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There were no changes to goodwill during the quarter ended March 31, 2003 other than the effects of foreign currency translation which was $24 during the first quarter of 2003.

On December 23, 2002, the Company consummated a line of credit with a commercial bank for a maximum of $10,000. Any amounts outstanding pursuant to this line of credit are secured by substantially all of the Company’s assets. The borrowing base is based on 80% of eligible accounts receivable (as defined in the agreement). Borrowings pursuant to the line of credit bear interest at a range of prime plus 0.5% to 2.5% based on the liquidity ratio of the Company (as defined in the agreement). The line of credit agreement contains certain financial and non-financial covenants with which the Company was in compliance as of March 31, 2003. The agreement also contains a material adverse changes clause which, if triggered, would constitute an event of default. Pursuant to the terms of the line of credit, the Company also issued 215,000 warrants to purchase common stock of the Company at an exercise price of $0.64 per share. The warrants are immediately exercisable and have a five-year term. The Company calculated the $88 fair value of the warrants using the Black Scholes option pricing model. This value was recorded as debt issuance costs and is being amortized over the term of the debt. The line of credit expires in one year but contains automatic renewal provisions at the bank’s option. As of March 31, 2003, the Company had no amounts outstanding under the line of credit.

The Company also maintains amounts outstanding pursuant to another line of credit with another commercial bank which was entered into in December 1998 and amended in December 2000. The availability under this line of credit has expired. As of March 31, 2003, the Company had $4,777 outstanding under this line of credit. Pursuant to this line of credit, if the Company does not maintain minimum unrestricted cash, as defined in the agreement, equal to the greater of $35,000 or twelve month’s cash needs (calculated by taking the trailing three months net cash used in operations multiplied by four), the Company is required to provide a cash security deposit or letter of credit equal to an amount defined in the agreement, not to exceed 50% of outstanding amounts on draws made in or subsequent to December 2000. The Company was also required to provide a cash security deposit or obtain a letter of credit equal to $2,150 plus 50% of any future draw amount no later than June 30, 2001, unless the Company completed a follow-on equity offering of at least $50,000 in net unrestricted proceeds. During 2001, the Company did complete a follow-on offering, however, the net unrestricted proceeds from the offering were less than the minimum amount required under the loan line. The Company received written notice from the lender stating that the lender waived the requirement of a pledge of cash security deposit or letter of credit under this agreement. In addition, subsequent to March 31, 2002, the Company did not maintain the minimum unrestricted cash as defined in the Agreement. The Company also received written notice from the lender stating that the lender waived the financial covenant violation as a result of not maintaining a pledge of cash security deposit or letter of credit under this agreement for the period of non-compliance through June 19, 2002. On June 19, 2002, the Company obtained a letter of credit in the amount of $2,682 as required by the amended line of credit, which was supported by a cash restriction on certain securities held by the Company. As such, this cash restriction, in addition to cash restricted under two of the Company’s operating leases is reflected as restricted cash in the condensed consolidated balance sheets as of March 31, 2003 and December 31, 2002 of $3,385, of which $1,863 is classified as a long term asset.

On March 31, 2003, the Company completed the issuance and sale of 1,600 units (Units) to certain investors (each an Investor and collectively, the Investors). Each Unit consists of (i) one share of the Company’s newly created Series A Redeemable Convertible Preferred Stock, $.001 par value per share (the Series A Preferred Stock), convertible into approximately 22,222.22 shares of common stock, and (ii) a warrant (Warrant) to purchase approximately 6,666.67 shares of common stock. Each Unit had a purchase price of $10, providing the Company with $16,000 in net proceeds after $750 was allocated to bankers fees (see below). As of March 31, 2003, the Company received $8,550 of the total $16,000 which was anticipated on the closing of the financing transaction. The remaining $7,450 has been reflected as a stock subscription receivable in the accompanying condensed consolidated balance sheet as of March 31, 2003 and was collected in full on April 1, 2003. The Company also issued an additional 75 Units to a banker as a fee for this transaction and will pay certain other banker fees and expenses in connection with the transaction. The $750 which relates to the bankers fee which was taken in 75 Units was recorded as a reduction to the carrying value of the Series A Preferred Stock in the condensed consolidated balance sheet as of March 31, 2003. The Warrants associated with the 75 units issued to the banker in this transaction were valued at $120, based on the Black-Scholes option pricing model, and were also recorded as a reduction to the carrying value of the Series A Preferred Stock in the condensed consolidated balance sheet as of March 31, 2003. The Warrants associated with the Units sold to the Investors were valued at $2,903, based on the Black-Scholes option pricing model, and recorded as a reduction in the carrying amount of the Series A Preferred Stock that was issued and an increase to additional paid-in capital. As a result of the financing transaction, the Company recorded a beneficial conversion feature of $744 in the net loss allocable to common stockholders for the three months ended March 31, 2003. The beneficial conversion feature was calculated as the difference between the Company’s per share value as of the commitment date and the per share value of the Series A Preferred Stock transaction after giving effect to the value associated with the Investors Warrants.

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