UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   Form 10-QSB
                                   (Mark One)

             [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                       For the period ended March 31, 2004

             [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
               For the transition period from _______ to _______.

                        Commission File Number 333-16031
                            FRONT PORCH DIGITAL INC.
           (Name of small business issuer as specified in its charter)

                    NEVADA                              86-0793960
                    ------                              ----------
          State or other jurisdiction                 (I.R.S. Employer
       of incorporation or organization)            Identification No.)

                               20000 Horizon Way,
                                    Suite 120
                          MT. LAUREL, NEW JERSEY 08054
                    (Address of principal executive offices)
                                 (856) 439-9950
                           (Issuer's telephone number)

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

As of May 12, 2004, 43,818,412 shares of the issuer's common stock, par value
$.001, were outstanding. Transitional Small Business Disclosure Format (check
one): Yes [ ] No [X]

<PAGE>


PART I. FINANCIAL INFORMATION



<PAGE>


                            FRONT PORCH DIGITAL, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                   (Unaudited)
<TABLE>
<CAPTION>
ASSETS                                                                                     March 31, 2004
<S>                                                                                        <C>
Current assets:
  Cash and cash equivalents                                                                 $     254,751
  Accounts receivable - trade & other, net of allowance of $30,200
      Non-affiliates                                                                              502,297
      Affiliates                                                                                  224,577
  Other current assets                                                                            626,375
                                                                                            -------------
Total current assets                                                                            1,608,000

Property and equipment, net                                                                       133,155
Software development costs, net                                                                   473,041
Intellectual property, net                                                                        255,622
Goodwill, net                                                                                     415,718
Other assets                                                                                       31,150
                                                                                            -------------

Total assets                                                                                $   2,916,686
                                                                                            =============

LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
  Notes payable                                                                             $     641,286
  Current portion of long-term liabilities                                                         94,824
  Accounts payable                                                                              1,030,614
  Accrued expenses                                                                                739,892
  Accrued expenses - employees                                                                    859,603
  Deferred revenue                                                                                738,014
                                                                                            -------------
Total current liabilities                                                                       4,104,233

Long-term liabilities, net of current portion                                                     347,318
                                                                                            -------------

Total liabilities                                                                               4,451,551
                                                                                            -------------

Commitments and contingencies

Stockholders' deficiency:
  Preferred stock, nonvoting, $.001 par value, 5,000,000 shares
    authorized, none issued  or outstanding                                                            --
  Common stock, $.001 par value, 50,000,000 shares authorized, 43,419,051 shares
    issued, 41,985,412 shares outstanding, 1,433,639 shares in treasury                            41,985
  Common stock to be issued                                                                       435,199
  Additional paid-in capital                                                                   25,657,697
  Accumulated other comprehensive income-foreign  currency translation adjustment                  73,229
  Accumulated deficit                                                                         (27,742,975)
                                                                                            -------------
Total stockholders' deficiency                                                                 (1,534,865)
                                                                                            -------------

Total liabilities and stockholders' deficiency                                              $   2,916,686
                                                                                            =============
</TABLE>


<PAGE>


                            FRONT PORCH DIGITAL, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                   Three months ended March 31,
                                                                 -------------------------------
                                                                     2004               2003
                                                                 -------------------------------
<S>                                                              <C>                <C>
Revenues:
  Products                                                       $  1,320,312       $    701,430
  Services                                                            247,808            144,308
                                                                 ------------       ------------
Total revenues                                                      1,568,120            845,738
                                                                 ------------       ------------

Cost of revenues:
  Products                                                            226,813            158,251
  Services                                                            214,357             65,081
                                                                 ------------       ------------
Total cost of revenues                                                441,170            223,332
                                                                 ------------       ------------
Gross margin                                                        1,126,950            622,406
                                                                 ------------       ------------

Operating expenses:
Selling, general and administrative                                 1,158,304            873,746
Research and development                                               54,858             24,156
Depreciation                                                           23,315             80,553
Amortization                                                           71,966             70,439
                                                                 ------------       ------------
Total operating expenses                                            1,308,443          1,048,894
                                                                 ------------       ------------

Operating loss                                                       (181,493)          (426,488)
                                                                 ------------       ------------

Other income (expense):
Interest income                                                         1,201                385
Interest expense                                                     (198,205)          (153,536)
Other income                                                           20,873              1,265
Foreign currency transaction gain (loss)                                2,002               (702)
                                                                 ------------       ------------
Total other expense, net                                             (174,129)          (152,588)
                                                                 ------------       ------------

Loss from continuing operations                                      (355,622)          (579,076)

Income from operations of discontinued operations                          --            334,793
                                                                 ------------       ------------

Net loss                                                         $   (355,622)      $   (244,283)
                                                                 ============       ============

Weighted average shares outstanding - basic and
diluted                                                            41,797,881         32,329,937

Income (loss) per share - basic and diluted:
Loss from continuing operations                                  $      (0.01)      $      (0.02)
Income from discontinued operations                              $         --       $       0.01
Net loss                                                         $      (0.01)      $      (0.01)
</TABLE>

<PAGE>


                            FRONT PORCH DIGITAL, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                             Three Months Ended March 31,
                                                                                                  2004           2003
                                                                                             ----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                                           <C>            <C>
  Net loss                                                                                    $  (355,622)   $  (244,283)
  Income from operations of discontinued operations                                                    --       (334,793)
                                                                                              -----------    -----------
  Loss from continuing operations                                                                (355,622)      (579,076)
  Adjustments to reconcile loss from continuing operations to net cash used in
    operating activities from continuing operations:
      Depreciation and amortization                                                                95,281        139,552
      Non-cash interest expense                                                                   178,270        138,750
      Stock option compensation expense                                                            33,548          9,259
      Gain on sale of fixed assets                                                                     --         (9,951)
      Changes in operating assets and liabilities:
        Decrease in accounts receivable                                                           295,025        193,259
        Increase in accounts receivable - affiliate                                              (101,246)            --
        (Increase) decrease in other current assets                                              (446,307)       192,375
        Decrease in other assets                                                                    1,076         63,600
        Decrease in accounts payable                                                              (27,219)      (115,320)
        Increase in accrued expenses                                                               36,739         21,454
        Increase in accrued expenses - employees                                                       --         13,111
        Increase (decrease) in deferred revenue                                                   231,984       (593,084)
                                                                                              -----------    -----------
  Net cash used in operating activities from continuing operations                                (58,471)      (526,071)
                                                                                              -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES
  Capital expenditures                                                                            (33,829)        (6,451)
  Software development costs                                                                     (129,918)       (62,180)
  Proceeds from sale of fixed assets                                                                   --         31,354
  Other investing activities                                                                           --         (7,534)
                                                                                              -----------    -----------
  Net cash used in investing activities from continuing operations                               (163,747)       (44,816)
                                                                                              -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from notes payable                                                                      50,000             --
  Repayment of note payable and other long-term liabilities                                       (38,333)      (120,373)
                                                                                              -----------    -----------
  Net cash provided by (used in) financing activities from continuing operations                   11,667       (120,373)
                                                                                              -----------    -----------

  Net cash provided by discontinued operations                                                     64,263        105,386

  Effect of exchange rate changes on cash and cash equivalents                                      6,744         (2,561)
                                                                                              -----------    -----------

  Net decrease in cash and cash equivalents                                                      (139,544)      (588,435)
  Cash and cash equivalents, beginning of period                                                  394,295        799,468
                                                                                              -----------    -----------
  Cash and cash equivalents, end of period                                                    $   254,751    $   211,033
                                                                                              ===========    ===========

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
    Conversion of principal balance of unsecured notes into shares of common stock            $    75,000    $        --
</TABLE>




<PAGE>


                            FRONT PORCH DIGITAL, INC.
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND BASIS OF PRESENTATION

Front Porch Digital Inc. (which is referred to herein together with its
subsidiary as the "Company") is an industry leader in the emerging market of
digital archive management and transcoding for the global broadcast, media and
entertainment industries. Incorporating software-based methodologies and
intellectual property throughout its service offerings allows content to be
captured, converted, managed and distributed in digital form efficiently and
cost-effectively. The Company's proprietary DIVArchive software products enable
customers to manage large-scale digital video archives in the media and
entertainment industry. DIVArchive simplifies the process of preserving,
managing and accessing content. The Company's proprietary Bitscream software
enables the conversion of video content between proprietary formats commonly
used by global broadcast entities.

The Company is positioned to focus exclusively on the sale of software and
services to the broadcast, media and entertainment industry. All of the
Company's sales, sales engineering, development and delivery capabilities are
organized and integrated to meet the growing needs of this market, particularly
the broadcast and content provider segments.

The Company's customers are located in the United States, Europe, Asia and the
Pacific Rim, Canada and Mexico.

Consolidated assets as of March 31, 2004 and revenues for the period then ended
included $1,319,000 and $2,093,000, respectively, related to the Company's
subsidiary in France.

The consolidated financial statements of the Company have been prepared on a
going-concern basis, which contemplates the realization of assets and
liabilities in the normal course of business. Accordingly, the consolidated
financial statements do not include any adjustments that might be necessary
should the Company be unable to continue in existence. The Company has incurred
losses since commencement of operations in its current line of business.
Although operating results have improved in the first quarter of 2004 and
management expects the Company's operating results to continue to improve during
the remainder of 2004, there can be no assurance that the Company will not
continue to sustain operating losses. For the three months ended March 31, 2004,
the Company generated an operating loss of $181,000 and a net loss of $356,000.
In comparison, the Company generated an operating loss of $426,000 and a net
loss of $244,000 for the three months ended March 31, 2003. The Company
generated negative cash flow from operating activities for the three months
ended March 31, 2004 of $58,000 as compared to negative cash flow from operating
activities of $526,000 for the prior year comparable quarter. In addition, at
March 31, 2004, the Company had a working capital deficit of $2.5 million. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. Subsequent to the date of the condensed consolidated financial
statements presented

<PAGE>



                            FRONT PORCH DIGITAL, INC.
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

herein, on May 13, 2004, the Company consummated a private placement pursuant to
which the Company issued a secured convertible term note due May 13, 2007 in the
principal amount of $5,000,000, which is convertible into common stock at a
fixed price of $0.50 per share, and the Company issued a common stock purchase
warrant that entitles the holder to purchase 4,435,500 shares of common stock at
$0.48 per share. See Note 6 - Subsequent Events to these condensed consolidated
financial statements for a more detailed description of the financing
transaction.

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, they do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. Management of the
Company believes the disclosures are adequate to make the information presented
not misleading. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included and such adjustments are of
a normal and recurring nature. For further information, refer to the financial
statements and footnotes included in the Company's Annual Report on Form 10-KSB
for the year ended December 31, 2003. Operating results for the three months
ended March 31, 2004 are not necessarily indicative of the operating results to
be expected for the year ending December 31, 2004.

STOCK-BASED COMPENSATION

The Company has elected to follow the intrinsic value method as prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its employee stock
options whereby compensation cost is recorded for any excess of the quoted
market price of its common shares over the exercise price at the date of grant
for all employee stock options issued. The effect of applying the fair value
method pursuant to Statement of Financial Accounting Standards ("SFAS") No. 123
"Accounting for Stock Based Compensation" to the Company's stock-based awards is
disclosed in the table below. Pro forma results of operations may not be
representative of the effects on reported or pro forma results of operations for
future periods.


                                                    THREE MONTHS ENDED MARCH 31,
                                                       2004             2003
Pro Forma Net Loss:
Net loss                                           $  (356,000)     $  (244,000)
Add: Stock based employee compensation
  expense - as reported                                 34,000            9,000
Deduct: Total stock based employee compensation
  expense - determined under fair value based
  method for all awards                               (132,000)         (96,000)
                                                   -----------      -----------
Pro forma net loss                                 $  (454,000)     $  (331,000)
                                                   ===========      ===========
Pro Forma Loss Per Share:
Loss per share - basic and diluted, as reported    $     (0.01)     $     (0.01)
Loss per share - basic and diluted, proforma       $     (0.01)     $     (0.01)

<PAGE>



                            FRONT PORCH DIGITAL, INC.
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)


The Company accounts for common stock, stock options and other equity
instruments issued in exchange for goods or services using the fair value method
and records expense based on the values determined.

In determining the fair value of stock options granted in 2004 and 2003, and
thus determining historical and pro forma compensation expense under the fair
value method, the Company utilized the Black-Scholes valuation model with the
following weighted average assumptions: dividend yield of 0%, risk free interest
rate of 0.81%, expected volatility between 143% and 134% in 2004 and 2003,
respectively, and expected lives of three years.

As a result of stock option grants to employees in March 2004 which were priced
below market, the Company will begin to incur more significant non-cash
compensation expense related to the value of these options in the second quarter
of 2004.

FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS

The accounts of the Company's French subsidiary are translated in accordance
with SFAS No. 52, "Foreign Currency Translation", which requires that assets and
liabilities of international operations be translated using the exchange rate in
effect at the balance sheet date, and that the results of operations be
translated at the average exchange rates during the year. The effect of changes
in value of the U.S. dollar compared to other currencies, primarily the euro,
has been to increase reported revenues and operating profit when the U.S. dollar
weakens and reduce these amounts when the dollar strengthens. While the Company
looks for opportunities to reduce its exposure to foreign currency fluctuations
against the U.S. dollar, the Company has not had adequate financial resources to
pursue hedging opportunities generally. At March 31, 2004, the Company reported
a cumulative translation gain of $73,000 as a component of accumulated other
comprehensive income. The Company is also subject to foreign exchange
transaction exposure when its French subsidiary transacts business in a currency
other than its own functional currency. The effects of exchange rate
fluctuations in remeasuring foreign currency transactions for the three months
ended March 31, 2004 and 2003 were not significant and, accordingly, the
comprehensive loss approximated the net loss for the periods presented.

RECLASSIFICATIONS

Certain reclassifications of previously reported amounts have been made to
conform to the current period presentation.

2.   DISCONTINUED OPERATIONS - FISCAL 2003

During 2003, the Company disposed of two business units: the DIVArchive Medical
business unit and the Media Services business unit. The operating results of the
two business units are accounted for as discontinued operations in the
accompanying condensed consolidated financial statements in accordance with SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." The
results of operations and cash flows of the two business units have been removed
from the Company's results of continuing operations and cash flows for all
periods presented. All related disclosures have also been adjusted to reflect
the discontinued operations.

<PAGE>



                            FRONT PORCH DIGITAL, INC.
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)


During the three months ended March 31, 2004, results of operations from the
discontinued business units were insignificant. Summarized operating results for
the discontinued operations for the three months ended March 31, 2003 are as
follows:


       Revenues                                            $ 1,583,000

       Gross margin                                          1,195,000
       Operating costs                                         860,000
       Income from operations of discontinued              -----------
         operations                                        $   335,000
                                                           ===========


3.   CONCENTRATION OF CREDIT RISK

The Company sells its products and services throughout the United States,
Europe, Asia and the Pacific Rim, Canada and Mexico. The Company performs
periodic credit evaluations of its customers' financial condition and generally
does not require collateral. Credit losses have been within management's
expectations. For the three months ended March 31, 2004, aggregate revenues from
customers located in Europe or Asia amounted to $1.5 million, or 96% of total
revenue, while revenues from customers located in North America totaled $0.1
million, or 4% or total revenue. For the three months ended March 31, 2003, the
Company's revenues from customers located in Europe or Asia amounted to
$430,000, or 51% of total revenue, while revenues from customers located in
North America totaled $416,000, or 49% of total revenue.

For the three months ended March 31, 2004, revenues from four customers, each
exceeding 10% of total revenue, aggregated 24%, 14%, 12% and 10%, respectively.
Accounts receivable from the Company's largest and second largest customers were
$141,000 and $225,000, respectively, as of March 31, 2004, which represented
approximately 21% and 34% of total trade receivables, respectively, at that
date. The Company's second largest customer is also a stockholder of the
Company.

For the three months ended March 31, 2003, revenues from four customers, each
exceeding 10% of total revenue, aggregated 26%, 19%, 18% and 15%, respectively.


4.   PER SHARE DATA

The Company reports its earnings (loss) per share in accordance with SFAS No.
128, "Accounting for Earnings Per Share". Basic loss per share is calculated
using the net loss divided by the weighted average common shares outstanding.
For the three and nine months ended March 31, 2004 and 2003, shares from the
assumed conversion of outstanding convertible notes, warrants and options are
omitted from the computations of diluted earnings per share because the effect
would be anti-dilutive. However, if the Company was not in a loss position,
31,699,892 shares from the assumed exercise or conversion of warrants, options
and convertible notes would have been considered dilutive shares at March 31,
2004.

<PAGE>



                            FRONT PORCH DIGITAL, INC.
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)


5.   STOCKHOLDERS' DEFICIENCY

On March 1, 2004, the Company issued 94,760 shares of common stock to three
current employees in payment of service-related obligations. Also on March 1,
2004, the Company issued 185,000 shares of common stock to a former employee in
payment of service related obligations and in settlement of related litigation.

At March 31, 2004, the Company had recorded $435,000 as common shares to be
issued. This amount was comprised of $275,000, representing 1,833,000 shares of
common stock issuable to a former employee in connection with the disposal of
the Media Services business in 2003; $45,000 ($75,000 principal net of $30,000
unamortized debt discount), representing 1,785,714 shares of common stock
issuable in connection with the conversion of outstanding convertible notes; and
$115,000, representing accrued bonuses payable on December 31, 2003 (in the
aggregate) to the Company's Chief Executive Officer and Chief Financial Officer,
which will be satisfied by the issuance to such officers of 291,000 and 233,000
shares, respectively, of unregistered common stock.


6.   SUBSEQUENT EVENTS

         On April 1, 2004, three noteholders instructed the Company to convert
$385,000 aggregate principal amount of the Company's 8% unsecured convertible
notes into 9,166,667 shares of common stock.

         On April 8, 2004, the Company's shareholders adopted a resolution by
majority consent to increase the authorized common stock of the Company from
50,000,000 shares to 150,000,000 shares.

         On April 19, 2004, the Company issued 1,833,000 shares of common stock
to a former employee in connection with the disposal of the Media Services
business in 2003.

         On May 4, 2004, a noteholder instructed the Company to convert $66,000
aggregate principal amount of the Company's 8% unsecured convertible notes into
1,571,000 shares of common stock.

         On May 13, 2004, the Company consummated a private placement pursuant
to which the Company issued a secured convertible term note due May 13, 2007 in
the principal amount of $5,000,000 (the "Note"), and the Company issued a common
stock purchase warrant, entitling the holder to purchase 4,435,500 shares of
common stock (the "Warrant"). The Note and the Warrant were sold to a single
"accredited investor" (as such term is defined in the rules promulgated under
the Securities Act of 1933, as amended (the "Act")), Laurus Master Fund, Ltd.
("Laurus"), for a purchase price of $5,000,000. The principal and unpaid
interest, which shall accrue at a rate per annum equal to the "prime rate"
published in THE WALL STREET JOURNAL from time to time, plus one percent (1%),
on the Note are convertible into shares of the Company's common stock at a price
of $0.50 per share based on the "Fixed Conversion Price", which is defined as
the lesser of (i) 110% of the closing price of the common stock on the business
day immediately preceding the closing date, and (ii) 100% of the average closing
prices of the common stock for the ten consecutive trading days prior to the
closing date. Such conversion price is subject to antidilution adjustments.

<PAGE>



                            FRONT PORCH DIGITAL, INC.
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)


         The Note provides for monthly payments of interest at the prime rate
(as published in The Wall Street Journal), plus 1%, which is subject to
reduction if the market price of the Company's common stock exceeds certain
designated thresholds. The Note also provides for monthly amortization,
commencing on September 1, 2004, of $45,455, plus accrued interest, per month,
with the balance payable on the maturity date. Laurus has the option to receive
shares of the Company's common stock in lieu of debt service payments at the
then Fixed Conversion Price. The Note is collateralized by a security interest
in all of the assets of the Company, including a cash collateral account that
was funded with $3,500,000 of the proceeds of the Note and is subject to release
to the Company only upon conversion of the Note into common stock and other
limited circumstances.

         The Warrant entitles the holder thereof to purchase, at any time
through May 13, 2011, up to 4,435,000 shares of the Company's common stock at a
price of $0.48 per share, subject to antidilution adjustments.

         Pursuant to a Registration Rights Agreement (the "Registration Rights
Agreement") between the Company and Laurus, the Company is obligated to: (a)
file a registration statement under the Act to register the resale of the shares
of the Company's common stock issuable upon conversion of the Note and exercise
of the Warrant (the "Registration Statement") within 45 days of the date of the
funding with respect to the Note; (b) use its best efforts to have the
Registration Statement declared effective under the Act as promptly as possible,
but in any event prior to the 105th day following the funding of the Note; and
(c) maintain the effectiveness of the Registration Statement until the earliest
date of when (i) all registrable securities have been sold, (ii) all registrable
securities may be sold immediately without registration under the Act and
without volume restrictions pursuant to Rule 144(k) or (iii) all amounts payable
under the Note have been paid in full. Laurus, or other holders of the Note and
the Warrant, are entitled to certain specified remedies if the Company does not
timely comply with its registration obligations.


<PAGE>


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

GENERAL

When used in this discussion, the words "believes", "anticipates", "expects" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those projected.

The Company's business and results of operations are affected by a wide variety
of factors that could materially and adversely affect the Company and its actual
results, including, but not limited to: (1) the availability of additional funds
to enable the Company to successfully pursue its business plan; (2) the
uncertainties related to the effectiveness of the Company's technologies and the
development of its products and services; (3) the Company's ability to maintain,
attract and integrate management personnel; (4) the ability of the Company to
complete the development and continued enhancement of its products in a timely
manner; (5) the Company's ability to effectively market and sell its products
and services to current and new customers; (6) the Company's ability to
negotiate and maintain suitable strategic partnerships and corporate
relationships; (7) the intensity of competition; and (8) general economic
conditions. As a result of these and other factors, the Company may experience
material fluctuations in future operating results on a quarterly or annual
basis, which could materially and adversely affect its business, financial
condition, operating results and stock price.

Any forward-looking statements herein speak only as of the date hereof. The
Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements that may be made to reflect events
or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

OVERVIEW

The Company is an industry leader in the emerging market of digital archive
management and transcoding for the global broadcast, media and entertainment
industries. Incorporating software-based methodologies and intellectual property
throughout its service offerings allows content to be captured, converted,
managed and distributed in digital form efficiently and cost-effectively. The
Company's proprietary DIVArchive software products enable customers to manage
large-scale digital video archives in the media and entertainment industry.
DIVArchive simplifies the process of preserving, managing and accessing content.
The Company's proprietary Bitscream software enables the conversion of video
content between proprietary formats commonly used by global broadcast entities.

The Company is positioned to focus exclusively on the sale of software and
services to the broadcast, media and entertainment industry. All of the
Company's sales, sales engineering, development and delivery capabilities are
organized and integrated to meet the growing needs of this market, particularly
the broadcast and content provider segments. Management believes its DIVArchive
software product is the leading archive management software for digital video
content in Europe and Asia.

<PAGE>


The Company is in the early stages of executing its business strategy and
anticipates generating significant revenues from the sale of its software
products and services during the next 12 months. This expansion is contingent
upon several factors, including the availability of adequate cash resources, the
price of its products and services relative to those of its competitors, and
general economic and business conditions, among other factors.

In the fourth quarter of 2002, the Company initiated a restructuring plan in an
effort to position itself to raise the necessary working capital to capitalize
on its product and service portfolio, which had been gaining acceptance in the
marketplace, and to develop the business for sustained operation and growth in
the future. The primary objective of the restructuring efforts was to reorganize
the business operations around its core competencies to focus on the sale of
archive management and transcoding software products and services to the
broadcast, media and entertainment industry. During 2003, the Company sold its
DIVArchive medical business to Kodak, and sold its Media Services business to a
former employee and the former owner of that business unit. The sale of these
businesses resulted in reduced operating costs from continuing operations,
enabled the redeployment of costs into one business unit, generated cash flow
from the sale of the businesses that could be used in financing the
restructuring of the Company, resulted in the settlement of significant
liabilities payable in 2004, and focused all of the Company's resources on its
most promising proprietary products and services. The Company completed these
restructuring efforts as of December 31, 2003.

BUSINESS OUTLOOK

During the three months ended March 31, 2004, the Company recognized revenues of
$1.6 million, representing a 60% sequential increase over the $1.0 million in
revenues recognized in the fourth quarter of 2003. Revenues for the three months
ended March 31, 2004 also reflected an 85% increase over the $846,000 of
revenues recognized in the three months ended March 31, 2003. During the three
months ended March 31, 2004, the Company received $1.7 million in new orders for
the Company's software products and services, all of which are expected to
generate revenue in 2004. As of March 31, 2004, the Company had accumulated a
backlog of contracted orders of approximately $2.3 million, substantially all of
which are expected to generate revenue in 2004. As of December 31, 2003, the
Company had approximately $37 million in net operating loss carryforwards for
international (French tax law), federal and state tax purposes that may be
utilized if the Company can generate income in future periods. However, there
can be no assurance that the Company will be able to generate income in future
periods, and the Company has yet to generate any income since its inception.

On May 13, 2004, the Company consummated a private placement pursuant to which
the Company issued a secured convertible term note due May 13, 2007 in the
principal amount of $5,000,000 (the "Note"), and the Company issued a common
stock purchase warrant that entitles the holder to purchase 4,435,500 shares of
common stock (the "Warrant"). The Note and the Warrant were sold to a single
"accredited investor" (as such term is defined in the rules promulgated under
the Securities Act of 1933, as amended (the "Act")), Laurus Master Fund, Ltd.
("Laurus"), for a purchase price of $5,000,000. See further discussion under
Liquidity and Capital Resources below.

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The Company is currently deploying its resources in the development of the North
American market for archive management and transcoding solutions targeted at the
broadcast, media and entertainment industry. The Company also is continuing to
expand its market presence in the European and Asian markets, and is focusing on
increasing its penetration and physical presence in Asia. As part of this
expansion, the Company will require resources for the expansion and continued
management of its global partner network. In addition, the Company intends to
allocate additional budgeted funds for marketing and corporate/product branding
expenditures in 2004. In particular, additional resources have been deployed in
connection with the National Association of Broadcasters ("NAB") conference in
April 2004 and will be deployed in connection with the International
Broadcasters Conference ("IBC") held in Europe in September 2004. The Company's
ability to continue to expand its business is dependent on the ability of the
Company to continue to increase staffing, primarily in the areas of sales and
marketing, partner channel management and operations/delivery functions.
Additional resources in other key functions of the Company will also be required
to continue to expand the business. All of these factors are dependent on the
availability of capital to the Company, the Company's ability to continue to
generate new orders at the current rate or faster, and the Company's ability to
continue to deliver software solutions to customers in a timely manner.

The following discussion and analysis of financial condition and results of
operations is based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these consolidated financial
statements requires management to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. These estimates are based on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

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RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2004 COMPARED TO THE THREE
MONTHS ENDED MARCH 31, 2003

         REVENUE. Total revenue for the three months ended March 31, 2004
increased $0.7 million, or 85%, to $1.6 million compared to total revenue of
$846,000 for the three months ended March 31, 2003. This increase was
attributable to increased orders for the Company's software and related products
and services, and consisted primarily of sales of the Company's DIVArchive
solutions. The increase in revenue from the sale of the DIVArchive product
offerings primarily was from software licensing fees, which represented the
up-front cost of purchasing the software and the annual maintenance revenue paid
by the customer. This increase in orders was the result of increased demand for
the Company's software products, as well as an increase in overall market demand
and the acceleration of the adoption of digital media broadcast systems by
broadcasters.

         For the three months ended March 31, 2004, the Company's revenues were
derived largely from the European and Asian geographic markets. During that
period, aggregate revenues from customers located in Europe or Asia amounted to
$1.5 million, or 96% of total revenue, while revenues from customers located in
North America totaled $0.1 million, of 4% or total revenue. In 2004, the Company
expects this concentration of revenues to continue; however, over the longer
term, the Company expects its revenue concentration initially to stabilize at
the 70%/30% levels for Europe/Asia and North America, respectively, and
thereafter to move toward 50%/50% as the Company continues to develop its North
American presence and continues to develop and grow its business. For the three
months ended March 31, 2003, the Company's revenues from customers located in
Europe or Asia amounted to $430,000, or 51% of total revenue, while revenues
from customers located in North America totaled $416,000, or 49% of total
revenue.

         GROSS MARGIN. Total gross margin for the three months ended March 31,
2004 of $1.1 million, or 72% of total revenue, increased $0.5 million, or 81%,
compared to total gross margin of $0.6 million for the three months ended March
31, 2003. The increase in gross margin was attributable to increased revenues as
described above. The slight decrease in gross margin as a percentage of revenue
was the result of increased staffing costs in 2004 to generate and support the
higher level of revenue and the overall support and service of the Company's
expanding customer base. These additional staffing costs represented costs from
the addition of personnel largely in the second and third quarters of 2003.
These additional costs were budgeted in 2004, and the gross margin as a
percentage of total revenue reported for the first quarter met the Company's
anticipated gross margin.

         On the basis of the Company's contracted backlog of orders for its
DIVArchive solutions and the pipeline of potential business that Management
believes will close during 2004, Management believes 2004 revenues will be at
levels sufficient to support the Company's cost of revenue for 2004. As a
result, the Company anticipates its gross margin for these sales will remain
relatively constant during 2004.

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses for the three months ended March 31, 2004
increased $0.3 million to $1.2 million from $0.9 million for the three months
ended March 31, 2003. SG&A expenses for the three months ended March 31, 2004

<PAGE>


included $0.7 million in salaries and related benefits for employees not
directly related to the production of revenue, $240,000 in professional fees,
$98,000 in general office expenses, $46,000 in facilities costs, and $71,000 for
travel-related costs. SG&A expenses for the three months ended March 31, 2003
included $377,000 in salaries and related benefits for employees not directly
related to the production of revenue, $244,000 in professional fees, $135,000 in
general office expenses, $43,000 in facilities costs, and $74,000 for
travel-related costs. The increase in SG&A expenses during the three months
ended March 31, 2004 was the direct result of increased costs related to the
generation of the increased revenue levels during the period and increased costs
related to the expansion of the Company's business, including costs incurred to
meet future anticipated revenue from contracted orders. The Company believes
SG&A expenses would remain constant or slightly increase if the Company were to
manage expenses solely to maintain revenues at current levels. However, as the
Company is seeking to increase revenues significantly in 2004, the Company
anticipates increasing costs, particularly in the areas of sales and marketing
and administration, in an effort to support and expand its business.

         RESEARCH AND DEVELOPMENT. The Company maintains a software development
staff that designs and develops the Company's new products and services. The
Company believes that by performing most of its own software development, it can
more quickly and cost-effectively introduce new and innovative technologies and
services. In addition, the Company believes it will be better equipped to
incorporate customer preferences into its development plans. For the three month
period ended March 31, 2004, the Company has begun to realize significant
revenues, and it expects to continue to realize significant revenues and
generate cash flows from these efforts in 2004. For the three months ended March
31, 2004 and 2003, the Company incurred costs related to its research and
development activities totaling $185,000 and $86,000, respectively, of which,
$55,000 and $24,000, respectively, was recorded as research and development
expense and $130,000 and $62,000, respectively, was capitalized and/or charged
to cost of revenues.

         DEPRECIATION AND AMORTIZATION. Amortization expense consists of
amortization of intellectual property, capitalized software development costs
and other intangible assets. Depreciation expense consists of depreciation of
furniture, equipment, software and improvements. Depreciation and amortization
expense was $95,000 for the three months ended March 31, 2004 and $151,000 for
the three months ended March 31, 2003. The decrease of $56,000 was attributable
to reduced depreciation expense in 2004 as a result of a larger portion of the
Company' assets becoming fully depreciated during 2003.

         OPERATING LOSS. During the three months ended March 31, 2004, the
Company incurred a loss from operations of $181,000 as compared to a loss from
operations of $426,000 for the three months ended March 31, 2003. The decrease
in loss from operations for the three months ended March 31, 2004 was primarily
due to the increased revenues described above.

         INTEREST EXPENSE. Interest expense was $198,000 for the three months
ended March 31, 2004 compared to $154,000 for the three months ended March 31,
2003. The increase in interest expense was largely attributable to increased
amortization of debt discount of $20,000. Interest expense during the three
months ended March 31, 2004 included cash interest costs of $20,000 accrued on
notes payable for money borrowed. Interest expense for the three months ended
March 31, 2004 also included non-cash interest charges aggregating $178,000,

<PAGE>


including a non-cash interest charge of $165,000 related to the amortization of
debt discount, non-cash interest expense of $9,000 related to amortization of
non-cash financing costs and non-cash interest expense of $4,000 related to the
value of warrants to purchase common stock issued in conjunction with the
restructuring of certain payables in 2003.

         FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS. The Company conducts
business in various countries outside the United States in which the functional
currency of the country is not the U.S. dollar. As a result, the Company has
foreign currency exchange translation exposure as the results of these foreign
operations are translated into U.S. dollars in its consolidated financial
statements. The effect of changes in value of the U.S. dollar compared to other
currencies, primarily the euro, has been to increase reported revenues and
operating profit when the U.S. dollar weakens and reduce these amounts when the
dollar strengthens. While the Company looks for opportunities to reduce its
exposure to foreign currency fluctuations against the U.S. dollar, at this point
the Company has not had adequate financial resources to pursue hedging
opportunities generally. At March 31, 2004, the Company reported an accumulated
translation gain of $73,000 as a component of accumulated other comprehensive
income. The Company is also subject to foreign exchange transaction exposure
because it provides for intercompany funding between the U.S. and international
operations, and when its French subsidiary transacts business in a currency
other than its own functional currency. The effects of exchange rate
fluctuations in remeasuring foreign currency transactions for the three months
ended March 31, 2004 and 2003 were not significant for the periods presented.

         NET LOSS. During the three months ended March 31, 2004, the Company
incurred a net loss of $356,000 as compared to a net loss of $244,000 for the
three months ended March 31, 2003. The increase in net loss for the three months
ended March 31, 2004 was primarily due to there having been $322,000 of income
from operations of the discontinued business units for the three months ended
March 31, 2003 and, to a lesser extent, increased non-cash interest expense in
the first quarter of 2004, which was offset, in part, by lower operating losses
in the current period.

<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY AND CAPITAL RESOURCES

         At March 31, 2004, the Company had $255,000 of cash and cash
equivalents. Issuance of convertible debt securities have been a principal
source of liquidity for the Company.

         On May 13, 2004, the Company consummated a private placement pursuant
to which the Company issued a secured convertible term note due May 13, 2007 in
the principal amount of $5,000,000 (the "Note"), and the Company issued a common
stock purchase warrant, entitling the holder to purchase 4,435,500 shares of
common stock (the "Warrant"). The Note and the Warrant were sold to a single
"accredited investor" (as such term is defined in the rules promulgated under
the Securities Act of 1933, as amended (the "Act")), Laurus Master Fund, Ltd.
("Laurus"), for a purchase price of $5,000,000. The principal and unpaid
interest, which shall accrue at a rate per annum equal to the "prime rate"
published in THE WALL STREET JOURNAL from time to time, plus one percent (1%),
on the Note are convertible into shares of the Company's common stock at a price
of $0.50 per share (the "Fixed Conversion Price"),which was equal to the lesser
of (i) 110% of the closing price of the common stock on the business day
immediately preceding the closing date, and (ii) 100% of the average closing
prices of the common stock for the ten consecutive trading days prior to the
closing date. Such conversion price is subject to antidilution adjustments. The
Note is collateralized by a security interest in all of the assets of the
Company, including a cash collateral account that was funded with $3,500,000 of
the proceeds of the Note and is subject to release to the Company only upon
conversion of the Note into common stock and other limited circumstances.

         On March 1, 2004, a noteholder instructed the Company to convert
$75,000 aggregate principal amount of the Company's 8% unsecured convertible
notes into 1,785,714 shares of common stock.

         In March 2004, the Company received $50,000 upon the issuance of an
additional $50,000 principal amount of the existing 8% unsecured convertible
notes maturing September 30, 2004.

         On April 1, 2004, three noteholders instructed the Company to convert
$385,000 aggregate principal amount of the Company's 8% unsecured convertible
notes into 9,166,667 shares of common stock.

         On May 4, 2004, a noteholder instructed the Company to convert $66,000
aggregate principal amount of the Company's 8% unsecured convertible notes into
1,571,000 shares of common stock.

         The Company is still in the early stages of executing its business
strategy and expects to begin numerous new engagements during the next 12
months. Although the Company is experiencing success in the deployment of its
marketing strategy for the sale and delivery of its DIVArchive and other
software solutions, continuation of this success is contingent upon several
factors, including available cash resources, the prices of its products and
services relative to those of its competitors, and general economic and business
conditions, among others.

         The Company expects that anticipated cash flow from operations combined
with its cash and cash equivalents at April 1, 2004 will be sufficient to

<PAGE>


operate through March 31, 2005. In addition, with the $5 million proceeds from
the sale of the Note in May 2004, the Company believes it has sufficient capital
available for the execution of its business strategy and its continued growth
and expansion. However, the Company incurred an operating loss of $181,000 for
the three months ended March 31, 2004 and $426,000 for the comparable prior year
period. These losses and other factors, including the early stage of the
Company's business, as well as potential changes in the business and competitive
environment in which the Company operates, continue to present a significant
risk to the Company's long-term success. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. The Company's
actual financial results may differ materially from the stated plan of
operations. Factors which may cause a change from the Company's plan of
operations vary, but include, without limitation, decisions of the Company's
management and board of directors not to pursue the stated plan of operations
based on its reassessment of the plan, and general economic conditions.
Additionally, there can be no assurance that the Company's business will
generate cash flows at or above current levels. Accordingly, the Company may
choose to defer capital expenditure plans and extend vendor payments for
additional cash flow flexibility.

         The Company expects capital expenditures to be approximately $0.5
million during the 12-month period ending March 31, 2005. It is expected that
the Company's principal uses of cash will be for working capital, to finance
capital expenditures and for other general corporate purposes, including
financing the expansion of the business and implementation of its sales and
marketing strategy. The amount of spending in each respective area is dependent
upon the total capital available to the Company.

         As of March 31, 2004, the Company had current assets of $1.6 million.
These assets were primarily derived from operations of the Company in the three
month period ended March 31, 2004, the funding of the 8% unsecured convertible
notes completed in April 2003 and the sale of the DIVArchive Medical business
unit. Long-term assets of $1.3 million at March 31, 2004 consisted of $416,000
in goodwill associated with DIVArchive assets acquired during 2002, software and
intellectual property of $256,000, property and equipment of $133,000, software
development costs of $474,000 and other assets of $31,000.

         Current liabilities of $4.1 million at March 31, 2004 consisted of
$1.0 million of accounts payable; $0.7 million of deferred revenue, which
consisted of billings in excess of revenue recognized, deposits and progress
payments received on engagements currently in progress; $0.8 million of accrued
expenses; $0.9 million of accrued expenses to employees; $641,000 of unsecured
convertible notes payable, net of debt discount of $364,000; and $95,000 for the
current portion other long-term obligations.

         The Company's working capital deficit was $2.5 million as of March 31,
2004 for the reasons described above. At such date, the Company's working
capital deficit excluding non-cash liabilities (deferred revenue and accrued
vacation and related obligations) was $1.5 million. Also, included in current
liabilities was $601,000 ($965,000 principal net of $364,000 discount) of the
Company's outstanding 8% convertible notes, which the Company expects will be
converted into common stock and thus not be realized as a cash obligation of the
Company. Assuming conversion of the Company's 8% convertible notes (of which,
$526,000 in principal amount was converted during March, April and May 2004),
the Company's estimated working capital deficit would be approximately $0.9
million.

<PAGE>


         The Company used net cash of $58,000 in operating activities during the
three months ended March 31, 2004, primarily as a result of the net losses
incurred during the period. The Company used net cash of $526,000 from operating
activities during the three months ended March 31, 2003. The reduction in net
cash used in operating activities was attributable to reduced operating losses
for the current period and an increase in deferred revenues as a result of
accelerated billings and collections in advance of revenue recognition.

         The Company used net cash of $164,000 in investing activities during
the three months ended March 31, 2004, of which $34,000 represented capital
expenditures and $130,000 was used for the development of the Company's suite of
video software solutions and other investing activities. During the three months
ended March 31, 2003, the Company used $45,000 in investing activities, of which
$31,000 represented proceeds from the sale of fixed assets, which was offset by
$6,000 used for capital expenditures and $62,000 used for the development of the
Company's suite of video software solutions and other investing activities.

         Financing activities provided net cash of $12,000 during the three
months ended March 31, 2004, primarily from proceeds from the issuance of notes
payable of $50,000, which was offset by principal repayments on notes payable
and other long-term liabilities of $38,000. Financing activities used net cash
of $120,000 during the three months ended March 31, 2003 primarily from
principal repayments on notes payable and capital leases.

ITEM 3. CONTROLS AND PROCEDURES

            DISCLOSURE CONTROLS AND PROCEDURES. The Company's management, with
the participation of the Company's chief executive officer and chief financial
officer, has evaluated the effectiveness of the Company's disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the
end of the period covered by this report. Based on such evaluation, the
Company's chief executive officer and chief financial officer have concluded
that, as of the end of such period, the Company's disclosure controls and
procedures are effective in recording, processing, summarizing and reporting, on
a timely basis, information required to be disclosed by the Company in the
reports that it files or submits under the Exchange Act.

            INTERNAL CONTROL OVER FINANCIAL REPORTING. There have not been any
changes in the Company's internal control over financial reporting (as such term
is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
first quarter of 2004 that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting.

<PAGE>


PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:

         The following exhibits are filed herewith:

     (a)      Exhibits

     10.1     Securities Purchase Agreement, dated as of May 13, 2004, by and
              between Front Porch Digital, Inc. and Laurus Master Fund, Ltd.

     10.2     Secured Convertible Term Note, dated as of May 13, 2004, made by
              Front Porch Digital, Inc. in favor of Laurus Master Fund, Ltd.

     10.3     Master Security Agreement, dated May 13, 2004, by and among, Front
              Porch Digital, Inc., Front Porch Digital International, Inc. and
              Laurus Master Fund, Ltd.

     10.4     Registration Rights Agreement, dated as of May 13, 2004, by and
              between Front Porch Digital, Inc. and Laurus Master Fund, Ltd.

     10.5     Common Stock Purchase Warrant, dated May 13, 2004, issued by Front
              Porch Digital, Inc. in favor of Laurus Master Fund, Ltd.

     10.6     Restricted Account Agreement, dated May 13, 2004, by and among
              North Fork Bank, Front Porch Digital, Inc. and Laurus Master Fund,
              Ltd.

     10.7     Funds Escrow Agreement, dated as of May 13, 2004, among Front
              Porch Digital, Inc., Laurus Master Fund, Ltd. and Loeb & Loeb LLP.

     31.1     Certification of Chief Executive Officer pursuant to 18 U.S.C.
              1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
              of 2002.

     31.2     Certification of Chief Financial Officer pursuant to 18 U.S.C.
              1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
              of 2002.

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

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

     (b)  Current Reports on Form 8-K

         On January 6, 2004, the Company filed a Current Report on From 8-K
     reporting the dissemination of a press release dated January 6, 2004
     relating to software sales made to the broadcast, media and entertainment
     markets in 2003.

<PAGE>


            On February 2, 2004, the Company filed a Current Report on From 8-K
     reporting the distribution of a letter to all of the Company's stockholders
     relating to the Company's new management team and updating the stockholders
     on the Company's current status.

            On April 6, 2004, the Company filed a Current Report on From 8-K
     reporting the dissemination of a press release dated April 1, 2004 relating
     to results of operation for the year ended December 31, 2003 and
     projections for the first financial quarter of 2004.

<PAGE>


                                   SIGNATURES

        In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

Dated: May 14, 2004

                                              FRONT PORCH DIGITAL INC.

                                               BY: /S/ MICHAEL KNAISCH
                                                   Michael Knaisch
                                               Chief Executive Officer
                                            (principal executive officer)

                                               BY: /S/ MATTHEW RICHMAN
                                                   Matthew Richman
                                        Chief Financial Officer and Treasurer
                                    (principal financial and accounting officer)