UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   Form 10-QSB

                                   (Mark One)

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

                     For the period ended September 30, 2003

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

               For the transition period from _______ to _______.


                        Commission File Number 333-16031


                            FRONT PORCH DIGITAL, INC.
                            -------------------------
           (Name of small business issuer as specified in its charter)


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


                               20000 Horizon Way,
                                    Suite 120
                          Mt. Laurel, New Jersey 08054
                    ----------------------------------------
                    (Address of principal executive offices)


                                 (856) 439-9950
                                 --------------
                           (Issuer's telephone number)


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

As of November 13, 2003,  41,615,648  shares of the issuer's  common stock,  par
value $.001, were outstanding.

Transitional Small Business Disclosure Format (check one): Yes [ ]  No [X]


<PAGE>


PART I. FINANCIAL INFORMATION


                            FRONT PORCH DIGITAL, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                   (Unaudited)


                                                              September 30, 2003
ASSETS
Current assets:
Cash and cash equivalents                                          $    414,576
Restricted cash                                                          90,533
Accounts receivable - trade & other, net of allowance of $30,200
Non-affiliates                                                        1,058,041
Affiliates                                                               52,637
Other current assets                                                    254,076
                                                                   ------------
Total current assets                                                  1,869,863


Property and equipment, net                                             558,346

Software development costs, net                                         346,901

Software and intellectual property, net
of accumulated amortization of $886,625                                 950,172

Excess cost over fair value of net assets acquired, net
of accumulated amortization of $949,778                               1,182,289

Other assets                                                             57,025
                                                                   ------------
Total assets                                                       $  4,964,596
                                                                   ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current portion of notes payable                                   $    574,476
Current portion of other long-term liability                            100,000
Current portion of capitalized lease obligation                          38,132
Accounts payable                                                        987,567
Accrued expenses                                                        941,719
Accrued expenses - employees                                            680,088
Deferred revenue                                                        104,413
                                                                   ------------
Total current liabilities                                             3,426,395

Notes payable, net of current portion                                   573,963
Other long-term liability, net of current portion                       397,318
Capitalized lease obligation, net of current portion                     51,630
                                                                   ------------

Total liabilities                                                     4,449,306
                                                                   ------------

Stockholders' equity:
Preferred stock, nonvoting, $.001 par value, 5,000,000 shares
    authorized, none issued or outstanding                                   --
Common stock, $.001 par value, 50,000,000 shares authorized,
   41,615,648 shares issued and outstanding                              41,616
Additional paid-in capital                                           25,367,404
Accumulated other comprehensive income                                   32,959
Accumulated deficit                                                 (24,926,689)
                                                                   ------------
Total stockholders' equity                                              515,290
                                                                   ------------

Total liabilities and stockholders' equity                         $  4,964,596
                                                                   ============

     See accompanying notes to condensed consolidated financial statements.

                                       2
<PAGE>


                           FRONT PORCH DIGITAL, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED SEPTEMBER 30,  NINE MONTHS ENDED SEPTEMBER 30,
                                                          ----------------------------------------------------------------
                                                              2003             2002              2003             2002
                                                          ----------------------------------------------------------------
<S>                                                       <C>              <C>               <C>              <C>
Revenues:
  Products                                                $    537,817     $    550,781      $  1,468,089     $    757,237
  Services                                                     539,939          521,730         2,241,889        1,345,622
  Services - affiliate                                              --               --         1,660,214               --
                                                          ------------     ------------      ------------     ------------
Total revenue                                                1,077,756        1,072,511         5,370,192        2,102,859

Cost of revenue:
  Products                                                      55,014          220,019           155,198          300,228
  Services                                                     355,168          151,609         1,251,358          400,785
                                                          ------------     ------------      ------------     ------------
Total cost of revenue                                          410,182          371,628         1,406,556          701,013
                                                          ------------     ------------      ------------     ------------
Gross margin                                                   667,574          700,883         3,963,636        1,401,846

Selling, general and administrative                          1,191,276        1,057,774         3,348,678        2,719,259
Research and development                                        84,760          129,114           134,923          347,891
Depreciation                                                   203,693          278,569           606,469          584,761
Amortization                                                   121,112           60,073           413,184          177,931
Loss on impairment of goodwill and
  intellectual property                                             --               --         3,335,848               --
                                                          ------------     ------------      ------------     ------------
Total operating expenses                                     1,600,841        1,525,530         7,839,102        3,829,842

Operating loss                                                (933,267)        (824,647)       (3,875,466)      (2,427,996)

Other income (expense):
Interest income                                                    603            1,297             1,400            2,697
Interest expense                                              (205,371)        (144,049)         (571,235)        (161,987)
Other expense                                                  (98,200)              --           (88,328)              --
Foreign currency transaction loss                                4,899               --             1,662               --
                                                          ------------     ------------      ------------     ------------
Total other expense                                           (298,069)        (142,752)         (656,501)        (159,290)

Loss from continuing operations                             (1,231,336)        (967,399)       (4,531,967)      (2,587,286)

Loss on operations of discontinued operation                  (229,279)        (220,949)         (980,575)        (220,949)
Gain on sale of discontinued operation                              --               --           586,955               --
                                                          ------------     ------------      ------------     ------------

Loss from discontinued operations                              229,279          220,949           393,620          220,949
                                                          ------------     ------------      ------------     ------------

Net loss                                                  $ (1,460,615)    $ (1,188,348)     $ (4,925,587)    $ (2,808,235)
                                                          ============     ============      ============     ============
Weighted average shares outstanding - basic and diluted     41,615,648       29,886,714        37,806,128       27,565,231
Earnings per share - basic and diluted:

Loss from continuing operations                           $      (0.03)    $      (0.03)     $      (0.12)    $      (0.09)
Loss from discontinued operations                         $      (0.01)    $      (0.01)     $      (0.01)    $      (0.01)
                                                          ------------     ------------      ------------     ------------
Net loss                                                  $      (0.04)    $      (0.04)     $      (0.13)    $      (0.10)
                                                          ============     ============      ============     ============
</TABLE>










     See accompanying notes to condensed consolidated financial statements.

                                        3
<PAGE>


                            FRONT PORCH DIGITAL, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                  NINE MONTHS ENDED SEPTEMBER 30,
                                                                                     2003                2002
                                                                                ----------------------------------
<S>                                                                             <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                                                        $  (4,925,587)       $  (2,808,235)
Loss from discontinued operations                                                     980,575              220,949
Gain on sale of discontinued operations                                              (586,955)                --
                                                                                -------------        -------------
Loss from continuing operations                                                    (4,531,967)          (2,587,286)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation & amortization                                                         1,019,653              762,692
Non-cash interest expense                                                             506,794              125,000
Loss on impairment of goodwill and intellectual property                            3,335,848                 --
Non-cash issuance of common stock to employees and consultants                           --                392,387
Stock option compensation cost                                                          9,259              131,486
Gain on sale of fixed assets                                                           (9,951)                --
Changes in operating assets and liabilities:
Decrease in accounts receivable - affiliate                                           273,186                 --
Decrease in accounts receivable                                                        14,062               68,912
Decrease in deferred costs                                                             88,527                 --
Decrease in other current assets                                                      340,557              471,868
Decrease in other assets                                                               32,945                 --
Decrease in accounts payable                                                         (658,087)             (24,665)
(Decrease) increase in accrued expenses                                              (242,721)             303,226
Increase (decrease) in accrued expenses - employees                                   160,049             (179,993)
Decrease in deferred revenue                                                       (1,226,247)            (327,730)
Other changes in operating activities                                                    --                 86,257
                                                                                -------------        -------------
Net cash used in operating activities from continuing operations                     (888,093)            (777,846)
                                                                                -------------        -------------

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures                                                                  (56,249)            (206,569)
Cash received from sale of discontinued operations                                    850,000                 --
Net cash acquired from ManagedStorage                                                    --                859,706
Software development costs                                                           (214,073)             (59,917)
Proceeds from sale of fixed assets                                                    154,850                 --
Other investing activities                                                               --                (14,988)
                                                                                -------------        -------------
Net cash provided by investing activities from continuing operations                  734,528              578,232
                                                                                -------------        -------------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable                                                           645,000              600,000
Repayment of note payable and capital lease                                          (133,081)                --
Proceeds from issuance of common stock                                                   --                 50,000
                                                                                -------------        -------------
Net cash provided by financing activities from continuing operations                  511,919              650,000
                                                                                -------------        -------------

Net cash used in discontinued operations                                             (616,967)            (220,949)
                                                                                -------------        -------------
Effect of exchange rate fluctuations on cash and cash equivalents                     (44,442)                --
                                                                                -------------        -------------

Net (decrease) increase in cash and cash equivalents                                 (303,055)             229,437
Cash and cash equivalents, beginning of period                                        717,631              393,439
                                                                                -------------        -------------
Cash and cash equivalents, end of period                                        $     414,576        $     622,876
                                                                                =============        =============
SUPPLEMENTAL NONCASH DISCLOSURES
Non Cash financing activities
Conversion of convertible senior notes to shares of common stock                      250,000
Conversion of convertible senior notes into new unsecured convertible notes           250,000
Conversion of liabilities into new unsecured convertible notes                         95,000
                                                                                -------------
                                                                                $     595,000
                                                                                =============
</TABLE>








     See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>


                            FRONT PORCH DIGITAL, INC.

              Notes to Condensed Consolidated Financial Statements

                                   (Unaudited)


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND BASIS OF PRESENTATION

Front Porch  Digital,  Inc. and its  subsidiaries  (the  "Company")  enables the
conversion, preservation and management of analog and digital content, including
text,  images,  audio,  graphics,  video and rich media.  The  Company  develops
proprietary  software  products and performs  services that convert content into
digital  formats for  subsequent  storage and on-demand  delivery in the same or
other formats or digital platforms.  The software, which is based on proprietary
and patent-pending  technology,  enables a new paradigm in the way broadcasters,
content owners and education and law enforcement personnel manage their workflow
- a shift from  tape-oriented  warehousing  to a  fully-digital,  instant access
automated archive.

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

The  condensed  consolidated  financial  statements  of the  Company  have  been
prepared on a going-concern  basis, which contemplates the realization of assets
and liabilities in the normal course of business.  Accordingly, the consolidated
financial  statements  do not include any  adjustments  that might be  necessary
should the Company be unable to continue in existence.  The Company has incurred
losses  since  commencement  of  operations  in its  current  line of  business.
Although the Company's  operating results have continued to improve in the first
nine months of 2003,  excluding  the $3.3 million loss on impairment of goodwill
and  intellectual  property,  and the Company has improved  its working  capital
position and liquidity  during that period,  there can be no assurance  that the
Company will not continue to sustain operating losses.

For the nine months ended  September 30, 2003, the Company  generated a net loss
of $4.9  million.  Excluding  a charge of $3.3  million  for the  impairment  of
goodwill and  intellectual  property  related to the  Company's  media  services
business and net losses from discontinued  operations of $394,000,  the net loss
for the nine months ended  September 30, 2003 was $1.2 million (as compared to a
loss of $2.6  million  in the prior  year  period,  excluding  net  losses  from
discontinued operations of $221,000).  Included in net loss for the period was a
non-recurring gain on the sale of discontinued operations of $587,000 related to
the sale of the Company's  DIVArchive  Medical business to Eastman Kodak Company
("Kodak").  For the nine months ended September 30, 2003, the Company  generated
negative  cash  flow from  operating  activities  of  continuing  operations  of
$888,000.

For the three months ended September 30, 2003, the Company  generated a net loss
of $1.5  million.  Excluding  the  net  loss  from  discontinued  operations  of
$229,000,  the Company  generated a net loss from continuing  operations for the
three months ended  September 30, 2003 of $1.2 million (as compared to a loss of
$1.0  million in the prior year period  excluding  net losses from  discontinued
operations of 221,000).  The Company generated positive cash flow from operating
activities of  continuing  operations  for the three months ended  September 30,
2003


                                       5
<PAGE>

                            FRONT PORCH DIGITAL, INC.

              Notes to Condensed Consolidated Financial Statements

                                   (Unaudited)


of $44,000.  In  addition,  at  September  30,  2003,  the Company had a working
capital deficit of $1,557,000.  These factors raise  substantial doubt about the
Company's ability to continue as a going concern.

During  the  third  quarter  of  2003,   management  continued   implementing  a
restructuring  of the operations of the Company that included  reorganizing  the
personnel of the Company,  reducing headcount,  reducing non-essential operating
costs and refocusing the Company's business strategy,  products and services. As
of November 13, 2003, this restructuring and refocusing has been completed,  and
management believes the Company's current operating cost levels are adequate and
appropriate to support its operations and working capital needs.  The Company is
continuing to focus on the expansion of its DIVArchive and transcoding broadcast
operations in the United States and has hired 11 additional personnel in its New
Jersey and Colorado operations and sales facilities. In addition, the Company is
continuing  to develop its  DIVArchive  business  through its  Toulouse,  France
operations.  As a result,  operating  costs have  increased  in these  areas and
offset the cost  reductions  achieved by the  Company in exiting the  DIVArchive
Medical  business  and  in  other  areas.   Overall,   operating  costs  are  at
approximately  the same  levels as in the second  quarter  of 2003 and  slightly
lower  than  the  comparable  quarter  of 2002,  excluding  the  charge  for the
impairment of goodwill and intellectual property recorded in the second quarter.
In addition,  during the third  quarter of 2003,  the Company  incurred  certain
non-recurring   operating   costs   related  to  legal   services   (which  were
approximately twice the typical level) and  recruiting/advertising  fees for the
staffing  additions  described  above (which were largely  completed  during the
third quarter).  The Company  believes that at its current staffing levels it is
adequately  staffed to deploy its  DIVArchive  and  transcoding  products in its
target markets and that its current cost levels can support a sustained level of
revenue to support its business operations in the future.  However, there can be
no assurance  that the Company will be  successful in continuing to generate new
revenues  and cash  flows to  support  these  costs  or to  continue  as a going
concern.

In April and May 2003, the Company secured  additional  capital through the sale
of convertible notes,  restructured  certain liabilities and sold its DIVArchive
Medical  operations  to Kodak for  $850,000 in cash and the  transfer of certain
liabilities and  operations.  The sale of the DIVArchive  Medical  operations to
Kodak  and  the   operations  of  that  business  have  been  accounted  for  as
discontinued  operations.  As a result,  the operating results of the DIVArchive
Medical  operations are excluded from  operating  loss and loss from  continuing
operations  and are reported as separate line item  components for the three and
nine months ended September 30, 2003 and 2002.



                                       6
<PAGE>

                            FRONT PORCH DIGITAL, INC.

              Notes to Condensed Consolidated Financial Statements

                                   (Unaudited)

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United States for interim  financial  information  and pursuant to the rules and
regulations of the Securities and Exchange Commission.  Accordingly, they do not
include  all the  information  and  footnotes  required  by  generally  accepted
accounting  principles  for complete  financial  statements.  Management  of the
Company believes the disclosures are adequate to make the information  presented
not  misleading.  In the  opinion  of  management,  all  adjustments  considered
necessary for a fair presentation have been included and such adjustments are of
a normal and recurring nature. For further  information,  refer to the financial
statements and footnotes  included in the Company's Annual Report on Form 10-KSB
for the year ended December 31, 2002.  Operating  results for the three and nine
months ended September 30, 2003 are not necessarily  indicative of the operating
results to be expected for the year ending December 31, 2003.

PRINCIPLES OF CONSOLIDATION

The  consolidated  financial  statements  include  the  accounts  of Front Porch
Digital,  Inc. and its  wholly-owned  subsidiary.  All significant  intercompany
transactions and balances have been eliminated in consolidation.

REVENUE RECOGNITION

The Company  recognizes  revenue  when  persuasive  evidence  of an  arrangement
exists,  delivery and acceptance has occurred, the fee is fixed or determinable,
and collection is reasonably assured.

The Company licenses software under license agreements and provides professional
services, including training, installation,  consulting and maintenance. License
fee revenues  are  recognized  when a license  agreement  has been  signed,  the
software  product  has  been  shipped,  the  fees are  fixed  and  determinable,
collection is considered probable and no significant vendor obligations remain.

The Company allocates revenue to each component of a contract based on objective
evidence of its fair value, as established by management.  Because  licensing of
the software generally is not dependent on the professional services portions of
the  contract,  the  software  revenue is  recognized  upon  delivery.  Fees for
maintenance  agreements are  recognized  ratably over the term of the agreement.
Maintenance is generally billed in advance, which results in deferred revenues.

The  Company  provides  software-related  professional  services.  Services  are
generally  provided on a time and  materials  basis and revenue is recognized as
the services are provided.



                                       7
<PAGE>

                            FRONT PORCH DIGITAL, INC.

              Notes to Condensed Consolidated Financial Statements

                                   (Unaudited)

Revenue under service  contracts is recognized when services have been performed
and accepted, or on the proportional-performance method of accounting, depending
on the nature of the project. The extent of progress toward completion under the
proportional-performance method of accounting is measured by using the number of
sites and/or units under the contract that have been  completed and the progress
toward completion of batches in progress at period end.

STOCK-BASED COMPENSATION

The Company has  elected to follow the  intrinsic  value  method  prescribed  by
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees,"  and related  interpretations  in accounting  for its employee stock
options.  The effect of applying the fair value method  pursuant to Statement of
Financial  Accounting  Standards  ("SFAS") No. 123  "Accounting  for Stock Based
Compensation"  to the  Company's  stock-based  awards is  disclosed in the table
below. Pro forma results of operations may not be  representative of the effects
on reported or pro forma results of operations for future periods.

<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED SEPTEMBER 30,     NINE MONTHS ENDED SEPTEMBER 30,
                                                                2003               2002             2003                2002
PRO FORMA NET LOSS:
<S>                                                         <C>                <C>               <C>               <C>
Net loss, as reported                                       $(1,460,615)       $(1,188,348)      $(4,925,587)      $(2,808,235)
Add: Stock based employee compensation expense
  included in net loss                                              -               63,000            10,000           194,000
Deduct: Total stock based employee compensation expense
  determined under fair value based method for all
  awards                                                       (112,785)          (256,949)         (338,354)         (770,848)
                                                            -----------        -----------       -----------       -----------
Pro forma net loss                                          $(1,573,400)       $(1,382,297)      $(5,253,941)      $(3,385,083)
                                                            ===========        ===========       ===========       ===========

PRO FORMA LOSS PER SHARE:

Loss per share - basic and diluted, as reported             $     (0.04)       $     (0.04)      $     (0.13)      $     (0.10)
                                                            -----------        -----------       -----------       -----------

Pro forma loss per share - basic and diluted                $     (0.04)       $     (0.05)      $     (0.14)      $     (0.12)
                                                            -----------        -----------       -----------       -----------

Weighted average shares outstanding - basic and diluted      41,615,648         29,886,714        37,806,128        27,565,231
</TABLE>

The Company accounts for equity  instruments issued to non-employees in exchange
for goods or services  using the fair value method and records  expense based on
the values determined.

FOREIGN  CURRENCY  TRANSLATION AND  TRANSACTIONS.

The Company conducts  business in various countries outside the United States in
which the  functional  currency  of the  country  is not the U.S.  dollar.  As a
result,  the Company has foreign currency exchange  translation  exposure as the
results of these foreign  operations  are  translated  into U.S.  dollars in its
consolidated  financial  statements.  The effect of changes in value of the U.S.
dollar  compared to other  currencies,  primarily the euro, has been to increase
reported  revenues and operating  profit when the U.S. dollar weakens and reduce
these  amounts  when  the  dollar  strengthens.  While  the  Company  looks  for
opportunities  to reduce its exposure to foreign currency  fluctuations  against
the U.S.  dollar,  at this  point the  Company  has not had  adequate  financial
resources to pursue hedging opportunities  generally. At September 30, 2003, the
Company  reported a translation  gain of $32,959 as a component of Comprehensive
Income.  The Company is also subject to foreign  exchange  transaction  exposure
when  its  subsidiaries  transact  business  in a  currency  other  than its own
functional  currency.  These  transactions  are  infrequent  and  have not had a
significant effect on the consolidated  financial statements.  For the three and
nine  months  ended  September  30,  2003 and 2002,  the  Company  reported  the
following components of comprehensive loss:

<TABLE>
<CAPTION>
                                            THREE MONTHS ENDED SEPTEMBER 30,     NINE MONTHS ENDED SEPTEMBER 30,
                                                2003               2002             2003                2002
<S>                                         <C>                <C>               <C>               <C>
Net loss                                    $(1,460,615)       $(1,188,348)      $(4,925,587)      $(2,808,235)
Change in cumulative foreign
  currency translation adjustment                   664                -              35,746               -
                                            -----------        -----------       -----------       -----------
Comprehensive loss                          $(1,459,951)       $(1,188,348)      $(4,889,841)      $(2,808,235)
                                            ===========        ===========       ===========       ===========
</TABLE>

USE OF ESTIMATES

The  preparation  of  consolidated   financial  statements  in  conformity  with
accounting   principles   generally  accepted  in  the  United  States  requires
management to make estimates and assumptions  affecting the reported  amounts of
assets and liabilities  and the disclosure of contingent  assets and liabilities
at the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting  period.  Actual results could differ
from those estimates.

RECLASSIFICATIONS

Certain reclassifications have been made to prior period amounts and balances to
conform to the 2003 presentation.

2.   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In December 2002, the Financial  Accounting Standards Board ("FASB") issued SFAS
No. 148,  "Accounting for Stock-Based  Compensation -- Transition and Disclosure
-- an  amendment of FASB  Statement  No. 123." SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based


                                       8
<PAGE>

                            FRONT PORCH DIGITAL, INC.

              Notes to Condensed Consolidated Financial Statements

                                   (Unaudited)


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,  SFAS No. 148 amends the disclosure  requirements of
SFAS No.  123 to  require  prominent  disclosures  in both  annual  and  interim
financial  statements  about the method of accounting for  stock-based  employee
compensation and the effect of the method used on reported results.  The Company
has not adopted SFAS No. 148 in its  accounting  for  stock-based  compensation.
However,   the  Company  has   updated  its   disclosures   to  conform  to  the
pronouncement.

In January  2003,  the FASB  issued  Interpretation  No. 46,  "Consolidation  of
Variable Interest  Entities".  This  interpretation  addresses  consolidation by
business  enterprises of variable interest  entities.  The interpretation is not
expected  to have a  material  effect on the  Company's  consolidated  financial
statements.

In May 2003,  the FASB issued SFAS No. 150,  "Accounting  for Certain  Financial
Instruments with Characteristics of both Liabilities and Equity", which provides
standards  for  how  an  issuer   classifies  and  measures  certain   financial
instruments with  characteristics  of both liabilities and equity. The Statement
is effective for financial  instruments  entered into or modified  after May 31,
2003 and for  pre-existing  instruments as of the beginning of the first interim
period beginning after June 15, 2003. The adoption of this standard did not have
a material effect on the Company's financial condition or results of operations.

3.   NOTES PAYABLE

At September 30, 2003, notes payable consisted of:

$93,333 of an unsecured  note payable  that bears  interest at 9% per annum.  In
September 2002, the Company  recapitalized  the outstanding  balance and accrued
interest of an existing  unsecured  note payable.  The new  principal  amount of
$246,500  included  the  original  principal  balance of $200,000  plus  accrued
interest of $46,500.  The note was payable in an initial payment of $45,000, and
equal monthly installments of $25,000 through June 1, 2003, with a final payment
of $8,647 on July 1, 2003. At December 31, 2002, the remaining principal balance
on this note was $150,000.  Effective  April 30, 2003, the Company  restructured
the  $150,000  remaining  principal  balance  on the note  payable  and  accrued
interest  that was due in full on July 1, 2003  into a new note that is  payable
over 12 months and matures on May 1, 2004.  The note is payable in equal monthly
installments that began on May 1, 2003 and carries an annual interest rate of 9%
per annum.  Accrued  interest is payable at maturity.  In  connection  with this
agreement,  the  Company  issued to the  noteholder  warrants  to purchase up to
100,000 shares of common stock at a price per share of $0.10.  The fair value of
these  warrants  amounted to $10,000 and was  recorded as a discount to the note
and is being amortized to interest expense over the note term of one year.

$744,000 of an unsecured non-interest bearing note payable to an employee.  This
note is payable  based on a percentage  of revenue of certain  operations of the
Company, ranging between 2% and 3% per year, to be payable in full no later than
December 31, 2004. In the event the Company exits the media conversion  business
prior to December 31,  2004,  the  remaining  balance of this note is payable on
demand.  The Company has estimated that $170,000 will be payable on this note in
the next 12 months; and


                                        9
<PAGE>

                            FRONT PORCH DIGITAL, INC.

              Notes to Condensed Consolidated Financial Statements

                                   (Unaudited)

$990,000  aggregate  principal amount of unsecured  convertible  notes that were
issued in April 2003. The notes contain a beneficial  conversion  feature as the
notes include certain  anti-dilution  protection and rights, and are convertible
into Company Common Stock at a price significantly below the then current market
price. The Company  allocated  $990,000 of the value received to this beneficial
conversion  feature,  which has been  recorded as a debt  discount  and is being
amortized to interest  expense over the term of the debt.  The Company  recorded
non-cash  interest  expense related to debt discount of $311,000 during the nine
months  ended  September  30,  2003.  Proceeds  from the issuance of these notes
included: $645,000 cash proceeds received by the Company; retirement of $250,000
principal balance of the former secured  convertible notes that matured on March
31, 2003 (the remaining  $250,000  principal and accrued  interest was converted
into  Company  Common  Stock in  accordance  with the  terms of the  convertible
secured note); and the conversion of $95,000 in current liabilities.

The  convertible  notes bear  interest at the rate of 8% per annum and mature on
September 30, 2004. Principal and accrued interest are payable at maturity.  The
convertible  notes are convertible at any time at the option of the note holders
into shares of Company  Common Stock at a  conversion  price of $.042 per share,
subject to  certain  anti-dilution  adjustments.  The  convertible  notes may be
prepaid by the Company at any time without penalty. In the event of a prepayment
by the  Company,  or upon payment of  principal  and  interest at maturity,  the
Company will be required to issue to the holders of such notes five-year  common
stock  purchase  warrants to purchase a number of shares of Company Common Stock
equal to 5,500 shares for each $1,000 of principal balance repaid, at a purchase
price of $0.10 per  share,  subject to certain  anti-dilution  adjustments.  The
purchase agreement relating to the convertible notes contains restrictions that,
among  others,  prohibit  the  Company  from  issuing new debt,  making  capital
expenditures in excess of specified amounts, paying dividends on common stock or
granting security interests in assets without the consent of note holders owning
a majority in principal amount of the outstanding convertible notes.

In April 2003, the holders of $500,000 aggregate principal amount of convertible
secured  notes  converted the remaining  $250,000 of the  outstanding  principal
($250,000  of principal  was  converted  into the  unsecured  convertible  notes
described  above) and 100% of the  accrued  interest  into  6,785,715  shares of
Company Common Stock pursuant to the conversion terms of the convertible secured
notes.  In connection  with this  conversion,  the Company  recorded  $39,000 in
non-cash interest expense related to the value of the induced  conversion of the
debt.

4.   SALE OF DIVARCHIVE MEDICAL OPERATIONS

On April 23, 2003, the Company sold to Kodak the Company's intellectual property
rights relating to the DIVArchive  product  applications for the medical imaging
and information  management market. In connection with


                                       10
<PAGE>

                            FRONT PORCH DIGITAL, INC.

              Notes to Condensed Consolidated Financial Statements

                                   (Unaudited)


such sale, Kodak paid the Company  $850,000,  employed  substantially all of the
Company's  personnel  associated with the transferred assets and assumed certain
software support obligations to the Company's existing  DIVArchive  customers in
the  medical  industry.  The  Company  recorded a gain on the sale of  $587,000.
Subsequent  to the sale,  Kodak  and the  Company  entered  into  certain  other
arrangements  that resulted in Kodak  assuming  much of the  operating  facility
space and equipment located in Toulouse, France. These actions and certain other
costs  incurred in the third  quarter  related to the closure of this  operation
have been  classified  as a loss  from  discontinued  operations.  The loss from
operations of  discontinued  operations  was $229,000 and $981,000 for the three
and nine months ended September 30, 2003, respectively.

The DIVArchive Medical component is accounted for as a discontinued operation in
the accompanying  condensed consolidated financial statements in accordance with
Statement of Financial  Accounting Standards (SFAS) No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." The results of operations and cash
flows of the DIVArchive  Medical operations have been removed from the Company's
results  of  continuing  operations  for  all  periods  presented.  All  related
disclosures  have also been  adjusted  to reflect  the  discontinued  operation.
Summarized selected financial  information from discontinued  operations for the
three and nine months ended  September 30, 2003  (excluding  the net gain) is as
follows:

RESULTS OF OPERATIONS - DIVARCHIVE MEDICAL OPERATIONS:
<TABLE>
<CAPTION>
                                                                   SEPTEMBER 30, 2003
                                                                   -------------------
                                                         THREE MONTHS ENDED     NINE MONTHS ENDED
                                                         ------------------     -----------------
<S>                                                        <C>                      <C>
          Revenues                                         $     3,000              $   243,000
                                                           ===========              ===========
          Gross margin                                     $    18,000              $    65,000

          Operating costs                                     (247,000)              (1,046,000)
                                                           -----------              -----------
          Loss from DIVArchive Medical operations          $  (229,000)             $  (981,000)
                                                           ===========              ===========
</TABLE>

Summarized  components  of the  gain  on the  sale  of  the  DIVArchive  Medical
component were as follows:

          Cash received                                    $   850,000

          Liabilities transferred                              138,000

          Intellectual property and goodwill sold             (401,000)
                                                           -----------
          Gain on sale of DIVArchive Medical component     $   587,000
                                                           ===========

                                       11
<PAGE>


                            FRONT PORCH DIGITAL, INC.

              Notes to Condensed Consolidated Financial Statements

                                   (Unaudited)


As a result of the sale of the DIVArchive Medical component,  in April 2003, the
Company performed an impairment  analysis of the remaining  DIVArchive  goodwill
and  intellectual  property that was not sold in the  transaction and determined
that no charge for impairment of the assets was warranted.

5. LOSS ON IMPAIRMENT  OF GOODWILL AND  INTELLECTUAL  PROPERTY - MEDIA  SERVICES
   SEGMENT

As a result of  changes  in the  business  environment,  at June 30,  2003,  the
Company  recorded  a loss of $3.3  million on the  impairment  of  goodwill  and
intellectual property related to the Company's media services segment to reflect
the  fair  value  of  the  business  based  upon  a  valuation   analysis  using
discounted  future cash flows. This amount is included in operating income and
loss from  continuing  operations in the  statement of  operations  for the nine
months ended September 30, 2003. Included in the loss is:

         Impairment of intellectual property               $    362,000

         Impairment of goodwill                               2,974,000
                                                           ------------
         Total impairment recorded                         $  3,336,000
                                                           ============

6.       CONCENTRATION OF CREDIT RISK

The Company  sells its  products  and  services  throughout  the United  States,
Canada, Europe and Asia. The Company performs periodic credit evaluations of its
customers' financial condition and generally does not require collateral. Credit
losses have been within  management's  expectations.  For the nine months  ended
September 30, 2003,  revenues from two  customers,  each  exceeding 10% of total
revenue,  aggregated 31% and 21%, respectively.  At September 30, 2003, accounts
receivable  from  the  largest  customer  was  $53,000,  or  8% of  total  trade
receivables. This customer is also a stockholder of the Company. The Company was
a  subcontractor  for this  customer/stockholder  during  2002 and  2003,  which
beneficially owned approximately 13.5% of the Company's outstanding common stock
as of  November  13,  2003.  In  addition,  accounts  receivable  from two other
customers  aggregated 21% and 11% of accounts  receivable at September 30, 2003.
For the nine  months  ended  September  30,  2002,  revenues  from one  customer
exceeded 10% of total revenue, aggregating 41% of total revenue.

7.   PER SHARE DATA

The Company  reports its earnings  (loss) per share in accordance  with the SFAS
No. 128, "Accounting for Earnings Per Share". Basic loss per share is calculated
using the net loss divided by the weighted  average  common shares  outstanding.
For the three and nine months ended September 30, 2003 and 2002, shares from the
assumed


                                       12
<PAGE>


                            FRONT PORCH DIGITAL, INC.

              Notes to Condensed Consolidated Financial Statements

                                   (Unaudited)


conversion of outstanding  convertible  notes,  warrants and options are omitted
from the  computations of diluted earnings per share because the effect would be
anti-dilutive.  However,  if the company was not in a loss position,  23,896,429
share  equivalents  from  warrants,  options  and  convertible  notes  would  be
considered dilutive shares.

8.   SEGMENT INFORMATION

SFAS  No.  131,  "Disclosures  about  Segments  of  an  Enterprise  and  Related
Information,"  established  standards for reporting  information about operating
segments and related  disclosures about products and services,  geographic areas
and  major  customers.  Operating  segments  are  defined  as  components  of an
enterprise  about which  separate  financial  information  is available  that is
evaluated  regularly by the chief  operating  decision  maker in deciding how to
allocate resources and in assessing performance.

The Company's  operations are  segregated  into two segments:  media  conversion
services and software and related services.  The Company operates these lines of
business across the geographic  areas of the United States,  Europe,  Canada and
Asia-Pacific.  Offices and facilities  are located in Mount Laurel,  New Jersey,
Boulder,  Colorado,  Houston, Texas and Toulouse, France. The Company's lines of
business are not  completely  integrated  into all  locations  and therefore the
Company  does not  currently  offer all  solutions in all markets in which it is
present.  Current efforts are underway to integrate products and services across
all markets served.

The software and related services business segment offers an integrated suite of
digital media solutions that facilitate the capture, management and distribution
of digital  content.  Components of these offerings  include a desktop  encoding
system, automated video indexing and a real-time format transcoder. In addition,
the Company offers a distributed storage and archive management solution for the
entertainment  industry that simplifies the process of preserving,  managing and
accessing digital content.

The media conversion  business segment offers a comprehensive,  integrated suite
of  enterprise  data media  solutions  ("EDMS") that can help  customers  ensure
information   preservation,   reduce  costs  and  improve  productivity  without
compromising  the  security  and  integrity  of their  stored  information.  The
Company's EDMS group has performed  professional services for over 600 customers
worldwide  in  industries  that  include  banking and  finance,  power  utility,
petroleum, pharmaceutical and government. All services offered by the EDMS group
are  performed  offline  utilizing  the  Company's   proprietary   software  and
stand-alone  hardware  devices,  at  either  the  customer  site  or  one of the
Company's  secure delivery  facilities.  These services can be performed for any
applicable  optical  and/or  tape  media  type  and  format.  Components  of the
currently  available  offerings  include tape copy and  conversion,  tape volume
management, tape data assurance, and archive generation and conversion.


                                       13
<PAGE>


                            FRONT PORCH DIGITAL, INC.

              Notes to Condensed Consolidated Financial Statements

                                   (Unaudited)


Revenues,  margins and operating expenses of the Company's lines of business are
evaluated  by  management.  The  Company  does not  measure  assets  by lines of
business  as  assets  generally  are not  distinctive  to a  particular  line of
business and are not  fundamental  in  assessing  segment  performance.  Capital
expenditures are managed by segment, but only for purposes of budgeting and cash
flow  management.  General  overhead  expenses  are included  completely  in the
software and services business segment as the media conversion  segment has been
and continues to be an easily  definable,  separate,  stand-alone  business - no
allocations  of  such  costs  are  made  as  allocated  indirect  costs  are not
considered in the management of the business  segments.  All direct and indirect
costs  associated  with a segment are reported  within that segment.  Summarized
operations of each of the Company's  operating segments in the aggregate for the
three and nine months ended September 30, 2003 and 2002, are as follows:

<TABLE>
<CAPTION>
                                  MEDIA CONVERSION                      SOFTWARE AND SERVICES
                                  ----------------                      ---------------------
                            Three Months Ended September 30,      Three Months Ended September 30,
                            --------------------------------      --------------------------------
                               2003                  2002            2003                 2002
                               ----                  ----            ----                 ----
<S>                          <C>                  <C>              <C>                  <C>
Revenues                     $362,000             $546,000         $716,000             $527,000
Gross margin                  224,000              253,000          444,000              448,000
Gross margin %                    62%                  46%              62%                  85%
Operating income (loss)        45,000               27,000         (978,000)            (852,000)
</TABLE>

<TABLE>
<CAPTION>
                                  MEDIA CONVERSION                      SOFTWARE AND SERVICES
                                  ----------------                      ---------------------
                           Nine Months Ended September 30,          Nine Months Ended September 30,
                           -------------------------------          -------------------------------
                               2003                  2002            2003                 2002
                               ----                  ----            ----                 ----
<S>                        <C>                  <C>              <C>                    <C>
Revenues                   $3,418,000           $1,361,000       $1,952,000             $742,000
Gross margin                2,677,000              767,000        1,287,000              635,000
Gross margin %                    78%                  56%              66%                  86%
Operating loss            (1,169,000)              (27,000)      (2,706,000)          (2,401,000)
</TABLE>

At June 30, 2003, the Company  recorded a loss of $3.3 million on the impairment
of goodwill and  intellectual  property related to the media services segment to
reflect the decrease in the fair value of the goodwill. The impairment charge is
included in operating  income (loss) above and included in loss from  continuing
operations in the statement of  operations  for the nine months ended  September
30, 2003.





                                       14
<PAGE>


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

GENERAL

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

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

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

OVERVIEW

The Company  enables the conversion,  preservation  and management of analog and
digital content,  including text, images, audio, graphics, video and rich media.
The Company develops  proprietary  software  products and performs services that
convert  content  into  digital  formats for  subsequent  storage and  on-demand
delivery in the same or other formats or digital platforms.  The software, which
is based on proprietary and patent-pending technology, enables a new paradigm in
the way broadcasters, content owners and education and law enforcement personnel
manage  their   workflow  -  a  shift  from   tape-oriented   warehousing  to  a
fully-digital,  instant access automated archive.  With additional  expertise in
providing onsite,  offline data management services for tape and optical assets,
the Company  believes it is uniquely  positioned to enable  clients to preserve,
protect and manage information  assets.  The Company's  customers are located in
the United States, Canada, Europe and Asia.

The  Company is in the early  stages of  executing  its  business  strategy  and
anticipates  generating  revenues  from the sale of its  software  products  and
services targeted toward the broadcast,  media and entertainment industry during
the next 12 months. This expansion is contingent upon several factors, including
the availability of adequate


                                       15
<PAGE>


cash resources,  the price of its products and services relative to those of its
competitors, and general economic and business conditions, among other factors.

During  the  third  quarter  of  2003,   management  continued   implementing  a
restructuring  of the operations of the Company that included  reorganizing  the
personnel of the Company,  reducing headcount,  reducing non-essential operating
costs and refocusing the Company's business strategy,  products and services. As
of November 13, 2003, this restructuring and refocusing has been completed,  and
management  believes  the  Company's  operating  cost  levels are  adequate  and
appropriate to support its operations and working capital needs.  The Company is
continuing to focus on the expansion of its DIVArchive and transcoding broadcast
operations in the United States and has hired 11 additional personnel in its New
Jersey  and  Colorado  operations  and sales  facilities.  These  personnel  are
organized in the following areas:  software  development and operations  (seven)
(including  one  transfer  from  Toulouse,  France  office),  sales and business
development (one) (located in Los Angeles,  CA), operations management (two) and
one in administration. The Company is continuing to develop its business through
its  Toulouse,  France  operations as well.  As a result,  operating  costs have
increased in these areas and offset the cost reductions  achieved by the Company
in exiting the DIVA  Medical  business and in other  areas.  Overall,  operating
costs are  approximately at the same levels as in the second quarter of 2003 and
slightly lower than the comparable quarter of 2002, excluding the charge for the
impairment of goodwill and intellectual property recorded in the second quarter.
In addition,  during the third  quarter of 2003,  the Company  incurred  certain
non-recurring   operating   costs   related  to  legal   services   (which  were
approximately twice the typical level) and  recruiting/advertising  fees for the
staffing  additions  described  above (which were largely  completed  during the
third quarter).  The Company  believes that at its current staffing levels it is
adequately  staffed to deploy its  DIVArchive  and  transcoding  products in its
target markets and that its current cost levels can support a sustained level of
revenue to support the business operations in the future.  However, there can be
no assurance  that the Company will be  successful in continuing to generate new
revenues  and cash  flows to  support  these  costs and to  continue  as a going
concern.

During the nine months ended  September  30,  2003,  the  following  significant
events occurred:

      o  On April 23, 2003, the Company sold to Eastman Kodak Company  ("Kodak")
         the Company's  intellectual  property rights relating to its DIVArchive
         product applications for the medical imaging and information management
         market.  In connection with such sale,  Kodak paid the Company $850,000
         and  has  employed   substantially  all  of  the  Company's   personnel
         associated  with the transferred  assets and assumed  certain  software
         support obligations to the Company's existing  DIVArchive  customers in
         the medical industry.  The Company recorded a $587,000 gain on the sale
         in the nine months ended  September  30, 2003.  The  operations  of the
         DIVArchive  Medical component have been  accounted for as  discontinued
         operations in the accompanying financial statements.  Subsequent to the
         sale,  Kodak and the Company  entered into certain  other  arrangements
         that included Kodak  assuming much of the operating  facility space and
         equipment located in Toulouse, France.  These actions and certain other
         costs  incurred in the third quarter of 2003 related to closing of this
         operation have been  classified as loss from operations of discontinued


                                       16
<PAGE>


         operations. The results of operations and cash flows for the DIVArchive
         Medical  operations  have been excluded  from the Company's  results of
         continuing operations for all periods presented. For the three and nine
         months ended  September  30,  2003,  the loss from  operations  for the
         DIVArchive Medical component was $229,000 and $981,000, respectively.

      o  In April 2003, the Company issued $990,000  aggregate  principal amount
         of unsecured  convertible  notes.  Payment for these notes included the
         following:  $645,000  cash proceeds  received by the Company;  $250,000
         principal balance of the former secured convertible notes which matured
         on  March  31,  2003;   and  the   conversion  of  $95,000  in  current
         liabilities.  The convertible notes bear interest at the rate of 8% per
         annum and mature on September 30, 2004.  Principal and accrued interest
         are payable at maturity.  The convertible  notes are convertible at any
         time at the option of the note  holders  into shares of common stock of
         the  Company  at a  conversion  price of $.042 per  share,  subject  to
         certain anti-dilution adjustments. The convertible notes may be prepaid
         by  the  Company  at any  time  without  penalty.  In  the  event  of a
         prepayment by the Company, or upon payment of principal and interest at
         maturity,  the Company will be required to issue to the holders of such
         notes five-year  common stock purchase  warrants  pursuant to which the
         holders  of the  warrants  will have the right to  purchase a number of
         shares of common  stock of the Company  equal to 5,500  shares for each
         $1,000 of principal  balance  repaid,  at a purchase price of $0.10 per
         share,  subject  to certain  anti-dilution  adjustments.  The  purchase
         agreement relating to the convertible notes contains restrictions that,
         among  others,  prohibit  the Company  from  issuing  new debt,  making
         capital  expenditures in excess of specified amounts,  paying dividends
         on the common stock or granting  security  interests in assets  without
         the consent of note holders  owning a majority in  principal  amount of
         the outstanding notes.

      o  In April 2003, the holders of the $500,000  aggregate  principal amount
         of convertible  secured notes  converted the remaining  $250,000 of the
         outstanding  principal  ($250,000 of principal was  converted  into the
         unsecured  convertible  notes described  above) and 100% of the accrued
         interest into 6,785,715  shares of common stock of the Company pursuant
         to the conversion terms of the convertible secured notes. In connection
         with this conversion, the Company recorded $39,000 in non-cash interest
         expense related to the value of the induced conversion of the debt.

      o  During  the  nine  months  ended   September  30,  2003,   the  Company
         successfully  restructured  the  following:  (i)  $530,000  of  current
         liabilities  to a single vendor to be payable over a five-year  period,
         with interest at the rate of 5% per annum. Principal payments under the
         agreement are fixed for the first year at $100,000.  Remaining payments
         are subject to certain  acceleration clauses based upon working capital
         levels and capital  raised.  In  connection  with this  agreement,  the
         Company  will issue to the vendor  warrants  to  purchase up to 500,000
         shares  of  common  stock at a price  per  share  of  $0.10  and (ii) a
         $150,000  note  payable and accrued  interest  which was due in full on
         July 1, 2003 into a new note that is payable over 12 months and matures
         on May 1, 2004. The note is payable


                                       17
<PAGE>


         in equal monthly installments which began on May 1, 2003 and carries an
         annual  interest rate of 9% per annum.  Accrued  interest is payable at
         maturity. In connection with this agreement,  the Company issued to the
         noteholder warrants to purchase up to 100,000 shares of common stock at
         a price per share of $0.10.  The fair value of these warrants  amounted
         to $10,000  and was  recorded  as a  discount  to the note and is being
         amortized to interest expense over the note term of one year.

      o  At June 30, 2003, the Company  recorded a non-recurring  charge of $3.3
         million  for the  impairment  of  goodwill  and  intellectual  property
         related to the media services business segment.

The items  described  above  demonstrate  the  Company's  efforts to refocus its
business on the broadcast  space and  specifically in the sale of the DIVArchive
and transcoding  products.  The sale of the DIVArchive  Medical  business in the
second  quarter  of 2003  and the loss on the  impairment  of the  goodwill  and
intellectual  property of the media services  business segment are indicative of
these efforts. The impairment of goodwill and intellectual  property recorded in
the media services  business  segment brought the intangible asset balances to a
level that management  believes properly reflects the fair value of the business
segment.  The sale of the DIVArchive Medical business component generated a gain
for the Company and  significantly  reduced the  operating  costs in France to a
more appropriate level relative to broadcast revenues.

At  November  13,  2003,  the  Company  had  completed  the   restructuring  and
reorganization  of its business and cost structure and the Company  currently is
transitioning  its focus to the sale of software and services to the  broadcast,
media and entertainment  industry.  The Company has financed this  restructuring
and transition  through the sale of the DIVA Medical business,  cash proceeds of
$645,000 from the issuance of a convertible note, cash flow from operations, and
other financial restructuring  activities.  These items are more fully discussed
below.  The Company has  secured  significant  new  customer  contracts  for the
delivery of software  and services in the  broadcast  space that are expected to
generate  significant revenue at the end of 2003 and into 2004. These additional
contracts,  combined with its current cash and cash  equivalents  and aggressive
cash management strategies,  are expected to provide adequate working capital to
enable the Company to sustain its business. The Company is also pursuing certain
working  capital  arrangements  to  smooth  the  fluctuations  in its cash  flow
resulting  from  the size of its  customers  and  individual  billing/collection
amounts,  as well as  evaluating  the  availability  of  capital  for more rapid
expansion into the broadcast industry.  However,  there can be no assurance that
the Company  will be able to deliver  the  software  required  to  generate  the
revenue and cash flow  required to sustain the  business and continue as a going
concern, and there can be no assurance that additional capital will be available
to the Company for continued expansion or to continue as a going concern.

The  following  discussion  and analysis of financial  condition  and results of
operations are based upon the Company's  financial  statements,  which have been
prepared in accordance  with  accounting  principles  generally  accepted in the


                                       18
<PAGE>


United States. The preparation of these financial statements requires management
to make  estimates  and  judgments  that affect the reported  amounts of assets,
liabilities,  revenues and expenses, and related disclosure of contingent assets
and  liabilities.  These  estimates  are based on historical  experience  and on
various  other  assumptions  that  are  believed  to  be  reasonable  under  the
circumstances,  the results of which form the basis for making  judgments  about
the carrying values of assets and liabilities that are not readily apparent from
other sources.  Actual results may differ from these  estimates  under different
assumptions or conditions.

RESULTS OF  CONTINUING  OPERATIONS  - Three  Months  Ended  September  30,  2003
Compared to the Three Months Ended September 30, 2002

         REVENUE.  Total  revenue for the three months ended  September 30, 2003
remained constant at $1.1 million,  compared to the three months ended September
30,  2002.  This  constant  level of revenue  was  attributable  to a decline in
revenue from the media  conversion  business  segment  offset,  in part,  by the
continued  ramp up of revenue from  software  sales to the  broadcast  industry.
Excluded  from  revenues for the three months ended  September 30, 2003 and 2002
are revenues for the former DIVArchieve Medical business of $3,000 and $144,000,
respectively.  Revenues from the media  conversion  business  segment  decreased
$184,000, or (34%), to $362,000 for the three months ended September 30, 2003 as
compared to $546,000 for the prior year period.  Revenues  from the software and
services business segment increased $189,000,  or 36%, to $716,000 for the three
months  ended  September  30, 2003 as  compared  to $527,000  for the prior year
period.

         Service revenues totaled  $540,000,  or 50% of total revenues,  for the
three months ended  September 30, 2003 as compared to $522,000,  or 49% of total
revenues,  for the three months ended  September 30, 2002.  For the three months
ended September 30, 2003, $538,000, or 50% of total revenue, was attributable to
product revenues as compared to $551,000, or 51% of total revenue, for the three
months ended September 30, 2002.

         GROSS MARGIN. Total gross margin was $668,000, or 62% of total revenue,
for the three months ended  September 30, 2003  compared to $701,000,  or 65% of
total revenue,  for the three months ended September 30, 2002. This decrease was
attributable to decreased revenues for the period and additional operating costs
as a result of the  additional  staffing in the software  and services  business
required to develop  and  deliver  software  and  services  related to new sales
contracts.  For the three months ended September 30, 2003, sales of software and
related services to the broadcast  industry resulted in gross margins of 62% and
the provision of data and media conversion services resulted in gross margins of
62%.  For the three  months  ended  September  30,  2002,  sales of software and
related products  resulted in gross margins of 85% and the provision of data and
media conversion services resulted in gross margins of 46%.

         SELLING,  GENERAL AND  ADMINISTRATIVE  EXPENSES.  Selling,  general and
administrative  expenses for the three months ended September 30, 2003 were $1.2
million,  as compared to $1.1 million for the


                                       19
<PAGE>


three months ended September 30, 2002. The slight increase in expenses reflected
a significant  decrease in operating  costs in certain  business  areas that was
offset by cost  increases,  primarily  related to  additional  staffing,  in the
software and services  business  segment.  Selling,  general and  administrative
expenses for the three months ended  September 30, 2003  consisted  primarily of
$603,000 for salaries and related benefits for employees not directly related to
the production of revenue, $259,000 in professional and consulting fees, $88,000
for  travel,  $87,000  of  facilities  costs,  ($44,000)  for bad  debt  expense
(recovery),  and  $198,000 for general  office  expenses.  Selling,  general and
administrative  expenses for the three months ended September 30, 2002 consisted
primarily  of $612,000  for salaries  and related  benefits  for  employees  not
directly  related to the production of revenue,  $160,000 in professional  fees,
$60,000 for travel, $91,000 of facilities costs, and $135,000 for general office
expenses.

         RESEARCH AND DEVELOPMENT.  The Company maintains a software development
staff that designs and develops the  Company's  new products and  services.  The
Company believes that by performing most of its own software development, it can
more quickly and cost-effectively  introduce new and innovative technologies and
services.  In  addition,  the  Company  believes  it will be better  equipped to
incorporate  customer  preferences  into  its  development  plans.  The  Company
continues to devote more  resources to the  development  of its  solutions  that
convert analog content to multiple digital formats,  manage and reformat digital
content on demand and  archiving  technologies  and software  tools and products
that  facilitate  the  conversion  and  migration  of data from legacy  media to
current technology. Research and development expenses for the three months ended
September 30, 2003 were $85,000  compared to $129,000 for the three months ended
September  30, 2002.  The decrease in expense in 2003 was directly  related to a
lower  overall  staffing  level  than in the prior  period  and an  increase  in
projects  that are  expected to provide  future  benefit to the Company and have
passed the point of technological feasibility.  As a result, a larger percentage
of the  Company's  research  and  development  costs  are being  capitalized  as
software development costs and amortized to expense over a three-year period.

         DEPRECIATION AND  AMORTIZATION.  Depreciation and amortization  expense
was $325,000 for the three months ended  September 30, 2003 compared to $339,000
for the three months ended September 30, 2002.  Amortization  expense  primarily
consisted of amortization of intangible assets.  Depreciation  expense consisted
of depreciation of furniture, equipment, software and improvements.

         OPERATING  LOSS.  For the three months ended  September  30, 2003,  the
Company  incurred an operating  loss of $0.9 million as compared to an operating
loss of $0.8 million for the three months ended September 30, 2002. The increase
in  operating  loss was due to lower  revenues  for the  period  from its  media
conversion  business  segment,  partially offset by lower operating costs in the
period and increased revenues from the sale of archival and transcoding software
and services to the broadcast industry.

         INTEREST  EXPENSE.  Interest  expense was $205,000 for the three months
ended  September  30,  2003  compared  to $144,000  for the three  months  ended


                                       20
<PAGE>


September 30, 2002.  Interest  expense for the three months ended  September 30,
2003  included  non-cash  interest  charges  aggregating  $179,000,  including a
non-cash  interest  charge  of  $170,000  related  to the  amortization  of debt
discount on the  Company's  unsecured  convertible  notes and $9,000  related to
amortization of non-cash financing costs.

         LOSS FROM CONTINUING  OPERATIONS.  For the three months ended September
30, 2003, the Company reported a loss from continuing operations of $1.2 million
compared  to a loss from  continuing  operations  of $1.0  million for the three
months ended September 30, 2002.

         LOSS FROM DISCONTINUED OPERATIONS. For the three months ended September
30, 2003 and 2002,  the Company reported a $229,000  and $221,000  loss from the
discontinued   operations   of  its   former   DIVArchive   Medical   component,
respectively.

         NET LOSS.  For the three months ended  September 30, 2003,  the Company
reported a net loss of $1.5 million, or ($.04) per share, compared to a net loss
of $1.2 million,  or ($.04) per share,  for the three months ended September 30,
2002.

RESULTS OF CONTINUING OPERATIONS - Nine Months Ended September 30, 2003 Compared
to the Nine Months Ended September 30, 2002

         REVENUE.  Total  revenue for the nine months ended  September  30, 2003
increased $3.3 million,  or 155%, to $5.4 million,  compared to total revenue of
$2.1 million for the nine months ended  September  30,  2002.  This  increase in
revenue was  attributable  to  significantly  higher revenue  generated from the
media conversion  business segment ($3.4 million in segment revenue for the nine
months ended  September  30, 2003 as compared to $1.4 million for the prior year
period) and  significantly  higher revenue generated in the software and related
services  business  segment from  DIVArchive and  Transcoding  broadcast  sales,
totaling $2.0 million for the nine months ended  September 30, 2003, as compared
to $0.7 million for the nine months  ended  September  30, 2002 (the  DIVArchive
revenues  excluded  DIVArchive  Medical revenue of $243,000 and $144,000 for the
nine months  ended  September  30, 2003 and 2002,  respectively,  which has been
accounted for as a discontinued  operation).  Revenue  generated in the software
and  related   services   business   segment  in  the  United  States  increased
approximately $0.3 million for the nine months ended September 30, 2003. Service
revenues  totaled $3.9 million,  or 73% of total  revenues,  for the nine months
ended September 30, 2003 as compared to $1.3 million,  or 64% of total revenues,
for the  nine  months  ended  September  30,  2002.  For the nine  months  ended
September 30, 2003, $1.5 million,  or 27% of total revenue,  was attributable to
sales of software and related  products as compared to $0.8  million,  or 36% of
total revenue, for the nine months ended September 30, 2002.

         GROSS  MARGIN.  Total gross  margin was $4.0  million,  or 74% of total
revenue,  for the nine months ended September 30, 2003 compared to $1.4 million,
or 67% of total revenue, for the nine months ended


                                       21
<PAGE>


September 30, 2002.  This increase was  attributable  to the increased  revenues
discussed  above and the timely  delivery  of  services  to  customers,  and was
adversely  impacted  by the  lower  gross  margin  for the  three  months  ended
September  30, 2003  discussed  above.  For the nine months ended  September 30,
2003, sales of software and related services to the broadcast  industry resulted
in gross margins of 66% and the provision of data and media conversion  services
resulted in gross margins of 78%. For the nine months ended  September 30, 2002,
sales of software and related products  resulted in gross margins of 86% and the
provision of data and media  conversion  services  resulted in gross  margins of
56%.

         SELLING,  GENERAL AND  ADMINISTRATIVE  EXPENSES.  Selling,  general and
administrative  expenses for the nine months ended  September 30, 2003 were $3.3
million,  as compared to $2.7  million for the nine months ended  September  30,
2002.  The increase in expenses  was  primarily  due to  operating  costs of the
Toulouse,  France  operations  for a full three months in the current period and
additional costs incurred related to the staffing  additions in the software and
services business segment.  Selling, general and administrative expenses for the
nine months ended  September  30, 2003  consisted  primarily of  $1,588,000  for
salaries  and  related  benefits  for  employees  not  directly  related  to the
production of revenue,  $752,000 in professional and consulting  fees,  $245,000
for travel,  $275,000 of  facilities  costs,  $6,000 for bad debt  expense,  and
$483,000  for general  office  expenses.  Selling,  general  and  administrative
expenses for the nine months ended  September  30, 2002  consisted  primarily of
$1,353,000  million for salaries and related benefits for employees not directly
related to the production of revenue,  $698,000 in professional  fees,  $133,000
for travel,  $210,000 of  facilities  costs,  and  $325,000  for general  office
expenses.

         RESEARCH AND DEVELOPMENT.  As discussed above, the Company  maintains a
software  development staff that designs and develops the Company's new products
and  services.  Research  and  development  expenses  for the nine months  ended
September 30, 2003 were $135,000  compared to $348,000 for the nine months ended
September  30, 2002.  The decrease in expense in 2003 was directly  related to a
lower  overall  staffing  level  than in the prior  period  and an  increase  in
projects  that are  expected to provide  future  benefit to the Company and have
passed the point of technological feasibility.  As a result, a larger percentage
of the  Company's  research  and  development  costs  are being  capitalized  as
software development costs and amortized to expense over a three-year period.

         DEPRECIATION AND  AMORTIZATION.  Depreciation and amortization  expense
was $1.0  million  for the nine months  ended  September  30,  2003  compared to
$763,000  for the  nine  months  ended  September  30,  2002.  The  increase  in
depreciation and amortization expenses resulted from the additional amortization
in 2003 of the intangible  assets  acquired as part of the Company's  DIVArchive
operations in Toulouse, France in August 2002.

         LOSS ON IMPAIRMENT OF GOODWILL.  The Company performs an ongoing annual
impairment test, as required under SFAS No. 142,  "Goodwill and Other Intangible
Assets" by the Financial  Accounting  Standards  Board,  on the first day of the
fourth quarter of each year or as conditions  warrant.  As such, during the nine
months


                                       22
<PAGE>


ended September 30, 2003:

      o  as a result of changes in the media  conversion  business,  the Company
         performed  an  impairment  analysis of the  recorded  goodwill for that
         business segment,  and, as a result,  recorded a loss on the impairment
         of goodwill of $2,974,000 at June 30, 2003.

      o  in April  2003,  as a  result  of the  sale of the  DIVArchive  Medical
         component,   the  Company  performed  an  impairment  analysis  of  the
         remaining DIVArchive goodwill and intellectual  property and determined
         that no impairment of the assets was warranted.

         LOSS ON IMPAIRMENT OF INTELLECTUAL  PROPERTY. As a result of changes in
the media conversion business and in conjunction with the SFAS No. 142 analysis,
the Company recorded an impairment  charge of $362,000 on intellectual  property
consistent with SFAS No. 144.

         OPERATING LOSS. For the nine months ended September 30, 2003, operating
loss totaled $3.9 million,  which  included a loss on the impairment of goodwill
and  intellectual  property of $3.3 million  recorded in the second quarter,  as
compared  to an  operating  loss  of $2.4  million  for the  nine  months  ended
September  30, 2003.  Excluding  the  impairment  loss in 2003,  the decrease in
operating  loss was  primarily  due to the  increased  revenues  from the  media
conversion  business segment and sales from the Company's  DIVArchive  broadcast
solutions as described above.

         INTEREST  EXPENSE.  Interest  expense was  $571,000 for the nine months
ended  September  30,  2003  compared  to  $162,000  for the nine  months  ended
September  30, 2002.  Interest  expense for the nine months ended  September 30,
2003  included  non-cash  interest  charges  aggregating  $506,000,  including a
non-cash  interest  charge  of  $436,000  related  to the  amortization  of debt
discount on the  Company's  convertible  note  instruments,  $39,000 of non-cash
interest expense related to the induced conversion of debt and non-cash interest
expense of $31,000 related to amortization of non-cash financing costs.

         LOSS FROM  CONTINUING  OPERATIONS.  For the nine months ended September
30, 2003, the Company reported a loss from continuing operations of $4.5 million
as compared to a loss from  operations of $2.6 million for the nine months ended
September 30, 2002. Included in the loss for the nine months ended September 30,
2003 was a loss on the impairment of goodwill and intellectual  property of $3.3
million, as discussed above. Excluded from the loss are losses from discontinued
operations of $394,000 and $221,000 for the nine months ended September 30, 2003
and 2002, respectively.

         GAIN ON SALE OF DIVARCHIVE MEDICAL BUSINESS.  For the nine months ended
September 30, 2003,  the Company  reported a gain of $587,000 on the sale of its
former DIVArchive Medical component.


                                       23
<PAGE>


         NET LOSS.  For the nine months ended  September  30, 2003,  the Company
reported a net loss of $4.9 million, or ($.13) per share, compared to a net loss
of $2.8 million,  or ($.11) per share,  for the nine months ended  September 30,
2002.  Included in the loss for the three months ended  September 30, 2003 was a
loss on the impairment of goodwill and intellectual  property of $3.3 million.

         FOREIGN  CURRENCY  TRANSLATION AND  TRANSACTIONS.  The Company conducts
business in various  countries outside the United States in which the functional
currency of the  country is not the U.S.  dollar.  As a result,  the Company has
foreign currency exchange  translation  exposure as the results of these foreign
operations  are  translated  into U.S.  dollars  in its  consolidated  financial
statements.  The effect of changes in value of the U.S. dollar compared to other
currencies,  primarily  the euro,  has been to increase  reported  revenues  and
operating  profit when the U.S. dollar weakens and reduce these amounts when the
dollar  strengthens.  While the Company  looks for  opportunities  to reduce its
exposure to foreign currency fluctuations against the U.S. dollar, at this point
the  Company  has  not  had  adequate  financial  resources  to  pursue  hedging
opportunities   generally.  At  September  30,  2003,  the  Company  reported  a
translation gain of $32,959 as a component of Comprehensive  Income. The Company
is also subject to foreign exchange  transaction  exposure when its subsidiaries
transact  business in a currency other than its own functional  currency.  These
transactions  are  infrequent  and  have  not had a  significant  effect  on the
consolidated financial statements.

LIQUIDITY AND CAPITAL RESOURCES

         At November 13, 2003, the Company had completed the  restructuring  and
reorganization  of its business and cost structure and the Company  currently is
transitioning  its focus to the sale of software and services to the  broadcast,
media and entertainment industry. The Company has financed its restructuring and
transition  through  the  sale of its  DIVArchive  Medical  business,  the  cash
proceeds of $645,000  from the  issuance of  convertible  notes,  cash flow from
operations,  and other financial restructuring activities.  These items are more
fully discussed  below.  The Company has secured new customer  contracts for the
delivery of software  and services in the  broadcast  space that are expected to
generate revenue at the end of 2003 and into 2004.  These additional  contracts,
combined  with its  current  cash  and  cash  equivalents  and  aggressive  cash
management  strategies,  are  expected to provide  adequate  working  capital to
sustain the  business.  The Company  also is pursuing  certain  working  capital
arrangements to smooth the fluctuations in its cash flow resulting from the size
of its customers and individual  billing/collection  amounts,  and is evaluating
the  availability  of  capital  for more  rapid  expansion  into  the  broadcast
industry.  However,  there can be no assurance  that the Company will be able to
deliver the software  required to generate the revenue and cash flow required to
sustain  the  business  and  continue  as a going  concern,  and there can be no
assurance that additional capital will be available to the Company for continued
expansion or to continue as a going concern.


                                       24
<PAGE>


         As  discussed  in greater  detail  above,  during the nine months ended
September 30, 2003, the Company issued $990,000  aggregate  principal  amount of
unsecured convertible notes, for which it received cash proceeds of $645,000 and
the  cancellation  of $345,000 of matured or current  indebtedness,  and sold to
Kodak its  intellectual  property  rights  relating  to the  DIVArchive  product
applications  for the medical imaging and  information  management  market,  for
which it received, among other consideration, cash proceeds of $850,000.

         As a result of the issuance of the convertible  notes in April 2003, at
September 30, 2003, on a diluted basis in accordance with accounting  principles
generally  accepted in the United States of America,  the Company had authorized
the issuance of a number of shares of common stock that exceeded its  authorized
50  million  common  shares.  The  Company  expects  to  remedy  this  through a
shareholder  vote at its annual  meeting of  shareholders  to be held during the
second quarter of 2004.

         As of September 30, 2003,  the Company had liquid assets (cash and cash
equivalents and accounts  receivable) of $1.6 million and current assets of $1.9
million.  Current liabilities of $3.4 million at September 30, 2003 consisted of
$988,000 of accounts payable; $942,000 of accrued expenses;  $680,000 of accrued
expenses to employees; $104,000 of deferred revenue, which consisted of progress
payments  received on  engagements  currently in  progress;  $674,000 of current
portion of notes payable and other long-term  liabilities and $38,000 of current
lease  liability.  The Company's  working capital deficit was $1.6 million as of
September 30 2003 for the reasons described above.

         The Company  used net cash of $888,000 in operating  activities  during
the nine  months  ended  September  30,  2003 and used net cash of  $778,000  in
operating  activities during the nine months ended September 30, 2002, primarily
as a result of the net losses  incurred  during  periods.  In 2003, cash used in
operating  activities was primarily driven by the loss for the period,  adjusted
for  a  $3.3  million   non-cash  charge  on  the  impairment  of  goodwill  and
intellectual  property,  and offset by significant  payments of liabilities  not
related to the ongoing operating expenses and a significant decrease in deferred
revenues  largely due to the recognition of revenues in 2003 which were deferred
at  December  31,  2002.  The  Company  expects to fully  collect the balance of
accounts receivable at September 30, 2003.

         The  Company  used net cash of  $617,000  and $221,000 in  discontinued
operations   during  the  nine  months  ended   September  30,  2003  and  2002,
respectively.

         During the nine months ended  September 30, 2003, the Company  provided
$735,000  from  investing  activities,  of which  $56,000  was used for  capital
expenditures and $214,000 was used for the development of the Company's suite of
video  software  solutions,  offset by proceeds of $850,000 from the sale of the
DIVArchive  Medical  operations  and proceeds of $155,000 from the sale of fixed
assets.  During the nine months ended  September  30, 2002,  excluding  the cash
acquired in the  acquisition of its DIVArchive  operations in Toulouse,  France,
the Company used $282,000 in investing  activities,  of which  $207,000 was used
for  capital  expenditures  and  $75,000  was  used for the  development  of the
Company's suite of video software solutions and other uses.


                                       25
<PAGE>


         The Company provided $512,000 from financing activities during the nine
months ended  September 30, 2003,  which  consisted of $645,000 in proceeds from
the issuance in April 2003 of notes payable, offset by principal repayments made
on notes  payable and capital  leases of $133,000.  During the nine months ended
September 30, 2002, financing  activities provided $650,000,  which consisted of
$600,000  of  borrowings  on notes  payable  and  $50,000 of  proceeds  from the
issuance  of  400,000  shares  of  unregistered  common  stock to an  individual
investor.

         The Company  expects  capital  expenditures  to be  approximately  $0.5
million  during  the next  twelve  months.  It is  expected  that the  Company's
principal uses of cash will be to provide working capital and to finance capital
expenditures and for other general corporate  purposes,  including financing its
sales and marketing strategy.  The amount of spending in each respective area is
dependent upon the total capital available to the Company.

         The Company expects that anticipated cash flow from operations combined
with its cash and cash  equivalents  at November 13, 2003 will be  sufficient to
operate through at least September 30, 2004. However, continued operating losses
and the early stage of the Company's  business,  as well as potential changes in
the business and competitive environment, continue to present a significant risk
to the Company's  long-term  success.  These conditions raise  substantial doubt
about the Company's ability to continue as a going concern. The Company's actual
financial  results may differ  materially  from the stated  plan of  operations.
Factors which may cause a change from the Company's plan of operations vary, but
include, without limitation,  decisions of the Company's management and board of
directors not to pursue the stated plan of operations  based on its reassessment
of the plan,  and general  economic  conditions.  Additionally,  there can be no
assurance  that the  Company's  business  will  generate  cash flows at or above
current levels. Accordingly, the Company may choose to defer capital expenditure
plans and extend vendor payments for additional cash flow flexibility.

ITEM 3.   CONTROLS AND PROCEDURES

         (a) Based upon an evaluation  performed as of September  30, 2003,  our
Chief Executive  Officer  ("CEO") and Chief Financial  Officer ("CFO") have each
concluded  that our  disclosure  controls and procedures are effective to ensure
that material  information  relating to our Company is made known to management,
including  the CEO and CFO,  particularly  during the period  when our  periodic
reports are being  prepared,  and that our internal  controls  are  effective to
provide  reasonable   assurances  that  our  financial  condition,   results  of
operations and cash flows are fairly presented in all material respects.

         (b)  During  the third  quarter  of 2003,  there were no changes in the
Company's  internal  control  over  financial  reporting  that  have  materially
affected,  or are reasonably likely to materially affect, the Company's internal
control over financial reporting.


                                       26
<PAGE>


PART II.  OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS:

On or about March 21, 2003, Giancarlo Gaggero, a former employee of the Company,
and Data Strategies  International,  Inc., a company owned and controlled by Mr.
Gaggero,  filed a suit  against  the  Company  in the  District  Court of Harris
County,  Texas  alleging  breach by the Company of an asset purchase and related
agreements  between Data Strategies and the Company and breach by the Company of
an  employment  agreement  between Mr.  Gaggero and the Company.  Mr.  Gaggero's
employment with the Company was terminated on March 5, 2003. The plaintiffs seek
monetary  damages  of  approximately  $253,000  plus  interest  and  costs and a
declaration that they are excused from performance under the agreements from and
after January 2001. The Company responded to the complaint on April 17, 2003 and
requested that the case be moved from state court to federal court jurisdiction.
The Company  believes  certain of the claims are without merit,  with respect to
which the Company  intends to defend the action  vigorously,  and is considering
certain  counterclaims against the plaintiffs in addition to the action taken by
the Company  described  below.  An outcome in this litigation that is adverse to
the Company,  costs  associated  with defending the lawsuit and the diversion of
management's  time and resources to defend the lawsuit could  seriously harm the
Company's  business and its financial  condition.  On July 30, 2003, the Company
filed suit in the District Court of Denton County, Texas against Mr. Gaggero and
one of his  associates  seeking  damages  relating to claims of  defamation  and
business disparagement, tortious interference with business relations, breach of
fiduciary duty and breach of contract.  As of November 13, 2003, the Company was
attempting to negotiate an amicable  settlement in this matter;  however,  there
can be no assurance that the Company will be successful in that endeavor.

In  addition  to the  proceeding  described  above,  the  Company is involved in
certain  other  disputes  that arise in the  ordinary  course of  business.  The
Company  believes that no current dispute will have a material adverse effect on
its financial condition or results of operations.

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS.

None

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

         The following exhibits are filed herewith:

         (a)    Exhibits

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


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<PAGE>


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

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

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

         (b)  Current Reports on Form 8-K or 8-K/A

         On October 31,  2003,  the Company  filed a Current  Report on Form 8-K
reporting the engagement of J.H. Cohn LLP as its  independent  accountants as of
October 24, 2003.












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<PAGE>


                                   SIGNATURES


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


Dated:    November 17, 2003         FRONT PORCH DIGITAL INC.


                                    By: /s/ MICHAEL KNAISCH
                                    -----------------------
                                    Michael Knaisch
                                    Chief Executive Officer
                                    (principal executive officer)


                                    By: /s/ MATTHEW RICHMAN
                                    -----------------------
                                    Matthew Richman
                                    Chief Financial Officer and Treasurer
                                    (principal financial and accounting officer)










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