---

---

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

---

FORM 10-Q

|ý                                                | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|------------------------------------------------ | ----------------------------------------------------------------------------------------
|For the Quarterly Period Ended November 30, 2002
|o                                                | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period from
 to              

Commission file number 000-25249

---

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

|DELAWARE(State or other jurisdiction of
incorporation or organization) |  | 68-0389976(IRS Employer Identification Number)
|---------------------------------------------------------------------- |  | ----------------------------------------------
|25 ORINDA WAY
ORINDA, CA 94563(Address of principal executive offices)
|(925) 253-4500(Registrant's telephone number, including area code)    

---

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 o        No o

As
of December 31, 2002 there were 51,929,021 shares of the registrant's Common Stock outstanding.

---

---

---



PART IFINANCIAL INFORMATION

ITEM 1.    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

|                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                 | November 30,
2002          |                                                                                    | February 28,
2002 |       
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ---------------------------------------------------------------------------------- | ----------------- | ------
|ASSETS                                                                                                                                                                                                                                                                                           |                                                                                                                                                                 |                            |                                                                                    |                   |       
|Current assets:                                                                                                                                                                                                                                                                                  |                                                                                                                                                                 |                            |                                                                                    |                   |       
|                                                                                                                                                                                                                                                                                                 | Cash and cash equivalents                                                                                                                                       |                            | $                                                                                  | 8,695             |       
|                                                                                                                                                                                                                                                                                                 | Accounts receivable, net                                                                                                                                        |                            |                                                                                    | 1,138             |       
|                                                                                                                                                                                                                                                                                                 | Prepaid licenses, services and cost of deferred revenue                                                                                                         |                            |                                                                                    | 391               |       
|                                                                                                                                                                                                                                                                                                 | Other current assets                                                                                                                                            |                            |                                                                                    | 629               |       
|                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                 |                            |                                                                                    |                   |       
|                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                 | Total current assets       |                                                                                    |                   | 10,853
|Cost of deferred revenue                                                                                                                                                                                                                                                                         |                                                                                                                                                                 |                            | 91                                                                                 |                   |       
|Property and equipment, net                                                                                                                                                                                                                                                                      |                                                                                                                                                                 |                            | 2,484                                                                              |                   |       
|Intangible assets, net                                                                                                                                                                                                                                                                           |                                                                                                                                                                 |                            |                                                                                   |                   |       
|Goodwill, net                                                                                                                                                                                                                                                                                    |                                                                                                                                                                 |                            |                                                                                   |                   |       
|Other assets                                                                                                                                                                                                                                                                                     |                                                                                                                                                                 |                            | 87                                                                                 |                   |       
|                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                 |                            |                                                                                    |                   |       
|                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                 |                            | Total assets                                                                       |                   | $     
|                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                 |                            |                                                                                    |                   |       
|LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK & STOCKHOLDERS' EQUITY                                                                                                                                                                                                                       |                                                                                                                                                                 |                            |                                                                                    |                   |       
|Current liabilities:                                                                                                                                                                                                                                                                             |                                                                                                                                                                 |                            |                                                                                    |                   |       
|                                                                                                                                                                                                                                                                                                 | Accounts payable                                                                                                                                                |                            | $                                                                                  | 1,538             |       
|                                                                                                                                                                                                                                                                                                 | Accrued expenses                                                                                                                                                |                            |                                                                                    | 1,814             |       
|                                                                                                                                                                                                                                                                                                 | Notes payable                                                                                                                                                   |                            |                                                                                    |                  |       
|                                                                                                                                                                                                                                                                                                 | Warrants                                                                                                                                                        |                            |                                                                                    |                  |       
|                                                                                                                                                                                                                                                                                                 | Deferred revenue                                                                                                                                                |                            |                                                                                    | 3,215             |       
|                                                                                                                                                                                                                                                                                                 | Capital lease and other obligations                                                                                                                             |                            |                                                                                    | 1,576             |       
|                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                 |                            |                                                                                    |                   |       
|                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                 | Total current liabilities  |                                                                                    |                   | 8,143 
|Deferred revenue                                                                                                                                                                                                                                                                                 |                                                                                                                                                                 |                            | 493                                                                                |                   |       
|Capital lease and other obligations                                                                                                                                                                                                                                                              |                                                                                                                                                                 |                            | 1,228                                                                              |                   |       
|                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                 |                            |                                                                                    |                   |       
|                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                 |                            | Total liabilities                                                                  |                   |       
|                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                 |                            |                                                                                    |                   |       
|Contingencies (Note 12)                                                                                                                                                                                                                                                                          |                                                                                                                                                                 |                            |                                                                                    |                   |       
|Redeemable convertible preferred stock; 10,000 shares authorized; $.0001 par value; 1,380 and 1,658 shares issued and outstanding at November 30 and February 28, 2002, respectively (aggregate liquidation
preference of $2,110 and $3,915 at November 30 and February 28, 2002, respectively). |                                                                                                                                                                 |                            | 2,717                                                                              |                   |       
|                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                 |                            |                                                                                    |                   |       
|Stockholders' equity:                                                                                                                                                                                                                                                                            |                                                                                                                                                                 |                            |                                                                                    |                   |       
|                                                                                                                                                                                                                                                                                                 | Common stock; $0.0001 par value; 250,000 shares authorized; 51,599 and 40,447 shares issued and outstanding at November 30 and February 28, 2002, respectively. |                            |                                                                                    | 5                 |       
|                                                                                                                                                                                                                                                                                                 | Additional paid-in-capital                                                                                                                                      |                            |                                                                                    | 152,505           |       
|                                                                                                                                                                                                                                                                                                 | Unearned stock-based compensation                                                                                                                               |                            |                                                                                    | (47               | )     
|                                                                                                                                                                                                                                                                                                 | Accumulated deficit                                                                                                                                             |                            |                                                                                    | (151,529          | )     
|                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                 |                            |                                                                                    |                   |       
|                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                 | Total stockholders' equity |                                                                                    |                   | 934   
|                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                 |                            |                                                                                    |                   |       
|                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                 |                            | Total liabilities, redeemable convertible preferred stock and stockholders' equity |                   | $     
|                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                 |                            |                                                                                    |                   |       

See notes to unaudited interim condensed consolidated financial information.

2

---



INTRAWARE, INC.  CONDENSED 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                       |                            | $            | 193                       |      
|                                                                         | Online services and technology               |                            |              | 2,625                     |      
|                                                                         | Related party online services and technology |                            |              | 125                       |      
|                                                                         |                                              |                            |              |                           |      
|                                                                         |                                              | Total revenues             |              |                           | 2,943
|                                                                         |                                              |                            |              |                           |      
|Cost of revenues:                                                        |                                              |                            |              |                           |      
|                                                                         | Software product sales                       |                            |              | 189                       |      
|                                                                         | Online services and technology               |                            |              | 1,118                     |      
|                                                                         |                                              |                            |              |                           |      
|                                                                         |                                              | Total cost of revenues     |              |                           | 1,307
|                                                                         |                                              |                            |              |                           |      
|                                                                         |                                              |                            | Gross profit |                           |      
|                                                                         |                                              |                            |              |                           |      
|Operating expenses:                                                      |                                              |                            |              |                           |      
|                                                                         | Sales and marketing                          |                            |              | 972                       |      
|                                                                         | Product development                          |                            |              | 1,219                     |      
|                                                                         | General and administrative                   |                            |              | 528                       |      
|                                                                         | Amortization of intangibles                  |                            |              |                          |      
|                                                                         | Amortization of goodwill                     |                            |              |                          |      
|                                                                         | Restructuring                                |                            |              |                          |      
|                                                                         | Impairment of assets                         |                            |              |                          |      
|                                                                         | Loss on abandonment of assets                |                            |              |                          |      
|                                                                         |                                              |                            |              |                           |      
|                                                                         |                                              | Total operating expenses   |              |                           | 2,719
|                                                                         |                                              |                            |              |                           |      
|Loss from operations                                                     |                                              |                            | (1,083       | )                         |      
|Interest expense                                                         |                                              |                            | (92          | )                         |      
|Interest and other income and expenses, net                              |                                              |                            | 31           |                           |      
|Gain on sale of Asset Management software business                       |                                              |                            |             |                           |      
|                                                                         |                                              |                            |              |                           |      
|Net loss                                                                 |                                              |                            | (1,144       | )                         |      
|Deemed dividend due to beneficial conversion feature of preferred stock  |                                              |                            |             |                           |      
|                                                                         |                                              |                            |              |                           |      
|Net loss attributable to common stockholders                             |                                              | $                          | (1,144       | )                         | $    
|                                                                         |                                              |                            |              |                           |      
|Basic and diluted net loss per share attributable to common stockholders |                                              | $                          | (0.02        | )                         | $    
|                                                                         |                                              |                            |              |                           |      
|Weighted average sharesbasic and diluted                                |                                              |                            | 51,546       |                           |      
|                                                                         |                                              |                            |              |                           |      

See
notes to unaudited interim condensed consolidated financial information.

3

---



INTRAWARE, INC.  CONDENSED 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                                          |                                                        
|                                                          |                                                                                         | Amortization of goodwill and intangibles              |                                                        
|                                                          |                                                                                         | Amortization of unearned stock-based compensation     |                                                        
|                                                          |                                                                                         | Recovery of doubtful accounts                         |                                                        
|                                                          |                                                                                         | Gain on sale of fixed assets                          |                                                        
|                                                          |                                                                                         | Gain on sale of Asset Management software business    |                                                        
|                                                          |                                                                                         | Warrants adjustment to fair value                     |                                                        
|                                                          |                                                                                         | Amortization of discount on note payable              |                                                        
|                                                          |                                                                                         | Impairment of assets                                  |                                                        
|                                                          |                                                                                         | Loss on abandonment of assets                         |                                                        
|                                                          |                                                                                         | Amortization of warrant charge offset against revenue |                                                        
|                                                          |                                                                                         | Common stock options issued for services              |                                                        
|                                                          |                                                                                         | Accrued interest                                      |                                                        
|                                                          |                                                                                         | 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                     |                                                                                         |                                                       | (4,084                                                 
|                                                          |                                                                                         |                                                       |                                                        
|Cash flows from investing activities:                     |                                                                                         |                                                       |                                                        
|                                                          | Purchases of property and equipment                                                     |                                                       |                                                        
|                                                          | Purchases of property and equipment in accounts payable                                 |                                                       |                                                        
|                                                          | Decrease in restricted cash                                                             |                                                       |                                                        
|                                                          | Proceeds from sale of Asset Management software business                                |                                                       |                                                        
|                                                          | Proceeds from sale of fixed assets                                                      |                                                       |                                                        
|                                                          |                                                                                         |                                                       |                                                        
|Net cash provided by investing activities                 |                                                                                         |                                                       | 9,412                                                  
|                                                          |                                                                                         |                                                       |                                                        
|Cash flows from financing activities:                     |                                                                                         |                                                       |                                                        
|                                                          | Proceeds from common stock and warrants, net of issuance costs and repurchases          |                                                       |                                                        
|                                                          | Proceeds from preferred stock and warrants, net of issuance costs                       |                                                       |                                                        
|                                                          | Proceeds from notes and warrants, net of issuance costs                                 |                                                       |                                                        
|                                                          | Repayment of bank borrowings                                                            |                                                       |                                                        
|                                                          | Principal payments on notes payable                                                     |                                                       |                                                        
|                                                          | Principal payments on capital lease obligations                                         |                                                       |                                                        
|                                                          |                                                                                         |                                                       |                                                        
|Net cash provided by financing activities                 |                                                                                         |                                                       | 388                                                    
|                                                          |                                                                                         |                                                       |                                                        
|Net increase (decrease) in cash and cash equivalents      |                                                                                         |                                                       | 5,716                                                  
|Cash and cash equivalents at beginning of period          |                                                                                         |                                                       | 2,979                                                  
|                                                          |                                                                                         |                                                       |                                                        
|Cash and cash equivalents at end of period                |                                                                                         | $                                                     | 8,695                                                  
|                                                          |                                                                                         |                                                       |                                                        
|Supplemental disclosure of cash flow information:         |                                                                                         |                                                       |                                                        
|                                                          | Cash paid for interest                                                                  |                                                       | $                                                      
|Supplemental non-cash investing and financing activities: |                                                                                         |                                                       |                                                        
|                                                          | Property and equipment leases                                                           |                                                       | $                                                      
|                                                          | Common stock issued in connection with preferred stock conversion and warrant exercises |                                                       | $                                                      

See notes to unaudited interim condensed consolidated financial information.

4

---



INTRAWARE, INC.    NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED  FINANCIAL INFORMATION

NOTE 1. BASIS OF PRESENTATION

INTRAWARE

The accompanying condensed consolidated financial statements for the three and nine months ended November 30, 2002 and 2001, are unaudited and reflect all
adjusting entries consisting of normal and recurring adjustments which are, in the opinion of the management of Intraware, Inc., necessary for the fair presentation of the balance sheets,
statements of operations, and statements of cash flows for the periods presented.

These
condensed 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, 2002, and the Form 10-Q for the fiscal quarters ended May 31, 2002 and August 31, 2002. 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, 2002, are not necessarily indicative of results to be expected for the
full year.

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

NOTE 2. NET LOSS PER SHARE

Basic net loss per common share attributable to common stockholders 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 redeemable convertible preferred stock.

5

---

The
following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders 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                                                                                       |                                         | $      | (1,144                                 | )
|                                                                                                                                                                                                                    | Deemed dividend due to beneficial conversion feature of redeemable convertible preferred stock |                                         |        |                                       |  
|                                                                                                                                                                                                                    |                                                                                                |                                         |        |                                        |  
|                                                                                                                                                                                                                    | Net loss attributable to common stockholders                                                   |                                         | $      | (1,144                                 | )
|                                                                                                                                                                                                                    |                                                                                                |                                         |        |                                        |  
|Denominator:                                                                                                                                                                                                        |                                                                                                |                                         |        |                                        |  
|                                                                                                                                                                                                                    | Weighted average shares                                                                        |                                         |        | 51,546                                 |  
|                                                                                                                                                                                                                    | Weighted average unvested common shares subject to repurchase                                  |                                         |        |                                       |  
|                                                                                                                                                                                                                    |                                                                                                |                                         |        |                                        |  
|                                                                                                                                                                                                                    | Denominator for basic and diluted calculation                                                  |                                         |        | 51,546                                 |  
|                                                                                                                                                                                                                    |                                                                                                |                                         |        |                                        |  
|Basic and diluted net loss per share attributable to common stockholders                                                                                                                                            |                                                                                                | $                                       | (0.02  | )                                      | $
|                                                                                                                                                                                                                    |                                                                                                |                                         |        |                                        |  
|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 |                                                                                                |                                         | 14,428 |                                        |  
|                                                                                                                                                                                                                    |                                                                                                |                                         |        |                                        |  

NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS

On
July 20, 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141, ("SFAS No. 141"), "Business
Combinations," and Statement of Financial Accounting Standards No. 142, ("SFAS No. 142"), "Goodwill and Other Intangible Assets." These statements made significant changes to the
accounting for business combinations, goodwill, and intangible assets.

SFAS
No. 141 established new standards for accounting and reporting requirements for business combinations and requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. SFAS No. 142 established new standards for goodwill acquired in a business combination, eliminates amortization of goodwill and
instead sets forth methods
to periodically evaluate goodwill for impairment. Intangible assets with a determinable useful life will continue to be amortized over that period. We adopted the provisions of SFAS No. 142 on
March 1, 2002. As a result, we ceased amortization of $7.0 million in goodwill. Subsequently, the remaining goodwill balance was included in the determination of the gain on the sale of
our Asset Management software business, as discussed in Note 8.

On
October 3, 2001, the FASB issued Statement of Financial Accounting Standards No. 144, ("SFAS No. 144"), "Accounting for the Impairment or Disposal of
Long-Lived Assets." SFAS No. 144 supercedes Statement of Financial Accounting Standards No. 121, ("SFAS No. 121"), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 144 applies to all long-lived assets (including discontinued operations) and
consequently amends Accounting Principles Board Opinion No. 30 ("APB 30"), "Reporting Results of Operations Reporting the Effects of Disposal of a Segment of a Business." SFAS No. 144
develops one accounting model for long-lived

6

---

assets that are to be disposed of by sale. SFAS No. 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less
the cost to sell. We adopted the provisions of SFAS No. 144 during the quarter ended May 31, 2002. The disposition of our Asset Management software business (Note 8) was
recognized under SFAS No. 144.

In
November 2001, the Emerging Issues Task Force ("EITF") reached a consensus on EITF No. 01-14, "Income Statement Characterization of Reimbursements Received
for Out-of-Pocket Expenses Incurred," which includes, among other things, guidance on EITF No. 99-19, "Reporting Revenue Gross as a Principal versus Net as
an Agent". EITF No. 01-14, as it relates to EITF No. 99-19, is to be applied for financial reporting periods beginning after December 15, 2001, and
generally requires that a company recognize as revenue travel expense and other reimbursable expenses billed to customers. We adopted EITF 01-14 effective March 1, 2002. As a
result, we classified as revenue reimbursements totaling approximately $0.5 and $1.6 million during the three months and nine months ended November 30, 2002, respectively, that we
received from Software Spectrum, Inc. (formerly Corporate Software) relating to maintaining a team dedicated to sales of SunONE (formerly iPlanet) software licenses and maintenance. Prior year
amounts totaling approximately $0.4 million and $0.6 million during the three months and nine months ended November 30, 2001, respectively, have been reclassified to conform to
the current presentation in accordance with the transition provisions of EITF 01-14. The adoption of EITF No. 01-14 did not affect our net loss per share, financial
position, results of operations, or cash flows.

In
May 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements Nos. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS
No. 145 eliminates Statement 4 (and Statement 64, as it amends Statement 4), which requires gains and losses from extinguishments of debt to be aggregated and, if material, classified as an
extraordinary item, net of the related income tax effect. As a result, the criteria in APB Opinion 30 will now be used to classify those gains and losses. SFAS No. 145 amends FASB Statement
No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. This amendment is consistent with the FASB's goal of requiring similar accounting treatment for transactions that have similar economic effects. In addition,
SFAS 145 makes technical corrections to existing pronouncements. While those corrections are not substantive in nature, in some instances, they may change accounting practice. This statement is
effective for fiscal years
beginning after May 15, 2002, for the provisions related to the rescission of Statements 4 and 64, and for all transactions entered into after May 15, 2002, for the provision related to
the amendment of Statement 13, although early adoption is permitted. We do not expect a material effect on our financial position and results of operations from the adoption of SFAA 145.

In
July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 nullifies the guidance in EITF Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." Under EITF
Issue No. 94-3, an entity recognized a liability for an exit cost on the date that the entity committed itself to an exit plan. In SFAS 146, the Board acknowledges that an
entity's commitment to a plan does not, by itself, create a present obligation to other parties that meets the definition of a liability and requires that a liability for a cost that is associated
with an exit or disposal activity be recognized when the liability is incurred. It also establishes that fair value is the objective for the initial measurement of the liability. SFAS 146 will
be effective for exit or disposal activities that are initiated after December 31, 2002. We do not expect a material effect on our financial position and results of operations from the adoption
of SFAS 146.

In
November 2002, the EITF reached a consensus on issue No. 00-21 "Accounting for Revenue Arrangements with Multiple Deliverables" ("EITF 00-21") on a model to be used to
determine when a revenue arrangement with multiple deliverables should be divided into separate units of accounting and, if separation is appropriate, how the arrangement consideration should be
allocated to the

7

---

identified accounting units. The EITF also reached a consensus that this guidance should be effective for all revenue arrangements entered into in fiscal periods beginning after June 15, 2003.
We are currently assessing what the impact of the guidance would have on our financial statements.

In
December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, ("SFAS No. 148"), "Accounting for Stock-Based CompensationTransition and
Disclosurean amendment of FAS 123." SFAS No. 148 amends Statement of Financial Accounting Standards No. 123, ("SFAS No. 123") "Accounting for Stock-Based
Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement
amends the disclosure requirements of SFAS No. 123 to require prominent disclosures about the method of accounting for stock-based employee compensation and the effect of the method used on
reported results. Finally, SFAS No. 148 amends APB Opinion No. 28, "Interim Financial Reporting," to require disclosure about those effects in interim financial information. The
amendments to the transition and disclosure provisions shall be effective for fiscal years ending after December 15, 2002. The amendment to Opinion 28 shall be effective for financial reports
containing condensed financial statements for interim periods beginning after December 15, 2002. We are currently evaluating whether to adopt SFAS No. 148. We will adopt the disclosure
provisions of SFAS No. 148 in our Annual Report on Form 10-K for the year ending February 28, 2003.

8

---

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

During the nine months ended November 30, 2002, our redeemable convertible preferred stock ("preferred stock") and stockholders' equity changed as follows
(in thousands):

|                                                                      |  | Preferred Stock |   | Common Stock |       |   |        |  |   |   |  |   |         |   |  
|--------------------------------------------------------------------- |  | --------------- | - | ------------ | ----- | - | ------ |  | - | - |  | - | ------- | - | -
|
|
|Balance at February 28, 2002                                          |  | 1,658           |   | $            | 3,347 |   | 40,447 |  | $ | 4 |  | $ | 144,140 |   | $
|Exercise of stock options, net of repurchase of unvested common stock |  |                |   |              |      |   | 91     |  |   |  |  |   | 58      |   |  
|Issuance of common stock for employee stock purchase program          |  |                |   |              |      |   | 212    |  |   |  |  |   | 139     |   |  
|Stock-based deferred compensation for options forfeited               |  |                |   |              |      |   |       |  |   |  |  |   | (544    | ) |  
|Issuance of common stock with warrants, net of issuance costs of $467 |  |                |   |              |      |   | 3,940  |  |   |  |  |   | 1,951   |   |  
|Reclassification of warrants to equity                                |  |                |   |              |      |   |       |  |   |  |  |   | 891     |   |  
|Issuance of common stock, net of issuance costs of $89                |  |                |   |              |      |   | 6,098  |  |   | 1 |  |   | 4,911   |   |  
|Amortization of unearned stock-based compensation                     |  |                |   |              |      |   |       |  |   |  |  |   |        |   |  
|Exercise of common stock warrants                                     |  |                |   |              |      |   | 200    |  |   |  |  |   | 265     |   |  
|Conversion of preferred stock into common stock                       |  | (278            | ) |              | (630  | ) | 611    |  |   |  |  |   | 630     |   |  
|Options issued for services                                           |  |                |   |              |      |   |       |  |   |  |  |   | 64      |   |  
|Net loss                                                              |  |                |   |              |      |   |       |  |   |  |  |   |        |   |  
|Other comprehensive loss                                              |  |                |   |              |      |   |       |  |   |  |  |   |        |   |  
|                                                                      |  |                 |   |              |       |   |        |  |   |   |  |   |         |   |  
|Comprehensive loss                                                    |  |                |   |              |      |   |       |  |   |  |  |   |        |   |  
|                                                                      |  |                 |   |              |       |   |        |  |   |   |  |   |         |   |  
|                                                                      |  |                 |   |              |       |   |        |  |   |   |  |   |         |   |  
|Balance at November 30, 2002                                          |  | 1,380           |   | $            | 2,717 |   | 51,599 |  | $ | 5 |  | $ | 152,505 |   | $
|                                                                      |  |                 |   |              |       |   |        |  |   |   |  |   |         |   |  

9

---

NOTE 5. ABILITY TO CONTINUE OPERATIONS

Our Annual Report on Form 10-K for our fiscal year ended February 28, 2002, 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. During the nine months ended November 30, 2002, we raised approximately
$18 million in new capital (see Notes 7 and 8), retired all of our notes payable with an aggregate principal balance of $7 million (see Notes 6 and 7), and narrowed our net loss
attributable to common stockholders to $1.1 million for the three months ended November 30, 2002, as compared to a net loss attributable to common stockholders of $5.0 million for
the three months ended November 30, 2001. Although the risks that potential revenue and collections shortfalls pose to our ability to continue as a going concern diminished in recent months, we
continued to experience recurring losses, working capital deficiencies and negative cash flows from operations for the nine months ended November 30, 2002. In addition, there remains no
assurance that we will succeed in generating sufficient revenue to enable us to continue operations over the longer term.

Our
future capital requirements will depend on many factors, including our ability to increase revenue levels and/or reduce costs of operations to generate positive cash flows, the
timing and extent of expenditures to support expansion of sales and marketing efforts, market acceptance of our services, and timeliness of collections of our accounts receivable. Any projections of
future cash needs are subject to substantial uncertainty.

Our
ability to generate increased revenues and cash flows and, if necessary, raise additional capital is also subject to substantial uncertainty, given the challenging economic
environment currently prevailing in the technology sector. The bid price of our Common Stock has been below $1.00 numerous times over the past 12 months. If we fail to meet the $1.00 minimum
bid price requirement or the other standards for continued listing on the Nasdaq SmallCap Market, our Common Stock will likely be delisted and our ability to generate both sales and additional capital
will be subject to further uncertainty.

We
have historically been able to satisfy our cash requirements through financing and investing activities, and our cash position and net losses from operations have improved
substantially during the nine months ended November 30, 2002. Nevertheless, we continued to suffer recurring losses, working capital deficiencies and negative cash flows from operations for
that period, and there is no assurance that we will succeed in generating sufficient cash from operations on a regular basis, achieving profitability, or obtaining additional capital if needed.

NOTE 6. PROMISSORY NOTES

In May 2002, following the asset sale and private placement described in Notes 7 and 8, we repaid $5.7 million of the $7.0 million principal
amount of the promissory notes that we had issued in August and September 2001. As part of this repayment, we were required to accrete the portion of carrying amount of the promissory notes
relating to the repayment to its full value. This resulted in a charge of approximately $973,000, which is included in interest and other income and expenses. The remaining $1.3 million in
principal amount of those promissory notes was effectively converted into the private placement of Common Stock and warrants described in Note 7.

NOTE 7. COMMON STOCK

On May 24, 2002, we completed a private placement of our Common Stock and warrants to purchase our Common Stock to institutional and individual investors.
Under the terms of the financing, we issued an aggregate of 3,940,000 shares of Common Stock, and warrants to purchase 788,000 shares of our Common Stock with an exercise price of $1.19 per share, for
aggregate gross proceeds of $3.9 million, including $2.6 million in cash and $1.3 million in cancelled indebtedness. The $1.19 per share exercise price of the warrants was the
average closing sale price of our Common Stock on the

10

---

five trading days preceding the closing date. The warrants issued to the investors expire four years from the issuance date. In addition to paying the placement agent a cash fee of $231,400 and
reimbursing it for approximately $70,000 in expenses, we also issued to the placement agent and its designee warrants to purchase an aggregate of 310,200 shares of Common Stock at an exercise price of
$1.00 per share, and warrants to purchase an aggregate of 62,040 shares of Common Stock at an exercise price of $1.19 per share. The warrants issued to the placement agent and its designee expire five
years from the issuance date. All $1.19 warrants carry anti-dilution protection requiring a weighted-average adjustment of the exercise price and of the number of shares issuable upon
exercise of the warrants for certain sales of stock by us at less than $1.19 per share during the 12 months following the closing; however, in accordance with NASD Marketplace Rules, we will
not sell shares of our stock that would lead to an anti-dilution adjustment requiring us to issue a number of shares exceeding 19.9% of our then-current total common shares
outstanding, without obtaining stockholder approval. As part of this transaction, we incurred approximately $165,000 in legal, accounting and other costs.

On
June 13, 2002, we filed with the SEC a registration statement for the resale of the Common Stock issued and the Common Stock issuable upon exercise of the warrants, which was
declared effective by the SEC on June 26, 2002.

Cash
proceeds from this financing were allocated first to the fair value of the warrants associated with the transaction in the amount of $1.3 million and the remaining balance,
net of issuance costs, of $0.9 million to the Common Stock. Proceeds related to the cancelled indebtedness were accounted for as an effective conversion and were converted to Common Stock at
their carrying value of $1.1 million.

The
warrants were classified as a liability during the time that the associated Common Stock was unregistered, as we were obligated to register that Common Stock as well as the Common
Stock issuable upon exercise of the warrants, and our ability to perform that obligation was assumed to be outside our control. During each accounting period that the warrants were classified as
liabilities, the warrants were adjusted to their fair value. On June 26, 2002, as described above, the registration statement was declared effective and at that time, the warrants were
reclassified as permanent equity.

During
the three months and nine months ended November 30, 2002, we recorded a net credit of approximately zero and $378,000 respectively, to other income and expense to adjust
the carrying amount of the warrants issued on May 24, 2002, to fair value.

During
the nine months ended November 30, 2002, no warrants associated with the issuance of the May 24, 2002 private placement were exercised.

On
August 12, 2002, we completed a private placement of Common Stock to Zomax Incorporated. Under the terms of the financing, we issued an aggregate of approximately
6.1 million shares of
Common Stock for aggregate gross proceeds of approximately $5.0 million. As part of this transaction, we incurred and expect to incur approximately $89,000 in legal, accounting and other costs.
Concurrent with that agreement, we entered into a strategic alliance agreement with Zomax (see Note 9). As of November 30, 2002, Zomax held approximately 12% of our outstanding Common
Stock.

The
Common Stock was issued in a private placement without registration under the Securities Act of 1933 and could not be offered or sold in the United States of America 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 and Regulation D promulgated thereunder, based in part on the purchaser being an institutional type investor and on its representations in the purchase agreement. As part of the agreement,
we agreed to file with the SEC a registration statement to register the resale of the Common Stock issued to Zomax within one year of closing, and to use commercially reasonable efforts to cause the
registration statement to be declared effective by the SEC as promptly thereafter as practicable.

11

---

The
August 12, 2002, Common Stock financing resulted in anti-dilution adjustments to the warrants issued in connection with our issuance of redeemable convertible
preferred stock on June 30, 2000. The exercise price of the warrants issued in connection with our preferred stock on June 30, 2000, was adjusted from $1.50 to $1.44.

In
addition, the August 12, 2002 Common Stock financing resulted in an anti-dilution adjustment to the exercise price of the warrants issued in connection with our
May 24, 2002 Common Stock financing and an increase in the number of shares of Common Stock issuable upon exercise of those warrants. The exercise price of the warrants was adjusted from $1.19
to $1.07. The number of shares issuable upon exercise of the warrants increased from 850,040 to 944,565.

NOTE 8. ASSET SALE

In May 2002, we sold substantially all of the assets related to our Asset Management software business to Computer Associates International, Inc.
for approximately $9.5 million in cash. In connection with this sale, our July 2001 agreement with Computer Associates for its resale of our Argis suite of software products was
terminated. In addition, as part of that asset sale, we assigned to Computer Associates our May 2001 agreement with Corporate Software (now Software Spectrum) for its resale of our Argis suite
of software products. Because of the asset sale, Software Spectrum has the right to terminate that agreement. If it does so, all of the shares subject to the warrant that we issued to Corporate
Software in May 2001 will immediately become exercisable. The fair value of the warrant had been recorded as prepaid distribution costs and was being recognized as a reduction of revenue over
the lesser of a ratable charge over the 24-month term of the agreement with Corporate Software or the period it took Corporate Software to generate revenue to Intraware of
$1.6 million from Corporate Software's resale of our Asset Management software. As a result of the asset sale, the remaining unamortized prepaid
distribution costs of $936,000 were recorded as a reduction to revenue during the three months ended May 31, 2002.

The
total proceeds from the sale of $9.5 million, less the book value of transferred equipment, intangible assets, deferred revenue, and transaction costs, based on their
respective carrying values at the sale date, were recorded as a gain on sale of assets in the quarter ended May 31, 2002.

The
calculation of the gain on the sale was determined as follows (in thousands):

|Total consideration                                                 |  | $ | 9,500  |  
|------------------------------------------------------------------- |  | - | ------ | -
|Net book value of equipment, intangible assets and deferred revenue |  |   | (6,536 | )
|Transaction costs                                                   |  |   | (308   | )
|                                                                    |  |   |       
|Gain on sale                                                        |  | $ | 2,656  |  
|                                                                    |  |   |       

In
connection with our disposition of the Asset Management software business, we announced a restructuring and workforce reduction to reduce our operating expenses.

We
recorded a charge of $1.8 million relating to this restructuring and the impairment of assets during the three months ended May 31, 2002.

The
impairment of assets includes the write-off of approximately $403,000 in prepaid licenses that were held for resale. The restructuring charge consisted of approximately
$345,000 for severance and benefits relating to the involuntary termination of 14 employees who were not hired by Computer Associates. We terminated an additional 33 employees, all of
whom were based in North America. These 33 terminated employees were all hired by Computer Associates and therefore received no severance payments. Overall, we reduced our workforce to
71 employees from 118 in connection with the asset sale to Computer Associates. Of the 47 terminated employees, 22 were in Sales and

12

---

Marketing, 10 were in Product Development and 15 were directly involved in our product support. We also closed our Pittsburgh, Pennsylvania office and various satellite offices.

We
accrued for lease and related costs of approximately $983,000, principally pertaining to the estimated future obligations of non-cancelable lease payments for excess
facilities that were vacated due to our reductions in work force. We also recognized $63,000 relating to other restructuring expenses. Due to changes in management's estimates relating to the
restructuring during the three months ended August 31, 2002, we recognized an additional expense of $106,000 pertaining to the estimated future obligations of non-cancelable lease
payments for excess facilities that were vacated due to our reductions in work force. In addition, we did not incur severance and benefits of $106,000 and reduced the reserve accordingly.

In
our December 2000 restructuring, we closed our Fremont, California office and assigned our lease to a new tenant while acting as guarantor for that tenant. In May 2002,
the new tenant defaulted on its lease. During the three months ended November 30, 2002, we made a cash payment of approximately $214,000 to terminate this lease.

The
following table sets forth an analysis of the components of the restructuring and impairment of assets charges recorded in the first, second and third quarters of fiscal 2003 and
subsequent adjustments and payments made against the reserve (in thousands):

|                                     |  | Severance and
benefits |      | Excess lease and
related costs |   | Impairment of assets |   | Other costs |      | Total |  
|------------------------------------ |  | ---------------------- | ---- | ------------------------------ | - | -------------------- | - | ----------- | ---- | ----- | -
|May 23, 2002 restructuring           |  | $                      | 345  |                                | $ | 983                  |   | $           | 403  |       | $
|                                     |  |                        |      |                                |   |                      |   |             |      |       |  
|Total                                |  |                        | 345  |                                |   | 983                  |   |             | 403  |       |  
|Cash paid                            |  |                        |     |                                |   | (89                  | ) |             |     |       |  
|Non-cash charges                     |  |                        |     |                                |   | (18                  | ) |             | (403 | )     |  
|                                     |  |                        |      |                                |   |                      |   |             |      |       |  
|Reserve balance at May 31, 2002      |  |                        | 345  |                                |   | 876                  |   |             |     |       |  
|Cash paid                            |  |                        | (239 | )                              |   | (119                 | ) |             |     |       |  
|Provision adjustment                 |  |                        | (106 | )                              |   | 106                  |   |             |     |       |  
|                                     |  |                        |      |                                |   |                      |   |             |      |       |  
|Reserve balance at August 31, 2002   |  |                        |     |                                |   | 863                  |   |             |     |       |  
|Cash paid                            |  |                        |     |                                |   | (294                 | ) |             |     |       |  
|                                     |  |                        |      |                                |   |                      |   |             |      |       |  
|Reserve balance at November 30, 2002 |  | $                      |     |                                | $ | 569                  |   | $           |     |       | $
|                                     |  |                        |      |                                |   |                      |   |             |      |       |  

We
expect to pay the remaining accrual in cash within one year.

NOTE 9. STRATEGIC ALLIANCE AGREEMENTS

In April 2002, we entered into a new services agreement with Sun Microsystems, Inc., which replaced our prior services agreement with Sun when the
new agreement became effective in July 2002. Under this new agreement, we provide our SubscribeNet ESDM and fulfillment services to Sun for the Sun ONE (formerly iPlanet) product line, and at
Sun's option, for additional Sun software products, until June 30, 2003, with an optional one-year renewal term. The fulfillment services under that agreement consist of our making
Sun ONE software products electronically available to Sun customers on a one-time basis upon their purchase of initial licenses for that software. Sun may terminate this agreement for its
convenience at any time upon 90 days' notice. In October 2002, Sun and Intraware amended that agreement, making the SubscribeNet service cancelable by either party at the end of any
calendar quarter, provided the canceling party gives 30 days' notice. The terms of the agreement with respect to our fulfillment services remain unchanged. There is now a heightened risk that
Sun will elect

13

---

not to renew the agreement on June 30, 2003, and will elect not to renew the SubscribeNet portion of the agreement before that date.

On
August 12, 2002, we entered into a strategic alliance agreement with Zomax Incorporated ("Zomax"), an international outsource provider of process management services. Under the
agreement, Zomax will market and resell our SubscribeNet ESDM service to its global customer base through an OEM and royalty agreement. As part of the agreement, Zomax will pay a minimum license fee
of $15 million to us over 10 years, subject to some conditions, including Zomax' right to cancel the agreement at any time with one year's notice. Zomax will also pay us
non-refundable quarterly service fees, for use of the SubscribeNet service by Zomax' customers, over the term of the agreement. Under this agreement, our SubscribeNet service is the only
ESDM solution Zomax may sell and Zomax is the only supply chain management outsourcing industry company that we may authorize to resell our SubscribeNet service. As part of the agreement, we are also
a non-exclusive lead generator for Zomax' products and services, through which we can receive fees based on the generation of completed leads for Zomax for the first 12 months of
the strategic alliance agreement. Lastly, we will reimburse Zomax for one-half of the base salary of a product sales manager, up to a maximum amount. Concurrent with signing this
agreement, we completed a private placement of Common Stock to Zomax (see Note 7).

At
November 30, 2002, deferred revenue and accounts receivable balances related to this agreement totaled approximately $873,000 and zero, respectively. During the three and nine
months ended November 30, 2002, we recognized approximately $125,000 and $152,000 of revenue, respectively, related to this agreement.

NOTE 10. OTHER EVENTS

In July 2002, due to changes in our business and Hewlett-Packard Co.'s announcement to shut down its Bluestone Software business, we took some computer
software out of service. As a result of this impairment, we wrote off computer software with a net book value of approximately $389,000 during the three months ended August 31, 2002.

Subsequent
to February 28, 2002, we were delinquent in monthly payments to capital lessors. Under these agreements, this delinquency resulted in a breach, and the lessors had the
right to recover fees related to collecting such unpaid balances, to assess interest over the term of their delinquency, to terminate the agreements, and to accelerate all payments upon breach. As of
the date of filing of this Form 10-Q, none of the lessors has indicated that additional charges will be assessed against us, nor have they indicated any intention to terminate the
agreements or accelerate payments as a result of such breaches. We are currently up to date with payments to these lessors.

NOTE 11. ACCOUNTING FOR GOODWILL AND INTANGIBLES

In accordance with SFAS No. 142, goodwill amortization was discontinued as of March 1, 2002, and $1.2 million of intangibles relating to
assembled workforce was subsumed in goodwill. We completed our first phase impairment analysis during the quarter ended May 31, 2002, and found no instances of impairment. There were no
goodwill or intangibles recorded at November 30, 2002, due to the inclusion of the remaining goodwill balance in the determination of the gain on sale of our Asset Management software business
during the quarter ended May 31, 2002 (see Note 8).

14

---

The
changes in the carrying amount of goodwill during the nine months ended November 30, 2002, are as follows (in thousands):

|Balance as of March 1, 2002                                                                                  |  | $ | 6,979  |  
|------------------------------------------------------------------------------------------------------------ |  | - | ------ | -
|Goodwill included in the determination of the gain related to the sale of Asset Management software business |  |   | (6,979 | )
|                                                                                                             |  |   |       
|Balance as of November 30, 2002                                                                              |  | $ |       |  
|                                                                                                             |  |   |       

Summarized
below are the effects on our net loss and per share data if we had followed the amortization provisions of SFAS No. 142 (in thousands, except per share amounts):

|                                                      |  | For the Three
Months Ended
November 30, |        | For the Nine
Months Ended
November 30, |   | For the years ended |  
|----------------------------------------------------- |  | --------------------------------------- | ------ | -------------------------------------- | - | ------------------- | -
|
|
|Reported net loss attributable to common stockholders |  | $                                       | (1,144 | )                                      | $ | (4,966              | )
|Addback: goodwill amortization                        |  |                                         |       |                                        |   | 431                 |  
|Addback: assembled workforce amortization             |  |                                         |       |                                        |   | 132                 |  
|                                                      |  |                                         |        |                                        |   |                     |  
|Adjusted net loss attributable to common stockholders |  | $                                       | (1,144 | )                                      | $ | (4,403              | )
|                                                      |  |                                         |        |                                        |   |                     |  

|                                                                |  | For the Three
Months Ended
November 30, |       | For the Nine
Months Ended
November 30, |   | For the years ended |  
|--------------------------------------------------------------- |  | --------------------------------------- | ----- | -------------------------------------- | - | ------------------- | -
|
|
|Basic and diluted net loss per share:                           |  |                                         |       |                                        |   |                     |  
|Reported net loss per share attributable to common stockholders |  | $                                       | (0.02 | )                                      | $ | (0.16               | )
|Addback: goodwill amortization                                  |  |                                         |      |                                        |   | 0.01                |  
|Addback: assembled workforce amortization                       |  |                                         |      |                                        |   |                    |  
|                                                                |  |                                         |       |                                        |   |                     |  
|Adjusted net loss per share attributable to common stockholders |  | $                                       | (0.02 | )                                      | $ | (0.15               | )
|                                                                |  |                                         |       |                                        |   |                     |  

15

---

NOTE 12. CONTINGENCIES

In
October 2001, we were served with a summons and complaint in a purported securities class action lawsuit. On or about April 19, 2002, we were served with an amended
complaint in this action, which is now titled In re Intraware, Inc. Initial Public Offering Securities Litigation, Civ. No. 01-9349 (SAS) (S.D.N.Y.), related to In re Initial
Public Offering Securities Litigation, 21 MC 92 (SAS) (S.D.N.Y.). The amended complaint is brought purportedly on behalf of all persons who purchased our Common Stock from February 25, 1999
(the date of our initial public offering) through December 6, 2000. It names as defendants the Company; three of our present and former officers and directors; and several investment banking
firms that served as underwriters of our initial public offering. The complaint alleges liability under Sections 11 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934, on the grounds that the registration statement for the offerings did not disclose that: (1) the underwriters had agreed to allow certain customers to purchase shares in
the offerings in exchange for excess commissions paid to the underwriters; and (2) the underwriters had arranged for certain customers to purchase additional shares in the aftermarket at
predetermined prices. The amended complaint also alleges that the underwriters misused their securities analysts to manipulate the price of our stock. No specific damages are claimed.

Lawsuits
containing similar allegations have been filed in the Southern District of New York challenging over 300 other initial public offerings and secondary offerings conducted in 1999
and 2000. All of these lawsuits have been consolidated for pretrial purposes before United States District Court Judge Shira Scheindlin of the Southern District of New York. On July 15, 2002,
an omnibus motion to dismiss was filed in the coordinated litigation on behalf of the issuer defendants, of which Intraware and its three named current and former officers and directors are a part, on
common pleadings issues. That motion was heard before the Court in New York on November 1, 2002. On or about October 9, 2002, the Court entered and ordered a Stipulation of Dismissal,
which dismissed the three named current and former officers and directors from the litigation without prejudice. No discovery has been served on us. We believe we have meritorious defenses to these
claims and intend to defend against them vigorously. We are not presently able to estimate losses, if any, related to this lawsuit.

On
August 26, 2002, we were served with a summons and complaint in a lawsuit by Deborah Donoghue against us, ComVest Venture Partners, LP ("ComVest") and Robert Priddy in the
United States District Court for the Southern District of New York, Civ. No. 02-6578 (S.D.N.Y.). The complaint alleges that ComVest and Mr. Priddy, while they owned more than 10% of a
class of our equity securities, bought and sold our equity securities within a 6-month period and failed to disgorge to us the profits allegedly realized in those trades, thereby violating
Section 16(b) of the Securities Exchange Act of 1934. On November 4, 2002, defendants in this lawsuit filed answers to the complaint denying any liability. Subsequently, on
November 20, 2002, the plaintiff filed a notice to voluntarily dismiss the complaint with prejudice.

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.

16

---



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 included in our Annual Report on Form 10-K for the fiscal year ended February 28, 2002. This discussion contains forward-looking statements that involve risks and
uncertainties. Forward-looking statements include statements regarding our future cash and liquidity position, the amount and timing of future revenues and expenses and customer demand, the deployment
of our services, 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 (ESDM)
services. Using our ESDM solutions, enterprise software companies and other types of companies that offer software or digital goods can reduce their costs, improve their customer satisfaction,
strengthen their compliance with U.S. export laws, and better understand how their customers are using their software.

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,
2002, had an accumulated deficit of approximately $152 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 assurance that we will generate cash from operations in future periods, or achieve or maintain
profitability or finance our operations without raising additional capital. Our future must be considered in light of our liquidity issues and the risks frequently encountered by companies in an early
stage of development, particularly companies in new and rapidly evolving markets such as Internet-based services. To address these risks, we must, among other things, continue to develop new services,
implement and successfully execute our business and marketing strategies, continue to develop and upgrade our technology, provide superior customer service, respond to competitive developments and
attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and our 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, results of operations and cash flows. 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.

Critical Accounting Policies and Estimates

Management's Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in
accordance with generally accepted accounting principles in the United States of America. The preparation of these financial statements requires our management to make estimates and assumptions that
affect the reported amounts of

17

---

assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
On an ongoing basis, we evaluate our estimates and judgments. We base our estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions.

We
consider accounting policies related to revenue recognition, prepaid licenses, allowance for doubtful accounts, impairment of long-lived assets and goodwill, and income
taxes to be critical accounting policies due to the estimation process involved in each.

Revenue recognition

We derive software product revenues from resold licenses and maintenance for multiple business software product lines. Although we stopped selling third party
software licenses and maintenance as of July 1, 2001, 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 from sales of our SubscribeNet electronic software delivery and management service to software vendors. It also results from a percentage
of the gross profit derived from sales of Sun ONE (formerly iPlanet) software licenses and maintenance services by
Software Spectrum (formerly Corporate Software), as well as reimbursements from Software Spectrum for our cost of maintaining a team dedicated to sales of Sun ONE software licenses and maintenance
services, as part of our Software Spectrum alliance. Online services and technology revenue also resulted from the sale of our proprietary software licenses and related maintenance to companies that
use those products internally or that use those products to provide web-based services to their customers. These sales were either made through our direct sales force or through authorized
resellers. Online services and technology revenue also resulted from professional services that we provided to integrate our proprietary software, to convert data for customers, and to customize our
SubscribeNet service for individual customer needs. As a result of the sale of our Asset Management software business in May 2002 (discussed below in Liquidity and Capital Resources), we no
longer derive revenue from the sale of our proprietary software licenses, related maintenance and professional services arrangements described above.

We
recognize revenue when all of the following conditions are met:



We
defer services revenue related to our SubscribeNet service and generally recognize it ratably over the term of the service arrangement. If additional services are included in an
arrangement and are considered to be essential to the arrangement, we recognize the related revenue over the service term once the additional services are performed.

We
obtained vendor specific objective evidence of fair value for the maintenance element of the resold and proprietary software arrangements based on historical and contractual renewal
rates for maintenance. In such cases, we deferred the maintenance revenue at the outset of the arrangement and recognized it ratably over the period during which the maintenance was to be provided
(generally 12 months), which normally commenced on the date the software was delivered. Changes in the

18

---

previously mentioned factors could have had a material impact on actual revenue recognized. At the time of a license or service sale we assessed whether or not any services included within the
arrangement required us to perform significant work either to alter the underlying software or to build
additional complex interfaces so that the software performed as the customer requested. If these services were considered to be an essential part of an arrangement, we recognized the entire software
license or service fee using the percentage of completion method. We estimated the percentage of completion based on the time incurred to date as a percentage of the total estimated time to complete
the project. Recognized revenues and profit were subject to revisions as the contract progressed to completion. Revisions in profit estimates were charged to income in the period in which the facts
that gave rise to the revision became known. Provisions for estimated losses on incomplete contracts were made in the period in which estimated losses were determined.

Revenue
for software transactions through authorized resellers was recognized when the licenses and maintenance were resold, utilized by the reseller or our related obligations were
satisfied. We have provided for sales allowances for authorized resellers and direct sales on an estimated basis, based on prior history as well as contractual requirements.

Prepaid licenses

We write down our prepaid software licenses for estimated non-realizability of the difference between the cost of our prepaid licenses and the
estimated recoverable value of our prepaid licenses based on assumptions about future demand, market conditions and our rights to return under stock rotation agreements. If actual future demand or
market conditions were less favorable than those we projected, additional prepaid license write-downs would have been required. During the nine months ended November 30, 2002, we recorded
approximately $403,000 in prepaid license write-downs, as we believed it unlikely we would recover that amount.

Allowance for doubtful accounts

We maintain an allowance for doubtful accounts for estimated losses from the inability of our customers to make required payments. We analyze specific accounts
receivable, historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in our customer payment history when evaluating the adequacy of the allowance
for doubtful accounts. Changes in the above factors can have a material impact on actual bad debts incurred. During the nine months ended November 30, 2002, we recovered approximately
$1.1 million in accounts receivable that had been written off previously. This credit was recorded in general and administrative expense.

Impairment of long-lived assets

As discussed in Note 1 of the consolidated financial statements included in our Annual Report on Form 10-K for the year ended
February 28, 2002, we are required to regularly review all of our long-lived assets and other intangible assets for impairment whenever events or changes in circumstances indicate
that the carrying value may not be recoverable. Factors we consider important which could trigger an
impairment review include, but are not limited to, significant underperformance relative to historical or projected future operating results, significant changes in the manner of use of the acquired
assets or the strategy for our overall business, significant negative industry or economic trends, a significant decline in our stock price for a sustained period, and our market capitalization
relative to net book value. When we determine that an impairment review is necessary based upon the existence of one or more of the above indicators of impairment, we compare the book value of such
assets to the future undiscounted cash flows attributable to those assets. If the book value is less than the future undiscounted cash flows, we measure any impairment based on a projected discounted
cash flow method using a discount rate commensurate with the risk inherent in our current business model. Significant judgment is required in the development of projected cash flows for these
purposes,

19

---

including assumptions regarding the appropriate level of aggregation of cash flows, their term and discount rate as well as the underlying forecasts of expected future revenue and expense.

Income taxes

In conjunction with preparing our financial statements, we must estimate our income taxes in each of the jurisdictions in which we operate. This process involves
estimating our actual current tax expense together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in
deferred tax assets and liabilities. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not
likely, we must establish a valuation allowance. Given that we have incurred losses since inception and therefore have not been required to pay income taxes, we have fully reserved our deferred tax
assets at November 30, 2002. In the event that we are able to realize our deferred tax assets in the future, an adjustment to the deferred tax asset balance would increase income in the period
that this is determined.

RESULTS OF OPERATIONS

Total revenues

Revenue for the three months ended November 30, 2002, was $2.9 million, which represents a 70% decrease from revenue for the three months ended
November 30, 2001, of $9.8 million. In addition, for the three months ended November 30, 2002, product revenue accounted for $193,000 or 7% of revenue, while online service and
technology revenue accounted for $2.8 million or 93% of revenue. For the three months ended November 30, 2001, product revenue accounted for $6.0 million or 61% of revenue, while
online service and technology revenue accounted for $3.8 million or 39% of revenue.

Revenue
for the nine months ended November 30, 2002, was $10.8 million, which represents a 72% decrease from revenue for the nine months ended November 30, 2001, of
$38.9 million. In addition, for the nine months ended November 30, 2002, product revenue accounted for $2.5 million or 23% of revenue, while online service and technology revenue
accounted for $8.3 million or 77% of revenue. For the nine months ended November 30, 2001, product revenue accounted for $26.5 million or 68% of revenue, while online service and
technology revenue accounted for $12.5 million or 32% of revenue.

The
decrease in online services and technology revenue for the three and nine months ended November 30, 2002, is primarily due to our sale of our Asset Management software
business in May 2002. In addition, as a result of the sale of our Asset Management software business, we recorded the remaining unamortized prepaid distribution costs relating to warrants
issued to Software Spectrum as a reduction of revenue during the three months ended May 31, 2002. The decline in product revenue and the majority of the decline in total revenue for the three
and nine months ended November 30, 2002, was due to our transition out of the business of reselling third-party software products and related maintenance. In June 2001, we entered into
an agreement with Corporate Software whereby Corporate Software assumed our rights and obligations under our Sun ONE (formerly iPlanet) software reseller agreement, and agreed to pay to us a
percentage of the gross profit derived from Corporate Software's sales of Sun ONE software licenses and services. Corporate Software has since been merged into, and our agreement is now with, Software
Spectrum. We expect our third-party product revenue to continue to decrease substantially as a result of this agreement. We also expect our online services and technology revenue for our full fiscal
year 2003 to decrease substantially, primarily as a result of our sale of our Asset Management software business to Computer Associates International, Inc. in May 2002. The two previous
sentences are forward-looking statements and actual results could differ materially from those anticipated. In addition, we recently renegotiated our services agreement with one of our major
customers, Sun Microsystems, Inc. As a result of this

20

---

renegotiation, a portion of the services agreement is renewable every three months. There is now a heightened risk that Sun will elect not to renew the services agreement as a whole when the current
term ends on June 30, 2003, and will elect not to renew the SubscribeNet portion of the agreement before that date. If Sun elects not to renew the SubscribeNet portion of the agreement during
any of these three-month periods, or if Sun elects not to renew the agreement as a whole after June 30, 2003, our revenues may be materially adversely affected.

Cost of revenues

Total cost of revenues decreased to $1.3 million for the three months ended November 30, 2002, from $5.5 million for the three months ended
November 30, 2001. Our gross margin increased to 56% for the three months ended November 30, 2002, from 44% for the three months ended November 30, 2001.

Total
cost of revenues decreased to $5.0 million for the nine months ended November 30, 2002, from $23.9 million for the nine months ended November 30, 2001.
Our gross margin increased to 53% for the nine months ended November 30, 2002, from 39% for the nine months ended November 30, 2001.

Costs
of revenue primarily consist of the cost of third-party products sold and certain allocated costs related to Internet connectivity, customer support, professional services and
information technology personnel. We purchased third-party products at a discount to the third-party's established list prices according to standard reseller terms. 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 generates higher margins than the third-party products we resold. We expect our gross profit margin percentage to continue to increase as a result of our focus on the sale of our own services
and technology. The previous sentence is a forward-looking statement and actual results could differ materially from those anticipated.

Sales and marketing expenses

For the three months ended November 30, 2002, sales and marketing expenses were $1.0 million or 33% of revenue, as compared to $2.6 million
or 26% of revenue for the three months ended November 30, 2001.

For
the nine months ended November 30, 2002, sales and marketing expenses were $4.6 million or 43% of revenue, as compared to $10.6 million or 27% of revenue for the
nine months ended November 30, 2001.

Sales
and marketing expenses consist primarily of employee salaries, benefits and commissions, advertising, promotional materials and trade show expenses. The decrease in the dollar
amount of our sales and marketing expenses is due to our restructuring efforts and the sale of our Asset Management software business in May 2002, which reduced expenditures on salaries and
marketing, eliminated rent on closed offices and lowered commission expense due to lower sales. Our sales and marketing expenses increased as a percentage of revenue because of the reduction in
revenue that resulted from our transition from our third party software resale business.

We
plan to expand our direct sales force and to continue developing strategic relationships to market and sell our services. As a result, we expect total expenditures in fiscal year 2003
to be higher than in our 2002 fiscal year as a percentage of revenue, though lower in the aggregate. The previous two sentences are forward-looking statements and actual results could differ
materially from those anticipated.

21

---

Product development expenses

For the three months ended November 30, 2002, product development expenses were $1.2 million or 41% of revenue, as compared to $2.2 million
or 23% of revenue for the three months ended November 30, 2001.

For
the nine months ended November 30, 2002, product development expenses were $5.2 million or 48% of revenue, as compared to $7.8 million or 20% of revenue for the
nine months ended November 30, 2001.

Product
development expenses primarily consist of personnel compensation, consulting, software and related maintenance and equipment depreciation expenses. Costs related to research,
design and development of products and services have been charged to product development expense as incurred. The decrease in dollar amounts is due to our current and prior year restructuring efforts,
which reduced expenditures on salaries and on some product and service lines. We also shifted our product development resources to roles directly supporting our growing customer base and to performing
increasingly complex implementations for new customer contracts. We anticipate continuing to invest in development for our SubscribeNet service, and expect product development expenses to fluctuate
from time to time as we make those investments. We cannot give assurance that these development efforts will result in improved or new products, features or functionalities or that the market will
accept those new developments. We expect total expenditures for product development in our 2003 fiscal year to be higher than in our 2002 fiscal year as a percentage of revenue, but lower in the
aggregate. The previous sentence is a forward-looking statement and actual results could differ materially from those anticipated.

General and administrative expenses

For the three months ended November 30, 2002, general and administrative expenses were $0.5 million or 18% of revenue, as compared to $1.2 million
or 12% of revenue for the three months ended November 30, 2001.

For
the nine months ended November 30, 2002, general and administrative expenses were $2.3 million or 22% of revenue, as compared to $5.7 million or 15% of revenue
for the nine months ended November 30, 2001.

General
and administrative expenses consist primarily of compensation for administrative and executive personnel, facility costs and fees for professional services. A significant part of
our decreased general and administrative expenses stems from the recovery of accounts previously written off during our 2001 fiscal year as uncollectible. Of those accounts we deemed uncollectible, we
recovered $0.4 million and $1.1 million during the three and nine months ended November 30, 2002, respectively. We continued to
pursue collection efforts and recovered these amounts during the second quarter ended August 31, 2002 and the third quarter ended November 30, 2002. The decrease in general and
administrative expenses is also due to the restructuring efforts in August 2001, which resulted in a reduction of compensation expense and lease costs for office space. We expect total
expenditures to increase in our 2003 fiscal year from our 2002 fiscal year levels as a percentage of revenue, but decrease in the aggregate. The previous sentence is a forward-looking statement and
actual results could differ materially from those anticipated.

Restructuring and impairment of long-lived assets

In May 2002, we sold substantially all of the assets related to our Asset Management software business to Computer Associates International, Inc.
for approximately $9.5 million in cash. In connection with this sale, we terminated our July 2001 agreement with Computer Associates for its resale of our Argis suite of software
products. In addition, as part of this asset sale, we assigned to

22

---

Computer Associates our May 2001 agreement with Corporate Software (now Software Spectrum) for its resale of our Argis suite of software products. Because of the asset sale, Software Spectrum
has the right to terminate this agreement. If it does so, all of the shares subject to the warrant that we issued to Corporate Software in May 2001 will immediately become exercisable. The fair
value of the warrant had been recorded as prepaid distribution costs and was being recognized as a reduction of revenue over the lesser of a ratable charge over the 24-month term of the
agreement with Corporate Software or the period it took Corporate Software to generate revenue to Intraware of $1.6 million from Corporate Software's resale of our Asset Management software. As
a result of the asset sale, the remaining unamortized prepaid distribution costs of $936,000 were recorded as a reduction to revenue during the three months ended May 31, 2002.

The
total proceeds from the sale of $9.5 million, less the book value of transferred equipment, intangible assets, deferred revenue, and transaction costs, based on their
respective carrying values at the sale date, were recorded as a gain on sale of assets in the quarter ended May 31, 2002.

The
calculation of the gain on the sale was determined as follows (in thousands):

|Total consideration                                                 |  | $ | 9,500  |  
|------------------------------------------------------------------- |  | - | ------ | -
|Net book value of equipment, intangible assets and deferred revenue |  |   | (6,536 | )
|Transaction costs                                                   |  |   | (308   | )
|                                                                    |  |   |       
|Gain on sale                                                        |  | $ | 2,656  |  
|                                                                    |  |   |       

In
connection with our disposition of the Asset Management software business we announced a restructuring and workforce reduction to reduce our operating expenses.

We
recorded a charge of $1.8 million relating to this restructuring and the impairment of assets during the three months ended May 31, 2002.

The
impairment of assets includes the write-off of approximately $403,000 of prepaid licenses that were held for resale. The restructuring charge consisted of approximately
$345,000 for severance and benefits relating to the involuntary termination of 14 employees who were not hired by Computer Associates. We terminated an additional 33 employees, all of whom were
based in North America. These 33 terminated employees were all hired by Computer Associates and therefore received no severance payments. Overall, we reduced our workforce to 71 employees from 118 in
connection with the asset sale to Computer Associates. Of the 47 terminated employees, 22 were in Sales and Marketing, 10 were in Product Development and 15 were directly involved in our
product support. We also closed our Pittsburgh, Pennsylvania office and various satellite offices.

We
accrued for lease and related costs of approximately $983,000 principally pertaining to the estimated future obligations of non-cancelable lease payments for excess
facilities that were vacated due to our reductions in work force. We also recognized $63,000 relating to other restructuring expenses. Due to changes in management's estimates relating to the
restructuring during the three months ended August 31, 2002, we recognized an additional expense of $106,000 pertaining to the estimated future obligations of non-cancelable lease
payments for excess facilities that were vacated due to our reductions in work force. In addition, we did not incur severance and benefits of $106,000 and reduced the reserve accordingly.

In
our December 2000 restructuring, we closed our Fremont, California office and assigned our lease to a new tenant while acting as guarantor for that tenant. In May 2002,
the new tenant defaulted on its lease. During the three months ended November 30, 2002, we made a cash payment of approximately $214,000 to terminate this lease.

23

---

The
following table sets forth an analysis of the components of the restructuring and impairment of assets charges recorded in the first, second and third quarters of fiscal 2003 and
subsequent adjustments and payments made against the reserve (in thousands):

|                                     |  | Severance and
benefits |      | Excess lease
and related costs |   | Impairment of
assets |   | Other costs |      | Total |  
|------------------------------------ |  | ---------------------- | ---- | ------------------------------ | - | -------------------- | - | ----------- | ---- | ----- | -
|May 23, 2002 restructuring           |  | $                      | 345  |                                | $ | 983                  |   | $           | 403  |       | $
|                                     |  |                        |      |                                |   |                      |   |             |      |       |  
|Total                                |  |                        | 345  |                                |   | 983                  |   |             | 403  |       |  
|Cash paid                            |  |                        |     |                                |   | (89                  | ) |             |     |       |  
|Non-cash charges                     |  |                        |     |                                |   | (18                  | ) |             | (403 | )     |  
|                                     |  |                        |      |                                |   |                      |   |             |      |       |  
|Reserve balance at May 31, 2002      |  |                        | 345  |                                |   | 876                  |   |             |     |       |  
|Cash paid                            |  |                        | (239 | )                              |   | (119                 | ) |             |     |       |  
|Provision adjustment                 |  |                        | (106 | )                              |   | 106                  |   |             |     |       |  
|                                     |  |                        |      |                                |   |                      |   |             |      |       |  
|Reserve balance at August 31, 2002   |  |                        |     |                                |   | 863                  |   |             |     |       |  
|Cash paid                            |  |                        |     |                                |   | (294                 | ) |             |     |       |  
|                                     |  |                        |      |                                |   |                      |   |             |      |       |  
|Reserve balance at November 30, 2002 |  | $                      |     |                                | $ | 569                  |   | $           |     |       | $
|                                     |  |                        |      |                                |   |                      |   |             |      |       |  

We
expect to pay the remaining accrual in cash within one year.

In
July 2002, due to changes in our business and Hewlett-Packard Co.'s announcement to shut down its Bluestone Software business, we took certain computer software out of service.
As a result of this impairment, we wrote off computer software with a net book value of approximately $389,000 during the three months ended August 31, 2002.

Amortization of Intangibles and Goodwill

For the three months ended November 30, 2002, there was no amortization of intangibles and goodwill, a decrease from $1.8 million for the three
months ended November 30, 2001.

For
the nine months ended November 30, 2002, amortization of intangibles and goodwill were $1.1 million, a decrease from $6.8 million for the nine months ended
November 30, 2001.

Amortization
of intangibles was a charge related to our acquisitions of BITSource, Inc. in October 1999 and Janus Technologies, Inc. in July 2000. On
March 1, 2002, we ceased amortization of our goodwill balance. Subsequently, in May 2002, as part of our Asset Management software business sale to Computer Associates, we included our
remaining intangible assets in the determination of the gain on sale.

Interest Expense

For the three months ended November 30, 2002, interest expense was $92,000, a decrease from $1.1 million for the three months ended
November 30, 2001.

For
the nine months ended November 30, 2002, interest expense was $2.6 million, an increase from $1.6 million for the nine months ended November 30, 2001.

Interest
expense relates to obligations under capital leases, accretion of discounts on notes payable balances and borrowings under a bank line. For the nine months ended
November 30, 2002, the increase in interest expense is primarily the result of accretion to redemption value of a portion of our $7.0 million notes payable, which were fully converted or
paid off at May 31, 2002. For the three months ended November 30, 2002, the decrease in interest expense is due to paying off or converting our outstanding debt during the three months
ended May 31, 2002.

24

---

Interest and Other Income and Expenses, Net

For the three months ended November 30, 2002, interest and other income and expenses, net, was a $31,000 credit, a decrease from a credit of
$1.1 million for the three months ended November 30, 2001.

For
the nine months ended November 30, 2002, interest and other income and expenses, net, was a $513,000 credit, an increase from a net charge of $3.6 million for the nine
months ended November 30, 2001.

Interest
and other income and expenses, net, primarily relates to interest earned on our investment balances and warrants recorded as liabilities adjusted to fair value. The increase in
interest and other income and expenses, net is primarily the result of the decrease in the charges recorded to adjust the warrants we issued in connection with our August 31 and
September 20, 2001 debt issuances, and our May 24, 2002 Common Stock financing to fair value. The decrease in interest and other income and expenses, net during the three months ended
November 30, 2002, was primarily due to the fact that the prior year's total included a net credit recorded to adjust the warrants to fair value of $1.1 million. The increase in interest
and other income and expenses, net during the nine months ended November 30, 2002, was primarily due to the fact that the prior year's total included a charge recorded to adjust the warrants to
fair value of $3.6 million. During the three months ended August 31, 2002, all remaining warrants classified as liabilities were reclassified to permanent equity and as a result, we no
longer need to adjust the warrants to fair value.

Income Taxes

From inception through February 28, 2002, we incurred net losses for federal and state tax purposes and have not recognized any tax provision or benefit.
As of February 28, 2002, we had approximately $115 million of federal and $60 million of state net operating loss carryforwards available to offset future taxable income, which
expire in varying amounts between 2012 and 2022. 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.
Furthermore, as a result of changes in our equity ownership from our convertible preferred stock financings, our initial public offering and other financing transactions, 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 and Common Stock, the initial public offering of our Common
Stock and the issuance of debt. We will continue to use our capital raised to date to support our operations until we become cash flow positive on a regular basis. While we have made progress toward
becoming cash flow positive, there can be no assurance that we will be successful in becoming regularly cash flow positive without additional capital financing or at all.

Our
cash and cash equivalents at November 30, 2002, were $8.7 million, increasing by $5.7 million from $3.0 million at February 28, 2002. This increase
was due to $9.4 million provided by investing activities and $0.4 million provided by financing activities, offset by $4.1 million used in operating activities.

25

---



The net cash used in operating activities of $4.1 million for the nine months ended November 30, 2002, was primarily due to our net loss and decreases in deferred revenues
and accounts payable offset by decreases in accounts receivable and prepaid licenses and services. Financing activities provided $0.4 million for the nine months ended November 30, 2002,
primarily due to proceeds from Common Stock issuances offset by our principal payments on our notes payable and capital lease payments. Net cash provided by investing activities of $9.4 million
for the nine months ended November 30, 2002, related primarily to the sale of our Asset Management software business to Computer Associates.

Our
Annual Report on Form 10-K for our fiscal year ended February 28, 2002, 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. During the nine months ended November 30, 2002, we raised approximately $18 million in new capital (see Notes
7 and 8), retired all of our notes payable with an aggregate principal balance of $7 million (see Notes 6 and 7), and narrowed our net loss attributable to common stockholders to
$1.1 million for the three months ended November 30, 2002, as compared to a net loss attributable to common stockholders of $5.0 million for the three months ended
November 30, 2001. Although the risks that potential revenue and collections shortfalls pose to our ability to continue as a going concern diminished in recent months, we continued to
experience recurring losses, working capital deficiencies and negative cash flows from operations for the nine months ended November 30, 2002. In addition, there remains no assurance that we
will succeed in generating sufficient revenue to enable us to continue operations over the longer term.

Our
future capital requirements will depend on many factors, including our ability to increase revenue levels and/or reduce costs of operations to generate positive cash flows, the
timing and extent of expenditures to support expansion of sales and marketing efforts, market acceptance of our services, and timeliness of collections of our accounts receivable. Any projections of
future cash needs are subject to substantial uncertainty.

Our
ability to generate increased revenues and cash flows and, if necessary, raise additional capital is also subject to substantial uncertainty, given the challenging economic
environment currently prevailing in the technology sector. The bid price of our Common Stock has been below $1.00 numerous times over the past 12 months. If we fail to meet the $1.00 minimum
bid price requirement or the other standards for continued listing on the Nasdaq SmallCap Market, our Common Stock will likely be delisted and our ability to generate both sales and additional capital
will be subject to further uncertainty.

We
have historically been able to satisfy our cash requirements through financing and investing activities, and our cash position and net losses from operations have improved
substantially during the nine months ended November 30, 2002. Nevertheless, we continued to suffer recurring losses, working capital deficiencies and negative cash flows from operations for
that period, and there is no assurance that we will succeed in generating sufficient cash from operations on a regular basis, achieving profitability, or obtaining additional capital if needed.

On
May 23, 2002, we completed the sale of our Asset Management software business for gross proceeds of $9.5 million. This transaction is described in Note 8 to our
condensed consolidated financial statements in Item I of Part I. On May 24, 2002, we issued Common Stock and warrants in a private placement to a group of institutional and individual
investors for aggregate gross proceeds of $3.9 million, including $1.3 million from the effective conversion of indebtedness. This transaction is described in Note 7 to our
condensed consolidated financial statements in Item I of Part I. In May 2002, we fully repaid or converted into Common Stock and warrants to purchase Common Stock all of our promissory
notes, which consisted of $7 million in principal and also consisted of accrued interest. On August 12, 2002, we issued Common Stock in a private placement to Zomax Incorporated for
aggregate gross proceeds of $5.0 million. This transaction is discussed in Note 7 and Note 9 to our condensed consolidated financial statements in Item I of Part I.

26

---

At
November 30, 2002, we did not have any other relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or
special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we
are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

The
following summarizes our lease obligations at November 30, 2002, and the effect such obligations are expected to have on our liquidity and cash flow in future periods (in
thousands):

|                          |  | Payments due by period
|------------------------- |  | ----------------------
|
|Capital lease obligations |  | $                     
|Operating leases          |  |                       
|                          |  |                       
|                          |  | $                     
|                          |  |                       

As
of November 30, 2002, our redeemable convertible preferred stock had a liquidation value of $2.1 million.

Recent Accounting Pronouncements

On July 20, 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141, ("SFAS
No. 141"), "Business Combinations," and Statement of Financial Accounting Standards No. 142, ("SFAS No. 142"), "Goodwill and Other Intangible Assets." These statements made
significant changes to the accounting for business combinations, goodwill, and intangible assets.

SFAS
No. 141 established new standards for accounting and reporting requirements for business combinations and requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. SFAS No. 142 established new standards for goodwill acquired in a business combination, eliminates amortization of goodwill and
instead sets forth methods to periodically evaluate goodwill for impairment. Intangible assets with a determinable useful life will continue to be amortized over that period. We adopted the provisions
of SFAS No. 142 on March 1, 2002. As a result, we ceased amortization of $7.0 million in goodwill. Subsequently, the remaining
goodwill balance was included in the determination of the gain on the sale of our Asset Management software business, as discussed in Note 8.

On
October 3, 2001, the FASB issued Statement of Financial Accounting Standards No. 144, ("SFAS No. 144"), "Accounting for the Impairment or Disposal of
Long-Lived Assets." SFAS No. 144 supercedes Statement of Financial Accounting Standards No. 121, ("SFAS No. 121"), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 144 applies to all long-lived assets (including discontinued operations) and
consequently amends Accounting Principles Board Opinion No. 30 ("APB 30"), "Reporting Results of Operations Reporting the Effects of Disposal of a Segment of a Business." SFAS No. 144
develops one accounting model for long-lived assets that are to be disposed of by sale. SFAS No. 144 requires that long-lived assets that are to be disposed of by sale
be measured at the lower of book value or fair value less the cost to sell. We adopted the provisions of SFAS No. 144 during the quarter ended May 31, 2002. The disposition of our Asset
Management software business (Note 8) was recognized under SFAS No. 144.

In
November 2001, the Emerging Issues Task Force ("EITF") reached a consensus on EITF No. 01-14, "Income Statement Characterization of Reimbursements Received
for Out-of-Pocket Expenses Incurred," which includes, among other things, guidance on EITF No. 99-19, "Reporting Revenue Gross as a Principal versus Net as
an Agent". EITF No. 01-14, as it relates to EITF

27

---

No. 99-19, is to be applied for financial reporting periods beginning after December 15, 2001, and generally requires that a company recognize as revenue travel expense and
other reimbursable expenses billed to customers. We adopted EITF 01-14 effective March 1, 2002. As a result, we classified as revenue reimbursements totaling approximately $0.5 and
$1.6 million during the three months and nine months ended November 30, 2002, respectively, that we received from Software Spectrum, Inc. (formerly Corporate Software) relating to
maintaining a team dedicated to sales of SunONE (formerly iPlanet) software licenses and maintenance. Prior year amounts totaling approximately $430,000 and $644,000 during the three months and nine
months ended November 30, 2001, respectively, have been reclassified to conform to the current presentation in accordance with the transition provisions of EITF 01-14. The adoption
of EITF No. 01-14 did not affect our net loss per share, financial position, results of operations, or cash flows.

In
May 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements Nos. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS
No. 145 eliminates Statement 4 (and Statement 64, as it amends Statement 4), which requires gains and losses from extinguishments of debt to be aggregated and, if material, classified as an
extraordinary item, net of the related income tax effect. As a result, the criteria in APB Opinion 30 will now be used to classify those gains and losses. SFAS No. 145 amends FASB Statement
No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. This amendment is consistent with the FASB's goal of requiring similar accounting treatment for transactions that have similar economic effects. In addition,
SFAS 145 makes technical corrections to existing pronouncements. While those corrections are not substantive in nature, in some instances, they may change accounting practice. This statement is
effective for fiscal years beginning after May 15, 2002, for the provisions related to the rescission of Statements 4 and 64, and for all transactions entered into after May 15, 2002,
for the provision related to the amendment of
Statement 13, although early adoption is permitted. We do not expect a material effect on our financial position and results of operations from the adoption of SFAS 145.

In
July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 nullifies the guidance in EITF Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." Under EITF
Issue No. 94-3, an entity recognized a liability for an exit cost on the date that the entity committed itself to an exit plan. In SFAS 146, the Board acknowledges that an
entity's commitment to a plan does not, by itself, create a present obligation to other parties that meets the definition of a liability and requires that a liability for a cost that is associated
with an exit or disposal activity be recognized when the liability is incurred. It also establishes that fair value is the objective for the initial measurement of the liability. SFAS 146 will
be effective for exit or disposal activities that are initiated after December 31, 2002. We do not expect a material effect on our financial position and results of operations from the adoption
of SFAS 146.

In
November 2002, the EITF reached a consensus on issue No. 00-21 "Accounting for Revenue Arrangements with Multiple Deliverables" ("EITF 00-21") on a model to be
used to determine when a revenue arrangement with multiple deliverables should be divided into separate units of accounting and, if separation is appropriate, how the arrangement consideration should
be allocated to the identified accounting units. The EITF also reached a consensus that this guidance should be effective for all revenue arrangements entered into in fiscal periods beginning after
June 15, 2003. We are currently assessing what the impact of the guidance would have on our financial statements.

In
December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, ("SFAS No. 148"), "Accounting for Stock-Based
CompensationTransition and Disclosurean amendment of FAS 123." SFAS No. 148 amends Statement of Financial Accounting Standards No. 123, ("SFAS
No. 123") "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based

28

---

employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. Finally, SFAS No. 148 amends APB Opinion No. 28, "Interim Financial Reporting," to require disclosure about those
effects in interim financial information. The amendments to the transition and disclosure provisions shall be effective for fiscal years ending after December 15, 2002. The amendment to
Opinion 28 shall be effective for financial reports containing condensed financial statements for interim periods beginning after December 15, 2002. We are currently evaluating whether
to adopt SFAS No. 148. We will adopt the disclosure provisions of SFAS No. 148 in our Annual Report on Form 10-K for the year ending February 28, 2003.

RISK FACTORS

You should carefully consider the risks described below before making a decision to invest in our Common Stock. 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 our 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.

Our SubscribeNet service is our only product offering and demand for this service remains uncertain in the current economic climate.

In May 2002, we sold our Asset Management software business. Accordingly, our SubscribeNet electronic software delivery and management service is now our
only product offering. For most of the 2001 calendar year, we experienced weakening demand for our SubscribeNet service and this demand has not increased during the 2002 calendar year. The business
climate for the technology sector remains uncertain. We market the SubscribeNet service primarily to enterprise software companies, and many enterprise software companies have reported reductions in
demand and lowered forecasts for their products and services over the past year. We may experience similar reductions in demand for our SubscribeNet service, which would have an immediate and adverse
effect on us.

If Nasdaq determines that we have failed to meet its SmallCap Market listing requirements, our Common Stock may be delisted.

Effective May 30, 2002, our Common Stock moved from being listed on the Nasdaq National Market to being listed on the Nasdaq SmallCap Market. Nasdaq has
requirements that a company must meet in order to remain listed on the Nasdaq SmallCap Market. For example, one requirement is that the bid price of a company's stock not fall below $1.00. The bid
price of our Common Stock fell and remained below $1.00 on several occasions during November of 2002. If as a result of the application of any of Nasdaq's listing requirements, our Common Stock were
delisted from the Nasdaq SmallCap 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 SmallCap 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.

29

---

Sales of our stock by our large shareholders, directors and/or executive officers could cause declines in our stock price and jeopardize our Nasdaq SmallCap Market listing.

Sales of large amounts of stock by our large shareholders has put downward pressure on the price of our stock, and will continue to do so in the future, absent
increased demand for our stock by investors. In addition, sales of our stock by directors and/or executive officers could be viewed negatively by the investment community and therefore result in a
decline in our stock price. Large shareholders, directors, and executive officers may need to raise funds and may sell our stock in order to do so. Directors and executive officers who have pledged
our stock as collateral for loans may need to sell shares of our stock in order to repay the loans. Any of these factors could cause our stock price to decline, thereby reducing the value of your
investment and increasing the possibility that our stock will be delisted from the Nasdaq SmallCap Market.

We have negative cash flow from operations for the current fiscal year and may not have sufficient cash to continue operations or, even if we can continue operations, 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 our fiscal year ended February 28, 2002, 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, 2002, we had approximately $8.7 million in cash and cash equivalents. We may not be able to achieve the revenue and
gross margin objectives necessary to maintain 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. If such financing is required and we cannot obtain it, we will have to substantially curtail or discontinue operations.

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 $1.1 million for the quarter ended November 30, 2002, $9.1 million for the nine months ended
November 30, 2002, $37.4 million for the fiscal year ended February 28, 2002, $68.4 million for the year ended February 28, 2001, and $28.0 million for the
year ended February 29, 2000. As of November 30, 2002, we had an accumulated deficit of approximately $152 million. We will need to generate significant additional online services
and technology revenues and/or reduce operating costs to maintain positive cash flow and achieve 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 profitability or to maintain
positive cash flow. If we do achieve profitability in any period, we cannot be certain of continued or increased profitability or positive cash flow on a quarterly or annual basis.

Termination of our relationship with Sun Microsystems, Software Spectrum (formerly Corporate Software) or Zomax Incorporated would have a substantial adverse effect on our
business.

We provide online software update and license management services to Sun Microsystems, Inc.'s Sun ONE (formerly iPlanet) customers through our SubscribeNet
and fulfillment services under an agreement that expires on June 30, 2003, and that is terminable by Sun Microsystems at any time on 90 days' notice. The fulfillment services under that
agreement consist of our making Sun ONE software products electronically available to Sun customers on a one-time basis upon their purchase of initial licenses for that software. In
October 2002, we and Sun amended that agreement to make the SubscribeNet service cancelable by either party on December 31, 2002, or at the end of any calendar

30

---

quarter thereafter, provided the canceling party gives 30 days' notice. The terms of the agreement with respect to our fulfillment services remain unchanged. We have received notice from Sun
that it will continue to use the SubscribeNet service at least through March 31, 2003. There is now a heightened risk that Sun will elect not to renew the agreement on June 30, 2003, and
will elect not to renew the SubscribeNet portion of the agreement before that date. A substantial portion of our online services and technology revenues to date has been generated through this
contract, and Sun's termination of this contract or the SubscribeNet portion of this contract could have a material adverse effect on our revenues.

Under
our Sales Alliance Agreement with Software Spectrum dated June 28, 2001, we have transitioned to Software Spectrum our reseller relationship with Sun
Microsystems, Inc. for Sun ONE products. This agreement expires in June 2003, but may terminate earlier under certain circumstances, including any termination of the reseller contract
between Software Spectrum and Sun Microsystems, Inc. A significant portion of our online services and technology revenues since July 2001 have been generated through this Software
Spectrum contract, and a significant portion of our revenues in future periods could be generated through this contract. In addition, Software Spectrum shares with us a portion of its gross profit
from resales of Sun ONE software licenses and maintenance, and reimburses us for a significant portion of our personnel costs relating to maintaining a team dedicated to sales of Sun ONE software
licenses and maintenance. Any termination of this contract before June 2003, or failure of the parties to extend or renew this contract beyond June 2003, could have a material adverse effect on
our business and financial performance.

Corporate
Software was acquired by Level 3 Communications, Inc. in March 2002 and subsequently merged into Software Spectrum, another Level 3 subsidiary. While we have seen
no indication that this acquisition has affected or will affect the revenues we receive under our Sales Alliance Agreement with Software Spectrum, it is possible that these revenues will be affected
if Level 3 chooses to approach our relationship differently than Corporate Software has in the past.

Under
our Strategic Alliance Agreement with Zomax Incorporated dated August 12, 2002, Zomax will market and resell Intraware's SubscribeNet ESDM service to Zomax' customer base.
Under the agreement Zomax will pay Intraware a minimum of $15 million in fees over 10 years, subject to some conditions. Zomax may terminate this agreement at its option with one year's
prior written notice. Any
early termination of this contract could have a material adverse effect on our business and financial performance.

Software manufacturers may not wish to start using, and our current customers may not wish to continue 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 or start using, or that our current customers will find it strategically
or economically justifiable to increase their use of or continue using, 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 the SubscribeNet service. These and other concerns on the part of software manufacturers could make it difficult for us
to achieve growth in SubscribeNet revenue, which could in turn hinder our ability to achieve profitability and maintain positive cash flow.

31

---

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 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 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.

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 our SubscribeNet service. Any failure
by us 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.

The loss of one or more of our key customers could adversely affect our revenues.

We believe that a substantial amount of revenue from our SubscribeNet service in any given future period may come from a relatively small number of customers (in
addition to Sun, Software Spectrum and Zomax, as detailed above). If one or more major customers were to stop using our services or products, our operating results could be materially adversely
affected. Our contractual relationships with most of these customers are subject to renewal annually. As a result, we cannot assure you that any of our customers will renew their contracts with us in
any given year.

32

---

Our quarterly financial results are subject to significant fluctuations because of many factors and any of these could adversely affect our stock price.

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 will 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 Software Spectrum, under which we have transitioned to Software Spectrum our business of reselling Sun ONE software, has resulted in and
will continue to result in a decrease in overall revenue to us. Our May 2002 sale of our Asset Management software business to Computer Associates International, Inc. will also result in
a substantial decrease in our revenue and gross profit. These decreases in our revenues and gross profit could affect the market price of our Common Stock. 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.

Our industry is highly competitive and we cannot assure you that we will be able to effectively compete.

The market for selling online services and software is highly competitive. We expect competition to intensify as current competitors expand and improve their
service offerings, new competitors enter the market, and the business market for information technology services continues to exhibit softness. We have experienced, and expect to continue to
experience, competition on our SubscribeNet sales. We

33

---

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 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.

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. None of our
officers or key employees is 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 business. In particular, the services of Peter H.
Jackson, our President and Chief Executive Officer and Wendy A. Nieto, our Chief Financial Officer and Senior Vice President of Finance, would be difficult to replace.

We face risks of claims from third parties for intellectual property infringement that could adversely affect our business.

We electronically deliver third-party software to end-users. This activity creates the potential for claims to be made against us, either directly or
through contractual indemnification provisions with software companies. 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 have electronically distributed in the past. Royalty or licensing agreements, if
required, may not be available on acceptable terms, if at all. A successful claim of infringement against us 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 download third-party software through our SubscribeNet service are entitled to deploy and use that software. However, there can be
no assurance

34

---

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 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.

Additional government regulations may increase our costs of doing business.

In delivering third-party software through our SubscribeNet service, we must comply with U.S. export controls on software generally and encryption technology in
particular. 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

At November 30, 2002, we had cash and cash equivalents of approximately $8.7 million. We have not used derivative financial instruments in our
investment portfolio during fiscal 2003. We place our investments with high quality issuers, by policy, in an effort to limit the amount of credit exposure to any one issue or issuer.

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. At

35

---

November 30, 2002, all of our cash, cash equivalents and investment portfolio carried maturity dates of less than 90 days. The effect of changes in interest rates of +/-10%
over a nine-month horizon would not have a material effect on the fair market value of the portfolio.

ITEM 4.    CONTROLS AND PROCEDURES

(a)Evaluation of disclosure controls and procedures.    Based on their evaluation as of a date within 90 days of the
filing date of this Quarterly Report on Form 10-Q, the principal executive officer and the principal financial officer have concluded that our disclosure controls and procedures (as
defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the "Exchange Act")) are effective to ensure that information required to be
disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules
and forms.

(b)Changes in internal controls.    There were no significant changes in our internal controls or in other factors that could
significantly affect those controls subsequent to the date of their most recent evaluation. There were no significant deficiencies or material weaknesses, and therefore there were no corrective
actions taken.

36

---



PART II    OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

In October 2001, we were served with a summons and complaint in a purported securities class action lawsuit. On or about April 19, 2002, we were
served with an amended complaint in this action, which is now titled In re Intraware, Inc. Initial Public Offering Securities Litigation, Civ. No. 01-9349 (SAS) (S.D.N.Y.),
related to In re Initial Public Offering Securities Litigation, 21 MC 92 (SAS) (S.D.N.Y.). The amended complaint is brought purportedly on behalf of all persons who purchased our Common
Stock from February 25, 1999 (the date of our initial public offering) through December 6, 2000. It names as defendants the Company; three of our present and former officers and
directors; and several investment banking firms that served as underwriters of our initial public offering. The complaint alleges liability under Sections 11 and 15 of the Securities Act of 1933 and
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, on the grounds that the registration statement for the offerings did not disclose that: (1) the underwriters had agreed to allow
certain customers to purchase shares in the offerings in exchange for excess commissions paid to the underwriters; and (2) the underwriters had arranged for certain customers to purchase
additional shares in the aftermarket at predetermined prices. The amended complaint also alleges that the underwriters misused their securities analysts to manipulate the price of our stock. No
specific damages are claimed.

Lawsuits
containing similar allegations have been filed in the Southern District of New York challenging over 300 other initial public offerings and secondary offerings conducted in 1999
and 2000. All of these lawsuits have been consolidated for pretrial purposes before United States District Court Judge Shira Scheindlin of the Southern District of New York. On July 15, 2002,
an omnibus motion to dismiss was filed in the coordinated litigation on behalf of the issuer defendants, of which Intraware and its three named current and former officers and directors are a part, on
common pleadings issues. That motion was heard before the Court in New York on November 1, 2002. On or about October 9, 2002, the Court entered and ordered a Stipulation of Dismissal,
which dismissed the three named current and former officers and directors from the litigation without prejudice. No discovery has been served on us. We believe we have meritorious defenses to these
claims and intend to defend against them vigorously. We are not presently able to estimate losses, if any, related to this lawsuit.

On
August 26, 2002, we were served with a summons and complaint in a lawsuit by Deborah Donoghue against us, ComVest Venture Partners, LP ("ComVest") and Robert Priddy in the
United States District Court for the Southern District of New York, Civ. No. 02-6578 (S.D.N.Y.). The complaint alleges that ComVest and Mr. Priddy, while they owned more than
10% of a class of our equity securities, bought and sold our equity securities within a 6-month period and failed to disgorge to us the profits allegedly realized in those trades, thereby
violating Section 16(b) of the Securities Exchange Act of 1934. On November 4, 2002, defendants in this lawsuit filed answers to the complaint denying any liability. Subsequently, on
November 20, 2002, the plaintiff filed a notice to voluntarily dismiss the complaint with prejudice.

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. Intraware's management has
reviewed those other pending legal matters and believes that the resolution of such matters will not have a significant adverse effect on Intraware's financial position or results of operations.

ITEM 2.    CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

37

---

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

None.

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

On November 6, 2002, we held our Annual Meeting of Stockholders. At the meeting, the stockholders elected as Class I director
Frost R. R. Prioleau (with 34,231,880 affirmative votes and 5,296,339 votes withheld). Messrs. Ronald E. F. Codd, Mark B. Hoffman,
Peter H. Jackson and Brendan A. McLoughlin continued as directors after the Annual Meeting.

The
stockholders also ratified the appointment of PricewaterhouseCoopers LLP as our independent public accountants for the current fiscal year (with 39,461,476 affirmative votes, 19,803
negative votes, and 46,940 abstentions).

ITEM 5.    OTHER INFORMATION

None.

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

Exhibits

|Exhibit
Number |  | Description                                                                                                            
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------
|10.1*          |  | Sales Alliance Agreement dated June 28, 2001 between Intraware, Inc. and CorpSoft, Inc.                                
|99.1           |  | Certifications Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002

---

Reports on Form 8-K

A
Report on Form 8-K dated as of August 12, 2002, was filed with the SEC on September 11, 2002, reporting under Item 5, "Other Events" that Intraware and
Zomax had announced that they had entered into a strategic alliance and that Intraware had sold shares of its Common Stock to Zomax.

SIGNATURES

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, 2003 |  | By:            
|                        |  | By:            

38

---

Chief Financial Officer Certification

I, Wendy A. Nieto, Chief Financial Officer and Senior Vice President of Finance of Intraware, Inc. certify that:

(1)  I
have reviewed this Quarterly Report on Form 10-Q of Intraware, Inc. (the "registrant");

(2)  Based
on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report;

(3)  Based
on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Quarterly Report;

(4)  The
registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as such term is defined in Exchange
Act Rules 13a-14 and 15d-14) for the registrant and have:



(5)  The
registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the board of
directors (or persons fulfilling the equivalent function):



(6)  The
registrant's other certifying officer and I have indicated in this Quarterly Report whether or not there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses.

Dated
January 14, 2003

|/s/WENDY A. NIETOWendy A. Nieto Chief Financial Officer and Senior Vice
President of Finance of Intraware, Inc. (Principal Financial Officer) |  | 
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | 

39

---



Chief Executive Officer Certification

I, Peter H. Jackson, President and Chief Executive Officer of Intraware, Inc. certify that:



Dated
January 14, 2002

| | /s/PETER H. JACKSONPeter H. Jackson President and Chief Executive Officer
of Intraware, Inc. |  | 
| | -------------------------------------------------------------------------------------------- |  | 
| | (Principal Executive Officer)                                                                |  | 

40

---

QuickLinks