(Mark one)

x

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2002

or

o

For the transition period from __________ to ___________

California

93-0925818

(State or other jurisdiction of incorporation or organization)

(I.R.S.Employer Identification No.)

101 Rowland Way, Suite 110  Novato, CA

94945

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code:

(415) 893-8000

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, no par value

(Title of class)

Yes

x

No

o

Page

PART I.

FINANCIAL INFORMATION

ITEM 1.

Condensed Balance Sheets as of March 31, 2002
and September 30, 2002

1

Condensed Statements of Operations for the
quarter and six months ended September 30, 2001 and 2002

2

Condensed Statements of Cash Flows for the
six months ended September 30, 2001 and 2002

3

Notes to Condensed Financial Statements

4

ITEM 2.

Management’s Discussion and Analysis of  Financial Condition and Results of Operations

12

ITEM 3.

Quantitative and Qualitative Disclosures about Market Risk

24

ITEM 4.

Controls and Procedures

25

PART II.

OTHER INFORMATION

ITEM 1.

Legal Proceedings

26

ITEM 3.

Defaults Upon Senior Securities

26

ITEM 4.

Submission of Matters to a Vote of Security Holders

26

ITEM 6.

Exhibits and Reports on Form 8-K

26

Signatures

27

Certifications

28

2002

March 31

September 30

(unaudited)

ASSETS

Current Assets:

Cash and cash equivalents

$

11,114

10,059

Accounts receivable, net of allowance for returns and doubtful  accounts
    of $383 and $433 at March 31, 2002 and September 30, 2002, respectively

3,143

3,465

Inventory

390

458

Prepaid expenses and other current assets

616

588

Total current assets

15,263

14,570

Fixed assets, net

1,123

1,182

Purchased and internally developed software costs, net

1,488

1,216

Goodwill

0

1,818

Other assets

604

758

Total assets

$

18,478

19,544

LIABILITIES AND SHAREHOLDERS’ EQUITY

      Accounts payable and accrued liabilities

 $

4,756

5,671

Commitments and contingencies

Shareholders’ Equity:

Convertible preferred stock, no par value, 10,000,000 shares authorized;
        982,691and 373,775 shares issued and outstanding  at March 31, 2002
        and September 30,  2002, respectively

2,832

1,330

Common stock, no par value, 30,000,000 shares authorized; 14,963,939 and
       16,451,846 shares issued and outstanding at 31, 2002 and
       September  30, 2002, respectively

31,240

35,814

Accumulated deficit

(28,876

)

(27,564

)

Total shareholders’ equity

5,196

9,580

Total liabilities and shareholders’ equity

$

18,478

19,544

Quarter Ended
September 30,

Six Months Ended
September 30,

2001

2002

2001

2002

Net revenue

$

3,974

7,488

8,178

14,872

Cost of revenue

1,368

1,789

2,757

3,696

Gross profit

2,606

5,699

5,421

11,176

Operating expenses:

Marketing and sales

2,210

2,001

4,386

4,147

Research and development

1,427

2,250

2,875

4,142

General and administrative

512

722

962

1,579

Business integration

247

0

630

0

Total operating expenses

4,396

4,973

8,853

9,868

Operating income (loss)

(1,790

)

726

(3,432

)

1,308

Other income, net

6

28

5

62

Income (loss) before income taxes

(1,784

)

754

(3,427

)

1,370

Provision for income taxes

0

18

0

58

Net income (loss)

$

(1,784

)

736

(3,427

)

1,312

Dividends paid to preferred shareholders

18

27

30

73

Net income (loss) applicable to common shareholders.

$

(1,802

)

709

(3,457

)

1,239

Net income (loss) per share applicable to common shareholders

Basic

$

(0.13

)

0.04

(0.25

)

0.08

Diluted

$

(0.13

)

0.04

(0.25

)

0.07

Shares used in computing per share net income (loss) per share

Basic

14,068

16,032

13,734

15,660

Diluted

14,068

19,138

13,734

18,767

Six Months Ended September 30,

2001

2002

Cash flows from operating activities:

Net income (loss)

$

(3,427

)

1,312

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Depreciation and amortization

1,281

1,223

Provision for returns and doubtful accounts, net of write-offs

(113

)

50

Interest expense amortization

2

0

Changes in operating assets and liabilities:

Accounts receivable

1,158

(372

)

Inventory

91

(68

)

Prepaid expenses and other current assets

25

76

Other assets

8

(154

)

Accounts payable and accrued liabilities

(444

)

915

Deferred revenue and deposits

948

(4,233

)

     Net cash used in operating activities

(471

)

(1,251

)

Cash flows from investing activities:

Purchase of fixed assets

(201

)

(269

)

Additions to purchased and internally developed software

(256

)

(332

)

Cash paid for purchase of Ravisent, including transaction costs

0