**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

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**FORM 10-Q**

 

**(MarkOne)**
| **ý**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | **QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE  SECURITIES EXCHANGE ACT OF 1934**       |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| **For  the Quarterly Period Ended March 31, 2003.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| **o**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | **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 0-15935**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

 

 

**ALTRIS SOFTWARE, INC.**

(Exact name of registrantas specified in its charter)

 

| **CALIFORNIA**                                                   |   | **95-3634089**                        |
|------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification No.) |
|                                                             |   |                                  |
| **9339 CARROLL PARK DRIVE, SAN DIEGO,  CA 92121**                |
| (Address of principal  executive offices and zip code)           |
|                                                             |   |                                  |
| **(858) 625-3000**                                               |
| (Registrant’s telephone  number, including area code)       |
|                                                             |   |                                  |

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

 

YES       ý              NO     o

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Exchange Act).

 

YES       o              NO     ý

 

Number of shares of Common Stock outstanding at April 13, 2003:  30,890,278 

 

Number of Sequentially Numbered Pages: 27

 

 

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**ALTRISSOFTWARE, INC.**

 

**INDEX**

 

 
| PART I.                                                                                              | FINANCIAL INFORMATION                                     |   |
|------------------------------------------------------------------------------------------------------|-----------------------------------------------------------|--------|
|                                                                                                 |                                                      |
| Item  1. Financial Statements and Supplementary Data                                                 |
|                                                                                                 |                                                      |
|                                                                                                 | Consolidated Balance Sheets                               |
|                                                                                                 |                                                      |
|                                                                                                 | Consolidated  Statements of Operations                    |
|                                                                                                 |                                                      |
|                                                                                                 | Consolidated  Statements of Cash Flows                    |
|                                                                                                 |                                                      |
|                                                                                                 | Condensed  Notes to the Consolidated Financial Statements |
|                                                                                                 |                                                      |
| Item  2. Management’s Discussion and Analysis of Financial Condition and Results of  Operations |
|                                                                                                 |                                                      |
| Item  3. Quantitative and Qualitative Disclosures About Market Risk                                  |
|                                                                                                 |                                                      |
| Item 4.  Controls and Procedures                                                                     |
|                                                                                                 |                                                      |
| PART II.                                                                                             | OTHER INFORMATION                                         |
|                                                                                                 |
| Item 1. Legal Proceedings                                                                            |
|                                                                                                 |                                                      |
| Item  4. Submission of Matters to a Vote of Security Holders                                         |
|                                                                                                 |
| Item 6.  Exhibits and Reports on Form 8-K                                                            |
|                                                                                                      |                                                           |        |  |

 

2

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**PART I.  FINANCIAL INFORMATION**

 

**ITEM 1.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

 

**ALTRIS SOFTWARE, INC.**

**CONSOLIDATEDBALANCE SHEETS**

** **
|                                                                                                                        |   | **March 31,  2003** |       | **September  30,  2002** |       |
|-----------------------------------------------------------------------------------------------------------------------------|--------|---------------------|------------|--------------------------|------------|
|                                                                                                                        |   | **(Unaudited)**     |       |                     |       |
| **ASSETS**                                                                                                                  |   |                | ** ** |                     | ** ** |
| Current assets:                                                                                                             |   |                |       |                     |       |
| Cash and cash equivalents                                                                                                   |   | $                   | 205,000    |                     | $          | 87,000 |   |
| Receivables, net                                                                                                            |   | 1,162,000           |       | 1,459,000                |       |
| Other current assets                                                                                                        |   | 140,000             |       | 244,000                  |       |
| Total current assets                                                                                                        |   | 1,507,000           |       | 1,790,000                |       |
|                                                                                                                        |   |                |       |                     |       |
| Property and equipment, net                                                                                                 |   | 201,000             |       | 215,000                  |       |
| Computer software, net                                                                                                      |   | 230,000             |       | 420,000                  |       |
| Other assets                                                                                                                |   | 94,000              |       | 83,000                   |       |
| Total assets                                                                                                                |   | $                   | 2,032,000  |                     | $          | 2,508,000 |   |
|                                                                                                                        |   |                |       |                     |       |
| **LIABILITIES  AND SHAREHOLDERS’ DEFICIT**                                                                             |   |                | ** ** |                     | ** ** |
|                                                                                                                        |   |                |       |                     |       |
| Current liabilities:                                                                                                        |   |                |       |                     |       |
| Accounts payable                                                                                                            |   | $                   | 502,000    |                     | $          | 802,000 |   |
| Payable to shareholder - Spescom                                                                                            |   | 499,000             |       | 495,000                  |       |
| Accrued liabilities                                                                                                         |   | 996,000             |       | 1,294,000                |       |
| Deferred revenue                                                                                                            |   | 2,528,000           |       | 2,171,000                |       |
| Total current liabilities                                                                                                   |   | 4,525,000           |       | 4,762,000                |       |
|                                                                                                                        |   |                |       |                     |       |
| Notes payable and accrued interest to shareholder - Spescom                                                                 |   | 5,105,000           |       | 4,881,000                |       |
| Lease obligation                                                                                                            |   | —              |       | 10,000                   |       |
| Total liabilities                                                                                                           |   | 9,630,000           |       | 9,653,000                |       |
|                                                                                                                        |   |                |       |                     |       |
| Shareholders’ deficit:                                                                                                 |   |                |       |                     |       |
| Common stock, no par value, 40,000,000 shares authorized;30,890,278 and 30,841,590  issued and outstanding in 2003 and 2002 |   | 74,470,000          |       | 74,465,000               |       |
| Common stock warrants                                                                                                       |   | 133,000             |       | 133,000                  |       |
| Accumulated other comprehensive loss                                                                                        |   | (174,000            | )          | (156,000                 | )          |
| Accumulated deficit                                                                                                         |   | (82,027,000         | )          | (81,587,000              | )          |
| Total shareholders’ deficit                                                                                            |   | (7,598,000          | )          | (7,145,000               | )          |
|                                                                                                                        |   |                |       |                     |       |
| Total liabilities and shareholders’ deficit                                                                            |   | $                   | 2, 032,000 |                     | $          | 2,508,000 |   |

 

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

 

3

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**ALTRISSOFTWARE, INC.**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(Unaudited)**

 
|                                                                 |   | **For the  three months  ended March 31,** |     | **For the  six months  ended March 31,** |   |
|----------------------------------------------------------------------|--------|--------------------------------------------|----------|------------------------------------------|--------|
|                                                                 |   | **2003**                                   |     | **2002**                                 |   | **2003** |   | **2002** |   |
| Revenues:                                                            |   |                                       |     |                                     |   |   |   |   |   |
| Licenses                                                             |   | $                                          | 367,000  |                                     | $      | 329,000 |   | $ | 1,288,000 |   | $ | 647,000 |   |
| Services and other                                                   |   | 1,448,000                                  |     | 1,238,000                                |   | 2,816,000 |   | 2,638,000 |   |
| Total revenues                                                       |   | 1,815,000                                  |     | 1,567,000                                |   | 4,104,000 |   | 3,285,000 |   |
|                                                                 |   |                                       |     |                                     |   |   |   |   |   |
| Cost of revenues:                                                    |   |                                       |     |                                     |   |   |   |   |   |
| Licenses                                                             |   | 125,000                                    |     | 349,000                                  |   | 400,000 |   | 609,000 |   |
| Services and other                                                   |   | 500,000                                    |     | 879,000                                  |   | 1,094,000 |   | 1,862,000 |   |
| Total cost of revenues                                               |   | 625,000                                    |     | 1,228,000                                |   | 1,494,000 |   | 2,471,000 |   |
|                                                                 |   |                                       |     |                                     |   |   |   |   |   |
| Gross profit                                                         |   | 1,190,000                                  |     | 339,000                                  |   | 2,610,000 |   | 814,000 |   |
|                                                                 |   |                                       |     |                                     |   |   |   |   |   |
| Operating expenses:                                                  |   |                                       |     |                                     |   |   |   |   |   |
| Research and development                                             |   | 414,000                                    |     | 569,000                                  |   | 737,000 |   | 1,193,000 |   |
| Marketing and sales                                                  |   | 657,000                                    |     | 1,087,000                                |   | 1,283,000 |   | 2,338,000 |   |
| General and administrative                                           |   | 363,000                                    |     | 677,000                                  |   | 771,000 |   | 1,112,000 |   |
|                                                                 |   | 1,434,000                                  |     | 2,333,000                                |   | 2,791,000 |   | 4,643,000 |   |
|                                                                 |   |                                       |     |                                     |   |   |   |   |   |
| Loss from operations                                                 |   | (244,000                                   | )        | (1,994,000                               | )      | (181,000 | ) | (3,829,000 | ) |
|                                                                 |   |                                       |     |                                     |   |   |   |   |   |
| Interest and other income                                            |   | —                                     |     | 2,000                                    |   | — |   | 5,000 |   |
| Interest and other expense                                           |   | (134,000                                   | )        | (85,000                                  | )      | (259,000 | ) | (140,000 | ) |
| Net loss                                                             |   | $                                          | (378,000 | )                                        | $      | (2,077,000 | ) | $ | (440,000 | ) | $ | (3,964,000 | ) |
|                                                                 |   |                                       |     |                                     |   |   |   |   |   |
| Basic and diluted net loss per common share                          |   | $                                          | (0.01    | )                                        | $      | (0.07 | ) | $ | (0.01 | ) | $ | (0.13 | ) |
|                                                                 |   |                                       |     |                                     |   |   |   |   |   |
| Shares used in computing basic and diluted net loss per common share |   | 30,847,000                                 |     | 30,842,000                               |   | 30,844,000 |   | 30,842,000 |   |

 

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

 

4

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**ALTRISSOFTWARE, INC.**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
|                                                                                     |   | **For the  six months  ended March 31,** |     |
|------------------------------------------------------------------------------------------|--------|------------------------------------------|----------|
|                                                                                     |   | **2003**                                 |     | **2002** |   |
| Cash flows from operating activities:                                                    |   |                                     |     |   |   |
| Net loss                                                                                 |   | $                                        | (440,000 | ) | $ | (3,964,000 | ) |
| Adjustments to reconcile net loss to net cash provided by (used in) operatingactivities: |   |                                     |     |   |   |
| Depreciation and amortization                                                            |   | 235,000                                  |     | 547,000 |   |
| Unpaid interest to Spescom                                                               |   | 224,000                                  |     | 130,000 |   |
| Stock options issued to consultant                                                       |   | —                                   |     | 30,000 |   |
| Changes in assets and liabilities, net :                                                 |   |                                     |     |   |   |
| Receivables, net                                                                         |   | 317,000                                  |     | 577,000 |   |
| Other assets                                                                             |   | 178,000                                  |     | 540,000 |   |
| Accounts payable                                                                         |   | (310,000                                 | )        | 135,000 |   |
| Accrued liabilities                                                                      |   | (401,000                                 | )        | (648,000 | ) |
| Deferred revenue                                                                         |   | 344,000                                  |     | 409,000 |   |
| Net cash provided by (used in) operating activities                                      |   | 147,000                                  |     | (2,244,000 | ) |
|                                                                                     |   |                                     |     |   |   |
| Cash flows from investing activities:                                                    |   |                                     |     |   |   |
| Purchases of property and equipment                                                      |   | (27,000                                  | )        | (30,000 | ) |
| Purchases of software                                                                    |   | (4,000                                   | )        | (50,000 | ) |
| Net cash used in investing activities                                                    |   | (31,000                                  | )        | (80,000 | ) |
|                                                                                     |   |                                     |     |   |   |
| Cash flows from financing activities:                                                    |   |                                     |     |   |   |
| Proceeds from shareholder loan                                                           |   | —                                   |     | 2,182,000 |   |
| Proceeds from exercise of stock options                                                  |   | 5,000                                    |     | — |   |
| Net cash provided by financing activities                                                |   | 5,000                                    |     | 2,182,000 |   |
|                                                                                     |   |                                     |     |   |   |
| Effect of exchange rate changes on cash                                                  |   | (3,000                                   | )        | 5,000 |   |
|                                                                                     |   |                                     |     |   |   |
| Net increase (decrease) in cash and cash equivalents                                     |   | 118,000                                  |     | (137,000 | ) |
|                                                                                     |   |                                     |     |   |   |
| Cash and cash equivalents at beginning of period                                         |   | 87,000                                   |     | 144,000 |   |
|                                                                                     |   |                                     |     |   |   |
| Cash and cash equivalents at end of period                                               |   | $                                        | 205,000  |   | $ | 7,000 |   |
|                                                                                     |   |                                     |     |   |   |
| Supplementary cash flow information:Cash paid for interest                               |   | $                                        | 1,000    |   | $ | 4,000 |   |

 

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

 

5

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**ALTRIS SOFTWARE, INC.**

*CONDENSEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS*

**(Unaudited)**

 

***Note 1 - Basis ofPresentation***

 

The consolidated financialstatements include the accounts of Altris Software, Inc. and its whollyowned subsidiaries (collectively, the “Company”). All significant intercompanybalances and transactions have been eliminated. In the first quarter of fiscal2001, the Company acquired certain assets and liabilities of Spescom Ltd.U.K. (formerly Altris Software Limited). Spescom Ltd. UK is a wholly ownedsubsidiary of Spescom Ltd. (“Spescom”), which became the majority shareholderin the Company in April 2000 (See Note 2).

 

The accompanying consolidated financial statements asof March 31, 2003 and for the three and six months ended March 31, 2003 and2002 are unaudited. The consolidated financial statements and related noteshave been prepared in accordance with generally accepted accounting principlesapplicable to interim periods.  In theopinion of management, the consolidated financial statements reflect alladjustments, consisting only of normal recurring adjustments, necessary for afair presentation of the consolidated financial position, results of operationand cash flows for the periods presented.

 

The information contained in the following CondensedNotes to the Consolidated Financial Statements is condensed from that whichwould appear in the annual consolidated financial statements; accordingly, theconsolidated financial statements included herein should be reviewed in conjunction with theconsolidated financial statements and related notes thereto contained in theCompany’s Annual Report on Form 10-K for the year ended September 30,2002.  It should be understood that theaccounting measurements at an interim date inherently involve greater relianceon estimates than at year-end.  Theresults of operations for the interim periods presented are not necessarilyindicative of the results expected for the entire year.

 

*Company Operations*

 

In March 2002, the Company implemented a plan to focuson core activities and substantially reduce costs in an effort to achieve abreak-even level of cash flow in fiscal 2003. Although the reductions in March 2002 reduced the Company’s research anddevelopment, marketing and sales capabilities, management believes that thereduced levels of research and development, marketing and sales costs areconsistent with the level of revenues currently being achieved. Moreover, theCompany believes such reductions were implemented with a view to maximizing theCompany’s ability to continue to maintain and support its eB product suite,while at the same time pursuing opportunities for sales of new eB core systemsto new customers.

 

The Company in the past has received funding fromSpescom for working capital purposes. However, Spescom is not obligated to provideadditional loans.  Spescom has statedthat it intends to continue to support the Company’s operations and dependingon the merits of any situation that may arise in the future, Spescom will makeits best efforts to provide further funding if necessary. The terms on whichany additional funding may be provided are not specified and may includeinterest rates, security arrangements or additional equity dilution that arenot acceptable to the Company or that could be materially adverse to theCompany.

 

## ***RevenueRecognition***

 

The Company enters into contractual arrangements withend-users that may include licensing of the Company’s software products,product support and maintenance services, consulting services or variouscombinations thereof, including the sale of such products or servicesseparately.  The Company recognizes revenue in accordance with Statement of Position(“SOP”) 97-2 “Software Revenue Recognition” and SOP 98-9, “Modification of SOP97-2, Software Revenue Recognition, with Respect to Certain Transactions” andStaff Accounting Bulletin (“SAB”)  No.101.

 

6

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Software license and third partyproduct revenues are recognized upon shipment of the product if no significantvendor obligations remain and collection is probable. In cases where asignificant vendor obligation exists, revenue recognition is delayed until suchobligation has been satisfied. For new software products where a historicalrecord has not yet been demonstrated that acceptance is perfunctory, theCompany defers recognition of revenue until acceptance has occurred. Annualmaintenance revenues, which consist of ongoing support and product updates, arerecognized on a straight-line basis over the term of the contract. Payments receivedin advance of performance of the related service for maintenance contracts arerecorded as deferred revenue. Revenues from training and consulting servicesare recognized when the services are performed and adequate evidence ofproviding such services is available. Contract revenues for contracts orprograms requiring specialized systems are recognized using thepercentage-of-completion method of accounting, primarily based on contractlabor hours incurred to date compared with total estimated labor hours atcompletion. Provisions for anticipated contract losses are recognized in theperiod they become known.

 

Contracts are billed based on theterms of the contract. There are no retentions in billed contract receivables.Unbilled contract receivables relate to revenues earned but not billed at theend of the period. Billings in excess of costs incurred and related earningsare included in deferred revenue.

 

*Foreign Currency Translation*

 

Thefinancial statements of the U.K. foreign subsidiary are prepared in its localcurrency and translated into U.S. dollars based on the current exchange rate atthe end of the period for the balance sheets and a weighted-average rate forthe period on the statement of operations. The effect of exchange ratesresulted in currency translation gains of $174,000 and $156,000 as of March 31,2003 and September 30, 2002, respectively. Foreign currency transaction gainsand losses are included in net loss.

 

*Common Stock Options*

 

In April 1996, the Companyadopted its 1996 Stock Incentive Plan (the “1996 Plan”).  The 1996 Plan is administered by either theBoard of Directors or a committee designated by the Board to oversee theplan.  Under the 1996 Plan, the maximumnumber of shares of Common Stock to be issued were 2,425,000.  As of March 31, 2003, options to purchase1,830,750 shares are outstanding and 385,087 options are available for grant.

 

The option vesting period underthe plan is determined by the Board of Directors or a Stock Option Committeeand usually provides that 25% of the options granted can be exercised90 days from the date of grant, and thereafter, those options becomeexercisable in additional cumulative annual installments of 25% commencing onthe first anniversary of the date of grant. Options granted are generally dueto expire upon the sooner of ten years from date of grant, thirty days aftertermination of services other than by reason of convenience of the Company,three months after disability, or one year after the date of the optionholder’s death. The option exercise price is generally equal to the fair marketvalue of the common stock on the date of grant.  Options granted to employees under the 1996 Plan may be eitherincentive stock options or nonqualified options. Only nonqualified options maybe granted to nonemployee directors.

 

The Company applies AccountingPrinciples Board Opinion No. 25 and related interpretations in accountingfor its stock-based compensation plan. Effective March 31, 2003, the Company has adopted Statement of FinancialAccounting Standards (“SFAS”) 148 “Accounting for Stock Based CompensationTransition and Disclosure” that supercedes SFAS 123, “Accounting for StockBased Compensation.”  SFAS 148 requiresproforma disclosure of net income and net income per share as if the fair valuebased method of accounting for stock-based awards has been applied to bothemployee and non-employee option grants. It also requires disclosure of options status quarterly.  No compensation cost was recognized foremployee stock option grants during 2003 and 2002 based upon the intrinsicvalue method, which were fixed in nature, as the options were granted at fairmarket value. Had compensation costs for the Company’s stock-based compensationgrants been determined based on the fair value at the grant dates for awardsunder the Company’s stock-based compensation plans consistent 

 

7

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with the fair value method of Financial AccountingStandards Board Statement No. 123, the Company’s net loss and net loss pershare would have been adjusted to the pro forma amounts indicated below:

 

 
|                                           |   | **For the  three months  ended March 31,** |     | **For the  six months  ended March 31,** |   |
|------------------------------------------------|--------|--------------------------------------------|----------|------------------------------------------|--------|
|                                           |   | **2003**                                   |     | **2002**                                 |   | **2003** |   | **2002** |   |
| Net loss used in  computing net loss per share |   |                                       |     |                                     |   |   |   |   |   |
| As reported                                    |   | $                                          | (378,000 | )                                        | $      | (2,077,000 | ) | $ | (440,000 | ) | $ | (3,964,000 | ) |
| Pro forma                                      |   | $                                          | (401,000 | )                                        | $      | (2,121,000 | ) | $ | (491,000 | ) | $ | (4,108,000 | ) |
|                                           |   |                                       |     |                                     |   |   |   |   |   |
| Basic and  diluted net loss per share          |   |                                       |     |                                     |   |   |   |   |   |
| As reported                                    |   | $                                          | (0.01    | )                                        | $      | (0.07 | ) | $ | (0.01 | ) | $ | (0.13 | ) |
| Pro forma                                      |   | $                                          | (0.01    | )                                        | $      | (0.07 | ) | $ | (0.02 | ) | $ | (0.13 | ) |

 

 

Thefair value of each option grant is estimated on the date of grant using theBlack-Scholes option-pricing model with the following weighted averageassumptions used for grants:

 
|                     |   | **For the  three months  ended March 31,** |   | **For the  six months  ended March 31,** |   |
|--------------------------|--------|--------------------------------------------|--------|------------------------------------------|--------|
|                     |   | **2003**                                   |   | **2002**                                 |   | **2003** |   | **2002** |   |
| Dividend Yield           |   | 0                                          | %      | 0                                        | %      | 0 | % | 0 | % |
| Expected  Volatility     |   | 238                                        | %      | 239                                      | %      | 312 | % | 239 | % |
| Risk free  interest rate |   | 4.90                                       |   | 4.90                                     |   | 4.90 |   | 4.90 |   |
| Expected lives  (years)  |   | 5                                          |   | 5                                        |   | 5 |   | 5 |   |

 

***Note 2 – SpescomTransaction and Related Parties***

 

Under a royalty arrangement, Spescom resells certainof the Company’s software.  For the three and six month periods ended March31, 2003, the Company recognized royalty revenue of $5,000 and $10,000 comparedto $2,000 and $14,000 for the three and six month periods ended March 31, 2002,arising from this arrangement.  Spescom, through its wholly-owned subsidiary,Spescom Ltd. U.K., provides certain administrative and accounting functions forthe Company’s United Kingdom operations. The Company is billed a monthly fee by Spescom for reimbursement ofcertain costs in the United Kingdom, including the office facilities (includingrental expense as described below); all accounting and human resourcesservices; and certain corporate marketing activities.  For the three and six month periods ended March 31, 2003, theadministrative fees totaled $154,000 and $305,000 compared to $137,000and $276,000 for the three and six month periods ended March 31, 2002.  At March 31, 2003, the Company had a payableto Spescom of $499,000 as compared to $495,000, at September 30, 2002.  In the United States, for the three and sixmonth periods ended March 31, 2003, the Company billed Spescom for certainmarketing services totaling $13,000 and $27,000 compared to $13,000 and $26,000for the three and six months ended March 31, 2002.

 

In 1999, as part of an agreementwith Spescom, the lease for the United Kingdom office facility was to beassigned to Spescom; however, the landlord did not grant its consent to theassignment.  Since 1999 Spescom has paidthe rent under the lease for the entire office directly to the landlord and theCompany reimburses Spescom for the entire payment.  The lease expires in March 2006 and has an annual rent of$530,000.  A portion of the office hasbeen subleased to a third party tenant for an annual rent of $179,000.  The sublease also expires March 2006;however, the tenant has an option to terminate the lease in February 2004.  For the three and six month periods endedMarch 31, 2003 the Company paid Spescom rent of $69,000 and $136,000 comparedto $66,000 and $133,000 for the three and six month periods ended March 31,2002, as part of the monthly administration fee.

 

8

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Related party liabilities consist of the following: 

 
|                                                               |   | **March 31,  2003** |      | **September 30,  2002** |   |
|--------------------------------------------------------------------|--------|---------------------|-----------|-------------------------|--------|
| Long-term Note  Including Accrued Interest Payable to Shareholder: |   |                |      |                    |   |
|                                                               |   |                |      |                    |   |
| Notes payable on  demand—Spescom Ltd., U.K.                   |   | $                   | 1,752,000 |                    | $      | 1,669,000 |   |
| Note payable  —Spescom Ltd., U.K.                             |   | 2,080,000           |      | 1,980,000               |   |
| Note payable  —Spescom                                        |   | 1,273,000           |      | 1,232,000               |   |
|                                                               |   |                |      |                    |   |
|                                                               |   | $                   | 5,105,000 |                    | $      | 4,881,000 |   |

 

At March 31, 2003, the Company had three demand notespayable to Spescom Ltd, U.K. for $400,000, $500,000 and $700,000, respectively,each bearing an annual interest rate of 10%. As of March 31, 2003, the balance owed on the notes was $1,752,000including accrued interest.  Interestexpense, accrued but unpaid on the notes for the three and six-month periods endedMarch 31, 2003 was $42,000 and $84,000 compared to $1,000 and $1,000 for thethree and six month periods ended March 31, 2002.  Spescom has agreed that the demand notes will not be called priorto April 1, 2004.

 

At March 31, 2003, pursuant to a promissory note, theCompany owed Spescom Ltd. U.K. $2,080,000, including accrued interest.  The note bears interest at an interest rateof 10.0% per annum, with principal and interest payable at maturity, on October15, 2003.  Spescom extended the maturitydate on this note to April 1, 2004. Interest expense, accrued but unpaid on this note for the three andsix-month periods ended March 31, 2003 was $51,000 and $101,000 compared to$46,000 and $92,000 for the three and six month periods ended March 31, 2002.

 

As of March 31, 2003, the Company had a note payableto Spescom for $1,273,000 including accrued interest.  Interest on the outstanding note accrues at the rate of 10% perannum.  Principal and all unpaid accruedinterest is payable at maturity on October 15, 2003. Spescom extended thematurity date on this note to April 1, 2004. Interest expense, accrued but unpaid on this note for the three and sixmonth periods ended March 31, 2003 totaled $31,000 and $60,000 compared to$28,000 and $60,000 for the three and six-month periods ended March 31, 2002.

 

These notes payable are collateralized by a securityinterest in favor of both Spescom and Spescom Ltd., U.K. in respect of all ofthe Company’s assets.

 

***Note 3 -Receivable***

 

Receivables consist of the following:

 
|                                 |   | **March 31,****2003** |      | **September 30,  2002** |   |
|--------------------------------------|--------|-----------------------|-----------|-------------------------|--------|
|                                 |   | **(Unaudited)**       |      |                    |   |
|                                 |   |                  |      |                    |   |
| Gross receivables                    |   | $                     | 1,301,000 |                    | $      | 1,615,000 |   |
| Less allowance for doubtful accounts |   | (139,000              | )         | (156,000                | )      |
|                                 |   | $                     | 1,162,000 |                    | $      | 1,459,000 |   |

 

9

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## ***Note 4 - Reconciliation of Net Loss and SharesUsed in Per Share Computations***

 

Basic net income (loss) per common share is computedas net income (loss) divided by the weighted average number of common sharesoutstanding during the period.  Dilutednet income (loss) per common share is computed as net income (loss) divided bythe weighted average number of common shares and potential common shares, usingthe treasury stock method, outstanding during the periods and assumesconversion into common stock at the beginning of each period of potentiallydilutive securities (including convertible preferred stock, options andwarrants).  Computations of basic anddiluted earnings (loss) per share do not give effect to individual potentialcommon stock instruments for any period in which their inclusion would beanti-dilutive.

 
|                                                                                                      |   | **For the  three months  ended March 31,** |     | **For the  six months  ended March 31,** |   |
|-----------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|----------|------------------------------------------|--------|
|                                                                                                      |   | **2003**                                   |     | **2002**                                 |   | **2003** |   | **2002** |   |
| Net loss                                                                                                  |   | $                                          | (378,000 | )                                        | $      | (2,077,000 | ) | $ | (440,000 | ) | $ | (3,964,000 | ) |
| Weighted average common shares outstanding used in computing basic  and diluted net loss per common share |   | 30,847,000                                 |     | 30,842,000                               |   | 30,844,000 |   | 30,842,000 |   |
|                                                                                                           |        |                                            |          |                                          |        |  |  |  |  |  |  |  |  |

 

Employee stock options to acquire 1,830,750 and1,705,750 shares of common stock were outstanding at March 31, 2003 and 2002,respectively, and were not included in the computation of diluted earnings pershare because their effect was anti-dilutive.

 

***Note 5 -Segment and Geographic Information***

 

The Company has one business segment which consists ofthe development and sale of a suite of client/server document managementsoftware products.

 

Revenues for the three and six month periods ended March 31, 2003 and2002 by customer location are as follows:

 
|                             |   | **For the three months ended  March 31,** |      | **For the six months ended  March 31,** |   |
|----------------------------------|--------|-------------------------------------------|-----------|-----------------------------------------|--------|
|                             |   | **2003**                                  |      | **2002**                                |   | **2003** |   | **2002** |   |
|                             |   |                                      |      |                                    |   |   |   |   |   |
| United States                    |   | $                                         | 929,000   |                                    | $      | 875,000 |   | $ | 2,243,000 |   | $ | 1,708,000 |   |
| Europe, primarily United Kingdom |   | 823,000                                   |      | 564,000                                 |   | 1,774,000 |   | 1,406,000 |   |
| Other International              |   | 63,000                                    |      | 128,000                                 |   | 87,000 |   | 171,000 |   |
|                             |   | $                                         | 1,815,000 |                                    | $      | 1,567,000 |   | $ | 4,104,000 |   | $ | 3,285,000 |   |

 

***Note 6 - Recent Accounting Pronouncements***

 

During August 2001, the the Financial AccountingStandards Board (FASB) issued Statement of Financial Accounting Standards No.144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFASNo. 144”). SFAS No. 144 addresses financial accounting and reporting for theimpairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No.121, “Accounting for the Impairment of Long-Lived Assets and for Long-LivedAssets to be Disposed Of,” and the accounting and reporting provision of APBOpinion No. 30, “Reporting the Results of Operations - Reporting the Effects ofDisposal of a Segment of a Business, and Extraordinary, Unusual, andInfrequently Occurring Events and Transactions,” for the disposal of a segmentof a business (as previously defined in that Opinion). SFAS No. 144 iseffective for fiscal years beginning after April 1, 2002.

 

10

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In April 2002, the FASB issued SFAS No. 145, *Rescission of FASB Statements No. 4, 44, and 64,Amendment of FASB Statement No. 13, and Technical Corrections*.Among other provisions, SFAS No. 145 rescinds SFAS No. 4, *Reporting Gains and Losses from Extinguishment ofDebt*. Accordingly, gains or losses from extinguishment of debt shallnot be reported as extraordinary items unless the extinguishment qualifies asan extraordinary item under the criteria of APB No. 30. Gains or losses fromextinguishment of debt that do not meet the criteria of APB No. 30 shouldbe reclassified to income from operations in all prior periods presented. SFASNo. 145 is effective for fiscal years beginning after May 15, 2002.We did not have any debt extinguishments as of December 31, 2002.

 

In June 2001, the FASB issued Statement of FinancialAccounting Standards No. 146 “Accounting for Costs Associated with Exit orDisposal Activities” (“SFAS No.146”), which provides financial accounting andreporting guidance for costs associated with exit or disposal activities,including one-time termination benefits, contract termination costs other thanfor a capital lease, and costs to consolidate facilities or relocate employees.SFAS 146 nullifies EITF Issue 94-3, “Liability Recognition for Certain EmployeeTermination Benefits and Other Costs to Exit an Activity (including CertainCosts Incurred in a Restructuring)”. Under SFAS 146, a liability for a costassociated with an exit or disposal activity should be recognized and measuredinitially at its fair value in the period in which the liability isincurred.  SFAS 146 is effective forexit or disposal activities initiated after December 31, 2002.

 

In October 2002, the FASB issued SFAS No. 147, *Acquisitions of Certain Financial Institutions*.Statement 147 will impact future acquisitions of financial institutions andalso provides transitional guidance for companies that had accounted forprevious acquisitions in accordance with FASB Statement No. 72, *Accounting for Certain Acquisitions of Banking orThrift Institutions*, and FASB Interpretation No. 9, *Applying APB Opinions No. 16 and 17 When a Savingsand Loan Association or Similar Institution Is Acquired in a BusinessCombination Accounted for by the Purchase Method*.

 

In December 2002, the FASB issued SFAS 148,“Accounting for Stock-Based Compensation-Transition and Disclosure: Anamendment of FASB Statement 123”*.*ThisStatement amends SFAS 123, “Accounting for Stock-Based compensation”, toprovide alternative methods of transition for a voluntary change to the fairvalue based method of accounting for stock-based employee compensation.  In addition, this Statement amends thedisclosure requirements of SFAS 123 to require prominent disclosures in bothannual and interim financial statements about the method of accounting forstock-based employee compensation and the effect of the method used on reportedresults. The disclosure provisions of SFAS 148 are applicable for fiscalperiods beginning after December 15, 2002.

 

In November 2002, the FASB issued Interpretation 45, *Guarantor’s Accounting and Disclosure Requirementsfor Guarantees, Including Indirect Guarantees of Indebtedness of Others.*The Interpretation elaborates on the existing disclosure requirements for mostguarantees, including loan guarantees such as standby letters of credit. Italso clarifies that at the time a company issues a guarantee, the company mustrecognize an initial liability for the fair value, or market value, of theobligations it assumes under the guarantee and must disclose that informationin its interim and annual financial statements. The provisions related torecognizing a liability at inception of the guarantee for the fair value of theguarantor’s obligations does not apply to product warranties or to guaranteesaccounted for as derivatives. The initial recognition and initial measurementprovisions apply on a prospective basis to guarantees issued or modified afterDecember 31, 2002. The Company’s disclosure of guarantees is included in Note 9of the Notes to Financial Statements. The Company believes that adoption of therecognition and measurement provisions of Interpretation 45 will not have amaterial impact on its financial statements.

 

In January 2003, the FASB issued Interpretation 46, *Consolidation of Variable Interest Entities.*Ingeneral, a variable interest entity is a corporation, partnership, trust, orany other legal structure used for business purposes that either (a) do nothave equity investors with voting rights or (b) have equity investors that donot provide sufficient financial resources for the entity to support itsactivities. Interpretation 46 requires a 

 

11

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variable interest entity to be consolidated by a company if thatcompany is subject to a majority of the risk of loss from the variable interestentity’s activities or entitled to receive a majority of the entity’s residualreturns or both. The consolidation requirements of Interpretation 46 applyimmediately to variable interest entities created after January 31, 2003. Theconsolidation requirements apply to older entities in the first fiscal year orinterim period beginning after June 15, 2003. Certain of the disclosurerequirements apply in all financial statements issued after January 31, 2003,regardless of when the variable interest entity was established.

 

Management believes the adoption of statements 143,144, 145, 146 and 147 will not have a material effect on the financialstatements.  The adoption of statement148 and interpretation 46 resulted in disclosure of stock options outstandingand the proforma impact on net loss and net loss per share had compensationcost for the Company’s stock-based compensation been recorded.

 

***Note 7 - Comprehensive Income***

*** ***
|                                          |   | **Three  months ended  March 31,** |     | **Six months  ended  March 31,** |   |
|-----------------------------------------------|--------|------------------------------------|----------|----------------------------------|--------|
|                                          |   | **2003**                           |     | **2002**                         |   | **2003** |   | **2002** |   |
|                                          |   |                               |     |                             |   |   |   |   |   |
| Net loss                                      |   | $                                  | (378,000 | )                                | $      | (2,077,000 | ) | $ | (440,000 | ) | $ | (3,964,000 | ) |
| Other comprehensive income (loss):            |   |                               |     |                             |   |   |   |   |   |
| Foreign currency translation gain adjustments |   | 30,000                             |     | 20,000                           |   | (18,000 | ) | 33,000 |   |
| Comprehensive loss                            |   | $                                  | (348,000 | )                                | $      | (2,057,000 | ) | $ | (458,000 | ) | $ | (3,931,000 | ) |

 

12

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**ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS**

 

This report contains forward-looking statements withinthe meaning of Section 27A of the Securities Act of 1933 and Section 21E of theSecurities Exchange Act of 1934.  Theseforward-looking statements are subject to certain risks and uncertainties thatcould cause actual results to differ materially from historical results oranticipated results, including those set forth under “Certain Factors That MayAffect Future Results” below and elsewhere in, or incorporated by referenceinto, this report.

 

When used in the followingdiscussion, the words “believes,” “anticipates” and similar expressions areintended to identify forward-looking statements. Such statements are subject tocertain risks and uncertainties, which could cause actual results to differ materiallyfrom those projected. Readers are cautioned not to place undue reliance onthese forward-looking statements, which speak only as of the date hereof. TheCompany undertakes no obligation to publicly release the result of anyrevisions to these forward-looking statements, which may be made to reflectevents or circumstances after the date hereof or to reflect the occurrence ofunanticipated events.

 

The following discussion shouldbe read in conjunction with the Consolidated Financial Statements and therelated notes thereto that appear elsewhere in this document.

 

**CRITICAL ACCOUNTING POLICIES ANDESTIMATES**

 

The consolidated financial statements are prepared inconformity with accounting principles generally accepted in the United Statesof America. As such, management is required to make judgments, estimates andassumptions that affect the reported amounts of assets and liabilities at thedate of the consolidated financial statements and the reported amounts ofrevenues and expenses during the reporting period. The significant accountingpolicies which are most critical to aid in fully understanding and evaluatingreported financial results include the following:

 

*Revenue Recognition*

 

The Company enters into contractual arrangements withend-users that may include licensing of the Company’s software products,product support and maintenance services, consulting services or variouscombinations thereof, including the sale of such products or servicesseparately.  The Company recognizes revenue in accordance with Statement of Position(“SOP”) 97-2 “Software Revenue Recognition” and SOP 98-9, “Modification of SOP97-2, Software Revenue Recognition, with Respect to Certain Transactions” andStaff Accounting Bulletin (“SAB”)  No.101.

 

Software license and third partyproduct revenues are recognized upon shipment of the product if no significantvendor obligations remain and collection is probable. In cases where asignificant vendor obligation exists, revenue recognition is delayed until suchobligation has been satisfied. For new software products where a historicalrecord has not yet been demonstrated that acceptance is perfunctory, theCompany defers recognition of revenue until acceptance has occurred. Annualmaintenance revenues, which consist of ongoing support and product updates, arerecognized on a straight-line basis over the term of the contract. Paymentsreceived in advance of performance of the related service for maintenancecontracts are recorded as deferred revenue. Revenues from training and consultingservices are recognized when the services are performed and adequate evidenceof providing such services is available. Contract revenues for long-termcontracts or programs requiring specialized systems are recognized using thepercentage-of-completion method of accounting, primarily based on contractlabor hours incurred to date compared with total estimated labor hours atcompletion. Provisions for anticipated contract losses are recognized at thetime they become known.

 

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Contractsare billed based on the terms of the contract. There are no retentions inbilled contract receivables. Unbilled contract receivables relate to revenuesearned but not billed at the end of the period. Billings in excess of costsincurred and related earnings are included in deferred revenue.

 

The Company considers many factors when applyingaccounting principles generally accepted in the United States of Americarelated to revenue recognition.  Thesefactors include, but are not limited to:

 

•                                          Theactual contractual terms, such as payment terms, delivery dates, and pricing ofthe various product and service elements of a contract

•                                          Availabilityof products to be delivered

•                                          Timeperiod over which services are to be performed

•                                          Creditworthinessof the customer

•                                          Thecomplexity of customizations to the Company’s software required by servicecontracts

•                                          Thesales channel through which the sale is made (direct, VAR, distributor, etc.)

•                                          Discountsgiven for each element of a contract

•                                          Anycommitments made as to installation or implementation “go live” dates

 

Each of the relevant factors is analyzed to determineits impact, individually and collectively with other factors, on the revenue tobe recognized for any particular contract with a customer.  Management is required to make judgmentsregarding the significance of each factor in applying the revenue recognitionstandards, as well as whether or not each factor complies with such standards.  Any misjudgment or error by management inits evaluation of the factors and the application of the standards, especiallywith respect to complex or new types of transactions, could have a materialadverse effect on the Company’s current and future operating results.

 

## ***Allowance forDoubtful Accounts***

 

The Company sells its productsdirectly to end-users, generally requiring a significant up-front payment andremaining terms appropriate for the creditworthiness of the customer. TheCompany also sells its products to VARs and other software distributorsgenerally under terms appropriate for the creditworthiness of the VAR ordistributor. Management believes that no significant concentrations of creditrisk existed at March 31, 2003 and September 30, 2002. Receivables fromcustomers are generally unsecured. The Company continuously monitors itscustomer account balances and actively pursues collections on past duebalances. The Company maintains an allowance for doubtful accounts which iscomprised of a general reserve based on historical collections performance plusa specific reserve for certain known customers with collections issues. Ifactual bad debts are greater than the reserves calculated based on historicaltrends and known customer issues, the Company records additional bad debtexpense which could have a material adverse effect on our business, results ofoperations and financial condition for the periods in which such additionalexpense occurs.

 

## ***CapitalizedSoftware Development Costs***

 

Software development costs incurred subsequent to thedetermination of technological feasibility and marketability of a softwareproduct are capitalized. Amortization of capitalized software development costscommences when the products are available for general release. Amortization isdetermined on a product by product basis using the greater of a ratio ofcurrent product revenues to projected current and future product revenues or anamount calculated using the straight-line method over the estimated economiclife of the product, which is generally three to five years. In addition toin-house software development costs, the Company purchases certain softwarefrom third-party software providers and capitalizes such costs in softwaredevelopment costs. The Company continually evaluates the recoverability based onthe present value of future cash flows of its capitalized software developmentcosts and considers any events or changes in circumstances that would indicatethat the carrying amount of an asset may not be recoverable. Any materialchanges in circumstances, such as a large decrease in revenues or thediscontinuation of a particular product line could 

 

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require future write-downs in the Company’s capitalized softwaredevelopment costs and could have a material adverse impact on our operatingresults for the periods in which such write-downs occur.

 

**RESULTS OF OPERATIONS**

*** ***

***Comparison ofResults for the Three Months Ended March 31, 2003 to the Three Months EndedMarch 31, 2002***

 

*Revenues*

 

Revenues increased 248,000 (16%) from 1,567,000 forthe three months ended March 31, 2002 to $1,815,000 for the three months endedMarch 31, 2003.

 

For the three months ended March 31, 2003 revenuesconsisted of $367,000 (20%) in software licenses and $1,448,000 (80%) relatedto services and other revenue. This compares to software license revenues of$329,000 (21%) and services and other revenue of $1,238,000 (79%) for the threemonths ended March 31, 2002.

 

Software license revenues increased $38,000 for thethree month period ended March 31, 2003 over the three months ended March 31,2002.  The increase is due to highersales of the eB product as a result of customers expanding their existingsoftware systems and software orders from new customers.  Prior years sales were lower as a result ofthe recent economic slowdown in the United States of America.

 

 Revenuesgenerated from services increased $210,000 for the three monththree monthperiod ended March 31, 2003 over the three monththree month period ended March31, 2002.  The increase is due to salesto several new customers which require more services that typically include adesign study, integration with other business systems, and training.

 

*Cost of Revenues*

 

Gross profit consists of gross profit from licensesand gross profit from services and other revenues. Gross profit as a percentageof revenue was 66% for the three month period ended March 31, 2003 compared toa gross profit percentage of 22% for the three monththree month period endedMarch 31, 2002. The increase in gross profit percentage was due to a reductionin the cost of sales in both license and service sales and software impairmentwrite downs recorded in the fourth quarter of fiscal 2002.

 

Cost of license revenues consists of costs associatedwith reselling third-party software products and amortization of internalsoftware development costs. The total overall costs of license revenuesdecreased $224,000 due to a decrease in third party software costs of $84,000and in amortization of $140,000 as a result of the write-down in 2002 ofcapitalized costs associated with certain older software products.  The decrease in costs resulted in animprovement in gross profit percentage of license revenues to 66% for thethree-month period ended March 31, 2003 as compared to (6%) for the same periodended March 31, 2002.

 

Cost of services and other revenues consists primarilyof personnel-related costs in providing consulting services, training tocustomers and support. It also includes costs associated with reselling third-partyhardware and maintenance.  The totaloverall costs of services and other revenues decreased $379,000.  Gross profit from services and other revenueas a percentage of services and other revenue improved to 65% for the threemonth period ended March 31, 2003 compared to 29% for the three month periodended March 31, 2002. The decrease in cost of services and other revenue andresultant improvement in the gross profit percentage from services and otherrevenue was due to the savings effect of personnel reductions carried out inMarch 2002 totaling $289,000 and other reductions in costs of $5,000 primarilyto other third party costs including maintenance, consultants and travel.

 

The Company’s software and services are sold at asignificantly higher margin than third party products which are resold at alower gross profit percentage in order for the Company to remain competitive inthe 

 

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marketplace for such third party products.  Gross profit percentages can fluctuate quarterly based on therevenue mix of Company software, services and third party software or hardware.

 

*Operating Expenses*

 

Research and development expense for the three-monthperiod ended March 31, 2003 was $414,000 as compared to $569,000 for the threemonth period ended March 31, 2002. The decrease in research and development forthe three month period ended March 31, 2003 was primarily due to decreases inpersonnel and associated costs of approximately $155,000 as a result of a reductionin personnel in March 2002.  Thereductions were implemented with a view to retaining the Company’s coretechnological competencies and maintaining its abilities to continue to enhanceits eB product suite.

 

Marketing and sales expense for the three month periodended March 31, 2003 was $657,000 as compared to $1,087,000 for the three monthperiod ended March 31, 2002. The decrease was primarily due to the reduction inmarketing and sales personnel and associated costs of $314,000 as a result of areduction in personnel in March 2002. The remaining decrease was due to lower consultant and other salesrelated costs. Management believes that the reduced sales and marketingexpenditures are more in line with current revenues.

 

General and administrative expense was $363,000 forthe three month period ended March 31, 2003 as compared to $677,000 for thethree month period ended March 31, 2002. The decrease was primarily due to thereduction in general and administrative personnel and their associated costs of$272,000 as a result of a reduction in personnel in March 2002.

 

Interest and other expense was $134,000 for the threemonth period ended March 31, 2003 as compared to $85,000 for the three monthperiod ended March 31, 2002.  Theincrease was due to additional interest expense on the Company’s higher debtbalances during 2003 as compared to 2002.

 

***Comparison ofResults for the Six Months Ended March 31, 2003 to the Six Months Ended March31, 2002***

*Revenues*

 

Revenues increased $819,000 (25%) from $3,285,000 forthe six month period ended March 31, 2002 to $4,104,000 for the six monthperiod ended March 31, 2003.

 

For the six months ended March 31, 2003 revenuesconsisted of $1,288,000 (31%) in software licenses and $2,816,000 (69%) relatedto services and other revenue. This compares to software license revenues of$647,000 (20%) and services and other revenue of $2,638,000 (80%) for the sixmonth period ended March 31, 2002.

 

Software license revenues increased $641,000 for thesix month period ended March 31, 2003 compared to the six month period endedMarch 31, 2002. The increase is due to higher sales of the eB product as aresult of customers expanding their existing software systems and softwareorders from new customers.  Prior yearssales were lower as a result of the recent economic slowdown in the UnitedStates of America.

 

Revenues generated from services increased $178,000for the six-month period ended March 31, 2003 over the six-month period endedMarch 31, 2002. The increase is due to sales to several new customers whichrequire more services that typically include a design study, integration withother business systems and training.

 

A small number of customers have typically accountedfor a large percentage of the Company’s annual revenue. One customer accountedfor 24% of total revenue for the six months ended March 31, 2003 as compared toone customer that accounted for 17% of total revenue for the six-month periodended March 31, 2002.  One consequenceof this concentration in customers has been that revenue can fluctuatesignificantly on 

 

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a quarterly basis.  TheCompany’s reliance on relatively few customers could have a material adverseeffect on the results of its operations on a quarterly basis.

 

*Cost of Revenues*

 

Gross profit consists of gross profit from licensesand gross profit from services and other. Gross profit as a percentage ofrevenue was 64% for the six-month period ended March 31, 2003 compared to agross profit percentages of 25% for the six-month period ended March 31, 2002.The increase in gross profit percentage was due to the increase in softwarelicense revenue, which has a higher gross profit margin and a reduction in thecost of sales in both license and service sales and software impairmentwrite-downs recorded in the fourth quarter of fiscal 2002.

 

Cost of license revenues consists of costs associatedwith reselling third-party software products and amortization of internalsoftware development costs. The total overall costs of license revenuesdecreased $209,000 due to a decrease in amortization of $274,000 as a result ofthe write-down in 2002 of capitalized costs associated with certain oldersoftware products.  The decrease waspartially offset by an increase in third-party software costs during theCompany’s first quarter of fiscal 2003. The overall decrease in cost of licenserevenues resulted in an improvement in gross profit percentage of licenserevenues to 69% for the six month period ended March 31, 2003 as compared to 6%for the same period ended March 31, 2002.

 

Cost of services and other revenues consists primarilyof personnel-related costs in providing consulting services, training tocustomers and support. It also includes costs associated with resellingthird-party hardware and maintenance. The total overall costs of services and other revenues decreased$768,000.  Gross profit from servicesand other revenue as a percentage of services and other revenue improved to 61%for the six month period ended March 31, 2003 compared to 29% for the six monthperiod ended March 31, 2002. The decrease in cost of services and other revenueand the improvement in the gross profit percentage from services and otherrevenue was due to the savings effect of personnel reductions in March 2002totaling $486,000 and other costs of $282,000 relating primarily to other thirdparty costs, including maintenance, consultants and travel.

 

*Operating Expenses*

 

Research and development expense for the six-monthperiod ended March 31, 2003 was $737,000 as compared to $1,193,000 for thesix-month period ended March 31, 2002. The decreases in research anddevelopment expenses for the six-month period ended March 31, 2003 wasprimarily due to the reduction of personnel and associated costs of $456,000 asa result of personnel reductions in March 2002.  The reductions were implemented with a view to retaining theCompany’s core technological competencies and maintaining its abilities tocontinue to enhance its eB product suite.

 

Marketing and sales expense for the six-month periodwas $1,283,000 as compared to $2,238,000 for the six-month period ended March31, 2002. The decrease was primarily due to the reduction of marketing andsales personnel and associated costs of $751,000 as a result of personnelreductions in March 2002 and other reductions in costs of $304,000 relatingprimarily to travel and consultants. Management believes that the reduced sales and marketing expendituresare more in line with current revenues.

 

General and administrative expense was $771,000 forthe six-month period ended March 31, 2003 as compared to $1,112,000 for thesix-month period ended March 31, 2002. The decrease was primarily due to thereduction in general and administrative personnel and their associated costs of$272,000 as a result of personnel reductions in March 2002.

 

Interest and other expense was $259,000 for thesix-month period ended March 31, 2003 as compared to $140,000 for the six-monthperiod ended March 31, 2002.  Theincrease was due to additional interest expense on the Company’s higher debtbalances during 2003 as compared to 2002.

 

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**LIQUIDITY AND CAPITAL RESOURCES**

 

At March 31, 2003, the Company’s cash and cashequivalents totaled $205,000 as compared to $87,000 at September 30, 2002, andits current ratio (current assets divided by current liabilities) was .33 to 1at March 31, 2003.

 

For the quarter ended March 31, 2003, cash provided byoperating activities totaled $147,000, as compared to cash used by operatingactivities of $2,244,000 for the same period in 2002. The reversal was due in part to increased sales and collectionscombined with the cost reductions implemented in March 2002.

 

The Company has received loans from Spescom andaffiliates in the past to meet its obligations. Accrued interest for the sixmonths ended March 31, 2003 increased the outstanding balance of these loansfrom Spescom from $4,881,000 on September 30, 2002 to $5,105,000 at March 31,2003. Such loans are secured by all of the assets of the Company. See “RelatedParty Transactions” below.

 

Although the Company in the past has received fundingfrom Spescom for working capital purposes, Spescom is not obligated to provideadditional loans.  Spescom has statedthat it intends to continue to support the Company’s operations and dependingon the merits of any situation that may arise in the future, Spescom will makeits best efforts to provide further funding if necessary. However, if Spescomis otherwise able to provide additional loans on terms acceptable to theCompany, the funding of such loans may be delayed or prevented by currencyexchange regulations of the Republic of South Africa, under which Spescom isrequired to apply for and obtain the approval of the South African Reserve Bankbefore providing any funds to the Company. Moreover, the terms on which anyadditional funding may be provided are not specified and may include interestrates, security arrangements or additional equity dilution that are not acceptableto the Company or that could be materially adverse to the Company.

 

In March 2002, the Company implemented a plan to focuson core activities and to substantially reduce costs in an effort to achieve abreak-even level of cash flow in fiscal 2003. For the three month period ended March 31, 2003 the Company had a($132,000) loss of Earnings Before Interest, Taxes, Depreciation andAmortization (EBITDA) compared to a loss of $(1,694,000) for the same period infiscal 2002 (see table below).  The improvementin EBITDA was due to the cost reductions implemented in March 2002 andincreased sales from the prior year. For the six months ended March 31, 2003 the Company generated $54,000 ofEBITDA compared to a loss of ($3,272,000) for the same period in fiscal 2002(see table below).  Management believesthat the cost reductions implemented in March 2002 have proven effective andwill continue to enable the Company to achieve a cash flow break-even fromon-going operations based on the projected level of revenues.

 
|                             |   | **For the  three months  ended March 31,** |     | **For the  six months  ended March 31,** |   |
|----------------------------------|--------|--------------------------------------------|----------|------------------------------------------|--------|
| **Calculation of EBITDA**        |   | **2003**                                   |     | **2002**                                 |   | **2003** |   | **2002** |   |
| Net Loss                         |   | $                                          | (378,000 | )                                        | $      | (2,077,000 | ) | $ | (440,000 | ) | $ | (3,964,000 | ) |
| Add back the  following:         |   |                                       |     |                                     |   |   |   |   |   |
| Interest and other,  net         |   | 134,000                                    |     | 87,000                                   |   | 259,000 |   | 135,000 |   |
| Depreciation and  amortization   |   | 112,000                                    |     | 296,000                                  |   | 235,000 |   | 547,000 |   |
|                             |   |                                       |     |                                     |   |   |   |   |   |
| EBITDA                           |   | $                                          | (132,000 | )                                        | $      | (1,694,000 | ) | $ | 54,000 |   | $ | (3,282,000 | ) |
|                             |   |                                       |     |                                     |   |   |   |   |   |
| EBITDA per  common share         |   | $                                          | (0.00    | )                                        | $      | (0.05 | ) | $ | 0.00 |   | $ | (0.11 | ) |
|                             |   |                                       |     |                                     |   |   |   |   |   |
| Shares used in  computing EBITDA |   | 30,847,000                                 |     | 30,842,000                               |   | 30,844,000 |   | 30,842,000 |   |

 

18

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Although the personnel reductions in March 2002reduced the Company’s research and development, marketing and salescapabilities, management believes that the reduced levels of research anddevelopment, marketing and sales costs are consistent with the level ofrevenues currently being achieved. Moreover, the Company believes suchreductions were implemented with a view to maximizing the Company’s ability tocontinue to maintain and support its eB product suite, while at the same timepursuing opportunities for sales of new eB core systems to new customers. The Company’s future liquidity depends on itsability to generate new system sales of its eB product suite in the near term,which cannot be assured. Failure to generate sufficient system sales to meetthe Company’s cash flow needs can be expected to have a material adverse effecton the Company’s business, results of operations, and financial condition.  The Company’s financial position can be afactor in attracting new customers.  Inan effort to strengthen the Company’s financial condition and provide capitalfor expanding marketing and sales capabilities, the Company is seekingadditional equity or debt financing from third parties.  There can be no assurance that additionalfinancing will be available or that the terms of such financing will beacceptable to the Company.  Based on themomentum created from the increase in customer orders in the fourth quarter offiscal 2002 and orders to date in fiscal 2003, the Company believes that itscurrent cash and receivables, as well as additional cash that may be generatedfrom operations, will be sufficient to meet its short-term needs for workingcapital. However, the Company may not be able to obtain sufficientorders to enable the Company to continue on a cash flow break-even level, whichwould be necessary to continue operations in the absence of further financing.

 

**Net Operating Loss Tax Carryforwards**

 

The Company has recorded avaluation allowance amounting to the entire net deferred tax asset balance dueto its lack of a history of earnings, possible limitations on the use of netoperating loss (NOL) carryforwards, and the expiration of certain of the netoperating loss carryforwards which gives rise to uncertainty as to whether thenet deferred tax asset is realizable.

 

The Company has net operatingloss carryforwards of $32,961,000 and $7,271,000 for federal and state taxpurposes, respectively, which expire over the years 2003 through 2021.   Effective September 11, 2002, pursuant toCalifornia revenue and tax code section 24416.3, no net operating lossdeduction would be allowed for any taxable year beginning on or after January1, 2002, and before January 1, 2004. For any suspended losses, the carryover period would be extended by oneyear for losses incurred in tax year beginning on or after January 1, 2002, andbefore January 1, 2003; and by two years for losses incurred in taxable yearsbeginning before January 1, 2002.  TheCompany has investment and research activity credit carryforwards aggregating$640,000, which will substantially expire in the years 2002 through 2006.

 

As a result of the Spescomacquisition, an additional ownership change occurred in April 2000. TheCompany’s ability to utilize the consolidated NOL in future years will belimited pursuant to Internal Revenue Code Section 382. The annual limitation isapproximately $1,159,000.

 

**CERTAIN FACTORS THAT MAY AFFECTFUTURE RESULTS**

 

*Foreign Currency*

 

The Company’s geographic markets are primarily in theUnited States and Europe, with sales in other parts of the world.  In the six months ended March 31, 2003, revenuefrom the United States, Europe and other locations in the world were 52%, 45%and 3%, respectively.  This compares to52%, 43% and 5%, respectively for the same period in 2002.  The European currencies have been relativelystable against the U.S. dollar for the past several years.  As a result, foreign currency fluctuationshave not had a significant impact on the Company’s revenues or results ofoperations.  Changes in foreign currencyrates, the condition of local economies, and the general volatility of softwaremarkets may result in higher or lower proportion of foreign revenues in thefuture.  Although the Company’soperating and pricing strategies take into account changes in 

 

19

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exchange rates over time, there can be no assurance that futurefluctuations in the value of foreign currencies will not have a materialadverse effect on the Company’s business, operating results and financialcondition.

 

*Inflation*

 

The Company believes that inflation has not had amaterial effect on its operations to date. Although the Company enters into fixed-price contracts, management doesnot believe that inflation will have a material impact on its operations forthe foreseeable future, as the Company takes into account expected inflation inits contract proposals and is generally able to project its costs based onforecasted contract requirements.

 

**RELATED PARTY TRANSACTIONS**

 

Under a royalty arrangement, Spescom resells certainof the Company’s software.  For the three and six month periods ended March31, 2003, the Company recognized royalty revenue of $5,000 and $10,000 comparedto $2,000 and $14,000 for the three and six month periods ended March 31, 2002,arising from this arrangement.  Spescom, through its wholly-owned subsidiary,Spescom Ltd. U.K., provides certain administrative and accounting functions forthe Company’s United Kingdom operations. The Company is billed a monthly fee by Spescom for reimbursement of certaincosts in the United Kingdom, including the office facilities (including rentalexpense as described below); all accounting and human resources services; andcertain corporate marketing activities. For the three and six month periods ended March 31, 2003, theadministrative fees totaled $154,000 and $305,000 compared to $137,000and $276,000 for the three and six month periods ended March 31, 2002.  At March 31, 2003, the Company had a payableto Spescom of $499,000 as compared to $495,000, at September 30, 2002.  In the United States, for the three and sixmonth periods ended March 31, 2003, the Company billed Spescom for certainmarketing services totaling $13,000 and $27,000 compared to $13,000 and $26,000for the three and six months ended March 31, 2002.

 

In 1999, as part of an agreementwith Spescom, the lease for the United Kingdom office facility was to beassigned to Spescom; however, the landlord did not grant its consent to theassignment.  Since 1999 Spescom has paidthe rent under the lease for the entire office directly to the landlord and theCompany reimburses Spescom for the entire payment.  The lease expires in March 2006 and has an annual rent of$530,000.  A portion of the office hasbeen subleased to a third party tenant for an annual rent of $179,000.  The sublease also expires March 2006;however, the tenant has an option to terminate the lease in February 2004.  For the three and six month periods endedMarch 31, 2003 the Company paid Spescom rent of $69,000 and $136,000 comparedto $66,000 and $133,000 for the three and six month periods ended March 31,2002, as part of the monthly administration fee.

 

Related party liabilities consist of the following: 

 
|                                                               |   | **March 31,  2003** |      | **September 30,  2002** |   |
|--------------------------------------------------------------------|--------|---------------------|-----------|-------------------------|--------|
| Long-term Note  Including Accrued Interest Payable to Shareholder: |   |                |      |                    |   |
|                                                               |   |                |      |                    |   |
| Notes payable on  demand—Spescom Ltd., U.K.                   |   | $                   | 1,752,000 |                    | $      | 1,669,000 |   |
| Note payable  —Spescom Ltd., U.K.                             |   | 2,080,000           |      | 1,980,000               |   |
| Note payable  —Spescom                                        |   | 1,273,000           |      | 1,232,000               |   |
|                                                               |   |                |      |                    |   |
|                                                               |   | $                   | 5,105,000 |                    | $      | 4,881,000 |   |

 

At March 31, 2003, the Company had three demand notespayable to Spescom Ltd, U.K. for $400,000, $500,000 and $700,000, respectively,each bearing an annual interest rate of 10%. As of March 31, 2003, the balance owed on the notes was $1,752,000 includingaccrued interest.  Interest expense,accrued but unpaid on the notes for the three and six-month periods ended March31, 2003 was $42,000 and $84,000 compared to $1,000 and $1,000 for the threeand six month periods ended March 31, 2002. Spescom has agreed that the demand notes will not be called prior toApril 1, 2004.

 

20

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At March 31, 2003, pursuant to a promissory note, theCompany owed Spescom Ltd. U.K. $2,080,000, including accrued interest.  The note bears interest at an interest rateof 10.0% per annum, with principal and interest payable at maturity, on October15, 2003.  Spescom extended the maturitydate on this note to April 1, 2004. Interest expense, accrued but unpaid on this note for the three andsix-month periods ended March 31, 2003 was $51,000 and $101,000 compared to$46,000 and $92,000 for the three and six month periods ended March 31, 2002.

 

As of March 31, 2003, the Company had a note payableto Spescom for $1,273,000 including accrued interest.  Interest on the outstanding note accrues at the rate of 10% perannum.  Principal and all unpaid accruedinterest is payable at maturity on October 15, 2003. Spescom extended thematurity date on this note to April 1, 2004. Interest expense, accrued but unpaid on this note for the three and sixmonth periods ended March 31, 2003 totaled $31,000 and $60,000 compared to$28,000 and $60,000 for the three and six-month periods ended March 31, 2002.

 

These notes payable are collateralized by a securityinterest in favor of both Spescom and Spescom Ltd., U.K. in respect of all ofthe Company’s assets.

 

21

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**ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

***Market Rate Risk***

 

TheCompany’s exposure to market rate risk for changes in interest rates relatesprimarily to the Company’s investment portfolio. The Company does not usederivative financial instruments in its investment portfolio. The Companyplaces its investment with high quality issuers and follows internally developedguidelines to limit the amount of credit exposure to any one issuer.Additionally, in an attempt to limit interest rate risk, the Company followsguidelines to limit the average and longest single maturity dates. The Companyis adverse to principal loss and ensures the safety and preservation of itsinvested funds by limiting default, market and reinvestment risk. The Company’sinvestments include money market accounts, as of March 31, 2003.

 

**ITEM 4.  CONTROLS ANDPROCEDURES**

 

Within the 90 days prior to the date of thisreport, the Company carried out an evaluation, under the supervision and withthe participation of the Company’s management, including the Company’s ChiefExecutive Officer and Chief Financial Officer, of the effectiveness of the designand operation of the Company’s disclosure controls and procedures pursuant toExchange Act Rule 13a-14. Based upon that evaluation, we have concludedthat the Company’s disclosure controls and procedures are effective inrecording, processing, summarizing and reporting within the time periodsspecified in the SEC’s rules and forms material information relating to theCompany (including its consolidated subsidiaries) required to be included inthe Company’s periodic SEC filings. There were no significant changes in the Company’s internal controls orin other factors that could significantly affect the Company’s internalcontrols subsequent to the evaluation date.

 

22

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**PARTII.  OTHER INFORMATION**

 

***Item 1 – Legal Proceedings***

 

The Company is involved from timeto time in litigation arising in the normal course of business. Managementbelieves that any liability with respect to such routine litigation,individually or in the aggregate, is not likely to be material to the Company’sconsolidated financial position or results of operations.

 

***Item 4 – Submissionof Matters to a Vote of Security Holders***

 

None

 

***Item 6 – Exhibitsand Reports on Form 8-K:***

 
| (a)    | Exhibits |
|--------|----------|
|   |     |
|   | 3.1*     | Registrant’s Articles of Incorporation, as amended. |
|   |     |   |
|   | 3.2*     | Registrant’s Bylaws, as amended. |
|   |     |   |
|   | 10.1 (1) | Lease between The Irvine Company and Altris  Software, Inc., dated February 25, 2001. |
|   |     |   |
|   | 10.2 (2) | 10.0% promissory note due  October 15, 2003 in principal amount of $1,235,076 issued by Altris Software,  Inc. to Spescom Limited, a South African corporation on February 15, 2002. |
|   |     |   |
|   | 10.3 (3) | 10.0% promissory note due  October 15, 2003 in principal amount of $1,810,383 issued by Altris Software,  Inc. to Spescom Limited, a United Kingdom corporation, on February 15, 2002. |
|   |     |   |
|   | 10.4 (4) | Security agreement between  Altris Software, Inc. and Spescom Limited, a United Kingdom corporation and  Spescom Limited, a South African corporation, dated February 15, 2002. |
|   |     |   |
|   | 10.5 (5) | 10% promissory note due upon  demand in principal amount of $400,000 issued by Altris Software, Inc. to  Spescom Limited, a United Kingdom corporation, on March 15, 2002. |
|   |     |   |
|   | 10.6 (6) | Security agreement dated March  15, 2002 between Altris Software, Inc., a California corporation and Spescom  Limited, a United Kingdom corporation. |
|   |     |   |
|   | 10.7 (7) | Pledge agreement executed March  15, 2002 by and between Altris Software, Inc., a California corporation,  Spescom Limited, a United Kingdom corporation, and Solomon Ward Seidenwurm  & Smith, LLP. |
|   |     |   |
|   | 10.8 (8) | 10.0% promissory note due upon  demand in principal amount of $500,000 issued by Altris Software, Inc. to Spescom Limited, a United Kingdom  corporation, on April 19, 2002. |
|   |     |   |
|   | 10.9 (9) | 10.0% promissory note due upon  demand in principal amount of $700,000 issued by Altris Software, Inc. to  Spescom Limited, a United Kingdom corporation, on May 31, 2002. |
|   |     |   |
|   | (b)      | Reports on Form 8-K. |
|   |     |   |
|   | 99.1     | Certification pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. |

 

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|   | 99.2   | Certification pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                     |
|   |   | No Reports on Form 8-K have been filed during the  quarterly period covered by this report.                              |

 

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|   | (1)    | Incorporated by reference to Exhibit 10.27 to the  Form 10-K filed on November 23, 2001.                  |
|--------|--------|-----------------------------------------------------------------------------------------------------------|
|   | (2)    | Incorporated by reference to Exhibit 10.28 to the  Form 10-Q filed on May 15, 2002.                       |
|   | (3)    | Incorporated by reference to Exhibit 10.29 to the  Form 10-Q filed on May 15, 2002.                       |
|   | (4)    | Incorporated by reference to Exhibit 10.30 to the  Form 10-Q filed on May 15, 2002.                       |
|   | (5)    | Incorporated by reference to Exhibit 10.31 to the  Form 10-Q filed on May 15, 2002.                       |
|   | (6)    | Incorporated by reference to Exhibit 10.32 to the  Form 10-Q filed on May 15, 2002.                       |
|   | (7)    | Incorporated by reference to Exhibit 10.33 to the  Form 10-Q filed on May 15, 2002.                       |
|   | (8)    | Incorporated by reference to Exhibit 10.34 to the  Form 10-Q filed on August 14, 2002.                    |
|   | (9)    | Incorporated by reference to Exhibit 10.35 to the  Form 10-Q filed on August 14, 2002.                    |
|   |   |                                                                                                      |
|   | *      | Incorporated herein by this  reference from previous filings with the Securities and Exchange Commission. |

 

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**SIGNATURES**

 

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 theundersigned thereunto duly authorized.

 
| **Signature**    |   | **Title**                                        |   | **Date**     |
|------------------|--------|--------------------------------------------------|--------|--------------|
|             |   |                                             |   |         |
| /s/ Carl Mostert |   | Director and Chief Executive Officer (Principal  |   | May 15, 2003 |
| Carl Mostert     |   | Executive Officer)                               |   |         |
|             |   |                                             |   |         |
|             |   |                                             |   |         |
| /s/ John W. Low  |   | Chief Financial Officer and Secretary (Principal |   | May 15, 2003 |
| John W. Low      |   | Financial and Accounting Officer)                |   |         |

 

25

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CERTIFICATIONS

 

I, Carl Mostert, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of AltrisSoftware, Inc.;

 

2. Based on my knowledge, this quarterly report does not contain anyuntrue statement of a material fact or omit to state a material fact necessaryto make the statements made, in light of the circumstances under which suchstatements were made, not misleading with respect to the period covered by thisquarterly report;

 

3. Based on my knowledge, the financial statements, and other financialinformation included in this quarterly report, fairly present in all materialrespects the financial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this quarterly report;

 

4. The registrant’s other certifying officers and I are responsible forestablishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

 

a) designed such disclosure controls and procedures to ensure thatmaterial information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularlyduring the period in which this quarterly report is being prepared;

 

b) evaluated the effectiveness of the registrant’s disclosure controlsand procedures as of a date within 90 days prior to the filing date of thisquarterly report (the “Evaluation Date”); and

 

c) presented in this quarterly report our conclusions about theeffectiveness of the disclosure controls and procedures based on our evaluationas of the Evaluation Date;

 

5. The registrant’s other certifying officers and I have disclosed,based on our most recent evaluation, to the registrant’s auditors and the auditcommittee of registrant’s board of directors (or persons performing theequivalent function):

 

a) all significant deficiencies in the design or operation of internalcontrols which could adversely affect the registrant’s ability to record,process, summarize and report financial data and have identified for theregistrant’s auditors any material weaknesses in internal controls; and

 

b) any fraud, whether or not material, that involves management orother employees who have a significant role in the registrant’s internalcontrols; and

 

6. The registrant’s other certifying officers and I have indicated inthis quarterly report whether or not there were significant changes in internalcontrols or in other factors that could significantly affect internal controlssubsequent to the date of our most recent evaluation, including any correctiveactions with regard to significant deficiencies and material weaknesses.

 

 
| Dated:  May 15, 2003 |
|---------------------------|
|                      |
| /s/ Carl Mostert          |   |
| Carl Mostert              |
| Chief Executive Officer   |

 

26

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I, John Low, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of AltrisSoftware, Inc.;

 

2. Based on my knowledge, this quarterly report does not contain anyuntrue statement of a material fact or omit to state a material fact necessaryto make the statements made, in light of the circumstances under which suchstatements were made, not misleading with respect to the period covered by thisquarterly report;

 

3. Based on my knowledge, the financial statements, and other financialinformation included in this quarterly report, fairly present in all materialrespects the financial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this quarterly report;

 

4. The registrant’s other certifying officers and I are responsible forestablishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

 

a) designed such disclosure controls and procedures to ensure thatmaterial information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularlyduring the period in which this quarterly report is being prepared;

 

b) evaluated the effectiveness of the registrant’s disclosure controlsand procedures as of a date within 90 days prior to the filing date of thisquarterly report (the “Evaluation Date”); and

 

c) presented in this quarterly report our conclusions about theeffectiveness of the disclosure controls and procedures based on our evaluationas of the Evaluation Date;

 

5. The registrant’s other certifying officers and I have disclosed,based on our most recent evaluation, to the registrant’s auditors and the auditcommittee of registrant’s board of directors (or persons performing theequivalent function):

 

a) all significant deficiencies in the design or operation of internalcontrols which could adversely affect the registrant’s ability to record,process, summarize and report financial data and have identified for theregistrant’s auditors any material weaknesses in internal controls; and

 

b) any fraud, whether or not material, that involves management orother employees who have a significant role in the registrant’s internalcontrols; and

 

6. The registrant’s other certifying officers and I have indicated inthis quarterly report whether or not there were significant changes in internalcontrols or in other factors that could significantly affect internal controlssubsequent to the date of our most recent evaluation, including any correctiveactions with regard to significant deficiencies and material weaknesses.

 

 
| Dated:  May 15, 2003 |
|---------------------------|
|                      |
|  /s/ John Low        |   |
| John Low                  |
| Chief Financial Officer   |

 

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