Motive, Inc. Announces Third Quarter Results and Restatement of Results for Prior Two Quarters

Third Quarter Results

For the third quarter of 2005, Motive's core revenue, whichexcludes the impact from business acquisitions, was $15.2 million,compared to $23.0 million for the third quarter of 2004. Total revenuefor the third quarter of 2005, was $16.1 million, compared to $24.5million for the third quarter of 2004.

Motive's pro forma net loss for the third quarter of 2005 was $4.5million or ($0.17) per diluted share, compared to pro forma net incomeof $1.4 million or $0.05 per diluted share for the third quarter of2004. Motive's GAAP net loss for the third quarter of 2005, was $6.7million or ($0.25) per diluted share, compared to GAAP net income of$1.6 million or $0.06 per diluted share. A reconciliation of GAAP topro forma results has been provided in the financial statement tablesattached to this press release.

Restatement

During the first quarter of 2005, Motive signed a new licenseagreement with one of its European resellers. The agreement providedfor the reseller to pay Motive a total of $5.8 million in maintenanceand license fees, and gave the reseller the right to sublicensecertain Motive software to a leading European broadband provider.Motive has had a relationship with this reseller for the last threeyears, during which the reseller has successfully completed severallarge transactions to provide Motive software to multiple broadbandproviders. The provider referenced in the reseller agreement has usedMotive software for more than two years.

As of Oct. 26, 2005, the reseller had not paid $5.2 million, whichwas the initial payment invoiced upon execution of the agreement with90-day payment terms. Although the agreement provides that thereseller's obligation to pay fees to Motive is not contingent upon thereseller sublicensing the Motive software, Motive now believes thatthe collection of the receivable is dependent upon the resellersublicensing the software to its customer. Since this condition doesnot meet Motive's revenue recognition policy requirements, Motivedecided on Oct. 26, 2005, to restate its financial results for thethree-month periods ended March 31, 2005, and June 30, 2005, and thesix-month period ended June 30, 2005, and will not reflect any revenuefrom this arrangement in the nine months ended Sept. 30, 2005. Motivewill recognize revenue from this arrangement when Motive's revenuerecognition criteria are met.

Motive will amend its Quarterly Reports on Form 10-Q for thequarters ended March 31, 2005, and June 30, 2005, to reflect therestatement described above. The financial statement tables attachedto this press release include the expected adjustments from thisrestatement. None of the adjustments resulting from the restatementshas any impact on cash balances for any period.

Conference Call Details

Motive has scheduled a conference call for 4:00 p.m. CST today todiscuss its third quarter of 2005 results and restatements. Listenerscan access the conference call via webcast from the Investor Relationssection of Motive's website at www.motive.com or by dialing (800)573-4754 and using the participant code 58629360. For those who cannotlisten to the live broadcast of the call, a replay of the webcast willbe available approximately two hours after the live call ends from theInvestor Relations section of Motive's website at www.motive.com oryou can access a replay of the conference call at (888) 286-8010. Thepass code for the replay is 81333813.

About Motive, Inc.

Motive, Inc. has pioneered a unique approach to designingmanagement services into Internet-era networks, systems andapplications. Motive's software makes complex products and servicesself-managing, reducing overhead costs and optimizing customers'return on investment. Companies worldwide have relied on Motive'ssoftware to provide a range of problem remediation and configurationmanagement tasks for more than 45 million endpoints. Founded in 1997,Motive is headquartered in Austin, Texas, and has offices in Europeand Asia. For more information, visit www.motive.com.

Forward-Looking Statements

This press release contains "forward-looking statements" thatinvolve risks and uncertainties concerning our expected financialperformance, as well as our future business prospects and product andservice offerings. Our actual results may differ materially from theresults predicted or from any other forward-looking statements madeby, or on behalf of, us and reported results should not be consideredas an indication of future performance. These potential risks anduncertainties include, among other things: our concentrated customerbase; collection of existing accounts receivable from resellers,intended restatement of our prior period results, the mix of perpetualand term licenses; the effect of the timing of the recognition ofrevenue from products licensed; our typically long sales cycle; thedependence of our financial growth on the continued success andacceptance of our existing and new product and service offerings; ourability to market our products in new geographic areas; thecompatibility of our software with hardware and software platformsthat are used by our customers and their subscribers now or in thefuture; the ability to attract and retain key personnel; the intenselycompetitive nature of the market for our products and services; andthe additional risk factors described in our SEC filings, which areavailable at the SEC's website at www.sec.gov. Statements included inthis press release are based upon information known to us as of thedate of this release, and we assume no obligation to update anyinformation contained in this press release.

Non-GAAP Financial Information

Motive has provided in this release certain financial informationthat has not been prepared in accordance with generally acceptedaccounting principles (GAAP). This information includes but is notlimited to core revenue, pro forma net income and pro forma fullydiluted earnings per share. These measures may be different frommeasures used by other companies. Our management uses these non-GAAPmeasures to evaluate our financial results, develop budgets and manageexpenditures. Investors are encouraged to review the reconciliation ofthese and other non-GAAP financial measures to the comparable GAAPresults, which is included in this press release.

Motive and the Motive logo are trademarks or registered trademarksof Motive, Inc. All other products or services mentioned herein aretrademarks of their respective holders.
MOTIVE, INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)


Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
(unaudited) (unaudited)
Revenue:
License fees $7,578 $14,488 $29,668 $39,569
Services:
Services 7,616 8,522 25,297 24,651
Acquired in
business
combination 910 1,510 3,186 6,998
------------ ------------ ------------ ------------
Total services
revenue 8,526 10,032 28,483 31,649
------------ ------------ ------------ ------------
Total revenue 16,104 24,520 58,151 71,218
------------ ------------ ------------ ------------

Cost of revenue:
License fees 299 152 642 503
Amortization of
acquired
technology 351 234 1,033 682
Services 6,549 6,932 20,155 21,553
------------ ------------ ------------ ------------
Total cost of
revenue 7,199 7,318 21,830 22,738
------------ ------------ ------------ ------------
Gross margin 8,905 17,202 36,321 48,480
------------ ------------ ------------ ------------

Operating
expenses:
Sales and
marketing 7,830 8,490 23,894 24,307
Research and
development 5,419 4,750 14,862 13,667
General and
administrative 2,694 2,212 7,805 6,427
Amortization of
intangibles 858 802 2,566 2,377
Amortization of
deferred stock
compensation(a) (350) 443 239 1,931
------------ ------------ ------------ ------------
Total operating
expenses 16,451 16,697 49,366 48,709
------------ ------------ ------------ ------------
Income (loss) from
operations (7,546) 505 (13,045) (229)
Interest income
(expense), net 343 59 964 (2,469)
Legal settlement -- -- (700) --
Other income
(expense), net 680 1,300 499 1,717
------------ ------------ ------------ ------------
Income (loss)
before income
taxes (6,523) 1,864 (12,282) (981)
Provision for
income taxes 139 241 410 1,109
------------ ------------ ------------ ------------
Net income (loss) $(6,662) $1,623 $(12,692) $(2,090)
============ ============ ============ ============

Basic income
(loss)
per share $(0.25) $0.06 $(0.48) $(0.14)
============ ============ ============ ============
Diluted income
(loss)
per share $(0.25) $0.06 $(0.48) $(0.14)
============ ============ ============ ============

Shares used in
computing basic
income (loss)
per share 26,459 25,627 26,188 15,401
Shares used in
computing diluted
income (loss)
per share 26,459 27,058 26,188 15,401


(a) If the amortization of deferred stock compensation were allocated
to specific operating statement line items, it would be allocated
as follows:

Cost of services
revenue $12 $15 $45 $100
Sales and
marketing (126) 97 98 665
Research and
development 70 97 262 595
General and
administrative (306) 234 (166) 571
------------ ------------ ------------ ------------
$(350) $443 $239 $1,931
============ ============ ============ ============


MOTIVE, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except per share amounts)

September 30, December 31,
2005 2004
------------- ------------
(unaudited)

ASSETS
Current assets:
Cash and cash equivalents $45,442 $44,490
Short-term investments 21,996 24,724
Accounts receivable, net 9,381 18,823
Prepaid expenses and other current assets 4,227 3,104
------------- ------------
Total current assets 81,046 91,141
------------- ------------
Property and equipment, net 6,219 6,850
Goodwill 56,409 56,409
Acquired technology, net 6,955 7,987
Other intangibles, net 5,847 8,414
Other assets 1,980 3,114
------------- ------------
Total assets $158,456 $173,915
============= ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable $3,766 $6,547
Accrued liabilities 6,611 7,282
Deferred revenue, current portion 9,830 11,576
------------- ------------
Total current liabilities 20,207 25,405
Deferred revenue, net of current portion 2,344 4,526
------------- ------------
Total liabilities 22,551 29,931
------------- ------------

Stockholders' equity:

Common stock: $0.001 par value; 150,000,000
shares authorized; 26,641,025 shares
issued and outstanding at September 30,
2005; 25,760,868 shares issued and
outstanding at December 31, 2004 27 26
Additional paid-in capital 237,660 234,417
Deferred stock compensation (599) (1,796)
Accumulated comprehensive loss (552) (724)
Accumulated deficit (100,631) (87,939)
------------- ------------
Total stockholders' equity 135,905 143,984
------------- ------------
Total liabilities and stockholders' equity $158,456 $173,915
============= ============


MOTIVE, INC.

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

Nine Months Ended
September 30,
---------------------
2005 2004
---------- ----------

Cash flows from operating activities
Net loss $(12,692) $(2,090)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 2,706 2,578
Amortization of deferred stock compensation 239 1,931
Amortization of debt discount -- 1,743
Amortization of intangibles 3,599 3,059
Accretion of discount on short-term
investments (237) --
Other noncash items 281 75
Changes in operating assets and liabilities
net of acquisitions 2,055 (699)
---------- ----------
Net cash provided by (used in)
operating activities (4,049) 6,597
---------- ----------

Cash flows from investing activities
Purchase of short-term investments (24,650) (8,187)
Proceeds from maturities of short-term
investments 27,657 --
Restricted cash -- 15,000
Purchase of property and equipment (2,078) (2,135)
---------- ----------
Net cash provided by investing activities 929 4,678
---------- ----------

Cash flows from financing activities
Payments made on long-term debt -- (238)
Payments made on subordinated debt -- (12,500)
Proceeds from IPO -- 43,954
Proceeds from issuance of common stock 4,076 1,073
Repurchase of common stock (4) (259)
---------- ----------
Net cash provided by financing activities 4,072 32,030
---------- ----------
Net increase in cash and cash equivalents 952 43,305
Cash and cash equivalents at beginning of period 44,490 23,234
---------- ----------
Cash and cash equivalents at end of period $45,442 $66,539
========== ==========

MOTIVE, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(in thousands, except per share amounts; unaudited)


Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
---------- ---------- ---------- ----------

GAAP services revenue $8,526 $10,032 $28,483 $31,649
Pro forma adjustments:
Services revenue acquired
in business combination 910 1,510 3,186 6,998
---------- ---------- ---------- ----------
Pro forma core services
revenue $7,616 $8,522 $25,297 $24,651
========== ========== ========== ==========


GAAP revenue $16,104 $24,520 $58,151 $71,218
Pro forma adjustments:
Services revenue acquired
in business combination 910 1,510 3,186 6,998
---------- ---------- ---------- ----------
Pro forma core revenue $15,194 $23,010 $54,965 $64,220
========== ========== ========== ==========


GAAP gross margin $8,905 $17,202 $36,321 $48,480
Pro forma adjustments:
Amortization of acquired
technology 351 234 1,033 682
---------- ---------- ---------- ----------
Pro forma gross margin $9,256 $17,436 $37,354 $49,162
========== ========== ========== ==========
Pro forma gross margin 57% 71% 64% 69%
========== ========== ========== ==========


GAAP operating expenses $16,452 $16,697 $49,367 $48,709
Pro forma adjustments:
Amortization of
intangibles 858 802 2,566 2,377
Amortization of deferred
stock compensation (350) 443 239 1,931
Business restructuring
charge -- -- -- --
---------- ---------- ---------- ----------
Pro forma operating
expenses $15,943 $15,452 $46,561 $44,401
========== ========== ========== ==========


GAAP income (loss)
from operations $(7,546) $505 $(13,045) $(229)
Pro forma adjustments:
Amortization of acquired
technology 351 234 1,033 682
Amortization of
intangibles 858 802 2,566 2,377
Amortization of deferred
stock compensation (350) 443 239 1,931
---------- ---------- ---------- ----------
Total pro forma
adjustments 860 1,479 3,839 4,990
---------- ---------- ---------- ----------
Pro forma income (loss)
from operations $(6,686) $1,984 $(9,206) $4,761
========== ========== ========== ==========
Pro forma operating margin -42% 8% -16% 7%
========== ========== ========== ==========


GAAP net income (loss) $(6,662) $1,623 $(12,692) $(2,090)
Total pro forma
adjustments affecting
income (loss) from
operations 860 1,479 3,839 4,990
Write-off of unamortized
subordinated debt
discount -- -- -- 1,511
Add back payment of legal
settlement -- -- 700 --
Deduct other income from
Peregrine legal
settlement (1,250) (1,250) (1,250) (1,250)
Add back of tax per GAAP
financial statements 139 241 410 1,109
Pro forma income tax
benefit (expense)
calculated at 35%
effective tax rate 2,420 (733) 3,148 (1,495)
---------- ---------- ---------- ----------
Pro forma net income
(loss) $(4,494) $1,360 $(5,846) $2,776
========== ========== ========== ==========


GAAP shares used in
computing diluted income
(loss) per share 26,459 27,058 26,188 15,401
Pro forma adjustments:
Common shares subject to
repurchase -- -- -- 46
Redeemable convertible
preferred stock
outstanding -- -- -- 6,630
Incremental shares
related to stock
warrants -- -- -- 312
Incremental shares
related to stock options -- -- -- 1,577
---------- ---------- ---------- ----------
Pro forma weighted average
fully diluted shares
outstanding 26,459 27,058 26,188 23,966
========== ========== ========== ==========

Pro forma fully diluted
earnings (loss)
per share(a) $(0.17) $0.05 $(0.22) $0.12
========== ========== ========== ==========

(a) Pro forma fully diluted earnings (loss) per share is calculated as
pro forma net income divided by pro forma weighted average fully
diluted shares outstanding.


MOTIVE, INC.

SUMMARY OF THE SIGNIFICANT EFFECTS OF THE RESTATEMENT
ON THE STATEMENT OF OPERATIONS ON THE GAAP BASIS
(in thousands, except per share amounts)


Three Months Ended Three Months Ended
March 31, 2005 June 30, 2005
---------------------------- -------------------------
(unaudited) (unaudited)
Previously Previously
Reported Adj. Restated Reported Adj. Restated
---------- -------- -------- ---------- ----- --------
Revenue:
License fees $14,068 $(5,165) $8,903 $13,187 $-- $13,187
Services
revenue 10,493 -- 10,493 9,505 (41) 9,464
---------- -------- -------- ---------- ----- --------
Total revenue 24,561 (5,165) 19,396 22,692 (41) 22,651
---------- -------- -------- ---------- ----- --------

Cost of revenue 7,461 -- 7,461 7,170 -- 7,170
---------- -------- -------- ---------- ----- --------
Gross margin 17,100 (5,165) 11,935 15,522 (41) 15,481
---------- -------- -------- ---------- ----- --------

Operating
expenses 16,549 (413) 16,136 16,779 -- 16,779
---------- -------- -------- ---------- ----- --------

Income (loss)
from
operations 551 (4,752) (4,201) (1,257) (41) (1,298)
---------- -------- -------- ---------- ----- --------

Other income
(expense), net 217 -- 217 (477) -- (477)
Provision for
income taxes 162 -- 162 109 -- 109
---------- -------- -------- ---------- ----- --------
Net income
(loss) $606 $(4,752) $(4,146) $(1,843) $(41) $(1,884)
========== ======== ======== ========== ===== ========

Basic income
(loss) per
share $0.02 $(0.16) $(0.07) $(0.07)
========== ======== ========== ========
Diluted income
(loss) per
share $0.02 $(0.16) $(0.07) $(0.07)
========== ======== ========== ========

Shares used in
computing basic
income (loss)
per share 25,955 25,955 26,150 26,150
Shares used in
computing
diluted income
(loss) per
share 27,440 25,955 26,150 26,150



Six Months Ended
June 30, 2005
----------------------------
(unaudited)
Previously
Reported Adj. Restated
---------- -------- --------
Revenue:
License fees $27,255 $(5,165) $22,090
Services revenue 19,998 (41) 19,957
---------- -------- --------
Total revenue 47,253 (5,206) 42,047
---------- -------- --------

Cost of revenue 14,631 -- 14,631
---------- -------- --------
Gross margin 32,622 (5,206) 27,416
---------- -------- --------

Operating expenses 33,328 (413) 32,915
---------- -------- --------

Loss from operations (706) (4,793) (5,499)
---------- -------- --------

Other income (expense), net (260) -- (260)
Provision for income taxes 271 -- 271
---------- -------- --------
Net loss $(1,237) $(4,793) $(6,030)
========== ======== ========

Basic loss per share $(0.05) $(0.23)
========== ========
Diluted loss per share $(0.05) $(0.23)
========== ========

Shares used in computing basic
loss per share 26,053 26,053
Shares used in computing diluted
loss per share 26,053 26,053


MOTIVE, INC.

SUMMARY OF THE SIGNIFICANT EFFECTS OF THE RESTATEMENT
ON THE BALANCE SHEET
(in thousands)

March 31,
2005
-----------------------------
(unaudited)
Previously
Reported Adj. Restated
---------- -------- ---------

Accounts receivable, net $18,866 $(5,165) $13,701

Accrued liabilities $6,761 $(413) $6,348

Accumulated deficit $(87,333) $(4,752) $(92,085)



June 30,
2005
-----------------------------
(unaudited)
Previously
Reported Adj. Restated
---------- -------- ---------

Accounts receivable, net $22,896 $(5,206) $17,690

Accrued liabilities $7,855 $(413) $7,442

Accumulated deficit $(89,176) $(4,793) $(93,969)




MOTIVE, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES AS RESTATED
(in thousands, except per share amounts; unaudited)


Three Months Ended Three Months Ended
March 31, 2005 June 30, 2005
---------------------------- -------------------------
Previously Previously
Reported Adj. Restated Reported Adj. Restated
--------- -------- --------- --------- ----- ---------

GAAP services
revenue $10,493 $-- $10,493 $9,505 $(41) $9,464
Pro forma
adjustments:
Services
revenue
acquired in
business
combination 1,258 -- 1,258 1,018 -- 1,018
--------- -------- --------- --------- ----- ---------
Pro forma core
services
revenue $9,235 $-- $9,235 $8,487 $(41) $8,446
========= ======== ========= ========= ===== =========


GAAP revenue $24,561 $(5,165) $19,396 $22,692 $(41) $22,651
Pro forma
adjustments:
Services
revenue
acquired in
business
combination 1,258 -- 1,258 1,018 -- 1,018
--------- -------- --------- --------- ----- ---------
Pro forma core
revenue $23,303 $(5,165) $18,138 $21,674 $(41) $21,633
========= ======== ========= ========= ===== =========


GAAP gross
margin $17,100 $(5,165) $11,935 $15,522 $(41) $15,481
Pro forma
adjustments:
Amortization
of acquired
technology 331 -- 331 351 -- 351
--------- -------- --------- --------- ----- ---------
Pro forma gross
margin $17,431 $(5,165) $12,266 $15,873 $(41) $15,832
========= ======== ========= ========= ===== =========
Pro forma gross
margin 71% 63% 70% 70%
========= ========= ========= =========


GAAP operating
expenses $16,549 $(413) $16,136 $16,779 $-- $16,779
Pro forma
adjustments:
Amortization
of
intangibles 850 -- 850 858 -- 858
Amortization
of deferred
stock
compensation 338 -- 338 251 -- 251
--------- -------- --------- --------- ----- ---------
Pro forma
operating
expenses $15,361 $(413) $14,948 $15,670 $-- $15,670
========= ======== ========= ========= ===== =========


GAAP income
(loss) from
operations $551 $(4,752) $(4,201) $(1,257) $(41) $(1,298)
Pro forma
adjustments:
Amortization
of acquired
technology 331 -- 331 351 -- 351
Amortization
of
intangibles 850 -- 850 858 -- 858
Amortization
of deferred
stock
compensation 338 -- 338 251 -- 251
--------- -------- --------- --------- ----- ---------
Total pro
forma
adjustments 1,519 -- 1,519 1,460 -- 1,460
--------- -------- --------- --------- ----- ---------
Pro forma
income (loss)
from
operations $2,070 $(4,752) $(2,682) $203 $(41) $162
========= ======== ========= ========= ===== =========
Pro forma
operating
margin 8% -14% 1% 1%
========= ========= ========= =========


GAAP net income
(loss) $606 $(4,752) $(4,146) $(1,843) $(41) $(1,884)
Total pro forma
adjustments
affecting
income (loss)
from
operations 1,519 -- 1,519 1,460 -- 1,460
Write-off of
unamortized
subordinated
debt discount -- -- -- --
Add back
payment of
legal
settlement -- -- -- 700 -- 700
Add back of tax
per GAAP
financial
statements 162 -- 162 109 -- 109
Pro forma
income tax
benefit
(expense)
calculated at
35% effective
tax rate (800) 1,663 863 (149) 14 (135)
--------- -------- --------- --------- ----- ---------
Pro forma net
income (loss) $1,487 $(3,089) $(1,602) $277 $(27) $250
========= ======== ========= ========= ===== =========


GAAP shares
used in
computing
diluted income
(loss) per
share 25,955 25,955 26,150 26,150
Pro forma
adjustments:
Common shares
subject to
repurchase 22 22 19 19
Redeemable
convertible
preferred
stock
outstanding -- -- -- --
Incremental
shares
related to
stock
warrants 10 10 1 1
Incremental
shares
related to
stock options 1,453 1,453 1,092 1,092
--------- --------- --------- ---------
Pro forma
weighted
average fully
diluted shares
outstanding 27,440 27,440 27,262 27,262
========= ========= ========= =========

Pro forma fully
diluted
earnings
(loss) per
share(a) $0.05 $(0.06) $0.01 $0.01
========= ========= ========= =========

(a) Pro forma fully diluted earnings (loss) per share is calculated as
pro forma net income divided by pro forma weighted average fully
diluted shares outstanding.


MOTIVE, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES AS RESTATED
(in thousands, except per share amounts; unaudited)

Six Months Ended
June 30, 2005
----------------------------
Previously
Reported Adj. Restated
--------- -------- ---------

GAAP services revenue $19,998 $(41) $19,957
Pro forma adjustments:
Services revenue acquired
in business combination 2,276 -- 2,276
--------- -------- ---------
Pro forma core services revenue $17,722 $(41) $17,681
========= ======== =========


GAAP revenue $47,253 $(5,206) $42,047
Pro forma adjustments:
Services revenue acquired
in business combination 2,276 -- 2,276
--------- -------- ---------
Pro forma core revenue $44,977 $(5,206) $39,771
========= ======== =========


GAAP gross margin $32,622 $(5,206) $27,416
Pro forma adjustments:
Amortization of acquired technology 682 -- 682
--------- -------- ---------
Pro forma gross margin $33,304 $(5,206) $28,098
========= ======== =========
Pro forma gross margin 70% 67%
========= =========


GAAP operating expenses $33,328 $(413) $32,915
Pro forma adjustments:
Amortization of intangibles 1,708 -- 1,708
Amortization of deferred stock
compensation 589 -- 589
--------- -------- ---------
Pro forma operating expenses $31,031 $(413) $30,618
========= ======== =========


GAAP income (loss) from operations $(706) $(4,793) $(5,499)
Pro forma adjustments:
Amortization of acquired technology 682 -- 682
Amortization of intangibles 1,708 -- 1,708
Amortization of deferred
stock compensation 589 -- 589
--------- -------- ---------
Total pro forma adjustments 2,979 -- 2,979
--------- -------- ---------
Pro forma income (loss)
from operations $2,273 $(4,793) $(2,520)
========= ======== =========
Pro forma operating margin 5% -6%
========= =========


GAAP net income (loss) $(1,237) $(4,793) $(6,030)
Total pro forma adjustments affecting
income (loss) from operations 2,979 -- 2,979
Write-off of unamortized subordinated
debt discount --
Add back payment of legal settlement 700 -- 700
Add back of tax per GAAP financial
statements 271 -- 271
Pro forma income tax benefit (expense)
calculated at 35% effective tax rate (950) 1,678 728
--------- -------- ---------
Pro forma net income (loss) $1,763 $(3,115) $(1,352)
========= ======== =========


GAAP shares used in computing diluted
income (loss) per share 26,053 26,053
Pro forma adjustments:
Common shares subject to repurchase 21 --
Redeemable convertible preferred stock
outstanding -- --
Incremental shares related
to stock warrants 5 --
Incremental shares related
to stock options 1,272 --
--------- ---------
Pro forma weighted average fully diluted
shares outstanding 27,351 26,053
========= =========

Pro forma fully diluted earnings (loss)
per share(a) $0.06 $(0.05)
========= =========

(a) Pro forma fully diluted earnings (loss) per share is calculated
as pro forma net income divided by pro forma weighted average
fully diluted shares outstanding.