Edgar Filing: DYNABAZAAR INC

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

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FORM 10-K

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

For the Fiscal Year Ended December 31, 2003

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

For the Transition Period from ________________ to ________________

Commission File Number 000-29423

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DYNABAZAAR, INC.
(Exact name of registrant as specified in its charter)

Delaware 04-3351937
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
888 Seventh Avenue, New York, NY 10019
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (212) 974-5730

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

Securities registered pursuant Common Stock, $0.001 par value
to Section 12(g) of the Act: Preferred Stock Purchase Rights
(Title of each class)

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

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

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

The aggregate market value of the registrant's voting stock held by
non-affiliates was approximately $10,000,845 on March 26 , 2004, based on the
closing sales price of the registrant's common stock as reported on the Nasdaq
National Market as of such date.

The number of shares outstanding of the registrant's common stock as of
March 26, 2004 was 27,049,744.

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DYNABAZAAR, INC.
FORM 10-K
For the Year Ended December 31, 2003
INDEX

Page
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Part I. Business
Item 1. Business.......................................................................................... 1
Item 2. Properties........................................................................................ 3
Item 3. Legal Proceedings................................................................................. 3
Item 4. Submission of Matters to a Vote of Security Holders............................................... 4
Part II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.............................. 4
Item 6. Selected Financial Data........................................................................... 5
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............. 5
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................................ 15
Item 8. Financial Statements and Supplementary Data....................................................... 15
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............. 15
Item 9A. Controls and Procedures........................................................................... 16
Part III
Item 10. Directors and Executive Officers of the Registrant................................................ 16
Item 11. Executive Compensation............................................................................ 18
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.... 24
Item 13. Certain Relationships and Related Transactions.................................................... 26
Item 14. Principal Accountant Fees and Services............................................................ 26
Part IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................... 26
Signatures.............................................................................................................. 28

PART I

ITEM 1. BUSINESS.

This Form 10-K contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Our actual results could differ materially from those set forth in the
forward-looking statements. Certain factors that might cause such a difference
are discussed in the section entitled "Factors that May Affect Results of
Operations and Financial Condition" on page 13 of this Form 10-K. You should not
place undue reliance on our forward-looking statements, and we assume no
obligation to update any forward-looking statements.

Overview and Recent Events

Through September 3, 2003, Dynabazaar, Inc. formerly known as FairMarket, Inc.
("we," "us," "Dynabazaar" or the "Company") was an online auction and promotions
technology service provider that enabled marketers to create results-oriented
rewards programs and helped commerce companies automate the process of selling
their excess inventory online to wholesale and consumer buyers.

On September 4, 2003, we sold substantially all of our operating assets to eBay,
Inc. for consideration of $4.5 million in cash under the terms and conditions of
an asset purchase agreement we entered into with eBay on June 20, 2003 (the
"Asset Purchase Agreement"). The assets sold included all of our intellectual
property and technology, all rights under certain transferred customer contracts
and under certain intellectual property license agreements, and accounts
receivable relating to services performed after the date of the closing of the
asset sale with respect to the transferred customer contracts. Of the total
consideration, $2.5 million in cash was paid to us at closing and $2 million was
placed in escrow for a period of two years following the closing in order to
secure our indemnification, compensation and reimbursement obligations under the
Asset Purchase Agreement. At the end of the two-year escrow period, all funds
remaining in the escrow account at that time will be paid to us by the escrow
agent, subject to any pending claims.

Following the closing of the asset sale, we changed our name from "FairMarket,
Inc." to "Dynabazaar, Inc."

In connection with the asset sale, the parties entered into a Transition
Services Agreement, ("TSA") pursuant to which we provided services to eBay
through December 31, 2003 to fulfill customer service obligations under customer
contracts assumed by eBay. Additionally, through December 31, 2003, we continued
to provide services to nine retained customers, six in the United States, and
three in the United Kingdom under the same terms as were provided before the
closing date of the asset sale. The revenue derived from those retained
customers was not significant.

Twelve of our former employees were hired by eBay, Inc. in connection with the
asset sale.

On October 10, 2003, we declared a cash distribution of $1.30 per share to
shareholders of record representing a return of capital on our common stock. The
distribution was paid on November 3, 2003 to stockholders of record on October
20, 2003 and totalled approximately $35 million.

In connection with the closing of the asset sale, eBay, Inc., the holder of our
Series B preferred stock (the "Series B Shares"), elected to receive a
liquidation preference equal to approximately $2 million in the aggregate, or
$2.10 per share, plus all accrued and unpaid dividends with respect to the
Series B Shares. The liquidation preference and accrued and unpaid dividends
were paid to eBay, Inc. on September 5, 2003 in the amount of approximately
$2,024,000. On September 29, 2003, we repurchased from eBay and retired all of
the Series B Shares for a purchase price of $1,466,665 in cash. The payment
represented payment in full for any and all obligations of the Company in
respect of the Series B Shares.

In December 2003, we received notice from the Nasdaq Stock Market that we were
not in compliance with the minimum bid price requirement for continued listing
on the Nasdaq National Market. To avoid delisting, Nasdaq has stated that the
bid price of our common stock must close at $1.00 per share or more for at least
ten consecutive trading days prior to June 14, 2004.

In December 2003, we entered into an Administrative Services Agreement with
Barington Capital Group, L.P., or Barington, pursuant to which Barington is
providing services to us with respect to our administrative functions, such as
maintenance of books and records, and treasury, benefits and tax matters. James
A. Mitarontonda, our Chief Executive Officer and a Director, is Chairman of
Barington's general partner. In connection with the Company's cessation of its
online auction business, effective as of January 1, 2004, the Company relocated
its principal executive offices to 888 Seventh Avenue, 17th Floor, New York, New
York 10019, an office maintained by Barington Capital Group, LP (" Barington"),
a limited partnership whose general partner is a corporation of which James
Mitarontonda is Chairman, President and Chief Executive Officer. James
Mitarontonda is the Company's President and Chief Executive Officer . We pay
Barington and a director a monthly fee of $8,000 for such services as well as
reimbursement of reasonable expenses. In connection with the agreement, we
granted to James Mitarontonda an option to purchase up to 320,000 shares of our
common stock. The option is fully exercisable and was granted with an exercise
price per share equal to $0.33, the fair market value of our common stock on the
grant date.

In January 2004, James A. Mitarontonda was appointed as our Chief Executive
Officer and Mel Brunt was appointed as our Chief Financial Officer.

On February 2, 2004, we dismissed PricewaterhouseCoopers LLP as our independent
accountants and engaged Rothstein, Kass & Company, P.C. as our independent
auditors commencing with the audit of our financial statements for the year
ended December 31, 2003.

We are currently reviewing alternatives for the use and disposition of our
remaining assets, which may include pursuing a plan of complete liquidation and
dissolution, possibly including the sale of our remaining assets. Alternatively,
we may decide to pursue selling our remaining assets outside of a liquidation
and dissolution, to make additional distributions of cash to our stockholders,
to explore other strategic alternatives such as a business combination with
another party, and/or to continue as an independent stand-alone company focusing
on business opportunities unrelated to our historical business, including the
possible acquisition of other businesses. At this time, our board of directors
has not made any decision to pursue any one of these options and has not
identified any such opportunities. We cannot assure you that we will be able to
identify or successfully capitalize on any appropriate business opportunities.

Sources of Revenue

Prior to September 3, 2003, we derived revenue from: (1) application fees, which
consisted of implementation and fixed monthly hosting, support and operating
fees; (2) transaction fees; and (3) professional services fees, which included
fees for the development of business applications, technical customization and
integration (including as part of the implementation process), and e-marketing,
usability and other consulting services.

We generally charged a one-time set-up fee for the design, development and
implementation of a customer's dynamic pricing or points based site or our
MarketSelect service. Implementation also frequently entailed customization and
other professional services, for which we charged a professional service fee.
The set-up fee and implementation-related professional services fees varied
depending on the nature and the anticipated complexity of the service being
implemented. These fees were generally payable upon execution of the contract,
recorded as deferred revenue and recognized as revenue, ratably, over the
contract period.

Fixed monthly fees were generally charged to customers whose dynamic pricing
sites we hosted and covered hosting services, direct customer support services,
end-user customer support services, services for online billing and collection
of fees for community sites and other monthly operating services. Fixed monthly
fees varied by customer depending on the number of software modules employed,
the required level of services and the anticipated level of site activity. These
fees were recognized as revenue in the month that the service was provided.

Our Professional Services Group performed a range of business applications,
technical customization, integration, e-marketing, usability and other
consulting services related to our product offerings for which we charged either
a one-time or a monthly professional services fee, generally based on time and
materials used, depending on the nature of the service. These fees were
generally recorded as deferred revenue and recognized as revenue, ratably, over
the contract period if the service provided was related to an ongoing service
relationship, and were recognized as revenue in the period in which the service
was provided if unrelated to an ongoing service relationship.

Merchant customers, including MarketSelect customers, paid transaction fees at
varying percentages based on the gross proceeds from the sale of their listed
products and services, whether sold on their sites, on eBay or on other
Dynabazaar Network sites. For community customers, transaction fees consisted of
our share of success fees charged to sellers upon a completed sale, listing
fees, and enhanced listing fees, which are fees charged for the prominent
display of a particular seller or listing (such as under a list of "Featured
Merchants" or "Featured Listings"). Community customers paid transaction fees
calculated in one of two ways. Generally, under contracts entered into before
2000, these fees were calculated based on a percentage of the gross proceeds
from the sale of the items that are listed through the community site and sold
either on the community site or on other Dynabazaar Network sites. The fee
percentages varied by customer depending on the anticipated level of activity on
the customer's site and the level of the fixed monthly fees. These communities
received a percentage of the gross proceeds from the sale of items that are
listed directly on other sites in the Dynabazaar Network and sold through the
community site. Contracts entered into starting in early 2000 generally provided
for payment by the community customer of transaction fees with respect to the
sale of listings that were placed on the community site that were calculated as
a percentage of the percentage transaction fee that the community charged to its
end-users when the listing sold; similarly, for listings that were listed
directly through other sites in the Dynabazaar Network and sold through the
community site, the community site received a percentage of the percentage
transaction fee that the listing site charged to the listing site's end-user
when the listing sold. We recorded revenue net of amounts shared with our
customers, which we recognized as revenue at the end of the listing period.

From September 4, 2003 through December 31, 2003, we continued to provide
services to nine customers under contracts not included as part of the asset
sale. Revenue recognized related to these contracts for the period September 4,
2003 through December 31, 2003 was approximately $161,000. The sources of
revenue from the nine retained customers are substantially similar to the
definitions provided above.

Under the terms of the TSA, we received from eBay fees that covered
substantially all of our costs related to fulfilling customer service
obligations under customer contracts assumed by eBay, including the costs of the
services of our employees, the use of a portion of our facilities, the use of
our information technology infrastructure and the use of our technology
platform. For the period September 4, 2003 to December 31, 2003 we recognized
TSA service fees in the amount of $1.7 million as a part of total revenue.

Customers

We had one customer in 2003 that accounted for more than 10% of our
total revenue. EBay, Inc. accounted for 37.8% of total revenue.We had three
customers in 2002 that each accounted for more that 10% of our total revenue,
Sam's West, Inc. accounted for 13.6%, revenue from providing promotion services
to Burger King under our exclusive marketing agreement with eBay, Inc. accounted
for 13.1% and Microsoft Corporation accounted for 12.6% of total revenue. In
November 2002, our contract with eBay, Inc. related to the Burger King promotion
program was terminated. No single customer accounted for more than 10% of our
total revenue for 2001.

Business Segments and Geographic Areas

During 2003 we operated in one business segment. For the years ended
December 31, 2003, 2002 and 2001, approximately 23.2%, 27.0% and 21.0%,
respectively, of our total revenue was derived from customers located outside
the U.S.

Research and development costs are expensed as incurred. Expenditures for
research and development costs, which are included in total development and
engineering expenses, were approximately $1.1 million, $1.2 million and $3.2
million for the years ended December 31, 2003, 2002 and 2001, respectively.

Employees

As of December 31, 2003, we had 1 full-time employee. None of our
employees are covered by a collective bargaining agreement. We consider our
relations with our employees to be good.

ITEM 2. PROPERTIES

As of March 26, 2004 our headquarters were moved to New York, NY.

As of December 31, 2003 our headquarters were located in an office park in
Woburn, Massachusetts, where we lease approximately 68,000 square feet of office
space. Of that amount, we occupy approximately 18,000 square feet and
approximately 11,000 square feet is subleased to one subtenant. In March 2004,
we entered into a Lease Termination Agreement with Acqiport Unicorn, Inc. (" the
landlord"). The Company will pay $1.2 million to completely satisfy its
remaining obligation with regard to the lease of its former corporate
headquarters in Woburn, Massachusetts. The termination will become effective as
of March 31, 2004, and the Company will completely vacate the premises by April
10, 2004. In the U.K. we lease approximately 10,000 square feet of office space.
We are currently negotiating with the leasing agent to effect a termination of
our lease obligation. At this point in time we cannot make a determination of
the outcome of these negotiations.

ITEM 3. LEGAL PROCEEDINGS

We are a defendant in certain purported class action lawsuits filed by
individual shareholders in the U.S. District Court for the Southern District of
New York against Dynabazaar, Scott Randall (former President, Chief Executive
Officer and Chairman of the Board of Dynabazaar), John Belchers (former Chief
Financial Officer of Dynabazaar), U.S. Bancorp Piper Jaffray Inc., Deutsche Bank
Securities Inc. and FleetBoston Robertson Stephens, Inc. The lawsuits have been
filed by individual shareholders who purport to seek class action status on
behalf of all other similarly situated persons who purchased the common stock of
Dynabazaar between March 14, 2000 and December 6, 2000. The lawsuits allege that
certain underwriters of Dynabazaar's initial public offering solicited and
received excessive and undisclosed fees and commissions in connection with that
offering. The lawsuits further allege that the defendants violated the federal
securities laws by issuing a registration statement and prospectus in connection
with Dynabazaar's initial public offering, which failed to accurately disclose
the amount and nature of the commissions and fees paid to the underwriter
defendants. On or about October 8, 2002, the Court entered an Order dismissing
the claims asserted against certain individual defendants in the consolidated
actions, including the claims against Mr. Randall and Mr. Belchers, without any
payment from these individuals or the Company. On or about February 19, 2003,
the Court entered an Order dismissing with prejudice the claims asserted against
the Company under Section 10(b) of the Securities Exchange Act of 1934. As a
result, the only claims that remain against the Company are those arising under
Section 11 of the Securities Act of 1934. The Company has entered into an
agreement-in-principle to settle the remaining claims in the litigation. The
proposed settlement will result in a dismissal with prejudice of all claims and
will include a release of all claims that were brought or could have been
brought against the Company and its present and former directors and officers.
It is anticipated that any payment to the plaintiff class and their counsel will
be funded by the Company's directors & officers liability insurance and that no
direct payment will be made by the Company. The proposed settlement is subject
to a number of significant conditions and contingencies, including the execution
of a definitive settlement agreement, final approval of the settlement by the
Company's directors & officers liability insurance carriers and by the plaintiff
class, and the approval of the settlement by the Court.

In the quarter ended September 30, 2003, eBay asserted two indemnification
claims against us under one of our commercial agreement with eBay. We settled
one of these claims for a cash payment to eBay of $210,000. The remaining claim
is based upon a third party alleging that certain of our former technology
utilized by eBay infringes certain patents of the third party. No lawsuit has
been filed. Given the early stage of the claim at this time, we cannot make a
determination as to the ultimate outcome of this matter and the impact, if any,
on our financial condition, liquidity or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Price Range of Common Stock

Our common stock is listed on the Nasdaq National Market under the
symbol "FAIM." The following table sets forth, for the periods indicated, the
high and low sale price per share of our common stock on the Nasdaq National
Market:

High Low
---- ---

Year Ended December 31, 2003:
First Quarter................................ $1.67 $1.42
Second Quarter............................... $2.00 $1.52
Third Quarter................................ $1.71 $1.54
Fourth Quarter............................... $1.79 $0.31

High Low
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Year Ended December 31, 2002:
First Quarter................................ $1.72 $1.01
Second Quarter............................... $1.56 $1.12
Third Quarter................................ $1.58 $1.09
Fourth Quarter............................... $1.74 $1.18

As of March 26, 2004, there were approximately 183 holders of record of
our common stock.

We have not paid or declared any cash dividends on shares of our common
stock other than the $1.30 per share distribution paid in October 2003. Any
future determinations as to the payment of dividends on our common stock will
depend upon our capital requirements, earnings, liquidity and such other factors
as our Board of Directors may consider.

Use of Proceeds from Sale of Registered Securities

On March 17, 2000, we completed the sale of 5,750,000 shares of our
common stock in an initial public offering pursuant to a Registration Statement
on Form S-1 (File No. 333-92677), as amended, that was declared effective by the
Securities and Exchange Commission on March 13, 2000. The proceeds to us from
the initial public offering were $89.1 million, net of offering expenses. We
estimate that as of December 31, 2003, approximately $35.3 million has been used
for working capital purposes, including approximately $5.1 million used for the
purchase of equipment, $4.0 million to repurchase 3.1 million shares of our
common stock from our founder, $35 million cash distribution to shareholder of
record, representing a return of capital, 3.5 million for Series B repurchase
and liquidation preference. At December 31, 2003, substantially all of the
remaining net proceeds (approximately $10.7 million) were held in investments in
commercial paper, government bonds and other interest-bearing accounts.

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with our
consolidated financial statements and related notes and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
other financial data included elsewhere in this Report. The consolidated
statements of operations data for the years ended December 31, 2003, 2002, 2001,
2000, and 1999 and the consolidated balance sheets data as of December 31, 2003,
2002, 2001, 2000, and 1999 are derived from our audited consolidated financial
statements.

For the Years Ended December 31,
---------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(in thousands, except per share amounts)

Consolidated Statement of Operations Data:
Revenue ............................................................. $ 6,673 $ 5,747 $ 8,571 $ 10,937 $ 2,121
Total operating expenses ............................................ 12,752 29,075 51,688 66,732 19,146
Loss from operations ................................................ (6,079) (23,328) (43,117) (55,795) (17,025)
Net loss ............................................................ (4,599) (22,115) (40,183) (51,267) (16,509)
Basic and diluted net loss per share ................................ $ (0.18) $ (0.79) $ (1.39) $ (2.15) $ (3.30)
Shares used to compute basic and diluted net loss per share ......... 26,796 28,080 28,870 23,811 5,010

December 31,
--------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(in thousands)

Consolidated Balance Sheet Data:
Cash, cash equivalents and marketable securities ................... $ 10,697 $ 54,734 $ 63,372 $ 76,104 $ 13,079
Working capital .................................................... 5,547 39,572 40,411 79,075 12,305
Total assets ....................................................... 16,630 59,267 71,450 93,449 20,071
Obligation under capital lease excluding current portion ........... -- -- -- 148 --
Total stockholders' equity (deficit) ............................... 12,314 52,909 68,857 87,282 (1,118)

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

This Form 10-K contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. You can identify forward-looking statements by the use of
the words "believe," "expect," "anticipate," "intend," "estimate," "assume" and
other similar expressions which predict or indicate future events and trends and
which do not relate to historical matters. You should not rely on
forward-looking statements, because they involve known and unknown risks,
uncertainties and other factors, some of which are beyond our control. Our
actual results could differ materially from those set forth in the
forward-looking statements. Certain factors that might cause such a difference
include the risks and uncertainties discussed under the heading "Factors that
May Affect Results of Operations and Financial Condition" on page 13 of this
Form 10-K. You should not place undue reliance on our forward-looking
statements, and we assume no obligation to update any forward-looking
statements.

The following discussion of our financial condition and results of
operations should be read in conjunction with our financial statements and the
notes to those statements included elsewhere in this Report.

Overview

Following the closing of the asset sale, we changed our name from "FairMarket,
Inc." to "Dynabazaar, Inc."

In connection with the asset sale, the parties entered into a Transition
Services Agreement, ("TSA") pursuant to which we provided services to eBay
through December 31, 2003 to fulfill customer service obligations under customer
contracts assumed by eBay. Additionally, through December 31, 2002, we continued
to provide services to nine retained customers, six in the United States, and
three in the United Kingdom under the same terms as were provided before the
closing date of the asset sale. The revenue derived from those retained
customers was not significant.

Twelve of our former employees were hired by eBay, Inc. in connection with the
asset sale.

On October 10, 2003, we declared a cash dividend of $1.30 per share on our
common stock, representing an aggregate cash distribution of approximately $35
million. The dividend was paid on November 3, 2003 to stockholders of record on
October 20, 2003.

In December 2003, we entered into an Administrative Services Agreement with
Barington Capital Group, L.P., James Mitarontonda, Chief Executive Officer and a
Director, or Barington, pursuant to which Barington is providing services to us
with respect to our administrative functions, such as maintenance of books and
records, and treasury, benefits and tax matters. James A. Mitarontonda, our
Chief Executive Officer, is Chairman of Barington's general partner. In
connection with the Company's cessation of its online auction business,
effective as of January 1, 2004, the Company relocated its principal executive
offices to 888 Seventh Avenue, 17th Floor, New York, New York 10019, an office
maintained by Barington Capital Group, LP ("Barington"), a limited partnership
whose general partner is a corporation of which James Mitarontonda is Chairman,
President and Chief Executive Officer. James Mitarontonda is the Company's
President and Chief Executive Officer. We pay Barington and a director a monthly
fee of $8,000 for such services as well as reimbursement of reasonable expenses.
In connection with the agreement, we granted to James Mitarontonda an option to
purchase up to 320,000 shares of our common stock. The option is fully
exercisable and was granted with an exercise price per share equal to $0.33, the
fair market value of our common stock on the grant date. In January 2004, James
A. Mitarontonda was appointed as our Chief Executive Officer and Mel Brunt was
appointed as our Chief Financial Officer.

In January 2004, James A. Mitarontonda was appointed as our Chief Executive
Officer and Melvyn Brunt was appointed as our Chief Financial Officer.

Our common stock continues to be traded on The Nasdaq National Market.
The market price per share dropped significantly subsequent to the payment of
the $1.30 per share cash distribution to our common stockholders. The market
price of our common stock as of March 5, 2004 was $0.37 per share. On December
17, 2003, we were notified by Nasdaq that pursuant to Marketplace Rule
4450(a)(5), we have until June 14, 2004 for our stock to trade above $1.00 for
10 consecutive trading days to avoid being delisted from The Nasdaq National
Market. We may be delisted before that date if we fail to meet other criteria
for continued inclusion on The Nasdaq National Market. If we are delisted from
The Nasdaq National Market, our stock will only be traded on the OTC Bulletin
Board. An investment in an OTC security is speculative and involves a degree of
risk. Many OTC securities are relatively illiquid, or "thinly traded," which can
enhance volatility in the share price and make it difficult for investors to buy
or sell without dramatically effecting the quoted price or may be unable to sell
a position at a later date. If our stock is delisted from the Nasdaq National
Market, then the ability of our stockholders to buy and sell our shares will be
materially impaired. Moreover, if we pursue a plan of complete liquidation and
dissolution, we will close our stock transfer books, discontinue recording
transfers of our common stock, and our common stock will no longer be traded on
any exchange, and certificates representing our common stock will no longer be
assignable or transferable on our books. Accordingly, the proportionate
interests of all of our stockholders will be fixed on the basis of their
respective stock holdings at the close of business on the date of dissolution,
and any distributions made by us after such date will be made solely to the
stockholders of record at the close of business on the date of dissolution.

Critical Accounting Policies

While our significant accounting policies are more fully described in
Note 2, Summary of Significant Accounting Policies, to our consolidated
financial statements included in this Report, we believe the following
accounting policies to be critical:

Revenue Recognition. In accordance with SEC Staff Accounting Bulletin No. 101,
we do not record revenue until all of the following criteria are met: persuasive
evidence of an arrangement exists; services have been rendered; our price to our
customer is fixed and determinable; and collectibility is reasonably assured. We
derive revenue from application fees, transaction fees and professional services
fees. Application fees consist of implementation fees and fixed monthly hosting,
support and operating fees. We record implementation fees as deferred revenue
and recognize these fees as revenue, ratably, over the contract period which
approximates the life of our customer relationship. We recognize fixed monthly
hosting fees as revenue in the month that the service is provided. We recognize
transaction fees as revenue, net of amounts paid to our customers, at the
completion of the listing period. We record certain professional services fees
related to ongoing service relationships as deferred revenue and recognize these
fees as revenue ratably over the remaining contract period. Professional
services fees which represent a separate earnings process and are unrelated to
ongoing services are recognized as revenue in the period the service is
provided.

We follow the guidance of Emerging Issues Task Force issue No. 01-09,
Accounting for Consideration Given by a Vendor to a Customer or a Reseller of
the Vendor's Products ("EITF 01-09") in determining whether consideration,
including equity instruments, given to a customer should be recorded as an
operating expense or a reduction of revenue recognized from that same customer.
Consideration given to a customer is recorded as a reduction of revenue unless
both of the following conditions are met:

o We receive an identifiable benefit in exchange for the
consideration, and the identified benefit is sufficiently
separable from the customer's purchase of the Company's
products and services such that the Company could have
purchased the products from a third party, and

o We can reasonably estimate the fair value of the benefit
received.

If both of the conditions are met, we record consideration paid to
customers as an expense. Consideration, including equity instruments, not
meeting the above criteria, is recorded as a reduction of revenue; to the extent
the Company has recorded cumulative revenue from the customer or reseller. Any
consideration in excess of cumulative revenue recognized from the customer or
reseller is recorded as an operating expense.

Identifying transactions that are within the scope of EITF 01-09,
determining whether those transactions meet the criteria for recognition as an
expense and determining the methodology of cost recognition associated with
these arrangements requires us to make significant judgments. If we reached
different conclusions, reported revenue could be materially different.

Allowance for doubtful accounts and revenue reserve. When estimating our
allowance for doubtful accounts, we analyze our accounts receivable aging,
historical bad debts, customer creditworthiness, current economic trends and
other factors. If collection of accounts receivable is not reasonably assured,
we establish a reserve for any revenue within the current reporting period for
that customer and we charge bad debt expense for any revenue recognized in prior
reporting periods for that customer.

Deferred tax assets. We record a valuation allowance to reduce our deferred tax
assets to the amount that is more likely than not to be realized. While we
consider future taxable income and tax planning strategies in assessing the need
for the valuation allowance, if management were to determine that the Company
would be able to realize deferred tax assets in the future in excess of the net
recorded amount, an adjustment to the deferred tax asset would effect the
provision for income taxes in the period such determination was made.

Unutilized Office Space. In the fourth quarter of 2003 and first quarter of
2002, we recorded charges of $160,000 and $4.5 million, respectively, for
unutilized office space at our Woburn, Massachusetts headquarters. This charge
included rent and other related costs for a significant portion of our leased
space which has been vacated for the remaining lease term and the write-down of
related leasehold improvements and furniture and fixtures. In the fourth quarter
of 2002, we recorded a reversal of $513,000 related to a sublease of
approximately 11,000 square feet of the unutilized office space. During 2003, we
charged $1.0 million against this reserve which represented rent payments
related to unutilized office space. During 2002, we charged $746,000 against
this reserve, which represented rent payments related to unutilized office
space. In addition, we recorded $1.2 million for the write-down of leasehold
improvements and furniture and fixtures.

New Accounting Pronouncements

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS 149 amends and clarifies
financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities
under SFAS 133. The Statement is generally effective for contracts entered into
or modified after June 30, 2003 and for hedging relationships designated after
June 30, 2003 and should be applied prospectively. The Company is currently
evaluating SFAS 149 and has not yet determined the impact of adopting its
provisions.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
requires certain freestanding financial instruments, such as mandatorily
redeemable preferred stock, to be measured at fair value and classified as
liabilities. The adoption of SFAS No. 150 is not expected to have a material
effect on the Company's financial position or results of operations.

Results of Operations for the Years Ended December 31, 2003, 2002 and 2001

For the years ended December 31, 2003, 2002 and 2001, our net loss was
$4.7 million, $22.1 million and $40.2 million, respectively. The reduction in
net loss of $17.4 million when comparing 2003 to 2002 was primarily due to a
decrease in equity related charges in the amount of $9.8 million, a decrease in
total operating expenses of $16.3 million, an increase in total revenue of
$900,000, and a decrease of interest income of $1.1 million. The reduction in
net loss of $18.2 million when comparing 2002 to 2001 was primarily due to a
decrease in total operating expenses of $22.6 million, partially offset by a
decrease in revenue of $2.8 million and a decrease in interest income of $1.7
million.

Revenue

Total revenue was $6.7 million for 2003 compared to $5.7 million in
2002. The increase of $1 million in revenue for 2003 compared to the prior year
was due primarily service fees received under the TSA with eBay offset by the
loss of revenue from customers transferred to eBay as part of the Asset Purchase
Agreement. Total revenue was $5.7 million for 2002 compared to $8.6 million in
2001. The decrease of $2.8 million in revenue for 2002 compared to the prior
year was due primarily to a reduction in the average revenue per customer and
the decrease in the number of our customers described below. Application fees,
which represented approximately 55.7% of total revenue for 2003 compared to
approximately 74.6% of total revenue for 2002, decreased by $563,000, or 13.1%,
as compared to 2002. The decrease is primarily attributable to the loss of
revenue relating to customer contracts transferred to eBay. Application fees,
which represented approximately 74.6% of total revenue for 2002 compared to
approximately 77.1% of total revenue for 2001, decreased by $2.3 million, or
35.2%, as compared to 2001. Also reflected in these decreases was the effect of
the revenue shift we began to experience during the second half of 2001, from
fixed monthly fees for hosting and maintaining customers' sites to
transaction-based fees, and the percentage increase in the number of our
customers that use our Market Select service, the fees for which are primarily
transaction based. Transaction fees, which represented approximately 15.2% of
total revenue in 2003 compared to approximately 20.5% of total revenue for 2002,
decreased by $171,000, or 14.5%, for 2003 as compared to 2002. This decrease is
also primarily attributable to the loss of revenue relating to customer
contracts transferred to eBay. Transaction fees, which represented approximately
20.5% of total revenue in 2002 compared to approximately 10.6% of total revenue
for 2001, increased by $270,000, or 29.7%, for 2002 as compared to 2001. We
believe that this revenue shift is partly a result of recent economic conditions
and pricing competition, and partly a result of an increasing portion of our
customers using our MarketSelect service (which we launched during the second
quarter of 2001), the fees for which are primarily transaction-based.
Professional services fees, which represented approximately 3.9% of total
revenue in 2003, compared to approximately 4.9% in 2002, decreased by $22,000,
or 7.8%, for 2003 as compared to the prior year. Professional services fees,
which represented approximately 4.9% of total revenue in 2002, compared to
approximately 12.3% in 2001, decreased by $768,000, or 73.1%, for 2002 as
compared to the prior year. The decrease was due primarily to customer
engagements being smaller in scale and shorter in duration when compared to the
services provided in 2002 and 2001, as well as customer contracts being
transferred to eBay. TSA services, represented approximately $1.7 million or
25.2% of total revenue for 2003.

International revenue was $1.5 million, $1.6 million and $1.8 million
or 23.1%, 27.0% and 21.0% of total revenue, in 2003, 2002 and 2001,
respectively. In the first quarter of 2002, we completed the closing of our
office in Australia, and in the third quarter of 2001 we completed the closing
of our office in Germany. There are risks inherent in doing business
internationally, including, among others, fluctuating currency exchange rates,
differing legal and regulatory requirements and differing accounting practices.
We price, invoice and collect fees for our international services primarily in
the currency of our local subsidiary. To date, currency fluctuations have not
had a material effect on our results of operations and financial condition.

The one-time set-up fees we charge for the implementation of customer
sites and our MarketSelect service and implementation-related professional
services are deferred and recorded as revenue over the term of the related
contracts. At December 31, 2003, 2002 and 2001, there was $0, $333,000 and
$207,000 of deferred revenue, respectively, relating to set-up fees and $0,
$187,000 and $31,000, respectively, relating to professional services.

In 2003, we added eight new customers and terminated 59 contracts,
ending 2003 with 0 customers. In 2003, most of our customer contracts were
transferred to eBay and the remaining contracts have been terminated. In 2002,
we added twenty-four new customers and terminated twenty contracts, either by us
or by the customer, ending 2002 with 51 customers, a decrease of 4 customers
from 55 customers at December 31, 2001. During 2001, approximately 56 customer
contracts were terminated, either by us or by the customer, terminations by
customers occurred primarily as a result of economic conditions that led in some
cases to the customer ceasing operations and in other cases to the customer
refocusing on other areas of their business.

Average annual revenue per customer, was $113,098, $112,700 and
$144,000 for 2003, 2002 and, 2001, respectively. The decrease in average revenue
was due primarily to a change in our mix of customers and the service offerings
provided to those customers that used more transaction based services and less
fixed price and professional services in 2002 compared to 2001.

In 2003 we had one customer that accounted for more than 10% of total
revenue; eBay, Inc. accounted for 37.8%. We had three customers in 2002 that
each accounted for more than 10% of total revenue; Sam's West, Inc. accounted
for 13.6%, revenue from providing promotion services to Burger King under our
exclusive marketing agreement with the eBay, Inc. accounted for 13.1% and
Microsoft Corporation accounted for 12.6%, of total revenue. In 2001 no one
customer accounted for more than 10% of total revenue.

Operating Expenses

Cost of Revenue

Cost of revenue was $2.1 million in 2003, $3.6 million in 2002, and
$4.9 million in 2001. As a percentage of revenue, cost of revenue decreased to
31.2% in 2003 from 2002 and, increased to 61.9% in 2002 from 57.4% in 2001.

Cost of revenue consists of costs for direct customer support and
support to end-users of our customers' sites, depreciation of network equipment,
fees paid to network providers for bandwidth and monthly fees paid to
third-party network providers.

The decrease of $1.5 million in 2003 and $1.3 million in 2002 was
primarily due to a reduction in salaries and related expenses resulting from
headcount reductions, and a reduction in the fees paid to network providers for
bandwidth. In addition, we realized cost reductions by relocating our UK Data
Center to our US Data Center.

Gross profit was 68.8%, 38.1% and 42.6% of total revenue for 2003, 2002
and 2001, respectively. This decrease in gross profit for 2002 and 2001 was
primarily attributable to the decrease in revenue discussed above. The gross
profit reported above is not necessarily indicative of gross profit for future
periods. Actual gross profit may vary significantly depending on, among other
things, customer mix, product mix, price competition, technological changes and
extraordinary costs. Our cost of revenue components are primarily fixed in
nature and will continue to be fixed in the short term, as a result gross profit
is largely based on revenue results.

Sales and Marketing

Sales and marketing expenses were $2.0 million for 2003 compared to
$2.3 million for 2002 and $8.0 million in 2001. The decrease in 2003 is
attributable to a reduction in salaries and related expenses. The decrease of
$5.7 million in 2002, was due primarily to the absence of amortization of $3.5
million of an email marketing database which we purchased from At Home
Corporation (formerly known as Excite, Inc.) in the fourth quarter of 2000 for
cash in connection with the termination of an auction services agreement which
was amortized over its useful life in 2001. Also contributing to the decrease in
sales and marketing expenses was a reduction in salaries and related expenses of
$1.7 million, resulting from lower headcount and a reduction of $453,000 in
marketing expenses.

Development and Engineering

Development and engineering expenses were $1.1 million for 2003, a
decrease of $1.1 million or 50% compared to 2002.Development and engineering
expenses were $2.2 million for 2002, a decrease of $2.7 million, or 55.1%,
compared to development and engineering expenses of $4.9 million for 2001. The
decrease was primarily due to a reduction in salaries and related expenses
resulting from lower headcount.

Our policy is to capitalize development and engineering costs
associated with the design and implementation of our systems for internal use,
including internally and externally developed software, in accordance with the
American Institute of Certified Public Accountants Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." Accordingly, costs capitalized were $0, $0 and $310,000 in 2002,
2001 and 2000, respectively. These costs are being amortized over 36 months,
which is the expected useful life of the software. The amortization expense was
$102,000, $102,000 and $64,000 in 2002, 2001 and 2000, respectively.

General and Administrative

General and administrative expenses were $7.3 million in 2003, an
increase of $700,000 or 11% compared to 2002. Contributing to the increase was
the payment, in December, of termination pay to all of our remaining employees,
together with a patent litigation settlement of $210,000, and an increase in the
premium for D&O insurance. General and administrative expenses were $6.6 million
in 2002, a decrease of $4.1 million, or 38.5%, compared to general and
administrative expenses of $10.7 million in 2001. The decrease in 2002 of $4.1
million was attributable to a reduction in salary and related expenses of $1.0
million resulting from lower headcount, a reduction in depreciation and rent
expense of $808,000 resulting from the one-time charge for unutilized office
space in the first quarter of 2002 and the relocation of our UK Data Center in
the second quarter of 2002, a decrease in bad debt expense of $738,000, a
decrease in contract services of $394,000, a decrease in depreciation of
$823,000 resulting from certain fixed assets becoming fully depreciated and
other general and administrative operating expense reductions of $239,000.

Restructuring Charges

In June 2002, as part of our plan to continue to implement cost-cutting
measures, we eliminated 18 positions worldwide, representing approximately 31%
of our total employee base. In addition, we relocated our U.K. data center to
the U.S. We recognized a charge of $530,000 in the second quarter of 2002 for
the costs related to these initiatives, of which $200,000 related to non-cash
costs for the write-down of computers and equipment. At December 31, 2002, all
of the expenses relating to the restructuring had been paid.

We recognized a charge of approximately $2.0 million in 2001 for the
costs related to a workforce reduction (which eliminated 78 positions),
severance payments to certain other employees and other restructuring
initiatives, including closing our offices in Australia and Germany. We
completed the closing of our office in Germany during the third quarter of 2001
and the closing of our office in Australia during the first quarter of 2002.
Approximately $141,000 of the charge relates to non-cash costs associated with
the restructuring initiatives. At December 31, 2001, all of the expenses
relating to the restructuring initiatives had been paid.

Unutilized Office Space Charge

In the fourth quarter of 2003 and first quarter of 2002, we recorded
charges of $160,000 and $4.5 million, respectively, for unutilized office space
at our Woburn, Massachusetts headquarters. This charge included rent and other
related costs for a significant portion of our leased space which has been
vacated for the remaining lease term and the write-down of related leasehold
improvements and furniture and fixtures. In the fourth quarter of 2002, we
recorded a reversal of $513,000 related to a sublease of approximately 11,000
square feet of the unutilized office space. During 2003, we charged $1.0 million
against this reserve which represented rent payments related to unutilized
office space. During 2002, we charged $746,000 against this reserve, which
represented rent payments related to unutilized office space. In addition, we
recorded $1.2 million for the write-down of leasehold improvements and furniture
and fixtures.

Equity-related Charges

Equity-related charges consist of the amortization of (1) deferred
stock compensation resulting from the grant of stock options to employees at
exercise prices subsequently deemed to be less than the fair value of the common
stock on the grant date and (2) the fair value of warrants issued to strategic
customers and shares of Series D convertible preferred stock issued to strategic
customers at prices below their fair value.

At December 31, 2002, deferred stock compensation, which is a component
of deferred compensation and equity-related charges in stockholders' equity,
totaled $159,000, net of $527,000 and $1.8 million relating to stock options
canceled in 2002 and 2001, respectively, and net of amortization of $1.0 million
in 2002, $1.5 million in 2001. Deferred stock compensation is being amortized
ratably over the vesting periods of the applicable stock options, typically four
years, with 25% vesting on the first anniversary of the grant date and the
balance vesting 6.25% quarterly thereafter. We expect to incur equity-related
compensation expense of at least $159,000 in 2003.

At December 31, 2002, equity-related charges on the consolidated
balance sheet were $0 net of $18.0 million that we reversed through equity as a
result of the relinquishment by Microsoft of certain warrants discussed below,
and net of amortization of $9.4 million in 2002, $20.1 million in 2001.
Equity-related charges were amortized ratably over the terms of the related
agreements of approximately three years after giving effect to the amendment of
the Microsoft agreement and termination of the original Excite agreement
discussed below.

Gain on Sale of Assets

On June 20, 2003, the Company entered into an Asset Purchase Agreement
(the "Agreement") with eBay, Inc. ("eBay") to sell substantially all of the
Company's technology and business assets to eBay for $4.5 million in cash. On
September 4, 2003 the Company closed on the sale of assets to eBay.

The Agreement also provided that $2 million of the consideration be
held in escrow for a two-year period in order to secure the Company's
indemnification obligations. The Company estimated its potential liability under
the indemnificiation to be $2 milllion in accordance with FASB Interpretation
No. 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others" ("FIN 45") and recorded
such liability as a reduction in the gain on the sale of assets.

The Company recorded a gain on the sale of assets of $1,183,000 based
on the proceeds less direct costs of $1,338,000 and the indemnification
liability noted above, which is recorded in the results of operations for the
year ended December 31, 2003.

Interest Income, Net

Interest income was $300,000, $1.4 million and $3.1 million in 2003,
2002, and 2001, respectively. The decrease in interest income for 2002 and 2001
was due principally to lower average cash, cash equivalents and marketable
securities balances during these periods as a result of cash used in operating
activities and to a lesser extent a decrease in interest rates.

Microsoft and Excite Contracts

In June 2001, we amended the auction services agreement that we entered
into with Microsoft in July 1999, which originally provided that, if Microsoft
drove more than a specified number of Internet users to the Dynabazaar Network
through its Internet portal site, we would guarantee a minimum level of
transaction fee revenue regardless of actual transaction fee revenue earned by
Microsoft. Under this provision, if Microsoft met its minimum annual traffic
guarantee but such increase in traffic did not produce sufficient revenue to
meet the minimum guaranteed revenue, we would have had a financial obligation to
Microsoft equal to the difference between the minimum guaranteed payment and its
portion of fees actually collected. The minimum guaranteed revenue was $5.0
million for the first contract year. Microsoft did not meet its minimum annual
traffic guarantee for the first contract year and therefore no payment was
required. As part of the June 2001 amendment, this provision was eliminated from
the auction services agreement. Also under the terms of the amendment, Microsoft
relinquished the warrants it held to purchase 4,500,000 shares of our common
stock, which were issued in connection with the original July 1999 agreement
with Microsoft. In exchange for the above, we waived our status as "pre-eminent
auction services provider" to Microsoft's online properties. We valued the
warrants at $28.5 million at the time of issuance and recorded a deferred charge
to be amortized over the term of the Microsoft contract. As of June 2001, the
unamortized value of the warrants on our balance sheet was approximately $18
million, which we reversed through equity during the third quarter of 2001 as a
result of the relinquishment of the warrants. From the time we issued the
warrants until Microsoft relinquished the warrants in June 2001, Microsoft
beneficially owned in excess of 5% of our common stock. For the years ended
December 31, 2002 and 2001, we recognized revenue of $727,000 and $335,000,
respectively, from Microsoft for monthly service fees and a share of the
transaction fees charged on the Microsoft sites.

In December 2000, we restructured our relationship with Excite, now
known as At Home Corporation, by terminating our original auction services
agreement with Excite and entering into a new Outlet Center agreement with At
Home. Under the termination agreement, we purchased an incremental $500,000 in
banner advertising from At Home during the fourth quarter of 2000, which was
reflected as an expense in that quarter, and also licensed a permission-based
email marketing database from an affiliate of At Home for $3.5 million, which
was paid during the fourth quarter of 2000 and was amortized over its useful
life in 2001. As a result of the termination of the original Excite agreement,
we were released from our obligation to purchase an additional $7.5 million of
online banner and other advertising services under the remaining term of the
original agreement, and we released any exclusive rights to provide auction
services to consumers on the Excite network. Under the new Outlet Center
agreement, which has an initial term of 18 months, we agreed to provide an
Excite-branded version of our Outlet Center service.

During the third quarter of 2001, At Home filed for protection pursuant
to Chapter 11 of the U.S. Bankruptcy Code. In October 2001, At Home instructed
us to shut down the Excite Outlet Center and notified us that it intends to seek
rejection of the new auction services agreement in the Bankruptcy Court. At
December 31, 2002, the value of the stock issued to Excite had been fully
amortized.

Liquidity and Capital Resources

Prior to our initial public offering in March 2000, we financed our
operations primarily through private sales of capital stock, the net proceeds of
which totaled $27.1 million as of December 31, 1999. In March 2000, we sold
5,750,000 shares of common stock in our initial public offering. The proceeds to
us from the initial public offering were $89.1 million, net of offering
expenses. At December 31, 2002, cash and cash equivalents, marketable securities
and restricted cash (primarily related to a lease deposit) totaled $55.3
million.

Net cash used in operating activities was $7.1 million for 2003, $6.3
million for 2002, $13.1 million for 2001.

Net cash flows from operating activities in 2003 reflect a net loss of
$4.6 million reduced by depreciation of 1.2 million, and a reduction of accounts
receivable of 1.0 million. Net cash flow from operating activities for 2003
reflects an increase in gain on the sale of assets of 1.2 million, long-term
prepaids of 1.6 million and unutilized lease costs of 888,000, and additional
increases of accounts payable, accrued expenses, deferred revenue and other
non-current liabilities.

Net cash flows from operating activities in 2002 reflect a net loss of
$22.0 million reduced by depreciation expense of $2.9 million, non-cash charges
for loss on disposal of property and equipment of $1.4 million, short and
long-term unutilized office space of $2.8 million and amortization of deferred
compensation and equity-related charges of $9.9 million. To a lesser extent, net
cash flows from operating activities for 2002 reflect an increase in accounts
receivable, accrued expenses and deferred revenue, partially offset by a
decrease in prepaid expenses, other current assets and accounts payable.

Net cash flows from operating activities in 2001 reflect a net loss of
$40.2 million reduced by depreciation expense of $3.7 million, non-cash charges
for advertising of $3.5 million and amortization of deferred compensation and
equity-related charges of $21.6 million. To a lesser extent, net cash flows from
operating activities for 2001 reflect a decrease in accounts receivable, prepaid
expenses, accounts payable, accrued expenses, deferred revenue and other
non-current liabilities, partially offset by an increase in other current
assets, excluding non-cash advertising expenses.

During 2003, cash provided by investing activities was $18.1 million
primarily from the sale of marketable securities. In 2002, cash provided by
investing activities was $20.9 million primarily from the sale of marketable
securities. Cash used in investing activities was $27.6 million in 2001 and
$19.9 million in 2000. Net cash used in investing activities for 2001 and 2000
includes $28.0 million and $12.9 million, respectively, for the purchase of
marketable securities, net, and $905,000 and $7.0 million, respectively, for the
purchase of property and equipment, net of capital lease obligations of $145,000
and $345,000 at December 31, 2001 and 2000, respectively. Cash used in financing
activities was $38.2 million in 2003 of which $35.1 million was distribution to
our shareholders.

Cash used in financing activities was $2.2 million for 2002, resulting
primarily from the purchase of 3,181,000 shares of our Common Stock from the
original founder of the Company for $4.0 million offset by the issuance of
952,380 shares of our Series B redeemable convertible preferred stock to eBay in
May 2002 for net proceeds of $1.8 million as described in Note 9 to the
Consolidated Financial Statements. Cash used in financing activities in 2001 was
$63,000, primarily from the repayment of capital lease obligations.

We expect to fund our operating expenses for 2004 from available cash. In
addition, we may utilize our cash resources to fund acquisitions or investments
in complementary businesses or technologies, though currently we have no
commitments for capital expenditures or strategic investments. We believe that
our current cash, cash equivalents and marketable securities will be sufficient
to meet our working capital and operating expenditure requirements for the near
future. However, uncertainties exist as to the precise value of claims and
liabilities, which may exceed our current existing cash and cash equivalents. In
particular, we may be unable to negotiate settlements with respect to our
remaining liabilities and we face and might face new claims, either of which, or
collectively, could exceed our current existing cash and cash equivalents.
Further, we do not have an operating business and consequently, we are currently
exploring various options for the use of our remaining assets, including pursuit
of a business strategy unrelated to our historical business. Acquisition and/or
operation of any future business strategy may require us to obtain additional
financing. In the interim, we believe our cash needs will primarily relate to
costs associated with operation as a public company, such as legal and
accounting costs, as well as the satisfaction of any potential legal judgments
or settlements. If additional financing is required, we may not be able to raise
it on acceptable terms or at all.

Contractual Obligations and Commercial Commitments

The following table presents our contractual obligations and commercial
commitments as of December 31, 2003 and over the periods indicated below (in
thousands):

Payments due by period
------------------------------
Less than 1-3
Contractual Obligations Amount one year years
----------------------- ------ --------- -----
Operating and capital leases............... $530 $273 $257
Other contractual obligation............... 21 15 --

Factors that May Affect Results of Operations and Financial Condition

Some of the factors that might cause these differences include those
set forth below. You should carefully review all of these factors, and you
should be aware that there may be other factors that could cause these
differences. These forward-looking statements were based on information, plans
and estimates at the date of this Form 10-K, and we do not promise to update any
forward-looking statements to reflect changes in underlying assumptions or
factors, new information, future events or other changes.

We Currently Do Not Have an Operating Business, But Also Do Not Intend to Pursue
a Course of Complete Liquidation and Dissolution, and Accordingly, the Value of
Your Shares May Decrease.

We currently do not have any operating business; we are considering various
options for the use of our remaining assets, but have yet to approve any
definitive plans. In the meantime, we will continue to incur operating expenses
while we consider alternative operating plans. These plans may include business
combinations with or investments in other operating companies, or entering into
a completely new line of business. We have not yet identified any such
opportunities, and thus, you will not be able to evaluate the impact of such a
business strategy on the value of your stock. In addition, we cannot assure you
that we will be able to identify any appropriate business opportunities. Even if
we are able to identify business opportunities that our Board deems appropriate,
we cannot assure you that such a strategy will provide you with a positive
return on your investment, and it may in fact result in a substantial decrease
in the value of your stock. These factors will substantially increase the
uncertainty, and thus the risk, of investing in our shares.

Stockholders May Be Liable to Our Creditors for Up to Amounts Received From Us
if Our Reserves Are Inadequate

If we pursue a plan of complete liquidation and dissolution, a Certificate of
Dissolution will be filed with the State of Delaware after such plan is approved
by our stockholders. Pursuant to the Delaware General Corporation Law, we will
continue to exist for three years after the dissolution becomes effective or for
such longer period as the Delaware Court of Chancery shall direct, for the
purpose of prosecuting and defending suits against us and enabling us gradually
to close our business, to dispose of our property, to discharge our liabilities
and to distribute to our stockholders any remaining assets. Under the Delaware
General Corporation Law, in the event we fail to create an adequate contingency
reserve for payment of our expenses and liabilities during this three-year
period, each stockholder could be held liable for payment to our creditors for
such stockholder's pro rata share of amounts owed to creditors in excess of the
contingency reserve. The liability of any stockholder would be limited, however,
to the amounts previously received by such stockholder from us (and from any
liquidating trust or trusts), including the cash distribution of $1.30 per share
paid to stockholders on November 3, 2003. Accordingly, in such event a
stockholder could be required to return all distributions previously made to
such stockholder. In such event, a stockholder could receive nothing from us
under a plan of complete liquidation and dissolution. Moreover, in the event a
stockholder has paid taxes on amounts previously received, a repayment of all or
a portion of such amount could result in a stockholder incurring a net tax cost
if the stockholder's repayment of an amount previously distributed does not
cause a commensurate reduction in taxes payable. There can be no assurance that
the contingency reserve maintained by us will be adequate to cover any expenses
and liabilities.

We May Not Be Able to Identify or Fully Capitalize on Any Appropriate Business
Opportunities

We are considering various options for the use of our remaining assets, which
may include business combinations with or investments in other operating
companies, or entering into a completely new line of business. Nevertheless, we
have not yet identified any appropriate business opportunities, and, due to a
variety of factors outside of our control, we may not be able to identify or
fully capitalize on any such opportunities. These factors include: (1)
competition from other potential acquirers and partners of and investors in
potential acquisitions, many of whom may have greater financial resources than
we do; (2) in specific cases, failure to agree on the terms of a potential
acquisition, such as the amount or price of our acquired interest, or
incompatibility between us and management of the company we wish to acquire; and
(3) the possibility that we may lack sufficient capital and/or expertise to
develop promising opportunities. Even if we are able to identify business
opportunities that our Board deems appropriate, we cannot assure you that such a
strategy will provide you with a positive return on your investment, and may in
fact result in a substantial decrease in the value of your stock. In addition,
if we enter into a combination with a business that has operating income, we
cannot assure you that we will be able to utilize all or even a portion of our
existing net operating loss carryover for federal or state tax purposes
following such a business combination. If we are unable to make use of our
existing net operating loss carryover, the tax advantages of such a combination
may be limited, which could negatively impact the price of our stock and the
value of your investment. These factors will substantially increase the
uncertainty, and thus the risk, of investing in our shares.

Our Stock May Be Delisted from The Nasdaq National Market, After Which It Will
Be Significantly Less Liquid than Before.

Our stock may be delisted from trading on The Nasdaq National Market by reason
of not maintaining the required minimum bid price. In December 2003, we were
notified by Nasdaq that pursuant to Marketplace Rule 4450(a)(5), we have until
June 14, 2004 for our stock to trade above $1.00 for 10 consecutive trading days
to avoid being delisted from The Nasdaq National Market. We may be delisted
before that date if we fail to meet other criteria for continued inclusion on
The Nasdaq National Market. If we are delisted from The Nasdaq National Market,
our stock will only be traded on the OTC Bulletin Board. An investment in an OTC
security is speculative and involves a degree of risk. Many OTC securities are
relatively illiquid, or "thinly traded," which can enhance volatility in the
share price and make it difficult for investors to buy or sell without
dramatically effecting the quoted price or may be unable to sell a position at a
later date. If our stock is delisted from the Nasdaq National Market, then the
ability of our stockholders to buy and sell our shares will be materially
impaired.

We Will Continue to Incur the Expense of Complying with Public Company Reporting
Requirements

We have an obligation to continue to comply with the applicable reporting
requirements of the Securities Exchange Act of 1934, as amended, even though
compliance with such reporting requirements is economically burdensome. In order
to curtail expenses, if we elect to pursue a liquidation and dissolution
strategy, after we file our Certificate of Dissolution, we will seek relief from
the Securities and Exchange Commission from the reporting requirements under the
Exchange Act, which may or may not be granted. Until such relief is granted we
will continue to make obligatory Exchange Act filings. We anticipate that even
if such relief is granted in the future, we will continue to file current
reports on Form 8-K to disclose material events relating to our liquidation and
dissolution along with any other reports that the Securities and Exchange
Commission may require.

We May Be Unable to Negotiate Settlements with Respect to Our Remaining
Liabilities

We currently are in the process of negotiating settlements with respect to our
remaining obligations and liabilities, which include ongoing litigation matters.
If we are unable to successfully negotiate the termination of these obligations,
we may use more of our cash than expected and will have less cash to use for
other purposes.

We Face and Might Face Intellectual Property Infringement Claims that Might Be
Costly to Resolve

From time to time, we have received letters from corporations and other entities
suggesting that we review patents to which they claim rights or claiming that we
infringe on their intellectual property rights. Such claims may result in our
being involved in litigation. Although we sold our operating assets to eBay, we
still have exposure for liabilities relating to our business operations prior to
the sale. Further, we cannot assure you that third parties will not assert
claims in the future or that we will prevail against any such claims. We could
incur substantial costs to defend any claims relating to proprietary rights,
which would deplete our remaining cash assets. In addition, we are obligated
under certain agreements to indemnify the other party for claims that we
infringe on the proprietary rights of third parties. If we are required to
indemnify parties under these agreements, our remaining assets could be
substantially reduced. If someone asserts a claim against us relating to
proprietary technology or information, we might seek settlement of such claim.
We might not be able to agree to a settlement on reasonable terms, or at all.
The failure to obtain a settlement on acceptable terms would decrease cash for
other purposes.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Investment Portfolio

We do not use derivative financial instruments for investment purposes
and only invest in financial instruments that meet high credit quality
standards, as specified in our investment policy guidelines. This policy also
limits the amount of credit exposure of any one issue, issuer, and type of
investment. Due to the conservative nature of our investments, we do not believe
that we have a material exposure to interest rate risk.

Foreign Currency Risk

International sales are made from our foreign sales subsidiaries in the
respective countries and are denominated in the local currency of each country.
These subsidiaries also incur most of their expenses in the local currency.
Accordingly, all foreign subsidiaries use the local currency as their functional
currency. Our intercompany accounts are typically denominated in the functional
currency of the foreign subsidiary in order to centralize foreign exchange risk
with the parent company in the United States. We are also exposed to foreign
exchange rate fluctuations as the financial results of foreign subsidiaries are
translated into U.S. dollars in consolidation. As exchange rates vary, these
results, when translated, may vary from expectations and adversely impact
overall financial results. The effect of foreign exchange rate fluctuations on
Dynabazaar in the years ended December 31, 2003, 2002 and 2001 was not
significant.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Company's Consolidated Financial Statements are included in this
Report beginning at page F-1.

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

On February 2, 2004, we dismissed PricewaterhouseCoopers LLP as our
independent accountants and engaged Rothstein, Kass & Company, P.C. as our
independent auditors for the year ended December 31, 2003. We filed a current
report on Form 8-K with the Securities and Exchange Commission with respect to
this matter.

ITEM 9A. CONTROLS AND PROCEDURES

As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as of
the end of the period covered by this report, we carried out an evaluation under
the supervision and with the participation of our management, including our
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures. In designing and
evaluating our disclosure controls and procedures, we recognize that any
controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving the desired control objectives, and our
management necessarily was required to apply its judgment in evaluating and
implementing possible controls and procedures. The effectiveness of our
disclosure controls and procedures is necessarily limited by the staff and other
resources available to us and, although we have designed our disclosure controls
and procedures to address the geographic diversity of our operations, this
diversity inherently may limit the effectiveness of those controls and
procedures. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that, as of the end of the period covered by this
report, our disclosure controls and procedures were effective, in that they
provide reasonable assurance that information required to be disclosed by us in
the reports we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms. There was no change in our internal
control over financial reporting that occurred during the period covered by this
report that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting. In connection with these
rules, we will continue to review and document our disclosure controls and
procedures, including our internal controls and procedures for financial
reporting, and may from time to time make changes aimed at enhancing their
effectiveness and to ensure that our systems evolve with our business.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below are the names and ages of each of our directors, nominees for
directors and executive officers, their respective positions with our Company,
and a brief summary of their business experience for the past five years.

Name Age Position
---- --- --------

James A. Mitarontonda 49 Chief Executive officer and Director -
Class III Term Expires 2006
Melvyn Brunt 60 Chief Financial Officer

Rory J. Cowan 50 Chairman of the Board of Directors--
Class II Term Expires 2005
Lloyd I. Miller, III 49 Director--Class III Term Expires 2006
Joseph R. Wright, Jr. 64 Director--Class II Term Expires 2005

Code of Ethics

We have not yet adopted a code of ethics that applies to our principal executive
officers, principal financial officer, principal accounting officer or
controller or persons performing similar functions. However we are currently in
the process of evaluating and preparing a proposed Code of Ethics which is
expected to be presented to the Board of Directors for consideration and
approval during the fiscal quarter ended June 30, 2004.

James Mitarontonda is President, Chief Executive Officer and a director
of the Company and has served in such capacities since January 2004. Mr.
Mitarontonda is also the Chairman of the Board, President and Chief Executive
Officer of Barington Capital Group, L.P. He has held these positions at
Barington for at least the last five years. Mr. Mitarontonda co-founded
Barington Capital Group, L.P. in November 1991. Mr. Mitarontonda is also
President and Chief Executive Officer of Barington Companies Investors, LLC, the
general partner of Barington Companies Equity Partners, L.P., a small
capitalization, value fund in which the general partner seeks to be actively
involved with its portfolio companies in order to enhance shareholder value. In
addition, Mr. Mitarontonda is a member of the Board of Directors of L Q
Corporation, Inc. and is Co-Chairman and Co-CEO of MM Companies, Inc. In May
1988, Mr. Mitarontonda co-founded Commonwealth Associates, an investment
banking, brokerage and securities trading firm. Mr. Mitarontonda served as
Chairman of the Board and Co-Chief Executive Officer of JMJ Management Company
Inc., the general partner of Commonwealth Associates. From December 1984 to May
1988, Mr. Mitarontonda was Senior Vice President/Investments of DH Blair & Co.,
Inc. Earlier in his career, Mr. Mitarontonda was employed by Citibank, N.A. in
an executive capacity having management responsibility for two of Citibank's
business banking branches. During his tenure at Citibank, Mr. Mitarontonda
became Regional Director of Citibank's Home Equity Financing and Credit
Services. Mr. Mitarontonda is a former member of the Alumni Advisory Council of
New York University's Stern School of Business and is a member of the Gotham
Chapter of the Young President's Organization, where he formerly served on the
Executive Committee and as the Co-Chairman of Membership. Mr. Mitarontonda is
also a member of the Board of Directors of The Friends of Green Chimneys, a
charitable organization. Mr. Mitarontonda graduated from New York University's
Leonard N. Stern School of Business with a Master of Business Administration
degree and from Queens College with a Bachelor of Arts degree in Economics

Melvyn Brunt, age 60, is the Chief Financial Officer and Secretary of
MM Companies, Inc. and Barington Capital Group LP and has served in that
capacity since January 2002. He is the Chief Financial Officer and Secretary of
LQ Corporation, Inc. ( f/k/a Liquid Audio, Inc. ) and has served in that
capacity since April 2003. From 1996 to 2001, Mr. Brunt was President of Air Mar
of Puerto Rico Inc. a warehousing and distribution company. From 1993 to 1996,
Mr. Brunt was a Director and Chief Financial Officer of TCX International Inc. a
logistics services company specializing in freight consolidations to Central
America and the Caribbean. Prior to that Mr. Brunt was a Director and Chief
Financial Officer of Davies Turner & Co. a national US Customs Broker. Mr. Brunt
earned a Bachelor of Science degree in Economics from the London School of
Economics and a Bachelor of Science degree in Accounting from Salford
University, England. Mr. Brunt is also the Secretary and Chief Financial Officer
of LQ Corporation, Inc. and MM Companies, Inc.

Rory J. Cowan, age 60, was elected as a director of Dynabazaar in March
2001. Mr. Cowan is the founder of Lionbridge Technologies, Inc., a provider of
globalization products and services for worldwide deployment of technology and
information-based products, where he has served as Chairman of the Board and
Chief Executive Officer since September 1996. From September 1996 to March 2000,
Mr. Cowan also served as President of Lionbridge. Before founding Lionbridge,
Mr. Cowan served as Chief Executive Officer of Interleaf, Inc., a document
automation software services company from October 1996 to January 1997. From May
1995 to June 1996, Mr. Cowan served as Chief Executive Officer of Stream
International, Inc., a software and services provider and a division of R.R.
Donnelley & Sons, a provider of commercial print and print-related services. Mr.
Cowan joined R.R. Donnelley in 1988 and served most recently as Executive Vice
President from 1991 to June 1996. Before joining R.R. Donnelley, Mr. Cowan was
founder of CSA Press of Hudson, Mass., a software duplication firm, and held
positions at Compugraphic Corporation, an automated publishing hardware firm.
Mr. Cowan is a graduate of Harvard University and Harvard Business School.

Lloyd I. Miller, III, age 49, is a registered investment advisor and
has been a member of the Chicago Board of Trade since 1978 and a member of the
Chicago Stock Exchange since 1996. Mr. Miller graduated from Brown University in
1977 with a Bachelor's Degree. Mr. Miller is currently a director of Stamps.com,
American BankNote Corp, Celeritek, Inc. and Aldila, Inc. Mr. Miller's principal
occupation is investing assets held by Mr. Miller on his own behalf and on
behalf of his family.

Joseph R. Wright, Jr., age 64, has served as a director of Dynabazaar
since May 8, 2002. Mr. Wright is President, Chief Executive Officer and Director
of PanAmSat Corporation, one of the world's largest providers of global
satellite-based communications services, servicing news organizations,
telecommunications companies, DirecTV services, Internet networks and others
around the globe. In the six years prior to this position, Mr. Wright was Vice
Chairman of Terremark Worldwide Inc., a public company that develops and
operates Network Access Point (NAP) centers in the U.S. and Brazil. Mr. Wright
was also Chairman and Director of GRC International, Inc., a public company
providing advanced IT, Internet, and software systems technologies to government
and commercial customers, which was sold to AT&T. He was also Co-Chairman and
Director of Baker & Taylor Holdings, Inc., an international book/video/software
distribution and e-commerce company that is majority owned by the Carlyle Group.
From 1989 to 1994, Mr. Wright was Executive Vice President, Vice Chairman and
Director of W.R. Grace & Co., Chairman of Grace Energy Company, and President of
Grace Environmental Company. Mr. Wright was Deputy Director and Director of the
Federal Office of Management and Budget and a member of the President's Cabinet
during the Reagan Administration from 1982 to 1989 and Deputy Secretary of the
Department of Commerce from 1981 to 1982. He previously held positions as
President of two of Citibank's subsidiaries, as a partner of Booze Allen and
Hamilton and in various management/economic positions in the Federal Departments
of Commerce and Agriculture. In addition, Mr. Wright is the Chairman of the
Advisory Board of Barington Companies Equity Partners, L.P., and serves on the
Board of Directors/Advisors of Terremark Worldwide Inc., Titan Corporation,
Baker & Taylor, Verso Technologies Inc., Proxim Corporation, MM Companies, Inc.,
Inc. and the AT&T Washington Advisory Board. Mr. Wright graduated from Yale
University with a Master's Degree in Industrial Administration and from Colorado
School of Mines with a Professional Engineering Degree.

We have not yet adopted a Code of Ethics covering our prinipal executive
officer, principal financial officer, Principal accounting officer or
controller, or persons performing similar functions. We are in the process of
developing a Code of Ethics which we expect to adopt in the second quarter on
2004.

Compliance with Section 16(a) of the Securities Exchange Act of 1934.

Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires our executive officers and directors and persons who beneficially own
more than 10% of our common stock to file reports of ownership and changes in
ownership with the SEC and to furnish copies to us.

Based upon a review of the reports furnished to us and representations
made to us. We believe that, during the fiscal year ended December 31, 2003, all
reports required by Section 16(a) to be filed by our officers and directors and
10% beneficial owners were filed on a timely basis.

ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

Director Compensation

For 2003, the one director who was a Dynabazaar employee received no
compensation for his services as director. Each non-employee director received a
cash retainer of $35,000 and also received reimbursement for out-of-pocket
expenses incurred in connection with attending Board and Committee meetings.
Non-employee directors are eligible to participate in our 2000 Stock Option and
Incentive Plan at the discretion of the full Board of Directors. Non-employee
directors typically are granted an option to purchase 75,000 shares, with an
exercise price equal to the fair market value of common stock on the date of
grant and vest in three equal annual installments, in connection with their
initial election to the Board. Pursuant to the terms of our option plans, the
unvested options held by some of our executive officers and directors vested
immediately prior to the closing of the asset sale to eBay and terminated upon
the closing of the asset sale. We paid a cash bonus with respect to their stock
options that terminated unexercised, which bonus was approximately equal to the
spread on such unexercised stock options at their termination, calculated as the
excess, if any, of (1) the lesser of (a) the closing sale price of Dynabazaar
common stock on Nasdaq on the day of the closing of the asset sale and (b) the
average of the closing sale prices of Dynabazaar common stock on Nasdaq for the
20 trading days preceding the closing of the asset sale, in each case less a
small discount, and (2) the exercise price of the stock option. Accordingly,
upon the closing of the sale to eBay, Messrs. Ackley, Cowan, George, Ghosh,
Krish, Litle, Wright, and Ms. Smith, received cash bonuses in the amounts of
$9,487.50, $23,600, $2,500, $27,750, $269,940, $27,750, $26,250, and $49,500,
respectively.

Executive Compensation

Summary Compensation Table

The following table provides information as to compensation paid by
Dynabazaar for the fiscal years ended December 31, 2001, 2002 and 2003 to the
Chief Executive Officer and to each other executive officer serving as such as
of December 31, 2003, other than the CEO, whose total annual salary and bonus
for the fiscal year exceeded $100,000 (the "Named Executive Officers").

Long-term
Compensation Awards
-----------------------
Annual Compensation Restricted Number
-------------------------------- Stock of
Name and Principal Position Year Salary Bonus Awards Options
--------------------------- ---- ------ ----- ---------- -------

Matthew Ackley (1)......................................... 2003 $105,577 $26,188 --
Vice President, Corporate Development 2002 $150,000 $26,563 -- --
2001 $150,000 $14,063 -- 130,000

Nanda Krish (2)............................................ 2003 $309,218 $276,875
President & Chief Executive Officer 2002 $279,220 $93,750 -- 775,000
2001 $156,182 $50,000 -- 288,000

Janet Smith (3)............................................ 2003 $180,384 $75,833
Chief Financial Officer, Treasurer & Secretary 2002 $175,000 $32,157 -- --
2001 $171,648 $108,362 -- 380,000

-----------

(1) Mr. Ackley left the Company on September 4, 2003 in connection with the
sale to eBay.

(2) Mr. Krish was elected as Interim Chief Executive Officer in July 2001 and
as President and Chief Executive Officer in January 2002. Prior to his
election as Interim Chief Executive Officer Mr. Krish received payments
in his former capacity as non-employee director, are described above
under "Directors Compensation." Mr. Krish resigned from all positions
with the Company on December 31, 2003.

(3) Ms. Smith was elected as Chief Financial Officer and Treasurer in January
2001, and as Secretary in July 2002. Ms Smith also served as Interim
President from May 2001 to January 2002. Ms. Smith resigned from all
positions with the Company on December 31, 2003.

Option Grants in Fiscal Year 2003

No stock options were granted during 2003 to any of the Named Executive
Officers.

None of the Named Executive Officers hold any options to purchase our
common stock as of December 31, 2003. None of the Named Executive Officers
exercised any stock options during 2003. The value of unexercised in-the-money
options is based on the closing price of our common stock as reported by Nasdaq
on December 31, 2003, minus the exercise price, multiplied by the number of
shares underlying the options.

Number of Securities
Underlying Unexercised Value of Outstanding
Options at In-the-Money Options
December 31, 2003 at December 31, 2003
----------------- --------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------

Matthew Ackley........................................ 0 0 0 0
Nanda Krish........................................... 0 0 0 0
Janet Smith........................................... 0 0 0 0

Severance and Change of Control Agreements

Severance Agreements. We entered into severance agreements with each of
Mr. Krish (in January 2002, as amended in July 2003), Ms. Smith (in October
2001, as amended in July 2003), Mr. George (in June 2003) and Mr. Ackley (in
October 2001).

The severance agreement with Mr. Krish provides that if Mr. Krish's
employment with us is terminated other than "for cause" (as defined in that
severance agreement) or if he terminates his employment with us for "good
reason" (as defined in that severance agreement) during the one-year period
following the occurrence of a "change of control" (as defined in that severance
agreement), then (1) all outstanding options held by him will accelerate in full
upon such termination and (2) We will pay him a lump-sum cash amount equal to
one year of his base salary plus one year's target bonus (defined as 50% of his
annual base salary). This agreement also provides that if Mr. Krish's employment
with us is terminated other than "for cause" or if he terminates his employment
with us for "good reason," in each case other than during the one-year period
following the occurrence of a "change of control," then all outstanding options
held by him (other than the option granted to him in August 2001) will
accelerate by one year and we will continue to pay him his base salary for
twelve months following his termination date.

The severance agreements with each of Mr. Ackley and Ms. Smith provide
that if the officer's employment with us is terminated other than "for cause"
(as defined in the severance agreements) or if the officer terminates their
employment with us for "good reason" (as defined in the severance agreements)
during the two-year period following the occurrence of a "change of control" (as
defined in the severance agreements), then (1) all outstanding options held by
that person other than the options granted in August 2001 will accelerate in
full upon such termination and (2) we will pay that person a lump-sum cash
amount equal to the greater of (a) the sum of that person's annual base salary
as of the termination date plus their target bonus (defined as 25% of that
person's annual base salary), or (b) the sum of the base salary paid or payable
to that person during the 12 months preceding the termination date plus the
total of the bonuses paid to or payable to that person with respect to the
preceding four quarters. The agreement with Ms. Smith also provides that if her
employment with us is terminated other than "for cause" or she terminates her
employment with us for "good reason," in each case other than during the
two-year period following the occurrence of a "change of control," then (1) all
outstanding options held by her other than the option granted to her in August
2001 will accelerate by one year and (2) we will continue to pay Ms. Smith her
base salary for nine months following her termination date.

The severance agreement with Mr. George provides that if Mr. George's
employment with us is terminated other than "for cause" (as defined in that
severance agreement) or if he terminates his employment with us for "good
reason" (as defined in that severance agreement) during the two-year period
following the occurrence of a "change of control" (as defined in that severance
agreement), then (1) all outstanding options held by him will accelerate in full
upon such termination and (2) we will pay him a lump-sum cash amount equal to
six months of his base salary, plus 25% of his current base salary. This
agreement also provides that if Mr. George's employment with us is terminated
other than "for cause" or if he terminates his employment with us for "good
reason," in each case before February 3, 2004, but other than during the
two-year period following the occurrence of a "change of control," then all
outstanding options held by him will accelerate by one year and we will continue
to pay him his base salary for three months following his termination date.

Each of the agreements described also prohibits the executive from
competing with us and our affiliates or soliciting any employee of us or our
affiliates for a period of one year following termination of the executive's
employment with us.

In connection with the asset sale to eBay, the severance agreements for
each of Mr. Krish, Ms. Smith and Mr. George were amended to provide that,
effective upon and following the closing of the asset sale to eBay, each of
these individuals will be entitled to severance upon the earliest to occur of
(1) January 31, 2004, (2) the termination or expiration of the transition
services agreement, (3) termination of such person's employment by us without
"cause" (as defined in each amended severance agreement), or (4) termination of
such person's employment by such person for "good reason" (as defined in each
amended severance agreement). Each of Mr. Krish, Ms. Smith and Mr. George will
forfeit his or her severance if their employment is terminated by us for "cause"
(as defined in each amended severance agreement) or if they voluntarily resign
without "good reason" (as defined in each amended severance agreement). The
transition services agreement with eBay expired on December 31, 2003 and,
accordingly, we made severance payments to each of Mr. Krish, Ms. Smith and Mr.
George.

Report of the Compensation Committee of the Board of Directors on Executive
Compensation

The Compensation Committee is responsible for reviewing and
recommending to the Board of Directors the amount and type of consideration to
be paid to senior management, administering Dynabazaar's stock option and
employee stock purchase plans and establishing and reviewing general policies
relating to compensation and benefits of employees. During 2003, the
Compensation Committee consisted of Messrs. Cowan, Ghosh and Litle. Mr. Krish
did not participate in deliberations by the Board or the Compensation Committee
regarding his individual compensation for 2003.

The goals of Dynabazaar's compensation program are to align
compensation with business objectives and performance, to enable Dynabazaar to
attract, retain and reward executive officers and other employees who contribute
to Dynabazaar's long-term success and to motivate those officers and employees
to enhance long-term stockholder value. The compensation of Dynabazaar's
officers and employees consists of an annual base salary, short-term performance
incentives in the form of cash bonuses and long-term performance incentives in
the form of stock options. Dynabazaar has in the past and continues to emphasize
the award of stock options in its executive compensation policy and believes
that in the highly competitive, evolving markets in which Dynabazaar operates,
equity-based compensation provides the greatest incentive for outstanding
executive performance and encourages the greatest alignment of management and
stockholder long-term interests.

Base Salary. The annual base salary for our executive officers during 2003 was
reviewed and approved by the Board of Directors. When reviewing those base
salaries, the Board has considered level of responsibility, breadth of knowledge
and prior experience as well as publicly available compensation information and
informal survey information obtained by Dynabazaar's management with respect to
other companies in the Internet industry. The relative importance of these
factors varies, depending on the particular individual whose salary is being
reviewed. The Board has not determined it necessary to specifically analyze
compensation levels at companies included in the index under the caption
"Performance Graph." For 2003, in light of economic conditions, the Compensation
Committee determined not to effect any salary increase for any executive
officers for that year.

Bonuses. During 2003, Dynabazaar's executive officers were eligible to receive
a quarterly cash bonus of up to a specified percentage of their quarterly base
salary based on the extent to which business and individual performance
objectives, approved by the Board of Directors for each such person, were
achieved. These objectives consisted of operating, strategic and/or financial
goals that are considered to be important to Dynabazaar's fundamental long-term
goal of building stockholder value. Cash bonuses were paid to executive officers
for the [four] quarters of 2003, based on the extent to which officers achieved
their objectives, as approved by the Compensation Committee.

Stock Options. Dynabazaar's equity incentive plans are designed to provide its
employees with an opportunity to share, along with its stockholders, in
Dynabazaar's long-term performance. Initial grants of stock options are
generally made to employees upon commencement of employment, with additional
grants being made to certain employees following a significant change in job
responsibility, scope or title. Options granted under Dynabazaar's standard
stock option program generally vest over a four-year period and expire 10 years
from the date of grant. The exercise price of the options is usually 100% of the
fair market value of Dynabazaar's common stock on the date of grant.

The number of shares of Dynabazaar's common stock covered by options
granted to new employees other than executive officers is generally determined
based on a schedule of option grant ranges for each job level, as approved by
the Board of Directors. These ranges take into account publicly available
compensation information and informal survey information obtained by
Dynabazaar's management with respect to other companies in the Internet
industry. The number of shares of Dynabazaar's common stock covered by options
granted to new executive officers is determined on an individual basis taking
into account the same factors as are considered in establishing the officers'
initial base salary, as described above. Follow-on option grants to employees
are based upon a number of factors, including performance of the individual, job
level, potential and past option grants.

Compensation of the Chief Executive Officer. Form 2003, Mr. Krish's annual base
salary was set at $300,000 per year and Mr. Krish was eligible to receive an
annual bonus based on performance measures. For 2003, the target annual bonus
was equal to 50% of the annualized base salary, with a minimum equal to [25%]
and a maximum equal to 100% of the annualized base salary. The actual bonus
amount was subject to the Board of Directors assessment of Mr. Krish's
performance which included objectives that consisted of operating, strategic
and/or financial goals that are considered to be important to Dynabazaar's
fundamental long-term goal of building stockholder value. For 2003, Mr. Krish
was paid $276,875 in bonus compensation.

Deductibility of Executive Compensation. Compensation payments in excess of $1
million to the chief executive officer or the other four most highly compensated
executive officers are subject to a limitation on deductibility for Dynabazaar
under Section 162(m) of the Internal Revenue Code of 1986, as amended. Certain
performance-based compensation is not subject to the limitation on
deductibility. The Compensation Committee does not expect cash compensation in
2003 to its chief executive officer or any other executive officer to be in
excess of $1 million. Dynabazaar intends to maintain qualification of its
applicable stock option plans for the performance-based exception to the $1
million limitation on deductibility of compensation payments.

BOARD OF DIRECTORS and
COMPENSATION COMMITTEE
Rory J. Cowan
Shikhar Ghosh
Thomas J. Litle, IV

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

For the year ended December 31, 2003, our executive compensation
program was administered by either the full Board of Directors or the
Compensation Committee. None of our executive officers serves as a member of the
board of directors or compensation committee of any entity that has one or more
executive officers serving on our Board of Directors or Compensation Committee.

PERFORMANCE GRAPH

The graph below compares the cumulative total stockholder return on our
common stock with the cumulative total return of (a) the Nasdaq Stock Market
Index (U.S.) (the "Nasdaq Index"), (b) the JP Morgan H&Q Internet 100 Index
through December 31, 2001 and (c) the RDG Internet. The graph assumes that $100
was invested in each of our common stock, the Nasdaq Index, the JP Morgan H&Q
Internet 100 Index and the RDG Internet group on March 14, 2000 (the date on
which our common stock was first publicly traded) and reflects the return
through December 31, 2003, and assumes the reinvestment of dividends, if any.
The comparisons in the graph below are based on historical data and are not
indicative of, or intended to forecast, possible future performance of
Dynabazaar's common stock. We replaced the JP Morgan H&Q Index used in the graph
below with the RDG Internet group because the JP Morgan H&Q Index ceased
publication on December 31, 2001.

3/14/00 12/00 12/01 12/02
------- ----- ----- -----

DYNABAZAAR, INC. ..................... $100.00 $8.82 $6.59 $9.47
NASDAQ STOCK MARKET (U.S.)............ $100.00 $52.49 $41.65 $28.79
JP MORGAN H & Q INTERNET 100.......... $100.00 $32.28 $20.77
RDG INTERNET.......................... $100.00 $56.25 $34.74 $22.91

COMPARISON OF 45 MONTH CUMULATIVE TOTAL RETURN*
AMONG DYNABAZAAR, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE RDG INTERNET COMPOSITE INDEX

Begin: 2/29/2000
Period End: 12/31/2003
DYNABAZAAR INC End: 12/31/2003

Beginning
Transaction Closing No. Of Dividend Dividend Shares Ending Cum. Tot.
Date* Type Price** Shares*** per Share Paid Reinvested Shares Return
----- ---- ------- --------- --------- ---- ---------- ------ ------

14-Mar-00 Begin 17.000 5.88 5.882 100.00

31-Dec-00 Year End 1.500 5.88 5.882 8.82

31-Dec-01 Year End 1.120 5.88 5.882 6.59

31-Dec-02 Year End 1.610 5.88 5.882 9.47

4-Nov-03 Dividend 0.500 5.88 1.30 7.65 15.294 21.176 10.59
31-Dec-03 End 0.330 21.18 21.176 6.99

* Specified ending dates or ex-dividends dates.
** All Closing Prices and Dividends are adjusted for stock splits and stock
dividends.
***' Begin Shares' based on $100 investment.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The following table shows the amount of capital stock of Dynabazaar
beneficially owned as of March 26, 2004 by:

o each director;

o each person who served as Chief Executive Officer during 2003,
and each other executive officer serving as such as of
December 31, 2003, other than the Chief Executive Officer,
whose total annual salary and bonus for the fiscal year
exceeded $100,000 (the Named Executive Officers);

o all directors and executive officers of Dynabazaar as a group;
and

o each person known by Dynabazaar to beneficially own more than
5% of our outstanding common stock.

Beneficial ownership includes shares that are directly owned or jointly
owned, as well as shares over which the individual or entity has sole or shared
investment or voting authority. Beneficial ownership also includes shares that
the individual or entity has the right to acquire through the exercise of
options or warrants or any other right) within 60 days after March __, 2004.
Unless otherwise indicated, the address for the directors and executive officers
of Dynabazaar listed in the table below is c/o Dynabazaar, Inc., 888 Seventh
Ave., New York, NY 10019.

Amount and Nature of
Beneficial Percent of
Name and Address of Beneficial Owners Ownership Class(1)
------------------------------------- -------------------- ----------

Common Stock:
Directors and Executive Officers

Matthew Ackley 125,200(2) *
Nanda Krish 662,325(3) 2.4%
Janet Smith 175,000(4) *
Shikhar Gnosh 25,000(6)
David George 0 *
Thomas J. Little IV 25,000(6) *
Rory J. Cowan 88,334(5) *
Joseph R. Wright, Jr. 25,000(8)(9) *
All directors and executive officers as a group
(8 persons) 1,125,859 4.1%

Other 5% Beneficial Owners

Ticketmaster 2,225,000(5) 8.3%
3701 Wilshire Boulevard
Los Angeles, CA 90010

JHC Investment Partners, LLC 3,504,500(11) 13.1%
c/o Barington Capital Group, L.P.
888 Seventh Avenue,
17th Floor
New York, NY 10019

Lloyd I. Miller, III 3,688,015(12) 13.8%
4550 Gordon Drive
Naples, FL 34102

Ticketmaster 2,250,000(13) 8.5%
3701 Wilshire Boulevard
Los Angeles, CA 90010

Don C. Whitaker 1,685,101(14) 6.3%
23 Beechwood
Irvine, CA 92604

David T Lu 1,777,957(15) 6.7%
1147 E. Putnam Ave #320
Riverside, CT 06878

-----------------
* Less than 1%

(1) The number of shares and percentages have been determined as of March 26,
2004 in accordance with Rule 13d-3 of the Securities Exchange Act of 1934. At
that date, a total of 27,049,744 shares of common stock were outstanding. The
total number of shares of stock outstanding used in calculating the percentage
ownership of a beneficial owner assumes that all options and warrants to acquire
shares of our stock held by such beneficial owner (but not those held by any
other person) that were exercisable on, or become exercisable within 60 days of,
March 26, 2004 are exercised.

(2) These shares are held by various related trusts and other entities
affiliated with Mr. Miller and consist of: 2,303,547 shares as to which Mr.
Miller has sole voting power; 1,847,293 shares as to which Mr. Miller has sole
dispositive power; 1,384,441 shares as to which Mr. Miller has shared voting
power; and 1,840,695 shares as to which Mr. Miller has shared dispositive power.

(3) Represents (i) 320,000 shares issuable upon exercise of options held by Mr.
Mitarontonda, (ii) 627,390 shares held by Barington Companies Equity Partners,
L.P. and (iii) 627,390 shares held by MM Companies, Inc. As the managing member
of Barington Companies Investors, LLC, the general partner of Barington
Companies Equity Partners, L.P., Mr. Mitarontonda may be deemed the beneficial
owner of the shares held by Barington Companies Equity Partners, L.P. As the
Chief Executive Officer, President and a Director of MM Companies, Inc., Mr.
Mitarontonda may be deemed the beneficial owner of the shares held by MM
Companies, Inc. Mr. Mitarontonda disclaims beneficial ownership of the shares
held by Barington Companies Equity Partners, L.P. and MM Companies, Inc.

(4) Mr. Wright is a Director of MM Companies, Inc., which directly owns 627,390
shares of common stock, and is the Chairman of the Advisory Board of Barington
Companies Equity Partners, L.P., which directly owns 627,390 shares of common
stock. Mr. Wright disclaims beneficial ownership of the shares held by Barington
Companies Equity Partners, L.P. and MM Companies, Inc.

(5) This information is based on a Schedule 13D filed by Ticketmaster (formerly
Ticketmaster Online-CitySearch, Inc.) with the Securities and Exchange
Commission on June 25, 2003.

Equity Compensation Plan Information

The following table provides information as of December 31, 2003
regarding shares of common stock of the Company that may be issued under our
existing equity compensation plans, including the Company's 1997 Stock Option
Plan (the "1997 Plan"), 1999 Stock Option Plan (the "1999 Plan"), and 2000 Stock
Option and Incentive Plan (the "2000 Plan") and the Company's 2000 Employee
Stock Purchase Plan (the "ESPP"). These Plans are more fully described in Note
10.

Equity Compensation Plan Information
--------------------------------------------------------
Number of securities
remaining available for
Number of securities to be Weighted Average future issuance under
issued upon exercise of exercise price of equity compensation plan
outstanding options, outstanding options, (excluding securities
Plan category warrants and rights warrants and rights referenced in column (a))
------------- ------------------- ------------------- -------------------------
(a) (b) (c)

Equity compensation plans
approved by security
holders(1)........... 2,463,939(2) $1.71 4,159,025(3)
Equity compensation plans
not approved by
security holders(4).. 1,106,598 $1.70 1,543,152

Total................ 3,570,537 $1.71 5,702,177

-----------

1 Consists of shares from the 1997 Plan, 1999 Plan, and the 2000 Plan.

2 Does not include purchase rights accruing under the ESPP because the
purchase price (and therefore the number of shares to be purchased) will
not be determined until the end of the purchase period.

3 Includes shares available for future issuance under the ESPP

4 Consists of shares from the 2000 Employee Plan

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On June 20, 2003, we entered into an asset purchase agreement with
eBay pursuant to which eBay purchased substantially all of our operating assets
on September 4, 2003.

ITEM 14. PRINCIPLE ACCOUNTING FEES

The aggregate fees billed for professional services by Rothstein Kass &
Company, PC in 2003 and PriceWaterhouseCoopers in 2002 for audit, audit related,
tax and non-audit services were:

Type of fees 2003 2002
-------------------------------- --------- ---------

Audit fees...................... $ 60,000 $ 92,500
Audit -related fees.............
Tax fees........................
All other fees.................. $ 22,100
--------- ---------
Total........................... $ 60,000 $ 92,500
========= =========

In the above table, in accordance with the definition and rules of the
SEC, "audit fees" are fees the Company paid Rothstein Kass & Company, PC and
PriceWaterhouseCoopers for professional services for the audit or the Company's
annual financial statements included in the Company's quarterly reports on Form
10-Q and for services that are normally provide by the accountant in connection
woth the statutory and regulatory filing or engagements; "audit-related fees"
are fees for assurance and related services that are reasonably related to the
performance of the audit review of the Company's financial statements; "tax
fees" are fees for tax compliance, tax advice and tax planning; and "all other
fees" are fees for services not included in the foregoing categories.

PART IV

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

(a) The following documents are included as part of this Annual Report
on Form 10-K.

(1) Financial Statements

Page
----

Report of Independent Auditors F-2
Consolidated Balance Sheets as of December 31, 2003 and 2002.............................................................. F-4
Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001................................ F-5
Consolidated Statements of Convertible Preferred Stock, Stockholders' Equity (Deficit) and Comprehensive Loss for the
years ended December 31, 2003, 2002 and 2001........................................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001................................ F-8
Notes to Consolidated Financial Statements................................................................................ F-9

(2) Financial Statement Schedules

Schedule II--Valuation and Qualifying Accounts............................................................................. II-2

(3) Exhibits

Exhibits indicated with (+) constitute all of the management contracts
and compensation plans and arrangements required to be filed as exhibits to the
Report on Form 10-K.

Exhibit No. Title
----------- -----

3.1 Form of Fifth Amended and Restated Certificate of Incorporation
of the Company(1)

3.2 Composite Amended and Restated Bylaws of the Company as amended
by Amendment to Bylaws adopted May 16, 2001(4)

3.3 Certificate of Designations, Preferences and Rights of a Series
of Preferred Stock of the Company classifying and designating
the Series A Junior Participating Cumulative Preferred Stock(2)

3.4 Certificate of Designations, Preferences and Rights of a Series
of Preferred Stock of Dynabazaar, Inc. classifying and
designating the Series B Preferred Stock.(6)

4.1 Form of Specimen Certificate for the Company's Common Stock(4)

4.2 Shareholder Rights Agreement, dated as of May 17, 2001, between
the Company and EquiServe Trust Company, N.A., as Rights Agent,
including form of Right Certificate(2)

10.1 Form of Indemnity Agreement entered into by the Company with
each of its directors(1)

10.2 Amended and Restated 1997 Stock Option Plan(1)(+)

10.3 October 2001 Amendment to Amended and Restated 1997 Stock Option
Plan(4)(+)

10.4 1999 Stock Option Plan(1)(+)

10.5 2000 Stock Option and Incentive Plan(1)(+)

10.6 Composite Transaction Bonus Plan adopted August 28, 2001 as
amended on March 12, 2002(4)(+)

10.7 Employee Stock Purchase Plan(1)(+)

10.8 Letter agreement dated June 26, 2001 between the Company and
Nanda Krish(3)(+)

10.9 Amended and Restated Agreement Concerning Termination of
Employment, Severance Pay and Related Matters dated as of
October 11, 2001 between the Company and Mathew Ackley(4)(+)

10.10 Second Amended and Restated Agreement Concerning Termination of
Employment, Severance Pay and Related Matters dated as of
October 11, 2001 between the Company and Janet Smith(4)(+)

10.11 Lease Agreement dated November 9, 1999, between DIV Unicorn, LLC
and the Company(1)

10.12 Siteharbor Services Agreement between the Company and NaviSite,
Inc. dated as of November 1, 2001 together with Amendment to
Siteharbor Services Agreement dated as of November 1, 2001(4)

10.13 Indemnification Agreement among the Company and Sierra Ventures
VII, LP, and Sierra Ventures Associates VII, LLC, dated February
25, 1999(1)

10.14 Warrant to Purchase Common Stock between the Company and Lycos,
Inc. dated as of May 12, 1999(1)

10.15 Auction Services Agreement, dated September 15, 1999, by and
between the Company and Ticketmaster Online-CitySearch(1)

10.16 Agreement Concerning termination of Employment, Severance Pay
and related Matters dated as of January 17,2003 between the
Company and Nanda Krish(5)(+)

10.17 Second Amendment to Agreement dated as of March 15, 2002 between
the Company and NaviSite, Inc.(5)

10.18 Promotions Agreement dated as of April 10, 2002 between the
Company and eBay Inc.(7)

10.19 Third Amendment to Agreement dated as of December 1, 2002
between the Company and NaviSite, Inc. *

10.20 Agreement Concerning Employment and Termination dated as of
January 20, 2003 between the Company and David George.*(+)

21 List of Subsidiaries*

23.1 Consent of Rothstein, Kass & Company, P.C.*

23.2 Consent of PricewaterhouseCoopers LLP*

24.1 Powers of Attorney (included on the signature page hereto)

31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.*

31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.*

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

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

-----------

* Filed with this Report.

(1) Included as an exhibit to, and incorporated in this Report by reference
to, the Company's Registration Statement on Form S-1 (No. 333-92677), as
amended, filed with the SEC.

(2) Included as an exhibit to, and incorporated in this Report by reference
to, the Company's Current Report on Form 8-K dated May 17, 2001 filed with
the SEC on May 22, 2001.

(3) Included as an exhibit to, and incorporated in this Report by reference
to, the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 2001 filed with the SEC on November 9, 2001.

(4) Included as an exhibit to, and incorporated in this Report by reference
to, the Company's Annual Report on Form 10-K for the year ended December
31, 2001 filed with the SEC on March 31, 2002.

(5) Included as an exhibit to, and incorporated in this Report by reference
to, the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 2002 filed with the SEC on May 14, 2002.

(6) Included as an exhibit to, and incorporated in this Report by reference
to, the Company's Report on Form 8-K filed with the SEC on May 20, 2002.

(7) Included as an exhibit to, and incorporated in this Report by reference
to, the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 2002 filed with the SEC on August 14, 2002.

(b) Reports on Form 8-K

On October 14, 2003, we filed a Current Report on Form 8-K dated
September 4, 2003 with the Securities and Exchange Commission, reporting under
Items 2 and 7 the closing of the asset sale to eBay, Inc. We will file the pro
forma financial information required to be filed as part of the report by an
amendment to the report as soon as practicable, but in no event later than
November 18, 2003.

SIGNATURES

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

DYNABAZAAR, INC.
By:

James A. Mitarontonda
President, Chief Executive Officer and
Director (Principal Executive Officer)

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the date indicated.

Signature Title Date
--------- ----- ----

James A. Mitarontonda President, Chief Executive Officer and Director (Principal March 26, 2004
Executive Officer)

Melvyn Brunt Chief Financial Officer and Treasurer (Principal Financial and March 26, 2004
Accounting Officer)

Rory J. Cowan Director March 26, 2004

Lloyd I. Miller, III Director March 26, 2004

Joseph R. Wright, Jr. Director March 26, 2004

Dynabazaar, Inc.
Consolidated Financial Statements

Table of Contents

Page
----

Report of Independent Auditors............................................................................................ F-2
Consolidated Balance Sheets as of December 31, 2003 and 2002.............................................................. F-4
Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001................................ F-5
Consolidated Statements of Convertible Preferred Stock, Stockholders' Equity (Deficit) and Comprehensive Loss for the
years ended December 31, 2003, 2002 and 2001........................................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001................................ F-8
Notes to Consolidated Financial Statements................................................................................ F-8

F-1

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of:
Dynabazaar, Inc.

We have audited the accompanying consolidated balance sheet of Dynabazaar, Inc.
and subsidiaries as of December 31, 2003, and the related consolidated
statements of operations, convertible preferred stock, stockholders' equity
(deficit) and comprehensive loss, and cash flows for the year then ended. 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 audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated 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 Dynabazaar, Inc. and
subsidiaries as of December 31, 2003, and the results of their operations and
their cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2, the
Company has incurred losses and negative cash flows from operations for every
year since inception. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans regarding
these matters are also described in Note 2. The accompanying financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

In connection with our audit of the consolidated financial statetments referred
to above, we audited the financial schedule listed under Item 15 for the period
ended December 31, 2003. In our opinion, these financial schedules, when
considered in relation to the consolidated financial statements taken as a
whole, present fairly, in all material respects, the information stated therein.

/s/ ROTHSTEIN, KASS & Company P.C.

Roseland, New Jersey
February 13, 2004

F-2

Report of Independent Auditors

To the Board of Directors and Stockholders of Dynabazaar, Inc.:

In our opinion, the consolidated financial statements listed in the
index appearing under Item 15(a)(1) on page 52 present fairly, in all material
respects, the financial position of Dynabazaar, Inc. and its subsidiaries at
December 31, 2002, and the results of their operations and their cash flows for
each of the two years in the period ended December 31, 2002 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, for each of the two years in the period ended
December 31, 2002 the financial statement schedule listed in the index appearing
under Item 15(a)(2) presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement
schedule are the responsibility of the Company's management; our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
February 7, 2003

F-3

DYNABAZAAR, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per
share amounts)

December 31,
2003 2002
--------- ---------

ASSETS
Current assets:
Cash and cash equivalents .......................................................................... $ 5,697 $ 32,743
Marketable securities .............................................................................. 6,991
Restricted cash .................................................................................... 523 548
Accounts receivable, net of allowance of $162 and $267 at December 31, 2003 and 2002,
respectively .................................................................................... 351 1,328
Prepaid expenses ................................................................................... 389 610
Other current assets ............................................................................... 903 534
--------- ---------

Total current assets ............................................................................ 7,863 42,754

Long-term marketable securities ....................................................................... 5,000 15,000
Long-term prepaid expenses ............................................................................ 1,658 35
Property and equipment, net ........................................................................... 109 1,478
Other assets (see Note 8) ............................................................................. 2,000
--------- ---------

Total assets .................................................................................... $ 16,630 $ 59,267
========= =========

LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................................................... $ 82 $ 133
Deferred revenue ................................................................................... 520
Accrued expenses ................................................................................... 1,034 1,489
Current portion of unutilized space accrual ........................................................ 1,200 1,040
--------- ---------

Total current liabilities ....................................................................... 2,316 3,182

Long term unutilized space accrual .................................................................... 1,040
Other long-term liabilities (see Note 8) .............................................................. 2,000 169
--------- ---------

Total liabilities ............................................................................... 4,316 4,391
--------- ---------

Commitments and contingencies
Preferred stock, $0.001 par value; 10,000,000 shares authorized, 0 and 952,380 shares issued at
December 31, 2003 and 2002, respectively ........................................................ 1,967
Stockholders' equity
Common stock, $0.001 par value; 90,000,000 shares authorized, 29,426,385 and 29,420,682 shares
issued at December 31, 2003 and 2002, respectively .............................................. 30 30
Additional paid-in capital ......................................................................... 151,636 188,747
Treasury stock, (at cost of $1.27 per share); 2,376,641 and 2,989,265 shares at December 31,
2003 and 2002, respectively ..................................................................... (3,018) (3,795)
Deferred compensation and equity-related charges ................................................... (159)
Accumulated other comprehensive income, net ........................................................ 191 12
Accumulated deficit ................................................................................ (136,525) (131,926)
--------- ---------

Total stockholders' equity ...................................................................... 12,314 52,909
--------- ---------

Total liabilities, preferred stock and stockholders' equity ..................................... $ 16,630 $ 59,267
========= =========

The accompanying notes are an integral part of the consolidated
financial statements.

F-4

DYNABAZAAR, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per
share amounts)

For the Years Ended December 31,
--------------------------------
2003 2002 2001
-------- -------- --------

Revenue ..................................................................................... $ 6,673 $ 5,747 $ 8,571
-------- -------- --------

Operating expenses:
Cost of revenue, exclusive of $11, $134 and $200 in 2003, 2002 and 2001, ................. 2,085 3,555 4,919
respectively, reported below as equity-related charges
Sales and marketing, exclusive of $41, $9,465 and $20,196 in 2003, 2002 and 2001, ........ 1,978 2,284 7,986
respectively, reported below as equity-related charges
Development and engineering, exclusive of $32, $195 and $400 in 2003, 2002 and ........... 1,118 2,213 4,926
2001, respectively, reported below as equity-related charges
General and administrative, exclusive of $23, $100 and $352 in 2003, 2002 and 2001, ...... 7,304 6,612 10,744
respectively, reported below as equity-related charges
Restructuring charges .................................................................... 530 1,965
Unutilized office space charge ........................................................... 160 3,987
Equity-related charges ................................................................... 107 9,894 21,148
-------- -------- --------

Total operating expenses .................................................................... 12,752 29,075 51,688
-------- -------- --------

Loss from operations ........................................................................ (6,079) (23,328) (43,117)
Interest income ............................................................................. 297 1,351 3,083
Interest expense ............................................................................ (27)
Gain on sale of assets ...................................................................... 1,183
Other expense ............................................................................... (122)
-------- -------- --------
Net loss .................................................................................... $ (4,599) $(21,977) $(40,183)

Dividends and accretion on redeemable convertible preferred stock ........................... 123 138
-------- -------- --------

Net loss attributable to common shareholders ................................................ $ (4,722) $(22,115) $(40,183)
======== ======== ========

Basic and diluted net loss per common share........................................... $ (0.18) $ (0.79) $ (1.39)
======== ======== ========

Shares used to compute basic and diluted net loss per common share.................... 26,796 28,080 28,870
======== ======== ========

The accompanying notes are an integral part of the consolidated
financial statements.

F-5

DYNABAZAAR, INC.
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK,
STOCKHOLDERS' EQUITY (DEFICIT) AND COMPREHENSIVE LOSS
For the Years Ended December 31, 2003, 2002 and 2001
(In thousands)

Amount Deferred Accumulated
Shares Amount Shares at Par Shares Amount Compensation Other
------ ------ ------ ------ Additional ------ ------ and Comprehensive
Convertible Paid-in Equity-related Income
Preferred Stock Common Stock Capital Treasury Stock Charges (Loss)
--------------- -------------- ------- -------------- ------- ------

January 1, 2001 -- -- 28,690 $29 $209,038 $(51,991) $(28)
Comprehensive loss:
Net loss..........................
Foreign currency translation (39)
adjustment.....................
Unrealized gain on marketable 54
securities.....................

Comprehensive loss................

Cancellation of employee stock (1,761) 1,761
options........................
Return of warrants issued to (18,034) 18,034
Microsoft......................
Equity-related charges............ 21,616
Issuance of common stock upon 329 91
exercise of employee stock
options........................
Issuance of common stock under 43 36
employee stock purchase plan...
----------------------------------------------------------------------------------------------

Balance at December 31, 2001...... 29,062 29 189,370 (10,580) (13)

Total
Stockholders'
Accumulated Comprehensive Equity
Deficit Loss (Deficit)
----------- -------------- ---------

January 1, 2001 $(69,766) $87,282
Comprehensive loss:
Net loss.......................... (40,183) (40,183) (40,183)
Foreign currency translation (39) (39)
adjustment.....................
Unrealized gain on marketable 54 54
securities.....................

Comprehensive loss................ (40,168)

Cancellation of employee stock
options........................
Return of warrants issued to
Microsoft......................
Equity-related charges............ 21,616
Issuance of common stock upon 91
exercise of employee stock
options........................
Issuance of common stock under 36
employee stock purchase plan...
-------------------------------------------

Balance at December 31, 2001...... (109,949) 68,857

The accompanying notes are an integral part of the consolidated
financial statements.

F-6

DYNABAZAAR, INC.
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK,
STOCKHOLDERS' EQUITY (DEFICIT) AND COMPREHENSIVE LOSS
For the Years Ended December 31, 2003, 2002 and 2001
(In thousands)

Deferred
Compensation
Additional and Stock
Amount Paid-in Equity-related Subscription
Shares Amount Shares at Par Capital Shares Amount Charges Receivable
------ ------ ------ ------ ------- ------ ------ ------- ------------
Convertible
Preferred Stock Common Stock Treasury Stock
--------------- ------------ --------------

Comprehensive loss:
Net loss..........................
Foreign currency translation
adjustment.....................
Unrealized loss on marketable
securities.....................

Comprehensive loss................

Issuance of Series B convertible
preferred stock................ 952 1,796
Effective EITF 01-09 on convertible
preferred stock................ 114
Series B convertible preferred
stock dividend................. (81)
Series B convertible preferred
stock accretion................ 57 (57)
Repurchase of common stock........ 3,181 (4,039)
Issuance of common stock upon
exercise of employee stock 320 1 10 (192) 244
options........................
Issuance of common stock under the
employee stock purchase plan... 39 32
Cancellation of employee stock (527) 527
options........................
Equity-related charges............ 9,414
Deferred compensation related to
employee stock options......... 480
----------------------------------------------------------------------------------------------

Balance at December 31, 2002...... 952 1,967 29,421 30 188,747 2,989 (3,795) (159) $--
Comprehensive loss:
Net loss
Foreign currency translation
adjustment
Unrealized gain on marketable
securities
Comprehensive loss
Series B convertible preferred
stock accretion 33 (33)
Series B convertible preferred
stock dividend (90)
Issuance of common stock upon
exercise of employee stock (352) (612) 777
options
Issuance of common stock under
employee stock purchase plan 6 6
Cancellation of employee stock (52) 52
options
Deferred compensation related to
employee stock options 107
Reversal of Series B preferred 42
expenses
Series B liquidation preference (2,000)
Series B redemption and retirement (952) (2,000) 533
Dividend payment (35,165)
----------------------------------------------------------------------------------------------
Balance at December 31, 2003 0 $- 29,427 30 151,636 2,377 (3,018) $-- $-
==============================================================================================

Accumulated
Other Total
Comprehensive Accumulated Comprehensive Stockholders'
Loss Deficit Loss Equity
---- ------- ---- ------

Comprehensive loss:
Net loss.......................... (21,977) (21,977) (21,977)
Foreign currency translation 98 98 98
adjustment.....................
Unrealized loss on marketable (73) (73) (73)
securities.....................

Comprehensive loss................ (21,952)

Issuance of Series B convertible
preferred stock................
Effective EITF 01-09 on convertible
preferred stock................
Series B convertible preferred
stock dividend................. (81)
Series B convertible preferred
stock accretion................ (57)
Repurchase of common stock........ (4,039)
Issuance of common stock upon
exercise of employee stock 255
options........................
Issuance of common stock under the
employee stock purchase plan... 32
Cancellation of employee stock --
options........................
Equity-related charges............ 9,414
Deferred compensation related to
employee stock options......... 480
--------------------------------------------------------

Balance at December 31, 2002...... $12 $(131,926) $-- $52,909
Comprehensive loss:
Net loss (4,599) (4,599) (4,599)
Foreign currency translation 122 122 122
adjustment
Unrealized gain on marketable 57 57 57
securities
Comprehensive loss (4,420)
Series B convertible preferred
stock accretion (33)
Series B convertible preferred
stock dividend (90)
Issuance of common stock upon
exercise of employee stock 425
options
Issuance of common stock under
employee stock purchase plan 6
Cancellation of employee stock
options
Deferred compensation related to
employee stock options 107
Reversal of Series B preferred 42
expenses
Series B liquidation preference (2,000)
Series B redemption and retirement 533
Dividend payment (35,165)
--------------------------------------------------------
Balance at December 31, 2003 191 ($136,525) $-- $12,314
========================================================

The accompanying notes are an integral part of the consolidated
financial statements.

F-7

DYNABAZAAR, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)

For the Years Ended December 31,
2003 2002 2001
---- ---- ----

Cash flows from operating activities:
Net loss ......................................................................... $ (4,599) $ (21,977) $ (40,183)
Adjustments to reconcile net loss to net cash used in operating activities:
Gain on sale of assets ........................................................ (1,183)
Depreciation .................................................................. 1,160 2,940 3,742
Provision for bad debt ........................................................ 2 (177) 23
Non-cash advertising expense .................................................. 3,500
Amortization of deferred compensation and equity-related charges .............. 107 9,894 21,616
Loss on disposal of property and equipment .................................... 279 1,379 240
Redeemable convertible preferred stock issued to customer ..................... 114
Changes in operating assets and liabilities:
Accounts receivable ........................................................ 975 (512) 1,329
Prepaid expenses and other current assets .................................. (148) 96 (91)
Long-term prepaid expenses ................................................. (1,623)
Accounts payable ........................................................... (51) (250) (760)
Accrued expenses ........................................................... (455) (1,634)
Deferred revenue ........................................................... (520) 282 (753)
Accrual for unutilized office space ........................................ (880) 2,080
Other non-current liabilities .............................................. (169) (169) (169)
--------- --------- ---------

Net cash used in operating activities ............................................ (7,105) (6,300) (13,140)
--------- --------- ---------

Cash flows from investing activities:
Proceeds from sale of assets, net of selling costs ............................ 1,183
Long term prepaid ............................................................. (35)
Additions to property and equipment ........................................... (70) (17) (905)
Purchase of marketable securities ............................................. (304,522) (74,754)
Proceeds from maturity of marketable securities ............................... 16,991 325,502 46,743
(Increase) decrease in restricted cash ........................................ 25 (67) 1,320
Proceeds from sale of property and equipment .................................. 27
--------- --------- ---------

Net cash provided by (used in) investing activities .............................. 18,129 20,861 (27,569)
--------- --------- ---------

Cash flows from financing activities:
Repayment of capital lease obligation ......................................... (145) (190)
Proceeds from issuance of common stock, net of issuance costs ................. 431 287 127
Proceeds from issuance of Series B convertible preferred stock, net of issuance
costs ...................................................................... 1,796
Payment of liquidation preference of Series B convertible preferred stock ..... (2,000)
Payment of redemption of convertible preferred stock .......................... (1,467)
Purchase of treasury stock .................................................... (4,039)
Dividends paid on preferred stock ............................................. (90) (81)
Dividends paid on common stock ................................................ (35,165)
--------- --------- ---------

Net cash used in financing activities ............................................ (38,291) (2,182) (63)
--------- --------- ---------

Effect of foreign exchange rates on cash and cash equivalents .................... 221 35 (25)
Net increase (decrease) in cash and cash equivalents ............................. (27,046) 12,414 (40,797)
Cash and cash equivalents, beginning of period ................................... 32,743 20,329 61,126
--------- --------- ---------

Cash and cash equivalents, end of period ......................................... $ 5,697 $ 32,743 $ 20,329
========= ========= =========

Supplemental schedule of cash flow information:
Cash paid during the period for interest ...................................... $-- $-- $ 27
========= ========= =========

The accompanying notes are an integral part of the consolidated
financial statements.

F-8

DYNABAZAAR, INC. Notes to Consolidated Financial Statements

1. The Company

Through September 3, 2003, Dynabazaar formerly known as FairMarket
("Dynabazaar" or the "Company") was an online auction and promotions technology
service provider that enabled marketers to create results-oriented rewards
programs and helped commerce companies automate the process of selling their
excess inventory online to wholesale and consumer buyers.

On September 4, 2003, Dynabazaar, Inc. sold substantially all of its
operating assets to eBay, Inc. for consideration of $4.5 million in cash under
the terms and conditions of an asset purchase agreement entered into between
Dynabazaar and eBay on June 20, 2003 (the "Asset Purchase Agreement"). The
assets sold included all of Dynabazaar's intellectual property and technology,
all rights under certain transferred customer contracts and under certain
intellectual property license agreements, and accounts receivable relating to
services performed after the date of the closing of the asset sale with respect
to the transferred customer contracts. Of the total consideration, $2.5 million
in cash was paid to Dynabazaar at closing and $2 million was placed in escrow
for a period of two years following the closing in order to secure Dynabazaar's
indemnification, compensation and reimbursement obligations under the Asset
Purchase Agreement. The $2 million is part of other long-term assets on the
balance sheet. At the end of the two-year escrow period, all funds remaining in
the escrow account at that time will be paid to Dynabazaar by the escrow agent,
subject to any pending claims.

Also on September 4, 2003, following the closing of the asset sale, the
registrant changed its name from "FairMarket, Inc." to "Dynabazaar, Inc."

In connection with the asset sale, the parties entered into a
transition services agreement (the "Transition Services Agreement") or ("TSA")
pursuant to which Dynabazaar is providing services to eBay to fulfill customer
service obligations under customer contracts assumed by eBay. Subject to earlier
termination by eBay, the Transition Services Agreement expired on January 31,
2004. During the term of the Transition Services Agreement, Dynabazaar was
obligated to maintain and provide the services of its employees, the use of its
facilities, its information technology infrastructure and its technology
platform, and to maintain its corporate existence.

Additionally, the we continued to provide services to certain retained
customers in the United States and the United Kingdom under the same terms as
were provided before the closing date of the asset sale through December 31,
2003. The revenue derived from those retained customers was not significant.

As of January 31, 2004 we stopped generating revenues.

On October 10, 2003, the Company declared a cash distribution of $1.30
per share to shareholders of record representing a return of capital. The
distribution was paid on November 3, 2003 to stockholders of record on October
20, 2003 and totalled approximately $35 million.

In connection with the closing of the asset sale, eBay, Inc., the
holder of Dynabazaar's Series B preferred stock (the "Series B Shares"),
provided notice to Dynabazaar that it had elected to receive a liquidation
preference equal to approximately $2 million in the aggregate, or $2.10 per
share, plus all accrued and unpaid dividends with respect to the Series B
Shares. The liquidation preference and accrued and unpaid dividends were paid to
eBay, Inc. on September 5, 2003 in the amount of approximately $2,024,000. On
September 29, 2003, the Company repurchased from eBay all of the Series B Shares
for a purchase price of $1,466,665 in cash. The payment represented payment in
full for any and all obligations of the Company in respect of the Series B
Shares.

The Company is currently reviewing alternatives for the use and/or
disposition of its remaining assets following the term of the TSA that it is
providing to eBay, which may include pursuing a plan of complete liquidation and
dissolution (possibly including the sale of its remaining assets).
Alternatively, the Company may decide to pursue selling its remaining assets
outside of a liquidation and dissolution, to make additional distributions of
cash to its stockholders, to explore other strategic alternatives such as a
business combination with another party, and/or to continue as an independent
stand-alone company focusing on business opportunities unrelated to its
historical business, including the possible acquisition of other businesses. At
this time, the Company's board of directors has not made any decision to pursue
any one of these options and has not identified any such opportunities. We
cannot assure you that we will be able to identify or successfully capitalize on
any appropriate business opportunities.

F-9

DYNABAZAAR, INC. Notes to Consolidated Financial Statements

2. Summary of Significant Accounting Policies

Going Concern

The accompanying consolidated financial statements as of December 31,
2003 and for the year then ended have been prepared assuming the Company will
continue as a going concern, which contemplates the realization of assets and
the settlement of liabilities and commitments in the normal course of business.
The Company has incurred losses and negative cash flows from operations for
every year since inception. For the year ended December 31, 2003, the Company
incurred a net loss of approximately $4.6 million and negative cash flows from
operations of approximately $7.1 million. Subsequent to the Asset Purchase
Agreement in September 2003, the Company has not yet settled on an operating
plan. These factors, among others, indicate that the Company may be unable to
continue operations as a going concern. No adjustment has been made in the
accompanying financial statements to the amounts and classifications of assets
and liabilities which could result should the Company be unable to continue as a
going concern. The Company continues to consider future alternatives, including
the possible acquisition of other businesses. However, the Company has not
consummated any significant transactions to date and the Company's business
prospects remain uncertain. To the extent that management of the Company moves
forward on any alternative strategy, such strategy may have an impact on the
Company's liquidity. It remains management's prime focus to acquire an operating
business.

Basis of Presentation

The accompanying consolidated financial statements include the accounts
of Dynabazaar and its wholly-owned subsidiaries. All material intercompany
transactions have been eliminated. Certain reclassifications of prior year
amounts have been made to conform with current year presentation.

Use of Estimates in the Preparation of Financial Statements

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 the
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenue and expenses during the reporting
periods. Actual results could differ materially from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investment instruments
purchased with an original maturity of three months or less to be cash
equivalents. Cash equivalents consist of cash placed in an overnight investment
account, commercial paper and money market accounts.

Marketable Securities

The Company has classified its marketable securities as "available for
sale." Marketable securities are stated at fair value with unrealized gains and
losses included as a component of accumulated other comprehensive income (loss),
which is a separate component of stockholders' equity, until realized. Net
realized gains and losses on securities transactions are determined on the
specific identification basis and are included in interest income. The Company
reviews all investments for reductions in fair value that are
other-than-temporary. When such reductions occur, the cost of the investment is
adjusted to its fair value through loss on investments in the consolidated
statement of operations. The market value of the Company's marketable securities
is based on quoted market prices.

Risks and Uncertainties

The Company has no significant concentration of credit risk such as
foreign exchange contracts, option contracts or other foreign hedging
arrangements. Financial instruments that potentially subject the Company to
concentrations of credit risk primarily consist of cash and cash equivalents,
marketable securities and trade accounts receivable. The Company places its
cash, cash equivalents and marketable securities with what the Company believes
are high credit quality financial institutions.

Our customers include traditional retailers, distributors and
manufacturers as well as Internet portals and other web communities primarily
engaged in e-commerce. In 2003 we had one major customer that accounted for more
than 10% of our revenue. eBay, Inc. accounted for 38% of total revenue. In 2002
we had three customers that each accounted for more than 10% of our total
revenue. Sam's West, Inc. accounted for 13.6%, eBay, Inc. accounted for 13.1%
and Microsoft Corporation accounted for 12.6% of total revenue. In November
2002, our contract with eBay, Inc. related to the Burger King promotion program
was terminated. No single customer accounted for more than 10% of our total
revenue for 2001.

F-10

DYNABAZAAR, INC. Notes to Consolidated Financial Statements

Property and Equipment

Property and equipment are carried at cost less accumulated
depreciation. Costs of major additions and betterments are capitalized;
maintenance and repairs that do not improve or extend the life of the respective
assets are charged to operations. On disposal, the related accumulated
depreciation or amortization is removed from the accounts and any resulting gain
or loss is included in results of operations. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets as follows:

Estimated Useful Life
---------------------

Computer equipment 3 years
Furniture and fixtures 5 years
Leasehold improvements Shorter of lease term or asset useful life

Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events, such as
service discontinuance, technological obsolescence, facility closure or other
changes in circumstances indicate that the carrying amount of the asset may not
be recoverable. When such events occur, the Company compares the carrying amount
of the assets to their undiscounted expected future cash flows. If this
comparison indicates that there is an impairment, the amount of the impairment
is calculated using expected, discounted cash flows using the Company's weighted
average cost of capital. To date, the Company believes that no such impairment
has occurred.

Revenue Recognition

Prior to the eBay, Inc. sale the Company derived revenues from
application fees, transaction fees and professional services fees. In accordance
with SEC Staff Accounting Bulletin No. 101, the Company did not record revenue
until all of the following criteria are met: persuasive evidence of an
arrangement exists; services have been rendered; the Company's price to its
customer is fixed and determinable; and collectibility is reasonably assured.

Application fees consisted of implementation fees and fixed monthly
hosting, support and operating fees. An implementation fee was generally charged
for the initial design, development and implementation of a customer's dynamic
pricing or points based site or the Company's MarketSelect service, in
accordance with the terms of the contract. The implementation fee was generally
payable upon execution of the contract, recorded as deferred revenue and
recognized as revenue, ratably, over the contract period. A fixed monthly
hosting fee covered hosting services, direct customer support services, end-user
customer support services, services for online billing and collection of fees
for community sites, and other monthly operating services provided by the
Company. Fixed monthly service fees were recognized as revenue in the month that
the service is provided.

Merchant customers generally paid transaction fees at varying
percentages of the gross proceeds from the sale of their listed products and
services, whether sold on their sites or on other Dynabazaar Network sites or,
in the case of the Company's MarketSelect service, on the eBay site. For
community customers, transaction fees consisted of the Company's share of
listing fees charged by community customers for the listing of products and
services, enhanced listing fees charged by community customers for the prominent
display of a particular seller listing and success fees charged to sellers upon
a completed sale of a listing. Community customers paid transaction fees
calculated in one of two ways. Generally, under contracts entered into before
2000, these fees were calculated based on a percentage of the gross proceeds
from the sale of the items that were listed through the community site and sold
either on the community site or on other Dynabazaar Network sites. These
communities received a percentage of the gross proceeds from the sale of items
that were listed directly on other sites in the Dynabazaar Network and sold
through the community site. Contracts entered into starting in early 2000
generally provided for payment by the community customer of transaction fees
with respect to the sale of listings that were placed on the community site that
were calculated as a percentage of the transaction fee that the community site
charged to its end-users; similarly, for listings that are listed directly
through other sites in the Dynabazaar Network and sold through the community
site, the community site received from the Company a percentage of the success
fee that the listing site charged to the listing site's end-user when the
listing sells. The Company recorded transaction revenue net of amounts paid to
its customers as described above. Transaction fees were invoiced and recognized
as revenue at the completion of the listing period.

F-11

DYNABAZAAR,
INC. Notes to Consolidated Financial Statements

Professional services fees primarily consisted of fees for consulting
services provided by the Company related to the Company's outsourced,
private-label, dynamic pricing solutions, including business applications,
technical customization, integration, e-marketing, usability and other
consulting services. Certain professional services fees, including technical
customization and integration related to ongoing service relationships, were
billed over the term of the service, recorded as deferred revenue and recognized
as revenue, ratably, over the remaining term of the service contract. Fees for
consulting services, which represent a separate earnings process and are
unrelated to ongoing services, including business applications, e-marketing,
usability and other consulting services, were generally billed and recognized as
revenue in the period the service was provided.

o We receive an identifiable benefit in exchange for the
consideration, and the identified benefit is sufficiently
separable from the customer's purchase of our products and
services such that we could have purchased the products from a
third party, and

o We can reasonably estimate the fair value of the benefit
received.

If both of the conditions are met, we record consideration paid to
customers as an expense. Consideration, including equity instruments, not
meeting the above criteria, is recorded as a reduction of revenue; to the extent
we have recorded cumulative revenue from the customer or reseller. Any
consideration in excess of cumulative revenue recognized from the customer or
reseller is recorded as an operating expense.

As a result, we reduced revenue by $114,200 for the year ended December
31, 2002 to reflect the amount by which the fair value of the shares of our
Series B convertible preferred stock issued to eBay Inc. in May 2002 exceeded
the amount invested by eBay in Dynabazaar. In addition, Dynabazaar has
reclassified $468,000 previously recorded as revenue as a reduction to non-cash
stock compensation for the year ended December 31, 2001 in connection with its
agreement with Microsoft Corporation and its former agreements with At Home
Corporation (formerly known as Excite, Inc.).

Unutilized Office Space

In the fourth quarter of 2003 and the first quarter of 2002, we
recorded charges of $160,000 and $4.5 million, respectively, for unutilized
office space at our Woburn, Massachusetts headquarters. This charge includes
rent and other related costs for a significant portion of our leased space which
has been vacated for the remaining lease term and the write-down of related
leasehold improvements and furniture and fixtures. While we estimated the
likelihood of future sublease income in our original charge, in the fourth
quarter of 2002, we recorded a reversal of $513,000 related to an additional
sublease of approximately 11,000 square feet of the unutilized office space.
During 2002, we recorded $746,000 against this reserve, which represented rent
payments related to unutilized office space. In addition, we recorded $1.2
million for the write-down of leasehold improvements and furniture and fixtures.
As of December 31, 2003, $1.2 million of the total reserve remained accrued and
unpaid relating to future rent payments and other related costs.

Advertising

All advertising costs are expensed as incurred. For the years ended
December 31, 2003, 2002 and 2001, advertising expense totaled $0, $0 and $3.7
million, respectively.

Development and Engineering

Development and engineering costs consist primarily of labor and
related costs for the design, deployment, testing and enhancement of the
Company's operating systems and are expensed as incurred except where eligible
for capitalization.

The Company capitalized costs for purchased software and for upgrades
and significant enhancements which were at least probable to result in increased
functionality of existing software. The Company capitalized certain development
and engineering costs associated with the design and implementation of its
systems for internal use, including internally and externally developed
software, in accordance with the American Institute of Certified Public
Accountants Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." Accordingly, costs capitalized
were $0, $0 and $0 in 2003, 2002 and 2001, respectively. These costs are being
amortized over 36 months, which is the expected useful life of the software. The
amortization expense was $46,000, $102,000 and $102,000 in 2003, 2002 and 2001,
respectively.

F-12

DYNABAZAAR, INC. Notes to Consolidated Financial Statements

Income Taxes

Deferred tax assets and liabilities are recognized based on the
expected future tax consequences, using current tax rates, of temporary
differences between the financial statement carrying amounts and the income tax
basis of assets and liabilities. A valuation allowance is applied against any
net deferred tax asset if, based on the weighted available evidence, it is more
likely than not that some or all of the deferred tax assets will not be
realized.

Accounting for Stock-Based Compensation

Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," encourages but does not require
companies to record compensation costs for stock-based employee compensation at
fair value. The Company has chosen to account for stock-based compensation
granted to employees using the intrinsic value method prescribed in Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Accordingly, compensation costs for
stock options granted to employees is measured as the excess, if any, of the
fair value of the Company's stock at the date of the grant over the amount that
must be paid by the employee to acquire the stock under the terms of the stock
option. Subsequent changes to option terms can also give rise to compensation.
Stock-based compensation issued to non-employees is measured and recorded using
the fair value method prescribed in SFAS No. 123.

The Company follows the disclosure provisions of SFAS No. 123 and has
applied APB Opinion No. 25 and related interpretations in accounting for its
stock option plans. Had compensation cost for the Company's stock-based
compensation plans been determined based on the fair value at the grant dates as
calculated in accordance with SFAS No. 123, the Company's net loss for the years
ended December 31, 2003, 2002 and 2001 would have increased to the pro forma
amounts indicated below (in thousands, except per share amounts):

2003 2002 2001
---- ---- ----

Net loss
As reported ........................................................................ $ (4,722) $(22,115) $(40,183)
Add: Stock-based employee compensation expense included in reported results ........ 107 480 1,555
Deduct: Total stock-based employee compensation expense determined under the
fair-value-based method for all awards........................................... (57) (1,524) (4,787)
-------- -------- --------
Pro forma .......................................................................... $ (4,672) $(23,159) $(43,415)
======== ======== ========

Net loss per common share
As reported ........................................................................ $ (0.18) $ (0.79) $ (1.39)
======== ======== ========
Pro forma .......................................................................... $ (0.18) $ (0.82) $ (1.50)
======== ======== ========

The fair value of each stock option is estimated on the date of grant
using the Black-Scholes valuation model with the following assumptions:

2003 2002 2001
---- ---- ----

Expected dividend yield................. 0% 0% 0%
Expected stock price volatility......... 60% 100% 100%
Risk-free interest rate................. 4.0% 4.1% 4.5%
Expected option term.................... 5 years 7 years 4.25 years

F-13

DYNABAZAAR, INC. Notes to Consolidated Financial Statements

Comprehensive Loss

Comprehensive loss consists of net loss and other comprehensive income
(loss), which includes foreign currency translation adjustments and unrealized
gains and losses on marketable securities classified as available for sale.

Foreign Currency

The functional currencies of the Company's foreign subsidiaries are the
local currencies. Assets and liabilities of the foreign subsidiaries are
translated into U.S. dollars at the rates of exchange in effect at the end of
the year. Revenue and expense amounts are translated using the average exchange
rates for the period. Net unrealized gains and losses resulting from foreign
currency translation are included in other comprehensive loss which is a
separate component of stockholders' equity. Net realized gains and losses
resulting from foreign currency transactions are included in the consolidated
statement of operations.

Fair Value of Financial Instruments

The fair value of the Company's assets and liabilities, which qualify as
financial instruments under Statement of Financial Accounting Standards (SFAS)
No. 107, "Disclosures About Fair Value of Financial Instruments," approximate
the carrying amounts presented in the balance sheets.

New Accounting Pronouncements

In April 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No.
149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities." SFAS No. 149 amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities under SFAS No. 133. The
Statement is generally effective for contracts entered into or modified after
June 30, 2003 and for hedging relationships designated after June 30, 2003 and
should be applied prospectively. The adoption of SFAS No. 149 is not expected to
have a material effect on the Company's financial position of results of
operations.

3. Net Loss per Common Share

Basic net loss per common share is computed using the weighted average
number of common shares outstanding during the period. Diluted net loss per
common share is computed using the weighted average number of common shares
outstanding during the period plus the effect of any dilutive potential common
shares. Dilutive potential common equivalent shares consist of the assumed
exercise of stock options, the proceeds of which are then assumed to have been
used to repurchase outstanding stock using the treasury stock method, and the
assumed conversion of convertible preferred stock and warrants. Potential common
shares were excluded from the calculation of net loss per common share for the
periods presented since their inclusion would be antidilutive. At December
31,2003 there were options to purchase 320,000 shares of common stock
outstanding; at December 31, 2002, there were options to purchase 3,571,000
shares of common stock outstanding and 952,380 shares of convertible preferred
stock; and at December 31, 2001, there were options to purchase 4,809,000 shares
of common stock outstanding all of which have been excluded from the calculation
of diluted net loss per common share.

4. Cash, Cash Equivalents and Marketable Securities

Cash, cash equivalents and marketable securities consist of the
following (in thousands):

December 31,
------------------------
2003 2002
------------------------
Cash and cash equivalents
Cash and money market funds........................ $5,697 $8,783
Corporate and government commercial paper.......... 23,960
------------------------

Total cash and cash equivalents....................... $5,697 $32,743
========================

F-14

DYNABAZAAR, INC. Notes to Consolidated Financial Statements

Marketable securities classified as available-for-sale consist of the
following (in thousands):

December 31, 2003
-----------------
Unrealized Unrealized
Gains in Losses in
Accumulated Accumulated
Other Other
Amortized Comprehensive Comprehensive Estimated
Cost Loss Loss Fair Value
--------- ------------- --------------- -----------

Current: ................................ $ -- $-- $-- $ --

Non-current:
Municipal bonds ...................... 5,000 5,000
--------------------------------------------------------------------

Total marketable securities ............. $ 5,000 $-- $-- $ 5,000
====================================================================

December 31, 2002
-----------------

Current:
Commercial paper ..................... $ 1,991 $-- $-- $ 1,991
Municipal bonds ...................... 5,000 5,000
--------------------------------------------------------------------

Total current marketable securities 6,991 6,991

Non-current:
Municipal bonds ...................... 15,000 15,000
--------------------------------------------------------------------

Total marketable securities ............. $21,991 $-- $-- $21,991
====================================================================

Available-for-sale securities by contractual maturity are as follows
(in thousands):

December 31,
---------------------
2003 2002
---------- --------

Due in 1 year or less
Commercial paper ....... $ - $ 1,991
Municipal bonds ........ - 5,000
---------------------

6,991

Due in 1-2 years
Municipal bonds ........ 5,000 15,000
---------------------

Total marketable securities $ 5,000 $21,991
=====================

F-15

DYNABAZAAR, INC. Notes to Consolidated Financial Statements

5. Restricted Cash

On September 8, 2003, the Company placed approximately $830,000 into
escrow with an independent escrow agent in order to secure the obligations of
the Company under individual severance agreements with the former President and
Chief Executive Officer for approximately $467,000, Vice President of Sales and
Marketing for approximately $128,000 and Chief Financial Officer, Treasurer and
Secretary for approximately $235,000. The terms of the escrow agreement provide
among other things that the executives will receive full severance payment as
provided in their agreement upon the termination of the Transition Services
Agreement between the Company and eBay, Inc., subject to satisfactory
performance. As of December 31, 2003 the former employees were paid in full.

At December 31, 2000, in accordance with an operating lease agreement
for its headquarters, the Company had placed a deposit of $1.8 million with its
bank to collateralize an irrevocable stand-by letter of credit in the name of
the landlord (see Note 8). During the third quarter of 2001, the amount of the
letter of credit was reduced as a result of the Company meeting certain
requirements of the operating lease agreement. At December 31, 2003 and 2002,
the deposit to collateralize the letter of credit was $473,000 and $471,000
respectively. The letter of credit is redeemable only if the Company defaults on
the lease under specific criteria. These funds are restricted from the Company's
use during the lease period, although the Company is entitled to all interest
earned on the funds. In addition to the letter of credit at December 31, 2003
and 2002 we have $50,000 and $77,000 of restricted cash related to a disputed
contract with a vendor, respectively.

6. Property and Equipment

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

December 31,

2003 2002

Computer equipment............................... $6,850 $8,735
Furniture and fixtures........................... 92 487
Leasehold improvements........................... 212 540
----------------------

Property and equipment........................... 7,154 9,762
Less accumulated depreciation.................... (7,045) (8,284)
----------------------

Property and equipment, net...................... $109 $1,478
======================

Depreciation expense was $1,160,000, $2,940,000 and $3,742,000 for the
years ended December 31, 2003, 2002 and 2001, respectively. The accumulated
depreciation and amortization of equipment under capital leases was $0, $163,000
and $247,000 at December 31, 2003, 2002 and 2001, respectively. Assets under
capital leases collateralize the related lease obligation.

F-16

DYNABAZAAR, INC. Notes to Consolidated Financial Statements

7. Accrued Expenses

Accrued expenses consist of the following (in thousands):

December 31,
----------------------
2003 2002
---- -----
Payroll and benefits......................... $18 $347
Professional fees............................ 132 279
Accrued rent................................. - 169
Other........................................ 884 694
----------------------

Total accrued expenses....................... $1,034 $1,489
======================

8. Commitments and Contingencies

In November 1999, the Company entered into a five-year lease agreement
for approximately 68,000 square feet of office space in Woburn, Massachusetts,
for the Company's current headquarters. The term of the lease began on January
1, 2000. The Company's base rental obligations were $793,000 in the first year
of the lease and are $1,515,000 in each subsequent year for the remainder of the
lease term. In connection with the lease, the Company paid the lessor a security
deposit in the amount of $1,800,000, in the form of an irrevocable, freely
transferable letter of credit. During the third quarter of 2001, the amount of
the letter of credit was reduced as a result of the Company meeting certain
requirements of the operating lease agreement. At December 31, 2003 and 2002,
the deposit to collateralize the letter of credit was $473,000 and $471,000,
respectively, and is recorded as restricted cash. In December 2000, the Company
entered into a two-year agreement to sublease approximately 11,000 square feet
of its excess office space under this lease, which ended in October 2002. In
November 2002, the Company entered into a two-year agreement to sublease
approximately 11,000 square feet of its excess office space under this lease,
which expires in December 2004.

On January 20, 2004, the Company and its landlord agreed to terms in
which the Company's obligation under the lease agreement would be terminated.
According to the settlement agreement, the Company is obligated to pay the
landlord a sum $1.2 million. In accordance with the settlement agreement, the
Company must vacate the premises by April 10, 2004. If the Company experiences
any delays, the Company will be charged $1,000 per day.

In October 2000, the Company and its subsidiary, Dynabazaar UK Ltd,
entered into a 10-year lease agreement for approximately 10,000 square feet of
office space in Twickenham, U.K. Under the agreement, the Company may terminate
the lease without further obligation after five years. The base rental
obligation is approximately $270,000 annually for the first three years and
approximately $273,000 in each of the next two years. After year five, the
rental obligation will be subject to a rental review process.

Future minimum lease payments to be received
Future minimum lease payments under noncancelable operating leases at under noncancelable operating subleases at
December 31, 2003 are as follows (in thousands): December 31, 2003 are as follows (in thousands):
---------------------------------------------------------------------- -------------------------------------------------

2004 $273 2004 $ 69

2005 257 2005 40

Thereafter -- Thereafter --
-------------------------------------------------------

Total $530 Total $109
-------------------------------------------------------

Rental expense, net of sublease income, under operating leases amounted
to $1,736,000, $1,722,000 and $1,667,000 for the years ended December 31, 2003,
2002 and 2001, respectively.

F-17

DYNABAZAAR, INC. Notes to Consolidated Financial Statements

Indemnification Obligations

In November 2002, the FASB issued FIN No. 45 "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and 107
and rescission of FASB Interpretation No. 34 ("FIN 45"). FIN 45 requires that a
guarantor recognize, at the inception of a guarantee, a liability for the fair
value of the obligation undertaken by issuing the guarantee. FIN 45 also
requires additional disclosures to be made by a guarantor in its interim and
annual financial statements about its obligations under certain guarantees it
has issued. The accounting requirements for the initial recognition of
guarantees are applicable on a prospective basis for guarantees issued or
modified after December 31, 2002. The disclosure requirements are effective for
all guarantees outstanding, regardless of when they were issued or modified,
during the first quarter of fiscal 2003. The adoption of FIN 45 did not have an
effect on the Company's consolidated financial statements. The following is a
summary of the agreements that the Company has determined are within the scope
of FIN 45.

As permitted under Section 145 of the Delaware General Corporation Law,
the by-laws of Dynabazaar, Inc. provide that Dynabazaar shall, to the extent
legally permitted, indemnify each person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding by reason of the fact that such person is or was, or has agreed to
become, a director or officer of Dynabazaar, or is or was serving, or has agreed
to serve, at the request of Dynabazaar, as a director, officer, trustee,
partner, employee or agent of, or in a similar capacity with, another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise. The indemnification provided for in the by-laws is expressly not
exclusive of any other rights to which those seeking indemnification may be
entitled under any law, agreement or vote of stockholders or disinterested
directors or otherwise, and shall inure to the benefit of the heirs, executors
and administrators of such persons. The term of the indemnification period is
for the officer's or director's lifetime. The maximum potential amount of future
payments we could be required to make under these indemnification agreements is
unlimited; however, we have a Director and Officer insurance policy that enables
us to recover a portion of any future amounts paid. As a result of our insurance
policy coverage, we believe the estimated fair value of these indemnification
agreements is minimal. We have no liabilities recorded for these agreements as
of December 31, 2003.

Our customer contracts contain indemnification provisions as a standard
term of those contracts. Generally, these indemnification provisions require
that we indemnify, defend and hold harmless the customer and certain related
parties for third party claims, liabilities and costs arising from the breach of
any warranty, representation or covenant in the agreement by us or any claim
that our technology or service infringes or violates any third party's
copyright, patent, trade secret, trademark, right of publicity or right of
privacy or contains any defamatory content. Generally, our aggregate potential
liability under these indemnification provisions is capped at the total amount
paid to us by the customer under the contract, although some customer contracts
contain higher limits and some contain no limit for specified types of claims.
The term of these indemnification provisions is generally perpetual from the
time of execution of the agreement. Some of our other types of agreements with
third parties contain similar provisions. We believe the estimated fair value of
these indemnification agreements is minimal and we have no liabilities recorded
for these provisions as of December 31, 2003. In 2003, eBay asserted two
indemnification claims against us under one of our commercial agreements with
eBay. In one case, the claim is based upon a third party alleging that certain
of our former technology utilized by eBay infringes certain patents of the third
party. In the second case, the claim is based upon a third party alleging that
certain technology utilized by eBay, which may include our former technology,
infringes certain patents of such third party. No lawsuits have been filed.
Given the early stage of these claims at this time, we cannot make a
determination as to the ultimate outcome of these matters and the impact, if
any, on our financial condition, liquidity or results of operations.

Under the terms of the Asset Purchase Agreement, we have agreed to indemnify,
compensate and reimburse eBay and certain affiliates for losses arising or
resulting from, or connected with, breaches of our representations and
warranties under the Asset Purchase Agreement or breaches of our covenants under
the Asset Purchase Agreement or the TSA, certain liabilities relating to persons
who are our employees prior to the closing of the asset sale, liabilities
relating to certain intellectual property matters, any liabilities not
specifically assumed by eBay, and certain liabilities related to any bulk
transfer law or similar requirement or claims for damages in connection with the
asset sale pursuant to fraudulent transfer, successor liability, bankruptcy or
similar laws. In order to secure our indemnification, compensation and
reimbursement obligations to eBay, $2 million of the purchase price was
deposited in an escrow account with an independent escrow agent at the time of
the closing of the asset sale. Except as noted below, our liability for claims
relating to breaches of our representations and warranties, is limited to the
amount of indemnifiable losses in excess of $50,000 and eBay's sole and
exclusive remedy with respect to such claims is recourse to the amounts in the
escrow account. Except as noted below, the amount of our indemnification,
compensation and reimbursement obligations with respect to breaches of our
representations and warranties relating to (1) intellectual property matters
will not exceed $2 million, and (2) other representations and warranties will
not exceed $1 million. However, none of the foregoing limitations apply to (1)
breaches of covenants under the Asset Purchase Agreement, (2) our
indemnification obligations under the terms of the existing commercial
agreements solely between eBay and Dynabazaar with respect to matters arising
prior to the closing of the asset sale, which indemnification obligations will
continue following the asset sale, (3) liabilities retained by Dynabazaar, or
(4) fraud or intentional misrepresentation. The Company has estimated the fair
value of the indemnification to be $2 million at December 31, 2003 and has
recorded it as "Other Current Liabilities on the accompanying balance sheet at
December 31, 2003.

F-18

DYNABAZAAR, INC. Notes to Consolidated Financial Statements

9. Gain on sale of assets

On June 20, 2003, the Company entered into an Asset Purchase Agreement (the
"Agreement") with eBay, Inc. ("eBay") to sell substantially all of the Company's
technology and business assets to eBay. Under the Agreement, the Company sold to
eBay substantially all the Company's business assets for $4.5 million in cash.

On September 4, 2003, the Company closed on the sale of assets to eBay.

The Agreement also provided that $2 million of the consideration be held in
escrow in order to secure the Company's indemnification for certain
representations and warranties. The indemnification is capped at $2 million and
is for a period of two years following the closing of the asset sale. The
Company estimated its potential liability under the indemnification to be $2
million in accordance with FASB Interpretation No. 45 "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" ("FIN 45") and recorded such liability as a reduction in
the gain on the sale of assets.

The Company recorded a gain on the sale of assets of $1,183,000 based on the
proceeds less direct costs of $1,317,000 and the indemnification liability noted
above, which is recorded in the results of operations for the year ended
December 31, 2003.

The Company also entered into a Transition Services Agreement ("TSA") with eBay
pursuant to which the Company is providing services to eBay to fulfill customer
service obligations under customer contracts assumed by eBay. Under the TSA,
eBay is paying the Company a fee which is substantially equal to the costs
incurred by the Company to continue to provide that service. The Company
recorded $1.7 million of revenue for the period from September 4, 2003 through
December 31, 2003 related to the TSA.

10. Stockholders' Equity

At December 31, 2003 and 2002, the authorized capital stock of the
Company consisted of (i) 90,000,000 shares of voting common stock with a par
value of $0.001 per share and (ii) 10,000,000 shares of preferred stock with a
par value of $0.001 per share. The Company's Board of Directors has the
authority to determine the voting powers, designations, preferences, privileges
and restrictions of the preferred shares.

On October 10, 2003, the Company declared a cash dividend of $1.30 per
share on the Company's common stock, representing an aggregate cash distribution
of approximately $35 million. The dividend was paid on November 3, 2003 to
stockholders of record on October 20, 2003.

In May 2001, pursuant to the shareholder rights plan, the Board of
Directors of the Company designated 75,000 shares of its authorized preferred
stock as Series A Junior Participating Cumulative Preferred Stock, $0.001 par
value per share ("Junior Preferred Stock"). Dividends accrue on the Junior
Preferred Stock at a quarterly rate equal to the greater of $1.00 or, subject to
adjustment, 10,000 times the aggregate per share amount of all dividends paid
during the quarter on the Company's common stock. The Junior Preferred Stock
carries a liquidation preference of $10,000 per share (subject to adjustment),
is redeemable, and entitles the holder to 10,000 votes per share (subject to
adjustment) on all matters submitted to a vote of the Company's stockholders.
The Company has not issued any shares of Junior Preferred Stock.

Included in stockholders' equity at December 31, 2003 and 2002 are
deferred compensation and equity-related charges of $0 and $159,000,
respectively. These amounts consist of unearned compensation of $0 and $159,000
at December 31, 2003 and 2002, respectively.

In May 1999, the Company entered into an Auction Services Agreement
with Lycos, Inc. which has a three-year term (subject to renewal by mutual
agreement). Under this agreement, the Company has agreed to provide auction
services to several Lycos web sites in return for a share of the transaction
fees charged on the Lycos sites. This agreement has been terminated.

In connection with this agreement, the Company issued two warrants to
Lycos for the purchase of shares of the Company's common stock. The first
warrant was exercisable for 725,000 shares of common stock at an exercise price
of $0.01 per share which was exercised before the closing of the Company's
initial public offering. The second warrant was originally exercisable for up to
595,000 shares of common stock at an exercise price of $1.71 per share. The
number of shares for which the second warrant was exercisable depended on Lycos
meeting certain performance criteria which were not met as of May 12, 2001;
therefore, no shares are exercisable under this warrant. The Company estimated
the value of the first warrant to be $1,235,400 using the Black-Scholes
valuation model at the date of issuance. The value of the first warrant was
amortized over the initial term of the auction services agreement through the
second quarter of 2002. Related expense for the years ended December 31, 2003,
2002 and 2001 was $0, $137,000 and $412,000, respectively. All warrants were
cancelled during December 31, 2003. There are no outstanding warrants at
December 31, 2003.

F-19

DYNABAZAAR, INC. Notes to Consolidated Financial Statements

Series B Preferred Stock

On May 17, 2002, the Company completed a private placement of 952,380 shares of
its Series B redeemable convertible preferred stock, par value $0.001 per share,
to eBay Inc. for an aggregate purchase price of $2.0 million. The Series B
preferred stock is entitled to cash dividends payable quarterly at the rate of
6.5% per annum in preference to any dividend on any other series of preferred
stock or common stock. The dividends are cumulative and are entitled to
participate on a pro rata basis in any dividend paid on the common stock on an
as if converted basis. The Series B preferred stock is convertible into shares
of common stock on a one-for-one basis, subject to certain adjustment mechanisms
including a weighted average anti-dilution mechanism. In the event of any
liquidation, dissolution or winding up of the Company (a "Liquidation"), the
holders of the Series B preferred stock are entitled to receive, in preference
to the holders of certain junior securities, as defined, a per share amount
equal to $2.10 plus all accrued and unpaid dividends (the "Liquidation
Preference"). In the event of a Liquidation, after payment of the Liquidation
Preference and any other liquidation preference on any other series of stock,
the Series B preferred stock is entitled to participate on a pro rata basis with
the common stock in the distribution of the remaining assets of the Company on
as if converted basis. The holders of the Series B preferred stock have the
right to require the Company to redeem the Series B preferred stock at any time
after the earlier of (a) May 17, 2003, and (b) the happening of a material
adverse effect on the Company's business, as defined. The Company had the right,
at any time after May 17, 2004, to redeem the outstanding Series B preferred
stock at $2.10 per share plus all accrued and unpaid dividends. The net proceeds
from this offering, after issuance costs, totaled $1.8 million. At the issuance
date, the Company estimated the fair value of the Series B preferred stock to be
in excess of the amount paid by eBay by $114,200. As a result, the Company
recorded an $114,200 adjustment to increase the carrying value of this
investment and decrease revenue from eBay, Inc. in accordance with EITF 01-09
(see Note 2.) The Company accreted the carrying value of the Series B preferred
stock up to $2.0 million through May 2003 in accordance with the redemption
feature described above. The Company recorded $33,000 in accretion in the year
ended December 31, 2003. At December 31, 2003, the carrying value of the Series
B preferred stock was $0.

Treasury Stock

On August 8, 2002, the Company repurchased the 3,181,000 shares of its common
stock, par value $.001 per share, held by Scott Randall, the original founder of
Dynabazaar, at a price of $1.27 per share. These shares represented 10.8% of the
Company's outstanding common stock at that time. In 2003 the Company sold
612,000 shares of treasury stock with a par value $.001 and a cost of $1.27 per
share, in connection with the with the exercise of employee stock options.

11. Stock Option Plans

1997 Stock Option Plan

In March 1997, the Company's Board of Directors and stockholders
approved the Amended and Restated 1997 Stock Option Plan (the "1997 Plan") which
provided for the issuance of up to 750,000 shares of common stock under
incentive stock options ("ISOs") and nonstatutory stock options ("NSOs"). The
1997 Plan provided for the grant of ISOs to employees of the Company and NSOs to
nonemployee directors of the Company and consultants. Options granted under the
1997 Plan have a maximum term of 10 years from the date of grant, vest over four
years and, in the case of ISOs, have an exercise price not less than fair value
of the Company's common stock at the date of grant. In connection with the
adoption of the Company's 2000 Stock Option and Incentive Plan (the "2000 Plan")
in February 2000, the Board determined that no further stock option grants would
be made under the 1997 Plan.

1999 Stock Option Plan

In February 1999, the Company's Board of Directors and stockholders approved the
1999 Stock Option Plan (the "1999 Plan"), which provided for the issuance of up
to 3,421,237 shares of common stock under ISOs or NSOs or through the direct
issuance or sale of common stock to officers, employees, directors and
consultants of the Company. Options granted under the 1999 Plan have a maximum
term of 10 years from the date of grant, vest over four years and, in the case
of ISOs, have an exercise price not less than fair value of the Company's common
stock at the date of grant. In connection with the adoption of the 2000 Plan,
the Board determined that no further stock option grants would be made under the
1999 Plan.

F-20

DYNABAZAAR, INC. Notes to Consolidated Financial Statements

2000 Stock Option and Incentive Plan

In February 2000, the Company's Board of Directors and stockholders
approved the 2000 Stock Option and Incentive Plan (the "2000 Plan"), which
provides for the issuance of up to 4,017,250 shares of common stock plus the
number of shares as to which options granted under the 1997 and 1999 Plans are
forfeited or otherwise terminate unexercised. This plan provides for awards in
the form of ISOs, NSOs, restricted stock awards and other forms of awards to
officers, directors, employees and consultants of the Company. At December 31,
2003, there were 5,585,662 shares available for issuance under this plan.

The Board of Directors determines the term of each option, the option
price, the number of shares for which each option is granted and the times at
which each option vests. For holders of 10% or more of the Company's outstanding
common stock, ISOs may not be granted at less than 110% of the fair market value
of the common stock at the date of grant.

2000 Employee Stock Option and Incentive Plan

In October 2000, the Company's Board of Directors approved the 2000 Employee
Stock Option and Incentive Plan (the "2000 Employee Plan"), which originally
provided for the issuance of up to 1,500,000 shares of common stock, under NSOs
to employees and key persons of the Company other than any member of the
Company's Board of Directors or any other individual who is subject to the
reporting and other provisions of Section 16 of the Securities Exchange Act of
1934. In January 2001, in connection with the one-time employee option exchange
incentive program described below, the Board of Directors amended this plan to
increase the number of shares of common stock available for issuance under the
plan to 2,654,750. At December 31, 2003, there were 2,450,374 shares available
for issuance under this plan.

The Board of Directors determines the term of each option, the option
price, the number of shares for which each option is granted and the times at
which each option vests.

The following table summarizes information about stock options
outstanding at December 31, 2003:

Options Outstanding Options Outstanding
---------------------------------------------- ---------------------------------------------
Weighted Weighted
Range of Remaining Average Average
Exercise Contractual Exercise Exercise
Price per Number Life Price per Number Price per
Share Outstanding (in Years) Share Exercisable Share
----- ----------- ---------- ----- ----------- -----

$0.33 320,000 5 $0.33 320,000 $0.33
======================================================================================================

F-21

DYNABAZAAR, INC. Notes to Consolidated Financial Statements

Stock option activity for the years ended December 31, 2003, 2002 and
2001 is as follows:

2003 2002 2001
---- ---- ----
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Number of Price per Number of Price per Number of Price per
Shares Share Shares Share Shares Share
------ ----- ------ ----- ------ -----

Outstanding at beginning of period 3,570,537 $1.71 4,809,243 $2.27 5,252,371 $4.20
Granted......................... 597,000 0.91 1,421,500 1.35 4,002,693 1.77
Exercised....................... (585,124) 0.74 (533,593) 0.47 (328,867) 0.27
Canceled........................ (3,262,413) 1.87 (2,126,613) 3.05 (4,116,954) 4.41
-------------------------------------------------------------------------------------------------

Outstanding at end of period.... 320,000 $0.33 3,570,537 $1.71 4,809,243 $2.27
=================================================================================================

Options exercisable at end of
period....................... 320,000 $0.33 1,580,050 $2.08 2,471,322 $2.75
Weighted average fair value of
options granted during the
period at fair value......... $0.18 $1.11 $1.22
=================================================================================================

The Company is recognizing the compensation expense over the vesting
period. For the years ended December 31, 2003, 2002 and 2001, related expense
recognized was $107,000, $480,000 and $1,555,000, respectively.

On January 16, 2001, the Company implemented a one-time employee
incentive program under which employees had the opportunity to exchange, on a
one-for-one basis, their outstanding employee stock options with exercise prices
of $3.00 or more for new options with an exercise price of $2.1875, the closing
price of the Company's common stock on the January 16, 2001 exchange date.
Options held by executive officers and directors were not included in the
exchange. Under this program, options covering approximately 1,155,000 shares of
the Company's common stock were exchanged for options covering an equal number
of shares.

Options granted under this program have special terms, with the options vesting
quarterly over two years, beginning on the three-month anniversary of the grant
date, if the option exchanged was unvested, or vesting on the six-month
anniversary of the grant date, if the option exchanged was vested, and having a
term of two and one-half years. For accounting purposes, the exchange
constituted a repricing of the existing options and will require variable
accounting for the new options granted in the exchange. As a result, the Company
(i) will recognize a non-cash compensation charge each quarter with respect to
vested options if and to the extent that the per share fair market value of the
Company's common stock at the end of the quarter exceeds $2.1875, the per share
exercise price of the new options, and (ii) will adjust deferred compensation
each quarter for unvested options. There is a potential for such a variable
non-cash charge in each quarter until all of the new options are exercised or
until the date the options expire (July 16, 2003) or otherwise terminate. The
closing price of the Company's common stock from January 16, 2001 to July 16,
2003 was below $2.1875, therefore no related charge was recognized for the years
ended December 31, 2003 and 2002.

Employee Stock Purchase Plan

In March 2000, the Company's Board of Directors approved the 2000
Employee Stock Purchase Plan (the "ESPP"). Up to 500,000 shares of common stock
may be issued under the ESPP. The ESPP allows eligible participating employees
to purchase shares of common stock at a 15% discount from the market value of
the common stock as determined on a specific date at six month intervals. There
were 5,703 shares and 39,461 shares issued under the ESPP during the years ended
December 31, 2003 and 2002, respectively. At December 31, 2003, 327,414 shares
remained available for issuance under this plan.

F-22

DYNABAZAAR, INC. Notes to Consolidated Financial Statements

12. Shareholder Rights Plan

On May 17, 2001, the Board of Directors of the Company adopted a
shareholder rights plan (the "Rights Plan") pursuant to which the Board declared
a dividend of one Preferred Stock Purchase Right (a "Right") for each share of
the Company's common stock outstanding on May 18, 2001. In addition, one Right
will automatically attach to each share of common stock issued between that date
and the "Distribution Date" described below. Each Right entitles the holder to
purchase from the Company a unit consisting of one ten-thousandth of a share (a
"Unit") of the Company's Junior Preferred Stock at a cash exercise price of
$10.00 per Unit, subject to adjustment, under the conditions specified in the
Rights Agreement and summarized below. The Company has reserved 75,000 shares of
Junior Preferred Stock for issuance upon exercise of the Rights.

The Rights become exercisable upon the earlier to occur of the
following dates (the "Distribution Date"): (i) the 10th calendar day following
the first public announcement that a person or group of affiliated or associated
persons (an "Acquiring Person") has acquired beneficial ownership of 15% or more
of the outstanding shares of the Company's common stock (the "Stock Acquisition
Date"); or (ii) the 10th business day (or such later day as the Board of
Directors may determine) following the commencement of a tender offer or
exchange offer that could result upon its consummation in a person or group
becoming the beneficial owner of 15% or more of the Company's outstanding common
stock. However, with respect to any person who beneficially owned 15% or more of
the outstanding shares of common stock as of May 18, 2001, the Distribution Date
will not occur unless that person acquires beneficial ownership of shares of
common stock representing an additional 1/2% of the Company's outstanding common
stock.

If a Stock Acquisition Date occurs, each holder of a Right (other than
an Acquiring Person, whose Rights will become null and void) will thereafter
have the right to receive, upon exercise of the Right, a number of Units of
Junior Preferred Stock having a market value equal to two times the exercise
price of the Right. If, after the Stock Acquisition Date, either (i) the Company
merges with any other person and the Company is not the surviving corporation,
(ii) any person merges with the Company, the Company is the surviving
corporation of the transaction and, in connection with the transaction, any
shares of the Company's common stock are changed into or exchanged for
securities of any other person or cash or any other property, or (iii) 50% or
more of the Company's assets or earning power is transferred, then each holder
of a Right (other than an Acquiring Person, whose Rights will become null and
void) will thereafter have the right to receive, upon exercise of the Right,
common stock of the acquiring company having a market value equal to two times
the exercise price of the Right.

After a person becomes an Acquiring Person, the Board of Directors may
exchange all or any part of the outstanding and exercisable Rights for shares of
common stock or Units at an exchange ratio specified in the Rights Agreement.
However, the Board of Directors generally will not be able to effect an exchange
after any person becomes the beneficial owner of 50% or more of the Company's
common stock.

The Board of Directors may redeem the Rights, in whole but not in part,
at a price of $0.01 per Right, until their expiration on May 18, 2011 or, if
earlier, the time at which any person becomes an Acquiring Person.

13. Revenues and Long-lived Assets by Geographic Region

The table below presents revenues by principal geographic region for
the years ended December 31, 2003, 2002 and 2001 (in thousands):

December 31,

2003 2002 2001
---- ---- ----

United States.......................... $5,120 $4,194 $6,768
United Kingdom......................... 1,479 1,446 1,294
Other.................................. 74 107 509
------------------------------

Consolidated........................... $6,673 $5,747 $8,571
==============================

F-23

DYNABAZAAR, INC. Notes to Consolidated Financial Statements

The table below presents long-lived assets by principal geographic
region (in thousands):

December 31,

2003 2002
---- ----

United States............................... $ -- $1,253
United Kingdom.............................. 109 225
----------------------

Consolidated................................ $109 $1,478
======================

14. Income Taxes

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

Year Ended December 31,
2003 2002
---- ----

Federal State Foreign Total Federal State Foreign Total
------- ----- ------- ----- ------- ----- ------- -----

Current............. -- -- -- -- -- -- -- --
Deferred............ $1,519 $260 $14 $1,793 $7,363 $1,352 $113 $8,828
Valuation allowance. (1,519) (260) (14) (1,793) (7,363) (1,352) (113) (8,828)
-------------------------------------------------------------------------------------------------------------
Total............... $ -- $ -- $-- $ -- $ -- $ -- $ -- $ --
=============================================================================================================

The Company's effective tax rate varies from the statutory rate as
follows:

Year Ended December 31,
------------------------
2003 2002
---- ----

U.S. federal income tax rate..................... (34.0)% (34.0)%
State taxes...................................... (6.0) (6.0)
Other............................................ .1 .1

(39.9) (39.9)
Valuation allowance.............................. 39.9 39.9

--% --%

The Company's federal statutory income tax rate for 2003 and 2002 was
34%. For 2003 and 2002, the Company recorded no income tax benefit and recorded
a full valuation allowance against net operating losses due to uncertainties
related to realizability of these tax assets.

F-24

DYNABAZAAR, INC. Notes to Consolidated Financial Statements

Deferred tax liabilities and assets are determined based on the
difference between financial statement and tax bases using enacted tax rates in
effect for the year in which the differences are expected to reverse. The
components of the deferred taxes at December 31, 2003 and 2002 were as follows
(in thousands):

December 31,
------------
2003 2002
---- ----

Net operating loss carryforwards................. $50,518 $47,319
Capitalized start-up costs....................... 49 160
Capitalized research and development............. 3,809 4,851
Depreciation..................................... 150 152
Deferred revenue................................. 134
Other............................................ 31 148
----------------------

54,557 52,764
Valuation allowance.............................. (54,557) (52,764)
----------------------

Net deferred tax assets.......................... $-- $--
=====================

For federal income tax purposes, as of December 31, 2003, the Company
has net operating loss carryforwards of approximately $129 million, which may be
used to offset future income. These operating loss carryforwards expire
beginning in 2018. A valuation allowance has been established for the full
amount of the deferred tax asset since it is more likely than not that the
deferred tax asset will not be realized.

Approximately $29.3 million of the net operating loss carryforwards
available for federal income tax purposes relate to disqualifying dispositions
of incentive stock options and warrant exercises, the benefit of which, if
realized, will be credited to additional paid-in capital.

Ownership changes resulting from the Company's issuance of capital
stock may limit the amount of net operating loss carryforwards that can be
utilized annually to offset future taxable income. The amount of the annual
limitation is determined based upon the Company's value immediately prior to the
ownership change. Subsequent significant changes in ownership could further
affect the limitation in future years. The Company is in the process of
evaluating the limitation of the net operating loss. Currently it is determined
that there will be a limitation, however the extent of the limitation has not
been quantified.

15. Employee Benefit Plan

In January 1999, the Company established a savings plan for its
employees which is designed to be qualified under Section 401(k) of the Internal
Revenue Code. Eligible employees are permitted to contribute to the 401(k) plan
through payroll deductions within statutory and plan limits.

16. Quarterly Financial Results (unaudited)

The following table sets forth certain unaudited quarterly results of
operations of the Company for the years ended December 31, 2003 and 2002. In the
opinion of management, this information has been prepared on the same basis as
the audited consolidated financial statements and all necessary adjustments,
consisting only of normal recurring adjustments, have been included in the
amounts stated below to present fairly the quarterly information when read in
conjunction with the audited consolidated financial statements and related notes
included above. The quarterly operating results are not necessarily indicative
of future results of operations.

For the Quarter Ended
March 31, June 30, September 30, December 31,
2003 2003 2003 2003
---- ---- ---- ----
(In thousands, except per share data)

Revenue....................................................... $1,357 $1,516 $2,321 $1,479
Gross profit.................................................. 598 950 1,942 1,098
Net income (loss)............................................. (1,602) (1,968) 1,113 (2,142)
Basic and diluted net inome (loss) per common share........... $(0.06) $(0.07) $0.04 $(0.09)

F-25

For the Quarter Ended
March 31, June 30, September 30, December 31,
2002 2002 2002 2002
---- ---- ---- ----
(In thousands, except per share data)

Revenue....................................................... $1,311 $1,346 $1,434 $1,656
Gross profit.................................................. 287 328 626 952
Net loss...................................................... (11,840) (7,205) (2,495) (534)
Basic and diluted net loss per common share................... (0.41) (0.25) (0.09) (0.02)

17. Restructuring Charges

In June 2002, as part of the Company's plan to continue to implement
cost-cutting measures, the Company eliminated 18 positions worldwide,
representing approximately 31% of its total employee base. In addition, the
Company relocated its U.K. data center to the U.S. The Company recognized a
charge of $530,000 in the second quarter of 2002 for the costs related to these
initiatives, of which $200,000 related to non-cash costs for the write-down of
computers and equipment. At December 31, 2002, all of the expenses relating to
the restructuring had been paid.

We recognized a charge of approximately $2.0 million in 2001 for the
costs related to workforce reductions (which eliminated 78 positions), severance
payments to certain other employees and other restructuring initiatives,
including closing our offices in Australia and Germany. We completed the closing
of our office in Germany during the third quarter of 2001 and the closing of our
office in Australia during the first quarter of 2002. Approximately $141,000 of
the charge relates to non-cash costs associated with the restructuring
initiatives. At December 31, 2002, all of the expenses relating to the
restructuring initiatives had been paid.

18. Unutilized Office Space Charge

Initial charge recorded in March 2002.......................................... $ 4,500
Non-cash write-down of leasehold improvements and furniture and fixtures....... (1,161)
Cash payments made in 2002..................................................... (746)
Reversal of accrual in December 2002........................................... (513)
--------

Unutilized space accrual at December 31, 2002.................................. 2,080
Cash payments made in 2003 (1,040)
Settlement accrual 160
--------
Unutilized space accrual at December 31, 2003 $ 1,200
========

F-26

DYNABAZAAR, INC. Notes to Consolidated Financial Statements

19. Legal Proceedings

The Company is subject to legal proceedings, claims, and litigation
arising in the ordinary course of business. While the outcome of these matters
is currently not determinable, we do not expect that the ultimate costs to
resolve these matters will have a material adverse effect on our consolidated
financial position, results of operations, or cash flows.

Dynabazaar has been named as a defendant in certain purported class
action lawsuits filed by individual shareholders in the U.S. District Court for
the Southern District of New York against Dynabazaar, Scott Randall (former
President, Chief Executive Officer and Chairman of the Board of Dynabazaar),
John Belchers (former Chief Financial Officer of Dynabazaar), U.S. Bancorp Piper
Jaffray Inc., Deutsche Bank Securities Inc. and FleetBoston Robertson Stephens,
Inc. The lawsuits have been filed by individual shareholders who purport to seek
class action status on behalf of all other similarly situated persons who
purchased the common stock of Dynabazaar between March 14, 2000 and December 6,
2000. The lawsuits allege that certain underwriters of Dynabazaar's initial
public offering solicited and received excessive and undisclosed fees and
commissions in connection with that offering. The lawsuits further allege that
the defendants violated the federal securities laws by issuing a registration
statement and prospectus in connection with Dynabazaar's initial public
offering, which failed to accurately disclose the amount and nature of the
commissions and fees paid to the underwriter defendants. On or about October 8,
2002, the Court entered an Order dismissing the claims asserted against certain
individual defendants in the consolidated actions, including the claims against
Mr. Randall and Mr. Belchers, without any payment from these individuals or the
Company. On or about February 19, 2003, the Court entered an Order dismissing
with prejudice the claims asserted against the Company under Section 10(b) of
the Securities Exchange Act of 1934. As a result, the only claims that remain
against the Company are those arising under Section 11 of the Securities Act of
1934. The Company intends to vigorously defend the remaining claims asserted
against it in the actions.

F-27

DYNABAZAAR, INC. SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

Balance at Charged Balance at
Beginning to End of
Description of Period Operations Deductions Period
----------- --------- ---------- ---------- ------

Year ended December 31, 2001:
Allowance deducted from asset accounts:
Allowance for doubtful accounts............................ $540 479 (456) $563
Deferred tax asset valuation allowance..................... $37,858 6,078 -- $43,936
Year ended December 31, 2002:
Allowance deducted from asset accounts:
Allowance for doubtful accounts............................ $563 (177) (119) $267
Deferred tax asset valuation allowance..................... $43,936 8,810 -- $52,764
Year ended December 31, 2003:
Allowance deducted from asset accounts:
Allowance for doubtful accounts............................ $267 2 (107) $162
Deferred tax asset valuation allowance..................... $52,764 1,793 $54,557

S-1

EXHIBIT INDEX

Exhibit No. Title
----------- -----

3.1 Form of Fifth Amended and Restated Certificate of Incorporation of
the Company(1)

3.2 Composite Amended and Restated Bylaws of the Company as amended by
Amendment to Bylaws adopted May 16, 2001*

4.1 Form of Specimen Certificate for the Company's Common Stock(4)

4.2 Shareholder Rights Agreement, dated as of May 17, 2001, between
the Company and EquiServe Trust Company, N.A., as Rights Agent,
including form of Right Certificate(2)

10.1 Form of Indemnity Agreement entered into by the Company with each
of its directors(1)

10.2 Amended and Restated 1997 Stock Option Plan(1)

10.3 October 2001 Amendment to Amended and Restated 1997 Stock Option
Plan(4)

10.4 1999 Stock Option Plan(1)

10.5 2000 Stock Option and Incentive Plan(1)

10.6 Composite Transaction Bonus Plan adopted August 28, 2001 as
amended on March 12, 2002(4)

10.7 Employee Stock Purchase Plan(1)

10.8 Letter agreement dated June 26, 2001 between the Company and Nanda
Krish(3)

10.9 Amended and Restated Agreement Concerning Termination of
Employment, Severance Pay and Related Matters dated as of October
11, 2001 between the Company and Mathew Ackley(4)

10.10 Second Amended and Restated Agreement Concerning Termination of
Employment, Severance Pay and Related Matters dated as of October
11, 2001 between the Company and Janet Smith(4)

10.11 Lease Agreement dated November 9, 1999, between DIV Unicorn, LLC
and the Company(1)

10.12 Siteharbor Services Agreement between the Company and NaviSite,
Inc. dated as of November 1, 2001 together with Amendment to
Siteharbor Services Agreement dated as of November 1, 2001(4)

10.13 Indemnification Agreement among the Company and Sierra Ventures
VII, LP, and Sierra Ventures Associates VII, LLC, dated February
25, 1999(1)

10.14 Warrant to Purchase Common Stock between the Company and Lycos,
Inc. dated as of May 12, 1999(1)

10.15 Auction Services Agreement, dated September 15, 1999, by and
between the Company and Ticketmaster Online-CitySearch(1)

10.16 Agreement Concerning termination of Employment, Severance Pay and
related Matters dated as of January 17, 2002 between the Company
and Nanda Krish(5)

10.17 Second Amendment to Agreement dated as of March 15, 2002 between
the Company and NaviSite, Inc.(5)

10.18 Promotions Agreement dated as of April 10, 2002 between the
Company and eBay Inc.(7)

10.19 Third Amendment to Agreement dated as of December 1, 2002 between
the Company and Navisite, Inc.*

10.20 Agreement Concerning Employment and Termination dated as of
January 20, 2003 between the Company and David George. *

21 List of Subsidiaries*

23.1 Consent of Rothstein, Kass & Company, P.C.*

23.2 Consent of PricewaterhouseCoopers LLP*

31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.*

31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.*

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

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

-----------

* Filed with this Report.

(1) Included as an exhibit to, and incorporated in this Report by reference
to, the Company's Registration Statement on Form S-1 (No. 333-92677),
as amended, filed with the SEC.

(2) Included as an exhibit to, and incorporated in this Report by reference
to, the Company's Current Report on Form 8-K dated May 17, 2001 filed
with the SEC on May 22, 2001.

(3) Included as an exhibit to, and incorporated in this Report by reference
to, the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2001 filed with the SEC on November 9, 2001.

(4) Included as an exhibit to, and incorporated in this Report by reference
to, the Company's Annual Report on Form 10-K for the year ended
December 31, 2001 filed with the SEC on March 31, 2002.

(5) Included as an exhibit to, and incorporated in this Report by reference
to, the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 2002 filed with the SEC on May 14, 2002.

(6) Included as an exhibit to, and incorporated in this Report by reference
to, the Company's Report on Form 8-K filed with the SEC on May 20,
2002.

(7) Included as an exhibit to, and incorporated in this Report by reference
to, the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2002 filed with the SEC on August 14, 2002.