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

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

Form 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

OR

[_] 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 000-29239

INFORTE CORP.
(Exact name of registrant as specified in its charter)

Delaware 36-3909334
(State of incorporation) (IRS Employer Identification No.)


150 North Michigan Avenue, Suite 3400, Chicago, Illinois 60601
(Address of principal executive offices, including ZIP code)

(312) 540-0900
(Registrant's telephone number, including area code)

None
(Former name, former address and former fiscal year, if changed since last
report)

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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X



The number of shares outstanding of the Registrant's Common Stock as of
September 30, 2004 was 11,065,218.




INFORTE CORP.

INDEX





Page No.
-------

PART I. Financial Information

Item 1. Consolidated Financial Statements (Unaudited)

Consolidated Balance Sheets - September 30, 2003,
December 31, 2003, March 31, 2004, June 30, 2004,
September 20, 2004 1

Consolidated Statements of Operations - Three months and
nine months ended September 30, 2003 and 2004 2

Consolidated Statements of Cash Flows - Three months and
nine months ended September 30, 2003 and 2004 3

Notes to Consolidated Financial Statements 4-7

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-18

Item 3. Qualitative and Quantitative Disclosure about Market Risk 19

Item 4. Controls and Procedures 19

PART II. Other Information

Item 1 Legal Proceedings 19-20

Item 2. Changes in Securities and Use of Proceeds 20

Item 3 Defaults of Senior Securities 20

Item 4. Submission of Matters to a Vote of Security Holders 20

Item 5 Other Information 20

Item 6. Exhibits and Reports on Form 8-K 21

Signature 22

Exhibit 31.1 Section 302 certification of the Chief Executive Officer 23

Exhibit 31.2 Section 302 certification of the Chief Financial Officer 24

Exhibit 32 Section 906 certification of the Chief Executive Officer
and Chief Financial Officer 25






PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements


INFORTE CORP.
CONSOLIDATED BALANCE SHEETS
(000's)


SEPT 30, DEC 31, MAR 31, JUN 30, SEPT 30,
2003 2003 2004 2004 2004
---------- --------- --------- ---------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)


ASSETS
Current assets:
Cash and cash equivalents $ 22,114 $ 24,071 $ 18,630 $ 17,767 $ 18,889
Short-term marketable securities 27,866 25,471 15,860 22,273 25,457
Accounts receivable 5,094 4,811 8,633 8,893 7,469
Allowance for doubtful accounts (525) (500) (500) (500) (500)
-------- -------- -------- -------- --------
Accounts receivable, net 4,569 4,311 8,133 8,393 6,969
Prepaid expenses and other current assets 1,009 692 1,273 1,144 985
Interest receivable on investment securities 469 372 403 314 389
Income taxes recoverable - - 401 460 501
Deferred income taxes 953 664 643 656 622
-------- -------- -------- --------
Total current assets 56,980 55,581 45,343 51,007 53,812

Computers, purchased software and property 2,091 2,084 2,525 2,682 3,113
Less accumulated depreciation and amortization 1,334 1,370 1,572 1,690 1,907
-------- -------- -------- -------- --------
Computers, purchased software and property, net 757 714 953 992 1,206

Long-term marketable securities 17,237 18,187 24,457 18,441 14,136
Goodwill and intangible assets - - 5,505 5,512 11,775
Deferred income taxes 350 326 317 309 295
-------- -------- -------- -------- -------
Total assets $ 75,324 $ 74,808 $ 76,575 $ 76,261 $ 81,224
======== ======== ======== ======== =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 887 573 1,554 1,341 995
Income taxes payable 357 299 - - -
Accrued expenses 3,312 3,558 3,146 3,315 2,738
Accrued loss on disposal of leased property 681 558 489 419 346
Deferred acquisition payment - - 500 - 3,150
Deferred revenue 3,539 2,617 2,657 2,778 2,209
-------- -------- -------- -------- --------
Total current liabilities 8,776 7,605 8,346 7,853 9,438

Non-current liabilities:
Deferred acquisition payment - - - - 3,150

Stockholders' equity:
Common stock, $0.001 par value
authorized- 50,000,000 shares;
issued and outstanding (net of treasury stock)-
11,065,218 as of Sept. 30, 2004 11 11 11 11 11
Additional paid-in capital 79,658 79,791 80,113 80,206 80,384
Cost of common stock in treasury (2,720,823
shares as of Sept. 30, 2004) (24,997) (24,997) (24,997) (24,997) (24,997)
Stock-based compensation - - 60 161 180
Retained earnings 11,629 12,026 12,541 12,737 12,742
Accumulated other comprehensive income 247 372 501 290 316
-------- -------- -------- -------- --------
Total stockholders' equity 66,548 67,203 68,229 68,408 68,636
-------- -------- -------- -------- --------
Total liabilities and stockholders' equity 75,324 74,808 76,575 76,261 81,224
======== ======== ======== ======== ========



See notes to consolidated financial statements

1



CONSOLIDATED STATEMENTS OF OPERATIONS
(000's, except per share data)



THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- ----------------------------
2003 2004 2003 2004
---------- ---------- ---------- ----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)

Revenues:

Revenue before reimbursements(net revenue) $ 7,720 $ 11,516 $ 24,094 $ 34,160
Reimbursements 1,359 1,675 3,404 4,886
-------- --------- ---------- ---------
Total Revenues 9,079 13,191 27,498 39,046

Operating expenses:
Project personnel and related expenses 4,107 7,085 12,424 19,842
Reimbursed expenses 1,359 1,675 3,404 4,886
Sales and marketing 1,040 1,178 3,702 3,757
Recruiting, retention and training 183 370 476 1,104
Management and administrative 2,135 3,142 7,057 9,037
-------- --------- ---------- ---------
Total operating expenses 8,824 13,450 27,063 38,626

Operating income (loss) 255 (259) 435 420

Interest income, net and other 257 267 1,084 772
-------- --------- ---------- ---------
Income before income tax 512 8 1,519 1,192
Income tax expense 65 3 167 476
-------- --------- ---------- ---------
Net income $ 447 $ 5 $ 1,352 $ 716
======== ========= ========== =========

Earnings per share:
- -Basic $ 0.04 $ 0.00 $ 0.12 $ 0.06
- -Diluted $ 0.04 $ 0.00 $ 0.12 $ 0.06

Weighted average common shares outstanding:
- -Basic 10,915 11,056 10,881 11,025
- -Diluted 11,055 11,183 10,993 11,297


See notes to consolidated financial statements


2



INFORTE CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's)



THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- -------------------------
2003 2004 2003 2004
------------ ----------- ---------- ----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)

Cash flows from operating activities
Net income $ 447 $ 5 $ 1,352 $ 716
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 364 435 1,024 1,216
Non-cash compensation - - (75) -
Stock based compensation - 19 - 180
Deferred income taxes 252 48 249 74
Changes in operating assets and liabilities
Accounts receivable (620) 1,424 (69) (464)
Prepaid expenses and other current assets 148 84 168 (237)
Accounts payable 416 (346) 647 (607)
Income taxes (228) (41) 66 (1,142)
Accrued expenses and other (124) (650) (2,328) (1,823)
Deferred revenue 310 (569) (948) (556)
-------- -------- -------- --------
Net cash provided by (used in) operating
activities 965 409 86 (2,643)
Cash flows from investing activities
Acquisition of Compendit, net of cash - (1) - (5,677)
(Increase)/Decrease in marketable
securities (9,189) 981 2,484 3,315
Purchases of property and equipment (94) (431) (301) (841)
-------- -------- -------- --------
Net cash provided by (used in)
investing activities (9,283) 549 2,183 (3,203)
Cash flows from financing activities
Proceeds from stock option and purchase
plans 231 178 541 593
-------- -------- -------- --------
Net cash provided by financing activities 231 178 541 593
-------- -------- -------- --------
Effect of changes in exchange rates on cash 34 (14) 118 71
Increase (decrease) in cash and cash
equivalents (8,053) 1,122 2,928 (5,182)
Cash and cash equivalents, beg. of period 30,167 17,767 19,186 24,071
-------- -------- -------- --------
Cash and cash equivalents, end of period $ 22,114 $ 18,889 $ 22,114 $ 18,889
======== ======== ======== ========


See notes to consolidated financial statements


3


Notes to consolidated financial statements
(Unaudited)
September 30, 2004

(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
by Inforte Corp. ("Inforte") pursuant to the rules and regulations of the
Securities and Exchange Commission regarding interim financial reporting.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete consolidated financial
statements and should be read in conjunction with the consolidated financial
statements and notes thereto for the year ended December 31, 2003 included in
Inforte's annual report on Form 10-K (File No. 000-29239). The balance sheet at
December 31, 2003 has been derived from the audited consolidated financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The accompanying consolidated financial statements reflect
all adjustments (consisting solely of normal, recurring adjustments) which are,
in the opinion of management, necessary for a fair presentation of results for
the interim periods presented. The results of operations for the three-month and
nine-month periods ended September 30, 2004 are not necessarily indicative of
the results to be expected for the full fiscal year. Certain previously reported
amounts have been reclassified to conform with current presentation format.

(2) DILUTED EARNINGS PER COMMON SHARE
Inforte computes basic earnings per share by dividing net income by the weighted
average number of common shares outstanding. Diluted earnings per common share
are computed by dividing net income by the weighted average number of common
shares and dilutive common share equivalents outstanding.



Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2003 2004 2003 2004
-------------------------- --------------------------
(Unaudited) (Unaudited)



Basic weighted average shares 10,915,317 11,056,289 10,880,583 11,025,082
Effect of dilutive stock options 139,929 127,050 111,974 272,141
------------------------- --------------------------

Diluted common and common
equivalent shares 11,055,246 11,183,340 10,992,557 11,297,223
========================= ==========================



(3) COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130), establishes standards for reporting comprehensive income.
Comprehensive income includes net income as currently reported under generally
accepted accounting principles, and also considers the effect of additional
economic events that are not required to be recorded in determining net income,
but rather are reported as a separate component of stockholders' equity. Inforte
reports foreign currency translation gains and losses, and unrealized gains and
losses on investments, as components of comprehensive income. Total
comprehensive income was $460,477 and $1,348,789 for the three and nine months
ended September 30, 2003 and $31,266 and $659,568 for the three and nine months
ended September 30, 2004.

(4) CONTINGENCIES
Inforte, Philip S. Bligh, an officer of Inforte, and Stephen C.P. Mack and Nick
Padgett, both former officers of Inforte, have been named as defendants in Mary
C. Best v. Inforte Corp.; Goldman, Sachs & Co.; Salomon Smith Barney, Inc.;
Philip S. Bligh; Stephen C.P. Mack and Nick Padgett, Case No. 01 CV 10836, filed
on November 30, 2001 in Federal Court in the Southern District of New York (the
"Case"). The Case is among more than 300 putative class actions against certain
issuers, their officers and directors, and underwriters with respect to such
issuers' initial public offerings, coordinated as In re Initial Public Offering
Securities Litigation, 21 MC 92 (SAS) (collectively, the "Multiple IPO
Litigation"). An amended class action complaint was filed in the Case on April
19, 2002. The amended complaint in the Case alleges violations of federal


4


securities laws in connection with Inforte's initial public offering occurring
in February 2000 and seeks certification of a class of purchasers of Inforte
stock, unspecified damages, interest, attorneys' and expert witness fees and
other costs. The amended complaint does not allege any claims relating to any
alleged misrepresentations or omissions with respect to our business. The
individual defendants (Messrs. Bligh, Mack and Padgett) have been dismissed from
the case without prejudice pursuant to a stipulated dismissal and a tolling
agreement. We have moved to dismiss the plaintiff's case. On February 19, 2002,
the Court granted this motion in part, denied it in part and ordered that
discovery in the case may commence. The Court dismissed with prejudice the
plaintiff's purported claim against Inforte under Section 10(b) of the
Securities Exchange Act of 1934, but left in place the plaintiff's claim under
Section 11 of the Securities Act of 1933.

Inforte has entered into a Memorandum of Understanding (the "MOU"), along with
most of the other defendant issuers in the Multiple IPO Litigation, whereby such
issuers and their officers and directors (including Inforte and Messrs. Bligh,
Mack and Padgett) will be dismissed with prejudice from the Multiple IPO
Litigation, subject to the satisfaction of certain conditions. Under the terms
of the MOU, neither Inforte nor any of its formerly named individual defendants
admit any basis for liability with respect to the claims in the Case. The MOU
provides that insurers for Inforte and the other defendant issuers participating
in the settlement will pay approximately $1 billion to settle the Multiple IPO
Litigation, except that no such payment will occur until claims against the
underwriters are resolved and such payment will be paid only if the recovery
against the underwriters for such claims is less than $1 billion and then only
to the extent of any shortfall. Under the terms of the MOU, neither Inforte nor
any of its named directors will pay any amount of the settlement. The MOU
further provided that participating defendant issuers will assign certain claims
they may have against the defendant underwriters in connection with the Multiple
IPO Litigation. The MOU is subject to the satisfaction of certain conditions,
including, among others, approval of the Court. Pursuant to the MOU, the parties
have filed motions with the Court seeking certification of the class and
approval of the settlement contemplated by the MOU. The Court has not yet ruled
on the motions.


(5) SEGMENT REPORTING
Inforte engages in business activities in one operating segment, which provides
consulting services either on a fixed-price, fixed-timeframe basis or on a
time-and-materials basis. Inforte's services are delivered to clients in North
America and Europe, and Inforte's long-lived assets are located in North
America, Europe and India. Domestic and foreign operating revenues are based on
the location of customers. Inforte's European operations had $4,820,553 and
$6,531,831 of revenues for the nine months ending September 30, 2003 and 2004,
respectively, and $1,467,405 and $2,120,237 of revenues for the three months
ending September 30, 2003 and 2004, respectively. Asset information by operating
segment is not reported to or reviewed by the chief operating decision maker,
therefore, Inforte has not disclosed asset information for each operating
segment or geographical location.


(6) STOCK BASED COMPENSATION
Inforte accounts for stock-based employee compensation in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
("SFAS 123") related to options. For options issued to employees during the
three and nine months ending September 30, 2003 no stock-based employee
compensation is reflected in net income in the accompanying consolidated
statements of operations, as all such options had an exercise price equal to the
market value of the underlying common stock on the date of grant. Stock-based
compensation expense of $19,000 was recognized in the quarter ending September
30, 2004, $7,000 of which was related to option grants related to the
acquisition of COMPENDIT, Inc. ("COMPENDIT") and $12,000 was related to grants
of restricted stock. During the first nine months of 2004 we recognized a
stock-based compensation expense of $180,000, $104,000 which was related to the
COMPENDIT acquisition and $76,000 was related to grants of restricted stock. Had
we applied the fair value recognition provisions of SFAS 123 to stock-based
employee compensation during the three and nine months ended September 30, 2003
and 2004, net income and net income per share would have been as follows:


5




THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMEBR 30, SEPTEMBER 30,
---------------------------- ----------------------------
2003 2004 2003 2004
---------- ---------- ---------- ----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)


Net income, as reported $ 446,395 $ 5,020 $ 1,350,783 $ 715,241
Add: Stock-based compensation expense
recorded, net of related tax effects - 19,135 - 179,871
Deduct: Total stock-based compensation
expense determined under fair value
based method for all awards, net of
related tax effects (1,481,971) (1,026,914) (4,082,644) (3,671,840)

Pro forma net loss $ (1,035,576) $ (1,002,759) $ (2,731,861) $ (2,776,729)
=========== =========== =========== ===========

Net income, per share:
Basic -- as reported 0.04 0.00 0.12 0.06
=========== =========== =========== ===========
Basic -- pro forma (0.09) (0.09) (0.25) (0.25)
=========== =========== =========== ===========
Diluted -- as reported 0.04 0.00 0.12 0.06
=========== =========== =========== ===========
Diluted -- pro forma (0.09) (0.09) (0.25) (0.25)
=========== =========== =========== ===========


(7) ACQUISITIONS
On March 12, 2004, by way of a merger of a wholly owned subsidiary of Inforte
with COMPENDIT, Inforte acquired all of the outstanding shares of COMPENDIT, a
leading provider of SAP Business Intelligence implementation consulting
services, for initial cash consideration of $5.5 million on closing. An
additional cash payment of $0.5 million was paid in cash in May based on a
closing statement calculation of cash less transaction costs. A supplementary
cash amount of $6.3 million will be paid in two equal amounts of $3.15 million
on January 2005 and on January 2006. This acquisition enhanced Inforte's ability
to offer analytics and business intelligence solutions through COMPENDIT's
services partnership with SAP.

The unaudited consolidated financial statements reflect a total purchase price
of $12.5 million, consisting of the following: (i) the payment of the initial
cash consideration of $5.5 million, (ii) transaction costs of $0.2 million,
(iii) additional cash consideration paid after closing of the acquisition of
$0.5 million, and (iv) earnout of $6.3 million payable in January 2005 and
January 2006. Under the purchase method of accounting, the purchase price is
allocated to COMPENDIT's net tangible and intangible assets based upon their
estimated fair value as of the date of the acquisition. The purchase price
allocation is as follows (in thousands):

Tangible assets:
Cash and cash equivalents....................... $ 547
Accounts receivable and other current assets.... 2,269
Property and equipment.......................... 156
--------
Total tangible assets...................... 2,972

Intangible assets:
Goodwill and other intangible assets............ 11,864
--------
Total assets............................... 14,836
--------
Liabilities assumed: (2,310)
--------
Net assets acquired........................ $ 12,526
========


6

The following is a summary of intangible assets and goodwill as of September 30,
2004 (in thousands except for amortization life):


Gross Accumulated Net book Weighted average
carrying amortization value amortization life
amount (months)
----------- -------------- ---------- -----------------

Customer contracts $ 127 $99 $ 38 12
Goodwill 11,737 - 11,737 N/A
----------- -------------- ---------- -----------------
Total $ 11,864 $99 $ 11,775
=========== ============== ==========

Goodwill represents the excess of the purchase price over the fair value of the
tangible and intangible assets acquired. In accordance with SFAS No. 142,
"Goodwill and Other Intangible Assets," goodwill will not be amortized but will
be tested for impairment at least annually.

There were no historical transactions between Inforte and COMPENDIT.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

You should read the following discussion in conjunction with our consolidated
financial statements, together with the notes to those statements, included
elsewhere in this Form 10-Q. The following discussion contains forward-looking
statements that involve risks, uncertainties, and assumptions such as statements
of our plans, objectives, expectations and intentions. Our actual results may
differ materially from those discussed in these forward-looking statements
because of the risks and uncertainties inherent in future events that include,
but are not limited to, those identified under the caption "Risk Factors"
appearing in this 10-Q as well as factors discussed elsewhere in this Form 10-Q.
Actual results may differ from forward-looking results for a number of reasons,
including but not limited to, Inforte's ability to: (i) effectively forecast
demand and profitably match resources with the demand during a period where
information technology spending is not strong and when worldwide economic and
geopolitical uncertainty is high; (ii) attract and retain clients and satisfy
our clients' expectations; (iii) recruit and retain qualified professionals;
(iv) accurately estimate the time and resources necessary for the delivery of
our services; (v) build and maintain marketing relationships with leading
software vendors while occasionally competing with their professional services
organizations; (vi) compete with emerging alternative economic models for
delivery, such as offshore development; (vii) effectively integrate newly
acquired businesses, such as COMPENDIT; and (viii) identify and successfully
offer the solutions that clients demand, as well as other factors discussed from
time to time in our other Securities and Exchange Commission filings. Should one
or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated or projected. All forward-looking statements included in
this document are made as of the date hereof, based on information available to
Inforte on the date thereof, and Inforte assumes no obligation to update any
forward-looking statements.

Overview

Inforte Corp. is a customer strategy and solutions consultancy that helps
clients improve performance by tying together customer and corporate strategy.
Inforte combines strong business and operational planning with innovative
software solutions to ensure its Global 2000 client base serves the right
customers in the right ways to generate the greatest return. Inforte executives
are the authors of several leading books on customer strategy, marketing and
business intelligence, including CRM Unplugged: Releasing CRM's Strategic Value,
Enterprise Marketing Management: The New Science of Marketing, and Mastering the
SAP Business Information Warehouse. Founded in 1993, Inforte is headquartered in
Chicago and has offices in Atlanta; Dallas; Delhi, India; Hamburg, Germany;
London; Los Angeles; New York; San Francisco; Walldorf, Germany; and Washington,
D.C.

Our revenue is derived almost entirely through the performance of professional
services. The majority of our services are performed on a time and materials
basis; however, we also perform services on a fixed-price basis if this
structure best fits out clients' preferences or the requirements of the project.
Typically, the first portion of an engagement involves a strategy project or a
discovery phase lasting 30 to 60 days. This work enables us to determine with
our clients the scope of successive phases of work. These successive phases of
work can be additional strategy phases, or phases for technology design and
implementation, and generally last three to nine months. If a project is to be
performed on a fixed price basis, the fixed price is based upon estimates from

7


senior personnel in our consulting organization who project the length of the
engagement, the number of people required to complete the engagement and the
skill level and billing rates of those people. We then adjust the fixed price
based on various qualitative risk factors such as the aggressiveness of the
delivery deadline, the technical complexity of the solution and the value of the
solution delivered to the client. We typically ask clients to pay 25%-50% of our
fixed price projects in advance to enable us to secure a project team in a
timeframe that is responsive to the client's needs.

The acquisition and integration of COMPENDIT, in the first quarter of 2004, was
a factor in the increases in Inforte's consultant base, revenues and costs
compared with prior year amounts. The effective date of the transaction was
March 04, 2004 and, as such, the income statement for the nine months ended
September 30, 2004 includes approximately seven months of results from
operations for COMPENDIT.

RESULTS OF OPERATIONS
- ---------------------

The following table sets forth the percentage of net revenues of certain items
included in Inforte's statement of income:



% of Net Revenue % of Net Revenue
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2004 2003 2004
----- ----- ----- -----

Revenues
Revenue before reimbursements (net revenue) 100.0% 100.0% 100.0% 100.0%
Reimbursements 17.6 14.5 12.5 14.2
----- ----- ----- -----

Total Revenue 117.6 114.5 112.5 114.2
----- ----- ----- -----

Operating expenses:
Project personnel and related expenses 53.2 61.5 50.8 56.3
Reimbursements 17.6 14.5 12.5 14.2
Sales and marketing 13.5 10.2 16.3 11.4
Recruiting, retention and training 2.4 3.2 1.8 3.2
Management and administrative 27.7 27.3 30.1 26.0
---- ---- ---- ----

Total operating expenses * 114.3 116.8 111.4 111.2
----- ----- ----- -----

Operating income 3.3 (2.2) 1.1 3.0
Interest income, net and other 3.3 2.3 5.1 2.2
---- ---- ---- ----
Pretax income 6.6 0.1 6.1 5.2

Income tax expense 0.8 0.1 0.6 2.1
--- --- --- ---

Net income 5.8% 0.0% 5.5% 3.1%
==== ==== ==== ====


*Total operating expenses,
excluding reimbursements 96.7% 102.2% 98.9% 97.0%


Nine and three months ended September 30, 2003 and 2004
- -------------------------------------------------------

Net revenue. Net revenue excludes reimbursable expenses that are billed to our
clients. Net revenue increased 49% to $11.5 million for the quarter ended
September 30, 2004 from $7.7 million for the quarter ended September 30, 2003.
Net revenue increased 42% to $34.2 million for the nine months ended September
30, 2004 from $24.1 million for the nine months ended September 30, 2003. We
attribute this increase in revenues in part to the acquisition of our new SAP
Practice which had revenue of approximately $2.7 million in the quarter as well
as to an increased demand for our other services. For the quarter ended
September 30, 2004, we had 43 significant clients with each of these clients
contributing, on average, $1.0 million to revenue on an annualized basis. For
the quarter ended September 30, 2003, we had 28 significant clients with each of
these clients contributing, on average, $1.1 million to revenue on an annualized
basis.


8


Sequentially, net revenue dropped 4% to $11.5 million in the September 2004
quarter from $12.0 million in the June 2004 quarter. This sequential drop
resulted primarily from normal seasonal effects and the commoditization of one
of our service offerings.

Project personnel and related expenses. Project personnel and related expenses
consist of compensation and benefits for our professional employees who deliver
consulting services, non-reimbursable costs and any estimated revisions for our
allowance for doubtful accounts. All labor costs for project personnel are
included in project personnel and related expenses. These expenses increased 72%
to $7.1 million for the quarter ended September 30, 2004 from $4.8 million for
the quarter ended September 30, 2003. Year to date, project personnel and
related expenses were $19.8 million, a 53% increase from $12.4 million for the
first nine months of 2003. These increases resulted from growth in consulting
headcount, increased compensation and an increased use of outside contractors.
We employed 260 consultants on September 30, 2004, up from 148 one year earlier.
This is an increase of 112 consultants which includes the addition of 48
consultants through the COMPENDIT acquisition completed in the first quarter of
2004. The remaining consultant headcount increase was a function of the ongoing
recruiting efforts. Project personnel and related expenses represented 61.5% of
net revenue for the quarter ended September 30, 2004, up from 53.2% for the
quarter ended September 30, 2003, as revenue grew at a slower rate than project
personnel and related expenses did. Similarly, for the nine months ended
September 30, 2004, project personnel and related expenses represented 58.1% of
net revenue up from 51.6% in the prior year period. Project personnel and
related expenses may decrease in subsequent quarters due to our continuous
efforts to align consulting headcount with current revenue forecast.

Sales and marketing. Sales and marketing expenses consist primarily of
compensation, benefits, bonus and travel costs for employees in the marketing
and sales groups and costs to execute marketing programs. Sales and marketing
expenses increased 13% to $1.2 million, or 10.2% of net revenue, for the quarter
ended September 30, 2004 from $1.0 million, or 13.5% of net revenue, in quarter
ended September 30, 2003. This increase is due to a combination of intensified
marketing activities and higher performance based compensation payable to sales
personnel. Sales and marketing expenses increased by 1% to $3.8 million for the
nine months ended September 30, 2004 from $3.7 million for the nine months ended
September 30, 2003. Year to date, sales and marketing expenses were 11.0% of net
revenue compared to 15.4% in the prior year period.

Recruiting, retention and training. Recruiting, retention and training expenses
consist of compensation, benefits and travel costs for personnel engaged in
human resources activities; costs to recruit new employees; costs of human
resource programs; and training costs. These expenses increased 102% to $370,000
for the quarter ended September 30, 2004 from $183,000 for the quarter ended
September 30, 2003. As a percent of net revenue, these costs increased to 3.2%
in the quarter ended September 30, 2004 from 2.4% in the quarter ended September
30, 2003. Year to date, recruiting, retention and training costs increased by
132% from $435,000 for the nine months ended September 30, 2003 to $1.1 million
for the nine months ended September 30, 2004. As a percent of net revenue, these
costs increased to 3.2% in the nine months ended September 30, 2004 from 2.0%
for the nine months ended September 30, 2003. The increase in spending results
primarily from more recruiting costs due to the increase in the number of
personnel recruited, more human resources spending due to higher company-wide
headcount and the reinstitution of formal training programs. As our staffing
needs increase, recruiting efforts require spending on recruiting finder fees,
signing bonuses, relocation allowances and employee referral bonuses to identify
and attract qualified candidates. Total headcount was 310 as of September 30,
2004 and 187 as of September 30, 2003. At the time of the acquisition of our SAP
practice total headcount increased by 54 people.

Management and administrative. Management and administrative expenses consist
primarily of compensation, benefits and travel costs for management, finance,
information technology and facilities personnel, together with rent,
telecommunications, audit, legal, business insurance and depreciation and
amortization of capitalized computers, purchased software and property. These
expenses increased 47% to $3.1 million for the quarter ended September 30, 2004,
from $2.1 million for the quarter ended September 30, 2003. As a percent of net
revenue, management and administrative expenses were 27.3% for the quarter ended
September 30, 2004, down from 27.7% for the quarter ended September 30, 2003, as
management and administrative expenses grew at a lower rate than revenue did.
Year to date, management and administrative expenses increased 28% to $9.0
million for the nine months ended September 30, 2004 from $7.1 million for the
nine months ended September 30, 2003. As a percent of revenue, management and
administrative expenses fell to 26.5% for the nine months ended September 30,
2004 from 29.3% for the nine months ended September 30, 2003. Higher management
and administrative expenses, in particular executive and operation-management
related costs, for the three months ending September 30, 2004 were due to


9


increased efforts to build the infrastructure supporting faster revenue growth.
Our plan to set up and make fully functional our India location was successfully
completed as of the end of the first quarter of 2004. There were also additional
legal and finance costs for Sarbanes-Oxley, SEC and NASDAQ compliance and rent
for offices in Chicago and Hamburg, Germany associated with the acquisition of
COMPENDIT. Management and administrative employees were 28 and 19 as of
September 30, 2004 and September 30, 2003, respectively.

On October 1, 2004, Inforte's executive team authorized a plan to reduce its
office space to better align with its space needs. The total reduction of office
space resulting from this consolidation of our office space was approximately
41,345 square feet, all of which was vacated as of October 1, 2004. Total
charges related to this reduction of space are estimated at $2.0 million and
will be recognized on the statement of operations in the fourth quarter of 2004.

Interest income, net and other. During the quarter ended September 30, 2004,
interest income, net and other, was $267,000, up from $257,000 for the quarter
ended September 30, 2003. Year to date interest income, net and other was
$773,000, down from $1.1 million for the same period in 2003. This decrease in
year-to-date investment earnings was due to the reinvestment of matured
securities into similar type securities at lower market interest yields and also
due to the lower average cash balances. We expect interest income, net and
other, to decline further to around $240,000 in the fourth quarter of 2004 due
to lower cash balances, because of the COMPENDIT acquisition, as of the end of
the third quarter of 2004 relative to prior quarters.

Income tax expense. Inforte's effective tax rate for the September 2004 quarter
was 40.0% compared to a rate of 12.8% for the September 2003 quarter. The
unusually low effective tax rate in 2003 resulted from our reduction of income
tax expense by $125,000 in the September 30, 2003 quarter to account for an
estimated reduction of income tax liabilities. The effective tax rate of 40% in
the third quarter of 2004 approximates our blended statutory tax rate,
reflecting immaterial permanent differences between taxable income for financial
reporting and tax purposes. The 2004 year-to-date effective tax rate was 40.0%
compared to 11.0% for the same period in 2003. During the year-to-date period to
September 30, 2003 we reduced income tax expense by $375,000 to account for an
estimated reduction of income tax liabilities.

Liquidity and capital resources. Cash and cash equivalents increased from $17.8
million on June 30, 2004 to $18.9 million on September 30, 2004. Short-term
marketable securities increased from $22.3 million to $25.5 million over the
same period. Long-term marketable securities decreased from $18.4 million to
$14.1 million during the third quarter of 2004. In total, cash and cash
equivalents, short-term and long-term marketable securities stayed at the same
level of $58.5 million on September 30, 2004 compared to June 30, 2004.
Short-term and long-term marketable securities are available-for-sale securities
consisting of commercial paper, U.S. government or municipal notes and bonds,
corporate bonds and corporate auction preferreds.

During the September 2004 quarter, Inforte's cash flow from operations was
$409,000 and capital expenditures were $431,000, resulting in negative $22,000
free cash flow (cash flow from operation minus capital expenditures).
Additionally, financing activities resulted in a cash inflow of $178,000 from
employees participating in stock purchase and stock option plans.

Year-to-date cash and cash equivalents dropped by $5.2 million from $24.1
million on December 31, 2003 to $18.9 million on September 30, 2004. Short-term
marketable securities stayed at the same level at $25.5 million on December 31,
2003 and September 30, 2004. Long-term marketable securities dropped by $4.1
million from $18.2 million on December 31, 2003 to $14.1 million on September
30, 2004.

Cash flow from operations for the nine months ending September 30, 2004 was
negative $2.6 million. Capital expenditure for the nine months ending September
30, 2004 was $841,000, resulting in a free cash flow of negative $3.5 million.
Additionally, financing activities resulted in a cash inflow of $593,000 from
employee participating in stock purchase and stock option plans.

Our board of directors approved a $25.0 million stock repurchase program on
January 24, 2001 and as of August 2002, the entire amount authorized was
repurchased. The board of directors approved an additional $5.0 million stock
repurchase program on August 22, 2002, although we stated at that time that we
had no present plans to make additional repurchases of stock. The entire $5.0
million remains authorized for repurchase as of September 30, 2004. At quarter
end, Inforte had 11,065,218 shares outstanding and $58.5 million in cash and
marketable securities, resulting in $5.29 of cash and marketable securities per
basic share. As of September 30, 2004, the public float (shares not held by


10


executive officers and directors) totaled 7.1 million shares or 64% of total
outstanding shares.

Inforte believes that its current cash, cash equivalents and marketable
securities will be sufficient to meet working capital and capital expenditure
requirements for the foreseeable future.

All highly liquid investments with maturities of three months or less when
purchased are considered cash equivalents. Cash and cash equivalent balances
consist of obligations of U.S. and other overseas banks, high-grade commercial
paper and other high quality, short-term obligations of U.S. companies.
Short-term and long-term marketable securities are available-for-sale securities
that are recorded at fair market value. The difference between amortized cost
and fair market value, net of tax effect, is shown as a separate component of
stockholders' equity. The cost of available-for-sale securities is adjusted for
amortization of premiums and discounts to maturity. Interest and amortization of
premiums and discounts for all securities are included in interest income.

As of September 30, 2004, Inforte had a total of up to $6.3 million in deferred
business acquisition obligations payable in cash in January 2005 and 2006.
Inforte believes that it will have sufficient funds to satisfy obligations
related to the deferred consideration. We expect to fund these contingent
payments, primarily from the cash generated from the operations of the acquired
business. In addition to the purchase price obligation for the COMPENDIT
acquisition, Inforte assumed two operating leases from COMPENDIT, related to
office space.

Inforte has several operating leases that have contractual cash obligations for
future payments. There are no other contractual obligations that require future
cash obligations or other commitments. The table below identifies all future
commitments.




Payments Due by Period (in thousands)
Contractual Obligations
- ------------------------------------------------------------------------------------------------------------------------------
Total Q4 2004 2005 2006 2007 2008
- ------------------------------------------------------------------------------------------------------------------------------

Long-term debt 0 0 0 0 0 0
Capital lease obligations 0 0 0 0 0 0
Operating leases 5,126 721 2,876 980 302 247
Unconditional purchase obligations 0 0 0 0 0 0
Other long-term obligations 0 0 0 0 0 0
Total contractual cash obligations 5,126 721 2,876 980 302 247
- ------------------------------------------------ ------------ ---------------- ------------ ---------- ------------- ----------





11


Critical Accounting Policies

The preparation of financial statements, in conformity with accounting
principles generally accepted in the United States of America, requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Management bases its estimates on
historical experience and other assumptions, which it believes are reasonable.
If actual amounts are ultimately different from these estimates, the revisions
are included in the Company's results of operations for the period in which the
actual amounts become known. Accounting policies are considered critical when
they require management to make assumptions about matters that are highly
uncertain at the time the estimate is made and when different estimates than
management reasonably could have used have a material impact on the presentation
of our financial condition, changes in financial condition or results of
operations.

Revenue recognition, losses on fixed-price contracts, deferred revenue. We
recognize revenue when all of the following four criteria are met: persuasive
evidence exists that we have an agreement, service has been rendered, our price
is fixed or determinable and collectibility is reasonably assured. We recognize
net revenue from fixed-price contracts based on the ratio of hours incurred to
total estimated hours. The cumulative impact of any change in estimated hours to
complete is reflected in the period in which the changes become known. We
recognize time-and-materials net revenue as we perform the services. In November
2001, the Financial Accounting Standards Board's Emerging Issues Task Force
issued Topic 01-14, "Income Statement Characterization of Reimbursements
Received for `Out-of-Pocket' Expenses Incurred" stating these costs should be
characterized as revenue in the income statement if billed to customers. For
each quarter beginning with the March 31, 2002 quarter, we included reimbursable
expenses in revenue and expense and we have reclassified prior periods in the
comparative consolidated financial statements as required by the Financial
Accounting Standards Board. This reclassification had no effect on current or
previously reported net income (loss) per share. For presentation purposes, we
show two components of total revenue: 1) revenue before reimbursements, which we
call net revenue, consisting of revenue for performing consulting services; and
2) reimbursements, consisting of reimbursements we receive from clients for
out-of-pocket expenses incurred. We believe net revenue is a more meaningful
representation of our economic activity than total revenue since it excludes
pass-through, zero-margin expense reimbursements.

Financial Instruments. Short-term and long-term marketable securities are
available-for-sale securities which are recorded at fair market value. The
difference between amortized cost and fair market value, net of tax effect, is
shown as a separate component of stockholders' equity. The cost of securities
available-for-sale is adjusted for amortization of premiums and discounts to
maturity. Interest and amortization of premiums and discounts for all securities
are included in interest income.

Allowance for doubtful accounts. An allowance for doubtful accounts is
maintained for potential credit losses. The amount of the reserve is established
analyzing all client accounts to determine credit risk. In establishing a
client's creditworthiness we consider whether the client has a deteriorating or
poor financial condition, limited financial resources, poor or no payment
history, a large relative accounts receivable balance or a non-U.S. location.

Stock compensation. We account for stock-based employee compensation in
accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and have adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS 123") related to options issued to employees. All options
granted under our plans had an exercise price equal to the market value of the
underlying common stock on the date of grant, except for the option grants
related to the acquisition of COMPENDIT.

Bonus accruals. We have several bonus programs that are based on individual and
company performance. Revenue bonuses are earned based on individual or roll up
revenue credit assigned to salespeople, client executives, other senior delivery
personnel and senior management. Margin bonuses are earned by all employees
based on company or business unit operating income performance. In addition,
senior management may award discretionary bonuses. All of these bonuses are
expensed in the period in which they are earned. A corresponding accrual is
included on the balance sheet in accrued expenses until the bonus is paid.


12


Income Taxes. We account for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS
109"), which requires the recognition of deferred income taxes based upon the
tax consequences of temporary differences between financial reporting and income
tax reporting by applying enacted statutory tax rates applicable to future years
to differences between the financial statement carrying amounts and the tax
basis of existing assets and liabilities. SFAS 109 also requires that deferred
tax assets be reduced by a valuation allowance if it is more likely than not
that some portion of the deferred tax asset will not be realized.

In connection with the preparation of our consolidated financial statements, we
are required to estimate our income tax liability for each of the tax
jurisdictions in which we operate. This process involves estimating our actual
current income tax expense and assessing temporary differences resulting from
differing treatment of certain income or expense items for income tax reporting
and financial reporting purposes. We also recognize as deferred tax assets the
expected future tax benefits of net operating loss carry forwards. In evaluating
the realizability of deferred tax assets associated with net operating loss
carry forwards, we consider, among other things, expected future taxable income,
the expected timing of the reversals of existing temporary reporting
differences, and the expected impact of tax planning strategies that may be
implemented to prevent the potential loss of future tax benefits. Changes in,
among other things, income tax legislation, statutory income tax rates or future
taxable income levels could materially impact the valuation of income tax assets
and liabilities and could cause our income tax provision to vary significantly
among financial reporting periods.


Risk Factors

In addition to other information in this Form 10-Q, the following risk factors
should be carefully considered in evaluating Inforte and its business because
such factors currently may have a significant impact on Inforte's business,
operating results and financial condition. As a result of the risk factors set
forth below and elsewhere in this Form 10-Q, and the risk factors discussed in
Inforte's other Securities and Exchange Commission filings, actual results could
differ materially from those projected in any forward-looking statements.


If we fail to identify and successfully transition to the latest and most
demanded solutions or keep up with an evolving industry, we will not compete
successfully for clients and our profits may decrease. If we fail to identify
the latest solutions, or if we identify but fail to successfully transition our
business to solutions with growing demand, our reputation and our ability to
compete for clients and the best employees could suffer. If we cannot compete
successfully for clients, our revenues may decrease. Also, if our projects do
not involve the latest and most demanded solutions, they would generate lower
fees. Because our market changes constantly, some of the most important
challenges facing us are the need to:

o develop new services that meet changing customer needs;
o identify and effectively market solutions with growing demand during
a period of slower technological advancement and adoption;
o enhance our current services;
o continue to develop our strategic expertise;
o effectively use the latest technologies; and
o influence and respond to emerging industry standards and other
technological changes.

All of these challenges must be met in a timely and cost-effective manner. We
cannot assure you that we will succeed in effectively meeting all of these
challenges.

If we fail to satisfy our clients' expectations, our existing and continuing
business could be adversely affected. If we fail to satisfy the expectations of
our clients, we could damage our reputation and our ability to retain existing
clients and attract new clients. In addition, if we fail to perform adequately
on our engagements, we could be liable to our clients for breach of contract.
Although most of our contracts limit the amount of any damages based upon the
fees we receive we could still incur substantial cost, negative publicity, and
diversion of management resources to defend a claim, and as a result, our
business results could suffer.


13


We may be unable to hire and retain employees who are highly skilled, which
would impair our ability to perform client services, generate revenue and
maintain profitability. If we are unable to hire and retain highly-skilled
individuals, our ability to retain existing business and compete for new
business will be harmed. Individuals who have successfully sold and delivered
services similar to those we provide to our clients are limited and competition
for these individuals is intense. Further, individuals who were previously
successful in a different business environment may no longer be successful.
Identifying individuals who will succeed in this environment is extraordinarily
difficult. To attract and retain these individuals, we invest a significant
amount of time and money. In addition, we expect that both bonus payments and
equity ownership will be an important component of overall employee
compensation. In the current economic and market environment, overall bonus
payments have been below target, increasing the risk that key employees will
leave Inforte. Also, if our stock price does not increase over time, it may be
more difficult to retain employees who have been compensated with stock options.
Options granted to employees from the IPO date, February 17, 2000, through
September 30, 2004 have exercise prices of $2.90 to $71.81. The average exercise
price of all options outstanding at September 30, 2004 is $11.97. Since the
market price for Inforte stock has recently been below this average strike
price, it may be more difficult to retain employees. If key employee turnover
rates grow to unacceptable levels because compensation is not at competitive
rates, Inforte may increase the level of stock option grants or cash
compensation. These actions would reduce net income per share and may cause
Inforte to become unprofitable.

If the new proposal on stock option expensing is adopted our reported earnings
will be negatively impacted. If we expense stock options, our earnings will be
reduced and we may be unable to stay profitable. In addition we may decide to
change our compensation practices to further reduce the granting of stock
options, this could lead to increased cash compensation expense and could also
impact our ability to attract and retain key employees and executives.

If we fail to adequately manage rapid changes in demand, our profitability and
cash flow may be reduced or eliminated. If we cannot keep pace with the rapid
changes in demand, we will be unable to effectively match resources with demand,
and maintain high client satisfaction, which may eliminate our profitability and
our ability to achieve positive free cash flow. Our business grew dramatically
from 1993 through 2000. For example, our net revenue increased by 100% or more
for seven consecutive years, reaching $63.8 million in 2000. As a result of the
pricing pressures from competitors and from clients facing pressure to control
costs, net revenue has declined in each of the last three years, dropping to
$32.7 million in 2003. If our revenues decline further, we may not be profitable
or achieve positive free cash flow. If, on the other hand, our growth exceeds
our expectations, our current resources and infrastructure may be inadequate to
handle the growth.

If our marketing relationships with software vendors deteriorate, we would lose
their client referrals. If these vendors continue to increase their professional
services revenue, our revenue could be adversely affected. We currently have
marketing relationships with software vendors, including SAP, Siebel Systems,
Inc., Vignette and Unica. Although we have historically received a large number
of business leads from these and other software vendors to implement their
products, they are not required to refer business to us and they may terminate
these relationships at any time. If our relationships with these software
vendors deteriorate, we may lose their client leads and our ability to develop
new clients could be negatively impacted. Any decrease in our ability to obtain
clients may cause a reduction in our net revenues. Historically our software
partners have primarily relied on licensing fees and maintenance contracts to
generate revenue. However, more recently as software licensed sales have
declined, software vendors have sought to supplement their revenue through
increased implementation services for their software. This business strategy
puts us in competition with our software partners on some deals, reducing client
leads and our ability to develop new clients and revenue. We no longer receive a
significant portion of our leads through our software vendor relationships.

If we are unable to rapidly integrate third-party software, we may not be able
to deliver solutions to our clients on a timely basis, resulting in lost
revenues and potential liability. In providing client services, we recommend
that our clients use software applications from a variety of third-party
vendors. If we are unable to implement and integrate this software in a fully
functional manner for our clients, we may experience difficulties that could
delay or prevent the successful development, introduction or marketing of
services. Software often contains errors or defects, particularly when first
introduced or when new versions or enhancements are released. Despite internal
testing and testing by current and potential clients, our current and future
solutions may contain serious defects due to third-party software or software we


14


develop or customize for clients. Serious defects or errors could result in
liability for damages, lost revenues or a delay in implementation of our
solutions.

Our revenues could be negatively affected by the loss of a large client or our
failure to collect a large account receivable. At times, we derive a significant
portion of our revenue from large projects for a limited number of varying
clients. During the third quarter of 2004 our five largest clients accounted for
34% of net revenue and our ten largest clients accounted for 52% of net revenue.
In the same quarter we had one client contributing more than 10% of quarterly
net revenue. Although these large clients vary from time to time and our
long-term revenues do not rely on any one client, our revenues could be
negatively affected if we were to lose one of our top clients or if we were to
fail to collect a large account receivable. In addition, many of our contracts
are short-term and our clients may be able to reduce or cancel our services
without incurring any penalty. If our clients reduce or terminate our services,
we would lose revenue and would have to reallocate our employees and our
resources to other projects to attempt to minimize the effects of that reduction
or termination. Accordingly, terminations, including any termination by a major
client, could adversely impact our revenues. We believe the uncertain economic
environment increases the probability that services may be reduced or canceled.

If we estimate incorrectly the time required to complete our projects, we will
lose money on fixed-price contracts. A portion of our contracts are fixed-price
contracts, rather than contracts in which the client pays us on a
time-and-materials basis. We must estimate the number of hours and the materials
required before entering into a fixed-price contract. Our future success will
depend on our ability to continue to set rates and fees accurately and to
maintain targeted rates of employee utilization and project quality. If we fail
to accurately estimate the time and the resources required for a project, any
required increase in the time and resources to complete the project could cause
our profits to decline.

Fluctuations in our quarterly revenues and operating results due to cyclical
client demand may lead to reduced prices for our stock. Our quarterly revenues
and operating results have fluctuated significantly in the past and we expect
them to continue to fluctuate significantly in the future. Historically, we have
experienced our greatest sequential growth during the first and second quarters.
We typically experience significantly lower sequential growth in the third and
fourth quarters. We attribute this to the budgeting cycles of our customers,
most of whom have calendar-based fiscal years and as a result are more likely to
initiate projects during the first half of the year. In 2001, this traditional
seasonal pattern was overwhelmed by a cyclical decline in information technology
spending, causing our net revenue to decline sequentially in each quarter of
2001. In February and March 2002, we did experience an increase in demand which
did allow our net revenue in the second quarter 2002 to exceed the first quarter
2002 level. We believe that increase in demand was due to positive seasonal
effects, while the subsequent lower revenue in the third quarter 2002 was due to
negative seasonal effects. In 2003, our net revenue declined sequentially for
the first three quarters of the year. We believe our traditional seasonal
pattern was overwhelmed by geopolitical events that took place early in 2003,
the most notable of these events being the war in Iraq. In the beginning of 2004
there was increased demand due to our development of new service offerings and a
general pick-up in the economy, the third quarter of 2004 was impacted by normal
seasonal effects and the commoditization of one of our service offerings. This
existence of seasonal, cyclical and service offering effects makes it more
difficult to predict demand, and if we are unable to predict client demand
accurately in a slower growth or distressed economic environment, our expenses
may be disproportionate to our revenue on a quarterly basis and our stock price
may be adversely affected.



15


Others could claim that we infringe on their intellectual property rights, which
may result in substantial costs, diversion of resources and management
attention, and harm to our reputation. A portion of our business involves the
development of software applications for specific client engagements. Although
we believe that our services do not infringe on the intellectual property rights
of others, we may be the subject of claims for infringement, which even if
successfully defended could be costly and time-consuming. An infringement claim
against us could materially and adversely affect us in that we may:

o experience a diversion of our financial resources and management
attention;
o incur damages and litigation costs, including attorneys' fees;
o be enjoined from further use of the intellectual property;
o be required to obtain a license to use the intellectual property,
incurring licensing fees;
o need to develop a non-infringing alternative, which could be costly
and delay projects; and
o have to indemnify clients with respect to losses incurred as a result
of our infringement of the intellectual property.

Because we are newer and smaller than many of our competitors, we may not have
the resources to effectively compete, causing our revenues to decline. Many of
our competitors have longer operating histories, larger client bases, longer
relationships with clients, greater brand or name recognition, and significantly
greater financial, technical, marketing, and public relations resources than we
do. We may be unable to compete with full-service consulting companies,
including the former consulting divisions of the largest global accounting
firms, who are able to offer their clients a wider range of services. If our
clients decide to take their strategy and technology projects to these
companies, our revenues may decline. It is possible that in uncertain economic
times our clients may prefer to work with larger firms to a greater extent than
normal. In addition, new professional services companies may provide services
similar to ours at a lower price, which could cause our revenues to decline.

Our expansion and growth internationally could negatively affect our business.
For the third quarter of 2004, our international net revenue was 25% of total
net revenue. There are additional risks associated with international
operations, which we do not face domestically and we may assume even higher
levels of such risk as we expand our ventures in Europe and India. Risk factors
associated with international operations include longer customer payment cycles,
adverse taxes and compliance with local laws and regulations. Further, the
effects of fluctuations in currency exchange rates may adversely affect the
results of operations. Finally, as the U.S. economic slowdown has spread to the
rest of the world, our ability to obtain international revenues may be reduced
in the future. These risk factors, among others not cited here, may negatively
impact our business.

As offshore development becomes accepted as a viable alternative to doing work
domestically, our pricing and revenue may be negatively affected. Gradually,
over the past several decades, numerous IT service firms have been founded in
countries such as India, which have well-educated and technically trained
English-speaking workforces available at wage rates that are only a fraction of
U.S. and European wages rates. Additionally, some larger clients have
established internal IT operations at offshore locations. While traditionally we
have not competed with offshore development, presently this form of development
is seeing rapid and increasing acceptance in the market, especially for routine
and repetitive types of development. While offshore development has greater risk
due to distance, geopolitical and cultural issues, we believe its lower cost
advantage will likely overwhelm these risks. If we are unable to evolve our
service offerings to a more differentiated position or if the rate of acceptance
of offshore development advances even faster than we anticipate, then our
pricing and our revenue may be negatively affected. Moreover, we have recently
established an offshore development capability in New Delhi, India. If we are
unable to adequately manage the additional complexity of these operations and
this model for project delivery it may impact project quality and overall
company profitability.

Current or future legislative and regulatory requirements, such as the
Sarbanes-Oxley Act of 2002, may lead to increased insurance, accounting, legal
and other costs, which may cause our profitability to decline. We have already
switched some supplier relationships, including our audit and tax advisor
relationship to mitigate these cost increases, and other relationships are under
review. On September 8, 2003, the Audit Committee of the Board of Directors
approved (1) the dismissal of Ernst & Young LLP (E&Y) as the Company's
independent accountants, effective November 15, 2003, and (2) the replacement of
E&Y with Grant Thornton LLP as the Company's independent accountants, commencing
upon the dismissal of E&Y. The replacement of E&Y with Grant Thornton LLP was
based on economic reasons related to possible future fees escalation in current


16


and forthcoming engagements of the Company's independent accountants. In
addition, the implementation of the Sarbanes-Oxley Act, particularly Section 404
with respect to management reporting and certification of disclosure of internal
control over financial reporting, will be a significant new expense for the
balance of 2004 and for 2005 and will also increase our ongoing audit costs by a
large amount. This may lead to a decline in profitability especially if our
revenue does not continue to grow.

We may not be able to integrate successfully the business of recently acquired
COMPENDIT, Inc. with Inforte's business. While we believe that our recently
closed acquisition of COMPENDIT, Inc., a leading provider of SAP Business
Intelligence implementation consulting services, will enhance our ability to
offer analytics and business intelligence solutions to our customers, the
Inforte and COMPENDIT businesses may not be integrated successfully. It could
lead to the loss of key employees, customers or service partners or other
negative impacts. Failure to integrate COMPENDIT's business successfully could
result in an inability to maintain revenue levels or to realize certain
synergies of the acquisition, which, in turn, may negatively impact our
operating results.

RISKS RELATED TO OUR INDUSTRY

If the rate of adoption of advanced information technology slows substantially,
our revenues may decrease. We market our services primarily to firms that want
to adopt information technology that provides an attractive return on investment
or helps provide a sustainable competitive advantage. Our revenues could
decrease if companies decide not to integrate the latest technologies into their
businesses due to economic factors, governmental regulations, financial
constraints or other reasons. Inforte's market research suggests that the level
of information technology spending in the United States is closely linked with
the growth rate of the Gross Domestic Product (GDP). The slowdown in the U.S.
GDP growth rate that began in the second half of 2000 has caused a slower rate
of adoption of advanced information technology by our target clients. We expect
information technology spending and Inforte revenue to be highly dependent on
the health of the U.S. economy. We believe that corporate revenue-driven profit
growth must resume for IT spending to improve. If the overall level of business
capital investment remains depressed or declines further, this may cause our
revenue to decline further.

If the supply of information technology companies and personnel continues to
exceed demand, this may adversely impact the pricing of our projects and our
ability to win business. Over the last few years many firms in our industry
announced significant employee layoffs and lower rates of utilization of
billable personnel. An oversupply of technology professionals may reduce the
price clients are willing to pay for our services. An oversupply may also
increase the talent pool for potential clients who may choose to complete
projects in-house rather than use an outside consulting firm such as Inforte.
Lower utilization rates increase the likelihood that a competitor will reduce
their price to secure business in order to improve their utilization rate. The
extent to which pricing and our ability to win business may be impacted is a
function of both the magnitude and duration of the supply and demand imbalance
in our industry.

Geopolitical instability may cause our revenues to decrease. Our clients often
avoid large spending commitments during periods of geopolitical instability and
economic uncertainty. The possibility of terrorists attacking United States'
interests or geopolitical concerns in other areas such as the Middle East, south
Asia and North Korea may cause clients to freeze or slow their decision making
processes. This would slow demand for our services and would negatively impact
our revenue.

RISKS RELATED TO THE OWNERSHIP OF OUR COMMON STOCK

Our stock price could be extremely volatile, like many technology stocks. The
market prices of securities of technology companies, particularly professional
services companies, have been highly volatile. We expect continued high
volatility in our stock price, with prices at times bearing no relationship to
Inforte's operating performance. Inforte's average trading volume during the
third quarter of 2004 averaged approximately 41,000 shares per day. On any
particular day, Inforte's trading volume can be less than 5,000 shares,
increasing the potential for volatile stock prices.

Volatility of our stock price could result in expensive class action litigation.
If our common stock suffers from volatility like the securities of other
technology companies, we have a greater risk of further securities class action
litigation claims. One such claim is pending presently. Litigation could result


17


in substantial costs and could divert our resources and senior management's
attention. This could harm our productivity and profitability.

Officers and directors own a significant percentage of outstanding shares and,
as a group, may control a vote of stockholders. As of September 30, 2004 our
executive officers and directors beneficially own over 36% of the outstanding
shares of our common stock. The largest owners and their percentage ownership
are set forth below:

o Philip S. Bligh 21.4%
o Stephen C.P. Mack 13.1%

If the stockholders listed above act or vote together with other employees who
own significant shares of our common stock, they may have the ability to control
the election of our directors and the approval of any other action requiring
stockholder approval, including any amendments to the certificate of
incorporation and mergers or sales of all or substantially all assets, even if
the other stockholders perceive that these actions are not in their best
interests. Our stock repurchase program has had the effect of increasing the
concentration of insider ownership. If we make further repurchases, the
percentage of insider ownership could increase further. Over time, the influence
or control executive officers have on a stockholder vote may decrease as
officers supplement below market salaries and diversify overall equity wealth
with sales of Inforte stock. As permitted by SEC Rule 10b5-1, Inforte executive
officers have or may set up a predefined, structured stock trading program. The
trading program allows brokers acting on behalf of company insiders to trade
company stock during company blackout periods or while the insiders may be aware
of material, nonpublic information, if the transaction is performed according to
a pre-existing contract, instruction or plan that was established with the
broker during a non-blackout period and when the insider was not aware of any
material, non-public information. Inforte executive officers may also trade
company stock outside of plans set up under SEC Rule 10b5-1; however, such
trades would be subject to company blackout periods and insider trading rules.

The authorization of preferred stock, a staggered board of directors and
supermajority voting requirements will make a takeover attempt more difficult,
even if the takeover would be favorable for stockholders. Inforte's certificate
of incorporation and bylaws may have the effect of deterring, delaying or
preventing a change in control of Inforte. For example, our charter documents
provide for:

o the ability of the board of directors to issue preferred stock and to
determine the price and other terms, including preferences and voting
rights, of those shares without stockholder approval;
o the inability of our stockholders to act by written consent or to
call a special meeting;
o advance notice provisions for stockholder proposals and nominations
to the board of directors;
o a staggered board of directors, with three-year terms, which will
lengthen the time needed to gain control of the board of directors;
and
o supermajority voting requirements for stockholders to amend
provisions of the charter documents described above.

We are also subject to Delaware law. Section 203 of the Delaware General
Corporation Law prohibits us from engaging in a business combination with any
significant stockholder for a period of three years from the date the person
became a significant stockholder unless, for example, our board of directors
approved the transaction that resulted in the stockholder becoming an interested
stockholder. Any of the above could have the effect of delaying or preventing
changes in control that a stockholder may consider favorable.




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Item 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

In all categories of cash, cash equivalents and short-term and long-term
marketable securities, Inforte invests only in highly liquid securities of high
credit quality. All short-term investments bear a minimum Standard & Poor's
rating of A1 or Moody's investor service rating of P1. All long-term investments
bear a minimum Standard & Poor's rating of A or Moody's investor service rating
of A2.

Inforte has a large cash and marketable securities balance that generates
substantial interest income. During 2003 and year-to-date in 2004, a
considerable portion of Inforte's pretax income was from interest income.
Declining short-term market interest rates will have a significant impact on
Inforte's profitability as interest income drops. Thus, a drop in short-term
market interest rates will increase the revenue level required to be profitable,
and increases the risk that Inforte will lose money.

Item 4. CONTROLS AND PROCEDURES

As required by Rule 13a-15(b) under the Securities Exchange Act of 1934,
Inforte's management, including Inforte's Chief Executive Officer and Chief
Financial Officer, conducted an evaluation, as of the end of the period covered
by this report, of the effectiveness of Inforte's disclosure controls and
procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934. Based on that evaluation, Inforte's Chief Executive Officer and Chief
Financial Officer concluded that Inforte's disclosure controls and procedures
were effective as of the end of the period covered by this report. As required
by Rule 13a-15(d) under the Securities Exchange Act of 1934, Inforte's
management, including Inforte's Chief Executive Officer and Chief Financial
Officer, also conducted an evaluation of Inforte's internal control over
financial reporting to determine whether any changes occurred during the quarter
covered by this report that have materially affected, or are reasonably likely
to materially affect, Inforte's internal control over financial reporting. Based
on that evaluation, there has been no such change during the quarter covered by
this report.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings
Inforte, Philip S. Bligh, an officer of Inforte, and Stephen C.P. Mack and Nick
Padgett, both former officers of Inforte, have been named as defendants in Mary
C. Best v. Inforte Corp.; Goldman, Sachs & Co.; Salomon Smith Barney, Inc.;
Philip S. Bligh; Stephen C.P. Mack and Nick Padgett, Case No. 01 CV 10836, filed
on November 30, 2001 in Federal Court in the Southern District of New York (the
"Case"). The Case is among more than 300 putative class actions against certain
issuers, their officers and directors, and underwriters with respect to such
issuers' initial public offerings, coordinated as In re Initial Public Offering
Securities Litigation, 21 MC 92 (SAS) (collectively, the "Multiple IPO
Litigation"). An amended class action complaint was filed in the Case on April
19, 2002. The amended complaint in the Case alleges violations of federal
securities laws in connection with Inforte's initial public offering occurring
in February 2000 and seeks certification of a class of purchasers of Inforte
stock, unspecified damages, interest, attorneys' and expert witness fees and
other costs. The amended complaint does not allege any claims relating to any
alleged misrepresentations or omissions with respect to our business. The
individual defendants (Messrs. Bligh, Mack and Padgett) have been dismissed from
the case without prejudice pursuant to a stipulated dismissal and a tolling
agreement. We have moved to dismiss the plaintiff's case. On February 19, 2002,
the Court granted this motion in part, denied it in part and ordered that
discovery in the case may commence. The Court dismissed with prejudice the
plaintiff's purported claim against Inforte under Section 10(b) of the
Securities Exchange Act of 1934, but left in place the plaintiff's claim under
Section 11 of the Securities Act of 1933.

Inforte has entered into a Memorandum of Understanding (the "MOU"), along with
most of the other defendant issuers in the Multiple IPO Litigation, whereby such
issuers and their officers and directors (including Inforte and Messrs. Bligh,
Mack and Padgett) will be dismissed with prejudice from the Multiple IPO
Litigation, subject to the satisfaction of certain conditions. Under the terms
of the MOU, neither Inforte nor any of its formerly named individual defendants
admit any basis for liability with respect to the claims in the Case. The MOU
provides that insurers for Inforte and the other defendant issuers participating
in the settlement will pay approximately $1 billion to settle the Multiple IPO
Litigation, except that no such payment will occur until claims against the
underwriters are resolved and such payment will be paid only if the recovery
against the underwriters for such claims is less than $1 billion and then only
to the extent of any shortfall. Under the terms of the MOU, neither Inforte nor
any of its named directors will pay any amount of the settlement. The MOU

19


further provided that participating defendant issuers will assign certain claims
they may have against the defendant underwriters in connection with the Multiple
IPO Litigation. The MOU is subject to the satisfaction of certain conditions,
including, among others, approval of the Court. Pursuant to the MOU, the parties
have filed motions with the Court seeking certification of the class and
approval of the settlement contemplated by the MOU. The Court has not yet ruled
on the motions.

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities
In January 2001, Inforte announced that the board of directors approved a stock
repurchase program that allows Inforte to buy up to $25 million of Inforte
shares. The program was completed in August 2002. The board of directors
approved an additional $5.0 million stock repurchase program on August 22, 2002.
We stated at that time that we had no present plans to make additional
repurchases of stock, and as of September 30, 2004, we have made no repurchases
under this second program.

Item 3. Defaults upon Senior Securities
None

Item 4. Submission of Matter to a Vote of Security Holders
None

Item 5. Other Information
Effective August 9, 2004, John Morphy resigned as a director of Inforte. There
are no disagreements between Mr. Morphy and Inforte relating to Inforte's
operations, policies or practices.





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Item 6. Exhibits and Reports on Form 8-K


(a) Exhibits

Exhibit Number Exhibit
-------------- -------

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

31.2 Certification by Chief
Financial Officer pursuant
to Section 302 of the
Sarbanes-Oxley Act of 2002
and Rule 13a-14(a) and
15d-14(a) under the
Securities and Exchange Act
of 1934.

32 Written statement of the Chief
Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. ss.1350.

(b) Reports on Form 8-K

In a Report on Form 8-K furnished on July 27, 2004, Inforte reported, under Item
12, "Results of Operation and Financial Condition," the issuance of a press
release regarding earnings for the second quarter of 2004.

In a report on Form 8-K, filed on August 31, 2004, Inforte reported, under Item
1.01 "Entry into a Material Definitive Agreement," the modification of the
earn-out provisions of the Agreement of Merger, dated March 4, 2004, among
Inforte, INFC Acquisition Corp. and the Stockholder Representative. Inforte has
agreed to eliminate as a condition to its obligation to pay the full $6.3
million cash earn-out amount under the Original Merger Agreement the achievement
of specific 2004 net revenue levels by the Compendit business.






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SIGNATURE

Pursuant to the requirements 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.




Inforte Corp.

By: /s/ Nick Heyes
November 15, 2004 ---------------------------------
Nick Heyes,
Chief Financial Officer







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