~~Table~~UNITED ofSTATES SECURITIES ~~Contents~~AND EXCHANGE COMMISSION Washington, D.C. 20549

~~UNITED~~FORM ~~STATES SECURITIES AND EXCHANGE COMMISSION~~ 10-Q

~~Washington,~~ (Mark ~~D.C. 20549~~One)

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

~~FORM~~ For ~~10-Q~~the quarterly period ended December 28, 2002
~~(Mark~~ ~~One)~~ OR

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

~~[X]~~ ~~QUARTERLY~~For ~~REPORT~~the ~~PURSUANT~~transition TOperiod ~~SECTION~~from 13________to ~~OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~_________
~~For~~ Commission ~~the~~file ~~quarterly~~number ~~period~~000-26437 ~~ended September 28, 2002~~

OR Accrue Software, Inc.

(Exact name of Registrant as specified in its Charter)

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

Delaware	94-3238684
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

~~For~~ 48634 ~~the~~Milmont ~~transition period from to~~ Drive Fremont, California 94538-7353

(Address of Principal Executive Offices including Zip Code)

~~Commission~~ (510) ~~file number 000~~580-~~26437~~4500

(Registrant's Telephone Number, Including Area Code)

~~ACCRUE~~ Indicate ~~SOFTWARE,~~by ~~INC.~~check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days. YES

x NO o

~~(Exact~~ Indicate ~~name~~by ofcheck mark whether the registrant is an accelerated filer (as ~~specified~~defined in ~~its~~Rule ~~charter~~12b-2 of the Exchange Act). YES o NO x

~~DELAWARE~~ As ~~(State~~of orDecember ~~other~~28, ~~jurisdiction~~2002, ofthere ~~incorporation~~were or30,137,501 ~~organization)~~shares ~~94-3238684~~of ~~(I.R.S.~~the ~~Employer~~registrant's ~~Identification~~Common NoStock outstanding.)

~~48634~~ Accrue ~~MILMONT~~Software, ~~DRIVE~~Inc. ~~FREMONT,~~ Quarterly CAReport ~~94538~~on Form 10-~~7353~~Q ~~(Address~~ For ofthe ~~principal~~quarterly ~~executive~~period ~~offices,~~ended ~~including~~December ~~zip~~28, ~~code)~~2002

(510) 580-4500 (Registrant’s telephone number, including area code)

PART I. FINANCIAL INFORMATION	Page No.

Item 1. Financial Statements (Unaudited):

Condensed Consolidated Balance Sheets at December 28, 2002 and March 30, 2002	3

Condensed Consolidated Statement Of Operations For The Three Months and Nine Months Ended December 28, 2002 and December 29, 2001	4

Condensed Consolidated Statement Of Cash Flows For The Nine Months Ended December 28, 2002 and December 29, 2001	5

Notes to Condensed Consolidated Financial Statements	6 - 13

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	13 - 34

Item 3. Quantitative and Qualitative Disclosures About Market Risk	34 - 35

Item 4. Controls and Procedures	35

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	35 - 36

Item 2. Changes in Securities and Use of Proceeds	36

Item 3. Default upon Senior Securities	36

Item 4. Submission of Matters to a Vote of Security Holders	36

Item 5. Other Information	36 - 37

Item 6. Exhibits and Reports on Form 8-K	37

Signatures	37

~~[FORMER~~ PART ~~NAME~~I OR-- ~~FORMER~~FINANCIAL ~~ADDRESS, IF APPLICABLE]~~INFORMATION

~~(Former~~Item ~~name,~~1. ~~former~~Financial ~~address and former fiscal year, if changed since last report)~~Statements

~~Indicate by check mark whether the registrant (1) has filed all reports~~ ~~required~~ ACCRUE toSOFTWARE, ~~be filed by Section 13 or 15(d) of the Securities Exchange Act of~~INC. ~~1934~~ CONDENSED ~~during~~CONSOLIDATED ~~the~~BALANCE ~~preceding 12 months~~ SHEETS (orUNAUDITED, ~~for~~IN ~~such shorter period that the registrant was required to file such reports)~~THOUSANDS, ~~and~~EXCEPT ~~(2) has~~PER ~~been~~SHARE ~~subject to such~~DATA) ~~filing requirements for the past 90 days.~~

Yes                                                        March [X]    No30,     December [  ]28,
                                                         2002            2002
                                                     --------------  --------------
ASSETS
Current assets:
    Cash and cash equivalents...................... $        2,646  $          662
    Accounts receivable, net.......................          1,952             531
    Prepaid expenses and other current assets......            476             414
                                                     --------------  --------------
        Total current assets.......................          5,074           1,607
Property and equipment, net........................          1,894             885
Goodwill and intangible assets, net................          4,604             940
Other assets.......................................            200              --
                                                     --------------  --------------
        Total assets............................... $       11,772  $        3,432
                                                     ==============  ==============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable............................... $          633  $          534
    Accrued liabilities............................          2,363           1,416
    Deferred revenue...............................          3,146             854
    Short-term borrowings..........................             --              60
                                                     --------------  --------------
        Total current liabilities..................          6,142           2,864
                                                     --------------  --------------
Stockholders' equity:
    Common stock, $0.001 par value.................             31              31
    Additional paid-in capital.....................        263,836         263,844
    Deferred stock-based compensation..............            (93)            (21)
    Accumulated other comprehensive income.........             72             204
    Accumulated deficit............................       (258,216)       (263,490)
                                                     --------------  --------------
        Total stockholders' equity.................          5,630             568
                                                     --------------  --------------
        Total liabilities and stockholders' equity. $       11,772  $        3,432
                                                     ==============  ==============

As The ofaccompanying ~~September 28,~~notes ~~2002,~~are ~~there~~an ~~were~~integral ~~30,137,501~~part ~~shares~~ of ~~the registrant’s~~these ~~Common~~ condensed ~~Stock~~consolidated ~~outstanding~~financial statements.

~~TABLE~~ ACCRUE SOFTWARE, INC. CONDENSED CONSOLIDATED STATEMENT OF ~~CONTENTS~~OPERATIONS (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)

PART I. FINANCIAL INFORMATION
	ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
		CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosure about Market Risk
	Item 4. Controls and Procedures
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities and Use of Proceeds
	Item 3. Default upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
EXHIBIT 3.1
EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 10.3
EXHIBIT 99.1
EXHIBIT 99.2

                                                      Three Months Ended         Nine Months Ended
                                                  --------------------------  --------------------------
                                                   December 29,  December 28,  December 29,  December 28,
                                                      2001          2002          2001          2002
                                                  ------------  ------------  ------------  ------------
Net revenue:
   Software license............................. $        976  $        183  $      3,557  $        840
   Maintenance and service......................        2,885           801         7,726         3,594
                                                  ------------  ------------  ------------  ------------
Total net revenue...............................        3,861           984        11,283         4,434
                                                  ------------  ------------  ------------  ------------
Cost of revenue:
   Software license.............................           75            50           285           132
   Maintenance and service......................        1,396           550         5,238         2,198
                                                  ------------  ------------  ------------  ------------
Total cost of revenue...........................        1,471           600         5,523         2,330
                                                  ------------  ------------  ------------  ------------
Gross profit....................................        2,390           384         5,760         2,104

Operating expenses:
   Research and development.....................        1,628           404         5,480         2,093
   Sales and marketing..........................        1,558           324         4,653         1,689
   General and administrative...................        1,281           351         4,069         2,416
   Amortization of intangibles..................        1,145           277         3,435         1,095
   Write-down of fixed assets...................           --            --            --           290
   Stock-based compensation expense.............         (772)          (15)         (287)           75
                                                  ------------  ------------  ------------  ------------
Total operating expenses........................        4,840         1,341        17,350         7,658
                                                  ------------  ------------  ------------  ------------
Loss from operations............................       (2,450)         (957)      (11,590)       (5,554)
Other income (expense), net.....................           16           (16)          227           (19)
Gain on sale of technology assets...............           --            --         4,306           299
                                                  ------------  ------------  ------------  ------------
Net loss........................................ $     (2,434) $       (973) $     (7,057) $     (5,274)
                                                  ============  ============  ============  ============

Net loss per share, basic and diluted........... $      (0.08) $      (0.03) $      (0.24) $      (0.18)
                                                  ============  ============  ============  ============

Shares used in computing net loss per share,
   basic and diluted............................       29,772        29,991        29,803        29,968
                                                  ============  ============  ============  ============

~~Table~~ The accompanying notes are an integral part of ~~Contents~~these condensed consolidated financial statements.

ACCRUE SOFTWARE, INC. ~~QUARTERLY~~ CONDENSED ~~REPORT~~CONSOLIDATED ONSTATEMENT ~~FORM~~OF ~~10-Q~~CASH FLOWS (UNAUDITED, IN THOUSANDS)

FOR                                                                               Nine THEMonths PERIODEnded
                                                                           --------------------------
                                                                            December ENDED29,  December SEPTEMBER 28, 
                                                                               2001          2002
                                                                           ------------  ------------
Cash flows from operating activities:
   Net loss.............................................................. $     (7,057) $     (5,274)
   Adjustments to reconcile net loss to net cash
      used in operating activities:
      Gain on sale of technology asset...................................       (4,306)         (299)
      Depreciation and amortization......................................        4,228         1,684
      Loss on sale of fixed assets.......................................           --             4
      Fixed assets written off...........................................           --           290
      Provision for (recovery of sales) returns and doubtful accounts....          102          (244)
      Stock-based compensation expense...................................         (287)           75
      Changes in operating assets and liabilities:
         Accounts receivable.............................................         (653)        1,731
         Prepaid expenses and other current assets.......................        1,837           246
         Other assets....................................................          310            --
         Accounts payable................................................         (361)         (101)
         Accrued liabilities.............................................       (1,458)         (963)
         Accrued costs related to merger and acquisition.................          (80)           --
         Deferred revenue................................................       (1,962)       (1,083)
                                                                           ------------  ------------
      Net cash used in operating activities..............................       (9,687)       (3,934)
                                                                           ------------  ------------
Cash flows from investing activities:
   Net proceeds from sale of technology assets...........................        4,306         1,873
   Proceeds from sale of fixed assets....................................           --             2
   Acquisition of property and equipment.................................          (61)          (44)
   Acquisition of technology assets......................................           --           (50)
                                                                           ------------  ------------
      Net cash provided by investing activities..........................        4,245         1,781
                                                                           ------------  ------------
Cash flows from financing activities:
   Proceeds from stock options and employee stock purchase plan..........           22             4
   Proceeds from short-term borrowings...................................           --            60
   Repurchase of common stock............................................          (57)           --
   Repayment of short term borrowings....................................       (2,000)           --
                                                                           ------------  ------------
      Net cash provided by (used in) financing activities................       (2,035)           64
                                                                           ------------  ------------
      Effect of exchange rate changes on cash............................           56           105
                                                                           ------------  ------------
Net decrease in cash and cash equivalents................................       (7,421)       (1,984)
Cash and cash equivalents at beginning of period.........................       11,951         2,646
                                                                           ------------  ------------
Cash and cash equivalents at end of period............................... $      4,530  $        662
                                                                           ============  ============

Supplemental disclosure of cash flow information:
   Interest paid......................................................... $         28  $          4
                                                                           ============  ============

~~INDEX~~ The accompanying notes are an integral part of these condensed consolidated financial statements.

PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements (Unaudited) :
Condensed Consolidated Balance Sheets At September 28, 2002 And March 30, 2002 3
Condensed Consolidated Statement Of Operations For The Three Months and Six Months Ended September 28, 2002 And September 29, 2001 4
Condensed Consolidated Statement Of Cash Flows For The Six Months Ended September 28, 2002 And September 29, 2001 5
Notes To Condensed Consolidated Financial Statements 6
ITEM 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations 11
ITEM 3. Quantitative And Qualitative Disclosures About Market Risk 29
ITEM 4. Controls And Procedures 29
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 30
ITEM 2. Changes In Securities And Use Of Proceeds 30
ITEM 3. Defaults Upon Senior Securities 30
ITEM 4. Submission Of Matters To A Vote Of Security Holders 30
ITEM 5. Other Information 31
ITEM 6. Exhibits And Reports On Form 8-K 31
SIGNATURES 31
CERTIFICATIONS 32
ACCRUE SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2 Note 1 - Basis of Presentation

~~Table~~Basis of ~~Contents~~Presentation

~~PART~~In Ithe opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to fairly present the Company's financial position, results of operations and cash flows for the periods presented. ~~FINANCIAL~~The ~~INFORMATION~~preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts therein. Due to the inherent uncertainty involved in making estimates, actual results in future periods may differ from those estimates.

~~ITEM~~Certain 1information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. ~~CONDENSED~~These ~~CONSOLIDATED~~financial ~~FINANCIAL~~statements should ~~STATEMENTS~~be read in conjunction with the Company's financial statements and notes thereto for the year ended March 30, 2002, which are contained in the Company's Annual Report on Form 10-K. The results of operations for the current interim period are not necessarily indicative of results to be expected for the full year ending March 29, 2003 or other future periods.

~~ACCRUE~~The ~~SOFTWARE,~~consolidated ~~INC. CONDENSED~~financial ~~CONSOLIDATED~~statements ~~BALANCE~~include ~~SHEETS~~the accounts of ~~(UNAUDITED,~~the INCompany ~~THOUSANDS,~~and ~~EXCEPT~~its ~~PER~~wholly ~~SHARE~~owned ~~DATA)~~subsidiaries. All significant inter-company accounts and transactions have been eliminated.

				MARCH 30,			SEPT. 28,
				2002			2002
ASSETS
Current assets:
	Cash and cash equivalents			$	2,646		$	1,335
	Accounts receivable, net				1,952			554
	Prepaid expenses and other current assets				476			322
			Total current assets		5,074			2,211
Property and equipment, net					1,894			1,013
Goodwill and intangible assets, net					4,604			1,168
Other assets					200			200
			Total assets	$	11,772		$	4,592
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable			$	633		$	481
	Accrued liabilities				2,363			1,585
	Deferred revenue				3,146			1,047
			Total current liabilities		6,142			3,113
Stockholders’ equity:
		Common stock, $0.001 par value			31			31
		Additional paid-in capital			263,836			263,914
		Deferred stock-based compensation			(93	)		(76	)
		Accumulated other comprehensive income			72			127
		Accumulated deficit			(258,216	)		(262,517	)
			Total stockholders’ equity		5,630			1,479
			Total liabilities and stockholders’ equity	$	11,772		$	4,592

Accrue has completed several rounds of equity financing, and debt financing, including a secured convertible note financing in February 2003 that generated $500,923 in proceeds and may generate an additional $300,000 in funds according to the terms of such financing. Accrue previously completed its initial public offering in July 1999 which generated $40.8 million of net proceeds. However, Accrue has incurred substantial losses and negative cash flows from operations in each fiscal year since inception. As of December 28, 2002, Accrue had an accumulated deficit of $263.5 million and a working capital deficit of $1.3 million. For the nine months ended December 28, 2002, Accrue incurred a net loss of $5.3 million and negative cash flows from operations of $3.9 million. Management expects operating losses and negative cash flows to continue for at least the next several quarters due to a decline in projected revenue in comparison to fiscal 2003

~~The~~Accrue's ~~accompanying~~future ~~notes~~capital ~~are~~requirements anwill ~~integral~~depend ~~part~~on many factors, including the ability to increase revenue levels, control operating costs, market acceptance of ~~these~~products, ~~condensed~~timely ~~consolidated~~collection ~~financial~~of ~~statements~~accounts receivable, and successful negotiation of settlements with our creditors. Our ability to accomplish these objectives is subject to uncertainty.

3Although we have recently raised additional working capital pursuant to the convertible debt financing more fully described in Note 12, unless we are able to achieve a rapid increase in our revenues, our current cash resources will be insufficient to fund our business as it has historically been conducted and will soon be exhausted by the current level of operating expenses. Absent such an increase in revenues and possible further cuts in expenses, we would need to obtain additional capital. We are pursuing initiatives to achieve such increased revenues and to improve our cash position by incurring up to $309,000 in additional convertible debt pursuant to the financing discussed in Note 12. However, additional financing may not be available on acceptable terms, if at all, especially in light of the difficult market climate. If we were able to raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our current stockholders would be reduced and these securities might have rights, preferences and privileges senior to those of our current stockholders. Any such financing will be dilutive to existing stockholders. In the event that we cannot improve our cash position quickly, it is likely that we will not be able to continue our business as a going concern. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

~~Table~~Note of2 ~~Contents~~- Recent Accounting Pronouncements

~~ACCRUE~~In ~~SOFTWARE~~June 2001, ~~INC.~~the Financial Accounting Standards Board ~~CONDENSED~~("FASB") ~~CONSOLIDATED~~approved ~~STATEMENT~~Statements OFof ~~OPERATIONS~~Financial Accounting Standards (~~UNAUDITED~~"SFAS") No. 141, IN"Business ~~THOUSANDS~~Combinations" and No. 142, ~~EXCEPT~~"Goodwill ~~PER~~and ~~SHARE~~Other ~~DATA)~~Intangible Assets." The statements eliminate the pooling-of-interests method of accounting for business combinations and require that goodwill and certain intangible assets not be amortized. Instead, the statements provide that these assets should be tested, at least annually, for impairment with any related losses recognized as incurred. SFAS No. 141 is generally effective for business combinations completed after December 29, 2001. SFAS No. 142 was effective for the Company beginning March 31, 2002 for existing goodwill and intangible assets. See Note 5 to the Consolidated Financial Statements for additional discussion of the impact of SFAS No. 142.

			THREE MONTHS ENDED						SIX MONTHS ENDED
			SEPT. 29,			SEPT. 28,			SEPT. 29,			SEPT. 28,
			2001			2002			2001			2002
Net revenue:
	Software license		$	1,434		$	229		$	2,581		$	657
	Maintenance and service			2,376			1,323			4,841			2,793
		Total net revenue		3,810			1,552			7,422			3,450
Cost of revenue:
	Software license			105			49			210			82
	Maintenance and service			1,714			602			3,842			1,648
		Total cost of revenue		1,819			651			4,052			1,730
Gross profit				1,991			901			3,370			1,720
Operating expenses:
	Research and development			1,730			607			3,852			1,689
	Sales and marketing			1,606			439			3,095			1,365
	General and administrative			1,465			987			2,788			2,066
	Amortization of intangibles			1,145			275			2,290			818
	Write-down of fixed assets			—			141			—			290
	Stock-based compensation expense			276			43			485			90
		Total operating expenses		6,222			2,492			12,510			6,318
Loss from operations				(4,231	)		(1,591	)		(9,140	)		(4,598	)
Other income (expense), net				77			3			211			(2	)
Gain on sale of technology assets				—			—			4,306			299
Net loss			$	(4,154	)	$	(1,588	)	$	(4,623	)	$	(4,301	)
Net loss per share, basic and diluted			$	(0.14	)	$	(0.05	)	$	(0.15	)	$	(0.14	)
Shares used in computing net loss per share, basic and diluted				30,131			29,971			30,029			29,957

In October 2001, FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of and supersedes SFAS No. 121 and APB Opinion No. 30. SFAS No. 144 was effective for the Company beginning March 31, 2002. In accordance with this pronouncement, the Company recorded a write-down of fixed assets. See Note 10.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The ~~accompanying~~standard ~~notes~~replaces ~~are~~EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an ~~integral~~Activity ~~part~~(including Certain Costs Incurred in a Restructuring)" and requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of ~~these~~a commitment ~~condensed~~to ~~consolidated~~an ~~financial~~exit ~~statements~~or disposal plan. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company has not yet determined the impact of SFAS No. 146 on its financial position or results of operations.

4In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure-an Amendment of FAS 123." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Finally, SFAS No. 148 amends APB Opinion No. 28, "Interim Financial Reporting," to require disclosure about those effects in interim financial information. The amendments to the transition and disclosure provisions shall be effective for fiscal years ending after December 15, 2002. The amendment to Opinion 28 shall be effective for financial reports containing condensed financial statements for interim periods beginning after December 15, 2002. The Company is currently evaluating whether to adopt SFAS No. 148. The Company will adopt the disclosure provisions of SFAS No. 148 in its Annual Report on Form 10-K for the year ending March 29, 2003.

~~Table~~Note of3 ~~Contents~~- Net loss per share

~~ACCRUE~~Basic ~~SOFTWARE,~~net ~~INC~~loss per share is computed by dividing the net loss available to common stockholders for the period by the weighted average number of vested common shares outstanding during the period. Diluted net loss per ~~CONDENSED~~share ~~CONSOLIDATED~~is ~~STATEMENT~~computed OFby ~~CASH~~dividing ~~FLOWS~~the net loss for the period by the weighted ~~(UNAUDITED~~average number of vested common shares and potential common shares outstanding during the period. However, INas ~~THOUSANDS)~~Accrue generated net losses in all periods presented, potential common shares, composed of incremental common shares issuable upon the exercise of stock options and shares subject to repurchase, are not included in diluted net loss per share because such shares are anti- dilutive.

					SIX MONTHS ENDED
					SEPT. 29,			SEPT. 28,
					2001			2002
Cash flows from operating activities:
	Net loss				$	(4,623	)	$	(4,301	)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Gain on sale of technology asset				(4,306	)		(299	)
		Depreciation and amortization				2,844			1,275
		Loss on sale of fixed assets				—			4
		Fixed assets written off				—			290
		Provision for sales returns and doubtful accounts				100			12
		Stock-based compensation expense				485			90
		Changes in operating assets and liabilities:
			Accounts receivable			(755	)		1,444
			Prepaid expenses and other current assets			(491	)		138
			Other assets			310			—
			Accounts payable			(392	)		(153	)
			Accrued liabilities			(1,445	)		(785	)
			Accrued costs related to merger and acquisition			(80	)		—
			Deferred revenue			(1,337	)		(883	)
				Net cash used in operating activities		(9,690	)		(3,168	)
Cash flows from investing activities:
	Net proceeds from sale of technology assets					4,306			1,873
	Proceeds from sale of fixed assets					—			2
	Acquisition of property and equipment					(53	)		(34	)
				Net cash provided by investing activities		4,253			1,841
Cash flows from financing activities:
	Proceeds from stock options and employee stock purchase plan					22			4
	Proceeds from release of restricted cash held for financing commitments					2,000			—
	Repurchase of common stock					(43	)		—
	Repayment of short term borrowings					(2,000	)		—
				Net cash provided by (used in) financing activities		(21	)		4
				Effect of exchange rate changes on cash		29			12
Net decrease in cash and cash equivalents						(5,429	)		(1,311	)
Cash and cash equivalents at beginning of period						11,951			2,646
Cash and cash equivalents at end of period					$	6,522		$	1,335

At December 28, 2002 and December 29, 2001, options to purchase 2,404,208 and 6,348,500 shares, respectively, of the Company's common stock were outstanding, and 142,742 and 243,200 shares, respectively, of common stock issued are subject to repurchase and could potentially dilute earnings per share in future periods.

~~The~~A ~~accompanying~~reconciliation ~~notes~~of ~~are~~shares anused ~~integral~~in ~~part~~the calculation of ~~these~~net loss ~~condensed~~per ~~consolidated~~share ~~financial~~follows ~~statements.~~ (in thousands, except per share data):

                                                               Three Months Ended     Nine Months Ended
                                                           ----------------------  ----------------------
                                                            Dec. 29,    Dec. 28,    Dec. 29,    Dec. 28,
                                                              2001        2002        2001        2002
                                                           ----------  ----------  ----------  ----------
NET LOSS PER SHARE, BASIC AND DILUTED:
   Net loss.............................................. $   (2,434) $     (973) $   (7,057) $   (5,274)
                                                           ==========  ==========  ==========  ==========

   Weighted average shares of common stock outstanding...     30,032      30,138      30,156      30,124
   Less: weighted average shares subject to repurchase...        260         147         353         156
                                                           ----------  ----------  ----------  ----------
   Weighted average shares used in computing net loss
      per share, basic and diluted.......................     29,772      29,991      29,803      29,968
                                                           ==========  ==========  ==========  ==========

   Net loss per share, basic and diluted................. $    (0.08) $    (0.03) $    (0.24) $    (0.18)
                                                           ==========  ==========  ==========  ==========

~~Table~~Note of4 ~~Contents~~- Equity Transactions

~~ACCRUE~~During ~~SOFTWARE~~the three and nine months ended December 28, ~~INC.~~2002, 625 ~~NOTES~~shares TOof ~~CONDENSED~~common ~~CONSOLIDATED~~stock ~~FINANCIAL~~were ~~STATEMENTS~~exercised pursuant to our stock option plans, at a ~~(Unaudited)~~weighted average share price of $0.12. During the three and nine months ended December 28, 2002, 28,000 shares of common stock were issued pursuant to our employee stock purchase plan, at a weighted average share price of $0.14.

~~Note~~During January 2002, Accrue announced a voluntary stock option exchange program for certain of its employees and directors. Under the program, certain of Accrue's employees and directors were given the opportunity to cancel outstanding stock options previously granted to them that had an exercise price in excess of $4.13 per share in exchange for an equal number of new options to be granted at a future date, which was at least nine months and a day from the cancellation date, and conditioned that such person remains an employee or director of the Company. The exercise price of these new options will be equal to the fair market value of Accrue's common stock on the date of grant. The Company's Board of Directors has authorized the grant of the new options contingent upon receipt of the requisite approvals and qualifications under applicable state securities law, which are pending. Each new option will have a vesting commencement date of September 30, 2001 and a three-year vesting schedule, with 1/3 —of ~~Basis~~the options vesting on the first anniversary of ~~Presentation~~the vesting commencement date (September 30, 2002) and 1/36 of the options vesting at the end of each month for the succeeding 24 months. The exchange program does not result in any additional stock-based compensation charge or variable plan accounting. During March 2002, 1.1 million options with a weighted average exercise price of $19.82 were tendered and cancelled under this program.

~~Basis~~Note of5 - Goodwill ~~Presentation~~ and Other Intangible Assets

In July 2001, the ~~opinion~~FASB issued Statement of ~~management,~~Financial Accounting ~~the~~Standard ~~accompanying~~("SFAS") ~~unaudited~~No. ~~condensed~~142, "Goodwill and Other ~~consolidated~~Intangible Assets," which addresses financial ~~statements~~accounting ~~contain~~and ~~all~~reporting ~~adjustments~~for acquired goodwill and other intangible assets and supersedes Accounting Principles Board ("APB") Opinion No. 17, ~~consisting~~"Intangible Assets." ~~only~~It ofaddresses how intangible assets that are acquired individually ~~normal~~or ~~recurring~~with ~~adjustments~~a group of other assets, ~~necessary~~but tonot ~~fairly~~those ~~present~~acquired ~~the~~in ~~Company’s~~a business combination, should be accounted for in financial ~~position~~statements upon their acquisition. Among other things, ~~results~~it ofrequires ~~operations~~that goodwill and ~~cash~~certain ~~flows~~other intangible assets no longer be amortized and be tested for ~~the~~impairment ~~periods~~at least ~~presented~~annually and written down only when impaired. ~~The~~Further, ~~preparation~~SFAS No. 142 requires us to perform a transitional assessment of ~~financial~~whether ~~statements~~there inis ~~conformity~~an ~~with~~indication that its ~~accounting~~goodwill ~~principles~~is ~~generally~~impaired ~~accepted~~as inof the ~~United~~date ~~States~~ of ~~America~~adoption. We will also be required to ~~requires~~review ~~management~~our other intangible assets for impairment and to ~~make~~reassess ~~estimates~~the useful lives of such assets and ~~assumptions~~make ~~that~~any ~~affect~~necessary adjustments. In accordance with this statement, the ~~reported~~Company reassessed the classification of its intangible assets as ~~amounts~~of ~~therein~~March 31, 2002, and reclassified $1.1 ~~Due~~million of assembled workforce, net of accumulated amortization, to goodwill, which will no longer be amortized. The Company has adopted the ~~inherent~~rules ~~uncertainty~~set ~~involved~~forth in ~~making~~Statement ~~estimates,~~No. 142 on accounting for ~~actual~~goodwill ~~results~~and inother ~~future~~intangibles ~~periods~~effective ~~may~~as ~~differ~~of ~~from~~March ~~those~~31, ~~estimates~~2002. The Company has completed its transitional assessment and concluded that there is no impairment of the Company's goodwill as of March 31, 2002.

~~Certain~~The ~~information~~following ~~and~~is ~~footnote~~a ~~disclosures~~summary ~~normally~~of ~~included~~reported ~~in financial~~net ~~statements~~loss ~~prepared~~and inloss ~~accordance with generally accepted accounting~~per ~~principles~~share ~~have~~as ~~been~~adjusted ~~condensed~~to orexclude ~~omitted.~~amortization ~~These~~of ~~financial~~assembled ~~statements~~workforce ~~should be read in conjunction with the Company’s financial statements and notes thereto~~ for the ~~year~~ periods ended ~~March~~December 3028, 2002, ~~which~~and ~~are contained in the Company’s Annual Report on Form~~December ~~10-K. The results of operations for the current interim period are not necessarily indicative of results to be expected for the full year ending March~~ 29, ~~2003~~2001: ~~or other future periods.~~

         The                                                               Three consolidatedMonths financialEnded     Nine statementsMonths includeEnded
                                                           ----------------------  ----------------------
                                                            Dec. the29,    Dec. accounts28,    Dec. of29,    Dec. the Company28,
andIn itsthousands, whollyexcept ownedper subsidiariesshare data                           2001        2002        2001        2002
                                                           ----------  ----------  ----------  ----------
Reported net loss........................................ All$   (2,434) significant$     (973) inter$   (7,057) $   (5,274)
Assembled workforce amortization.........................        256          -company-         767          --
                                                           ----------  ----------  ----------  ----------
Adjusted accountsnet loss........................................ $   (2,178) $     (973) $   (6,290) $   (5,274)
                                                           ==========  ==========  ==========  ==========
Basic and diluted net loss per share:
transactions   Reported havenet beenloss..................................... eliminated$    (0.08) $    (0.03) $    (0.24) $    (0.18)
   Assembled workforce amortization......................       0.01          --        0.03          --
                                                           ----------  ----------  ----------  ----------
   Adjusted net loss per share........................... $    (0.07) $    (0.03) $    (0.21) $    (0.18)
                                                           ==========  ==========  ==========  ==========

~~Accrue~~The ~~has~~changes ~~completed~~in ~~several~~the ~~rounds~~carrying ofamount ~~equity financing, most recently its initial public offering that generated $40.8 million~~ of ~~net~~goodwill ~~proceeds~~for inthe ~~July~~three ~~1999. However, Accrue has incurred substantial losses~~ and ~~negative~~nine ~~cash flows from operations in each fiscal year since inception. For the three~~ months ended ~~September 28,~~ ~~2002, Accrue incurred an operating loss of $1.6~~December ~~million and negative cash flows from operations of $1.0 million. As of September~~ 28, 2002, ~~Accrue~~ had an accumulated deficit of $263 million and a working capital deficit of $0.9 million. Management expects operating losses and negative cash flows to continue for the foreseeable future due to a decline in projected revenue in comparison to fiscal 2002. Our current cash resources are ~~insufficient to fund our business~~ as itfollows: has historically been conducted. If we cannot raise funds quickly, it is likely that we will not be able to continue our business as a going concern. We are evaluating various initiatives to improve our cash position, including selling additional stock, selling assets, incurring additional debt, implementing further restrictions on spending and other cash generating initiatives. Additional financing, if available at all, may not be available on terms that are acceptable to Accrue because of the uncertainty prevailing in the current market climate. Accrue may not be successful in implementing or negotiating such other arrangements to improve its cash position. If Accrue raises additional funds through the issuance of equity or convertible debt securities, the percentage ownership of its stockholders would be reduced and these securities might have rights, preferences and privileges senior to those of its current stockholders. Any such financing will be dilutive to existing stockholders. Failure to quickly improve our cash position could have a material adverse effect on Accrue’s ability to continue as a going concern and to achieve its intended business objectives.

         The                                                             Three        Nine
                                                             Months      Months
                                                             Ended       Ended
                                                            Dec. condensed28,    Dec. consolidated28,
In financialthousands                                                  2002        2002
                                                           ----------  ----------
Balance statementsas doof notbeginning includeof anyperiod........................ $      503  $       --
adjustmentsReclassification thatof mightassembled resultworkforce..................         --       1,106
Amount fromwritten theoff outcomerelated to sale of thisPilot
   technology uncertaintyassets.....................................         --        (603)
                                                           ----------  ----------
Balance as of end of period.............................. $      503  $      503
                                                           ==========  ==========

~~Note~~Intangible 2assets —subject ~~Recent~~to ~~Accounting~~amortization ~~Pronouncements~~ were as follows:

         In                                                                       March June 200130, the Financial Accounting Standards Board (“FASB”) approved
Statements of Financial Accounting Standards (“SFAS”) No    Dec. 141, “Business
Combinations” and No. 14228, “Goodwill and Other Intangible Assets.” The
statementsIn eliminate the poolingthousands                                                              2002        2002
                                                                       -of-interests method of accounting for business--------  ----------
combinationsDeveloped and requirecore that goodwill and certain intangible assets not be
amortizedtechnology........................................ Instead$    9, the statements provide that these assets should be tested437  $    3,199
atCustomer least annually, for impairment with any related losses recognized as
incurredrelationships. SFAS No. 141 is generally effective for business combinations.............................................        100         100
completed after September 29, 2001Trademarks/tradenames. SFAS No. 142 was effective for the Company..............................................      1,131          40
beginningLess:
   Accumulated March 31,amortization 2002of fordeveloped existing goodwill and intangiblecore assetstechnology. See Note........     (6,489)     (2,762)
5   Accumulated toamortization theof Consolidatedcustomer Financialrelationships................        (75)       (100)
   Accumulated Statementsamortization forof additionaltrademarks discussion/ of thetradenames...............       (606)        (40)
impact                                                                       ----------  ----------
Net of SFAS Nointangibles. 142..................................................... $    3,498  $      437
                                                                       ==========  ==========

InAmortization ~~October~~expense ~~2001,~~related ~~FASB~~to ~~issued~~intangible ~~SFAS~~assets Nowas $0.3 ~~144,~~million ~~“Accounting~~and $1.1 million for the ~~Impairment or~~three ~~Disposal~~and ofnine ~~Long-Lived~~months ~~Assets.” This statement addresses financial~~ended ~~accounting~~December 28, ~~and~~2002, ~~reporting~~respectively. ~~for~~The ~~the~~future ~~impairment~~amount of ~~long-lived~~amortization ~~assets and for~~expense ~~long-lived~~is ~~assets~~as tofollows: ~~be disposed of and~~

6In thousands

Remaining three months of the fiscal year ending March 29, 2003...... $      200
Twelve months of the fiscal year ending April 3, 2004..................      212
Twelve months of the fiscal year ending April 2, 2005..................       17
Twelve months of the fiscal year ending April 1, 2006................          8
                                                                       ----------
          Total...................................................... $      437
                                                                       ==========

~~Table~~Note of6 ~~Contents~~- Significant Customer and Geographic Information

~~supersedes~~Accrue ~~SFAS~~has Noone reportable segment. ~~121~~ ~~and~~Management ~~APB~~uses ~~Opinion~~one measurement ~~No. 30.~~of ~~SFAS~~profitability Nofor its business. ~~144~~ ~~was~~Accrue ~~effective~~markets ~~for~~its products and ~~the~~related ~~Company~~services ~~beginning~~to ~~March 31,~~customers ~~2002.~~in Inmany ~~accordance~~industries ~~with~~in ~~this~~the United States of ~~pronouncement~~America, ~~the~~Europe ~~Company~~and ~~recorded~~Asia-Pacific aregions. ~~write-down~~Revenue ofby ~~fixed~~geographic ~~assets.~~region ~~See Note~~is ~~10.~~as follows:

         In                                                               Three JulyMonths 2002,Ended     Nine theMonths FASB issued SFAS NoEnded
                                                           ----------------------  ----------------------
                                                            Dec. 146, “Accounting for Costs
Associated with Exit or Disposal Activities29,    Dec.” The standard replaces EITF Issue
No28,    Dec. 94-3 29,    Dec. “Liability Recognition for Certain Employee Termination Benefits and28,
OtherIn Costs to Exit an Activity (including Certain Costs Incurred in athousands                                                  2001        2002        2001        2002
Restructuring)” and requires companies to recognize costs associated with exit                                                           ----------  ----------  ----------  ----------
or   United disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal planStates. SFAS No. 146 is to be applied
prospectively to exit or disposal activities initiated after December 31, 2002.
The Company has not yet determined the impact of SFAS No. 146..................................... on its financial$    2,257  $      536  $    6,505  $    2,303
position or results of operations   International.........................................      1,604         448       4,778       2,131
                                                           ----------  ----------  ----------  ----------
                                                          $    3,861  $      984  $   11,283  $    4,434
                                                           ==========  ==========  ==========  ==========

~~Note~~Two 3customers —accounted ~~Net~~for ~~loss~~more ~~per~~than ~~share~~10% of revenue for the three months ended December 28, 2002. For the nine months ended December 28, 2002, one customer accounted for more than 10% of revenue. At December 28, 2002, two customers accounted for 16% and 14%, respectively, of total accounts receivable. The Company believes that these customers are of good credit standing.

~~Basic~~Note ~~net~~7 ~~loss~~- ~~per~~Comprehensive ~~share~~Income is computed by dividing the net loss available to common stockholders for the period by the weighted average number of vested common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss for the period by the weighted average number of vested common shares and potential common shares outstanding during the period. However, as Accrue generated net losses in all periods presented, potential common shares, composed of incremental common shares issuable upon the exercise of stock options and shares subject to repurchase, are not included in diluted net loss per share because such shares are anti-dilutive. (Loss)

AtComprehensive ~~September 28,~~income ~~2002 and September~~(loss) ~~29,~~consists ~~2001,~~of ~~options to purchase~~net ~~3,354,003~~loss and ~~5,727,500~~foreign ~~shares,~~currency ~~respectively~~translation adjustments, of the ~~Company’s~~impact ~~common~~of ~~stock~~which is ~~were~~excluded ~~outstanding,~~from ~~and~~net ~~155,736~~income (loss) and ~~276,300~~is ~~shares,~~included ~~respectively,~~in ofstockholders' ~~common~~equity. ~~stock~~A ~~issued~~summary ~~are~~of ~~subject~~comprehensive toloss ~~repurchase~~is ~~and~~as ~~could~~follows: ~~potentially dilute earnings per share in future periods.~~

         A                                                               Three reconciliationMonths ofEnded     Nine sharesMonths usedEnded
                                                           ----------------------  ----------------------
                                                            Dec. in29,    Dec. the28,    Dec. calculation29,    Dec. of28,
In netthousands                                                  2001        2002        2001        2002
                                                           ----------  ----------  ----------  ----------
   Net loss.............................................. per$   (2,434) share
follows$     (973) $   (in7,057) thousands$   (5,274)
   Foreign exceptcurrency pertranslation sharegain.....................         25          83         188         132
                                                           ----------  ----------  ----------  ----------
   Total datacomprehensive loss.............................. $   (2,409): $     (890) $   (6,869) $   (5,142)
                                                           ==========  ==========  ==========  ==========

Three Months Ended Six Months Ended
Sept. 29, Sept. 28, Sept. 29, Sept. 28,
2001 2002 2001 2002
NET LOSS PER SHARE, BASIC AND DILUTED:
Net loss $ (4,154 ) $ (1,588 ) $ (4,623 ) $ (4,301 )
Weighted average shares of common stock outstanding 30,470 30,126 30,368 30,118
Less: weighted average shares subject to repurchase (339 ) (155 ) (339 ) (161 )
Weighted average shares used in computing net loss per share, basic and diluted 30,131 29,971 30,029 29,957
Net loss per share, basic and diluted $ (0.14 ) $ (0.05 ) $ (0.15 ) $ (0.14 )
Note 8 - Gain on Sale of Technology Assets

~~Note~~On June 26, 2001, Accrue Software, Inc. and its wholly owned subsidiary NeoVista Software, Inc. ("NeoVista") signed a definitive agreement (the "Agreement") with JDA Software Group, Inc. ("JDA") pursuant to which Accrue and NeoVista transferred and sold to JDA certain intellectual property and technology assets (including the Decision Series, RDS Assort and RDS Profile software products), and also transferred to JDA related personnel responsible for developing the transferred technology. Pursuant to the Agreement, JDA granted back to Accrue a royalty-free license to use and distribute the Decision Series software and other related intellectual property in certain market segments. Accrue received $4.9 —million ~~Equity~~for ~~Transactions~~the sale of the Decision Series business of which $0.5 million was placed in an escrow account, subject to indemnification and escrow provisions set forth in the Agreement, which escrow amount was released in June 2002. Accrue paid $132,000 in transaction costs related to the sale of Decision Series assets. Since Accrue's basis in the intellectual property sold to JDA was zero, Accrue recognized a net gain of $4.3 million from the transaction. The $0.5 million held in escrow was received in June 2002 and therefore was recognized as an additional gain on sale by Accrue.

~~During~~On ~~the~~May ~~three~~30, 2002, Accrue Software, Inc. and ~~six~~certain ~~months~~of ~~ended~~its wholly ~~September 28~~owned subsidiaries including Pilot Software, ~~2002~~Inc., ~~625~~Marketwave Corporation, ~~shares~~Accrue ofGmbH, Pilot Software Ltd. and Thorn EMI Computer Software ~~common~~Ltd, ~~stock~~(collectively, ~~were~~the ~~exercised~~"Seller") and Pilot Software Acquisition Corp. and Pilot Software Services Corp. (collectively, the "Purchaser") executed an asset purchase agreement pursuant to ~~our~~which ~~stock~~the ~~option~~Seller ~~plans~~sold and transferred to the Purchaser intellectual property and technology assets (including the Pilot and HitList software products), atcertain arelated ~~weighted~~customer ~~average~~contracts, ~~share~~certain ~~price~~other assets and liabilities (collectively, the "Assets") for $1.5 million in cash, and assumption of certain liabilities, principally future service obligations on prepaid maintenance contracts, totaling $01.122 million. The ~~During~~consideration of $1.5 million was based on the ~~three~~fair ~~and~~market ~~six~~value ~~months~~of ~~ended~~the ~~September 28~~Assets as of May 30, 2002, ~~28,000~~as ~~shares~~determined ofin ~~common~~good faith ~~stock~~by ~~were~~the ~~issued~~Seller ~~pursuant~~and the Purchaser. Accrue paid $0.1 million in transaction costs related to ~~our~~the ~~employee~~sale of the Assets. Since Accrue's basis in the Assets ~~stock~~sold ~~purchase~~to ~~plan,~~Purchaser atwas a$2.8 ~~weighted~~million, ~~average~~Accrue ~~share~~recognized ~~price~~a loss of $0.~~14.~~2 million from the transaction.

~~During~~In ~~January~~connection ~~2002,~~with ~~Accrue~~the ~~announced~~sale ~~a voluntary stock option exchange program for certain~~ of ~~its employees and directors. Under~~ the ~~program~~assets, ~~certain of~~ Accrue’s ~~employees~~retained rights ~~and~~to ~~directors~~use ~~were given~~ the ~~opportunity~~Pilot toand ~~cancel outstanding~~HitList ~~stock~~software ~~options~~technology ~~previously~~within ~~granted~~its toAccrue ~~them that had an exercise price~~G2 inproduct ~~excess~~pursuant ~~of $4.13 per share in exchange for an equal number of new options~~ to be ~~granted at~~ a ~~future~~separate ~~date,~~license ~~which~~agreement ~~was~~dated atMay ~~least~~30, ~~six~~2002 ~~months and a day from~~ (the ~~cancellation~~"License ~~date,~~Agreement") ~~and~~for ~~conditioned~~a ~~that~~royalty ~~such~~fee ~~person remains an employee or director~~ of ~~the~~$200,000 ~~Company.~~payable ~~The~~in ~~exercise price of these new options will be~~ equal toinstallments ~~the~~from ~~fair~~June ~~market~~2002 ~~value of Accrue’s common stock on the date of grant, which is expected~~ to beMay ~~determined during November 2002~~2004. ~~Each~~Additionally, ~~new~~Pilot ~~option~~Software ~~will have a~~Services ~~vesting commencement date of September 30~~Corp., ~~2001~~an ~~and~~entity aaffiliated ~~three-year vesting schedule,~~ with ~~1/3~~Pilot ofSoftware ~~the~~Acquisition ~~options vesting on the first anniversary of the vesting commencement date (September 30~~Corp., ~~2002)~~will ~~and 1/36 of the options vesting~~provide atto ~~the~~Accrue ~~end~~support ofservices ~~each month~~ for the ~~succeeding~~Pilot ~~24 months.~~and ~~The~~HitList ~~exchange~~software ~~program~~technology ~~does~~pursuant ~~not~~to ~~result~~a inseparate ~~any~~support ~~additional~~agreement ~~stock-based~~dated ~~compensation~~May ~~charge or variable plan accounting. During March 2002~~30, 12002.~~1 million~~ ~~options~~Pilot ~~with a weighted~~Software ~~average~~Acquisition ~~exercise price of $19~~Corp.82 ~~were tendered~~ and ~~cancelled~~Pilot ~~under~~Software ~~this program~~Services Corp. Atare ~~September 28,~~newly ~~2002,~~established companies ~~there~~formed ~~were~~by ~~502,000~~institutional ~~options~~investors towho beare ~~issued under~~not ~~this~~affiliated ~~exchange program.~~with Accrue.

7 Note 9 - Commitments and Contingencies

~~Table of Contents~~Commitments:

~~Note~~Accrue ~~5 — Goodwill~~leases office space and ~~Other~~office ~~Intangible~~equipment ~~Assets~~under non- cancelable operating leases with various expiration dates through 2005. Future minimum lease payments under non-cancelable operating leases, minimum guaranteed royalty payments are as follows:

         In July 2001, the FASB issued Statement of Financial Accounting Standard
(“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” which addresses                                                              Minimum
financial accounting and reporting for acquired goodwill and other intangible                                       Operating  Sub-lease   Royalty
assetsIn and supersedes Accounting Principles Board (“APB”) Opinion No. 17,thousands                            Leases     Income    Payments     Total
“Intangible Assets.” It addresses how intangible assets that are acquired                                       ---------  ---------  ---------  ---------
individuallyJanuary or with a group of other assets1, but2003 not- thoseDecember acquired in a
business combination31, should2003.. be accounted for in financial statements upon$     301  $     (19)       100  $     382
theirJanuary acquisition. Among other things1, it2004 requires- thatDecember goodwill and certain
other intangible assets no longer be amortized and be tested for impairment at
least annually and written down only when impaired. Further31, SFAS No2004. 142
requires us to perform a transitional assessment of whether there is an
indication that its goodwill is impaired as of the date of adoption. We will        43         --         42         85
alsoJanuary be required to review our other intangible assets for impairment and to
reassess the useful lives of such assets and make any necessary adjustments. In
accordance with this statement1, the2005 Company- reassessedDecember the classification of
its intangible assets as of March 31, 2002, and reclassified $12005.1 million of.        11         --         --         11
assembled workforce, net of accumulated amortization, to goodwill, which will                                       ---------  ---------  ---------  ---------
no longer be amortizedTotal. The Company has adopted the rules set forth in
Statement No. 142 on accounting for goodwill and other intangibles effective as
of March 31, 2002.............................. The$     355  $     (19) Company has completed its transitional assessment and$     142  $     478
concluded that there is no impairment of the Company’s goodwill as of March 31,                                       =========  =========  =========  =========
2002.

~~The~~Rent ~~following~~expense, isnet aof ~~summary~~sub-lease ofincome, ~~reported~~was ~~net~~$0.1 ~~loss~~million and $0.4 ~~loss~~million ~~per~~for ~~share~~the asthree months ended December 28, 2002 and December 29, 2001, ~~adjusted~~respectively toand ~~exclude~~was ~~amortization~~$0.4 ofmillion ~~assembled~~and ~~workforce~~$1.1 million for the ~~three-month periods~~nine months ended December ~~September~~ 28, 2002 and ~~September~~ December 29, 2001: , respectively.

	Three Months Ended						Six Months Ended
	Sept. 29,			Sept. 28,			Sept. 29,			Sept. 28,
In thousands, except per share data	2001			2002			2001			2002
Reported net loss	$	(4,154	)	$	(1,588	)	$	(4,623	)	$	(4,301	)
Assembled workforce amortization		256			—			512			—
Adjusted net loss	$	(3,898	)	$	(1,588	)	$	(4,111	)	$	(4,301	)
Basic and diluted net loss per share:
Reported net loss	$	(0.14	)	$	(0.05	)	$	(0.15	)	$	(0.14	)
Assembled workforce amortization		0.01			—			0.01			—
Adjusted net loss per share	$	(0.13	)	$	(0.05	)	$	(0.14	)	$	(0.14	)

In May 2002, in connection with the sale of certain assets related to Pilot and HitList products to Pilot Software Acquisition Corporation, an unrelated third party, Accrue sub-leased 60% of the Cambridge office facility to Pilot Software Acquisition Corporation. Accrue retained rights to use the Pilot and HitList software technology within its Accrue G2 product pursuant to a separate license agreement for a royalty fee of $0.2 million payable in equal installments over the next 24 months.

The ~~changes~~Company has a letter of credit outstanding in connection with the ~~carrying~~Cambridge office lease in the amount of ~~goodwill~~$0.2 ~~for~~million. A cash deposit held by the ~~three~~bank ~~and~~issuing ~~six~~the letter of credit collateralizes this letter of ~~months~~credit. ~~ended~~This ~~September~~ restricted cash deposit is included on the Consolidated Balance Sheets in "Prepaid Expenses and Other Current Assets" as of December 28, 2002, ~~are~~and in "Other Assets" as ~~follows:~~ of March 30, 2002.

	Three Months Ended		Six Months Ended
In thousands	Sept. 28, 2002		Sept. 28, 2002
Balance as of beginning of period	$	503	$	—
Reclassification of assembled workforce		—		1,106
Amount written off related to sale of Pilot technology assets		—		(603	)
Balance as of end of period	$	503	$	503

In June 2001, we entered into an at-will, one-year accounts receivable purchase agreement with a financial institution under which we may borrow up to an aggregate of $1.5 million, subject to the approval of assigned receivables by the lender. The borrowing base under this agreement is the lesser of 80% of eligible accounts receivable or $1.5 million. This facility renewed for a one-year period in June 2002. We had no borrowings pursuant to this agreement, which was terminated effective as of February 2003.

~~Intangible~~ ~~assets subject to amortization were as follows~~Contingencies:

In thousands		March 30, 2002			Sept. 28, 2002
Developed and core technology		$	9,437		$	3,149
Customer relationships			100			100
Trademarks/tradenames			1,131			40
Less: Accumulated amortization of developed and core technology			(6,489	)		(2,495	)
	Accumulated amortization of customer relationships		(75	)		(92	)
	Accumulated amortization of trademarks / tradenames		(606	)		(37	)
Net intangibles		$	3,498		$	665

On February 20, 1999, Execplan Sistemas Executivos Ltda., a former distributor of our wholly-owned subsidiary Pilot Software, Inc.'s products in Brazil, filed a claim for arbitration with the American Arbitration Association in connection with Pilot's failure to enter into a new distribution agreement with Execplan when the prior agreement between the parties terminated by its terms. Execplan made a claim for damages in the amount of $15 million. Pilot denied Execplan's claim and filed a counterclaim alleging, among other things, breach of contract, misappropriation of Pilot trade secrets and infringement of Pilot copyrights. The arbitration was terminated by order of the Arbitrators dated August 16, 2002.

8During the first quarter of fiscal 2002, the Company implemented headcount reductions in certain of its European subsidiaries. The Company provided the affected employees continued employment during the statutory notice period as required by local law. A total of six employees in France and Germany filed complaints with the local labor courts contesting the dismissals and are seeking severance payments and other monetary consideration in addition to compensation for the statutory notice period. As of December 28, 2002, three claims were settled, one claim was dismissed, and two claims are scheduled for hearings in the first calendar quarter of 2003. One of the two remaining claims was partially settled in the fourth quarter of 2002, and the Company is contesting the remaining portion of that claim and all of the other claim. The Company has accrued the cost of the settlements entered into and has accrued its estimated liability for the pending suits; the total accrued is $88,000.

~~Table~~The German Tax Authority is auditing the tax returns of ~~Contents~~the German subsidiary of Pilot Software, which Accrue acquired in September 2000, for the tax years 1995-1999. In connection with this audit, the German Tax Authority has disputed the transfer pricing methodologies and other deductions contained in those tax returns. The Tax Authority has issued a notice of tax deficiency in the amount of 1.5 million DM related to the tax returns for the years 1996 and 1997. Accrue is contesting these claims. In addition, under the terms of the Pilot Merger Agreement, Accrue has right to indemnification against Platinum Equity Holdings, LLC (Platinum) for damages related to tax claims against Pilot Software, Inc. and its subsidiaries arising prior to the date of the acquisition of Pilot Software, Inc. There can be no assurance that this matter will be resolved without costly litigation, or in a manner that is not materially adverse to Accrue's financial position, results of operations or cash flows. Furthermore, there can be no assurance that Accrue will be able to enforce its indemnification right against Platinum, if Platinum disputes such claims, without undue cost or delay. As additional information becomes available, Accrue will assess its potential liability, if any.

~~Amortization~~Note ~~expense~~10 ~~related~~- toFixed ~~intangible~~Asset ~~assets was $0.3 million and $0.8 million for the three and six months ended September 28, 2002, respectively. The future amount of amortization expense is as follows:~~ Write-down


In connection with a reduction in headcount, Accrue performed an impairment analysis of its fixed assets in the first quarter of fiscal 2003 and recorded a write-off of property and equipment costing $320,000 which had accumulated depreciation of $171,000 and resulted in a loss on disposal of $149,000. Accrue performed a similar analysis for the three months ended September 28, 2002. As a result of this analysis, the Company recorded a write-off of property and equipment costing $910,000, which had accumulated depreciation of $769,000 and resulted in a loss on disposal of $141,000. For the nine months ended December 28, 2002, the total fixed asset write-off was $1.2 million in property and equipment, which had accumulated depreciation of $0.9 million and resulted in a loss on disposal of $0.3 million.

In thousands
Remaining six months of the fiscal year ending March 29, 2003 $ 470
Three months of the fiscal year ending April 3, 2004 195
Total $ 665
Note 11 - Related Party Transactions

~~Note~~On 6October —31, ~~Significant~~2002, ~~Customer~~Accrue acquired certain tangible and intangible ~~Geographic~~assets ~~Information~~of privately held Personify, Inc., including source code, related documentation and computer hardware for a purchase price of $60,000. In connection with this purchase, the Company borrowed an aggregate of $60,000 from Robert M. Smelick, Chairman of the Accrue Board of Directors and significant stockholder of Accrue, pursuant to two demand promissory notes, collateralized solely by the Company's interest in the purchased assets. The note is payable upon demand and accrues interest at 2.03% per annum.

~~Accrue~~Note ~~has~~12 one reportable segment. Management uses one measurement of profitability for its business. Accrue markets its products and related services to customers in many industries in the United States of America, Europe and Asia-~~Pacific~~ ~~regions.~~Subsequent ~~Revenue by geographic region is as follows:~~ Events

	Three Months Ended				Six Months Ended
	Sept. 29,		Sept. 28,		Sept. 29,		Sept. 28,
In thousands	2001		2002		2001		2002
United States	$	2,021	$	625	$	4,248	$	1,766
International		1,789		927		3,174		1,684
	$	3,810	$	1,552	$	7,422	$	3,450

On February 4, 2003, the Company completed a debt financing in which it sold to certain affiliates of the Company and outside investors five secured convertible promissory notes (the "Notes") having an aggregate principal amount of $500,923 (the "Note Financing"). The Notes accrue interest at 6% and mature on February 4, 2006, unless earlier converted into equity securities of the Company. The Notes are convertible into equity securities of the Company as follow: (1) in the event that the closing bid or sales prices of the Company's Common Stock is at least $0.20 per share for a period of 60 consecutive trading days, the entire principal amount of and accrued interest on the Notes will automatically convert into shares of the Company's Common Stock, or (2) upon the consent of the holders of a majority of the outstanding principal amount of the Notes, the principal and, at the request of the holders of the Note, the accrued interest on the Notes, is convertible into shares of Common Stock or, in the event that there is a series of Preferred Stock of the Company issued or proposed to be issued, into the most senior series of such Preferred Stock. There is no series of Preferred Stock issued or proposed to be issued as of this filing. In case of a conversion into Common Stock or Preferred Stock, as the case may be, the number of shares into which the Notes may convert is determined by dividing (i) the principal amount of the Note plus, if applicable, the accrued interest on the Note by (ii) $0.06 (as adjusted from time-to-time as set forth in the Notes). The conversion rights on the note financing result in the notes being considered contingently convertible. The Company may be required to record a beneficial conversion feature charge depending on certain triggering events. Robert M. Smelick, the Chairman of the Board of Directors of the Company, purchased a Note having a principal amount of $60,350. Mr. Smelick paid for his Note through a cancellation of indebtedness owed by the Company to Mr. Smelick pursuant to the principal and accrued interest on a $12,000 Secured Promissory Note sold to Mr. Smelick on October 11, 2002 and a $48,000 Secured Promissory Note sold to Mr. Smelick on October 25, 2002 in connection with the Company's acquisition of the Personify assets. The Company sold a $320,000 secured promissory note to Sterling Payot Capital, LP, of which Mr. Smelick is a general partner, on January 16, 2003 in anticipation of the Note Financing. Accordingly, Sterling Payot Capital, LP purchased a Note having a principal of $335,574. Sterling Payot Capital, LP paid for its Note through a combination of $15,000 of cash and a cancellation of indebtedness in the amount of $320,574 owed by the Company to Sterling Payot Capital, LP pursuant to the principal and accrued interest on the $320,100 secured promissory note previously sold to Sterling Payot Capital, LP on January 16, 2003. The Company is authorized to sell an additional $309,000 worth of Notes pursuant to the terms set forth in the Note Financing documents.

~~Two customers accounted for more than 10% of revenue for the three months ended September~~Item ~~28, 2002~~2. ~~For~~Management's ~~the~~Discussion ~~six~~and ~~months~~Analysis ~~ended September 28, 2002, one customer accounted for more than 10%~~ of ~~revenue.~~Financial ~~At September 28, 2002, two~~Condition ~~customers accounted for 16%~~ and ~~14%,~~Results ~~respectively,~~ of ~~total accounts receivable. The Company believes that these customers are of good credit standing.~~ Operations

~~Note~~This 7Quarterly —Report ~~Comprehensive~~on ~~Income~~Form ~~(Loss)~~10-Q contains forward-looking statements reflecting management's current forecast of certain aspects of our future. It is based on current information, which we have assessed but which by its nature is dynamic and subject to rapid and even abrupt changes. Forward looking statements include statements regarding future operating results, liquidity, capital expenditures, product development and enhancements, numbers of personnel, strategic relationships with third parties, and strategy. The forward-looking statements are generally accompanied by words such as "plan," "estimate," "expect," "believe," "should," "would," "could," "anticipate" or other words that convey uncertainty of future events or outcomes. Our actual results could differ materially from those stated or implied by our forward- looking statements due to risks and uncertainties associated with our business. These risks are described throughout this Quarterly Report on Form 10-Q, which you should read carefully. We would particularly refer you to the "Risk Factors" section of this Report for an extended discussion of the risks confronting our business. The forward-looking statements in this Quarterly Report on Form 10-Q should be considered in the context of these risk factors.

~~Comprehensive~~The ~~income~~following ~~(loss) consists~~discussion of ~~net~~the ~~loss~~financial ~~and~~condition ~~foreign currency~~and ~~translation~~results ~~adjustments,~~of ~~the~~operations ~~impact~~ of ~~which~~Accrue isSoftware, ~~excluded~~Inc. ~~from~~should ~~net~~be ~~income~~read ~~(loss)~~in conjunction ~~and~~with isthe ~~included~~consolidated infinancial ~~stockholders’~~statements ~~equity.~~and Anotes ~~summary~~thereto ofand ~~comprehensive~~other information ~~loss~~included iselsewhere ~~as follows:~~ in this report.

Three Months Ended Six Months Ended
Sept. 29, Sept. 28, Sept. 29, Sept. 28,
In thousands 2001 2002 2001 2002
Net loss $ (4,154 ) $ (1,588 ) $ (4,623 ) $ (4,301 )
Foreign currency translation gain 64 61 128 55
Total comprehensive loss $ (4,090 ) $ (1,527 ) $ (4,495 ) $ (4,246 )
Overview

~~Note~~We 8were —founded ~~Gain~~in on1996 ~~Sale~~and are headquartered in Fremont, California. We develop, sell and market Internet analytics software solutions. Our products collect, process and provide capabilities to analyze data from Web sites, which enables customers to better evaluate, manage and improve the effectiveness of ~~Technology~~their ~~Assets~~critical Internet based marketing and merchandising initiatives. Our principal product, Accrue G2, became available in May 2001 through our Preferred Customer Program. Accrue G2 is a comprehensive Internet analytics platform designed to provide companies with insight into the relationships between Web site activity and business actions.

OnWe ~~June 26,~~have ~~2001,~~sustained ~~Accrue~~losses ~~Software,~~on ~~Inc.~~an ~~and~~annual ~~its~~basis ~~wholly~~since ~~owned subsidiary NeoVista Software, Inc~~inception. ~~(“NeoVista”) signed a definitive agreement (the~~ ~~“Agreement”)~~At ~~with~~December ~~JDA Software Group~~28, ~~Inc. (“JDA”) pursuant to which Accrue and NeoVista transferred and sold to JDA certain intellectual property and technology assets (including the Decision Series~~2002, ~~RDS~~we ~~Assort~~have ~~and~~an ~~RDS~~accumulated ~~Profile software~~deficit ~~products),~~of ~~and~~approximately ~~also transferred to JDA related personnel responsible~~$263 ~~for developing the transferred technology~~million. ~~Pursuant~~Our tonet ~~the~~loss ~~Agreement,~~was ~~JDA granted~~approximately ~~back to Accrue a royalty-free license to use and distribute the Decision Series software and other related intellectual property in certain market segments. Accrue received~~ $41.9 0 million ~~for~~in the ~~sale~~quarter ~~of the Decision~~ended ~~Series~~December ~~business~~28, ~~of which $0~~2002.~~5 million~~ We ~~was~~expect ~~placed in an escrow account, subject~~ to ~~indemnification~~incur ~~and~~additional ~~escrow~~net ~~provisions~~losses ~~set~~for ~~forth~~at inleast the ~~Agreement, which~~ ~~escrow~~next ~~amount~~several ~~was~~quarters. ~~released~~There incan ~~June~~be ~~2002.~~no ~~Accrue~~assurance that ~~paid~~our ~~$132,000~~revenue inwill ~~transaction~~increase ~~costs~~or ~~related~~continue toat ~~the~~its ~~sale~~current ~~of Decision Series Assets~~level. ~~Since~~There ~~Accrue’s~~also ~~basis~~can ~~in the~~be ~~intellectual~~no ~~property~~assurance ~~sold~~that towe ~~JDA was zero, Accrue recognized a net gain of~~will ~~$4.3 million~~generate cash from ~~the~~operations ~~transaction.~~in ~~The~~future ~~$0.5 million~~periods, ~~held~~or inachieve ~~escrow~~or ~~was received~~maintain inprofitability ~~June~~to ~~2002~~finance ~~and~~our ~~therefore~~operations ~~was~~without ~~recognized~~raising ~~as an~~ additional ~~gain on sale by Accrue~~capital.

OnWe ~~May 30,~~experienced ~~2002~~a significant decline in revenues during fiscal 2003, ~~Accrue~~as ~~Software~~compared to the comparable prior year, ~~Inc.~~which ~~and~~was ~~certain~~primarily the result of ~~its~~weak ~~wholly~~economic ~~owned subsidiaries~~conditions, including ~~Pilot~~a ~~Software,~~continued ~~Inc.,~~weakness ~~Marketwave~~in information ~~Corporation~~technology spending by our current and prospective customers, customer concerns about Accrue's financial condition, which caused several ~~GmbH~~customers to delay or decline purchase decisions and, ~~Pilot~~a ~~Software~~smaller ~~Ltd~~sales force as compared to the comparable prior year period. In response, we undertook several initiatives during fiscal 2003 designed to help scale the business to its revenue base and ~~Thorn~~reduce ~~EMI~~our ~~Computer~~cash ~~Software~~burn ~~Ltd~~rate. These initiatives included selling assets not critical to the company's principal Internet analytics product offerings, ~~(collectively~~reducing headcount, implementing a temporary unpaid leave program for ~~the~~approximately ~~“Seller”)~~30 employees, eliminating certain cash bonuses for employees including management, and ~~Pilot~~continuing to reduce overall operating expenses. Headcount was reduced from 117 at December 29, 2001 to 36 at December 28, 2002, and other non-labor expenses were significantly reduced.

9Although we have recently raised additional working capital, unless we are able to achieve a rapid increase in our revenues, our current cash resources will be insufficient to fund our business as it has historically been conducted and will soon be exhausted by the current level of operating expenses. Absent a rapid increase in revenues and possible further cuts in expenses, we would need to obtain additional capital. We are pursuing initiatives to achieve such increased revenues and to improve our cash position by incurring additional debt. In addition, we are pursuing initiatives such as selling assets, selling additional stock, implementing further reductions in spending and other cash generating initiatives. As a result of our continuing operating deficit and limited cash resources, it is imperative that we increase revenues or raise additional funds quickly. If we are unable to do so, it is likely that we will not be able to continue our business as a going concern and that we will be required to wind down our operations and engage in efforts to sell our assets. In this event, there can be no assurance that available cash and amounts received on the sale of assets will be adequate to provide for our obligations, liabilities, expenses and claims and to make cash distributions to stockholders, and we may decide or be compelled to file for protection under federal bankruptcy proceedings. If such available cash and amounts received from the sale of assets are not adequate to provide for our obligations, liabilities, expenses and claims, we may not be able to distribute meaningful cash, or any cash, to our stockholders and creditors.

~~Table~~In addition, our current and future expense levels are based largely on our planned operations and estimates of ~~Contents~~future sales. Sales and operating results generally are highly dependent upon the volume and timing of orders received and the timely completion of new customer implementations, both of which are difficult to forecast, particularly in the current business environment. We may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Accordingly, any significant shortfall in sales or customer implementations would have an immediate adverse effect on our business, financial condition, results of operations and cash flows. In view of the dynamic nature of our business and our limited operating history, we are unable to accurately forecast our sales and believe that period- to-period comparisons of our operating results should not be relied upon as an indication of future performance.

Source Software Acquisition Corp. and Pilot Software Services Corp. (collectively, the “Purchaser”) executed an asset purchase agreement pursuant to which the Seller sold and transferred to the Purchaser intellectual property and technology assets (including the Pilot and HitList software products), certain related customer contracts, certain other assets and liabilities (collectively, the “Assets”) for $1.5 million in cash, and assumption of ~~certain~~Revenue liabilities, principally future service obligations on prepaid maintenance contracts, totaling $1.2 million. The consideration of $1.5 million was based on the fair market value of the Assets as of May 30, 2002, as determined in good faith by the Seller and the Purchaser. Accrue paid $0.1 million in transaction costs related to the sale of the Assets. Since Accrue’s basis in the Assets sold to Purchaser was $2.8 million, Accrue recognized a loss of $0.2 million from the transaction.

InWe ~~connection~~generate ~~with~~revenue ~~the~~principally ~~sale~~from oflicensing ~~the~~our software ~~Assets,~~solutions ~~Accrue~~directly ~~retained rights~~ to ~~use the~~customers ~~Pilot~~ and ~~HitList~~providing ~~software~~related ~~technology within its Accrue G2 product pursuant~~services toincluding ~~a separate license agreement dated May 30~~implementation, ~~2002 (the “License Agreement”) for a royalty fee of $200~~consulting,~~000~~ ~~payable~~training inand ~~equal~~support. We ~~installments~~market ~~over the next 24~~our ~~months. Additionally~~products, ~~Pilot~~both ~~Software~~domestically ~~Services~~and ~~Corp.~~internationally, anprincipally ~~entity~~through ~~affiliated~~our ~~with~~direct ~~Pilot~~sales ~~Software~~force. ~~Acquisition~~Sales ~~Corp.,~~derived ~~will~~through ~~provide~~indirect tochannels, ~~Accrue~~which ~~support~~consist ~~services~~primarily ~~for~~of ~~the~~international ~~Pilot~~resellers and ~~HitList~~system ~~software~~integrators ~~technology~~are ~~pursuant~~immaterial tofor athe ~~separate support~~quarter ~~agreement~~ended ~~dated~~December ~~May 30~~28, 2002. ~~Pilot Software Acquisition Corp. and Pilot Software Services Corp. are newly established companies formed by institutional investors who are not affiliated with Accrue.~~

~~Note~~We 9license —our ~~Commitments~~products ~~and~~to ~~Contingencies~~our customers primarily on a perpetual basis. Our pricing model for Accrue G2 is based on the number of server-based CPUs. This allows for additional revenue as a customer's Internet channel expands. License fees for Accrue G2 have typically ranged from $50,000 to several hundred thousand dollars. Customers can subsequently pay additional license fees to expand the right to use previously licensed software solutions, or to purchase additional software solutions.

~~Commitments:~~Annual support and maintenance contracts, which are purchased with initial product licenses, entitle customers to telephone support and upgrades, when and if available. The price for our support and maintenance program is based on a percentage of list price, is paid in advance and is non- refundable. Revenue from maintenance agreements is included in services revenue in the accompanying condensed consolidated statements of operations.

~~Accrue~~We ~~leases~~also ~~office~~provide ~~space~~consulting, implementation and ~~office~~training services ~~equipment~~to ~~under~~our ~~non-cancelable operating~~customers ~~leases~~separately ~~with~~from ~~various~~our ~~expiration~~sales ~~dates~~of ~~through~~product ~~2005~~licenses. ~~Future~~Such services ~~minimum~~typically include evaluating their business needs, identifying the data ~~lease~~sources ~~payments~~necessary ~~under~~to ~~non-cancelable~~meet ~~operating~~these ~~leases~~needs and installing the software solution in a manner that fulfills their requirements. Consulting and implementation services can be acquired on either a fixed fee or a time and expense basis. Revenue from consulting, ~~minimum~~implementation ~~guaranteed~~and training services is ~~royalty~~included ~~payments~~in ~~are~~services asrevenue ~~follows:~~in the accompanying consolidated statements of operations. We have also historically supplemented the capacity of our internal professional services organization by subcontracting some of these services to third-party consulting organizations.

	Operating					Minimum Royalty
In thousands	Leases		Sub-lease Income			Payments		Total
October 1, 2002 - September 30, 2003	$	651	$	(234	)	$	175	$	592
October 1, 2003 - September 30, 2004		366		(177	)		66		255
October 1, 2004 - September 30, 2005		163		(88	)		—		75
Total	$	1,180	$	(499	)	$	241	$	922

We recognize license revenue when a signed contract or other persuasive evidence of an arrangement exists, the software has been shipped or electronically delivered, the license fee is fixed or determinable and collection of resulting receivables is probable. The determination regarding the probability of collection is based on management's judgment. For contracts with multiple elements (e.g. products, maintenance, installation and other services), revenue is allocated to delivered components, normally the license component, of the arrangement using the residual value method based on objective evidence of the fair value of the undelivered elements, which is specific to Accrue. We recognize revenue allocated to undelivered products when the criteria for product revenue set forth above are met. If changes in conditions cause management to determine that these criteria are not met for certain future transactions, revenue recognized for any reporting period could be adversely affected.

~~Rent~~We ~~expense~~derive a significant portion of our revenue from either fixed price contracts for professional services that require the accurate estimation of the cost, ~~net~~scope and duration of ~~sub-lease~~each ~~income~~engagement, ~~was~~or ~~$0.2 million~~multiple element ~~and~~arrangements $0that tie the recognition of licenses to such implementation services.~~4 million~~ For contracts involving significant implementation, customization or ~~for~~services that are essential to the ~~three~~functionality ~~months~~of ~~ended~~the ~~September 28~~software, ~~2002~~both the product license revenue and ~~September 29,~~service ~~2001~~revenue are recognized in accordance with the provisions of Statement of Position ("SOP") No. 81-1, ~~respectively~~"Accounting for Performance of Construction Type and ~~was~~Certain $0Production Type Contracts".~~4 million~~ When reliable estimates are available for the costs and efforts ~~$0.8 million~~necessary to complete the implementation services, we account for the arrangements ~~six~~under ~~months~~the ~~ended~~percentage of completion contract method pursuant to SOP ~~September 28~~No. 81-1. When such estimates are not available, ~~2002~~the ~~and~~completed ~~September 29~~contract method is utilized. Labor hours incurred are used as the measure of progress towards completion with revision of estimates reflected in the period in which changes become known. If we do not accurately estimate the resources required or the scope of work to be performed, ~~2001~~or do not manage our projects properly within the planned periods of time or satisfy our obligations under the contracts, ~~respectively~~then future consulting margins may be significantly and negatively affected or losses on existing contracts may need to be recognized. Any such resulting reductions in margins or contract losses could be material to our results of operations.

InMaintenance ~~May~~and ~~2002,~~service inrevenue ~~connection~~depends ~~with~~on the ~~sale~~continued ability of ~~certain~~our ~~assets~~customers ~~related~~ to ~~Pilot~~ pay over time and ~~HitList~~on ~~products~~customers torenewing ~~Pilot~~contracts for ~~Software~~software ~~Acquisition~~maintenance. If ~~Corporation,~~the ~~an unrelated~~creditworthiness ~~third~~of ~~party~~our customers deteriorates, ~~Accrue~~particularly ~~sub-leased~~customers ~~60%~~that ofare ~~the~~dependent ~~Cambridge~~on ~~office~~revenue ~~facility~~from e- tocommerce, ~~Pilot~~or ~~Software~~if ~~Acquisition~~our ~~Corporation.~~customer ~~Accrue~~continue ~~retained rights~~ to ~~use~~delay ~~the Pilot~~or ~~and~~decline ~~HitList~~purchase ~~software~~commitments due ~~technology~~to ~~within~~concerns ~~its~~about ~~Accrue~~our G2financial ~~product~~viability, ~~pursuant~~we ~~to a~~may ~~separate~~not ~~license~~be ~~agreement~~able ~~for~~to asustain ~~royalty~~our historic ~~fee~~levels of ~~$0.2 million~~maintenance ~~payable~~and inservice ~~equal installments~~revenue ~~over~~in the ~~next 24 months~~future.

~~The~~Cost ~~Company has a letter~~ of ~~credit~~Revenue outstanding in connection with an office lease in the amount of $0.2 million. A cash deposit held by the bank issuing the letter of credit collateralizes this letter of credit. This restricted cash deposit is included in “Other Assets” on the Consolidated Balance Sheets as of March 30, 2002 and ~~September 28,~~Operating ~~2002.~~ Expenses

In Our ~~June~~cost ~~2001,~~of welicense ~~entered~~revenue ~~into~~primarily anconsists ~~at-will, one-year accounts receivable~~of ~~purchase~~license ~~agreement~~fees ~~with~~due ato ~~financial~~third ~~institution~~parties ~~under~~for ~~which~~integrated wetechnology. ~~may~~Our ~~borrow~~cost ~~up to~~of anservices ~~aggregate~~revenue ofinclude ~~$1.5 million,~~salaries ~~subject~~and torelated ~~the~~expenses ~~approval~~for ofour ~~assigned receivables~~implementation, byconsulting, ~~the~~support ~~lender.~~and ~~The~~training ~~borrowing~~organizations, ~~base~~costs ~~under this agreement is the lesser~~ of ~~80%~~subcontracting ofto ~~eligible~~consulting ~~accounts~~organizations ~~receivable~~to orprovide ~~$1.5 million.~~consulting ~~This~~services ~~facility~~to ~~renewed~~customers ~~for~~and aan ~~one-year~~allocation ~~period in June 2002. As~~ of ~~September 28~~facilities, ~~2002,~~communications weand ~~have~~depreciation ~~no borrowings pursuant to this agreement~~expenses.

~~Contingencies~~Our operating expenses are classified into three general categories: research and development, sales and marketing, and general and administrative. We classify all charges to these operating expense categories based on the nature of the expenditures. We allocate the costs for overhead and facilities to each of the functional areas that use the overhead and facilities services based on their headcount. These allocated charges include facility rent for corporate offices, communication charges and depreciation expenses for office furniture and equipment.

OnSoftware ~~February 20,~~development ~~1999,~~costs ~~Execplan~~incurred ~~Sistemas~~prior ~~Executivos~~to ~~Ltda., a former~~the ~~distributor~~establishment of ~~our~~technological ~~wholly-owned~~feasibility ~~subsidiary~~are ~~Pilot~~included ~~Software,~~in ~~Inc.’s~~research ~~products in~~and ~~Brazil,~~development ~~filed~~costs aas ~~claim~~incurred. ~~for~~Since ~~arbitration~~license ~~with~~revenue ~~the~~from ~~American~~our ~~Arbitration~~software ~~Association~~solutions inis ~~connection~~not ~~with~~recognized ~~Pilot’s~~until ~~failure~~after ~~to enter~~technological ~~into~~feasibility ahas ~~new~~been ~~distribution~~established, software ~~agreement~~development ~~with~~costs ~~Execplan~~are ~~when~~not ~~the~~generally ~~prior agreement~~expensed ~~between~~in the ~~parties~~same ~~terminated~~period byin which ~~its~~license ~~terms.~~revenue ~~Execplan made a claim~~ for ~~damages in~~ the ~~amount~~developed ofproducts ~~$15 million.~~is ~~Pilot denied Execplan’s claim and filed a counterclaim alleging, among other~~ recognized.

10We establish our expenditure levels for product development, sales and marketing and other operating expenses based, in large part, on our expected future revenue. Our expectations regarding future revenue may not be accurate. As a result, if revenue falls below expectations, our operating results are likely to be adversely and disproportionately affected because only small portions of our expenses vary with revenue. Due to these factors, our operating results are difficult to forecast. We believe that period-to-period comparisons of our historical operating results are not meaningful and should not be relied upon as an indication of future performance.

~~Table~~Critical ofAccounting ~~Contents~~Policies

~~things,~~There ~~breach~~have ofbeen ~~contract,~~no ~~misappropriation~~material ofchanges ~~Pilot~~to ~~trade~~our ~~secrets~~critical accounting policies and ~~infringement~~estimates ofas ~~Pilot~~disclosed ~~copyrights. The~~in ~~arbitration~~our ~~was~~Form ~~terminated~~10-K byfor ~~order of~~ the ~~Arbitrators~~year ended ~~dated~~March ~~August 16~~30, 2002.

~~During~~Results ~~the first quarter~~ of ~~fiscal~~Operations ~~2002,~~for the ~~Company~~three ~~implemented~~months headcount reductions in certain of its European subsidiaries. The Company provided the affected employees continued employment during the statutory notice period as required by local law. A total of six employees in France and ~~Germany~~nine ~~filed~~months ~~complaints~~ended ~~with the local labor courts contesting the dismissals and are seeking severance payments and other monetary consideration in addition to compensation for the statutory notice period. As of September~~December 28, 2002, ~~three claims~~and ~~were settled~~December 29, one claim was dismissed, and two claims are scheduled for hearings in the fourth calendar quarter of 2002. The Company is contesting the remaining two claims. The Company has accrued the cost of the settlements entered into and has accrued its estimated liability for the pending suits. 2001

The ~~German~~following ~~Tax~~table ~~Authority~~sets isforth ~~auditing~~certain ~~the~~items ~~tax returns of the German subsidiary of Pilot Software, which Accrue acquired~~ in ~~September 2000, for~~ the ~~tax~~ ~~years 1995-1999. In connection with this audit, the German Tax Authority~~Company's ~~has~~consolidated ~~disputed~~statements ~~the~~of ~~transfer~~operations ~~pricing~~as ~~methodologies and other deductions contained in those tax returns. The Tax Authority has issued~~ a ~~notice~~percentage of ~~tax~~total ~~deficiency in~~revenue ~~the amount of 1.5 million DM related to the tax returns~~ for the ~~years 1996~~ ~~and~~periods ~~1997.~~indicated: Accrue is contesting these claims. In addition, under the terms of the Pilot Merger Agreement, Accrue has right to indemnification against Platinum Equity Holdings, LLC (Platinum) for damages related to tax claims against Pilot Software, Inc. and its subsidiaries arising prior to the date of the acquisition of Pilot Software, Inc. There can be no assurance that this matter will be resolved without costly litigation, or in a manner that is not materially adverse to Accrue’s financial position, results of operations or cash flows. Furthermore, there can be no assurance that Accrue will be able to enforce its indemnification right against Platinum, if Platinum disputes such claims, without undue cost or delay. As additional information becomes available, Accrue will assess its potential liability, if any.

Note                                                      Three 10Months Ended         Nine Months Ended
                                                  --------------------------  --------------------------
                                                   December 29,  December 28,  December 29,  December 28,
                                                      2001          2002          2001          2002
                                                  ------------  ------------  ------------  ------------
Net revenue:
   Software license.............................         25.3 Fixed%        18.6 Asset%        31.5 %        18.9 %
   Maintenance and service......................         74.7          81.4          68.5          81.1
                                                  ------------  ------------  ------------  ------------
Total net revenue...............................        100.0         100.0         100.0         100.0
                                                  ------------  ------------  ------------  ------------
Cost of revenue:
   Software license.............................          1.9           5.1           2.5           3.0
   Maintenance and service......................         36.2          55.9          46.4          49.5
                                                  ------------  ------------  ------------  ------------
Total cost of revenue...........................         38.1          61.0          48.9          52.5
                                                  ------------  ------------  ------------  ------------
Gross profit....................................         61.9          39.0          51.1          47.5

Operating expenses:
   Research and development.....................         42.2          41.1          48.6          47.2
   Sales and marketing..........................         40.4          32.9          41.2          38.1
   General and administrative...................         33.2          35.7          36.1          54.5
   Amortization of intangibles..................         29.6          28.1          30.4          24.8
   Write-down of fixed assets...................           --            --            --           6.5
   Stock-based compensation expense.............        (20.0)         (1.5)         (2.5)          1.7
                                                  ------------  ------------  ------------  ------------
Total operating expenses........................        125.4         136.3         153.8         172.8
                                                  ------------  ------------  ------------  ------------
Loss from operations............................        (63.5)        (97.3)       (102.7)       (125.3)
Other income (expense), net.....................          0.5          (1.6)          2.0          (0.3)
Gain on sale of technology assets...............           --            --          38.2           6.7
                                                  ------------  ------------  ------------  ------------
Net loss........................................        (63.0)%       (98.9)%       (62.5)%      (118.9)%
                                                  ============  ============  ============  ============

~~In connection with its reduction in headcount, Accrue performed an impairment analysis of its fixed assets for the three months ended September 28, 2002~~Revenue. As a result of this analysis, the Company recorded a write-off of property and equipment costing $910,000, which had accumulated depreciation of $769,000 and resulted in a loss on disposal of $141,000. Accrue performed a similar analysis in the first quarter of fiscal 2003, and recorded a write-off of property and equipment costing $320,000, which had accumulated depreciation of $171,000 and resulted in a loss on disposal of $149,000. For the six months ended September 28, 2002, the total fixed asset write-off was $1.2 million in property and equipment, which had accumulated depreciation of $0.9 million and resulted in a loss on disposal of $0.3 million.
For the three months ended December 28, 2002, total net revenue was $1.0 million, representing a decrease of $2.9 million, or 75%, from $3.9 million of total net revenue for the comparable prior year period. Two customers accounted for more than 10% of total net revenue for the quarter ended December 28, 2002. For the nine months ended December 28, 2002, total net revenue was $4.4 million, representing a decrease of $6.9 million, or 61%, from $11.3 million of total net revenue for the comparable prior year period. Two customers accounted for more than 10% of total net revenue for the nine months ended December 28, 2002.

~~Note~~During 11the first quarter of fiscal 2003, the Company sold certain assets including its Pilot and HitList products. ~~Subsequent~~Revenue ~~Events~~from the divested assets comprised 1% and 32% of total net revenue for the three months ended December 28, 2002 and December 29, 2001, respectively. For the nine months ended December 28, 2002 and December 29, 2001, revenue from the divested assets comprised 16% and 31% of total net revenue, respectively. The table below shows the impact of the sale of the divested assets on revenue for the three and nine month periods ended December 29, 2001 and December 28, 2002, respectively.

         On                                            Three October 31,Months 2002,Ended              Nine AccrueMonths acquiredEnded
                                        -------------------------------  -------------------------------
                                        Dec. certain29,   Dec. tangible28,              Dec. and29,   Dec. intangible28,
assetsIn ofthousands                              2001       2002      Change      2001       2002      Change
                                        ---------  ---------  ---------  ---------  ---------  ---------
Software privatelylicense
   Divested heldproducts.................. Personify$     450  $      --  $    (450) $   1,228  $     234  $    (994)
   Current Incproducts...................       526        182       (344)     2,330        605     (1,725)
                                        ---------  ---------  ---------  ---------  ---------  ---------
Total includinglicense source coderevenue.................       976        182       (794)     3, related558        839     (2,719)
documentation

Maintenance and computerservice
   Divested hardware for a purchase price of $60,000products. In.................       815         14       (801)     1,980        508     (1,472)
connection   Current with this purchaseproducts...................     2,070        788     (1,282)     5,745      3,087     (2,658)
                                        ---------  ---------  ---------  ---------  ---------  ---------
Total themaintenance Companyand borrowedservice $60revenue.     2,000885        802     (2,083)     7,725      3,595     (4,130)


Net from a director andrevenue
significant   Divested stockholder of Accrueproducts..................     1,265         14     (1,251)     3,208        742     (2,466)
   Current under demand promissory notesproducts...................     2,596        970     (1,626)     8,075      3,692     (4,383)
collateralized                                        ---------  ---------  ---------  ---------  ---------  ---------
Total solelynet byrevenue..................... the$   3,861  $     984  $  (2,877) Company’s interest in the purchased assets.$  11,283  $   4,434  $  (6,849)
                                        =========  =========  =========  =========  =========  =========

~~Item~~ The $2.9 ~~Management’~~million decline in total net revenue for the three months ended December 28, 2002 as compared to the comparable prior year period was principally due to the $1.6 million decline in revenue from our current Internet analytics products. Revenue from these products was $1.0 million in the three months ended December 28, 2002, as compared to $2.6 million in the comparable prior year period. This decline in revenue was due to a lower level of new license and service sales resulting from several factors, including: weak economic conditions, which contributed to the continued slowdown in information technology spending by current and prospective customers; customer concerns about Accrue's ~~Discussion~~financial condition, which caused several customers to delay or decline purchase decisions; and, ~~Analysis~~a smaller sales force as compared to the comparable prior year period. The remaining $1.3 million of ~~Financial~~the ~~Condition~~net ~~and~~revenue variance ~~Results~~was attributable to the sale of ~~Operations~~the Pilot and HitList assets during fiscal 2003. Revenue from divested products was $14,000 in the three months ended December 28, 2002, as compared to $1.3 million in the comparable prior year period.

~~This~~The ~~Quarterly~~$6.9 ~~Report~~million ondecline ~~Form 10-Q~~in ~~contains~~total ~~forward-looking~~net ~~statements reflecting~~revenue ~~management’s~~for ~~current~~the ~~forecast of certain aspects of our future. It~~nine ismonths ~~based~~ended onDecember ~~current~~28, ~~information~~2002, ~~which~~as wecompared ~~have~~to ~~assessed~~the ~~but~~prior ~~which~~year byperiod ~~its nature~~was isprincipally ~~dynamic~~due ~~and~~to ~~subject~~the to$4.4 ~~rapid~~million ~~and~~decline ~~even~~in ~~abrupt~~revenue ~~changes.~~from ~~Forward~~our ~~looking~~Internet ~~statements~~analytics ~~include~~products. Revenue ~~statements~~from ~~regarding~~these ~~future~~products ~~operating~~was ~~results,~~$3.7 ~~liquidity, capital~~million ~~expenditures,~~in ~~product~~the ~~development~~nine months ~~and~~ended ~~enhancements~~December 28, ~~numbers of personnel~~2002, ~~strategic~~as ~~relationships~~compared ~~with~~to ~~third~~$8.1 ~~parties,~~million ~~and~~in ~~strategy.~~the ~~The~~comparable ~~forward-looking~~prior ~~statements~~year ~~are~~period. ~~generally~~This ~~accompanied~~decline byin ~~words~~revenue ~~such~~was asdue ~~“plan,” “estimate,”~~to ~~“expect,”~~a ~~“believe,”~~lower ~~“should,”~~level ~~“would,”~~of ~~“could,”~~new license ~~“anticipate”~~and ~~or other~~service ~~words~~sales ~~that~~as ~~convey~~a ~~uncertainty~~result of ~~future~~several ~~events~~factors, orincluding: ~~outcomes. Our actual~~weak ~~results~~economic ~~could~~conditions, ~~differ~~which ~~materially~~contributed ~~from~~to ~~those~~the ~~stated~~continued orslowdown ~~implied~~in ~~by our~~information ~~forward-looking~~technology ~~statements~~spending ~~due~~by tocurrent ~~risks~~ and ~~uncertainties~~prospective ~~associated~~customers; ~~with~~customer ~~our~~concerns ~~business.~~about ~~These~~Accrue's ~~risks~~financial ~~are~~condition, ~~described~~which ~~throughout~~caused ~~this~~several ~~Quarterly~~customers ~~Report~~to ondelay ~~Form~~or ~~10-Q,~~decline ~~which~~purchase ~~you~~decisions; ~~should~~and, ~~read~~a ~~carefully.~~smaller Wesized ~~would~~sales ~~particularly~~force ~~refer~~as ~~you~~compared to the ~~“Risk~~prior ~~Factors”~~year ~~section~~period. The remaining $2.5 million of ~~this~~the ~~Report~~net ~~for~~revenue anvariance ~~extended~~was attributable ~~discussion~~to the sale of the ~~risks confronting~~Pilot ~~our~~and ~~business~~HitList assets during fiscal 2003. Revenue ~~The~~from ~~forward-looking~~these ~~statements~~products was $0.7 million in ~~this~~the ~~Quarterly~~nine months ended December ~~Report~~28, on2002, ~~Form 10-Q~~as ~~should~~compared beto ~~considered~~$3.2 million in the ~~context~~comparable ofprior ~~these~~year ~~risk factors~~period.

11 Software license revenue.
For the three months ended December 28, 2002, revenue from software licenses was $0.2 million, representing a decrease of $0.8 million, or 81% from $1.0 million for the comparable prior year period. Of this variance, $0.3 million of the software license revenue variance was attributable to lower new sales of our Internet analytics products during the third quarter of fiscal 2003. License revenue from these products comprised $0.2 million in the third quarter of fiscal 2003, as compared to $0.5 million in the comparable prior year period. This decrease in new license sales was primarily a result of several factors, including: weak economic conditions, which contributed to the continued slowdown in information technology spending by current and prospective customers; customer concerns about Accrue's financial condition, which caused several customers to delay or decline purchase decisions; and, a smaller sized sales force as compared to the prior year period. The remaining variance was attributable to the Pilot and HitList assets divested in fiscal 2003. There was no license revenue from these assets in the third quarter of fiscal 2003 since they had been sold, as compared to $0.5 million in the comparable prior year period. License revenue comprised 23% and 25% of total net revenue for the three months ended December 28, 2002 and December 29, 2001, respectively. The decline in the mix of license revenue to total net revenue was due to the lower level of new software license sales in the current quarter.

~~Table~~For the nine months ended December 28, 2002, revenue from software licenses was $0.8 million, representing a decrease of ~~Contents~~$2.7 million, or 76% from $3.6 million for the comparable prior year period. This variance was principally attributable to lower new sales of our Internet analytics products during the first nine months of fiscal 2003 as compared to the comparable prior year period. License revenue from these products totaled $0.6 million for the nine months ended December 28, 2002, as compared to $2.3 million in the comparable prior year period. This decrease in new license sales was primarily a result of several factors, including: weak economic conditions, which contributed to the continued slowdown in information technology spending by current and prospective customers; customer concerns about Accrue's financial condition, which caused several customers to delay or decline purchase decisions; and, a smaller sized sales force as compared to the comparable prior year period. The remaining variance was attributable to the divestiture of the Pilot and HitList assets. License revenue from these assets totaled $0.2 million and $1.2 million for the nine months ended December 28, 2002 and December 29, 2001, respectively. License revenue comprised 19% and 32% of total net revenue for the nine months ended December 28, 2002 and December 29, 2001, respectively. The decline in the mix of license revenue to total net revenue was due to the lower level of software license sales in the current fiscal year to date period.

~~The~~Maintenance ~~following discussion of the financial condition~~ and ~~results~~service ~~of operations of Accrue Software, Inc. should be read in conjunction with the consolidated financial statements and notes thereto and other information included elsewhere in this report.~~ revenue
. Maintenance and service revenue was $0.8 million for the three months ended December 28, 2002, representing a decrease of $2.1 million or 72%, from $2.9 million for the comparable prior year period. The majority of this variance was attributable to the decline in new license sales and a decline in maintenance renewals for the Internet analytics products as compared to the comparable prior year period. Maintenance and service revenue from these products totaled $0.8 million and $2.1 million for the three months ended December 28, 2002 and December 29, 2001, respectively. Maintenance and services revenue from the divested assets was $14,000 for the three months ended December 28, 2002, down $0.8 million from the comparable prior year period.

~~Overview~~For the nine months ended December 28, 2002, maintenance and service revenue was $3.6 million, representing a decrease of $4.1 million or 53%, from $7.7 million for the comparable prior year period. The majority of this variance was attributable to lower revenue from the Internet analytics products. Maintenance and services revenue from the Internet analytics products was down $2.7 million for the nine months ended December 28, 2002, to $3.1 million from $5.8 million in the prior year period. This decrease was primarily due to the decline in new license sales and a decline in maintenance renewals as compared to the comparable prior year period. Maintenance and service revenue from the divested assets totaled $0.5 million and $2.0 million for the three months ended December 28, 2002 and December 29, 2001, respectively.

WeCost develop, sell and market Internet analytics software solutions. Our products collect, process and provide capabilities to analyze data from Web sites, which enables customers to better evaluate, manage and improve the effectiveness of ~~their critical Internet based marketing and merchandising initiatives.~~ revenue
. Cost of revenue consists primarily of the salaries and related expenses for maintenance and service personnel, contractor expense for third-party contractors who supplement our internal staff on customer engagements when internal staff capacity constraints occur, and costs associated with license of technology used in our products. For the three months ended December 28, 2002, cost of revenue was $0.6 million, representing a decrease of $0.9 million, or 59%, from $1.5 million for the corresponding prior year period. This decrease was primarily due to: a $0.5 million decrease in salary and expense, as a result of reduced headcount; $0.2 million decrease in facilities related expenses, as a result of a reduction in leased office space; and, a $0.2 million decrease of other expenses, as a result of lower headcount and the lower volume of maintenance and service revenue. Maintenance and service related headcount declined by 62%, to 13 at December 28, 2002 from 34 at December 29, 2001. Of the 21 positions eliminated in the maintenance and service function, 2 employees were transferred to the purchaser of the Pilot and HitList assets, and the balance were eliminated in connection with our cost reduction programs. As a percentage of net revenue, cost of revenue was 61% in the three months ended December 28, 2002, as compared to 38% in the prior year period. The increase in the costs of revenue as a percentage of net revenue was principally attributable to the decline in maintenance and services revenues being proportionally greater than the decline in maintenance and service expenses for the third quarter of fiscal 2002 as compared to the comparable prior year period. Because all development costs incurred in the research and development of our software products and enhancements to our existing software products have been expensed as incurred, cost of revenue includes no amortization of capitalized software development costs.

WeFor ~~were~~the ~~founded~~nine months ended December 28, 2002, cost of revenue was $2.3 million, representing a decrease of $3.2 million, or 58%, from $5.5 million for the corresponding prior year period. This decrease was primarily due to: a $1.5 million decrease in ~~1996~~salary ~~and~~expense, ~~are~~as ~~headquartered~~a result of reduced headcount; a $0.8 million decrease in ~~Fremont~~contractor expense, ~~California~~as a result of reduction in the use of contractors; a $0.5 ~~Our~~million decrease in facilities ~~principal~~related ~~product~~expenses, ~~Accrue~~as G2a result of a reduction in leased office space; and, ~~became~~a ~~available~~$0.4 million decrease in ~~May~~other ~~2001~~expenses, ~~through~~as ~~our~~a result of lower headcount and a lower ~~Preferred~~volume ~~Customer~~of ~~Program.~~maintenance ~~Accrue~~and G2service isrevenue. As a ~~comprehensive~~percentage ~~Internet~~of ~~analytics~~net revenue, ~~platform~~cost ~~designed~~of revenue was 52% in the nine months ended December 28, 2002, as compared to ~~provide~~49% ~~companies~~in ~~with~~the ~~insight~~prior ~~into~~year period. The increase in the ~~relationships~~costs of revenue as a ~~between~~percentage ~~Web~~of ~~site~~net ~~activity~~revenue ~~and~~was ~~business~~principally ~~actions.~~attributable to the decline in revenues being proportionally greater than the decline in cost of revenues for the nine months year to date of fiscal 2002 as compared to the comparable prior year period.

WeGross experienced a significant decline in revenues during the second quarter of fiscal 2003, as compared to the comparable prior year period, which was primarily the result of continued weak economic conditions, including a continued weakness in information technology spending by our current and prospective customers, customer concerns about our financial condition, which caused several customers to delay or decline purchase decisions, and reductions in the size of our sales force. In response, we undertook several initiatives designed to help scale the business to its revenue base and reduce our cash burn rate. These initiatives included reducing headcount, implementing a temporary unpaid leave program for approximately 30 employees, eliminating certain cash bonuses for employees including management, and continuing to reduce overall operating expenses. Headcount was reduced from 60 at June 29, 2002 to 44 at September 28, 2002, and other non-labor expenses were reduced. These expense reduction efforts, however, were not sufficient to prevent continued operating losses during the second quarter of fiscal 2003. In early October 2002, we implemented additional cost reduction programs and efforts to preserve cash, including a reduction in headcount to 36 employees. profit
. For the three months ended December 28, 2002, gross profit was $0.4 million, representing a decrease of $2.0 million, or 84%, from $2.4 million for the corresponding prior year period. The decrease in gross profit was principally due to the decline in revenue for the third quarter of fiscal 2003, as compared to the corresponding prior year period. As a percentage of net revenue, gross profit margin decreased to 39% for the three months ended December 28, 2002 from 62% for the comparable prior year period. The decrease in gross margin was primarily due to the decline in net revenue for the third quarter of fiscal 2003, as compared to the corresponding prior year period.

WeFor ~~have~~the ~~sustained~~nine ~~losses~~months onended anDecember ~~annual basis since inception. At September~~ 28, 2002, wegross ~~have~~profit anwas $2.1 ~~accumulated~~million, ~~deficit~~representing ofa ~~approximately~~decrease of $~~263 million~~3.7 ~~Our~~million, ~~net loss~~or ~~was~~63%, ~~approximately~~from $15.6 8 million for in the ~~quarter~~corresponding ~~ended~~prior ~~September 28,~~year ~~2002~~period. We The ~~anticipate~~decrease ~~that~~in ~~operating~~gross ~~losses~~profit ~~and~~was principally ~~negative~~due ~~cash~~to ~~flows~~the ~~will~~decline ~~continue~~in revenue for the ~~foreseeable~~nine ~~future~~months ~~due~~year to adate ~~decline~~of fiscal in2003, ~~projected~~as ~~revenue~~compared into ~~comparison~~the tocorresponding prior year period. As a ~~fiscal~~percentage ~~2002~~of ~~and~~net ~~therefore~~revenue, ~~operating~~gross ~~expenses~~profit ~~will~~margin ~~continue~~decreased to ~~constitute~~48% ~~a material~~for ~~use~~the ofnine months ~~our~~ended ~~cash~~December ~~resources.~~28, We2002 ~~cannot~~from be51% ~~certain~~for ~~that~~the wecomparable ~~can~~prior ~~achieve~~year period. ~~profitability~~The ondecrease ain ~~quarterly~~gross ormargin ~~annual~~was ~~basis~~primarily due to the decline in net revenue for the ~~future~~nine months year to date of fiscal 2003, oras atcompared ~~all.~~to the corresponding prior year period.

~~Our~~Gross ~~current~~margin ~~cash~~is ~~resources~~also ~~are~~highly ~~insufficient~~influenced toby ~~fund~~the ~~our~~mix ~~business~~of ~~as it has~~license ~~historically been conducted~~ and ~~will~~service ~~soon~~revenue. The beproportion ~~exhausted~~of byservices ~~the~~and ~~current~~maintenance ~~level~~revenue ofto ~~operating~~total ~~expenses~~revenue ~~absent a rapid increase~~ in ~~our~~any ~~revenues~~period ordepends ~~our~~on ~~obtaining additional~~various ~~capital.~~factors Wewhich ~~are~~include: ~~pursuing~~the ~~various initiatives to improve~~volume ~~our~~of ~~cash~~new ~~position,~~license ~~including selling additional stock~~revenue, ~~selling assets,~~the ~~incurring~~acquisition ~~additional~~of ~~debt,~~maintenance ~~implementing~~contracts ~~further~~from ~~reductions in~~new ~~spending~~license sales and ~~other~~the ~~cash~~renewal ~~generating~~rate ~~initiatives. As a result~~ of ~~our~~existing ~~continuing~~maintenance ~~operating~~contracts. ~~deficit~~For ~~and~~these ~~limited cash resources~~reasons, if we ~~cannot~~expect ~~raise funds quickly, it is likely~~ that ~~we will not be able to continue~~ our ~~business~~gross asprofit amargin ~~going concern and that we~~ will be ~~required~~continue to ~~wind~~fluctuate ~~down our operations and engage~~ in ~~efforts to sell our~~ ~~assets.~~the ~~In this event~~future, ~~there~~but ~~can~~expect beit noto ~~assurance~~remain, ~~that~~for ~~available cash and amounts received on~~ the ~~sale~~balance of ~~assets~~fiscal ~~will be adequate to provide for our obligations~~2003, ~~liabilities,~~at ~~expenses and claims and to~~levels ~~make~~generally ~~cash~~comparable ~~distributions~~ to ~~stockholders,~~those ~~and~~achieved ~~we may decide or be compelled to file~~ for ~~protection under federal bankruptcy proceedings. If such available cash and amounts received from~~ the ~~sale~~ ofnine ~~assets~~months ~~are~~ended ~~not~~December ~~adequate to provide for our obligations~~28, ~~liabilities,~~2002 ~~expenses~~given ~~and~~the ~~claims,~~expected wehigh ~~may~~mix ~~not~~of beservice ~~able~~revenue torelative ~~distribute meaningful cash, or any cash,~~ to ~~our~~new ~~stockholders and creditors.~~license revenue.

~~Our~~Operating relatively limited operating history makes the prediction of future operating results very difficult and you should not rely upon our past operating results as an indication of future performance. We believe that period-to-period comparisons of our operating results should not be relied upon as predictive of future performance. Our prospects must be considered in light of the risks, expenses ~~and difficulties encountered by companies in relatively new and rapidly evolving markets. We may not be successful in addressing these risks and difficulties.~~
. For the three months ended December 28, 2002, total operating expenses were $1.3 million, representing a decrease of $3.5 million, or 72%, from $4.8 million for the comparable prior year period. This decrease in operating expenses resulted primarily from lower development, sales and marketing and general and administrative expenses of $3.4 million, due principally to: a decrease of $1.9 million in staffing costs, as a result of workforce reductions implemented since December 29, 2001; a decrease of $0.1 in commission expense, as a result of lower revenues; a decrease of $0.1 million in facility related expenses, as a result of a reduction in the amount of leased office space; a decrease of $0.4 million in contractor and outside service expense, as a result of a reduced usage of outside services; a decrease of $0.2 in insurance expense, as a result of a reduction in the amount of corporate directors and officers liability insurance; a decrease of $0.2 million in marketing program and advertising expense; and, a decrease of $0.5 million in all other operating expenses, as a result of general expense reduction programs. Also contributing to the decline in operating expenses were a decrease of $0.9 million in intangible amortization charges, principally due to the sale of the Pilot and HitList technology assets in the first quarter of fiscal 2003 as well as non-amortization of goodwill during the third quarter of fiscal 2003, offset by a $0.8 million increase in stock-based compensation expense, which was due to a credit of $15,000 in the current period as a compared to a credit of $0.8 million in the prior year period, as a result of options cancelled for terminated employees.

~~Source~~As a percentage of ~~Revenue~~net revenue, total operating expenses for the three months ended December 28, 2002 were 136%, as compared to 125% for the three months ended December 29, 2001. The increase in operating expenses as a percentage of net revenue was due primarily to the decline in revenue being proportionally greater than the reduction in operating expenses for the third quarter of fiscal 2003, as compared to the corresponding prior year period. We expect that total operating expenses will decline for the remaining quarter of fiscal 2003, given continued efforts to conserve cash by reducing future operating expenses.

WeFor ~~generate~~the ~~revenue~~nine ~~principally~~months ended December 28, 2002 total operating expenses were $7.7 million, representing a decrease of $9.7 million, or 56%, from ~~licensing~~$17.4 ~~our~~million ~~software~~for ~~solutions~~the comparable prior year period. This decrease in ~~directly~~operating expenses was primarily attributable to ~~customers~~lower development, sales and marketing ~~providing~~and ~~related~~general ~~services~~and ~~including~~administrative ~~implementation~~expenses of $8.0 million, due ~~consulting~~principally to: a decrease of $4.8 million in staffing costs, ~~training~~as ~~and~~a ~~support~~result of the headcount reductions implemented since December 29, 2001; a decrease of $0.4 million Wein ~~market~~commissions, ~~our~~as ~~products~~a result of lower revenues; a decrease of $0.4 million in facility related expenses, ~~both~~as ~~domestically~~a result of reductions in the amount of leased office space; a decrease of $0.8 million in contractor and ~~internationally~~outside service expense, ~~principally~~as ~~through~~a ~~our~~result ~~direct~~of ~~sales~~a ~~force.~~reduced ~~Sales~~usage ~~derived~~of outside services; a decrease ~~through~~of ~~indirect~~$0.2 ~~channels~~in insurance expense, ~~which~~as ~~consist~~a ~~primarily~~result of ~~international~~a ~~resellers~~reduction in amount of corporate directors and ~~system~~officers ~~integrators~~liability insurance; a decrease of $0.4 million in marketing program and advertising expense; and, ~~accounted~~a ~~for~~decrease ~~approximately~~of ~~10%~~$1.0 million in other operating costs, as a result of ~~our~~general ~~total~~expense ~~revenue~~reduction ~~for~~programs. Also contributing to the decline in operating expenses were a decrease of $2.3 million in intangible amortization charges, principally due to the sale of the Pilot and HitList product lines in the first quarter ~~ended~~of ~~September 28~~fiscal 2003 as well as non-amortization of goodwill during the first nine months of fiscal 2003, ~~2002~~offset by an increase in stock-based compensation expense of $0.4 million, due to the credit in the prior year period for cancellation of options for terminated employees, and a $0.3 million charge for fixed assets written off.

WeAs ~~license~~a ~~our~~percentage ~~products~~of tonet ~~our~~revenue, ~~customers~~total ~~primarily~~operating onexpenses awere 173%, ~~perpetual~~as ~~basis. Our~~compared ~~pricing~~to ~~model~~154% for ~~Accrue~~the G2nine ismonths ~~based~~ended onDecember ~~the~~29, ~~number of server-based CPUs~~2001. The ~~This~~increase ~~allows~~in ~~for~~operating ~~additional~~expenses ~~revenue~~ as a ~~customer’s~~percentage ~~e-business~~of ~~expands.~~net ~~License fees~~revenue ~~for~~was ~~Accrue~~due ~~G2 have~~primarily ~~typically~~to ~~ranged~~the ~~from~~reduction ~~$50,000~~in torevenue ~~several~~being ~~hundred~~proportionally ~~thousand~~greater ~~dollars. Customers~~than ~~can~~the ~~subsequently~~decline ~~pay~~in total ~~additional~~operating ~~license~~expenses ~~fees~~for tothe ~~expand~~nine ~~the~~months ~~right~~year to ~~use~~ ~~previously~~date ~~licensed~~of ~~software~~fiscal ~~solutions~~2003, oras compared to ~~purchase~~the ~~additional~~corresponding ~~software solutions~~prior year period.

12 Research and development expenses
. Research and development expenses consist primarily of salaries and related costs associated with the development of new products, the enhancement of existing products, and the performance of quality assurance and documentation activities. For the three months ended December 28, 2002, research and development expenses were $0.4 million, representing a decrease of $1.2 million or 75%, from $1.6 million for the corresponding prior year period. This decrease was primarily due to: a $0.9 million decrease in staffing costs, as a result of reduced headcount; a $0.1 million decrease in facilities costs, as a result of a reduction in the amount of leased office space; and, a $0.2 million decrease in other operating expenses, as a result of cost reduction programs. In comparison to the prior year period, research and development headcount declined by 73%, to 11 employees at December 28, 2002, as compared to 40 employees at December 29, 2001. Of the 29 positions eliminated in the research and development function, 11 employees were transferred to the purchaser of the Pilot and HitList assets, and the balance were eliminated in connection with our cost reduction programs. As a percentage of net revenue, research and development expenses were 41% for the three months ended December 29, 2002, as compared to 42% for the three months ended December 29, 2001. This decrease in research and development expenses as a percentage of net revenue was due primarily to the reductions made in research and development costs during the three months ended December 28, 2002 as compared to the corresponding prior year period. In the near term, we believe that research and development expenses will decline as a result of our efforts to reduce operating expenses. Research and development expenditures are charged to operations as incurred.

~~Table~~For the nine months ended December 28, 2002, research and development expenses were $2.1 million, representing a decrease of ~~Contents~~$3.4 million or 62%, from $5.5 million for the corresponding prior fiscal year period. This decrease was due primarily to: a $2.5 million decrease in staffing costs, as a result of reduced headcount; a $0.5 million decrease in facilities costs, as a result of a reduction in the amount of leased office space; and, a $0.4 million decrease in other operating expenses, as a result of cost reduction programs implemented during fiscal 2003. As a percentage of net revenue, research and development expenses for the nine months ended December 28, 2002 were 47%, as compared to 49% for the comparable prior year period. This decrease in research and development expenses as a percentage of net revenue was due primarily to the reductions made in research and development costs during the nine months ended December 28, 2002 as compared to the corresponding prior year period.

~~Annual~~Sales ~~support~~ and ~~maintenance~~marketing contracts, which are purchased with initial product licenses, entitle customers to telephone support and upgrades, when and if available. The price for our support and maintenance program is based on a percentage of list price, is paid in advance and is non-refundable. Revenue from maintenance agreements is included in services revenue in the accompanying condensed consolidated statements of operations. expenses
. Sales and marketing expenses consist primarily of salaries, commissions and bonuses for sales and marketing personnel, and promotional expenses. For the three months ended December 28, 2002, sales and marketing expenses were $0.3 million, representing a decrease of $1.3 million, or 79%, from $1.6 million for the corresponding prior year period. This decrease was due primarily to: a $0.5 million reduction in salary expense, as a result of reduced headcount; a $0.1 million decrease in commission expense, as a result of decreased net revenue; a $0.2 million decrease in marketing and promotion expenses; a decrease of $0.1 million in contractor expense, as a result of reduced usage of outside services; and, a $0.4 million decrease in all other operating expenses, as a result of cost reduction programs. Sales and marketing headcount was 2 at December 28, 2002, as compared 26 at December 29, 2001, which represents a decline of 92%. Of the 24 positions eliminated in the sales and marketing function, 2 were transferred to the purchaser of the Pilot and HitList assets, and the balance were eliminated in connection with our cost reduction programs. As a percentage of net revenue, sales and marketing expenses were 33%, as compared to 40% for the three months ended December 29, 2001. This decrease in sales and marketing expenses as a percentage of net revenue was due primarily to the decline in sales and marketing costs for the three months ended December 28, 2002 as compared to the corresponding prior year period. In the near term, we believe that sales and marketing expenses will decrease in dollar amount in connection with our efforts to reduce operating expenses.

WeFor ~~also~~the ~~provide~~nine ~~consulting~~months ended December 28, ~~implementation~~2002, sales and marketing ~~training~~expenses ~~services~~were to$1.7 ~~our~~million, representing a decrease of $3.0 million, ~~customers~~or ~~separately~~64%, from ~~our~~$4.7 ~~sales~~million offor ~~product~~the ~~licenses~~corresponding prior year period. ~~Such~~This ~~services~~was due ~~typically~~primarily ~~include~~to: ~~evaluating~~a ~~their~~$1.4 ~~business~~million ~~needs~~decrease in salary expense, ~~identifying~~as ~~the~~a ~~data~~result ~~sources~~of reduced ~~necessary~~headcount; toa ~~meet~~$0.4 ~~these~~million ~~needs~~decrease ~~and~~in ~~installing~~commission ~~the~~expense, ~~software~~as ~~solution~~a inresult of decreased net revenue; a ~~manner~~$0.4 million decrease in marketing and promotion ~~that~~expenses; ~~fulfills~~a ~~their~~decrease ~~requirements~~of $0.3 ~~Consulting~~million ~~and~~in ~~implementation~~contractor ~~services~~expense, ~~can~~as a result of a bereduced ~~acquired~~usage onof ~~either~~outside services; and, a ~~fixed~~$0.5 ~~fee~~million ordecrease in other operating expenses, as a ~~time~~result ~~and~~of ~~expense~~cost ~~basis~~reduction programs. As ~~Revenue~~a ~~from~~percentage of ~~consulting~~net revenue, ~~implementation~~sales and ~~training~~marketing ~~services~~expenses iswere ~~included~~38% infor ~~services~~the nine months ended ~~revenue~~December in28, 2002, as compared to 41% for the ~~accompanying~~nine ~~consolidated~~months ~~statements~~ended ofDecember ~~operations~~29, 2001. WeThis ~~have~~decrease in sales and marketing expenses as a percentage of net ~~also~~revenue ~~historically~~was ~~supplemented~~due primarily to the ~~capacity~~decline ofin ~~our~~sales ~~internal~~and ~~professional~~marketing costs for the ~~services~~nine ~~organization~~months byended ~~subcontracting~~December ~~some~~28, of2002 ~~these~~as ~~services~~compared to ~~third-party consulting~~the ~~organizations.~~corresponding prior year period.

WeGeneral recognize license revenue when a signed contract or other persuasive evidence of an arrangement exists, the software has been shipped or electronically delivered, the license fee is fixed or determinable and ~~collection~~ ofadministrative resulting receivables is probable. The determination regarding the probability of collection is based on management’s judgment. For contracts with multiple elements (e.g. products, maintenance, installation and other services), revenue is allocated to delivered components, normally the license component, of the arrangement using the residual value method based on objective evidence of the fair value of the undelivered elements, which is specific to Accrue. We recognize revenue allocated to undelivered products when the criteria for product revenue set forth above are met. If changes in conditions cause management to determine that these criteria are not met for certain future transactions, revenue recognized for any reporting period could be adversely affected. expenses
. General and administrative expenses consist primarily of salaries and other personnel related costs for administrative functions, as well as insurance, professional service fees, and bad debt expense. For the three months ended December 28, 2002, general and administrative expenses were $0.4 million, representing a decrease of $0.9 million, or 73%, from $1.3 million for the three months ended December 29, 2001. This decrease was primarily due to: a $0.5 million decrease in salary expense, as a result of reduced headcount; a $0.1 million decrease in professional and outside service fees, as a result of reduced usage of outside contractors and services; a decrease of $0.2 in insurance expense, due to a reduction in the amount of corporate directors and officers liability insurance; and, a $0.1 million decrease in all other operating expenses, as a result of cost reduction programs. General and administrative headcount was 7 at December 28, 2002, as compared 17 at December 29, 2001, which represents a decline of 59%. Of the 10 positions eliminated in the general and administrative function, 2 were transferred to the purchaser of the Pilot and HitList assets, and the balance were eliminated in connection with our cost reduction programs. As a percentage of net revenue, general and administrative expenses for the three months ended December 28, 2002 were 36%, as compared to 33% for the three months ended December 29, 2001. This increase in general and administrative expenses as a percentage of net revenue was due to the reduction in revenue being proportionally greater than the reduction in general and administrative expenses for the three months ended December 28, 2002 as compared to the prior year period. In the near term, we believe that general and administrative expenses will decrease in dollar amount in connection with our efforts to reduce operating expenses.

WeFor ~~derive~~the anine ~~significant~~months ~~portion~~ended ofDecember ~~our~~28, ~~revenue~~2002, ~~from~~general ~~either fixed price~~and ~~contracts~~administrative ~~for~~expenses ~~professional~~were ~~services~~$2.4 ~~that~~million, ~~require~~representing ~~the~~a ~~accurate~~decrease ~~estimation~~ of ~~the~~ $1.7 ~~cost~~million, ~~scope~~or ~~and duration of each engagement~~41%, orfrom ~~multiple~~$4.1 ~~element~~million ~~arrangements that~~for ~~tie~~ the ~~recognition~~nine ofmonths ~~licenses~~ended toDecember ~~such~~29, ~~implementation services~~2001. ~~For~~ ~~contracts~~This ~~involving~~decrease ~~significant~~was ~~implementation,~~primarily ~~customization~~due orto: ~~services~~a ~~that are~~$0.9 ~~essential~~million todecrease ~~the~~in ~~functionality~~salary ~~of the software~~expense, as ~~both~~a ~~the~~result ~~product~~of ~~license revenue~~reduced ~~and~~headcount; ~~service~~a ~~revenue~~$0.4 ~~are~~million ~~recognized~~decrease in ~~accordance~~professional ~~with the provisions of~~and ~~Statement~~outside ofservice ~~Position (“SOP”) No. 81-1~~fees, ~~“Accounting~~as ~~for~~a ~~Performance~~result of ~~Construction~~ ~~Type~~reduced ~~and~~usage ~~Certain~~of ~~Production~~outside ~~Type~~contractors ~~Contracts”. When reliable~~and ~~estimates~~services; ~~are~~a ~~available~~decrease ~~for~~of ~~the~~$0.2 ~~costs~~million ~~and~~in ~~efforts~~insurance ~~necessary to complete the implementation services~~expense, wedue ~~account~~to ~~for~~a ~~the~~reduction ~~arrangements under~~ in the ~~percentage~~ amount of ~~completion~~corporate ~~contract~~directors ~~method~~and ~~pursuant~~officers toliability ~~SOP~~insurance; ~~No. 81-1.~~and, ~~When~~a ~~such estimates~~$0.2 ~~are~~million ~~not~~decrease ~~available,~~in ~~the~~all ~~completed~~other ~~contract~~operating ~~method~~expenses, ~~is utilized. Labor hours incurred are used~~ as ~~the~~a ~~measure~~result of ~~progress~~cost ~~towards~~reduction programs. As ~~completion~~a ~~with~~percentage ~~revision~~ of ~~estimates~~net ~~reflected~~revenue, ingeneral ~~the~~and ~~period~~administrative inexpenses for ~~which~~the ~~changes~~nine ~~become~~months ~~known.~~ended IfDecember we28, ~~do not~~2002 ~~accurately~~were ~~estimate~~55%, ~~the~~as ~~resources~~compared ~~required~~to or36% for the nine ~~scope~~months ofended ~~work~~December ~~to be performed~~29, or2001. doThis ~~not~~increase ~~manage~~in ~~our~~general ~~projects~~and ~~properly~~administrative expenses ~~within~~as ~~the~~a ~~planned~~percentage ~~periods~~ of ~~time~~ ornet ~~satisfy~~revenue ~~our~~was ~~obligations~~due ~~under~~to the ~~contracts,~~reduction ~~then~~in ~~future consulting~~revenue ~~margins~~being ~~may~~proportionally begreater ~~significantly~~than ~~and~~the ~~negatively~~reduction ~~affected~~in orgeneral ~~losses~~and ~~on existing~~administrative ~~contracts~~expenses ~~may~~for ~~need~~the tonine bemonths ~~recognized.~~ended ~~Any~~December ~~such~~28, ~~resulting~~2002 ~~reductions~~as incompared ~~margins or contract losses could be material~~ to ~~our~~the ~~results~~prior year ~~of operations~~period.

~~Maintenance~~Amortization ~~and service revenue depends on the continued ability~~ of ~~our customers~~intangible to pay over time, and on customers renewing contracts for software maintenance. If the creditworthiness of our customers deteriorates, particularly customers that are dependent on revenue from e-commerce, or if our customer continue to delay or decline purchase commitments due to concerns about our financial viability, we may not be able to sustain our historic levels of maintenance and service revenue in the future. assets
. The balance is associated with the amortization of the excess of the purchase price over the fair value of the identifiable tangible and intangible assets acquired in our acquisitions of NeoVista Software, Inc., the Infocharger division of Tantau Software International, Inc., and Pilot Software, Inc. Intangible assets are being amortized on a straight-line basis over a useful life of three years. For the three months ended December 28, 2002, amortization of intangible assets was $0.3 million, representing a decrease of $0.8 million, or 76%, from $1.1 million for the three months ended December 29, 2001. As a percentage of net revenue, amortization of intangibles was 28%, as compared to 30% for the three months ended December 29, 2001.

~~Cost~~For the nine months ended December 28, 2002, amortization of intangible ~~Revenue~~assets ~~and~~was ~~Operating~~$1.1 ~~Expenses~~million, representing a decrease of $2.3 million, 68%, from $3.4 million for the nine months ended December 29, 2001. As a percentage of net revenue, amortization of intangibles was 25%, as compared to 30% for the three months ended December 29, 2001.

~~Our~~The ~~cost~~decrease of ~~license~~$0.8 ~~revenue~~million ~~primarily~~and ~~consists~~$2.3 ofmillion ~~license~~for ~~fees~~the ~~due~~three and tonine months period ended December 28, 2002, respectively, versus the ~~third~~comparable ~~parties~~prior ~~for~~year ~~integrated~~periods ~~technology.~~was ~~Our~~due ~~cost~~primarily to the sale of ~~services~~the ~~revenue~~Pilot ~~include~~and ~~salaries~~HitList ~~and~~products ~~related~~in ~~expenses~~the ~~for~~first ~~our~~quarter ~~implementation,~~of ~~consulting~~fiscal 2003, ~~support~~ and a reduced value of ~~training~~identifiable ~~organizations~~intangible assets associated with the Pilot products, ~~costs~~as a result of ~~subcontracting~~the tointangible ~~consulting~~asset ~~organizations~~impairment ~~to provide~~charge ~~consulting~~of ~~services~~$1.2 tomillion ~~customers~~we ~~and~~incurred anin ~~allocation~~the fourth quarter of ~~facilities~~fiscal 2002. In addition, $0.5 million of assembled workforce ~~communications~~intangibles has been reclassified to goodwill since March 30, 2002 and ~~depreciation~~is ~~expenses.~~no longer subject to amortization, resulting in a lower amortization expense of $0.15 million in the current period.

~~Our~~At ~~operating~~December ~~expenses~~28, ~~are~~2002, ~~classified~~the ~~into~~remaining ~~three~~balance ~~general~~of ~~categories:~~identified ~~research~~intangibles ~~and~~of ~~development,~~approximately ~~sales~~$0.4 ~~and~~million ~~marketing,~~will ~~and~~be ~~general~~amortized ~~and~~over ~~administrative.~~the remaining Weuseful ~~classify~~life ~~all~~ranging ~~charges~~from 3 to ~~these~~33 ~~operating~~months. We ~~expense~~assess ~~categories~~the ~~based~~carrying onvalue ~~the~~of ~~nature~~identified ofintangibles, ~~the~~whenever ~~expenditures.~~events Weor ~~allocate~~changes in circumstances indicate that the ~~costs~~amount ~~for~~might ~~overhead~~not ~~and~~be ~~facilities to~~recoverable. When ~~each~~such ofan event occurs, we estimate the ~~functional~~future ~~areas~~cash ~~that~~flows ~~use~~expected to result from the ~~overhead~~use ~~and~~of ~~facilities~~the ~~services~~asset and ~~based~~its oneventual ~~their headcount~~disposition. If ~~These~~the ~~allocated~~undiscounted ~~charges~~expected ~~include~~future ~~facility~~cash ~~rent~~flows ~~for~~are ~~corporate~~less ~~offices,~~than ~~communication~~the ~~charges~~carrying ~~and~~amount ~~depreciation~~of ~~expenses~~the ~~for~~asset, ~~office furniture~~an ~~and~~impairment ~~equipment.~~loss is recognized.

~~Software~~Write ~~development~~down ~~costs incurred prior to the establishment~~ of ~~technological~~ ~~feasibility~~fixed ~~are included in research and development costs as incurred. Since license revenue from our software solutions is not recognized until after technological feasibility~~ assets
. In connection with the reductions in headcount made during fiscal 2003, we performed an impairment analysis of our fixed assets during the first and second quarters of fiscal 2003. As a result of these analyses, we recorded write-offs of property and equipment that resulted in a loss on disposal. For the nine months ended December 28, 2002, the total fixed asset write-off was $1.2 million in property and equipment, which had accumulated depreciation of $0.9 million and resulted in a loss on disposal of $0.3 million.

13 Stock-based compensation.
Stock compensation expense results from the amortization of deferred stock compensation expense over the vesting period of the related options. Total stock-based compensation was a credit of $15,000 and a charge of $75,000 for the three and nine months ended December 28, 2002, respectively, as compared to credits of $0.8 million and $0.3 million for comparable prior year periods. The credits recorded in the prior year periods resulted from the cancellation of stock options related to employees terminated. As a percentage of net revenue, stock-based compensation for the three months ended December 28, 2002 (2%), as compared to (20%) for the comparable prior year period. For the nine months ended December 28, 2002, stock-based compensation expense as a percentage of net revenue was 2%, as compared to (3%) for the comparable prior year period. The increase in stock- based compensation as a percentage of revenue was principally attributable to the cancellation of options associated with employees terminated in the prior year periods which resulted in a credit balance in stock based compensation expense. The remaining balance of $21,000 of deferred stock compensation expense will continue to be amortized over the vesting of the related options. Such deferred expense has been recorded as a reduction of equity in the balance sheet.

~~Table~~Other ofincome ~~Contents~~(expense), net
. Other income, net consists of interest income, interest expense, other income, other expense, and fixed assets written off and gain or loss on foreign currency exchange. For the three months ended December 28, 2002, other expense, net was a credit of $16,000, primarily due to foreign exchange losses. For the three months ended December 29, 2001 other income, net was $16,000, and principally comprised of interest income from invested cash balances.

For ~~has~~the ~~been~~nine ~~established~~months ended December 28, ~~software development~~2002, ~~costs~~other ~~are~~expense, net ~~not~~was ~~generally~~approximately ~~expensed~~$19,000. inFor the ~~same~~nine ~~period~~months inended ~~which~~December 29, 2001, ~~license~~other ~~revenue~~income, ~~for~~net ~~the~~was ~~developed~~$0.2 ~~products~~million, isand ~~recognized.~~principally comprised of interest income from invested cash balances.

WeGain ~~establish our expenditure levels for product development, sales and marketing and other operating expenses based, in large part,~~ on ~~our~~Sale expected future revenue. Our expectations regarding future revenue may not be accurate. As a result, if revenue falls below expectations, our operating results are likely to be adversely and disproportionately affected because only small portions of ~~our~~Technology ~~expenses vary with revenue~~Assets. Due to these factors, our operating results are difficult to forecast. We believe that period-to-period comparisons of our historical operating results are not meaningful and should not be relied upon as an indication of future performance.
For the nine months ended December 28, 2002, gain on sales of technology assets was $0.3 million, as compared to $4.3 million for the comparable prior year period.

~~Critical~~On ~~Accounting~~June ~~Policies~~26, 2001, we signed a definitive agreement (the "Agreement") with JDA Software Group, Inc. ("JDA") pursuant to which we transferred and sold to JDA certain intellectual property and technology assets and also transferred to JDA related personnel responsible for developing the transferred technology. We received $4.9 million for the sale of the Decision Series business of which $0.5 million was placed in an escrow account, subject to indemnification and escrow provisions set forth in the Agreement. Since our basis in the intellectual property sold to JDA was zero, we recognized a net gain of $4.3 million from the transaction. The $0.5 million held in escrow was released in June 2002, and was recognized as an additional gain on sale during the quarter ended December 28, 2002.

~~There~~On ~~have~~May 30, ~~been~~2002, noAccrue ~~material~~Software, ~~changes~~Inc. and certain of its wholly owned subsidiaries including Pilot Software, Inc., Marketwave Corporation, Accrue GmbH, Pilot Software Ltd. and Thorn EMI Computer Software Ltd, (collectively, the "Seller") and Pilot Software Acquisition Corp. and Pilot Software Services Corp. (collectively, the "Purchaser") executed an asset purchase agreement pursuant to ~~our~~which ~~critical~~the ~~accounting~~Seller ~~policies~~sold and transferred to the Purchaser intellectual property and ~~estimates~~technology asassets (including ~~disclosed~~the inPilot ~~our~~and ~~Form 10-K~~Hit List software products), certain related customer contracts, certain other assets and liabilities (collectively, the "Assets") for $1.5 million in cash and assumption of certain liabilities, principally future service obligations on prepaid maintenance contracts, totaling $1.2 million. The consideration paid of $1.5 million was based on the ~~year~~fair ~~ended~~market ~~March~~value of the Assets as of May 30, 2002, as determined in good faith by the Seller and the Purchaser. We paid $0.1 million in transaction costs related to the sale of the Assets. Since our basis in the Assets sold to Purchaser was $2.8 million, we recognized a loss of $0.2 million from the transaction.

~~Results of Operations for the three months and six months ended September 28, 2002 and September 29, 2001~~ Taxation
. We have not generated any taxable income to date and therefore have not paid any United States federal income taxes since inception. We have federal and state net operating loss carryforwards for tax purposes. Use of our net operating loss carryforwards may be subject to limitations under Section 382 and 383 of the Internal Revenue Code of 1986, as amended. We have recorded a full valuation allowance on our deferred tax asset, consisting primarily of net operating loss carryforwards, because of uncertainty regarding its recoverability.

~~The~~Liquidity ~~following~~and ~~table~~Capital ~~sets forth certain items in the Company’s consolidated statements of operations as a percentage of total revenue for the periods indicated:~~ Resources

				Three Months Ended						Six Months Ended
				Sept. 29,			Sept. 28,			Sept. 29,			Sept. 28,
				2001			2002			2001			2002
Net revenue:
	Software license				37.6	%		14.8	%		34.8	%		19.0	%
	Maintenance and service				62.4			85.2			65.2			81.0
		Total net revenue			100.0			100.0			100.0			100.0
Cost of revenue:
	Software license				2.7			3.2			2.8			2.4
	Maintenance and service				45.0			38.8			51.8			47.8
			Total cost of revenue		47.7			42.0			54.6			50.2
Gross profit					52.3			58.0			45.4			49.8
Operating expenses:
	Research and development				45.4			39.1			51.9			49.0
	Sales and marketing				42.2			28.3			41.7			39.5
	General and administrative				38.5			63.5			37.5			59.9
Amortization of intangibles					30.0			17.7			30.9			23.7
Write-down of fixed assets					—			9.1			—			8.4
Stock-based compensation expense					7.2			2.8			6.5			2.6
		Total operating expenses			163.3			160.5			168.5			183.1
Loss from operations					(111.0	)		(102.5	)		(123.1	)		(133.3	)
Other income (expense), net					2.0			0.2			2.8			(0.1	)
Gain on sale of a technology asset					—			—			58.0			8.7
Net loss					(109.0	%)		(102.3	%)		(62.3	%)		(124.7	%)

Since inception we have financed our operations principally through private sales of preferred stock with net proceeds of $15.5 million, our initial public offering with net proceeds of $40.8 million, bank loans, asset sales and cash generated from operations. We used cash primarily to fund our net losses from operations and to pay for acquisition related expenses. We have substantially reduced our operating expenses and accrued liabilities, and the sufficiency of our capital resources is dependent upon our ability to increase revenues quickly and significantly.

~~Revenue~~Cash used in operating activities totaled $3.9 ~~For~~million for the ~~three~~nine months ended ~~September~~ December 28, 2002, ~~total~~as ~~net~~compared ~~revenue was~~to $19.6 7 million, ~~representing~~for athe corresponding ~~decrease~~prior ofyear $2period.~~2 million,~~ orDuring ~~59%~~the nine months ended December 28, ~~from~~2002, the $3.8 9 million of ~~total~~cash ~~net~~used ~~revenue~~in ~~for~~operating ~~the~~activities ~~comparable~~was ~~prior~~primarily ~~year period.~~attributable ~~Two~~to ~~customers accounted~~our ~~for~~net ~~more~~loss ~~than~~of ~~10%~~$5.3 ofmillion, ~~total~~a ~~net~~$ ~~revenue~~0.3 ~~for~~million ~~the~~gain ~~quarter~~on ~~ended~~sale of technology ~~September 28~~assets, ~~2002.~~plus ~~For~~decreases ~~the~~in ~~six~~accounts ~~months~~payable ~~ended~~and ~~September 28,~~accrued ~~2002,~~liabilities ~~total~~of ~~net~~$1.1 million and deferred revenue ~~was~~of $31.4 1 million, ~~representing~~offset aby ~~decrease~~non-cash ofcharges totaling $42.0 million, ora ~~54%~~decrease in accounts receivable of $1.7 million, ~~from~~and a decrease in prepaid expenses and other assets of $70.4 2 million. The decrease in accounts receivable and deferred revenue were a result of ~~total~~the ~~net~~decrease in net revenue ~~for~~in the ~~comparable~~nine months ended December 28, 2002 as compared to the comparable prior year period. ~~One customer~~The ~~accounted~~decrease ~~for~~in ~~more~~accrued ~~than~~liabilities ~~10%~~was ofdue ~~total~~principally ~~net~~to the ~~revenue~~reduction ~~for~~in operating expenses during the ~~six~~nine months ended ~~September~~ December 28, 2002 as compared to the comparable prior year period. The non-cash charge included depreciation expense of $0.6 million, write-off of fixed assets of $0.3 million, amortization of intangibles of $1.1 million arising from acquisitions during prior fiscal years, and stock-based compensation expense of $0.1 million.

~~During~~Cash provided by investing activities totaled $1.8 million for the ~~first~~three ~~quarter~~months ofended ~~fiscal~~December ~~2003~~28, ~~the~~2002, ~~Company~~as ~~sold~~compared ~~certain~~to ~~assets~~$4.3 million for ~~including~~the ~~its~~nine ~~Pilot~~months ~~and~~ended ~~HitList~~December ~~products~~29, 2001. During ~~Revenue~~the ~~from~~nine ~~the~~months ~~divested~~ended ~~assets~~December ~~comprised~~28, ~~11%~~2002, ~~and~~$1.9 ~~32%~~million of ~~total~~cash ~~net~~was ~~revenue~~provided ~~for~~by the ~~three~~proceeds ~~months~~from ~~ended~~sale ~~September~~of ~~28,~~technology ~~2002~~assets. Cash used in acquisitions of property and ~~September 29,~~equipment ~~2001~~and technology assets includes $60,000 ~~respectively.~~paid ~~For~~for certain assets of Personify Inc. During the ~~six~~nine months ended ~~September 28,~~ ~~2002~~December ~~and September~~ 29, 2001, ~~revenue~~$4.3 million of cash was provided from the ~~divested~~proceeds from sale of technology assets ~~comprised~~ ~~28%~~and $61,000 of cash was used to acquire property and equipment.

14Cash provided by financing activities totaled $64,000 for the nine months ended December 28, 2002, and was comprised of $4,000 in proceeds from the sale of stock under the Company's employee option plan and the employee stock purchase plan, and an aggregate of $60,000 borrowed pursuant to demand notes issued to Robert Smelick, the Chairman of Accrue's Board of Directors, which were used to fund the acquisition of the Personify assets. Cash used by financing activities was $2.0 million for the nine months ended December 29, 2001. The prior year's activity includes release of restricted cash of $2.0 million offset by repayment of short-term borrowings of $2.0 million, repurchase of common stock totaling $57,000 and proceeds from stock options and warrants exercised of $22,000.

~~Table~~We had working capital deficits of ~~Contents~~$1.3 million and $1.1 million at December 28, 2002 and March 30, 2002, respectively. Our current significant commitments consist of non-cancelable operating leases for office facilities and equipment and minimum royalty payments for licensed technology used in our products, as noted below:

                                                         Less
Contractual andCash 30%Obligations                             than
(in ofthousands)                                Total     1 totalyear    1-3 netyears
                                            ---------  ---------  ---------
Operating revenue,leases respectively(excluding sub-leases)... The table below$     356  $      45  $     311
showsMinimum theroyalty impact of the sale of the divested assets on revenue for the threepayments..................       142        --         142
and                                            ---------  ---------  ---------
Total sixcontractual monthcash periodsobligations........ ended September 29, 2001 and September 28, 2002,$     498  $      45  $     453
respectively.                                            =========  =========  =========

			Three Months Ended							Six Months Ended
			Sept. 29,		Sept. 28,					Sept. 29,		Sept. 28,
			2001		2002		Change			2001		2002		Change
Software license
	Divested products		$	603	$	93	$	(510	)	$	1,105	$	466	$	(639	)
	Current products			831		136		(695	)		1,476		191		(1,285	)
		Total license revenue		1,434		229		(1,205	)		2,581		657		(1,924	)
Maintenance and service
	Divested products			621		78		(543	)		1,125		493		(632	)
	Current products			1,755		1,245		(510	)		3,716		2,300		(1,416	)
		Total maintenance and service revenue		2,376		1,323		(1,053	)		4,841		2,793		(2,048	)
Net revenue
	Divested products			1,224		171		(1,053	)		2,230		959		(1,271	)
	Current products			2,586		1,381		(1,205	)		5,192		2,491		(2,701	)
		Total net revenue	$	3,810	$	1,552	$	(2,258	)	$	7,422	$	3,450	$	(3,972	)

At December 28, 2002, we did not have any other relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships

~~The~~As ~~$2.2 million~~of ~~decline~~December ~~in total net revenue for the three months ended September~~ 28, 2002, asour ~~compared~~principal tosource ~~the~~of ~~comparable~~liquidity consisted ~~prior~~of ~~year~~cash ~~period~~and ~~was principally~~cash ~~due~~equivalents toof ~~the~~ $10.~~2 million~~7 ~~decline in revenue from our current Internet analytics products~~million. Of ~~Revenue~~this ~~from these products was $1.4 million in the three months ended September 28~~total, ~~2002, as compared to~~ $20.6 million inwas ~~the comparable~~held ~~prior year period. This decline~~ in ~~revenue~~our ~~was~~foreign ~~due~~subsidiaries. toWe amay ~~lower level~~face oflimitations ~~new license and service sales a result of several factors, including:~~in ~~weak~~accessing ~~economic~~cash ~~conditions,~~balances ~~which~~in ~~contributed~~foreign tosubsidiaries ~~the~~for ~~continued~~use ~~slowdown in information technology spending~~ by ~~current and prospective customers; customer concerns about~~ Accrue~~’s financial condition~~, ~~which caused several customers to delay or decline purchase decisions; and, a smaller sales force as compared to~~ the ~~comparable~~US ~~prior year period. The remaining $1.0 million of the net~~parent ~~revenue variance was attributable to the sale of the Pilot and HitList assets during fiscal 2003~~company. ~~Revenue from these assets was $0.2 million in the three months ended September 28, 2002, as compared to $1.2 million in the comparable prior year period.~~

~~The~~During ~~$4.0 million~~fiscal ~~decline~~2003 inwe ~~total~~have ~~net~~undertaken ~~revenue~~actions ~~for~~to ~~the~~improve ~~six~~our liquidity ~~months~~and ~~ended September 28,~~reduce ~~2002,~~our asoperating ~~compared~~losses. toDuring the ~~prior~~third ~~year~~quarter ~~period~~of ~~was principally due to~~fiscal ~~the~~2003, ~~$2.7 million~~we ~~decline~~narrowed ~~in revenue from~~ our ~~Internet~~quarterly ~~analytics~~net ~~products. Revenue~~loss ~~from~~to ~~these products was~~ $21.50 million infor the ~~six~~ three months ended ~~September~~ December 28, 2002, as compared to $5.2.4 million infor the comparable prior year period. ~~This decline~~During ~~in revenue was due to a lower level of new license and service sales as a result of several factors, including: weak economic conditions, which contributed to~~ the ~~continued~~nine ~~slowdown~~months inended ~~information~~December ~~technology spending by current and prospective customers; customer concerns about Accrue’s financial condition~~28, ~~which~~2002 ~~caused several customers to delay or decline purchase~~we ~~decisions;~~sold ~~and,~~assets athat ~~smaller~~generate ~~sized~~cash ~~sales~~proceeds ~~force~~of ~~as compared to the prior year period. The remaining~~ $1.~~3 million of the net revenue variance was attributable to the sale of the Pilot and HitList assets during fiscal 2003. Revenue from these assets was $0.~~9 ~~million~~ ~~in the six months ended September 28, 2002, as compared to $2.2~~ million in(see ~~the~~Note ~~comparable prior year period~~8).

~~Software~~We ~~license~~have ~~revenue.~~recently ~~For~~raised additional working capital through the ~~three~~sale ~~months~~of ~~ended~~secured ~~September 28,~~convertible ~~2002~~notes, which is more ~~revenue~~fully ~~from~~described ~~software~~in ~~licenses~~Note ~~was~~12 $0to the Consolidated Condensed Financial Statements.~~2 million,~~ While ~~representing~~we ahave ~~decrease~~substantially reduced the level of ~~$1.2 million~~ operating expense, orwe ~~84%~~have ~~from~~been unable ~~$1.4 million~~to ~~for~~generate ~~the~~revenues ~~comparable~~sufficient ~~prior~~to ~~year~~achieve ~~period~~positive cash flow. As Ofa ~~this variance~~result, ~~$0.7 million~~unless ofwe ~~the~~are ~~software~~able ~~license~~to ~~revenue~~achieve ~~variance~~a ~~was~~rapid increase in our revenues, our ~~attributable~~current tocash ~~lower~~resources ~~new~~will ~~sales~~be ofinsufficient ~~our~~to ~~Internet~~fund ~~analytics~~our ~~products~~business ~~during~~as ~~the~~it has ~~second~~historically ~~quarter~~been ofconducted ~~fiscal~~and ~~2003.~~will ~~License~~be ~~revenue~~soon ~~from~~exhausted ~~these~~by ~~products~~the ~~comprised~~current level of $0operating expenses.~~1 million~~ Absent such an increase in ~~the~~revenues ~~second~~and ~~quarter~~possible offurther cuts ~~fiscal~~in ~~2003~~expenses, aswe ~~compared~~would need to $0obtain additional capital.~~8 million in~~ ~~the~~We ~~comparable~~are ~~prior~~pursuing initiatives ~~year~~to ~~period.~~achieve ~~This~~such ~~decrease~~increased inrevenues ~~new~~and ~~license~~to ~~sales~~improve ~~was~~our cash position ~~primarily~~by aincurring ~~result~~additional ofdebt. ~~several~~In ~~factors~~addition, ~~including:~~we ~~weak~~are ~~economic~~pursuing ~~conditions,~~initiatives such as ~~which~~selling ~~contributed~~assets, toselling ~~the~~additional ~~continued~~stock, ~~slowdown~~implementing further reductions in spending ~~information~~and ~~technology~~other ~~spending by~~cash ~~current~~generating ~~and~~initiatives. ~~prospective~~As ~~customers;~~a ~~customer~~result ~~concerns~~of ~~about~~our ~~Accrue’s~~continuing ~~financial~~operating ~~condition~~deficit and limited cash resources, ~~which~~it ~~caused~~is ~~several~~imperative ~~customers~~that towe ~~delay~~increase revenues or ~~decline purchase~~raise ~~decisions;~~additional ~~and~~funds quickly. If we are unable to do so, ait ~~smaller~~is likely ~~sized~~that ~~sales~~we ~~force~~will asnot ~~compared~~be able to ~~the~~continue ~~prior year~~our ~~period.~~business ~~The~~as ~~remaining~~a ~~variance~~going ofconcern ~~$0.5 million~~and that ~~was~~we ~~attributable~~will be required to ~~the Pilot~~wind ~~and~~down ~~HitList~~our ~~assets~~operations ~~divested~~and engage in ~~fiscal~~efforts ~~2003~~to sell our assets. ~~License~~In ~~revenue~~this ~~from~~event, ~~these~~there can be no assurance that available cash ~~assets~~and ~~comprised~~amounts ~~$0.1 million~~received inon the ~~second~~sale ~~quarter~~ of ~~fiscal~~assets ~~2003,~~will asbe ~~compared~~ adequate to ~~$0.6 million~~provide infor ~~the~~our obligations, ~~comparable~~liabilities, ~~prior~~expenses ~~year~~and ~~period.~~claims ~~License~~and ~~revenue~~to ~~comprised~~make cash distributions to ~~15%~~stockholders, and ~~38%~~we ofmay ~~total~~decide ~~net~~or ~~revenue~~be ~~for~~compelled ~~the~~to ~~three~~file ~~months~~for ~~ended~~protection ~~September 28, 2002~~under ~~and~~federal ~~September 29,~~bankruptcy ~~2001, respectively~~proceedings. ~~The~~If ~~decline~~such inavailable cash and amounts received from the ~~mix~~sale of ~~license~~assets ~~revenue~~ are not adequate to ~~total~~provide ~~net~~for ~~revenue~~our ~~was~~obligations, ~~due~~liabilities, expenses toand ~~the~~claims, ~~lower~~we ~~level~~may ofnot ~~new~~be ~~software~~able ~~license~~to ~~sales~~distribute meaningful cash, or any incash, ~~the~~to ~~current~~our ~~quarter~~stockholders and creditors.

~~For~~If ~~the~~we ~~six~~were ~~months~~able ~~ended~~to ~~September 28,~~raise ~~2002,~~additional ~~revenue~~funds ~~from~~through ~~software~~the ~~licenses~~issuance ~~was~~of ~~$0.7 million,~~equity ~~representing~~or aconvertible ~~decrease~~debt ~~of $1.9 million~~securities, orthe ~~74%~~percentage ~~from~~ownership of ~~$2.6 million~~our ~~for~~current ~~the~~stockholders ~~comparable~~would ~~prior~~be ~~year~~reduced ~~period.~~and ~~This~~these ~~variance~~securities ~~was~~might have ~~principally~~rights, ~~attributable~~preferences toand ~~lower~~privileges ~~new~~senior ~~sales~~to those of our ~~Internet~~current ~~analytics products~~stockholders. ~~during~~Any ~~the~~such ~~first~~financing ~~six~~will ~~months~~be ofdilutive ~~fiscal~~to ~~2003~~existing asstockholders. ~~compared~~Moreover, toany ~~the comparable prior~~such ~~year~~cost ~~period.~~cutting ~~License~~actions ~~revenue~~could ~~from~~have ~~these~~a ~~products~~harmful ~~totaled~~effect ~~$0.2 million~~on ~~for~~ the ~~six~~ ~~months~~Company's ~~ended~~business ~~September 28,~~and results ~~2002,~~of ~~as compared to $1~~operations.~~5 million~~ ~~in the~~

15Unless our current cash resources improve, we will be unable to pay our future obligations as they arise. These obligations include contractual cash obligations such as operating leases and minimum royalty payments, and contingent cash obligations such as the claims filed by terminated employees in Europe. Failure to pay minimum royalty payments would result in termination of our license for third party technology that is incorporated into our products, and such license terminations would preclude continued selling of our products in their current form. Furthermore, unless our current cash resources improve, we will be unable to fund operating expenses, including retaining employees, to maintain our business. As a result, our vendors would likely not extend future credit to us. In addition, if our current cash resources continue to decline, we may not be able to pursue an orderly wind down of our business in which we can satisfy in full the obligations to current creditors or fund efforts to improve our cash position, including selling additional stock or selling our assets.

~~Table~~Recent ofAccounting ~~Contents~~Pronouncements


In June 2001, the Financial Accounting Standards Board ("FASB") approved Statements of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets." The statements eliminate the pooling-of-interests method of accounting for business combinations and require that goodwill and certain intangible assets not be amortized. Instead, the statements provide that these assets should be tested, at least annually, for impairment with any related losses recognized as incurred. SFAS No. 141 is generally effective for business combinations completed after September 29, 2001. SFAS No. 142 was effective for the Company beginning March 31, 2002 for existing goodwill and intangible assets.

~~comparable~~In ~~prior~~October ~~year period. This decrease in new license sales was primarily a result of several factors~~2001, ~~including:~~FASB ~~weak~~issued ~~economic~~SFAS ~~conditions~~No. 144, ~~which~~"Accounting ~~contributed~~for to the ~~continued~~Impairment ~~slowdown~~or inDisposal ~~information~~of ~~technology~~Long-Lived ~~spending~~Assets." ~~by current~~This ~~and~~statement ~~prospective customers; customer concerns about Accrue’s financial~~addresses ~~condition,~~financial ~~which~~accounting ~~caused several customers to delay or decline purchase decisions;~~ and, areporting ~~smaller~~for ~~sized sales force as compared to~~ the ~~comparable~~impairment ~~prior year period. The remaining $0.6 million~~ of ~~the~~long-lived ~~license~~assets ~~revenue~~and for ~~variance~~long-lived ~~was attributable~~assets to ~~the~~be ~~divestiture~~disposed of ~~the Pilot~~ and ~~HitList~~supersedes ~~assets.~~SFAS ~~License revenue from these assets totaled $0~~No.5 ~~million~~121 and ~~$1.1 million for the six~~APB ~~months~~Opinion ~~ended September~~No. ~~28,~~30. ~~2002~~SFAS ~~and September~~No. ~~29,~~144 ~~2001,~~was ~~respectively.~~effective ~~License revenue comprised 19% and 35% of total net revenue~~ for the ~~six~~Company ~~months ended~~beginning ~~September~~March 2831, 2002 ~~and September 29, 2001, respectively~~. ~~The~~In ~~decline~~accordance inwith ~~the mix~~this ofpronouncement, ~~license revenue to total net revenue was due to~~ the ~~lower~~Company ~~level of~~recorded ~~software~~a ~~license~~write-down ~~sales~~of infixed ~~the current fiscal year to date period~~assets.


In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The standard replaces EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" and requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company has not yet determined the impact of SFAS No. 146 on its financial position or results of operations.

~~Maintenance~~Risk and service revenue. Maintenance and service revenue was $1.3 million for the three months ended September 28, 2002, representing a decrease of $1.1 million or 44%, from $2.4 million for the comparable prior year period. The majority of this variance was attributable to the divestiture of the Pilot and HitList assets. Maintenance and service revenue from these assets totaled $0.1 million and $0.6 million for the three months ended September 28, 2002 and September 29, 2001, respectively. Maintenance and services revenue from the Internet analytics products was $1.2 million for the three months ended September 28, 2002, down $0.5 million from the $1.7 million in the comparable prior year period. This decrease was primarily due to the decline in new license sales and a decline in maintenance renewals as compared to the comparable prior year period. Factors

~~For~~You ~~the~~should ~~six~~carefully ~~months~~consider ~~ended~~the ~~September 28,~~following ~~2002,~~risks ~~maintenance~~before making ~~and~~an ~~service revenue~~investment ~~was~~in $2our Company.~~8 million,~~ ~~representing~~In aaddition, ~~decrease~~you ofshould ~~$2.0 million~~keep orin ~~42%,~~mind ~~from~~that ~~$4.8 million~~the ~~for~~risks described below are not the ~~comparable~~only ~~prior~~risks ~~year~~that ~~period~~we face. The ~~majority~~risks described ofbelow ~~this variance~~are ~~was~~all ~~attributable~~the torisks ~~lower~~that ~~revenue~~we ~~from~~currently ~~the~~believe ~~Internet~~are ~~analytics~~material to our ~~products~~business. ~~Maintenance~~However, ~~and~~additional ~~services~~risks ~~revenue~~not ~~from~~presently ~~the~~known ~~Internet~~to ~~analytics~~us, ~~products was~~or ~~down~~risks ~~$1.4 million~~that ~~for~~we currently ~~the~~believe ~~six~~are ~~months~~immaterial, ~~ended~~may ~~September 28,~~also ~~2002,~~impair toour $2business operations.3 You ~~million~~should ~~from~~also ~~$3.7 million~~refer into the ~~prior~~other ~~year~~information ~~period.~~set ~~This~~forth ~~decrease~~in ~~was~~this Quarterly Report on ~~primarily~~Form ~~due~~10-Q, toincluding the ~~decline~~discussions inset ~~new~~forth ~~license~~in ~~sales~~"Management's Discussion and aAnalysis ~~decline~~of inFinancial ~~maintenance renewals~~Condition asand ~~compared~~Results toof ~~the~~Operations", ~~comparable~~as ~~prior~~well ~~year~~as our ~~period.~~financial ~~Maintenance~~statements and ~~service~~ ~~revenue from~~ the ~~divested~~related ~~assets~~notes, ~~totaled~~along ~~$0.5 million~~with ~~and $1.1 million for~~ the ~~three~~factors ~~months~~discussed in ~~ended~~our ~~September 28,~~Annual ~~2002~~Report ~~and~~filed ~~September 29,~~on ~~2001, respectively~~Form 10-K.

~~Cost~~Our ~~of revenue. Cost of revenue consists primarily of the salaries and related expenses for maintenance and service personnel~~business, ~~contractor~~financial ~~expense for third-party contractors who supplement our internal staff on customer engagements when internal staff capacity constraints occur~~condition, ~~and costs associated with license of technology used in our products. For the three months ended September 28, 2002, cost of revenue was $0.7 million, representing a decrease of $1.1 million,~~ or ~~64%,~~results ~~from $1.8 million for the corresponding prior year period. This decrease was primarily due to: a $0.5 million decrease in salary and expense, as a result~~ of ~~reduced headcount; a $0.4 million~~ ~~decrease~~operations incould ~~contractor~~be ~~expenses,~~adversely asaffected aby ~~result~~any of ~~a reduction in~~ the ~~use~~following ~~of contractors; and, a $0~~risks.~~2 million~~ ~~decrease~~If ofwe ~~other related operating expenses,~~are asadversely aaffected ~~result of lower headcount and lower volume of maintenance and service revenue. Maintenance and service related headcount declined~~ by ~~41%,~~such ~~to 20 at September 28~~risks, ~~2002~~then ~~from 34 at September 29, 2001. As a percentage of net revenue, cost of revenue was 42% in~~ the ~~three~~trading ~~months ended September 28, 2002, as compared to 48% in the prior year period. The decline in the costs~~ of ~~revenue~~ asour acommon ~~percentage~~stock ~~of net revenue was principally attributable to the~~could decline, inand ~~the~~you ~~level~~could oflose ~~expense being proportionally greater than the decline in revenue for the second quarter of fiscal 2002 as compared to the comparable prior year period. Because~~ all ~~development~~or ~~costs~~part ~~incurred in the research and development~~ of ~~our~~your ~~software products and enhancements to our existing software products have been expensed as incurred, cost of revenue includes no amortization of capitalized software development costs~~investment.

~~For~~Risks ~~the~~Related ~~six~~To ~~months~~Our ~~ended~~Financial September 28, 2002, cost of revenue was $1.7 million, representing a decrease of $2.3 million, or 57%, from $4.0 million for the corresponding prior year period. This decrease was primarily due to: a $1.0 million decrease in salary expense, as a result of reduced headcount; a $0.8 million decrease in contractor expense, as a result of a significant reduction in the use of contractors; a $0.2 million decrease in facilities related expenses, as a result of a reduction in leased office space; and, a $0.3 million decrease in other related operating expenses, as a result of lower headcount and a lower volume of maintenance and service revenue. As a percentage of net revenue, cost of revenue was 50% in the six months ended September 28, 2002, as compared to 55% in the prior year period. The decline in the costs of revenue as a percentage of net revenue was principally attributable to the decline in the level of expense being proportionally greater than the decline in revenue for the six months year to date of fiscal 2002 as compared to the comparable prior year period. Condition

~~Gross~~We ~~profit.~~need ~~For~~to ~~the~~quickly ~~three~~increase ~~months~~our ~~ended~~revenues ~~September 28,~~and/or ~~2002, gross profit~~raise ~~was~~additional ~~$0.9 million,~~working ~~representing~~capital awhile ~~decrease~~maintaining ofthe ~~$1.0 million,~~expense orcontrols ~~55%,~~that ~~from~~we ~~$2.0~~have ~~million~~implemented ~~for the corresponding prior year period. The decrease~~ in ~~gross~~order ~~profit was principally due~~ to ~~the decline~~ensure inthat ~~revenue~~we ~~for~~have ~~the~~sufficient ~~second~~resources ~~quarter~~to ofoperate ~~fiscal 2003,~~ as ~~compared to~~a ~~the~~going ~~corresponding prior year period~~concern. If Aswe adon't ~~percentage~~improve ofour ~~net~~cash ~~revenue~~position, ~~gross profit~~we ~~margin~~will ~~increased~~likely toneed ~~58% for the three months ended September 28, 2002~~to ~~from~~wind ~~52%~~down ~~for~~our ~~the~~business ~~comparable~~and ~~prior~~engage ~~year period. The increase~~ in ~~gross~~efforts ~~margin was primarily due~~ to ~~the~~sell ~~reductions~~our ~~in cost of revenue being proportionally greater than the reduction in net revenue for the second quarter of fiscal 2003, as compared to the corresponding prior year period~~assets.

16 Our current cash resources are insufficient to fund our business as it has historically been conducted and will soon be exhausted by the current level of operating expenses absent a rapid increase in our revenues or our obtaining additional capital. If we cannot raise revenues quickly while maintaining expenses control before our cash resources are depleted, we will need to raise additional capital. Failing that, it is likely that we will be unable to continue our business as a going concern and that we will need to wind down our operations and engage in efforts to sell our assets. In this event, there can be no assurance that available cash and amounts received on the sale of assets will be adequate to provide for our obligations, liabilities, expenses and claims and to make cash distributions to stockholders, and we may decide or be compelled to file for protection under federal bankruptcy proceedings. If such available cash and amounts received from the sale of assets are not adequate to provide for our obligations, liabilities, expenses and claims, we may not be able to distribute meaningful cash, or any cash, to our stockholders and creditors. Please see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources."

~~Table~~We have secured financing in the form of ~~Contents~~senior secured convertible notes that would dilute existing shareholders upon conversion or take precedence over creditors upon liquidation. These outstanding convertible debt securities may dilute the current stockholders and harm our ability to raise additional capital through the sale of equity securities or the incurrence of debt.

~~For~~We ~~the~~obtained ~~six~~approximately ~~months~~$501,000 ~~ended~~in ~~September 28,~~capital ~~2002,~~pursuant ~~gross~~to ~~profit~~the sale ~~was~~of $1senior secured convertible notes in February 2003.7 (Please see Note 12 ~~million,~~to ~~representing~~the Consolidated Condensed Financial Statements for a ~~decrease~~more complete description of $1this financing.~~7 million~~) At the current conversion price, orthe ~~50%~~outstanding principal amount of the Notes are convertible into approximately 8,350,000 shares ~~from~~of ~~$3.4 million~~Accrue ~~for~~common stock, which, if such conversion were to occur, would ~~the~~dilute ~~corresponding~~Accrue's ~~prior~~current ~~year~~common ~~period~~stockholders by approximately 22 percent. The conversion ~~decrease~~of inthe ~~gross~~notes ~~profit~~or ~~was~~the prospect of the conversion of the notes could ~~principally~~harm ~~due~~our ability to raise additional capital through the ~~decline~~sale inof ~~revenue~~equity securities ~~for~~or ~~the~~otherwise. ~~six~~We ~~months~~would ~~year~~likely need to ~~date~~obtain the consent of a ~~fiscal~~majority ~~2003,~~in asinterest ~~compared~~of to the ~~corresponding~~outstanding ~~prior~~convertible ~~year~~debt ~~period.~~securities Asin aorder to ~~percentage~~incur additional secured indebtedness. In the event of ~~net~~a ~~revenue~~liquidation, ~~gross~~the ~~profit~~notes would ~~margin~~be ~~increased~~paid toin ~~50%~~full ~~for~~at ~~the~~1.5 ~~six~~times their principal value before any unsecured ~~months~~claims ~~ended~~would ~~September 28,~~be ~~2002~~paid. ~~from~~In ~~45%~~addition, ~~for~~since the ~~comparable~~notes ~~prior~~are ~~year~~secured ~~period.~~by a first ~~The~~priority ~~increase~~lien inon ~~gross~~all ~~profit~~the ~~margin~~assets ~~was~~of ~~primarily~~Accrue, ~~due~~the tonoteholders claims under the notes ~~reduction~~would intake ~~cost~~precedence over any unsecured creditors or stockholders of ~~revenue~~Accrue, ~~being~~which ~~proportionally~~will ~~greater~~likely ~~than~~harm our ability to raise additional capital through the ~~reduction~~sale inof ~~net~~equity ~~revenue~~securities ~~for~~or the incurrence of debt. In a liquidation ~~six~~unsecured ~~months~~creditors ~~year~~may tonot ~~date~~receive the full value of ~~fiscal~~their ~~2003,~~claims asand ~~compared~~there maybe no funds available for distribution to the ~~corresponding~~Company's ~~prior year period~~stockholders.

~~Gross profit~~If ~~margin~~our isefforts ~~also highly influenced by the mix of license and service revenue. The proportion of services and maintenance revenue~~ to ~~total~~increase ~~revenue in~~revenues ~~any~~do ~~period~~not ~~depends on various factors which include: the volume of new license revenue~~succeed, ~~the~~we ~~acquisition of maintenance contracts from new license~~may ~~sales~~be ~~and~~required ~~the~~to ~~renewal~~pursue ~~rate~~additional ofcost ~~existing~~reduction ~~maintenance~~efforts ~~contracts. For these reasons, we expect~~ that ~~our gross profit margin~~ will ~~continue~~impact ~~to fluctuate in~~our ~~the~~ability ~~future, but expect it~~ to ~~remain,~~operate ~~for~~our ~~the balance of fiscal 2003, at levels generally comparable to those achieved for the six months ended September 28, 2002 given the expected high mix of service revenue relative to new license revenue~~business.

~~Operating~~During ~~expenses. For~~ the ~~three~~quarter ~~months~~ ended ~~September~~ December 28, 2002, ~~total operating~~we ~~expenses were $2.5 million, representing a decrease of $3.7 million,~~implemented oradditional ~~60%,~~cost ~~from~~reduction ~~$6.2 million~~programs ~~for the comparable prior year period. This decrease in operating expenses resulted primarily from lower development, sales~~ and ~~marketing~~ ~~and~~efforts ~~general and administrative expenses of $2.7 million, which reduction was due~~ to: apreserve ~~decrease of $1~~cash.~~4 million~~ inDuring ~~staffing costs~~October 2002, ~~resulting from~~we ~~workforce reductions~~ implemented ~~since September 29, 2001;~~ a ~~decrease~~reduction ~~of $0.2~~ in ~~commission expense~~force, aswhich areduced ~~result~~full oftime ~~lower revenues; a decrease of $0.2~~equivalent ~~million~~headcount infrom ~~facility~~44 ~~related expenses, due~~ to ~~reductions~~36 ~~in the amount of leased office space; a decrease of $0~~employees.~~5 million~~ If inour ~~contractor~~cash ~~and~~position ~~outside~~does ~~service expense~~not stabilize, we asmay aneed ~~result~~to ofreduce ~~a reduction in~~ the ~~usage~~headcount offurther ~~outside services; a decrease of $0.2 million in marketing program~~ and/or ~~advertising~~reduce ~~expense~~employee ~~and a~~compensation ~~decrease of $0.2 million in all other operating expenses~~levels, aswhich acould ~~result~~harm ~~of general~~our ~~expense~~ability ~~reduction programs implemented. Also contributing~~ to ~~the decline~~retain inour ~~operating expenses were a decrease of $0~~employees.~~9 million~~ inFurther ~~intangible~~reducing ~~amortization charges, principally due to~~ the ~~sale~~number of ~~the~~our ~~Pilot~~employees ~~and~~could ~~HitList technology~~adversely ~~assets~~impair inour ~~the~~ability ~~first~~to ~~quarter~~operate ~~of fiscal 2003 as well as~~our ~~non-amortization of goodwill during fiscal 2003~~business, ~~and~~including ~~a decrease~~our inability ~~stock-based compensation expense of $0.2 million, principally due~~ to ~~the~~increase ~~lower~~revenues ~~headcount~~and ~~levels~~maintain ~~as compared to the prior year period, offset by a~~effective ~~$0.1 million~~disclosure ~~charge~~and ~~for~~internal ~~fixed~~controls ~~assets~~and ~~written off~~procedures.

As a percentage of net revenue, total operating expenses for the three months ended September 28, 2002 were 160%, as compared to 163% for the three months ended September 29, 2001. The decrease in operating expenses as a percentage of net revenue was due primarily to the reduction in expenses being proportionally greater than the decline in revenue for the second quarter of fiscal 2003, as compared to the corresponding prior year period. We ~~expect that~~may ~~total~~be ~~operating~~unable ~~expenses will decline for the remaining two quarters of fiscal 2003, given continued efforts~~ to ~~conserve~~pay ~~cash by reducing~~ future ~~operating~~ ~~expenses.~~debts ~~During~~as ~~October~~they ~~2002, the Company reduced headcount by 8,~~become ~~from 44 at September 28, 2002 to 36 at October 30, 2002, in connection with its efforts to conserve cash by reducing operating expenses~~due.

~~For~~If ~~the~~our ~~six~~efforts ~~months~~to ~~ended~~maintain ~~September 28,~~and ~~2002~~improve ~~total~~our ~~operating~~current ~~expenses were~~cash ~~$6.3 million,~~resources ~~representing~~fall ~~a decrease of $6.2 million~~short, orwe ~~50%,~~will ~~from~~be ~~$12.5 million~~unable ~~for~~to ~~the~~pay ~~comparable~~future ~~prior~~obligations ~~year~~as ~~period~~they arise. These ~~This~~obligations ~~decrease~~include inon-going operating ~~expenses~~ ~~was primarily attributable to lower development~~expenses, ~~sales~~secured ~~and marketing~~convertible ~~and general and administrative expenses of $4.6 million~~notes, ~~due~~contractual ~~principally~~cash ~~to:~~obligations ~~a decrease~~such ~~of $2.9 million in staffing costs,~~ as aoperating ~~result~~leases ofand ~~the~~minimum ~~headcount~~royalty ~~reductions implemented since September 29~~payments, ~~2001;~~or acontingent ~~decrease~~cash ofobligations ~~$0.3 million~~such ~~in commissions,~~ as athe ~~result~~claims offiled ~~lower~~by ~~revenues;~~terminated employees ain ~~decrease of $0~~Europe.~~4 million~~ ~~in facility related expenses~~Additionally, ~~due~~a todefault ~~reductions~~on inmaterial ~~the~~debt ~~amount~~obligations ~~of leased office~~could ~~space;~~result ~~a decrease of $0.4 million~~ in ~~contractor~~an ~~and~~event ~~outside service expense, as a result~~ of adefault ~~reduction~~under in the ~~usage~~secured ofconvertible ~~outside~~notes ~~services;~~discussed ~~and, a decrease of~~in ~~$0.6 million~~Note in12 ~~other~~to ~~operating~~the ~~costs,~~Consolidated asCondensed aFinancial ~~result~~Statements ofwhich ~~general expense~~would ~~reduction~~accelerate ~~programs.~~the ~~Also~~obligation ~~contributing~~ to ~~the~~repay ~~decline~~those inconvertible ~~operating~~notes. ~~expenses were~~If aany ~~decrease~~ of ~~$1.5 million~~these events inwould ~~intangible amortization charges~~occur, ~~principally due~~we tomight ~~the~~not ~~sale~~be ofable ~~the~~to ~~Pilot~~pursue ~~and~~an ~~HitList~~orderly ~~product~~wind ~~lines~~down ~~in the first quarter~~ of ~~fiscal~~ ~~2003 as well as non-amortization of goodwill during the first six months~~our ofbusiness ~~fiscal~~in ~~2003,~~which ~~and~~we acan ~~decrease~~satisfy in ~~stock-based~~full ~~compensation~~our ~~expense~~obligations ~~of $0.4 million, principally due~~ to ~~the~~current ~~lower~~creditors ~~headcount~~or fund ~~levels~~efforts ~~as compared~~ to ~~the~~improve ~~prior year~~our ~~period~~cash position, ~~offset~~including byselling aadditional ~~$0.3 million~~stock ~~charge~~or selling ~~for~~our ~~fixed~~ assets ~~written off~~.

AsConcerns aabout ~~percentage~~our offinancial ~~net~~viability ~~revenue,~~have ~~total~~impacted ~~operating expenses were 183%, as~~our ~~compared~~ability to ~~168%~~close ~~for~~sales ~~the~~transactions ~~six~~with ~~months~~current ~~ended~~and ~~September 29,~~prospective ~~2001~~customers. The increase in operating expenses as a percentage of net revenue was due primarily to the reduction in revenue being proportionally greater than the decline in total operating expenses for the six months year to date of fiscal 2003, as compared to the corresponding prior year period.

~~Research~~To ~~and~~date, ~~development~~we ~~expenses.~~have ~~Research~~been ~~and~~unable ~~development~~to ~~expenses~~fund operations from cash ~~consist~~generated by our business and have funded operations primarily by selling securities and assets. While we have substantially reduced our level of operating ~~salaries~~expenses, we continue to consume cash in our operations and ~~related~~cash resources ~~costs~~available ~~associated~~to ~~with~~us ~~the~~are ~~development~~insufficient to fund our operations now and for the foreseeable future. As a result of ~~new~~our ~~products~~cash flow problems, our audited financial statements for the ~~enhancement~~fiscal ofyear ~~existing~~ended ~~products~~March 29, ~~and~~2002 ~~the~~contain ~~performance~~a qualified audit opinion that questions our ability to remain a going concern. Customer concerns about our financial viability, particularly our lack of ~~quality~~profitability, ~~assurance~~low ~~and~~levels ~~documentation~~of ~~activities.~~working ~~For~~capital and the ~~three~~impact ~~months~~of ~~ended~~our stock being ~~September 28,~~delisted ~~2002~~from the Nasdaq SmallCap Market, ~~research~~have ~~and~~in ~~development~~past ~~expenses~~quarters ~~were~~adversely impacted $0our ability to close new sales transactions and generate revenue.~~6 million~~ Despite our new funding and positive changes in our operations, these concerns may continue. Please see "Management's Discussion and Analysis of Financial Condition and Results of Operations."

17We may not be able to retain qualified individuals to serve on our Board of Directors or to retain high quality employees, which could harm our business.

~~Table~~Our success depends to a significant degree upon the continued contribution from employees in our management, engineering, sales and marketing and customer support departments, and from our Board of ~~Contents~~Directors. If we fail to maintain and improve our cash position, some of our employees may seek alternative employment and our business operations and operating revenue will be impaired. Additionally, our current directors may decide to resign from the Board and we may not be able to attract qualified individuals to join the Board. Our key employees do not have employment or non-competition agreements and could therefore terminate their employment with us at any time without penalty.

~~representing~~Several achanges ~~decrease~~in ofmanagement ~~$1.1 million~~occurred orduring ~~65%, from $1.7 million for~~ the quarter ~~corresponding~~ended ~~prior~~December ~~year period~~2002. ~~This~~Our ~~decrease~~Vice ~~was~~President ~~primarily~~of ~~due~~Sales ~~to:~~and aMarketing ~~$0.8~~resigned during ~~million~~October ~~decrease~~2002 inand ~~staffing~~our ~~costs,~~Chief asFinancial aOfficer ~~result~~resigned ofin ~~reduced~~November ~~headcount; a $0~~2002.1 Our ~~million~~Chief ~~decrease~~Executive inOfficer ~~facilities~~has ~~costs,~~assumed asthe aadditional ~~result~~duties of aVice ~~reduction~~President ~~in office~~of ~~space~~Sales ~~under~~and ~~lease;~~Marketing, and, aour ~~$0.2 million~~Vice ~~decrease~~President inof ~~other~~Professional ~~operating~~Services ~~expenses,~~has asassumed athe ~~result~~additional duties of ~~cost~~Vice ~~reduction~~President ~~programs~~of ~~implemented during fiscal 2003~~Engineering. In ~~comparison~~ toNovember ~~the~~2002 ~~prior year period, research and development headcount~~the ~~declined~~Company byhired ~~73%,~~a tonew 12Chief ~~employees~~Financial atOfficer ~~September 28,~~and ~~2002,~~converted asa ~~compared~~consultant towho 45had ~~employees~~been atinstrumental ~~September 29,~~in ~~2001.~~restructuring Ofliabilities ~~the~~into ~~33 positions eliminated in~~ the ~~research~~ ~~and~~newly-created ~~development function, 11 employees were transferred to the~~position ~~purchaser~~ of ~~the~~Vice ~~Pilot~~President ~~and~~of ~~HitList~~Administration ~~assets,~~ and 22Strategic ~~positions~~Development. ~~were~~In ~~eliminated~~January ~~in connection~~2003 ~~with~~the ~~our~~Company ~~cost~~rehired ~~reduction~~Bob ~~programs.~~Page, As a ~~percentage~~co-founder of ~~net revenue,~~ ~~research~~the ~~and development expenses were 39%~~Company, as ~~compared~~Chief toTechnical ~~45% for the three months ended September 29, 2001~~Officer. ~~This~~Because ~~decrease~~our inmanagement ~~research~~team ~~and development~~has ~~expenses~~limited asexperience aworking ~~percentage~~together ~~of net revenue was due primarily to the reductions made in research~~ and ~~development~~several ~~costs~~are ~~during~~operating ~~the~~with ~~three months ended September~~new 28responsibilities, ~~2002~~they asmay ~~compared~~not toeffectively ~~the~~manage ~~corresponding~~our ~~prior year period~~operations. ~~In the near term,~~Further wechanges ~~believe~~in ~~that~~our ~~research~~management ~~and~~team ~~development~~could ~~expenses~~impair ~~will decline as a result of~~ our ~~efforts~~ability to ~~reduce~~execute ~~operating~~our ~~expenses.~~business strategy ~~Research~~ and ~~development expenditures~~effectively ~~are~~operate ~~charged~~our ~~to operations as incurred~~business.

~~For~~Two ~~the~~directors ~~six~~resigned ~~months ended September 28, 2002, research and development expenses were $1.7 million, representing a decrease of $2.2 million or 56%,~~ from ~~$3.9 million for~~ the ~~corresponding~~Board ~~prior fiscal year period. This decrease was due primarily to: a $1.6 million decrease~~ in ~~staffing~~the ~~costs,~~quarter ~~as a result of~~ended ~~reduced~~December ~~headcount;~~2002 aand ~~$0.3 million~~one ~~decrease~~director inresigned ~~facilities~~the ~~costs,~~prior ~~as a result of a reduction in office space under lease; and, a $0~~quarter.~~3 million~~ ~~decrease~~The inBoard ~~other operating~~amended ~~expenses, as a result of cost reduction programs implemented during~~the ~~fiscal~~Bylaws ~~2003. As a percentage~~ of ~~net revenue, research and development expenses for~~ the ~~six~~Company ~~months ended September 28, 2002 were 49%, as compared~~ to ~~52%~~reduce ~~for~~ the ~~comparable~~authorized ~~prior~~number ~~year period. This decrease in research and development expenses as a percentage~~ of ~~net~~directors ~~revenue~~from ~~was~~7 ~~due primarily~~ to ~~the reductions~~4. ~~made~~As ina ~~research~~result, ~~and~~there ~~development~~are ~~costs~~currently ~~during~~no ~~the~~vacancies ~~six~~on ~~months ended September 28, 2002 as compared to~~ the ~~corresponding~~board ~~prior~~or ~~year period.~~any committees.

~~Sales~~Our and marketing expenses. Sales and marketing expenses consist primarily of salaries, commissions and bonuses for sales and marketing personnel, and promotional expenses. For the three months ended September 28, 2002, sales and marketing expenses were $0.4 million, representing a decrease of $1.2 million, or 73%, from $1.6 million for the corresponding prior year period. This decrease was due primarily to: a $0.5 million reduction in salary expense, as a result of reduced headcount; a $0.2 million decrease in commission expense, as a result of lower net revenue; a $0.4 million decrease in marketing and promotion expenses and a $0.1 million decrease of in all other operating expenses, as a result of cost -reduction ~~programs~~efforts ~~implemented~~may ~~in fiscal~~adversely ~~2003.~~impact Sales and marketing headcount was 6 at September 28, 2002, as compared 21 at September 29, 2001, which represents a decline of 71%. Of the 15 positions eliminated in the sales and marketing function, 2 were transferred to the purchaser of the Pilot and HitList assets, and the balance were eliminated in connection with our ~~cost reduction programs. As a percentage of~~ ~~net~~productivity ~~revenue, sales~~ and ~~marketing~~service ~~expenses were 28%, as compared to 42% for the three months ended September 29, 2001~~levels. This decrease in sales and marketing expenses as a percentage of net revenue was due primarily to the decline in sales and marketing costs for the three months ended September 28, 2002 as compared to the corresponding prior year period. In the near term, we believe that sales and marketing expenses will decrease in dollar amount in connection with our efforts to reduce operating expenses.

~~For~~We ~~the~~implemented ~~six~~various ~~months~~cost-control ~~ended~~measures ~~September 28,~~affecting ~~2002, sales and marketing expenses~~all ~~were~~areas ~~$1.4 million, representing a decrease~~ of ~~$1.7 million,~~our orbusiness ~~56%,~~operations ~~from~~during ~~$3.1 million for~~ the ~~corresponding~~quarters ~~prior~~ended ~~year~~September ~~period.~~28, ~~This~~2002 and ~~was~~December ~~due~~28, ~~primarily~~2002, ~~to:~~including ~~a $0.8 million~~reductions ~~decrease~~ in ~~salary~~our ~~expense~~workforce, asfrom a60 ~~result~~at ~~of reduced headcount; a~~June ~~$0.3 million decrease in commission expense~~29, as2002 ato ~~result~~36 ofat ~~decreased~~December ~~revenue; a~~28, $02002.~~3 million~~ ~~decrease~~Our inworkforce ~~marketing~~reductions ~~and~~may ~~promotion~~hurt ~~expenses~~the morale and aloyalty ~~$0.3 million decrease~~of inour ~~other~~remaining ~~operating expenses~~employees. Additionally, asthe ~~a result of cost~~ recent reduction ~~programs implemented~~or inelimination ~~fiscal 2003. As a percentage~~ of ~~net~~cash ~~revenue,~~bonuses ~~sales~~ and ~~marketing~~ ~~expenses~~reductions ~~were~~in ~~40%,~~salaries asmay ~~compared~~reduce incentives ~~to 42%~~ for ~~the~~our ~~three~~employees ~~months~~to ~~ended September 29,~~remain ~~2001~~with us. We ~~This~~must ~~decrease~~maintain inthese ~~sales and marketing expenses as a~~cost ~~percentage~~reduction ofmeasures ~~net~~to ~~revenue~~align ~~was~~our ~~due~~expenses ~~primarily~~with toexpected ~~the~~revenues ~~decline in sales~~ and ~~marketing~~ ~~costs~~improve ~~for the six months ended September 28, 2002 as compared to the~~our ~~corresponding~~overall ~~prior~~cash ~~year period~~position.

~~General~~We ~~and~~have ~~administrative~~incurred ~~expenses.~~substantial ~~General~~losses and ~~administrative~~negative ~~expenses consist~~cash ~~primarily of salaries and other personnel related costs for~~flow administrative functions, as well as insurance, professional service fees, and bad debt expense. For the three months ended September 28, 2002, general and administrative expenses were $1.0 million, representing a decrease of $0.5 million, or 33%, from $1.5 million for the three months ended September 29, 2001. This decrease was primarily due to: a $0.1 million decrease in salary expense, as a result of reduced headcount; a $0.3 million decrease in professional service fees; and, a $0.1 million decrease in all other operating expenses, as a result of cost reduction programs implemented during fiscal 2003. General and administrative headcount was 9 at September 28, 2002, as compared 15 at September 29, 2001, which represents a decline of 40%. Of the 6 positions eliminated in the general and administrative function, 2 were transferred to the purchaser of the Pilot and HitList assets, and the balance were eliminated in connection with our ~~cost~~operating ~~reduction programs. As a percentage of net revenue~~history, ~~general~~ and ~~administrative~~we ~~expenses~~expect ~~for~~these ~~the~~losses ~~three months ended September 28, 2002 were 64%, as compared~~ to ~~39%~~continue for the ~~three months ended September 29,~~ ~~2001~~foreseeable future. ~~This increase in general and administrative expenses as a percentage of net revenue was due to the reduction in revenue being~~

18We have not achieved profitability. We have incurred substantial losses and negative cash flows from operations in each fiscal year since inception. At December 28, 2002, we had an accumulated deficit of $263 million. We expect to slow and eventually stop losses on both a quarterly and annual basis but may not be able to do so with our existing resources. If we are unable to increase our revenues as planned while maintaining our expenses at the quarter-end level, we will not be able to achieve profitability. If we do achieve profitability, we cannot be certain that we can sustain or increase profitability on a quarterly or annual basis in the future. Please see "Management's Discussion and Analysis of Financial Condition and Results of Operations" for more detailed information on our results of operations.

~~Table~~We ofmay ~~Contents~~be required to sell additional stock, which could depress our common stock price, or incur indebtedness, which could restrict our operations.

~~proportionally~~In ~~greater~~addition ~~than~~to the ~~reduction~~sale inof ~~general~~convertible ~~and~~promissory ~~administrative~~notes ~~expenses~~upon the ~~for~~terms described in Note 12 to the ~~three~~Condensed ~~months~~Consolidated Financial ~~ended~~Statements, ~~September 28~~we may need to sell additional stock, ~~2002~~incur asadditional ~~compared~~debt or implement other cash generating initiatives in order to ~~the~~fund ~~prior~~our ~~year~~continuing operations. ~~period~~We cannot be certain that we would be able to obtain additional financing on favorable terms, if at all. InHowever, if we were able to raise additional funds through the ~~near~~issuance of equity or convertible debt securities, ~~term~~the percentage ownership of our current stockholders would be reduced and these securities might have rights, preferences and privileges senior to those of our current stockholders. As a result, any such financing could cause our common stock price to decline. Additionally, if we ~~believe~~incur indebtedness to help us meet our future capital requirements, this debt could contain covenants that ~~general~~restrict our ~~and~~operations. If ~~administrative~~we ~~expenses~~cannot raise funds, it is likely that we will ~~decrease~~be inrequired ~~dollar~~to ~~amount~~wind indown ~~connection~~our ~~with~~operations ~~our~~and engage in efforts to ~~reduce~~sell ~~operating~~our ~~expenses~~assets. Please see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources."

~~For~~We ~~the~~may ~~six~~acquire ~~months~~new ~~ended~~businesses ~~September 28,~~or ~~2002,~~technologies ~~general and administrative expenses were $2.1 million, representing a decrease of $0.7 million,~~ or ~~26%,~~enter ~~from~~into ~~$2.8 million~~business ~~for~~combinations ~~the six months ended September 29, 2001. This decrease was primarily due~~ to aremain ~~$0.5 million~~competitive ~~decrease in salary expense, as a result of reduced headcount~~ and agenerate $0cash.~~2 million~~ ~~decrease in professional service fees, as~~Such atransactions ~~result~~may ofinvolve ~~cost reduction programs implemented during fiscal 2003. As a percentage of net revenue~~financial, ~~general~~integration and ~~administrative~~transaction ~~expenses~~completion ~~for the six~~risks ~~months~~which ~~ended~~could ~~September 28,~~negatively ~~2002~~impact ~~were~~our ~~60%, as compared to 38% for the six months ended September 29, 2001~~business. This increase in general and administrative expenses as a percentage of net revenue was due to the reduction in revenue being proportionally greater than the reduction in general and administrative expenses for the six months ended September 28, 2002 as compared to the prior year period.

~~Amortization~~ We ofmade ~~intangible~~four ~~assets.~~acquisitions ~~The~~during ~~balance~~the isfiscal ~~associated~~years ~~with the~~2000 ~~amortization~~and of2001 ~~the~~to ~~excess~~support of the ~~purchase~~development ~~price~~of ~~over~~our ~~the~~Accrue ~~fair~~G2 ~~value~~product ofand the expansion ~~identifiable~~of ~~tangible~~our ~~and~~business. In ~~intangible~~November ~~assets~~2002, we acquired incertain ~~our acquisitions~~ of ~~NeoVista~~ ~~Software, Inc.,~~ the ~~Infocharger~~assets ~~division~~ of ~~Tantau Software~~ ~~International~~Personify, Inc., ~~and~~in ~~Pilot~~order ~~Software,~~to ~~Inc.~~provide ~~Intangible~~our ~~assets~~existing ~~are~~and ~~being amortized~~prospective oncustomers awith additional ~~straight-line~~product ~~basis~~options ~~over~~and ato ~~useful~~gain ~~life~~access ofto ~~three~~Personify's ~~years.~~existing ~~For the~~customer ~~three~~base ~~months~~for ~~ended~~Accrue ~~September 28,~~products. The ~~2002,~~Personify ~~amortization~~purchase ofwas ~~intangible~~for ~~assets was~~ $~~0.3 million~~60,000 ~~representing~~financed by a note ~~decrease~~from ofa $0principal.~~8 million,~~ orIn ~~76%,~~order ~~from~~to ~~$1.1 million~~further ~~for~~grow ~~the~~our ~~three~~revenue ~~months ended September 29~~opportunities, ~~2001. As a percentage of net~~we ~~revenue,~~may ~~amortization~~decide ofto ~~intangibles~~buy ~~was~~other ~~18%~~businesses, asproducts ~~compared~~and totechnologies ~~30%~~that ~~for~~complement ~~the three~~or ~~months~~augment ~~ended~~our ~~September 29,~~existing ~~2001~~products or technologies.

~~For~~The ~~the~~process ~~six~~of ~~months~~integrating ~~ended~~an ~~September 28,~~acquisition ~~2002~~may result in unforeseen operating difficulties and expenditures, ~~amortization~~could ofdisrupt ~~intangible~~our ongoing ~~assets~~business, ~~was~~absorb ~~$0.8 million~~significant management attention, ~~representing~~expose aus ~~decrease~~to unknown liabilities, or require additional costs for technology or personnel integration, any of $1which could materially harm our business.~~5 million~~ Moreover, ~~64%,~~we ~~from~~may ~~$2.3 million~~fail ~~for~~to realize the ~~six~~anticipated ~~months~~benefits ~~ended~~of ~~September 29,~~any ~~2001~~acquisition. During Asfiscal years a2001 ~~percentage~~and ~~of net revenue~~2002, ~~amortization~~we incurred impairment charges of ~~intangibles~~$139.7 ~~was~~million ~~24%~~and $1.2 million, asrespectively, ~~compared~~in torespect ~~31%~~of ~~for~~intangible ~~the three~~assets ~~months~~and ~~ended~~goodwill ~~September 29,~~related ~~2001.~~to prior acquisitions.

~~The~~We ~~decrease~~have of $0.8 million and $1.5 million for the three and six months period ended September 28, 2002, respectively, versus the comparable prior year periods was due primarily to the sale of the Pilot and HitList products in the first quarter of fiscal 2003, and a ~~reduced~~limited ~~value~~operating ofhistory ~~identifiable~~making ~~intangible assets~~it ~~associated with the Pilot products, as a result of the intangible asset~~difficult ~~impairment~~for ~~charge~~you ~~of $1.2 million we incurred in the fourth quarter of fiscal 2002. In addition, $0.5 million of assembled workforce intangibles has been reclassified~~ to ~~goodwill~~evaluate ~~since~~our ~~March 31,~~business ~~2002~~ and isyour ~~no longer subject to amortization, resulting in a lower amortization expense of $0~~investment.~~15 million~~ ~~in the current period.~~

AtAccrue ~~September 28~~was formed in February 1996, ~~2002~~and we introduced Accrue Insight 1.0, ~~the~~our ~~remaining~~first ~~balance~~software ofproduct, ~~identified~~in ~~intangibles~~January of1997. For the fiscal years ~~approximately~~2000, 2001 and 2002, we generated $018.7 9 million, ~~will~~$25.6 bemillion ~~amortized~~and ~~over~~$14.3 ~~the~~million in ~~remaining~~revenue, ~~useful~~respectively. Thus, ~~life~~we have a limited operating history upon which ~~ranging~~you ~~from~~can 6evaluate toour ~~9 months~~business and prospects. Due Weto ~~assess~~our ~~the~~limited ~~carrying~~operating history, ~~value~~it ofis ~~identified~~difficult or impossible for us to predict future results of ~~intangibles~~operations. For example, ~~whenever~~we ~~events~~forecast oroperating ~~changes~~expenses based in ~~circumstances~~part ~~indicate~~on ~~that the~~future ~~amount~~revenue ~~might~~projections that may not be ~~recoverable~~achieved. Most ~~When~~of ~~such~~our anexpenses ~~event~~are ~~occurs,~~fixed in the short term and we ~~estimate~~may ~~the~~not be able to quickly reduce spending if our revenue ~~future~~is ~~cash~~lower ~~flows~~than we had projected, therefore net losses in a given quarter would be greater than expected. In addition, our ability to ~~result~~forecast ~~from~~accurately our quarterly revenue is limited due to a number of factors described in detail below, making it difficult to predict the ~~use~~quarter in which sales will occur. Moreover, due to our limited operating history, any evaluation of our business and prospects must be made in light of the ~~asset~~risks and ~~its~~uncertainties ~~eventual~~often ~~disposition.~~encountered Ifby ~~the~~early-stage ~~undiscounted~~companies ~~expected~~in ~~future~~technology-related ~~cash~~products ~~flows~~and services markets. Many of these risks are ~~less~~discussed ~~than~~under the sub-headings below. We ~~carrying~~may ~~amount~~not be able to successfully address any or all of ~~the~~these ~~asset,~~risks anand ~~impairment~~our business ~~loss~~strategy ismay ~~recognized~~not be successful.

~~Write~~Risks ~~down~~Related ofto ~~fixed~~Our ~~assets.~~Market In connection with the reductions in headcount, we performed an impairment analysis of our fixed assets for the three months ended September 28, 2002. As a result of this analysis, we recorded a write-off of property and ~~equipment~~Ability ~~costing~~to ~~$910,000,~~Sell which had accumulated depreciation of $769,000 and resulted in a loss on disposal of $141,000. We performed a similar analysis in the first quarter of fiscal 2003, and recorded a write-off of property and equipment costing $320,000, which had accumulated depreciation of $171,000 and resulted in a loss on disposal of $149,000 for the three months, ended June 30, 2002. For the six months ended September 28, 2002, the total fixed asset write-off was $1.2 million in property and equipment, which had accumulated depreciation of $0.9 million and resulted in a loss on disposal of $0.3 million.

~~Stock-based~~Our ~~compensation.~~business ~~Stock~~has ~~compensation~~been ~~expense results from the amortization of deferred stock compensation expense over the vesting period of the related options. Total stock-based compensation was $43,000~~ and ~~$90,000 for~~could the three and six months ended September 28, 2002, respectively, as compared to $0.3 million and $0.5 million for comparable prior year periods. As a percentage of net revenue, stock-based compensation for the three months ended September 28, 2002 was 3%, as compared to 7% for the comparable prior year period. For the six months ended September 28, 2002, stock-based compensation expense as a percentage of net revenue was 3%, as compared to 7% for the comparable prior year period. The decline in stock-based compensation was principally attributable to the cancellation of options associated with employees terminated since September 29, 2001. The remaining balance of $76,000 of deferred stock compensation expense will continue to be ~~amortized over the vesting of the related options. Such deferred expense has~~materially ~~been~~adversely ~~recorded~~affected as a ~~reduction~~result of ~~equity~~general ineconomic ~~the~~and ~~balance~~market ~~sheet~~conditions.

19We are subject to the effects of general global economic and market conditions. The market for enterprise software applications has been weak during the past year, due in part to the impact of the recession in the U.S. and reductions in the information technology capital budgets by our current and prospective customers. These adverse impacts have lead to longer sales cycles, lower levels of new orders, delays in payment and collection, and price pressures, causing the Company to realize lower revenue and margins. If economic and market conditions do not improve, our business, results of operations or financial condition could be materially adversely affected. Please see "Management's Discussion and Analysis of Financial Condition and Results of Operations" for more detailed information on our results of operations.

~~Table~~Failure to expand our sales operations and channels of distribution ~~Contents~~would impact our ability to achieve profitability.

~~Other~~In ~~income~~order ~~(expense),~~to ~~net.~~maintain ~~Other~~and ~~income,~~increase ~~net~~our ~~consists~~market ofshare ~~interest~~and ~~income~~revenue, ~~interest~~we ~~expense,~~will ~~other~~need ~~income,~~to ~~other~~expand ~~expense,~~our direct and ~~gain~~indirect orsales ~~loss~~operations onand channels ~~foreign~~of ~~currency exchange~~distribution. We ~~For~~have recently reduced the ~~three~~size ~~months~~of ~~ended~~our direct sales ~~September~~ force and temporarily deferred plans to hire additional sales personnel. As of December 28, 2002, ~~and~~our ~~September 29,~~sales ~~2001~~and ~~other~~marketing ~~income,~~organization ~~net~~consisted ~~was~~of ~~approximately $~~3~~,000~~ employees and ~~$77,000,~~one ~~respectively~~contractor. To grow our revenue in the future, ~~and~~we ~~principally~~will ~~comprised~~need ofto ~~interest~~hire additional ~~income~~sales personnel. There can be no assurance that we will be ~~from~~successful ~~invested~~in this unless we are able to improve our cash ~~balances~~position. In addition, new hires may require extensive training and could take several months to achieve full productivity.

~~For~~We ~~the~~are ~~six~~relying ~~months~~on ~~ended~~a ~~September 28,~~limited ~~2002,~~set ~~other~~of ~~expense,~~products ~~net~~to ~~was approximately~~generate ~~$2,000. For the six months ended September 29, 2001, other~~most ~~income, net was $0.2 million, which principally comprised~~ of ~~interest~~our ~~income from~~future ~~invested cash balances~~revenue.

~~Gain~~In onMay ~~Sale~~2001, we announced the commercial launch of ~~Technology~~Accrue ~~Assets~~G2, our next generation Internet analysis solution. Since ~~For~~that time, we sold Accrue G2 to 17 customers. There are significant risks inherent in new product introductions including the ~~six~~possible ~~months~~failure ~~ended~~to ~~September~~address some or all of our ~~28,~~customer's ~~2002~~needs and undetected product errors or deficiencies. Product deficiencies, ~~gain~~errors onor failures and a lack of sufficient financial resources to invest in the sales and marketing of ~~technology~~Accrue ~~assets~~G2 ~~was~~may $0result in loss or delay of market acceptance.~~3 million~~ We expect that our future financial performance will depend significantly on the successful sale, asimplementation ~~compared~~and market acceptance of Accrue G2 or enhanced products that may not occur on a timely basis or at all. In addition, our cost reduction efforts in research and development may impair our ability to introduce new and enhanced versions of Accrue G2 and other $4products during fiscal 2003.~~3 million~~ We ~~for~~have acquired the ~~comparable~~assets ~~prior~~of ~~year~~Personify ~~period~~in order to somewhat mitigate this risk. There is no assurance that we can be successful selling the Personify solution.

OnOur ~~June 26,~~operating ~~2001,~~results wemay ~~signed~~be aadversely ~~definitive~~affected ~~agreement~~by ~~(the “Agreement”) with~~small ~~JDA~~delays Software Group, Inc. (“JDA”) pursuant to which we transferred and sold to JDA certain intellectual property and technology assets and also transferred to JDA related personnel responsible for developing the transferred technology. We received $4.9 million for the sale of the Decision Series business of which $0.5 million was placed in ancustomer ~~escrow~~orders ~~account,~~or ~~subject~~product ~~to indemnification and escrow provisions set forth in the Agreement~~installations. Since our basis in the intellectual property sold to JDA was zero, we recognized a net gain of $4.3 million from the transaction. The $0.5 million held in escrow was released in June 2002, and was recognized as an additional gain on sale during the quarter ended September 28, 2002.

OnSmall ~~May 30,~~delays ~~2002,~~in ~~Accrue~~customer ~~Software,~~orders ~~Inc.~~can ~~and~~cause ~~certain of its wholly owned~~significant ~~subsidiaries~~variability ~~including~~in ~~Pilot~~our ~~Software,~~license ~~Inc.,~~revenue ~~Marketwave Corporation, Accrue GmbH, Pilot Software Ltd.~~ and ~~Thorn~~operating ~~EMI~~results ~~Computer~~for ~~Software~~any ~~Ltd, (collectively,~~particular ~~the “Seller”) and Pilot Software Acquisition Corp~~period. ~~and~~We ~~Pilot~~derive ~~Software~~a ~~Services Corp.~~substantial ~~(collectively,~~portion ~~the~~of ~~“Purchaser”)~~our ~~executed~~revenue anfrom ~~asset purchase agreement pursuant to which~~ the ~~Seller~~sale ~~sold~~of ~~and transferred to the Purchaser intellectual property and technology assets (including the Pilot and Hit List~~ software products), ~~certain~~and related ~~customer~~services ~~contracts,~~that ~~certain~~is ~~other~~recognized ~~assets~~under ~~and liabilities (collectively,~~ the ~~“Assets”)~~percentage ~~for $1.5 million in cash and assumption~~ of ~~certain liabilities, principally future service obligations on~~ ~~prepaid~~completion ~~maintenance~~or ~~contracts,~~completed ~~totaling~~contract $1method.~~2 million.~~ Any ~~The~~delays ~~consideration~~during ~~paid~~a ~~of $1.5 million~~quarter ~~was based on the fair market value of the Assets as of May 30, 2002, as determined~~ in ~~good faith by the Seller and the Purchaser. We paid $0.1~~orders ~~million~~for indelivery ~~transaction~~or ~~costs~~product ~~related~~installation toschedules ~~the~~could ~~sale~~harm ofoperating ~~the~~results ~~Assets. Since our~~for ~~basis~~that ~~in the Assets sold to Purchaser was $2~~quarter.~~8 million, we recognized a loss of $0.2 million from the transaction.~~

~~Taxation.~~ We ~~have~~face ~~not~~intense ~~generated~~competition ~~any~~that ~~taxable~~could ~~income~~make toit ~~date and therefore~~difficult ~~have~~for ~~not~~us ~~paid~~to ~~any~~acquire ~~United States federal income taxes since inception. We have federal~~ and ~~state~~retain ~~net~~customers ~~operating~~now ~~loss carryforwards for tax purposes. Use of our net operating loss carryforwards may be subject to limitations under Section 382~~ and ~~383~~in of the ~~Internal Revenue Code of 1986, as amended~~future. ~~We have recorded a full valuation allowance on our deferred tax asset, consisting primarily of net operating loss carryforwards, because of uncertainty regarding its recoverability.~~

~~Liquidity~~The market for Internet analytics solutions is intensely competitive, evolving and ~~Capital~~subject ~~Resources~~to rapid technological change. We expect the intensity of competition to increase in the future. Competitors vary in size and in the scope and breadth of the products and services they offer.

~~Since~~Our ~~inception~~principal wecompetitors ~~have~~today ~~financed~~include ~~our~~vendors ~~operations~~of ~~principally through~~software ~~private~~that ~~sales~~target ofInternet ~~preferred~~customer ~~stock~~data ~~with~~collection ~~net~~and ~~proceeds~~analysis ofmarkets ~~$15~~such as SPSS/net.~~5 million~~Genesis Corporation, ~~our~~and NetIQ/Webtrends; Application Service Provider ~~initial~~(ASP) ~~public~~vendors ~~offering~~such ~~with~~as ~~net~~Coremetrics ~~proceeds~~Inc., and digiMine, Inc.; providers of business ~~$40~~intelligence or customer relationship management (CRM) tools, such as E.~~8 million~~piphany, ~~bank~~MicroStrategy ~~loans~~Inc., ~~asset sales~~Business Objects S.A. and ~~cash~~Informatica ~~generated~~Corp.; ~~from~~and custom ~~operations~~development efforts by system integrators and in-house developers. WeIn addition, ~~used~~because ~~cash~~there ~~primarily~~are relatively low barriers to ~~fund~~entry ~~our~~in the software ~~net~~market, ~~losses~~we expect additional competition from ~~operations~~traditional business intelligence and toenterprise ~~pay~~software ~~for~~vendors ~~acquisition~~as ~~related~~the ~~expenses.~~Internet software market continues to develop and expand.

~~Cash~~Some ~~used~~of inthese ~~operating activities totaled $3.2 million for the six months ended September 28~~companies, ~~2002,~~ as ~~compared~~well toas ~~$9.7 million~~other ~~for the corresponding prior year period. During the six months ended September 28~~competitors, ~~2002, the $3.2~~have ~~million~~longer ~~of cash used in~~ operating ~~activities~~histories, ~~was~~significantly ~~primarily~~greater ~~attributable to our net loss of $4.3 million~~financial, ~~gain on sale of technology assets of $0.3 million and~~technical, ~~decreases~~marketing ~~in accounts payable~~ and ~~accrued~~other ~~liabilities of $0.9 million and deferred revenue of $0.9 million~~resources, ~~offset~~significantly bygreater aname ~~decrease~~recognition inand ~~accounts receivable~~a oflarger ~~$1.4 million,~~installed abase ~~decrease in prepaid expenses and other assets~~ of ~~$0.1 million~~customers ~~and~~than ~~non-cash~~we ~~charges totaling $1~~have.~~7 million.~~ ~~The~~Increased ~~decrease~~competition inis ~~accounts~~likely ~~receivable~~to ~~and deferred revenue were a~~ result ~~of the decrease~~ in ~~net~~lower ~~revenue~~sales ~~in the~~volumes, ~~six~~price ~~months ended September 28~~reductions, ~~2002~~reduced asgross ~~compared~~margins ~~to the comparable prior~~and ~~year~~loss ~~period.~~of ~~The~~market ~~decrease~~share, inany ~~accrued~~of ~~liabilities~~which ~~was~~could ~~due~~seriously ~~principally~~harm toour ~~the reduction in operating expenses during the six months ended September 28~~business, ~~2002~~financial ascondition ~~compared~~and toresults ~~the comparable prior year period. The non-cash charge included depreciation expense~~ of $0operations.~~5 million,~~ ~~write-off~~We ofmay ~~fixed~~not ~~assets~~be ofable ~~$0.3 million,~~to ~~amortization~~compete ~~of intangibles of $0.8 million arising from acquisitions~~successfully ~~during~~against ~~prior~~current ~~fiscal~~and ~~years~~future competitors, ~~and~~in ~~stock-based~~which ~~compensation~~case ~~expense~~our ofbusiness ~~$0.1~~could ~~million~~suffer.

~~Cash~~Our ~~provided~~varied bysales ~~investing~~cycles ~~activities~~make ~~totaled~~it ~~$1.8 million~~difficult ~~for the three months ended September 28, 2002, as compared~~ to ~~$4.3 million~~budget ~~for the six months~~and ~~ended~~forecast ~~September 29,~~operating ~~2001~~results. ~~During the six months ended September 28, 2002, $1.9 million of cash was~~

20We have varied sales cycles because we generally need to educate potential clients regarding the use and benefits of our product applications; this has been the case with Accrue G2 and we expect it to also be the case with Personify. The stability of our sales cycle continues to evolve as our products mature. Our sales cycles make it difficult to predict the quarter in which sales may fall and to budget and forecast operating results. Our financial condition may also adversely impact sales cycles, as we expect certain customers to spend additional time evaluating our products as well as financial viability during their purchasing process.

~~Table~~Our ofinternational ~~Contents~~operations expose us to greater intellectual property, collections, exchange rate, labor, regulatory and other risks, which could materially impact our financial condition and ability to grow.

Licenses ~~provided~~and byservices sold to clients located outside the United ~~proceeds~~States ~~from~~were ~~sale~~approximately of31% ~~technology~~and ~~assets. During~~30% of the ~~six~~total revenue for the nine months ended ~~September~~ December 28, 2002 and December 29, 2001, $4respectively.~~3 million~~ These results ofincluded ~~cash~~revenue ~~was provided~~ from the ~~proceeds~~Pilot ~~from~~and ~~sale~~Hit ofList ~~technology~~products, ~~assets.~~which we sold in May 2002 and therefore are no longer available.

~~Cash~~Continued ~~provided~~generation ~~by financing activities totaled $4,000 for the six months ended September 28, 2002, and was comprised~~ of ~~proceeds~~international ~~from~~sales ~~the~~will ~~sale of stock~~require ~~under~~management ~~the~~attention ~~Company’s employee option plan~~ and ~~the employee stock purchase plan~~resources. ~~Cash~~ We ~~used~~cannot bybe ~~financing~~certain ~~activities~~that ~~was~~we ~~$21,000~~will ~~for the six months ended~~be ~~September 29,~~successful ~~2001.~~in ~~The~~maintaining ~~prior~~the ~~year’s~~volume ~~activity includes release~~ of ~~restricted cash~~international ~~of $2~~revenues.~~0 million offset by repayment of short-term borrowings of $2.0~~ International ~~million,~~operations ~~repurchase~~are ofsubject ~~common~~to ~~stock~~other ~~totaling~~inherent ~~$43~~risks,~~000~~ ~~and proceeds from stock options and warrants exercised of $22,000.~~ including:

We ~~had~~difficulties ~~working capital deficits of $0.9 million and $1.1 million at September 28, 2002 and March 30, 2002, respectively. The decline~~ in ~~the~~managing ~~working capital~~foreign ~~deficit during the six months ended September 28, 2002 was due~~operations; principally to the reduction of deferred revenue associated with the sale, to Pilot Software Acquisition Corp., of certain customer contracts and the corresponding deferred maintenance liabilities. Our current significant commitments consist of non-cancelable operating leases for office facilities and equipment and minimum royalty payments for licensed technology used in our products, as noted below:

	Total		Less than 1 year		1-3 years
Contractual Cash Obligations
(in thousands)
Operating leases*	$	1,180	$	651	$	529
Minimum royalty payments		241		175		66
Total contractual cash obligations	$	1,421	$	826	$	595

limitations in accessing cash balances in our foreign subsidiaries for use by the Accrue US parent company;
* ~~excluding~~complex, ~~sub-lease~~restrictive ~~income~~and potentially costly labor laws and practices;
As ~~of September 28, 2002, our principal source of liquidity consisted of cash and cash equivalents of $1.3 million. Of this total, $0.6 million was held in our~~ foreign ~~subsidiaries.~~currency Weexchange ~~may~~rate ~~face limitations in accessing cash~~fluctuations; ~~balances in foreign subsidiaries for use by Accrue, the US parent company.~~
In ~~June~~potential ~~2001,~~unexpected wechanges ~~entered~~in ~~into~~regulatory anpractices ~~at-will, one-year accounts receivable~~and ~~purchase~~tariffs; ~~agreement with a financial institution under which we may borrow up to~~and an aggregate of $1.5 million, subject to the approval of assigned receivables by the lender. The borrowing base under this agreement is the lesser of 80% of eligible accounts receivable or $1.5 million. As of September 28, 2002, we were eligible for approximately 8% of the $1.5 million maximum borrowing base due to the amount of eligible accounts receivable. This facility renewed for a one-year period in June 2002. We have no borrowings pursuant to this agreement.
reduced protection for intellectual property rights in some countries.

~~While~~If we ~~have~~fail ~~substantially reduced our level of operating expenses, we have been unable~~ to ~~generate~~address ~~revenues~~these ~~sufficient~~risks ~~to achieve positive cash flow and~~adequately, ~~as a result, we continue to use available cash in~~ our ~~operations.~~ ~~Our current cash resources are insufficient to fund our~~ business ~~as it has historically been conducted and will soon be~~ exhausted by the current level of operating expenses absent a rapid increase in our revenues or our obtaining additional capital. We are pursuing various initiatives to improve our cash position, including selling additional stock, selling assets, incurring additional debt, implementing further reductions in spending and other cash generating initiatives. Additional financing may ~~not~~ be ~~available~~seriously on acceptable terms, if at all, especially in light of the difficult market climate and the delisting of our common stock from trading on the Nasdaq SmallCap Market, and we may not be successful in implementing or negotiating such other arrangements to improve our cash positionharmed. ~~As a result of our continuing operating deficit and limited cash resources~~ Additionally, if we ~~cannot~~are ~~raise~~currently ~~funds~~subject ~~quickly, it is likely that we will not be able~~ to ~~continue~~claims ~~our business as a going~~from ~~concern~~former ~~and~~employees ~~that~~of ~~we will be required to wind down~~ our European operations ~~and engage~~related ~~in efforts~~ to ~~sell~~their ~~our~~termination ~~assets. In this event, there can be no assurance that available cash and amounts received on the sale~~ of ~~assets~~employment. Please ~~will~~see bePart ~~adequate~~II toItem ~~provide for our obligations~~1, ~~liabilities, expenses~~"Legal ~~and~~Proceedings" ~~claims~~ and ~~to make cash distributions to stockholders,~~ ~~and~~"Management's weDiscussion ~~may decide or be compelled to file for protection under federal bankruptcy proceedings. If such available cash~~ and ~~amounts received~~Analysis ~~from the sale~~ of ~~assets~~Financial ~~are~~Condition ~~not~~and ~~adequate~~Results ~~to provide for our~~of ~~obligations,~~Operations ~~liabilities,~~- ~~expenses~~Liquidity and ~~claims,~~Capital ~~we may not be able to distribute meaningful cash, or any cash, to our stockholders and creditors~~Resources. "

IfRisks weRelated ~~were able~~ to ~~raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of~~ our current stockholders would be reduced and these securities might have rights, preferences and privileges senior to those of our current stockholders. Any such financing will be dilutive to existing stockholders. Moreover, any such cost cutting actions could have a harmful effect on the Company’s business and results of operations. Products

~~Unless~~Product ~~our~~defects ~~current~~could ~~cash~~lead ~~resources improve quickly, we will be unable~~ to ~~pay~~ ~~our~~loss future obligations as they arise. These obligations include contractual cash obligations such as operating leases and minimum royalty payments, and contingent cash obligations such as the claims filed by terminated employees in Europe. Failure to pay minimum royalty payments would result in termination of ~~our~~customers ~~licensed to third party technology~~ that iscould ~~incorporated~~harm ~~into~~ our ~~products~~business, ~~and~~results ~~such license terminations would preclude continued selling~~ of ~~our products in their current form. Furthermore~~operations, ~~unless~~and ~~our~~financial ~~current cash resources quickly improve, we will be unable to fund operating expenses, including retaining employees, to maintain our business~~condition. ~~As a result, our vendors would likely not extend future~~

21Despite internal testing and testing by current and potential customers, our current and future products may contain serious defects, the occurrence of which could result in adverse publicity, loss of or delay in market acceptance, or claims by customers against us, any of which could harm our business, results of operations, and financial condition. In addition, our products and product enhancements are very complex and may from time to time contain errors or result in failures that we did not detect or anticipate when introducing our products or enhancements to the market. The computer hardware environment is characterized by a wide variety of non-standard configurations that make pre-release testing for programming or compatibility errors very difficult and time consuming. Despite our testing, errors may still be discovered in some new products or in enhancements after the products or enhancements are delivered to customers.

~~Table~~If ofour ~~Contents~~intellectual property were not protected adequately, our business would suffer.

~~credit~~We regard substantial elements of our Internet analytics solutions as proprietary and attempt to ~~us.~~protect Inthem ~~addition~~by relying on trademark, service ifmark, trade dress, copyright, and trade secret laws and restrictions, as well as confidentiality procedures and contractual provisions. We intend to rely on similar things for protection of our ~~current~~Personify ~~cash~~intellectual property. ~~resources~~Any ~~continue~~steps we take to ~~decline~~protect our intellectual property may be inadequate, time consuming, and expensive. In addition, despite our efforts, we may ~~not~~ be ~~able~~unable to prevent ~~pursue~~third anparties ~~orderly~~from ~~wind~~infringing upon or misappropriating our intellectual ~~down~~property, ofwhich could have a material adverse effect on our business. Effective trademark, incopyright, ~~which~~and wetrade ~~can~~secret ~~satisfy~~protection inmay ~~full~~not ~~the~~be ~~obligations~~available toin ~~current~~every ~~creditors~~country in which our products are distributed or ~~fund~~made ~~efforts~~available tothrough ~~improve~~the Internet. Furthermore, our ~~cash~~competitors ~~position,~~may ~~including~~independently ~~selling~~develop similar ~~additional~~technology ~~stock~~that orsubstantially ~~selling~~limits the value of our ~~assets.~~intellectual property or design around patents issued to us.

~~Recent~~We ~~Accounting~~are ~~Pronouncements~~subject to potential product liability claims that could require considerable effort and expense to defend and which could harm our business.

InOur ~~June~~products ~~2001,~~are ~~the~~used ~~Financial~~to ~~Accounting~~monitor ~~Standards~~the ~~Board~~traffic ~~(“FASB”)~~data ~~approved Statements~~ of ~~Financial~~our customers' ~~Accounting~~Web ~~Standards (“SFAS”) No. 141~~sites, ~~“Business Combinations”~~ and ~~No. 142~~to segment, ~~“Goodwill~~analyze and ~~Other~~report ~~Intangible~~this ~~Assets~~data.” These ~~The~~and ~~statements~~other ~~eliminate~~functions ~~the~~that ~~pooling-of-interests~~our ~~method~~products ofprovide ~~accounting~~are ~~for~~often ~~business combinations~~critical ~~and~~to ~~require~~our ~~that~~customers, especially ~~goodwill~~in ~~and~~light ~~certain~~of ~~intangible~~the ~~assets~~considerable ~~not~~resources ~~be amortized.~~many ~~Instead,~~organizations spend on the ~~statements~~development ~~provide~~and ~~that~~maintenance ~~these~~of ~~assets~~their ~~should~~Web besites. Our ~~tested,~~end-user licenses atcontain ~~least~~provisions ~~annually,~~that ~~for~~limit ~~impairment~~our ~~with~~exposure ~~any~~to ~~related~~product ~~losses~~liability ~~recognized~~claims, asbut ~~incurred.~~these ~~SFAS~~provisions ~~No. 141~~may isnot ~~generally~~be ~~effective~~enforceable ~~for~~in ~~business~~all ~~combinations~~jurisdictions. Additionally, we ~~completed~~maintain ~~after~~limited ~~September 29,~~product ~~2001~~liability insurance. To ~~SFAS~~the ~~No. 142~~extent ~~was~~our ~~effective~~contractual limitations ~~for~~are ~~the~~unenforceable ~~Company beginning~~or ~~March 31~~these claims are not covered by insurance, ~~2002~~a successful ~~for~~product ~~existing~~liability ~~goodwill~~claim ~~and~~could ~~intangible~~harm ~~assets~~our business.

InRisks ~~October~~Related 2001, FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” This statement addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to beour ~~disposed~~Industry of and supersedes SFAS No. 121 and APB Opinion No. 30. SFAS No. 144 was effective for the Company beginning March 31, 2002. In accordance with this pronouncement, the Company recorded a write-down of fixed assets.

InThe ~~July~~market ~~2002,~~price ~~the~~for ~~FASB~~our ~~issued~~common ~~SFAS No. 146~~stock, ~~“Accounting~~like ~~for Costs~~other ~~Associated~~technology ~~with Exit or Disposal Activities.” The standard replaces EITF Issue No. 94-3~~stocks, ~~“Liability~~has ~~Recognition~~been ~~for Certain Employee Termination Benefits~~ and ~~Other~~ ~~Costs~~may tocontinue ~~Exit an Activity (including Certain Costs Incurred in a Restructuring)” and requires companies~~ to ~~recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 146 is to~~ be ~~applied prospectively to exit or disposal activities initiated after December 31, 2002~~volatile. ~~The~~ ~~Company has not yet determined the impact of SFAS No. 146 on its financial position or results of operations.~~

~~Risk~~The ~~Factors~~stock markets have in general, and with respect to technology and emerging growth companies in particular, recently experienced significant stock price decreases. These decreases in stock prices have often been unrelated to the operating performance of these companies in many cases. Our common stock is trading at a level significantly below its historic levels, and there can be no assurance that our stock price will increase significantly in the foreseeable future. In addition, if we fail to address any of the risks described in this section, the market price for our common stock, and consequently, the value of your investment, may not change. In addition, securities class action claims have been brought against companies in the past where volatility in the market price of that Company's securities has taken place. This kind of litigation could be very costly and divert our management's attention and resources, and any adverse determination in this litigation could also subject us to significant liabilities, any or all of which could seriously harm our business and the value of your investment.

~~You~~Risks ~~should~~Related carefully consider the following risks before making an investment in our Company. In addition, you should keep in mind that the risks described below are not the only risks that we face. The risks described below are all the risks that we currently believe are material to our ~~business. However,~~Securities ~~additional~~Market risks not presently known to us, or risks that we currently believe are immaterial, may also impair our business operations. You should also refer to the other information set forth in this Quarterly Report on Form 10-Q, including the discussions set forth in “Management’s Discussion and ~~Analysis~~ ofOwnership ~~Financial Condition and Results~~ of ~~Operations”, as well as our~~ ~~financial statements and the related notes, along with the factors discussed in~~ our ~~Annual~~Common ~~Report filed on Form 10-K.~~ Stock

Our ~~business,~~common ~~financial~~stock ~~condition,~~has orexperienced ~~results~~low oftrading ~~operations~~volumes ~~could be~~and ~~adversely~~other ~~affected by any of the following~~ risks. Ifon ~~we are adversely affected by such risks, then~~ the ~~trading~~OTC ofBulletin ~~our common stock could decline, and you could lose all or part of your investment~~Board.

~~Risks~~On ~~Related~~September To27, 2002, our common stock was delisted from the Nasdaq SmallCap Market as a result of our failure to maintain a minimum bid price of $1.00 required for continued listing. Our ~~Financial~~stock ~~Condition~~then began trading on the OTC Bulletin Board under the existing symbol ACRU. We may not be able to continue to maintain the trading of our stock on the OTC Bulletin Board, which in 2003 will implement listing standards and an application approval requirement to transition to the new Bulletin Board Exchange (BBX) trading system. The BBX trading system will also require listing fees. Even if our stock continues to be traded on the OTC Bulletin Board or the BBX, many stocks traded on the OTC Bulletin Board have experienced extreme price and trading volume fluctuations. These fluctuations are often unrelated or disproportionate to the operating performance of individual companies. Our stock price may be adversely affected by such fluctuations, regardless of our operating results. Additionally, many common stocks traded on the OTC Bulletin Board are thinly traded, such as our common stock, which would make it difficult to sell our stock. If we are not eligible to list our common stock for trading on the BBX, our stock will then be traded on the Pink Sheets, which would likely make our stock more difficult to trade and subject to greater price volatility than if it were traded on the OTC Bulletin Board.

WeConversion ~~need~~of tothe ~~improve~~senior ~~our~~secured ~~cash~~convertible ~~position~~notes ~~quickly~~issued on inFebruary ~~order to operate as a going concern. If we don’t improve our cash position~~4, we2003 ~~will~~could ~~likely~~significantly ~~need~~dilute toexisting ~~wind down~~shareholders ~~our~~if ~~business~~they ~~and engage in efforts to sell our assets.~~are converted.

~~Our~~Pursuant ~~current cash resources are insufficient~~ to ~~fund~~the ~~our~~terms ~~business~~of asthe itconvertible ~~has historically~~notes, ~~been conducted and will soon be exhausted by~~ the holders ~~current level~~ of ~~operating~~ ~~expenses absent~~ a ~~rapid~~majority ~~increase~~ in ~~our~~interest ~~revenues~~of orthe ~~our~~notes ~~obtaining additional~~may ~~capital.~~convert Ifthe wenotes ~~cannot~~into ~~raise funds quickly, it is likely that we~~shares ~~will~~of beAccrue's ~~unable~~common tostock ~~continue~~or ~~our~~preferred ~~business~~stock, asif apreferred ~~going~~stock ~~concern~~is ~~and~~issued ~~that we will need to wind down our operations and engage~~ in ~~efforts to sell our assets. In~~the ~~this event~~future, ~~there~~or ~~can~~the benotes nomay ~~assurance~~automatically ~~that~~convert ~~available~~into ~~cash~~shares ~~and amounts received on the sale~~ of ~~assets~~Accrue's ~~will~~common ~~be adequate to provide for our obligations,~~or ~~liabilities,~~preferred ~~expenses~~stock ~~and~~upon ~~claims~~Accrue's ~~and~~trading toprice ~~make~~exceed ~~cash~~certain ~~distributions~~targets. ~~to stockholders,~~At ~~and we may decide or be compelled to file for protection under~~the ~~federal~~conversion ~~bankruptcy~~price ~~proceedings.~~set Ifforth ~~such~~in ~~available cash and amounts received from~~ the ~~sale~~notes of ~~assets~~$0.06 ~~are~~per ~~not~~share, ~~adequate~~the tonotes ~~provide~~would ~~for our obligations,~~be ~~liabilities,~~convertible ~~expenses~~into ~~and~~approximately ~~claims~~8,350,000 weshares ~~may~~of ~~not~~Accrue becommon ~~able~~stock, ~~to distribute meaningful~~which ~~cash,~~would orrepresent ~~any~~a ~~cash,~~22% todilution ~~our~~of ~~stockholders~~Accrue's ~~and~~existing ~~creditors~~stockholders.

WeBecause ~~may~~Accrue's beOfficers ~~required~~and toDirectors ~~pursue~~currently ~~additional~~own approximately ~~cost~~14% ~~reduction~~of ~~efforts~~the ~~that~~outstanding ~~will~~common ~~impact~~stock ~~our~~and ~~ability~~could toown ~~operate~~28% ~~our~~after conversion ~~business.~~of the senior secured convertible notes, you and other investors will have minimal influence on stockholder decisions.

~~During~~As ~~the~~of ~~quarter~~December ~~ended September~~ 28, 2002, weour ~~implemented~~officers ~~additional~~and directors ~~cost~~beneficially ~~reduction~~owned ~~programs~~approximately ~~and~~14% ~~efforts~~of toour ~~preserve~~outstanding ~~cash~~common stock. If the secured convertible notes issued February 4, ~~including~~2003 aand ~~temporary~~described in Note 12 to ~~unpaid~~the ~~leave~~Financial ~~program~~Statements ~~for~~are aconverted, ~~significant~~our ~~number~~officers and directors will beneficially own approximately 28% of our ~~employees.~~outstanding ~~During~~common ~~October~~stock. As a ~~2002~~result, wethey ~~implemented~~will abe ~~reduction~~able into ~~force~~exercise significant influence over all matters requiring stockholder approval, ~~which~~and ~~reduced~~you ~~full~~and ~~time~~other ~~equivalent~~investors will have minimal ~~headcount~~influence ~~from~~over 44the toelection 36of ~~employees.~~directors Inor ~~addition~~other stockholder actions. As a result, ifthese ~~our~~stockholders ~~cash~~could ~~position~~approve ~~does~~or cause Accrue to take actions that ~~not~~you ~~improve~~disapprove ~~quickly,~~or wethat ~~may~~are ~~need~~contrary to ~~reduce~~your ~~the~~interests ~~headcount~~and ~~further~~those of other investors. Our certificate of incorporation and~~/or~~ ~~reduce~~bylaws do not provide for ~~employee~~cumulative ~~compensation~~voting; ~~levels~~therefore, ~~which~~our ~~would~~controlling ~~harm~~stockholders ~~our~~will ~~ability~~have the ability to ~~retain~~elect all of our ~~employees~~ directors. ~~Further~~The ~~reducing~~controlling stockholders will also have the ability ~~number~~to ofapprove ~~our~~or ~~employees~~disapprove ~~could~~significant ~~adversely~~corporate ~~impair~~transactions without ~~our~~further ~~ability~~vote toby ~~operate~~the ~~our~~investors ~~business,~~who ~~including~~purchase ~~our~~common ~~ability~~stock pursuant to ~~increase revenues~~this ~~and~~offering. ~~maintain~~This ~~effective~~ability ~~disclosure~~to ~~and~~exercise ~~internal~~influence ~~controls~~over ~~and~~all ~~procedures.~~matters ~~Please~~requiring ~~see~~stockholder ~~“Management’s~~approval ~~Discussion~~could ~~and~~prevent ~~Analysis~~or ofsignificantly ~~Financial~~delay ~~Condition~~another ~~and~~Company ~~Results of~~or ~~Operations~~person —from ~~Liquidity~~acquiring ~~and~~or ~~Capital~~merging ~~Resources~~with us.”

WeSubstantial ~~may~~sales beof ~~unable to pay~~ our ~~current~~common ~~and~~stock ~~future~~could ~~debts~~cause asour ~~they~~stock price ~~become~~to ~~due~~decline.

~~Unless~~Sales ~~our~~of ~~current~~a ~~cash~~substantial ~~resources~~number ~~improve,~~of weshares ~~will~~of becommon ~~unable~~stock toin the ~~pay~~public ~~our future~~market, ~~obligations~~or asthe ~~they~~perception ~~arise.~~that ~~These~~these ~~obligations~~sales ~~include~~may ~~contractual~~occur, ~~cash~~could adversely ~~obligations~~affect ~~such~~the asmarket ~~operating~~price ~~leases~~of ~~and~~the ~~minimum~~common ~~royalty~~stock ~~payments,~~by ~~or contingent~~potentially ~~cash~~introducing ~~obligations~~a ~~such~~large number asof ~~the~~sellers ~~claims~~of ~~filed~~our bycommon ~~terminated~~stock ~~employees~~into a market in which the common stock ~~Europe.~~price ~~Furthermore~~is already volatile, ~~unless~~thus ~~our~~driving ~~current~~the ~~cash~~common ~~resources~~stock ~~improve~~price down. In addition, wethe ~~will~~sale ~~be unable~~of these shares could impair our ability to ~~fund~~raise ~~payment~~capital through the sale of ~~current~~additional ~~liabilities~~equity ~~and~~securities. ~~operating~~As ~~expenses~~of December 28, ~~including~~2002, we ~~retaining~~had ~~employees,~~30.1 tomillion ~~maintain~~shares ~~our~~of ~~business.~~common Asstock aoutstanding. Of ~~result~~this total, ~~our~~8.2 ~~vendors would~~million ~~likely~~shares ~~not~~were ~~extend~~registered ~~future~~on ~~credit~~various toregistration ~~us.~~statements ~~Failure~~on toForm ~~pay~~S-3 ~~minimum~~filed ~~royalty~~in connection ~~payments~~with our initial public offering and prior acquisitions, and may be ~~would~~sold ~~result~~subject into ~~termination~~the terms of ~~our~~the ~~licenses~~applicable toregistration ~~third~~statement ~~party~~without restriction ~~technology~~or ~~that~~further isregistration under the federal securities laws unless ~~incorporated~~held ~~into~~by our ~~products,~~"affiliates" ~~and~~as ~~such~~that ~~license~~term ~~termination~~is ~~would~~defined ~~preclude~~in Rule 144 while the ~~continued~~respective ~~selling~~registration ofstatements ~~our~~remain ~~products~~effective. The Inremaining ~~addition,~~21.9 ifmillion shares ~~our~~of ~~current~~common ~~cash~~stock ~~resources continue~~outstanding toare ~~decline,~~"restricted wesecurities" ~~may~~as ~~not~~that term beis ~~able~~defined toin ~~pursue~~Rule an144; ~~orderly~~however, ~~wind~~virtually ~~down~~all of ~~our~~these shares are eligible ~~business~~for sale, in ~~which~~some wecases ~~can~~only ~~satisfy~~subject into ~~full~~the ~~our~~volume, ~~obligations~~manner toof ~~current~~sale ~~creditors~~and notice orrequirements ~~fund~~of ~~efforts~~Rule to144. In ~~improve~~addition, ~~our~~we ~~cash~~have ~~position,~~registered ~~including~~a ~~selling~~total ~~additional~~of 17.0 ~~stock~~million orshares ~~selling~~of our ~~assets.~~common stock under our existing stock option and employee stock purchase plans.

~~Concerns~~The ~~about~~effects of anti-takeover provisions in our ~~financial~~charter documents ~~viability~~and ~~have~~in ~~impacted~~Delaware ~~our~~law ~~ability~~could toprevent ~~close~~a ~~sales~~change ~~transactions~~in ~~with~~control ~~current~~of ~~and~~Accrue ~~prospective~~which may reduce the market price of our common stock.

22Provisions of our certificate of incorporation and bylaws may have the effect of delaying or preventing a merger or sale of Accrue, or making a merger or acquisition less desirable to a potential acquirer, even where stockholders may consider the acquisition or merger favorable. These provisions could also have the effect of making it more difficult for a third party to effect a change of control of the board of directors. The issuance of preferred stock may have the effect of delaying, deferring, or preventing a change in control without further action by the stockholders. Any issuance of preferred stock may harm the market price of the common stock. The issuance of preferred stock may also result in the loss of the voting control of holders of common stock to the holders of the preferred stock.

~~Table~~Item of3. ~~Contents~~Quantitative and Qualitative Disclosure about Market Risk

~~customers.~~We have limited exposure to financial market risks, including changes in interest rates and foreign currency exchange rates.

ToInterest ~~date,~~Rate we have been unable to fund operations from cash generated by our business and have funded operations primarily by selling securities and assets. While we have substantially reduced our level of operating expenses, we continue to consume cash in our operations and cash resources available to us are insufficient to fund our operations now and for the foreseeable future. As a result, our audited financial statements for the fiscal year ended March 29, 2002 contains a qualified audit opinion that questions our ability to remain a going concern. Customer concerns about our financial viability, particularly our lack of profitability, low levels of working capital and the impact of our stock being delisted from the Nasdaq SmallCap Market, have adversely impacted our ability to close new sales transactions and generate revenue. These concerns will continue and likely intensify in the foreseeable future unless additional capital is obtained. Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Risk

WeOur ~~may~~exposure ~~not~~to beinterest ~~able~~rate risk relates primarily to our ~~retain~~investment ~~qualified~~portfolio ~~individuals~~and tocredit ~~serve~~facilities. All oninvestments ~~our~~are ~~Board~~classified as ofcash equivalents and are deposited with financial institutions carried at ~~Directors~~cost, orwhich toapproximate ~~retain~~market ~~high~~value. We ~~quality~~do ~~employees~~not plan to use derivative financial instruments in our ~~management~~investment portfolio. If market rates were to increase immediately and uniformly by 10% from levels at December 28, ~~engineering~~2002, the ~~customer~~decline ~~service,~~in ~~sales~~fair ~~and~~value ~~marketing~~of ~~departments,~~the ~~which~~portfolio ~~could~~would ~~significantly~~not be material. We plan to ensure ~~harm~~the safety and preservation of our ~~business~~invested principal funds by limiting default risks, market risk and reinvestment risk. We plan to mitigate default risk by investing in high-credit quality securities.

~~Our~~Foreign ~~success~~Currency depends to a significant degree upon the continued contribution from employees in our management, engineering, sales and marketing and customer support departments, and from our Board of Directors. If we fail to raise additional cash quickly and if concerns regarding our financial condition remain, many of our employees will seek alternative employment and our business operations and operating revenue will be impaired. Additionally, as a result, our current directors may decide to resign from the Board and we may not be able to attract qualified individuals to join the Board. Our key employees do not have employment or non-competition agreements and could therefore terminate their employment with us at any time without penalty. Risk

~~Several~~Although ~~important~~we ~~management employees~~ have ~~recently~~foreign ~~left the~~service ~~Company.~~and Indevelopment ~~connection~~offices in ~~with~~Europe, ~~the~~to ~~sale~~date ofour ~~certain~~exposure ~~technology assets related~~ to ~~the~~foreign ~~Pilot~~currency ~~and~~rate ~~Hit~~fluctuations ~~List~~has ~~software products in May 2002, our Chief Technology~~not ~~Officer~~been ~~resigned~~significant. ~~and~~Sales ~~became~~in ~~an employee of~~ the ~~purchaser~~Americas atare ~~the~~transacted ~~time~~in ofU.S. ~~closing of that transaction~~dollars, and ~~our Vice President of Engineering resigned and became~~ ansales ~~employee~~in ofEurope ~~the~~have ~~purchaser~~generally ~~during~~been ~~the~~transacted ~~quarter~~in ~~ended~~local ~~September 28, 2002~~currencies. ~~The~~ Operating ~~Vice~~expenses ~~President~~ of ~~Engineering~~foreign ~~continues~~offices toare ~~support~~funded ~~the~~from ~~Company~~collections onin alocal ~~part-time basis~~currencies ~~under a consulting agreement we have with the purchaser. In addition~~and, ~~our~~ ~~Vice~~from ~~President~~time ofto ~~Sales~~time, ~~and~~in ~~Marketing~~intercompany ~~resigned~~loans ~~during~~made ~~October~~in ~~2002~~U.S. ~~Our Chief~~dollars. Principally ~~Executive~~maintaining ~~Officer~~only ~~has~~minimal ~~assumed~~foreign ~~the~~currency ~~duties~~balances ofin ~~Vice~~excess ~~President~~ of ~~Marketing~~the ~~and~~foreign ~~Vice~~subsidiaries' ~~President~~operating ofcash ~~Professional~~requirements ~~Services~~mitigates ~~has assumed~~ the ~~duties~~company's ~~of Vice~~foreign ~~President~~currency ~~of Sales~~risks. However, ~~The~~if ~~reductions~~we inincrease our ~~management~~international ~~team~~business we could ~~impair our~~be ~~ability~~subject to ~~execute~~risks ~~our~~typical ~~business~~of ~~strategy~~an ~~and~~international ~~effectively~~business, ~~operate~~including ~~our~~but ~~business.~~not limited ~~Three~~to ~~directors~~differing ~~recently~~economic ~~resigned~~conditions, ~~from~~changes ~~the~~in ~~Board~~political climate, ~~and~~differing ~~the Board~~tax ~~subsequently~~structures, ~~amended~~other ~~the Bylaws~~regulations ofand ~~the~~restrictions, ~~Company~~and toforeign ~~reduce~~exchange ~~the~~rate volatility. Accordingly, ~~authorized~~our ~~number~~future ofresults ~~directors~~could ~~from~~be 7materially ~~to 4.~~adversely Asimpacted aby ~~result,~~changes ~~there~~in ~~are~~these ~~currently no vacancies on the Board~~ or ~~any~~other ~~committees~~factors.

~~Additionally~~To date, we do not ~~maintain~~use ~~key~~derivative ~~person~~financial ~~life~~instruments ~~insurance policies on any~~for ofspeculative ~~our~~trading ~~employees. The market price of our common stock has been volatile and has fluctuated significantly in the past. To the extent this volatility and fluctuation continues~~purposes, ~~equity-based~~nor ~~compensation~~do ~~policies~~we ~~and~~hedge ~~plans,~~any ~~which~~foreign ~~have historically~~currency ~~been~~exposure ~~significant~~ in ~~our attracting and retaining qualified~~a ~~directors~~manner ~~and~~that ~~highly~~entirely ~~skilled~~offsets ~~personnel,~~the ~~may~~effects ~~not~~of bechanges ~~as effective as~~ in ~~the~~foreign ~~past~~exchange rates.

~~Our~~Item 4. ~~cost-reduction~~Controls ~~efforts may adversely impact our productivity~~ and ~~service levels.~~ Procedures

We ~~implemented~~carried ~~various~~out ~~cost-control~~an ~~measures~~evaluation, ~~affecting~~under ~~all~~the ~~areas~~supervision ofand ~~our~~with ~~business~~the ~~operations~~participation ~~during~~of the ~~quarter~~Company's ~~ended~~Chief ~~September 28,~~Executive ~~2002,~~Officer ~~including reductions~~and inChief ~~our workforce~~Financial Officer, ~~from~~of 98the ateffectiveness ~~March 30,~~of ~~2002~~the todesign 44and atoperation ~~September 28, 2002.~~of Inthe ~~early~~Company's disclosure ~~October~~controls ~~2002, we implemented additional cost reduction programs~~ and ~~efforts~~procedures toas ~~preserve~~of ~~cash, including~~ a ~~reduction~~date in(the ~~headcount~~"Evaluation ~~from~~Date") ~~44 to 36~~within ~~employees.~~90 days ~~Our~~before ~~recent~~the ~~workforce~~filing ~~reductions~~date ~~may~~of ~~hurt~~this ~~the~~quarterly ~~morale~~report. ~~and~~Based ~~loyalty~~on ofthis ~~our remaining employees. Additionally~~evaluation, the ~~recent~~Company's ~~reduction~~Chief orExecutive ~~elimination~~Officer ~~of cash bonuses~~ and ~~reductions~~Chief inFinancial ~~executive salaries may reduce incentives for our~~Officer ~~employees~~have toconcluded ~~remain~~that ~~with~~as ~~us.~~of Wethe ~~must~~Evaluation ~~continue~~Date, toour ~~implement~~disclosure ~~cost~~controls ~~reduction~~and ~~measures~~procedures toare ~~align~~effective ~~our~~to ~~expenses~~ensure ~~with~~that ~~revenue~~information ~~and~~required ~~improve~~to ~~our~~be ~~overall~~disclosed ~~cash~~by ~~position.~~the ~~These~~Company ~~expense~~in ~~reductions~~reports ~~may~~that ~~include~~it ~~additional~~files ~~headcount~~or ~~reductions, salary~~submits ~~reductions~~under ~~and~~the ~~unpaid~~Securities ~~leave~~Exchanges Act ~~programs,~~of ~~and~~1934 ~~there~~ is norecorded, ~~assurance~~processed, ~~that these~~summarized ~~actions~~and ~~will~~reported ~~not~~within ~~adversely~~the ~~impact our employees’ morale and productivity,~~time ~~the~~periods ~~competitiveness~~specified ofin ~~our~~Securities ~~products~~Exchange ~~and~~Commission ~~business,~~rules and ~~the results of our operations~~forms.

WeAs of the date of this report, there have ~~incurred~~not ~~substantial~~been ~~losses~~any significant ~~and~~changes ~~negative~~in ~~cash~~the ~~flow~~Company's ~~during~~internal ~~our~~controls ~~operating~~or ~~history,~~in ~~and~~other wefactors ~~expect~~that could ~~these~~significantly ~~losses~~affect tothese ~~continue~~controls ~~for~~subsequent to the ~~foreseeable~~date ~~future.~~of the evaluation.

WePART ~~have not achieved profitability~~II. WeOTHER have incurred substantial losses and negative cash flows from operations in each fiscal year since inception. At September 28, 2002, we had an accumulated deficit of $263 million. We expect to continue to incur losses on both a quarterly and annual basis, and may continue to do so for the foreseeable future. If we are unable to increase our revenue from INFORMATION

23 Item 1. Legal Proceedings

~~Table~~During the first quarter of ~~Contents~~fiscal 2002, the Company implemented headcount reductions in certain of its European subsidiaries. The Company provided the affected employees continued employment during the statutory notice period as required by local law. A total of six employees in France and Germany filed complaints with the local labor courts contesting the dismissals and are seeking severance payments and other monetary consideration in addition to compensation for the statutory notice period. As of December 28, 2002, three claims were settled, one claim was dismissed, and two claims are scheduled for hearings in the first calendar quarter of 2003. One of the two remaining claims was partially settled in the fourth quarter of 2002, and the Company is contesting the remaining portion of the one claim and all of the other claim. The Company has accrued the cost of the settlements entered into and has accrued its estimated liability for the pending suits; the total accrued is $88,000.

The German Tax Authority is auditing the tax returns of the German subsidiary of Pilot Software, which Accrue acquired in September 2000, for the tax years 1995-1999. In connection with this audit, the German Tax Authority has disputed the transfer pricing methodologies and other deductions contained in those tax returns. The Tax Authority has issued a notice of tax deficiency in the amount of 1.5 million DM related to the tax returns for the years 1996 and 1997. Accrue is contesting these claims. In addition, under the terms of the Pilot Merger Agreement, Accrue has right to indemnification against Platinum Equity Holdings, LLC (Platinum) for damages related to tax claims against Pilot Software, Inc. and its subsidiaries arising prior to the date of the acquisition of Pilot Software, Inc. There can be no assurance that this matter will be resolved without costly litigation, or in a manner that is not materially adverse to Accrue's financial position, results of operations or cash flows. Furthermore, there can be no assurance that Accrue will be able to enforce its indemnification right against Platinum, if Platinum disputes such claims, without undue cost or delay. As additional information becomes available, Accrue will assess its potential liability, if any.

~~licensing, maintenance and service each quarter while reducing our expenses from the current level, we will not be able to achieve profitability~~Item 2. If weChanges ~~do achieve profitability, we cannot be certain that we can sustain or increase profitability on a quarterly or annual basis~~ in ~~the~~Securities ~~future, or at all. Please see “Management’s Discussion~~ and ~~Analysis~~Use of ~~Financial Condition and Results of Operations” for more detailed information on our results of operations.~~ Proceeds

Wea. Not ~~may be required to sell additional stock, which could depress our common stock price, or incur indebtedness, which could restrict our operations~~applicable.

We are evaluating various initiatives to improve our cash position, including selling additional stock, incurring additional debt, selling assets, implementing further restrictions on spending, and other cash generating initiativesb. Not However, additional financing may not be available on acceptable terms, if at all, especially in the uncertain market climate, and we may not be successful in implementing or negotiating such other arrangements to improve our cash positionapplicable.

~~We cannot be certain that we would be able to obtain additional financing on favorable terms, if at all~~c. Securities ~~However,~~sold ifduring ~~we were able to raise additional funds through~~ the ~~issuance~~quarter ofended ~~equity~~December ~~or convertible debt securities~~28, ~~the~~ ~~percentage~~2002 ownership of our current stockholders would be reduced and these securities might have rights, preferences and privileges senior to those of our current stockholders. As a result, any such financing could cause our common stock price to decline. Additionally, if we incur indebtedness to help us meet our future capital requirements, this debt could contain covenants that ~~restrict~~ ~~our~~were ~~operations.~~not Ifregistered weunder ~~cannot~~the ~~raise~~Securities ~~funds quickly, it is likely that we will be required to wind down our operations and engage in efforts to sell our assets~~Act: None. ~~Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”~~

~~We may acquire new businesses or technology, or enter into business combinations to remain competitive and generate cash~~d. Not ~~Such transactions may involve financial, integration and transaction completion risks, which could negatively impact our business~~applicable.

~~We made four acquisitions during the fiscal years 2000 and 2001 to support the development of our Accrue G2 product and the expansion of our business~~Item 3. ~~In order~~Default toupon ~~grow~~Senior our revenue and generate cash, we may decide to buy businesses, products and technologies that complement or augment our existing products or technologies. Acquisitions may be difficult to complete for reasons such as the cost of potential transactions, the volatility in the price of our common stock, concerns regarding our financial viability, competition among prospective buyers and the need for regulatory approvals. We may not be able to complete any given acquisition. We may need to raise additional funds by selling our stock or borrowing money to finance a potential acquisition. We may not be able to secure financing on favorable terms, and the issuance of our stock may result in the dilution of our existing stockholders. Securities

The process of integrating an acquisition may result in unforeseen operating difficulties and expenditures, could disrupt our ongoing business, absorb significant management attention, expose us to unknown liabilities, or require additional costs for technology or personnel integration, any of which could materially harm our businessNone. Moreover, we may fail to realize the anticipated benefits of any acquisition. During fiscal years 2001 and 2002, we incurred impairment charges of $139.7 million and $1.2 million, respectively, in respect of intangible assets and goodwill related to prior acquisitions.

WeItem 4. ~~have~~Submission aof ~~limited~~Matters ~~operating history, making it difficult for you~~ to ~~evaluate~~a ~~our~~Vote ~~business~~of ~~and~~Security ~~your investment.~~ Holders

~~Accrue was formed in February 1996, and we introduced Accrue Insight 1~~None.~~0, our~~ first software product, in January 1997. For the fiscal years 2000, 2001 and 2002, we generated $18.9 million, $25.6 million and $14.3 million in revenue, respectively. Thus, we have a limited operating history upon which you can evaluate our business and prospects. Due to our limited operating history, it is difficult or impossible for us to predict future results of operations. For example, we forecast operating expenses based in part on future revenue projections, which may not be achieved. Most of our expenses are fixed in the short term and we may not be able to quickly reduce spending if our revenue is lower than we had projected, therefore net losses in a given quarter would be greater than expected. In addition, our ability to forecast accurately our quarterly revenue is limited due to a number of factors described in detail below, making it difficult to predict the quarter in which sales will occur. Moreover, due to our limited operating history, any evaluation of our business and prospects must be made in light of the risks and uncertainties often encountered by early-stage companies in Internet-related products and services markets, which is new and rapidly evolving. Many of these risks are discussed under the sub-headings below. We may not be able to successfully address any or all of these risks and our business strategy may not be successful.

~~Fluctuations~~Item 5. inOther ~~our operating results make it difficult to predict our future performance and may result in volatility in the market price of our common stock.~~ Information

24On February 4, 2003, the Company completed a debt financing in which it sold to certain affiliates of the Company and outside investors five secured convertible promissory notes (the "Notes") having an aggregate principal amount of $500,923.29 (the "Note Financing"). The Notes accrue interest at 6% and mature on February 4, 2006, unless earlier converted into equity securities of the Company. The Notes are convertible into equity securities of the Company as follow: (1) in the event that the closing bid or sales prices of the Company's Common Stock is at least $0.20 per share for a period of 60 consecutive trading days, the entire principal amount of and accrued interest on the Notes will automatically convert into shares of the Company's Common Stock, or (2) upon the consent of the holders of a majority of the outstanding principal amount of the Notes, the principal and, at the request of the holders of the Note, the accrued interest on the Notes, is convertible into shares of Common Stock or, in the event that there is a series of Preferred Stock of the Company issued or proposed to be issued, into the most senior series of such Preferred Stock. There is no series of Preferred Stock issued or proposed to be issued as of this filing. In case of a conversion into Common Stock or Preferred Stock, as the case may be, the number of shares into which the Notes may convert is determined by dividing (i) the principal amount of the Note plus, if applicable, the accrued interest on the Note by (ii) $0.06 (as adjusted from time-to-time as set forth in the Notes). Robert M. Smelick, the Chairman of the Board of Directors of the Company, purchased a Note having a principal amount of $60,349.72. Mr. Smelick paid for his Note through a cancellation of indebtedness owed by the Company to Mr. Smelick pursuant to the principal and accrued interest on a $12,000 Secured Promissory Note sold to Mr. Smelick on October 11, 2002 and a $48,000 Secured Promissory Note sold to Mr. Smelick on October 25, 2002 in connection with the Company's acquisition of the Personify assets. The Company sold a $320,000 secured promissory note to Sterling Payot Capital, LP, of which Mr. Smelick is a general partner, on January 16, 2003 in anticipation of the Note Financing. Accordingly, Sterling Payot Capital, LP purchased a Note having a principal of $335,573.57. Sterling Payot Capital, LP paid for its Note through a combination of $15,000 of cash and a cancellation of indebtedness in the amount of $320,573.57 owed by the Company to Sterling Payot Capital, LP pursuant to the principal and accrued interest on the $320,100 secured promissory note previously sold to Sterling Payot Capital, LP on January 16, 2003. The Company is authorized to sell an additional $309,000 worth of Notes pursuant to the terms set forth in the Note Financing documents.

~~Table~~To help Accrue achieve positive operating results, Accrue reduced the salaries of ~~Contents~~most North American employees effective as of December 29, 2002. The salaries of the affected employees were reduced by 10%.

~~Our~~In ~~annual~~January ~~and~~2003, ~~quarterly operating results have fluctuated in~~ the ~~past~~Company ~~and may~~hired ~~fluctuate~~Bob ~~significantly~~Page inas ~~the future due to a variety of factors,~~Chief ~~particularly~~Technical asOfficer. ~~a result of the risks we describe in this discussion of risk factors~~Mr. ~~Because~~Page ~~our~~was ~~operating~~a ~~results~~co-founder ~~are volatile~~ and ~~difficult~~former toemployee ~~predict, you should not rely on the results~~ of ~~one quarter as an indication of future performance. It is likely that in some future quarter our operating results will fall below~~ the ~~expectations of securities analysts and investors. In this~~ ~~event, the trading price of our common stock may fall significantly~~Company.

~~Risks~~Item 6. ~~Related~~Exhibits ~~to Our Market~~ and ~~Ability~~Reports toon ~~Sell~~ Form 8-K

~~Our business has been and could continue to be materially adversely affected as~~ a. The ~~result~~following ofexhibits ~~general~~are ~~economic~~attached ~~and market conditions.~~ hereto:

Wei. Certification ~~are subject to the effects~~ of ~~general global economic and market conditions. The market for enterprise software applications has been weak during~~ the ~~past~~Chief ~~year,~~Executive ~~due~~Officer ~~in part~~ Pursuant to ~~the~~18 ~~impact of the recession in the~~ U.S. ~~and reductions in the information technology capital budgets by our current and prospective customers~~C. ~~These~~Section ~~adverse~~1350, ~~impacts~~as ~~have~~Adopted ~~lead~~Pursuant to ~~longer~~Section 906 ~~sales cycles, lower levels~~ of ~~new orders, delays in payment and collection, and price pressures, causing~~ the ~~Company to realize lower revenue and margins. If~~ ~~economic~~Sarbanes- ~~and~~Oxley ~~market~~Act ~~conditions do not improve, our business, results~~ of ~~operations~~ ~~or financial condition could be materially adversely affected~~2002. ~~Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more detailed information on our results of operations.~~

Weii. Certification ~~are~~of ~~relying~~the onChief ~~one~~Financial ~~product,~~Officer ~~Accrue~~Pursuant to ~~G2,~~18 toU.S.C. ~~generate~~Section ~~most~~1350, ofas ~~our~~Adopted ~~future~~Pursuant ~~revenue,~~to ~~which~~Section 906 ~~may~~of ~~not~~the Sarbanes- ~~achieve~~Oxley ~~market~~Act ~~acceptance~~of 2002.

~~In May 2001, we announced the commercial launch of Accrue G2, our next generation Internet analysis solution~~b. Reports ~~Since~~filed that time, we sold Accrue G2 to 17 customers. Accrue G2 has not received a significant degree of market acceptance and may not in the future. There are significant risks inherent in new product introductions including the possible failure to address some or all of our customer’s needs and undetected product errors or deficiencies. Product deficiencies, errors or failures and a lack of sufficient financial resources to invest in the sales and marketing of Accrue G2 will likely result in loss or delay of market acceptance. We expect that our future financial performance will depend significantly on ~~the~~Form 8-K ~~successful~~during ~~sale,~~quarter ~~implementation~~ended ~~and market acceptance of Accrue G2 or enhanced products that may not occur on a timely basis or at all. In addition~~September 28, ~~our cost reduction efforts, particularly in~~ ~~research~~2002: ~~and development, may impair our ability to introduce new and enhanced versions of Accrue G2 and other products during fiscal 2003~~None.

~~We face intense competition that could make it difficult for us to acquire and retain customers now and in the future.~~ SIGNATURES

~~The~~Pursuant ~~market~~to ~~for Internet analytics solutions is intensely competitive,~~the ~~evolving~~requirements ~~and~~of ~~subject~~the toSecurities ~~rapid~~Exchange ~~technological~~Act ~~change.~~of We1934, ~~expect~~ the ~~intensity~~Registrant ofhas duly ~~competition~~caused tothis ~~increase~~report into ~~the~~be ~~future.~~signed ~~Competitors~~on ~~vary~~its inbehalf ~~size~~by ~~and in~~ the ~~scope~~ ~~and~~undersigned ~~breadth~~thereunto ~~of the products and services they offer.~~duly authorized.

~~Our~~ACCRUE ~~principal~~SOFTWARE, ~~competitors today include vendors of software that target Internet customer data collection and analysis markets such as SPSS/net~~INC.~~Genesis Corporation,~~ ~~and~~By: ~~NetIQ~~/~~Webtrends;~~s/ ~~Application~~Gary ~~Service Provider (ASP) vendors such as Coremetrics Inc~~J., ~~Keylime~~Sanders ~~and~~Gary ~~digiMine, Inc~~J.; ~~providers~~Sanders ofChief ~~business intelligence~~Financial or customer relationship management (CRM) tools, such as E.piphany, MicroStrategy Inc., Business Objects S.A. and Informatica Corp.; and custom development efforts by system integrators and in-house developers. In addition, because there are relatively low barriers to entry in the software market, we expect additional competition from traditional business intelligence and enterprise software vendors as the Internet software market continues to develop and expand. Officer

~~These~~Dated: ~~companies,~~February ~~as well as other competitors~~11, ~~have~~2003 longer operating histories, significantly greater financial, technical, marketing and other resources, significantly greater name recognition and a larger installed base of customers than we have. Increased competition is likely to result in lower sales volumes, price reductions, reduced gross margins and loss of market share, any of which could seriously harm our business, financial condition and results of operations. We may not be able to compete successfully against current and future competitors, in which case our business could suffer.

~~Our varied sales cycles make it difficult to budget and forecast operating results.~~ CERTIFICATIONS

~~We have varied sales cycles because we generally need to educate potential clients regarding the use and benefits of our product applications~~I, ~~which~~Jonathan ~~has been~~D. ~~the case with our new product~~Becher, ~~Accrue~~certify ~~G2. The stability of our sales cycle continues to evolve as our products mature. Our sales cycles make it difficult to predict the quarter in which sales may fall and to budget and forecast operating~~ that:

251. I have reviewed this quarterly report on Form 10-Q of Accrue Software Inc.;

~~Table~~2. Based on my knowledge, this quarterly report does not contain any untrue statement of ~~Contents~~a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

~~results~~3. Based Inon ~~addition~~my knowledge, athe ~~significant~~financial ~~portion~~statements, ofand ~~our~~other ~~sales falls within~~financial ~~the~~information ~~last~~included ~~month~~in ofthis aquarterly ~~quarter~~report, ~~making~~fairly itpresent ~~difficult~~in toall ~~predict revenue until late~~material inrespects the ~~quarter and to adjust expenses accordingly. Our~~ financial condition ~~may also adversely impact sales cycles~~, asresults weof ~~expect~~operations ~~certain~~and ~~customers~~cash toflows ~~spend~~of the ~~additional~~registrant ~~time~~as ~~evaluating~~of, ~~our~~and ~~products~~for, asthe ~~well~~periods aspresented ~~financial~~in ~~viability~~this ~~during~~quarterly ~~their purchasing process.~~ report;

~~Our~~4. The ~~operating~~registrant's ~~results~~other ~~may~~certifying beofficers ~~adversely~~and ~~affected~~I byare ~~small~~responsible ~~delays~~for establishing and maintaining disclosure controls and procedures (as defined in Exchange ~~customer~~Act ~~orders~~Rules 13a-14 orand ~~product~~15d-14) ~~installations.~~for the registrant and we have:

~~Small~~designed ~~delays~~such indisclosure ~~customer~~controls ~~orders can cause significant variability in our license revenue~~ and ~~operating~~procedures ~~results~~to ~~for~~ensure ~~any~~that ~~particular period. We derive a~~material ~~substantial~~information ~~portion~~relating ofto ~~our revenue from~~ the ~~sale~~registrant, ofincluding ~~software~~its ~~products~~consolidated ~~and~~subsidiaries, ~~related services that~~ is ~~recognized~~made ~~under~~known ~~the~~to ~~percentage~~us ofby ~~completion~~others ~~or completed~~within ~~contract~~those ~~method.~~entities, ~~Any~~particularly ~~delays~~ during athe period ~~quarter~~ in ~~orders~~which ~~for~~this ~~delivery or~~quarterly ~~product~~report ~~installation~~is ~~schedules~~being ~~could harm operating results for that quarter.~~ prepared;
~~Failure~~evaluated tothe ~~expand~~effectiveness ~~our~~of ~~sales~~the ~~operations~~registrant's disclosure controls and procedures ~~channels~~as of ~~distribution~~a ~~would~~date ~~impact~~within ~~our~~90 days ~~ability~~prior to ~~achieve~~the ~~profitability.~~filing date of this quarterly report (the "Evaluation Date"); and
Inpresented ~~order~~in tothis ~~maintain~~quarterly ~~and~~report ~~increase~~ our ~~market~~conclusions ~~share~~about ~~and~~the ~~revenue, we will~~effectiveness ~~need to expand our direct and indirect sales operations and channels~~ of ~~distribution.~~ ~~We have recently reduced~~ the ~~size~~disclosure ofcontrols ~~our direct sales force~~ and ~~temporarily~~ ~~deferred~~procedures ~~plans~~based toon ~~hire additional sales personnel. As of November 12, 2002,~~ our ~~sales~~evaluation ~~and~~as ~~marketing organization consisted~~ of ~~3 employees. To grow our revenue in~~ the ~~future, we will need to hire additional sales~~ ~~personnel.~~Evaluation There can be no assurance that we will be successful in this endeavor unless we are able to substantially improve our cash position. In addition, new hires will require extensive training and typically take several months to achieve productivity. We also plan to expand our relationships with channel partners, distributors, systems integrators and other partners to build our indirect sales channel, and there is no assurance that we will be successful in this endeavor. Date;

~~Our~~5. The ~~international~~registrant's ~~operations~~other ~~expose~~certifying usofficers toand ~~greater~~I ~~intellectual~~have ~~property~~disclosed, based ~~collections,~~on ~~exchange~~our ~~rate,~~most ~~labor~~recent evaluation, ~~regulatory~~to ~~and~~the ~~other~~registrant's ~~risks,~~auditors ~~which~~and ~~could~~the audit ~~materially~~committee ~~impact~~of ~~our~~registrant's ~~financial~~board ~~condition~~of ~~and~~directors ~~ability~~(or topersons ~~grow.~~performing the equivalent function):

~~Licenses~~all ~~and~~significant ~~services~~deficiencies ~~sold~~in tothe ~~clients~~design ~~located~~or ~~outside~~operation ~~the~~of ~~United~~internal ~~States~~controls ~~were~~which ~~approximately~~could ~~49%~~adversely ~~and~~affect ~~43% of~~ the ~~total~~registrant's ~~revenue~~ability ~~for~~to ~~the six months ended September 28~~record, ~~2002 and September 29~~process, ~~2001, respectively. These results~~ ~~included~~summarize ~~revenue~~and ~~from~~report ~~the~~financial ~~Pilot~~data and ~~Hit~~have ~~List~~identified ~~products,~~for ~~which~~the ~~we sold in May~~registrant's ~~2002~~auditors ~~and~~any ~~therefore~~material ~~are~~weaknesses noin ~~longer~~internal ~~available.~~ controls; and
~~Continued~~any ~~generation~~fraud, ofwhether ~~international~~or ~~sales~~not ~~will~~material, ~~require~~that involves management ~~attention~~ ~~and~~or ~~resources.~~other employees Wewho ~~cannot~~have bea ~~certain~~significant ~~that~~role ~~we will be successful~~ in ~~maintaining~~ the ~~volume~~registrant's ofinternal ~~international revenues. International operations are~~controls; ~~subject to other inherent risks, including:~~ and

•6. The ~~difficulties~~registrant's inother ~~managing~~certifying ~~foreign~~officers ~~operations;~~and •I ~~limitations~~have indicated in ~~accessing~~this ~~cash~~quarterly ~~balances~~report inwhether ~~our~~or ~~foreign~~not ~~subsidiaries~~there ~~for~~were ~~use~~significant ~~by the Accrue US parent company; • potential unexpected~~ changes in ~~regulatory~~internal ~~practices~~controls ~~and~~or ~~tariffs;~~in •other ~~complex,~~factors ~~restrictive~~that ~~and~~could ~~potentially~~significantly ~~costly~~affect internal ~~labor~~controls ~~laws~~subsequent ~~and~~to ~~practices;~~the •date ~~longer~~of ~~sales~~our ~~and~~most ~~collection~~recent ~~cycles;~~evaluation, including •any ~~foreign~~corrective ~~currency~~actions ~~exchange~~with ~~rate~~regard ~~fluctuations;~~to •significant ~~reduced~~deficiencies ~~protection for intellectual property rights in some countries;~~ and material ~~• seasonal reductions in business activity~~weaknesses.

IfDate: we fail to address these risks adequately our business may be seriously harmed. Additionally, we are currently subject to claims from several former employees of our European operations related to their termination of employment. Please see Part II ItemFebruary 111, ~~“Legal Proceedings” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”~~ 2003

~~Risks~~/s/ ~~Related~~Jonathan toD. ~~our Products~~ Becher

~~Product~~Jonathan ~~defects~~D. ~~could lead to loss of customers that could harm our business,~~Becher ~~results~~ Chief ofExecutive ~~operations,~~Officer ~~and financial condition.~~

~~Despite internal testing and testing by current and potential customers~~I, ~~our~~ ~~current~~Gary ~~and future products may contain serious defects~~Sanders, ~~including~~certify Year 2000 errors, the occurrence of which could result in adverse publicity, loss of or delay in market acceptance, or claims by customers against us, any of which could harm our business, results of operations, and financial condition. In addition, our products and product enhancements are very complex and may from time to time contain errors or result in failures that: ~~we did not detect or~~

261. I have reviewed this quarterly report on Form 10-Q of Accrue Software Inc.;

~~anticipate~~3. Based ~~when~~on ~~introducing~~my ~~our~~knowledge, ~~products~~the orfinancial ~~enhancements~~statements, toand ~~the~~other ~~market. The~~financial ~~computer~~information ~~hardware~~included ~~environment~~in isthis ~~characterized~~quarterly byreport, afairly ~~wide~~present ~~variety~~in ofall material ~~non-standard~~respects ~~configurations~~the ~~that~~financial ~~make~~condition, ~~pre-release~~results ~~testing~~of ~~for~~operations ~~programming or compatibility errors very difficult~~ and ~~time~~cash ~~consuming.~~flows ~~Despite~~of ~~our testing,~~the ~~errors~~registrant ~~may~~as ~~still be discovered in some new products~~of, ~~including~~and ~~our most important product~~for, ~~Accrue~~the ~~G2,~~periods orpresented in ~~enhancements~~this ~~after~~quarterly ~~the products or enhancements are delivered to customers.~~ report;

If4. The ~~our~~registrant's ~~intellectual~~other ~~property~~certifying ~~were~~officers ~~not~~and ~~protected~~I ~~adequately,~~are ~~our~~responsible ~~business~~for establishing ~~would~~and ~~suffer.~~maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

Wedesigned ~~regard~~such ~~substantial~~disclosure ~~elements~~controls ~~of our Internet analytics solutions as proprietary~~ and ~~attempt~~procedures to ~~protect~~ensure ~~them~~that ~~by relying on trademark, service mark,~~material ~~trade~~information ~~dress,~~relating ~~copyright,~~to ~~and~~the ~~trade secret laws and restrictions~~registrant, asincluding ~~well~~its ~~as confidentiality~~consolidated ~~procedures and contractual provisions. Any steps we take to protect our intellectual property may be inadequate~~subsidiaries, ~~time consuming, and~~ ~~expensive.~~is Inmade ~~addition,~~known ~~despite our efforts, we may be unable~~ to ~~prevent~~us ~~third parties~~by ~~from~~others ~~infringing~~within ~~upon~~those ~~or misappropriating our intellectual property~~entities, ~~which~~ ~~could~~particularly ~~have~~during ~~a material adverse effect on our business. Effective~~the ~~trademark,~~period ~~copyright, and trade secret protection may not be available~~ in ~~every country in~~ which ~~our~~this ~~products~~quarterly ~~are~~report ~~distributed~~is orbeing made available through the Internet. Furthermore, our competitors may independently develop similar technology that substantially limits the value of our intellectual property or design around patents issued to us. prepared;
~~Others~~evaluated ~~may~~the ~~bring~~effectiveness ~~infringement~~of ~~claims~~the ~~against~~registrant's usdisclosure ~~that~~controls ~~could~~and procedures ~~harm~~as ~~our~~of ~~business,~~a ~~results~~date ofwithin ~~operations~~90 days ~~and~~prior ~~financial~~to ~~condition.~~the filing date of this quarterly report (the "Evaluation Date"); and
Inpresented ~~recent years, there has been significant litigation~~ in ~~the~~this ~~United States~~quarterly ~~involving~~report ~~patents~~our ~~and~~conclusions ~~other~~about ~~intellectual property rights. We are not currently involved in any intellectual property litigation. However, as~~ the ~~number~~ effectiveness of ~~entrants into our market increases,~~ the ~~possibility~~disclosure ofcontrols ~~an intellectual property claim against us grows~~ and weprocedures ~~may~~based beon ~~a party to litigation in the future to protect~~ our ~~intellectual~~evaluation ~~property or~~ as ~~a result~~ of an alleged infringement of others’ intellectual property. These claims and any resulting litigation could subject us to significant liability for damages and invalidation of our proprietary rights, would likely be time-consuming and expensive to defend and would divert management’s time and attention to ongoing business operations. Any potential intellectual property litigation could also force us to do one or more of the ~~following: (1) cease selling, incorporating,~~ orEvaluation ~~using products or services that incorporate the challenged intellectual property~~Date; (2) obtain from the holder of the infringed intellectual property right a license to sell or use the relevant technology, which license may not be available on reasonable terms, or at all; and/or (3) redesign those products or services that incorporate infringing technology. Any of these results could seriously harm our business.

We5. The ~~are~~registrant's ~~subject~~other tocertifying ~~potential~~officers ~~product~~and ~~liability~~I ~~claims~~have ~~that~~disclosed, ~~could~~based on ~~require~~our ~~considerable~~most ~~effort~~recent ~~and~~evaluation, ~~expense~~ to ~~defend~~the registrant's auditors and ~~which~~the ~~could~~audit committee ~~harm~~of ~~our~~registrant's ~~business.~~board of directors (or persons performing the equivalent function):

~~Our~~all ~~products~~significant ~~are~~deficiencies ~~used~~in ~~to monitor~~ the ~~traffic~~design ~~data~~or operation of ~~our~~internal ~~customers’ Web~~controls ~~sites,~~which ~~and~~could toadversely ~~segment,~~affect ~~analyze~~the ~~and~~registrant's ~~report~~ability ~~this data. These and other functions that our products provide are often critical~~ to ~~our customers~~record, ~~especially in~~process, ~~light~~summarize ofand ~~the~~report ~~considerable~~financial ~~resources~~data ~~many~~and ~~organizations~~have ~~spend~~identified onfor the ~~development~~registrant's ~~and~~auditors ~~maintenance~~any ofmaterial ~~their~~weaknesses ~~Web sites. Our end-user licenses contain provisions that limit our exposure to product liability claims, but these provisions may not be enforceable~~ in ~~all~~internal ~~jurisdictions.~~controls; Additionally, we maintain limited product liability insurance. To the extent our contractual limitations are unenforceable or these claims are not covered by insurance, a successful product liability claim could harm our business. and
~~Risks~~any ~~Related~~fraud, towhether ~~our~~or ~~Industry~~not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

~~Evolving~~6. The ~~regulation~~registrant's ofother ~~the~~certifying ~~Internet~~officers ~~may~~and ~~harm~~I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our ~~business.~~most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

~~Typically,~~Date: ~~our products capture traffic data when consumers~~February 11, business customers or employees visit a Web site. The perception of security and privacy concerns, whether or not valid, may indirectly inhibit market acceptance of our products. In addition, legislative or regulatory requirements may heighten these concerns if businesses must notify Web site users that the data captured after visiting Web sites may be used by marketing entities to unilaterally direct product promotion and advertising to that user. We are not aware of any similar legislation or regulatory requirements currently in effect in the United States. Other countries and political entities, such as the European Economic Community, have adopted legislation or regulatory requirements. The United States may adopt similar legislation or regulatory requirements. 2003

~~The~~/s/ ~~market~~Gary ~~price for our common stock, like other technology stocks, has been and may continue to be volatile.~~ Sanders

27Gary Sanders Chief Financial Officer

~~Table~~EXHIBIT ~~of Contents~~INDEX

The stock markets have, in general, and with respect to Internet companies in particular, recently experienced extreme stock price and volume volatility, resulting in significant decreases in companies’ stock prices. The decreases in stock prices for many companies in the technology and emerging growth sector have often been unrelated to the operating performance of these companies in many cases. Fluctuations such as these have at times affected the market price of our common stock. Our common stock is trading at a level significantly below its historic levels, and there can be no assurance that our stock price will increase significantly in the foreseeable future. In addition, if we fail to address any of the risks described in this section, the market price for our common stock, and consequently, the value of your investment, could decline further. In addition, securities class action claims have been brought against companies in the past where volatility in the market price of that Company’s securities has taken place. This kind of litigation could be very costly and divert our management’s attention and resources, and any adverse determination in this litigation could also subject us to significant liabilities, any or all of which could seriously harm our business and the value of your investment.

Exhibit
No.		Description
99.1		Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2		Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Risks Related to our Securities Market and Ownership of our Common Stock

Our common stock has experienced low trading volumes and other risks on the OTC Bulletin Board.

On September 27, 2002, our common stock was delisted from the Nasdaq SmallCap Market as a result of our failure to maintain a minimum bid price of $1.00 required for continued listing. Our stock then began trading on the OTC Bulletin Board under the existing symbol ACRU.

We may not be able to continue to maintain the trading of our stock on the OTC Bulletin Board, which in 2003 will implement listing standards and an application approval requirement to transition to the new Bulletin Board Exchange (BBX) trading system. The BBX trading system will also require listing fees. Even if our stock continues to be traded on the OTC Bulletin Board or the BBX, many stocks traded on the OTC Bulletin Board have experienced extreme price and trading volume fluctuations. These fluctuations are often unrelated or disproportionate to the operating performance of individual companies. Our stock price may be adversely affected by such fluctuations, regardless of our operating results. Additionally, many common stocks traded on the OTC Bulletin Board are thinly traded, such as our common stock, which would make it difficult to sell our stock. If we are not eligible to list our common stock for trading on the BBX, our stock will then be traded on the Pink Sheets, which would likely make our stock more difficult to trade and subject to greater price volatility than if it were traded on the OTC Bulletin Board.

Substantial sales of our common stock could cause our stock price to decline.

Sales of a substantial number of shares of common stock in the public market, or the perception that these sales may occur, could adversely affect the market price of the common stock by potentially introducing a large number of sellers of our common stock into a market in which the common stock price is already volatile, thus driving the common stock price down. In addition, the sale of these shares could impair our ability to raise capital through the sale of additional equity securities. As of September 28, 2002, we had 30.1 million shares of common stock outstanding. Of this total, 8.2 million shares were registered on various registration statements on Form S-3 filed in connection with our initial public offering and prior acquisitions, and may be sold subject to the terms of the applicable registration statement without restriction or further registration under the federal securities laws unless held by our “affiliates” as that term is defined in Rule 144 while the respective registration statements remain effective. The remaining 21.9 million shares of common stock outstanding are “restricted securities” as that term is defined in Rule 144; however, virtually all of these shares are eligible for sale, in some cases only subject to the volume, manner of sale and notice requirements of Rule 144. In addition, we have registered a total of 17.0 million shares of our common stock under our existing stock option and employee stock purchase plans.

The effects of anti-takeover provisions in our charter documents and in Delaware law could prevent a change in control of Accrue which may reduce the market price of our common stock.

Provisions of our certificate of incorporation and bylaws may have the effect of delaying or preventing a merger or sale of Accrue, or making a merger or acquisition less desirable to a potential acquirer, even where stockholders may consider the acquisition or merger favorable. These provisions could also have the effect of making it more difficult for a third party to effect a change of control of the board of directors. The issuance of preferred stock may have the effect of delaying, deferring, or preventing a change in control without further action by the stockholders. Any issuance of preferred stock may harm the market price of the common stock. The issuance of preferred stock may also result in the loss of the voting control of holders of common stock to the holders of the preferred stock.

Because Accrue’s Officers and Directors own approximately 14% of the outstanding common stock, you and other investors will have minimal influence on stockholder decisions.

As of September 28, 2002, our officers and directors beneficially owned approximately 14% of our outstanding common stock. As a result, they will be able to exercise significant influence over all matters requiring stockholder approval, and you and other investors will have minimal influence over the election of directors or other stockholder actions. As a result, these stockholders could approve or cause Accrue to take actions that you disapprove or that are contrary to your interests and those of other investors. Our certificate of incorporation and bylaws do not provide for cumulative voting; therefore, our controlling stockholders will have the ability to elect all of our directors. The controlling stockholders will also have the ability to approve or disapprove significant corporate transactions without further vote by the investors who purchase common stock pursuant to this offering. This ability to exercise influence over all matters requiring stockholder approval could prevent or significantly delay another Company or person from acquiring or merging with us.

Item 3. Quantitative and Qualitative Disclosure about Market Risk

We have limited exposure to financial market risks, including changes in interest rates and foreign currency exchange rates.

Interest Rate Risk

Our exposure to interest rate risk relates primarily to our investment portfolio and credit facilities. All investments are classified as cash equivalents and are deposited with financial institutions carried at cost, which approximate market value. We do not plan to use derivative financial instruments in our investment portfolio. If market rates were to increase immediately and uniformly by 10% from levels at September 28, 2002, the decline in fair value of the portfolio would not be material. We plan to ensure the safety and preservation of our invested principal funds by limiting default risks, market risk and reinvestment risk. We plan to mitigate default risk by investing in high-credit quality securities.

Foreign Currency Risk

Although we have foreign sales offices in Europe, to date our exposure to foreign currency rate fluctuations has not been significant. Sales in the Americas are transacted in U.S. dollars, and sales in Europe have generally been transacted in local currencies. Operating expenses of foreign offices are funded from collections in local currencies and, from time to time, in intercompany loans made in U.S. dollars. Principally maintaining only minimal foreign currency balances in excess of the foreign subsidiaries’ operating cash requirements mitigates the company’s foreign currency risks. However, if we increase our international business we could be subject to risks typical of an international business, including but not limited to differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions, and foreign exchange rate volatility. Accordingly, our future results could be materially adversely impacted by changes in these or other factors.

To date, we do not use derivative financial instruments for speculative trading purposes, nor do we hedge any foreign currency exposure in a manner that entirely offsets the effects of changes in foreign exchange rates.

Item 4. Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of a date (the “Evaluation Date”) within 90 days before the filing date of this quarterly report. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchanges Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities Exchange Commission rules and forms.

As of the date of this report, there have not been any significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

On February 20, 1999, Execplan Sistemas Executivos Ltda., a former distributor of our wholly-owned subsidiary Pilot Software, Inc.’s products in Brazil, filed a Claim for Arbitration with the American Arbitration Association in connection with Pilot’s failure to enter into a new distribution agreement with Execplan when the prior agreement between the parties terminated by its terms. Pilot denied Execplan’s claim and filed a counterclaim alleging, among other things, breach of contract, misappropriation of Pilot trade secrets and infringement of Pilot copyrights. The arbitration was terminated by order of the Arbitrators dated August 16, 2002.

During the first quarter of fiscal 2002, the Company implemented headcount reductions in certain of its European subsidiaries. The Company provided the effected employees continued employment during the statutory notice period as required by local law. A total of six employees in France and Germany filed complaints with the local labor courts contesting the dismissals and are seeking severance payments and other monetary consideration in addition to compensation for the statutory notice period. As of September 28, 2002, three claims were settled, one claim was dismissed, and two claims are scheduled for hearings in the fourth calendar quarter of 2002. The Company is contesting the remaining two claims. The Company has accrued the cost of the settlements entered into and has accrued its estimated liability for the pending suits.

The German Tax Authority is auditing the tax returns of the German subsidiary of Pilot Software, which Accrue acquired in September 2000, for the tax years 1995-1999. In connection with this audit, the German Tax Authority has disputed the transfer pricing methodologies and other deductions contained in those tax returns. The Tax Authority has issued a notice of tax deficiency in the amount of 1.5 million DM related to the tax returns for the years 1996 and 1997. Accrue is contesting these claims. In addition, under the terms of the Pilot Merger Agreement, Accrue has right to indemnification against Platinum Equity Holdings, LLC (Platinum) for damages related to tax claims against Pilot Software, Inc. and its subsidiaries arising prior to the date of the acquisition of Pilot Software, Inc. There can be no assurance that this matter will be resolved without costly litigation, or in a manner that is not materially adverse to Accrue’s financial position, results of operations or cash flows. Furthermore, there can be no assurance that Accrue will be able to enforce its indemnification right against Platinum, if Platinum disputes such claims, without undue cost or delay. As additional information becomes available, Accrue will assess its potential liability, if any.

Item 2. Changes in Securities and Use of Proceeds

a. Not applicable b. Not applicable c. Securities sold during the quarter ended September 28, 2002 that were not registered under the Securities Act.

None.

d. Use of proceeds from sale of Registered Securities.

Not applicable

Item 3. Default upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

Effective September 19, 2002, David Folkman resigned as a Director of Accrue Software, Inc.

Effective October 3, 2002, Zev Laderman resigned as a Director of Accrue Software, Inc.

Effective October 7, 2002, Bruce Armstrong resigned as a Director of Accrue Software, Inc.

On October 31, 2002, Accrue acquired certain tangible and intangible assets of privately held Personify, Inc., including source code, related documentation and computer hardware for a purchase price of $60,000. In connection with this purchase, the Company borrowed $60,000 from Robert Smelick, Chairman of the Accrue Board of Directors and a significant stockholder of Accrue, under two secured promissory notes payable on demand at their respective maturity dates of November 10, 2002 and November 25, 2002. The loan is collateralized solely by the Company’s interest in the purchased assets.

On November 1, 2002, the Board of Directors of Accrue Software, Inc. amended Section 3.2 of the Bylaws to reduce the authorized number of directors from 7 to 4.

Item 6. Exhibits and Reports on Form 8-K

a.		The following exhibits are attached hereto:
		Amended and Restated Bylaws of Accrue Software, Inc.
		Secured Promissory Note dated October 11, 2002 made by Accrue Software, Inc. in favor of Robert M. Smelick.
		Secured Promissory Note dated October 25, 2002 made by Accrue Software, Inc. in favor of Robert M. Smelick.
		Bill of Sale dated as of October 31, 2002 between Accrue Software, Inc. and Personify Inc.
		Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
		Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
b.		Reports filed on Form 8-K during quarter ended September 28, 2002:

We filed a current report on Form 8-K on August 15, 2002 with the Securities and Exchange Commission to announce the receipt of a letter from the Nasdaq staff on August 14, 2002 stating that the Company had failed to comply with the $1.00 minimum bid price required for continued listing of its common stock on the Nasdaq SmallCap Market and its stock was subject to delisting.

We filed a current report on Form 8-K on September 27, 2002 with the Securities and Exchange Commission to announce the delisting of the Company’s common stock from the Nasdaq SmallCap Market.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ACCRUE SOFTWARE, INC.
	By:	/s/ GREGORY S. CARSON GREGORY S. CARSON CHIEF FINANCIAL OFFICER
Date: November 12, 2002

CERTIFICATIONS

I, Jonathan D. Becher, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Accrue Software Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 12, 2002

/s/ Jonathan D. Becher

I, Gregory S. Carson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Accrue Software Inc.;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Date: November 12, 2002

/s/ Gregory S. Carson

EXHIBIT INDEX

Exhibit
No.		Description
3.1		Amended and Restated Bylaws of Accrue Software, Inc.
10.1		Secured Promissory Note dated October 11, 2002 made by Accrue Software, Inc. in favor of Robert M. Smelick.
10.2		Secured Promissory Note dated October 25, 2002 made by Accrue Software, Inc. in favor of Robert M. Smelick.
10.3		Bill of Sale dated as of October 31, 2002 between Accrue Software, Inc. and Personify Inc.
99.1		Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2		Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

			PAGE
PART I. FINANCIAL INFORMATION
	ITEM 1. Condensed Consolidated Financial Statements (Unaudited) :
		Condensed Consolidated Balance Sheets At September 28, 2002 And March 30, 2002		3
		Condensed Consolidated Statement Of Operations For The Three Months and Six Months Ended September 28, 2002 And September 29, 2001		4
		Condensed Consolidated Statement Of Cash Flows For The Six Months Ended September 28, 2002 And September 29, 2001		5
		Notes To Condensed Consolidated Financial Statements		6
	ITEM 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations			11
	ITEM 3. Quantitative And Qualitative Disclosures About Market Risk			29
	ITEM 4. Controls And Procedures			29
PART II. OTHER INFORMATION
	ITEM 1. Legal Proceedings			30
	ITEM 2. Changes In Securities And Use Of Proceeds			30
	ITEM 3. Defaults Upon Senior Securities			30
	ITEM 4. Submission Of Matters To A Vote Of Security Holders			30
	ITEM 5. Other Information			31
	ITEM 6. Exhibits And Reports On Form 8-K			31
SIGNATURES				31
CERTIFICATIONS				32

In thousands
Remaining six months of the fiscal year ending March 29, 2003	$	470
Three months of the fiscal year ending April 3, 2004		195
Total	$	665

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