<PAGE>

    U.S. SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

                 FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 1999
    ---- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES

                              EXCHANGE ACT OF 1934

                FOR THE TRANSITION PERIOD FROM ________TO________

                        COMMISSION FILE NUMBER _________

                                 INTRAWARE, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                DELAWARE                                68-0389976
    (STATE OR OTHER JURISDICTION OF                  (I.R.S. EMPLOYER
      INCORPORATION OR ORGANIZATION)              IDENTIFICATION NUMBER)

                                  25 ORINDA WAY
                                ORINDA, CA 94563
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

                                  925-253-4500
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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

As of August 31, 1999 there were 24,090,005 shares of the registrant's Common
Stock outstanding.


<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                 PAGE
                                                                                NUMBER
                                                                                ------
<S>      <C>                                                                   <C>
PART I    FINANCIAL INFORMATION

Item 1.   Financial Statements

          Balance Sheets as of August 31, 1999 and February 28, 1999               1

          Statements of Operations for the Three Months and Six Months
          Ended August 31, 1999 and August 31, 1998                                2

          Statements of Cash Flows for the Six Months Ended August 31,
          1999 and August 31, 1998                                                 3

          Notes to Unaudited Interim Financial Information                         4

Item 2.   Management's Discussion and Analysis of Financial Conditions
          and Results of Operations                                                6

          Risk Factors                                                            12

Item 3.   Quantitative and Qualitative Disclosures about Market Risk              21

PART II   OTHER INFORMATION

Item 1.   Legal Proceedings                                                       22

Item 2.   Changes in Securities and Use of Proceeds                               22

Item 3.   Defaults Upon Senior Securities                                         22

Item 4.   Submission of Matters to a Vote of Securities Holders                   22

Item 5.   Other Information                                                       22

Item 6.   Exhibits and Reports on Form 8-K                                        22

          Signatures                                                              24

</TABLE>



<PAGE>


PART I
FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

                                 INTRAWARE, INC.
                                 BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                     AUGUST 31, 1999      FEBRUARY 28, 1999
                                                   --------------------  --------------------
                                                       (UNAUDITED)            (AUDITED)
<S>                                               <C>                    <C>
ASSETS
Current assets:

   Cash and cash equivalents                            $        8,436        $        1,792
   Short term investments                                       12,148
   Accounts receivable, net                                     18,205                11,422
   Prepaid licenses and services                                 8,845                16,864
   Other current assets                                          2,168                 2,614
                                                   --------------------  --------------------
      Total current assets                                      49,802                32,692
Long term investments                                           34,812
Long term cost of deferred revenue                                 798
Property and equipment, net                                      4,215                 1,962
Other assets                                                       102                   352
                                                   --------------------  --------------------
                Total assets                            $       89,729        $       35,006
                                                   ====================  ====================

LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
   Bank borrowings                                      $          500        $        1,371
   Accounts payable                                             11,832                17,667
   Accrued expenses                                              2,830                 1,400
   Deferred revenue                                             14,660                13,218
   Short-term obligations                                          187                   213
                                                   --------------------  --------------------
      Total current liabilities                                 30,009                33,869
Long term deferred revenue                                         919
Other long term obligations                                        118                   168
                                                   --------------------  --------------------
                                                                31,046                34,037
                                                   --------------------  --------------------
Shareholders' equity:
Common stock; $0.0001 par value; 250,000 shares
authorized, 24,090 issued and outstanding; 250,000
shares authorized, 23,756 shares outstanding                         2                     2
Additional paid-in-capital                                      93,065                87,912
Unearned compensation                                           (8,948)              (10,399)
Investment unrealized (gain) loss                                  (16)
Initial public offering proceeds receivable                                          (59,520)
Accumulated deficit                                            (25,420)              (17,026)
                                                   --------------------  --------------------
      Total shareholders' equity                                58,683                   969
                                                   --------------------  --------------------
        Total liabilities and shareholders' equity      $       89,729        $       35,006
                                                   ====================  ====================

</TABLE>

See notes to unaudited interim financial information.


1

<PAGE>


                                 INTRAWARE, INC.

                            STATEMENTS OF OPERATIONS
                  (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                               FOR THE THREE MONTHS ENDED                FOR THE SIX MONTHS ENDED
                                       -----------------------------------------  ---------------------------------------
                                         AUGUST 31, 1999      AUGUST 31, 1998      AUGUST 31, 1999      AUGUST 31, 1998
                                       --------------------  -------------------  -------------------  ------------------
                                           (UNAUDITED)          (UNAUDITED)          (UNAUDITED)          (UNAUDITED)
<S>                                    <C>                  <C>                  <C>                  <C>
Net revenues:
     Software product sales                    $    16,291          $     8,183          $    30,275         $    13,185
     Online services                                 2,867                   63                5,341                  79
                                       --------------------  -------------------  -------------------  ------------------
          Total net revenues                        19,158                8,246               35,616              13,264
                                       --------------------  -------------------  -------------------  ------------------
Cost of net revenues:
     Software product sales                         13,993                6,832               26,371              10,771
     Online services                                   270                  109                  643                 177
                                       --------------------  -------------------  -------------------  ------------------
          Total cost of net revenues                14,263                6,941               27,014              10,948
                                       --------------------  -------------------  -------------------  ------------------
               Gross profit                          4,895                1,305                8,602               2,316
                                       --------------------  -------------------  -------------------  ------------------
Operating expenses:
     Sales and marketing                             6,379                2,364               11,799               4,066
     Product development                             1,313                  433                2,280                 786
     General and administrative                      1,740                  658                2,797               1,188
     Stock option compensation                         755                  181                1,511                 303
                                       --------------------  -------------------  -------------------  ------------------
          Total operating expenses                  10,187                3,636               18,387               6,343
                                       --------------------  -------------------  -------------------  ------------------
Loss from operations                                (5,292)              (2,331)              (9,785)             (4,027)
Interest and other income(expense), net                697                   47                1,390                   2
                                       --------------------  -------------------  -------------------  ------------------
Net loss                                       $    (4,595)        $     (2,284)         $    (8,395)        $    (4,025)
                                       ====================  ===================  ===================  ==================

Basic and diluted net loss per share           $     (0.20)        $      (0.66)         $     (0.38)        $     (1.16)
                                       ====================  ===================  ===================  ==================
Shares used in computing basic and
  diluted net loss per share                        22,643                3,473               22,385               3,469
                                       ====================  ===================  ===================  ==================

</TABLE>

See notes to unaudited interim financial information.

2

<PAGE>

                                 INTRAWARE, INC.

                            STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                         FOR THE SIX MONTHS ENDED
                                                                -------------------------------------------
                                                                  AUGUST 31, 1999       AUGUST 31, 1998
                                                                --------------------  ---------------------
<S>                                                             <C>                   <C>
Cash flows from operating activities:
  Net loss                                                              $    (8,395)           $    (4,025)
  Adjustments to reconcile net loss to net cash used
   in operating activities:
     Depreciation and amortization                                              632                    236
     Amortization of unearned compensation                                    1,451                 (1,515)
     Provision for doubtful accounts                                             70                      4
     Changes in assets and liabilities:
        Accounts receivable                                                  (6,853)                (1,414)
        Prepaid licenses and services                                         7,221                    261
        Other current assets                                                    447                   (464)
        Other assets                                                            250                   (308)
        Accounts payable                                                     (5,835)                  (801)
        Accrued expenses                                                      1,431                    631
        Deferred revenue                                                      2,360                  3,044
                                                                --------------------  ---------------------
Net cash used in operating activities                                        (7,221)                (4,351)
                                                                --------------------  ---------------------
Cash flows from investing activities:
     Purchase of property and equipment                                      (2,885)                  (541)
     Purchase of investments, net                                           (46,976)
                                                                --------------------  ---------------------
Net cash used in investment activities                                      (49,861)                  (541)
                                                                --------------------  ---------------------
Cash flows from financing activities:
     Payments on bank borrowings, net                                          (871)                  (583)
     Proceeds from IPO                                                       59,520
     Proceeds from preferred stock, net                                                             11,714
     Proceeds from common stock                                                                         10
     Proceeds from additional paid in capital                                 5,153                  1,818
     Proceeds (principal payments) on capital lease obligation                  (76)                   109
                                                                --------------------  ---------------------
Net cash provided by financing activities                                    63,726                 13,068
                                                                --------------------  ---------------------
Net increase in cash and cash equivalents                                     6,644                  8,176
Cash and cash equivalents at beginning of period                              1,792                    612
                                                                --------------------  ---------------------
Cash and cash equivalents at end of period                              $     8,436            $     8,788
                                                                ====================  =====================

</TABLE>

See notes to unaudited interim financial information.

3

<PAGE>



                                 INTRAWARE, INC.

                NOTES TO UNAUDITED INTERIM FINANCIAL INFORMATION

NOTE 1.  BASIS OF PRESENTATION

INTRAWARE

The accompanying financial statements for the three months and six months ended
August 31, 1999 and 1998 are unaudited and reflect all normal recurring
adjustments which are, in the opinion of the management of Intraware, Inc. (the
Company), necessary for their fair presentation. These financial statements
should be read in conjunction with the Company's financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal year
ended February 28, 1999 and the Form 10-Q for the fiscal quarter ended May 31,
1999. The results of operations for the interim period ended August 31, 1999 are
not necessarily indicative of results to be expected for the full year.

NOTE 2.  NET LOSS PER SHARE

         The Company computes net loss per share in accordance with Statement of
Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share" and SEC
Staff Accounting Bulletin No. 98 (SAB 98). Under the provisions of SFAS 128 and
SAB 98, basic and diluted net loss per share is computed by dividing the net
loss available to common stockholders for the period by the weighted average
number of shares of common stock outstanding during the period. The calculation
of diluted net loss per share excludes potential common shares if the effect is
antidilutive. Potential common shares are composed of common stock subject to
repurchase rights and incremental shares of common stock issuable upon the
exercise of stock options.

         The following table sets forth the computation of basic and dilutive
net loss per share for the periods indicated:

<TABLE>
<CAPTION>

                                                 THREE MONTHS                           SIX MONTHS
                                      ------------------------------------  ------------------------------------
                                      AUGUST 31, 1999    AUGUST 31, 1998    AUGUST 31, 1999    AUGUST 31, 1998
                                      -----------------  -----------------  -----------------  -----------------
                                                      (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                  <C>                <C>                <C>                <C>
Numerator:
     Net loss                               $   (4,595)        $   (2,284)        $   (8,395)        $   (4,025)
                                      -----------------  -----------------  -----------------  -----------------
Denominator:
     Weighted average shares                    24,085              5,416             23,935              5,404
     Weighted average unvested shares
          subject to repurchase                 (1,442)            (1,943)            (1,550)            (1,935)
                                      -----------------  -----------------  -----------------  -----------------
     Denominator for basic and diluted
          calculation                           22,643              3,473             22,385              3,469
                                      -----------------  -----------------  -----------------  -----------------
Net loss per share                          $    (0.20)        $    (0.66)        $    (0.38)        $    (1.16)
                                      =================  =================  =================  =================

</TABLE>

4

<PAGE>

NOTE 3.  RECENT ACCOUNTING PRONOUNCEMENTS

         In June 1998, the AICPA issued SFAS No. 133, "Accounting for
Derivatives and Hedging Activities." SFAS 133 is effective for all fiscal
quarters beginning with the quarter ending June 30, 2000. SFAS 133
establishes accounting and reporting standards of derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. The Company will adopt SFAS 133 in its quarter ending
August 31, 2000 and does not expect such adoption to have an impact on the
Company's results of operations, financial position or cash flows.

NOTE 4.  CHANGES IN STOCKHOLDERS' EQUITY

         During the six months ended August 31, 1999, the Company Stockholders'
Equity changed as follows (in thousands):

<TABLE>
<CAPTION>

                                                                  Initial Public  Investment
                                      Common Stock      Additional   Offering     Unrealized
                                  ---------------------  Paid-In     Proceeds        Gain/     Unearned    Accumulated
                                     Shares     Amount   Capital    Receivable       Loss    Compensation     Deficit       Total
                                  -----------  --------  -------    ----------       ----    ------------     -------       -----
<S>                              <C>          <C>       <C>       <C>            <C>        <C>           <C>           <C>
Balance at February 28, 1999         23,756       $ 2    $ 87,912    $(59,520)      $   -      $ (10,399)   $ (17,026)   $    969

Exercise of stock options                55                    11                                                        $     11

Repurchase of stock options             (71)                  (14)                                                       $    (14)

Issuance of additional stock            350                 5,096                                                        $  5,096

Investment unrealized gain/loss                                                       (16)                               $    (16)

Cash received from IPO                                                 59,520                                            $ 59,520

Unearned compensation                                          60                                    (60)                $      -

Amortization of unearned comp.                                                                     1,511                 $  1,511

Net loss                                                                                                       (8,394)   $ (8,394)
                                  ------------------------------------------------------------------------------------------------
Balance at August 31, 1999           24,090       $ 2    $ 93,065    $      -       $ (16)     $  (8,948)   $ (25,420)   $ 58,683
                                  ================================================================================================

</TABLE>

NOTE 5.  ACQUISITION OF INTERNET IMAGE, INC.

         On October 4, 1999, the Company announced that it had signed a
definitive agreement to acquire all outstanding shares of Internet Image,
Inc. The closing of this transaction is contingent upon customary closing
conditions. The Company intends to account for this transaction using the
pooling-of-interest method of accounting. The estimated purchase price is $36
million.

NOTE 6.  ACQUISITION OF BITSOURCE, INC.

         On October 14, 1999, the Company acquired all outstanding shares of
BITSource, Inc. The Company intends to account for this transaction using the
purchase method of accounting and, accordingly, the purchase price will be
allocated to the tangible and intangible assets acquired on the basis of
their respective fair values on the date of acquisition. The purchase price
is $11 million.

5

<PAGE>

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

         This management's discussion and analysis of financial condition and
results of operations contains forward-looking statements within the meaning
of section 27a of the Securities Act Of 1933 and section 21e of the
Securities Exchange Act of 1934 subject to risks and uncertainties. These
forward-looking statements are typically denoted in this report by the
phrases "anticipates," "believes," "expects," "plans" and similar phrases.
Actual results could differ materially from those projected in the
forward-looking statements as a result of the factors set forth in "Risk
Factors" beginning on page 12 of this quarterly report on Form 10-Q,
including, without limitation, those entitled "the Company has a history of
losses, expects future losses and may not ever become profitable," "the
Company is substantially dependent on Netscape Communications Corporation and
the termination of this relationship would have a substantial, immediate
adverse effect on business," "the loss of one or more key customers would
adversely affect revenue," "quarterly financial results are subject to
significant fluctuations because of many factors and any of these factors
could adversely affect the stock price," "newly introduced online services
may not be able to generate anticipated revenue," "the Company may not be
able to effectively compete in the e-commerce industry which is highly
competitive," "the Company is dependent on market acceptance of electronic
software delivery and, if it does not achieve widespread acceptance, business
will be adversely affected," "continued adoption of the internet as a method
of conducting business is necessary for future growth," "failure to expand
internet infrastructure could limit future growth," "increased security risks
of online commerce may deter future use of services," "the Company has
experienced significant growth in business in recent periods and ability to
manage this growth will affect business," "the Company needs to expand
management systems and controls in order to support anticipated growth," "the
Company may not be able to hire and retain sufficient sales, marketing and
its support personnel needed to succeed," "executive officers and certain key
personnel are critical to the business and these officers and key personnel
may not remain in the future," "the Company intends to expand international
operations. Uncertainty of international sales efforts could adversely affect
business," "acquisitions could be difficult to integrate, disrupt business,
dilute stockholder value and adversely affect operating results," "the
Company faces risk of claims from third parties for intellectual property
infringement that could adversely affect business," "potential year 2000
problems with internal operating systems or the software products resold,
could adversely affect business," "spending by customers to evaluate and
address year 2000 compliance could result in lower demand for products and
services," "the market may undergo rapid technological change. Future success
of the Company will depend on its ability to meet the changing needs of the
industry," "the Company does not have a disaster recovery plan or back up
systems and a disaster could severely damage operations," "additional
government regulations may increase costs of doing business" and "reliance
should not be made on forward-looking statements because they are inherently
uncertain". The discussion of those risk factors is incorporated herein by
this reference as if said discussion was fully set forth at this point.

INTRAWARE OVERVIEW

         The Company is the leading IT e-Marketplace for web-based software and
services. The Company enables IT professionals worldwide to efficiently and
cost-effectively research, evaluate, purchase, download and update
business-class software online. As a business-to-business e-commerce company,
the Company provides an online purchasing service through intraware.shop,
comprehensive IT information and interactive research services through IT
Knowledge Center and software update management services through SubscribNet.

         The Company generates software product revenue from the sale of
third party software and related maintenance products. Of this revenue, sale
of software licenses is recognized when there is evidence of an arrangement
for a fixed and determinable fee that is probable of collection and the
software is available for

6

<PAGE>

customer download through intraware.shop. Related maintenance revenue is
recognized ratably over the terms of the underlying service contract. Online
service revenue is derived primarily from delivery of SubscribNet and other
fee-based information services. Online service revenue is recognized ratably
over the term of the underlying service contracts.

         The Company has a limited operating history upon which investors may
evaluate its business and prospects. Since inception, the Company has
incurred significant losses, and, as of August 31, 1999, had an accumulated
deficit of approximately $25.4 million. The Company intends to expend
significant financial and management resources on the development of
additional services, sales and marketing, technology and operations to
support larger-scale operations and greater service offerings. As a result,
the Company expects to incur additional losses and continued negative cash
flow from operations for the foreseeable future. Such losses are anticipated
to increase significantly from current levels. There can be no assurance that
the Company's sales will increase or continue at their current level. There
also can be no assurances that the Company will achieve or maintain
profitability or generate cash from operations in future periods. The
Company's future must be considered in light of the risks frequently
encountered by companies in their early stage of development, particularly
companies in new and rapidly evolving markets such as e-commerce. To address
these risks, the Company must, among other things, maintain existing and
develop new relationships with software publishers, continue to improve
existing and develop new services, implement and successfully execute its
business and marketing strategy, continue to develop and upgrade its
technology and transaction-processing systems, provide superior customer
service, respond to competitive developments and attract, retain and motivate
qualified personnel. There can be no assurance that the Company will be
successful in addressing such risks and the failure to do so would have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company's current and future expense levels are
based largely on its planned operations and estimates of future sales. Sales
and operating results generally depend on the volume and timing of orders
received, which are difficult to forecast. The Company may be unable to
adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. Accordingly, any significant shortfall in sales would have an
immediate adverse effect on the Company's business, financial condition and
results of operations. In view of the rapidly evolving nature of the
Company's business and its limited operating history, the Company is unable
to accurately forecast its sales and believes that period-to-period
comparisons of its operating results are not necessarily meaningful and
should not be relied upon as an indication of future performance.

RESULTS OF OPERATIONS

For the three months ended August 31, 1999 and 1998 and six months ended
August 31, 1999 and 1998:

TOTAL REVENUE

         Revenue for the three months ended August 31, 1999 was $19.2
million, which represents a 134.1% increase over revenue for the three months
ended August 31, 1998 of $8.2 million. Product revenue accounted for $16.3
million or 84.9% of quarterly revenue, while service revenue accounted for
$2.9 million or 15.1% of quarterly revenue.

         Revenue for the six months ended August 31, 1999 was $35.6 million,
which represents a 169.7% increase over revenue for the six months ended
August 31, 1998 of $13.2 million. Product revenue accounted for $30.3 million
or 85.1% of the six months revenue, while service revenue accounted for $5.3
million or 14.9% of the six months revenue.

         The increase in revenue, for both periods, was primarily due to
higher product sales.

7

<PAGE>

TOTAL COST OF REVENUE

         Cost of revenue for the three months ended August 31, 1999 was $14.3
million or a gross margin of 25.5% as compared to the three months ended
August 31, 1998, which was $6.9 million or a gross margin of 15.9%.

         Cost of revenue for the six months ended August 31, 1999 was $27.0
million or a gross margin of 24.2% as compared to the six months ended August
31, 1998, which was $10.9 million or a gross margin of 17.4%.

         Costs of revenue primarily consists of the cost of third-party
products sold, content development and acquisition, Internet connectivity and
allocated overhead charges. The Company purchases third-party products at a
discount to the third-party's established list prices according to standard
reseller terms. The increase in the cost of revenue dollars, for both
periods, was primarily due to higher product sales. The margin percentage
increase primarily reflects stronger margins on product sales.

SALES AND MARKETING

         Sales and marketing costs were $6.4 million for the three months
ended August 31, 1999, or 33.3% of revenue, as compared to $2.4 million, or
29.3% of revenue, for the three months ended August 31, 1998.

         Sales and marketing costs were $11.8 million for the six months
ended August 31, 1999, or 33.1% of revenue, as compared to $4.1 million, or
31.1% of revenue, for the six months ended August 31, 1998.

         Sales and marketing expenses primarily consist of compensation of
sales and marketing personnel, advertising, promotional expenses, training
and other marketing related costs. The increase, in both periods, is
primarily the result of additional advertising and marketing expenditures as
well as the addition of personnel and external sales offices throughout the
United States. The Company plans to make significant investments in sales and
marketing to expand the direct sales force, increase marketing expenditures,
continue to develop strategic relationships to drive traffic to the Company's
web-site and generate leads for products and services.

PRODUCT DEVELOPMENT

         Product development costs were $1.3 million for the three months
ended August 31, 1999, or 6.8% of revenue, as compared to $0.4 million, or
4.9% of revenue, for the three months ended August 31, 1998.

         Product development costs were $2.3 million for the six months ended
August 31, 1999, or 6.5% of revenue, as compared to $0.8 million, or 6.1% of
net revenue for the six months ended August 31, 1998.

         Product development expenses primarily consist of personnel costs,
consulting and equipment depreciation. Costs related to research, design and
development of products and services have also been charged to product
development expense as incurred. The increase, for both periods, was
primarily due to an increase in the number of product development personnel
employed to support expansion of the SubscribNet online service and other
online service offerings. The Company believes significant investments in
product development is essential to its future success and expects that the
amount of product development expense will increase in future periods.

GENERAL AND ADMINISTRATIVE

         General and administrative costs were $1.7 million for the three
months ended August 31, 1999, or 8.9% of revenue, as compared to $0.7
million, or 9% of revenue, for the three months ended August 31, 1998.

8

<PAGE>

         General and administrative costs were $2.8 million for the six
months ended August 31, 1999, or 7.9% of revenue, as compared to $1.2
million, or 9.1% of revenue, for the six months ended August 31, 1998.

         General and administrative expenses consist primarily of
compensation for administrative and executive personnel, facility costs and
fees for professional services. The increase, in both periods, is primarily
due to the use of outside professional consulting services, including the
ongoing implementation of Sales Force Automation and Accounting software. In
addition, the Company required increased expenditures in accounting and legal
for strategic partnering arrangements and compliance with reporting
obligations as a public company. Management expects general and
administrative expense to increase in future periods.

STOCK COMPENSATION

         Stock compensation expense was $0.8 million for the three months
ended August 31, 1999, or 4.2% of revenue, as compared to $0.2 million for
the three months ended August 31, 1998, or 2.4% of revenue.

         Stock compensation expense was $1.5 million for the six months ended
August 31, 1999, or 4.2% of revenue, as compared to $0.3 million for the six
months ended August 31, 1998, or 2.3% of revenue.

         Stock compensation expense is an ongoing charge through August 2002
that is related to employee stock options granted while the Company was not
publicly held.

INTEREST EXPENSE

         Interest expense was $23 thousand for the three months ended August
31, 1999, or 0.1% of revenue, as compared to $47 thousand, or 0.5% of revenue
for the three months ended August 31, 1998.

         Interest expense was $58 thousand for the six months ended August
31, 1999, or 0.2% of revenue, as compared to $109 thousand, or 0.8% of
revenue for the six months ended August 31, 1998.

         Interest expense relates to obligations under capital leases and
borrowings under a bank line. The reduction in interest expense, in both
periods, is primarily the result of funds received from the initial public
offering.

INTEREST INCOME

         Interest income was $720 thousand for the three months ended August
31, 1999, or 3.8% of revenue, as compared to $94 thousand, or 1.1% of revenue
for the three months ended August 31, 1998.

         Interest income was $1.448 million for the six months ended August
31, 1999, or 4.1% of revenue, as compared to $111 thousand, or 0.8% of
revenue for the six months ended August 31, 1998.

         The increase in interest income, for both periods, is primarily the
result of funds received in the initial public offering.

INCOME TAXES

         Due to the Company's loss position, there was no provision for
income taxes for any of the periods presented. At February 28, 1999, the
Company had federal and state net operating loss carry forwards of
approximately $13 million and $7 million, respectively. The federal net
operating loss carry forwards will expire in varying amounts beginning in
2012 if not utilized, and the state net operating loss carry forwards will
expire in the year 2005.

9

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

         The Company has satisfied its current cash requirements through the
initial public offering, which was effective on February 25, 1999. As of
August 31, 1999, the Company had approximately $8.4 million of cash and cash
equivalents and $47.0 million in short and long-term investments. The
Company's principal commitments consisted of obligations outstanding under
bank credit lines and capital and operating leases. Although the Company has no
material commitments for capital expenditures, it anticipates an increase in
the rate of capital expenditures consistent with its anticipated growth in
operations, infrastructure and personnel.

         The Company believes that it has sufficient cash, short and long
term investments and availability from its bank line of credit to meet its
anticipated liquidity needs for working capital and expenditures for at least
the next twelve months. The Company's future liquidity and capital
requirements will depend upon numerous factors. The pace of expansion of the
Company's operations will affect these requirements. The Company may also
have increased capital requirements in order to respond to competitive
pressures. Also, the Company may need additional capital to fund acquisitions
of complementary businesses and technologies. The Company's forecast of the
period of time through which its financial resources will be adequate to
support its operations is a forward-looking statement that involves risks and
uncertainties. Actual results could vary materially as a result of the
factors described above. If additional capital resources are required, the
Company may seek to sell additional equity, debt securities or increase its
bank line of credit. The sale of additional equity or convertible debt
securities could result in additional dilution to the Company's stockholders.
There can be no assurance that any financing arrangements will be available
in amounts or on terms acceptable to the Company.

YEAR 2000 COMPLIANCE

         Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. Beginning in
the year 2000, these code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and software products used by many companies may need to be upgraded
to comply with these year 2000 requirements. The Company's services,
including SubscribNet, intraware.shop, Compariscope, IT Knowledge Center,
Virtual Express and their associated and supporting tools, web-sites and
infrastructure were designed and developed to be year 2000 compliant. The
Company's internal systems used to deliver its services, however, utilize
third-party hardware and software. The Company has contacted these
infrastructure products' vendors in order to gauge their year 2000
compliance. Based on these vendors' representations, the Company believes
that the third-party hardware and software it uses are year 2000 compliant.
There can be no assurance, however, that the Company will not experience
unanticipated negative consequences, including material costs caused by
undetected errors or defects in the technology used in its internal systems.
If, in the future, it comes to the Company's attention that certain of its
services need modification or certain of its third-party hardware and in
third-party software are not year 2000 compliant, then the Company will seek
to make modifications to its systems. In such case, the Company expects such
modifications to be made on a timely basis and does not believe that the cost
of such modifications will have a material effect on its operating results.
There can be no assurance, however, that the Company will be able to modify
such products, services and systems in a timely and successful manner to
comply with the year 2000 requirements, which could have a material adverse
effect on its business and operating results.

         Further, while the Company typically has received warranties and
indemnities from its software vendors with respect to year 2000 compliance of
the software products resold, independent verification for year 2000
compliance of these products is not performed. If such software products
nevertheless require modification to be year 2000 compliant, demand for such
products could decline if such modifications are not timely made by the
software vendors. This, in turn, could adversely affect the Company's
business and results of operations. The Company has no contingency plan to
address the effect of year 2000 noncompliance of the software products it
resells. However, the Company, in the normal course of its business, seeks to
identify additional software products that are year 2000 compliant and to
enter into arrangements to resell these products. There can be no

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assurance that the Company's efforts to identify and resell additional
software products would timely address revenue shortfalls that could result
from software products of one or more of its vendors being noncompliant.

         Year 2000 issues also could cause a significant number of companies,
including current customers, to reevaluate their current system needs and, as
a result, consider switching to other systems and suppliers. Any of these
events could result in a material adverse effect on the Company's business,
operating results and financial condition.









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RISK FACTORS

         Investors should carefully consider the risks described below before
making a decision to invest in the Company. The risks and uncertainties
described below are not the only ones facing the Company. Additional risks
and uncertainties not presently known to the Company or that are not
currently considered important to an investor, may also harm business
operations. If any of the events, contingencies, circumstances or conditions
described in the following risks factors section actually occur, the
business, financial condition or results of operations could be seriously
harmed. If that occurs, the trading price of the Company's common stock could
decline and you may lose part or all of your investment.

THE COMPANY HAS A HISTORY OF LOSSES, EXPECTS FUTURE LOSSES AND MAY NOT EVER
BECOME PROFITABLE.

         The Company has not achieved profitability, expects to incur net
losses in the foreseeable future and may not ever become profitable in the
future. The Company incurred net losses of $8.4 million for the six-months
ended August 31, 1999, $12 million for the year ended February 28, 1999, $4.0
million for the year ended February 28, 1998 and $944 thousand for the period
from August 14, 1996 through February 28, 1997. As of August 31, 1999, the
Company had an accumulated deficit of $25.4 million. Net losses have
increased for each quarter since inception and the Company cannot assure you
this trend will not continue. Increased sales and marketing, product
development and administrative expenses are expected and, as a result,
generation of significant additional revenue is required to achieve and
maintain profitability.

         The Company was founded in August 1996 and is an early stage company.
Limited operating history makes it difficult to forecast future operating
results. Although revenue has grown in recent quarters, the Company cannot be
certain that such growth will continue or that sufficient revenue will be
achieved for profitability. If profitability is achieved in any period, the
Company cannot be certain of continued or increased profitability on a quarterly
or annual basis. For more detailed information regarding operating results and
financial condition, please see "Financial Statements" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

THE COMPANY IS SUBSTANTIALLY DEPENDENT ON NETSCAPE COMMUNICATIONS CORPORATION
AND THE TERMINATION OF THIS RELATIONSHIP WOULD HAVE A SUBSTANTIAL, IMMEDIATE
ADVERSE EFFECT ON BUSINESS.

         For the year ended February 28, 1999, 90% of software product
revenue was generated from the sale of Netscape software, and 92% of online
service revenue from the outsourcing of SubscribNet services to Netscape. As
a result, transactions with Netscape and the sale of Netscape products
accounted for over 90% of total net revenue in the year ended February 28,
1999. In the quarter ended August 31, 1999, Netscape product revenue was 82%
of total product revenue. The Company cannot assure you that the Netscape
relationship will continue and, if discontinued or limited, the business
would be adversely affected.

         The Company provides online software update and license management
services to Netscape customers through SubscribNet service under a one-year
agreement with Netscape entered into effective October 1, 1998. In March
1999, Netscape extended the agreement for an additional year. As of July 1,
1999, the contract was rewritten with Sun Microsystems, Inc., to reflect the
Sun Netscape Alliance. The contract runs through September 30, 2000. Sun has
the right, however, to terminate this agreement upon 180 days notice. The
Company cannot assure you that Sun will not terminate this agreement.
Substantially all of SubscribNet revenue to date has been generated through
the Netscape (now Sun) contract and failure to renew this contract at the end
of the term could have a material adverse effect on SubcribNet revenue and on
the Company as a whole.

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THE LOSS OF ONE OR MORE KEY CUSTOMERS WOULD ADVERSELY AFFECT REVENUE.

         A substantial amount of revenue from software product sales, in any
given future period, may come from a relatively small number of customers. If
one or more major customers were to substantially cut back software purchases
or stop using the Company's products or services, operating results would be
materially adversely affected. The Company has no long-term contractual
relationships with any of these customers because customers purchase software
on a transaction by transaction basis. As a result, the Company cannot make
assurances that the customers who purchase software will become repeat buyers.

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

         Quarter-to-quarter comparisons of operating results are not a good
indication of future performance. It is likely that in some future quarter,
operating results may be below the expectations of public market analysts and
investors and, as a result, the price of the Company's common stock may fall.
Operating results have varied widely in the past and the Company expects that
they will continue to vary significantly from quarter to quarter due to a
number of risk factors, including:

- demand for online services and the products of software vendor partners;
- timing of sales of online services and the products of software vendor
  partners;
- loss of strategic relationships with major software vendor partners;
- mix of proprietary online services vs. software products sold;
- delays in introducing online services or vendors' software products according
  to planned release schedules;
- ability to retain existing customers and attract new customers;
- changes in pricing policies or the pricing policies of software vendor
  partners;
- changes in the growth rate of Internet usage and acceptance by customers of
  electronic software delivery for large software purchases, particularly for
  international customers;
- technical difficulties, system failures or Internet downtime;
- mix of domestic and international sales;
- certain government regulations;
- ability to upgrade and develop information technology systems and
  infrastructure;
- costs related to acquisitions of technology or businesses; and
- general economic conditions as well as those specific to the Internet and
  related industries.

         The Company has experienced uncertainty with gross margins on
revenue derived from software product sales and anticipates that such
uncertainty may continue. Also, as sales and marketing efforts are broadened
to support recently introduced online services, such as SubscribNet and
Compariscope, the Company may experience one or more quarters of reduced
software product sales. Any shortfall in revenue would directly adversely
affect operating income or loss, and these fluctuations could affect the
market price of common stock.

         The Company plans to significantly increase operating expenses to
expand sales and marketing operations, broaden customer support capabilities
and fund greater levels of product development. Operating expenses, which
include sales and marketing, product development and general and
administrative expenses, are based on expectations of future revenue and is
relatively fixed in the short term. If revenue falls below expectations and
spending is not quickly reduced in response, operating results would be
adversely affected.

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NEWLY INTRODUCED ONLINE SERVICES MAY NOT BE ABLE TO GENERATE ANTICIPATED
REVENUE.

         The Company has only recently started selling a number of online
services such as SubscribNet and Compariscope. These online services may not
result in additional customers and customer loyalty, significant additional
revenue or improved operating margins in future periods. Additionally,
software vendors may not continue to find it strategically or economically
justifiable for the Company to deliver these services, particularly
SubscribNet, to their customers.

         The Company had no significant online service revenue until the
quarter ended November 30, 1998, and for the year ended February 28, 1999,
revenue from these online services totaled only $3.7 million, which
constituted 9.6% of total revenue for that period. For the six months end
August 31, 1999 online service revenue was $5.3 million, which constituted
15% of total revenue for that period. Although this constitutes a slight
increase, online services are not likely to constitute a significant portion
of total revenue in any given quarter until at least the first half of
calendar 2000. This projection, however, is a forward-looking statement and
actual results could differ materially from those anticipated as a result of
a number of factors, including demand for online services and the competitive
service offerings of others. These online services are not only important to
improving operating results but also to continuing to attract and retain both
software vendor and corporate information technology professional customers
and in differentiating the Company's online service offerings from those of
competitors.

THE COMPANY MAY NOT BE ABLE TO EFFECTIVELY COMPETE IN THE E-COMMERCE INDUSTRY
WHICH IS HIGHLY COMPETITIVE.

         The market for selling software products and related online services
is highly competitive. The Company expects competition to intensify as
current competitors expand their product offerings and new competitors enter
the market. Price competition on software sales, particularly on large sales
transactions, has recently become a factor and is expected to continue to be
a factor. Successful competition against current or future competitors cannot
be assured and competitive pressures may adversely affect business and
results of operations.

         Current competitors include a number of companies offering one or
more solutions for the evaluation, purchase, deployment and maintenance of
business software. Because there are relatively low barriers to entry in the
software and Internet services markets, additional competition from other
established and emerging companies is expected. Increased competition is
likely to result in price reductions, reduced gross margins and loss of
market share, any of which could have a significant adverse effect on
business and results of operations.

         Many current and potential competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources, better name recognition and a larger installed base of customers.
Many competitors may also have well-established relationships with the
Company's existing and prospective customers.

         Current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase
the ability of their products to address customer needs and compete. The
Company expects competition to increase as a result of software industry
consolidations. As a result, the Company may not be able to effectively
compete for customers.

THE COMPANY IS DEPENDENT ON MARKET ACCEPTANCE OF ELECTRONIC SOFTWARE DELIVERY
AND, IF IT DOES NOT ACHIEVE WIDESPREAD ACCEPTANCE, BUSINESS WILL BE ADVERSELY
AFFECTED.

         The Company's success will depend in large part on acceptance by
information technology professionals of electronic software delivery as a method
of buying business software. If electronic software delivery does not

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<PAGE>

achieve widespread market acceptance, business will be adversely affected.
Electronic software delivery is a relatively new method of selling software
products and the growth and market acceptance of electronic software delivery
is highly uncertain and subject to a number of risk factors. These factors
include:

-  potential for state and local authorities to levy taxes on Internet
   transactions;
-  availability of sufficient network bandwidth to enable purchasers to
   rapidly download software;
-  number of software packages that are available for purchase through
   electronic software delivery as compared to those available through
   traditional delivery methods;
-  level of customer confidence in the process of downloading software;
   and
-  relative ease of such a process and concerns about transaction security.

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

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

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

FAILURE TO EXPAND INTERNET INFRASTRUCTURE COULD LIMIT FUTURE GROWTH.

         The recent growth in Internet traffic has caused frequent periods of
decreased performance. If Internet usage continues to grow rapidly, its
infrastructure may not be able to support these demands and its performance
and reliability may decline. If outages or delays on the Internet occur
frequently or increase in frequency, overall Web usage including usage of the
Company's Web site, in particular, could grow more slowly or decline. The
Company's ability to increase the speed and scope of services to customers is
ultimately limited by and dependent upon the speed and reliability of both
the Internet and customers' internal networks. Consequently, the emergence
and growth of the market for the Company's service is dependent on
improvements being made to the entire Internet as well as to individual
customers' networking infrastructures to alleviate overloading and congestion.

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

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

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THE COMPANY HAS EXPERIENCED SIGNIFICANT GROWTH IN BUSINESS IN RECENT PERIODS
AND ABILITY TO MANAGE THIS GROWTH WILL AFFECT BUSINESS.

         The Company's ability to successfully offer products and services
and implement the business plan in a rapidly evolving market requires an
effective planning and management process. The Company has increased, and
plans to continue to increase, the scope of operations domestically and
internationally. These expansion efforts could be expensive, could put a
strain on management and, if not managed properly, could adversely affect
business. Headcount has grown and will continue to grow substantially. In
particular, expansion will be required in technology infrastructure,
including making certain key employee hires in product development. These
hires historically have been difficult and the Company cannot make assurances
that successfully recruiting to attract and retain a sufficient number of
qualified personnel will occur.

THE COMPANY NEEDS TO EXPAND MANAGEMENT SYSTEMS AND CONTROLS IN ORDER TO
SUPPORT ANTICIPATED GROWTH.

         The Company's growth, and anticipated future growth, will continue
to place a significant strain on management systems and controls. The Company
cannot make assurances that timely expansion of technology resources will
support anticipated growth. Continued improvement of financial and managerial
controls and reporting systems and procedures are also required. Furthermore,
requirements to manage multiple relationships with various software vendors,
customers and other third parties are expected.

THE COMPANY MAY NOT BE ABLE TO HIRE AND RETAIN SUFFICIENT SALES, MARKETING
AND SUPPORT PERSONNEL NEEDED TO SUCCEED.

         If the Company fails to hire and retain sufficient numbers of sales,
marketing and support personnel, business and results of operations would be
adversely affected. Competition for qualified sales and marketing and support
personnel is intense. It may be difficult to hire and retain sufficient
numbers of qualified sales and marketing and support personnel. The Company
needs to substantially expand sales operations and marketing efforts, both
domestically and internationally, in order to increase market awareness and
sales of the products and services offered. These products and services
require a sophisticated sales effort targeted at several people within the
information technology departments of prospective customers. The Company
recently expanded the direct sales force and plans to hire additional sales
personnel.

         The Company currently has a small customer service and support
organization and will need to increase staff to support new customers and the
expanding needs of existing customers. Hiring customer service and support
personnel is very competitive in this industry due to the limited number of
people available with the necessary technical skills and understanding of the
Internet. The Company cannot make assurances that qualified customer service
and support personnel will be hired and retained in sufficient numbers.

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

         Future success depends upon the continued service of executive
officers and other key technology, sales, marketing and support personnel and
none of these officers or key employees are bound by an employment agreement
for any specific term. Lost services of one or more key employees, or if one
or more executive officers or employees decided to join a competitor or
otherwise compete directly or indirectly, this could have a significant
adverse effect on business. In particular, the services of Peter Jackson,
Chief Executive Officer, and Paul Martinelli, Chief Technology Officer, would
be difficult to replace.

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THE COMPANY INTENDS TO EXPAND INTERNATIONAL OPERATIONS. UNCERTAINTY OF
INTERNATIONAL SALES EFFORTS COULD ADVERSELY AFFECT BUSINESS.

         The Company may not be able to successfully market, sell, deliver
and support Company services and vendors' software products internationally.
Planned international expansion will require significant management attention
and financial resources. Inability to expand international operations
successfully and in a timely manner, could be adversely affect business and
operating results.

         To date, the Company has not had substantial revenue from sales to
international customers. The Company intends to expand the scope of sales to
international customers in future periods and, in calendar 1999, plans to
open international offices and hire international sales personnel, including
the establishment of at least one European office. The Company has only
limited experience in marketing, selling and supporting services and vendors'
software products overseas. Additionally, the Company does not have any
experience in developing foreign language versions of its services. This may
be more difficult or take longer than anticipated, especially due to
international problems, such as language barriers or currency exchange. Also,
the Internet infrastructure in such foreign countries may be less advanced
than the domestic Internet infrastructure and may result in longer response
time and less accurate or consistent electronic software delivery.

         In addition, contracts with the Netscape-Sun Alliance currently do
not allow marketing or selling Netscape-Sun products, other than in
connection with SubscribNet service, in Europe. Revenue from European
customers may not be able to grow as planned unless rights are obtained to
market and sell Netscape-Sun Alliance products in Europe.

ACQUISITIONS COULD BE DIFFICULT TO INTEGRATE, DISRUPT BUSINESS, DILUTE
STOCKHOLDER VALUE AND ADVERSELY AFFECT OPERATING RESULTS.

         The Company currently intends to make investments in complementary
companies, services and technologies. These acquisitions and investments
could disrupt ongoing business, distract management and employees and
increase expenses. The acquisitions of BITSource, Inc., Internet Image, Inc.
and other future acquisitions, could mean facing difficulties in assimilating
personnel and operations. In addition, the key personnel of the acquired
company(s) may decide to take other employment opportunities. Acquisitions of
additional services or technologies also involve risks of incompatibility and
the need for integration into existing services and marketing, sales and
support efforts. Also, financing acquisitions by incurring debt or issuing
equity securities could dilute existing stockholder's investment. Any
amortization of goodwill or other assets or other charges resulting from the
costs of such acquisitions could adversely affect operating results.

THE COMPANY FACES RISK OF CLAIMS FROM THIRD PARTIES FOR INTELLECTUAL PROPERTY
INFRINGEMENT THAT COULD ADVERSELY AFFECT BUSINESS.

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

         Litigation regarding intellectual property rights is common in the
Internet and software industries. The Company expects that Internet
technologies and software products and services may be increasingly subject
to third-party infringement claims as the number of competitors in this
industry segment grows and the functionality

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<PAGE>

of products in different industry segments overlaps. There can be no
assurance that the Company's services do not infringe on the intellectual
property rights of third parties.

         In addition, the Company may be involved in litigation involving the
software of third party vendors that is electronically distributed. Royalty
or licensing agreements, if required, may not be available on acceptable
terms, if at all. A successful claim of infringement against the Company and
failure or inability to license the infringed or similar technology could
adversely affect business. Although the Company carries general liability
insurance, this insurance may not cover all potential claims or may not be
adequate to cover all potential liabilities that may be imposed.

         The Company's success and ability to compete are substantially
dependent upon internally developed technology, which is protected through a
combination of copyright, trade secret and trademark law. The Company has no
patents issued or applied for, to date, on Company technology. The Company is
aware that certain other companies are using or may have plans to use the
name "Intraware" as a company name or as a trademark or servicemark. The
Company has not received any notice of claims of trademark infringement. The
Company cannot make assurances that these companies will not claim superior
rights to "Intraware" or to other marks used. Despite the Company's efforts
to protect proprietary rights, unauthorized parties may attempt to copy or
otherwise obtain and use services or technology and certainty that the steps
taken will prevent misappropriation of technology also cannot be guaranteed.

POTENTIAL YEAR 2000 PROBLEMS WITH INTERNAL OPERATING SYSTEMS OR THE SOFTWARE
PRODUCTS RESOLD, COULD ADVERSELY AFFECT BUSINESS.

         The Company cannot make assurances that unanticipated negative
consequences from year 2000 problems, including material costs caused by
undetected errors or defects in the technology used in internal systems will
not be experienced. Many currently installed computer systems and software
products are coded to accept only two digit entries in the date code field.
Beginning in the year 2000, these code fields will need to accept four digit
entries to distinguish 21st century dates from 20th century dates. As a
result, computer systems and/or software products used by many companies may
need to be upgraded to solve this problem.

         The Company's online services, including IT Knowledge Center,
Compariscope, intraware.shop, Virtual Express, SubscribNet and their
associated and supporting tools, Web sites and infrastructure were designed
and developed to be year 2000 compliant. Internal systems, including those
used to deliver services, utilize third-party hardware and software. The
Company has contacted these infrastructure products' vendors in order to
gauge their year 2000 compliance. Based on vendors' representations, it is
believed that the third-party hardware and software in use is year 2000
compliant.

         If it comes to the Company's attention that certain services need
modification, or certain third-party hardware and software is not year 2000
compliant, attempts will be made to make modifications to services and
systems on a timely basis. The Company does not believe that the cost of such
modifications will materially affect operating results. Yet, assurances
cannot be made that modifications to such products, services and systems will
be made in a timely and successful manner. Failure to do so could have a
material adverse effect on operating results.

         Also, even though the Company typically receives warranties and
indemnities from software vendors with respect to year 2000 compliance of the
software products resold, independent verification has not been completed on
the year 2000 compliance of these products. If these software products,
nevertheless, require modification to be year 2000 compliant, demand for them
could decline precipitously if modifications are not timely made by the
software vendors. As a result, these modifications could adversely affect
business and results of operations. In addition, if software products resold
are not year 2000 compliant and are installed at customer sites, the Company
cannot assure you that the indemnities received from vendors would be
sufficient for any customer claims. Any

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claims could divert significant management, financial and other resources and
commercial insurance coverage may not be adequate to cover such claims.

         The Company has no contingency plan to address the effect of year
2000 noncompliance of software products resold. In the normal course of
business, the Company seeks to identify additional software products that are
year 2000 compliant and to enter into arrangements to resell these products.
The Company cannot assure you that these efforts will timely address any
revenue shortfalls that could result from software products of one or more of
software vendors being noncompliant.

SPENDING BY CUSTOMERS TO EVALUATE AND ADDRESS YEAR 2000 COMPLIANCE COULD
RESULT IN LOWER DEMAND FOR PRODUCTS AND SERVICES.

         Year 2000 compliance issues also could cause a significant number of
companies, including current customers, to reevaluate their current system
needs and, as a result, consider switching to other systems and suppliers.
This could result in a material adverse effect on business, operating results
and financial condition. Also, during the next four months, there is likely
to be an increased customer focus on addressing year 2000 compliance issues,
creating the risk that customers may reallocate capital expenditures to fix
year 2000 problems of existing systems. Although the Company has not
experienced these effects to date, if customers defer purchases of business
software and related services because of such a reallocation, it may
adversely affect operating results.

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

         Rapidly changing technology, evolving industry standards and
frequent new product announcements characterize this market. To be
successful, the Company must adapt to the rapidly changing market by
continually improving the performance, features and reliability of services.
The Company could incur substantial costs to modify services or
infrastructure in order to adapt to these changes. The business could be
adversely affected if significant costs are incurred without adequate results
or if unable to adapt rapidly to these changes.

THE COMPANY DOES NOT HAVE A DISASTER RECOVERY PLAN OR BACK UP SYSTEMS AND A
DISASTER COULD SEVERELY DAMAGE OPERATIONS.

         The Company currently does not have a disaster recovery plan in
effect and does not have fully redundant systems for service at an alternate
site. A disaster could severely damage business and results of operations
because service could be interrupted for an indeterminate length of time.
Operations depend upon the ability to maintain and protect computer systems
which are located in the Company's principal headquarters in Orinda,
California and at two offsite locations managed by third parties in Santa
Clara, California and San Francisco, California. Orinda, Santa Clara and San
Francisco exist on or near known earthquake fault zones. Although the outside
facilities, which host primary Web and database servers, are designed to be
highly redundant, the facilities are vulnerable to damage from fire, floods,
earthquakes, power loss, telecommunications failures and similar events.
Although the Company maintains insurance against fires, floods, earthquakes
and general business interruptions, there can be no assurance that the amount
of coverage will be adequate in any particular case.

ADDITIONAL GOVERNMENT REGULATIONS MAY INCREASE COSTS OF DOING BUSINESS.

         The law governing Internet transactions remains largely unsettled,
even in areas where there has been some legislative action. The adoption or
modification of laws or regulations relating to the Internet could adversely
affect business by increasing costs and administrative burdens. It may take
years to determine whether

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and how existing laws such as those governing intellectual property, privacy,
libel and taxation apply to the Internet.

         Laws and regulations directly applicable to communications or
commerce over the Internet are becoming more prevalent. The most recent
session of the United States Congress resulted in Internet laws regarding
children's privacy, copyrights and taxation. The European Union has enacted
its own data protection and privacy directive, which required all 15 European
Union Member States to implement laws relating to the processing and
transmission of personal data by October 25, 1998. The Company must comply
with these new regulations in both Europe and the United States, as well as
any other regulations adopted by other countries where business is acquired.
The growth and development of the market for online commerce may prompt calls
for more stringent consumer protection laws, both in the United States and
abroad. Compliance with any newly adopted laws may prove difficult and may
negatively affect business.

RELIANCE SHOULD NOT BE MADE ON FORWARD-LOOKING STATEMENTS BECAUSE THEY ARE
INHERENTLY UNCERTAIN.

         Reliance should not be made on forward-looking statements in this
10-Q. This 10-Q also contains forward-looking statements that involve risks
and uncertainties. The Company uses words such as "anticipates," "believes,"
"plans," "expects," "future," "intends" and similar expressions to identify
such forward-looking statements. Undo reliance should not be made on these
forward-looking statements, which apply only as of the date hereof. Actual
results could differ materially from those anticipated in these
forward-looking statements for many reasons, including the risks described
above and elsewhere in this 10-Q.





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<PAGE>


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company's exposure to market risk for changes in interest rates
relate primarily to the Company's investment portfolio. The Company has not used
derivative financial instruments in its investment portfolio. The Company places
its investments with high quality issuers and, by policy, limits the amount of
credit exposure to any one issue or issuer. At August 31, 1999, $8.4 million of
the Company's cash, cash equivalents and investment portfolio carried maturity
dates of less than 90 days, $12.1 million carried maturity dates of less that
one year and $34.8 million carried maturity dates of greater that one year. The
Company has the ability to hold the portfolio to maturity, if deemed necessary.
The effect of changes in interest rates of +/- 10% over a six-month horizon
would not have a material effect on the fair market value of the portfolio.














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<PAGE>

                                     PART II
                                OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         As of the date hereof, there is no material litigation pending against
the Company. From time to time, the Company may be a part to litigation and
claims incident to the ordinary course of its business. Although the results of
litigation and claims cannot be predicted with certainty, the Company believes
that the final outcome of such matters will not have a material adverse effect
on the results of operations, financial condition or prospects.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

         On February 25, 1999, the Company commenced the initial public
offering of 4,600,000 shares of common stock, including 600,000 shares
subject to an overallotment option on behalf of certain selling stockholders
pursuant to a registration statement on Form S-1 (Commission File No.
333-69261) declared effective on February 25, 1999. The managing underwriters
of the public offering were Credit Suisse First Boston Corporation,
BancBoston Robertson Stephens Inc., and Hambrecht & Quist LLC.

         The 4,000,000 shares registered on the Company's behalf and 600,000
shares registered on the behalf of certain selling stockholders were sold at
a price per share of $16.00. The aggregate-offering price of the shares
offered by the Company was $64,000,000, less underwriting discounts and
commissions of $4,480,000 and expenses of approximately $1,300,000. The
proceeds are to be used for general corporate purposes, principally working
capital, capital expenditures, potential acquisitions and additional sales
and marketing efforts. For the quarter ending May 31, 1999, net cash used
from the offering for operating activities totaled $4.7 million and cash
flows used for investing activities, principally the purchase of computer
equipment, totaled $2.3 million.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

None

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

None

ITEM 5.   OTHER INFORMATION

None

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

a)     Exhibits

<TABLE>
<CAPTION>

       EXHIBIT
        NUMBER
       -------
       <S>       <C>
           3.1*   Certificate of Incorporation of Intraware, Inc.
           3.2*   Bylaws of Intraware, Inc.
           4.1*   Specimen Common Stock Certificate.
          10.1*   Form of Indemnification Agreement between the Registrant and
                  each of its directors and officers.
          10.2*   1996 Stock Option Plan (as amended on December 17, 1998) and



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<PAGE>

                  form of agreements thereunder.
          10.3*   1998 Employee Stock Purchase Plan and form of agreements
                  thereunder.
          10.4*   1998 Director Option Plan and form of agreements thereunder.
          10.5*   Form of Registration and Information Rights Agreement.
          10.6*   Loan Agreement entered into as of July 29, 1998 between the
                  Registrant and Imperial Bank and related General Security
                  Agreement and Collateral Assignment as Collateral, Patent
                  Mortgage and Security Agreement.
          10.7*   Sleepy Hollow Investment Company Office Lease made August 23,
                  1996 between Sleepy Hollow Investment Company and Intraware,
                  Inc.
          10.8*   First Amendment to the Lease for Intraware, Inc. entered into as
                  of May 5, 1997 by and between the Registrant and Sleepy Hollow
                  Investment Company I.
          10.9*   Second Amendment to the Lease for Intraware, Inc. entered into
                  as of March 31, 1998 by and between the Registrant and Sleepy
                  Hollow Investment Company I.
         10.10*   Master Lease Agreement dated September 9, 1998 between Comdisco,
                  Inc. and Intraware, Inc.
         10.11*   Addendum and Equipment Schedules to the Master Lease Agreement
                  dated as of September 9, 1998 between Intraware, Inc., as Lessee
                  and Comdisco, Inc, as Lessor.
        10.12+*   Services Agreement between Netscape Communications Corporation
                  and Intraware, Inc. entered into as of October 1, 1998.
        10.13+*   Netcenter Services Agreement between Netscape Communications
                  Corporation and Intraware, Inc. entered into as of September 3,
                  1998.
        10.14+*   Amended and Restated Electronic Distribution License Agreement
                  between Netscape Communications Corporation and Intraware, Inc.
                  entered into as of March 6, 1997.
        10.15**   Amendment to Netcenter Services Agreement of October 1, 1998
                  between Netscape Communications Corporation and Intraware, Inc.,
                  dated March 1, 1999.
        27.1      Financial Data Schedules.

</TABLE>

+        Certain portions of this exhibit have been granted confidential
         treatment by the Commission. The omitted portions have been separately
         filed with the Securities and Exchange Commission.

*        Incorporated by reference to Intraware's Registration Statement on Form
         S-1 (File No. 333-69261) declared effective on February 25, 1999.

**       Incorporated by reference to Intraware's Annual Report on Form 10-K for
         the fiscal year ended February 28, 1999 (File No. 000-25249) as filed
         with the Securities and Exchange Commission on May 28, 1999.

         27.1 Financial Data Schedule

b)       Reports on Form 8-K

The Company filed no reports on Form 8-K as during the quarter ended August 31,
1999.


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<PAGE>



                                 SIGNATURES

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

                                 INTRAWARE INC.

Dated:October 14, 1999           By:  /s/ Donald  M. Freed

                                      Donald  M. Freed
                                      Executive Vice President and Chief
                                      Financial Officer









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