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

---

**FORM 10-Q**

---

(Mark One)

**[X]       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934**

**For the Quarterly Period Ended September 30, 2001**

**OR**

**[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934**

**For the transition period from ________to _________**

**Commission file number 0-22292**

**ACTIONPOINT, INC.**
(Exact name of Registrant as specified in its Charter)



|**Delaware**                                                   | **77-0104275**                         
|-------------------------------------------------------------- | ---------------------------------------
|(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number)

**1299 Parkmoor AvenueSan Jose, California    95126**(Address of Principal Executive Offices including Zip Code)

**(408) 325-3800**(Registrant's Telephone Number, Including Area Code)

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







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

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as
of September 30, 2001: 4,324,919







**ACTIONPOINT, INC.
      QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2001
                                Index**



|**PART I.   FINANCIAL INFORMATION**                                                                                                                            | **Page No.**
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------
|                                                                                                                                                               |             
|Item 1.   Financial Statements                                                                                                                                 |             
|                                                                                                                                                               |             
|Condensed Consolidated Balance Sheets at September 30, 2001 and
     December 31, 2000                                                                         | **          
|                                                                                                                                                               |             
|Condensed Consolidated Statements of Operations and Comprehensive Income
          
    for the three and nine month periods ended September 30, 2001 and 2000 | **          
|                                                                                                                                                               |             
|Condensed Consolidated Statements of Cash Flows for the
          
    nine month periods ended September 30, 2001 and 2000                                    | **          
|                                                                                                                                                               |             
|Notes to the Condensed 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                                                                                           | **          
|                                                                                                                                                               |             
|**PART II.  OTHER INFORMATION**                                                                                                                                |             
|                                                                                                                                                               |             
|Item 1.   Legal Proceedings                                                                                                                                    | **          
|                                                                                                                                                               |             
|Item 2.   Changes in Securities                                                                                                                                | **          
|                                                                                                                                                               |             
|Item 3.   Defaults Upon Senior Securities                                                                                                                      | **          
|                                                                                                                                                               |             
|Item 4.   Submission of Matters to a Vote of Securities Holders                                                                                                | **          
|                                                                                                                                                               |             
|Item 5.   Other Information                                                                                                                                    | **          
|                                                                                                                                                               |             
|Item 6.   Exhibits and Reports on Form 8-K                                                                                                                     | **          
|                                                                                                                                                               |             
|**Signature Page**                                                                                                                                             | **          

---

**PART I -- FINANCIAL INFORMATION**

Item 1. Financial Statements

---

**ACTIONPOINT, INC.

                       CONDENSED CONSOLIDATED BALANCE SHEETS**
(In thousands)

`September 30,  December 31,
                       ASSETS                          2001           2000
                                                   ------------   -----------
                                                   (Unaudited)
Current assets:
  Cash and cash equivalents ....................        $8,854        $2,242
  Accounts receivable, net......................         2,998         7,912
  Deferred income taxes.........................          --             375
  Other current assets..........................           766         1,510
                                                   ------------   -----------
    Total current assets........................        12,618        12,039

Property and equipment, net.....................           974         1,585

Deferred income taxes...........................          --           4,037
Other assets....................................           515           140
                                                   ------------   -----------
                                                       $14,107       $17,801
                                                   ============   ===========

       LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable..............................          $455          $414
  Deferred revenue..............................         2,747         3,202
  Accrued liabilities...........................         2,372         3,463
                                                   ------------   -----------
    Total current liabilities...................         5,574         7,079

Long term deferred revenue......................           752           800
                                                   ------------   -----------
Total liabilities                                        6,326         7,879
                                                   ------------   -----------
Stockholders' equity:
  Common stock..................................            43            43
  Paid in capital...............................        10,062         9,981
  Accumulated deficit...........................        (2,324)         (102)
                                                   ------------   -----------
    Stockholders' equity........................         7,781         9,922
                                                   ------------   -----------
                                                       $14,107       $17,801
                                                   ============   ===========`

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

---

**ACTIONPOINT, INC.

   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

                              (UNAUDITED)**
(In thousands, except per share amounts)

`Three Months Ended     Nine Months Ended
                                             September 30,         September 30,
                                          -------------------   -------------------
                                             2001      2000         2001      2000
                                          --------- ---------   --------- ---------
Net revenues:
  License............................       $3,039    $4,509     $11,185   $12,742
  Service............................        1,655     1,458       4,967     3,864
                                          --------- ---------   --------- ---------
Total revenues.......................        4,694     5,967      16,152    16,606

Cost of revenues:
  License............................          204       189         590       355
  Service (inclusive of stock
    related bonus expense of
    $138 in Q1 2000).................          690     1,055       2,256     2,825
                                          --------- ---------   --------- ---------
Cost of revenues.....................          894     1,244       2,846     3,180
                                          --------- ---------   --------- ---------
Gross profit                                 3,800     4,723      13,306    13,426
                                          --------- ---------   --------- ---------
Research and development
  (inclusive of stock related
  bonus expense of $710 in Q1 2000...        1,289     1,854       4,422     6,132
Sales and marketing
  (inclusive of stock related
  bonus expense of $638 in Q1 2000...        2,751     3,918       9,185    11,990
General and administrative
  (inclusive of stock related
  bonus expense of $1,090 in Q1 2000.          825       876       2,570     3,754
                                          --------- ---------   --------- ---------
Operating loss.......................       (1,065)   (1,925)     (2,871)   (8,450)
Interest and other income (expense)..           77       (58)        214        87
Gain (loss) on sale of Dialog Server
  product line.......................         (409)        --      4,612         --
Write-off of minority equity
  investment.........................            --        --          --     (500)
                                          --------- ---------   --------- ---------
Income (loss) before provision
   for income taxes..................       (1,397)   (1,983)      1,955    (8,863)
Provision (benefit) for income taxes.           74        (9)      4,177         --
                                          --------- ---------   --------- ---------
Net loss.............................      ($1,471)  ($1,974)    ($2,222)  ($8,863)

Other comprehensive income:
   Reclassification adjustment for gain
   on securities included in net loss.        (157)        --          --        --
                                          --------- ---------   --------- ---------
Comprehensive loss                         ($1,628)  ($1,974)    ($2,222)  ($8,863)
                                          ========= =========   ========= =========

Basic and diluted EPS:
 Net loss............................       ($0.34)   ($0.47)     ($0.52)   ($2.12)
                                          ========= =========   ========= =========

Shares used in basic and diluted
   EPS Calculations..................        4,325     4,225       4,292     4,179
                                          ========= =========   ========= =========`

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

---

**ACTIONPOINT, INC.

            CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**
(UNAUDITED - IN THOUSANDS)

`Nine Months Ended
                                                               September 30
                                                          -------------------
                                                            2001      2000
                                                          --------- ---------

Cash flows from operating activities:
 Net loss...............................................   ($2,222)  ($8,863)
 Adjustments to reconcile net loss to net cash
   provided by (used in) operating activities:
   Depreciation and amortization........................       672       605
   Stock compensation charge............................        --        81
   Write-off of minority equity investment..............        --       500
   Shares issued for stock related bonus................        --       346
   Net gain on sale of Dialog Server product line.......    (2,278)       --
   Increase in valuation allowance on deferred
     income taxes.......................................     1,664        --
 Change in assets and liabilities:
    Accounts receivable.................................     4,914       749
    Other current and noncurrent assets.................       764      (461)
    Accounts payable....................................        41        89
    Deferred revenue....................................      (447)      611
    Accrued liabilities.................................    (1,601)      125
                                                          --------- ---------
    Net cash provided by (used in) operating activities.     1,507    (6,218)
                                                          --------- ---------
Cash flows from investing activities:
 Property and equipment additions.......................      (162)     (887)
 Proceeds from sale of Dialog Server product line.......       887        --
 Sales of marketable securities.........................     4,299        --
                                                          --------- ---------
    Net cash provided by (used in) investing activities.     5,024      (887)
                                                          --------- ---------
Cash flows from financing activities:
 Net proceeds from issuance of common stock.............        81       793
                                                          --------- ---------
    Net cash provided by financing activities...........        81       793
                                                          --------- ---------
Net increase (decrease) in cash and cash equivalents....     6,612    (6,312)

Cash and cash equivalents at beginning of period........     2,242     9,193
                                                          --------- ---------
Cash and cash equivalents at end of period..............    $8,854    $2,881
                                                          ========= =========`

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

---

ACTIONPOINT,  INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



1.	BASIS OF PREPARATION:

Interim Unaudited Financial Information:

The accompanying interim unaudited consolidated condensed
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and pursuant to the
rules and regulations of the Securities and Exchange Commission.  The December
31, 2000 balance sheet data was derived from audited financial statements
contained in the Company's 2000 Annual Report on Form 10-K but does not include
all disclosures required by accounting principles generally accepted in the
United States of America. The unaudited financial statements for the three and
nine month periods ended September 30, 2001 and 2000 include, in the opinion of
management, all adjustments, consisting of normal recurring adjustments,
necessary to present fairly the financial information set forth herein.  The
results of operations for the interim periods are not necessarily indicative of
the results to be expected for an entire year and should not be relied on as
such.



2.	RECENT ACCOUNTING PRONOUNCEMENTS:



In July 2001, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 141
("SFAS 141"), "Business Combinations." SFAS 141 requires the
purchase method of accounting for business combinations initiated after June 30,
2001 and eliminates the pooling-of-interests method.



In July 2001, the FASB issued Statement of Financial
Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other
Intangible Assets", which is effective for fiscal years beginning after
March 15, 2001. SFAS 142 requires, among other things, the discontinuance of
goodwill amortization. In addition, the standard includes provisions upon
adoption for the reclassification of certain existing recognized intangibles as
goodwill, reassessment of the useful lives of existing recognized intangibles,
reclassification of certain intangibles out of previously reported goodwill and
the testing for impairment of existing goodwill and other intangibles.
Management believes that the adoption of SFAS 142 will not have a significant
impact on the consolidated financial position or the results of operations of
the Company.



In October 2001, the FASB issued Statement of Financial
Accounting Standards No. 144 ("SFAS 144"), "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS 144 supercedes Statement of
Financial Accounting Standards 121, "Accounting for the Impairment of long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." SFAS 144 applies to all
long-lived assets, including discontinued operations, and consequently amends
Accounting Principles Board Opinion No. 30, "Reporting Results of Operations
Reporting the Effects of Disposal of a Segment of a Business". SFAS 144 develops
one accounting model for long-lived assets that are to be disposed of by sale.
SFAS 144 requires that long-lived assets that are to be disposed of by sale be
measured at the lower of book value or fair value less selling costs.
Additionally, SFAS 144 expands the scope of discontinued operations to include
all components of an entity with operations that (1) can be distinguished from
the rest of the entity and (2) will be eliminated from the ongoing operations of
the entity in a disposal transaction. The provisions of SFAS 144 are required to
be adopted during the Company's fiscal year beginning January 1, 2002. The
Company does not expect the adoption of SFAS 144 to have a significant impact on
its financial position or results of operations.



3.	LIQUIDITY:

For the first nine months of 2001, the Company incurred a net
loss of $2.2 million but generated positive cash flows from operating activities
of $1.5 million as a result of the sale of the Dialog Server product line and
other cost reduction measures.  At September 30, 2001, the Company had cash and
cash equivalents of $8.9 million.



In addition to the sale of the Dialog Server product line
management has taken other steps to reduce operating expenditures.



In the event that such measures are not sufficient to
meet the Company's obligations, the Company may need to seek additional
financing. There can be no assurance that such additional financing will be
available or will be available on terms acceptable to the Company, which, as a
result, could have a material adverse effect on the Company's business,
operating results and financial condition.



4.	SALE OF THE DIALOG SERVER PRODUCT LINE:

The Company sold its Dialog Server product line to
Chordiant Software on May 17, 2001 for $7.2 million consisting of $2 million in
cash and 1.7 million shares of Chordiant common stock and recognized a pretax
gain of $5.0 million in the second quarter of 2001. Of these proceeds, $200,000
and 164,000 shares of Chordiant common stock were put in escrow for one year
pursuant to the asset sale. Accordingly, these escrowed amounts have not been
reflected in the determination of the gain on the sale of the product line. The
Chordiant common stock was valued at $3 per share at the transaction date.



All Chordiant common stock, including shares held
in escrow, was sold in July 2001 for total proceeds of $4.736 million of which
$437,000 is still in escrow. This sale resulted in a loss of $409,000 when
compared to the value of the stock at May 17, 2001.



5.	INCOME TAXES:

The income tax provision of $4.2 million for the nine
months ended September 30, 2001 represents the taxation of the gain on the sale
of the Dialog Server product line of $2.5 million and the establishment of a
full valuation allowance of $1.7 million against the remaining net deferred tax
assets based on management's assessment of the uncertainty of realizing future
tax benefits attributable to such assets following the sale of the Dialog Server
product line.



6.	COMPUTATION OF NET LOSS PER SHARE:

The following table presents the calculation of basic and diluted net loss
per share (in thousands, except per share data):



`Three Months Ended   Nine Months Ended
                                        September 30,       September 30,
                                    ------------------- -------------------
                                       2001      2000      2001      2000
                                    --------- --------- --------- ---------

Net loss............................ ($1,471)  ($1,974)  ($2,222)  ($8,863)

Shares used in basic and diluted
 EPS calculation....................   4,325     4,225     4,292     4,179

Basic and diluted EPS...............  ($0.34)   ($0.47)   ($0.52)   ($2.12)`



For the period ended September 30, 2001 and 2000, 1,837,841
and 2,971,931 options outstanding were not included in the computation of
diluted EPS because the Company incurred a net loss.





7. STOCK OPTION EXCHANGE PROGRAM:

On August 3, 2001, the company filed a Schedule TO in
connection with its offer to exchange all outstanding options under eligible
option plans for new options. The program permitted employees to tender
outstanding stock option grants to be cancelled in exchange for replacement
option grants that will be made at least six months and a day after the
expiration of the offer with a strike price at the then current market price.
The replacement option will be exercisable for the same number of shares as the
tendered option grants.  The offer expired on August 31, 2001 and the Company
has accepted an aggregate of 1,136,429 stock options for exchange.





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





OVERVIEW:



We develop, market and service information capture software.
Information capture solutions enable organizations to collect, organize and
input paper and fax-based information into their installed computing systems,
providing a critical bridge between the paper world and the digital world. The
result is improved customer satisfaction, increased productivity and cost
control. Our customers have traditionally been large global 1000 businesses and
governmental agencies.  Our InputAccel family of information capture software
helps automate the conversion of paper and fax documents into electronic format
thus allowing improved operating efficiencies. Our customers use InputAccel to
convert transaction-related documents, such as order forms, claim forms, or loan
applications, into an appropriate electronic format and to transport images of
and information from these documents to storage on Web sites, compact disks, or
internal databases for subsequent search, retrieval or further processing.
Additionally, we market software tools under our Pixel Translations brand to
various hardware and software providers.



On August 3, 2001, the company filed a Schedule TO in
connection with its offer to exchange all outstanding options under eligible
option plans for new options. The program permitted employees to tender
outstanding stock option grants to be cancelled in exchange for replacement
option grants that will be made at least six months and a day after the
expiration of the offer with a strike price at the then current market price.
The replacement option will be exercisable for the same number of shares as the
tendered option grants.  The offer expired on August 31, 2001 and the Company
has accepted an aggregate of 1,136,429 stock options for exchange.





RESULTS OF OPERATIONS:



This Quarterly Report on Form 10-Q may contain forward-
looking statements that involve risks and uncertainties.  The Company's actual
results may differ materially from the results discussed in any such forward-
looking statements.  Factors that might cause such a difference include, but are
not limited to those discussed below in the section captioned RISK FACTORS and
in the Company's most recent Annual Report on Form 10-K.



Revenues



The Company's license revenues decreased 33% in the third
quarter of 2001 to $3.0 million from $4.5 million in the third quarter of 2000.
For the nine months ended September 30, 2001, license revenues decreased 12% to
$11.2 million from $12.7 million in the first nine months of 2000. As a percent
of revenue, licenses accounted for 65% and 76% for the third quarter of 2001 and
2000 respectively and 69% and 77% for the nine months ended September 30, 2001
and 2000, respectively. The decrease in license revenue in the third quarter is
due in part to a weak economy, which led to extended sales cycles and general
slowdowns in IT spending.



The Company's service revenues increased 14% in the
third quarter of 2001 to $1.7 million from $1.5 million in the third quarter of
2000. For the nine months ended September 30, 2001, service revenues increased
29% to $5.0 million from revenues of $3.9 million in the first nine months of
2000. As a percent of revenue, services accounted for 35% and 24% for the third
quarter of 2001 and 2000 respectively and 31% and 23% for the nine months ended
September 30, 2001 and 2000, respectively. The increase in service revenues both
in absolute and percentage terms was attributable to a larger installed base of
customers purchasing annual software maintenance.



Gross Profit



Gross profit decreased 20% for the third quarter of 2001 to
$3.8 million from $4.7 million for the third quarter of 2000. For the nine
months ended September 30, 2001, gross profit decreased 1% to $13.3 million from
gross profit of $13.4 million in the first nine months of 2000. The decrease in
gross profit for the third quarter is due primarily to the corresponding
decrease in license revenues.



Gross margin increased to 81% from 79% for the third quarter
of 2001 compared to the third quarter of 2000 and increased to 82% from 81% for
the nine months ended September 30, 2001 compared to the same period for 2000.
The increase in gross margins is attributable to improved margins for service
revenues. Additionally, there was a one-time stock related bonus expense of
$138,000 in the first quarter of 2000.





Research and Development



Research and development expenses decreased 30% in the third
quarter of 2001 to $1.3 million from $1.9 million in the third quarter of 2000
and decreased 28% for the nine months ended September 30, 2001 to $4.4 million
from $6.1 million in the first nine months of 2000. The decrease is largely
related to the sale of the Dialog Server product line in May, 2001, as
substantial development expenses were incurred for this product line in 2000.
Additionally, there was a one-time charge of stock related bonus expense of
$710,000 in the first quarter of 2000.



As a percent of revenue, research and development expenses
decreased to 27% for the third quarter of 2001, from 31% in the third quarter of
2000 and decreased to 27% from 37% for the first nine months ended September 30,
2001 and 2000, respectively.



Sales and Marketing



Sales and marketing expenses decreased 30% in the third
quarter of 2001 to $2.8 million from $3.9 million in the third quarter of 2000
and for the nine months ended September 30, 2001, decreased 23% to $9.2 million
from $12.0 million in the first nine months of 2001. The decrease is largely
related to reductions in programmatic and product marketing expenses incurred in
2000 for the launch of the recently sold Dialog Server product line.
Additionally, there was a one-time stock related bonus expense of $638,000 in
the first quarter of 2000.



As a percent of revenue,sales and marketing expenses
decreased to 59% for the third quarter of 2001, from 66% in the third quarter of
2000 and decreased to 57% from 72% for the first nine months ended September 30,
2001 and 2000, respectively.



General and administrative



General and administrative expenses decreased 6% for the
third quarter of 2001 to $825,000 from $876,000 in the third quarter of 2000 and
for the nine months ended September 30, 2001, decreased 32% to $2.6 million from
$3.8 million in the first nine months of 2000.The decrease in the nine
months period is largely due to the stock related bonus expense of $1.1 million
recorded in the first quarter of 2000.



As a percentage of revenue, general and administrative
expenses increased to 18% for the third quarter of 2001, from 15% for the third
quarter of 2000 and decreased to 16% from 23% for the first nine months ended
September 30, 2001 and 2000, respectively.



Sale of the Dialog Server product line



The Company sold its Dialog Server product line to Chordiant
Software on May 17, 2001 for $7.2 million consisting of $2 million in cash and
1.7 million shares of Chordiant common stock and recognized a pretax gain of
$5.0 million in the second quarter of 2001. Of these proceeds, $200,000 and
164,000 shares of Chordiant common stock were put in escrow for one year in
pursuant to the asset sale. Accordingly, these escrowed amounts have not been
reflected in the determination of the gain on the sale of the product line. The
Chordiant common stock was valued at $3 per share at the transaction date.



All Chordiant common stock, including shares held
in escrow, was sold in July 2001 for total proceeds of $4.736 million of which
$437,000 is still in escrow. This sale resulted in a loss of $409,000 when
compared to the value of the stock at May 17, 2001.





Minority Equity Investment



Based on its assessment of the likelihood to realize value,
the Company wrote off a $500,000 minority equity interest in the first quarter
of 2000. That minority equity investment was obtained in 1998 in conjunction
with the sale of the Company's hardware division.





Provision for Income Taxes



The income tax provision of $4.2 million recorded in the nine
months ended September 30, 2001 represents the recognition of benefits
attributable to the utilization of net operating loss carry forwards in
connection with the gain on the sale of the Dialog Server product line of $2.5
million and the establishment of a full valuation allowance of $1.7 million
against the remaining net deferred tax assets based on management's assessment
of the uncertainty of realizing future tax benefits attributable to such assets
following the sale of the Dialog Server product line.



Liquidity and Capital Resources



At September 30, 2001, the Company had cash and cash
equivalents of $8.9 million, compared to $2.2 million at December 31, 2000.



Net cash provided by operating activities was $1.5 million in
the first nine months of 2001 compared to net cash used by operating activities
of $6.2 million in the first nine months of 2000. The increase in net cash
provided by operatingactivities in the first nine months of 2001 is
primarily due to a reduction in operating expenses together with favorable net
movements in working capital.



Net cash provided by investing activities was $5.0 million,
made up of proceeds from the sale of the Dialog Server product line and
partially offset by additions to property and equipment of $162,000 for the
first nine months of 2001. This compares to net cash used exclusively for
additions to property and equipment of $887,000 in the first nine months of
2000.



Net cash provided by financing activities was $81,000 for the
first nine months of 2001 and $793,000 for the first nine months of 2000,
primarily from the employee stock purchase plan and from the proceeds of
exercises of employee stock options.



The Company believes that its cash and cash equivalents,
together with short-term investments and cash flows from operations will be
sufficient to meet the Company's liquidity and capital requirements for at least
the next 12 months.  The Company may, however, seek additional equity or debt
financing to fund further expansion. There can be no assurance that additional
financing will be available at all or that it, if available, will be obtainable
on terms favorable to the Company and would not be dilutive.



Recent Accounting Pronouncements



In July 2001, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 141
("SFAS 141"), "Business Combinations." SFAS 141 requires the
purchase method of accounting for business combinations initiated after June 30,
2001 and eliminates the pooling-of-interests method.



In July 2001, the FASB issued Statement of Financial
Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other
Intangible Assets", which is effective for fiscal years beginning after
March 15, 2001. SFAS 142 requires, among other things, the discontinuance of
goodwill amortization. In addition, the standard includes provisions upon
adoption for the reclassification of certain existing recognized intangibles as
goodwill, reassessment of the useful lives of existing recognized intangibles,
reclassification of certain intangibles out of previously reported goodwill and
the testing for impairment of existing goodwill and other intangibles.
Management believes that the adoption of SFAS 142 will not have a significant
impact on the consolidated financial position or the results of operations of
the Company.



In October 2001, the FASB issued Statement of Financial
Accounting Standards 144 ("SFAS 144"), "Accounting for the Impairment
or Disposal of Long-Lived Assets". Statement of Financial Accounting Standards
144 supercedes SFAS 121, "Accounting for the Impairment of long-Lived Assets and
for Long-Lived Assets to Be Disposed Of." SFAS 144 applies to all long-lived
assets, including discontinued operations, and consequently amends Accounting
Principles Board Opinion No. 30, "Reporting Results of Operations Reporting the
Effects of Disposal of a Segment of a Business". SFAS 144 develops one
accounting model for long-lived assets that are to be disposed of by sale. SFAS
144 requires that long-lived assets that are to be disposed of by sale be
measured at the lower of book value or fair value less selling costs.
Additionally, SFAS 144 expands the scope of discontinued operations to include
all components of an entity with operations that (1) can be distinguished from
the rest of the entity and (2) will be eliminated from the ongoing operations of
the entity in a disposal transaction. The provisions of SFAS 144 are required to
be adopted during the Company's fiscal year beginning January 1, 2002. The
Company does not expect the adoption of SFAS 144 to have a significant impact on
its financial position or results of operations.





RISK FACTORS:



In addition to the other information in this Report, the
following risk factors should be considered carefully in evaluating us and our
business.



Risks Related to our Financial Results



We have recently experienced losses and may continue to
incur losses for the foreseeable future, which may harm the market price of our
common stock.



We incurred losses of $2.2 million for the first nine months
of 2001. In recent periods we have not generally generated cash from operations.
Our recent net losses, exclusive of those in the most recent quarter, are
substantially the result of expenses incurred in developing the recently sold
Dialog Server product family. However, we expect to continue to devote
substantial resources to our existing product families and as a result we will
need to achieve increased revenues to achieve profitability. Even if we achieve
profitability, given the competitive and evolving nature of our industry we may
not be able to sustain or increase profitability on a quarterly or annual basis.
As a result, we will need to generate higher revenues while containing costs and
operating expenses to become and remain profitable. Our failure to do so may
cause the price of our stock to decline.



Because of the unpredictability of operating results from
our products, we may not accurately forecast our revenues or match our expenses
to our revenues, which could harm our quarterly operating results and cause
volatility or declines in our stock price.

Our quarterly revenues, expenses and operating results
have varied significantly in the past and are likely to vary significantly in
the future due to a variety of factors, including:



- the introduction of new or enhanced products;



- fluctuations in the size and timing of significant
orders;



- uncertainty in the budgeting cycles of our customers;
and



- possible delays in recognizing licensing revenues and the
trend within the software industry for a large portion of orders to be booked
late in a calendar quarter.



We operate with virtually no order backlog because our
software products are shipped shortly after orders are received. That makes
product revenues in any quarter substantially dependent on orders booked and
shipped throughout that quarter. In addition, we achieve a significant portion
of revenues from indirect sales channels over which we have little control.
Moreover, our expense levels are based to a significant extent on our
expectations of future revenues and therefore are relatively fixed in the short
term. If revenue levels are below expectations, our operating results are likely
to be harmed because only a small portion of the expenses vary with revenues.



Also, in recent years, we have had relatively stronger demand
for our products during the quarter ending December 31 and relatively weaker
demand in the quarter ending March 31. We believe that, adjusting for the
negative impact in late 1999 caused by Year 2000 concerns, this pattern will
continue.  This seasonality makes it more difficult to forecast quarterly
revenues.  Therefore, it is likely that in some future quarter operating results
will fall below expectations and as a result, the price of our common stock may
be harmed.





As a result of these factors, we believe that quarter-to-
quarter comparisons of our revenue, expenses and operating results are likely to
vary significantly in the future and that period-to-period comparisons of our
operating results are not necessarily meaningful. In any event, such comparisons
should not be relied upon as indications of our future performance. In addition,
our operating results in one or more future quarters may fail to meet the
expectations of securities analysts or investors. If this occurs, we could
experience an immediate and significant decline in the trading price of our
stock.







Risks Related to the Information Capture Software
Industry



If we are not able to effectively compete against other
software providers in the information capture software industry, our revenues
will not increase and may decrease.

The market for our products is intensely competitive and
subject to rapid change.  In addition, because there are relatively low barriers
to entry in the software market, we may encounter additional competition from
many established and emerging companies. Many of our competitors have longer
operating histories, significantly greater financial, technical, marketing and
other resources than us, significantly greater name recognition and a large
installed base of customers. As a result, our competitors may be able to respond
more quickly to new or emerging technologies and changes in customer
requirements, or to devote greater resources to the development, promotion and
sale of competitive products than we can. There is also a substantial risk that
announcements of competing products by large competitors could result in the
delay or postponement of customer orders in anticipation of the introduction of
such new products.



In addition, current and potential competitors have
established or may establish cooperative relationships among themselves or with
third parties to increase the ability of their products to address customer
needs. These cooperative relationships may limit our ability to sell our
products through particular reseller partners. Accordingly, new competitors or
competitive cooperative relationships may emerge and rapidly gain significant
market share. We also expect that competition will increase as a result of
software industry consolidation. Increased competition is likely to result in
price reductions, fewer customer orders, reduced margins and loss of market
share, any of which could harm our revenues and business.



If the market for information capture software does not
grow, our revenues may not grow.

The market for information capture software is fragmented
and extremely competitive.  We have spent, and intend to continue to spend,
considerable resources educating potential customers about our software products
and the information capture market generally. Our expenditures may fail to
achieve any additional degree of market acceptance for our products. The rate at
which organizations have adopted our existing products has varied significantly,
and we expect to continue to experience such variations in the future. If the
market for our products   develops more slowly than we currently anticipate, our
revenues will not grow and our operating results will suffer.





Risks Related to Our Business



Significantly all of our revenues are currently derived from
sales of our InputAccel product and related software tools, and if demand for
these products declines or fails to grow as we expect, our revenues will be
harmed.

We derive substantially all of our revenues from the
InputAccel product family and Pixtools software tools. Therefore, our future
operating results depend heavily upon continued and widespread market acceptance
for our InputAccel products and enhancements to those products. A decline in the
demand for InputAccel products as a result of competition, technological change
or other factors, would cause our revenues to suffer.





If we are unable to respond in an effective and timely manner
to   technological change and new products in our industry, our revenues and
operating results will suffer.

The market for information capture is characterized by
rapid technological change, frequent new product introductions and enhancements,
uncertain product life cycles, changes in customer demands and evolving industry
standards. The introduction of products embodying new technologies and the
emergence of new industry standards can render existing products obsolete and
unmarketable. Our future success will depend upon our ability to continue to
enhance our current products and to develop and introduce new products on a
timely basis that keep pace with technological developments and satisfy
increasingly sophisticated customer requirements. As a result of the
complexities inherent in our software, new products and product enhancements can
require long development and testing periods. As a result, significant delays in
the general availability of such new releases or significant problems in the
installation or implementation of such new releases could harm our operating
results and financial condition. We have experienced delays in the past in the
release of new products and new product enhancements. We may fail to develop and
market on a timely and cost effective basis new products or new product
enhancements that respond to technological change, evolving industry standards
or customer requirements. We may experience difficulties that could delay or
prevent the successful development, introduction or marketing of these products
or that our new products and product enhancements will achieve market
acceptance.



Software defects that are discovered in our products could
harm our business by damaging our reputation, causing us to lose customers and
resulting in significant costs and liabilities.



Our software products are complex and may contain errors
or defects, particularly when first introduced or when new versions or
enhancements are released. In the past, we have discovered software errors in
certain of our new products after their introduction. In addition, our products
are combined with complex products developed by other vendors. As a result,
should problems occur, it may be difficult to identify the source of the
problem. Defects and errors, or end-user perception of defects and errors, found
in current versions, new versions or enhancements of our products after
commencement of commercial shipments may result in:



- loss of customers;



- damage to our brand reputation;



- delay in market acceptance of our current and future
products;



- diversion of development and engineering resources;
and



- legal actions by our customers.



The occurrence of any one or more of these factors could harm
our revenues and gross margins.



If we cannot manage and expand our international
operations, our revenues may not increase and our business and results of
operations would be harmed.

In the first nine months of 2001, international sales
represented approximately 23% of our revenues, and we anticipate that for the
foreseeable future a significant portion of our revenues will be derived from
sources outside North America. In addition, we intend to continue to expand our
sales and support operations internationally. In order to successfully expand
international sales, we may establish additional foreign operations, expand our
international sales channel management and support organizations, hire
additional personnel, customize our products for local markets, recruit
additional international resellers and attempt to increase the productivity of
existing international resellers. If we are unable to do these things in a
timely and cost-effective manner, our sales growth internationally, if any, will
be limited, and our business, operating results and financial condition would be
harmed. Even if we are able to successfully expand our international operations,
we may not be able to maintain or increase international market demand for our
products.



Our international operations are generally subject to a
number of risks, including:



- costs of customizing products for foreign
countries;



- protectionist laws and business practices favoring local
competition;



- compliance with multiple, conflicting and changing
government laws and regulations;



- longer sales cycles;



- greater difficulty or delay in accounts receivable
collection;



- difficulties in staffing and managing foreign
operations;



- foreign currency exchange rate fluctuations;
and



- political and economic instability.



To date, the majority of our revenues and costs have been
denominated in U.S. dollars. However, we expect that in the future an increasing
portion of our revenues and costs will be denominated in foreign currencies.
Although we may undertake foreign exchange hedging transactions to reduce our
foreign currency transaction exposure, we do not currently attempt to eliminate
all foreign currency transaction exposure.



Our future success is dependent on the services of our key
management, sales and marketing, technical support and research and development
personnel, and those persons' knowledge of our business and technical expertise
would be difficult to replace.



Our products and technologies are complex, and we are
substantially dependent upon the continued service of our existing key
management, sales and marketing, technical support and research and development
personnel. Substantially all of our key employees do not have employment
agreements. The loss of the services of one or more of our key employees could
harm our business and slow our product development processes or sales and
marketing efforts.



If we fail to recruit and retain a significant number of
qualified technical personnel, we may not be able to develop, introduce or
enhance our products on a timely basis.

We require the services of a substantial number of
qualified technical support and research and development personnel. The market
for these personnel is characterized by intense competition, as well as a high
level of employee mobility.  These factors make it particularly difficult to
attract and retain the qualified technical personnel we require. We have
experienced, and we expect to continue to experience, difficulty in hiring and
retaining highly skilled employees with appropriate technical qualifications. If
we are unable to recruit and retain a sufficient number of technical personnel,
we may not be able to complete development of, or upgrade or enhance, our
products in a timely manner. Even if we are able to expand our staff of
qualified technical personnel, it may require greater than expected compensation
packages that would increase our operating expenses.





If our products fail to perform properly, our
customers may assert product liability claims for damages and our reputation and
operating results may suffer.

Our products are used in connection with critical
business functions and may result in significant liability claims if they do not
work properly.  Limitation of liability provisions we include in our license
agreements may not sufficiently protect us from product liability claims because
of limitations in existing or future laws or unfavorable judicial decisions.
Although we have not experienced any material product liability claims to date,
the sale and support of our products may give rise to claims which may be
substantial in light of the use of our products in business-critical
applications.  Liability claims could require us to spend significant time and
money in litigation or to pay significant damages.  Any claims for damages,
whether or not successful, could seriously damage our reputation and our
business.



Risks Related to Our Product's Dependence on
Intellectual Property and Our Use of Our Brand



Our reliance upon contractual provisions and domestic
copyright and trademark laws to protect our proprietary rights may not be
sufficient to protect our intellectual property from others who may sell similar
products.

We believe that the steps we have taken to safeguard our
intellectual property afford only limited protection. We rely primarily on a
combination of copyright, trademark and trade secret laws, confidentiality
procedures and contractual provisions to protect our proprietary rights. We
license our software products primarily under license agreements. Competitors
may develop technologies that are similar or superior to our technology or
design that do not infringe our copyrights and trade secrets, and this could
reduce demand for our products. Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy aspects of our products or to
obtain and use information that we regard as proprietary. Policing unauthorized
use of our products is difficult, and although we are unable to determine the
extent to which piracy of our software products exists, software piracy can be
expected to be a persistent problem.



In addition, the laws of some foreign countries do not
protect our proprietary rights as fully as do the laws of the U.S. In those
countries, reverse engineering, unauthorized copying or other misappropriation
of our proprietary technology could enable third parties to benefit from our
technology without paying us for it, which would significantly harm our
business.



We depend upon software we license from third parties, the
loss of which could harm our revenues.

We rely upon certain software that we license from third
parties, including software that is integrated with our internally developed
software and used in our products to perform key functions.  There can be no
assurance that these third-party software licenses will continue to be available
to the Company on commercially reasonable terms, if at all.  The loss of or
inability to maintain any such software licenses could result in shipment delays
or reductions until equivalent software could be developed, identified, licensed
and integrated. Such delays would materially adversely affect our business,
operating results and financial condition.



We have invested substantial resources in developing our
products and our brand, and our operating results would suffer if we were
subject to a protracted infringement claim or one with a significant damage
award.

Substantial litigation regarding intellectual property
rights and brand names exists in our industry. We expect that software product
developers increasingly will be subject to infringement claims as the number of
products and competitors in our industry segment grows and the functionality of
products in different industry segments overlaps. We are not aware that any of
our products infringe any proprietary rights of third parties. However, third
parties, some with far greater financial resources than us, may claim
infringement by our products of their intellectual property rights. Any such
claims, with or without merit, could:



- be time consuming to defend;



- result in costly litigation;



- divert management's attention and
resources;



- cause product shipment delays; or



- require us to enter into royalty or licensing agreements.





If we are required to enter into royalty or licensing
agreements to resolve an infringement claim, we may not be able to enter into
these agreements on terms acceptable to us, if at all. A successful claim of
product infringement against us or our failure or inability to either license
the infringed or similar technology or develop alternative technology on a
timely basis, may harm our operating results,  and our financial condition could
be harmed because we would not be able to sell the impacted product without
redeveloping it or incurring significant additional expenses.



Risks Related to the Market for
Our Common Stock and Our Business



We experience volatility in our share price, and investors
may not be able to resell shares of our common stock at or above the purchase
price.

The market price of our common stock has historically
varied from time to time. An investor in shares of our common stock may not be
able to resell those shares at or above the price paid. Our common stock price
may fluctuate significantly in the future due to:



- any deviations in our revenues, gross margins or net
losses from levels expected by securities analysts;



- Changes in financial estimates by securities
analysts;



- changes in market valuations of other information capture
software companies; and



- our future sales of common stock or other
securities.



In addition, The Nasdaq National Market has experienced
extreme volatility in recent years that has often been unrelated to the
performance of particular companies. Future market fluctuations may cause our
stock price to fall regardless of our performance.



Provisions of our charter documents, Delaware law and our
rights plan may have anti-takeover effects that could discourage or prevent a
change in control, which may suppress our stock price or cause it to
decline.

Provisions of our certificate of incorporation and bylaws
and a rights plan adopted by our board of directors may discourage, delay or
prevent a merger or acquisition that our common stockholders may consider
favorable.  Provisions of our Certificate of Incorporation and bylaws:



- prohibit cumulative voting in the election of
directors;



- eliminate the ability of stockholders to call special
meetings; and



- establish advance notice requirements for nominations for
election to the board of directors or for proposing matters that can be acted on
by stockholders at stockholder meetings.



The rights granted pursuant to the rights agreement entered
into as part of our rights plan have anti-takeover effects.  The rights may
cause substantial dilution to a person or group that attempts to acquire
ActionPoint on terms that our board of directors determines are not in the best
interests of our stockholders. Certain provisions of Delaware law also may
discourage, delay or prevent someone from acquiring or merging with us, which
may cause the market price of our common stock to decline.







Item 3- Quantitative and Qualitative Disclosures About
Market Risk.



The Company's exposure to market risk for changes in interest
rates relates primarily to its investment portfolio. The Company maintains an
investment policy, which is intended to ensure the safety and preservation of
its invested funds by limiting default risk, market risk and reinvestment risk.
The Company does not currently use, nor has it historically used, derivative
financial instruments to manage or reduce market risk. The Company mitigates
default risk by investing in high credit quality securities such as debt
instruments of the United States government and its agencies and high quality
corporate issuers, as well as money market funds. The portfolio includes only
marketable securities with active secondary or resale markets to ensure
portfolio liquidity and maintains a prudent amount of diversification. As of
September 30, 2001, the Company had $8.9 million of cash and cash equivalents.



The Company does not currently transact any significant
portion of its business in functional currencies other than the United States
dollar.  To the extent that it continues to transact its business using the
United States dollar as its functional currency, the Company does not believe
that the fluctuations in foreign currency exchange rates will have a material
adverse effect on the Company's results of operations.





PART II - OTHER INFORMATION

**Item 1.   Legal Proceedings**

Not Applicable

**Item 2.   Changes in Securities**

Not Applicable

**Item 3.   Defaults Upon Senior Securities**

Not Applicable

**Item 4.   Submission of Matters to a Vote of Securities Holders**

Not Applicable

**Item 5. Other Information**

Not Applicable

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

1. Exhibits