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Verticalnet Inc – IPO: ‘424B1’ on 2/11/99

As of: Thursday, 2/11/99 · Accession #: 950130-99-729 · File #: 333-68053

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 2/11/99  Verticalnet Inc                   424B1                  1:338K                                   Donnelley R R & S… 02/FA

Initial Public Offering (IPO): Prospectus — Rule 424(b)(1)
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 424B1       Final Prospectus                                     125    570K

Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Additional Information Anti-takeover provisions and our right to issue preferred stock could make a third-party acquisition of us difficult Capitalization Cash and cash equivalents Certain Transactions and Stock Issuances with Executive Officers, Directors and Our Largest Shareholder Change of Control Common Stock Continue to Identify and Rapidly Develop New Vertical Trade Communities Description of Capital Stock Dilution Dividend Policy Employment Agreements Establish and Expand Multiple Revenue Streams Experts Forward-Looking Statements Index to Financial Statements Interests of our controlling shareholders may conflict with our interests and the interests of our other shareholders, The Legal Matters Management Management's Discussion and Analysis of Financial Condition and Results of Operations Notes to Consolidated Financial Statements Notes to Financial Statements Notes to Pro Forma Condensed Combined Financial Statements Offering, The Our Business Our Strategies Preferred Stock Principal Shareholders Prospectus Summary Registration Rights Reports to Security Holders Revenues Risk Factors Selected Financial Data Shares Eligible for Future Sale Shares eligible for future sale by our current shareholders may adversely affect our stock price Shares that May Be Issued After the Offering Upon the Exercise of Options and Warrants Stock Option Plan The interests of our controlling shareholders may conflict with our interests and the interests of our other shareholders The Offering Unaudited Pro Forma Combined Statement of Operations for the nine months ended September 30, 1998 Unaudited Pro Forma Combined Statement of Operations for the year ended December 31, 1997 Underwriting Use of Proceeds We may not develop significant revenues from electronic commerce which could adversely affect our future growth
1	1st Page - Filing Submission
4	Prospectus Summary
7	The Offering
"	Shares that May Be Issued After the Offering Upon the Exercise of Options and Warrants
10	Risk Factors
12	We may not develop significant revenues from electronic commerce which could adversely affect our future growth
18	The interests of our controlling shareholders may conflict with our interests and the interests of our other shareholders
"	Shares eligible for future sale by our current shareholders may adversely affect our stock price
19	Anti-takeover provisions and our right to issue preferred stock could make a third-party acquisition of us difficult
21	Use of Proceeds
"	Dividend Policy
"	Forward-Looking Statements
22	Capitalization
23	Dilution
24	Selected Financial Data
26	Management's Discussion and Analysis of Financial Condition and Results of Operations
27	Revenues
35	Our Business
36	Our Strategies
37	Establish and Expand Multiple Revenue Streams
"	Continue to Identify and Rapidly Develop New Vertical Trade Communities
52	Management
58	Stock Option Plan
60	Change of Control
61	Employment Agreements
63	Certain Transactions and Stock Issuances with Executive Officers, Directors and Our Largest Shareholder
65	Principal Shareholders
66	Description of Capital Stock
"	Common Stock
"	Preferred Stock
69	Registration Rights
71	Shares Eligible for Future Sale
73	Underwriting
76	Experts
"	Legal Matters
77	Additional Information
"	Reports to Security Holders
78	Index to Financial Statements
84	Notes to Consolidated Financial Statements
85	Cash and cash equivalents
106	Notes to Financial Statements
121	Unaudited Pro Forma Combined Statement of Operations for the year ended December 31, 1997
122	Unaudited Pro Forma Combined Statement of Operations for the nine months ended September 30, 1998
123	Notes to Pro Forma Condensed Combined Financial Statements

424B1 1st Page of 125 TOC ↑Top Previous Next ↓Bottom Just 1st
RULE NO. 424(b)(1)
REGISTRATION NO. 333-68053

PROSPECTUS
3,500,000 Shares
[LOGO OF VERTICALNET APPEARS HERE]
Common Stock

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

This is our initial public offering of shares of common stock. We are offering
3,500,000 shares.
No public market currently exists for our shares.

We will list the shares on the Nasdaq National Market under the symbol "VERT."

Investing in the shares involves risks. Risk Factors begin on page 7.

[Download Table]

Per Share Total
----------- -----------

Public Offering Price.................................. $16.00 $56,000,000
Underwriting Discount.................................. $ 1.12 $ 3,920,000
Proceeds to VerticalNet................................ $14.88 $52,080,000

We have granted the underwriters a 30-day option to purchase up to 525,000
additional shares of common stock on the same terms and conditions as set forth
above solely to cover over-allotments, if any.

At our request, the underwriters have reserved up to 5% of the common stock
offered in this prospectus for sale at the initial public offering price to our
employees, officers, directors and their family members and to business
associates of VerticalNet. See "Underwriting."

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is accurate or complete. Any representation to the contrary is
a criminal offense.

Lehman Brothers, on behalf of the underwriters, expects to deliver the shares
on or about February 17, 1999.

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

Lehman Brothers

Hambrecht & Quist

Volpe Brown Whelan & Company

Wit Capital Corporation
as e-ManagerTM

February 10, 1999

424B1 2nd Page of 125 TOC 1st Previous Next ↓Bottom Just 2nd
[IMAGE SHOWING LOGOS OF OUR VERTICAL TRADE COMMUNITIES WITH HEADING
"VISIT OUR PORTFOLIO OF BUSINESS-TO-BUSINESS COMMUNITIES OF COMMERCE"]

[INSIDE GATEFOLD: GRAPHIC SHOWING VERTICALNET'S WATER ONLINE HOME PAGE, AND
PAGES FOR A STOREFRONT, NEWS AND ANALYSIS, CAREER CENTER, AND PRODUCT SHOWCASE
ON WATER ONLINE WITH LINES FROM THE HEADING ON THE HOME PAGE TO EACH OTHER PAGE;
GRAPHIC LISTING 33 VERTICAL TRADE COMMUNITIES AND HEADING "OUR PORTFOLIO OF
BUSINESS-TO-BUSINESS COMMUNITIES OF COMMERCE" THE FOLLOWING TEXT ALSO APPEARS:
"STOREFRONT: COMPANY DESCRIPTION; PRODUCT PROMOTION; ASSOCIATED ARTICLES;
REQUEST INFORMATION FORMS; E-MAIL; LINKS TO COMPANY WEB SITE" AND "USERS CAN
ACCESS VARIOUS PAGES BY CLICKING ON THE HEADINGS ON OUR HOME PAGE"]

424B1 3rd Page of 125 TOC 1st Previous Next ↓Bottom Just 3rd
TABLE OF CONTENTS

[Enlarge/Download Table]

Page
----

Prospectus Summary....................................................................................... 1
Risk Factors............................................................................................. 7
Use of Proceeds.......................................................................................... 18
Dividend Policy.......................................................................................... 18
Forward-Looking Statements............................................................................... 18
Capitalization........................................................................................... 19
Dilution................................................................................................. 20
Selected Financial Data.................................................................................. 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations........................................................................................... 23
Our Business............................................................................................. 32
Management............................................................................................... 49
[Enlarge/Download Table]

Page
----

Certain Transactions and Stock Issuances with Executive Officers, Directors and Our Largest Shareholder.. 60
Principal Shareholders................................................................................... 62
Description of Capital Stock............................................................................. 63
Shares Eligible for Future Sale.......................................................................... 68
Underwriting............................................................................................. 70
Experts.................................................................................................. 73
Legal Matters............................................................................................ 73
Additional Information................................................................................... 74
Reports to Security Holders.............................................................................. 74
Index to Financial Statements............................................................................ F-1

ABOUT THIS PROSPECTUS

You should only rely on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock.

Our subsidiaries include Boulder Interactive Technology Services Co., known
as RF Globalnet, and Informatrix Worldwide, Inc., both of which we acquired in
September 1998. The acquisition of RF Globalnet is reflected in the financial
information contained in this prospectus on a pro forma basis giving effect to
the acquisition as if it had occurred on January 1, 1997, and the acquisition
of Informatrix as if it had occurred on October 15, 1997 ("on a pro forma
basis").

See the section of this prospectus entitled "Risk Factors" for a discussion
of certain factors that you should consider before investing in the common
stock offered in this prospectus. All trademarks and trade names appearing in
this prospectus are the property of their respective holders.

Until March 8, 1999, all dealers selling shares of the common stock, whether
or not participating in this offering, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.

424B1 4th Page of 125 TOC 1st Previous Next ↓Bottom Just 4th
PROSPECTUS SUMMARY

Our Company

VerticalNet owns and operates 33 industry-specific Web sites designed as
online business-to-business communities, known as vertical trade communities.
These vertical trade communities act as comprehensive sources of information,
interaction and electronic commerce--the buying and selling of goods and
services over the Internet.

Each of our communities is individually branded, focuses on one business
sector and caters to individuals with similar professional interests. We design
each of our vertical trade communities to attract professionals responsible for
selecting and purchasing highly specialized industry related products and
services.

For example, our vertical trade community for the chemical industry, chemical
online (www.chemicalonline.com), serves the needs of buyers and suppliers
involved in the manufacturing and processing of chemicals.
Our communities combine:
. product information . directories
. requests for proposals . classifieds
. discussion forums . job listings
. electronic commerce . online professional
opportunities education courses
. industry news

We satisfy a developing market not currently being adequately served through
traditional channels, such as trade publishers, trade shows and trade
associations. We also believe that this market is not currently being served by
Internet companies, which tend to focus on the consumer and not on the
business-to-business market.

Our vertical trade communities take advantage of the Internet's ability to
allow users around the world to contact each other online, allowing buyers to
research, source, contact and purchase from suppliers.

----------------
Our 33 Vertical Trade Communities

[Enlarge/Download Table]

Process Group Environmental Group
chemical online (chemicalonline.com) pollution online (pollutiononline.com)
semiconductor online (semiconductoronline.com) public works online (publicworks.com)
hydrocarbon online (hydrocarbononline.com) water online (wateronline.com)
pharmaceutical online (pharmaceuticalonline.com) power online (poweronline.com)
adhesives and sealants online (adhesivesandsealants.com) solid waste online (solidwaste.com)
food online (foodonline.com) pulp and paper online (pulpandpaperonline.com)
oil and gas online (oilandgasonline.com)
paint and coatings online (paintandcoatings.com) Food & Packaging Group
bakery online (bakeryonline.com)
Communications Group beverage online (beverageonline.com)
fiber optics online (fiberopticsonline.com) dairy network.com (dairynetwork.com)
photonics online (photonicsonline.com) food ingredients online (foodingredientsonline.com)
RF Globalnet (rfglobalnet.com) meat and poultry online (meatandpoultryonline.com)
premises networks.com (premisesnetworks.com) packaging network.com (packagingnetwork.com)
wireless design online (wirelessdesignonline.com)
Sciences Group
Electronics Group bioresearch online (bioresearchonline.com)
computerOEM online (computeroemonline.com) laboratory network.com (laboratorynetwork.com)
medical design online (medicaldesignonline.com)
plant automation.com (plantautomation.com) Services Group
test and measurement (testandmeasurement.com) property and casualty.com (propertyandcasualty.com)
safety online (safetyonline.com)

Prospectus Summary

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Although other companies offer business-to-business services on the Internet,
we believe we are currently the only company operating a portfolio of
specialized business-to-business communities. A portfolio strategy permits us
to:

. offer consistent content and services in our current vertical trade
communities, and replicate these offerings as we launch new communities;

. realize cost savings and operating efficiencies in our technology, marketing,
infrastructure and management resources; and

. increase our overall audience, making our individual sites more appealing to
a broad array of advertisers and suppliers who sell their goods and services
over the Internet.

Our objective is to continue to be a leading owner and operator of industry
specific vertical trade communities on the Internet. Our strategy includes:

. expanding our user base;

. enhancing the user's experience with new content, features and services;

. establishing and expanding multiple revenue streams;

. continuing to rapidly develop new vertical trade communities;

. forming alliances to enhance our distribution, marketing and technology;

. pursuing strategic acquisitions; and

. expanding internationally.

We currently generate the majority of our revenues from Internet advertising,
including the development of "storefronts." A storefront is a Web page posted
on one of our vertical trade communities that provides information on an
advertiser's products, links a visitor to the advertiser's Web site and
generates sales inquiries from interested visitors.

For the nine months ended September 30, 1998, we generated more than 98% of
our revenues from the sale of Internet advertising.

We believe that industry professionals using our vertical trade communities
possess the demographic characteristics that are attractive to our advertisers.
As of December 31, 1998, we had more than 700 advertisers including, Asea Brown
Boveri, FMC Corporation, Hewlett-Packard, Koch Industries, Motorola,
Schlumberger and U.S. Filter.

Marketing and Distribution Alliances

As part of our strategy to increase the number of users that visit our
vertical trade communities and to develop electronic commerce activities, we
actively pursue marketing and distribution alliances. To date, we have entered
into several marketing and distribution alliances including content
distribution alliances with Excite, Inc. and AltaVista and an
electronic commerce alliance with Junglee Corp.

Acquisitions

On September 1, 1998, we acquired RF Globalnet which operates
rfglobalnet.com, a vertical trade community focused on professionals in the
radio frequency and wireless communications industry. We also acquired
Informatrix on September 30, 1998. Informatrix operates
propertyandcasualty.com, a vertical trade community that caters to risk
managers, agents, brokers and other professionals in the insurance industry.

On January 13, 1999, we purchased the online business, operated as safety
online, from Coastal Video Communication Corp. for $260,000 in cash and a
$50,000 note which is

Prospectus Summary

424B1 6th Page of 125 TOC 1st Previous Next ↓Bottom Just 6th
payable without interest no earlier than 90 days from such date. We also
provided Coastal with an advertising commitment on our Web site, which will be
subsequently valued. This Web site is used by professionals in the safety
industry.

About VerticalNet

Principal Executive Offices:
VerticalNet, Inc.
2 Walnut Grove Drive
Horsham, Pennsylvania 19044
Phone: (215) 328-6100

Incorporation: 1995 in Pennsylvania.

Our Controlling Shareholders

ICG Capital Group, Inc., which does business as Internet Captial Group,
currently controls VerticalNet and has two representatives on our board of
directors. Koch Ventures, Inc. is also a significant shareholder of VerticalNet
and has one representative on our board. After the offering, Internet Capital
Group, will own 6,147,505 shares of common stock and warrants to purchase
119,656 shares of common stock, which represent approximately 38.4% of the
outstanding shares. After the offering, Koch Ventures will beneficially own
854,701 shares, or 5.3% of the outstanding shares. After we complete the
offering, the three representatives of Internet Capital Group and Koch Ventures
will remain on our board, although we will no longer have an obligation to
nominate them as directors. See "Certain Transactions and Stock Issuances with
Executive Officers, Directors and Our Largest Shareholders." Through their
stock ownership and board representation these shareholders will be in a
position to significantly affect our corporate actions. See "Risk Factors--The
interests of our controlling shareholders may conflict with our interests and
the interests of our other shareholders."

This summary highlights some information from this prospectus and may not
contain all the information that is important to you.

Prospectus Summary

424B1 7th Page of 125 TOC 1st Previous Next ↓Bottom Just 7th
The Offering

[Download Table]

Common Stock offered by VerticalNet .. 3,500,000 shares
Common Stock outstanding after the
offering ............................ 16,188,137 shares. This number
includes shares resulting from $5.0
million in convertible notes that will
convert into common stock at the
initial public offering price per
share. At the initial public offering
price, the $5.0 million in convertible
notes will convert into 312,500
shares.
Use of proceeds....................... We estimate that we will receive net
proceeds from this offering of
approximately $50.8 million or
$58.6 million if the underwriters
exercise their over-allotment option
in full. We will use approximately
$2.0 million of the net proceeds to
repay the note issued to Progress
Bank. We expect to use the remaining
proceeds for investments in existing
and future vertical trade communities,
general corporate purposes and
potential strategic acquisitions. See
"Use of Proceeds."
Nasdaq National Market symbol......... "VERT"

Shares that May Be Issued After the Offering Upon the Exercise of Options and
Warrants

You should be aware that we are permitted, and in some cases obligated, to
issue shares of common stock in addition to the common stock to be outstanding
after the offering. If and when we issue these shares, the percentage of the
common stock you own may be diluted. The following is a summary of additional
shares of common stock that we have currently approved for issuance upon the
exercise of options and warrants after the offering:

. 3,591,411 shares issuable upon the exercise of grants under the 1996
Equity Compensation Plan consisting of:
. 2,292,322 options outstanding at a weighted average exercise price
of $2.96 per share of which 415,629 were exercisable; and
.1,299,089 options available for future awards after the offering;

.300,000 shares available for issuance to our employees that elect to buy
stock in the future under our Employee Stock Purchase Plan; and

. 235,871 shares issuable upon the exercise of warrants outstanding at a
weighted average exercise price of $8.41 per share.

Prospectus Summary

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Summary Financial Data

The following table summarizes the financial data for our business. The pro
forma statement of operations data gives effect to our acquisition of RF
Globalnet as if it had occurred on January 1, 1997 and our acquisition of
Informatrix as if it had occurred on October 15, 1997, the inception of
Informatrix.

[Enlarge/Download Table]

July 28, 1995
(Inception) Year Ended December 31, Nine Months Ended September 30,
to ---------------------------------- ----------------------------------
December 31, 1997 1998
1995 1996 1997 Pro Forma 1997 1998 Pro Forma
------------- ---------- ---------- ---------- ---------- ---------- ---------
(in thousands, except share and per share data)

Statement of Operations
Data:
Revenues................ $ 16 $ 285 $ 792 $ 1,118 $ 551 $ 1,862 $ 2,332
Operating loss.......... (210) (703) (4,664) (5,674) (2,813) (8,349) (9,813)
Net loss................ (211) (709) (4,779) (5,789) (2,842) (8,334) (9,801)
Basic and diluted net
loss per share......... $ (0.19) $ (0.27) $ (1.89) $ (2.28) $ (1.12) $ (3.27) $ (3.77)
Shares used in basic and
diluted net loss per
share
calculation............ 1,096,679 2,583,648 2,526,865 2,536,480 2,526,865 2,550,619 2,596,604
Pro forma basic and
diluted net loss
per share ............. $ (0.19) $ (0.21) $ (0.77) $ (0.93) $ (0.50) $ (0.83) $ (0.97)
Shares used in pro forma
basic and diluted net
loss per common share
calculation ........... 1,096,679 3,326,284 6,184,326 6,193,941 5,677,540 10,052,180 10,098,165

The following table indicates a summary of our balance sheet as of September
30, 1998. The Pro Forma column reflects the issuance and conversion of $5.0
million of convertible notes into common stock at the consummation of the
offering, the issuance of the $2.0 million note to Progress Bank and the
issuance of warrants, valued at $200,000. The Pro Forma As Adjusted column
reflects the repayment of the $2.0 million note to Progress Bank and the sale
of 3,500,000 shares of common stock in the offering, after deducting
underwriting discounts and commissions and estimated offering expenses. See
"Use of Proceeds" and "Capitalization."

[Download Table]

As of September 30, 1998
--------------------------
Pro Pro Forma
Actual Forma As Adjusted
------ ------- -----------
(in thousands)

Balance Sheet Data:
Cash and cash equivalents............................ $3,794 $10,794 $59,574
Working capital...................................... 1,122 6,122 56,902
Total assets......................................... 9,158 16,158 64,938
Long-term debt, less current portion................. 374 374 374
Total shareholders' equity........................... 4,709 9,709 60,489

Prospectus Summary

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Recent Developments

Revenues (unaudited)

We generated revenues of $1.27 million for the three months ended December
31, 1998, giving us revenues of $3.13 million for the year ended December 31,
1998. For the three months ended December 31, 1998, we generated 95% of our
revenues from the sale of Internet advertising and 5% of our revenues from
electronic commerce. At December 31, 1998, we had deferred revenues of $2.10
million.

Because advertising purchases tend to be higher in the fourth quarter of each
calender year, our revenues in the fourth quarter are also higher than in other
quarters. The revenue growth from $897,000 for the three months ended September
30, 1998 to $1.27 million for the three months ended December 31, 1998 is also
attributable to the expansion of our sales and sales support personnel, the
acquisition of Informatrix and a full quarter of revenues for the acquisition
of RF Globalnet, the addition of new revenue streams and the maturity of our
vertical trade communities. We believe that the higher revenue levels for the
three months ended December 31, 1998 will not translate into correspondingly
lower net losses for that period. In management's opinion, we have recorded all
adjustments necessary to present fairly the revenues for the three months ended
December 31, 1998.

Prospectus Summary

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RISK FACTORS

You should carefully consider the following factors and other information in
this prospectus before deciding to invest in the shares of our common stock.

We have limited operating history upon which you may evaluate us

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

We anticipate we will incur continued losses for the forseeable future

To date, we have not been profitable. We may never be profitable or, if we
become profitable, we may be unable to sustain profitability. We have incurred
significant losses since inception. We reported a net loss of $8.3 million for
the nine months ended September 30, 1998. We expect to continue to incur
significant losses for the foreseeable future. As of September 30, 1998, our
accumulated deficit was $14.0 million. Our limited operating history makes
predicting our future operating results, including operating expenses,
difficult. Our revenues may not grow or may not even continue at their current
level.

We expect our operating expenses to increase

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

. launch additional vertical trade communities;

. increase our sales and marketing operations;

. enter into additional sponsorship agreements;

. broaden our customer support capabilities; and

. pursue marketing and distribution alliances.

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

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

Fluctuations in our quarterly results may adversely affect our stock price

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

. the seasonality of our revenues;

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

Risk Factors

424B1 11th Page of 125 TOC 1st Previous Next ↓Bottom Just 11th
. potential dependence on development of the electronic commerce market;

. intense competition;

. our dependence on content providers;

. license fees payable to content providers;

. uncertain acceptance of our Internet content;

. management of our growth; and

. risks associated with potential acquisitions.

All of these factors are described in more detail in the "Risk Factors"
below. Many of these factors are beyond our control.

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

The seasonality of our advertising revenues and usage causes our overall
revenues to be seasonal

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

We currently rely heavily on advertising revenues and if our advertising
revenues decline our business would be adversely affected

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

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

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

. the expansion of our sales force.

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

Changes in industry advertising rates could adversely affect our revenues

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

Risk Factors

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sent from our vertical trade communities to advertisers' Web sites. These
changes could materially adversely affect our revenues.

Adoption of the Internet as an advertising medium is uncertain

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

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

We may not develop significant revenues from electronic commerce which could
adversely affect our future growth

For the nine months ended September 30, 1998, approximately 2% of our
revenues were generated from electronic commerce. If we do not generate
increased revenue from electronic commerce, our business, financial condition
and operating results could be materially adversely affected. To generate
significant electronic commerce revenues, we will have to continue to build or
license an electronic commerce platform.

Our long-term success depends on the development of the electronic commerce
market, which is uncertain

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

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

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

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

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

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

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

There is intense competition for the Internet products and services,
advertising and sales of goods and services that we offer

Competition for Internet products and services, advertising and electronic
commerce is intense. We expect that competition will continue to intensify.
Barriers to entry are minimal, and competitors can launch new Web sites at a
relatively low cost. We compete for a share of a customer's advertising budget
with online services and traditional off-line media, such as print and trade
associations. Although to date we believe there are no companies with

Risk Factors

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a larger portfolio of vertical trade communities than ours, several companies
offer competitive vertical trade communities. We expect that additional
companies will offer competing vertical trade communities on a standalone or
portfolio basis.

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

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

Concerns regarding security of transactions and transmitting confidential
information over the Internet may negatively impact our electronic commerce
business

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

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

Marketing and distribution alliances may not generate the expected number of
new customers or may be terminated

We use marketing and distribution alliances with other Internet companies to
create traffic on our vertical trade communities and consequently, to generate
revenues. These marketing and distribution alliances allow us to link our
vertical trade communities to search engines such as those offered by Excite,
and on other Web sites such as AltaVista. The success of these relationships
depends on the amount of increased traffic we receive from the alliance
partners' Web sites. These arrangements may not generate the expected number of
new customers. We also cannot assure you that we will be able to renew these
marketing and

Risk Factors

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distribution alliance agreements. If any of these agreements are terminated,
the traffic on our verticle trade communities could decrease or our
advertising revenues derived from the sales of advertising on co-branded pages
could decrease.

We may not have opportunities to enter into new partnerships or marketing and
distribution alliances

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

Our business depends on the growth of the Internet, which is uncertain

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

. infrastructure;

. security concerns;

. inconsistent quality of service; and

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

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

Our Internet content may not attract users with demographic characteristics
valuable to our advertisers

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

We may not be able to maintain relationships with the third parties we depend
upon to provide the content for our vertical trade communities, which could
result in decreased traffic on the vertical trade communities and decreased
advertising revenue

We rely on third parties, such as trade publications and news wires, to
provide the content for our vertical trade communities. It is critical to our
business that we maintain and build our existing relationships with content
providers. Many of our agreements with content providers are for initial terms
of one to two years. The content providers may choose not to renew the
agreements or may terminate the agreements early if we do not fulfill our
contractual obligations, including our payment obligations. If a significant
number of content providers terminate our agreements with them,

Risk Factors

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it could result in decreased traffic on our vertical trade communities and
decreased advertising revenue. Because our agreements with certain of our
content providers are nonexclusive, a competitor could offer content similar to
or the same as ours.

The licensee fees we pay to content providers may increase

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

If we do not develop the "VerticalNet" brand and our vertical trade community
brands our advertising revenues could decrease

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

We are growing rapidly and effectively managing our growth may be difficult

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

Many of our senior management have only recently joined us. Of the eleven
employees listed in the management section of this prospectus, six have worked
for us less than one year. We cannot assure you that our management will be
able to effectively or successfully manage our growth.

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

Proprietary rights are important to our success and our competitive position.
We have applied for several trademarks, none of which has been issued to date.
Although we seek to protect our proprietary rights, our actions may be
inadequate to protect any trademarks and other proprietary rights or to prevent
others from claiming violations of their trademarks and other proprietary
rights. We currently have two pending trademark applications. Generally, our
domain names for our vertical trade communities are not protectible as
trademarks because they are too generic. In addition, effective copyright and
trademark protection may be unenforceable or limited in certain countries, and
the global nature of the Internet makes it impossible to control the ultimate
destination of our work. We also license content from third parties and it is
possible that we could become subject to infringement actions based upon the
content licensed from those third parties. We generally obtain representations
as to the origin and ownership of such licensed content; however, this may not
adequately protect us. Any of these claims, with or without merit, could
subject us to costly litigation and the diversion of our technical and
management personnel.

Risk Factors

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We may not be able to acquire or maintain easily identifiable Web addresses or
prevent third parties from acquiring Web addresses similar to ours

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

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

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

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

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

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

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

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

We may not be able to effect our growth strategy if we are not able to
consummate future acquisitions

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

We may be subject to legal liability for publishing or distributing content
over the Internet

We may be subject to legal claims relating to the content in our vertical
trade communities, or the downloading and distribution of such content. For
example, persons may bring claims against us if material that is inappropriate
for viewing by young children can be accessed from our vertical trade
communities. Claims could also involve matters such as defamation, invasion of
privacy, and copyright infringement. Providers of Internet products and
services have been sued in the past, sometimes successfully, based on the
content of material. In addition, some of the content provided on our vertical
trade communities is drawn from

Risk Factors

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data compiled by other parties, including governmental and commercial sources,
and we re-key the data. This data may have errors. If our content is improperly
used or if we supply incorrect information, it could result in unexpected
liability. Our insurance may not cover claims of this type, or may not provide
sufficient coverage. Our business, financial condition and operating results
could suffer a material adverse effect if costs resulting from these claims are
not covered by our insurance or exceed our coverage.

Risk of failure of our computer and communications hardware systems increases
without back-up facilities

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

Capacity limits on our technology, transaction processing system and network
hardware and software may be difficult to project and we may not be able to
expand and upgrade our systems to meet increased use

As traffic in our vertical trade communities continues to increase, we must
expand and upgrade our technology, transaction processing systems and network
hardware and software. We may not be able to accurately project the rate of
increase in our vertical trade communities. In addition, we may not be able to
expand and upgrade our systems and network hardware and software capabilities
to accommodate increased use of our vertical trade communities. If we do not
appropriately upgrade our systems and network hardware and software, our
business, financial condition and operating results will be materially
adversely affected.

Our market is characterized by rapid technological change which we may not be
able to keep up with in a cost-effective way

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

Our success is dependent on our key personnel who we may not be able to retain
and we may not be able to hire enough additional personnel to meet our hiring
needs

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

Risk Factors

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agreements. We carry key person life insurance on certain, but not on all, of
our senior management personnel.

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

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

Our systems may not be Year 2000 compliant which could cause our vertical
trade communities to be unavailable for a period of time after January 1, 2000
which could have a negative impact on our business, operating results and
financial position

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

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

The interests of our controlling shareholders may conflict with our interests
and the interests of our other shareholders

As a result of its stock ownership and board representation, Internet
Capital Group will be in a position to affect significantly our corporate
actions such as mergers or takeover attempts in a manner that could conflict
with the interests of our public shareholders. Internet Capital Group will own
6,147,505 shares of common stock after the conversion of their preferred stock
and convertible notes in the offering. Internet Capital Group also owns
warrants to purchase 119,656 shares of common stock. Based on its ownership of
common stock and warrants after the offering, Internet Capital Group will
beneficially own 38.4% of the common stock and two representatives of Internet
Capital Group will remain on our board of directors after the offering.

Shares eligible for future sale by our current shareholders may adversely
affect our stock price

If our shareholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options and warrants, in the
public market following the offering, then the market price of our common
stock could fall. Restrictions under the securities laws and certain lock-up
agreements limit the number of shares of common stock available for sale in
the public market. The holders of 1,605,718 shares of common stock, 7,805,667
shares of convertible preferred stock that will automatically convert to
9,734,846

Risk Factors

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shares of common stock before the offering and warrants and options
exercisable into an aggregate of 505,704 shares of common stock have agreed
not to sell any such securities for 180 days after the offering without the
prior written consent of Lehman Brothers. In addition, the holders of the
convertible notes that will automatically convert into 312,500 shares of
common stock have also agreed to such restrictions. However, Lehman Brothers
may, in its sole discretion, release all or any portion of the securities
subject to such lock-up agreements.

The holders of 7,805,667 shares of preferred stock that will automatically
convert to 9,734,846 shares of common stock prior to the offering and warrants
to purchase 235,871 shares of common stock have demand and piggy-back
registration rights. In addition, the holders of the convertible notes that
will automatically convert into 312,500 shares of common stock have similar
registration rights. The exercise of such rights could adversely affect the
market price of our common stock. We also may shortly file a registration
statement to register all shares of common stock under our stock option plans.
After such registration statement is effective, shares issued upon exercise of
stock options will be eligible for resale in the public market without
restriction.

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

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

Our common stock has never been publicly traded so we cannot predict the
extent to which a trading market will develop for our common stock

There has not been a public market for our common stock. We cannot predict
the extent to which a trading market will develop or how liquid that market
might become. The initial public offering price will be determined by
negotiations between representatives of the underwriters and us and may not be
indicative of prices that will prevail in the trading market.

Our common stock price is likely to be highly volatile

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

Risk Factors

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

. actual or anticipated variations in quarterly operating results;

. announcements of technological innovations;

. new sales formats or new products or services;

. changes in financial estimates by securities analysts;

. conditions or trends in the Internet industry;

. changes in the market valuations of other Internet companies;

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

. capital commitments;

. additions or departures of key personnel; and

. sales of common stock.

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

Risk Factors

424B1 21st Page of 125 TOC 1st Previous Next ↓Bottom Just 21st
USE OF PROCEEDS

We estimate the net proceeds from the offering to be approximately $50.8
million or $58.6 million if the underwriters' exercise their over-allotment
option in full, and after deducting underwriting discounts and commissions and
estimated expenses of the offering.

We expect to use the net proceeds from the offering to repay the debt
described below for investments in existing and future vertical trade
communities and for general corporate purposes. A portion of the net proceeds
may be used for consummation of strategic acquisitions. Although we are not
contemplating any specific acquisitions at this time, we expect that acquisition
candidates would be operators of vertical trade communities or businesses with
complementary technologies. We expect to use $2.0 million of the net proceeds to
repay a note issued to Progress Bank. This note bears interest at the prime rate
plus 1.5%. As of the date of this prospectus, we cannot specify with certainty
all of the particular uses for the remaining net proceeds we will have upon
completion of the offering. Accordingly, our management will have broad
discretion in the application of the net proceeds.

Pending such uses, we intend to invest the net proceeds in interest-bearing,
investment-grade instruments, certificates of deposit, or direct or guaranteed
obligations of the United States.

DIVIDEND POLICY

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

FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that address, among other
things, electronic commerce strategy, acquisition and expansion strategy,
development of services, use of proceeds, projected capital expenditures,
liquidity, development of additional revenue sources, development and
maintenance of profitable marketing and distribution alliances, market
acceptance of the Internet, acquisition and/or development of profitable new
vertical trade communities, technological advancement, ability to develop
"brand" identification, and global expansion. These statements may be found in
the sections of this prospectus entitled "Prospectus Summary," "Risk Factors,"
"Use of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Our Business" and in this prospectus generally.
Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including all the
risks discussed in "Risk Factors" and elsewhere in this prospectus.

Use of Proceeds/Dividend Policy/Forward-Looking Statements

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CAPITALIZATION

The following table sets forth our capitalization as of September 30, 1998.
Our capitalization is presented:

. on an actual basis;

. on a pro forma basis to give effect to:

. the automatic conversion of all outstanding shares of preferred
stock into common stock and the change in the authorized capital
upon the consummation of the offering;

. the issuance and conversion of $5.0 million of convertible notes
into common stock upon the consummation of the offering;

. the issuance of the $2.0 million note to Progress Bank;

. the issuance of warrants valued at $200,000; and

. on a pro forma as adjusted basis to reflect our receipt of the
estimated net proceeds from the sale of 3,500,000 shares of common
stock offered in the offering, after deducting underwriting discounts
and commissions and estimated offering expenses and the repayment of
the $2.0 million note to Progress Bank.

[Download Table]

As of September 30, 1998
--------------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- -------- ------------
(in thousands)

Short-term debt............................... $ -- $ 2,000 $ --
Long-term debt, less current portion.......... $ 374 $ 374 $ 374
Shareholders' equity:
Preferred stock, $.01 par value; 40,000,000
shares authorized, actual; 10,000,000
shares authorized, pro forma and pro forma
as adjusted; 7,805,667 shares issued and
outstanding, actual; none issued and
outstanding, pro forma and pro forma as
adjusted................................... 78 -- --
Common stock, $.01 par value; 40,000,000
shares authorized, actual; 90,000,000
shares authorized, pro forma and pro forma
as adjusted; 2,629,999 shares issued and
outstanding, actual; 12,677,345 shares
issued and outstanding, pro forma; and
16,177,345 outstanding, pro forma as
adjusted................................... 26 127 162
Additional paid-in capital.................... 18,837 24,014 74,759
Deferred compensation......................... (139) (139) (139)
Accumulated deficit........................... (14,033) (14,233) (14,233)
Treasury stock (at cost)...................... (60) (60) (60)
-------- -------- --------
Total shareholders' equity................ 4,709 9,709 60,489
-------- -------- --------
Total capitalization.................... $ 5,083 $ 12,083 $ 60,863
======== ======== ========

Upon the closing of the offering, our authorized capital will consist of
90,000,000 shares of common stock and 10,000,000 shares of preferred stock. We
expect there to be 16,188,137 shares of common stock outstanding after the
offering, which, in addition to the pro forma adjustments described above,
includes after September 30, 1998, shares issued upon option exercises and
2,200 shares earned but not distributed to the former Informatrix shareholders
under the terms of a purchase agreement with Informatrix. See "Prospectus
Summary--Shares that May Be Issued After the Offering Upon the Exercise of
Options and Warrants." Upon the closing of the offering, all of our outstanding
preferred stock will convert into shares of common stock and none of our
preferred stock will be issued or outstanding.

Please read the capitalization table together with the sections of this
prospectus entitled "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements included in this prospectus.

Capitalization

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DILUTION

As of September 30, 1998, our net tangible book value on a pro forma basis
giving effect to the $5.0 million in convertible notes that convert into common
stock upon the consummation of the offering and the conversion of our
convertible preferred stock was $7.0 million or $0.56 per share of common
stock. "Net tangible book value" per share represents the amount of our total
tangible assets reduced by the amount of our total liabilities, divided by the
number of shares of common stock outstanding. As of September 30, 1998, our net
tangible book value, on a pro forma basis as adjusted for the sale of the
3,500,000 shares offered in the offering and application of the net proceeds
from such sale of $50.8 million (after deducting the underwriting discounts and
commissions and other estimated offering expenses), would have been
approximately $3.57 per share. This represents an immediate increase of $3.01
per share to existing shareholders and an immediate dilution of $12.43 per
share to new investors. The following table illustrates this per share
dilution:

[Download Table]

Initial public offering price per share...................... $16.00
Pro forma net tangible book value per share as of
September 30, 1998........................................ $ .56
Increase per share attributable to new investors........... 3.01
------
Net tangible book value per share after the offering......... 3.57
------
Dilution per share to new investors.......................... $12.43
======

The following table summarizes on a pro forma basis as of September 30, 1998
the differences between the total consideration paid and the average price per
share paid by the existing shareholders and the new investors with respect to
the number of shares of common stock purchased from us based on the initial
public offering price:

[Download Table]

Shares Purchased Total Consideration Average
------------------ ------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- ---------

Existing shareholders....... 12,677,345 78% $24,602,908 31% $1.94
New investors............... 3,500,000 22 56,000,000 69 16.00
---------- --- ----------- ---
Total..................... 16,177,345 100% $80,602,908 100%
========== === =========== ===

Options available for issuance under our stock option plan may be granted
with exercise prices as low as 80% of the market value of the common stock on
the grant date. If we grant options below fair market value it would be
dilutive to investors who purchase shares at the initial public offering price.

Dilution

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SELECTED FINANCIAL DATA
We derived the selected historical and pro forma financial data presented
below from our historical and pro forma financial statements and related notes
included in another part of this prospectus. You should read the selected
financial data together with our historical and pro forma financial statements
and the section of the prospectus entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

KPMG LLP, independent certified public accountants, audited our historical
financial statements for the period from July 28, 1995 (inception) to December
31, 1995, for the years ended December 31, 1996 and December 31, 1997 and for
the nine months ended September 30, 1998. Their report appears in another part
of this prospectus. Our historical financial statements for the nine months
ended September 30, 1997 are unaudited, and in our opinion include all
adjustments, consisting of normal adjustments, necessary for a fair
presentation of the results for the unaudited period. You should not rely on
interim results as being indicative of results we may expect for the full year.

We prepared the unaudited pro forma financial information for the year ended
December 31, 1997 and for the nine months ended September 30, 1998 by combining
the historical results of the two companies we acquired, RF Globalnet and
Informatrix, with our historical results using the purchase method of
accounting. This is described in the notes accompanying the information below.
We have presented this information to give you a better picture of what our
business might have looked like if we had owned RF Globalnet since January 1,
1997 and Informatrix since October 15, 1997 (inception). These companies may
have performed differently if they had actually been combined with our
operations. You should not rely on the unaudited pro forma information as being
indicative of the historical results that we would have had or the future
results that we will experience after the acquisitions.

Selected Financial Data

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SELECTED FINANCIAL DATA (Continued)

[Enlarge/Download Table]

July 28, 1995 Year Ended December 31, Nine Months Ended September 30,
(Inception) to ---------------------------------- ------------------------------------
December 31, 1997 1998
1995 1996 1997 Pro Forma 1997 1998 Pro Forma
-------------- ---------- ---------- ---------- ---------- ----------- -----------
(in thousands, except share and per share data)

Statement of Operations Data:
Revenues................ $ 16 $ 285 $ 792 $ 1,118 $ 551 $ 1,862 $ 2,332
Expenses:
Editorial and
operational............ 24 214 1,056 1,234 674 2,101 2,296
Product development..... 22 214 711 740 451 798 874
Sales and marketing..... 147 268 2,301 2,464 1,348 4,405 4,955
General and
administrative......... 33 292 1,388 2,354 891 2,907 4,020
---------- ---------- ---------- ---------- ---------- ----------- -----------
Operating loss.......... (210) (703) (4,664) (5,674) (2,813) (8,349) (9,813)
Interest, net........... (1) (6) (115) (115) (29) 15 12
---------- ---------- ---------- ---------- ---------- ----------- -----------
Net loss................ $ (211) $ (709) $ (4,779) $ (5,789) $ (2,842) $ (8,334) $ (9,801)
========== ========== ========== ========== ========== =========== ===========
Basic and diluted net
loss per share......... $ (0.19) $ (0.27) $ (1.89) $ (2.28) $ (1.12) $ (3.27) $ (3.77)
Shares outstanding used
in basic and diluted
net loss per share
calculation............ 1,096,679 2,583,648 2,526,865 2,536,480 2,526,865 2,550,619 2,596,604
Pro forma basic and
diluted net loss per
share.................. $ (0.19) $ (0.21) $ (0.77) $ (0.93) $ (0.50) $ (0.83) $ (0.97)
Shares outstanding used
in pro forma basic and
diluted net loss per
common share
calculation............ 1,096,679 3,326,284 6,184,326 6,193,941 5,677,540 10,052,180 10,098,165

The following balance sheet data is presented:
. on an actual basis;
. on a pro forma basis to give effect to the issuance and conversion of
$5.0 million of convertible notes into common stock upon the
consummation of the offering, the issuance of the $2.0 million note to
Progress Bank and the issuance of warrants valued at $200,000; and
. on a pro forma as adjusted basis to reflect the repayment of the $2.0
million note to Progress Bank and the net proceeds from the sale of
3,500,000 shares of common stock in the offering after deducting the
underwriting discounts and commissions and estimated offering expenses.

[Download Table]

As of
December 31, As of September 30, 1998
------------ ----------------------------
Pro Forma
1996 1997 Actual Pro Forma As Adjusted
---- ------- ------ --------- -----------
(in thousands)

Balance Sheet Data:
Cash and cash equivalents.......... $329 $ 755 $3,794 $10,794 $59,574
Working capital (deficit).......... 150 (2,536) 1,122 6,122 56,902
Total assets....................... 637 2,104 9,158 16,158 64,938
Short-term borrowings.............. -- 2,500 -- 2,000 --
Deferred revenues.................. 216 710 1,507 1,507 1,507
Long-term debt, less current
portion........................... 167 400 374 374 374
Total shareholders' equity
(deficit)......................... 105 (2,424) 4,709 9,709 60,489

Selected Financial Data

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of
operations should be read together with the financial statements and the
related notes included in another part of this prospectus and which are deemed
to be incorporated into this section. This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results may differ
materially from those anticipated in those forward-looking statements as a
result of certain factors, including but not limited to, those set forth under
and included in other portions of this prospectus.

We own and operate 33 vertical trade communities. From our founding and
incorporation on July 28, 1995 to October 1995, our principal operating
activities consisted primarily of recruiting employees, performing product and
technology development, raising capital and engaging in marketing activities.

Advertising revenues and Web site development fees contributed most of the
revenues for the period from July 28, 1995 to December 31, 1995 (the
"Inception Period") and in the years ended December 31, 1996 and December 31,
1997. Currently, most of our revenues are generated from selling
advertisements to industry suppliers in our vertical trade communities.

We sell storefront and banner advertising and event sponsorships on our
vertical trade communities. The duration of a storefront advertisement is
typically for a period of one year, while banner advertisements are typically
for a period of three months. All advertising revenues are recognized ratably
in the period in which the advertisement is displayed, provided that the
collection is reasonably assured. As of September 30, 1998, we had
approximately $1.5 million of deferred revenue. We also generate revenues from
career services, education and electronic commerce, specifically the sale of
books and third party software for which we receive a transaction fee.

Our relationship with Junglee allows us to sell to our visitors books,
software, travel bookings and other goods offered by third party Web sites. We
receive a portion of the revenue from the products sold on our "store," which
is operated for us by Junglee. This type of revenue sharing or commission
sharing relationship is typical of electronic commerce transactions and
relationships on the Internet.

We plan to expand our electronic commerce relationships to include:

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

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

. auctioning goods posted on our Web sites by inventory-liquidators.

We expect to receive either a fee per transaction, a percentage of sales
revenue or some other minimum guaranteed payment.

We incurred net losses of approximately $211,000 for the Inception Period,
$709,000 for the year ended December 31, 1996, $4.8 million for the year ended
December 31, 1997, and $8.3 million for the nine months ended September 30,
1998 on an actual basis and $9.8 million for the nine months ended September
30, 1998 on a pro forma basis. At September 30, 1998, we had an accumulated
deficit of $14.0 million. The net

Management's Discussion and Analysis of Financial Condition and Results of
Operations

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losses and accumulated deficit resulted from our lack of substantial revenues,
the costs of the significant infrastructure and other costs incurred for the
development and initial rollout of our vertical trade communities. Because of
our aggressive expansion plans, we expect to incur significant operating losses
for the foreseeable future. Although we have experienced revenue growth in
recent periods, such growth may not be sustainable and, therefore, these recent
periods should not be considered indicative of future performance. We may never
achieve significant revenues or profitability, or if we achieve significant
revenues they may not be sustained.

Results of Operations

Nine Months Ended September 30, 1997 and September 30, 1998

Revenues. Revenues increased from $551,000 for the nine months ended
September 30, 1997 to $1.9 million for the nine months ended September 30,
1998. The increase in revenues was due primarily to an increase in the number
of advertisers as a result of our marketing efforts and the increase in the
number of vertical trade communities from 16 as of September 30, 1997 to 29 as
of September 30, 1998. Advertising revenues, including the development of the
storefronts, accounted for the majority of revenues for the periods ended
September 30, 1997 and September 30, 1998. At September 30, 1998, we had
deferred revenues of $1.5 million. We expect that advertising revenue will
continue to account for a substantial share of revenues for the foreseeable
future.

Editorial and Operational Expenses. Editorial and operational expenses
primarily consist of Internet connection charges, cost of acquired content,
depreciation, salaries and benefits of operating and editorial personnel and
other related operating costs. These expenses increased from $674,000 for the
nine months ended September 30, 1997 to $2.1 million for the nine months ended
September 30, 1998. For these periods, expenses increased by $7,000 for
Internet connection charges, $69,000 for cost of acquired content, $102,000 for
depreciation, $1.0 million for salaries and benefits of operating and editorial
personnel and $200,000 for other related operating costs. The increases were
primarily related to the increased number of personnel and amount of equipment
required to maintain and operate our increased number of vertical trade
communities.

Product Development Expenses. Product development expenses consist primarily
of salaries and benefits, consulting expenses and related equipment. These
costs increased from $451,000 as of September 30, 1997 to $798,000 for the nine
months ended September 30, 1998. For these periods, expenses increased by
$214,000 for salaries and benefit costs and by $133,000 for consulting and
equipment costs. This increase in expenses was due to increased staffing and
the costs of enhancing the features, content and services of our vertical trade
communities, as well as increasing the overall number of trade communities. To
date, we have charged to expense all of the product development costs when such
costs have been incurred. We believe that continued investment in product
development is critical to attaining our goals, and therefore expect product
development expenses to increase significantly.

Sales and Marketing Expenses. Sales and marketing expenses consist primarily
of salaries and commissions for sales and marketing personnel, advertising, and
travel and entertainment, including costs of attending trade shows. These
expenses increased from $1.3 million for the nine months ended September 30,
1997 to $4.4 million for the nine months ended September 30, 1998. For these
periods, expenses increased by $1.6 million for

Management's Discussion and Analysis of Financial Condition and Results of
Operations

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advertising, $1.1 million for salary, commissions and benefits, and $464,000
for travel and entertainment expenses, including costs of attending trade
shows. This was primarily due to increasing the number of sales and marketing
personnel, increasing sales commissions and increased expenses related to
promoting our vertical trade communities. We expect these expenses will
continue to grow significantly, as we pursue an aggressive growth strategy and
hire additional sales/marketing personnel.

General and Administrative Expenses. General and administrative expenses
consist primarily of salaries and related costs for our executive,
administrative, finance, human resources and business development personnel,
as well as support services and professional service fees. These expenses
increased from $891,000 for the nine months ended September 30, 1997 to $2.9
million for the nine months ended September 30, 1998. For these periods,
expenses increased by $1.2 million for general and administrative personnel,
$110,000 for depreciation, $359,000 for professional fees, $250,000 for
facility costs and $6,000 for other general and administrative costs. The
increase was primarily due to increases in the number of personnel to support
and grow our business. We expect these expenses to grow as additional
personnel are hired and additional expenses are incurred. These expenses
relate to growing our business and operating as a public company.

Interest, Net. Interest income net of expense includes income from our cash
and cash equivalents and from investments and expenses related to our
financing obligations. Interest income net of interest expense increased from
an expense of $29,000 for the nine months ended September 30, 1997 to income
of $15,000 for the nine months ended September 30, 1998. The increase was
primarily due to a higher investment balance as a result of our sale of
preferred stock, which was partially offset by increased interest expense due
to borrowings on our line of credit, and increased amounts of capital lease
obligations in May and June of 1998. Currently, we invest our cash balances in
money market funds.

Inception Period and Years ended December 31, 1996 and December 31, 1997

Revenues. Revenues were $16,000 for the Inception Period, $285,000 for the
year ended December 31, 1996 and $792,000 for the year ended December 31,
1997. The increases in advertising revenues were due to an increasing number
of advertisers on our vertical trade communities and an increase in the number
of vertical trade communities.

Editorial and Operational Expenses. Editorial and operational expenses were
$24,000 for the Inception Period, $214,000 for the year ended December 31,
1996 and $1.1 million for the year ended December 31, 1997. From the Inception
Period to the year ended December 31, 1996, expenses increased by $21,000 for
Internet connection charges, $1,000 for cost of acquired content, $28,000 for
depreciation, $137,000 for salaries and benefits of operating and editorial
personnel and $3,000 for other related operating costs. From the year ended
December 31, 1996 to the year ended December 31, 1997, expenses increased by
$60,000 for Internet connection charges, $46,000 for cost of acquired content,
$224,000 for depreciation, $469,000 for salaries and benefits of operating and
editorial personnel and $12,000 for other related operating costs. Increases
were primarily related to additional personnel and equipment required to
maintain a larger number of vertical trade communities.

Product Development Expenses. Product development expenses were $22,000 for
the Inception Period, $214,000 for the year ended December 31, 1996 and
$711,000 for the year

Management's Discussion and Analysis of Financial Condition and Results of
Operations

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ended December 31, 1997. From the Inception Period to December 31, 1996,
expenses increased by $68,000 for salaries and benefit costs and $124,000 for
consulting and equipment costs. From the year ended December 31, 1996 to
December 31, 1997, expenses for salaries and benefit costs increased by
$643,000 and consulting and equipment costs decreased by $146,000. This
increase in expenses was primarily due to increased staffing and associated
costs related to enhancing the features, content and services of our vertical
trade communities and increasing the overall number of trade communities.

Sales and Marketing Expenses. Sales and marketing expenses were $148,000 for
the Inception Period, $268,000 for the year ended December 31, 1996 and $2.3
million for the year ended December 31, 1997. From the Inception Period to the
year ended December 31, 1996, expenses for advertising decreased by $28,000.
Salary, commissions and benefits increased by $98,000 and travel and
entertainment expenses, including costs of attending trade shows, increased by
$50,000. From the year ended December 31, 1996 to December 31, 1997, expenses
increased by $555,000 for advertising, $1.1 million for salary, commissions and
benefits, and $329,000 for travel and entertainment expenses, including costs
of attending trade shows. These increases were primarily due to an increased
sales force and participation in additional trade shows. We expect these
expenses will continue to increase as we expand our direct sales force, hire
additional marketing personnel and increase expenditures for marketing and
promotional activities.

General and Administrative Expenses. General and administrative expenses
were $33,000 for the Inception Period, $292,000 for the year ended December 31,
1996 and$1.4 million for the year ended December 31, 1997. From the Inception
Period to December 31, 1996, expenses increased by $78,000 for salaries and
benefit costs, $28,000 for depreciation, $78,000 for professional fees, $45,000
for facility costs and $30,000 for other general and administrative costs. From
the year ended December 31,1996 to December 31, 1997, expenses increased by
$492,000 for salaries and benefit costs, $249,000 for professional fees,
$258,000 for facility costs and $209,000 for other general and administrative
costs. These increases were due primarily to increased staffing levels, higher
facility costs and professional fees to support the growth of our
infrastructure. We expect to hire additional support personnel and will incur
additional costs related to being a public company, including insurance for
directors and officers, investor relations programs and other related
professional fees.

Interest, Net. Interest income net of expense consists primarily of interest
expense on our line of credit and capital lease obligations. We incurred net
interest expense of $1,000 for the Inception Period, $6,000 for the years ended
December 31, 1996 and $115,000 for the year ended December 31, 1997. Currently,
we invest our cash balances in money market funds.

Income Taxes. As of September 30, 1998, we had approximately $12.4 million of
federal net operating loss carryforwards and $12.7 million of state net
operating loss carryforwards for tax reporting purposes to offset future
taxable income. Our federal net operating loss carryforwards expire beginning
2013 and our state net operating loss carryforwards expire beginning 2000. Due
to the change in our ownership interest in 1997 and 1998, our net operating
loss carryforwards should be subject to certain limitations or annual
restrictions. See Note 12 of Notes to the Financial Statements.

Management's Discussion and Analysis of Financial Condition and Results of
Operations

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Quarterly Results of Operations

The following table sets forth certain statement of operations data for the
quarters ended March 31, 1997, June 30, 1997, September 30, 1997, December 31,
1997, March 31, 1998, June 30, 1998 and September 30, 1998. The information for
each quarter has been prepared on substantially the same basis as the audited
statements included in other parts of this prospectus and, in the opinion of
management, includes all adjustments, consisting of only normal recurring
adjustments necessary for a fair presentation of the results of operations for
such periods. Historical results are not necessarily indicative of the results
to be expected in the future, and the results of the interim periods are not
indicative of results of any future period.

[Enlarge/Download Table]

Three Months Ended
-----------------------------------------------------------------------------------------
March 31, June 30, September 30, December 31, March 31, June 30, September 30,
1997 1997 1997 1997 1998 1998 1998
--------- --------- ------------- ------------ ----------- ----------- -------------

Revenues................ $ 163,263 $ 196,561 $ 190,824 $ 241,174 $ 377,371 $ 587,422 $ 897,006
Operating loss.......... (551,416) (907,733) (1,354,081) (1,850,453) (2,008,935) (2,885,803) (3,454,845)
Interest income
(expense).............. (2,778) (12,493) (13,913) (85,922) (75,934) 14,291 76,809
--------- --------- ----------- ----------- ----------- ----------- -----------
Net loss................ $(554,194) $(920,226) $(1,367,994) $(1,936,375) $(2,084,869) $(2,871,512) $(3,378,036)
========= ========= =========== =========== =========== =========== ===========

Our operating results have varied on a quarterly basis during our short
operating history and may fluctuate significantly in the future. In addition,
the results of any quarter do not indicate results to be expected for a full
fiscal year. Finally, as a result of the foregoing factors, our annual or
quarterly results of operations may be below the expectations of public market
analysts or investors, in which case the market price of the common stock could
be materially adversely affected.

Liquidity and Capital Resources

Since our inception, we have primarily financed our operations through the
private placement of our preferred stock, borrowings under a line of credit
with a commercial bank and capital equipment leases. To date, we have raised
approximately $19.2 million from the sale of preferred stock. At September 30,
1998, we had approximately $3.8 million in cash and cash equivalents. We have
had significant negative cash flows from operating activities for each fiscal
and quarterly period to date. Net cash used in operating activities was $48,000
for the Inception Period, $663,000 for the year ended December 31, 1996, $3.8
million for the year ended December 31, 1997; and was $2.3 million for the nine
months ended September 30, 1997 and $6.7 million for the nine months ended
September 30, 1998. Cash used in operating activities from inception through
September 30, 1998 consisted mostly of net operating losses and increases in
accounts receivable and prepaid expenses, partially offset by increases in
deferred revenues, accrued expenses, and accounts payable.

Net cash used in investing activities was $57,000 for the Inception Period,
$64,000 for the year ended December 31, 1996, $396,000 for the year ended
December 31, 1997; and was $148,000 for the nine months ended September 30,
1997 and $2.8 million for the nine months ended September 30, 1998. Net cash
used in investing activities in these periods consisted mostly of capital
expenditures for purchased software, office equipment and leasehold
improvements. Net cash provided by financing was $136,000 for the Inception
Period, $1.0 million for the year ended December 31, 1996 and $4.6 million for
the year ended December 31, 1997; and was $2.3 million for the nine months
ended September 30, 1997 and $12.5 million for the nine months ended September
30, 1998. Cash provided by financing activities consisted primarily of sales of
our preferred stock and borrowings from Internet Capital Group and Progress
Bank,

Management's Discussion and Analysis of Financial Condition and Results of
Operations

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which was partially offset by payment on our capital lease obligations. Net
cash used for acquisitions for the nine months ended September 30, 1998 was
approximately $1.9 million.

We have a line of credit with a commercial bank for $500,000, which expires
on June 30, 1999. The line of credit is primarily used for working capital
purposes. As of December 31, 1997, we were in technical default on the line of
credit for failing to meet specified financial ratios. The bank waived these
covenants for the year ended December 31, 1997. As of September 30, 1998, there
were no borrowings under the line of credit. The line bears interest at the
bank's prime rate of interest plus 1.5%. Any borrowings under the line of
credit will be secured by most of our assets.

We have several capital leases with various financial institutions for
computer and communications equipment used in our operations with lease terms
ranging from three to five years. The interest rates under the leases range
from 8% to 20% and we are required to make monthly payments of $27,722 under
the terms of these leases. As of September 30, 1998, the remaining aggregate
obligation under these capital leases was $676,000.

We believe that the net proceeds from the offering, together with our
existing cash and cash equivalents, will be sufficient to meet our working
capital and capital expenditure requirements for at least the next 12 months.
Thereafter, we may be required to raise additional funds. We may also be
required to raise additional financing before such time. If additional funds
are raised through the issuance of equity securities, our existing shareholders
may experience significant dilution. Furthermore, additional financing may not
be available when needed or, if available, such financing may not be on terms
favorable to us or our shareholders. If such financing is not available when
required or is not available on acceptable terms, we may be unable to develop
or enhance our products or services. In addition, we may be unable to take
advantage of business opportunities or to respond to competitive pressures. Any
of these events could have a material adverse effect on our business, financial
condition or results of operations.

In November 1998, we issued convertible notes to Internet Capital Group and
certain holders of our Series D Preferred Stock in an aggregate principal
amount of $5.0 million. The convertible notes are required to be repaid in six
months, or upon the closing of the offering, if earlier. At each holder's
option, a holder can convert the principal balance of the convertible note into
our common stock at the initial public offering price. All holders have elected
to convert their notes into our common stock. In connection with the issuance
of the convertible notes, we granted the holders of the notes warrants to
purchase an aggregate of 82,051 shares of our common stock at the initial
public offering price.

In November 1998, we issued a note to Progress Bank in an aggregate principal
amount of $2.0 million. The note is required to be repaid in six months or upon
the closing of the offering, if earlier. In connection with the issuance of the
note, we granted Progress Capital, an affiliate of Progress Bank, warrants to
purchase 20,513 shares of our common stock at the initial public offering
price. We valued the warrants at the date of grant to Internet Capital Group
and certain holders of our Series D Preferred Stock and Progress Capital and
will amortize the cost over the period we expect the warrants to be
outstanding.

Year 2000 Compliance

We may realize exposure and risk if the systems on which we are dependent to
conduct our operations are not Year 2000 compliant.

Management's Discussion and Analysis of
Financial Condition and Results of Operations

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Our potential areas of exposure include products purchased from third parties,
information technology including computers and software, and non-information
technology including telephone systems and other equipment used internally.
Additionally, all of the internally developed production and operation systems
for our Web sites are undergoing a complete re-engineering. All new programs
are being tested and validated for Year 2000 compliance.

We have taken steps to ensure that phone systems and other non-information
technology are Year 2000 compliant. We have replaced our telephone and
voicemail systems with new systems which are Year 2000 compliant. We believe
all non-information technology upon which we are materially dependent is Year
2000 compliant. Additionally, with respect to information technology, we
expect to resolve any Year 2000 compliance issues primarily through normal
upgrades of our software or, when necessary, through replacement of existing
software with Year 2000 compliant applications. The cost of these upgrades or
replacements is included in our capital expenditure budget and is not expected
to be material to our financial position or results of operations. We estimate
that our total cost to become Year 2000 compliant will not exceed $250,000,
which we expect will be funded from working capital raised in this offering or
borrowings under our bank line of credit. However, such upgrades and
replacements may not be completed on schedule or within estimated costs or may
not successfully address our Year 2000 compliance issues.

We have completed our Year 2000 compliance assessment plan. This plan
includes assessing both our information and non-information technology as well
as our internally developed production and operation systems. Based on this
assessment, we believe that all non-information technology, all internally
developed production and operations systems and 80% of our technology are Year
2000 compliant. We believe that the remaining 20% of our information-
technology that is not Year 2000 compliant is not critical to our business. We
intend to complete the replacement or remediation of these non-compliant
technologies, as well as the testing of any replacement or corrected
technologies, by the end of the second quarter of 1999.

In addition, we are in the process of seeking verification from our key
distributors, vendors and suppliers that they are Year 2000 compliant or, if
they are not presently compliant, to provide a description of their plans to
become so. As of January 15, 1999, we have received certification from 80% of
our distributors, vendors and suppliers that they are either Year 2000
compliant or are taking the necessary steps to become Year 2000 compliant. We
expect to receive the remaining certifications by April 30, 1999. To the
extent that vendors fail to provide certification that they are Year 2000
compliant by July 1999, we will seek to terminate and replace those
relationships.

In the event that our production and operational facilities that support our
Web sites are not Year 2000 compliant, small portions of our Web sites may
become unavailable. Our review of our systems has shown that there is no
single application that would make our Web sites totally unavailable and we
believe that we can quickly address any difficulties that may arise.

In the event that our Web-hosting facilities are not Year 2000 compliant,
our Web sites would be unavailable and we would not be able to deliver
services to our users.

We do not currently have a contingency plan to deal with the worst-case
scenario that might occur if technologies we are dependent

29
Management's Discussion and Analysis of Financial Condition and Results of
Operations

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upon are not Year 2000 compliant and fail to operate effectively after the Year
2000. We intend to develop a plan for this scenario by the end of the second
quarter of 1999.

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

Acquisitions

In September 1998, we acquired all of the outstanding capital stock of RF
Globalnet for $1.8 million in cash. Also in September 1998, we acquired all of
the outstanding capital stock of Informatrix for 46,154 shares of our common
stock. Under the purchase agreement, former Informatrix shareholders earned an
additional 2,200 shares because Informatrix achieved sales targets for the
three months ended September 30, 1998. In addition, if Informatrix achieves
sales of $183,965 for the three months ended December 31, 1998, the former
shareholders can earn 5,770 shares; for sales below that target, the former
shareholders would earn fewer shares based upon the percentage of the sales
goal achieved. The sales targets are based on selling advertisements in the
period, not the profitability of the site. The per share value was $3.32 for
the additional shares, based on the value assigned to option grants made to our
employees during the same period. The date of the issuance was October 1998.
Those Informatrix employees who remained after the acquisition are now our
employees. See "Certain Transactions and Stock Issuances with Executive
Officers, Directors and Our Largest Shareholder."

We have reported pro forma results of operations as if we had consummated the
acquisition of RF Globalnet on January 1, 1997 and the acquisition of
Informatrix on October 15, 1997 (inception). The pro forma net loss for the
year ended December 31, 1997 was $5.8 million compared to the actual net loss
of $4.8 million. The increase in the net loss results from the net losses of
the acquired companies and the pro forma amortization of the goodwill
associated with the acquisitions. The pro forma net loss for the nine months
ended September 30, 1998 was $9.8 million compared to the actual net loss of
$8.3 million. The increase in the net loss is primarily related to the losses
of the companies acquired and the pro forma amortization of the goodwill
associated with the acquisitions.

On January 13, 1999, we purchased the online business, operated as safety
online, from Coastal Video Communication Corp. for $260,000 in cash and a
$50,000 note which is payable without interest no earlier than 90 days from
such date. We also provided Coastal with an advertising commitment on our Web
site, which will be subsequently valued. This Web site is used by professionals
in the safety industry.

Other Commitments

Our financial commitments for our marketing and distribution agreements with
Excite and AltaVisa are $2.3 million in 1999, $2.3 million in 2000 and $2.0
million in 2001. These agreements renew automatically unless terminated by
either party upon 30 days notice prior to the anniversary of the agreement.

Recent Accounting Pronouncements

In June 1997, Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which establishes standards for reporting and
display of comprehensive income and its components in the financial statements.
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of

30
Management's Discussion and Analysis of Financial Condition and Results of
Operations

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financial statements for earlier periods provided for comparative purposes is
required. SFAS No. 130 offers alternatives for presentation of disclosures
required by the standard. The adoption of SFAS No. 130 will have no impact on
our results of operations, financial position or cash flows.

In June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes standards for reporting
information about operating segments in annual financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997. The adoption of SFAS No. 131 is not
expected to have an impact on our results of operations, financial position or
cash flows.

In February 1998, FASB issued SFAS No. 132, "Employers' Disclosures about
Pension and Other Postretirement Benefits," which revises employers'
disclosures about pension and other postretirement benefit plans. SFAS No. 132
does not change the measurement or recognition of those plans. SFAS No. 132 is
effective for fiscal years beginning after December 15, 1997. The adoption of
SFAS No. 132 is not expected to have an impact on our results of operations,
financial position or cash flows.

In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use." Statement of Position 98-1 is
effective for financial statements for years beginning after December 15,
1998. Statement of Position 98-1 provides guidance over accounting for
computer software developed or obtained for internal use including the
requirement to capitalize specified costs and amortization of such costs. We
do not expect this standard to have a material effect on our capitalization
policy.

In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities."
Statement of Position 98-5, which is effective for fiscal years beginning
after December 15, 1998, provides guidance on the financial reporting of
start-up costs and organization costs. It requires costs of start up
activities and organization costs to be expensed as incurred. As we have
expensed these costs historically, the adoption of this standard is not
expected to have a significant impact on our results of operations, financial
position or cash flows.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. As we do not currently engage or plan to engage
in derivative or hedging activities, there will be no impact to our results of
operations, financial position or cash flows upon the adoption of this
standard.

31
Management's Discussion and Analysis of Financial Condition and Results of
Operations

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OUR BUSINESS

Industry Overview

Growth of the Internet, Online Advertising and Electronic Commerce

The Internet has emerged as a mass communications and commerce medium
enabling millions of people worldwide to share information, create community
among individuals with similar interests and conduct business electronically.
International Data Corporation projects that the number of Internet users will
grow from 100 million in 1998 to 320 million in 2002. In addition to its
emergence as a mass communications medium, the Internet has features and
functions that are unavailable in traditional media, which enable online
merchants to communicate effectively with customers and advertisers to target
users with specific needs and interests. As a result, the Internet has emerged
as an attractive medium for advertising and electronic commerce.

Along with the impressive overall growth of the Internet, business-to-
business usage is also growing rapidly, as businesses are increasingly
leveraging the Internet's ability to reach customers globally, deliver
personalized content and open new distribution channels.

Internet advertising and electronic commerce are projected to experience
significant growth in the future:
. Internet advertising, according to Jupiter Communications, is projected to
grow from $1.9 billion in 1998 to $7.7 billion in 2002;
. Business-to-business Internet advertising, according to Forrester Research,
is projected to grow from $290 million in 1998 to $2.6 billion in 2002;
. Business-to-business electronic commerce, according to Forrester Research, is
projected to grow from $17 billion in 1998 to $327 billion in 2002; and
. Online business auctions, according to Forrester Research, are projected to
grow from $8.7 billion in 1998 to $52.6 billion in 2002.

Traditionally, companies have employed a variety of well-recognized media in
business-to-business advertising, information delivery and communications to
identify, qualify and facilitate commerce with customers. Veronis, Suhler &
Associates estimates that advertising and specialty media spending on the
business-to-business market was more than $70.0 billion in 1998. Business-to-
business buyers and sellers use several advertising and specialty media,
including trade magazines, trade shows, buyer's guides, direct mail, catalogs
and others. In many industries, particularly in highly specialized,
technically-oriented industries, these media have performed a role in the
distribution channel by enabling buyers and sellers to meet, exchange
information and ultimately conduct business with one another.

Need for Online Vertical Trade Communities

While traditional media have historically served a valuable purpose in
facilitating commerce, information delivery, and communications between buyers
and sellers, they have inherent inefficiencies. We believe that:

. Trade magazines have limited circulation and are not published in real-time;

. Trade shows are held infrequently and are expensive for attendees and
exhibitors;

. Buyer's guides are cumbersome to search and provide limited depth of product
and vendor content;

. Direct mail responses often provide limited information about the prospective
customer; and

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. Trade journal advertising can be cost prohibitive for smaller advertisers.

The Internet provides a new medium to meet the specific needs of businesses
and professionals through vertical trade communities. These communities offer
highly targeted content and services. Electronic commerce is a natural
extension of these communities which cannot be easily replicated through
traditional media.

Our Solution

We own and operate a portfolio of 33 industry-specific Web sites designed as
online business-to-business communities. These vertical trade communities act
as comprehensive sources of information, interaction and electronic commerce.

Our solutions move traditional "off-line" trade services to the Internet. Our
portfolio of vertical trade communities target separate industrial sectors to
provide businesses and professionals with high quality content, community and
commerce that include the following attributes:

. Comprehensive content, services and features: The editors of our vertical
trade communities provide valuable information on products, technology,
industry regulations, news and management. We archive historical content,
enabling users to research through large databases of information. We also
operate requests for proposals and related posting and response areas.

. Active community participation: We provide features and services such as "Ask
the Expert," discussion forums, chat rooms, bulletin boards and career
centers, all of which foster active community participation among our users.
We believe active community participation creates loyalty and affinity among
our users.

. Targeted cost-effective medium for business-to-business advertising: The
narrow focus of our communities and the attractive demographics of our
audiences permit us to command premium advertising rates. Comparative
statistics show that advertisers pay more for targeted ads than for general
ones. We also attract small to mid-sized advertisers due to our cost-
effective advertising reach and highly targeted user base.

. High quality sales leads: Our communities generate high quality sales leads
that are timely and effective and contain detailed buyer information. Robust
sales leads left by buyers allow sellers to respond more effectively.

. Connects buyers and sellers globally: Vertical trade communities provide an
online market place that we believe will allow buyers and sellers worldwide
to exchange information, source products and execute online transactions.

We believe that targeted content, focused audiences and robust sales leads,
combined with our interactive platform, create a premier market place for
electronic commerce.

Our Strategies

Our objective is to continue to be a leading owner and operator of industry
specific vertical trade communities on the Internet. Key strategies to achieve
our objective include:

Expand User Base and Enhance User Experience with New Features, Services and
Content

We intend to continue increasing the number of users that visit each
community by:

. introducing additional services and features that appeal to the specific
needs of professionals using the Internet;

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. continuing to direct users to our vertical trade communities through
marketing relationships with search engine providers;

. providing professionals the opportunity to buy products online that satisfy
their product-sourcing needs; and

. creating brand awareness through industry trade shows, conferences,
advertising campaigns with trade publications and alliances with important
industry trade associations.

As our user base grows, we anticipate advertisers and suppliers will find our
vertical trade communities an attractive cost-effective medium for advertising
and sales.

Establish and Expand Multiple Revenue Streams

. Advertising. To date, most of our revenues have been derived from selling
storefronts to the industry suppliers to our communities. We also have sold,
and intend to grow our sales of, banner advertisements and newsletter
sponsorships delivered by e-mail. For the nine months ended September 30,
1998, we generated approximately 96% of our revenues from the sales of
storefronts, banner advertisements and sponsorships.

. Electronic Commerce. We believe that electronic commerce is a natural
extension of our vertical trade communities. Revenues from electronic
commerce differ from advertising based revenues because they depend on a
purchase being completed over the Internet. We expect to generate electronic
commerce revenues by receiving a transaction fee for products sold in our
communities. Transaction fees are typically paid by the supplier.

In addition, we expect to pursue electronic commerce opportunities through
marketing relationships with retailers and service providers focused on
product distribution. For example, we currently sell books and software in our
communities where we receive credit for the sale less amounts owed to the
distributor. For the nine months ended September 30, 1998, we generated
approximately 2% of our revenues from electronic commerce. See "Risk Factors--
We may not develop significant revenues from electronic commerce which could
adversely affect our future growth."

. Career Services. We sell sponsorships in our career center and charge
employers to post help wanted advertisements. We believe recruiters and
employers specializing in each industry are natural advertisers and sponsors
in this area. For the nine months ended September 30, 1998, we generated less
than 1% of our revenues from the sale of career services.

. Education. We have partnered with content providers for various engineering
courses, and are paid a transaction fee for every student taking the course.
With the acquisition of RF Globalnet, we acquired technology that allows
professionals to complete educational courses over the Internet. We are in
the process of using this technology on other vertical trade communities and
expect to form partnerships with courseware providers for industry
professionals. For the nine months ended September 30, 1998, we generated
approximately 1% of our revenues from education.

Continue to Identify and Rapidly Develop New Vertical Trade Communities

We intend to expand our portfolio by building and launching new vertical
trade communities in industry segments that we believe possess significant
opportunities for advertising and electronic commerce.

We determine whether or not a potential vertical trade community fits our
strategy by

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looking for specific industry characteristics including:

. a substantial number of buyers and suppliers;

. a high degree of fragmentation on both the supply and demand sides;

. defined target audiences (e.g. chemical engineers) with similar product and
informational needs;

. meaningful growth in trade advertising spending;

. significant new product introductions;

. online access;

. growth in trade show attendance; and

. international components both on the buyer and supplier side.

Leverage the Benefits of a Portfolio Approach

We believe that operating a portfolio of vertical trade communities permits
us to:

. offer a comprehensive, consistent set of services and features;

. attract a large business-to-business audience, in aggregate, making our
individual sites appealing to a broad array of advertisers and electronic
commerce suppliers; and

. realize cost savings and operating efficiencies in our technology, marketing,
infrastructure and management resources.

Form Marketing and Distribution Alliances for Distribution, Technology, and
New Services

To extend our vertical trade community brands and increase visits to our Web
sites, we intend to form additional marketing and distribution alliances with
search engine providers and other distribution partners.

Pursue Strategic Acquisitions

We intend to pursue acquisitions of companies that operate vertical trade
communities which would fit into our portfolio. Companies considered for
acquisition are evaluated based on the criteria outlined above under "Continue
to Identify and Rapidly Develop New Vertical Trade Communities." However, we
may also acquire other companies with complementary communities or technologies
such as electronic commerce solutions or other Web-based technologies.
Presently, we are not contemplating any specific acquisitions.

Expand Globally

We believe that the anticipated growth of Internet usage internationally
presents significant opportunities to extend the global reach of our
communities. For the nine months ended September 30, 1998, more than 25% of the
visits to our vertical trade communities originated outside the United States.
As is shown by their usage levels, international users represent significant
opportunity to our domestic advertisers, providing both sources of leads and,
eventually, purchasers of their products and services. Our vertical trade
communities also provide foreign advertisers access to our targeted audience in
the United States. We intend to expand globally by pursuing strategic
partnerships.

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Our Vertical Trade Communities

As of February 10, 1999, we had established 33 vertical trade communities
that target the industries identified beneath each community:

Process Group

chemical online (chemicalonline.com)
Manufacturing and Processing Chemicals

semiconductor online (semiconductoronline.com)
Applications, Manufacturing and Processing of Semiconductor Components

hydrocarbon online (hydrocarbononline.com)
Processing Hydrocarbons and Petrochemicals

pharmaceutical online (pharmaceuticalonline.com)
Development, Design and Manufacturing of Pharmaceuticals

adhesives and sealants online (adhesivesandsealants.com)
Manufacturing and Production of Adhesive, Sealant, and Grout Materials

food online (foodonline.com)
Manufacturing and Processing of Food Products

oil and gas online (oilandgasonline.com)
Production and Exploration of Oil and Gas

paint and coatings online (paintandcoatings.com)
Manufacturing and Production of Paint Coatings, Inks and Thick Film Printable
Conductors

Communications Group

fiber optics online (fiberopticsonline.com)
Design and Production of Fiber Optic Networks and Network Components

photonics online (photonicsonline.com)
Design and Manufacturing of Lasers, Optics, Optoelectronics, Fiber Optics and
Imaging Devices

RF Globalnet (rfglobalnet.com)
Information, Bookstore and Educational Center for Radio Frequency, Wireless and
Microwave Engineers

premises networks.com (premisesnetworks.com)
Facilities and Network Infrastructure Design and Administration

wireless design online (wirelessdesignonline.com)
Design and Development of Wireless Communications Systems and Equipment

Electronics Group

computerOEM online (computeroemonline.com)
Design and Manufacturing of Computers and Computerized Electronics Devices

medical design online (medicaldesignonline.com)
Design, Manufacturing and Procurement of Medical Devices

plant automation.com (plantautomation.com)
Hardware and Software Used in Industrial Manufacturing Including Robotics and
Automated Control Systems

test and measurement (testandmeasurement.com)
Design, Manufacturing and Procurement of Test, Measurement, Data Acquisition,
Data Analysis and Instrumentation Equipment

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Environmental Group

pollution online (pollutiononline.com)
Industrial Pollution Control

public works online (publicworks.com)
Services Public Works and Municipal Maintenance Professionals

water online (wateronline.com)
Municipal Water Supply and Municipal and Wastewater Treatment

power online (poweronline.com)
Power Generation, Electric Utility Deregulation, Emissions Control, Alternative
Fuels, Power Industry Legislation

solid waste online (solidwaste.com)
Disposal of Solid Waste

pulp and paper online (pulpandpaperonline.com)
Manufacturing, Processing and Treatment of Pulp and Paper

Food & Packaging Group

bakery online (bakeryonline.com)
Production and Procurement of Baking Ingredients

beverage online (beverageonline.com)
Production and Procurement of Equipment used in the Production of Beverages

dairy network.com (dairynetwork.com)
Production, Procurement and Distribution of Dairy Products

food ingredients online (foodingredientsonline.com)
Manufacturing and Processing of Food Ingredients

meat and poultry online (meatandpoultryonline.com)
Production, Procurement and Distribution of Meat and Poultry Products

packaging network.com (packagingnetwork.com)
Production, Purchase, Design and Marketing of Packaging for all Consumer and
Industrial Products

Sciences Group

bioresearch online (bioresearchonline.com)
Provides Information on Drug Discovery, Research and Development, University
Industry Collaborations and Regulatory Issues Relating to Worldwide Bioresearch
and Life Sciences

laboratory network.com (laboratorynetwork.com)
Production and Manufacturing of Laboratory Equipment, Chemicals and Supplies

Services Group

property and casualty.com (propertyandcasualty.com)
Property and Casualty Insurance

safety online (safetyonline.com)
Industrial and Environmental Safety

37
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Features of Our Vertical Trade Communities
Listed below is a selection of features of a vertical trade community which
correspond to the home page illustrated on the opposite page. Most of the
services listed below are available in each community.

1 Marketplace: Shopping resource containing books, software and video products.
Professionals are able to purchase these products over the Internet.

2 Online Buyer's Guide and Search Engine: Comprehensive buyer's guide fully
searchable by product name and supplier. In response to a key word search,
companies serving the industry are listed with storefront advertisers
presented first. Links to company storefronts allow users to research
advertisers' products and services, and send direct inquiries to advertisers
about pricing, delivery and product specifications (i.e., ultimately submit
sales leads).

3 News & Analysis: Current news and commentary by the vertical trade
community's editorial team. Includes feature articles and product case
studies; daily update of press releases and news stories targeted to each
respective industry.

4 Product Center: Comprehensive resource for industry professionals with
information on the latest products in the industry. Site editors act as third
parties with objective analysis of products and their uses.

5 Community: Suite of interactive features: real-time discussion forums for
industry professionals; bulletin boards; trade show information and other
useful industry events.

6 Resources: "Freeware" and demo-software download library and industry
association guides.

7 Career Center: Resume postings for job seekers, help-wanted listings and
career support material.

8 Requests for Proposals/Quotations/Bids: Internationally posted projects open
to bid.

Recent Enhancements

We have created a series of products and services for users of our vertical
trade communities.

Education/Training: We offer a series of products in the continuing
professional education, licensing/certification maintenance, and skills upgrade
markets, specifically:

. online courses/courseware: books, software, focused content and research
available for use or purchase in conjunction with courses offered by third
party vendors; and

. company-specific: customized intranet or extranet-based educational/training
services for specific clients by vertical trade community.

Career Center: Career centers currently active on each of our vertical trade
communities include such services as: resume bundling, e.g., selling or
offering certain groups of candidate types to specific employers for a fee, and
career planning/assistance, e.g., market reports on companies a candidate is
investigating, resume software, salary surveys, etc.

"Push" Newsletters: We offer subscription-based e-mail services with specific
content focus. Subscribers are able to receive e-mail-based newsletters on
topics of interest to them.

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[GRAPHIC SHOWING CHEMICAL ONLINE HOMEPAGE]

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Planned and Expanded Services

We plan to offer and expand the following services:

Electronic Commerce: As part of our long term strategy, we plan to increase
our commerce-related services for our advertisers and users of our vertical
trade communities, specifically:

. online stores: through simple-to-use store creation software we plan to
offer any current or future advertiser an interactive platform to sell
certain products in easy to manage environments;

. catalog-platforms: we plan to work with current and future advertisers as
well as industry-specific distributors to create and populate Internet-based
catalogs;

. classifieds: we plan to launch classified sections in each vertical trade
community listing individual products and a path to the specific seller; and

. auctions: we plan to launch online industrial auctions for each vertical
trade community. We expect that new and used equipment will be listed for
bid.

E-mail Service: We plan to offer free e-mail accounts to users/registrants
in each vertical trade community. We expect that the actual address will be
indicative of the specific vertical trade community (e.g.,
mark@poweronline.com). We believe that this service will be provided by a
third-party partner, and will be supported by the sale of advertising on the e-
mail pages.

Features of Our Storefronts

The following are descriptions of the features of a typical advertiser's
storefront which correspond to the boxes on the storefront on the opposite
page.

1 Corporate Profile: Information on advertiser's background and overview of
its products.

2 Contact Us: Enables buyers and specifiers to request further information via
e-mail. Requests are often regarded as sales leads by advertisers. Requests
are typically for product pricing and other inquiries about advertisers'
products.

3 Career Center: Advertisers list open employment opportunities.

4 Purchase Online: Advertisers with electronic commerce capabilities sell
their products online.

5 Associated Articles: Feature articles, case studies and other informational
materials about the advertiser.

6 Product Releases/More Products: New product announcements.

7 Press Releases: Advertiser-issued press releases.

8 For more ...: Hyperlinked gateway into advertiser's Web site.

Our Virtual Office

Our Virtual Office feature offers storefront advertisers the ability to
monitor and evaluate storefront activity. Advertisers can track the number of
visitors and leads generated from a storefront or banner advertisement. Virtual
Office also serves as an inquiry management tool for advertisers.

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[GRAPHIC SHOWING THE FEATURES OF OUR STOREFRONTS]

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Case Studies of Three Vertical Trade Communities

Set forth below is certain information about three of our fastest growing
vertical trade communities based on unique visits.

Visitor traffic information is provided by our Web server log files. Unique
visits are defined as the number of times individuals accessed our Web sites
during the month. In December 1998, our Web sites attracted approximately
650,000 unique visits.

Water Online (www.wateronline.com)

Target Audience: Engineers and environmental managers in the water and
wastewater industry in the United States and around
the world.

History: Our first vertical trade community, launched in
October 1995; currently, the largest Internet
community for the water and wastewater industry.

Editorial Director: Ian Lisk has two decades of experience as editor of
two of the industry's trade publications.

[Download Table]

For the Month of
December
1998
Usage and Advertising Statistics: ----------------

. Unique Visits: 70,915
. Storefront Advertisers: 246
. Sales Leads: 2,744

Chemical Online (www.chemicalonline.com)

Target Audience: Engineers and environmental managers in the chemical
processing industry in the United States and around
the world.

History: Our fourth vertical trade community, launched in May
1997; currently, the largest Internet community for
the chemical processing industry.

Editorial Director: Nick Basta has 17 years of experience as editor with
McGraw Hill's Chemical Engineering magazine.

[Download Table]

For the Month of
December
1998
Usage and Advertising Statistics: ----------------

. Unique Visits: 60,016
. Storefront Advertisers: 161
. Sales Leads: 3,708

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Wireless Design Online (www.wirelessdesignonline.com)

Target Audience: Engineers and business managers involved in the
design of wireless electronic components in the
United States and around the world.

History: Our tenth vertical trade community, launched in
September 1997.

Managing Editor: Rob Keenan, formerly associate editor with Penton
Publishing's Wireless System Design.

[Download Table]

For the Month of
December
1998
Usage and Advertising Statistics: ----------------

. Unique Visits: 37,766
. Storefront Advertisers: 34
. Sales Leads: 1,400

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

For the Inception Period and the years ended 1996 and 1997, water online was
the only vertical trade community that accounted for more than 15% of our
revenues. Water online represented 100% of our revenues for the Inception
Period and the year ended 1996, and 40% of our revenues for the year ended
1997. For the year ended December 31, 1998, water online was the only vertical
trade community to account for more than 15% of our revenues, accounting for
20% of the revenues for such period.

Marketing and Distribution Alliances

We have recently entered into the following alliances:

Excite Agreement

We have entered into a three-year renewable sponsorship agreement with
Excite, a leading Internet navigational service provider, to build and operate
an industrial "channel" on the Excite service for each of up to 30 of our
vertical trade communities. These channels are highlighted summaries of much of
the content and features of the home page of each of our vertical trade
communities, and provide a preview of the content and services offered on each
vertical trade community. For an annual fee of $1.3 million in 1999, $2.3
million in 2000 and $2.0 million in 2001, Excite will deliver guaranteed
minimum performance levels for exposures (or impressions) in each year. As part
of the Excite agreement, we and Excite have committed to provide $200,000 in
advertising on each others' Web sites during the term of the agreement. Both we
and Excite can individually earn revenue under the Excite agreement by selling
advertising on specified portions of co-developed pages. No significant
revenues were derived from this agreement in 1998.

AltaVista Agreement

We recently entered into a renewable one year agreement with AltaVista, a
leading search engine company, to develop at least thirty-one co-branded Web
sites. AltaVista has guaranteed us minimum levels of visits to our Web sites in
exchange for an annual fee of $1.0 million. In addition, advertising revenues
generated from the co-branded Web sites will be shared between us and AltaVista
and the parties have committed to provide $300,000 in advertising to each other
during the term of the agreement No significant revenues were derived from this
agreement in 1998.

Other Relationships--Motorola

In October 1998, we entered into an agreement with Motorola pursuant to which
we provide intranet-based educational services to engineers at Motorola. The
content in our
43

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course portfolio is available via the Internet and/or Motorola's corporate
intranet to authorized students registered by Motorola. The contract requires
Motorola to purchase from us pre-defined minimum education services. The
contract expires on June 30, 1999.

Customers

As of December 31, 1998, more than 700 companies, who have purchased
approximately 1,300 storefronts, advertised in one or more of our vertical
trade communities.

As of December 31, 1998, our customers included:
Asea Brown Boveri Ltd.
Bailey-Fisher & Porter
BetzDearborn Inc.
Calgon Corporation
Canon U.S.A., Semiconductor
Culligan Water Technologies, Inc.
Dresser Instruments Division
Rosemont Analytical
FMC Corporation
Hewlett-Packard Company
Ionics, Incorporated
ITT Standard
Koch Industries
Milltronics, Inc.
Motorola, Inc.
Nokia Group, Inc.
Osmonics, Inc.
Richardson Electronics, Ltd.
Schlumberger Industries
Siemens Microelectronics, Inc.
U.S. Filter
Waterlink
Wheelabrator Air Pollution Control, Inc.
Zurich-American Insurance Group

For the years ended December 31, 1996, December 31, 1997 and the nine months
ended September 30, 1998, no single customer accounted for more than 10% of our
revenues.

Sales and Marketing

Sales and Distribution

We use a variety of programs to stimulate demand for our products, including
telesales, a direct sales force and reseller arrangements with advertising
agencies.

Direct Sales. Our direct sales force targets organizations that sell the
products and services that are utilized and purchased by the professionals that
visit our vertical trade communities. As of December 31, 1998, we had 44 direct
sales and support personnel. We often employ individuals with a background in
advertising sales with trade publishing companies.

Telesales. We currently maintain an in-house telesales group for use in
customer prospecting, lead generation and lead follow-up. As of December 31,
1998, we had 15 people in our telesales group and we are expanding the products
sold by the group, such as job listings and banner advertisements.

International. We intend to market our products and services to international
markets directly over the Internet, as well as through resellers and affiliate
relationships. Currently, we derive less than 3% of revenues from international
customers. For the nine months ended September 30, 1998, more than 25% of the
visits to our vertical trade communities originated outside the United States.
We believe that the large percentage of international users are attractive to
advertisers who want to reach customers globally. See "--Our Strategies--
Establish and Expand Multiple Revenue Streams."

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Marketing

We use a variety of marketing programs to increase brand awareness. Our
marketing goals are to create and enhance the awareness of each branded
vertical trade community as a destination for professionals in each industry
sector and to promote the VerticalNet brand with suppliers, media buyers, and
interactive services companies. Our marketing strategy for each contains a mix
of print advertising, outbound e-mail, telemarketing, new media banner
campaigns, trade shows and direct mail. We also participate in industry
specific events, industry association activities and partnerships with
interactive services companies. We believe that forming strategic marketing and
distribution alliances with partners in the Internet, print publishing and
industry associations will be important for rapid market penetration.

Technology

We have developed and implemented a broad array of technologies including
site management, search, customer interaction and transaction processing
systems using a combination of our own proprietary technologies and
commercially available, licensed technologies. Approximately 20% of the
technology we currently use is licensed technology; the remaining 80% is
proprietary technology. To develop proprietary technology, we spent
approximately $22,000 in 1995, $214,000 in 1996, $711,000 in 1997 and $798,000
during the nine months ended September 30, 1998.

For example, we recently developed an application available on our Web sites
which allows our clients to track the success of their advertising campaigns.
We also developed an application using the Microsoft Site Server Suite of
development tools which allows clients to sell products over the Internet. Our
current strategy is to license commercially available technology whenever
possible rather than seek internally developed systems. We expect that
commercially licensed technology will continue to be available at reasonable
costs.

Scalability. The scalable structure of our hardware and software is designed
to allow for rapid deployment of multiple vertical trade communities while
maintaining desired user performance standards. In the rapidly changing
Internet environment, the ability to update an application to stay current with
new technologies is important. The system's template technology and generic
database design allow for the addition, modification, or replacement of Web
site based applications in a cost-efficient and expeditious manner.

Reliability and Security. We use CheckPoint's Firewall-1 software to protect
our Web servers. We also use Netscape software as our Web server. Our
production machines are located at Exodus Communications Inc. and at Icon CMT
Corp., which provide professional data center hosting facilities and redundant
high-speed Internet connectivity. Exodus and Icon provide monitoring and
support 24 hours a day, seven days a week supplementing our system
administrators.

We have developed our own content and Web site management tools to facilitate
the maintenance and updating of our vertical trade communities. Our Web site
management tools allow our editors to update our Web sites from remote
locations throughout the day.

Proprietary Rights

Proprietary rights are important to our success and our competitive position.
To protect our proprietary rights, we rely generally on copyright, trademark,
and trade secret laws, confidentiality agreements with employees and third
parties, and license agreements with
45 Our Business

424B1 49th Page of 125 TOC 1st Previous Next ↓Bottom Just 49th
consultants, vendors, and customers. Despite such protections, a third party
could, without authorization, copy or otherwise appropriate information from
our vertical trade community sites. Our agreements with employees, consultants
and others who participate in development activities could be breached, we may
not have adequate remedies for any breach, and our trade secrets may otherwise
become known or independently developed by competitors.

We rely upon license agreements for the majority of our content and
technology. Such license agreements may not continue to be available to us on
acceptable terms, or at all. We do not, however, believe that we are dependent
upon any single licensor of technology or content.

We have applied for numerous trademarks, none of which have been issued to
date. We currently have two pending applications for trademarks. Generally, we
cannot protect our Web addresses for our vertical trade communities as
trademarks due to the fact that they are too generic. The laws of some foreign
countries do not protect our proprietary rights to the same extent as do the
laws of the United States, and effective copyright, trademark and trade secret
protection may not be available in such jurisdictions.

There have been substantial amounts of litigation in the computer industry
regarding intellectual property assets. Third parties may claim infringement by
us with respect to current and future products, trademarks or other proprietary
rights, or we may counterclaim against such parties in such actions. Any such
claims or counterclaims could be time-consuming, result in costly litigation,
diversion of management's attention, cause product release delays, require us
to redesign our products or require us to enter into royalty or licensing
agreements, any of which could have a material adverse effect upon our
business, financial condition and operating results. Such royalty and licensing
agreements, if required, may not be available in terms acceptable to us, or at
all.

Government Regulations and Legal Uncertainties

We are subject to various laws and regulations relating to our business. Few
laws or regulations are currently directly applicable to access to the
Internet. However, because of the Internet's popularity and increasing use, new
laws and regulations may be adopted. Such laws and regulations may cover issues
such as:

. user privacy;

. pricing;

. content;

. copyrights;

. distribution; and

. characteristics and quality of products and services.

In addition, the growth of the Internet and electronic commerce, coupled with
publicity regarding Internet fraud, may lead to the enactment of more stringent
consumer protection laws. These laws may impose additional burdens on our
business. The enactment of any additional laws or regulations may impede the
growth of the Internet, which could decrease our potential revenues from
electronic commerce or otherwise adversely affect our business, financial
condition and operating results.

Laws and regulations directly applicable to electronic commerce or Internet
communications are becoming more prevalent. The most recent session of Congress
enacted Internet laws regarding on-line copyright infringement. Although not
yet enacted,

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Congress is considering laws regarding Internet taxation. The European Union
recently enacted new privacy regulations. These are all recent enactments, and
there is uncertainty regarding their marketplace impact. In addition, various
jurisdictions already have enacted laws that are not specifically directed to
electronic commerce but that could affect our business. The applicability of
many of these laws to the Internet is uncertain and could expose us to
substantial liability.

Any new legislation or regulation regarding the Internet, or the application
of existing laws and regulations to the Internet, could materially adversely
affect us. If we were alleged to violate federal, state or foreign, civil or
criminal law, even if we could successfully defend such claims, it could
materially adversely affect us.

We believe that our use of third party material on our vertical trade
communities is permitted under current provisions of copyright law. However,
because legal rights to certain aspects of Internet content and commerce are
not clearly settled, our ability to rely upon exemptions or defenses under
copyright law is uncertain.

Several telecommunications carriers are seeking to have telecommunications
over the Internet regulated by the Federal Communications Commission in the
same manner as other telecommunications services. Additionally, local telephone
carriers have petitioned the Federal Communications Commission to regulate
Internet service providers and online service providers in a manner similar to
long distance telephone carriers and to impose access fees on such providers.
If either of these petitions are granted, the costs of communicating on the
Internet could increase substantially. This, in turn, could slow the growth of
use of the Internet. Any such legislation or regulation could materially
adversely affect our business, financial condition and operating results.

Competition

The market for vertical trade communities is new and rapidly evolving.
Competition for advertising, electronic commerce and business users is intense
and is expected to increase significantly in the future. Technological barriers
to entry are relatively insubstantial. We believe that the principal
competitive factors for companies seeking to create vertical trade communities
on the Internet are targeted advertising, services and features, real-time
information access, quality sales leads, detailed user information, global
reach and business user affinity and loyalty. Several companies are primarily
focused on operating business-to-business trade communities on the Internet,
but most existing online competition is ancillary to the traditional business
of trade publishers, industry and trade associations and directory companies.

We will likely face intensified competition in the future from traditional
trade publishers, such as McGraw Hill and Reed Elsevier, directory registry
companies, such as Thomas Register, as well as from Internet search engine
companies, trade associations and electronic commerce technology suppliers.
Further, our potential competitors may develop vertical trade communities that
are equal or superior to ours. We also compete with traditional forms of
business-to-business advertising and commerce, such as trade magazines, trade
shows, and trade associations for advertisers and advertising revenue.

We believe that the principal competitive factors in attracting advertisers
include the demographics of our users, our ability to offer targeted audiences
and the overall cost-

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effectiveness of the advertising medium offered by us. We believe that the
number of business-to-business Internet companies relying on Internet-based
advertising revenue will increase greatly in the future, which would increase
pricing pressure on our advertising rates.

Employees

As of December 31, 1998, we had 187 full-time employees. We consider our
relationships with our employees to be good. None of our employees are covered
by collective bargaining agreements.

Properties

Our corporate headquarters are located at 2 Walnut Grove Drive in an office
facility in Horsham, Pennsylvania, where we lease approximately 16,343 square
feet for a monthly fee of $19,423 under a lease that expires February 1, 2001.
We also maintain a sales and editorial office in Parsippany, New Jersey, under
a lease that expires July 15, 1999 for a monthly fee of $1,506. We also lease a
small corporate facility in Washington, D.C. for a monthly fee of $2,290 under
a lease that expires April 14, 2000 and a sales and editorial office in
Deerfield, Illinois for a monthly fee of $3,178 under a lease that expires July
31, 2001. We also lease a corporate office for RF Globalnet in Boulder,
Colorado, for a monthly fee of $400 under a lease that expires February 28,
1999.

We maintain most of our computer systems in two leased Web-hosting facilities
in New Jersey. We entered into a one year services agreement with Exodus on
July 31, 1998 for a monthly rent of $7,550 and an agreement with Icon CMT Corp
on July 1, 1997 for a monthly rent of $3,825 for Web-hosting facilities and
services. The Exodus agreement automatically renews for additional one year
terms unless terminated by prior written notice. Because Exodus provides us
with additional benefits and services, we expect that we will allow the Icon
agreement to expire this year by its terms. If we allow the Icon agreement to
expire, we will move all of our Web-hosting facilities to Exodus and, as a
result, we will only maintain one Web-hosting facility at that time.

Legal Proceedings

We are not a party to any material legal proceedings.
Our Business 48

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MANAGEMENT

Executive Officers, Directors and Key Employees

[Download Table]

Name Age Position
---- --- --------
Directors and Executive
Officers
-----------------------

Mark L. Walsh............. 44 President, Chief Executive Officer and
Director
Michael J. Hagan.......... 36 Senior Vice President, Co-Founder and
Director
Michael P. McNulty........ 35 Senior Vice President, Co-Founder
Barry E. Wynkoop.......... 47 Senior Vice President
Gene S. Godick............ 33 Vice President and Chief Financial Officer
Blair LaCorte............. 35 Senior Vice President
Mario V. Shaffer.......... 36 Vice President of New Business Development
Douglas A. Alexander...... 37 Chairman of the Board and Director
Jeffrey C. Ballowe........ 43 Director
Walter W. Buckley, III.... 38 Director
Matthew J. Warta.......... 29 Director

Key Employees
-------------

C.H. Low.................. 38 Vice President and Chief Technology Officer
George Jankovic........... 31 Vice President of Product Development
Nicholas Basta............ 44 Vice President of Editorial Services
Christopher G. Kuhn....... 47 General Counsel

Mark L. Walsh has served as our President and Chief Executive Officer and as
one of our directors since August 1997. Prior to joining us, he was a Senior
Vice President and corporate officer at America Online, Inc. from 1995 to 1997.
He founded and managed AOL Enterprise, the business-to-business division of
AOL. Prior to his position with AOL, Mr. Walsh was the President of GEnie,
General Electric's online service from 1994 to 1995. He also was the President
of Information Kinetics, Inc., a venture capital backed interactive information
company focusing on the recruitment and classified advertising market from 1993
to 1994. He received his MBA from Harvard Business School and B.A. from Union
College of Schenectady, N.Y. He is the past chairman of the Interactive
Services Association. Mr. Walsh was a board member of the Information Industry
Association, a 500 member-company trade group for the business information
market.

Michael J. Hagan co-founded VerticalNet in 1995 and currently serves as our
Senior Vice President of Merger and Acquisitions and Product Development. He
also serves as one of our directors. Prior to our founding, Mr. Hagan was Vice
President and Senior Manager at Merrill Lynch Asset Management from 1990 to
1995. He served at Merrill Lynch in the areas of finance, technology and
accounting. Prior to that time, Mr. Hagan worked for Bristol Myers Squibb from
1988 to 1990. Mr. Hagan received a B.S. from St. Joseph's University and is a
Certified Public Accountant.

Michael P. McNulty co-founded VerticalNet in 1995 and currently serves as our
Senior Vice President of Audience Development. Prior to 1995, Mr. McNulty
worked from 1985 to 1995 in the trade publishing industry. He held both sales
and sales management positions for the Raben Publishing Company, Scranton
Gillete Communications, and the PennWell Publishing Company. Mr. McNulty
received a B.S. from St. Joseph's University.

Barry E. Wynkoop has served as our Senior Vice President of Sales and Market

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Management

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Development since August 1998. Prior to joining us, Mr. Wynkoop worked for Bell
Atlantic Corporation. From 1993 to 1998 he was the Vice President of Marketing,
National Accounts and Customer Services, for Bell Atlantic Directory Services,
Inc. From 1991 to 1993, he was the Vice President and General Manager of Bell
Atlantic Mobile Services, Inc.'s New England division. Mr. Wynkoop served as
the General Manager for U.S. Sales for the GEC Business Systems Group of
General Electric Company plc, from 1986 to 1991. From 1983 to 1986, Mr. Wynkoop
served as the Vice President of U.S. Operations for Krone GmbH, a West German
telecommunications manufacturer, and from 1973 to 1983 he held several
positions, ultimately becoming Director of Marketing from 1979 to 1983, for
Phelps Dodge Corporation, an industrial copper mining and fabricating company.
Mr. Wynkoop received a B.A. from Iona College, and graduated from the Program
for Management Development at the Harvard Business School.

Gene S. Godick has served as our Vice President of Finance and Chief
Financial Officer since June 1998. Prior to joining us, he worked from 1997
until 1998 as a senior manager at KPMG LLP, where he worked in their
information, communications and entertainment practice, with a focus on high
technology companies. During 1997, prior to joining KPMG LLP, Mr. Godick
provided consulting services advising companies on financing and turnaround
strategies. Prior thereto, Mr. Godick was hired in early 1994 as CFO of
Industrial Construction, Inc., a privately owned environmental remediation
firm, to help that firm remedy its financial problems. Industrial Construction
began experiencing financial difficulty in late 1993 due to poor project
management and a slowdown in the environmental remediation industry as a whole.
Mr. Godick was President and CFO of Industrial from 1996 until 1997. Industrial
filed for Chapter 7 bankruptcy in May 1997 after failing to achieve
profitability or generate enough cash to continue operations. From 1987 until
1994, Mr. Godick was an accountant and manager for Arthur Andersen LLP's
Enterprise Group, which provided services to emerging growth companies in high
technology, biotechnology and software. Mr. Godick also serves on the board of
directors of Novasoft Information Technology Corp. Mr. Godick received a B.S.
from Villanova University and is a Certified Public Accountant.

Blair LaCorte has served as our Senior Vice President of Strategy and
Electronic Commerce since January 1999, and has been a consultant for us since
October 1998. From 1997 to 1998, Mr. LaCorte was the President of the Internet
Technology Group and Senior Vice President of Partnerships at CADIS Inc., a
software company specializing in electronic commerce and procurement in
business-to-business markets. From 1993 to 1997 Mr. LaCorte held positions at
Autodesk where he founded three divisions, the last of which was Autodesk Data
Publishing, an electronic business-to-business publisher of engineering
graphics for design and procurement. Prior to his employment with Autodesk,
from 1992 to 1993 Mr. LaCorte was Manager of Worldwide Strategy and Market
Planning for Sun Microsystems, and a Senior Consultant at Gemini Consulting
specializing in process engineering. In 1996, Mr. LaCorte was named one of the
top ten business-to-business marketers of the year by Business Marketing and
Advertising Age. He received a B.A. from the University of Maine, holds a FMP
degree from General Electric and an MBA from the Amos Tuck School at Dartmouth
College.

Mario V. Shaffer has served as our Vice President of New Business Development
since May 1998. From 1995 to 1998 he served as

50
Management

424B1 54th Page of 125 TOC 1st Previous Next ↓Bottom Just 54th
Group Director of Marketing and Business Development at AOL where he was
responsible for membership marketing and strategic relationships. Previously,
Mr. Shaffer was Vice President of ContentWare, Inc. From 1992 to 1994, he was
Director of Business Development of EON Corporation and from 1988 to 1992 he
was regional sales manager of RR Donnelley Financial. Mr. Shaffer received a
B.A. from the College of William and Mary.

Douglas A. Alexander has served as one of our directors since September 1996
and has served as the Chairman of the Board since 1997. Mr. Alexander is a
Managing Director of Internet Capital Group. He co-founded Reality Online, Inc.
in 1986 and later sold it to Reuters in 1994. Reality Online developed
financial planning tools and online services aimed at the individual investor
and then later became a provider of Internet solutions to the retail brokerage
industry. Prior to co-founding Reality Online, Mr. Alexander was a partner with
Strategic Management Group, a corporate training firm. Mr. Alexander sits on
the boards of several Internet companies including DejaNews, Linkshare, and
SageMaker. Mr. Alexander was also chairman of WiseWire, which was sold to
Lycos, Inc. in April 1998. Mr. Alexander received a B.A.S. from the University
of Pennsylvania and B.S. from the Wharton School of Business.

Jeffrey C. Ballowe has served as one of our directors since July 1998. Mr.
Ballowe retired at the end of 1997 from Ziff-Davis, Inc., where during his 11
years at the company he worked to transform Ziff-Davis into an international,
integrated media company. At Ziff-Davis he held several magazine publishing
roles, including Publisher of PC Magazine and a number of corporate posts in
which he was responsible for establishing Ziff-Davis's European operations,
managing Ziff-Davis's largest magazine group, launching Ziff-Davis's Internet
publications, creating ZDNet, and launching ZDTV. At his retirement he was
President, Interactive Media and Development Group, in charge of Ziff-Davis's
Internet publications, ZDNet, ZDTV, and all development at the company. His
development activities included spearheading Ziff-Davis's and Softbank's
investments in Yahoo!, USWeb, Gamespot, and Herring Communications. Prior to
joining Ziff-Davis, Mr. Ballowe worked as a marketing executive at various
technology and marketing services companies. Currently Mr. Ballowe is Chairman
of DejaNews, Inc. and serves as a director on the boards of USWeb,
Personalogic, Inc. and Xoom.com, Inc. He received an MBA from the University of
Chicago, a master's degree from the University of Wisconsin-Madison and a
bachelor's degree from Lawrence University.

Walter W. Buckley, III has served as one of our directors since 1996. Mr.
Buckley is a co-founder and the President and CEO of Internet Capital Group.
Prior to co-founding Internet Capital Group, Mr. Buckley worked for Safeguard
Scientifics, Inc. as Vice President of Acquisitions. Prior to joining
Safeguard, Mr. Buckley was President and co-founder of Centralized Management
Systems, Inc., a medical supply company, which was sold in 1987. Prior thereto,
he was a commercial loan officer at CoreStates Bank, N.A. Mr. Buckley sits on
the boards of Internet Capital Group, Sky/Alland Marketing, Who? Vision
Systems, Inc., Syncra Software, Inc. and e-Chemicals, Inc. Mr. Buckley received
his B.A. from the University of North Carolina, Chapel Hill.

Matthew J. Warta has served as one of our directors of since June 1998. In
his current position, Mr. Warta is a Director of Koch Ventures, Inc., a
subsidiary of Koch Industries, Inc. where he is responsible for investing in
and managing the firm's applied technology investments. From 1996 through 1997,
he was with Koch's Capital Services Group, where he

Management

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provided advisory services on mergers and acquisitions, strategic consulting,
and corporate partnering to various Koch companies. Prior to joining Koch, Mr.
Warta worked as a management consultant at Deloitte & Touche Consulting Group
from 1995 to 1996, where he provided strategic and operational consulting
services to clients. Prior thereto, Mr. Warta served as an account executive
for Valentine Radford Communications, Inc., an advertising and marketing agency
in Kansas City, Missouri. Mr. Warta received an MBA and a B.S. from the
University of Kansas.

C.H. Low has served as our Vice President and Chief Technology Officer of
Product Development and Engineering since February 1998. From 1988 to 1998 he
was Senior Vice President with Reality Online, a Reuters company, where he was
responsible for designing and developing over 30 projects and gained expertise
in defining host data systems, features and architectures. Previously, Mr. Low
was co-owner of Gnosis, Inc., where he developed a job-shop manufacturing
control system for small to medium sized companies. Mr. Low received a B.A.S.
from the University of Pennsylvania and a B.S. from the Wharton School of
Business.

George Jankovic has served as our Vice President of Product Development since
September 1998. Prior to joining us, he was President and founder of RF
Globalnet, which we acquired in September 1998. Prior to founding RF Globalnet,
Mr. Jankovic was Director of Business Development and Marketing Manager for
Boulder Microwave Technology Inc. (now part of Ansoft Corp.), a start-up
focused on software for radio frequency engineers. Mr. Jankovic holds a
M.S.E.E. degree from University of Colorado at Boulder.

Nicholas Basta has served as our Vice President of Editorial Services since
June 1997. Mr. Basta was a senior editor and conference manager at McGraw-Hill,
Inc. where he was employed since 1980. Prior to joining us, he launched the
Chemputers Conferences, a semi-annual meeting on trends in software and
information technology for the chemical process industries. During 1990, he was
an adjunct professor at the Columbia University School of Journalism and
remains an adjunct teacher at the New School for Social Research in New York.
Since 1980, Mr. Basta has been a contributing editor for several trade
publications and has published several career guides. Mr. Basta received a
B.S.E. from Princeton University.

Christopher G. Kuhn has served as our General Counsel since December 1998.
Prior to joining VerticalNet, he was a senior attorney with the law firm of
Silberman & DiFilippo from 1989 to 1998, where he practiced general business
law, including commercial transactions, acquisitions and insolvency law. Prior
to 1989, he was an associate and partner at the law firm of Pincus, Verlin,
Hahn, Reich & Weinberg. Mr. Kuhn received a B.A. from West Chester State
College and a J.D. from the Delaware Law School.

Classes of the Board

Our board of directors are divided into three classes that serve staggered
three-year terms as follows:

[Download Table]

Class Expiration Member
----- ---------- ------

Class I 2000 Buckley, Warta
Class II 2001 Ballowe, Hagan
Class III 2002 Alexander, Walsh

Committees of the Board of Directors

The board of directors recently created a compensation committee and an audit
committee. The compensation committee of the board of directors evaluates our
compensation policies and administers our stock option plan.

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Management

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The members of the compensation committee are Messrs. Alexander and Warta. The
audit committee will review the scope of our audit, the engagement of our
independent auditors and their audit reports. The audit committee will also
meet with the financial staff to review accounting procedures and reports. The
audit committee currently consists of Messrs. Ballowe and Buckley. We intend to
appoint another board member to the audit committee.

Director Compensation

We do not pay directors cash compensation, however they are reimbursed for
the expenses they incur in attending meetings of the board or board committees.
Non-employee directors are eligible to receive options to purchase common stock
awarded under our equity compensation plan. See "--Stock Option Plan."

Compensation Committee Interlocks and Insider Participation

Upon completion of this offering, the compensation committee will make all
compensation decisions. Messrs. Alexander and Warta have served as the only
members of the compensation committee since we formed the committee in June
1998. Prior to that time, our full board made compensation decisions. None of
our executive officers, directors or compensation committee members presently
serve, or in the past served, on the compensation committee of any other
company whose directors or executive officers served on our compensation
committee. A member of the compensation committee, Mr. Alexander, is a Managing
Director of Internet Capital Group, which will beneficially own 38.4% of our
common stock after the offering.

Executive Compensation

The following table sets forth information for the fiscal years ended
December 31, 1997 and 1998 concerning compensation we paid to the chief
executive officer and our other four most highly compensated executive officers
during the fiscal year ended December 31, 1998.

Summary Compensation Table

[Download Table]

Long Term
Compensation
------------
Annual Compensation Awards
------------------------------ ------------
Securities
Fiscal Other Annual Underlying
Name and Principal Position Year Salary Bonus Compensation Options
--------------------------- ------ -------- -------- ------------ ------------

Mark L. Walsh,
President and Chief
Executive Officer......... 1998 $233,333 $100,000 -- 428,011
1997(1) 70,833 33,333 -- 307,692
Michael J. Hagan,
Senior Vice President..... 1998 $112,916 $ 25,000 -- 76,923
1997 101,933 -- -- --
Michael P. McNulty,
Senior Vice President..... 1998 $112,916 $ 25,000 -- 76,923
1997 101,516 -- -- --
Mario V. Shaffer,
Vice President(2)......... 1998 $ 80,473 $ 25,000 -- 51,282
Barry E. Wynkoop,
Senior Vice President(3).. 1998 $ 72,916 $ 35,000 $1,600 123,077

--------
(1) Mr. Walsh commenced employment with us in August, 1997.
(2) Mr. Shaffer commenced employment with us in May, 1998.
(3) Mr. Wynkoop commenced employment with us in August, 1998.
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Management

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Stock Option Information

The following table sets forth certain information regarding options granted
in 1998 to the executive officers named in the Summary Compensation Table
above.

Option Grants During Year Ended December 31, 1998

[Enlarge/Download Table]

Potential Realizable
% of Total Value at Assumed
Number of Options Annual Rates of Stock Price
Securities Granted to Appreciation for
Underlying Employees Exercise Option Term (3)
Options in Fiscal Price Expiration ----------------------------
Name Granted Year Per Share Date 5% 10%
---- ---------- ---------- --------- ---------- ------------- --------------

Mark L. Walsh........... 196,481(1) 12.6% $0.80 1/30/08 $4,963,565 $7,996,753
231,530(2) 14.9 2.63 6/18/08 5,425,284 8,999,543
Michael J. Hagan........ 76,923(2) 4.9 0.80 1/30/08 1,943,253 3,130,757
Michael P. McNulty...... 76,923(2) 4.9 0.80 1/30/08 1,943,253 3,130,757
Mario V. Shaffer........ 35,897(1) 2.3 2.63 6/18/08 841,150 1,395,312
2,564(1) 0.2 2.63 7/20/08 60,080 99,662
12,821(2) 0.8 3.32 11/11/08 291,579 489,504
Barry E. Wynkoop........ 123,077(1) 7.9 2.63 6/18/08 2,883,979 4,783,988

--------
(1) Vests at 28% on the employee's one year employment anniversary, in equal
increments of 2% per month for 36 months and fully vests 48 months from the
employee's initial date of employment.
(2) Vests at 28% on the first anniversary of the grant date, in equal
increments of 2% per month for 36 months and fully vests 48 months from the
grant date.
(3) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date based on the initial public offering price. These
assumptions are not intended to forecast future appreciation of our stock
price. The potential realizable value computation does not take into
account federal or state income tax consequences of option exercises or
sales of appreciated stock.

The following table sets forth certain information concerning option
exercises by executive officers named in the Summary Compensation Table during
1998.

Fiscal Year-End Option Values

[Download Table]

Number of Securities Value of Unexercised In-
Underlying Unexercised the-Money Options at
Options at Fiscal Year End Fiscal Year-End (1)
----------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ------------ -------------- ----------- -------------

Mark L. Walsh......... 181,501 554,202 $2,758,815 $8,000,171
Michael J. Hagan...... 0 76,923 0 1,169,230
Michael P. McNulty.... 0 76,923 0 1,169,230
Mario V. Shaffer...... 0 51,282 0 676,794
Barry E. Wynkoop...... 0 123,077 0 1,645,539

--------
(1) Based on the initial public offering price, minus the exercise price,
multiplied by the number of shares underlying the option.
54
Management

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Stock Option Plan

We have adopted the Amended and Restated 1996 Equity Compensation Plan,
effective as of December 18, 1996. The plan provides for grants of incentive
stock options, nonqualified stock options, and restricted stock to our
designated employees, advisors and consultants, and to non-employee directors.
By encouraging stock ownership, we seek to motivate such individuals to
contribute materially to our success.

General. The plan authorizes up to 3,600,000 shares of common stock for
issuance under the terms of the plan. No more than 500,000 shares in the
aggregate may be granted to any individual in any calendar year. If options
granted under the plan expire or are terminated for any reason without being
exercised, or shares of restricted stock are forfeited, the shares of common
stock underlying such grant will again be available for purposes of the plan.

Administration of the Plan. The compensation committee of the board of
directors administers and interprets the plan. The compensation committee will
consist of two or more persons appointed by the board of directors from among
its members, each of whom must be a "non-employee director" as defined by Rule
16b-3 under the Securities Exchange Act of 1934, and an "outside director" as
defined by Section 162(m) of the Internal Revenue Code of 1986 and related
Treasury regulations. The compensation committee has the sole authority to:

. determine the individuals to whom grants shall be made under the plan;

. determine the type, size and terms of the grants to be made to each such
individual;

. determine the time when the grants will be made and the duration of any
applicable exercise or restriction period, including the criteria for
vesting and the acceleration of vesting;

. determine the total number of shares of common stock available for grants;
and

. deal with any other matters arising under the plan.

The compensation committee may require that a grantee execute a
shareholder's agreement, with such terms as the compensation committee deems
appropriate.

Grants. Grants under the plan may consist of:

. options intended to qualify as incentive stock options within the meaning
of Section 422 of the Internal Revenue Code;

. nonqualified stock options that are not intended to so qualify; and

. restricted stock.

Eligibility for Participation. Grants may be made to any employees of
VerticalNet or any of its subsidiaries and to any non-employee member of the
board of directors. Key consultants and advisors who perform services for us
or any of our subsidiaries are eligible if they render bona fide services, not
as part of the offer or sale of securities in a capital-raising transaction.
As of December 31, 1998, 2,083,861 options were outstanding under the plan.

Options. Incentive stock options may be granted only to employees. Non-
qualified stock options may be granted to employees, non-employee directors,
and key advisors. The exercise price of common stock underlying an option
shall be determined by the compensation committee, and may be equal to,
greater than, or less than the fair market value but in no event less than 80%
of fair market value; provided that

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Management

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(a) the exercise price of an incentive stock option shall be equal to or
greater than the fair market value of a share of common stock on the
date such incentive stock option is granted and

(b) the exercise price of an incentive stock option granted to an employee
who owns more than 10% of the common stock may not be less than 110% of
the fair market value of the underlying shares of common stock on the
date of grant.

The participant may pay the exercise price:

(1) in cash;

(2) with the approval of the compensation committee, by delivering shares of
common stock owned by the grantee and having a fair market value on the
date of exercise equal to the exercise price of the grant; or

(3) by such other method as the compensation committee shall approve,
including payment through a broker in accordance with procedures
permitted by Regulation T of the Federal Reserve Board.

Options vest according to the terms and conditions determined by the
compensation committee and specified in the grant instrument.

The compensation committee will determine the term of each option up to a
maximum of ten years from the date of grant except that the term of an
incentive stock option granted to an employee who owns more than 10% of the
common stock may not exceed five years from the date of grant. The compensation
committee may accelerate the exercisability of any or all outstanding options
at any time for any reason.

Restricted Stock. The compensation committee shall determine the number of
shares of restricted stock granted to a participant, but may not exceed the
maximum plan limit described above. Grants of restricted stock will be
conditioned on such performance requirements, vesting provisions, transfer
restrictions or other restrictions and conditions as the compensation committee
may determine in its sole discretion. The restrictions shall remain in force
during a restricted period set by the compensation committee. If the grantee is
no longer employed by us during the restriction period or if any other
conditions are not met, the restricted stock grant will terminate as to all
shares covered by the grant for which the restrictions are still applicable,
and those shares must be immediately returned to us.

Amendment and Termination of the Plan. The compensation committee may amend
or terminate the plan at any time; except, that, it may not make any amendment
that requires stockholder approval pursuant to Rule 16b-3 of the Securities
Exchange Act of 1934 or Section 162(m) of the Internal Revenue Code without
stockholder approval. The plan will terminate on the day immediately preceding
the tenth anniversary of its effective date, unless the compensation committee
terminated earlier or extends it with approval of the stockholders.

Adjustment Provisions. Upon certain transactions identified in the plan, the
compensation committee may appropriately adjust:

. the maximum number of shares available for grants;

. the maximum number of shares that any participant may be granted in any
year;

. the number of shares covered by outstanding grants;
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Management

424B1 60th Page of 125 TOC 1st Previous Next ↓Bottom Just 60th
. the kind of shares issued under the plan; and

. the price per share or the applicable market value of such grants.

Change of Control. Upon a change of control, the compensation committee may
determine that:

(1) all outstanding options shall immediately vest; and

(2) the restrictions and conditions on all outstanding restricted stock shall
immediately lapse.

Upon a change of control where we are not the surviving entity or where we
survive only as a subsidiary of another entity, unless the compensation
committee determines otherwise, all outstanding grants shall be assumed by or
replaced with comparable options or stock by the surviving corporation. In
addition, the compensation committee may

(a) require that grantees surrender their outstanding options in exchange
for payment by us, in cash or common stock, at an amount equal to the
amount by which the then fair market value of the shares of common
stock subject to the grantee's unexercised options exceeds the
exercise price of those options, and/or

(b) after giving grantees an opportunity to exercise their outstanding
options, terminate any or all unexercised options.

A "change of control" is defined to have occurred if:

(1) any "person" other than persons who are our shareholders as of the
effective date of the plan becomes a "beneficial owner," directly or
indirectly, of common stock representing more than 50% of the voting
power of the then-outstanding shares of common stock; the terms "person"
and "beneficial owner" are each defined in the Securities Exchange Act of
1934; or

(2) the shareholders or the directors, as appropriate, approve:

(a) any merger or consolidation of us with another corporation where the
shareholders, immediately prior to such transaction, will not
beneficially own, immediately after the transaction, shares entitling
such shareholders to more than 50% of all votes to which all
shareholders of the surviving corporation would be entitled in the
election of directors, without consideration of the rights of any
class of stock to elect directors by a separate class vote;

(b) the sale or other disposition of all or substantially all our assets;
or

Section 162(m). Under Section 162(m) of the Internal Revenue Code, we may be
precluded from claiming a federal income tax deduction for total remuneration
in excess of $1.0 million paid to the chief executive officer or to any of the
other four most highly compensated officers in any one year. Total
remuneration would include amounts received upon the exercise of stock options
granted under the plan and the value of shares received when the shares of
restricted stock became transferable or such other time when income is
recognized. An exception does exist, however, for "performance-based
compensation," including amounts received upon the exercise of stock options
pursuant to a plan approved by stockholders that meets certain requirements.
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The plan has been approved by stockholders and is intended to make grants of
options thereunder meet the requirements of "performance-based compensation."
Awards of restricted stock generally will not qualify as "performance-based
compensation."

Employment Agreements

Under an employment letter dated August 1997, Mark L. Walsh agreed to be our
President and Chief Executive Officer. Under this employment letter, Mr. Walsh
receives a base salary of $200,000 per year, and a bonus of up to $100,000 per
year based on performance objectives established at the sole discretion of the
compensation committee. In connection with the employment letter, we granted
Mr. Walsh stock options to purchase 735,703 shares of common stock. The
employment letter has no term, however, if Mr. Walsh is terminated for any
reason other than for cause, he is entitled to a severance payment equal to one
year of his base salary. Internet Capital Group has guaranteed up to $500,000
of any such severance payment.

Under an employment letter dated July 1998, Barry E. Wynkoop agreed to be a
Senior Vice President. Under the employment letter, Mr. Wynkoop is entitled to
receive an annual salary of $175,000, and a bonus of up to $100,000, 30% of
which is attributable to us meeting overall revenue and margin objectives
established by the compensation committee and 70% of which is attributable to
our attainment of annual sales targets established by the compensation
committee. If we exceed annual sales targets, Mr. Wynkoop may receive an
additional bonus based on the percentage that actual sales exceeded the sales
targets. Under the employment letter we granted Mr. Wynkoop stock options to
purchase 123,077 shares of common stock. The employment letter has no term,
however, if Mr. Wynkoop is terminated for any reason other than for cause, he
is entitled to a severance payment equal to six months of his base salary.

We may enter into new employment agreements with our executive officers, but
no terms have been established. In addition, we are in the process of
developing a bonus program that would be based on company performance targets
and individual performance targets focusing on profitability and customer
satisfaction goals.

Employee Stock Purchase Plan

Concurrently with the offering, we intend to establish an employee stock
purchase plan under which a total of 300,000 shares of common stock will be
made available for sale to our employees. We intend the purchase plan to
qualify as an employee stock purchase plan within the meaning of Section 423 of
the Internal Revenue Code of 1986. The board of directors, or by a committee
appointed by the board will administer the purchase plan. Employees are
eligible to participate if they are employed by us or a designated subsidiary
for at least 20 hours per week and for more than five months in any calender
year. The purchase plan permits eligible employees to purchase common stock
through payroll deductions, which, subject to certain limitations, may not
exceed 10% of an employee's compensation.

The purchase plan will be implemented in a series of consecutive offering
periods, each approximately six months long. Offering periods will begin on the
first trading day after March 31 and September 30 of every year and end on the
last trading day in the period six months later. However, the first offering
period will be the period of approximately eight months beginning on the date
the registration statement relating to this prospectus is declared effective by
the Securities and Exchange
Management 58

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Commission and ending on the last trading day in the period ending September
30, 1999. Each participant will be granted an option to purchase stock on the
first day of the six-month purchase period and such option will be
automatically exercised on the last date of each offering period. The purchase
price of each share of common stock under the purchase plan will be equal to
85% of the lesser of the fair market value per share of common stock on the
start date of that offering period or on the date of purchase. Employees may
modify or end their participation in the offering at any time during the
offering period. Participation ends automatically upon termination of
employment. The purchase plan will terminate in 2009 unless the board of
directors terminates it sooner.

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CERTAIN TRANSACTIONS AND STOCK ISSUANCES WITH EXECUTIVE OFFICERS, DIRECTORS AND
OUR LARGEST SHAREHOLDER

Both Michael J. Hagan and Michael P. McNulty, executive officers of
VerticalNet, were involved in our founding and organization and may be
considered as our promoters. At our inception in July 1995, we issued 685,479
shares of common stock to Mr. Hagan and 685,479 shares of common stock to Mr.
McNulty. Mr. Hagan and Mr. McNulty each contributed a nominal amount of capital
for our initial capitalization. In January 1998, each of Mr. Hagan and Mr.
McNulty received an incentive stock option grant under the equity compensation
plan to purchase 76,923 shares of common stock.

In 1996, we borrowed an aggregate principal amount of $100,000 evidenced by
four unsecured term notes from four individuals. Along with the notes, we
issued 672,038 shares of common stock to these individuals. One of these
individuals was a member of our board of directors, Walter Buckley, who also
serves as an officer and director of Internet Capital Group, our largest
shareholder. The notes bore interest at a rate of 7%. The notes were to mature
on February 2001, however, all of the notes were repaid in full, including
interest of $15,771, in May 1998.

During 1996 and 1997, Internet Capital Group made loans to us, pursuant to a
total of 15 demand notes, in an aggregate principal amount of $3.2 million. We
have subsequently repaid $1.0 million of these loans and interest of $28,803
and exchanged $2.2 million of these loans for 833,333 shares of Series B
Preferred Stock and 441,595 shares of Series D Preferred Stock.

In 1997, Internet Capital Group guaranteed repayment of up to $2.0 million of
a line of credit with our bank under the line of credit agreement. We repaid
all amounts outstanding under this facility in May 1998 and consequently, our
bank released the guarantee from Internet Capital Group.

In 1997, in conjunction with our entering into an employment letter agreement
with Mark L. Walsh, Internet Capital Group guaranteed the payment of
approximately $500,000 in potential severance payments in the event his
employment is terminated for any reason other than cause. See "Management--
Employment Agreements."

During 1997, we entered into a $250,000 Web site development contract with
Informatrix. In addition, under the contract we were to maintain the Web site
for a monthly fee of $20,000. In conjunction with this contract, we advanced
Informatrix $160,000 in 1997, as evidenced by a demand note. During the nine
months ended September 30, 1998, we advanced an additional $555,000 to
Informatrix as part of the demand note. Mr. McNulty's brother was a member of
the board of directors of Informatrix. Subsequently, in September 1998, we
acquired all of the outstanding capital stock of Informatrix.

In May 1998, we issued warrants to Internet Capital Group that will, in the
aggregate, entitle Internet Capital Group to purchase 85,470 shares of common
stock at $3.51 per share. We issued the warrants in conjunction with certain
guarantees of our bank debt by Internet Capital Group. Such warrants are
currently exercisable, and will expire on November 30, 2008. The exercise price
and number of shares of common stock issuable upon the exercise of each of the
warrants may be adjusted upon the occurrence of certain

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Certain Transactions and Stock Issuances with Executive Officers, Directors and
Our Largest Shareholder

424B1 64th Page of 125 TOC 1st Previous Next ↓Bottom Just 64th
events, including stock splits, stock dividends, reorganization,
recapitalization, merger or sale of all or substantially all of our assets. All
shares of common stock issuable upon exercise of all warrants have certain
registration rights. See "Description of Capital Stock--Registration Rights."

Since inception, we have issued, in private placement transactions, shares of
preferred stock that will automatically convert into an aggregate of 9,734,846
shares of common stock upon or immediately before the closing of the offering.
To date, we do not owe and have never paid dividends on our preferred stock.
The holders of such converted shares of common stock are entitled to certain
demand and piggy-back registration rights. See "Description of Capital Stock--
Registration Rights."
The following table sets forth information about our preferred stock that was
outstanding before the offering. All these shares of preferred stock convert
into common stock upon the closing of the offering.

[Download Table]

Series B Series C Series D
Series A Preferred Preferred Preferred Preferred
------------------ ------------ ------------ -------------

Date of issuance........ September 1996 July 1997 October 1997 May/June 1998
Shares of preferred
stock issued........... 512,821 2,579,580 154,861 4,558,405
Aggregate purchase price
for preferred stock.... $1.0 million $2.0 million $200,000 $16.0 million
Shares of common stock
to be received upon
conversion............. 2,442,000 2,579,580 154,861 4,558,405

Prior to the offering, Internet Capital Group owns all of the shares of
Series A Preferred Stock, 2,427,811 shares of Series B Preferred Stock and
1,139,602 shares of Series D Preferred Stock. The purchase price for the shares
of Series A, Series B and Series D Preferred Stock was paid by Internet Capital
Group in cash and/or by the exchange of the principal amount plus accrued
interest of notes. Douglas A. Alexander, our Chairman of the Board, is a
Managing Director of Internet Capital Group. Walter W. Buckley, III, one of our
directors, is the President and CEO of Internet Capital Group. He joined our
board of directors in September 1996 after the completion of the issuance of
the Series A Preferred Stock. After the offering, Internet Capital Group's
right to elect directors terminates when their preferred stock converts to
common stock.

Of the $5.0 million of convertible notes issued in November 1998, we issued
$4.1 million to Internet Capital Group. In conjunction with the issuance of the
convertible note to Internet Capital Group, we issued warrants to purchase
68,370 shares of common stock at the initial public offering price per share.

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Certain Transactions and Stock Issuances with Executive Officers, Directors and
Our Largest Shareholder

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PRINCIPAL SHAREHOLDERS

The following table sets forth information with respect to beneficial
ownership of the common stock after the offering by each person who
beneficially owns more than 5% of the common stock; by each of our executive
officers named in the Summary Compensation Table; by each of our directors; and
by all executive officers and directors as a group.

[Download Table]

Number of Shares of Percent of Ownership
Common Stock ------------------------------
Name of Beneficial Owner Beneficially Owned Before Offering After Offering
------------------------ ------------------- --------------- --------------

Internet Capital
Group(1)(6)(7).............. 6,267,161 48.9% 38.4%
800 Safeguard Building,
435 Devon Park Drive,
Wayne, PA 19087
Koch Ventures, Inc........... 854,701 6.7 5.3
4111 East 37th Street North
Wichita, KS 67220
Wheatley Partners, L.P.(2)... 877,916 6.9 5.4
80 Cuttermill Rd., Suite 311
Great Neck, NY 11021
Mark L. Walsh(3)............. 201,668 1.6 1.2
Michael J. Hagan(4).......... 612,628 4.8 3.8
Michael P. McNulty(4)........ 506,113 4.0 3.1
Mario V. Shaffer............. -- * *
Barry E. Wynkoop............. -- * *
Douglas A. Alexander(5)(6)... 159,974 1.3 *
Jeffrey C. Ballowe........... -- * *
Walter W. Buckley, III(7).... 12,898 * *
Matthew J. Warta............. -- * *
All executive officers and
directors as a group
(11 persons)(3)(4)(5)(8).... 1,504,050 11.6 9.1

--------
* Less than 1%
(1) Includes common stock issued upon automatic conversion of all shares of
preferred stock and convertible notes owned by Internet Capital Group and
119,656 shares of common stock issuable upon the exercise of warrants
exercisable within 60 days of December 31, 1998.
(2) Includes shares held by Wheatley Foreign Partners, L.P. Includes 4,828
shares of common stock issuable upon the exercise of warrants exercisable
within 60 days of December 31, 1998.
(3) Includes 201,668 shares of common stock issuable upon the exercise of
options exercisable within 60 days of December 31, 1998. Excludes options
to purchase 534,035 shares of common stock which are not currently
exercisable.
(4) Includes 23,077 shares of common stock issuable upon the exercise of
options exercisable within 60 days of December 31, 1998. Excludes options
to purchase 53,846 shares of common stock which are not currently
exercisable.
(5) Includes 8,205 shares of common stock issuable upon exercise of options
exercisable within 60 days of December 31, 1998.
(6) Douglas A. Alexander is a managing director of Internet Capital Group. Mr.
Alexander disclaims beneficial ownership of shares held by Internet Capital
Group and Internet Capital Group disclaims beneficial ownership of shares
owned by Mr. Alexander.
(7) Walter W. Buckley, III is the President and Chief Executive Officer of
Internet Capital Group. Mr. Buckley disclaims beneficial ownership of
shares held by Internet Capital Group and Internet Capital Group disclaims
beneficial ownership of shares owned by Mr. Buckley.
(8) Includes 10,769 shares of common stock issuable upon the exercise of stock
options exercisable within 60 days of December 31, 1998.

Unless otherwise noted, we believe that all persons named in the table have
sole voting and investment power with respect to all shares beneficially owned
by them.

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Principal Shareholders

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DESCRIPTION OF CAPITAL STOCK
At the closing of the offering our authorized capital stock will consist of
90,000,000 shares of common stock, par value $.01 per share, and 10,000,000
shares of preferred stock, par value $.01 per share. VerticalNet is a
Pennsylvania corporation and is subject to the Pennsylvania Business
Corporation Law of 1988.

Common Stock

Holders of the common stock are entitled to receive, as, when and if
declared by the board of directors from time to time, such dividends and other
distributions in cash, stock or property from our assets or funds legally
available for such purposes subject to any dividend preferences that may be
attributable to preferred stock that may be authorized. Holders of common
stock are entitled to one vote for each share held of record on all matters on
which shareholders may vote, except with respect to the election of directors
in which case shareholders are entitled to multiply the number of shares held
of record by the number of directors to be elected and distribute such number
of votes for one or among two or more nominees.

There are no preemptive, conversion, redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are
fully paid and non-assessable. In the event of our liquidation, dissolution or
winding up, holders of common stock are entitled to share ratably in the
assets available for distribution.

Preferred Stock

Our board of directors, without further action by the shareholders, is
authorized to issue an aggregate of 10,000,000 shares of preferred stock. No
shares of preferred stock are outstanding and we have no plans to issue a new
series of preferred stock. Our board of directors may, without shareholder
approval, issue preferred stock with dividend rates, redemption prices,
preferences on liquidation or dissolution, conversion rights, voting rights
and any other preferences, which rights and preferences could adversely affect
the voting power of the holders of common stock. Issuance of preferred stock,
while providing desirable flexibility in connection with possible acquisitions
or other corporate purposes, could have the effect of making it more difficult
for a third party to acquire, or could discourage or delay a third party from
acquiring, a majority of our outstanding stock. See "Certain Transactions and
Stock Issuances with Executive Officers, Directors and Our Largest
Shareholder."

Common Stock Warrants

We have warrants outstanding for the purchase of 235,871 shares of our
common stock with a weighted average exercise price of $8.41 per share.

Warrants issued to Progress Capital on April 30, 1997 will entitle Progress
Capital to purchase 19,347 shares of common stock for $0.76 per share.
Warrants issued to Internet Capital Group on May 12, 1998 will, in the
aggregate, entitle Internet Capital Group to purchase 85,470 shares of common
stock at $3.51 per share. Warrants issued to Progress Capital on May 12, 1998
will entitle Progress Capital to purchase 28,490 shares of common stock for
$3.51 per share. Such warrants are currently exercisable, and expire on
November 30, 2008.

We issued additional warrants to purchase an aggregate of 82,051 shares of
common stock in November 1998 to Internet Capital Group
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Description of Capital Stock

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and other persons who were holders of our Series D Preferred Stock. The
exercise price for the warrants is equal to the initial public offering price
per share.

Additional warrants to purchase 20,513 shares of common stock at the initial
public offering price per share were issued to Progress Capital in November,
1998.

The exercise price and number of shares of common stock issuable upon the
exercise of each of the warrants may be adjusted upon the occurrence of certain
events, including stock splits, stock dividends, reorganization,
recapitalization, merger, or sale of all or substantially all of our assets.
All warrants and shares of stock issuable upon exercise of all warrants have
certain registration rights as described under "Registration Rights" below.

Classified Board of Directors

Our bylaws, as amended and restated, divide our board of directors into three
classes, with regular three-year staggered terms and initial terms of one year
for the class I directors, two years for the class II directors and three years
for the class III directors. This could prevent a party who acquires control of
the majority of the outstanding voting stock from obtaining control of the
board of directors.

Our shareholders do not have the right to cumulative voting in the election
of directors.

Shareholder Action by Written Consent

Under Pennsylvania law, any action that may be taken at a meeting of the
shareholders may be taken without a meeting if such action is authorized by the
unanimous written consent of all shareholders entitled to vote at a meeting for
such purposes.

Special Meetings

Our articles of incorporation and bylaws provide that special meetings of our
shareholders may be called only by the board or by our chairman or chief
executive officer. This provision may make it more difficult for shareholders
to take action opposed by the board.

Amendments to Our Bylaws

Our bylaws provide that the vote of a majority of all directors or the vote
of the majority of the outstanding stock entitled to vote is required to alter,
amend or repeal our bylaws.

Indemnification of Directors and Officers

Section 1741 of the Pennsylvania corporate laws provides the power to
indemnify any officer or director acting in his capacity as our representative
who was, is or is threatened to be made a party to any action or proceeding for
expenses, judgments, penalties, fines and amounts paid in settlement in
connection with such action or proceeding. The indemnity provisions apply
whether the action was instituted by a third party or arose by or in our right.
Generally, the only limitation on our ability to indemnify our officers and
directors is if the act violates a criminal statute or if the act or failure to
act is finally determined by a court to have constituted willful misconduct or
recklessness.

Our bylaws provide a right to indemnification to the full extent permitted by
law for expenses, attorney's fees, damages, punitive damages, judgments,
penalties, fines and amounts paid in settlement actually and reasonably
incurred by any director or officer whether or not the indemnified liability
arises or arose from any threatened, pending or completed proceeding by or in
our right by reason of the fact that such director or officer is or was serving
as our director, officer or employee or, at our request, as a director,
officer, partner, fiduciary or trustee of another corporation, partnership,
joint venture, trust,
Description of Capital Stock 64

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employee benefit plan or other enterprise, unless the act or failure to act
giving rise to the claim for indemnification is finally determined by a court
to have constituted willful misconduct or recklessness. Our bylaws provide for
the advancement of expenses to an indemnified party upon receipt of an
undertaking by the party to repay those amounts if it is finally determined
that the indemnified party is not entitled to indemnification.

Our bylaws authorize us to take steps to ensure that all persons entitled to
the indemnification are properly indemnified, including, if the board of
directors so determines, purchasing and maintaining insurance.

Limitation of Liability

Our articles of incorporation provide that none of our directors shall be
personally liable to us or our shareholders for monetary damages for a breach
of fiduciary duty as a director, except for liability:

. for any breach of such person's duty of loyalty;

. for acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law;

. for the payment of unlawful dividends and certain other actions prohibited
by Pennsylvania corporate law; and

. for any transaction resulting in receipt by such person of an improper
personal benefit.

We maintain directors and officers' liability insurance to provide directors
and officers with insurance coverage for losses arising from claims based on
breaches of duty, negligence, error and other wrongful acts. At present, there
is no pending litigation or proceeding, and we are not aware of any threatened
litigation or proceeding, involving any director, officer, employee or agent
where indemnification will be required or permitted under the articles of
incorporation or our bylaws.

Pennsylvania Control-Share Acquisitions Law

Generally, subchapters 25E, F, G, H, I and J of the Pennsylvania corporate
laws place certain procedural requirements and establish certain restrictions
upon the acquisition of voting shares of a corporation which would entitle the
acquiring person to cast or direct the casting of a certain percentage of
votes in an election of directors. Subchapter 25E of the Pennsylvania
corporate laws provides generally that, if a company were involved in a
"control transaction," shareholders of the company would have the right to
demand from a "controlling person or group" payment of the fair value of their
shares. For purposes of subchapter 25E, a "controlling person or group" is a
person or group of persons acting in concert that, through voting shares, has
voting power over at least 20% of the votes which shareholders of the company
would be entitled to cast in the election of directors. A control transaction
arises, in general, when a person or group acquires the status of a
controlling person or group.

In general, Subchapter 25F of the Pennsylvania corporate laws delays for
five years and imposes conditions upon "business combinations" between an
"interested shareholder" and us. The term "business combination" is defined
broadly to include various merger, consolidation, division, exchange or sale
transactions, including transactions utilizing our assets for purchase price
amortization or refinancing purposes. An "interested shareholder," in general,
would be
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Description of Capital Stock

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a beneficial owner of at least 20% of our voting shares.

In general, Subchapter 25G of the Pennsylvania corporate laws suspends the
voting rights of the "control shares" of a shareholder that acquires for the
first time 20% or more, 33 1/3% or more, or 50% or more of a company's shares
entitled to be voted in an election of directors. The voting rights of the
control shares generally remain suspended until such time as the
"disinterested" shareholders of the company vote to restore the voting power of
the acquiring shareholder.

Subchapter 25H of the Pennsylvania corporate laws provides in certain
circumstances for the recovery by a company of profits made upon the sale of
its common stock by a "controlling person or group" if the sale occurs within
18 months after the controlling person or group became such and the common
stock was acquired during such 18 month period or within 24 months before such
period. In general, for purposes of Subchapter 25H, a "controlling person or
group" is a person or group that:

(1) has acquired;

(2) offered to acquire; or

(3) publicly disclosed or caused to be disclosed an intention to acquire
voting power over shares that would entitle such person or group to cast
at least 20% of the votes that shareholders of the company would be
entitled to cast in the election of directors.

If the disinterested shareholders of a company vote to restore the voting
power of a shareholder who acquires control shares subject to Subchapter 25G,
such company would then be subject to subchapters 25I and J of the Pennsylvania
corporate laws. Subchapter 25I generally provides for a minimum severance
payment to certain employees terminated within two years of such approval.
Subchapter 25J, in general, prohibits the abrogation of certain labor contracts
prior to their stated date of expiration.

The above descriptions of subchapters of the Pennsylvania corporate laws
summarize the material anti-takeover provisions contained in the Pennsylvania
corporate laws but are not a complete discussion of those provisions.

Certain Anti-Takeover Provisions

The ability of the board of directors to establish the rights of, and to
issue, substantial amounts of Preferred Stock without the need for shareholder
approval, may have the effect of discouraging, delaying or preventing a change
in control. Such Preferred Stock, among other things, may be used to create
voting impediments with respect to any changes in control or to dilute the
stock ownership of holders of common stock seeking to obtain control. See "Risk
Factors--Anti-takeover provisions and our right to issue preferred stock could
make a third-party acquisition of us difficult," "--Common Stock" and "--
Preferred Stock."

Registration Rights

After the consummation of the offering, the holders of warrants to purchase
235,871 shares of common stock or their transferees, holders of 9,734,846
shares of common stock issuable upon conversion of the preferred stock and
holders of 312,500 shares of common stock issuable upon conversion of the
convertible notes will be entitled to certain registration rights with respect
to the registrable securities. These rights are provided under the terms of the
registrable securities and agreements between us and the holders of such
securities. Such agreements and registrable securities provide, in certain
instances, demand registration rights. In

66
Description of Capital Stock

424B1 70th Page of 125 TOC 1st Previous Next ↓Bottom Just 70th
addition, pursuant to these agreements, the holders are entitled, subject to
certain limitations, to require us to include their registrable securities in
future registration statements we file under the Securities Act of 1933. In
accordance with the terms of such piggyback registration rights, we have
elected to exclude all registrable securities from the offering. The Holders
also are entitled, subject to certain limitations, to require us to register
their registrable securities on a registration statement on Form S-3 once we
are eligible to use a Form S-3 in connection with such registrations. However,
Holders of all of these shares will be restricted from exercising such rights
until 180 days after the date of this prospectus. Registration of shares of
common stock pursuant to the exercise of demand registration rights, piggyback
registration rights or S-3 registration rights under the Securities Act of
1933 would result in such shares becoming freely tradable without restriction
under the Securities Act of 1933 immediately upon the effectiveness of such
registration. "Risk Factors--Shares eligible for future sale by our current
shareholders may adversely affect our stock price," "Shares Eligible for
Future Sale" and "Certain Transactions and Stock Issuances with Executive
Officers, Directors and Our Largest Shareholder."

Transfer Agent

The transfer agent for our common stock is American Stock Transfer & Trust
Company.

67
Description of Capital Stock

424B1 71st Page of 125 TOC 1st Previous Next ↓Bottom Just 71st
SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of common stock in the public market following
the offering could adversely affect the market price of the common stock and
adversely affect our ability to raise capital at a time and on terms favorable
to us.

Of the 16,188,137 shares to be outstanding after the offering (assuming that
the underwriters do not exercise their over-allotment option), the 3,500,000
shares of common stock offered hereby and an additional 645,762 shares of
common stock will be freely tradeable without restriction in the public market
unless such shares are held by "affiliates," as that term is defined in Rule
144(a) under the Securities Act of 1933. For purposes of Rule 144, an
"affiliate" of an issuer is a person that, directly or indirectly through one
or more intermediaries, controls, or is controlled by or is under common
control with, such issuer. The remaining shares of common stock to be
outstanding after the offering are "restricted securities" under the Securities
Act of 1933 and may be sold in the public market upon the expiration of certain
holding periods under Rule 144, subject to the volume, manner of sale and other
limitations of Rule 144.

In general, under Rule 144 as currently in effect, a person who has
beneficially owned shares for at least two years, including an "affiliate," as
that term is defined in the Securities Act, is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of:

. one percent of the then outstanding shares of our common stock
(approximately 161,881 shares immediately following the offering), or

. the average weekly trading volume during the four calendar weeks preceding
filing of notice of such sale. Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements and the availability
of current public information about us. A shareholder who is deemed not to
have been an "affiliate" of ours at any time during the 90 days preceding a
sale, and who has beneficially owned restricted shares for at least two
years, would be entitled to sell such shares under Rule 144(k) without
regard to the volume limitations, manner of sale provisions or public
information requirements.

In addition, as of December 31, 1998, there were outstanding warrants to
purchase 235,871 shares of common stock and options to purchase 2,083,861
shares of common stock, of which 366,162 options were fully vested and
exercisable. An additional 5,754 shares were reserved for issuance under our
equity compensation plan. We intend to register the shares of common stock
issued, issuable or reserved for issuance under the plan as soon as practicable
following the date of this prospectus.

Holders of warrants to purchase 235,871 shares of common stock, holders of
9,734,846 shares of common stock issuable upon conversion of the preferred
stock and holders of 312,500 shares of common stock issuable upon conversion of
the convertible notes are entitled to registration rights with respect to such
shares for resale under the Securities Act. If such holders, by exercising
their registration rights, cause a large number of shares to be registered and
sold in the public market, such sales could have an adverse effect on the
market price for the common stock. Such rights may not be exercised prior to
the expiration of 180 days from the date of this prospectus. See

Shares Eligible for Future Sale

424B1 72nd Page of 125 TOC 1st Previous Next ↓Bottom Just 72nd
"Description of Capital Stock--Registration Rights."

Lock-Up Arrangements

Along with our officers and directors, and all of the holders of the
preferred stock, the warrants and certain holders of options and shares of
common stock, we have agreed not to sell or otherwise dispose of any shares of
common stock for a period of 180 days after the date of this prospectus without
the prior written consent of Lehman Brothers.

Shares Eligible for Future Sale

424B1 73rd Page of 125 TOC 1st Previous Next ↓Bottom Just 73rd
UNDERWRITING
Under the underwriting agreement, which is filed as an exhibit to the
registration statement relating to this prospectus, the underwriters named
below, for whom Lehman Brothers Inc., Hambrecht & Quist LLC and Volpe Brown
Whelan & Company, LLC are acting as representatives, and Wit Capital
Corporation is facilitating online distribution as e-Manager(TM), have each
agreed to purchase from us the respective number of shares of common stock
shown opposite its name below:

[Download Table]

Number of
Shares of
Underwriters Common Stock
------------ ------------

Lehman Brothers Inc........................................... 1,435,000
Hambrecht & Quist LLC......................................... 861,000
Volpe Brown Whelan & Company, LLC............................. 574,000
Wit Capital Corporation....................................... 70,000
Bear Stearns & Co. Inc. ...................................... 70,000
BT Alex. Brown Incorporated................................... 70,000
BancBoston Robertson Stephens Inc. ........................... 70,000
Donaldson, Lufkin & Jenrette Securities Corporation........... 70,000
SG Cowen Securities Corporation............................... 70,000
William Blair & Company, L.L.C. .............................. 35,000
Dain Rauscher Wessels
a Division of Dain Rauscher Incorporated.................... 35,000
Friedman, Billings, Ramsey & Co., Inc. ....................... 35,000
Janney Montgomery Scott Inc. ................................. 35,000
Kaufman Bros., L.P. .......................................... 35,000
Needham & Company, Inc. ...................................... 35,000
---------
Total....................................................... 3,500,000
=========

The underwriting agreement provides that the underwriters' obligations to
purchase shares of common stock depend on the satisfaction of the conditions
contained in the underwriting agreement, and that if any of the shares of
common stock are purchased by the underwriters under the underwriting
agreement, then all of the shares of common stock which the underwriters have
agreed to purchase under the underwriting agreement, must be purchased. The
conditions contained in the underwriting agreement include the requirement that
the representations and warranties made by VerticalNet to the underwriters are
true, that there is no material change in the financial markets and VerticalNet
deliver to the underwriters customary closing documents.

The representatives have advised us that the underwriters propose to offer
the shares of common stock directly to the public at the public offering price
set forth on the cover page of this prospectus, and to dealers, who may include
the underwriters, at such public offering price less a selling concession not
in excess of $0.67 share. The underwriters may allow, and the dealers may
reallow, a concession not in excess of $0.10 share to brokers and dealers.
After the offering, the underwriters may change the offering price and other
selling terms.

We have granted to the underwriters an option to purchase up to an aggregate
of 525,000 additional shares of common stock, exercisable solely to cover over-
allotments, if any, at the public offering price less the underwriting
discounts and commissions shown on the cover page of this prospectus. The
underwriters may exercise this option at any time until 30 days after the date
of the

70
Underwriting

424B1 74th Page of 125 TOC 1st Previous Next ↓Bottom Just 74th
underwriting agreement. If this option is exercised, each underwriter will be
committed, so long as the conditions of the underwriting agreement are
satisfied, to purchase a number of additional shares of common stock
proportionate to the underwriter's initial commitment as indicated in the
preceding table and we will be obligated, under the over-allotment option, to
sell the shares of common stock to the underwriters.

We have agreed that, without the prior consent of Lehman Brothers, we will
not directly or indirectly, offer, sell or otherwise dispose of any shares of
common stock or any securities which may be converted into or exchanged for any
such shares of common stock for a period of 180 days from the date of this
prospectus. All of our executive officers and directors and certain other
shareholders, including all of the holders of the preferred stock and the
warrants and Internet Capital Group, Koch Ventures and Wheatley Partners, LP,
have agreed under lock-up agreements that, without the prior written consent of
Lehman Brothers, they will not, directly or indirectly, offer, sell or
otherwise dispose of any shares of common stock or any securities which may be
converted into or exchanged for any such shares for the period ending 180 days
after the date of this prospectus. See "Shares Eligible for Future Sale."

Prior to the offering, there has been no public market for the shares of
common stock. The initial public offering price will be negotiated between the
representatives and us. In determining the initial public offering price of the
common stock, the representatives will consider, among other things and in
addition to prevailing market conditions, our historical performance and
capital structure, estimates of our business potential and earning prospects,
an overall assessment of our management and the consideration of the above
factors in relation to market valuation of companies in related businesses.

Our common stock has been approved for quotation on the Nasdaq National
Market under the symbol "VERT."

We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
the representations and warranties contained in the underwriting agreement, and
to contribute to payments that the underwriters may be required to make for
these liabilities.

Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters
and selling group members to bid for and purchase shares of common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of the common stock. These transactions
may consist of bids or purchases for the purposes of pegging, fixing or
maintaining the price of the common stock.

The underwriters may create a short position in the common stock in
connection with the offering, which means that they may sell more shares than
are set forth on the cover page of this prospectus. If the underwriters create
a short position, then the representatives may reduce that short position by
purchasing common stock in the open market. The representatives also may elect
to reduce any short position by exercising all or part of the over-allotment
option. The underwriters have informed us that they do not intend to confirm
sales to discretionary accounts that exceed 5% of the total number of shares of
common stock offered by them.

The representatives also may impose a penalty bid on underwriters and selling
group

Underwriting

424B1 75th Page of 125 TOC 1st Previous Next ↓Bottom Just 75th
members. This means that if the representatives purchase shares of common stock
in the open market to reduce the underwriters' short position or to stabilize
the price of the common stock, they may reclaim the amount of the selling
concession from the underwriters and selling group members who sold those
shares as part of the offering.

In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
an offering.

Neither we nor any of the underwriters makes any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of the common stock. In addition, neither we nor
any of the underwriters makes any representation that the representatives will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.

Any offers in Canada will be made only under an exemption from the
requirements to file a prospectus in the relevant province of Canada in which
such sale is made.

Purchasers of the shares of common stock offered in this prospectus may be
required to pay stamp taxes and other charges under the laws and practices of
the country of purchase, in addition to the offering price listed on the cover
of this prospectus.

The representatives have informed us that they do not intend to confirm the
sales of shares of common stock offered by this prospectus to any accounts over
which they exercise discretionary authority.

At our request, the underwriters have reserved up to 175,000 shares of the
common stock offered by this prospectus for sale to our officers, directors,
employees and their family members and to business associates of VerticalNet at
the initial public offering price set forth on the cover page of this
prospectus. These persons must commit to purchase no later than the close of
business on the day following the date of this prospectus. The number of shares
available for sale to the general public will be reduced to the extent these
persons purchase the reserved shares.

Wit Capital is making a prospectus in electronic format available on its
Internet Web site. All dealers purchasing shares from Wit Capital in the
offering similarly have agreed to make a prospectus in electronic format
available on Web sites maintained by each of the dealers. The information on
these Web sites relating to the VerticalNet offering is filed as an exhibit to
the registration statement. Please see the exhibit for a more complete
description of the information relating to the offering contained on those Web
sites.

Wit Capital, a member of the National Association of Securities Dealers,
Inc., will participate in the offering as one of the underwriters and as the e-
Manager. The National Association of Securities Dealers, Inc. approved the
membership of Wit Capital on September 4, 1997. Since that time, Wit Capital
has acted as an underwriter, e-Manager or selected dealer in over 45 public
offerings. Robert Lessin, the Chairman, Chief Executive Officer and a
substantial shareholder of Wit Capital, owns 154,861 shares of VerticalNet's
Series C Preferred Stock, which will convert into 154,861 shares of common
stock prior to consummation of the offering. Except for its participation as e-
Manager in this offering or as otherwise disclosed in this underwriting
section, Wit Capital has no relationship with

Underwriting

424B1 76th Page of 125 TOC 1st Previous Next ↓Bottom Just 76th
VerticalNet or any of its founders or significant shareholders. Lehman
Brothers Venture Capital Partners I, L.P., an affiliate of Lehman Brothers,
owns 569,800 shares of VerticalNet's Series D Preferred Stock, which will
convert into 569,800 shares of common stock prior to consummation of the
offering.

In connection with VerticalNet's private placement of Series D Preferred
Stock in May and June 1998, Lehman Brothers received cash and 56,980 shares of
common stock as a placement fee for acting as placement agent.

EXPERTS

The consolidated financial statements and schedule of VerticalNet, Inc. as
of December 31, 1996 and 1997 and September 30, 1998 and for the period from
July 28, 1995 (inception) through December 31, 1995, the years ended December
31, 1996 and 1997, and the nine month period ended September 30, 1998, the
financial statements of Boulder Interactive Technology Services Co. as of
December 31, 1996 and 1997 and for the period from March 22, 1996 (inception)
through December 31, 1996 and for the year ended December 31, 1997, and the
financial statements of Informatrix Worldwide, Inc. as of December 31, 1997
and for the period from October 15, 1997 (inception) through December 31,
1997, have been included herein and in the registration statement in reliance
upon the reports of KPMG LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.

LEGAL MATTERS

The validity of the common stock offered by this prospectus will be passed
upon for us by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania.
Certain legal matters in connection with the offering will be passed upon
for the Underwriters by Chadbourne & Parke LLP, New York, New York.
73 Underwriting/Experts/Legal Mattters

424B1 77th Page of 125 TOC 1st Previous Next ↓Bottom Just 77th
ADDITIONAL INFORMATION

We file annual, quarterly, and special reports, proxy statements, and other
information with the Securities and Exchange Commission. Such reports, proxy
and other information can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at its regional offices located
at 7 World Trade Center, New York, New York 10048 and Northwest Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the Commission,
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates.

Our common stock is quoted on The Nasdaq National Market. Reports, proxy
statements and other information concerning VerticalNet can be inspected at the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006. The Commission maintains a Web site that contains all
information filed electronically by us. The address of the Commission's Web
site is (http://www.sec.gov.).

This prospectus constitutes a part of a registration statement on Form S-1
filed by us with the Commission under the Securities Act, with respect to the
securities offered in this prospectus. This prospectus does not contain all the
information which is in the registration statement. Certain parts of the
registration statement are omitted as allowed by the rules and regulations of
the Commission. We refer to the registration statement and to the exhibits to
such registration statement for further information with respect to VerticalNet
and the securities offered in this prospectus. Copies of the registration
statement and the exhibits to such registration statement are on file at the
offices of the Commission and may be obtained upon payment of the prescribed
fee or may be examined without charge at the public reference facilities of the
Commission described above. Statements contained in this prospectus concerning
the provisions of documents are necessarily summaries of the material
provisions of such documents, and each statement is qualified in its entirety
by reference to the copy of the applicable document filed with the Commission.

This prospectus includes statistical data regarding Internet usage and the
advertising industry which were obtained from industry publications, including
reports generated by Jupiter Communications, Veronis, Suhler & Associates,
International Data Corporation and Forrester Research. These industry
publications generally indicate that they have obtained information from
sources believed to be reliable, but do not guarantee the accuracy and
completeness of such information. While we believe those industry publications
to be reliable, we have not independently verified such data. We also have not
sought the consent of any of these organizations to refer to their reports in
this prospectus.

REPORTS TO SECURITY HOLDERS

We intend to distribute to our shareholders annual reports containing audited
financial statements and will make available copies of quarterly reports for
the first three quarters of each fiscal year containing unaudited interim
financial information.

Additional Information/Reports to Security Holders

424B1 78th Page of 125 TOC 1st Previous Next ↓Bottom Just 78th
INDEX TO FINANCIAL STATEMENTS

[Download Table]

Page
----

Audited Financial Statements:
VerticalNet, Inc.
Independent Auditors' Report............................................ F-2
Consolidated Balance Sheets at December 31, 1996 and 1997 and September
30, 1998 .............................................................. F-3
Consolidated Statements of Operations for the period from July 28, 1995
(inception) through December 31, 1995, the years ended December 31,
1996 and 1997, and the nine months ended September 30, 1997 (unaudited)
and 1998 .............................................................. F-4
Consolidated Statements of Shareholders' Equity (Deficit) for the period
from July 28, 1995 (inception) through December 31, 1995, the years
ended December 31, 1996 and 1997, and the nine months ended September
30, 1998 .............................................................. F-5
Consolidated Statements of Cash Flows for the period from July 28, 1995
(inception) through December 31, 1995, the years ended December 31,
1996 and 1997, and the nine months ended September 30, 1997 (unaudited)
and 1998 .............................................................. F-6
Notes to Consolidated Financial Statements.............................. F-7
Boulder Interactive Technology Services Company
Independent Auditors' Report............................................ F-24
Balance Sheets at December 31, 1996 and 1997 and June 30, 1998
(unaudited)............................................................ F-25
Statements of Operations for the period from March 22, 1996 (inception)
through December 31, 1996, the year ended December 31, 1997, and the
six months ended June 30, 1997 and 1998 (unaudited).................... F-26
Statements of Shareholders' Equity for the period from March 22, 1996
(inception) through December 31, 1996, the year ended December 31, 1997
and the six months ended June 30, 1998 (unaudited)..................... F-27
Statements of Cash Flows for the period from March 22, 1996 (inception)
through December 31, 1996, the year ended December 31, 1997 and the six
months ended June 30, 1997 and 1998 (unaudited)........................ F-28
Notes to Financial Statements........................................... F-29
Informatrix Worldwide, Inc.
Independent Auditors' Report............................................ F-34
Balance Sheets at December 31, 1997 and September 30, 1998 (unaudited).. F-35
Statements of Operations for the period from October 15, 1997
(inception) through December 31, 1997 and the nine months ended
September 30, 1998 (unaudited)......................................... F-36
Statements of Shareholders' Deficit for the period from October 15, 1997
(inception) through December 31, 1997 and the nine months ended
September 30, 1998 (unaudited)......................................... F-37
Statements of Cash Flows for the period from October 15, 1997
(inception) through December 31, 1997 and the nine months ended
September 30, 1998 (unaudited)......................................... F-38
Notes to Financial Statements........................................... F-39
Unaudited Pro Forma Combined Financial Statements
VerticalNet, Inc. and subsidiaries
Unaudited Pro Forma Financial Information Basis of Presentation......... F-43
Unaudited Pro Forma Combined Statement of Operations for the year ended
December 31, 1997...................................................... F-44
Unaudited Pro Forma Combined Statement of Operations for the nine months
ended
September 30, 1998..................................................... F-45
Notes to Pro Forma Condensed Combined Financial Statements.............. F-46

F-1
Financial Statements

424B1 79th Page of 125 TOC 1st Previous Next ↓Bottom Just 79th
INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders
VerticalNet, Inc.:

We have audited the accompanying consolidated balance sheets of VerticalNet,
Inc. and subsidiaries as of December 31, 1996 and 1997, and September 30, 1998
and the related consolidated statements of operations, shareholders' equity
(deficit) and cash flows for the period from July 28, 1995 (inception) to
December 31, 1995, for the years ended December 31, 1996 and 1997, and the nine
months ended September 30, 1998. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
VerticalNet, Inc. and subsidiaries as of December 31, 1996 and 1997, and
September 30, 1998, and the results of their operations and their cash flows
for the period from July 28, 1995 (inception) through December 31, 1995, for
the years ended December 31, 1996 and 1997, and the nine months ended September
30, 1998 in conformity with generally accepted accounting principles.

KPMG LLP

December 22, 1998,
except as to the last paragraph
of Note 14, which is as of February 7, 1999
Philadelphia, Pennsylvania

F-2
Financial Statements

424B1 80th Page of 125 TOC 1st Previous Next ↓Bottom Just 80th
VERTICALNET, INC.

CONSOLIDATED BALANCE SHEETS

[Download Table]

December 31, December 31, September 30, September 30,
1996 1997 1998 1998
------------ ------------ ------------- -------------
(Pro Forma)
(unaudited)

Assets
Current assets:
Cash and cash
equivalents........... $ 329,451 $ 754,716 $ 3,793,964 $10,793,964
Accounts receivable,
net of allowance for
doubtful accounts of
$18,575, $30,000,
$58,066 and $58,066,
respectively.......... 178,942 607,611 1,064,777 1,064,777
Loan receivable, net of
allowance of $80,000
and $0 in 1997 and
1998, respectively.... -- 84,086 3,500 3,500
Prepaid expenses....... 6,474 145,678 335,011 335,011
---------- ----------- ------------ -----------
Total current as-
sets................ 514,867 1,592,091 5,197,252 12,197,252
---------- ----------- ------------ -----------
Property and equipment,
net..................... 106,409 491,853 1,003,541 1,003,541
Goodwill and other intan-
gibles, net of accumu-
lated amortization of
$103,565 and $103,565 in
1998 and pro forma, re-
spectively.............. -- -- 2,663,640 2,663,640
Deferred charges and
other assets............ 15,927 20,143 293,811 293,811
---------- ----------- ------------ -----------
Total assets......... $ 637,203 $ 2,104,087 $ 9,158,244 $16,158,244
========== =========== ============ ===========
Liabilities and Share-
holders' Equity (Defi-
cit)
Current liabilities:
Current portion of
long-term debt........ $ 26,515 $ 150,856 $ 301,570 $ 301,570
Line of credit......... -- 2,500,000 -- 2,000,000
Accounts payable....... 98,045 607,479 1,209,966 1,209,966
Accrued expenses....... 23,879 158,936 1,056,901 1,056,901
Deferred revenues...... 216,433 710,393 1,506,878 1,506,878
---------- ----------- ------------ -----------
Total current liabil-
ities............... 364,872 4,127,664 4,075,315 6,075,315
---------- ----------- ------------ -----------
Long-term debt, net of
current portion......... 167,067 399,948 374,128 374,128
---------- ----------- ------------ -----------
Commitments and contin-
gencies (Note 8)
Shareholders' Equity
(Deficit):
Preferred stock Series
A, B, C, and D: $.01
par value, 40,000,000
shares authorized,
512,821, 3,247,262,
7,805,667 and 0 shares
issued and outstanding
in 1996, 1997, 1998,
and proforma,
respectively.......... 5,128 32,473 78,057 --
Common stock $.01 par
value, 40,000,000
shares authorized
2,526,865, 2,526,865,
2,629,999 and
12,677,345 shares
issued and outstanding
in 1996, 1997, 1998,
and pro forma,
respectively.......... 25,269 25,269 26,300 126,774
Additional paid-in
capital............... 1,054,689 3,277,344 18,836,878 24,014,461
Deferred compensation.. -- -- (139,406) (139,406)
Accumulated deficit.... (919,822) (5,698,611) (14,033,028) (14,233,028)
---------- ----------- ------------ -----------
165,264 (2,363,525) 4,768,801 9,768,801
Treasury stock at cost,
161,289 shares........ (60,000) (60,000) (60,000) (60,000)
---------- ----------- ------------ -----------
Total shareholders'
equity (deficit).... 105,264 (2,423,525) 4,708,801 9,708,801
---------- ----------- ------------ -----------
Total liabilities and
shareholders' equity
(deficit)........... $ 637,203 $ 2,104,087 $ 9,158,244 $16,158,244
========== =========== ============ ===========

See accompanying notes to consolidated financial statements.

F-3
Financial Statements

424B1 81st Page of 125 TOC 1st Previous Next ↓Bottom Just 81st
VERTICALNET, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

[Enlarge/Download Table]

July 28, 1995
(Inception) Year ended Nine months ended
to December 31, December 31, September 30,
--------------- ----------------------- ------------------------
1995 1996 1997 1997 1998
--------------- ---------- ----------- ----------- -----------
(unaudited)

Revenues................ $ 15,642 $ 285,140 $ 791,822 $ 550,648 $ 1,861,799
---------- ---------- ----------- ----------- -----------
Costs and Expenses:
Editorial and
operational............ 23,949 213,544 1,055,725 673,784 2,100,885
Product development..... 21,550 213,926 711,292 451,008 797,815
Sales and marketing..... 147,609 268,417 2,300,365 1,348,318 4,405,407
General and
administrative......... 32,656 291,660 1,388,123 890,768 2,907,275
---------- ---------- ----------- ----------- -----------
Operating loss.......... (210,122) (702,407) (4,663,683) (2,813,230) (8,349,583)
---------- ---------- ----------- ----------- -----------
Interest and dividend
income ................ -- 7,491 10,999 7,714 164,535
Interest expense........ (853) (13,931) (126,105) (36,898) (149,369)
---------- ---------- ----------- ----------- -----------
Interest, net........... (853) (6,440) (115,106) (29,184) 15,166
---------- ---------- ----------- ----------- -----------
Net loss................ $ (210,975) $ (708,847) $(4,778,789) $(2,842,414) $(8,334,417)
---------- ---------- ----------- ----------- -----------
Basic and diluted net
loss per share......... $ (0.19) $ (0.27) $ (1.89) $ (1.12) $ (3.27)
========== ========== =========== =========== ===========
Weighted average shares
outstanding used in
per-share calculation
(basic and diluted).... 1,096,679 2,583,648 2,526,865 2,526,865 2,550,619
========== ========== =========== =========== ===========

See accompanying notes to consolidated financial statements.

F-4
Financial Statements

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VERTICALNET, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

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Series A Series B Series C Series D
Preferred Preferred Preferred Preferred Common Stock
-------------- ----------------- -------------- ----------------- -----------------
Additional
Paid-In Deferred
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Capital Compensation
------- ------ --------- ------- ------- ------ --------- ------- --------- ------- ----------- ------------

Balance, July
28, 1995 (in-
ception)....... -- $ -- -- $ -- -- $ -- -- $ -- -- $ -- $ -- $ --
Issuance of com-
mon stock...... -- -- -- -- -- -- -- -- 1,962,403 19,624 50,462 --
Net loss........ -- -- -- -- -- -- -- -- -- -- -- --
------- ------ --------- ------- ------- ------ --------- ------- --------- ------- ----------- ---------
Balance, Decem-
ber 31, 1995... -- -- -- -- -- -- -- -- 1,962,403 19,624 50,462 --
------- ------ --------- ------- ------- ------ --------- ------- --------- ------- ----------- ---------
Issuance of com-
mon stock...... -- -- -- -- -- -- -- -- 564,462 5,645 9,355 --
Issuance of
Series A
preferred
stock, net of
issuance cost.. 512,821 5,128 -- -- -- -- -- -- -- -- 994,872 --
Repurchase of
common stock... -- -- -- -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- -- -- --
------- ------ --------- ------- ------- ------ --------- ------- --------- ------- ----------- ---------
Balance, Decem-
ber 31, 1996... 512,821 5,128 -- -- -- -- -- -- 2,526,865 25,269 1,054,689 --
------- ------ --------- ------- ------- ------ --------- ------- --------- ------- ----------- ---------
Issuance of Se-
ries B pre-
ferred stock... -- -- 2,579,580 25,796 -- -- -- -- -- -- 1,974,204 --
Issuance of Se-
ries C pre-
ferred stock... -- -- -- -- 154,861 1,549 -- -- -- -- 198,451 --
Issuance of
warrants in
connection with
debt
financing...... -- -- -- -- -- -- -- -- -- -- 50,000 --
Net loss........ -- -- -- -- -- -- -- -- -- -- -- --
------- ------ --------- ------- ------- ------ --------- ------- --------- ------- ----------- ---------
Balance, Decem-
ber 31, 1997... 512,821 5,128 2,579,580 25,796 154,861 1,549 -- -- 2,526,865 25,269 3,277,344 --
------- ------ --------- ------- ------- ------ --------- ------- --------- ------- ----------- ---------
Issuance of
Series D
preferred
stock, net of
transaction
costs.......... -- -- -- -- -- -- 4,558,405 45,584 -- -- 15,089,770 --
Issuance of
common stock as
consideration
for private
placement
fees........... -- -- -- -- -- -- -- -- 56,980 570 149,430 --
Issuance of
fully vested
options to non
employees...... -- -- -- -- -- -- -- -- -- -- 19,095 --
Consideration
for purchase of
Informatrix.... -- -- -- -- -- -- -- -- 46,154 461 152,539 --
Unearned
compensation... -- -- -- -- -- -- -- -- -- -- 148,700 (148,700)
Amortization of
unearned
compensation... -- -- -- -- -- -- -- -- -- -- -- 9,294
Net loss........ -- -- -- -- -- -- -- -- -- -- -- --
------- ------ --------- ------- ------- ------ --------- ------- --------- ------- ----------- ---------
Balance, Septem-
ber 30, 1998... 512,821 $5,128 2,579,580 $25,796 154,861 $1,549 4,558,405 $45,584 2,629,999 $26,300 $18,836,878 $(139,406)
------- ------ --------- ------- ------- ------ --------- ------- --------- ------- ----------- ---------

Accumulated Treasury Total shareholders'
deficit stock equity(deficit)
------------- --------- -------------------

Balance, July
28, 1995 (in-
ception)....... $ -- $ -- $ --
Issuance of com-
mon stock...... -- -- 70,086
Net loss........ (210,975) -- (210,975)
------------- --------- -------------------
Balance, Decem-
ber 31, 1995... (210,975) -- (140,889)
------------- --------- -------------------
Issuance of com-
mon stock...... -- -- 15,000
Issuance of
Series A
preferred
stock, net of
issuance cost.. -- -- 1,000,000
Repurchase of
common stock... -- (60,000) (60,000)
Net loss........ (708,847) -- (708,847)
------------- --------- -------------------
Balance, Decem-
ber 31, 1996... (919,822) (60,000) 105,264
------------- --------- -------------------
Issuance of Se-
ries B pre-
ferred stock... -- -- 2,000,000
Issuance of Se-
ries C pre-
ferred stock... -- -- 200,000
Issuance of
warrants in
connection with
debt
financing...... -- -- 50,000
Net loss........ (4,778,789) -- (4,778,789)
------------- --------- -------------------
Balance, Decem-
ber 31, 1997... (5,698,611) (60,000) (2,423,525)
------------- --------- -------------------
Issuance of
Series D
preferred
stock, net of
transaction
costs.......... -- -- 15,135,354
Issuance of
common stock as
consideration
for private
placement
fees........... -- -- 150,000
Issuance of
fully vested
options to non
employees...... -- -- 19,095
Consideration
for purchase of
Informatrix.... -- -- 153,000
Unearned
compensation... -- -- --
Amortization of
unearned
compensation... 9,294
Net loss........ (8,334,417) -- (8,334,417)
------------- --------- -------------------
Balance, Septem-
ber 30, 1998... $(14,033,028) $(60,000) $ 4,708,801
------------- --------- -------------------

See accompanying notes to consolidated financial statements.

F-5
Financial Statements

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VERTICALNET, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

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Cash flows from operat-
ing activities:
Net loss............... $(210,975) $ (708,847) $(4,778,789) $(2,842,414) $(8,334,417)
--------- ---------- ----------- ----------- -----------
Adjustments to recon-
cile net loss to net
cash used in operating
activities:
Loss from disposal of
fixed assets.......... -- -- 3,278 -- --
Depreciation, amortiza-
tion and other noncash
charges............... 6,137 62,142 388,058 183,444 411,712
Change in assets:
Accounts receivable... (34,800) (144,142) (428,669) (703,741) (332,010)
Prepaid expenses and
other assets......... (3,092) (15,632) (143,420) (39,681) (459,021)
Change in liabilities:
Accounts payable...... 87,219 10,825 509,434 294,188 570,941
Accrued expenses...... 37,903 (14,024) 135,057 56,908 878,354
Deferred revenues..... 69,333 147,100 493,960 733,220 579,915
--------- ---------- ----------- ----------- -----------
Net cash used in operat-
ing activities......... (48,275) (662,578) (3,821,091) (2,318,076) (6,684,526)
--------- ---------- ----------- ----------- -----------
Cash flows from invest-
ing activities:
Acquisitions, net of
cash acquired......... -- -- -- -- (1,858,389)
Loan to Infomatrix
prior to acquisition.. -- -- -- -- (550,914)
Loan receivable........ -- -- (160,000) -- (4,086)
Capital expenditures... (56,720) (63,646) (235,671) (148,340) (399,038)
--------- ---------- ----------- ----------- -----------
Net cash used in invest-
ing activities......... (56,720) (63,646) (395,671) (148,340) (2,812,427)
--------- ---------- ----------- ----------- -----------
Cash flows from financ-
ing activities:
Borrowings under line
of credit............. -- -- 2,500,000 375,000 --
Repayment of line of
credit................ -- -- -- -- (2,500,000)
Loans from related par-
ties.................. 15,914 100,000 -- -- --
Loans from ICG......... -- -- 1,600,000 650,000 1,550,000
Repayment of loans from
related parties....... -- (20,000) -- -- (100,000)
Principal payments on
obligations under cap-
ital leases........... (139) (2,182) (48,834) (43,130) (122,909)
Borrowings under long-
term debt............. 50,000 -- -- -- --
Repayment of long-term
debt.................. -- (8,009) (9,139) (6,764) (32,852)
Repayment of loans from
ICG................... -- -- (950,000) -- --
Net proceeds from issu-
ance of preferred
stock................. -- 1,000,000 1,550,000 1,350,000 13,741,962
Proceeds from issuance
of common stock....... 70,086 15,000 -- -- --
Repurchase of treasury
stock................. -- (60,000) -- -- --
--------- ---------- ----------- ----------- -----------
Net cash provided by fi-
nancing activities..... 135,861 1,024,809 4,642,027 2,325,106 12,536,201
--------- ---------- ----------- ----------- -----------
Net increase (decrease)
in cash................ 30,866 298,585 425,265 (141,310) 3,039,248
Cash and cash equiva-
lents--beginning of pe-
riod................... -- 30,866 329,451 329,451 754,716
--------- ---------- ----------- ----------- -----------
Cash and cash equiva-
lents--end of period... $ 30,866 $ 329,451 $ 754,716 $ 188,141 $ 3,793,964
========= ========== =========== =========== ===========
Supplemental disclosure
of cash flow informa-
tion:
Cash paid during the
year for interest..... $ 853 $ 13,931 $ 52,925 $ 17,483 $ 57,079
========= ========== =========== =========== ===========
Supplemental schedule of
noncash investing and
financing activities:
Equipment acquired un-
der capital leases.... $ 4,407 $ 53,595 $ 415,195 $ 418,316 $ 353,479
Issuance of common
stock as consideration
for purchase of
Informatrix........... $ -- $ -- $ -- $ -- $ 153,000
Issuance of common
stock as consideration
of private placement
fees.................. $ -- $ -- $ -- $ -- $ 150,000
Issuance of warrants in
connection with debt
financing............. $ -- $ -- $ 50,000 $ -- $ --
Loans from ICG con-
verted to preferred
stock................. $ -- $ -- $ 650,000 $ 650,000 $ 1,550,000
========= ========== =========== =========== ===========

See accompanying notes to consolidated financial statements.

F-6
Financial Statements

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VERTICALNET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to September 30, 1997 is unaudited)

(1) Summary of Significant Accounting Policies

Description of Company

VerticalNet, Inc. (VerticalNet or the Company) is an owner and operator of
vertical trade communities, which are targeted business-to-business communities
of commerce on the Internet. The Company's vertical trade communities are Web
sites that act as industry-specific comprehensive sources of information,
interaction and electronic commerce. Vertical trade communities combine product
information; industry news; requests for proposals; directories; classifieds;
job listings; discussion forums; a variety of electronic commerce opportunities
for buyers and sellers; and other services, such as online professional
education courses and virtual trade shows. Each trade community is individually
branded, focuses on one business sector and caters to individuals with similar
professional interests. The virtual trade communities are designed to attract
technical and purchasing professionals with highly specialized product and
specification requirements and purchasing authority or influence. The Company
was founded on July 28, 1995 and as of September 30, 1998 operates 29 vertical
trade communities in seven major industry groups: environmental; electronics;
services; communications; process industries; sciences; and food & packaging.

The Company currently generates substantially all of its revenue from
Internet advertising including the development of "storefronts" (Web pages that
focus on advertisers products and provide a link to the advertisers Web sites).

Internet Capital Group (ICG) has a majority of the voting securities of the
Company through its ownership of preferred stock of the Company.

The Company has sustained significant net losses and negative cash flows from
operations since its inception. The Company's ability to meet its obligations
in the ordinary course of business is dependent upon its ability to establish
profitable operations or raise additional financing through public or private
equity financing, bank financing, or other sources of capital. During 1998 the
Company sold an additional $15.2 million of its preferred stock. Management
believes that its current funds combined with other available sources of
funding will be sufficient to enable the Company to meet its planned
expenditures through at least December 31, 1998. If financial resources are not
sufficient, management has the intent and believes it has the ability to reduce
expenditures as to not require additional financial resources if such resources
are not available on terms acceptable to the Company.

Unaudited Interim Financial Information

The interim financial statements of the Company for the nine months ended
September 30, 1997, included herein, have been prepared by the Company, without
audit, pursuant to the rules and regulations of the SEC. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations relating to interim financial
statements.

F-7
Financial Statements

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VERTICALNET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1997 is unaudited)

In the opinion of management, the accompanying unaudited interim financial
statements reflect all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the results of the Company's
operations and its cash flows for the nine months ended September 30, 1997. The
accompanying unaudited interim financial statements are not necessarily
indicative of full year results.

Principles of Consolidation

The consolidated financial statements include the financial statements of the
Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.

Property and Equipment

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

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Computer equipment and purchased software......................... 3 years
Office equipment and furniture.................................... 5 years
Trade show equipment.............................................. 7 years
Leasehold improvements............................................ 3 years

Revenue and Editorial and Operational Expenses

The Company's revenues are derived principally from advertising contracts
which include the initial construction of storefronts. The advertising
contracts do not extend beyond one year. Advertising revenues are recognized
ratably over the period of the advertising contract.

Revenues from educational courses are recognized in the period in which the
course is completed and revenues from the sale of books are recognized in the
period in which the books are shipped.

Barter transactions are recorded at the lower of estimated fair value of the
goods or services received or the estimated fair value of the advertisements
given. Barter revenue is recognized when the advertising impressions are
delivered to the customer and advertising expense is recorded when the
advertising impressions are received from the customer. If the advertising
impressions are received from the customer prior to the Company delivering the
advertising impressions a liability is recorded, and if the Company delivers
the advertising impressions to the customer prior to receiving

F-8
Financial Statements

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VERTICALNET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1997 is unaudited)

the advertising impressions a prepaid expense is recorded. From July 28, 1995
(inception) through the year ended December 31, 1997, barter transactions have
been immaterial. For the nine months ended September 30, 1998, the Company
recognized approximately $351,000 of advertising revenues from barter
transactions. The Company has recorded approximately $245,000 in prepaid
expenses as of September 30, 1998 for barter advertising delivered to customers
and approximately $129,000 is recorded as barter advertising expense for the
nine months ended September 30, 1998 for barter advertising provided to the
Company by its customers.

Editorial and operational expenses primarily consist of Internet connection
charges, depreciation, purchased content, salaries and benefits of operating
and editorial personnel, and other related operating costs.

Concentration of Credit Risk

The Company performs ongoing credit evaluations of its customers' financial
condition and generally does not require collateral on accounts receivable. The
Company maintains allowances for credit losses and such losses have been within
management's expectations. No single customer accounted for greater than 10% of
total revenues during the period from July 28, 1995 (inception) through
December 31, 1995 and the years ended December 31, 1996 and 1997 and the nine
month periods ended September 30, 1997 and 1998.

Financial Instruments

The Company's financial instruments principally consist of cash, accounts
receivable, accounts payable, loans payable and capital lease obligations that
are carried at cost which approximates fair value.

Product Development

Product development costs consists principally of salaries and related costs,
which are charged to expense as incurred.

Advertising Costs

The Company charges advertising costs to expense as incurred. Advertising
expense was approximately $38,000, $21,000 and $198,000 for the period from
July 28, 1995 (inception) through December 31, 1995 and the years ended
December 31, 1996 and 1997, respectively, and $126,000 and $1,323,000 for the
nine months ended September 30, 1997 and 1998, respectively.

Income Taxes

The Company records income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases

F-9
Financial Statements

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VERTICALNET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1997 is unaudited)

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

Accounting for Impairment of Long-Lived Assets

The Company records impairment losses on long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amount.

Goodwill and Intangibles

Goodwill is amortized using the straight-line method from the date of
acquisition over the expected period to be benefited, estimated at 36 months.
The Company periodically assesses the recoverability of goodwill, as well as
other long-lived assets, based upon expectations of future undiscounted cash
flows.

Deferred Offering Costs

As of September 30, 1998, specific incremental costs directly attributable to
the planned initial public offering (IPO) process have been deferred. These
costs will be charged against additional paid-in-capital in connection with the
consummation of this offering.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Stock Options

The Company accounts for the grant of employee options to purchase common
stock in accordance with Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS No. 123). SFAS 123 gives
companies the option to adopt the fair value method for expense recognition of
employee stock options or to continue to account for stock options and stock-
based awards using the intrinsic value method, as outlined under Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB
25) and to make pro forma disclosures of net loss as if the fair value method
had been applied. The Company elected to apply APB 25 to account for stock
options and has disclosed the pro forma net loss as if the fair value method
had been applied.

F-10
Financial Statements

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VERTICALNET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1997 is unaudited)

Stock Splits

In February 1996 and February 1997, the Company's Board of Directors
authorized and implemented an 11,008 for one and a 4.7619-for-one, stock
split, respectively. All share amounts have been retroactively restated to
reflect these events in the accompanying financial statements.

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

The Company adopted Computation of Earnings Per Share, (SFAS No. 128),
during the year ended December 31, 1997. In accordance with SFAS No. 128,
basic earnings per share is computed using the weighted average number of
common shares outstanding during the period. Dilutive earnings per share is
computed using the weighted average number of common and dilutive common
equivalent shares outstanding during the period. Common equivalent shares
consist of the incremental common shares issuable upon the exercise of stock
options and warrants (using the treasury stock method) and the incremental
common shares issuable upon the conversion of the convertible preferred stock
(using the if-converted method). Common equivalent shares are excluded from
the calculation if their effect is anti-dilutive. Pursuant to SEC Staff
Accounting Bulletin No. 98, common stock and convertible preferred stock
issued for nominal consideration, prior to the anticipated effective date of
an IPO, are required to be included in the calculation of basic and diluted
net loss per share as if they were outstanding for all periods presented. To
date, the Company has not had any issuances or grants for nominal
consideration.

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

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

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Years Ended Nine Months Ended
December 31, September 30,
----------------------- ------------------------
July 28, 1995 (inception)
Basic and Diluted net loss per share To December 31, 1995 1996 1997 1997 1998
------------------------------------ ------------------------- ---------- ----------- ----------- -----------

Numerator: Net loss...... $ (210,975) $ (708,847) $(4,778,789) $(2,842,414) $(8,334,417)
Denominator:
Weighted-average shares
outstanding basic and
diluted............... 1,096,679 2,583,648 2,526,865 2,526,865 2,550,619
Basic and diluted net
loss per share.......... $ (0.19) $ (0.27) $ (1.89) $ (1.12) $ (3.27)
========== ========== =========== =========== ===========
Pro forma net loss per
share
Numerator: Net loss...... $ (210,975) $ (708,847) $(4,778,789) $(2,842,414) $(8,334,417)
Denominator:
Weighted-average shares
outstanding basic and
diluted............... 1,096,679 3,326,284 6,184,326 5,677,540 10,052,180
Basic and diluted net
loss per share.......... $ (0.19) $ (0.21) $ (0.77) $ (0.50) $ (0.83)
========== ========== =========== =========== ===========

F-11
Financial Statements

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VERTICALNET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1997 is unaudited)

Recent Accounting Pronouncements

In June 1997 the Financial Accounting Standards Board (FASB) issued Reporting
Comprehensive Income (SFAS No. 130), which establishes standards for reporting
and display of comprehensive income and its components in the financial
statements. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997. Reclassification of financial statements for earlier periods provided
for comparative purposes is required. SFAS No. 130 offers alternatives for
presentation of disclosures required by the standard. The adoption of SFAS No.
130 had no impact on the Company's results of operations, financial position or
cash flows, as the amount of comprehensive loss is the same as the net loss for
all periods presented.

In June 1997 the FASB issued Disclosures about Segments of an Enterprise and
Related Information (SFAS No. 131), which establishes standards for reporting
information about operating segments in annual financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997. The adoption of SFAS No. 131 will not
have an impact on the Company's results of operations, financial position or
cash flows.

In February 1998 the FASB issued Employers' Disclosures about Pension and
Other Postretirement Benefits (SFAS No. 132), which revises employers'
disclosures about pension and other postretirement benefit plans. SFAS No. 132
does not change the measurement or recognition of those plans. SFAS No. 132 is
effective for fiscal years beginning after December 15, 1997. The adoption of
SFAS No. 132 will not have an impact on the Company's results of operations,
financial position or cash flows.

In March 1998 the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position 98-1, Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use (SOP 98-1). SOP 98-1 is effective for
financial statements for years beginning after December 15, 1998. SOP 98-1
provides guidance on accounting for computer software developed or obtained for
internal use including the requirement to capitalize specified costs and
amortization of such costs. The Company does not expect the adoption of this
standard to have a material effect on the Company's capitalization policy.

In April 1998 the AICPA issued Statement of Position 98-5, Reporting on the
Costs of Start-Up Activities (SOP 98-5). SOP 98-5, which is effective for
fiscal years beginning after December 15, 1998, provides guidance on the
financial reporting of start-up costs and organization costs. It requires costs
of start up activities and organization costs to be expensed as incurred. As
the Company has expensed these costs historically, the adoption of this
standard is not expected to have a significant impact on the Company's results
of operations, financial position or cash flows.

In June 1998 the FASB issued Accounting for Derivatives and Hedging
Activities (SFAS 133), which establishes accounting and reporting standards for
derivative instruments, including certain

F-12
Financial Statements

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VERTICALNET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1997 is unaudited)

derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. As the Company
does not currently engage or plan to engage in derivative or hedging
activities, there will be no impact to the Company's results of operations,
financial position or cash flows upon the adoption of this standard.

(2) Unaudited Pro Forma Balance Sheet

The Company is planning on filing a registration statement with the
Securities and Exchange Commission (SEC) that would permit the Company to sell
shares of the Company's common stock in connection with a proposed IPO. In
addition, in November of 1998, the Company obtained $5.0 million of convertible
notes from ICG and certain holders of the Series D preferred stock and a $2.0
million note from a bank.

The unaudited pro forma balance sheet as of September 30, 1998 reflects:

(a) The Company's capitalization, if the IPO is consummated under terms
presently anticipated. Upon closing of the proposed IPO, all of the
then outstanding shares of the Company's convertible preferred stock
will automatically convert into 9,734,846 shares of common stock on the
basis that the Series A preferred stock converts to shares of common
stock on a ratio of 4.7619:1 and the Series B, C and D preferred stock
converts on a ratio of 1:1. The conversion of the convertible preferred
stock has been reflected in the accompanying unaudited pro forma
consolidated balance sheet as if it had occurred on September 30, 1998.

(b) The $5.0 million of convertible notes from ICG and certain holders of
the Series D preferred stock that convert into shares of common stock
at the consumation of the IPO and the $2.0 million note from a bank as
more fully described in Note 14. In connection with these loans the
Company issued warrants to purchase an aggregate of 102,564 shares of
the Company's common stock with an estimated fair value of $200,000.

(3) Acquisitions

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

In September 1998 the Company acquired all of the outstanding capital stock
of Informatrix Worldwide, Inc. (Informatrix) for 46,154 shares of the Company's
common stock valued at $153,000. Informatrix operates a vertical community in
the property and casualty insurance industry that caters to risk managers,
agents, brokers and other professionals in the insurance industry. The

F-13
Financial Statements

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VERTICALNET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1997 is unaudited)

acquisition was accounted for under the purchase method of accounting. The
estimated excess of the purchase price over the fair value of the net assets
acquired of approximately $903,000 was recorded as goodwill and will be
amortized over 36 months. The purchase agreement also provides for the Company
to issue up to 11,538 additional shares of the Company's common stock to the
Informatrix shareholders in the event that Informatrix achieves certain sales
targets through December 1998. As of October 31, 1998, the former shareholders
of Informatrix earned 2,200 shares of common stock which was valued at $7,293.
The additional consideration was accounted for as additional goodwill.

The following unaudited pro forma financial information presents the combined
results of operations of VerticalNet, BITC and Informatrix as if the
acquisitions occurred on January 1, 1997, after giving effect to certain
adjustments including amortization of goodwill. The unaudited pro forma
financial information does not necessarily reflect the results of operations
that would have occurred had VerticalNet, BITC and Informatrix constituted a
single entity during such periods.

[Download Table]

Year ended Nine months ended
December 31, September 30,
------------- ------------------------
1997 1997 1998
------------- ----------- -----------

Revenues.............................. $ 1,118,030 $ 779,458 $ 2,331,869
=========== =========== ===========
Net loss.............................. $(5,789,177) $(3,405,718) $(9,800,563)
=========== =========== ===========
Net loss per share.................... $ (2.28) $ (1.35) $ (3.77)
=========== =========== ===========

(4) Property and Equipment

[Download Table]

December 31, September 30,
------------------- -------------
1996 1997 1998
-------- --------- -------------

Computer equipment and purchased soft-
ware................................... $148,028 $ 654,157 $ 1,417,280
Office equipment and furniture.......... 6,645 102,279 148,189
Trade show equipment.................... 19,605 34,079 40,587
Leasehold improvements.................. -- 29,401 43,198
-------- --------- -----------
174,278 819,916 1,649,254
Less: accumulated depreciation and amor-
tization............................... (67,869) (328,063) (645,713)
-------- --------- -----------
Property and equipment, net............. $106,409 $ 491,853 $ 1,003,541
======== ========= ===========

(5) Line of Credit

The Company had a line of credit with a bank in the amount of $2,500,000 at
December 31, 1997. Borrowings under the facility were collateralized by a
security interest in all assets of the Company and required the Company to meet
specified financial ratios. As of December 31, 1997, the Company was in
technical default, as it did not meet the specified financial ratios. The bank
waived these violations for the year ended December 31, 1997. The facility
bears interest at prime plus 1.5% (10% at December 31, 1997). The weighted
average interest rate for borrowings under this facility was 10% for the year
ended December 31, 1997. In connection with obtaining these facilities, the

F-14
Financial Statements

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VERTICALNET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1997 is unaudited)

Company issued warrants to purchase its common stock (Note 9). ICG has
guaranteed repayment of $2.0 million under the line of credit agreement. The
Company repaid all amounts outstanding under this facility in May 1998 and
consequently, the guarantee from ICG was cancelled. Subsequently, the bank
provided a $500,000 line of credit, which expires on June 30, 1999 and is
collateralized by a security interest in all of the assets of the Company with
an interest rate prime plus 1.5%.

(6) Accrued Expenses

[Download Table]

December 31, September 30,
---------------- -------------
1996 1997 1998
------- -------- -------------

Accrued compensation and related costs...... $ -- $ 90,833 $ 699,226
Accrued professional fees................... 14,500 25,698 282,499
Other....................................... 9,379 42,405 75,176
------- -------- ----------
$23,879 $158,936 $1,056,901
======= ======== ==========

(7) Long-term Debt

[Download Table]

December 31, September 30,
------------------ -------------
1996 1997 1998
-------- -------- -------------

Term notes with related parties............ $100,000 $100,000 $ --
Term bank note............................. 41,991 32,852 --
Capital leases............................. 51,591 417,952 675,698
-------- -------- --------
193,582 550,804 675,698
Less: current portion...................... (26,515) (150,856) (301,570)
-------- -------- --------
Long-term debt............................. $167,067 $399,948 $374,128
======== ======== ========

The Company had a term loan with another bank with an interest rate at prime
plus 2.75% (11.25% at December 31, 1997) which was payable in 36 monthly
installments. This note was repaid in May 1998.

In May, June and July 1997, ICG lent an aggregate of $650,000 to the Company
at a rate of 9.5%. These amounts were converted to Series B preferred stock in
July 1997 (note 9).

In October, November and December 1997, ICG lent an aggregate of $950,000 to
the Company also at a rate of 9.5%. These amounts were repaid on December 30,
1997.

In February, March and April 1998, ICG lent an aggregate of $1,550,000 to the
Company, also at a rate of 9.5%. These amounts were converted to Series D
preferred stock in May 1998 (note 9).

The Company had three unsecured term notes due to shareholders with an
interest rate of 7%. The notes were to mature on February 2001. One of the
holders of these notes is a board member of ICG. These notes were repaid in May
1998.

F-15
Financial Statements

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VERTICALNET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1997 is unaudited)

The Company has several capital leases on its equipment with lease terms
ranging from three to five years. The interest rates implicit in the leases are
8% to 20%. At December 31, 1996, 1997 and September 30, 1998, the book value of
assets held under capital leases were approximately $49,000, $300,000 and
$514,000, respectively, and the aggregate remaining minimum lease payments at
September 30, 1998 were approximately $759,000 including interest of
approximately $83,000.

At September 30, 1998, long-term debt will mature as follows:

[Download Table]

1999............................................................ $ 278,681
2000............................................................ 238,154
2001............................................................ 122,197
2002............................................................ 32,751
2003............................................................ 3,915
---------
Total......................................................... $ 675,698
=========

(8) Commitments and Contingencies

The Company leases its facilities under operating lease agreements expiring
through 2001. Future minimum lease payments as of September 30, 1998 under the
leases are as follows:

[Download Table]

1999............................................................ $ 272,078
2000............................................................ 201,735
2001............................................................ 79,600

Rent expense under the noncancelable operating leases was approximately
$5,100, $24,300, and $81,200 for the period from July 28, 1995 (inception) to
December 31, 1995 and the years ended December 31, 1996 and December 31, 1997,
respectively, and $71,000 and $228,000 for the nine months ended September 30,
1997 and 1998, respectively.

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

F-16
Financial Statements

424B1 94th Page of 125 TOC 1st Previous Next ↓Bottom Just 94th
VERTICALNET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1997 is unaudited)

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

[Download Table]

1998........................................................... $1,140,456
1999........................................................... 137,978
2000........................................................... 24,000

The Company has entered into employment agreements with several employees.
The agreements are cancelable, but require severance upon termination. As of
December 31, 1997, the Company would be required to pay approximately $950,000
in severance (of which $500,000 has been guaranteed by ICG) in the event that
these employment agreements are cancelled. As part of the employment agreement
with the Company's president and chief executive officer, the Company had
committed to grant options to purchase 6% of the Company's common stock.
Pursuant to this agreement, the Company granted 307,692, 196,481 and 231,530
options in October 1997, January 1998 and June 1998, respectively, at an
exercise price of $0.80, $0.80 and $2.63, respectively, which was the then fair
value of the Company's common stock. At September 30, 1998, the Company has
satisfied its obligations under this agreement.

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

(9) Capital Stock

The Company's restated Articles of Incorporation provides the Company with
the authority to issue 40,000,000 shares of common stock and 40,000,000 shares
of preferred stock.

Preferred Stock

In September 1996 the Company sold 512,821 shares of Series A preferred stock
(Series A) for $1,000,000. In July 1997 the Company sold 2,579,580 shares of
Series B preferred stock (Series B) for $2,000,000. In October 1997 the Company
sold 154,861 shares of Series C preferred stock (Series C) for $200,000.

On May 11, 1998 and June 10, 1998, the Company sold 3,988,604 and 569,801
shares of Series D preferred stock (Series D), respectively, for an aggregate
amount of approximately $15.2 million. If the Company does not complete an IPO
as defined, by May 1, 2000, the Series D has a cumulative dividend rate equal
to 6% of the original purchase price ($3.51 per share) which is due and payable
on May 1, 2000. Thereafter, the Series D cumulative dividends will continue to
accrue and are payable quarterly until the closing of an IPO. The holders of
the Series D preferred have demand and piggy-back registration rights as
defined.

F-17
Financial Statements

424B1 95th Page of 125 TOC 1st Previous Next ↓Bottom Just 95th
VERTICALNET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1997 is unaudited)

Holders of preferred stock have the option to convert such shares into shares
of common stock on a 1:1 ratio, except for the Series A preferred stock which
converts on a ratio of 4.7619:1. The conversion rate on a particular series of
preferred stock is subject to an adjustment in the event that any additional
common stock, or other shares convertible into common stock, are issued for a
per share price less than the particular series conversion price. Mandatory
conversion occurs upon the closing of an IPO of the Company's common stock, as
defined. The Series D is senior to the Company's Series A, Series B and Series
C in liquidation and the holders of Series A, Series B and Series C are
entitled to receive an amount equal to their respective redemption price prior
to the distribution to the common shareholders.

The preferred stock votes on an as if converted basis. The Series A, Series B
and Series C, together have the right to elect two directors of the Company and
the Series D holders have the right to elect two directors of the Company. The
holders of preferred stock have no right to elect or appoint directors after
the shares convert into common stock upon the closing of an IPO.

Preferred stock consists of the following at December 31, 1996, 1997 and
September 30, 1998:

[Download Table]

December 31,
----------------- September 30,
Per share 1996 1997 1998
liquidation ------- --------- -------------
Preferred Class value Authorized Issued and outstanding
--------------- ----------- ---------- -------------------------------

Series A............. $1.95 512,821 512,821 512,821 512,821
Series B............. .78 2,615,385 -- 2,579,580 2,579,580
Series C............. 1.31 205,128 -- 154,861 154,861
Series D............. 3.51 4,615,385 -- -- 4,558,405
--------- ------- --------- ---------
7,948,719 512,821 3,247,262 7,805,667
========= ======= ========= =========

Common Stock

At September 30, 1998, 9,734,846 shares of common stock are reserved for the
conversion of preferred stock.

Warrants

On April 30, 1997, the Company issued a warrant to its bank (Note 5) to
purchase 19,347 shares of common stock at a price $0.76 per share. The warrant
expires on April 1, 2007.

In connection with the Company obtaining additional financing from its bank,
in December 1997, the Company issued to its bank a warrant to purchase a
maximum of 77,430 shares of common stock at an exercise price of $1.29 per
share. The exercise price and number of shares to be purchased are subject to
adjustment, based upon the Company's next round of equity financing. The
warrant expires on November 30, 2008.

In December 1997 the Company issued a warrant to ICG, the Company's majority
shareholder, to purchase a maximum 154,861 shares of common stock at an
exercise price of $1.29 per share. In

F-18
Financial Statements

424B1 96th Page of 125 TOC 1st Previous Next ↓Bottom Just 96th
VERTICALNET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1997 is unaudited)

March 1998 the Company issued an additional warrant to ICG to purchase a
maximum of 77,430 shares of common stock at an exercise price of $1.29 per
share. The warrants were issued in connection with certain guarantees of the
Company's bank debt by ICG. The exercise price and number of shares are subject
to adjustment, based upon the Company's next round of equity financing. The
warrant expires on November 30, 2008.

In May 1998 in connection with the Company's equity financing, the Company
cancelled the warrants issued to ICG and its bank in December 1997 and issued
new warrants to purchase an aggregate of 113,960 shares of common stock at an
exercise price of $3.51 per share.

The estimated fair value of the warrants issued to the Company's bank and ICG
is $50,000 and was recorded as interest expense in the accompanying statement
of operations for the year ended December 31, 1997.

(10) Stock Option Plan

In December 1996 the Company's Board of Directors adopted the 1996 stock
option plan (the Plan). A total of 615,385 shares of common stock were reserved
for issuance under this Plan and this amount was increased to 1,846,154 in
January 1998 and 2,025,641 in August 1998.

The exercise price for the options is determined by the Board of Directors,
but shall not be less than 100% of the fair market value of the common stock on
the date the option is granted. Generally, the options vest over a four-year
period after the date of grant and expire ten years after the date of grant.
Option holders that terminate their employment with the Company generally
forfeit all non-vested options. Employees, key advisors and non-employee
directors of the Company are eligible to receive awards under the Plan.

The following table summarizes the activity of the Company's stock option
plan:

[Download Table]

Weighted
average
Shares exercise price
--------- --------------

Outstanding at January 1, 1997..................... -- $ --
Options granted.................................... 555,213 0.64
Options cancelled.................................. -- --
--------- ------
Outstanding at December 31, 1997................... 555,213 0.64
Options granted.................................... 1,404,412 1.99
Options cancelled.................................. (52,051) 1.42
--------- ------
Outstanding at September 30, 1998 ................. 1,907,574 $ 1.62
========= ======

F-19
Financial Statements

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VERTICALNET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1997 is unaudited)

The following table summarizes information about stock options outstanding at
September 30, 1998:

[Download Table]

Options Outstanding Options Exercisable
-------------------------------- --------------------
Weighted-
Average
Remaining Weighted Weighted
Contractual Average Average
Exercise Number Life Exercise Number Exercise
Price Outstanding (years) Price Outstanding Price
-------- ----------- ----------- -------- ----------- --------

$0.29..................... 178,417 8.48 $0.29 74,193 $0.29
0.80..................... 844,681 9.20 0.80 167,381 0.80
0.98..................... 61,667 9.46 0.98 7,326 0.98
2.63..................... 639,734 9.74 2.63 34,102 2.63
3.32..................... 183,075 9.91 3.32 19,231 3.32
--------- -------
1,907,574 302,233
========= =======

The Company applies APB 25 and related interpretations in accounting for its
stock option plan. Had compensation cost been recognized pursuant to SFAS No.
123, the Company's net loss would have been increased to the pro forma amounts
indicated below:

[Download Table]

Nine months
Year ended ended
December 31, September
1997 30, 1998
------------ ------------

Net loss:
As reported......................................... $(4,778,789) $(8,334,417)
Pro forma........................................... $(4,785,358) $(8,394,851)
Pro forma loss per share:
As reported......................................... $(1.89) $(3.27)
Pro forma........................................... $(1.89) $(3.29)

The per share weighted-average fair value of options issued by the Company
during 1997 and 1998 was $0.20 and $1.59 respectively.

The following range of assumptions were used by the Company to determine the
fair value of stock options granted using the minimum value option-price model:

[Download Table]

1997 1998
------- -------

Dividend yield.................................................. 0% 0%
Expected volatility............................................. 0% 0%
Average expected option life.................................... 5 years 5 years
Risk-free interest rate......................................... 5.9% 4.62%

(11) Defined Contribution Plan

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

F-20
Financial Statements

424B1 98th Page of 125 TOC 1st Previous Next ↓Bottom Just 98th
VERTICALNET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1997 is unaudited)

(12) Income Taxes

Prior to June 1996, the Company elected to be treated for federal income tax
purposes as an S Corporation under Subchapter S of the Internal Revenue Code
(the Code). As a result, the Company's earnings for prior tax years and through
September 12, 1996, the date of termination of the Company's S Corporation
status (the termination date) had been taxed for federal income tax purposes
directly to the Company's shareholders, rather than to the Company.

The components of the net deferred tax assets as of December 31, 1996 and
1997 and September 30, 1998 consists of the following:

[Download Table]

December 31, December 31, September 30,
Deferred tax assets: 1996 1997 1998
-------------------- ------------ ------------ -------------

Net operating losses................ $ 52,803 $ 1,655,741 $ 4,912,191
Reserves............................ -- 103,200 23,498
Depreciation........................ 14,921 42,856 50,460
Deferred revenue and other.......... 128,603 287,979 885,534
--------- ----------- -----------
196,327 2,089,776 5,871,683
Valuation allowance................. (196,327) (2,089,776) (5,871,683)
--------- ----------- -----------
$ -- $ -- $ --
========= =========== ===========

Deferred income taxes reflect the net tax effects of temporary differences
between carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which temporary
differences representing net future deductible amounts become deductible. Due
to the uncertainty of the Company's ability to realize the benefit of the
deferred tax assets, the deferred tax assets are fully offset by a valuation
allowance at December 31, 1996 and 1997 and September 30, 1998.

As of September 30, 1998, the Company has approximately $12,367,000 of net
operating loss carryforwards for federal tax purposes. These carryforwards will
begin expiring in 2013 if not utilized. In addition, the Company has net
operating loss carryforwards in certain states with various expiration periods
beginning in 2000.

Under the Tax Reform Act of 1986, the utilization of a corporation's net
operating loss carryforward is limited following a greater than 50% change in
ownership. Due to the Company's prior and current equity transactions, the
Company's net operating loss carryforwards may be subject to an annual
limitation. Any unused annual limitation may be carried forward to future years
for the balance of the net operating loss carrryforward period.

(13) Informatrix Worldwide, Inc.

During 1997 the Company entered into a $250,000 non-refundable Web site
development contract with Informatrix. In addition, under the contract the
Company was to maintain the Web site

F-21
Financial Statements

424B1 99th Page of 125 TOC 1st Previous Next ↓Bottom Just 99th
VERTICALNET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1997 is unaudited)

for $20,000 per month, until either the Company or Informatrix terminated the
agreement. The Company substantially completed all of its obligations under the
development portion of the contract as of December 31, 1997, but deferred
recognition of revenue until the amounts were deemed collectible from
Informatrix. No revenue was recorded by the Company under the above contracts
in 1997 and 1998. Such development costs were charged to expense, as incurred.

In addition, the Company advanced Informatrix $160,000 in 1997, as evidenced
by a demand note. The Company had provided a reserve of $80,000 against this
note. The note is unsecured and bears interest at prime plus 1.5% (10% at
December 31, 1997).

During the nine months ended September 30, 1998, the Company advanced an
additional $555,000 to Informatrix.

(14) Subsequent Events

Options Granted

On November 11, 1998, the Company granted 115,641 options, with an exercise
price of $3.32 per share for which the Company will record approximately
$500,000 in deferred compensation expense. On December 15, 1998, the Company
granted 143,084 options, at the IPO price.

Bank Note

On November 25, 1998 the Company executed a $2.0 million note with a bank.
The note has an interest rate of prime plus 1.5% and matures at the earlier of
March 31, 1999 or the completion of the Company's next financing. In connection
with the loan, the Company issued warrants to purchase 20,513 shares of the
Company's common stock with an estimated fair value of $40,000. The exercise
price of the warrants will be equal to the price in the Company's next
financing as defined.

Convertible Notes

On November 25, 1998, ICG and certain holders of the Series D preferred stock
(the note holders) lent the Company $5.0 million in convertible notes. The
notes mature on the earlier of (i) closing of an IPO or (ii) closing of the
next round of private equity financing or (iii) May 31, 1999. In addition, the
note holders have the right to convert the convertible notes into shares of the
Company's common stock at the price per share of common stock in the IPO or the
price per share in the next round of financing, whichever occurs first. The
note holders have consented to convert the $5.0 million in convertible notes in
the IPO. In connection with the notes, the Company issued warrants to purchase
82,051 shares of the Company's common stock with an estimated fair value of
$160,000. The exercise price of the warrants will be equal to the price in the
Company's next round of financing as defined.

Initial Public Offering

In November 1998 the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission (SEC) that
would permit the Company to sell shares of the Company's common stock in
connection with a proposed IPO.

F-22
Financial Statements

424B1 100th Page of 125 TOC 1st Previous Next ↓Bottom Just 100th
VERTICALNET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1997 is unaudited)

Employee Stock Purchase Plan (unaudited)

In January 1999 the Board adopted an Employee Stock Purchase Plan and
reserved an additional 300,000 shares of common stock for issuance thereunder.

Stock Option Plan (unaudited)

In January 1999 the Board of Directors authorized an increase in the shares
reserved for issuance under the Company's Stock Option Plan from 2,025,641 to
3,600,000. In addition a total of 197,872 options were granted at the IPO
price.

Acquisition (unaudited)

In January 1999 the Company acquired certain assets and assumed certain
liabilities including the Safetyonline Web site from Coastal Video
Communications (Coastal). The Company paid $260,000 in cash, issued a $50,000
note, to be paid within 90 days of the closing of the purchase, and provided
Coastal an advertising commitment on the Company's Web sites which will be
subsequently valued. The results of operations from Safetyonline are not
material to the Company's financial position or results of operations.

AltaVista (unaudited)

On January 19, 1999 the Company entered into a one year agreement with Compaq
Computer Corporation (Compaq) and its Internet Web site known as AltaVista. The
agreement provides for the Company and AltaVista to sponsor and promote thirty-
one co-branded Web pages. The agreement requires the Company to pay Compaq $1.0
million over the term of the agreement based on the number of advertising
impressions delivered. Such amount will be charged to expense as the
advertising impressions are provided by AltaVista. In addition, each Company
will provide the other with $300,000 in barter advertising during the term of
the agreement.

Capital Stock (unaudited)

On January 19, 1999 the Board of Directors of the Company authorized the
Company to file for a Restated Articles of Incorporation. The Restated Articles
of Incorporation will become effective upon the closing of the IPO and
authorized an increase to 90,000,000 shares of common stock and 10,000,000
shares of blank check preferred stock.

Reverse Stock Split

On January 19, 1999 the Board of Directors of the Company approved a 1-for-
1.95 reverse stock split of the Company's common stock to be effective upon
receiving shareholder approval. On February 7, 1999 the Company's shareholders
approved the reverse stock split of the Company's common stock. All references
in the consolidated financial statements to shares, share prices and per share
amounts have been adjusted retroactively for the reverse stock split.

F-23
Financial Statements

424B1 101st Page of 125 TOC 1st Previous Next ↓Bottom Just 101st
INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Boulder Interactive Technology Services Company:

We have audited the accompanying balance sheets of Boulder Interactive
Technology Services Company d/b/a Microwave Online Services Company and RF
Globalnet as of December 31, 1996 and 1997 and the related statements of
operations, shareholders' equity and cash flows for the period from March 22,
1996 (inception) through December 31, 1996 and for the year ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Boulder Interactive Technology
Services Company d/b/a Microwave Online Services Company and RF Globalnet as of
December 31, 1996 and 1997, and the results of its operations and its cash flow
for the period from March 22, 1996 (inception) through December 31, 1996 and
for the year ended December 31, 1997 in conformity with generally accepted
accounting principles.

KPMG LLP

August 21, 1998
Philadelphia, Pennsylvania

F-24
Financial Statements

424B1 102nd Page of 125 TOC 1st Previous Next ↓Bottom Just 102nd
BOULDER INTERACTIVE TECHNOLOGY SERVICES COMPANY
d/b/a MICROWAVE ONLINE SERVICES COMPANY and RF GLOBALNET

BALANCE SHEETS

[Download Table]

December 31, December 31, June 30,
1996 1997 1998
------------ ------------ -----------
(unaudited)

Assets
Current assets:
Cash................................... $ 60,657 $ 99,035 $ 85,727
Accounts receivable.................... -- 66,277 25,027
Prepaid expenses....................... -- -- 1,525
--------- --------- --------
Total current assets................. 60,657 165,312 112,279
--------- --------- --------
Property and equipment, net.............. 15,119 19,185 24,019
Other assets............................. 4,331 3,208 3,068
--------- --------- --------
Total assets......................... $ 80,107 $ 187,705 $139,366
========= ========= ========
Liabilities and Shareholders' Equity
Current liabilities:
Note payable--shareholder.............. 13,852 -- --
Current portion of lease obligation.... -- -- 937
Accounts payable....................... 91 14,108 9,890
Accrued expenses....................... 19,255 7,806 9,303
Deferred revenues...................... -- 85,909 84,523
--------- --------- --------
Total current liabilities............ 33,198 107,823 104,653
--------- --------- --------
Long-term portion of lease obligation.... -- -- 5,137
Commitments and contingencies (note 3)
Shareholders' equity:
Common stock $.01 par value, 10,000,000
shares authorized, 324,148 and 518,000
shares issued and outstanding in 1996
and 1997, respectively................ 3,241 5,180 5,180
Additional paid-in capital............. 196,167 388,080 410,230
Accumulated deficit.................... (152,499) (313,378) (385,834)
--------- --------- --------
Total shareholders' equity........... 46,909 79,882 29,576
--------- --------- --------
Total liabilities and shareholders'
equity.............................. $ 80,107 $ 187,705 $139,366
========= ========= ========

See accompanying notes to financial statements.

F-25
Financial Statements

424B1 103rd Page of 125 TOC 1st Previous Next ↓Bottom Just 103rd
BOULDER INTERACTIVE TECHNOLOGY SERVICES COMPANY
d/b/a MICROWAVE ONLINE SERVICES COMPANY AND RF GLOBALNET

STATEMENTS OF OPERATIONS

[Download Table]

Period from
March 22, 1996
(inception) Six months Six months
through Year ended ended ended
December 31, December 31, June 30, 1997 June 30, 1998
1996 1997 (unaudited) (unaudited)
-------------- ------------ ------------- -------------

Revenues................ $ 14,661 $ 326,208 $119,335 $317,760
Costs and expenses:
Editorial and operation-
al..................... 16,738 157,645 54,946 84,450
Sales and marketing..... 34,274 78,218 34,749 95,199
General and administra-
tive................... 117,010 252,811 115,062 210,752
--------- --------- -------- --------
Operating loss.......... (153,361) (162,466) (85,422) (72,641)
Interest income, net of
interest expense....... 862 1,587 701 185
--------- --------- -------- --------
Net loss................ $(152,499) $(160,879) $(84,721) $(72,456)
========= ========= ======== ========

See accompanying notes to financial statements.

F-26
Financial Statements

424B1 104th Page of 125 TOC 1st Previous Next ↓Bottom Just 104th
BOULDER INTERACTIVE TECHNOLOGY SERVICES COMPANY
d/b/a MICROWAVE ONLINE SERVICES COMPANY and RF GLOBALNET

STATEMENT OF SHAREHOLDERS' EQUITY

[Download Table]

Common stock
--------------
Additional
paid-in Accumulated
Shares Amount capital deficit Total
------- ------ ---------- ----------- ---------

Issuance of common stock, at
par value................... 126,000 $1,260 $ -- $ -- $ 1,260
Issuance of common stock..... 198,148 1,981 196,167 -- 198,148
Net loss..................... -- -- -- (152,499) (152,499)
------- ------ -------- --------- ---------
Balance at December 31,
1996........................ 324,148 3,241 196,167 (152,499) 46,909
Issuance of common stock..... 193,852 1,939 191,913 -- 193,852
Net loss..................... -- -- -- (160,879) (160,879)
------- ------ -------- --------- ---------
Balance at December 31,
1997........................ 518,000 5,180 388,080 (313,378) 79,882
Compensation related to stock
options (unaudited)......... -- -- 22,150 -- 22,150
Net loss (unaudited)......... -- -- -- (72,456) (72,456)
------- ------ -------- --------- ---------
Balance at June 30, 1998
(unaudited)................. 518,000 $5,180 $410,230 $(385,834) $ 29,576
======= ====== ======== ========= =========

See accompanying notes to financial statements.

F-27
Financial Statements

424B1 105th Page of 125 TOC 1st Previous Next ↓Bottom Just 105th
BOULDER INTERACTIVE TECHNOLOGY SERVICES COMPANY
d/b/a MICROWAVE ONLINE SERVICES COMPANY AND RF GLOBALNET

STATEMENTS OF CASH FLOWS

[Download Table]

Period from
March 22, 1996
(inception)
through Year ended Six months Six months
December 31, December 31, ended ended
1996 1997 June 30, 1997 June 30, 1998
-------------- ------------ ------------- -------------
(unaudited) (unaudited)

Cash flows from
operating activities:
Net loss............... $(152,499) $(160,879) $(84,721) $(72,456)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization......... 2,792 9,077 4,716 5,964
Compensation expense
related to stock
options.............. -- -- -- 22,150
Change in assets:
Accounts
receivable......... -- (66,277) (31,762) 41,250
Prepaid expenses and
other assets....... (4,757) 510 510 (1,657)
Change in liabilities:
Accounts payable.... 91 14,017 13,447 (4,218)
Accrued expenses.... 19,255 (11,449) (9,919) 1,497
Deferred revenues... -- 85,909 21,477 (1,386)
--------- --------- -------- --------
Net cash used in
operating activities... (135,118) (129,092) (86,252) (8,856)
--------- --------- -------- --------
Cash flows from
investing activities:
Capital expenditures... (17,485) (12,530) (4,196) (3,883)
--------- --------- -------- --------
Net cash used in
investing activities... (17,485) (12,530) (4,196) (3,883)
--------- --------- -------- --------
Cash flows from
financing activities:
Increase in note
payable--shareholder.. 13,852 -- -- --
Principal payments on
obligations under
capital lease......... -- -- -- (569)
Proceeds from issuance
of common stock....... 199,408 180,000 95,000 --
--------- --------- -------- --------
Net cash provided by
(used in) financing
activities............. 213,260 180,000 95,000 (569)
--------- --------- -------- --------
Net increase in cash.... 60,657 38,378 4,552 (13,308)
Cash--beginning of
period................. -- 60,657 60,657 99,035
--------- --------- -------- --------
Cash--end of period..... $ 60,657 $ 99,035 65,209 85,727
========= ========= ======== ========
Supplemental disclosure
of cash flow
information:
Cash paid during the
period for interest... $ 2 $ 13 $ -- $ 230
========= ========= ======== ========
Supplemental schedule of
noncash investing and
financing activities:
Issuance of stock in
repayment of note
payable............... $ -- $ 13,852 -- --
Equipment acquired
under capital lease... -- -- -- $ 6,643
Issuance of stock
options............... -- -- -- $ 22,150
========= ========= ======== ========

See accompanying notes to financial statements.

F-28
Financial Statements

424B1 106th Page of 125 TOC 1st Previous Next ↓Bottom Just 106th
BOULDER INTERACTIVE TECHNOLOGY SERVICES COMPANY
d/b/a MICROWAVE ONLINE SERVICES COMPANY

NOTES TO FINANCIAL STATEMENTS
(Information with respect to June 30, 1997 and 1998 is unaudited)

(1) Summary of Significant Accounting Policies

Boulder Interactive Technology Services Company (d/b/a Microwave Online
Services Company and RF Globalnet) (the Company) was formed in March 1996. The
Company operates a Vertical trade community for professionals in the radio
frequency and wireless communications industry. This Web Site gives engineers
access to the latest product and technical information, leading edge education
resources, expert-hosted technical forums and career opportunities in the
field.

Property and Equipment

Property and equipment are stated at cost, net of depreciation. Property and
equipment are depreciated on a straight-line basis over the estimated useful
lives of the assets (three to five years).

Revenue and Cost Recognition

The Company's advertising revenues are derived principally from advertising
contracts which generally do not extend beyond one year. Advertising revenues
are recognized ratably over the term of the contract. Online courses, book
sales and other revenues are generally recognized upon delivery provided that
no significant Company obligations remain and collection of the receivable is
probable. In cases where there are significant remaining obligations, the
Company defers such revenues until those obligations are satisfied.

Barter transactions are recorded at the lower of estimated fair value of the
goods or services received or the estimated fair value of the advertisements
given. Revenue recorded under barter transactions for the year ended December
31, 1997 was $30,000 and $0 and $51,600 for the six months ended June 30, 1997
and 1998, respectively.

Concentration of Credit Risk

The Company does not require collateral on accounts receivable. The Company
maintains allowances for credit losses and such losses have been within
management's expectations. No single customer accounted for greater than 10% of
total revenues for the period from March 22, 1996 (inception) through December
31, 1996 and for the year ended December 31, 1997.

Advertising Costs

The Company expenses advertising costs as incurred. For the period from March
22, 1996 (inception) through December 31, 1996 and for the year ended December
31, 1997 and for the six months ended June 30, 1997 and 1998, advertising
expense was approximately $1,600, $34,000, $2,500 and $59,000, respectively.

F-29
Financial Statements

424B1 107th Page of 125 TOC 1st Previous Next ↓Bottom Just 107th
BOULDER INTERACTIVE TECHNOLOGY SERVICES COMPANY
d/b/a MICROWAVE ONLINE SERVICES COMPANY

NOTES TO FINANCIAL STATEMENTS--(Continued)

Income Taxes

Effective January 1, 1998, the Company records income taxes using the asset
and liability method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and the tax effect of net operating loss carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

Accounting for Impairment of Long-Lived Assets

In accordance with Statement of Financial Accounting Standards No. 121, the
Company records impairment losses on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.

Use of Estimates

Financial Instruments

The Company's financial instruments principally consist of cash, accounts
receivable, accounts payable and a loan payable that are carried at cost which
approximates fair value.

Recent Accounting Pronouncements

F-30
Financial Statements

424B1 108th Page of 125 TOC 1st Previous Next ↓Bottom Just 108th
BOULDER INTERACTIVE TECHNOLOGY SERVICES COMPANY
d/b/a MICROWAVE ONLINE SERVICES COMPANY

NOTES TO FINANCIAL STATEMENTS--(Continued)

products and services, geographic areas and major customers. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997. The adoption of
SFAS No. 131 will not have an impact on the Company's results of operations,
financial position or cash flows.

In February l998 the FASB issued Employers' Disclosures about Pension and
Other Postretirement Benefits (SFAS No. 132), which revises employers'
disclosures about pension and other postretirement benefit plans. SFAS No. 132
does not change the measurement or recognition of those plans. SFAS No. 132 is
effective for fiscal years beginning after December 15, 1997. The adoption of
SFAS No. 132 will not have an impact on the Company's results of operations,
financial position or cash flows.

In March l998 the American Institute of Certified Public Accounts (AICPA)
issued Statement of Position 98-1, Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use (SOP 98-1). SOP 98-1 is effective for
financial statements for years beginning after December 15, 1998. SOP 98-1
provides guidance over accounting for computer software developed or obtained
for internal use including the requirement to capitalize specified costs and
amortization of such costs. The Company does not expect the adoption of this
standard to have a material effect on the Company's capitalization policy.

Stock Options

The Company accounts for the grant of employee options to purchase common
stock in accordance with Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS No. 123). This statement gives
companies the option to adopt the fair value method for expense recognition of
employee stock options or to continue to account for stock options and stock-
based awards using the intrinsic value method, as outlined under Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB
25), and to make pro forma disclosures of net loss as if the fair value method
had been applied. The Company elected to apply APB 25 to account for stock
options and disclose the pro forma net loss as if the fair value method had
been applied (Note 5).

F-31
Financial Statements

424B1 109th Page of 125 TOC 1st Previous Next ↓Bottom Just 109th
BOULDER INTERACTIVE TECHNOLOGY SERVICES COMPANY
d/b/a MICROWAVE ONLINE SERVICES COMPANY

NOTES TO FINANCIAL STATEMENTS--(Continued)

(2) Property and Equipment

Property and equipment is summarized as follows:

[Download Table]

December 31,
----------------- June 30,
1996 1997 1998
------- -------- -----------
(unaudited)

Computer equipment and purchased software... $17,013 $ 29,543 $33,426
Office equipment and furniture.............. 472 472 7,115
------- -------- -------
17,485 30,015 40,541
Less: accumulated depreciation.............. (2,366) (10,830) (16,522)
------- -------- -------
Property and equipment, net................. $15,119 $ 19,185 $24,019
======= ======== =======

(3) Commitments and Contingencies

The Company entered into a capital lease agreement in February 1998 for
office equipment. The lease has a term of five years and an implicit interest
rate of 11%. At June 30, 1998, the book value of assets held under capital
lease is approximately $6,000 and the aggregate remaining minimum lease
payments are approximately $8,000 including interest of approximately $1,000.

The Company leases its facility under an operating lease agreement expiring
in 1999. Future minimum lease payments as of December 31, 1997 under the lease
is as follows:

[Download Table]

1998............................................................... $18,600
1999............................................................... 3,200

Rent expense under this noncancelable operating lease was approximately
$7,600 and $17,000 for the period from March 22, 1996 (inception) through
December 31, 1996 and for the year ended December 31, 1997, respectively and
$8,800 and $9,200 for the six months ended June 30, 1997 and 1998,
respectively.

In addition, the Company has an advertising commitment from the period August
1998 through December 1998, totaling approximately $10,000.

(4) Stock Option Plan

In July 1998 the Company's board of directors adopted the 1998 stock option
plan (the 1998 Plan). A total of 80,000 shares of common stock were reserved
for issuance under this Plan.

The exercise price and the vesting period for the options is determined by
the board of directors. All options expire ten years after the date of grant.
On January 8, 1998, options for 9,750 shares of common stock were granted,
outside of the 1998 Plan, at an exercise price of $0.60 that vested
immediately. Compensation expense of $22,150 was recorded for these options as
they were granted to a non-employee of the Company. On July 2, 1998, options
for 15,832 shares of common stock were granted at an exercise price of $0.60,
under the 1998 Plan, that vest over a four-year period. Compensation expense of
$47,700 was recorded by the Company in July 1998 in connection with the

F-32
Financial Statements

424B1 110th Page of 125 TOC 1st Previous Next ↓Bottom Just 110th
BOULDER INTERACTIVE TECHNOLOGY SERVICES COMPANY
d/b/a MICROWAVE ONLINE SERVICES COMPANY

NOTES TO FINANCIAL STATEMENTS--(Continued)

options granted on July 2, 1998 as the vesting on these options was accelerated
due to the Company being acquired in September 1998 (Note 6).

(5) Income Taxes

The Company elected "C" corporation status in March 1998, effective on
January 1, 1998. Prior to that election, the Company was an "S" corporation.

(6) Subsequent Event

On September 1, 1998, the Company was acquired by VerticalNet, Inc.
(VerticalNet). Under the terms of that transaction, VerticalNet acquired all of
the outstanding stock of the Company in exchange for approximately $1.8 million
in cash.

F-33
Financial Statements

424B1 111th Page of 125 TOC 1st Previous Next ↓Bottom Just 111th
INDEPENDENT AUDITORS' REPORT

The Board of Directors
Informatrix Worldwide, Inc.:

We have audited the accompanying balance sheet of Informatrix Worldwide, Inc.
as of December 31, 1997 and the related statements of operations, shareholders'
deficit and cash flows for the period from October 15, 1997 (inception) to
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Informatrix Worldwide, Inc. as
of December 31, 1997 and the results of its operations and its cash flows for
the period from October 15, 1997 (inception) to December 31, 1997 in conformity
with generally accepted accounting principles.

KPMG LLP

August 21, 1998
Philadelphia, Pennsylvania

F-34
Financial Statements

424B1 112th Page of 125 TOC 1st Previous Next ↓Bottom Just 112th
INFORMATRIX WORLDWIDE, INC.

BALANCE SHEETS
(Information as of September 30, 1998 is unaudited)

[Download Table]

December 31, September 30,
1997 1998
------------ -------------
(unaudited)

Assets
Current assets:
Cash.............................................. $ 6,196 $ --
Accounts receivable............................... -- 53,200
Officer loan receivable........................... 3,500 3,500
--------- -----------
Total current assets............................ 9,696 56,700
--------- -----------
Computer equipment, net........................... 27,020 19,856
Other assets...................................... 1,003 1,003
--------- -----------
Total assets.................................... $ 37,719 $ 77,559
========= ===========
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable and accrued expenses............. $ 17,750 $ 38,964
Accounts payable to related party................. 250,000 430,000
Current portion of lease obligation............... 8,298 9,336
Loans payable to related party.................... 160,000 751,994
Deferred revenues................................. -- 106,725
--------- -----------
Total current liabilities....................... 436,048 1,337,019
--------- -----------
Lease obligation, net of current portion.......... 19,052 11,915
--------- -----------
Commitments and contingencies
Shareholders' deficit:
Common stock no par value, 200 shares authorized,
issued and
outstanding...................................... -- --
Accumulated deficit............................... (417,381) (1,271,375)
--------- -----------
Total shareholders' deficit..................... (417,381) (1,271,375)
--------- -----------
Total liabilities and shareholders' deficit..... $ 37,719 $ 77,559
========= ===========

See accompanying notes to financial statements.

F-35
Financial Statements

424B1 113th Page of 125 TOC 1st Previous Next ↓Bottom Just 113th
INFORMATRIX WORLDWIDE, INC.

STATEMENTS OF OPERATIONS

[Download Table]

October 15, 1997 Nine months
(inception) to ended
December 31, September 30,
1997 1998
---------------- -------------
(unaudited)

Revenues......................................... $ -- $ 32,442
--------- ---------
Cost and expenses:
Editorial and operational........................ 20,948 253,503
Product development.............................. 279,144 75,766
Sales and marketing.............................. 85,408 426,058
General and administrative....................... 29,162 93,131
--------- ---------
Operating loss................................... (414,662) (816,016)
Interest expense................................. (2,719) (37,978)
--------- ---------
Net loss......................................... $(417,381) $(853,994)
========= =========

See accompanying notes to financial statements.

F-36
Financial Statements

424B1 114th Page of 125 TOC 1st Previous Next ↓Bottom Just 114th
INFORMATRIX WORLDWIDE, INC.

STATEMENTS OF SHAREHOLDERS' DEFICIT

[Download Table]

Common stock
------------- Accumulated
Shares Amount deficit Total
------ ------ ----------- -----------

Issuance of common stock, October
15, 1997 (inception)............... 200 $-- $ -- $ --
Net loss............................ -- -- (417,381) (417,381)
--- ---- ----------- -----------
Balance at December 31, 1997........ 200 -- (417,381) (417,381)
--- ---- ----------- -----------
Net loss (unaudited)................ -- -- (853,994) (853,994)
--- ---- ----------- -----------
Balance at September 30, 1998 (unau-
dited)............................. 200 $-- $(1,271,375) $(1,271,375)
=== ==== =========== ===========

See accompanying notes to financial statements.

F-37
Financial Statements

424B1 115th Page of 125 TOC 1st Previous Next ↓Bottom Just 115th
INFORMATRIX WORLDWIDE, INC.

STATEMENTS OF CASH FLOWS

[Download Table]

October 15, 1997 Nine months
(inception) to ended
December 31, September 30,
1997 1998
---------------- -------------
(unaudited)

Cash flows from operating activities:
Net loss....................................... $(417,381) $(853,994)
--------- ---------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................. 1,592 7,164
Change in assets:
Accounts receivable......................... -- (53,200)
Officer loan receivable..................... (3,500) --
Other assets................................ (1,003) --
Change in liabilities:
Accounts payable and accrued expenses....... 17,750 21,214
Accounts payable to related party........... 250,000 180,000
Deferred revenues........................... -- 106,725
--------- ---------
Net cash used in operating activities........... (152,542) (592,091)
--------- ---------
Cash flows from financing activities:
Issuance of common stock....................... -- --
Loans from related party....................... 160,000 591,994
Payment of capital lease....................... (1,262) (6,099)
--------- ---------
Net cash provided by financing activities....... 158,738 585,895
--------- ---------
Net decrease in cash............................ 6,196 (6,196)
Cash at beginning of period..................... -- 6,196
--------- ---------
Cash at end of period........................... $ 6,196 $ --
========= =========
Supplemental disclosure of cash flow informa-
tion:
Cash paid during the year for interest......... $ 746 $ 2,957
========= =========
Supplemental schedule of noncash investing and
financing activities:
Equipment acquired under capital leases........ $ 28,612 $ --
========= =========

See accompanying notes to financial statements.

F-38
Financial Statements

424B1 116th Page of 125 TOC 1st Previous Next ↓Bottom Just 116th
INFORMATRIX WORLDWIDE, INC.

NOTES TO FINANCIAL STATEMENTS
(Information with respect to September 30, 1998 is unaudited)

(1) Organization

Informatrix Worldwide, Inc. (the Company) was formed in October 15, 1997. The
Company operates a vertical trade community in the property and casualty
insurance industry that caters to risk managers, agents, brokers and other
professionals in the insurance industry. A vertical trade community is a Web
site that acts as a source of information and dialogue for a particular
vertical market.

(2) Summary of Significant Accounting Policies

Computer Equipment

Computer equipment are stated at cost, net of accumulated amortization and
depreciation. Property and equipment are depreciated on a straight-line basis
over the estimated useful lives of the assets (three years). Expenditures for
maintenance and repairs are charged to expense as incurred.

Revenue and Cost Recognition

Editorial and operational costs include editorial costs which are principally
payroll and related costs.

Product Development

Product development costs consists principally of salaries and related costs,
which are expensed as incurred.

Advertising Costs

The Company expenses advertising costs as incurred. Advertising expense was
$0 for the period from October 15, 1997 (inception) to December 31, 1997 and
approximately $57,126 for the nine months ended September 30, 1998.

Income Taxes

Income taxes are accounted for using an asset and liability approach which
requires the recognition of taxes payable or refundable for the current year
and deferred tax liabilities and assets for the future tax consequences of
events that have been recognized in the Company's financial

F-39
Financial Statements

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INFORMATRIX WORLDWIDE, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1998 is unaudited)

statements or tax returns. The measurement of current and deferred tax
liabilities and assets are based on provisions of the enacted tax laws; the
effects of future changes in tax laws or rates are not anticipated. The
measurement of deferred tax assets is reduced, if necessary, by the amount of
any tax benefits that, based on available evidence, are not expected to be
realized.

No federal or state income taxes are due as of December 31, 1997. The net
deferred tax asset, primarily related to net operating losses, is fully offset
by a valuation allowance at December 31, 1997.

Use of Estimates

Financial Instruments

The Company's financial instruments principally consist of cash, accounts
receivable, accounts payable, loans payable and capital asset obligations that
are carried at cost which approximates fair value.

Recent Accounting Pronouncements

In the June 1997 FASB issued Disclosures about Segments of an Enterprise and
Related Information (SFAS No. 131), which establishes standards for reporting
information about operating segments in annual financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997. The adoption of SFAS No. 131 will not
have an impact on the Company's results of operations, financial position or
cash flows.

In February l998 FASB issued SFAS No. 132, Employers' Disclosures about
Pension and Other Postretirement Benefits (SFAS No. 132), which revises
employers' disclosures about pension and

F-40
Financial Statements

424B1 118th Page of 125 TOC 1st Previous Next ↓Bottom Just 118th
INFORMATRIX WORLDWIDE, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1998 is unaudited)

other postretirement benefit plans. SFAS No. 132 does not change the
measurement or recognition of those plans. SFAS No. 132 is effective for fiscal
years beginning after December 15, 1997. The adoption of SFAS No. 132 will not
have an impact on the Company's results of operations, financial position or
cash flows.

(3) Property and Equipment

[Download Table]

December 31, September 30,
1997 1998
------------ -------------

Computer equipment under capital leases........... $28,612 $28,612
Less: accumulated depreciation.................... (1,592) (8,756)
------- -------
Property and equipment, net....................... $27,020 $19,856
======= =======

Amortization expense of equipment under capital lease is included in
depreciation expense.

(4) Capital Lease Obligation

The Company leases its computer equipment under a capital lease agreement
expiring in 2000. Future minimum lease payments as of December 31, 1997 under
the lease are as follows:

[Download Table]

1998............................................................... $12,039
1999............................................................... 12,039
2000............................................................... 10,032
-------
Minimum lease payments............................................. 34,110
Less: amounts representing interest................................ 6,760
-------
Present value of minimum lease payments............................ 27,350
Less: current portion.............................................. 8,298
-------
Long-term portion.................................................. $19,052
=======

F-41
Financial Statements

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INFORMATRIX WORLDWIDE, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1998 is unaudited)

(5) Debt-Related Party

The Company was acquired by VerticalNet, Inc. (VerticalNet) on September 30,
1998 (Note 7). At December 31, 1997, the Company had borrowed $160,000 from
VerticalNet and a total of $715,000 as of September 30, 1998. The interest rate
on the debt was prime plus 1.5% percent and the debt was payable on demand. No
interest was paid to VerticalNet as the Company was subsequently acquired by
VerticalNet.

The Company also had an accounts payable balance due to VerticalNet of
$250,000 at December 31, 1997 and $430,000 at September 30, 1998 for certain
Web site development and maintenance services.

(6) Related Party Transactions

The Company paid approximately $29,800 and $88,700 for the period from
October 15, 1997 (inception) through December 31, 1997 and the nine months
ended September 30, 1998, respectively, for consulting services to an entity
whose shareholders are also shareholders of the Company.

The Company paid $39,700 and $124,000 for the period from October 15, 1997
(inception) through December 31, 1997 and the nine months ended September 30,
1998, respectively, for advertising services to an entity whose shareholders
are also shareholders of the Company.

The Company recorded $250,000 in product development expense for Web site
development services provided by VerticalNet during the period from October 15,
1997 (inception) through December 31, 1997. In addition, the Company recorded
$180,000 in cost of revenues for Web site maintenance services provided by
VerticalNet for the nine months ended September 30, 1998.

(7) Subsequent Event

On September 30, 1998, the Company was acquired by VerticalNet. Under the
terms of that transaction, VerticalNet acquired all of the outstanding stock of
the Company in exchange for 46,154 (post split) shares of common stock of
VerticalNet.

F-42
Financial Statements

424B1 120th Page of 125 TOC 1st Previous Next ↓Bottom Just 120th
VERTICALNET, INC., BITC AND INFORMATRIX

UNAUDITED PRO FORMA FINANCIAL INFORMATION BASIS OF PRESENTATION

The following unaudited pro forma data is filed herewith: Unaudited condensed
combined pro forma statements of operations for the year ended December 31,
1997 and nine months ended September 30, 1998.

The unaudited condensed combined pro forma statements of operations reflect
the acquisitions of Boulder Interactive Technology Services Company (BITC) as
if it occurred on January 1, 1997 and Informatrix as if it had occurred on its
inception of October 15, 1997. Since the pro forma financial statements which
follow are based upon the financial condition and operating results of the BITC
and Informatrix during periods when they were not under the control or
management of VerticalNet, Inc. (VerticalNet), the information presented may
not be indicative of the results which would have actually been obtained had
the acquisitions been completed as of January 1, 1997 nor are they indicative
of future financial or operating results. The unaudited pro forma financial
information does not give effect to any synergies that may occur due to the
integration of VerticalNet, BITC and Informatrix. The condensed combined pro
forma financial statements should be read in conjunction with the historical
audited financial statements of VerticalNet and the notes thereto, as well as
the audited historical financial statements of BITC and Informatrix and the
notes thereto included elsewhere in this prospectus. The acquisitions have been
accounted for by the purchase method of accounting. A pro forma balance sheet
as of September 30, 1998 has not been presented herein since both acquisitions
were completed in September of 1998 and have been reflected in VerticalNet's
consolidated balance sheet as of September 30, 1998 appearing elsewhere herein.

F-43
Financial Statements

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VERTICALNET, INC., BITC AND INFORMATRIX

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997

[Enlarge/Download Table]

Pro Forma Pro Forma
VerticalNet BITC Informatrix Adjustments Combined
----------- --------- ----------- ----------- -----------

Revenues................ $ 791,822 $ 326,208 $ -- $ -- $ 1,118,030
----------- --------- --------- --------- -----------
Cost and Expenses:
Editorial and opera-
tional ................ 1,055,725 157,645 20,948 -- 1,234,318
Product development..... 711,292 -- 279,144 (250,000)(a) 740,436
Sales and marketing..... 2,300,365 78,218 85,408 -- 2,463,991
General and administra-
tive................... 1,388,123 252,811 29,162 684,102 (b) 2,354,198
----------- --------- --------- --------- -----------
Operating loss.......... (4,663,683) (162,466) (414,662) (434,102) (5,674,913)
----------- --------- --------- --------- -----------
Interest income, net of
interest expense....... (115,106) 1,587 (2,719) 1,974 (c) (114,264)
----------- --------- --------- --------- -----------
Net loss................ $(4,778,789) $(160,879) $(417,381) $(432,128) $(5,789,177)
=========== ========= ========= ========= ===========
Pro forma net loss per
share:
Basic and diluted..... $ (1.89) $ (2.28)
=========== ===========
Weighted average
shares outstanding
(basic and diluted).. 2,526,865 2,536,480
=========== ===========

See accompanying notes to Pro Forma Condensed Combined Financial Statements

F-44
Financial Statements

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VERTICALNET, INC., BITC AND INFORMATRIX

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998

[Enlarge/Download Table]

Pro Forma Pro Forma
VerticalNet BITC Informatrix Adjustments Combined
------------ ---------- ----------- ----------- ------------

Revenues................ $ 1,861,799 $ 437,628 $ 32,442 $ -- $ 2,331,869
------------ ---------- ---------- ---------- ------------
Costs and expenses:
Editorial and operation-
al..................... 2,100,885 121,726 253,503 (180,000)(d) 2,296,114
Product development..... 797,815 -- 75,766 -- 873,581
Sales and marketing..... 4,405,407 123,542 426,058 -- 4,955,007
General and administra-
tive................... 2,907,275 327,879 93,131 691,801 (e) 4,020,086
------------ ---------- ---------- ---------- ------------
Operating loss.......... (8,349,583) (135,519) (816,016) (511,801) (9,812,919)
------------ ---------- ---------- ---------- ------------
Interest income, net of
interest expense....... 15,166 143 (37,978) 35,025 (f) 12,356
------------ ---------- ---------- ---------- ------------
Net loss................ $ (8,334,417) $ (135,376) $ (853,994) $ (476,776) $ (9,800,563)
============ ========== ========== ========== ============
Pro forma net loss per
share:
Basic and diluted..... $ (3.27) $ (3.77)
============ ============
Weighted average
shares outstanding
(basic and diluted).. 2,550,619 2,596,604
============ ============

See accompanying notes to Pro Forma Condensed Combined Financial Statements

F-45
Financial Statements

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VERTICALNET, INC., BITC AND INFORMATRIX

NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

1. Basis of Presentation

The unaudited pro forma condensed combined statements of operations for the
nine months ended September 30, 1998 and the year ended December 31, 1997 give
effect to the acquisition of BITC as if it had occurred on January 1, 1997 and
Informatrix as if has occurred on its inception of October 15, 1997. The
statement of operations for BITC for the nine months ended September 30, 1998
includes their operations for January 1, 1998 through September 1, 1998, the
date of acquisition by the Company.

The effects of the acquisitions have been presented using the purchase method
of accounting and accordingly, the purchase price was allocated to the assets
acquired and liabilities assumed based upon management's best preliminary
estimate of their fair value. The preliminary allocation of the purchase price
will be subject to further adjustments, which are not anticipated to be
material, as VerticalNet finalizes its allocation of its purchase price in
accordance with generally accepted accounting principles. The pro forma
adjustments related to the purchase price allocation of the acquisition
represent management's best estimate of the effects of the acquisition.

2. Pro forma statement of operations adjustments consist of:

The pro forma statement of operations adjustments for the year ended December
31, 1997 consist of:

(a) Product development expense has been adjusted to reflect the elimination
of the costs charged by VerticalNet to Informatrix to develop Informatrix's
vertical trade community.

(b) General and administrative expense has been adjusted to reflect the
amortization of goodwill associated with the acquisitions which has an
estimated useful life of 36 months.

(c) Interest expense has been adjusted to reflect the elimination of the
interest expense incurred by Informatrix on indebtedness to VerticalNet.

The pro forma statement of operations adjustments for the nine months ended
September 30, 1998 consist of:

(d) Cost of editorial and operational has been adjusted to reflect the
elimination of the costs charged by VerticalNet to Informatrix to maintain
Informatrix's vertical trade community.

(e) General and administrative expense has been adjusted to reflect the
amortization of goodwill associated with the the acquisitions which has an
estimated useful life of 36 months.

(f) Interest expense has been adjusted to reflect the elimination of the
interest expense incurred by Informatrix on indebtedness to VerticalNet.

(g) No income tax provision is required due to the Company's current tax loss
and the inability of the Company to currently use the benefits of the net
operating loss carryforward.

F-46
Financial Statements

424B1 124th Page of 125 TOC 1st Previous Next ↓Bottom Just 124th
[LOGO OF VERTICALNET APPEARS HERE]

www.verticalnet.com

Business-to-Business

Communities of Commerce

424B1 Last Page of 125 TOC 1st Previous Next ↓Bottom Just 125th
[ART]

3,500,000 Shares

[LOGO OF VERTICALNET INC. APPEARS HERE]

Common Stock

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

PROSPECTUS
February 10, 1999

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

Lehman Brothers

Hambrecht & Quist

Volpe Brown Whelan & Company

Wit Capital Corporation
as e-ManagerTM

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘424B1’ Filing	Date	First	Last	Other Filings

	11/30/08	63	96
	4/1/07	95
	7/31/01	51
	2/1/01	51
	5/1/00	94
	4/14/00	51		8-K, S-3
	1/1/00	18
	9/30/99	62		10-Q
	7/15/99	51
	6/30/99	31	92	10-Q
	6/15/99	34	90
	5/31/99	99
	4/30/99	32
	3/31/99	99		10-K405, 10-Q
	3/8/99	3
	2/28/99	51
	2/17/99	1
Filed on:	2/11/99			S-8
	2/10/99	1	125	S-1/A
	2/7/99	79	100
	1/19/99	100		8-A12G
	1/15/99	32
	1/13/99	5	33
	12/31/98	5	84	10-K405
	12/22/98	79
	12/15/98	34	118
	11/25/98	99
	11/11/98	99
	10/31/98	91
	9/30/98	5	123
	9/1/98	5	123
	8/21/98	101	111
	7/31/98	51
	7/2/98	109	110
	6/30/98	30	109
	6/10/98	94
	5/12/98	66
	5/11/98	94
	3/31/98	30
	1/8/98	109
	1/1/98	107	123
	12/31/97	24	123
	12/30/97	92
	12/15/97	33	118
	10/15/97	3	123
	9/30/97	24	100
	9/4/97	75
	7/1/97	51
	6/30/97	30	109
	4/30/97	66	95
	3/31/97	30
	1/1/97	3	123
	12/31/96	24	109
	12/18/96	58
	9/12/96	98
	3/22/96	76	109
	12/31/95	24	93
	7/28/95	8	93
				List all Filings

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Filing Submission 0000950130-99-000729 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Verticalnet Inc – IPO: ‘424B1’ on 2/11/99

As of: Thursday, 2/11/99 · Accession #: 950130-99-729 · File #: 333-68053

Initial Public Offering (IPO): Prospectus — Rule 424(b)(1)Filing Table of Contents

Document Table of Contents

Dates Referenced Herein and Documents Incorporated by Reference

Initial Public Offering (IPO): Prospectus — Rule 424(b)(1)
Filing Table of Contents