |  |                               | (944,000 
|                                                                                                                        |  |                               |          
|Cash flows from investing activities:                                                                                   |  |                               |          
|Purchases of fixed assets                                                                                               |  |                               | (17,000  
|                                                                                                                        |  |                               |          
|Net cash used in investing activities                                                                                   |  |                               | (17,000  
|                                                                                                                        |  |                               |          
|Cash flows from financing activities:                                                                                   |  |                               |          
|Net proceeds from issuance of common stock                                                                              |  |                               | 466,000  
|                                                                                                                        |  |                               |          
|Net cash provided by financing activities                                                                               |  |                               | 466,000  
|                                                                                                                        |  |                               |          
|Net decrease in cash and cash equivalents                                                                               |  |                               | (495,000 
|                                                                                                                        |  |                              
|Cash and cash equivalents, beginning of the period                                                                      |  |                               | 1,346,000
|                                                                                                                        |  |                               |          
|Cash and cash equivalents, end of the period                                                                            |  | $                             | 851,000  
|                                                                                                                        |  |                               |          



The accompanying notes
are an integral part of these condensed financial statements.



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SourcingLink.net, Inc.

NOTES TO UNAUDITED FINANCIAL STATEMENTS



1. Basis of presentation:



The interim condensed financial statements of SourcingLink.net, Inc.
(SourcingLink or the Company) are unaudited and reflect all adjustments (consisting only of normal recurring adjustments), which are, in the opinion of management, necessary for a fair presentation, in all material respects,
of the financial position and operating results of the Company for the interim periods. The results of operations for the three and six months ended September 30, 2003 are not necessarily indicative of the results to be expected for the entire
fiscal year ending March 31, 2004. The year-end balance sheet data at March 31, 2003 was derived from the audited financial statements.



The condensed financial statements for the six months ended September 30, 2002 are consolidated to include the accounts of SourcingLink.net, Inc. and, for the first three
months of that period, its wholly owned subsidiary. All significant intercompany transactions and account balances have been eliminated in consolidation. Effective June 30, 2002, the Company liquidated this non-operating subsidiary, and transferred
the remaining assets and liabilities, which were not significant, to the Company. As a result of this liquidation, a one-time gain of $98,000 was recognized, of which $86,000 relates to recognition of accumulated foreign currency translation
amounts.



This financial information should be read in conjunction with the
audited financial statements and notes thereto included in the Companys Form 10-KSB for the fiscal year ended March 31, 2003.



2. Capital resources:



The accompanying financial statements have been prepared in a going concern basis, which contemplates the realization of assets and liquidation of liabilities in the
ordinary course of business. The Company has incurred net losses from operations and at September 30, 2003, the Company had an accumulated deficit of approximately $24.8 million. For the six months ended September 30, 2003, the Company had a net
loss of $804,000 and operating cash outflows of $944,000, and for the fiscal year ended March 31, 2003, the net loss was $1,520,000 and the operating cash outflows were $1,444,000. Cash and cash equivalents at September 30, 2003 were $851,000.
During fiscal year 2003, as the Company approached successful completion of its services under a three-year, $9 million contract with a major customer, management reduced costs, primarily in the form of a reduction in manpower and related expenses,
in anticipation of the reduction in revenue and cash flow following the completion of this large, multi-year contract. The reduction in force was carried-out principally in the third quarter of fiscal year 2003. The Company plans to maintain this
lower level of investment in marketing, operations and product development until it increases its customer base or obtains additional financing. The Companys success depends on executing in a timely manner its sales and marketing plans,
including the retention and expansion of its customer base, the continued salability of its Internet-based merchandise sourcing solutions, and obtaining the funds necessary to carry-on these activities through sales to both existing and new
customers or through additional new equity or debt financing.



The Company
currently has the right to call for the exercise of approximately 367,000 warrants for the purchase of common stock through June 2004, which would provide up to an additional $55,000 of equity capital. Management believes that current cash balances,
together with cash flows from existing and expected hosted solutions and professional services agreements and net proceeds from the Private Placement (as defined in Note 5 below), will be sufficient to fund the Companys operations through at
least the next 12 months if anticipated new customer acquisitions and the related cash flow occur in accordance with current plans. However, in the event that managements expectations of future operating results and the Private Placement are
not achieved, or in the event that the Company is unable to maintain its relationships with existing customers, or if the timing of acquiring new customers and cash receipts from any such customer is later than planned, then the Company would likely
be required to raise additional capital beyond the proceeds of the Private Placement through the sale of equity and/or debt to sustain its operations or to reduce expenditures significantly to enable current cash reserves to fund operations for at
least the next 12 months. In August 2003, the Company completed a private placement of 3,333,333 shares of common stock and 366,667 warrants for the purchase of common stock to five institutional investors. Net proceeds to the Company from this
private placement were $466,000.



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The services under the Companys major customer contract have been completed in the first part of fiscal 2004, and
as of May 2003 the Company received the full balance due for services under the contract, including all fees for services in connection with such contract during fiscal 2004. This contract has generated the majority of the Companys revenue and
cash flow in fiscal years 2003, 2002 and 2001. The Company plans to market its services and hosted solutions to generate new business from both existing and new customers. However, if the timing of the Companys acquisition of anticipated new
customers and the related timing of cash receipts from sales to any such customers do not meet the Companys plans, then to fund operations beyond the next 12 months, the Company would be required to either reduce operating spending
significantly, which would materially and adversely affect its business, or raise additional capital beyond the proceeds of the Private Placement through the sale of equity and/or debt.



There can be no assurance that the Company will retain its existing customers or obtain additional customers, or that if additional
customers are obtained they will generate cash receipts for the Company within the needed time frame, or that equity or debt financing required within or beyond the next 12 months will be available on acceptable terms, or at all.



3. Computation of net loss per share:



Net loss per share is presented on a basic and diluted basis. Basic earnings (loss) per
share is computed by dividing the income (loss) by the weighted average number of shares of common stock outstanding for the period. Diluted earnings per share are computed by giving effect to all dilutive potential shares of common stock that were
outstanding during the period. For the Company, dilutive potential shares of common stock consist of incremental shares of common stock issuable upon the exercise of stock options and warrants for all periods.



Basic and diluted earnings (loss) per share are calculated as follows for the three and six
months ended September 30, 2003 and 2002 (unaudited):



|                                                   |  | Three months endedSeptember 30, |            |   | Six months endedSeptember 30, |  
|-------------------------------------------------- |  | ------------------------------- | ---------- | - | ----------------------------- | -
|Basic and diluted:                                 |  | 2003                            |            |   | 2002                          |  
|Net loss                                           |  | $                               | (433,000   | ) |                               | $
|                                                   |  |                                 |            |   |                               |  
|Weighted average shares outstanding for the period |  |                                 | 10,923,000 |   |                               |  
|                                                   |  |                                 |            |  
|Net loss per share                                 |  | $                               | (0.04      | ) |                               | $
|                                                   |  |                                 |            |   |                               |  



At September 30, 2003, the Company had
1,919,165 options and 1,276,430 warrants outstanding to purchase shares of common stock compared to 835,862 options and 1,280,015 warrants outstanding at March 31, 2003. These options and warrants were not included in the computation of diluted
earnings per share because their inclusion would be anti-dilutive.



4.
Stock Based Employee Compensation Plans:



The Company complies with
the disclosure provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation. The Company accounts for its stock-based compensation in accordance with the provisions of Accounting Principles Board (APB)
Opinion No. 25. Under APB No. 25 compensation cost is based on the difference, if any, between the fair market value of the Companys stock and the exercise price on the date of grant. The Company accounts for equity instruments issued to
non-employees in accordance with the provisions of FASB Statement No. 123 and Emerging Issues Task Force No. 96-18.



Stock-based compensation to employees has been recognized as the difference between the per share fair value of the underlying stock and the stock option exercise price
at the initial grant date. The cost of stock options granted for services, other than those issued to employees, are recorded at the fair value of the stock option.



Had compensation cost for the Companys stock option plans been determined based on the fair value at the grant date for awards
consistent with the provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, the Companys net losses would have been increased to the pro forma amounts indicated below.



|                                                                |  | Three Months EndedSeptember 30, |          |   | Six Months EndedSeptember 30, |  
|--------------------------------------------------------------- |  | ------------------------------- | -------- | - | ----------------------------- | -
|                                                                |  | 2003                            |          |   | 2002                          |  
|Net loss attributed to common stockholders  as reported        |  | $                               | (433,000 | ) |                               | $
|Stock based employee compensation under fair value based method |  |                                 | (68,000  | ) |                               |  
|                                                                |  |                                 |          |   |                               |  
|Net loss attributed to common stockholders  pro forma          |  | $                               | (501,000 | ) |                               | $
|                                                                |  |                                 |          |   |                               |  
|Loss per share  as reported                                    |  | $                               | (0.04    | ) |                               | $
|                                                                |  |                                 |          |   |                               |  
|Loss per share  pro forma                                      |  | $                               | (0.05    | ) |                               | $
|                                                                |  |                                 |          |   |                               |  



For purposes of pro forma disclosures,
the estimated fair value of options is amortized to expense over the options vesting periods using an accelerated graded method in accordance with Financial Accounting Standards Board Interpretation 28.



The fair value of option grants for the Companys stock option plans are estimated on
the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:



|                        |  | 2004    |  | 2003   
|----------------------- |  | ------- |  | -------
|Risk-free interest rate |  | 3.40%   |  | 4.48%  
|Expected life           |  | 5 years |  | 5 years
|Expected volatility     |  | 200%    |  | 200%   
|Expected dividend yield |  | 0.0%    |  | 0.0%   



5. Comprehensive loss:



Comprehensive loss for the three months ended September 30, 2003 and 2002
was $433,000 and $510,000, respectively. For the six months ended September 30, 2003 and 2002 the comprehensive loss was $804,000 and $876,000, respectively. There is no difference in comprehensive loss and net loss for the three and six months
ended September 30, 2003, or for the three months ended September 30, 2002. The difference between comprehensive loss and net loss in the six months ended September 30, 2002 is the treatment of cumulative foreign currency translation adjustments. Of
the total $87,000 cumulative foreign currency translation adjustment in such six-month period, $86,000 resulted from recognition in the quarter ended June 30, 2002 of a gain on accumulated foreign currency translation amounts upon the liquidation
during that period of the Companys non-operating subsidiary in France.



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6. Other Events:



On September 26, 2003, the Companys Board of Directors approved, subject to stockholder approval, (i) a 5,100-to-1 reverse stock split to be immediately followed
by a 1-to-5,100 forward stock split, and to provide for payment in cash to those stockholders holding, prior to the reverse stock split, fewer than 5,100 shares of common stock (the Split Transaction), and (ii) the issuance and sale in a
private placement to a principal stockholder, St. Cloud Investments Ltd., of 3,333,333 shares of the Companys common stock at $0.15 per share and a warrant to purchase up to an additional 366,667 shares of common stock at an exercise price of
$0.15 per share (the Private Placement and referred to collectively with the Split Transaction as the Transactions). The Board of Directors preliminarily approved the Transactions on August 22, 2003, subject to receipt of
fairness opinions from Friend & Company (Friend), the Companys independent financial advisor, and stockholder approval. On September 26, 2003, the Board approved the Transactions following its receipt of fairness opinions from
Friend with regard to (i) the per share cash amount to be paid in the reverse split, and (ii) the terms of the Private Placement being fair from a financial point of view to the Company and its stockholders. The Transactions are subject to the
approval of the stockholders. Stockholders will be asked to approve the Transactions at the annual meeting of stockholders currently expected to be held during fiscal 2004. The Company expects that the Split Transaction, if approved by the
stockholders, would reduce the number of stockholders below the level at which the Company would be required to continue to file reports with the SEC. The Companys management currently estimates that the total funds required to pay the
consideration to stockholders entitled to receive cash for their shares and to pay fees and expenses relating to the transaction will be no more than approximately $437,575. The proceeds of the Private Placement will be used to fund the Split
Transaction.



|Item 2 |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------ |  | -------------------------------------------------------------------------------------



Certain statements contained in this Report, including, without limitation, statements containing the words may,
will, believes, anticipates, plans, expects or the negative or other variations thereof or comparable terminology, constitute forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In addition, any statements that refer to expectations, projections, or other characterizations of future events or
circumstances are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by such forward-looking statements. These factors include, but are not limited to, the factors discussed under the caption Risk Factors below, and are discussed in more detail in
the Risks Related to Our Business section of our Annual Report on Form 10-KSB for the fiscal year ended March 31, 2003. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. We
disclaim any obligation to update any such factors or to announce publicly the results of any revisions of the forward-looking statements contained or incorporated by reference herein to reflect future events or developments.



Overview



We provide comprehensive merchandise sourcing solutions for the retail industry. Our Internet-based hosted solution, branded
MySourcingCenter®, addresses the pre-order phase of
business-to-business merchandise sourcing. MySourcingCenter® provides immediate connectivity between retail merchandise buyers and their suppliers worldwide. The solution organizes and automates a broad range of sourcing activities, improving productivity and reducing costs and
buying lead-times. Generally, this is accomplished with branded, private sourcing networks for each retailer, so that supplier relationships remain confidential. For merchandise suppliers, MySourcingCenter® provides a sales tool to enhance existing trading relationships and reduce costs with
electronic forms and online communications. We provide complementary enablement and strategic sourcing services for retail buyers and merchandise suppliers. Strategic sourcing services involves a methodology and process for providing savings to



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retailers through auction-based trading events. MySourcingCenter® enablement services include the training of buyers and suppliers on Internet-based
business-to-business tools and exchanges to bring buyers and suppliers together in on-line environments.



In March 2000, we entered into a services contract with Paris, France-based Carrefour S.A. (the Carrefour contract or the Carrefour agreement). The agreement with Carrefour, the worlds
second largest retailer, provided that we would receive a minimum of $9 million for services to be performed over a three-year period which began on April 1, 2000. We completed our services work in the first part of fiscal year 2004 under the
Carrefour agreement, and as of May 2003 we received the full $9 million amount due for services under the contract (including the work performed pursuant to the Carrefour agreement during fiscal year 2004). Under the Carrefour contract, we assisted
Carrefour with its implementation and use of Web-based trading exchange functionality and processes between its buyers and suppliers worldwide.



In October 2001, we signed an agreement with the WorldWide Retail Exchange (WWRE) under which our Professional Services can be marketed jointly and sold by
the WWRE to retail members of the exchange. We signed an additional agreement with the WWRE in August 2002 that expanded the services offering available to WWRE members and provided for WWRE support of contracts directly between WWREs members
and us. In terms of membership, WWRE is the largest exchange in the retail industry with approximately 60 members around the globe, most of whom are large, international retailers. Work associated with these WWRE contracts is performed under
statements of work for the various projects that arise, or more recently under direct agreements with member retailers, in conjunction with the WWRE.



The majority of our revenue has been derived from services performed under the Carrefour contract. We are actively pursuing retailers for our MySourcingCenter® solution, as well as additional customers for our
professional services, including the WWRE and its member retailers, independent retailers and large suppliers or other manufacturers that may need similar training and assistance.



Accumulated Losses



From our inception in 1993 through September 30, 2003, we have incurred net losses of approximately $24.8 million, primarily as a result of costs to develop our
technology, to develop and introduce our sourcing solutions and services, to establish marketing and distribution relationships, to recruit and train a sales and marketing group and to build an administrative organization. Our prospects must be
considered in light of our operating history, and the risks, expenses and difficulties frequently encountered by companies in their early stage of development and customer use of their solutions, particularly companies in new, unproven and rapidly
evolving markets. The limited history of customer adoption of our solution makes the prediction of future results of operations difficult or impossible and, therefore, there can be no assurance that we will grow or that we will be able to achieve or
sustain profitability. Our success is highly dependent on our ability to maintain relationships with our main customers and execute in a timely manner our sales and marketing plans, including the expansion of our customer base, of which no assurance
can be made. Additional factors in our success include, but are not limited to, the ability to raise additional capital and continued contributions of key management, consulting, development, and finance personnel, certain of whom would be difficult
to replace. The loss of the services of any of the key personnel or the inability to attract or retain qualified management and other personnel in the future, or delays in hiring required personnel, could have a material adverse effect on our
business, operating results or financial condition.



Critical Accounting
Policies



Our discussion and analysis of our financial condition and
results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be
reasonable under the circumstances. Estimated amounts may differ under different assumptions or conditions, and actual results could differ from the estimates. The following critical accounting policies, among others, affect the judgments and
estimates used in the preparation of our financial statements.



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Revenue Recognition. Our revenues are generated from fees for professional services and for subscriber
access to and use of our hosted Internet solution. For professional services, the fees are based on either a percentage of savings achieved for the customer or labor provided at day-rates, and out-of-pocket expenses. For our hosted solutions, the
fees consist of fixed annual subscription fees. Subscriber revenues are recognized ratably over the period of subscription. Revenues from professional services are recognized as the auction event is completed and approved for savings-based work and
as the services are provided for projects billed at day-rates, in accordance with the terms of the related agreements. Amounts received in advance of satisfying revenue recognition criteria are classified as deferred revenue.



Allowances.Certain assets, including deferred income tax assets and accounts
receivable, have allowances established when necessary to reduce the assets to the amounts expected to be realized. Valuation allowances for deferred income tax assets are established under Financial Accounting Standards Board Statement No. 109,
Accounting for Income Taxes, when necessary to reduce deferred tax assets to the amounts expected to be realized. The allowance for doubtful accounts is based primarily on an evaluation of specific accounts where we have information that
the customer may not meet its financial obligations.



Product
Development.All application development expenditures are expensed as incurred. In March 2000, Emerging Issues Task Force (EITF) 00-2 Accounting for Web Site Development Costs was released. EITF 00-2 provides guidance
on how an entity should account for costs involved in Web site development, including planning, developing software to operate the Web site, graphics, content, and operating expenses. EITF 00-2 is effective for Web site development costs incurred
for fiscal quarters beginning after June 30, 2000. We adopted EITF 00-2 and development costs incurred subsequent to June 30, 2000 associated with our Web site were recorded in accordance with EITF 00-2 with capitalized costs amortized on the
straight-line method over a period of two years. Since October 2002, no Web site development costs have been capitalized by us based on the nature of the costs incurred, and as of March 31, 2003 an impairment charge was recorded to write-down the
remaining net book value of previously capitalized Web site development costs.



Results of operations for the three and six months ended September 30, 2003 and 2002



Revenue. Total revenue for the three months ended September 30, 2003 decreased $298,000, or 41%, to $421,000, from $719,000 in the three months ended September 30, 2002. Total revenue for the six-month period
ended September 30, 2003 decreased $677,000, or 42%, to $948,000, from $1,625,000 in the six months ended September 30, 2002. This includes a decrease in professional services revenue for the second quarter of $293,000, to $377,000 this year from
$670,000 in last years second quarter, and a decrease for the six-month period of $670,000, to $861,000 this year from $1,531,000 for the same period one year ago. The decrease in professional services revenue for both the three and six-month
periods is due to the ramp-down and successful completion during the first part of fiscal year 2004 of services work under the Carrefour contract. The decrease in revenue from Carrefour was partially offset in the second quarter by increases in
non-Carrefour services revenue associated with our agreement with the WWRE as well as with independent retailers. Subscriber revenue of $44,000 and $87,000 in this years second quarter and first six months, respectively, is nearly unchanged
from the $49,000 and $94,000 in the same three and six-month periods, respectively, of the prior fiscal year.



We are working with the International Purchasing Department of Leroy Merlin, whose buyers use MySourcingCenter® with their merchandise suppliers. We are pursuing other hardgoods retailers whose suppliers are considered prime candidates to adopt
MySourcingCenter®, and are in active discussion
with several such retailers, including a pilot project with one retailer. We are also pursuing opportunities in which our solution would be modified to facilitate supplier on-boarding, which is the receipt by retailers, either directly
or via third party data pools, of suppliers electronic information that complies with industry standards for electronic data. We have completed our services work in the first part of fiscal year 2004 under the Carrefour agreement, and as of
May 2003 we received the full balance due for services under this $9 million contract, including all amounts due for services rendered under the contract during fiscal year 2004. We are working with a member of the WWRE under a services agreement
and have recently begun a pilot phase for this customer in a new location. We are also working on pilot phase services projects with a few independent retailers, as well as manufacturing companies that are large suppliers to retailers, or consumer
packaged goods companies, via an exchange for such suppliers. We will continue marketing our services to retail and consumer packaged goods companies as we attempt to build this business area to offset the completion of our services work with
Carrefour under the Carrefour contract.



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Due to the completion in this fiscal year of the services under the Carrefour contract, we expect that professional
services revenue in the remainder of fiscal year 2004 will decline from the levels achieved in such periods in the fiscal year ended March 31, 2003. For MySourcingCenter® subscriber revenue, our solution involves marketing directly to merchandise suppliers, a group that includes small and
highly dispersed target customers thus increasing the difficulty of the sales and marketing task. In addition, supplier adoption is generally linked to use of MySourcingCenter® by large retail companies as a branded, private sourcing network or a supplier on-boarding tool, which typically
requires the approval of multiple parties and management levels within the retail organization, frequently resulting in lengthy sales and implementation cycles.



Cost of Revenue.For the three months ended September 30, 2003, the cost of revenue decreased $34,000, or 13%, to $237,000 from $271,000 in the prior
years three-month period. For the six-month period, the cost of revenue decreased $108,000, or 19%, to $471,000 from $579,000 last year. The cost of professional services revenue in the three months ended September 30, 2003 was $205,000, or
54% of professional services sales, compared to $217,000, or 32% of professional services sales in the same three months one year ago. For the six-month periods, the cost of professional services revenue was $400,000, or 46% of sales, this year as
compared to $477,000, or 31% of sales, in the prior year. In both the three and six-month periods, the decrease in the dollar amount of these costs of professional services is primarily due to the lower level of labor and other costs needed to
support the smaller amount of revenue. The increase in these costs as a percent of sales in both the three and six-month periods is primarily due to the nature of the contracts underlying this work. In the current year, our services work related to
online reverse auctions is being billed based on a percentage of savings achieved for the customer. In the first six months of the prior fiscal year, services revenues were based on day-rates and contained no such savings-based work. The costs as a
percent of sales for savings-based work are typically higher at the beginning of a project due to the analysis and preparation work as well as the initial proof-of-concept auctions required prior to the commencement of running the full auction
program for the customer. We have been in such early, or pilot, stages with several prospects during the current fiscal year. Further, the costs as a percent of sales for auction activity in these savings-based projects will vary based on the size
and volume of auctions conducted in any given period of time. To date, for our savings-based project that has proceeded to a full auction program, cost of sales as a percent of sales has been higher than for comparable work charged on a day-rate
basis in the prior year.



The cost of subscriber revenue decreased in the
second quarter by $22,000, to $32,000 this year from $54,000 in last years second quarter, and the decrease in the six-month period was $31,000, to $71,000 this year from $102,000 for the same period one year ago. The cost of subscriber
revenue decreased in both the three and six-month periods primarily due to a reduction in depreciation expense. Such costs in the second quarter of the prior fiscal year also included a network systems analysis that we requested, with no similar
additional cost in the current fiscal year.



For the quarter, total gross
profit decreased $264,000 to $184,000, or 44% of revenue, from $448,000, or 62% of revenue, in the three months ended September 30, 2002. In the first six months of fiscal 2004, total gross profit decreased $569,000 to $477,000 or 50% of revenue,
from $1,046,000, or 64% of revenue, in the six months ended September 30, 2002. The decline in the dollar amount of gross profit is primarily the result of the impact of the lower services revenue in the current years second quarter and first
six months. The decline in gross profit as a percent of sales is primarily attributable to higher costs as a percent of sales during the current year for our services work that is being billed based on a percentage of savings achieved for the
customer, as described above. The first six months of the prior fiscal year contained no such savings-based work.



We expect that with the services revenue under the Carrefour contract completed, much of our services revenue for the foreseeable future will be based on charging
customers a percentage of savings achieved. Such work usually involves an upfront investment of time and expenses prior to the beginning of the fee-bearing reverse auction events. In addition, the savings generated, and therefore the fees and gross
profit margins, will vary from auction to auction. As compared to services that are billed based on day rates, the revenues achieved and costs incurred for savings-based work are not as predictable. Future gross profit margins may also be impacted
by both the mix and level of subscriber and professional services revenue, and by the pricing opportunities for, and labor, network and other costs associated with, future subscription revenue. As these factors and their effect on margins are not
currently known, historical gross profit margins are not necessarily indicative of gross profit margins to be expected in the future.



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Operating Expenses



Selling, General and Administrative Expenses. In the current years second quarter, our selling, general and administrative expenses decreased by $290,000, or
36%, to $512,000 from $802,000 in the quarter ended September 30, 2002. For the six month period ended September 30, 2003, selling, general and administrative expenses decreased $537,000, or 33%, to $1,079,000 from $1,616,000 in the same six months
of the prior year. The decrease in these expenses in both the three and six-month periods is primarily attributable to reduced labor and related costs from the reduction in our employee base in the third quarter of fiscal year 2003 as we took steps
to better align our cost structure with the expected revenue base.



Management
expects that selling, general and administrative expenses will remain at or near current levels until we obtain new retailer and supplier customers for our MySourcingCenter® online solution, at which time increased costs are expected to be required to support any such higher revenue base.



Product Development Expenses. Product development expenses during the
three months ended September 30, 2003 decreased by $60,000, or 37%, to $102,000 from $162,000 in the three months ended September 30, 2002. For the six-month period, product development expenses decreased $119,000, or 37%, to $200,000 from $319,000
for the same period last year. The decrease in product development expenses in the three and six-month periods is primarily due to lower depreciation and amortization expense as compared to the same periods in the prior year. This reduction in
depreciation and amortization is largely attributable to the impairment charge recorded in the fourth quarter of fiscal year 2003 to write-down the net book value of our capitalized Web site development costs. The decrease in product development
expenses is also partially due to the lower manpower costs this year as compared to the first six months of the prior year, resulting from the reduction in force that took place in the third quarter of fiscal year 2003.



We anticipate additional development and solution infrastructure requirements if we obtain
anticipated new customers, and expect that, to the extent that we are successful in obtaining such new customers for our solution and our sources of cash flow permit, product development expenses may be higher in the last quarter of the current
fiscal year than such costs were in the quarters completed to date.



Other
Income (Expense), net and Interest Income.The principal components of other income (expense), net, are losses on disposals of fixed assets, certain franchise taxes and, in the prior years first six months, exchange gains from
foreign currency translation amounts related to our subsidiary in France. During the quarter ended June 30, 2002, we liquidated this non-operating subsidiary in order to reduce the related administrative costs. As a result of this liquidation, the
accumulated foreign currency translation amount previously recorded in equity was taken to income for a one-time gain of $86,000. Primarily as a result of this one-time gain, other income (expense), net was a gain of $85,000 in the six months ended
September 30, 2002. This compares to an expense of $6,000 in the six months ended September 30, 2003 when no such gain was present. Interest income was $2,000 and $6,000 for the three months ended September 30, 2003 and 2002, respectively, and
$4,000 and $15,000 for the six months ended September 30, 2003 and 2002, respectively. The decrease in interest income is primarily attributable to the decrease in cash on-hand this year as compared to the prior year.



Income Taxes. We recorded a net loss of $804,000 during the six months ended September
30, 2003, and we had net losses of $1,520,000 and $1,951,000 in fiscal years 2003 and 2002, respectively. Accordingly, no provision for income taxes was recorded in any of these periods. As of September 30, 2003, we had net operating loss
carryforwards for United States income tax purposes of approximately $17.8 million. These losses expire at various dates between 2011 and 2024. The Internal Revenue Code of 1986, as amended, contains provisions that limit the use in any future
period of net operating loss and credit carryforwards upon the occurrence of certain events, including a significant change in ownership interests. We do not believe that such limitations have been triggered as of September 30, 2003. However, we
have issued a substantial number of shares of our common stock and warrants to purchase additional shares of our common stock in private placements completed in March 2002 and August 2003. Further, we plan on issuing 3,333,333 shares of our common
stock and a warrant to purchase up to an



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additional 366,667 shares of common stock in connection with the proposed Private Placement described below in
Liquidity and Capital Resources, and additional stock may be issued in future private placements in upcoming periods. Accordingly, limitations on the use of our net operating loss carryforwards may have occurred or may occur in future
periods. A valuation allowance has been recorded for the tax benefit of our net operating loss carryforwards and deferred tax assets due to the fact that, as of the present time, it is more likely than not that such assets will not be realized.



Fluctuations in Quarterly Operating Results



Our quarterly operating results have varied significantly in the past and will likely vary
significantly in the future. We believe that period-to-period comparisons of our results of operations are not meaningful and should not be relied upon as indicators of future performance. Our operating results could fall below the expectations of
securities analysts or investors in some future quarter or quarters. Our failure to meet these expectations would likely adversely affect the market price of our common stock.



Our quarterly operating results may vary depending on a number of factors, including, but not limited to: expirations or cancellations of
significant contracts with customers; demand for our solutions and services; size and timing of sales of our solution and services; actions taken by our competitors, including new alliances, product introductions and enhancements; delays or
reductions in spending for, or the adoption of, pre-order supply chain management solutions by our customers and potential customers as companies review business-to-business applications; ability to scale our solution, network and operations
infrastructure; ability to develop, introduce and market our solution on a timely basis; changes in our pricing policies or those of our competitors; ability to expand our sales and marketing operations, including hiring additional sales personnel;
success in maintaining and enhancing existing relationships and developing new relationships with strategic partners; ability to control costs; technological changes in our markets; deferrals of customer subscriptions in anticipation of new
developments or features of our solution; customer budget cycles and changes in these budget cycles; and general economic factors.



We have incurred significant operating expenses to conduct our sales and marketing operations, fund product development, provide general and administrative support,
develop new partnerships, increase our professional services and support capabilities and improve our operational and financial systems. We plan on incurring significant additional expenses of this nature, and if our revenues are not maintained or
increased, our business, operating results and financial condition could be seriously harmed and net losses in a given quarter could be larger than expected.



Liquidity and Capital Resources



Our cash and cash equivalents at September 30, 2003 were $851,000, compared to $1,346,000 at March 31, 2003. Cash used in the six months ended September 30, 2003 was
$495,000. This amount is net of the $466,000 net proceeds from a private placement completed in August 2003. Cash used in the six months ended September 30, 2002 was $1,128,000. The cash usage in both the current and prior year periods is primarily
attributable to cash used for operating activities.



In the six months ended
September 30, 2003, our operating activities used cash of $944,000. Our net loss for the six-month period was $804,000. The excess of the cash used in operating activities over the net loss was $140,000, and consisted mainly of an increase in
accounts receivable and a decrease in deferred revenue, which was partially offset by depreciation and amortization expense. Our investing activities consisted of the purchase of equipment and software totaling $17,000. Our financing activities
provided net cash of $466,000 and consisted of the sale of 3,333,333 shares of common stock and 366,667 warrants for the purchase of common stock in a private placement with institutional investors. The private placement was completed in August
2003.



In the six months ended September 30, 2002, our operating activities
used cash of $984,000. Our net loss for the six-month period was $789,000. The excess of the cash used in operating activities over the net loss was $195,000, and consisted mainly of a decrease in accounts payable and accrued expenses, and gain
recognition on cumulative foreign currency translation adjustments in connection with the liquidation of our non-operating subsidiary in France. These items were partially offset by depreciation and amortization expense. The change in accrued
expenses



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excludes $106,000 related to the issuance of options in the first quarter of fiscal year 2003 for the purchase of
SourcingLink common stock provided to certain employees in lieu of cash incentive compensation. The reduction in accounts payable and accrued expenses was primarily related to payments on accruals related to end-of-year activities such as legal and
audit fees for our annual report on Form 10-KSB and incentive compensation. Our investing activities consisted of the purchase of equipment and software totaling $144,000, of which the major component was the capitalization of Web site development
costs.



On September 26, 2003, our Board of Directors approved, subject to
stockholder approval, (i) a 5,100-to-1 reverse stock split to be immediately followed by a 1-to-5,100 forward stock split, and to provide for payment in cash to those stockholders holding, prior to the reverse stock split, fewer than 5,100 shares of
common stock (the Split Transaction), and (ii) the issuance and sale in a private placement to a principal stockholder, St. Cloud Investments Ltd., of 3,333,333 shares of SourcingLinks common stock at $0.15 per share and a warrant
to purchase up to an additional 366,667 shares of common stock at an exercise price of $0.15 per share (the Private Placement and referred to collectively with the Split Transaction as the Transactions). The Board of
Directors preliminarily approved the Transactions on August 22, 2003, subject to receipt of fairness opinions from Friend & Company (Friend), our independent financial advisor, and stockholder approval. On September 26, 2003, the
Board approved the Transactions following its receipt of fairness opinions from Friend with regard to (i) the per share cash amount to be paid in the reverse split, and (ii) the terms of the Private Placement being fair from a financial point of
view to SourcingLink and its stockholders. The Transactions are subject to the approval of the stockholders. Stockholders will be asked to approve the Transactions at the annual meeting of stockholders currently expected to be held during fiscal
2004. We expect that the Split Transaction, if approved by the stockholders, would reduce the number of stockholders below the level at which we would be required to continue to file reports with the SEC. Our management currently estimates that the
total funds required to pay the consideration to stockholders entitled to receive cash for their shares and to pay fees and expenses relating to the transaction will be no more than approximately $437,575. The proceeds of the Private Placement will
be used to fund the Split Transaction.



We have completed our services work
under the three-year, $9 million agreement with Carrefour in the first part of fiscal 2004, and as of May 2003 we received the full balance due for services under the contract, including all fees for services performed under the contract during
fiscal 2004. In the third quarter of fiscal year 2003, in anticipation of a lower revenue base expected with the completion of the services contract with Carrefour, we reduced certain operating expenses to lower the rate of consumption of cash. We
plan to maintain this lower level of investment in sales and marketing, management and product development of our solution and services until we increase our customer base or obtain additional equity financing. We expect to draw on our cash-on-hand
as well as anticipated cash flow from sales to both existing and new customers and an equity financing to provide funds for our operations. In addition, we currently have the right to call for the exercise of approximately 367,000 warrants for the
purchase of common stock through June 2004, which would provide up to $55,000 of equity capital. If the timing of our acquisition of anticipated new customers and the related timing of cash receipts from sales to any such customers do not meet our
current plans, it is likely that we will require additional equity or debt financing, in addition to the proposed Private Placement, during fiscal year 2004. We may not be able to obtain such anticipated new customers or equity or debt financing as
needed on acceptable terms, or at all, which may require us to further reduce our operating costs and other expenditures, including reductions of personnel, salaries and capital expenditures. Any such actions undertaken might limit our opportunities
to realize plans for revenue growth and we might not be able to reduce our costs in amounts sufficient to achieve break-even or profitable operations. If we issue additional equity or convertible debt, the ownership percentage of our existing
stockholders would be reduced. New investors may demand rights, preferences or privileges senior to those of existing holders of our common stock.



The Carrefour contract has provided a base of revenue for the last three fiscal years, and has also generated a substantial portion of our cash flow during that period.
We expect to increase our revenue from other sources with both additional services contracts as well as rollouts of MySourcingCenter® with retailers and their suppliers. These rollouts are anticipated to be in the form of private environments in which retailers can collaborate and
source with their suppliers on a secure basis, and transfer electronic supplier information directly into retailer in-house systems or third party data pools. We have successfully completed a rollout of MySourcingCenter® with the International Purchasing Department of Leroy Merlin, as previously
discussed, and we have begun a pilot project for MySourcingCenter® with a new prospect. We are also working on pilot phases for our savings-based services work in a new location with a current customer, and with a few prospective customers. We believe we will successfully complete
additional MySourcingCenter® rollouts during the
next 12 months, however, we cannot assure that such rollouts will take place.



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The anticipated non-Carrefour services revenues and, in particular, MySourcingCenter® rollouts are significant to our near-term sources of expected cash flow. For revenue
recognition purposes, MySourcingCenter® subscriber
revenue is recognized ratably over the annual period of the subscription. A significant assumption in our cash flow planning is that the cash from subscribers will be collected in full at the beginning of the 12-month subscription period. However,
this assumption may not prove accurate. Based on our expectations of future cash flow from existing sources of revenue and the net proceeds from the proposed Private Placement, we believe that our cash balances are sufficient to fund our operating
needs for the next 12 months if our anticipated new customer acquisitions and the related cash flow occur as currently planned. However, if we are unable to maintain our relationships with existing customers and obtain expected new customers and
complete the Private Placement, or if our timing of acquiring new customers and cash receipts from any such customers is later than planned, then to fund operations during or beyond the next 12 months, we would likely be required to raise additional
capital beyond the proceeds of the Private Placement through the sale of equity and/or debt.



We cannot assure you that we will retain our existing customers or obtain additional customers, or that if we do obtain additional customers they will generate cash receipts for us within the needed time frame, or
that any equity or debt financing required within or beyond the next 12 months will be available on acceptable terms, or at all.



The financial statements have been prepared assuming that we will continue as a going concern, and do not include any adjustments that might result from the outcome of
this uncertainty. We have incurred recurring losses from operations, had recurring negative cash flows, and have a significant accumulated deficit. These conditions raise substantial doubt about our ability to continue as a going concern.



We currently do not have a bank credit line. We do not intend to pay cash
dividends with respect to shares of our capital stock in the foreseeable future.



RISK FACTORS



The market for our solution and services is
at an early stage. We need additional retailers and their merchandise suppliers to implement and use our solution and services.



The market for Internet-based business-to-business solutions and services is at an early stage of development. Our success depends on a significant number of retailers
and their merchandise suppliers implementing our solution and contracting for our services. The decisions to implement our solution or services by major retailers and their merchandise suppliers is controlled by multiple parties within the retail
organization. In order to implement our solution or services, often these organizations must change established business practices and conduct business in new ways. Our ability to attract additional customers for our solution and services may depend
on leveraging existing customers as reference accounts. Unless a significant number of retailers and their merchandise suppliers implement our solution or contract for our services, our solution and services may not achieve widespread market
acceptance and our business will be seriously harmed.



We have a history of
losses and expect to incur losses in the future.



We incurred a net loss
of $804,000 in the first six months of fiscal year 2004, and net losses of $1,520,000 in fiscal 2003 and $1,951,000 in fiscal 2002. As of September 30, 2003, we had an accumulated deficit of approximately $24.8 million. As of May 2003, we received
the final payment for services under the Carrefour contract, including services rendered during the first part of fiscal 2004 in connection with such contract. The Carrefour contract has generated the majority of our revenue and cash flow in fiscal
years 2003, 2002 and 2001. In the third quarter of fiscal year 2003, in anticipation of a lower revenue base, we reduced certain operating costs, primarily labor and related expenses. While our cost base has been reduced, we still expect to incur
significant operating and product development expenses as we continue to market our services and hosted solutions to both existing and new customers. As a result, we expect to incur losses in upcoming fiscal quarters.



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We believe that current cash balances, together with cash flows from existing and expected hosted solutions and
professional services agreements and the net proceeds from the proposed Private Placement, will be sufficient to fund our operations through at least the next 12 months if anticipated new customer acquisitions and the related cash flows occur in
accordance with current plans. However, in the event that our expectations of future operating results are not achieved or we are not able to complete the Private Placement, or in the event that we are unable to maintain our relationships with
existing customers, or if the timing of acquiring new customers and cash receipts from any such customer is delayed, then we would likely be required to raise additional capital beyond the proceeds of the Private Placement through the sale of equity
and/or debt to sustain our operations or to reduce expenditures significantly to enable current cash reserves to fund operations for at least the next 12 months and beyond.



We cannot assure you that we will retain our existing customers or obtain additional customers, or that if additional customers are obtained
they will generate cash receipts for us within the needed time frame, or that equity or debt financing required within or beyond the next 12 months will be available on acceptable terms, or at all.



In their audit report, our former independent auditors expressed substantial doubt about
our ability to continue as a going concern.



Our former independent
auditors included a going concern paragraph in their audit report dated June 11, 2003 on our financial statements for our fiscal year ended March 31, 2003. Their report states that we have suffered recurring losses from operations, have
an accumulated deficit, and have continued to use cash in our operating activities, all of which our former independent auditors believe raise substantial doubt about our ability to continue as a going concern. Our financial statements assume we
will continue as a going concern, but our ability to do so may require that we acquire new customers, and cash receipts from such customers on a timely basis, or that we obtain additional financing. Although we believe that our current operating
plan will allow us to continue as a going concern, we cannot assure you that we will achieve, in the future, positive cash flow from operations or be able to secure additional financing as needed on favorable terms, or at all. In the event that the
expectations under our operating plan are not achieved, and we are not able to secure additional financing as needed, we may not be able to continue as a going concern.



Implementation of our solutions by large retailers is complex, time consuming and expensive. We frequently experience long sales and
implementation cycles.



Our supply chain management solution is often
viewed as an enterprise-wide solution that must be deployed to many users within a large retailers sourcing organization. An enterprise-wide adoption by large retailers is often characterized by long sales cycles beginning with pilot studies
and concluding with retailers strongly encouraging their merchandise suppliers to subscribe to our solution. In many cases, our customers must change established business practices and conduct business in new ways. In addition, our customers
generally consider other issues before adopting our solution, including product benefits, integration, interoperability with existing computer systems, scalability, functionality and reliability. As a result, we must educate potential customers on
the use and benefits of our solution. It takes a number of months to finalize an enterprise-wide sale and several management levels within the customer organization must often approve the sale. Entering into an agreement with a customer for the
implementation of our solution does not assure that the customer will in fact make such implementation or assure the time frame in which the implementation may occur. A delay or change of these commitments may adversely affect our financial results
for a particular quarter.



We derive most of our revenue from sales to a
small number of retailers. If we are not able to retain these retailers as customers our revenues will be reduced and our financial results and prospects will suffer.



Our largest customer, Carrefour, has accounted for a substantial majority of our revenues during the last three fiscal years. In the fiscal
year ended March 31, 2003, sales to Carrefour accounted for 85% of our total revenues. We may not be able to retain our key customers, including Carrefour, whose contract was completed in the first part of fiscal 2004, or replace them with new
customers as services projects are completed. Aside from Carrefour, we currently have one major services contract with a WWRE member along with several smaller or pilot services contracts, and one customer of our hosted Internet solution with a
second prospect in an initial pilot phase. The solution customer



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may decrease its commitment to require its suppliers to use our solution. Due to Carrefours participation in
GlobalNetXchange, we may not have the opportunity to market to its suppliers in combination with Carrefour. We may be unable to adequately perform the required services under our contracts with our key customers. Any substantial decrease or delay in
sales to suppliers of a key retail customer, or sales of services to a key customer, could harm our sales or financial results.



The Carrefour contract was completed in the first part of fiscal 2004. As mentioned above, this contract has generated the majority of our revenue and cash flow in fiscal
years 2003, 2002 and 2001. We plan to market our services and hosted solutions to generate new business from both existing and new customers. However, if the timing of our acquisition of anticipated new customers and the related timing of cash
receipts from sales to any such customers do not meet our plans, then to fund operations during or beyond the next 12 months, we would be required to either reduce operating spending significantly, which would materially and adversely affect our
business, or raise capital through additional equity and/or debt financing. We cannot assure you that we will retain our existing customers or obtain additional customers, or that if additional customers are obtained they will generate cash receipts
for us within the needed time frame, or that equity or debt financing required within or beyond the next 12 months will be available on acceptable terms, or at all.



Our customers are either in, or supplying goods to, the retail industry. A significant change or downturn in this industry could adversely
affect our prospects.



Our common stock is not listed on an exchange or the
Nasdaq system, and trading is restricted by the additional regulations on the sale of penny stocks. Additionally, we intend to go private which, if successful, would further limit an investors ability to sell or transfer shares of
our common stock.



Our common stock is neither listed on any exchange nor
on the Nasdaq system. Our common stock is reported on the OTC Bulletin Board. Because our shares are not listed on any exchange nor the Nasdaq system, they are subject to the regulations regarding trading in penny stocks which are those
securities trading for less than $5.00 per share. The following is a list of the primary restrictions on the sale of penny stocks:



| |  |  | Prior to the sale of penny stock by a broker-dealer to a new purchaser, the broker-dealer must determine whether the purchaser is suitable to invest in penny stocks. To make that
determination, a broker-dealer must obtain, from a prospective investor, information regarding the purchasers financial condition and investment experience and objectives. Subsequently, the broker-dealer must deliver to the purchaser a written
statement setting forth the basis of the suitability finding.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A broker-dealer must obtain from the purchaser a written agreement to purchase the securities. This agreement must be obtained for every purchase until the purchaser becomes an
established customer.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Securities Exchange Act of 1934 requires that prior to effecting any transaction in any penny stock, a broker-dealer must provide the purchaser with a risk disclosure
document that contains, among other things, a description of the penny stock market and how it functions and the risks associated with such investment. These disclosure rules are applicable to both purchases and sales by investors.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A dealer that sells penny stock must send to the purchaser, within ten days after the end of each calendar month, a written account statement including prescribed information
relating to the security.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As a result of our common stock not
being listed on an exchange or the Nasdaq system and the rules regarding penny stock transactions, an investors ability to convert shares of our common stock into cash or to sell to a third party may be very limited. We make no guarantee that
our current market-makers will continue to make a market in our securities, or that any market for our securities will continue.



In addition to the foregoing restrictions regarding penny stock transactions, our Board of Directors has approved, subject to stockholder approval, a 5,100-to-1 reverse
stock split to be immediately followed by a 1-to-5,100 forward stock split, and to provide for payment in cash to those stockholders holding, prior to the reverse stock split, fewer than 5,100 shares of common stock. We expect that the split
transactions, if approved by our stockholders, would reduce the number of stockholders below the level at which we would be required to continue to file reports with the Securities and Exchange Commission, and our common stock would cease to be
publicly traded and would no longer be reported on the OTC Bulletin Board. As a result, if the split transactions are consummated and we go private,



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investors who continue to hold shares of our common stock following the split transactions will be required to hold such
securities for an indefinite period of time and will not be able to sell or transfer such securities without registration or an exemption from the registration requirements of the securities laws.



Our quarterly operating results are difficult to predict. If we fail to meet the
expectations of public market analysts or investors, the market price of our common stock may decrease significantly.



Our quarterly operating results may vary depending on a number of factors, including:



| |  |  | Demand for our solution and services;
| | - |  | -------------------------------------



| |  |  | Size and timing of sales of our solution and services;
| | - |  | ------------------------------------------------------



| |  |  | Actions taken by our competitors, including new product introductions and enhancements;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | Ability to scale our network and operations infrastructure;
| | - |  | -----------------------------------------------------------



| |  |  | Ability to develop, introduce and market new solutions and enhancements to our existing solution on a timely basis;
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | Changes in our pricing policies or those of our competitors;
| | - |  | ------------------------------------------------------------



| |  |  | Ability to expand our sales and marketing opportunities;
| | - |  | --------------------------------------------------------



| |  |  | Success in maintaining and enhancing existing relationships and developing new relationships with strategic partners;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | Ability to control costs;
| | - |  | -------------------------



| |  |  | Technological changes in our markets;
| | - |  | -------------------------------------



| |  |  | Deferrals of customer subscriptions in anticipation of new enhancements or features of our solution, or of the capabilities and success of other exchanges in the retail marketplace;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Customer budget cycles and changes in these budget cycles; and
| | - |  | --------------------------------------------------------------



| |  |  | General economic factors.
| | - |  | -------------------------



Because our expense levels are relatively fixed in the near term, any decline in our revenues to a level that is below our expectations would have a disproportionately adverse impact on our operating results.



We face intense competition. If we are unable to compete successfully, our
prospects will be seriously harmed.



The market for business-to-business
enterprise and Internet solutions in general, and supply chain management solutions and services in particular, is extremely competitive, evolving and characterized by continuous rapid development of technology. Competition to capture business users
of both solutions and services is intense and is expected to increase dramatically in the future. Such competition will likely result in realizing lower profit margins, which could have a serious adverse impact on our business and prospects.



Exchanges such as GlobalNetXchange and the WWRE are owned primarily by
retailers and are focused exclusively on retail merchandise procurement. Companies such as FreeMarkets, Inc. provide general Internet-based sourcing capabilities and services for buyers and suppliers in a business-to-business electronic marketplace.
Companies that provide electronic catalogs and content management services could expand their offerings to include sourcing functionality. Our indirect competitors are traditional value-added network solution providers that have extended their
value-added network connections over the Internet. We also face indirect competition from both new and traditional companies that are focused on trading exchanges or marketplaces that allow merchandise buyers and sellers to access each other on
channels within new or existing portals. One or more of these companies may develop and add pre-order merchandise sourcing capabilities to their existing product offerings, giving these companies a broader or more comprehensive solution than our
solution, which could adversely affect our business. We also expect that additional established and emerging companies will seek to enter our solutions market as it continues to develop and expand.



In our services business, competitors include the major consulting companies such as
Accenture Ltd. and A.T. Kearney, Inc., the consulting arms of the international accounting firms and several large computer-industry companies, including IBM. FreeMarkets, Inc. offers professional services along with their electronic marketplace



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tools and capabilities. In addition, there are many smaller firms that provide services in this market. While many of
these companies do not have the hands-on experience that we have gained through our work with Carrefour, some of these companies have been involved in services projects with the retail industry exchanges.



We may not be able to compete successfully against future competitors, especially those with
significantly greater financial, marketing, service, support, technical and other resources, greater name recognition or a larger installed base of customers.



We depend on the introduction of new versions of our solution that enhance the functionality and services offered by our solution.



If we are unable to develop new software or enhancements to our existing solution on a
timely and cost-effective basis, or if such new software or enhancements do not achieve market acceptance, our business would be seriously harmed. The life cycle of our solution is difficult to predict because the market for our solution is new and
emerging, and is characterized by rapid technological change, changing customer needs and evolving industry standards. The introduction of alternative services employing new technologies and emerging industry standards could render our existing
solution obsolete and unmarketable.



To be successful, our solution must keep
pace with technological developments and emerging industry standards, address the ever-changing and increasingly sophisticated needs of our customers and achieve market acceptance. However, in developing new features of our solution, we may:



| |  |  | Fail to develop and market features that respond to technological changes or emerging industry standards in a timely or cost-effective manner;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Encounter products, capabilities or technologies developed by others that render our solution obsolete or noncompetitive or that shorten the life cycle of our existing solution;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Experience difficulties that could delay or prevent the successful development, introduction and marketing of these new features; or
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Fail to develop new features that adequately meet the requirements of the marketplace or achieve market acceptance.
| | - |  | -------------------------------------------------------------------------------------------------------------------



We depend on our key personnel.



Our future performance depends on the continued service of our senior management, product
development, and professional services personnel. The loss of the services of one or more of our key personnel could seriously harm our business. Our future success also depends on our continuing ability to attract, hire, train and retain highly
skilled sales, marketing, managerial, services, technical, and customer support personnel. In the future we may be particularly dependent on hiring additional personnel to increase our direct sales, professional services and product development
organizations. Competition for qualified personnel is intense, and we may fail to retain our key employees or to attract or retain other highly qualified personnel.



Our software may contain errors or defects.



Our software is complex and may contain undetected errors or failures when released. This may result in failure to achieve or maintain market acceptance of our
solution. We have in the past discovered programming errors in our new releases after their introduction. In the past, we have experienced delays in releases and customer frustration during the period required to correct these errors. We may
discover errors in the future, including scalability and volume of activity limitations, in existing versions or new versions after their release, which could materially and adversely affect our business.



Our current systems, procedures and controls may be inadequate to support the growth and
the expansion of our services or solution business.



As the services under
the Carrefour contract were completed in the first part of fiscal 2004, we currently plan to



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expand the geographic scope of our services customer base and operations, and to acquire new customers for our hosted
Internet solution that will require rolling out the solution to suppliers around the globe. These activities will result in substantial demands on our management resources. Our ability to compete effectively and to manage any future expansion of our
services, operations and solution rollouts will require us to continue to improve our financial and management controls, reporting systems, project management and procedures on a timely basis, and expand, train and manage our employee work force. We
may encounter difficulties in transitioning our business in the services area or in rolling out our solution to large numbers of suppliers, and our personnel, systems, procedures and controls may be inadequate to support our future operations.



Our business is susceptible to risks associated with international
operations.



We market our solution and services to retailers worldwide,
and historically have derived a significant portion of our revenues from international sales. As such, we are subject to risks associated with international business activities, including unexpected changes in regulatory requirements and the burdens
of complying with a wide variety of foreign laws; longer accounts receivable payment cycles and difficulties in collecting accounts receivable; difficulties in managing and staffing international operations; and currency exchange rate fluctuations,
which could increase the cost of our solution and services.



If we are not
able to apply our net operating losses against taxable income in future periods, our financial results will be harmed.



Our ability to apply our net operating losses against taxable income in future periods will affect our future net income and cash flow. As of September 30, 2003, our net
operating losses totaled approximately $17.8 million for United States federal tax reporting purposes. Pursuant to sections 382 and 383 of the Internal Revenue Code, annual use of our net operating loss carryforwards may be limited due to changes in
ownership of more than 50%. We do not believe that such limitations have been triggered as of September 30, 2003. However, we have issued a substantial number of shares of our common stock and warrants to purchase additional shares of our common
stock in private placements completed in March 2002 and August 2003. Further, we plan on issuing 3,333,333 shares of our common stock and a warrant to purchase up to an additional 366,667 shares of common stock in connection with the proposed
Private Placement, and additional stock may be issued in future private placements in upcoming periods. Accordingly, limitations on the use of our net operating loss carryforwards may have occurred or may occur in future periods. A valuation
allowance has been recorded for the tax benefit of our net operating loss carryforwards and deferred tax assets due to the fact that, as of the present time, it is more likely than not that such assets will not be realized. Changes in tax laws in
the United States may further limit our ability to utilize our net operating losses, harming our financial condition.



We depend on increasing use of the Internet and on the growth of commercial activities and electronic commerce on the World Wide Web. If the use of the Internet and
Web-based commerce do not grow as anticipated, our business will be seriously harmed.



Our success depends on the increased acceptance and use of the Internet as a medium of commerce on a global basis. Growth in the use of the Internet is a recent phenomenon and has fluctuated in the recent past. As a
result, acceptance and use of the Internet may not continue to develop at significant rates and a sufficiently broad base of business customers may not adopt or continue to use the Internet as a medium of commerce. Demand and market acceptance for
recently introduced services and products over the Internet are subject to a high level of uncertainty, and there exist few proven services and products.



Our business would be seriously harmed if:



| |  |  | Use of the Internet, the Web and other online services does not increase or increases more slowly than expected;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | The infrastructure for the Internet, the Web and other online services does not effectively support expansion that may occur;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | The Internet, the Web and other online services do not create a viable commercial marketplace, inhibiting the development of Web-based commerce and reducing the need for our
solution; or
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Security risks and concerns deter the use of the Internet for conducting business.
| | - |  | ----------------------------------------------------------------------------------



Increasing government regulation could limit the market for, or impose sales and other taxes on the sale of our solution and services.



As use of the Web for business applications evolves, we expect that
federal, state or foreign agencies will adopt regulations covering issues such as user privacy, pricing, content and quality of products and services. It is possible that such legislation could expose companies involved in Internet-based solutions
to liability, which could limit the growth of Web-based commerce generally. Such legislation could also dampen the growth in Internet usage and decrease its acceptance as a communications and commercial medium. If enacted, these laws, rules or
regulations could limit the market for our solution and services.



We do not
collect sales or other similar taxes in respect of registration and subscription fees for the use of our solution. However, one or more states or countries may seek to impose use tax on companies like ours. Federal law currently limits the ability
of the states to impose taxes on certain Internet-based transactions. These laws apply only for a limited time period. On or prior to the end of this period, the moratorium on the imposition of these taxes could be extended or new legislation could
be enacted that similarly limits the imposition of these taxes. Failure to so extend or enact new legislation could allow various states to impose taxes on Web-based commerce, and the imposition of these taxes could seriously harm our business.



Item 3. Controls and Procedures



The Company
performed an evaluation, under the supervision and with the participation of the Companys management, including the CEO and CFO, of the effectiveness of the design and operation of the Companys disclosure controls and procedures as of
the end of the period covered by this report, pursuant to Rules 13a-15(b) and 15d-15(b) under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based upon that evaluation, the CEO and CFO have concluded that the
Companys disclosure controls and procedures, as of the period covered by this report, were effective in timely alerting them to material information required to be included in the Companys periodic filings under the Exchange Act. There
has been no change in the Companys internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Companys internal control over
financial reporting.



PART II OTHER INFORMATION



Item 2. Changes in Securities and Use of Proceeds



On or about August 18, 2003, the Company sold and issued to a total of five accredited investors an aggregate of 3,333,333 shares of common stock and seven-year warrants to purchase up to an additional 366,667 shares of common stock for an
aggregate purchase price of $500,000 plus the surrender of warrants to purchase 366,667 shares of common stock previously issued to the investors on March 20, 2002. The price per share of common stock was $0.15 and the exercise price of the warrants
was $0.15 per share of common stock; provided, however, that until June 30, 2004, all of the warrants are subject to a call right in favor of the Company at a price of $0.15 per share of common stock. Pursuant to a registration rights agreement
entered into in connection with the financing, and subject to certain limited exceptions, the Company is required to include in any registration statement that it files with the Securities and Exchange Commission the shares of common stock sold in
the financing and to be issued upon exercise of the warrants. The investors participated equally in the financing.



The proceeds of the financing were used for working capital and other general corporate purposes. The Company did not employ any underwriters in connection with the
financing.



The sales of securities listed above were exempt from registration
under the Securities Act of 1933, as amended (the Securities Act) in reliance on Section 4(2) of the Securities Act, or Regulation D promulgated thereunder, as



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transactions by an issuer not involving a public offering. The recipients of the securities in the financing represented
their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the instruments representing such securities issued in such
financing. All recipients had adequate access, through their relationships with the Company, to information about the Company.



Item 6. Exhibits and Reports on Form 8-K



| | (a) |  | Exhibits:
| | --- |  | ---------



| | 31.1 |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | ---- |  | ---------------------------------------------------------------------------------------------------



| | 31.2 |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | ---- |  | ---------------------------------------------------------------------------------------------------



| | 32.1 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).
| | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| | 32.2 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).
| | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) |  | Reports on Form 8-K:
| | --- |  | --------------------



On August 5, 2003, the Company filed a Current Report on Form 8-K to announce its financial results for the first quarter of fiscal year 2004, ended June 30, 2003.



On August 4, 2003, the Company filed a Current Report on Form 8-K to announce
PricewaterhouseCoopers LLPs declination to stand for reelection as the Companys independent accountants and the appointment of Hutchinson & Bloodgood LLP as the Companys new independent accountants effective July 30, 2003.



On July 14, 2003, the Company filed a Current Report on Form 8-K to announce
the signing of an agreement with a select group of institutional investors providing for the private placement of approximately 3.3 million shares of common stock and seven-year warrants to purchase an additional 366,667 shares of common stock at an
exercise price of $0.15 per share, in exchange for an aggregate of $500,000 in cash plus the surrender of previously-issued warrants to purchase 366,667 shares of common stock held by such investors.



SIGNATURE



In accordance with the requirements of
the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|Dated: November 13, 2003 |  | SourcingLink.net, Inc.                                                                          
|------------------------ |  | ------------------------------------------------------------------------------------------------
|                         |  |                                                                                                 
|                         |  | By:                                                                                             
|                         |  | Gary Davidson, Chief Operating Officer and Chief Financial Officer (Principal Financial Officer)



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