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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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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 NOVEMBER 30, 2001

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

FOR THE TRANSITION PERIOD FROM  TO

Commission file number 000-25249

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INTRAWARE, INC.(Exact name of Registrant as specified in its charter)

DELAWARE(State or other jurisdiction of
incorporation or organization)

68-0389976(I.R.S. Employer
Identification Number)25 ORINDA WAY
ORINDA, CA 94563
(Address of principal executive offices)(925) 253-4500
(Registrant's telephone number, including area code)


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Indicate
by check (X) whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the 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 January 10, 2002 there were 39,377,973 shares of the registrant's Common Stock outstanding.

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TABLE OF CONTENTS

|PART I FINANCIAL INFORMATION |  | 1                                                                                    
|---------------------------- |  | -------------------------------------------------------------------------------------
|ITEM 1.                      |  | CONSOLIDATED FINANCIAL STATEMENTS                                                    
|                             |  | CONSOLIDATED BALANCE SHEETS                                                          
|                             |  | CONSOLIDATED STATEMENTS OF OPERATIONS                                                
|                             |  | CONSOLIDATED STATEMENTS OF CASH FLOWS                                                
|                             |  | NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL INFORMATION                        
|ITEM 2.                      |  | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                             |  | RISK FACTORS                                                                         
|ITEM 3.                      |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|PART II OTHER INFORMATION    |  | 30                                                                                   
|ITEM 1.                      |  | LEGAL PROCEEDINGS                                                                    
|ITEM 2.                      |  | CHANGES IN SECURITIES AND USE OF PROCEEDS                                            
|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                                                                            

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PART I FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

INTRAWARE, INC.  CONSOLIDATED BALANCE SHEETS  (in thousands, except per share amounts)  (unaudited)

|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                       | November 30, 2001          |                                                                                    | February 28, 2001 |       
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ---------------------------------------------------------------------------------- | ----------------- | ------
|ASSETS                                                                                                                                                                                                                                                                                               |                                                                                                                                                                       |                            |                                                                                    |                   |       
|Current assets:                                                                                                                                                                                                                                                                                      |                                                                                                                                                                       |                            |                                                                                    |                   |       
|                                                                                                                                                                                                                                                                                                     | Cash and cash equivalents                                                                                                                                             |                            | $                                                                                  | 4,056             |       
|                                                                                                                                                                                                                                                                                                     | Restricted cash                                                                                                                                                       |                            |                                                                                    | 1,260             |       
|                                                                                                                                                                                                                                                                                                     | Accounts receivable, net                                                                                                                                              |                            |                                                                                    | 2,182             |       
|                                                                                                                                                                                                                                                                                                     | Prepaid licenses, services and cost of deferred revenue                                                                                                               |                            |                                                                                    | 13,419            |       
|                                                                                                                                                                                                                                                                                                     | Other current assets                                                                                                                                                  |                            |                                                                                    | 2,491             |       
|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                       |                            |                                                                                    |                   |       
|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                       | Total current assets       |                                                                                    |                   | 23,408
|Cost of deferred revenue                                                                                                                                                                                                                                                                             |                                                                                                                                                                       |                            | 472                                                                                |                   |       
|Property and equipment, net                                                                                                                                                                                                                                                                          |                                                                                                                                                                       |                            | 7,202                                                                              |                   |       
|Intangible assets, net                                                                                                                                                                                                                                                                               |                                                                                                                                                                       |                            | 10,313                                                                             |                   |       
|Other assets                                                                                                                                                                                                                                                                                         |                                                                                                                                                                       |                            | 211                                                                                |                   |       
|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                       |                            |                                                                                    |                   |       
|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                       |                            | Total assets                                                                       |                   | $     
|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                       |                            |                                                                                    |                   |       
|LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK & STOCKHOLDERS' EQUITY                                                                                                                                                                                                                           |                                                                                                                                                                       |                            |                                                                                    |                   |       
|Current liabilities:                                                                                                                                                                                                                                                                                 |                                                                                                                                                                       |                            |                                                                                    |                   |       
|                                                                                                                                                                                                                                                                                                     | Bank borrowings                                                                                                                                                       |                            | $                                                                                  |                  |       
|                                                                                                                                                                                                                                                                                                     | Notes payable                                                                                                                                                         |                            |                                                                                    | 4,220             |       
|                                                                                                                                                                                                                                                                                                     | Warrants                                                                                                                                                              |                            |                                                                                    | 279               |       
|                                                                                                                                                                                                                                                                                                     | Accounts payable                                                                                                                                                      |                            |                                                                                    | 6,886             |       
|                                                                                                                                                                                                                                                                                                     | Accrued expenses                                                                                                                                                      |                            |                                                                                    | 2,775             |       
|                                                                                                                                                                                                                                                                                                     | Deferred revenue                                                                                                                                                      |                            |                                                                                    | 16,048            |       
|                                                                                                                                                                                                                                                                                                     | Capital lease and other obligations                                                                                                                                   |                            |                                                                                    | 1,724             |       
|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                       |                            |                                                                                    |                   |       
|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                       | Total current liabilities  |                                                                                    |                   | 31,932
|Deferred revenue                                                                                                                                                                                                                                                                                     |                                                                                                                                                                       |                            | 1,092                                                                              |                   |       
|Capital lease and other obligations                                                                                                                                                                                                                                                                  |                                                                                                                                                                       |                            | 2,776                                                                              |                   |       
|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                       |                            |                                                                                    |                   |       
|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                       |                            | Total liabilities                                                                  |                   |       
|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                       |                            |                                                                                    |                   |       
|Commitments and contingencies                                                                                                                                                                                                                                                                        |                                                                                                                                                                       |                            |                                                                                    |                   |       
|Redeemable convertible preferred stock, 10,000 shares authorized, $.0001 par value; 1,891 and 2,873 shares issued and outstanding at November 30 and February 28, 2001, respectively (aggregate liquidation preference of
$5,962 and $5,100 at November 30, 2001 and February 28, 2001 respectively) |                                                                                                                                                                       |                            | 4,929                                                                              |                   |       
|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                       |                            |                                                                                    |                   |       
|Stockholders' equity:                                                                                                                                                                                                                                                                                |                                                                                                                                                                       |                            |                                                                                    |                   |       
|                                                                                                                                                                                                                                                                                                     | Common stock; $0.0001 par value; 250,000 shares authorized, 37,776 and 28,375 issued shares issued and outstanding at November 30 and February 28, 2001, respectively |                            |                                                                                    | 3                 |       
|                                                                                                                                                                                                                                                                                                     | Additional paid-in-capital                                                                                                                                            |                            |                                                                                    | 141,027           |       
|                                                                                                                                                                                                                                                                                                     | Unearned compensation                                                                                                                                                 |                            |                                                                                    | (2,232            | )     
|                                                                                                                                                                                                                                                                                                     | Accumulated deficit                                                                                                                                                   |                            |                                                                                    | (137,921          | )     
|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                       |                            |                                                                                    |                   |       
|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                       | Total stockholders' equity |                                                                                    |                   | 877   
|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                       |                            |                                                                                    |                   |       
|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                       |                            | Total liabilities, redeemable convertible preferred stock and stockholders' equity |                   | $     
|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                       |                            |                                                                                    |                   |       

See notes to unaudited interim consolidated financial information.

1

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INTRAWARE, INC.  CONSOLIDATED STATEMENTS OF OPERATIONS  (in thousands, except for per share amounts)  (unaudited)

|                                                                                                                                                                                |                                 | For the Three Months Ended |              | For the Nine Months Ended |      
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------- | -------------------------- | ------------ | ------------------------- | -----
|
|Revenues:                                                                                                                                                                       |                                 |                            |              |                           |      
|                                                                                                                                                                                | Software product sales          |                            | $            | 5,989                     |      
|                                                                                                                                                                                | Online services and technology  |                            |              | 3,384                     |      
|                                                                                                                                                                                |                                 |                            |              |                           |      
|                                                                                                                                                                                |                                 | Total revenues             |              |                           | 9,373
|                                                                                                                                                                                |                                 |                            |              |                           |      
|Cost of revenues:                                                                                                                                                               |                                 |                            |              |                           |      
|                                                                                                                                                                                | Software product sales          |                            |              | 4,053                     |      
|                                                                                                                                                                                | Online services and technology  |                            |              | 947                       |      
|                                                                                                                                                                                |                                 |                            |              |                           |      
|                                                                                                                                                                                |                                 | Total cost of revenues     |              |                           | 5,000
|                                                                                                                                                                                |                                 |                            |              |                           |      
|                                                                                                                                                                                |                                 |                            | Gross profit |                           |      
|                                                                                                                                                                                |                                 |                            |              |                           |      
|Operating expenses:                                                                                                                                                             |                                 |                            |              |                           |      
|                                                                                                                                                                                | Sales and marketing             |                            |              | 2,682                     |      
|                                                                                                                                                                                | Product development             |                            |              | 2,249                     |      
|                                                                                                                                                                                | General and administrative      |                            |              | 1,217                     |      
|                                                                                                                                                                                | Restructuring and other charges |                            |              | 150                       |      
|                                                                                                                                                                                | Loss on abandonment of assets   |                            |              | 328                       |      
|                                                                                                                                                                                | Amortization of intangibles     |                            |              | 1,751                     |      
|                                                                                                                                                                                |                                 |                            |              |                           |      
|                                                                                                                                                                                |                                 | Total operating expenses   |              |                           | 8,377
|                                                                                                                                                                                |                                 |                            |              |                           |      
|Loss from operations                                                                                                                                                            |                                 |                            | (4,004       | )                         |      
|Interest expense                                                                                                                                                                |                                 |                            | (1,144       | )                         |      
|Interest income and other income and expenses                                                                                                                                   |                                 |                            | 1,062        |                           |      
|                                                                                                                                                                                |                                 |                            |              |                           |      
|Net loss                                                                                                                                                                        |                                 |                            | (4,086       | )                         |      
|Deemed dividend due to beneficial conversion feature of preferred stock, mandatorily redeemable convertible preferred stock accrued dividend and accretion to liquidation value |                                 |                            | (880         | )                         |      
|                                                                                                                                                                                |                                 |                            |              |                           |      
|Net loss attributable to common stockholders                                                                                                                                    |                                 | $                          | (4,966       | )                         | $    
|                                                                                                                                                                                |                                 |                            |              |                           |      
|Basic and diluted net loss per share attributable to common stockholders                                                                                                        |                                 | $                          | (0.16        | )                         | $    
|                                                                                                                                                                                |                                 |                            |              |                           |      
|Weighted average sharesbasic and diluted                                                                                                                                       |                                 |                            | 30,517       |                           |      
|                                                                                                                                                                                |                                 |                            |              |                           |      

See notes to unaudited interim consolidated financial information.

2

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INTRAWARE, INC.  CONSOLIDATED STATEMENTS OF CASH FLOWS  (in thousands)  (unaudited)

|                                                  |                                                                                | For the Nine Months Ended                               |                                                        
|------------------------------------------------- | ------------------------------------------------------------------------------ | ------------------------------------------------------- | -------------------------------------------------------
|
|Cash flows from operating activities:             |                                                                                |                                                         |                                                        
|                                                  | Net loss                                                                       |                                                         | $                                                      
|                                                  | Adjustments to reconcile net loss to net cash used in operating activities:    |                                                         |                                                        
|                                                  |                                                                                | Depreciation and amortization                           |                                                        
|                                                  |                                                                                | Amortization of unearned compensation                   |                                                        
|                                                  |                                                                                | Provision for (recovery of) doubtful accounts           |                                                        
|                                                  |                                                                                | Loss on abandonment of assets                           |                                                        
|                                                  |                                                                                | Warrants adjustment to fair value                       |                                                        
|                                                  |                                                                                | Amortization of discount on note payable                |                                                        
|                                                  |                                                                                | Accrued interest                                        |                                                        
|                                                  |                                                                                | Amortization of warrant charge offset against revenue   |                                                        
|                                                  |                                                                                | Changes in assets and liabilities:                      |                                                        
|                                                  |                                                                                |                                                         | Accounts receivable                                    
|                                                  |                                                                                |                                                         | Prepaid licenses, services and cost of deferred revenue
|                                                  |                                                                                |                                                         | Other assets                                           
|                                                  |                                                                                |                                                         | Accounts payable                                       
|                                                  |                                                                                |                                                         | Accrued expenses                                       
|                                                  |                                                                                |                                                         | Deferred revenue                                       
|                                                  |                                                                                |                                                         |                                                        
|Net cash used in operating activities             |                                                                                |                                                         | (8,575                                                 
|                                                  |                                                                                |                                                         |                                                        
|Cash flows from investing activities:             |                                                                                |                                                         |                                                        
|                                                  |                                                                                | Purchase of property and equipment                      |                                                        
|                                                  |                                                                                | Cash from acquisition of Janus Technologies, Inc.       |                                                        
|                                                  |                                                                                | Decrease in restricted cash equivalents                 |                                                        
|                                                  |                                                                                | Proceeds from sales of fixed assets                     |                                                        
|                                                  |                                                                                | Puchase of investments                                  |                                                        
|                                                  |                                                                                | Proceeds from sales of investments                      |                                                        
|                                                  |                                                                                |                                                         |                                                        
|Net cash provided by investment activities        |                                                                                |                                                         | 538                                                    
|                                                  |                                                                                |                                                         |                                                        
|Cash flows from financing activities:             |                                                                                |                                                         |                                                        
|                                                  |                                                                                | Proceeds from common stock, net                         |                                                        
|                                                  |                                                                                | Proceeds from notes and warrants, net of issuance costs |                                                        
|                                                  |                                                                                | Repayment of bank borrowings                            |                                                        
|                                                  |                                                                                | Borrowings on bank borrowings                           |                                                        
|                                                  |                                                                                | Proceeds from preferred stock and warrants, net         |                                                        
|                                                  |                                                                                | Redemption of preferred stock                           |                                                        
|                                                  |                                                                                | Dividends paid to preferred stockholders                |                                                        
|                                                  |                                                                                | Principal payments on capital lease obligations         |                                                        
|                                                  |                                                                                |                                                         |                                                        
|Net cash provided by financing activities         |                                                                                |                                                         | 5,047                                                  
|                                                  |                                                                                |                                                         |                                                        
|Net decrease in cash and cash equivalents         |                                                                                |                                                         | (2,990                                                 
|Cash and cash equivalents at beginning of period  |                                                                                |                                                         | 7,046                                                  
|                                                  |                                                                                |                                                         |                                                        
|Cash and cash equivalents at end of period        |                                                                                | $                                                       | 4,056                                                  
|                                                  |                                                                                |                                                         |                                                        
|Supplemental disclosure of cash flow information: |                                                                                |                                                         |                                                        
|                                                  | Cash paid for interest                                                         |                                                         | $                                                      
|Supplemental non-cash activity:                   |                                                                                |                                                         |                                                        
|                                                  | Property and equipment leases                                                  |                                                         | $                                                      
|                                                  | Prepaid maintenance leases                                                     |                                                         | $                                                      
|                                                  | Common stock issued in conjuction with acquisition of Janus Technologies, Inc. |                                                         | $                                                      

See notes to unaudited interim consolidated financial information.

3

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INTRAWARE, INC.  NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL INFORMATION

NOTE 1.    BASIS OF PRESENTATION

INTRAWARE, INC.

The accompanying consolidated financial statements for the three months and nine months ended November 30, 2001 and 2000 are unaudited and reflect all normal
and recurring adjustments which are, in the opinion of our management, necessary for fair presentation of the consolidated balance sheets, statements of operations, and statements of cash flows for
the periods presented.

These
consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the
fiscal year ended February 28, 2001 and the Forms 10-Q for the fiscal quarters ended May 31 and August 31, 2001. The preparation of consolidated financial statements in conformity with generally
accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting periods. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in
accordance with generally accepted accounting principles have been condensed or omitted as permitted by rules and regulations of the Securities and Exchange Commission (the "SEC"). The results of
operations for the interim period ended November 30, 2001 are not necessarily indicative of results to be expected for the full year.

Certain
reclassifications have been made to prior year consolidated financial statements to conform to the current year's presentation.

NOTE 2.    NET LOSS PER SHARE

Basic net loss per Common share is computed by dividing the net loss attributable to Common stockholders for the period by the weighted average number of
Common shares outstanding during the period excluding shares subject to repurchase. Diluted net loss per share is computed by dividing the net loss attributable to Common stockholders for the period
by the weighted average number of Common and potential Common shares outstanding during the period if the effect is dilutive. Potential Common shares are composed of Common Stock subject to repurchase
rights and incremental shares of Common Stock issuable upon the exercise of stock options and warrants and upon conversion of Convertible Preferred Stock.

4

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The following table sets forth the computation of basic and diluted net loss per share as well as securities that are not included in the diluted net loss per share attributable to
Common stockholders calculation because to do so would be antidilutive:

|                                                                                                                                                                                                                    |                                                               | For the Three Months Ended
November 30, |       | For the Nine Months Ended
November 30, |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------- | --------------------------------------- | ----- | -------------------------------------- | -
|
|
|Numerator:                                                                                                                                                                                                          |                                                               |                                         |       |                                        |  
|                                                                                                                                                                                                                    | Net loss attributable to common stockholders                  |                                         | $     | (4,966                                 | )
|                                                                                                                                                                                                                    |                                                               |                                         |       |                                        |  
|Denominator:                                                                                                                                                                                                        |                                                               |                                         |       |                                        |  
|                                                                                                                                                                                                                    | Weighted average shares                                       |                                         |       | 30,548                                 |  
|                                                                                                                                                                                                                    | Weighted average unvested common shares subject to repurchase |                                         |       | (31                                    | )
|                                                                                                                                                                                                                    |                                                               |                                         |       |                                        |  
|                                                                                                                                                                                                                    | Denominator for basic and diluted calculation                 |                                         |       | 30,517                                 |  
|                                                                                                                                                                                                                    |                                                               |                                         |       |                                        |  
|Basic and diluted net loss per share attributable to common stockholders                                                                                                                                            |                                                               | $                                       | (0.16 | )                                      | $
|                                                                                                                                                                                                                    |                                                               |                                         |       |                                        |  
|Antidilutive securities including options, warrants, convertible redeemable preferred stock and unvested common shares subject to repurchase not included in net loss per share attributable to common stockholders |                                                               |                                         | 9,640 |                                        |  
|                                                                                                                                                                                                                    |                                                               |                                         |       |                                        |  

NOTE 3.    RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business
Combinations" which supersedes Accounting Principles Board ("APB") Opinion No. 16, "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 addition, SFAS 141 establishes specific criteria for the recognition of intangible assets separately from goodwill and requires unallocated negative goodwill to be
written off immediately as an extraordinary gain. The provisions of SFAS 141 were required to be adopted July 1, 2001. The adoption of SFAS 141 has not changed and will not change our method of
accounting used in previous business combinations including those accounted for under the pooling-of-interests method.

In
July 2001, the FASB also issued Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets," which is effective for fiscal years
beginning after December 15, 2001. Certain provisions shall also be applied to acquisitions initiated subsequent to June 30, 2001. SFAS 142 supercedes APB Opinion No. 17 "Intangible Assets" and
requires, among other things, the discontinuance of amortization related to goodwill and indefinite lived intangible assets. These assets will then be subject to an impairment test at least annually.
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 and reclassification of certain intangibles out of previously reported goodwill.

We
are required to adopt SFAS 142 effective March 1, 2002, which will result in our no longer amortizing goodwill. In addition, we will be required to reassess intangible assets,
including goodwill, and test goodwill for impairment, as part of the transition provisions. Any impairment resulting from these transition tests will be recorded as a change in accounting principle.
We are currently in the process of evaluating the potential impact the adoption of SFAS 142 will have on our consolidated financial position or results of operations.

5

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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", which addresses
financial accounting and reporting for the impairment or disposal of long-lived assets. This Statement supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of", and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of OperationsReporting the Effects of Disposal of a Segment
of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for the disposal of a segment of a business. This Statement also amends Accounting Research Bulletin No.
51, "Consolidated Financial Statements", to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. The provisions of SFAS 144 are required to be adopted
during our fiscal year beginning March 1, 2002, however early adoption is acceptable. We are currently in the process of evaluating the potential impact the adoption of SFAS 144 will have on our
consolidated financial position or results of operations.

In
November 2001, the FASB Emerging Task Force ("EITF") reached a consensus on EITF Issue 01-09, "Accounting for Consideration Given by a Vendor to a Customer or a
Reseller of the Vendor's Products," which is a codification of EITF 00-14, 00-22 and 00-25. This issue presumes that consideration from a vendor to a customer or
reseller of the vendor's products is a reduction of the selling prices of
the vendor's products and, therefore, should be characterized as a reduction of revenue when recognized in the vendor's income statement and could lead to negative revenue under certain circumstances.
Revenue reduction is required unless consideration relates to a separate identifiable benefit and the benefit's fair value can be established. This issue should be applied no later than in annual or
interim financial statements for periods beginning after December 15, 2001, which is our fourth quarter ending February 28, 2002. We do not expect the adoption of EITF 01-09
to have a significant impact on our financial statements.

6

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NOTE 4.    CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

During the nine months ended November 30, 2001, our redeemable convertible preferred stock ("preferred stock") and stockholders' equity changed as follows (in
thousands):

|                                                                             |  | Preferred stock |   | Common stock |        |   |        |  |   |   |  |   |         |   |  
|---------------------------------------------------------------------------- |  | --------------- | - | ------------ | ------ | - | ------ |  | - | - |  | - | ------- | - | -
|
|
|Balance at February 28, 2001                                                 |  | 2,873           |   | $            | 4,666  |   | 28,375 |  | $ | 3 |  | $ | 130,625 |   | $
|Exercise of stock options, net of repurchased common stock                   |  |                |   |              |       |   | 29     |  |   |  |  |   | 4       |   |  
|Issuance of common stock for employee stock purchase program                 |  |                |   |              |       |   | 287    |  |   |  |  |   | 253     |   |  
|Deferred stock-based compensation for options forfeited                      |  |                |   |              |       |   |       |  |   |  |  |   | (363    | ) |  
|Issuance of preferred stock with warrants, net of issuance costs of $380     |  | 360             |   |              | 2,696  |   |        |  |   |  |  |   | 524     |   |  
|Beneficial conversion feature on preferred stock                             |  |                |   |              | (2,696 | ) |       |  |   |  |  |   | 2,696   |   |  
|Deemed dividend relating to beneficial conversion feature on preferred stock |  |                |   |              | 2,696  |   |       |  |   |  |  |   | (2,696  | ) |  
|Issuance of warrants in connection with reseller arrangement                 |  |                |   |              |       |   |       |  |   |  |  |   | 1,588   |   |  
|Warrants issued below fair value for offset to future related revenue        |  |                |   |              |       |   |       |  |   |  |  |   | (1,588  | ) |  
|Amortization of warrant charge offset against revenue                        |  |                |   |              |       |   |       |  |   |  |  |   | 454     |   |  
|Amortization of unearned compensation                                        |  |                |   |              |       |   |       |  |   |  |  |   |        |   |  
|Options issued below fair value for services                                 |  |                |   |              |       |   |       |  |   |  |  |   | 120     |   |  
|Conversion of preferred stock into common stock                              |  | (1,342          | ) |              | (2,433 | ) | 1,820  |  |   |  |  |   | 2,433   |   |  
|Options issued below fair value                                              |  |                |   |              |       |   |       |  |   |  |  |   | 97      |   |  
|Exercise of common stock warrants                                            |  |                |   |              |       |   | 7,265  |  |   |  |  |   | 6,880   |   |  
|Net loss                                                                     |  |                |   |              |       |   |       |  |   |  |  |   |        |   |  
|                                                                             |  |                 |   |              |        |   |        |  |   |   |  |   |         |   |  
|Other comprehensive loss                                                     |  |                 |   |              |        |   |        |  |   |   |  |   |         |   |  
|                                                                             |  |                 |   |              |        |   |        |  |   |   |  |   |         |   |  
|Balance at November 30, 2001                                                 |  | 1,891           |   | $            | 4,929  |   | 37,776 |  | $ | 3 |  | $ | 141,027 |   | $
|                                                                             |  |                 |   |              |        |   |        |  |   |   |  |   |         |   |  

In connection with stock option grants during the three months ended November 30, 2001, we recognized unearned compensation totaling
$97,000. This unearned compensation is being amortized over the vesting period of the related options, which ranges from two to four years.

NOTE 5.    REDEEMABLE CONVERTIBLE PREFERRED STOCK

Series A

On January 16, 2001, we raised $5.2 million in financing through the sale of a new class of Series A Redeemable Convertible Preferred Stock and warrants to
investors. Under the terms of this financing, we issued an aggregate of 2,872,922 shares of Redeemable Convertible Preferred Stock at a per share price of $1.81 and warrants to purchase 287,284 shares
of Common Stock at an exercise price of $1.99, or 110% of the purchase price of the Redeemable Convertible Preferred Stock. The warrants expire four years from the issuance date. The purchase price
for the Redeemable Convertible Preferred Stock was the average closing price of our Common Stock during the ten trading-day period ending January 11, 2001, plus a 15% premium. Each share of Redeemable
Convertible Preferred Stock is convertible into one share of Common Stock at the election of the holder and entitles the holder to a liquidation preference equal to the amount of the original
investment, in the event of a liquidation, winding-up or dissolution of the company. The Redeemable Convertible Preferred Stock does not have a dividend and is not subject to adjustments to the
conversion ratio, except for proportional adjustments in the event of a split or combination of the Common Stock. Proceeds from this financing were allocated based on relative fair values of the
Preferred Stock and warrants issued. During fiscal year 2001 we recognized a deemed dividend of $4.7 million that increased the net loss attributable to Common stockholders. This charge was calculated
based on the difference between the accounting conversion rate of the Preferred Stock and the fair market value of our Common Stock on the commitment date.

During
the three months ending November 30, 2001, approximately 1.3 million shares of our Series A Redeemable Convertible Preferred Stock were converted into 1.3 million shares of
Common Stock. At November 30, 2001, approximately 1.6 million shares of Series A Redeemable Convertible Preferred Stock remained outstanding.

7

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Series B-1

On April 2, 2001, we entered into an agreement to sell a new class of Series B Preferred Stock and warrants to institutional and individual investors. Under
the terms of this financing, we issued an aggregate of 360,000 shares of Preferred Stock for aggregate gross proceeds of $3.6 million and net proceeds of $3.2 million, after fees and expenses. We also
issued warrants to purchase 720,000 shares of our Common Stock with an exercise price of $1.125 per share, the closing bid price of our Common Stock on the trading day prior to the closing of the
financing. The warrants expire seven years from the issuance date. Each share of Preferred Stock was convertible into ten shares of Common Stock at the election of the holder and entitled the holder
to a liquidation preference equal to the amount of the original investment, in the event of a liquidation, winding-up or dissolution. The Preferred Stock carried anti-dilution protection requiring a
full adjustment of the conversion price to any lower price at which we sold stock to investors during the three months following the closing, and carried a weighted-average adjustment of the
conversion price based on any sale of stock by us to investors during the subsequent nine-month period. The Preferred Stock did not carry a dividend. The new class of Series B Preferred Stock entitled
the holders to elect a member of our Board of Directors.

Proceeds
from this financing were allocated to the Series B Preferred Stock and warrants issued based on their relative fair values. This amount was calculated based on the difference
between the accounting conversion rate of the Series B Preferred Stock and the fair market value of the Common Stock at the time of commitment to purchase the Series B Preferred Stock. Since the
Series B Preferred Stock was immediately convertible upon issuance we recognized a deemed dividend for the discount of Series B Preferred Stock created by the beneficial conversion feature amounting
to $1.1 million upon the issuance of the Series B Preferred Stock.

In
connection with the debt financing that we completed on September 20, 2001, all of the Series B Preferred Stock was exchanged for a new class of Series B-1 Preferred Stock, and the
Series B Preferred Stock was eliminated as a class. The new Series B-1 Preferred Stock carries substantially the same rights, privileges and preferences as the eliminated Series B Preferred Stock. The
exchange was effected primarily to enable us to issue debt as part of the debt financing that we closed on August 31, 2001 and September 20, 2001 (see Note 9). The terms of the Series B Preferred
Stock prohibited us from issuing debt, but the terms of the Series B-1 Preferred Stock permit us to issue debt with the consent of the holders of a majority of the Series B-1 Preferred Stock.

We
recognized an additional deemed dividend of approximately $687,000 on August 31, 2001, based on the adjustment of the conversion price of the Series B-1 Preferred Stock under its
anti-dilution protections. This deemed dividend was related to the initial closing of our debt financing, with a commitment to issue warrants, on August 31, 2001 (see Note 9). As a result of the
anti-dilution protections, the Series B-1 Preferred Stock was adjusted to be convertible into 4.2 million shares of our Common Stock, and the associated warrants were adjusted to be exercisable for
849,322 shares of our Common Stock at an exercise price of $0.95 per share.

On
September 20, 2001, we recognized another deemed dividend of approximately $880,000. This deemed dividend is related to the second closing of our debt financing on September 20,
2001 (see
Note 9). As a result of the anti-dilution protections, the Series B-1 Preferred Stock was adjusted to be convertible into 4.3 million shares of our Common Stock, and the associated warrants were
adjusted to be exercisable for 866,879 shares of our Common Stock at an exercise price of $0.93 per share.

During
the three months ended November 30, 2001, approximately 43,000 shares of our Series B-1 Redeemable Convertible Preferred Stock were converted into approximately 522,000 shares
of Common Stock. At November 30, 2001, approximately 317,000 shares of Series B-1 Redeemable Convertible Preferred Stock remained outstanding.

8

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NOTE 6.    ABILITY TO CONTINUE OPERATIONS

Our Annual Report on Form 10-K for the year ended February 28, 2001 contains a disclosure expressing substantial doubt regarding our ability to continue as a
going concern as a result of our recurring losses and negative cash flows from operations. We were in breach of covenants related to our commercial bank line of credit which expired on April 29, 2001,
and under which we owed $3.3 million in callable debt. On August 31, 2001 we completed our repayment in full of the $3.3 million loan previously owing to Imperial Bank, and the agreement for that loan
has been terminated. Although we restructured our operations in December 2000 and August 2001 in order to reduce discretionary spending, raised a net $9.6 million in new financing between April 2001
and September 2001, of which $7 million is repayable on August 31, 2002, and continue to seek both additional capital and additional revenue through sales of our products and services, there is no
assurance that we will succeed in generating sufficient revenue or obtaining sufficient additional financing on terms acceptable to us to enable us to continue operations.

Our
future capital requirements will depend on many factors, including our ability to increase revenue levels and reduce costs of operations to generate positive cash flows, the
timing and extent of spending to support expansion of sales and marketing, and market acceptance of our products and timeliness of collections of our accounts receivable. Although we have historically
been able to satisfy our cash requirements, there can be no assurance that efforts to obtain sufficient financing for operations will be successful in the future. Our future capital needs will be
highly dependent upon our ability to control expenses and generate additional software license revenues, and any projections of future cash needs and cash flows are subject to substantial uncertainty.
Our ability to raise additional capital may be weakened in the event we do not maintain Nasdaq listing requirements.

While
we are taking steps to improve our sales efforts and are controlling our expenditures, there can be no assurance that we will succeed in obtaining additional funding resources,
generating sufficient cash from operations, or achieving profitability.

NOTE 7.    RESTRUCTURING AND LOSS ON ABANDONMENT OF ASSETS

December 2000

At February 28, 2001, we had a remaining restructuring accrual of $628,000 relating to our December 1, 2000 strategic restructuring. As of
November 30, 2001 we have settled all liabilities associated with the December 2000 strategic restructuring.

August 2001

On August 8, 2001 we announced a strategic reorganization designed to accelerate our drive toward profitability and enhance our capital-raising
opportunities. We recorded a charge of $8,613,000 relating to this restructuring and the loss on abandonment of assets during the quarter ended August 31, 2001.

The
loss on abandonment of assets includes the write off of approximately $3.7 million of certain intangibles relating to the BITSource, Inc. acquisition as we have
abandoned the related technology. The write off consisted of the following components: $521,000 for trademarks, $510,000 for goodwill, and $2,708,000 for existing technology. We wrote off leasehold
improvements and furniture and fixtures with net book values of approximately $2.7 million. These assets were taken out of service, as they were deemed unnecessary due to the reductions in work
force. Included in this amount are certain furniture and fixtures that were written down to a net realizable value of approximately $55,000. These furniture and fixtures were taken out of service in
the second quarter of fiscal 2002 and subsequently disposed of or sold.

9

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The restructuring consisted of approximately $262,000 for severance and benefits relating to the involuntary termination of 66 employees, all of which were based in North America. We
reduced our workforce to 120 employees from 186 at the end of July. Of the 66 terminated employees, 25 were in Sales and Marketing, 26 were in Product Development and 15 were in General and
Administrative. We also consolidated our two San Francisco Bay Area offices into one. We accrued for lease and related costs of approximately $1.9 million principally pertaining to the
estimated future obligations of non-cancelable lease payments for excess facilities in the San Francisco Bay Area that were vacated due to the reduction in work force. We also recognized
an additional $27,000 relating to other restructuring expenses.

Due
to changes in management's estimates relating to the strategic reorganization on August 8, 2001, we recognized additional expense of approximately $478,000 during the three
months ended November 30, 2001. At November 30, 2001, we had a restructuring accrual of approximately $1,323,000. Of the $738,000 in non-cash charges incurred during the
three months ended November 30, 2001, approximately $120,000 relates the Black-Scholes fair value of an option issued to a consultant on September 5, 2001 for services performed in
conjunction with exiting our excess lease space. We issued a fully-vested and immediately exercisable option to purchase 110,000 shares of our Common Stock at an exercise price of $0.01 per share. The
term of the option is ten years.

We
made cash payments of approximately $596,000 during the nine months ended November 30, 2001. At November 30, 2001 we had a remaining restructuring accrual of
approximately $1,323,000, of which approximately $1,317,000 was related to excess rent and sublease costs and the remainder was severance costs.

The
following table sets forth an analysis of the components of the restructuring and loss on abandonment charges recorded in the second quarter of fiscal 2002 and subsequent
adjustments and payments made against the reserve (in thousands):

|                                                               |                                      | Asset write-
offs |       | Severance and
benefits |     | Excess lease
and related costs |       | Other costs |    | Total  |      
|-------------------------------------------------------------- | ------------------------------------ | ----------------- | ----- | ---------------------- | --- | ------------------------------ | ----- | ----------- | -- | ------ | -----
|August 8, 2001 restructuring and loss on abandonment of assets |                                      | 6,407             |       | 262                    |     | 1,917                          |       | 27          |    | 8,613  |      
|                                                               |                                      |                   |       |                        |     |                                |       |             |    |        |      
|                                                               | Total                                |                   | 6,407 |                        | 262 |                                | 1,917 |             | 27 |        | 8,613
|Cash paid                                                      |                                      |                  |       | (209                   | )   | (94                            | )     |            |    | (303   | )    
|Non-cash charges                                               |                                      | (6,407            | )     |                       |     |                               |       | (27         | )  | (6,434 | )    
|                                                               |                                      |                   |       |                        |     |                                |       |             |    |        |      
|                                                               | Reserve balance at August 31, 2001   |                   |      |                        | 53  |                                | 1,823 |             |   |        | 1,876
|Cash paid                                                      |                                      |                  |       | (47                    | )   | (246                           | )     |            |    | (293   | )    
|Non-cash charges                                               |                                      | (328              | )     |                       |     | (410                           | )     |            |    | (738   | )    
|Provision adjustment                                           |                                      | 328               |       |                       |     | 150                            |       |            |    | 478    |      
|                                                               |                                      |                   |       |                        |     |                                |       |             |    |        |      
|                                                               | Reserve balance at November 30, 2001 |                   |      |                        | 6   |                                | 1,317 |             |   |        | 1,323
|                                                               |                                      |                   |       |                        |     |                                |       |             |    |        |      

We
expect to pay the remaining accrual in cash within the next twelve months. While our accrual reflects management's best estimate of the costs to be incurred related to the
activities above, actual costs incurred may differ from initial estimates recorded.

As
of November 30, 2001, we had approximately $1.3 million of restricted cash which was secured by an irrevocable letter of credit for the benefit of our landlord. This
was subsequently fully drawn in December 2001 in order to satisfy our remaining lease obligation for the vacated office space.

10

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NOTE 8.    CORPSOFT, INC. ALLIANCE

On May 22 and June 28, 2001, we entered into agreements with CorpSoft, Inc., a leading reseller of business software and provider of software asset management
services and technologies.

Under
the May 22, 2001 agreement, CorpSoft is offering our Argis suite of products to its North American customers as its exclusive information technology asset management repository
solution until May 2003, unless the agreement is terminated earlier. During this period, CorpSoft is acting as our exclusive reseller of the Argis suite in North America. These exclusivity provisions
of the agreement are subject to exceptions, and may terminate completely in certain circumstances. CorpSoft pays to us our list fees, less prescribed discount percentages, for the Argis software
products and related maintenance, training and professional services. We recognize the associated net revenue based on the criteria described in the previous sentence. In addition, we issued to
CorpSoft a fully-vested nonforfeitable warrant to purchase 800,000 shares of our Common Stock at $1.71 per share, the average closing price of our Common Stock from May 8, 2001 to May 21, 2001. Of the
800,000 shares subject to the warrant, 200,000 would have become exercisable on November 30, 2001 had CorpSoft attained a prescribed sales goal for our fiscal quarter ended on that date. However,
CorpSoft did not attain that goal; therefore, these shares will become exercisable on the earlier of either May 22, 2005 (the fourth anniversary date) or any termination of the agreement. Of the
remaining 600,000 shares subject to the warrant, 100,000 will become exercisable at the end of each of our future fiscal quarters that CorpSoft attains its prescribed sales goals; if any of these
sales goals are not attained, the relevant shares will become exercisable on the earlier of either May 22, 2005 or any termination of the agreement. The term of the warrant is ten years. Based on a
Black-Scholes calculation on May 22, 2001, the warrant is valued at approximately $1.6 million. This value is being recognized over the lesser of a ratable charge over the 24-month term of the
arrangement or the period of time it takes for CorpSoft to generate $1.6 million in Argis revenue. During the three and nine months ended November 30, 2001 we recorded a related non-cash offset to
revenue of approximately $255,000 and $454,000, respectively.

Under
the June 28, 2001 agreement, we assigned to CorpSoft our agreement with Sun Microsystems, Inc. under which we resold Sun's iPlanet E-Commerce Solutions software licenses and
related services. CorpSoft has assumed primary responsibility for those sales and we are providing sales and marketing
assistance as well as our SubscribeNet electronic software delivery and management service. As part of this arrangement CorpSoft will pay to us a percentage of the gross profit derived from its sales
of iPlanet software licenses and services, and will reimburse us for our cost in maintaining a team dedicated to sales of iPlanet software licenses and services. The June 28, 2001 agreement has an
initial term of two years and is renewable for subsequent one-year terms. We continue to maintain a separate relationship with Sun under which we provide our SubscribeNet service to the iPlanet
customer base on behalf of Sun.

The
June 28, 2001 agreement is part of our planned transition out of the business of reselling third-party software. At the time we announced this agreement, we also ceased reselling
all other third-party software except in a limited manner in connection with our proprietary products and services.

NOTE 9.    PROMISSORY NOTES

On August 31, 2001 we issued promissory notes and committed to issue warrants in a private placement to a group of institutional and individual investors, for
aggregate gross proceeds of $6.15 million. Our net receipts from the financing were approximately $5.6 million after fees to the placement agent of $307,500 and expenses of approximately $223,000. The
promissory notes bear annual interest of 8%, payable quarterly beginning six months after issuance, and are secured by a senior security interest in substantially all of our assets. The promissory
notes are convertible, at the option of the note holder, into the type of securities offered in our next private round of equity financing, at that round's price. This could result in the recognition
of a contingent beneficial

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conversion feature. The notes are due in full on August 31, 2002. The note holders also received warrants to purchase 6.15 million shares of our Common Stock at an exercise price of $0.01 per share.
In accordance with NASD Marketplace Rule 4350(i)(1)(D), warrants exceeding an aggregate of 5,600,000 shares of our Common Stock (approximately 19.7% of our outstanding Common Stock) were not
exercisable until we received stockholder approval. We received stockholder approval on November 27, 2001. In addition, we issued warrants to the placement agent equal in number to 10% of the warrants
issued to the investors. We entered into binding agreements on August 31, 2001 to issue these warrants to the note holders and the placement agent. We issued these warrants on September 24, 2001, in
accordance with Nasdaq's application of NASD Marketplace Rules as described below.

We
allocated the proceeds from the August 31, 2001 financing based on the relative fair values of the promissory notes and warrants issued. The warrants were classified as a liability
as they contain registration rights, which are assumed to be outside our control. Warrants classified as liabilities will be adjusted to their fair value each accounting period. On August 31,
2001, we recorded a $4.7 million charge in other expenses related to this financing to adjust the carrying amount of these warrants to their fair value.

On
September 20, 2001 we issued additional promissory notes and committed to issue additional warrants to another group of institutional and individual investors for aggregate gross
proceeds of $850,000. Our net receipts from the financing were approximately $779,500 after fees to the placement agent of $42,500 and expenses of approximately $28,000. The note holders also received
warrants to purchase 850,000 shares of our Common Stock at an exercise price of $0.01 per share. In addition, we issued warrants to the placement agent equal in number to 10% of the warrants issued to
the investors. These notes carry the same terms as the promissory notes referred to above. We recorded a $381,000 charge in other expenses related to this financing to adjust the carrying amount of
these warrants to their fair value. We entered into binding agreements on September 20, 2001 to issue these additional warrants to the note holders and the placement agent. We issued these warrants on
September 24, 2001, in accordance with Nasdaq's application of NASD Marketplace Rules as described below.

During
the three and nine months ended November 30, 2001 we recorded a net credit of approximately $1.1 million and a charge of approximately $3.6 million,
respectively, to other income to adjust the carrying amount of the warrants issued on August 31 and September 20, 2001 to fair value.

The
promissory notes and warrants were issued in a private placement without registration under the Securities Act of 1933 and may not be offered or sold in the United States absent
registration or an applicable exemption from registration requirements. In issuing the securities, we relied on the exemption from registration provided by Section 4(2) of the Securities Act of 1933,
based in part upon the limited number of institutional type investors and their representations in the purchase agreements. We have agreed to file with the SEC a registration statement for the resale
of the Common Stock issuable upon exercise of the warrants, and if the notes are ultimately converted into or exchanged for equity, any Common Stock issuable as a result of such conversion or
exchange. We are required to file the registration statement by February 28, 2002, and to cause the registration statement to be declared effective by the SEC by May 31, 2002. However, the
registration deadline may be accelerated to any earlier stock registration deadline agreed to by us in any subsequent private placement.

The
notes are repayable by us at any time, and will mature early if we are acquired or undergo a change of control.

On
November 27, 2001, as part of the financings, we held a special stockholder meeting and obtained stockholder approval for the exercise of warrants exceeding an aggregate of 5.6
million shares of our Common Stock (approximately 19.7% of our outstanding Common Stock). In addition we obtained stockholder approval for the potential conversion of the notes into the same type of
securities issued by us in our next capital-raising private placement of equity securities, if we complete any such private placement.

12

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In connection with this debt financing, our Board of Directors created a new seat on the Board and appointed to that seat an individual designated by the company which acted as
placement agent in the financings. Another individual, who is an officer of the company which acted as placement agent in the financings, is also a member of our Board of Directors. One of these Board
members is also indirectly affiliated with one of the purchasers of notes and warrants in the financings. Because of these relationships, as well as the quantity of warrants issued and the price of
the warrants, Nasdaq's application of NASD Marketplace Rules would have required us to obtain stockholder approval before issuing the warrants. However, Nasdaq granted us an exception from the
stockholder approval rule. In keeping with Nasdaq's determination, we gave our stockholders 10 days prior written notice of this exception before issuing the warrants. We gave this notice on September
14, 2001, and issued the warrants on September 24, 2001.

At
the same time that we agreed on terms for the financings described above, we also agreed with the placement agent on terms for a subsequent private placement of between $6,000,000
and $10,000,000 of our preferred stock, with a $2,000,000 over allotment at our option. Each share of preferred stock would be convertible into our Common Stock at a price of $0.40 per share of Common
Stock. The preferred shares would rankpari passuwith existing classes of our preferred stock, and would carry a liquidation preference equal to their
face value. The preferred shares will carry "full-ratchet" anti-dilution protection (i.e., the conversion price will adjust to any lower price at which we issue equity securities) for one year, and
thereafter will carry "weighted-average" anti-dilution protection (i.e., the conversion price will adjust on a weighted-average basis upon any issuance by us of equity securities at a price below fair
market value or below the then-current conversion price of the preferred stock). These anti-dilution protections could lead to our recognizing a contingent beneficial conversion feature and deemed
dividends. We would be required to file a registration statement, for the resale of the Common Stock into which the preferred stock is convertible, within three months of closing, and use our best
efforts to cause that registration statement to become effective within three months thereafter.

Upon
any closing of such a preferred stock financing, the placement agent would receive a fee equal to six percent of the gross proceeds from the financing, except that fee would be
halved with respect to investments by existing shareholders other than Series B-1 shareholders. The placement agent would also receive warrants to purchase a number of preferred shares equal to ten
percent of the number of preferred shares issued in the financing, and would receive reimbursement of up to $100,000 in legal, due diligence and travel and road show expenses. In the event that we and
the placement agent reaffirm in writing our intent to proceed with this preferred stock financing , and both parties use their best efforts to complete a private placement memorandum and
investor-related documents reasonably satisfactory to them within 21 days after that reaffirmation date, and between that reaffirmation date and the 60th day after completion of the
private placement memorandum and investor-related documents we elect not to proceed with the financing, we will be required to pay a financial advisory and structuring fee of $200,000. At the
placement agent's option, this fee may be payable in the form of 500,000 shares of our Common Stock. If we so elect and proceed with a private placement not led by the placement agent, this fee will
be equal to the greater of $200,000 or 3% of the gross proceeds of such other private placement, which fee may, at the placement agent's option, be payable in the form of a number of shares of our
Common Stock equal to the cash fee divided by 0.40.

Under
the terms of the promissory notes, at the same time that we obtained stockholder approval for the exercise of warrants exceeding 5.6 million shares of our Common Stock and for
the convertibility of the promissory notes into the same type of securities issued in our next round of equity financing, we also obtained stockholder approval for the proposed preferred stock
financing described in the two
immediately preceding paragraphs. We may elect not to proceed with such a preferred stock financing, even though our stockholders have approved it. In addition, the placement agent is not required to
proceed with such a financing, and has indicated that it may be unable to do so.

13

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During the three months ended November 30, 2001, warrants associated with the issuance of the promissory notes were exercised for 7.35 million shares of our Common Stock, with an
aggregate market value of approximately $6.9 million at exercise. Approximately 7.27 million shares of our Common Stock were issued pursuant to these warrant exercises, after deducting shares withheld
as payment of the exercise price.

NOTE 10.    COMMITMENTS AND CONTINGENCIES

We lease our office facilities and certain equipment under noncancelable operating lease agreements, which expire at various dates through 2006. The terms of
the facility leases provide for rental payments on a graduated scale. We recognize rent expense on a straight-line basis over the lease period, and have accrued for rent expense incurred but not paid.
The leases require that we pay all costs of maintenance, utilities, insurance and taxes.

In
connection with our strategic reorganization in August 2001, as discussed in Note 7, we vacated one of our San Francisco Bay Area offices. During the three months
ended November 30, 2001, we agreed to sell the related furniture and fixtures to the landlord. These assets had been written down to their net realizable value during the three months ended
August 31, 2001 as a loss on abandonment of assets. These assets were financed by capital leases. In order to obtain title to these assets for purposes of the sale to landlord, we paid cash of
approximately $243,000 and renegotiated our capital lease with the leasing company. This resulted in an increase to the net present value of the capital lease of approximately $366,000.

Property
and equipment at November 30, 2001 included $5.1 million acquired under capital lease agreements. Accumulated amortization relating to property and equipment
under capital leases totalled $2.6 million at November 30, 2001.

Future
minimum lease payments under all noncancelable operating and capital leases at November 30, 2001 are as follows (in thousands):

Period Ending
February 28,

Capital
Leases

Operating
Leases2002


401


3442003


2,054


1,2242004


1,562


3902005


947


2132006





8Total mininum lease payements


4,964

$
2,179Less: amount representing interest


(712
)Present value of minimum lease payments


4,252Less: current portion


(1,617
)Long-term lease obligation

$
2,635


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

14

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ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and
related notes. This discussion contains forward-looking statements that involve risks and uncertainties. Forward-looking statements include statements regarding our future cash and liquidity position,
the extent and timing of future revenues and expenses and customer demand, the deployment of our products, and our reliance on third parties. All forward-looking statements included in this document
are based on information available to us as of the date hereof, and we assume no obligation to update any forward-looking statement. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including but not limited to, those discussed in "Risk Factors" below and elsewhere in this quarterly report on Form 10-Q.

INTRAWARE OVERVIEW

Intraware, Inc. was incorporated in Delaware on August 14, 1996. We are a leading provider of electronic software delivery and management solutions and
information technology (IT) management solutions that enable corporations to optimize their IT investments. Our software and services optimize delivery, maintenance, and management of technology
resources, to help reduce the total cost of ownership of technology assets and accelerate the return on investment in those assets.

Software
product revenue results from the licensing of third party software products to customers and is recognized when there is evidence of an arrangement for a fixed and
determinable fee that is probable of collection and the software is available for customer download through our web site. Software product maintenance revenue results from the sale of third-party
software maintenance agreements and is recognized ratably over the service period. On July 1, 2001, we began a transition away from the licensing of third party software; however we will continue to
recognize revenue from third party software licenses and support over the life of the arrangements made prior to July 1, 2001.

Online
services and technology revenue results primarily from three types of arrangements. First, it results from the licensing of our proprietary software products to companies that
use those products internally or that use those products to provide web-based services to their customers; such revenue is recognized when there is evidence of an arrangement for a fixed and
determinable fee that is probable of collection and the software is available for customer download through our web site. Second, it results from sales of our SubscribeNet electronic software delivery
and management service to software vendors; such revenues are recognized ratably over the service period. Third, it results from
professional services that we provide to integrate our proprietary software and convert data for our customers; such revenues are recognized as services are performed.

We
have a limited operating history upon which investors may evaluate our business and prospects. Since inception, we have incurred significant losses, and, as of November 30, 2001,
had an accumulated deficit of approximately $138 million. As of November 30, 2001, we had negative working capital of approximately $8.5 million. We expect to incur additional net losses at least
through our fiscal year ending February 28, 2003. There can be no assurance that our gross profit will increase or continue at its current level. There also can be no assurances that we will generate
cash from operations in future periods, achieve or maintain profitability, or generate sufficient liquidity to repay the $7 million in outstanding promissory notes that become due on August 31, 2002.
Our future must be considered in light of the risks frequently encountered by companies in an early stage of development, particularly companies in new and rapidly evolving markets such as e-commerce.
To address these risks, we must, among other things, raise additional capital, continue to improve existing and develop new services, implement and successfully execute our business and marketing
strategy, continue to develop and upgrade our technology, provide superior customer service, respond to competitive developments and

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attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks and the failure to do so would have a material adverse effect on our
business, financial condition and results of operations. Our current and future expense levels are based largely on our planned operations and estimates of future sales. Sales and operating results
generally depend on the volume and timing of orders received, which are difficult to forecast, particularly in the current business environment. We may be unable to adjust spending in a timely manner
to compensate for any unexpected revenue shortfall. Accordingly, any significant shortfall in sales would have an immediate adverse effect on our business, financial condition and results of
operations. In view of the rapidly evolving nature of our business and our limited operating history, we are unable to accurately forecast our sales and believe that period-to-period comparisons of
our operating results are not necessarily meaningful and should not be relied upon as an indication of future performance.

RESULTS OF OPERATIONS

Total Revenues

Revenue for the three months ended November 30, 2001 was $9.4 million, which represents a 64% decrease from revenue for the three months ended November 30,
2000 of $26.2 million. In addition, for the three months ended November 30, 2001, product revenue accounted for $6.0 million or 64% of revenue, while online service and technology revenue accounted
for $3.4 million or 36% of revenue.
For the three months ended November 30, 2000, product revenue accounted for $19.4 million or 74% of revenue, while online service and technology revenue accounted for $6.8 million or 26% of revenue.

Revenue
for the nine months ended November 30, 2001 was $38.3 million, which represents a 62% decrease from revenue for the nine months ended November 30, 2000 of $100.2 million. In
addition, for the nine months ended November 30, 2001, product revenue accounted for $26.5 million or 69% of revenue, while online service and technology revenue accounted for $11.8 million or 31% of
revenue. For the nine months ended November 30, 2000, product revenue accounted for $81.8 million or 82% of revenue, while online service and technology revenue accounted for $18.4 million or 18% of
revenue.

The
decline in product revenue was primarily due to our transition out of reselling those products and weakened demand for third party software. The decrease in online service and
technology revenue is primarily due to the elimination of some of our unproven online services and technology products during our December 2000 strategic restructuring, a slowdown in technology
spending resulting from weakened overall economic conditions, and time involved in training our new channel resellers. In June 2001, we entered into an agreement with CorpSoft whereby CorpSoft assumed
our rights and obligations under our reseller agreement with iPlanet E-Commerce Solutions, and agreed to pay to us a percentage of the gross profit derived from its sales of iPlanet software licenses
and services. We expect our third-party product revenue to decrease substantially as a result of this agreement. The previous sentence is a forward-looking statement and actual results could differ
materially from those anticipated.

Cost of Revenues

Total cost of revenues decreased to $5.0 million for the three months ended November 30, 2001 from $15.5 million for the three months ended November 30, 2000.
Our gross margin increased to 47% for the three months ended November 30, 2001 from 41% for the three months ended November 30, 2000.

Total
cost of revenues decreased to $23.1 million for the nine months ended November 30, 2001 from $70.0 million for the nine months ended November 30, 2000. Our
gross margin increased to 40% for the nine months ended November 30, 2001 from 30% for the nine months ended November 30, 2000.

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Cost of revenues primarily consists of the cost of third-party products sold, personnel costs, content development and acquisition, Internet connectivity and allocated overhead
charges. The decrease in the cost of revenues primarily reflects our decrease in revenue and changes in the mix of products sold. The margin percentage increase primarily reflects our focus on the
sale of our own services and technology, which generate higher margins than third-party products we resold.

Sales and Marketing Expenses

For the three months ended November 30, 2001, sales and marketing expenses were $2.7 million or 29% of revenue, an overall decrease from $9.1 million or 35% of
revenue for the three months ended November 30, 2000.

For
the nine months ended November 30, 2001, sales and marketing expenses were $10.7 million or 28% of revenue, an overall decrease from $31.9 million or 32% of revenue for the nine
months ended November 30, 2000.

Sales
and marketing expenses consist primarily of personnel-related costs, facilities, travel and entertainment, advertising, promotional materials and trade show expenses. The
decrease is due to our restructuring efforts, which reduced expenditures on salaries and marketing and eliminated rent on closed offices.

We
plan to continue developing strategic relationships to sell our products and services directly to our customer base as well as through resellers. The previous sentence is a
forward-looking statement and actual results could differ materially from those anticipated.

Product Development Expenses

For the three months ended November 30, 2001, product development expenses were $2.2 million or 24% of revenue, compared to $6.3 million or 24% of revenue for
the three months ended November 30, 2000.

For
the nine months ended November 30, 2001, product development expenses were $7.8 million or 20% of revenue, compared to $15.1 million or 15% of revenue for the nine months ended
November 30, 2000.

Product
development expenses consist of costs related to our staff of software developers and outside consultants, and the associated infrastructure costs required to support software
product development initiatives. The decrease is due to our current and prior year restructuring efforts, which reduced expenditures on salaries and unproven product and service lines. We anticipate
continuing to invest in additional functionality across all of our software product offerings, including industry specific requirements. However, we cannot give assurance that such development efforts
will result in products, features or functionality or that the market will accept the software products, features or functionality
developed. The previous two sentences are forward-looking statements and actual results could differ materially from those anticipated.

General and Administrative Expenses

For the three months ended November 30, 2001, general and administrative expenses were $1.2 million or 13% of revenue, compared to $4.8 million or 18% of
revenue for the three months ended November 30, 2000.

For
the nine months ended November 30, 2001, general and administrative expenses were $5.7 million or 15% of revenue, compared to $13.2 million or 13% of revenue for the nine months
ended November 30, 2000.

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General and administrative expenses consist primarily of compensation for administrative and executive personnel, facility costs, bad debt expense and fees for professional services.
A significant part of our decreased general and administrative expenses in the three and nine months ended November 30, 2001, stems from our restructuring efforts in December 2000 and August 2001.

At
November 30, 2001, we had a balance of $2.4 million in unsold Third-party software licenses for which we had prepaid prior to transitioning away from our Third-party
software reselling business. In light of pending sales activity regarding those licenses, we intend to reassess the level of such balances in subsequent quarters. The previous sentence is a
forward-looking statement and actual results could differ materially from those anticipated.

December 2000 Restructuring and Loss on Abandonment of Assets

At February 28, 2001, we had a remaining restructuring accrual of $628,000 relating to our December 1, 2000 strategic restructuring. As of
November 30, 2001 we have settled all liabilities associated with the December 2000 strategic restructuring.

August 2001 Restructuring and Loss on Abandonment of Assets

On August 8, 2001 we announced a strategic reorganization designed to accelerate our drive toward profitability and enhance our capital-raising
opportunities. We recorded a charge of $8,613,000 relating to this restructuring and the loss on abandonment of assets during the quarter ended August 31, 2001.

The
loss on abandonment of assets includes the write off of approximately $3.7 million of certain intangibles relating to the BITSource, Inc. acquisition as we have
abandoned the related technology. The write off consisted of the following components: $521,000 for trademarks, $510,000 for goodwill, and $2,708,000 for existing technology. We wrote off leasehold
improvements and furniture and fixtures with net book values of approximately $2.7 million. These assets were taken out of service, as they were deemed unnecessary due to the reductions in work
force. Included in this amount are certain furniture and fixtures that were written down to a net realizable value of approximately $55,000. These furniture and fixtures were taken out of service in
the second quarter of fiscal 2002 and subsequently disposed of or sold.

The
restructuring consisted of approximately $262,000 for severance and benefits relating to the involuntary termination of 66 employees, all of which were based in North America. We
reduced our workforce to 120 employees from 186 at the end of July. Of the 66 terminated employees, 25 were in Sales and Marketing, 26 were in Product Development and 15 were in General and
Administrative. We also consolidated our two San Francisco Bay Area offices into one. We accrued for lease and related costs of approximately $1.9 million principally pertaining to the
estimated future obligations of non-cancelable lease payments for excess facilities in the San Francisco Bay Area that were vacated due to the reduction in work force. We also recognized
an additional $27,000 relating to other restructuring expenses.

Due
to changes in management's estimates relating to the strategic reorganization on August 8, 2001, we recognized additional expense of approximately $478,000 during the three
months ended November 30, 2001. At November 30, 2001, we had a restructuring accrual of approximately $1,323,000. Of the $738,000 in non-cash charges incurred during the
three months ended November 30, 2001, approximately $120,000 relates the Black-Scholes fair value of an option issued to a consultant on September 5, 2001 for services performed in
conjunction with exiting our excess lease space. We issued a fully-vested and immediately exercisable option to purchase 110,000 shares of our Common Stock at an exercise price of $0.01 per share. The
term of the option is ten years.

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We made cash payments of approximately $596,000 during the nine months ended November 30, 2001. At November 30, 2001 we had a remaining restructuring accrual of
approximately $1,323,000, of which approximately $1,317,000 was related to excess rent and sublease costs and the remainder was severance costs.

The
following table sets forth an analysis of the components of the restructuring and loss on abandonment charges recorded in the second quarter of fiscal 2002 and subsequent
adjustments and payments made against the reserve (in thousands):

|                                                               |                                      | Asset write-
offs |       | Severance and
benefits |     | Excess lease
and related costs |       | Other costs |    | Total  |      
|-------------------------------------------------------------- | ------------------------------------ | ----------------- | ----- | ---------------------- | --- | ------------------------------ | ----- | ----------- | -- | ------ | -----
|August 8, 2001 restructuring and loss on abandonment of assets |                                      | 6,407             |       | 262                    |     | 1,917                          |       | 27          |    | 8,613  |      
|                                                               |                                      |                   |       |                        |     |                                |       |             |    |        |      
|                                                               | Total                                |                   | 6,407 |                        | 262 |                                | 1,917 |             | 27 |        | 8,613
|Cash paid                                                      |                                      |                  |       | (209                   | )   | (94                            | )     |            |    | (303   | )    
|Non-cash charges                                               |                                      | (6,407            | )     |                       |     |                               |       | (27         | )  | (6,434 | )    
|                                                               |                                      |                   |       |                        |     |                                |       |             |    |        |      
|                                                               | Reserve balance at August 31, 2001   |                   |      |                        | 53  |                                | 1,823 |             |   |        | 1,876
|Cash paid                                                      |                                      |                  |       | (47                    | )   | (246                           | )     |            |    | (293   | )    
|Non-cash charges                                               |                                      | (328              | )     |                       |     | (410                           | )     |            |    | (738   | )    
|Provision adjustment                                           |                                      | 328               |       |                       |     | 150                            |       |            |    | 478    |      
|                                                               |                                      |                   |       |                        |     |                                |       |             |    |        |      
|                                                               | Reserve balance at November 30, 2001 |                   |      |                        | 6   |                                | 1,317 |             |   |        | 1,323
|                                                               |                                      |                   |       |                        |     |                                |       |             |    |        |      

We
expect to pay the remaining accrual in cash within the next twelve months. While our accrual reflects management's best estimate of the costs to be incurred related to the
activities above, actual costs incurred may differ from initial estimates recorded.

Amortization of Intangibles

For the three months ended November 30, 2001, amortization of intangibles was $1.8 million, a decrease from $2.7 million for the three months ended November
30, 2000.

For
the nine months ended November 30, 2001, amortization of intangibles was $6.8 million, an increase from $5.9 million for the nine months ended November 30, 2000.

Amortization
of intangibles is a charge related to our acquisitions of BITSource, Inc. and Janus Technologies, Inc. Certain identified intangibles will cease to be amortized as a
result of the adoption of SFAS 142 (see Recent Accounting Pronouncements in Item 2 of Part I) in our fiscal year 2003. The increase for the nine months ended November 30, 2001 was
due to our acquisition of Janus Technologies, Inc. in July 2000 and the related amortization of intangibles. The decrease for the three months ended November 30, 2001 was due to the intangibles
relating to BITSource, Inc. being fully amortized during the second quarter of fiscal year 2002.

Interest Expense

For the three months ended November 30, 2001, interest expenses were $1.1 million or 12% of revenue, an increase from $305,000 or 1% of revenue for the three
months ended November 30, 2000.

For
the nine months ended November 30, 2001, interest expenses were $1.6 million or 4% of revenue, an increase from $416,000 or 0.4% of revenue for the nine months ended November 30,
2000.

Interest
expense relates to obligations under capital leases and borrowings. The increase in interest expense is primarily the result of increased borrowings.

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Interest Income and Other Income and Expenses

For the three months ended November 30, 2001, interest income and other income and expenses were $1.1 million or 11% of revenue, an increase from $167,000 or
1% of revenue for the three months ended November 30, 2000.

For
the nine months ended November 30, 2001, interest income and other income and expenses were ($3.6) million or 9% of revenue, a decrease from $568,000 or 1% of revenue for the nine
months ended November 30, 2000.

Interest
income and other income and expenses relates to interest earned on our investment balances, certain state franchise taxes and warrants disclosed as liabilities adjusted to
fair value. The decrease in interest income and other income and expenses for the nine months ended November 30, 2001 is primarily the result of a reduction in our invested cash and charges we took to
adjust the warrants we issued in connection with our August 31 and September 20, 2001 financing, which are classified as liabilities, to fair value. The charge recorded to adjust the warrants to fair
value during the nine months ended November 30, 2001 was $3.6 million. The increase in interest income and other income and expenses for three months ended November 30, 2001 was due to
the credit to adjust the warrants we issued in connection with our August 31 and September 20, 2001 financing, which are classified as liabilities, to fair value. The credit to adjust the warrants to
fair value during the three months ended November 30, 2001 was $1.1 million.

Income Taxes

From inception through November 30, 2001, we incurred net losses for federal and state tax purposes. As of February 28, 2001, we had approximately
$80.0 million of federal and $56.0 million of state net operating loss carryforwards available to offset future taxable income, which expire in varying amounts between 2005 and 2012.
Given our limited operating history, losses incurred to date and the difficulty in accurately forecasting our future results, management does not believe that the realization of the related deferred
income tax asset meets the criteria required by generally accepted accounting principles. Accordingly, we have recorded a 100% valuation allowance against our deferred tax asset and therefore have
recorded no tax benefit. Furthermore, as a result of changes in our equity ownership from our convertible preferred stock financing and our initial public offering, utilization of the net operating
losses and tax credits is subject to substantial annual limitations. This is due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state
provisions. The annual limitation may result in the expiration of net operating losses and tax credits before utilization.

Liquidity and Capital Resources

Since inception, we have financed our operations primarily through private sales of preferred stock, debt financing and the initial public offering of our
Common Stock. As we have not yet achieved positive cash flow from our operations, we will continue to use our capital raised to date to support our operations until we become cash flow positive. There
can be no guarantee that we will succeed in becoming cash flow positive, either with or without additional capital financing.

Our
non-restricted cash and cash equivalents at November 30, 2001 were $4.0 million, decreasing by $3.0 million from $7.0 million at February 28,
2001. This decrease was due to our use of $8.6 million in operating activities, which was offset by the generation of $538,000 through investing activities and $5.0 million through
financing activities. The net cash used in operating activities of $8.6 million for the nine months ended November 30, 2001 was primarily due to our net loss and a reduction in accounts
payable. This decrease was partially offset by our collection of receivables. Financing activities provided $5.0 million for the nine months ended November 30, 2001, consisting primarily
of proceeds from our issuance of preferred stock and promissory notes, offset by payments made to close out our bank line

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of credit and pay down our lease obligations. Net cash provided by investing activities of $538,000 for the nine months ended November 30, 2001 related primarily to our reduction in restricted
cash.

As
of November 30, 2001, we had approximately $5.3 million of cash and cash equivalents of which $1.3 million was restricted. The restricted cash was securing an irrevocable letter of
credit, for the benefit of a third party, that was fully drawn down in December 2001.

Our
future capital requirements will depend on many factors, including our ability to increase gross profit levels and reduce costs of operations to generate positive cash flows, as
well as the timing and extent of spending to support expansion of sales and marketing, and market acceptance of our products and timeliness of collections of our accounts receivable. Although we have
historically been able to satisfy our cash requirements, there can be no assurance that efforts to obtain sufficient financing for operations will be successful in the future. Our future capital needs
will be highly dependent upon our ability to control expenses and generate additional software license revenues, and any projections of future cash needs and cash flows are subject to substantial
uncertainty. Our ability to raise additional capital may be weakened in the event we do not maintain our listing on the Nasdaq National Market. If we are unable to raise adequate additional capital,
we may be required to aggressively reduce the scope of sales and marketing efforts and the size of current staff; both of which could have a material adverse effect on our business, financial
condition, and our ability to reduce losses or generate profits.

While
we are seeking to improve our sales, control our expenses and raise additional capital, there can be no assurance that we will succeed in our efforts to generate sufficient cash
from operations, obtain additional funding resources, or achieve positive cash flow or profitability.

On
April 2, 2001, we entered into an agreement to sell a new class of Series B Preferred Stock and warrants to institutional and individual investors for aggregate gross proceeds of
$3.6 million, and net proceeds of $3.2 million after fees and expenses. This transaction is described in Note 5 Redeemable Convertible Preferred Stock to our Consolidated Financial
Statements in Item 1 of Part I. On August 31, 2001 and September 20, 2001 we issued promissory notes and warrants in a private placement to a group of institutional and individual investors for
aggregate gross proceeds of $7 million. This transaction is described in Note 9Promissory Notes to our Consolidated Financial Statements in Item 1 of Part I. We also repaid our line of
credit of $3.3 million in August 2001.

Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business
Combinations" which supersedes Accounting Principles Board ("APB") Opinion No. 16, "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 addition, SFAS 141 establishes specific criteria for the recognition of intangible assets separately from goodwill and requires
unallocated negative goodwill to be written off immediately as an extraordinary gain. The provisions of SFAS 141 are required to be adopted July 1, 2001. The adoption of SFAS 141 will not change our
method of accounting used in previous business combinations including those accounted for under the pooling-of-interests method.

In
July 2001, the FASB also issued Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets," which is effective for fiscal years
beginning after December 15, 2001. Certain provisions shall also be applied to acquisitions initiated subsequent to June 30, 2001. SFAS 142 supercedes APB Opinion No. 17 "Intangible Assets" and
requires, among other things, the discontinuance of amortization related to goodwill and indefinite lived intangible assets. These assets will then be subject to an impairment test at least annually.
In addition, the standard includes provisions upon adoption for the reclassification of certain existing recognized intangibles as

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goodwill, reassessment of the useful lives of existing recognized intangibles and reclassification of certain intangibles out of previously reported goodwill.

We
are required to adopt SFAS 142 effective March 1, 2002, which will result in our no longer amortizing our existing goodwill. In addition, we will be required to measure goodwill
for impairment as part of the transition provisions. Any impairment resulting from these transition tests will be
recorded as of March 1, 2002 and will be recognized as the cumulative effect of a change in accounting principle. We will not be able to determine if an impairment will be required until completion of
such impairment test.

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", which addresses
financial accounting and reporting for the impairment or disposal of long-lived assets. This Statement supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of", and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of OperationsReporting the Effects of Disposal of a Segment
of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for the disposal of a segment of a business. This Statement also amends Accounting Research Bulletin No.
51, "Consolidated Financial Statements", to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. The provisions of SFAS 144 are required to be adopted
during our fiscal year beginning March 1, 2002, however early adoption is acceptable. We are currently in the process of evaluating the potential impact the adoption of SFAS 142 will have on our
consolidated financial position or results of operations.

In
November 2001, the FASB Emerging Task Force ("EITF") reached a consensus on EITF Issue 01-09, "Accounting for Consideration Given by a Vendor to a Customer or a
Reseller of the Vendor's Products," which is a codification of EITF 00-14, 00-22 and 00-25. This issue presumes that consideration from a vendor to a customer or
reseller of the vendor's products is a reduction of the selling prices of the vendor's products and, therefore, should be characterized as a reduction of revenue when recognized in the vendor's income
statement and could lead to negative revenue under certain circumstances. Revenue reduction is required unless consideration relates to a separate identifiable benefit and the benefit's fair value can
be established. This issue should be applied no later than in annual or interim financial statements for periods beginning after December 15, 2001, which is our fourth quarter ending
February 28, 2002. We do not expect the adoption of EITF 01-09 to have a significant impact on our financial statements.

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RISK FACTORS

You should carefully consider the risks described below before making a decision to invest in Intraware. The risks and uncertainties described below are not
the only ones facing Intraware. Additional risks and uncertainties not presently known to us or that we do not currently believe are important to an investor may also harm our business operations. If
any of the events, contingencies, circumstances or conditions described in the following risks actually occur, our business, financial condition or results of operations could be seriously harmed. If
that occurs, the trading price of our Common Stock could decline, and you may lose part or all of your investment.

WE HAVE NEGATIVE CASH FLOW AND MAY NOT HAVE SUFFICIENT CASH TO EFFECTIVELY MANAGE OUR WORKING CAPITAL REQUIREMENTS AND FUND OUR OPERATIONS FOR THE PERIOD REQUIRED TO ACHIEVE
PROFITABILITY.

Our annual report on Form 10-K, for the year ended February 28, 2001 contains a disclosure expressing substantial doubt regarding our ability to continue as a
going concern as a result of our recurring losses and negative cash flows from operations. We have limited cash and credit available, and may be unable to raise additional financing or establish
additional lines of credit. As of November 30, 2001, we had approximately $5.3 million in cash and cash equivalents of which $1.3 million was restricted. We may not be able to achieve the revenue and
gross margin objectives necessary to achieve positive cash flow or profitability without obtaining additional financing. Such financing may not be available on reasonable terms, and if available such
additional financing may dilute current shareholders.

OUR RECENTLY ISSUED PROMISSORY NOTES ARE SECURED BY SUBSTANTIALLY ALL OF OUR ASSETS AND ARE SENIOR TO ALL OF OUR EQUITY.

On August 31, 2001, and September 20, 2001, we issued an aggregate of $7 million principal amount of one-year senior secured promissory notes, bearing interest
of 8% annually, to accredited investors in a private placement. The notes are secured by substantially all of our assets and are senior to our Common Stock and preferred stock. If we do not repay
these notes by August 31, 2002, or we otherwise default on these notes, the note holders will have the right to seize and liquidate our assets to the extent necessary to recover the outstanding
principal under the notes as well as any accrued and unpaid interest. It is unlikely that we will be able to generate sufficient cash through operations to repay the notes at maturity. Therefore, to
repay the notes we will likely be required to complete one or more additional financing transactions and/or business combinations. We cannot assure you that we will succeed in generating sufficient
liquidity to repay the notes at maturity.

IF NASDAQ DETERMINES THAT WE HAVE FAILED TO MEET ITS NATIONAL MARKET LISTING REQUIREMENTS, OUR COMMON STOCK MAY BE DELISTED.

Our Common Stock is currently listed on the Nasdaq National Market. Nasdaq has requirements that a company must meet in order to remain listed on the Nasdaq
National Market. If we continue to experience losses from our operations or are unable to raise additional equity financing, or are unable to convert our recently issued promissory notes into equity
and reclassify our recently issued warrants as equity, we may be delisted for failure to maintain the standards for continued quotation on the Nasdaq National Market, including the minimum bid price
requirement of $1.00 and the requirement that our net tangible assets be at least $4 million or that our shareholders' equity be at least $10 million. The bid price of our Common Stock was below $1.00
almost continuously between September 19 and December 5, 2001. Moreover, our recent issuance of promissory notes and warrants, the classification of the warrants as liabilities, and recent
restructuring-related accounting write-downs have caused our net tangible assets and shareholders' equity to drop substantially. If as a result of the application of these listing requirements, our
Common Stock were delisted from the Nasdaq National

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Market, our stock would become harder to buy and sell. Further, our stock could then potentially be subject to what are known as the "penny stock" rules, which place additional requirements on broker-
dealers who sell or make a market in such securities. Consequently, if we were removed from the Nasdaq National Market, the ability or willingness of broker-dealers to sell or make a market in our
Common Stock might decline. As a result, your ability to resell your shares of our Common Stock could be adversely affected.

WE HAVE A HISTORY OF LOSSES, WE EXPECT FUTURE LOSSES AND WE MAY NOT EVER BECOME PROFITABLE.

We have not achieved profitability, may incur net losses through our fiscal year ending February 28, 2003 and may not ever become profitable in the future. We
incurred net losses attributable to Common stockholders of $32.9 million for the nine months ended November 30, 2001, $68.4 million for the year ended February 28, 2001, $28.0 million for the year
ended February 29, 2000, and $15.0 million for the year ended February 28, 1999. As of November 30, 2001, we had an accumulated deficit of approximately $138 million. We will need to generate
significant additional online services and technology revenues and/or reduce operating costs to achieve and maintain positive cash flow and profitability. We have a limited operating history that
makes it difficult to forecast our future operating results. Our revenues have declined in recent quarters, and we cannot be certain that we will achieve sufficient revenues or gross profits in future
quarters for positive cash flow or profitability. If we do achieve positive cash flow or profitability in any period, we cannot be certain of continued or increased positive cash flow or profitability
on a quarterly or annual basis.

WE HAVE RECENTLY EXPERIENCED WEAKENING DEMAND FOR OUR PROPRIETARY SOFTWARE AND OUR SUBSCRIBENET SERVICE.

Since the beginning of the 2001 calendar year, we have experienced weakening demand for our proprietary asset management software and our SubscribeNet service.
Several other computer software and hardware manufacturers reported sharp reductions in demand for their products and services or in their sales growth in the 2001 calendar year. We have had, and may
continue to experience, similar sharp reductions in demand for our products and services, which have had (and would continue to have) an immediate and adverse effect on us.

ANY TERMINATION OF OUR RELATIONSHIP WITH IPLANET E-COMMERCE SOLUTIONS OR CORPORATE SOFTWARE WOULD HAVE A SUBSTANTIAL, ADVERSE EFFECT ON OUR BUSINESS.

We provide online software update and license management services to iPlanet customers through our SubscribeNet service under an agreement that expires on June
30, 2003 and that may be terminated by iPlanet without cause after June 30, 2002. We cannot assure you that this agreement will be extended after June 30, 2003 or that it will not be terminated after
June 30, 2002. Most of our SubscribeNet revenues to date have been generated through this iPlanet contract, and our failure to extend this contract at the end of its current term could have a material
adverse effect on our SubscribeNet revenues and on our business as a whole. If iPlanet chose to offer its own electronic software delivery, tracking, maintenance or other services, which it is
permitted to do under the current agreement, it would have a substantial adverse effect on our business, results of operations and financial condition.

Under
our Sales Alliance Agreement with Corporate Software dated June 28, 2001, we are transitioning to Corporate Software our reseller relationship with iPlanet. This agreement
expires in June 2003, but may terminate earlier under certain circumstances, including any termination of the reseller contract between Corporate Software and iPlanet. A significant portion of our
SubscribeNet revenues in the three months ended November 30, 2001 were generated through this Corporate

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Software contract, and a significant portion of our revenues in future periods could be generated through this contract. Any termination of this contract before June 2003 could have a material adverse
effect on our business and financial performance.

THE LOSS OF ONE OR MORE OF OUR KEY CUSTOMERS OR RESELLERS COULD ADVERSELY AFFECT OUR REVENUES.

We believe that a substantial amount of revenue from software product sales in any given future period may come from a relatively small number of customers and
resellers. If one or more major customers were to stop using our products or services, or one or more major resellers were to stop reselling our products, our operating results could be materially
adversely affected. Our contractual relationships with most of these customers and resellers are subject to renewal annually. As a result, we cannot assure you that any of our customers or resellers
will renew their contracts with us in any given year.

OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS BECAUSE OF MANY FACTORS AND ANY OF THESE COULD ADVERSELY AFFECT OUR STOCK PRICE.

We believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance. Our operating results have fallen
below the expectations of public market analysts and investors in the past. It is likely that in future quarters our operating results will again be below the expectations of public market analysts
and investors and as a result, the price of our Common Stock may fall. Our operating results have varied widely in the past, and we expect that they will continue to vary significantly from quarter to
quarter due to a number of risk factors, including:



In
addition, our June 2001 agreement with Corporate Software, under which we are transitioning to Corporate Software our business of reselling iPlanet software, has resulted in and
will continue to result in a decrease in gross revenue to us. This decrease in our gross revenues could affect the market price of our Common Stock.

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Our operating expenses, which include sales and marketing, product development and general and administrative expenses, are based on our expectations of future gross profits and are
relatively fixed in the short term. If gross profits fall below our expectations and we are not able to quickly reduce our spending in response, our operating results would be adversely affected.

SOFTWARE MANUFACTURERS MAY NOT WISH TO USE OUR SUBSCRIBENET SERVICE AS A WAY OF OUTSOURCING ELECTRONIC DELIVERY OF THEIR SOFTWARE.

Our strategy for achieving profitability assumes significant revenue growth from our SubscribeNet service. However, we cannot assure you that software
manufacturers that are not currently our SubscribeNet customers will find it strategically or economically justifiable to use the SubscribeNet service to deliver software to their end-users. Some
software manufacturers are reluctant for security reasons to deliver their software via the Internet or to authorize a third party to do so on their behalf. Some software manufacturers believe that
they can internally develop an adequate electronic software delivery system at a cost lower than the fees we charge for SubscribeNet. These and other concerns on the part of software manufacturers
could make it difficult for us to quickly achieve significant growth in SubscribeNet revenue, which could in turn hinder our ability to achieve profitability and positive cash flow.

OUR INDUSTRY IS HIGHLY COMPETITIVE AND WE CANNOT ASSURE YOU THAT WE WILL BE ABLE TO EFFECTIVELY COMPETE.

The market for selling software products and related online services is highly competitive. We expect competition to intensify as current competitors expand
and improve their product offerings, new competitors enter the market, and the business market for information technology products and services continues to exhibit softness. We have experienced, and
expect to continue to experience, competition on our software sales. We cannot assure you that we will be able to compete successfully against current or future competitors, or that competitive
pressures faced by us will not adversely affect our business and results of operations. Our current competitors include a number of companies offering asset management software and/or electronic
software delivery and management solutions. We expect additional competition from other established and emerging companies. Increased competition is likely to result in price reductions, reduced gross
margins and loss of market share, any of which could have a significant adverse effect on our business and results of operations. Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, marketing and other resources, better name recognition, and a larger installed base of customers than we do. Many of our competitors may also
have well-established relationships with our existing and prospective customers. Our 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 and compete with our products. We also expect that the competition will increase as a result of software industry
consolidations. As a result, we may not be able to effectively compete for customers.

WE ARE DEPENDENT ON MARKET ACCEPTANCE OF ELECTRONIC SOFTWARE DELIVERY, AND IF IT DOES NOT ACHIEVE WIDESPREAD ACCEPTANCE, OUR BUSINESS WILL BE ADVERSELY AFFECTED.

Our future success will depend in large part on broadened acceptance by information technology professionals of electronic software delivery as a method of
receiving delivery of business software. If
electronic software delivery does not achieve widespread market acceptance, our business will be adversely affected. Electronic software delivery is a relatively new method of distributing software

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products and the growth and market acceptance of electronic software delivery is highly uncertain and subject to a number of risk factors. These factors include:



Even
if electronic software delivery achieves widespread acceptance, we cannot be sure that we will overcome the substantial technical challenges associated with electronically
delivering software reliably and consistently on a long-term basis. Furthermore, the proliferation of software viruses poses a risk to market acceptance of electronic software delivery. Any
well-publicized transmission of a computer virus by us or another company using electronic software delivery could deter information technology professionals from utilizing electronic software
delivery technology and our business could be adversely affected.

CONTINUED ADOPTION OF THE INTERNET AS A METHOD OF CONDUCTING BUSINESS IS NECESSARY FOR OUR FUTURE GROWTH.

The widespread acceptance and adoption of the Internet by traditional businesses for conducting business and exchanging information is likely only in the event
that the Internet provides these businesses with greater efficiencies and improvements. The failure of the Internet to continue to develop as a commercial or business medium would adversely affect our
business.

INCREASED SECURITY RISKS OF ONLINE COMMERCE MAY DETER FUTURE USE OF OUR SERVICES.

Concerns over the security of transactions conducted on the Internet and the privacy of users may also inhibit the growth of the Internet and other online
services generally, and online commerce in particular. Our failure to prevent security breaches could significantly harm our business and results of operations. We cannot be certain that advances in
computer capabilities, new discoveries in the field of cryptography, or other developments will not result in a compromise or breach of the algorithms we use to protect our customers' transaction data
or our software vendors' products. Anyone who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our operations. We may be required to
incur significant costs to protect against security breaches or to alleviate problems caused by breaches. Any well-publicized compromise of security could deter people from using the web to conduct
transactions that involve transmitting confidential information or downloading sensitive materials.

OUR EXECUTIVE OFFICERS AND CERTAIN KEY PERSONNEL ARE CRITICAL TO OUR BUSINESS AND THESE OFFICERS AND KEY PERSONNEL MAY NOT REMAIN WITH US IN THE FUTURE.

Our future success depends upon the continued service of our executive officers and other key technology, sales, marketing and support personnel and most of
our officers or key employees are not bound by an employment agreement for any specific term. If we lost the services of one or more of our key employees, or if one or more of our executive officers
or employees decided to join a competitor or otherwise compete directly or indirectly with us, this could have a significant adverse effect on our

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business. In particular, the services of Peter Jackson, Chief Executive Officer, Frost Prioleau, President, and Lawrence Shoup, Senior Vice President of Asset Management, would be difficult to
replace.

WE FACE RISKS OF CLAIMS FROM THIRD PARTIES FOR INTELLECTUAL PROPERTY INFRINGEMENT THAT COULD ADVERSELY AFFECT OUR BUSINESS.

Our services operate in part by making software products and other content available to our customers. This creates the potential for claims to be made against
us, either directly or through contractual indemnification provisions with vendors. Any claims could result in costly litigation and be time-consuming to defend, divert management's attention and
resources, cause delays in releasing new or upgrading existing services or require us to enter into royalty or licensing agreements. These claims could be made for defamation, negligence, patent,
copyright or trademark infringement, personal
injury, invasion of privacy or other legal theories based on the nature, content or copying of these materials.

Litigation
regarding intellectual property rights is common in the Internet and software industries. We expect that Internet technologies and software products and services may be
increasingly subject to third-party infringement claims as the number of competitors in our industry segment grows and the functionality of products in different industry segments overlaps. There can
be no assurance that our services do not infringe on the intellectual property rights of third parties. In addition, we may be involved in litigation involving the software of third party vendors that
we electronically distribute. Royalty or licensing agreements, if required, may not be available on acceptable terms, if at all. A successful claim of infringement against us and our failure or
inability to license the infringed or similar technology could adversely affect our business. Although we carry general liability insurance, our insurance may not cover all potential claims or may not
be adequate to protect us from all liability that may be imposed. We take steps to verify that end-users who use our SubscribeNet service to download third-party software from our web site are
entitled to deploy and use that software. However, there can be no assurance that this verification procedure will help us defend against claims by, or protect us against liability to, the owners of
copyrights in that third-party software. Our success and ability to compete are substantially dependent upon our internally developed technology, which we protect through a combination of patent,
copyright, trade secret and trademark law. We are aware that certain other companies are using or may have plans to use the name "Intraware" as a company name or as a trademark or service mark. While
we have received no notice of any claims of trademark infringement from any of those companies, we cannot assure you that certain of these companies may not claim superior rights to "Intraware" or to
other marks we use.

Despite
our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our services or technology and we cannot be certain that
the steps we have taken will prevent misappropriation of our technology.

OUR MARKET MAY UNDERGO RAPID TECHNOLOGICAL CHANGE AND OUR FUTURE SUCCESS WILL DEPEND ON OUR ABILITY TO MEET THE CHANGING NEEDS OF OUR INDUSTRY.

Our market is characterized by rapidly changing technology, evolving industry standards and frequent new product announcements. To be successful, we must adapt
to our rapidly changing market by continually improving the performance, features and reliability of our services. We could incur substantial costs to modify our services or infrastructure in order to
adapt to these changes. Our business could be adversely affected if we incur significant costs without adequate results, or find ourselves unable to adapt rapidly to these changes.

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ADDITIONAL GOVERNMENT REGULATIONS MAY INCREASE OUR COSTS OF DOING BUSINESS.

In delivering third-party software through our SubscribeNet service, and in delivering our own IT asset management software, we must comply with U.S. export
controls on software generally and encryption technology in particular. It appears that these controls may be strengthened in light of the September 11, 2001 terrorist attacks. Changes in these laws
could require us to implement costly changes to our automated export compliance processes. More generally, the law governing Internet transactions remains largely unsettled, even in areas where there
has been some legislative action. The adoption or modification of laws or regulations relating to the Internet could adversely affect our business by increasing our costs and administrative burdens.
It may take years to determine whether and how existing laws such as those governing intellectual property, privacy, libel and taxation apply to the Internet. Laws and regulations directly applicable
to communications or commerce over the Internet are becoming more prevalent. It appears that additional laws and regulations regarding protection of privacy on the Internet will be adopted at the
state and federal levels in the United States. The European Union has enacted its own data protection and privacy directive, which required all 15 European Union Member States to implement laws
relating to the processing and transmission of personal data. We must comply with these new regulations in both Europe and the United States, as well as any other regulations adopted by other
countries where we may do business. The growth and development of the market for online commerce may prompt calls for more stringent consumer protection laws, both in the United States and abroad.
Compliance with any newly adopted laws may prove difficult for us and may negatively affect our business.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. We have not used derivative financial instruments in
our investment portfolio. We place our investments with high quality issuers and, by policy, limit the amount of credit exposure to any one issue or issuer. At November 30, 2001, $5.3 million of our
cash, cash equivalents and investment portfolio (of which $1.3 million is restricted in use) carried maturity dates of less than 90 days. We have the ability to hold the portfolio to maturity, if
deemed necessary. The effect of changes in interest rates of +/-10% over a six-month horizon would not have a material effect on the fair market value of the portfolio.

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PART II OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

In October 2001, Intraware was served with a summons and complaint in a purported class action lawsuit, Azvalinsky v. Intraware, Inc., et al., Case No.
01-CV-9349, filed in the United States District Court for the Southern District of New York. The complaint names certain underwriters involved in Intraware's initial public offering, Intraware, and
certain of Intraware's officers and directors. The complaint alleges, among other things, violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 involving undisclosed
compensation to the underwriters and improper practices by the underwriters, and seeks unspecified damages. Similar complaints were filed in the same court against numerous public companies that
conducted initial public offerings ("IPOs") of their common stock since the mid-1990s.

All
of the above-referenced lawsuits were consolidated for pretrial purposes before Judge Shira Scheindlin of the United States District Court for the Southern District of New York.
Judge Scheindlin has ordered that the time for all defendants to respond to any complaint be postponed until further order of the Court. Thus, we have not been required to answer the complaint, and no
discovery has been served on us. We believe this lawsuit is without merit and intend to defend against it vigorously.

From
time to time, we are party to various other legal proceedings or claims, either asserted or unasserted, which arise in the ordinary course of business. Our management has
reviewed those other pending legal matters and believes that the resolution of such matters will not have a significant adverse effect on our financial condition or results of operations.

ITEM 2.    CHANGES IN SECURITIES AND USE OF PROCEEDS

On August 31, 2001, we issued promissory notes in a private placement to a group of institutional and individual investors for gross proceeds of $6.15 million,
and net receipts of approximately $5.6 million after fees and expenses. On that date, we also entered into binding agreements to issue to the investors warrants to purchase 6.15 million shares of our
Common Stock at an exercise price of $0.01 per share. In addition, on that date we entered into a binding agreement to issue to the placement agent in the
transaction warrants to purchase an aggregate of 615,000 shares of our Common Stock under the same terms as the warrants issued to the investors.

In
a follow-on transaction, on September 20, 2001 we issued promissory notes in a private placement to a group of institutional and individual investors for gross proceeds of
$850,000, and net receipts of approximately $800,000 after fees and expenses. On that date, we also entered into binding agreements to issue to the investors warrants to purchase 850,000 shares of our
Common Stock at an exercise price of $0.01 per share. In addition, on that date we entered into a binding agreement to issue to the placement agent in the transaction warrants to purchase an aggregate
of 85,000 shares of our Common Stock under the same terms as the warrants issued to the investors.

We
issued all of these warrants on September 24, 2001, in accordance with Nasdaq's application of NASD Marketplace Rules as described below. However, to comply with NASD Marketplace
Rule 4350(i)(1)(D), warrants exceeding an aggregate of 5,600,000 shares of our Common Stock (approximately 19.7% of our outstanding Common Stock) were not exercisable until we obtained shareholder
approval.

The
warrants were issued in a private placement without registration under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an
applicable exemption from registration requirements. In issuing the securities, we relied on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, based in part upon
the limited number of institutional type investors and their representations in the purchase agreements. We have agreed to file with the SEC a registration statement to register the resale of the
Common Stock

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issuable upon exercise of the warrants, and if the notes are ultimately converted or exchanged into or for equity, the shares issuable upon conversion or exchange of the notes. We are required to file
the registration statement by February 28, 2002, and to cause the registration statement to be declared effective by the SEC by May 31, 2002. However, the registration deadline may be accelerated to
any earlier stock registration deadline agreed to by us in any subsequent private placement.

In
connection with this debt financing, our Board of Directors created a new seat on the Board and appointed to that seat an individual designated by the company which acted as
placement agent in the financings. Another individual, who is an officer of the company which acted as placement agent in the financings, is also a member of our Board of Directors. One of these Board
members is also indirectly affiliated with one of the purchasers of notes and warrants in the financings. Because of these relationships, as well as the quantity of warrants issued and the price of
the warrants, Nasdaq's application of NASD Marketplace Rules would have required us to obtain stockholder approval before issuing the warrants. However, Nasdaq granted an exception from the
stockholder approval rule. In keeping with Nasdaq's determination, we gave our stockholders 10 days prior written notice of this exception before issuing the warrants.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

On November 27, 2001, we held a Special Meeting of Stockholders. At the meeting, the stockholders approved: (i) the issuance, in connection with our sale of
promissory notes in August and September 2001, of warrants exercisable for approximately 7.7 million shares of our Common Stock, which exceeded 20% of our total Common shares outstanding as of the
issuance date (with 22,267,504 affirmative votes, 143,507 negative votes, and 16,688 abstentions); (ii) the potential conversion of the promissory notes that we sold in August and September 2001 into
the same type of equity securities that we issue in our next private placement of equity securities (with 22,270,434 affirmative votes, 142,077 negative votes, and 15,188 abstentions); and (iii) the
potential new private placement of Intraware preferred stock to be issued for between $6,000,000 and $12,000,000, including the potential conversion of that preferred stock into between 15,000,000 and
30,000,000 shares of our Common Stock, which would exceed 20% of the Company's total Common shares outstanding (with 22,266,724 affirmative votes, 144,812 negative votes, and 16,163 abstentions). We
were required to obtain shareholder approval of these measures as a condition of our August and September 2001 debt financing (see Note 9Promissory Notes to our Consolidated Financial
Statements in Item 1 of Part 1) and under the NASD Marketplace Rules.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



| | Exhibit
Number |  | Description                                                                                                                           
| | -------------- |  | --------------------------------------------------------------------------------------------------------------------------------------
| | 3(i).4*        |  | Restated Certificate of Incorporation.                                                                                                
| | 3(i).5*        |  | Certificate of Elimination of Series B Certificate of Designations, Preferences and Rights.                                           
| | 3(i).6*        |  | Series B-1 Certificate of Designations, Preferences and Rights.                                                                       
| | 4.6*           |  | Form of Promissory Note.                                                                                                              
| | 4.7*           |  | Form of Warrant.                                                                                                                      
| | 4.8*           |  | Security Agreement, dated August 31, 2001 by and among Intraware, Inc., Commonwealth Associates, L.P. and the investors named therein.
| | 4.9*           |  | Exchange Agreement, dated August 31, 2001 by and among Intraware, Inc. and the investors named therein.                               
| | 4.10*          |  | Registration Rights Agreement, dated August 31, 2001 by and among Intraware, Inc. and the investors named therein.                    
| | 10.35*         |  | Form of Subscription Agreement, dated August 31, 2001 by and among Intraware, Inc. and the investors.                                 
| | 10.36*         |  | Placement Agency Agreement, dated August 31, 2001 by and between Intraware, Inc. and Commonwealth Associates, L.P.                    

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On
September 21, 2001, we filed a Report on Form 8-K under Item 5 reporting (i) our issuance on August 31 and September 20, 2001 of one-year senior secured promissory notes, bearing
interest of 8% annually, to institutional and individual investors for an aggregate sale price of $7 million with net
proceeds after fees and expenses of approximately $6.4 million, (ii) our agreement to issue to the note holders warrants to purchase an aggregate of 7 million shares of our Common Stock at an exercise
price of $0.01 per share, and (iii) our agreement to issue to the company that acted as placement agent in the transaction a warrant to purchase an aggregate of 700,000 share of our Common Stock at an
exercise price of $0.01 per share.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                        |  | INTRAWARE, INC.
|----------------------- |  | ---------------
|                        |  |                
|Dated: January 14, 2002 |  | By:            

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