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

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MAY 31, 2002

FOR THE TRANSITION PERIOD FROM                              TO                             

Commission file number 000-25249

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

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 ý    No o

        As of July 1, 2002 there were 45,005,595 shares of the registrant's Common Stock outstanding.

PART I—FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

See notes to unaudited interim condensed consolidated financial information.

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

See notes to unaudited interim condensed consolidated financial information.

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

See notes to unaudited interim condensed consolidated financial information.

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

NOTE 1. BASIS OF PRESENTATION

INTRAWARE

        The accompanying condensed consolidated financial statements for the three months ended May 31, 2002 and 2001 are unaudited and reflect all normal and recurring adjustments which are, in the opinion of the management of Intraware, Inc., necessary for the fair presentation of the balance sheets, statements of operations, and statements of cash flows for the periods presented.

        These condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended February 28, 2002. The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted as permitted by rules and regulations of the Securities and Exchange Commission (the "SEC"). The results of operations for the interim period ended May 31, 2002 are not necessarily indicative of results to be expected for the full year.

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

NOTE 2. NET LOSS PER SHARE

        We compute 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"). Basic net loss per common share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders for the period by the weighted average number of common shares outstanding during the period excluding shares subject to repurchase. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders for the period by the weighted average number of common and potential common shares outstanding during the period if the effect is dilutive. Potential common shares are composed of common stock subject to repurchase rights and incremental shares of common stock issuable upon the exercise of stock options and warrants and upon conversion of redeemable convertible preferred stock.

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

NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS

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

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

        On October 3, 2001, the FASB issued Statement of Financial Accounting Standards No. 144, ("SFAS No. 144"), "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 supercedes Statement of Financial Accounting Standards No. 121, (SFAS No. 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 144 applies to all long-lived assets (including discontinued operations) and consequently amends Accounting

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Principles Board Opinion No. 30 (APB 30), Reporting Results of Operations Reporting the Effects of Disposal of a Segment of a Business. SFAS No. 144 develops one accounting model for long-lived assets that are to be disposed of by sale. SFAS No. 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less the cost to sell. We adopted the provisions of SFAS No. 144 during the quarter ended May 31, 2002. The disposition of our Asset Management software business (Note 8) was recognized under SFAS No. 144.

        In November 2001, the EITF reached a consensus on EITF No. 01-14, "Income Statement Characterization of Reimbursements Received for "Out-of-Pocket Expenses Incurred," which includes, among other things, guidance on EITF No. 99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent" ("EITF 99-19"). EITF No. 01-14, as it relates to EITF No. 99-19, is to be applied for financial reporting periods beginning after December 15, 2001 and generally requires that a company recognize as revenue, travel expense and other reimbursable expenses billed to customers. We adopted EITF 01-14 during the quarter ended May 31, 2002. As a result, we classified reimbursements totalling approximately $498,000 that we received from Corporate Software relating to maintaining a team dedicated to sales of iPlanet software licenses and maintenance. All prior year amounts will be reclassified to conform to the current presentation in accordance with the transition provisions of EITF 01-14. However, there were no reimbursements received during the quarter ended May 31, 2001 to reclassify. The adoption of EITF No. 01-14 did not affect our basic net loss per share, financial position, results of operations, or cash flows.

        In May 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements Nos. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 eliminates Statement 4 (and Statement 64, as it amends Statement 4), which requires gains and losses from extinguishments of debt to be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect. As a result, the criteria in APB Opinion 30 will now be used to classify those gains and losses. SFAS No. 145 amends FASB Statement No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. This amendment is consistent with the FASB's goal of requiring similar accounting treatment for transactions that have similar economic effects. In addition, SFAS 145 makes technical corrections to existing pronouncements. While those corrections are not substantive in nature, in some instances, they may change accounting practice. This statement is effective for fiscal years beginning after May 2002 for the provisions related to the rescission of Statements 4 and 64, and for all transactions entered into beginning May 2002 for the provision related to the amendment of Statement 13, although early adoption is permitted. We will adopt SFAS No. 145 on March 1, 2003, and the impact of SFAS No. 145 is not expected to have a material effect on our financial position or results of operations.

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

        During the three months ended May 31, 2002, our redeemable convertible preferred stock ("preferred stock") and stockholders' equity changed as follows (in thousands):

NOTE 5. ABILITY TO CONTINUE OPERATIONS

        We have suffered recurring losses and negative cash flows from operations that raise substantial doubt about our ability to continue as a going concern. Although we restructured our operations in December 2000, August 2001 and May 2002 in order to reduce discretionary spending, raised additional capital during fiscal year 2002 and 2003, sold our asset management business and continue to seek additional revenue through sales of our services, there is no assurance that we will succeed in generating sufficient revenue to enable us to continue operations.

        Our future capital requirements will depend on many factors, including our ability to increase revenue levels and reduce costs of operations to generate positive cash flows, the timing and extent of spending to support expansion of sales and marketing, market acceptance of our products and timeliness of collections of our accounts receivable. Although we have historically been able to satisfy our cash requirements, there can be no assurance that we will be able to do so in the future. Our future capital needs will be highly dependent on our ability to control expenses and increase online services and technology revenues, and any projections of future cash needs and cash flows are subject to substantial uncertainty. In May 2002, we announced our application to transfer our listing from the Nasdaq National Market to the Nasdaq SmallCap Market. Nasdaq accepted our application and our stock began trading on the Nasdaq SmallCap Market in May 2002. Our ability to raise additional capital, if necessary, may be weakened as a result of the transfer of our listing to the Nasdaq SmallCap Market. In addition, we may not be able to meet the standards for continued listing on the Nasdaq SmallCap Market.

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

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NOTE 6. PROMISSORY NOTES

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

NOTE 7. COMMON STOCK

        On May 24, 2002, we completed a private placement of Common Stock and warrants to purchase Common Stock to institutional and individual investors. Under the terms of the financing, we issued an aggregate of 3,940,000 shares of Common Stock, and warrants to purchase 788,000 shares of our Common Stock with an exercise price of $1.19 per share, for aggregate gross proceeds of $3.9 million, including $2.6 million in cash and $1.3 million in cancelled indebtedness. The $1.19 per share exercise price of the warrants was the average closing sale price of our Common Stock on the five trading days preceding the closing date. The warrants issued to the investors expire four years from the issuance date. In addition to paying the placement agent a cash fee of $231,400 and reimbursing it for approximately $70,000 in expenses, we also issued to the placement agent and its designee warrants to purchase an aggregate of 310,200 shares of Common Stock at an exercise price of $1.00 per share, and warrants to purchase an aggregate of 62,040 shares of Common Stock at an exercise price of $1.19 per share. The warrants issued to the placement agent and its designee expire five years from the issuance date. All $1.19 warrants carry anti-dilution protection requiring a weighted-average adjustment of the exercise price and of the number of shares issuable upon exercise of the warrants for certain sales of stock by us at less than $1.19 per share during the 12 months following the closing; however, in accordance with NASD Marketplace Rules, we will not sell shares of our stock that would lead to an anti-dilution adjustment requiring us to issue a number of shares exceeding 19.9% of our then-current total common shares outstanding, without obtaining stockholder approval. As part of this transaction we incurred approximately $165,000 in legal, accounting and other costs.

        The Common Stock and warrants were issued in a private placement without registration under the Securities Act of 1933 and could not be offered or sold in the United States of America absent registration or an applicable exemption from registration requirements. In issuing the securities, we relied on the exemption from registration provided by Section 4(2) of the Securities Act of 1933 and Regulation D promulgated thereunder, based in part upon the limited number of institutional type investors and their representations in the purchase agreements. On June 13, 2002, we filed with the SEC a registration statement for the resale of the Common Stock issued and the Common Stock issuable upon exercise of the warrants, which was declared effective by the SEC on June 26, 2002.

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

        The warrants were classified as a liability during the time that the associated Common Stock was unregistered, as we were obligated to register that Common Stock as well as the Common Stock issuable upon exercise of the warrants, and our ability to perform that obligation was assumed to be outside our control. During each accounting period that the warrants were classified as liabilities, the warrants were adjusted to their fair value at May 31, 2002. On June 26, 2002, as described above, the registration statement was declared effective and at that time, the warrants were reclassified as permanent equity.

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        During the three months ended May 31, 2002, we recorded a charge of approximately $120,000 to other expense to adjust the carrying amount of the warrants issued on May 24, 2002 to fair value.

        During the three months ended May 31, 2002, no warrants associated with the issuance of the May 24, 2002 private placement were exercised.

NOTE 8. ASSET SALE

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

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

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

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

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

        The loss on abandonment of assets includes the write-off of approximately $403,000 of prepaid licenses that were held for resale. The restructuring charge consisted of approximately $345,000 for severance and benefits relating to the involuntary termination of 14 employees. In addition 33 employees were transferred to Computer Associates, all of which were based in North America. We reduced our workforce to 71 employees from 118. Of the 47 terminated employees, 22 were in Sales and Marketing, 10 were in Product Development and 15 were di