<PAGE>
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                   FORM 10-QSB

(Mark One)

         [X]      Quarterly Report under Section 13 or 15(d) of the Securities
                  Exchange Act of 1934

         For the quarterly period ended September 30, 2001

         [ ]      Transition Report Pursuant to Section 13 or 15(d) of the
                  Exchange Act

         For the transition period from _________ to _________

         Commission File number 0-16449

                            RAINING DATA CORPORATION

             (Exact name of registrant as specified in its charter)

                Delaware                          94-3046892
       (State of Incorporation)            (IRS Employer Identification No.)

                              17500 Cartwright Road
                                Irvine, CA 92614
                    (Address of principal executive offices)


                                 (949) 442-4400
                         (Registrant's telephone number)

Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 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 8, 2001 there were 17,858,599 shares of registrant's Common
Stock, $.10 par value, outstanding.
<PAGE>
                            RAINING DATA CORPORATION
                                      INDEX

                          PART I. FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                                                        PAGE NO.
                                                                        --------
<S>                                                                     <C>

Item 1.  Financial Statements:

         Consolidated Balance Sheets -                                     3
         September 30, 2001 (Unaudited) and March 31, 2001

         Consolidated Statements of Operations -                           4
         Three and six months ended September 30, 2001 and 2000
         (Unaudited)

         Consolidated Statements of Cash Flows -                           5
         Six months ended September 30, 2001 and 2000
         (Unaudited)

         Condensed Notes to Consolidated Financial Statements              6

Item 2.  Management's Discussion and Analysis of Financial                 8
         Condition and Results of Operations


                           PART II. OTHER INFORMATION

Item 1.  Legal Proceedings                                                15

Item 2.  Changes in Securities                                            16

Item 5.  Other Information                                                16

Item 6.  Exhibits and Reports on Form 8-K                                 17

         Signatures                                                       18
</TABLE>


                                       2
<PAGE>
                          PART I. FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

                    RAINING DATA CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                     September 30,         March 31,
                                                                         2001                2001
                                                                     -------------       -------------
                                                                      (unaudited)
<S>                                                                  <C>                 <C>
                                       ASSETS

Current Assets
      Cash and Equivalents                                           $   3,409,000       $   2,424,000
      Trade Accounts Receivable-net of allowance of $328,000
           at September 30, 2001 and $245,000 at March 31, 2001          2,755,000           2,700,000
      Other Current Assets                                                 165,000             263,000
                                                                     -------------       -------------
             Total Current Assets                                        6,329,000           5,387,000

Property, Furniture and Equipment-net                                    1,178,000           1,403,000

Goodwill & Acquisition Costs-net                                        77,807,000          82,283,000
Other Assets                                                             1,344,000           1,296,000
                                                                     -------------       -------------
             Total Assets                                            $  86,658,000       $  90,369,000
                                                                     =============       =============

                        LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
      Accounts Payable                                               $   1,379,000       $   2,497,000
      Accrued Liabilities                                                4,250,000           4,373,000
      Deferred Revenue                                                   4,483,000           4,578,000
      Current Portion of Long Term Debt                                    160,000             328,000
                                                                     -------------       -------------
             Total Current Liabilities                                  10,272,000          11,776,000

Long Term Debt-net of unamortized discount of $2,018,000 at
   September 30, 2001 and $2,883,000 at March 31, 2001                  18,830,000          17,208,000
                                                                     -------------       -------------
             Total Liabilities                                          29,102,000          28,984,000

Commitments and Contingencies                                                   --                  --

Stockholders' Equity
      Preferred Stock: $1.00 par value; 300,000 shares
           authorized, issued, and outstanding                             300,000             300,000
      Common Stock: $0.10 par value; 30,000,000 shares
           authorized, 17,843,335 issued, and outstanding
           at September 30, 2001; 16,000,887 issued and
           outstanding at March 31, 2001                                 1,784,000           1,600,000
      Paid-in Capital                                                  121,616,000         119,294,000
      Deferred Compensation                                               (874,000)         (1,305,000)
      Accumulated Deficit                                              (65,983,000)        (58,956,000)
      Foreign Currency Translation Adjustment                              713,000             452,000
                                                                     -------------       -------------
             Total Stockholders' Equity                                 57,556,000          61,385,000
                                                                     -------------       -------------
      Total Liabilities and Stockholders' Equity                     $  86,658,000       $  90,369,000
                                                                     =============       =============
</TABLE>

See accompanying notes to the consolidated financial statements.


                                       3
<PAGE>
                    RAINING DATA CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                      Three Months Ended September 30,       Six Months Ended September 30,
                                      --------------------------------      -------------------------------
                                          2001               2000               2001               2000
                                      ------------       -------------      ------------       ------------
<S>                                   <C>                <C>                <C>                <C>
Net Revenues
      Licenses                        $  2,200,000       $    851,000       $  5,103,000       $  1,665,000
      Services                           2,825,000            235,000          5,930,000            407,000
                                      ------------       ------------       ------------       ------------
      Total Net Revenues                 5,025,000          1,086,000         11,033,000          2,072,000
                                      ------------       ------------       ------------       ------------

Costs and Expenses
      Cost of License Revenues              87,000             11,000            193,000             45,000
      Cost of Service Revenues             970,000            146,000          2,019,000            378,000
      Selling and Marketing              1,599,000          1,164,000          3,711,000          2,529,000
      Research and Development           1,405,000            531,000          2,621,000          1,111,000
      General and Administrative         3,901,000            596,000          7,821,000          1,301,000
                                      ------------       ------------       ------------       ------------
      Total Costs and Expenses           7,962,000          2,448,000         16,365,000          5,364,000
                                      ------------       ------------       ------------       ------------
Operating Loss                          (2,937,000)        (1,362,000)        (5,332,000)        (3,292,000)
                                      ------------       ------------       ------------       ------------

Other Expense
      Interest Expense-net                (823,000)           (58,000)        (1,646,000)           (99,000)
      Other Expense                          1,000             (1,000)           (49,000)            (4,000)
                                      ------------       ------------       ------------       ------------
                                          (822,000)           (59,000)        (1,695,000)          (103,000)
                                      ------------       ------------       ------------       ------------
Net Loss                              $ (3,759,000)      $ (1,421,000)      $ (7,027,000)      $ (3,395,000)
                                      ============       ============       ============       ============

Basic and Diluted
   Net Loss Per Share                 $      (0.23)      $      (0.14)      $      (0.44)      $      (0.35)

Weighted Average Number of
   Common Shares Outstanding            16,101,555         10,247,047         16,055,574          9,768,440
</TABLE>

See accompanying condensed notes to the consolidated financial statements.


                                       4
<PAGE>
                    RAINING DATA CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                      Six Months Ended
                                                                                        September 30,
                                                                                -----------------------------
                                                                                   2001              2000
                                                                                -----------       -----------
<S>                                                                             <C>               <C>
Cash flows from operating activities:
      Net loss                                                                  $(7,027,000)      $(3,395,000)
      Adjustments to reconcile net loss to net cash
         used for operating activities:
            Depreciation and amortization expense                                 4,626,000           151,000
            Note discount amortization                                              865,000                --
            Amortization of deferred compensation                                   573,000           538,000
            Change in assets and liabilities:
                 Trade accounts receivable                                          (14,000)         (224,000)
                 Other current and non-current assets                               196,000           215,000
                 Accounts payable and accrued liabilities                           238,000           497,000
                 Deferred revenue                                                  (132,000)           94,000
                                                                                -----------       -----------
      Net cash used for operating activities                                       (675,000)       (2,124,000)
                                                                                -----------       -----------

Cash flows from investing activities:
      Purchase of property, furniture and equipment                                 (72,000)         (206,000)
      Acquisition of software assets                                               (481,000)         (534,000)
                                                                                -----------       -----------
      Net cash used for investing activities                                       (553,000)         (740,000)
                                                                                -----------       -----------

Cash flows from financing activities:
      Proceeds from exercise of incentive stock options                             163,000           110,000
      Net proceeds from issuance of common stock                                  2,200,000                --
      Additions of debt                                                                  --         2,107,000
      Repayment of debt                                                            (170,000)          (54,000)
                                                                                -----------       -----------
      Net cash provided by financing activities                                   2,193,000         2,163,000
                                                                                -----------       -----------

Effect of exchange rate changes on cash                                              20,000            84,000
                                                                                -----------       -----------

Net increase (decrease) in cash and equivalents                                     985,000          (617,000)

Cash and equivalents at beginning of period                                       2,424,000         1,238,000
                                                                                -----------       -----------
Cash and equivalents at end of period                                           $ 3,409,000       $   621,000
                                                                                ===========       ===========

Supplemental Disclosure of Cash Flow Information
Non Cash Financing and Investing Activities:
      Issuance of common stock for software assets                              $   119,000       $   900,000
                                                                                ===========       ===========
      Adjustment to goodwill and foreign currency translation for purchase
      price allocation
                                                                                $   531,000       $        --
                                                                                ===========       ===========
</TABLE>

See accompanying condensed notes to the consolidated financial statements.


                                       5
<PAGE>
                            RAINING DATA CORPORATION
              CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2001
                                   (Unaudited)

1.       INTERIM FINANCIAL STATEMENTS

         The unaudited interim consolidated financial information furnished
         herein reflects all adjustments, consisting only of normal recurring
         items, which in the opinion of management are necessary to fairly state
         the Company's financial position, the results of its operations and the
         changes in its financial position for the periods presented. Certain
         information and footnote disclosures, normally included in financial
         statements prepared in accordance with accounting principles generally
         accepted in the United States of America, have been omitted pursuant to
         such SEC rules and regulations; nevertheless management of the Company
         believes that the disclosures herein are adequate to make the
         information presented not misleading. These consolidated financial
         statements should be read in conjunction with the Company's audited
         financial statements for the year ended March 31, 2001 contained in the
         Company's Annual Report on Form 10-KSB. The results of operations for
         the period ended September 30, 2001 are not necessarily indicative of
         results to be expected for any other interim period or the fiscal year
         ending March 31, 2002.

2.       REVENUE RECOGNITION

         License revenue is recognized at the time the licensed products are
         shipped in accordance with SOP 97-2. Service revenue is recognized
         ratably over the life of the service contracts, which is usually a
         12-month period. Deferred revenue represents the amount yet to be
         earned by the Company over the balance of the service contract.

3.       ACCRUED LIABILITIES

         Accrued liabilities consisted of the following:

<TABLE>
<CAPTION>
                                                      September 30, 2001    March 31, 2001
                                                      ------------------    --------------
                                                          (Unaudited)
<S>                                                   <C>                   <C>
                   Accrued Salaries and Benefits          $  513,000          $  709,000
                   Accrued Severance                         547,000             490,000
                   Discontinued and redundant
                       facilities and contracts            1,733,000           2,219,000
                   Accrued Royalties                         640,000                  --
                   Other Accrued Expenses                    817,000             955,000
                                                          ----------          ----------
                     Total                                $4,250,000          $4,373,000
                                                          ==========          ==========
</TABLE>


4.       GOODWILL AND AMORTIZATION

         Goodwill is amortized over a ten year period and relates primarily to
         the stock acquisition of PickAX on December 1, 2000.


                                       6
<PAGE>
         The Company recorded an adjustment to goodwill for $531,000 in the
         quarter ended June 30, 2001, for a change in the purchase price
         allocation in accordance with APB 16.

     5.  RECENT ACCOUNTING PRONOUNCEMENTS

         On July 20, 2001, the Financial Accounting Standards Board (FASB)
         issued Statement of Financial Accounting Standards (SFAS) 141, Business
         Combinations, and SFAS 142, Goodwill and Intangible Assets. SFAS 141 is
         effective for all business combinations initiated after June 30, 2001.
         SFAS 142 is effective for fiscal years beginning after December 15,
         2001; however, certain provisions of this Statement apply to goodwill
         and other intangible assets acquired between July 1, 2001 and the
         effective date of SFAS 142.

         Major provisions of these Statements and their effective dates for the
         Company are as follows:

         -        all business combinations initiated after June 30, 2001 must
                  use the purchase method of accounting. The pooling of interest
                  method of accounting is prohibited except for transactions
                  initiated before July 1, 2001.

         -        intangible assets acquired in a business combination must be
                  recorded separately from goodwill if they arise from
                  contractual or other legal rights or are separable from the
                  acquired entity and can be sold, transferred, licensed, rented
                  or exchanged, either individually or as part of a related
                  contract, asset or liability.

         -        goodwill, as well as intangible assets with indefinite lives,
                  acquired after June 30, 2001, will not be amortized. Effective
                  April 1, 2002 all previously recognized goodwill and
                  intangible assets with indefinite lives will no longer be
                  subject to amortization.

         -        effective April 1, 2002 goodwill and intangible assets with
                  indefinite lives will be tested for impairment annually and
                  whenever there is an impairment indicator.

         -        all acquired goodwill must be assigned to reporting units for
                  purposes of impairment testing and segment reporting.

         The Company will continue to amortize goodwill recognized prior to July
         1, 2001 under its current method until April 1, 2002, at which time
         annual and quarterly goodwill amortization of approximately $8,568,000
         and $2,142,000, respectively, will no longer be recognized. By March
         31, 2003, the Company will have completed a transitional fair value
         based impairment test of goodwill as of April 1, 2002. Impairment
         losses, if any, resulting from the transitional testing will be
         recognized in the quarter ending June 30, 2002 as a cumulative effect
         of a change in accounting principle.

6.       DEBT

         In August 2000, the Company obtained $750,000 in unsecured promissory
         notes from three private parties unrelated to the Company. The notes
         bear interest at 4% per annum. The two-year term notes and any accrued
         interest are convertible into the Company's common stock at $6.17 per
         share at the holder's option.


                                       7
<PAGE>
         In September 2000, the Company obtained $250,000 in unsecured
         promissory notes from a trust of which an individual, who was then a
         Director of the Company, was a trustee and beneficiary. The two-year
         note bears interest at 10% per annum.

         In November 2000, as part of the PickAX acquisition, the Company
         entered into a replacement two year term promissory note for
         $18,525,000 with Astoria Capital Partners, L.P., ("Astoria") in
         exchange for PickAX's promissory note and accrued interest to Astoria.
         The replacement note accrues interest at an annual interest rate of 8%
         which is all due and payable at maturity. In consideration for this
         exchange, the Company issued to Astoria 500,000 warrants to purchase
         Company common stock at an exercise price of $7.00 per share. The
         Company valued the warrants at $6.92 per share using the Black-Scholes
         option pricing model. The Company recorded the total of $3,460,000 for
         these warrants as a discount to the replacement note and is amortizing
         the discount over the life of the note. The note due Astoria is secured
         by substantially all of the assets of the Company.

7.       STOCKHOLDERS' EQUITY:

         On September 27, 2001, the Company entered into a Common Stock Purchase
         Agreement with Astoria whereby the Company issued 1,760,000 shares of
         its common stock for consideration of $2,200,000. The common stock is
         not registered and each shareholder is entitled to one vote for each
         share of common stock held.

8.       PRO FORMA FINANCIAL INFORMATION:

         Had the Company acquired PickAX at the beginning of the Company's
         fiscal year on April 1, 2000, after making adjustments for the monthly
         goodwill amortization expense arising from the acquisition and the
         savings in interest from the Astoria note conversion, the unaudited pro
         forma results for the six months ended September 30, 2000, would have
         been approximately as shown in the following table. The actual
         unaudited results are shown for the same period.

<TABLE>
<CAPTION>
                                                           Proforma
                                                          Unaudited
                                                          ---------
<S>                                                    <C>
                  Revenue                              $  9,861,000
                  Operating Loss                       $(10,035,000)
                  Net Loss                             $(11,594,000)
                  Loss Per Share                       $      (0.80)
</TABLE>


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

This Item 2, as well as other portions of this document, contains
forward-looking statements about the Company's business, revenues, expenditures,
research and development efforts, operating and capital requirements, changes in
operations, integration of the acquisition of PickAX, products, initial markets
for its products, cost savings and reductions, and ability to raise capital in
the future. In addition, forward-looking statements may be included in various
other Company documents to be issued concurrently or in the future and in oral
or other statements made by representatives of the Company to investors and
others from time to time.


                                       8
<PAGE>
Forward-looking statements are subject to risks and uncertainties which could
cause actual results to differ materially from predicted results.

Such risks include, among others, that the Company may not be able to integrate
the technologies, products, and operations of the two companies in a timely and
effective way; that the Company may not be able to achieve the cost reductions
or eliminate the duplicate and redundant facilities and contracts in a timely
manner or at all; that the Company may not introduce new or improved products in
a timely fashion or at all; that the Company's shift in research and development
efforts may not result in new or improved products; that the marketplace may not
accept any new or improved products; that the presence of competitors with
greater technical, marketing and financial resources may significantly limit the
growth and impact of the Company; that the Company may not be able to raise
additional funds when needed on favorable terms, or at all; or that the Company
may not be able to retire the debt due in November 2002.

The outline of risks mentioned above and this discussion should be read in
conjunction with the discussion of "Risk Factors" in the Company's 10-KSB for
the fiscal year ended March 31, 2001.

OVERVIEW

Effective December 1, 2000 the Company completed the acquisition of PickAX, Inc,
a Delaware corporation ("PickAX"), pursuant to an Agreement and Plan of Merger
dated August 23, 2000. Concurrent with the acquisition, the Company changed its
name to Raining Data Corporation. The principal asset of PickAX is Pick Systems,
now a wholly owned subsidiary, which PickAX acquired from the estate of Richard
Pick, the founder of Pick Systems, in March 2000. Pick Systems was incorporated
in California in November 1982.

The Company's principal business is the design, development, sale, and support
of two major software product lines: Multi-Dimensional Databases and Rapid
Application Development ("RAD") software tools. The Company's products allow
customers to quickly develop flexible software application solutions that can be
continuously enhanced to respond to changing business needs. The Company's
database products are based on a multi-dimensional data model and designed to
transparently operate in such operating environments as Windows, Unix and Linux.
Similarly, the Company's RAD products support the full lifecycle of application
development and are designed for the rapid prototyping, development and
deployment of sophisticated GUI Client/Server and Web applications. The
Company's RAD products are object-oriented and component-based, providing the
ability to deploy applications on such operating system platforms as Windows,
Unix and Linux, as well as such database environments as Oracle, DB2, Sybase,
Microsoft SQL Server and other Open Data Base Connectivity ("ODBC") compatible
database management systems, including the Company's own multi-dimensional
products. Since the start of the 2002 fiscal year, the Company has been changing
the mix of its research and development efforts to include a significant focus
on technologies, markets and products outside its historical market,
specifically XML-based products for Internet infrastructure. There can be no
assurance that such shifts will result in new products or that any new products
will be successful.


                                       9
<PAGE>
The Company's products are used by in-house corporate development teams,
commercial application developers, system integrators, independent software
vendors and independent consultants to deliver pre-packaged and custom online
transaction processing software applications for a wide range of vertical
markets including retail and wholesale distribution management, manufacturing,
insurance, healthcare, retail point-of-sale systems, property management,
government, bookstore, automotive dealership, and accounting systems.

The Company licenses its software on a per-server basis or per-user basis.
Additional servers and users, as applicable, on existing systems increase the
Company's revenues from its installed base of licenses.

In addition to computer software products, the Company provides continuing
maintenance and customer service contracts, as well as professional services,
technical support and training to help plan, analyze, implement and maintain
application software based on the Company's products.

The Company has direct sales offices in the United States, United Kingdom,
France and Germany, and maintains distributor relationships in many other parts
of the world. The office in South Africa was closed at the end of June 2001.

As a result of the acquisition of PickAX, the Company has continued to develop,
enhance and market products that combine the best features of RAD tools and the
multi-dimensional database software. Some of these tools are designed to allow
existing customers to quickly enhance their current applications or build new
applications. The Company believes that the initial market for these products
will be the multi-dimensional database market where value added resellers,
application developers, system integrators, and large end-users are seeking to
upgrade their existing, highly functional multi-dimensional database
applications for deployment in a Web or client/server environment.

RESULTS OF OPERATIONS

As a result of the acquisition of PickAX on December 1, 2000, the results of
operations for the three and six month periods ended September 30, 2001 differ
materially from the same periods in the prior fiscal year. Consequently, the
results of prior periods are not comparable to these periods or future periods.

Net Revenues: Total net revenues for the three month period ended September 30,
2001 increased 363% from $1,086,000 to $5,025,000 over the same three month
period in the prior fiscal year. License revenues increased 159% from $851,000
to $2,200,000 while service revenues increased 1,102% from $235,000 to
$2,825,000 over the same three month period in the prior fiscal year.

Total net revenues for the six month period ended September 30, 2001 increased
432% from $2,072,000 to $11,033,000 over the same six month period in the prior
fiscal year. License


                                       10
<PAGE>
revenues increased 206% from $1,665,000 to $5,103,000 while services revenues
increased 1,357% from $407,000 to $5,930,000 over the same six month period in
the prior fiscal year.

The increase in net revenues in total and by category is due to the acquisition
of PickAX in December 2000.

As a result of the PickAX acquisition, the mix of revenues also changed. Service
revenues, which includes primarily revenues from technical support services as
well as revenues from consulting services and training services, increased from
22% of total revenues for the same three month period in the prior fiscal year
to 56% of total year revenues for the three month period ended September 30,
2001. Service revenues increased from 20% of total revenues for the same six
month period in the prior fiscal year to 54% of total year revenues for the six
month period ended September 30, 2001.

Cost of License Revenues: Total cost of license revenues increased 691% from
$11,000 for the three month period in the prior fiscal year to $87,000 for the
three month period ended September 30, 2001. At the same time, cost of license
revenues increased from 1% of license revenues for the same three month period
in the prior fiscal year to 4% of license revenue for the three month period
ended September 30, 2001, due to the shift in product mix sold as a result of
the PickAX acquisition.

Total cost of license revenues increased 329% from $45,000 for the six month
period in the prior fiscal year to $193,000 for the six month period ended
September 30, 2001. At the same time, cost of license revenues increased
slightly from 3% of license revenues for the same six month period in the prior
fiscal year to 4% of license revenue for the six month period ended September
30, 2001.

The slight increase in the cost of license revenues as a percentage of license
revenues reflects the changing mix of product shipments towards the PickAX
products.

Cost of Service Revenues: Total cost of service revenues increased 564% from
$146,000 for the same three month period in the prior fiscal year to $970,000
for the three month period ended September 30, 2001, reflecting the results of
the PickAX acquisition. At the same time, cost of service revenues decreased
from 62% of service revenue for the same three month period in the prior fiscal
year to 34% of service revenue for the three months ended September 30, 2001.

Total cost of service revenues increased 434% from $378,000 for the same six
month period in the prior fiscal year to $2,019,000 for the six month period
ended September 30, 2001 reflecting the results of the PickAX acquisition. At
the same time, cost of service revenues decreased from 93% of service revenue
for the same six month period in the prior fiscal year to 34% of service revenue
for the six months ended September 30, 2001.

The reduction in the cost of service revenues as a percentage of service
revenues reflects the continuing efforts of the Company to improve the financial
contribution of service businesses, including customer support, professional
consulting services, training and education.


                                       11
<PAGE>
Selling and Marketing Expenses: Selling and marketing expenses increased 37%
from $1,164,000 for the same three month period in the prior fiscal year to
$1,599,000 for the three month period ended September 30, 2001. At the same
time, sales and marketing expenses decreased from 107% of total revenues for the
same three month period in the prior fiscal year to 32% of total revenues for
the three month period ended September 30, 2001.

Selling and marketing expenses increased 47% from $2,529,000 for the same six
month period in the prior fiscal year to $3,711,000 for the six month period
ended September 30, 2001. At the same time, sales and marketing expenses
decreased from 122% of total revenues for the same six month period in the prior
fiscal year to 34% of total revenues for the six month period ended September
30, 2001.

The increase in selling and marketing expenses reflects the efforts of the
company to sell and market the broader range of products offered by the
acquisition of PickAX. During the three months ended September 30, 2001, the
Company made a number of changes in its selling and marketing cost structure to
further combine and to streamline the Company's sales and marketing efforts.

Research and Development Expenses: Research and development expenses increased
165% from $531,000 for the same three month period in the prior fiscal year to
$1,405,000 for the three month period ended September 30, 2001. At the same
time, research and development expenses decreased from 49% of total revenues for
the same three month period in the prior fiscal year to 28% of total revenues
for the three month period ended September 30, 2001.

Research and development expenses increased 136% from $1,111,000 for the same
six month period in the prior fiscal year to $2,621,000 for the six month period
ended September 30, 2001 reflecting the results of the PickAX acquisition. At
the same time, research and development expenses decreased from 54% of total
revenues for the same six month period in the prior fiscal year to 24% of total
revenues for the six month period ended September 30, 2001.

During the six month period ended September 30, 2001, the Company began
changing the mix of its research and development efforts to include a
significant focus on technologies, markets and products outside its historical
market, specifically XML-based products for Internet infrastructure. There can
be no assurance that such shifts will result in new products or that any new
products will be successful.

General and Administrative Expenses: General and administrative expenses
increased 555% from $596,000 for the same three month period in the prior fiscal
year to $3,901,000 for the three month period ended September 30, 2001. For the
three month period ended September 30, 2001, general and administrative expenses
included $167,000 in depreciation and non-goodwill amortization, $287,000 in
non-cash compensation expense, and $2,110,000 in goodwill amortization. For the
same three month period in the prior fiscal year, general and administrative
expenses included $4,000 in depreciation and amortization and $269,000 in
non-cash compensation charges. The Company had no goodwill amortization in the
same three month period in the prior fiscal year. Excluding the depreciation,
amortization, and non-cash compensation charges, general and administrative
expenses decreased as a percentage of revenue


                                       12
<PAGE>
from 30% of total revenue in the three month period ending September 30, 2000 to
27% of total revenue for the three month period ending September 30, 2001.

General and administrative expenses increased 501% from $1,301,000 for the same
six month period in the prior fiscal year to $7,821,000 for the six month period
ended September 30, 2001 reflecting the results of the PickAX acquisition. For
the six month period ended September 30, 2001, general and administrative
expenses included $367,000 in depreciation and non-goodwill amortization,
$573,000 in non-cash compensation expense, and $4,259,000 in goodwill
amortization. For the same six month period in the prior fiscal year, general
and administrative expenses included $103,000 in depreciation and amortization
and $538,000 in non-cash compensation charges. The Company had no goodwill
amortization in the same six month period in the prior fiscal year. Excluding
the depreciation, amortization, and non-cash compensation charges, general and
administrative expenses decreased as a percentage of revenue from 32% of total
revenue in the six month period ending September 30, 2000 to 24% of total
revenue for the six month period ending September 30, 2001.

Operating Loss: The Company's net operating loss increased 116% from a loss of
$1,362,000 for the same three month period in the prior fiscal year to
$2,937,000 for the three month period ended September 30, 2001. The operating
loss of $2,937,000 for the three month period ended September 30, 2001, reflects
$2,564,000 in depreciation, amortization and non-cash compensation expense while
the operating loss of $1,362,000 for the same three month period in the prior
fiscal year reflected only $273,000 in depreciation, amortization and non-cash
compensation expense.

The Company's net operating loss increased 62% from $3,292,000 for the same six
month period in the prior fiscal year to $5,332,000 for the six month period
ended September 30, 2001. The operating loss of $5,332,000 for the six month
period ended September 30, 2001, reflects $5,199,000 in depreciation,
amortization and non-cash compensation expense while the operating loss of
$3,292,000 for the same six month period in the prior fiscal year reflects only
$641,000 in depreciation, amortization and non-cash compensation expense.

Interest and Other Expense: Net interest expense increased from $58,000 for the
same three month period in the prior fiscal year to $823,000 for the three
months ended September 30, 2001. Of the $823,000 in interest expense in the
three month period ended September 30, 2001, approximately $433,000 was related
to the amortization of the discount associated with the Astoria note (see Note 6
to the consolidated financial statements).

Net interest expense increased from $99,000 for the same six month period in the
prior fiscal year to $1,646,000 for the six months ended September 30, 2001. The
increase reflects the increase in debt of the Company (see Note 6 to the
consolidated financial statements). Of the $1,646,000 in interest expense in the
six month period ended September 30, 2001, approximately $865,000 was related to
the amortization of the discount.

Net Loss: The net loss increased 165% from $1,421,000 for the same three month
period in the prior fiscal year to a net loss of $3,759,000 for the three month
period ended September 30, 2001. At the same time, the net loss decreased from
131% of total revenues for the same three month period in the prior fiscal year
to 75% of total revenues for the three months ended


                                       13
<PAGE>
September 30, 2001. Moreover, the $3,759,000 loss reflects $2,997,000 in
depreciation, amortization, non-cash compensation and debt discount expense for
the three month period September 30, 2001. The Company had only $273,000 in
depreciation and amortization expense and no debt discount expense in the same
three month period in the prior fiscal year.

The net loss increased 107% from $3,395,000 for the same six month period in the
prior fiscal year to a net loss of $7,027,000 for the six months ended September
30, 2001. At the same time, the net loss decreased from 164% of total revenues
for the same six month period in the prior fiscal year to 64% of total revenues
for the six months ended September 30, 2001. Moreover, the $7,027,000 loss for
the six months ended September 30, 2001 reflects $6,064,000 in depreciation,
amortization, non-cash compensation and debt discount expense for that six month
period. The Company had only $641,000 in depreciation and amortization expense
in the same six month period in the prior fiscal year.

LIQUIDITY AND CAPITAL RESOURCES

The Company had $3,409,000 in cash and equivalents at September 30, 2001.

The Company does not have a line of credit with a bank. The recent financial
performance of the Company makes such a line of credit unlikely at the present
time. Astoria is the primary secured party of substantially all of the Company's
assets in relation to the replacement note issued in connection with the
December 1, 2000 acquisition of PickAX. The note does not provide for any
further borrowings. The note requires certain payments in the event of a public
or private common or preferred stock offering and gives Astoria certain rights
to approve any future acquisitions. There can be no assurances that the Company
will have sufficient cash to pay the note at maturity.

The Company had a working capital deficit of $3,943,000 at September 30, 2001
compared to a working capital deficit of $6,389,000 at March 31, 2001. In
calculating the deficit, current liabilities at September 30, 2001, included
approximately $4,483,000 in deferred revenue that the Company earns over the
remaining life of the underlying service contracts as more fully discussed in
Note 2 to the consolidated financial statements.

On September 27, 2001, the Company entered into a Common Stock Purchase
Agreement with Astoria pursuant to which the Company received an aggregate of
$2.2 million in consideration for 1,760,000 shares of the Company's common stock
at a price of $1.25 per share. In connection with this offering, Astoria waived
the payment provisions of the Astoria note triggered by the offering.

Management believes that the Company's working capital and future cash flow from
operating activities will be sufficient to meet the Company's operating and
capital expenditure requirements for at least the next twelve months. However,
in the event the Company experiences a decrease in revenue or increase in
expenses or other unforeseen event, the Company may require additional funds to
support its working capital requirements and may seek to raise such funds
through public or private equity financing or bank lines of credit or from other
sources. No assurances can be given that additional financing will be available
or that, if available, such financing will be on terms favorable to the Company.


                                       14
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS
No. 142, "Goodwill and Other Intangible Assets." SFAS 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. Use of the pooling-of-interest method will be prohibited.
SFAS 142, which changes the accounting for goodwill and indefinite-lived
intangible assets from an amortization method to an impairment-only approach,
will be effective for fiscal years beginning after December 15, 2001. As a
result of SFAS 142, the Company will continue to amortize goodwill recognized
prior to July 1, 2001 under its current method until April 1, 2002, at which
time annual and quarterly goodwill amortization of approximately $8,568,000 and
$2,142,000, respectively, will no longer be recognized. By March 31, 2003, the
Company will have completed a transitional fair value based impairment test of
goodwill as of April 1, 2002. Impairment losses, if any, resulting from the
transitional testing will be recognized in the quarter ending June 30, 2002 as a
cumulative effect of a change in accounting principle. See Note 5 to the
condensed consolidated financial statements.


                                     PART II

                                OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

GENERAL AUTOMATION LITIGATION - In May 2001, General Automation initiated
litigation in Superior Court of the State of California for the County of Orange
against the Company for breach of contract relating to the Pick Systems purchase
of selected assets of General Automation in August 2000. General Automation
seeks approximately $690,000 plus penalties and interest. The Company has
prevailed in two preliminary hearings sought by General Automation. The Company
believes that the suit is without merit and intends to defend the suit
vigorously.

DOUCE BIS LITIGATION - In June 2001, Douce Bis Company sued the Company in the
Commercial Court of Paris, France for approximately US$990,000 plus costs. The
claim is for compensation and loss of profits due Douce Bis under the terms of
the Douce Bis/Omnis distributorship agreement entered into in 1983 and extended
from time to time thereafter. The Company terminated Douce Bis as the Omnis
distributor in France effective in December 2000. The Company believes the suit
is without merit and intends to defend the suit vigorously. The litigation is in
the discovery phase and a preliminary hearing was held in September 2001. The
next hearing is scheduled for December 2001.

PACE-NORTHERN IRELAND LITIGATION - In July 2000, Park Applications Computer
Engineering, Ltd. (PACE) sued the Company in the Queen's Bench Division Company
of the High Court of Justice in Northern Ireland. PACE is seeking damages of
$800,000 plus penalties and interest for breach of contract relating to the
purchase by Pick Systems of software from PACE. The previous management of Pick
Systems, prior to the acquisition by PickAX in March 2000, made the purchase.
Discovery has been completed and expert witness reports exchanged between the
parties. A trial date has not been set.


                                       15
<PAGE>
The Company is from time to time subject to claims and suits arising in the
ordinary course of business. In the Company's opinion, the ultimate resolution
of these matters will not have a material adverse effect on its financial
position, results of operations, or liquidity.

ITEM 2.    CHANGES IN SECURITIES

During the quarter ended September 30, 2001, the Company issued the following
unregistered shares of its common stock:

(1)    On September 5, 2001, the Company issued 37,500 shares to the partners of
       the Wainer Group, an Australian partnership, as final payment for
       additional services performed by the Wainer Group under an Asset Purchase
       Agreement dated as of May 19, 2000 in which the Company purchased the
       "Metamorph" computer software product. The issuance of the shares to
       these individuals was exempt from the provisions of Section 5 of the
       Securities Act of 1933, as amended (the "Securities Act") under Section
       4(2) thereof and/or Regulation S promulgated under the Securities Act.
       The Company did not offer the shares through any general solicitation,
       and each purchaser represented that it (i) has such knowledge and
       experience in financial and business matters so as to be capable of
       evaluating the merits and risks of the investment, and (ii) is acquiring
       the shares for its own account, for investment purposes and without a
       view to distribution.

(2)    On September 27, 2001, the Company issued 1,760,000 shares to Astoria for
       a price of $1.25 per share, which the Board of Directors found to be fair
       considering the difficulty and cost of raising additional capital for the
       Company in the investment climate prevailing at the time. The issuance of
       the shares to Astoria was exempt from the provisions of Section 5 of the
       Securities Act under Section 4(2) thereof and/or Regulation D promulgated
       thereunder. The Company did not offer the shares through any general
       solicitation, and the purchaser represented that it (i) is an "accredited
       investor" within the meaning of Regulation D, (ii) has such knowledge and
       experience in financial and business matters so as to be capable of
       evaluating the merits and risks of the investment, and (iii) is acquiring
       the shares for its own account, for investment purposes and without a
       view to distribution.

ITEM 5.    OTHER EVENTS

In connection with certain option grants and the September 27, 2001 sale of
1,760,000 shares of common stock to Astoria, automatic adjustments were made to
certain outstanding warrants to purchase the Company's common stock pursuant to
anti-dilution provision in such instruments. As a result of such anti-dilution
adjustments, the number of shares of the Company's common stock underlying such
warrants increased by an aggregate of 156,748 shares.


                                       16
<PAGE>
ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits:

<TABLE>
<CAPTION>
Number                                Description
------                                -----------
<S>               <C>
10.20             Common Stock Purchase Agreement-2001, dated as of September
                  27, 2001, among Raining Data Corporation and Astoria Capital
                  Partners, L.P. (incorporated by reference to Exhibit 10.1 to
                  Form 8-K filed by the Company on October 1, 2001)

10.21             Registration Rights Agreement, dated as of September 27, 2001,
                  by and among Raining Data Corporation and Astoria Capital
                  Partners, L.P. (incorporated by reference to Exhibit 10.2 to
                  Form 8-K filed by the Company on October 1, 2001)

10.22             Option Agreement dated September 24, 2001, between the Company
                  and Carlton H. Baab

10.23             Waiver Letter dated as of September 27, 2001 from Astoria
                  Capital Partners, L.P. regarding the Secured Promissory Note
                  dated November 30, 2000
</TABLE>


(b)      Reports on Form 8-K.

     (1)  The Company filed a Form 8-K/A on June 21, 2001 to amend the Form 8-K
          filed December 15, 2000 to include certain financial statements and
          pro forma financial information relating to the merger of PickAX, Inc.
          into a subsidiary of the Company and the Private Placement of the
          Company's common stock shortly thereafter.

     (2)  The Company filed a Form 8-K/A on August 27, 2001 to amend the Form
          8-K filed December 15, 2000 to include an exhibit to the Form 8-K
          indicating the agreement of the Company's former independent auditors
          with the statements made in Item 4 therein.

     (3)  The Company filed a Form 8-K/A on August 30, 2001 reporting the
          following: resignation of Richard K. Lauer as President and Chief
          Operating Officer; resignation of Timothy J. Holland as Senior Vice
          President and Chief Technology Officer; resignation of Bryce J. Burns
          as Chairman of the Board and Interim Chief Executive Officer of the
          Company (Burns remains a Director of the Company); election of
          Geoffery P. Wagner, the sole general partner of the Rockport Group,
          L.P., a large stockholder of the Company, as Chairman of the Board;
          and election of Carlton H. Baab, a managing principal of Astoria as
          President and Chief Executive Officer of the Company.


                                       17
<PAGE>
                                   SIGNATURES

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

Date: November 14, 2001

                            RAINING DATA CORPORATION


                            By:  /s/ Scott K. Anderson, Jr.
                                 ----------------------------------------------
                                 Scott K. Anderson, Jr.
                                 Vice President Finance, Treasurer and Secretary
                                 (Principal Financial and Accounting Officer)




                                       18
<PAGE>
                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
Number                                Description
------                                -----------
<S>               <C>
10.20             Common Stock Purchase Agreement-2001, dated as of September
                  27, 2001, among Raining Data Corporation and Astoria Capital
                  Partners, L.P. (incorporated by reference to Exhibit 10.1 to
                  Form 8-K filed by the Company on October 1, 2001)

10.21             Registration Rights Agreement, dated as of September 27, 2001,
                  by and among Raining Data Corporation and Astoria Capital
                  Partners, L.P. (incorporated by reference to Exhibit 10.2 to
                  Form 8-K filed by the Company on October 1, 2001)

10.22             Option Agreement dated September 24, 2001, between the Company
                  and Carlton H. Baab

10.23             Waiver Letter dated as of September 27, 2001 from Astoria
                  Capital Partners, L.P. regarding Secured Promissory Note dated
                  November 30, 2000
</TABLE>




                                       19