(Mark one)

x

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

For the quarterly period ended March 31, 2003

OR

o

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 0-15454

Pennsylvania

23-2214726

(State or Other Jurisdiction of Incorporation or Organization)

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

11000 Regency Parkway, Suite 301

Cary, NC 27511

(Address of Principal Executive Offices) (Zip Code)

(919) 653-6000

(Registrant’s telephone number, including area code)

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

None

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

Common Stock, $0.01 par value

(Title of class)

Yes   x

No   o

Yes   o

No   x

Item 1 - Financial Statements:

Balance Sheets – March 31, 2003 (Unaudited) and December 31, 2002

3

Statements of Operations – Three Months Ended March 31, 2003 and 2002 (Unaudited)

4

Statements of Cash Flows – Three Months Ended March 31, 2003 and 2002 (Unaudited)

5

Notes to the Financial Statements

6

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

13

Item 3 - Quantitative and Qualitative Disclosures About Market Risk

31

Item 4 - Controls and Procedures

32

PART II.  OTHER INFORMATION

Item 6 - Exhibits and Reports on Form 8-K

33

Signatures

34

Certifications

35

March 31,
2003

December 31,
2002

(unaudited)

(audited)

Assets

Current assets:

Cash and cash equivalents

$

596

$

418

Accounts receivable, net of allowance of $223 and $220 in 2003 and 2002, respectively

1,697

2,671

Other

425

296

Total current assets

2,718

3,385

Property and equipment:

Computer equipment and software

908

902

Office equipment and furniture

221

218

Leasehold improvements

37

37

1,166

1,157

Less accumulated depreciation and amortization

(1,088

)

(1,057

)

Total property and equipment

78

100

Other assets:

Acquired software technology, net accumulated amortization of $1,390 and $1,244 in 2003 and 2002, respectively

1,363

1,509

Deferred software costs, net accumulated amortization of $1,968 and $1,671 in 2003 and 2002, respectively

3,516

3,472

Cost in excess of net assets of business acquired

1,415

1,415

Other intangibles, net accumulated amortization of $373 and $335 in 2003 and 2002, respectively

—  

38

Other

15

15

Total other assets

6,309

6,449

Total assets

$

9,105

$

9,934

Liabilities and shareholders’ equity

Current liabilities:

Current portion of long-term debt – shareholder

$

—  

$

467

Accounts payable

302

336

Accrued expenses

548

724

Deferred revenue

3,348

3,281

Total current liabilities

4,198

4,808

Long-term debt – shareholders

1,792

1,954

Other liabilities

602

542

Shareholders’ equity:

Convertible preferred stock – Series F, par value $0.01, $1,000 stated value, 3,000 shares authorized, designated, issued and outstanding (aggregate liquidation preference of $3,545 in 2003 and $3,475 in 2002)

—  

—  

Common stock, par value $0.01, authorized 48,000,000 shares, 19,802,439 issued and outstanding in 2003 and 2002, respectively

198

198

Additional paid-in capital

50,525

50,525

Accumulated deficit

(48,210

)

(48,093

)

Total shareholders’ equity

2,513

2,630

Total liabilities and shareholders’ equity

$

9,105

$

9,934

Three months ended March 31

2003

2002

(unaudited)

Revenue:

Licenses and products

$

644

$

1,298

Services

1,619

1,849

Total revenue

2,263

3,147

Cost of revenue:

Cost of licenses and products

13

16

Cost of services

281

444

Amortization of software cost

443

579

Total cost of revenue

737

1,039

Gross profit

1,526

2,108

Operating expenses:

Sales and marketing

820

1287

General and administrative

453

593

Research and development

196

486

Depreciation and amortization

69

85

Total operating expenses

1,538

2,451

Loss from operations

(12

)

(343

)

Other expense, net

(36

)

(78

)

Loss before income taxes

(48

)

(421

)

Provision for income taxes

—  

—  

Net loss

$

(48

)

$

(421

)

Per share calculation:

Net loss

$

(48

)

$

(421

)

Preferred stock dividend

(69

)

(64

)

Net loss available to common shareholders

$

(117

)

$

(485

)

Loss per common share-

Basic and diluted

$

(0.01

)

$

(0.02

)

Weighted average number of common shares outstanding-

Basic and diluted

19,802

19,544

Three months ended March 31

2003

2002

(unaudited)

Operating activities

Net loss

$

(48

)

$

(421

)

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation

31

48

Amortization

481

626

Non cash interest expense

21

75

Reserve for doubtful accounts

(3

)

63

Other

(9

)

(5

)

Cash provided by (used in) changes in working capital items:

Accounts receivable and other current assets

848

1,143

Accounts payable

(34

)

131

Accrued expenses

(176

)

(1,136

)

Deferred revenue

67

(350

)

Net cash provided by operating activities

1,178

174

Investing activities

Deferred software costs

(341

)

(460

)

Expenditures for property and equipment

(9

)

(14

)

Decrease in other assets

—  

23

Net cash used in investing activities

(350

)

(451

)

Financing activities

Net repayments on borrowings from shareholders

(650

)

—  

Net cash used in financing activities

(650

)

—