10KSB

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-KSB

(Mark one)
ý	ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2004
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from        to        .

Commission file number 0-16449

RAINING DATA CORPORATION

(Name of Small Business Issuer in Its Charter)

Delaware	94-3046892
(State of Incorporation)	(I.R.S. Employer ID. No.)
17500 Cartwright Road Irvine, California	92614
(Address of Principal Executive Offices)	(Zip Code)
(949) 442-4400
(Issuer’s Telephone Number, Including Area Code)

Securities registered under Section 12(b) of the Exchange Act:

Title of Each Class	Name of Each Exchange on Which Registered
None	N/A

Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.10 par value

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý  No o

Check if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. o

The Registrant’s revenues for the fiscal year ended March 31, 2004 were $22.3 million.

The aggregate market value of the voting stock held by non-affiliates of the Registrant was $12,915,069 on June 9, 2004 based on the closing sale price of such stock on that date.

As of June 9, 2004, the Registrant had 18,428,141 shares of its common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

Transitional Small Business Disclosure Format (check one): Yes o  No ý

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RAINING DATA CORPORATION

FISCAL YEAR 2004 FORM 10-KSB ANNUAL REPORT

INDEX

PART I
Item 1.	Description of Business
Item 2.	Description of Property
Item 3.	Legal Proceedings
Item 4.	Submission of Matters to a Vote of Security Holders
PART II
Item 5.	Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities
Item 6.	Management’s Discussion and Analysis
Item 7.	Financial Statements
Item 8.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 8A.	Controls and Procedures
PART III
Item 9.	Directors and Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act
Item 10.	Executive Compensation
Item 11.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 12.	Certain Relationships and Related Transactions
Item 13.	Exhibits and Reports on Form 8-K
Item 14.	Principal Accountant Fees and Services
Signatures
Audited Consolidated Financial Statements

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PART I

ITEM 1. DESCRIPTION OF BUSINESS

This Form 10-KSB contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such statements include our expectations, hopes and intentions regarding the future, including but not limited to statements regarding our strategy, competition, development plans (including anticipated cost, timing and eventual acceptance of new products and services by the market), financing, revenue and operations. Forward-looking statements involve certain risks and uncertainties and actual results may differ materially from those discussed in any such statement. Factors that could cause actual results to differ materially from such forward-looking statements include the risks described in the “Risk Factors” section and elsewhere in this Form 10-KSB. All forward-looking statements in this document are made as of the date hereof, based on information available to us as of the date hereof, and we assume no obligation to update any forward-looking statement.

Overview

We were incorporated in the State of Delaware in August 1987. We were originally incorporated as Blyth Holdings, Inc., and our name was changed to Omnis Technology Corporation in September 1997. Effective December 1, 2000, we completed the acquisition of PickAx, Inc., a Delaware corporation (“PickAx”). Concurrent with the acquisition, we changed our name to Raining Data Corporation.

Our principal business is the design, development, sale and support of software infrastructure. Our software may be categorized into four product lines: Multi-dimensional database management systems (“MDMS”), Rapid Application Development (“RAD”) software tools, XML data management servers (“XDMS”) and Pick Data Provider (“PDP”) for the Microsoft .NET development environment. Our products allow customers to create and enhance flexible software applications for their own needs. The MDMS products are based on the multi-dimensional data model and are designed to operate in environments such as Windows, Unix and Linux. Our RAD products support the full life cycle of software application development and are designed for rapid prototyping, development and deployment of graphical user interface (“GUI”) client/server and web applications. The RAD products are object-oriented and component-based, providing the ability to deploy applications on operating system platforms such as Windows, Unix and Linux, as well as database environments such as MySQL, Oracle, DB2, Sybase, Microsoft SQL Server and other Open Data Base Connectivity (“ODBC”) compatible database management systems. We continue to develop and enhance our MDMS and RAD products. New releases in all of our product lines are currently in progress.

Beginning in fiscal 2002, we changed the mix of our research and development efforts to include the development of technologies and products outside of our historical market, specifically XML-based XDMS infrastructure products.  The first product related to these development efforts was the production release of TigerLogic version 1.1 in May 2003. TigerLogic XDMS is a high-performance information infrastructure software that provides both scalability, XA-compliant transactional integrity and fine-grain search capabilities typically associated with enterprise databases, as well as the dynamic extensibility, n-tier hierarchies and ease of use and deployment, mostly found in data repositories and file systems. We have filed patent applications related to the technology utilized in the TigerLogic product and those patents were pending as of March 31, 2004.

In September 2004, we announced the production release of the Pick Data Provider for .NET.  The Pick Data Provider component for the Microsoft .NET Framework is tightly integrated with Microsoft Visual Studio .NET. It allows software developers using IBM’s Universe and Unidata databases and our D3 database platform to build Client/Server applications, Web applications or Web services using any of the languages and technologies that run on the Microsoft .NET Framework, such as Microsoft ASP.NET, Visual Basic .NET, Visual C# .NET and Visual J# .NET.

Products

We market our products under the Raining Data brand name. Many of our products are based on the Pick Universal Data Model (“Pick UDM”), which we created, and are capable of handling data from many sources. The Pick UDM is a core component across the MDMS, XDMS and PDP product lines. Our products also include RAD software tools for computer application development.

Multidimensional Database Management Systems Products

Our MDMS products include a comprehensive set of Pick UDM based software development tools that allow the user to write, compile and run application programs. Historically, the principal advantages of the Multidimensional Database system have been simple program development, maximum flexibility, ease of use, and low total cost of ownership. Over the years, a community of vertical market application developers using the Multidimensional Database platform has emerged.

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The MDMS product line consists principally of the D3 Data Base Management System (“D3”), which operates on many systems including but not limited to IBM AIX, DG/UX, HP-UX, Linux and Windows NT.  D3 allows application programmers to create new business solution software in less time than it normally takes in many other environments. This can translate into lower costs for the developer, lower software prices for the customer and reduced costs of ownership for both the developer and end user. Our MDMS products also include mvEnterprise, a scalable multidimensional database solution that allows the user to leverage the capabilities of the UNIX operating system and mvBase, a multidimensional database solution that runs on all Windows platforms.

RAD Products

The RAD product line is an object-oriented development environment that is designed to allow customers to develop and deploy web and client/server applications. The products include Omnis Studio, Omnis Studio for SAP and Omnis Classic, which offer cross-platform support for Windows, Mac and Linux.

XDMS Products

Our XML data management server product line includes TigerLogic XDMS (“TigerLogic”). TigerLogic XDMS is a mid-tier operational data server software product that simplifies and streamlines information access for XML-enabled Java and .NET applications. The TigerLogic XDMS decouples structured and unstructured data from the back-end sources, transforms it into XML, stores aggregated views in the mid-tier, profiles and indexes them for fast retrieval. The TigerLogic XDMS includes innovative XML processing technology that boosts the performance and efficiency of data architectures by aggregating and moving commonly requested data to the mid-tier, between front-end Web Services composite applications and back-end operational systems and legacy applications. TigerLogic XDMS uses the Pick UDM to power its underlying storage engine and allow new data to be processed in the TigerLogic XDMS data model with almost no programming. This creates an extensible and flexible environment enabling companies to leverage the full power of XML. TigerLogic supports industry standards, including J2EE Connector Architecture (JCA), World Wide Web Consortium’s (W3C’s) XML Schema, XSLT, SOAP and XPath specifications.

PDP Products

The PDP products include the Pick Data Provider for .NET. This product extends the intrinsic capabilities of Pick and Pick-like databases to the Microsoft .NET framework technology, allowing for ease of development and deployment of applications using the Visual Studio.NET development environment while allowing native access to our D3 database as well as the Universe and Unidata databases from IBM.

Training Services

As part of our sales efforts, we offer training programs to our customers and prospective customers. These programs include classes on basic and advanced skills as well as classes designed to assist customers in the implementation and use of our products.

Technical Support

Our products are used by our customers to build and deploy applications that may become a critical component of their business operations. As a result, continuing to provide customer technical support services is an important element of our business strategy. Customers who participate in our support programs receive periodic maintenance releases and direct technical support when required.

Sales and Distribution

In the United States, we sell our products through established distribution channels consisting of system integrators, specialized vertical application software developers and consulting organizations. We also sell our products directly through our sales personnel to end user organizations.

Outside the United States, we maintain direct sales offices in the United Kingdom, France and Germany.  Approximately 28% and 29% of our revenue came from sales through our offices located outside the United States for the fiscal years ended 2004 and 2003, respectively.

We sell our products in U.S. Dollars in North America, British Pounds Sterling in the United Kingdom and Euros in Germany and France. Because we recognize revenue and expense in these various currencies but report our financial results in U.S. Dollars, changes in exchange rates may cause variances in our period-to-period revenue and results of operations in future periods. Recorded foreign exchange gains and

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losses have not been material to our performance to date.

We license our software on a per-server basis or per-user basis. Therefore, the addition of servers or users to existing systems increases our revenue from our installed base of licenses.

Customers

Our customers may be classified into two general categories:

•Independent Software Vendors and Software Developers. The majority of our revenue is derived from independent software vendors, which typically write their own vertical application software that they sell as a complete package to end user customers. This category includes value added resellers (“VARs”) and software-consulting companies that provide contract programming services to their customers.

•Corporate Information Technology (“IT”) Departments.

For the three years ended March 31, 2004, 2003 and 2002, no single customer accounted for more than 10% of our revenue.

Research and Development

We have devoted significant resources to the research and development of products and technology. We believe that our future success will depend in large part on a strong development effort with respect to both our existing and new products. These development efforts have resulted in updates and upgrades to existing MDMS and RAD products and the launch of new products including the XDMS and PDP product lines. We expect to continue our research and development efforts in all product lines for the foreseeable future. We intend for these efforts to improve our operating results and increase cash flow. However, such efforts may not result in additional new products, and we can make no assurances that the recently announced products or future products will be successful.

Competition

The application development tools software market is rapidly changing and intensely competitive. Our MDMS products compete with products developed by companies such as Oracle, Microsoft and IBM. Our Omnis line of RAD products currently encounters competition from several direct competitors including Microsoft Corporation, and competing development environments, including JAVA. Competition is developing and evolving in the XML market for which our XDMS products are intended. Companies who do or are expected to compete in this market include Oracle, IBM, Microsoft and BEA, as well as a number of smaller companies with products that directly and indirectly compete with our XDMS products. Our new initiatives in the .NET area are subject to significant competition, primarily from Microsoft and Oracle. Most of our competitors have significantly more financial, technical, marketing and other resources than we do. As a result, these competitors may be able to respond more quickly to new or emerging technologies, evolving markets, changes in customer requirements, and may devote greater resources to the development, promotion and sale of their products.

We believe that our ability to compete in the various MDMS, RAD, XDMS and PDP markets depends on factors both within and outside our control, including the timing, performance and price of new products developed by both us and our competitors. Although we believe that we currently compete favorably with respect to most of these factors, we may not be able to maintain our competitive position against current and potential competitors, especially those with greater resources.

Intellectual Properties and Other Proprietary Rights

We rely primarily on a combination of trade secret, copyright and trademark laws and contractual provisions to protect our intellectual property and proprietary rights. Our registered trademarks include Raining Data, Pick, D3, Omnis, Omnis Studio, mvEnterprise, mvBase, mvDesigner and our service marks include TigerLogic, among others. We also have one pending U.S. patent application as of March 31, 2004.

We license our products to end users on a “right to use” basis pursuant to a perpetual license agreement that restricts use of products to a specified number of users. We generally rely on “click-wrap” licenses that become effective when a customer downloads and installs the software on its system. In order to retain exclusive ownership rights to our software and technology, we generally provide our software in object code only, with contractual restrictions on copying, disclosure, and transferability. There can be no assurance that these protections will be adequate, or that our competitors will not independently develop technologies that are substantially equivalent or superior to our technology.

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Backlog

We generally ship software products as orders are received and have historically operated with little backlog. As a result, our license revenue in any given quarter is dependent upon orders received and product shipped during the quarter. Traditionally there has been a short cycle between receipt of an order and shipment. Consequently, we do not believe that our backlog as of any particular date is meaningful.

Employees

At March 31, 2004, we had 142 employees worldwide of which 104 were in the United States and 38 were in our international offices. Of the 142 employees, approximately 45% are in research and development, 20% in technical support, 20% in sales and marketing and 15% in general and administrative functions.

Executive Officers

The following sets forth certain information regarding our executive officers as of March 31, 2004:

Name	Age	Position(s)
Carlton H. Baab	46	President, Chief Executive Officer and Director
Brian C. Bezdek	33	Chief Financial Officer and Secretary
Mario I. Barrenechea	43	Senior Vice President, Worldwide Sales and Marketing
Mark Allen	59	Vice President, Worldwide Customer Support & Training
Boris Geller	40	Vice President, Market Development
Gwyneth M. Gibbs	60	Vice President, European Operations
Soheil Raissi	48	Vice President, Product Development & Professional Services

Mr. Baab joined us as the President and Chief Executive Officer in August 2001 and was appointed as a member of the Board in December 2001. From May 2001 to August 2001, Mr. Baab served as a Managing Principal of Astoria Capital Management (“ACM”), a Securities and Exchange Commission (the “SEC”) registered investment advisor and a General Partner of Astoria Capital Partners, L.P. (“ACP”), a significant stockholder of ours. In August 2001, Mr. Baab took a formal leave of absence from ACM to join us. From March 2000 to April 2001, Mr. Baab was the Vice President of Finance and Chief Financial Officer of Certive, Inc., a web-based small-business services firm. From January 1999 to March 2000, Mr. Baab was the Chief Operating Officer and Chief Financial Officer of RemarQ Communities, Inc., a web-based provider of discussion group services. Mr. Baab served as Chief Financial Officer of the CKS Group (“CKS”), a marketing communications company, from February 1994 through December 1998. In addition, Mr. Baab served as an Executive Vice President and the Secretary of CKS from August 1995 through December 1998 and as CKS’s Chief Operating Officer from August 1995 through May 1996. Mr. Baab also served on the Board of Directors of Momentum Business Applications, Inc. (Nasdaq: MMTM), which provided research and development expertise on a contract basis, until it was acquired by PeopleSoft (Nasdaq: PSFT) in April 2002. Mr. Baab also serves on the University of Southern California, School of Engineering Board of Councilors. Mr. Baab holds a B.S. in Electrical Engineering, with honors, from the University of Southern California and an M.B.A. from the Harvard Graduate School of Business Administration.

Mr. Bezdek has served as our Chief Financial Officer since January 2003 and has served as Secretary since April 2002. Mr. Bezdek joined us as Vice President, Finance, Corporate Controller and Secretary in April 2002. From May 1996 to April 2002, Mr. Bezdek held various corporate finance positions, most recently as Vice President of Finance, at Activision Publishing Inc. (Nasdaq: ATVI), a worldwide publisher, developer and distributor of video games and interactive entertainment products. Mr. Bezdek holds a B.S. in Business Administration from Bowling Green State University and is a Certified Public Accountant as well as a Certified Treasury Professional.

Mr. Barrenechea has served as our Senior Vice President, Worldwide Sales and Marketing since December 2000. Mr. Barrenechea joined us from PickAx, with whom the Company merged in December 2000, where he served in a similar capacity. From 1994 until joining PickAx in 2000, Mr. Barrenechea served in various executive sales and marketing capacities at Informix, Inc., a leading supplier of computer software relational and multidimensional databases. Mr. Barrenechea holds a B.S. in Electrical Engineering from Temple University.

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Mr. Allen joined us as Vice President, Worldwide Customer Support and Training in August 2001. From January 2000 to August 2001, Mr. Allen served as Vice President, Service and Support at Bay Logics, a computer software company. From July 1998 to December 1999, Mr. Allen served as Director, Software Services at SGI (formally Silicon Graphics Computer Systems). In addition, from June 1997 to June 1998, Mr. Allen served as Director, Research and Development at CoCreate Software, Inc. Mr. Allen attended the University of Massachusetts where he majored in Business Administration.

Mr. Geller has served as our Vice President, Market Development since March 2002. Mr. Geller joined us from Steeleye Technology, Inc., an enterprise reliability and disaster recovery software company, where he served as Vice President, Marketing since May 2000. From February 1999 to May 2000, Mr. Geller served as Senior Director, Marketing and Alliances for BEA Systems (Nasdaq: BEAS), a provider of application infrastructure. From April 1998 to February 1999, Mr. Geller served as Senior Director, Marketing and Business Development for Imparto Software Corp., a web marketing automation software company. Prior to that, Mr. Geller served in a variety of executive and senior management positions in marketing, business development and product development at BMC/BGS (NYSE: BMC), HP/Digital Equipment Corp. (NYSE: HPQ), Legato/Qualix (Nasdaq: LGTO) and other enterprise software companies. Mr. Geller holds a B.S. and a M.S. in Computer Science from Boston University and an M.B.A. from Bentley College.

Mrs. Gibbs has served as our Vice President, European Operations from our offices in the United Kingdom since December 2000. Mrs. Gibbs served as President and Interim Chief Executive Officer of Omnis, Inc. from October 1998 until our merger with PickAx in December 2000. Mrs. Gibbs joined us in October 1994 and was initially responsible for Research and Development in Europe. Mrs. Gibbs holds a B.S. in Astronomy from the University of London.

Mr. Raissi has served as our Vice President, Product Development and Professional Services since September 2001. From March 2001 to September 2001, Mr. Raissi performed independent software and management consulting services. From September 2000 to March 2001, Mr. Raissi served as Vice President, Product Development for Equative, Inc., a computer software company providing web-based enterprise resource management applications to medium and larger enterprises. From September 1999 to August 2000, Mr. Raissi served as Vice President, Technical Services for Zland.com, an application service provider supplying hosted web-based applications through the Internet. From February 1996 to September 1999, Mr. Raissi served as the founding President of the Information Technology Group, which provided record and information management and retention scheduling software services to Fortune 1000 companies. Mr. Raissi holds a B.S. in Computer Science from California State University, Dominguez Hills and a B.A. in Literature from Pars University in Tehran, Iran.

ITEM 2. DESCRIPTION OF PROPERTY

We currently lease approximately 44,750 square feet of office space in two buildings in Irvine, California pursuant to a lease that expires in November 2005 and that provides for a base monthly rent of approximately $69,000. The facility accommodates engineering, technical support, sales, marketing, and general administration. We sublease one of the two buildings representing approximately 13,000 square feet to an unrelated third party. The sublease also has a November 2005 expiration date.

We own a building consisting of approximately 5,900 total square feet located on approximately six acres of land in Suffolk, England. The facility houses engineers, marketing, and technical support.

We also lease three sales and support offices in Europe.

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ITEM 3. LEGAL PROCEEDINGS

We are subject from time to time to litigation, claims and suits arising in the ordinary course of business. As of March 31, 2004, we were not a party to any material litigation, claim or suit.

ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of our stockholders during the fourth quarter of the fiscal year ended March 31, 2004.

PART II

ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock is traded on the Nasdaq SmallCap Market under the symbol “RDTA.”

The following table sets forth the high and low closing prices for our common stock for fiscal years 2003 and 2004:

	High		Low
Fiscal Year 2003
First Quarter	$	3.10	$	1.46
Second Quarter	$	1.55	$	0.74
Third Quarter	$	3.05	$	0.77
Fourth Quarter	$	2.12	$	1.50

	High		Low
Fiscal Year 2004
First Quarter	$	4.13	$	1.45
Second Quarter	$	4.01	$	2.62
Third Quarter	$	3.70	$	2.53
Fourth Quarter	$	4.81	$	3.07

On March 31, 2004, the closing price for our common stock on the Nasdaq SmallCap Market was $3.49 and there were approximately 140 holders of record of our common stock.

Dividends

We have never declared or paid dividends on our common stock. We intend to retain earnings, if any, for the operation and expansion of our business, and therefore do not anticipate paying any cash dividends in the foreseeable future.

ITEM 6. MANAGEMENT’S DISCUSSION AND ANALYSIS

This Form 10-KSB contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. Such statements include our expectations, hopes, and intentions regarding the future, including but not limited to statements regarding our strategy, competition, development plans (including anticipated cost, timing and eventual acceptance of new products and services by the market), financing, revenue, and operations. Forward-looking statements involve certain risks and uncertainties, and actual results may differ materially from those discussed in any such statement. Factors that could cause actual results to differ materially from such forward-looking statements include the risks described in the “Risk Factor” section and elsewhere in this

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Form 10-KSB. All forward-looking statements in this document are made as of the date hereof, based on information available to us as of the date hereof, and we assume no obligation to update any forward-looking statement.

This discussion and analysis of the financial statements and results of operations should be read in conjunction with our audited Consolidated Financial Statements, including the related notes thereto, contained elsewhere in this Form 10-KSB.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and disclosure of contingent liabilities.

On an on-going basis, we evaluate our estimates, including those related to revenue recognition and accounting for intangible assets and goodwill. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

We have identified the accounting policies below as the policies critical to our business operations and the understanding of our results of operations. We believe the following critical accounting policies and the related judgments and estimates affect the preparation of our consolidated financial statements:

REVENUE RECOGNITION.  We recognize revenue using the residual method pursuant to the requirements of Statement of Position No. 97-2, “Software Revenue Recognition” (SOP 97-2), as amended.  Under the residual method, revenue is recognized in a multiple element arrangement when company-specific objective evidence of fair value exists for all of the undelivered elements in the arrangement, but does not exist for one or more of the delivered elements in the arrangement. At the outset of the arrangement with the customer, we defer revenue for the fair value of our undelivered elements (e.g., contract revenue amount for maintenance) based on company-specific objective evidence of the amount such items are sold individually to our customers and recognize revenue for the remainder of the arrangement fee attributable to the elements initially delivered in the arrangement (e.g., software license) when the basic criteria in SOP 97-2 have been met.

Under SOP 97-2, revenue attributable to an element in a customer arrangement is recognized when persuasive evidence of an arrangement exists and delivery has occurred, provided the fee is fixed or determinable, collectibility is probable and the arrangement does not require significant customization of the software. If at the outset of the customer arrangement, we determine that the arrangement fee is not fixed or determinable, we defer the revenue and recognize the revenue when the arrangement fee becomes due and payable.

Professional services, maintenance and other revenue relate primarily to consulting services, maintenance and training. Maintenance revenue is initially deferred and then recognized ratably over the term of the maintenance contract, typically 12 months. Consulting and training revenue is recognized as the services are performed and is usually calculated on a time and materials basis. Such services primarily consist of implementation services related to the installation of our products and do not include significant customization to or development of the underlying software code. We do not have price protection programs, conditional acceptance agreements or warranty programs, and sales of our products are made without right of return.

INTANGIBLE ASSETS AND GOODWILL.  We assess the impairment of identifiable intangibles, long-lived assets and goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. We also assess the value of goodwill at least annually.  Factors we consider to be important which could trigger an impairment review include the following:

•Significant underperformance relative to expected historical or projected future operating results;

•Timing of our revenue, significant changes in the manner of use of the acquired assets or the strategy for the overall business;

•Significant negative industry or economic trends;

•Significant decline in our stock price for a sustained period; and

•Our market capitalization relative to net book value.

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When we determine that the carrying value of intangibles and other long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, we measure any impairment based on a projected discounted cash flow method using a discount rate determined by our management to be commensurate with the risk inherent in the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows.

Following the adoption of SFAS No. 142, “Goodwill and Other Intangible Assets,” we updated our policy for assessing and determining impairment of goodwill. The SFAS No. 142 goodwill impairment model is a two-step process. The first step is used to identify potential impairment by comparing the fair value of a reporting unit with its net book value (or carrying amount), including goodwill. If the fair value exceeds the carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.

Determining the fair value of a reporting unit under the first step of the goodwill impairment test and determining the fair value of individual assets and liabilities of a reporting unit (including unrecognized intangible assets) under the second step of the goodwill impairment test is judgmental in nature and often involves the use of significant estimates and assumptions. These estimates and assumptions could have a significant impact on whether or not an impairment charge is recognized and the magnitude of any such charge. Estimates of fair value are primarily determined using discounted cash flows and are based on our best estimate of future revenue and operating costs and general market conditions. These estimates are subject to review and approval by management. This approach uses significant assumptions, including projected future cash flows (including timing), the discount rate reflecting the risk inherent in future cash flows, and a terminal growth rate.

Results of Operations

The following table sets forth certain Consolidated Statement of Operations data in total dollars, as a percentage of total net revenue and as a percentage change from the prior year.  Cost of license revenue and the cost of service revenue are expressed as a percentage of the related revenue. This information should be read in conjunction with the Consolidated Financial Statements and the notes thereto included elsewhere in this Form 10-KSB.

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	Twelve Months Ended March 31, 2004							Twelve Months Ended March 31, 2003							Twelve Months Ended March 31, 2002
	Results			% of Net Revenues		Percent Change		Results			% of Net Revenues		Percent Change		Results			% of Net Revenues
Net revenues
Licenses	$	9,819		44	%	(1	)%	$	9,932		47	%	0	%	$	9,903		51	%
Services	12,478			56	%	13	%	11,074			53	%	18	%	9,364			49	%
Total net revenues	22,297			100	%	6	%	21,006			100	%	9	%	19,267			100	%
Cost of revenues
Cost of license revenues (as a % of license revenues)	415			4	%	18	%	351			4	%	(8	)%	383			4	%
Cost of service revenues (as a % of service revenues)	2,174			17	%	3	%	2,103			19	%	(23	)%	2,744			29	%
Gross margin on license revenues	9,404			96	%	(2	)%	9,581			96	%	1	%	9,520			96	%
Gross margin on service revenues	10,304			83	%	15	%	8,971			81	%	36	%	6,620			71	%
Operating expenses
Selling and marketing	5,727			26	%	24	%	4,628			22	%	(28	)%	6,402			33	%
Research and development	7,553			34	%	16	%	6,534			31	%	7	%	6,121			32	%
General and administrative	3,770			17	%	(16	)%	4,466			21	%	(23	)%	5,815			30	%
Stock-based compensation	246			1	%	(30	)%	351			2	%	(72	)%	1,247			6	%
Amortization of goodwill and intangible assets	2,600			12	%	0	%	2,600			12	%	(80	)%	12,821			67	%
Total operating expenses	19,896			89	%	7	%	18,579			88	%	(43	)%	32,406			168	%
Operating loss	(188		)	(1	)%	596	%	(27		)	(0	)%	(100	)%	(16,266		)	(84	)%
Other income (expense), net	(1,196		)	(5	)%	(64	)%	(3,362		)	(16	)%	(19	)%	(4,159		)	(22	)%
Loss before income taxes	(1,384		)	(62	)%	89	%	(3,389		)	(16	)%	83	%	(20,425		)	(106	)%
Provision (benefit) for income taxes	(31		)	0	%	203	%	30			0	%	100	%	—			—
Net loss	$	(1,353	)	(6	)%	(60	)%	$	(3,419	)	(16	)%	(83	)%	$	(20,425	)	(106	)%

REVENUE

NET REVENUE. Our revenue is derived principally from two sources: fees from software licensing and fees for services, including maintenance, consulting, training and technical support.  We license our software on a per-server basis or per-user basis. Therefore, the addition of servers or users to existing systems increases our revenue from our installed base of licenses.  We view the MDMS and RAD markets in which we operate to be relatively stable and consistent from period to period and anticipate that our revenue on an annual basis from those products will remain stable for the foreseeable future. The increase in net revenue is primarily due to an increase in year over year service revenue.  Fluctuations in revenue between quarters or year-to-year are primarily the result of changes in the mix of software licensing and service fees as well as the timing of orders and customer order patterns. We do not view the changes in year-to-year revenue for the years ended March 31, 2004, 2003 and 2002 to be representative of market trends. However, the increase in service revenues is a result of our focused efforts to increase the number of customers under support and maintain our existing supported customer base.  In the longer term, we expect that the MDMS and RAD markets will eventually contract as customers adopt newer technologies and, therefore, the revenue generated from sales of our MDMS and RAD products is expected to decrease.

We have been selling software development kits (“SDKs”) for the PDP product, primarily directly to IT departments that are developing new applications and re-engineering existing applications for in-house use.  SDKs are priced competitively to promote the adoption and entry into the product line and, therefore, the sale of SDKs yielded minimal initial revenue in the last fiscal year. Deployment of applications created using the PDP SDKs requires the purchase of deployment licenses, which would result in additional revenue for us.  The development cycle takes time for our customers to complete prior to deployment.  Should the adoption of the PDP product and our customer’s development efforts be successful, we would anticipate additional revenue in future periods related to the sale of the deployment licenses.

However, we can give no assurances as to customer acceptance of any new products or services, or the ability of the current or any new products and services to generate revenue. While we are committed to research and development efforts that are designed to allow us to penetrate new markets and generate new sources of revenue, such efforts may not result in additional products, services or revenue.

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COST OF REVENUE

COST OF LICENSE REVENUE. Cost of license revenue is comprised of direct costs associated with software license sales including software packaging, documentation, physical media costs and royalties.  The increase in cost of license revenue in fiscal 2004 as compared to fiscal 2003 is attributable to royalty payments made to third parties for co-developed or licensed products sold in the last fiscal year.  Cost of license revenue remained relatively consistent in fiscal 2003 as compared to fiscal 2002.  We anticipate that the cost of license revenue, as a percentage of license revenue and in absolute dollars, will be relatively stable in future periods.

COST OF SERVICE REVENUE. Cost of service revenue includes consulting, technical support and training, all of which consist primarily of personnel related costs.   Cost of service revenue remained relatively consistent in fiscal 2004 as compared to fiscal 2003. The decrease in cost of service revenue in fiscal 2003 as compared to fiscal 2002 is attributable to management’s streamlining of operations and overhead cost reductions.  We anticipate that the cost of service revenue as a percentage of service revenue and in absolute dollars will be relatively stable in future periods.

OPERATING EXPENSES

SELLING AND MARKETING. Selling and marketing expense consists primarily of salaries, benefits, advertising, tradeshows, travel and overhead costs for our sales and marketing personnel.  The increase in selling and marketing expense in fiscal 2004 as compared to fiscal 2003 was primarily due to increased marketing efforts including trade show costs, marketing research and an increase in staffing and travel related expenses in connection with the release of the XDMS and PDP products.  The decrease in selling and marketing expense in fiscal 2003 as compared to fiscal 2002 was primarily due to management’s streamlining of our sales force and marketing efforts and overhead cost reductions.  We anticipate that selling and marketing costs related to the XDMS and PDP products will continue to increase as we further develop the sales channel for these new products and if customer acceptance of these products increases.  In addition, if our continued research and development efforts are successful, including with respect to our XDMS and PDP products, and new products or services are created, we may incur increased sales and marketing expense to promote those new products in future periods.

RESEARCH AND DEVELOPMENT. Research and development expense consists primarily of salaries and other personnel-related expenses for engineering personnel, expensible hardware and software costs, overhead costs and costs of contractors.  In fiscal 2004 and 2003, we have seen an increase in our spending related to our development efforts as our new products have reached production release and as we have refined and added certain features and functionality to these products.  In addition, we continue to incur costs related to the ongoing development and enhancement of all of our product lines.  We are committed to our research and development efforts and expect research and development expense will remain at the current level in future periods or increase if we believe that additional spending is warranted. Such efforts may not result in additional new products and any new products, including the XDMS and PDP products, may not generate sufficient revenue, if any, to offset the research and development expense.

GENERAL AND ADMINISTRATIVE. General and administrative expense consists primarily of costs associated with our finance, human resources, legal and other administrative functions. These costs consist principally of salaries and other personnel-related expenses, professional fees, depreciation and overhead costs.  The decrease in general and administrative spending in fiscal 2004 as compared to fiscal 2003 was a result of continued cost controls resulting in reduced legal and personnel related expenses.  The decrease in general and administrative expense in fiscal 2003 as compared to fiscal 2002 was primarily due to significant changes in management in fiscal 2002 which resulted in incurred costs associated with severance for terminated employees, costs associated with the restatement of our financial statements and costs associated with the settlement of various legal matters in 2002.  We are focused on the control of general overhead costs and intend to use any savings from such reduction for our ongoing research and development and sales and marketing efforts.  During the latter portion of fiscal year 2002 and into fiscal year 2003, we underwent significant changes in our management, including the hiring of a new chief executive officer and chief financial officer. Since that time, we have focused on streamlining operations, including implementing standardized policies and procedures throughout the organization with increased oversight from management and necessary headcount reductions. Additionally, we settled various outstanding legal matters in fiscal years 2002 and 2003 which resulted in increased general and administrative costs in fiscal years 2002 and 2003 as compared to fiscal year 2004.  We anticipate that general and administrative costs as a percentage of revenue and in absolute dollars will remain relatively stable in future periods.

STOCK-BASED COMPENSATION.  The decreases in stock-based compensation in fiscal 2004 and fiscal 2003 is attributable primarily to cancellations of previously issued options with an exercise price below fair value on date of grant for terminated employees, options reaching the end of their vesting periods, no new options being granted with an exercise price below fair value at the date of grant, and fewer options granted to non-employees. We do not anticipate significant changes in stock-based compensation expense in future periods.

GOODWILL AND AMORTIZATION OF INTANGIBLE ASSETS.  We continue to amortize identifiable intangible assets in

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accordance with their determined useful life, estimated at four years.  We stopped amortizing goodwill effective April 1, 2002.

OTHER INCOME (EXPENSE). Other expense consists primarily of net interest expense and, to a much lesser extent, gains and losses on foreign currency transactions.  The decreases in fiscal 2004 and fiscal 2003 are primarily the result of the reduction of the interest rate as a result of the restructuring of our debt in January 2003.  Due to the uncertainty in exchange rates, we may experience transaction gains or losses in future periods, the effect of which cannot be determined at this time.

Liquidity and Capital Resources

In connection with the acquisition of PickAx, we assumed a Secured Promissory Note issued to Astoria Capital Partners, L.P. (“Astoria”) dated November 30, 2000 in the amount of $18.5 million.  In January 2003, we entered into a Note Exchange Agreement (the “Exchange Agreement”) with Astoria to replace the existing Secured Promissory Note, as amended, with a Convertible Subordinated Note.  Under the terms of the Exchange Agreement, the Secured Promissory Note was exchanged and replaced with a Convertible Subordinated Note having a principal amount of $22.1 million, which principal amount was equal to the outstanding principal and accrued interest payable on the Secured Promissory Note as of the date of the Exchange Agreement.  The Convertible Subordinated Note is convertible into common stock at any time, at the option of Astoria, at a price of $5.00 per share. The Convertible Subordinated Note matures on May 30, 2008, extending the May 30, 2003 maturity date of the Secured Promissory Note.  The Company may not redeem the Convertible Subordinated Note until January 2005.  The interest rate of the Convertible Subordinated Note is 5% per annum as compared to an interest rate of 10% per annum under the Secured Promissory Note.  The interest is payable quarterly at our option in cash or through increases to the outstanding principal of the Convertible Subordinated Note. For the periods ended March 31, 2003, June 30, 2003, September 30, 2003, December 31, 2003 and March 31, 2004, we issued payment in kind (“PIK”) notes to Astoria for the accrued interest due in the aggregate amount of $1,322,325.  For the foreseeable future, we expect to issue additional PIK notes to Astoria, in lieu of cash payments for the interest due under the Convertible Subordinated Note.  If the Convertible Subordinated Note or the PIK notes are converted into common stock, our stockholders may experience substantial dilution.  Unlike the Secured Promissory Note, the Convertible Subordinated Note is not secured by our assets.

If our future financial performance improves, we may seek to take advantage of opportunities in the equity and capital markets to raise additional funds for operating needs or to pay down our debt to Astoria.  There can be no assurances that such opportunities will arise.

In addition to holding the Convertible Subordinated Note, Astoria is a major stockholder of ours, holding all of our preferred stock and a majority of our outstanding common stock. Richard W. Koe, a member of our Board of Directors, serves as the Managing General Partner for Astoria Capital Management, which is a general partner of Astoria.  Carlton H. Baab, our President and Chief Executive Officer, served as a Managing Principal of Astoria Capital Management until taking a formal leave of absence to join us in August 2001.  Gerald F. Chew, a member of our Board of Directors, is the cousin of Mr. Koe.

At March 31, 2004, we had $7.8 million in cash. We believe that our cash flow from operating activities will be sufficient to meet our operating and capital expenditure requirements for the remainder of the fiscal year ending March 31, 2005 and through the foreseeable future. We are committed to research and development efforts that are intended to allow us to penetrate new markets and generate new sources of revenue and improve operating results. However, our research and development efforts have required, and will continue to require, cash outlays without the immediate or short-term receipt of related revenue. Our ability to service our long-term debt and meet our expenditure requirements is dependent upon our future financial performance, which will be affected by, among other things, prevailing economic conditions, our ability to penetrate new markets and attract new customers, market acceptance of our new and existing products and services, the success of research and development efforts and other factors beyond our control.

In February 2004, we entered into a credit facility with Silicon Valley Bank which provides us with the ability to borrow up to $1.5 million at an annual interest rate of Prime plus 1.0%, provided, that the annual interest rate shall never be less than 5%.  The credit facility is collateralized by our assets and expires in February 2006.  The credit facility contains financial and reporting covenants that require us to maintain certain financial ratios only when we have outstanding credit extensions.  There were no outstanding borrowings at March 31, 2004.

We had no material commitments for capital expenditures at March 31, 2004.

Net cash provided by operating activities was $2.3 million and $0.9 million for the years ended March 31, 2004 and 2003, respectively.

Our earnings before interest, taxes, depreciation and amortization (EBITDA) were $3 million, or 13% of total net revenue, and $3.2

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million, or 16% of total net revenue, for the years ended March 31, 2004 and 2003, respectively.  The reduction in EBITDA was a result of increased development and marketing costs related to our new product initiatives.  EBITDA is defined as net loss with an add-back for depreciation and amortization, intangible amortization, non-cash stock-based compensation expense, interest expense, other income and income taxes.  The following table reconciles EBITDA to the reported net loss:

RAINING DATA CORPORATION AND SUBSIDIARIES
RECONCILIATION OF EBITDA TO NET LOSS

(Unaudited)

	For the year ended March 31,
In $ 000’s	2004			2003
Reported net loss	$	(1,353	)	$	(3,419	)
Depreciation and amortization	335			317
Stock-based compensation	246			351
Intangible amortization	2,600			2,600
Interest expense-net	1,215			3,409
Other income-net	(19		)	(47		)
Provision (benefit) for income taxes	(31		)	30
EBITDA	$	2,993		$	3,241

EBITDA does not represent funds available for management’s discretionary use and is not intended to represent cash flow from operations. EBITDA should not be construed as a substitute for net loss or as a better measure of liquidity than cash flow from operating activities, which are determined in accordance with generally accepted accounting principles (“GAAP”). EBITDA excludes components that are significant in understanding and assessing our results of operations and cash flows. In addition, EBITDA is not a term defined by GAAP and as a result our measure of EBITDA might not be comparable to similarly titled measures used by other companies.

However, EBITDA is used by management to evaluate, assess and benchmark our operational results and we believe that EBITDA is relevant and useful information, which is often reported and widely used by analysts, investors and other interested parties in our industry. Accordingly, we are disclosing this information to permit a more comprehensive analysis of our operating performance, to provide an additional measure of performance and liquidity and to provide additional information with respect to our ability to meet future debt service, capital expenditure and working capital requirements.

Our EBITDA financial information is also comparable to net cash provided by operating activities.  The table below reconciles EBITDA to the GAAP disclosure of net cash provided by operating activities:

RAINING DATA CORPORATION AND SUBSIDIARIES

RECONCILIATION OF EBITDA TO NET CASH PROVIDED BY OPERATING ACTIVITIES

(Unaudited)

	For the year ended March 31,
In $ 000’s	2004			2003
Net cash provided by operating activities	$	2,328		$	889
Interest expense, net	1,215			3,409
Other income, net	(19		)	(47		)
Provision (benefit) for income taxes	(31		)	30
Change in accounts receivable	(494		)	169
Change in other assets	97			115
Change in accounts payable and accrued liabilities	(189		)	1,023
Change in deferred revenue	169			(738		)
Note discount amortization	(83		)	(1,609		)
EBITDA	$	2,993		$	3,241

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RISK FACTORS

We operate in a rapidly changing environment that involves numerous risks and uncertainties. The following section lists some, but not all, of these risks and uncertainties that may have a material adverse effect on our business, financial condition and results of operation.

IF WE DO NOT DEVELOP NEW PRODUCTS AND ENHANCE EXISTING PRODUCTS TO KEEP PACE WITH RAPIDLY CHANGING TECHNOLOGY AND INDUSTRY STANDARDS, OUR REVENUE MAY DECLINE.

We have devoted significant resources to the research and development of products and technology. We believe that our future success will depend in large part on a strong research and development effort with respect to both our existing and new products. Since the start of fiscal year 2002, we have changed the mix of our research and development efforts to include technologies, markets and products outside of our historical market, specifically XML-based infrastructure products.  In May 2003, we announced the initial production release of our first XDMS product which resulted from these development efforts.  In September 2003, we released the production version of the Pick Data Provider (“PDP”) for ..NET.  This was our first release in the PDP product line which is designed to support the Microsoft.NET Framework.  While we intend for these efforts to improve our operating results and increase cash flow, such efforts may not result in new products or revenue, and any new products that do result may not be successful. The development of new or enhanced software products is a complex and uncertain process requiring high levels of innovation, as well as accurate anticipation of customer and technical trends. In developing new products and services, we may fail to develop and market products that respond to technological changes or evolving industry standards in a timely or cost-effective manner, or experience difficulties that could delay or prevent the successful development, introduction and marketing of these new products. The development and introduction of new or enhanced products also requires us to manage the transition from older products in order to minimize disruptions in customer ordering patterns and to ensure that adequate supplies of new products can be delivered to meet customer demand. Failure to develop and introduce new products, or enhancements to existing products, in a timely manner in response to changing market conditions or customer requirements, or lack of customer acceptance of our products, will materially and adversely affect our business, results of operations and financial condition.

THE CONCENTRATION OF OUR STOCK OWNERSHIP AND THE DEBT OWED TO ASTORIA GIVE CERTAIN STOCKHOLDERS SIGNIFICANT CONTROL OVER OUR BUSINESS.

As of March 31, 2004, Astoria and Rockport Group, LP (“Rockport”) together beneficially owned approximately 71% of our outstanding common stock. As of such date, Astoria also owned all of our outstanding preferred stock. In addition, as of March 31, 2004, the Convertible Subordinated Note issued to Astoria had a balance of approximately $23.5 million in principal and accrued interest maturing on May 30, 2008.  Richard W. Koe, a member of our Board of Directors, serves as the Managing General Partner for Astoria Capital Management, which is a general partner of Astoria.  Carlton H. Baab, our President and Chief Executive Officer, served as a Managing Principal of Astoria Capital Management until taking a formal leave of absence to join us in August 2001.  Mr. Wagner, a member of our Board of Directors, is the Managing Director of Rockport.  This concentration of stock ownership, together with the outstanding debt, would allow Astoria, acting alone, or Rockport and Astoria, acting together, to block any actions that require approval of our stockholders, including the election of members to the Board of Directors and the approval of significant corporate transactions. Also, Astoria, acting alone, or Rockport and Astoria, acting together, could approve certain corporate actions without the consent of the other stockholders. Moreover, this concentration of ownership may delay or prevent a change in control.

BECAUSE THE MARKET FOR OUR MDMS AND RAD PRODUCTS IS RELATIVELY STABLE, OUR REVENUE MAY DECLINE IF WE CANNOT MAINTAIN OUR SALES TO EXISTING CUSTOMERS OR GENERATE SALES TO NEW CUSTOMERS.

We believe that the markets for our MDMS and RAD products are relatively stable and consistent from period to period. As a result, to grow our revenue in these markets, we will need to maintain our sales to existing customers and to generate sales to new customers, including corporate development teams, commercial application developers, system integrators, independent software vendors and independent consultants. If we fail to attract new customers, if we lose our customers to competitors, or if the MDMS or RAD markets decline, our revenue may be adversely affected. In the longer term, it is expected that the MDMS and RAD markets will eventually

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contract as customers adopt newer technologies.

IF WE FAIL TO INCREASE REVENUE OR IMPROVE OUR OPERATING RESULTS, WE MAY NOT BE ABLE TO REPAY OUR DEBT TO ASTORIA.

We believe that our cash and cash flow from operating activities will be sufficient to meet our operating and capital expenditure requirements at least through the foreseeable future. Our ability to meet our expenditures and service our debt obligations is dependent upon our future financial performance, which will be affected by, among other things, prevailing economic conditions, our ability to penetrate new markets and attract new customers, market acceptance of our new and existing products and services, the success of research and development efforts and other factors beyond our control.  As previously noted, in January 2003, we entered into the Exchange Agreement with Astoria to replace the existing Secured Promissory Note, which was due May 2003, with a Convertible Subordinated Note, which is due and payable in May 2008.  The Convertible Subordinated Note bears interest at 5% per annum and is convertible into common stock by Astoria at any time at a price of $5.00 per share. If we are unable to penetrate new markets, generate new sources of revenue or otherwise improve our operating results, we may be unable to repay our debt to Astoria or to access opportunities in the equity and capital markets to raise additional funds for operating needs.

IF THE REGISTRATION RIGHTS HELD BY ASTORIA AND OTHER SECURITIES HOLDERS ARE EXERCISED, OR THESE SECURITIES HOLDERS SELL A SUBSTANTIAL AMOUNT OF RESTRICTED SECURITIES IN THE OPEN MARKET, OUR STOCK PRICE MAY DECLINE.

As of March 31, 2004, we had 18,403,141 outstanding shares of common stock, of which approximately 9,600,000 shares were restricted securities held by Astoria and other holders. Restricted securities may be sold in the public market only if they are registered or if they qualify for an exemption from registration promulgated under the Securities Act of 1933, as amended. At present, all of our outstanding restricted securities are either entitled to registration rights or eligible for public sale under Rule 144, subject to volume limitations and other requirements of Rule 144.   If Astoria or other holders decide to exercise their demand registration rights, we would incur costs and expenses associated with the registration of securities.

Furthermore, sales of a substantial number of shares by Astoria or other securities holders in the public market, or the perception that those sales may occur, could cause the market price of our common stock to decline. In addition, if we register shares of our common stock in connection with a public offering of securities, we may be required to include shares of restricted securities in the registration, which may have an adverse effect on our ability to raise capital.

OUR FAILURE TO COMPETE EFFECTIVELY MAY HAVE AN ADVERSE IMPACT ON OUR OPERATING RESULTS.

The market for our products is highly competitive, diverse and subject to rapid change. Our products and services compete on the basis of the following key characteristics: performance; inter-operability; scalability; functionality; reliability; pricing; post sale customer support; quality; compliance with industry standards; and overall total cost of ownership.

We currently face competition from a number of sources, including several large vendors that develop and market databases, development tools, and decision support products and consulting services. Our MDMS products compete with products developed by companies such as Oracle, Microsoft and IBM. Our Omnis line of RAD developer products currently encounters competition from several direct competitors, including Microsoft Corporation and competing development environments such as JAVA.  Competition is developing and evolving in the XML market for which our XDMS products are intended.  Companies who do or are expected to compete in this market include Oracle, IBM, Microsoft and BEA, as well as a number of smaller companies with products that directly and indirectly compete with our XDMS products. Our new initiatives in the .NET area are subject to significant competition, primarily from Microsoft and Oracle. Additionally, as we expand our business, we expect to compete with a different group of companies, including smaller, highly focused companies offering single products.

Most of our competitors have significantly more financial, technical, marketing and other resources than we do. As a result, these competitors may be able to respond more quickly to new or emerging technologies, evolving markets, changes in customer requirements, and may devote greater resources to the development, promotion and sale of their products.  While we currently believe that our products and services compete favorably in the marketplace, our products and services could fall behind marketplace demands at any time. If we fail to address the competitive challenges, our business would suffer materially.

WE MAY EXPERIENCE QUARTERLY FLUCTUATIONS IN OPERATING RESULTS, WHICH MAY RESULT IN VOLATILITY OF OUR STOCK PRICE.

In the past, we have experienced significant quarterly fluctuations in our operating results. We expect to continue to spend substantial

17

amounts of money in the area of research and development, sales and marketing and operations in order to promote new product development and introduction. Because the expenses associated with these activities are relatively fixed in the short-term, we may be unable to timely adjust spending to offset any unexpected shortfall in revenue growth or any decrease in revenue levels. Operating results may also fluctuate due to factors such as:

•the size and timing of customer orders;

•changes in pricing policies by us or our competitors;

•our ability to develop, introduce, and market new and enhanced versions of our products;

•the number, timing, and significance of product enhancements and new product announcements by our competitors;

•the demand for our products;

•non-renewal of customer support agreements;

•software defects and other product quality problems; and

•personnel changes.

We operate without a significant backlog of orders. As a result, the quarterly sales and operating results in any given quarter are dependent, in large part, upon the volume and timing of orders booked and products shipped during that quarter. Accordingly, we may be unable to adjust spending in a timely manner to compensate for any unanticipated decrease in orders, sales or shipments. Therefore, any decline in demand for our products and services, in relation to the forecast for any given quarter, could materially and negatively impact the results of our operations. As a result, we expect our quarterly operating results to continue to fluctuate, which may cause our stock price to be volatile. In addition, we believe that period-to-period comparisons of our operating results should not be relied upon as indications of future performance.

THE SUCCESS OF OUR BUSINESS DEPENDS IN PART UPON OUR ABILITY TO RECRUIT AND RETAIN KEY PERSONNEL AND MANAGEMENT.

Many of the our executive officers joined us subsequent to the acquisition of PickAx, including our President and Chief Executive Officer, Carlton Baab, who joined us in August 2001. Additional changes in management have occurred following Mr. Baab’s appointment, including the hiring of Brian Bezdek, Chief Financial Officer, Boris Geller, Vice President, Market Development and Soheil Raissi, Vice President, Product Development and Professional Services.  The loss of one or more of these or other executives could adversely affect our business. In addition, we believe that our future success will depend to a significant extent on our ability to recruit, hire and retain highly skilled management and employees with experience in engineering, product management, sales, marketing and customer service. Competition for such personnel in the software industry can be intense, and there can be no assurance that we will be successful in attracting and retaining such personnel. If we are unable to do so, we may experience inadequate levels of staffing to develop and license our products and perform services for our customers, which could adversely affect our business.

THE INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY COULD HARM OUR ABILITY TO COMPETE.

Our ability to compete successfully will depend, in part, on our ability to protect our proprietary technology and operations without infringing upon the rights of others. We may fail to do so. In addition, the laws of certain countries in which our products are, or may be, licensed may not protect our proprietary rights to the same extent as the laws of the United States. We rely primarily on a combination of trade secret, copyright and trademark laws and contractual provisions to protect our intellectual property and proprietary rights. Our registered trademarks include Raining Data, Pick, D3, Omnis, Omnis Studio, mvEnterprise, mvBase, mvDesigner, and our service marks include TigerLogic, among others.  We also have a pending U.S. patent application as of March 31, 2004.  In addition to trademark and copyright protections, we license our products to end users on a “right to use” basis pursuant to a perpetual license agreement that restricts use of products to a specified number of users. We generally rely on “click-wrap” licenses that become effective when a customer downloads and installs software on its system. In order to retain exclusive ownership rights to our software and technology, we generally provide our software in object code only, with contractual restrictions on copying, disclosure and transferability. There can be no assurance that these protections will be adequate, or that our competitors will not independently develop technologies that are substantially equivalent or superior to our technology.

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OUR PRODUCTS MAY CONTAIN SOFTWARE DEFECTS, WHICH COULD HARM OUR BUSINESS.

Our enterprise applications software may contain undetected errors or failures. This includes our XDMS and PDP products, which are at higher risk given these products are in the earliest stages of the product life cycle. This may result in loss of, or delay in, customer acceptance of our products and could harm our reputation and our business. Undetected errors or failures in computer software programs are not uncommon. While we make every effort to thoroughly test our software, in the event that we experience significant software errors, we could experience delays in release, customer dissatisfaction and lost revenue. Any of these errors or defects could harm our business.

OUR PRODUCTS HAVE A LONG SALES CYCLE, WHICH COULD RESULT IN DELAYS IN THE RECEIPT OF REVENUE.

The sales cycle for our MDMS and RAD products typically ranges from three to nine months or longer and the sales cycle for our XDMS and PDP products is anticipated to be significantly longer since these new products are just beginning to be adopted by the marketplace.  Our products are typically used by application developers, system integrators and value added resellers to develop applications that are critical to their corporate end user’s business. Because the purchases of our products are often part of an end user’s larger business process, re-engineering initiative, or implementation of client/server or web-based computing, the end users frequently view the purchase of our products as part of a long-term strategic decision regarding the management of their workforce-related operations and expenditures. Thus, this sometimes results in end users taking a significant period of time to assess alternative solutions by competitors or to defer a purchase decision as a result of an unrelated strategic issue beyond our control.   As a result, a significant period of time may elapse between our research and development efforts and recognition of revenue, if any.

OUR GLOBAL OPERATIONS EXPOSE US TO ADDITIONAL RISKS AND CHALLENGES ASSOCIATED WITH CONDUCTING BUSINESS INTERNATIONALLY.

We operate on a global basis with offices or distributors in Europe, Africa, Asia, Latin America, South America, Australia and North America. Approximately 28% of our revenue for the year ended March 31, 2004 was generated from our international offices. We face several risks inherent in conducting business internationally, including but not limited to the following:

•fluctuations in interest rates or currency exchange rates;

•language and cultural differences;

•local and governmental requirements;

•difficulties and costs of staffing and managing international operations;

•differences in intellectual property protections;

•difficulties in collecting accounts receivable and longer collection periods;

•seasonal business activities in certain parts of the world;

•trade policies; and

•the impact of SARS or other health advisories.

Any of these factors could harm our international operations and, consequently, affect the international growth or maintenance of our business. These factors or any combination of these factors may adversely affect our international revenue or our overall financial performance.

THE FAILURE OF OUR PRODUCTS TO CONTINUE TO CONFORM TO INDUSTRY STANDARDS MAY HARM OUR OPERATING RESULTS.

A key factor in our future success will continue to be the ability of our products to operate and perform well with existing and future leading, industry-standard enterprise software applications intended to be used in connection with our MDMS, RAD, XDMS and PDP products. Inter-operability may require third party licenses, which may not be available to us on favorable terms or at all. Failure to meet existing or future inter-operability and performance requirements of industry standard applications in a timely manner could adversely affect our business. Uncertainties relating to the timing and nature of new product announcements or introductions or

19

modifications of third party software applications could delay our product development, increase our product development expense or cause customers to delay evaluation, purchase, and deployment of our products.

THIRD PARTIES COULD ASSERT THAT OUR SOFTWARE PRODUCTS AND SERVICES INFRINGE ON THEIR INTELLECTUAL PROPERTY RIGHTS, WHICH COULD RESULT IN COSTLY LITIGATION, CAUSE PRODUCT SHIPMENT DELAYS, PROHIBIT PRODUCT LICENSING OR REQUIRE US TO ENTER INTO ROYALTY OR LICENSING AGREEMENTS.

There has been a substantial amount of litigation in the software industry regarding intellectual property rights. Third parties may claim that our current or potential future products and services infringe upon their intellectual property. We expect that software product developers and providers of software applications will increasingly be subject to infringement claims as the number of products and competitors in our industry segment grow and the functionality of products in different industry segments overlap. Any claims, with or without merit, could be time consuming, result in costly litigation, cause product shipment delays, prohibit product licensing or require us to enter into royalty or licensing agreements. Royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all, which could seriously harm our business.

ITEM 7. FINANCIAL STATEMENTS

Our Consolidated Financial Statements, including the notes thereto, together with the report of KPMG LLP, independent registered public accounting firm, thereon are presented as a separate section of this Form 10-KSB, and the following are attached hereto beginning on Page F-1:

a)	Consolidated Financial Statements:
	Report of Independent Registered Public Accounting Firm
	Consolidated Balance Sheets as of March 31, 2004 and March 31, 2003
	Consolidated Statements of Operations for the years ended March 31, 2004, 2003 and 2002
	Consolidated Statements of Cash Flows for the years ended March 31, 2004, 2003 and 2002
	Consolidated Statements of Stockholders’ Equity and Comprehensive Loss for the years ended March 31, 2004, 2003 and 2002
	Notes to Consolidated Financial Statements

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There were no changes in or disagreements with our accountants on accounting or financial disclosure for the year ended March 31, 2004.

ITEM 8A.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The evaluation of our disclosure controls and procedures and internal control over financial reporting included a review of their objectives and processes, implementation and effect on the information generated for use in this report. In the course of this evaluation, we sought to identify any significant deficiencies or material weaknesses in our controls and any acts of fraud involving personnel who have a significant role in our internal control over financial reporting, and to confirm that any necessary corrective action, including process improvements, were being undertaken. The overall goals of these evaluation activities are to monitor our disclosure controls and procedures and internal control over financial reporting and to make modifications as necessary.

Our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act are effective, as of the end of the period covered by this report, to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission (“SEC”) rules and accumulated and

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communicated to the Company’s management, including its principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

However, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Management necessarily applied its judgment in assessing the benefits of controls relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within Raining Data Corporation have been detected.

Changes in Internal Controls

There was no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Our Bylaws provide that the Board of Directors is to be composed of no less than five (5) and no more than nine (9) directors divided into Classes I, II and III, each with as nearly equal a number of directors as possible. The exact number of directors is currently set at five (5) by resolution of the Board. The directors are elected to serve staggered three-year terms, with the term of one class of directors expiring each year at the annual meeting of stockholders.

The following table sets forth as of March 31, 2004, the name, age, and position of the directors, the date they joined the Board of Directors and the year in which their term expires:

Name of Director	Age	Position	Director Since	Term Expires
Geoffrey P. Wagner (1,2,3)	47	Chairman	1998	2005
Carlton H. Baab	46	President, Chief Executive Officer and Director	2001	2004
Gerald F. Chew (2)	44	Director	1998	2004
Richard W. Koe (1,3)	47	Director	2003	2006
Douglas G. Marshall (1,2,3)	47	Director	1998	2005

(1)           Member of the Compensation Committee

(2)           Member of the Audit Committee

(3)           Member of the Nominating and Corporate Governance Committee

The following is a description of the background of each director as of March 31, 2004:

Mr. Wagner joined the Board in July 1998, has served as Chairman of the Board since August 2001 and served as our Secretary from February 1999 through November 2000. Mr. Wagner has served as a General Partner of Rockport Group, L.P. (“Rockport”) since its founding in 1990 and its sole General Partner since 1994. Rockport is the sole General Partner of RCJ Capital Partners LP (“RCJ”). Rockport and RCJ each invest in a variety of industries. Prior to 1990, Mr. Wagner held sales executive positions at several Wall Street firms, including five years at Bear, Stearns & Co., Inc. and five years at Kidder, Peabody & Co., Inc. Mr. Wagner holds a B.S. in Business Administration from Portland State University. Mr. Wagner serves as Chairman of the Audit Committee, the

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Compensation Committee, and the Nominating and Corporate Governance Committee, and is the sole member of the Stock Committee, a subcommittee of the Compensation Committee.

Mr. Baab joined us as the President and, Chief Executive Officer in August 2001 and was appointed as a member of the Board in December 2001. From May 2001 to August 2001, Mr. Baab served as a Managing Principal of Astoria Capital Management (“ACM”), a Securities and Exchange Commission (the “SEC”) registered investment advisor and a General Partner of Astoria Capital Partners, L.P. (“ACP”), a significant stockholder of ours. In August 2001, Mr. Baab took a formal leave of absence from ACM to join us. From March 2000 to April 2001, Mr. Baab was the Vice President of Finance and Chief Financial Officer of Certive, Inc., a web-based small-business services firm. From January 1999 to March 2000, Mr. Baab was the Chief Operating Officer and Chief Financial Officer of RemarQ Communities, Inc., a web-based provider of discussion group services. Mr. Baab served as Chief Financial Officer of the CKS Group (“CKS”), a marketing communications company, from February 1994 through December 1998. In addition, Mr. Baab served as an Executive Vice President and the Secretary of CKS from August 1995 through December 1998 and as CKS’s Chief Operating Officer from August 1995 through May 1996. Mr. Baab also served on the Board of Directors of Momentum Business Applications, Inc. (Nasdaq: MMTM), which provided research and development expertise on a contract basis, until it was acquired by PeopleSoft (Nasdaq: PSFT) in April 2002. Mr. Baab also serves on the University of Southern California, School of Engineering Board of Councilors. Mr. Baab holds a B.S. in Electrical Engineering, with honors, from the University of Southern California and an M.B.A. from the Harvard Graduate School of Business Administration.

Mr. Chew joined the Board in July 1998. Mr. Chew most recently served as the President and Chief Operating Officer of MDSI Mobile Data Solutions Inc. (“MDSI”) from April 2001 to March 2002 and served as a director of MDSI from 1995 until April 2001. Mr. Chew served as Executive Vice President of Ancora Capital & Management Group, LLC, an investment firm, from June 1998 to January 2001. Since February 1997, Mr. Chew has served as Managing Director of The Cairn Group. Mr. Chew holds a B.S. in Electrical Engineering from the University of California, Davis and an M.B.A. from the Amos Tuck School of Business Administration at Dartmouth College. Mr. Chew serves on the Audit Committee.

Mr. Koe joined the Board in January 2003. Mr. Koe has served as Managing General Partner for ACP, a significant stockholder of ours, and Montavilla Partners, L.P., both of which are investment partnerships, and as President of ACM. Mr. Koe serves on the Compensation Committee and the Nominating and Corporate Governance Committee.

Mr. Marshall joined the Board in July 1998. Mr. Marshall is Senior Vice President of Deposit Strategy and Product Management at Washington Mutual (NYSE: WM), a financial services company. Mr. Marshall joined Washington Mutual in November 2001. From August 1994 to November 2001, Mr. Marshall held a number of marketing positions at Bank of America (NYSE: BAC), most recently as Vice President of Advertising and Marketing Communications. Mr. Marshall holds a B.A. in English from Seattle Pacific University and an M.B.A. from the University of Washington. Mr. Marshall serves on the Audit Committee, Compensation Committee and the Nominating and Corporate Governance Committee.

Information regarding our current executive officers, which may be found under the caption “Executive Officers” in Part I hereof, is incorporated by reference into this Item 9.

Family Relationships

To our knowledge, with the exception of Mr. Chew and Mr. Koe who are cousins, there are no family relationships between any of our directors and executive officers.

Audit Committee Financial Expert

The Audit Committee of the Board of Directors of the Company is comprised solely of independent directors as defined in the Marketplace Rules of the Nasdaq Stock Market, and is governed by a written charter adopted by the Board of Directors.  The Board of Directors has determined that Gerald F. Chew qualifies as an “audit committee financial expert” as that term is defined in Item 401(e) of Regulation S-B under the Exchange Act and is “independent” as defined in Rule 4200(a)(15) of the National Association of Securities Dealers’ listing standards.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our officers and directors, and persons who own more than ten percent of a registered class of our equity securities, to file certain reports of ownership with the SEC and with the National Association of Securities Dealers, Inc. To our

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knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required during the fiscal year ended March 31, 2004, all reports required to be filed during fiscal year ended March 31, 2004 pursuant to Section 16(a) of the Exchange Act by directors, executive officers and 10% beneficial owners were filed on timely basis.

Code of Ethics

We have adopted a Code of Ethics for Principal Executive and Senior Financial Officers, which is posted on our Internet website at www.rainingdata.com.

ITEM 10. EXECUTIVE COMPENSATION

Summary Compensation

The following table sets forth the compensation of our Named Executive Officers, which consist of (i) all persons serving as the chief executive officer during the fiscal year ended March 31, 2004 and (ii) the four most highly compensated executive officers serving as such at the end of the fiscal year ended March 31, 2004, in addition to the chief executive officer.

Summary Compensation Table

	Annual Compensation					Long Term Compensation Awards
Name and Principal Position	Year	Salary($)		Bonus($)		Securities Underlying Options(#)	All Other Compensation
Carlton H. Baab(1)	2004	$	248,000	$	150,702	—	$	11,510
President and Chief Executive Officer	2003	$	248,000	$	125,527	—	$	7,639
	2002	$	124,000	$	—	1,000,000	$	5,523
Boris Geller	2004	$	210,000	$	74,202	—	$	—
Vice President, Market Development	2003	$	210,000	$	74,027	—	$	—
	2002	$	8,750	$	—	245,000	$	—
Soheil Raissi	2004	$	200,000	$	70,673	—	$	—
Vice President, Product Development	2003	$	196,410	$	60,527	60,000	$	—
& Professional Services	2002	$	88,077	$	—	120,000	$	—
Brian C. Bezdek	2004	$	175,000	$	61,933	—	$	—
Chief Financial Officer and	2003	$	142,491	$	16,184	175,000	$	—
Secretary
Mario I. Barrenechea(2)	2004	$	180,000	$	19,716	—	$	4,956
Senior Vice President,	2003	$	180,000	$	15,547	—	$	4,956
Worldwide Sales and Marketing	2002	$	221,677	$	—	—	$	4,956

(1)           All Other Compensation reflects payments to a continuing medical plan Mr. Baab had in place at the time he joined us.

(2)           All Other Compensation reflects premiums paid by us on a life insurance policy owned by Mr. Barrenechea.

Aggregated Option Exercises In Last Fiscal Year and Fiscal Year-End Option Values

The Named Executive Officers exercised no options during the fiscal year ended March 31, 2004.

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The following table shows, as to the Named Executive Officers, the value of unexercised options at March 31, 2004:

	Number of Securities Underlying Unexercised Options at Fiscal Year End (#)		Value of Unexercised In-the-Money Options at Fiscal Year End(1)
Name	Exercisable	Unexercisable	Exercisable		Unexercisable
Carlton Baab	1,050,000	—	$	2,063,500	$	—
Boris Geller	122,500	122,500	$	118,825	$	118,825
Soheil Raissi	101,248	78,752	$	148,911	$	104,889
Brian C. Bezdek	71,353	103,647	$	82,124	$	127,876
Mario I. Barrenechea	251,621	7,500	$	123,725	$	—

(1)           In accordance with SEC rules, values are calculated by subtracting the exercise price from the fair market value of the underlying common stock. For purposes of this table, fair market value is deemed to be closing price of the common stock on March 31, 2004, which was $3.49 per share.

Employment Contracts and Termination of Employment and Change-in-Control Arrangements

Effective December 1, 2000, we entered into an employment agreement with Mr. Barrenechea that provides for six (6) months severance at his salary rate then in effect in the event his employment is terminated by the Company without cause.

Effective March 18, 2002, we entered into an offer letter agreement with Mr. Geller. The offer letter provides for full vesting of Mr. Geller’s options upon the termination of his employment without cause within twelve (12) months following a change of control. In addition, the offer letter provides for severance benefits, including payment of his base salary for six (6) months and acceleration of six (6) months of vesting of his stock options, upon termination of his employment by the Company without cause.

Effective April 5, 2002, we entered into an offer letter agreement with Mr. Bezdek. The offer letter provides for full vesting of Mr. Bezdek’s options upon an involuntary termination of his employment other than for cause within twelve (12) months following a change of control. In addition, the offer letter provides for severance benefits, including payment of his base salary for six (6) months and acceleration of six (6) months of vesting of his stock options, upon termination of his employment without cause.

Effective June 21, 2002, we entered into an Amendment to Stock Option Agreement with Mr. Raissi, which amended two Stock Option Agreements, dated October 10, 2001 and April 26, 2002, between Mr. Raissi and us, to, in each case, provide for 100% acceleration of vesting of his stock options in the event he is terminated without cause within twelve (12) months following a change of control.

Effective April 5, 2003, we entered into a Severance and Change of Control Agreement with Mr. Baab. The agreement provides for twelve (12) months severance at Mr. Baab’s salary rate then in effect in the event of his involuntary termination of employment. In the event of Mr. Baab’s termination without cause within twelve (12) months following a change of control, the agreement provides for 100% acceleration of vesting of his stock options, as well as severance payments equal to 200% of the aggregate salary and bonus paid to Mr. Baab during the twelve (12) months preceding his termination.

Effective April 1, 2004, we entered into a Service Agreement with Mrs. Gibbs.  The Service Agreement may only be terminated by either party, by the giving of six months prior written notice.

DIRECTOR COMPENSATION

We reimburse directors for travel and other out-of-pocket expenses incurred in attending Board meetings. We do not pay cash compensation to our directors. No options or warrants were granted to any of our directors during the year ended March 31, 2004. Certain directors have received warrants or option grants in prior years as further disclosed in Item 11 below.

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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth, as of March 31, 2004, certain information with respect to the beneficial ownership of our voting securities by (i) any person (including any “group” as that term is used in Section 13(d)(3) of the Exchange Act) known by us to be the beneficial owner of more than 5% of any class of our voting securities, (ii) each director, (iii) each of the Named Executive Officers, and (iv) all of our current directors and executive officers as a group. As of March 31, 2004, there were 300,000 and 18,403,141 shares of issued and outstanding preferred stock and common stock, respectively.  In computing the number and percentage of shares beneficially owned by a person, shares of common stock subject to options currently exercisable, or exercisable within sixty (60) days of March 31, 2004, are counted as outstanding, while these shares are not counted as outstanding for computing the percentage ownership of any other person.

Name and Address(1)	Number of Shares of Preferred Stock(2)	Percent of Total Preferred Stock		Number of Shares of Common Stock	Percent of Total Common Stock
5% Stockholders
Carlton H. Baab(3)				17,366,765	67	%
Richard W. Koe(4)				16,381,365	65	%
Astoria Capital Partners L.P.(5)	300,000	100.00	%	16,316,765	65	%
Geoffrey P. Wagner(6)				1,459,174	8	%
Rockport Group LP(7)				1,444,174	8	%
Philip and Debra Barrett Charitable Remainder Trust(8)				1,348,168	7	%
Directors and Officers
Mario I. Barrenechea(9)				262,364	1	%
Boris Geller(10)				136,761	*
Gerald F. Chew(11)				126,825	*
Soheil Raissi(12)				123,248	*
Douglas G. Marshall(13)				120,655	*
Brian C. Bezdek(14)				96,145	*
All directors and executive officers as a group (11 persons)(15)				20,020,064	69	%

*              Represents less than 1%

(1)           Except as otherwise indicated below, we believe the persons whose names appear in the table above have sole voting and investment power with respect to all shares of stock shown as beneficially owned by them, subject to applicable community property laws.

(2)           “Preferred Stock” refers to the Series A Convertible Preferred Stock, which is convertible into shares of common stock at a conversion rate of 1 to 1.667. The conversion rate may increase upon our issuance of additional shares of capital stock, as set forth in Section 5(c) of our Certificate of Designations of Series A Convertible Preferred Stock.

(3)           Represents options to purchase 1,050,000 shares of common stock exercisable within 60 days of March 31, 2004, held by Mr. Baab. Also includes the following shares beneficially owned by Astoria Capital Partners L.P. (“ACP”): 16,316,765 shares of common stock, which includes warrants to purchase 1,636,555 shares of common stock exercisable within 60 days of March 31, 2004, 4,427,941 shares of common stock which may be acquired upon the conversion of a subordinated convertible note payable to ACP for $22,139,705 convertible at $5.00 per share plus 206,691 shares of common stock issued as a payment in kind (“PIK”) to cover accrued interest on the note on a quarterly basis and 500,100 shares of common stock which may be acquired upon conversion of 300,000 shares of Series A Convertible Preferred Stock. Mr. Baab is an employee of ACM, which is a general partner of ACP. As a general partner of ACP, ACM has a special profit interest in ACP’s realized and unrealized gains and income in excess of a specified hurdle rate, subject to certain additional conditions. As an employee of ACM, Mr. Baab is entitled to an annual bonus equal to a fixed percentage of any special profit allocation ACP receives for the year in question. Mr. Baab, who is on formal leave of absence from ACM, disclaims beneficial ownership of the

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securities held by ACP as he does not hold voting or investment power over the holdings of ACP.

(4)           Includes the following shares beneficially owned by ACP: 16,316,765 shares of common stock, which includes warrants to purchase 1,636,555 shares of common stock exercisable within 60 days of March 31, 2004, 4,427,941 shares of common stock which may be acquired upon the conversion of a subordinated convertible note payable to ACP for $22,139,705 convertible at $5.00 per share plus 206,691 shares of common stock issued as a PIK to cover accrued interest on the note on a quarterly basis and 500,100 shares of common stock which may be acquired upon conversion of 300,000 shares of Series A Convertible Preferred Stock. Also includes 64,600 shares beneficially owned by Mr. Koe and ACM through an investment fund managed by ACM. Mr. Koe is the President and sole shareholder of ACM and Mr. Koe and ACM are the General Partners of ACP.

(5)           The principal address of ACP is 6600 SW 92^nd Avenue, Suite 370, Portland, Oregon 97223. Includes warrants to purchase 1,636,555 shares of common stock exercisable within 60 days of March 31, 2004, 4,427,941 shares of common stock which may be acquired upon the conversion of a subordinated convertible note payable to ACP for $22,139,705 convertible at $5.00 per share plus 206,691 shares of common stock issued as a PIK to cover accrued interest on the note on a quarterly basis and 500,100 shares of common stock issuable upon conversion of the Series A Convertible Preferred Stock.

(6)           Includes 5,000 shares of common stock owned by Mr. Wagner directly, 1,444,174 shares of common stock owned by Rockport Group LP, of which Mr. Wagner is the sole General Partner and 10,000 shares of common stock purchased on April 5, 1999 by a trust of which Mr. Wagner’s wife is the sole beneficiary. Mr. Wagner disclaims beneficial ownership of such 10,000 shares except to the extent of his pecuniary interest in such shares.

(7)           The principal address of Rockport Group LP is 6600 SW 92nd Avenue, Suite 370, Portland, Oregon 97223.

(8)           The principal address of the Philip and Debra Barrett Charitable Remainder Trust (“Trust”) is P.O. Box 1033, Vancouver, Washington 98666. Shares of common stock beneficially owned include 1,348,168 shares of common stock held by the Trust.

(9)           Includes options to purchase 252,871 shares of common stock exercisable within 60 days of March 31, 2004, held by Mr. Barrenechea.

(10)         Includes options to purchase 132,708 shares of common stock exercisable within 60 days of March 31, 2004, held by Mr. Geller.

(11)         Includes warrants and options to purchase 96,825 shares of common stock exercisable within 60 days of March 31, 2004, held by Mr. Chew.

(12)         Includes options to purchase 108,748 shares of common stock exercisable within 60 days of March 31, 2004, held by Mr. Raissi.

(13)         Includes warrants and options to purchase 96,825 shares of common stock exercisable within 60 days of March 31, 2004, held by Mr. Marshall.

(14)         Includes options to purchase 78,645 shares of common stock exercisable within 60 days of March 31, 2004, held by Mr. Bezdek.

(15)         Includes an aggregate of 3,661,818 of common stock issuable upon exercise of options or warrants exercisable within 60 days of March 31, 2004, 4,427,941 shares of common stock which may be acquired upon the conversion of a subordinated convertible note payable to ACP for $22,139,705 convertible at $5.00 per share plus 206,691 shares of common stock issued as a PIK to cover accrued interest on the note on a quarterly basis and 500,100 shares of common stock issuable upon conversion of the Series A Convertible Preferred Stock.

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Information Regarding Equity Compensation Plans

All of our equity compensation plans have been approved by our stockholders. Our equity compensation plans and activities are more fully discussed in the Notes to the Consolidated Financial Statements in Item 7 of this Form 10-KSB.

The following table sets forth information regarding the number of shares of our common stock that may be issued pursuant to our equity compensation plans or arrangements as of March 31, 2004.

Equity Compensation Plan Information

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)		(b)		(c)
Equity compensation plans approved by security holders	3,508,010	(1)	$	2.85	2,057,667	(2)
Equity compensation plans not approved by security holders	N/A		N/A		N/A
Total	3,508,010				2,057,667

(1)           Represents shares of common stock that may be issued pursuant to outstanding options granted under the following plans: 3,488,293 shares under the 1999 Stock Option Plan, 10,047 shares under the 1996 Stock Option Plan, and 9,670 shares under the 1987 Stock Option Plan. The 1996 Stock Option Plan and the 1987 Stock Option Plan were terminated, except as to options then issued and outstanding under such plans. In connection with our acquisition of PickAx in December 2000, we assumed the PickAx Option Plan, pursuant to which options to purchase 404,045 shares are outstanding with a weighted average exercise price of $2.95 and are excluded from the total. We do not intend to grant any further options under the PickAx Option Plan.

(2)           Represents shares of common stock that may be issued pursuant to options available for future grant under the following plans: 1,270,360 shares under the 1999 Stock Option Plan and 787,307 shares of common stock available for purchase by employees under the 2001 Employee Stock Purchase Plan.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On January 30, 2003, we entered into a Note Exchange Agreement with ACP, a significant stockholder of ours, to replace the existing Secured Promissory Note dated November 30, 2000, as amended, held by ACP. Under the terms of the Note Exchange Agreement, we issued to ACP a Convertible Subordinated Note having a principal amount of approximately $22.1 million, which principal amount is equal to the outstanding principal and accrued interest payable on the Secured Promissory Note as of the date of the agreement. The Convertible Subordinated Note is convertible into common stock at a price of $5.00 per share. The Convertible Subordinated Note matures on May 30, 2008, extending the May 30, 2003 maturity date of the Secured Promissory Note. The interest rate is 5% per annum, as compared to the interest rate of 10% per annum under the Secured Promissory Note. The interest will be payable quarterly at our option in cash or through increases to the outstanding principal of the Convertible Subordinated Note. Increases to the principal are to be done via issuance of PIK notes on a quarterly basis. Effective April 1, 2003, July 1, 2003, October 1, 2003, January 1, 2004 and April 1, 2004, we issued PIK notes to ACP for the accrued interest due April 1, 2003, July 1, 2003, October 1, 2003, January 1, 2004 and April 1, 2004. Mr. Koe, a director of the Company, is the President and sole shareholder of ACM, and Mr. Koe and ACM are the General Partners of ACP. Mr. Baab, our President, Chief Financial Officer and a director of the Company, is an employee of ACM. As an employee of ACM, Mr. Baab is entitled to an annual bonus equal to a fixed percentage of any special profit allocation ACP receives for the year in question. Mr. Baab is currently on a formal leave of absence from ACM.

Two limited partners in RCJ and a third individual related to those partners loaned us $750,000 in August 2000. The loans had a

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maturity date of two years with interest accruing at 4% per annum, payable semiannually. The notes provided for the automatic conversion of the principal and unpaid interest into shares of common stock at a conversion price of $6.17. We issued 131,574 shares of common stock on August 23, 2002 in connection with the automatic conversion. Geoffrey P. Wagner, one of our directors, is the sole General Partner of Rockport, which is the sole General Partner of RCJ.

The Phillip and Debra Barrett Charitable Remainder Trust, a significant stockholder of ours, loaned us $250,000 in September 2000. The loan, as amended, had a maturity date of April 2, 2003 with interest accruing at 10% per annum, payable quarterly. The note was paid in full on April 2, 2003.

A description of the terms of the offer letter agreements between us and Mr. Geller and Mr. Bezdek, the employment agreement between us and Mr. Barrenechea, the stock option agreements between us and Mr. Raissi, the Severance and Change of Control Agreement between us and Mr. Baab and the Service Agreement with Mrs. Gibbs, may be found under the caption “Employment Contracts and Termination of Employment and Change-in-Control Arrangements” in Item 10 hereof.

We have entered into our standard form of indemnification agreement with each of our directors and officers.

It is our current policy that all transactions between us and our officers, directors, five percent (5%) stockholders and their affiliates will be entered into only if these transactions are approved by the Company’s Audit Committee, are on terms no less favorable to the Company than could be obtained from unaffiliated parties and are reasonably expected to benefit the Company.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)           Exhibits.

Exhibit	Description
3.1	Restated Certificate of Incorporation of the Registrant dated June 4, 2003 (included as Exhibit 3.1 to the Registrant’s Form 10-KSB filed with the Commission on June 6, 2003 and incorporated herein by reference).
3.2	Amended and Restated Bylaws of the Registrant, dated April 22, 2002 (included as Exhibit 3.1 to the Registrant’s Form 10-QSB filed with the Commission on August 13, 2002 and incorporated herein by reference).
3.3	Certificate of Designations dated March 31, 1999, as corrected (included as Exhibit 3.1 to the Registrant’s Form 8-K filed with the Commission on April 5, 1999 and incorporated herein by reference).
4.1	Registration Rights Agreement by and among the Registrant, Pamela Conrad, Donald D. Durr, Lee Summers, Robert J. Rosenberg, Gil Figueroa, Michael E. McGoey, Gerald L. Cohn and Timothy Holland dated as of November 30, 2000 (included as Exhibit 4.1 to the Registrant’s Form 10-QSB filed with the Commission on February 14, 2001 and incorporated herein by reference).
4.2	Registration Rights Agreement by and among the Registrant, Astoria Capital Partners, L.P., Harrison H. Augur, Keogh MP and Robert D. van Roijen dated as of December 4, 2000, as amended on April 3, 2003, (included as Exhibit 4.3 to the Registrant’s Form 10-QSB filed with the Commission on August 13, 2002 and incorporated herein by reference).
4.3	Sixth Amendment to the Registration Rights Agreement by and among the Registrant, Astoria Capital Partners, L.P., Harrison H. Augur, Keogh MP and Robert D. van Roijen dated as of April 1, 2003 (included as Exhibit 4.3 to the Registrant’s Form 10-KSB filed with the Commission on June 6, 2003 and incorporated herein by reference).
4.4	Registration Rights Agreement by and between the Registrant and Astoria Capital Partners, L.P., dated as of September 27, 2001, as amended on April 3, 2002 (included as Exhibit 4.2 to the Registrant’s Form 10-QSB filed with the Commission on August 13, 2002 and incorporated herein by reference).
4.5	Third Amendment to Registration Rights Agreement by and between the Registrant and Astoria Capital Partners, L.P., dated as of September 27, 2001, as amended on January 30, 2003 (included as Exhibit 4.3 to the Registrant’s Form 8-K filed with the Commission on January 30, 2003 and incorporated herein by reference),
4.6	Note Exchange Agreement between the Registrant and Astoria Capital Partners, L.P. dated January 30, 2003 (included as Exhibit 4.1 to the Registrant’s Form 8-K filed with the Commission on January 30, 2003 and incorporated herein by reference).
4.7	5% Convertible Subordinated Note Due 2008 between the Registrant and Astoria Capital Partners, L.P. dated January 30, 2003 (included as Exhibit 4.2 to the Registrant’s Form 8-K filed with the Commission on January 30, 2003 and incorporated herein by reference).
4.8	Form of payment in kind note, as referenced in the 5% Convertible Subordinated Note, between the Registrant and Astoria Capital Partners, L.P (included as Exhibit 4.8 to the Registrant’s Form 10-KSB filed with the Commission on June 6, 2003 and incorporated herein by reference).

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4.9	Form of Common Stock Purchase Warrant issued by the Registrant to Astoria Capital Partners, L.P. dated April 1, 2004.  Originally issued on November 30, 2000 and adjusted on April 1, 2003.
4.10	Registration Rights Agreement dated May 7, 2002, by and among the Registrant and Thomas A. Arata, Jr., Edward A. Runci, Jr. and Wall & Bullington, LLC (included as Exhibit 4.4 to the Registrant’s 10-QSB filed with the Commission on August 13, 2002 and incorporated herein by reference).
4.11	Form of Amended and Restated Common Stock Purchase Warrant between the Registrant and Astoria Capital Partners, dated April 1, 2003. Originally issued as an Exchange Warrant on December 1, 2000 to holders of PickAx Warrants (included as Exhibit 4.11 to the Registrants Form 10-KSB filed with the Commission on June 6, 2003 and incorporated herein by reference).
10.1*	1999 Stock Option Plan, as amended on June 21, 2002 (included as Exhibit 10.4 to the Registrant’s 10-QSB filed with the Commission on August 13, 2002 and incorporated herein by reference).
10.2*	2001 Employee Stock Purchase Plan as amended on December 28, 2001 (included as Exhibit 10.1 to the Registrant’s Form 10-QSB filed with the Commission on March 21, 2002 and incorporated herein by reference).
10.3*	Option Agreement dated September 24, 2001, between the Registrant and Carlton H. Baab (included as Exhibit 10.22 of Registrant’s Form 10-QSB filed with the Commission on November 14, 2001 and incorporated herein by reference).
10.4*	Service Agreement by and between the Registrant and Gwyneth Gibbs dated April 1, 2004
10.5*	Form of Indemnification Agreement entered into with officers and directors of Registrant (included as Exhibit 10.2 to the Registrant’s Form 10-QSB filed with the Commission on March 21, 2002 and incorporated herein by reference).
10.6	Settlement Agreement and Mutual Release, between General Automation, Inc. dba GA eXpress and Raining Data, U.S., Inc. f/k/a Pick Systems, dated July 26, 2002. (included as Exhibit 4.1 to the Registrant’s Form 8-K filed with the Commission on August 2, 2002 and incorporated herein by reference).
10.7	Compromise and Settlement Agreement, dated April 29, 2002, between the Registrant, PickAx, Inc., Pick Systems, Inc. and Thomas A. Arata, Jr., and Edward A. Runci, Jr. (included as Exhibit 10.2 to the Registrant’s 10-QSB filed with the Commission on August 13, 2002 and incorporated herein by reference).
10.8*	Amendment to Stock Option Agreement, dated June 21, 2002, between the Registrant and Soheil Raissi (included as Exhibit 10.5 to the Registrant’s 10-QSB filed with the Commission on August 13, 2002 and incorporated herein by reference).
10.9*	Offer Letter Agreement, effective April 15, 2002, between the Registrant and Brian C. Bezdek (included as Exhibit 10.6 to the Registrant’s 10-QSB filed with the Commission on August 13, 2002 and incorporated herein by reference).
10.10*	Offer Letter Agreement, effective March 18, 2002, between the Registrant and Boris Geller (included as Exhibit 10.7 to the Registrant’s 10-QSB filed with the Commission on August 13, 2002 and incorporated herein by reference).
10.11*	Stock Option Agreement, dated December 21, 2002 between the Registrant and Brian C. Bezdek (included as Exhibit 10.2 to the Registrant’s 10-QSB filed with the Commission on February 12, 2003 and incorporated herein by reference).
10.12*	Severance and Change of Control Agreement, dated April 5, 2003, between the Registrant and Carlton H. Baab (included as Exhibit 10.12 to the Registrants Form 10-KSB filed with the Commission on June 6, 2003 and incorporated herein by reference).
10.13	Loan and Security Agreement dated February 11, 2004, between the Registrant, Raining Data U.S., Inc. and Silicon Valley Bank.
21.1	Subsidiaries of the Registrant (included as Exhibit 21.1 to the Registrant’s Form 10-KSB filed with the Commission on June 28, 2002 and incorporated herein by reference).
23.1	Consent of Independent Registered Public Accounting Firm.
24.1	Power of Attorney (included in the signature page and incorporated herein by reference).
31.1	Certification of Chief Executive Officer.
31.2	Certification of Chief Financial Officer.
32.1	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Indicates management contracts or compensatory plans and arrangements filed pursuant to Item 601 or Regulation S-B under the Exchange Act.

(b)           Reports on Form 8-K.

The Registrant filed no Reports on Form 8-K during the fourth quarter of fiscal year 2004.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table presents the aggregate fees billed for the indicated services performed by KPMG LLP during the 2004 and 2003 fiscal years.

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	2004		2003
Audit Fees	$	395,136	$	386,000
Audit related fees	—		—
Tax Fees		65,062		85,000
All Other Fees	—		—
Total	$	460,198	$	471,000

Audit Fees.    Audit Fees relate to professional services rendered in connection with the audit of our annual financial statements, quarterly review of financial statements included in our 10-QSB, and audit services provided in connection with other statutory and regulatory filings.

Tax Fees.  Tax Fees include professional services related to tax compliance, tax advice and tax planning and transfer pricing consultation, including but not limited to the preparation of federal and state tax returns.

The Audit Committee approved all of the services provided by KPMG LLP in fiscal years 2004 and 2003.  Pursuant to the Audit Committee Charter, the Audit Committee must pre-approve audit and non-audit services to be provided to the Company by the independent auditor, or subsequently approve non-audit services in those circumstances where a subsequent approval is necessary and permissible.

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SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

RAINING DATA CORPORATION
By:	/s/ Brian C. Bezdek
	Brian C. Bezdek
	Chief Financial Officer
Date:	June 29, 2004

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Carlton H. Baab and Brian C. Bezdek, and each or any one of them, as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-KSB, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or any of them or their or his substitute or substituted, may lawfully do or cause to be done by virtue hereof.

In accordance with the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signatures	Title	Date
	President, Chief Executive
/s/ Carlton H. Baab	Officer and Director
Carlton H. Baab	(Principal Executive Officer)	June 29, 2004
/s/ Brian C. Bezdek	Chief Financial Officer
Brian C. Bezdek	(Principal Financial and Accounting Officer)	June 29, 2004
/s/ Geoffrey P. Wagner
Geoffrey P. Wagner	Director	June 29, 2004
/s/ Gerald F. Chew
Gerald F. Chew	Director	June 29, 2004
/s/ Douglas G. Marshall
Douglas G. Marshall	Director	June 29, 2004
/s/ Richard W. Koe
Richard W. Koe	Director	June 29, 2004

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Raining Data Corporation:

We have audited the accompanying consolidated balance sheets of Raining Data Corporation and subsidiaries as of March 31, 2004 and 2003, and the related consolidated statements of operations, cash flows, and stockholders’ equity and comprehensive loss for each of the years in the three-year period ended March 31, 2004. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Raining Data Corporation and subsidiaries as of March 31, 2004 and 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 4 to the consolidated financial statements, effective April 1, 2002, the Company adopted the provisions of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.”

/s/ KPMG LLP

Costa Mesa, California

June 22, 2004

32

RAINING DATA CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

March 31, 2004 and 2003

	2004			2003
	(In thousands, except per share data)
ASSETS
Current assets
Cash	$	7,783		$	5,279
Trade accounts receivable, less allowance for doubtful accounts of $252 in 2004 and $287 in 2003	1,865			2,162
Other current assets	390			318
Total current assets	10,038			7,759
Property, furniture and equipment, net	795			930
Intangible assets, less accumulated amortization of $8,667 in 2004 and $6,067 in 2003	1,733			4,333
Goodwill	27,684			27,684
Other assets	201			258
Total assets	$	40,451		$	40,964
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	242		$	600
Accrued liabilities	2,257			2,992
Deferred revenue	5,006			5,082
Notes payable	38			321
Total current liabilities	7,543			8,995
Long-term debt, net of discount and excluding current portion	23,117			21,932
Total liabilities	30,660			30,927
Commitments and contingencies
Stockholders’ equity
Series A convertible preferred stock: $1.00 par value; 300,000 shares authorized, issued and outstanding	300			300
Common stock: $0.10 par value; 60,000,000 shares authorized; 18,403,141 and 17,946,842 issued and outstanding as of March 31, 2004 and 2003 respectively	1,840			1,795
Additional paid-in capital	95,418			94,919
Deferred stock-based compensation	(41		)	(145		)
Accumulated other comprehensive income	1,509			1,050
Accumulated deficit	(89,235		)	(87,882		)
Total stockholders’ equity	9,791			10,037
Total liabilities and stockholders’ equity	$	40,451		$	40,964

See accompanying notes to the consolidated financial statements.

33

RAINING DATA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS

For the Years Ended March 31, 2004, 2003 and 2002

	2004			2003			2002
	(In thousands, exceptper share data)
Net revenues
Licenses	$	9,819		$	9,932		$	9,903
Services	12,478			11,074			9,364
Total net revenues	22,297			21,006			19,267
Costs of revenues
Cost of license revenues	415			351			383
Cost of service revenues	2,174			2,103			2,744
Total cost of revenues	2,589			2,454			3,127
Gross profit	19,708			18,552			16,140
Cost of operations
Selling and marketing	5,727			4,628			6,402
Research and development	7,553			6,534			6,121
General and administrative	3,770			4,466			5,815
Stock-based compensation	246			351			1,247
Amortization of goodwill and intangible assets	2,600			2,600			12,821
Total operating expenses	19,896			18,579			32,406
Operating loss	(188		)	(27		)	(16,266		)
Other income (expense)
Interest expense, net	(1,215		)	(3,409		)	(3,887		)
Other income (expense), net	19			47			(272		)
Total other expense	(1,196		)	(3,362		)	(4,159		)
Loss before income taxes	(1,384		)	(3,389		)	(20,425		)
Provision (benefit) for income taxes	(31		)	30			—
Net loss	$	(1,353	)	$	(3,419	)	$	(20,425	)
Basic and diluted loss per share	$	(0.07	)	$	(0.19	)	$	(1.23	)
Shares used in computing basic and diluted loss per share	18,139			17,804			16,672
Supplemental information on stock-based compensation:
Departmental allocation of stock-based compensation
Cost of service revenues	$	48		$	10		$	124
Selling and marketing expense	8			66			223
Research and development expense	180			330			363
General and administrative expense	10			(55		)	537
Total stock-based compensation	$	246		$	351		$	1,247

See accompanying notes to the consolidated financial statements.

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RAINING DATA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED MARCH 31, 2004, 2003 and 2002

	2004			2003			2002
	(In thousands)
Cash flows from operating activities:
Net loss	$	(1,353	)	$	(3,419	)	$	(20,425	)
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
Depreciation and amortization of long-lived assets	2,935			2,917			13,437
Note discount amortization	83			1,609			2,321
Amortization of deferred stock-based compensation	246			351			1,247
Common stock exchanged for incomplete software	—			—			119
Change in assets and liabilities:
Trade accounts receivable	494			(169		)	1,117
Other current and noncurrent assets	(97		)	(115		)	283
Accounts payable and accrued liabilities	189			(1,023		)	1,141
Deferred revenue	(169		)	738			725
Net cash provided by (used for) operating activities	2,328			889			(35		)
Cash flows from investing activities:
Purchases of property, furniture and equipment	(29		)	(410		)	(123		)
Settlement of post-retirement benefit obligations acquired, net of tax	—			150			—
Net cash used for investing activities	(29		)	(260		)	(123		)
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants	216			2			79
Proceeds from issuance of common stock	186			89			2,200
Repayment of debt	(321		)	(51		)	(229		)
Net cash provided by financing activities	81			40			2,050
Effect of exchange rate changes on cash	124			110			184
Net increase in cash and equivalents	2,504			779			2,076
Cash and equivalents at beginning of period	5,279			4,500			2,424
Cash and equivalents at end of period	$	7,783		$	5,279		$	4,500
Supplemental disclosure of cash flow information:
Noncash financing and investing activities
Issuance of payment-in-kind notes for accrued interest	$	1,139		$	183		$	—
Conversion of debt to common stock	$	—		$	812		$	—
Conversion of accrued interest to notes payable	$	—		$	1,784		$	—

See accompanying notes to the consolidated financial statements.

35

RAINING DATA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE LOSS

FOR THE YEARS ENDED MARCH 31, 2004, 2003 and 2002

(in thousands, except share amounts)

	Series A Convertible Preferred Stock			Common Stock			Additional Paid to Capital			Deferred Stock-Based Compensation			Accumulated Other Comprehensive Income			Accumulated Deficit			Stockholders’ Equity			Comprehensive Loss
	Shares	Amount		Shares	Amount
Balances March 31, 2001 (note 6)	300,000	$	300	15,716,090	$	1,572	$	91,921		$	(2,073	)	$	1,216		$	(64,038	)	$	28,898
Common stock options exercised				71,873	7		72												79
Stock options granted							510			(510		)							—
Stock options cancelled							(905		)	905									—
Stock-based compensation							92			1,155									1,247
Private placement to Astoria on September 27, 2001:
Issuance of common stock, net of issuance costs				1,760,000	176		2,024												2,200
Issuance of common stock in connection with the purchase of incomplete software				37,500	4		115												119
Net loss																(20,425		)	(20,425		)	$	(20,425	)
Foreign currency translation adjustments
Net of translation loss realized on closure of subsidiary of $286													(347		)				(347		)	(347		)
Comprehensive loss																						$	(20,772	)
Balances March 31, 2002	300,000	$	300	17,585,463	$	1,759	$	93,829		$	(523	)	$	869		$	(84,463	)	$	11,771
Common stock options exercised				2,656			2												2
Stock options cancelled							(243		)	243									—
Stock-based compensation							216			135									351
Issuance of common stock in connection with:
Settlement of litigation				100,000	10		240												250
Conversion of notes payable				131,574	13		799												812
Employee stock purchase plan				127,149	13		76												89
Net loss																(3,419		)	(3,419		)	$	(3,419	)
Foreign currency translation adjustments													181						181			181
Comprehensive loss																						$	(3,238	)
Balances March 31, 2003	300,000	$	300	17,946,842	$	1,795	$	94,919		$	(145	)	$	1,050		$	(87,882	)	$	10,037
Common stock options exercised				108,882	11		142												153
Stock-based compensation							142			104									246
Warrants exercised				261,863	26		37												63
Issuance of common stock in connection with:																			—
Employee stock purchase plan				85,554	8		178												186
Net loss																(1,353		)	(1,353		)	$	(1,353	)
Foreign currency translation adjustments													459						459			459
Comprehensive loss																						$	(894	)
Balances March 31, 2004	300,000	$	300	18,403,141	$	1,840	$	95,418		$	(41	)	$	1,509		$	(89,235	)	$	9,791

See accompanying notes to the consolidated financial statements.

36

RAINING DATA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization

The Company was incorporated as Blyth Holdings, Inc. under the laws of the State of Delaware in August 1987 pursuant to a reorganization of predecessor companies originally incorporated under the laws of England in 1983. The Initial Public Offering for the Company’s stock took place in October 1987. In September 1997, the Company changed its name to Omnis Technology Corporation. In December 2000, the Company acquired PickAx. At the same time, the Company changed its name to Raining Data Corporation. The principal asset of PickAx is the capital stock of Pick Systems. PickAx acquired Pick Systems from the estate of Richard Pick, the founder of Pick Systems, in March 2000. Pick Systems was incorporated in California in November 1982.

The Company’s principal business is the design, development, sale, and support of four software product lines: 1) Multidimensional Database Management Systems (“MDMS”), 2) Rapid Application Development (“RAD”) software tools, 3) XML data management servers (“XDMS”) and 4) the Pick Data Provider for the .NET development environment (“PDP”). The Company’s products are sold to in-house corporate development teams, commercial application developers, system integrators, independent software vendors, value added resellers and independent consultants. In addition to computer software products, the Company provides continuing maintenance and customer service contracts as well as professional services, technical support and training.

2. Summary of Significant Accounting Policies

Significant accounting policies applied in the preparation of the accompanying consolidated financial statements of the Company follow:

Principles of Consolidation—The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

Revenue Recognition— The Company recognizes and defers revenue using the residual method pursuant to the requirements of Statement of Position No. 97-2, “Software Revenue Recognition.” (SOP 97-2), as amended. Under the residual method, revenue is recognized in a multiple element arrangement when company-specific objective evidence of fair value exists for all of the undelivered elements in the arrangement, but does not exist for one or more of the delivered elements in the arrangement. At the outset of the arrangement with the customer, the Company defers revenue for the fair value of its undelivered elements (e.g., contract revenue amount for maintenance) based on company-specific objective evidence of the amount such items are sold to its customers by themselves and recognize revenue for the remainder of the arrangement fee attributable to the elements initially delivered in the arrangement (e.g., software license) when the basic criteria in SOP 97-2 have been met.

Under SOP 97-2, revenue attributable to an element in a customer arrangement is recognized when persuasive evidence of an arrangement exists and delivery has occurred, provided the fee is fixed or determinable, collectibility is probable and the arrangement does not require significant customization of the software. If at the outset of the customer arrangement, the Company determines that the arrangement fee is not fixed or determinable, it defers the revenue and recognizes the revenue when the arrangement fee becomes due and payable.

Professional services, maintenance and other revenue relate primarily to consulting services, maintenance and training. Maintenance revenue is initially deferred and then recognized ratably over the term of the maintenance contract, typically 12 months. Consulting and training revenue is recognized as the services are performed and is usually calculated on a time and materials basis. Such services primarily consist of implementation services related to the installation of its products and do not include significant customization to or development of the underlying software code. The Company does not have price protection programs, conditional acceptance agreements or warranty programs, and sales of its products are made without right of return.

When applicable, the Company records revenue on certain products, such as the PDP product, on a net amount retained basis in accordance with Emerging Issues Task Force Issue No. 99-19, “Reporting Revenue Gross as a Principal verses Net as an Agent.”

Cost of License and Service Revenue—Cost of license revenue is comprised of direct costs associated with software license sales including software packaging, documentation, physical media costs and royalties. Cost of service revenue includes consulting, technical support, and

37

training, all of which consist primarily of personnel related costs. Other costs specifically identifiable to the revenue source have been classified accordingly.

Property, Furniture and Equipment—Property, furniture, and equipment are stated at historical cost. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the assets, which range from 2 to 5 years. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or the estimated useful lives of the assets.

Intangible Assets and Goodwill—Installed base, including core technology, is amortized on a straight-line basis over four years. Until fiscal 2003, assembled workforce was amortized on a straight-line basis over three years and goodwill was amortized over seven years. The net carrying value of assembled workforce was reclassified into goodwill on April 1, 2003 and amortization of goodwill was discontinued.

Impairment of Intangible Assets and Goodwill— The Company assesses the impairment of identifiable intangibles and goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable or at least annually. Factors it considers to be important which could trigger an impairment review include the following:

•Significant underperformance relative to expected historical or projected future operating results;

•Timing of the Company’s revenue, significant changes in the manner of use of the acquired assets or the strategy for the overall business;

•Significant negative industry or economic trends;

•Significant decline in the Company’s stock price for a sustained period; and

•The Company’s market capitalization relative to net book value.

When the Company determines that the carrying value of intangibles and other long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by its management to be commensurate with the risk inherent in the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and projecting cash flows.

Following the adoption of SFAS No. 142, “Goodwill and Other Intangible Assets,” the Company updated its policy for assessing and determining impairment of goodwill. The SFAS No. 142 goodwill impairment model is a two-step process. The first step is used to identify potential impairment by comparing the fair value of a reporting unit with its net book value (or carrying amount), including goodwill. If the fair value exceeds the carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.

Determining the fair value of a reporting unit under the first step of the goodwill impairment test and determining the fair value of individual assets and liabilities of a reporting unit (including unrecognized intangible assets) under the second step of the goodwill impairment test is judgmental in nature and often involves the use of significant estimates and assumptions. These estimates and assumptions could have a significant impact on whether or not an impairment charge is recognized and the magnitude of any such charge. Estimates of fair value are primarily determined using discounted cash flows and are based on the Company’s best estimate of future revenue and operating costs and general market conditions. These estimates are subject to review and approval by management. This approach uses significant assumptions, including projected future cash flows (including timing), the discount rate reflecting the risk inherent in future cash flows, and a terminal growth rate.

Capitalized Software Development Costs—Costs for the development of new software products and substantial enhancements to existing software products are expensed as incurred until technological feasibility has been established, at which time any additional costs would be

38

capitalized until the software is available for general release to customers. The Company does not currently have any internal software development costs capitalized because management believes software is available for general release concurrently with the establishment of technological feasibility.

Income Taxes—Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance to an amount whose realization is more likely than not. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Fair Value of Financial Instruments—The Company’s consolidated balance sheet includes the following financial instruments: cash, accounts receivable, accounts payable, accrued liabilities and notes payable. The Company considers the carrying amount in the financial statements to approximate fair value for these financial instruments because of the relatively short period of time between origination of the instruments and their expected realization. The Company considers the carrying value of its notes payable to approximate fair market value.

Stock-Based Compensation—The Company applies the intrinsic value method to account for employee fixed stock-based awards. Under this method, deferred stock-based compensation is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. Deferred stock-based compensation is then amortized using the straight-line method over the vesting term of the underlying option. The Company uses the fair value method based upon the Black-Scholes model to account for stock-based awards to nonemployees. A final measurement date for these awards is established when they vest.

Pro forma information assuming the Company had accounted for stock options granted under the fair value method prescribed by SFAS 123, Accounting for Stock-Based Compensation,  is presented below. The per share weighted-average fair value of stock options granted for the years ended March 31, 2004, 2003 and 2002 was $2.70, $1.82 and $2.49, respectively, as estimated using the Black-Scholes option-pricing model with the following assumptions: dividend yield of 0% in 2004, 2003 and 2002; expected volatility of 130% in 2004, 145% in 2003 and 148% in 2002; risk-free interest rate of 3.50%, 3.95% and 4.84% in 2004, 2003 and 2002, respectively; and expected life of 7 years for 2004, 2003 and 2002.

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting periods. The Company’s historical and pro forma net loss per share for the years ended March 31, 2004, 2003 and 2002 are as follows (in thousands, except per share data):

	2004			2003			2002
Net loss:
As reported	$	(1,353	)	$	(3,419	)	$	(20,425	)
Add:
Stock-based employee compensation expense included in net loss, net of tax	246			351			1,247
Less:
Total stock-based employee compensation expense determined under fair value based methods for all awards, net of tax	(1,736		)	(2,302		)	(3,753		)
Pro forma net loss	$	(2,843	)	$	(5,370	)	$	(22,931	)
Basic and diluted loss per share
As reported	$	(0.07	)	$	(0.19	)	$	(1.23	)
Pro forma	$	(0.16	)	$	(0.30	)	$	(1.38	)

Severance costs—The Company incurred costs related to certain management changes and employee terminations during the year ended March 31, 2002. Approximately $0.8 million of severance costs and $0.1 million of benefits and other costs related to the termination of five executive officers, including the former President and Chief Executive Officer. In addition, the Company incurred approximately $0.1 million of severance costs related to the workforce reduction of twenty-five non-executive employees in various job functions throughout the organization. All costs were accrued for in the year ended March 31, 2002 and are included in general and administrative

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expense for that period in the Company’s results of operations. All amounts accrued were paid.

Net Loss Per Share—Basic loss per share is computed using the net loss and the weighted average number of common shares outstanding during the period. Diluted loss per share is computed using the net loss and the weighted average number of common shares and dilutive potential common shares outstanding during the period when the potential common shares are not anti dilutive. Potential dilutive common shares include outstanding stock options and warrants, convertible debt, and convertible preferred stock. There were 3,912,055, 4,115,480 and 4,165,874 outstanding options to purchase shares of the Company’s common stock with exercise prices ranging from $0.75 to $52.50 per share as of March 31, 2004, 2003 and 2002, respectively.  There were 2,169,647, 2,660,418 and 2,719,191 outstanding warrants to purchase shares of the Company’s common stock with exercise prices ranging from $2.35 to $6.29, $.72 to $6.51 and $.72 to $6.88 per share at March 31, 2004, 2003 and 2002, respectively.  There were 300,000 shares of preferred stock, which are convertible into 500,100 shares of common stock, outstanding at March 31, 2004, 2003, and 2002.  There was convertible debt outstanding at March 31, 2004 and 2003, which is convertible into 4,634,632 and 4,427,941 shares of common stock, respectively.  The total of these items were not included in the computation of diluted earnings per share because their effect would have been anti-dilutive.

Concentration of Credit Risk—The Company supports computer software systems worldwide in diversified industries, primarily through system integrators and value added resellers. On an ongoing basis, the Company performs credit evaluations of its customer’s financial condition and generally requires no collateral. No single customer accounted for more than 10% of revenues during the fiscal years ended March 31, 2004, 2003 and 2002.

Foreign Currency Translation—The financial position and results of operations of the Company’s foreign subsidiaries are translated using local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at the exchange rate in effect at each year-end. Income statement accounts are translated at the average rate of exchange prevailing during the year. Translation adjustments arising from the use of differing exchange rates from period to period are included in accumulated other comprehensive income (loss) in stockholders’ equity. Gains and losses resulting from foreign currency transactions are included in operations.

The Company’s revenues generated through its offices located outside of the United States of America were approximately 28%, 29% and 31% of total revenue for the fiscal years ended March 31, 2004, 2002 and 2002, respectively.

Comprehensive Loss—Comprehensive loss encompasses all changes in equity other than those with stockholders and consists of net loss and foreign currency translation adjustments. The Company does not provide for U.S. income taxes on foreign currency translation adjustments because it does not provide for such taxes on undistributed earnings of foreign subsidiaries.

Use of Estimates—The preparation of the 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 of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications—Certain reclassifications have been made to prior period amounts to conform with current period presentation

Impairment of Long-Lived Assets

The Company adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”) on April 1, 2003.  The adoption of SFAS No. 144 did not have a material effect on the Company’s financial statements.

In accordance with SFAS No. 144, long-lived assets, such as property, plant and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and used is tested by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds fair value.  Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount of fair value less costs to sell and are no longer depreciated.  The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet.

Recently Adopted Accounting Standards

In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” (“SFAS No. 146”). SFAS No. 146 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. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operations, plant closing, or other exit or disposal activities.

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The Company adopted the provisions of SFAS No. 146 on January 1, 2003. This statement applies on a prospective basis to exit or disposal activities that are initiated after December 31, 2002.

The Company adopted the initial recognition and measurement provisions of Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” on January 1, 2003, which apply on a prospective basis to guarantees issued or modified after December 31, 2002. The Company adopted the disclosure provisions of FIN No. 45 during the quarter ended March 31, 2003. In the ordinary course of business, except as discussed below, the Company is not subject to potential obligations under guarantees that fall within the scope of FIN No. 45.

Indemnification and warranty provisions contained within the Company’s customer license and service agreements are generally consistent with those prevalent in the Company’s industry. The duration of the Company’s service warranties generally does not exceed 30 days following completion of its services. The Company has not incurred significant obligations under customer indemnification or warranty provisions historically and does not expect to incur significant obligations in the future. Accordingly, the Company does not maintain accruals for potential customer indemnification or warranty-related obligations. The maximum potential amount of future payments that the Company could be required to make is generally limited under the indemnification provisions in its customer license and service agreements.

In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations” (“SFAS No. 143”). SFAS No. 143 requires the Company to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development or normal use of the assets. The Company also records a corresponding asset, which is depreciated over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation will be adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The Company adopted SFAS No. 143 on April 1, 2003. The adoption has not had and is not expected to have a material effect on the current or future consolidated financial position, results of operations or liquidity.

In April 2002, the FASB issued SFAS No. 145, “Rescission of the FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections,” (“SFAS No. 145”). SFAS No. 145 eliminates the requirement to classify gains and losses from the extinguishment of indebtedness as extraordinary, requires certain lease modifications to be treated the same as a sale-leaseback transaction, and makes other non-substantive technical corrections to existing pronouncements. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002. The Company expects the only future impact, if any, of SFAS No. 145 to be the reclassification of extraordinary gains and losses to interest expense and income taxes if such gains or losses are incurred, there was no impact on the Company’s consolidated financial position, results of operation or liquidity upon adoption.

On January 17, 2003, the FASB issued FASB Financial Interpretation No. 46, “Consolidation of Variable Interest Entities,” which requires extensive disclosures and will require companies to evaluate variable interest entities created after January 31, 2003 and existing entities to determine whether to apply the Interpretation’s consolidation approach to them. Companies must apply the Interpretation to entities with which they are involved if the entity’s equity has specified characteristics. If it is reasonably possible that a company will have a significant variable interest in a variable interest entity at the date the Interpretation’s consolidation requirements become effective, the company must disclose the nature, purpose, size and activities of the variable interest entity and the consolidated enterprise’s maximum exposure to loss resulting from its involvement with the variable interest entity in all financial statements issued after January 31, 2003 regardless of when the variable interest entity was created. Since the Company has no interests in any variable interest entity, the adoption of this interpretation did not have a material impact on its consolidated financial position, results of operations or liquidity.

The Emerging Issues Task Force “EITF” recently reached a consensus for EITF 00-21, “Revenue Arrangements with Multiple Deliverables.” EITF 00-21 provides accounting guidance for allocation of revenue where delivery or performance of products, services or performance may occur at different points in time or over different periods of time. Companies are required to adopt this consensus for fiscal periods beginning after June 15, 2003. The Company believes the adoption of EITF 00-21 did not have a material impact on the Company’s consolidated financial position, results of operations, or liquidity.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS No. 150”). SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise was adopted by the Company in the quarter beginning July 1, 2003. For financial instruments created before the issuance date of this Statement and still existing at the beginning of the interim

41

period of adoption, transition shall be achieved by reporting the cumulative effect of a change in accounting principle by initially measuring the financial instruments at fair value or other measurement attribute required by this statement. The adoption of SFAS No. 150 did not have a material impact on its consolidated financial position, results of operations or liquidity.

3. Property, Furniture and Equipment

Property, furniture and equipment at March 31 consisted of (in thousands):

	2004			2003
Land and buildings	$	782		$	675
Office equipment, furniture and fixtures	4,867			4,879
Total	5,649			5,554
Accumulated depreciation and amortization	(4,854		)	(4,624		)
Property, furniture and equipment, net	$	795		$	930

4. Goodwill and Other Intangible Assets

The Company adopted certain provisions of SFAS No. 141 as of July 1, 2001 as required for business combinations initiated after June 30, 2001, and the remaining provisions of SFAS No. 141 and SFAS No. 142 became effective for the Company on April 1, 2002. Upon adoption of SFAS No. 142, the Company evaluated its existing intangible assets and goodwill that were acquired in purchase business combinations and made any necessary reclassifications in order to conform with the new classification criteria in SFAS No. 141 for recognition separate from goodwill. The Company assessed the useful lives and residual values of all intangible assets acquired, and made any necessary amortization period adjustments during the three-month period ended June 30, 2002.

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The following table presents details of the Company’s intangible assets and goodwill (in thousands):

	Gross Carrying Amount		Accumulated Amortization		Balance
March 31, 2004
Assets subject to amortization:
Installed base, including core technology	$	10,400	$	8,667	$	1,733
Assets not subject to amortization:
Goodwill, including assembled workforce					$	27,684
March 31, 2003
Assets subject to amortization:
Installed base, including core technology	$	10,400	$	6,067	$	4,333
Assets not subject to amortization:
Goodwill, including assembled workforce					$	27,684

The following table reconciles changes to goodwill for the year ended March 31, 2004 and 2003 (in thousands):

Balance as of March 31, 2002	$	26,791
Settlement of contingency based on earnings for General Automation acquisition	1,043
Adjustment for refund of over-funded pension obligation acquired	(150		)
Balance as of March 31, 2003 and 2004	$	27,684

The Company had aggregate amortization expense related to intangible assets of $2.6 million for the year ended March 31, 2004.

In July 2002, the Company settled all claims with General Automation, Inc., dba GA eXpress (“General Automation”), for the sum of $2,000,000. The Company paid $1,000,000 of this amount concurrently with the signing of the Settlement Agreement and Mutual Release (the “Settlement Agreement”) in July 2002; $400,000 was paid in December 2002; and the remaining $600,000 was paid in June 2003.

Estimated amortization expense for future periods is as follows (in thousands):

For the Year Ending:

March 31, 2005 $ 1,733

The following table reconciles previously reported net loss as if the provisions of SFAS No. 142 were in effect in the prior fiscal years (in thousands except per share amounts):

	For the year ended March 31,
	2004			2003			2002
Reported net loss	$	(1,353	)	$	(3,419	)	$	(20,425	)
Add back: Goodwill and assembled workforce amortization, net of taxes	—			—			10,561
Adjusted net loss	$	(1,353	)	$	(3,419	)	$	(9,864	)
Reported basic and diluted loss per common share	$	(0.07	)	$	(0.19	)	$	(1.23	)
Add back: Goodwill and assembled workforce amortization, net of taxes	—			—			0.64
Adjusted basic and diluted loss per common share	$	(0.07	)	$	(0.19	)	$	(0.59	)

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5. Long-Term Debt

Long-term debt of the Company, including the Note Payable to Astoria Capital Partners (“ACP”) or (“Astoria”), the Company’s largest stockholder, as of March 31, 2004 and March 31, 2003 follows (in thousands):

	March 31, 2004			March 31, 2003
Note payable to Astoria	$	23,172		$	22,140
Plus accrued interest	289			182
Less unamortized discount	(344		)	(427		)
	23,117			21,895
Note payable and accrued interest-individual	—			256
Other long-term liabilities	38			102
Total debt	23,155			22,253
Less current portion of long-term debt	(38		)	(321		)
Total long-term debt	$	23,117		$	21,932

On January 30, 2003, the Company entered into a Note Exchange Agreement with ACP, to replace the existing Secured Promissory Note dated November 30, 2000, as amended, held by ACP. Under the terms of the Note Exchange Agreement, the Company issued to ACP a Convertible Subordinated Note having a principal amount of approximately $22.1 million, which principal amount is equal to the outstanding principal and accrued interest payable on the Secured Promissory Note as of the date of the agreement. The Convertible Subordinated Note is convertible into common stock at a price of $5.00 per share. The Convertible Subordinated Note matures on May 30, 2008, extending the May 30, 2003, maturity date of the Secured Promissory Note. The interest rate is 5% per annum, versus the interest rate of 10% per annum under the Secured Promissory Note. The interest will be payable quarterly at the Company’s option in cash or through increases to the outstanding principal of the Convertible Subordinated Note. Increases to the principal are to be done via issuance of a payment in kind (“PIK”) note on a quarterly basis. For the periods ended March 31, 2003, June 30, 2003, September 30, 2003, December 31, 2003 and March 31, 2004, the Company issued PIK notes to ACP for the accrued interest due in the aggregate amount of $1,322,325.

The Phillip and Debra Barrett trust, a stockholder of the Company, loaned the Company $250,000 in September 2000. The loan, as amended, had a maturity of April 2, 2003, with interest at 10% per annum, payable quarterly. The note was paid in full on April 2, 2003.

Net interest expense is comprised of the following components (in thousands):

	2004			2003			2002
Interest expense	$	1,232		$	3,440		$	3,947
Interest income	(17		)	(31		)	(60		)
Net interest expense	$	1,215		$	3,409		$	3,887

6. Stockholders’ Equity

The Company’s beginning accumulated deficit in the accompanying consolidated statements of stockholders’ equity was adjusted to

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reflect the reversal of a $180,000 sales allowance and a $50,000 depreciation adjustment both of which were recorded incorrectly in periods not presented in the accompanying consolidated financial statements.

Series A Convertible Preferred Stock

The Company had 300,000 outstanding shares of Series A convertible preferred stock (“Series A”) authorized, issued and outstanding at March 31, 2004 and 2003. Holders of Series A are entitled to that number of votes equal to the number of shares of common stock into which Series A is then convertible. Dividends are paid at the option of the Board of Directors at the rate of $0.125 per share per annum, in preference to all other stockholders. Series A ranks senior to the Company’s common stock as to liquidation rights. Each share of Series A may be converted at the option of the holder into 1.667 shares of common stock. In effecting the conversion, any unpaid dividends on Series A shall be disregarded. No dividends have been declared on the Series A since its issuance.

Warrants

The 1993 Directors’ Warrant Plan and the 1993 Advisors’ Plan were terminated in 1999, except as to any warrants then outstanding under such Plans.

The following table summarizes the warrants outstanding, excluding the 2,169,647 warrants, as adjusted, issued by the Company in connection with its acquisition of PickAx at exercise prices ranging from $2.35 to $6.29:

	Warrants		Exercise Price	Weighted Average Remaining Contractual Life (Years)
Warrants outstanding at March 31, 2001	104,749		$0.72 - $33.75	1.95
Cancelled	(16,498	)	$10.94 - $33.75
Warrants outstanding at March 31, 2002	88,251		$0.72 - $6.88	1.29
Cancelled	(334	)	$6.88
Warrants outstanding at March 31, 2003	87,917		$0.72	0.29
Exercised	(87,500	)	$0.72
Cancelled	(417	)	$0.72
Warrants outstanding at March 31, 2004	—		$—	—

As part of the acquisition of PickAx, the Company assumed the warrant obligations for PickAx stock after adjusting both the exercise price and shares underlying the warrants for the conversion ratio of 0.50916, which was the same ratio used for acquiring the PickAx common stock. All the PickAx warrants are for a term of five years from the date of grant.  During fiscal 2004, 402,855 warrants were exercised at a warrant price of $2.35.  There were no warrant exercises in fiscal 2003 or fiscal 2002.  At March 31, 2004, there were 1,669,647 of the assumed warrants outstanding to purchase shares of the Company’s common stock at an exercise price of $2.35 per share, expiring at various dates through March 2005.

In connection with the merger with PickAx, a promissory note previously issued by PickAx to its controlling stockholder, Astoria, was exchanged for a new promissory note from the Company. In addition, Astoria received warrants to purchase 500,000 shares of the Company’s common stock at an original exercise price of $7.00 that has been adjusted to $6.29 per share, due to certain anti-dilutive adjustments as provided for in the warrants.

Stock Options

In April 1999, the Company adopted a new stock option plan (“1999 Plan”). In conjunction with the adoption of the 1999 Plan, the Company terminated all other plans, except as to options then issued and outstanding under such plans. The 1999 Plan authorizes grants of options to purchase up to an aggregate of 5,000,000 shares of authorized but unissued common stock. Stock options are generally granted with an exercise price equal to the stock’s fair market value at the date of grant. All options under the 1999 Plan have ten-year terms and generally vest ratably over a period of four years. As of March 31, 2004, there were 1,270,360 shares available for future option grants under the 1999 Plan.

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The following table presents information about outstanding stock options as of March 31, 2004:

		Weighted Average				Options vested and exercisable
Range of Exercise Price	Options Outstanding	Exercise Price			Remaining Contractual Life	Number of Options	Weighted Avg. Exercise Price
$0.75 - $1.02	274,813	$		0.99	5.67	257,103	$		1.00
$1.06 - $1.55	1,063,000	$		1.53	7.55	1,034,250	$		1.54
$1.65 - $2.95	1,323,035	$		2.47	5.96	903,961	$		2.57
$3.00 - $52.50	1,251,207	$		4.81	6.92	933,866	$		4.97
$0.75 - $52.50	3,912,055	$	2.86		6.68	3,129,180	$	2.82

A summary of changes in common stock options is as follows:

	Shares		Weighted Average Exercise Price Per Share
Options outstanding as of March 31, 2001	2,980,591		$	4.33
Granted	2,196,275		$	2.50
Cancelled	(939,119	)	$	4.30
Exercised	(71,873	)	$	1.08
Options outstanding as of March 31, 2002	4,165,874		$	3.40
Granted	655,000		$	1.83
Cancelled	(702,738	)	$	5.46
Exercised	(2,656	)	$	0.87
Options outstanding as of March 31, 2003	4,115,480		$	2.84
Granted	146,000		$	2.95
Cancelled	(240,543	)	$	3.16
Exercised	(108,882	)	$	1.41
Options outstanding as of March 31, 2004	3,912,055		$	2.86

Grants in the above table include options whose exercise price was less than the fair value of the Company’s common stock on the date of grant. These included options to purchase 1,363,820 shares of common stock at a weighted-average exercise price of $1.74 per share during the year ended March 31, 2002.

The Company had $41,000, $145,000 and $523,000 of deferred stock-based compensation related to employee stock options as of March 31, 2004, 2003 and 2002, respectively, and recognized stock-based compensation expense of $246,000, $351,000 and $1,247,000 during the years ended March 31, 2004, 2003 and 2002, respectively, as a result of granting stock options with exercise prices below the estimated fair value of the Company’s common stock at the date of grant. Deferred stock-based compensation has been presented as a component of stockholders’ equity and is being amortized to expense over the vesting period of the applicable options.

Employee Stock Purchase Plan

On December 12, 2001, the Board of Directors approved the Company’s 2001 Employee Stock Purchase Plan (the “Purchase Plan”) to provide employees of the Company with an opportunity to purchase common stock of the Company through accumulated payroll deductions. The maximum number of shares of common stock made available for sale under the Purchase Plan is one million (1,000,000) shares. The offer periods of six (6) months’ duration commence each February 15 and August 15. An employee may contribute between one percent (1%) and not exceeding ten percent (10%) of their compensation not to exceed $21,250 per calendar year. Individual employee share purchases are limited to 1,500 shares per offer period. Employees are able to purchase the stock at an amount equal to 85% of the market value of a share of common stock on the enrollment date or on the exercise date, whichever is lower. Through March 31, 2004, 212,703 shares had been issued to employees under the Purchase Plan.

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Retirement Plans

The Company sponsors a 401(k) Savings and Retirement Plan (“the Plan”) for substantially all of its employees in the United States. Employees meeting the eligibility requirements may contribute specified percentages of their salaries. Under the Plan, which is qualified under Section 401(k) of the federal tax laws, the Company’s Board of Directors, in its sole discretion, may make discretionary profit-sharing contributions at 50% of the employees’ contributions up to 4% of the employees’ total compensation, to the Plan. For the years ended March 31, 2004, 2003 and 2002, discretionary annual contributions of $0, $0 and $67,600, respectively, were made to the Plan.

The Company sponsors the Raining Data UK Limited Retirement Benefits Scheme (“RDUKL Plan”) for substantially all of its employees in the United Kingdom. The RDUKL Plan is a defined contribution plan that provides retirement benefits upon attaining normal retirement age, and incidental benefits in the case of death or termination of employment prior to retirement. Raining Data UK contributes an amount ranging from 3% to 8% of each participant’s compensation to fund such benefits. In addition, participants are entitled to make voluntary contributions under the RDUKL Plan. The Company contributed approximately $117,000, $87,000 and $86,500 to the RDUKL Plan for the years ended March 31, 2004, 2003 and 2002, respectively.

7. Income Taxes

The provision (benefit) for income taxes consisted of $(31,000), $30,000 and $0 for the years ended March 31, 2004, 2003 and 2002, respectively, related to foreign jurisdictions. The foreign income before income taxes was approximately $126,000, $293,000 and $435,000 in fiscal year 2004, 2003 and 2002, respectively.

A reconciliation of the expected U.S. Federal tax expense (benefit) attributable to income from continuing operations differed from the amounts computed by applying the statutory U.S. Federal statutory tax rate to pretax loss from continuing operations as follows:

	2004		2003		2002
Expected U.S. Federal tax	(34.0	)%	(34.0	)%	(34.0	)%
State taxes	(5.8	)%	(5.8	)%	(5.3	)%
Foreign taxes	(2.2	)%	0.3	%	0.0	%
Change in valuation allowance	70.3	%	20.9	%	18.5	%
Research and experimental credit	(43.0	)%	(10.4	)%	(0.3	)%
Expiration of net operating losses	13.0	%	29.7	%	0.0	%
Nondeductible goodwill amortization	0.0	%	0.0	%	20.8	%
Other	(0.5	)%	0.3	%	0.3	%
Actual effective tax rate	(2.2	)%	1.0	%	0.0	%

Deferred income tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Significant components of the Company’s net deferred tax assets are as follows at March 31 (in thousands):

	2004			2003
Deferred tax assets:
Net operating loss carryforwards	$	21,916		$	21,635
Accruals and allowances recognized in different periods	800			1,719
Research and experimental credit carryforward	2,481			1,840
Depreciation	54			76
Total deferred assets	25,251			25,270
Less valuation allowance	(24,097		)	(23,084		)
Total deferred tax asset	$	1,154		$	2,186
Deferred tax liabilities:
Purchased intangibles	$	(1,154	)	$	(2,186	)
Net deferred tax asset	$	—		$	—

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Due to uncertainties surrounding the timing of realizing the benefits of its net favorable tax attributes in the future tax returns, the Company has recorded a full valuation allowance against its net deferred tax assets at March 31, 2004, 2003 and 2002. The net change in the valuation allowance was an increase of $1,013,000 in 2004 and $704,000 in 2003.  In addition, imbedded in the valuation allowance is the benefit of $161,441 of stock options exercised that will be credited to Additional paid-in-capital when the valuation allowance is released.

At March 31, 2004, the Company had net operating loss carryforwards of $58.4 million for federal income tax purposes and $7.5 for state tax purposes expiring at various dates through 2022. During fiscal 2004, $0.8 million of federal net operating losses expired. Any changes in ownership, as defined by Section 382 of the Internal Revenue Code, may limit the amount of net operating loss carryforwards that can be used in any one year.

As a result of the Company’s acquisition of PickAx, the Company assumed preacquisition federal net operating loss carryforwards of $6.1 million and foreign net operating loss carryforwards of $2.1 million. A valuation allowance has been recorded against deferred tax assets attributable to these net operating loss carryforwards. In the event these net operating loss carryforwards are realized in the future, the benefit will be recorded as a reduction of goodwill.

8. Commitments and Contingencies

Leases—The Company leases office space and certain equipment under noncancelable operating lease agreements with terms expiring through 2009. Rent expense related to operating these leases is recognized ratably over the entire lease term. The Company is required to pay property taxes, insurance and normal maintenance costs.

Future minimum lease payments under noncancelable operating leases with initial or remaining lease terms in excess of one year as of March 31, 2004 are as follows (in thousands):

Years Ending March 31,	Operating Leases
2005	$	1,142
2006	821
2007	190
2008	27
2009 and thereafter	5
Total minimum lease payments	$	2,185

As of March 31, 2004, the total of minimum rentals to be received in the future under noncancelable subleases through November 2005 was $322,000.

Rent expense of $902,000, $977,000 and $884,000 was recognized in 2004, 2003 and 2002, respectively.

The Company is subject from time to time to litigation, claims and suits arising in the ordinary course of business. As of March 31, 2004, the Company was not a party to any known material litigation, claim or suit.

9. Segment Information

The Company operates in one reportable segment. International operations consist primarily of foreign sales offices selling software

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developed in the United States of America combined with local service revenue. The following table summarizes consolidated financial information of the Company’s operations by geographic location (in thousands):

	North America		Europe/ Africa		Total
Fiscal Year 2004
Net revenues	$	15,954	$	6,343	$	22,297
Long lived assets	29,761		652		30,413
Fiscal Year 2003
Net revenues	$	14,950	$	6,056	$	21,006
Long lived assets	32,615		590		33,205
Fiscal Year 2002
Net revenues	$	13,215	$	6,052	$	19,267
Long lived assets	34,167		576		34,743

The Company operates in one reportable segment and is engaged in the design, development, sale and support of software infrastructure. The Company divides its products into two main categories: (1) Pick-based database technology (“Databases”), which includes Multi-dimensional Database Management Systems, XML Data Management Servers and the Pick Data Provider for the Microsoft .NET development environment; and (2) Rapid Application Development software tools (“RAD Tools”). The following table represents the net revenue from the Company’s segment by product line (in thousands):

	Year ended March 31,
	2004		2003		2002
Databases	$	17,381	$	16,878	$	15,747
RAD Tools		4,916		4,128		3,520
Total Net Revenue	$	22,297	$	21,006	$	19,267

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EXHIBIT INDEX

Exhibit	Description
3.1	Restated Certificate of Incorporation of the Registrant dated June 4, 2003 (included as Exhibit 3.1 to the Registrant’s Form 10-KSB filed with the Commission on June 6, 2003 and incorporated herein by reference).
3.2	Amended and Restated Bylaws of the Registrant, dated April 22, 2002 (included as Exhibit 3.1 to the Registrant’s Form 10-QSB filed with the Commission on August 13, 2002 and incorporated herein by reference).
3.3	Certificate of Designations dated March 31, 1999, as corrected (included as Exhibit 3.1 to the Registrant’s Form 8-K filed with the Commission on April 5, 1999 and incorporated herein by reference).
4.1	Registration Rights Agreement by and among the Registrant, Pamela Conrad, Donald D. Durr, Lee Summers, Robert J. Rosenberg, Gil Figueroa, Michael E. McGoey, Gerald L. Cohn and Timothy Holland dated as of November 30, 2000 (included as Exhibit 4.1 to the Registrant’s Form 10-QSB filed with the Commission on February 14, 2001 and incorporated herein by reference).
4.2	Registration Rights Agreement by and among the Registrant, Astoria Capital Partners, L.P., Harrison H. Augur, Keogh MP and Robert D. van Roijen dated as of December 4, 2000, as amended on April 3, 2003, (included as Exhibit 4.3 to the Registrant’s Form 10-QSB filed with the Commission on August 13, 2002 and incorporated herein by reference).
4.3	Sixth Amendment to the Registration Rights Agreement by and among the Registrant, Astoria Capital Partners, L.P., Harrison H. Augur, Keogh MP and Robert D. van Roijen dated as of April 1, 2003 (included as Exhibit 4.3 to the Registrant’s Form 10-KSB filed with the Commission on June 6, 2003 and incorporated herein by reference).
4.4	Registration Rights Agreement by and between the Registrant and Astoria Capital Partners, L.P., dated as of September 27, 2001, as amended on April 3, 2002 (included as Exhibit 4.2 to the Registrant’s Form 10-QSB filed with the Commission on August 13, 2002 and incorporated herein by reference).
4.5	Third Amendment to Registration Rights Agreement by and between the Registrant and Astoria Capital Partners, L.P., dated as of September 27, 2001, as amended on January 30, 2003 (included as Exhibit 4.3 to the Registrant’s Form 8-K filed with the Commission on January 30, 2003 and incorporated herein by reference),
4.6	Note Exchange Agreement between the Registrant and Astoria Capital Partners, L.P. dated January 30, 2003 (included as Exhibit 4.1 to the Registrant’s Form 8-K filed with the Commission on January 30, 2003 and incorporated herein by reference).
4.7	5% Convertible Subordinated Note Due 2008 between the Registrant and Astoria Capital Partners, L.P. dated January 30, 2003 (included as Exhibit 4.2 to the Registrant’s Form 8-K filed with the Commission on January 30, 2003 and incorporated herein by reference).
4.8	Form of payment in kind note, as referenced in the 5% Convertible Subordinated Note, between the Registrant and Astoria Capital Partners, L.P (included as Exhibit 4.8 to the Registrant’s Form 10-KSB filed with the Commission on June 6, 2003 and incorporated herein by reference).
4.9	Form of Common Stock Purchase Warrant issued by the Registrant to Astoria Capital Partners, L.P. dated April 1, 2004.  Originally issued on November 30, 2000 and adjusted on April 1, 2003.
4.10	Registration Rights Agreement dated May 7, 2002, by and among the Registrant and Thomas A. Arata, Jr., Edward A. Runci, Jr. and Wall & Bullington, LLC (included as Exhibit 4.4 to the Registrant’s 10-QSB filed with the Commission on August 13, 2002 and incorporated herein by reference).
4.11	Form of Amended and Restated Common Stock Purchase Warrant between the Registrant and Astoria Capital Partners, dated April 1, 2003. Originally issued as an Exchange Warrant on December 1, 2000 to holders of PickAx Warrants (included as Exhibit 4.11 to the Registrants Form 10-KSB filed with the Commission on June 6, 2003 and incorporated herein by reference).
10.1*	1999 Stock Option Plan, as amended on June 21, 2002 (included as Exhibit 10.4 to the Registrant’s 10-QSB filed with the Commission on August 13, 2002 and incorporated herein by reference).
10.2*	2001 Employee Stock Purchase Plan as amended on December 28, 2001 (included as Exhibit 10.1 to the Registrant’s Form 10-QSB filed with the Commission on March 21, 2002 and incorporated herein by reference).
10.3*	Option Agreement dated September 24, 2001, between the Registrant and Carlton H. Baab (included as Exhibit 10.22 of Registrant’s Form 10-QSB filed with the Commission on November 14, 2001 and incorporated herein by reference).
10.4*	Service Agreement by and between the Registrant and Gwyneth Gibbs dated April 1, 2004.
10.5*	Form of Indemnification Agreement entered into with officers and directors of Registrant (included as Exhibit 10.2 to the Registrant’s Form 10-QSB filed with the Commission on March 21, 2002 and incorporated herein by reference).
10.6	Settlement Agreement and Mutual Release, between General Automation, Inc. dba GA eXpress and Raining Data, U.S., Inc. f/k/a Pick Systems, dated July 26, 2002. (included as Exhibit 4.1 to the Registrant’s Form 8-K filed with the Commission on August 2, 2002 and incorporated herein by reference).
10.7	Compromise and Settlement Agreement, dated April 29, 2002, between the Registrant, PickAx, Inc., Pick Systems, Inc. and Thomas A. Arata, Jr., and Edward A. Runci, Jr. (included as Exhibit 10.2 to the Registrant’s 10-QSB filed with the Commission on August 13, 2002 and incorporated herein by reference).

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10.8*	Amendment to Stock Option Agreement, dated June 21, 2002, between the Registrant and Soheil Raissi (included as Exhibit 10.5 to the Registrant’s 10-QSB filed with the Commission on August 13, 2002 and incorporated herein by reference).
10.9*	Offer Letter Agreement, effective April 15, 2002, between the Registrant and Brian C. Bezdek (included as Exhibit 10.6 to the Registrant’s 10-QSB filed with the Commission on August 13, 2002 and incorporated herein by reference).
10.10*	Offer Letter Agreement, effective March 18, 2002, between the Registrant and Boris Geller (included as Exhibit 10.7 to the Registrant’s 10-QSB filed with the Commission on August 13, 2002 and incorporated herein by reference).
10.11*	Stock Option Agreement, dated December 21, 2002 between the Registrant and Brian C. Bezdek (included as Exhibit 10.2 to the Registrant’s 10-QSB filed with the Commission on February 12, 2003 and incorporated herein by reference).
10.12*	Severance and Change of Control Agreement, dated April 5, 2003, between the Registrant and Carlton H. Baab (included as Exhibit 10.12 to the Registrants Form 10-KSB filed with the Commission on June 6, 2003 and incorporated herein by reference).
10.13	Loan and Security Agreement dated February 11, 2004, between the Registrant, Raining Data U.S., Inc. and Silicon Valley Bank.
21.1	Subsidiaries of the Registrant (included as Exhibit 21.1 to the Registrant’s Form 10-KSB filed with the Commission on June 28, 2002 and incorporated herein by reference).
23.1	Consent of Independent Registered Public Accounting Firm.
24.1	Power of Attorney (included in the signature page and incorporated herein by reference).
31.1	Certification of Chief Executive Officer.
31.2	Certification of Chief Financial Officer.
32.1	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Indicates management contracts or compensatory plans and arrangements filed pursuant to Item 601 or Regulation S-B under the Exchange Act.

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EX-4.9

EXHIBIT 4.9

THIS WARRANT AND THE CAPITAL STOCK ISSUABLE HEREUNDER HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.  NEITHER THIS WARRANT NOR THE CAPITAL STOCK ISSUABLE HEREUNDER HAS BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR WITH ANY STATE SECURITIES COMMISSIONER AND, ACCORDINGLY, MAY NOT BE SOLD OR TRANSFERRED UNLESS REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND QUALIFIED UNDER ALL APPLICABLE STATE SECURITIES LAWS, OR UNLESS EXEMPTIONS FROM SUCH REGISTRATION AND QUALIFICATION ARE AVAILABLE.

THE WARRANT PRICE SET FORTH HEREIN REFLECTS ANTI-DILUTION ADJUSTMENTS AS OF APRIL 1, 2004 PURSUANT TO SECTION 4 OF THE WARRANT.  THIS WARRANT SUPERSEDES ALL PREVIOUS COMMUNICATIONS, UNDERSTANDINGS AND AGREEMENTS, EITHER ORAL OR WRITTEN, BETWEEN THE COMPANY AND THE HOLDER WITH RESPECT TO THE WARRANT.

RAINING DATA CORPORATION
COMMON STOCK PURCHASE WARRANT

500,000 Shares of Common Stock	Originally issued on November 30, 2000 and as adjusted on April 1, 2003 and April 1, 2004
	Irvine, California

Reference is hereby made to that certain Note and Warrant Purchase Agreement (the “Purchase Agreement”) by and between Raining Data Corporation, a Delaware corporation, formerly Omnis Technology Corporation (the “Company”) and Astoria Capital Partners, L.P., a California limited partnership (“Astoria”), the terms of which are incorporated by this reference.  The term “Holder” shall initially refer to Astoria, which is the initial holder of this Warrant and shall further refer to any subsequent permitted holder of this Warrant from time to time.

The Company hereby certifies that, for value received, Holder is entitled to purchase from the Company, on or before the Expiration Date (as defined below), up to Five Hundred Thousand (500,000) duly authorized, validly issued, fully paid and non-assessable shares of Common Stock of the Company, $0.10 par value (the “Stock”) under the terms and conditions set forth herein.  Capitalized terms used and not otherwise defined in this Common Stock Purchase Warrant (this “Warrant”) shall have the respective meanings assigned to them in the Purchase Agreement as the same may be supplemented, modified, amended, renewed or restated from time to time.

Section 1. Price and Exercise of Warrant.

1.1  Term of Warrant.  This Warrant shall be exercisable for a period of five (5) years after the date of original issuance (the expiration date for this Warrant is hereinafter referred to as the “Expiration Date”).

1.2  Warrant Price.  The price per share at which the shares of Stock are issuable upon exercise of this Warrant (the “Warrant Shares”) shall be Six Dollars and Twenty-Nine Cents ($6.29) per share (the “Warrant Price”) as adjusted hereunder.

1.3  Exercise of Warrant.

(a)  This Warrant may be exercised, in whole or in part, upon surrender to the Company at its then principal offices in the United States of the certificate or certificates evidencing this Warrant to be exercised, together with the form of election to exercise attached hereto as Exhibit A duly completed and executed, and upon payment to the Company of the aggregate Warrant Price for the number of Warrant Shares in respect of which this Warrant is then being exercised.

(b)  Payment of the aggregate Warrant Price may be made (i) in cash or by cashier’s or bank check or (ii) if the Stock is at the time traded on any national securities exchange or in any United States interdealer quotation system, by making a Cashless Exercise (as defined herein).  Upon a “Cashless Exercise” the Holder shall receive Stock on a net basis such that, without the payment of any funds, the Holder shall surrender this Warrant in exchange for the number of shares of Stock equal to the product of (i) the number of shares of Stock as to which this Warrant is being exercised, multiplied by (ii) a fraction, the numerator of which is the per share closing price of such Stock as of the close of trading on the last trading day prior to the date of the Cashless Exercise (or, if no such closing price is reported for such day, the mean between the closing bid and the closing asked prices on the principal national securities exchange or in the principal United States interdealer quotation system on which the Stock is traded)(“Trading Price”) less the then Warrant Price, and the denominator of which is said Trading Price.

(c)  Subject to Section 2 hereof, upon surrender of this Warrant, and the duly completed and executed form of election to exercise, and payment of the Warrant Price in cash or pursuant to the Cashless Exercise, the Company shall cause to be issued and delivered to the Holder or such other person as the Holder may designate in writing hereunder a certificate or certificates for the number of full shares of Stock so purchased upon the exercise of this Warrant.  Such certificate or certificates shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become a holder of record of such Warrant Shares as of the date of the surrender of this Warrant, and the duly completed and executed form of election to exercise, and payment of the Warrant Price; provided however, that if, the date of surrender of this Warrant and payment of the Warrant Price is not a business day, the certificates for the Warrant Shares shall be issued as of the next business day (whether before or after the Expiration Date), and, until such date, the Company shall be under no duty to cause to be delivered any certificate for such Warrant Shares or for shares of such other class of stock.

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1.4  Fractional Interests.  The Company shall not be required to issue fractions of shares of Stock on the exercise of this Warrant.  If any fraction of a share of Stock would be issuable upon the exercise of this Warrant (or any portion thereof), the Company shall purchase such fraction for an amount in cash equal to the same fraction of the last reported closing price of the Stock on the NASDAQ National Market System or any other national securities exchange or market on which the Stock is then listed or traded, and if not so listed or traded, at the then fair market value of a single share of Stock as determined in good faith by the Board of Directors of the Company, which determination shall be binding and conclusive.

Section 2. Exchange and Transfer of Warrant and Warrant Shares.

(a)  This Warrant and the Warrant Shares have not been registered under any securities laws and shall be subject to the rights, restrictions, limitations, representations, warranties and covenants set forth in the Purchase Agreement at all times.  In connection therewith this Warrant hereby does bear and any stock certificates issued pursuant to the exercise of this Warrant or any substitute therefor shall bear the legends described in the Purchase Agreement.

(b)  This Warrant may be transferred, in whole or in part, without restriction, subject to receipt of an opinion from Wilson, Sonsini, Goodrich & Rosati or any other law firm satisfactory to the Company that such transfer will not require registration or qualification under applicable securities laws (or such registration or qualification has been effected) and as otherwise provided in the Purchase Agreement.  A transfer may be registered with the Company by submission to it of this Warrant, together with the annexed Assignment Form attached hereto as Exhibit B duly completed and executed.  After the receipt by the Company of this Warrant and the Assignment Form so completed and executed and after compliance with all conditions hereunder, the Company will issue and deliver to the transferee a new warrant (representing the portion of this Warrant so transferred) at the same Warrant Price per share and otherwise having the same terms and provisions as this Warrant, which the Company will register in the new holder’s name.  In the event of a partial transfer of this Warrant, the Company shall concurrently issue and deliver to the transferring holder a new warrant that entitles the transferring holder to purchase the balance of this Warrant not so transferred and that otherwise is upon the same terms and conditions as this Warrant.  Upon the due delivery of this Warrant for transfer, the transferee holder shall be deemed for all purposes to have become the holder of the portion of this Warrant so transferred, effective immediately prior to the close of business on the date of such delivery, irrespective of the date of actual delivery of the new warrant representing this Warrant so transferred.

(c)  In the event of the loss, theft or destruction of this Warrant, the Company shall execute and deliver an identical new warrant to the Holder in substitution therefor upon the Company’s receipt of (i) evidence reasonably satisfactory to the Company of such event and (ii) if requested by the Company, an indemnity agreement reasonably satisfactory in form and substance to the Company.  In the event of the mutilation of or other damage to this Warrant, the Company shall execute and deliver an identical new warrant to the Holder in substitution therefor upon the Company’s receipt of the mutilated or damaged warrant.

(d)  The Company shall pay all costs and expenses incurred in connection with the exercise, exchange, transfer or replacement of this Warrant, including, without limitation, the costs

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of preparation, execution and delivery of a new warrant and of stock certificates representing all Warrant Shares for which the Warrant is being exercised; provided, that the Holder shall pay all taxes payable in connection with the exercise or transfer or replacement of this Warrant and any transfer or disposition of the Warrant Shares.

Section 3. Certain Covenants.

The Company covenants that during the period this Warrant is exercisable in accordance with its terms, the Company will (i) reserve from its authorized and unissued Stock, a sufficient number of shares to provide for the issuance of Stock upon exercise of this Warrant or (ii) if at any time the number of authorized but unissued shares of Stock shall not be sufficient to effect the exercise of this Warrant in full, in addition to such other remedies as shall be available to the Holder, the Company will use its best efforts to take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Stock to such number of shares as shall be sufficient for such purposes; subject to applicable securities laws and the limitations set forth in the Purchase Agreement.  The Company will not, by amendment of its Certificate of Incorporation or otherwise, avoid or seek to avoid the observance or performance of any of the terms of this Warrant.

Section 4. Adjustment of Warrant Price and Number of Warrant Shares.

The Warrant Price per share and the number and kind of securities purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of certain events, as hereinafter provided.

(a)  In case the Company shall after the date hereof (i) pay a dividend or make a distribution on its Stock in shares of its Stock, (ii) engage in a stock split or reverse stock split or combination of its outstanding Stock, or (iii) issue any shares by reclassification of its Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation) without receipt of consideration, the Warrant Price for the Shares in effect at the time of such event shall be proportionally adjusted as herein provided so that the Holder, upon exercise of this Warrant after such date, shall be entitled to receive the aggregate number and kind of shares of Stock which, if this Warrant had been exercised immediately prior to such transaction date, it would have owned upon such exercise and been entitled to receive upon such dividend, distribution, stock split or reverse stock split, combination or reclassification.

(b)  Whenever the Warrant Price payable upon exercise of this Warrant is adjusted pursuant to Section 4(a) hereof, the number of Warrant Shares purchasable upon exercise of this Warrant shall simultaneously be adjusted by multiplying the number of Warrant Shares issuable upon exercise of this Warrant immediately before the event that caused the adjustment by the Warrant Price in effect as of the date of this Warrant and dividing the product so obtained by the Warrant Price, as adjusted.

(c)  No adjustment in the Warrant Price shall be required unless such adjustment would require an increase or decrease of at least 0.75% in such price; provided however that any such adjustments not required to be made in this Subsection shall be carried forward and taken into

4

account in any subsequent adjustment.  For these purposes all calculations under this Section 4 shall be made to the nearest cent or to the nearest one-thousandth of a share, as the case may be.

(d)  Whenever the Warrant Price and number of Warrant Shares is adjusted hereunder, as herein provided, the Company shall promptly cause a notice setting forth the adjusted Warrant Price and adjusted number of shares issuable upon exercise of this Warrant to be mailed to the Holder.  The certificate setting forth the computation shall be signed by the Chief Financial Officer of the Company.

(e)  In the event that at any time, as a result of any adjustment made pursuant to the foregoing Section 4(a), the holder of this Warrant thereafter shall become entitled to receive any shares of the capital stock of the Company, other than Stock, thereafter the number of such other shares so receivable upon exercise of this Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Stock contained in Section 4(a).  Subject to the foregoing exception, no adjustment shall be made hereunder for (i) any dividend or distribution or other transaction by the Company in any class of its preferred stock; or (ii) any changes occurring on account of the issuance of capital stock of the Company at any time upon the exercise of any stock options, rights or warrants or upon the conversion of any convertible securities or debt (whether existence on or after the date of this Warrant) or other issuance of capital stock of the Company in a private or public offering for consideration.

(f)  In the event that during the Term hereof the Company shall issue additional shares of its Common Stock for a consideration per share (“Issue Price”) less than the then applicable Warrant Price as adjusted hereunder, then and in each such case the then existing Warrant Price shall be reduced, as of the opening of business on the date of such issue or sale, to a price determined by multiplying the Warrant Price by a fraction (i) the numerator of which shall be (A) the number of shares of Common Stock deemed outstanding (as defined below) immediately prior to such issue or sale, plus (B) the number of shares of Common Stock which the aggregate consideration received (as defined below) by the Company for the total number of additional shares of Common Stock so issued would purchase at such Warrant Price and (ii) the denominator of which shall be the number of shares of Common Stock deemed outstanding (as defined below) immediately prior to such issue or sale plus the total number of additional shares of Common Stock so issued.  For the purposes of the preceding sentence, the number of shares of Common Stock deemed to be outstanding as of a given date shall be the sum of (A) the number of shares of Common Stock actually outstanding and (B) the number of shares of Common Stock which could be obtained through the exercise or conversion of all other rights, options and convertible securities on the day immediately preceding the given date.  For these purposes no adjustment shall be made for (i) any transaction otherwise governed by this Section 4 or by Section 5 hereunder; (ii) any dividend or distribution or other transaction by the Company in any class of its preferred stock; (iii) any issuance of capital stock of the Company at any time upon the exercise of any stock options, rights or warrants by any employee or independent contractor or other service provider, licensor, vendor or lender of the Company; or (iv) the Merger as defined in the Purchase Agreement.  For the purpose of making any adjustment required under this Section 4(f), the consideration received by the Company for any issue or sale of Common Stock shall (A) to the extent it consists of cash, be computed at the net amount of cash received by the Company after deduction of any underwriting or similar

5

commissions, compensation or concessions paid or allowed by the Company in connection with such issue or sale but without deduction of any expenses payable by the Company, and (B) to the extent it consists of property other than cash, be computed at the fair value of that property as determined in good faith by the Board of Directors.

Section 5. Consolidation, Merger or Sale of Assets.

(a)  In case of any consolidation of the Company with, or merger of the Company with or into any other entity (other than a merger which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Stock), or any sale or transfer of all or substantially all of the assets of the Company or of the entity formed by such consolidation or resulting from such merger or which acquires such assets, as the case may be, after the date hereof, the Holder shall have the right thereafter to exercise this Warrant for the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer by a holder of the number of shares of Stock for which this Warrant may have been exercised immediately prior to such consolidation, merger, sale or transfer, assuming (i) such holder of Stock is not a person with which the Company consolidated or into which the Company merged or which merged into the Company or to which such sale or transfer was made, as the case may be (“Constituent Person”), or an Affiliate of a Constituent Person and (ii) in the case of a consolidation, merger, sale or transfer which includes an election as to the consideration to be received by the holders, such holder of Stock failed to exercise its rights of election as to the kind or amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer (provided however that if the kind or amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer is not the same for each share of Stock held immediately prior to such consolidation, merger, sale or transfer by other than a Constituent Person or an Affiliate thereof and in respect of which such rights of election shall not have been exercised (“Non-Electing Share”), then for the purposes of this Section the kind and amount of securities, cash, and other property receivable upon such consolidation, merger, sale or transfer by each Non-Electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Non-Electing Shares).  For purposes of this Section 5, “Affiliate” shall have the meaning given to such term in Rule 12b-2 promulgated under the Securities and Exchange Act of 1934, as amended (the “1934 Act”).

(b)  Adjustments for events subsequent to the effective date of such a consolidation, merger and sale of assets shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant.  In any such event, the Company shall exercise its best efforts to have effective provisions made in the certificate or articles of incorporation of the resulting or surviving corporation, in any contract of sale, conveyance, lease or transfer, or otherwise so that the provisions set forth herein for the protection of the rights of the Holder shall thereafter continue to be applicable; and any such resulting or surviving corporation shall expressly assume the obligation to deliver, upon exercise, such shares of stock, other securities, cash and property.  The provisions of this Section 5 shall similarly apply to successive consolidations, mergers, sales, leases or transfers.

6

Section 6. Registration Rights.

(a)  Piggyback Registration.  If the Company proposes to register any of its securities at any time after the date hereof, the Company shall notify the Holder in writing at least thirty (30) days prior to filing any such registration statement under the Securities Act or 1933, as amended (the “Securities Act”), for purposes of effecting a public offering of securities of the Company (excluding registration statements relating to any employee benefit plan or a corporate reorganization, including securities issued by the Company in an acquisition transaction).  The Holder shall have the right to include in such registration statement all or any part of the Holder’s Warrant Shares or other securities into which the Warrant Shares have been or may be converted (“Registrable Securities”).  If the Holder elects to include in any such registration statement all or any part of the Holder’s Registrable Securities, then the Holder shall, within twenty (20) days after receipt of the above-described notice from the Company, so notify the Company in writing, and in such notice shall inform the Company of the number of Registrable Securities the Holder wishes to include in such registration statement.  If the Holder decides not to include all of its Registrable Securities in any registration statement thereafter filed by the Company, the Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement or registration statements as may be filed by the Company on or before the date set forth above with respect to offerings of its securities, all upon the terms and conditions set forth herein.

(b)  Underwriting.  If a registration statement under which the Company gives notice under this Section is for an underwritten offering, then the Company shall so advise the Holder.  In such event, the right of the Holder to include its Registrable Securities in a registration pursuant to this Section shall be conditioned upon the Holder’s participation in such underwriting and the inclusion of the Holder’s Registrable Securities in the underwriting to the extent provided herein.  The Holder shall enter into an underwriting agreement in customary form with the managing underwriter or underwriter(s) selected for such underwriting.  Notwithstanding any other provision of this Agreement, if the managing underwriter determine(s) in good faith that marketing factors require a limitation of the number of shares to be underwritten, then the managing underwriter(s) may exclude shares (including Registrable Securities) from the registration and the underwriting, and the number of shares that may be included in the registration and the underwriting shall be allocated, first, to the Company, and second, to the Holder.  The Holder may elect to withdraw from any offering by written notice to the Company and the underwriter, delivered at least twenty (20) days prior to the effective date of the registration statement.  Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration.

(c)  Expenses.  All expenses incurred in connection with a registration pursuant to this Section (excluding underwriters’ and brokers’ discounts and commissions; and the fees and disbursements of special counsel for the Holder), including, without limitation all federal registration and qualification fees, “blue sky” registration and qualification fees for up to five (5) states, printers’ and accounting fees, fees and disbursements of counsel for the Company shall be borne by the Company.

(d)  Indemnification.  In the event any Registrable Securities are included in a registration statement pursuant hereto:

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(1)  By the Company.  To the extent permitted by law, the Company will indemnify and hold harmless the Holder, the partners, officers and directors of the Holder, any underwriter (as defined in the Securities Act) for Holder and each person, if any, who controls the Holder or underwriter within the meaning of the Securities Act or the 1934 Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the l934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively, “Violations” and, individually, a “Violation”): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the 1934 Act, any federal or state securities law or any rule or regulation promulgated under the Securities Act, the 1934 Act or any federal or state securities law in connection with the offering covered by such registration statement; and the Company will reimburse the Holder, each partner, officer or director, underwriter or controlling person for any legal or other expenses reasonably incurred by them, as incurred, in connection with investigating or defending any such loss, claim, damage, liability or action; provided however, that the indemnity agreement contained in this subsection shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, partner, officer, director, underwriter or controlling person of the Holder.

(2)  By the Holder.  To the extent permitted by law, the Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the registration statement, each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, controlling person, or underwriter may become subject under the Securities Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by the Holder expressly for use in connection with such registration; and the Holder will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, or underwriter in connection with investigating or defending any such loss, claim, damage, liability or action; provided however, that the indemnity agreement contained in this subsection shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; and provided further, that the total amounts payable in indemnity by the Holder under this Section in respect of any Violation shall not exceed the net proceeds received by the Holder in the registered offering out of which such Violation arises.

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(3)  Notice.  Promptly after receipt by an indemnified party under this Section of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential conflict of interests between such indemnified party and any other party represented by such counsel in such proceeding.  The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section.

(4)  Defect Eliminated in Final Prospectus.  The foregoing indemnity agreements of the Company and the Holder are subject to the condition that, insofar as they relate to any Violation made in a preliminary prospectus but eliminated or remedied in the amended prospectus on file with the SEC at the time the registration statement in question becomes effective or the amended prospectus filed with the SEC pursuant to SEC Rule 424(b) (the “Final Prospectus”), such indemnity agreement shall not inure to the benefit of any person if a copy of the Final Prospectus was furnished to the indemnified party and was not furnished to the person asserting the loss, liability, claim or damage at or prior to the time such action is required by the Securities Act.

(e)  “Market Stand-Off” Agreements.

(i)  Notwithstanding any contrary provision in the Purchase Agreement or this Warrant, the Holder agrees that such Holder shall not (A) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, this Warrant or any shares of Stock issuable under this Warrant or any securities convertible into or exercisable or exchangeable for this Warrant or such Stock, or (B) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of this Warrant or such Stock or any securities convertible into or exercisable or exchangeable for this Warrant or such Stock, whether any such transaction is to be settled by delivery of Stock or such other securities, in cash or otherwise, without the prior written consent of the Company during the period beginning on the Effective Date of this Warrant and ending on March 31, 2001.

(ii)  The Holder hereby further agrees that it shall not, to the extent Registrable Securities are not included in any registration statements and if requested by the Company or an underwriter of securities of the Company, sell or otherwise transfer or dispose of any Warrant Shares or securities into which they have been or may be converted (other than to donees or partners of the Holder who agree to be similarly bound and further subject to the prior written consent of the Company, which shall not be unreasonably withheld) for up to one hundred eighty

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(180) days following the effective date of a registration statement of the Company filed under the Securities Act for a firm commitment underwritten offering of newly-issued common stock of the Company; provided, however, that all executive officers, directors and 1% shareholders of the Company then holding Common Stock of the Company enter into similar agreements.  In order to enforce the foregoing covenant, the Company shall have the right to place restrictive legends on the certificates representing the shares subject to this Section and to impose stop transfer instructions with respect to the Warrant Securities (and the Warrant Shares of every other person subject to the foregoing restriction) until the end of such period.

Section 7. Limitations on Rights and Obligations of the Warrant Holder.

This Warrant shall not entitle the Holder to any voting rights or dividends or any other rights of a stockholder in the Company.

Section 8. Capital Transactions.

Neither the grant of this Warrant nor the issuance of Warrant Shares nor any other provision of this Warrant shall in any manner limit or affect the right of the Company to adjust, reclassify, recapitalize, restructure, reorganize or otherwise change its capital or business structure or issue options or warrants or other rights to its securities or to merge, consolidate, dissolve, liquidate or sell or transfer or otherwise dispose of all or any part of its stock, business or assets at any time.

Section 9. Notices.

Any notice or other communication or payment required or permitted hereunder shall made pursuant to the notice provisions set forth in the Purchase Agreement.

Section 10. Amendments and Waivers.

This Warrant and any provision hereof may be modified, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such modification, waiver, discharge or termination is sought.

Section 11. Applicable Law.

This Warrant is being delivered in and shall be construed in accordance with the laws of the State of California, without regard to conflicts of laws principles.

Section 12. Severability.

If any provision of this Warrant shall be judicially determined to be invalid, illegal or unenforceable by a court of competent jurisdiction, the validity, legality and enforceability of the remaining provisions shall not in any manner be affected or impaired and shall remain in full force and effect.

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Section 13. Interpretation.

Sections and section headings contained in this Warrant are for reference purposes only, and shall not affect in any manner the meaning of interpretation of this Warrant.  Whenever the context requires, references to the singular shall include the plural and the plural the singular and any gender shall include any other gender.  The parties acknowledge that each party has reviewed this Warrant, and no provision of this Warrant shall be interpreted for or against any party because such party or its representative drafted such provision.

Section 14. Successors and Assigns.

Except as otherwise expressly provided herein and subject to any restrictions on transfer under applicable securities laws, the provisions hereof shall inure to the benefit of and be binding upon each of the parties; the successors and assigns of the Company; and the heirs, devisees, executors, administrators, representatives, successors and assigns of Holder.

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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed on the day and year first above written.

COMPANY:
RAINING DATA CORPORATION, a Delaware corporation F/K/A OMNIS TECHNOLOGY CORPORATION, a Delaware corporation
By:	/s/ Brian C. Bezdek
Name:		Brian C. Bezdek
Title:		Chief Financial Officer
Address:		17500 Cartwright Road Irvine, CA  92614

EXHIBIT A

To:          Raining Data Corporation

ELECTION TO EXERCISE

The undersigned hereby exercises its right to subscribe for and purchase from Raining Data Corporation                                                 fully paid, validly issued and nonassessable shares of Common Stock covered by the within Warrant and tenders payment herewith in the amount of $                  in accordance with and subject to the terms thereof, and requests that certificates for such shares be issued in the name of, and delivered to:

The undersigned hereby reaffirms the representations, warranties and covenants set forth in Section 3 of the Note and Warrant Purchase Agreement by and between Raining Data Corporation, a Delaware corporation and Astoria Capital Partners, L.P., a California limited partnership, as of the date hereof.

Date:	[Holder]
	By
	Name:
	Title:

EXHIBIT B

ASSIGNMENT FORM

To:          Raining Data Corporation

The undersigned hereby assigns and transfers this Warrant to

(Insert assignee’s social security or tax identification number)

(Print or type assignee’s name, address and postal code)

and irrevocably appoints

to transfer this Warrant on the books of the Company.

Date:	[Holder]
	By
	Name:
	Title:

(Sign exactly as your name appears on the face of this Warrant)

Signature guarantee:

EX-10.4

Exhibit 10.4

EMPLOYMENT AND SERVICE AGREEMENT

This Employment and Service Agreement (“Agreement”) is effective April 1, 2004, between and among Raining Data Corporation, including its UK subsidiary, RAINING DATA UK, LTD., and its successors in interest (collectively referred to as “Raining Data Corporation” or the “Company”) whose registered office is located at Mitford House, Benhall, Saxmindham, Suffolk, UK IP17 1JS and Gwyneth Margaret Gibbs, an employee of Raining Data UK, LTD, whose address is Church Farm House, Church Road, Blaxhall, Woodbridge, Suffolk, UK IP12 2DH.

NOW IT IS HEREBY AGREED AS FOLLOWS:

1.              TERM OF EMPLOYMENT.  With effect from April 1, 2004 the Company shall employ the Employee and the Employee shall serve the Company. The Agreement will continue to until either party gives written notice of intent to terminate in accordance with the terms of this Agreement.

2.             DUTIES AND RESPONSIBILITES.   During the term of employment the Employee’s role will include, but is not limited to:

•Manage and oversee the European Operations as directed by the Company

•Oversee the day to day operations of Mitford House

•Oversee and direct the sales, marketing, engineering and corporate operations as directed by the Company, its management and directors

(a) During Employee’s employment hereunder, the Employee shall devote the whole of Employee’s time and attention during business hours to the business of the Company and shall use Employee’s best endeavors at all times to promote the interest and welfare of the Company.

(b) The Employee shall exercise and perform such powers and duties as the Company shall from time to time delegate to Employee.

(c) The Employee shall conform to such hours of work as may be required for the proper performance of Employee’s duties and shall not be entitled to receive any additional remuneration for work performed outside Employee’s normal business hours.

3.             RENUMERATION.  The Company shall, during the continuance of the agreement, pay to the employee by way of remuneration:

(a) A basic salary of Pound Sterling £125,000 per annum which shall be payable pro rata in arrears on the last day of each calendar month by equal monthly installments.

(b) Reimbursement for all expenses reasonably and properly incurred by the Employee in or about the discharge of Employee’s duties

(c) Company makes no promise or representation that Employee will receive any salary increases. Company shall review Employee’s salary on an annual basis.

Any increases to the salary as stated in Section 3 (a) above shall be at the sole discretion of the Company, and the provisions of the Agreement shall continue to apply as varied.

4.             MEDICAL AND HEALTH BENEFITS.  The Company shall provide the Employee with private medical and permanent health insurance in a category and at a cost considered appropriate by Company for the Employee during this Agreement.

5.             HOLIDAYS.  The Employee shall be entitled to twenty-five (25) working days’ holiday in each holiday year in addition to the statutory public and bank holidays. Such holidays other than public and bank holidays will be taken within the period of twelve months starting on the 1st April in each year (“the holiday year”) at such times as are agreed with the Board of Directors of the Company and shall accrue from month to month. No more than five (5) days holidays may be carried forward and no payment will be made in respect of holidays which have not been taken by the expiry of the holiday year.

6.             ABSENCE.  If the Employee is absent from Employee’s duties as a result of sickness or injury Employee will be entitled to payment of Employee’s basic salary under Section 3 (a) hereof (except to the extent to which Employee receives any social security or other insurance benefits as a result of such absence) for a period, (whether consecutive or in aggregate) of no more than six months in any period of twelve months and shall thereafter only be entitled to payment of basic salary at the discretion of the Company. The Employee shall furnish to the Company satisfactory evidence of such incapacity and the cause thereof and any payments hereunder shall be counted towards any statutory sick pay payable by the Company under the Statutory Sick Pay Act 1994 and the Social Security Contributions and Benefits Act 1992. The qualifying days for the purposes of the Acts are Monday to Friday inclusive.

7.CONFIDENTIALITY AND NON-COMPETITION.

(a) The Employee shall not during the continuance of the Agreement or at anytime after its determination disclose to any persons whatsoever and shall use Employee’s best endeavors to prevent the publication or disclosure of any of the secrets confidential knowledge business data or processed or any financial or trading information relating to the Company or any of its subsidiaries or associated companies or its or their customers which may come into Employee’s knowledge during or in the course of Employee’s employment hereunder.

(b) All documents lists and other materials excluding director materials coming into the possession of the Employee shall be the property of the Company and the Employee shall hand over all or any of them to the Company on demand and in any event upon the termination of the Agreement for whatever cause.

(c) Upon termination of the Agreement for any cause, the Employee shall not without written consent of the Company, for a period of two years from such termination be either directly or indirectly in any capacity engaged employed or associated with any person firm or Company engaged in any work or process or research similar to that to which the Employee has been employed by the Company or with which Employee’s work for the Company has made Employee familiar providing always that this sub-clause shall not apply if the Agreement is terminated under the provisions of Section 9 hereof.

(d) The Employee further covenants that during such period Employee will not solicit or approach any firm person or Company who was a customer of the Company during the period of two years prior to termination of the Agreement with a view to obtaining business or employment nor will Employee approach any person employed by the Company during such period prior to termination with a view to terminating the relationship of that employee with the Company during the said period.

(e) The restrictions in this Section 7 are separate and severable restrictions and are considered by the parties to be reasonable in all the circumstances.  It is agreed that if any such restrictions by themselves, or taken together, shall be adjudged to go beyond what is reasonable in all the circumstances for the protection of the legitimate interests of the Company but would be adjudged reasonable if part or parts of the wording were deleted, or the length or the geographical coverage of the restrictions reduced, the relevant restriction or restrictions shall apply with such deletion(s) or reduction(s) as may be necessary to make it or them valid and effective.

8.             TERMINATION FOR CAUSE.  The Company shall be entitled to terminate this Agreement forthwith without any notice or payment in lieu of notice and the Employee shall not be entitled to any payment compensation or damages by reason of such termination if:

(a) The Employee breaks any terms of this Agreement

(b) The Employee neglects, omits or refuses to discharge the duties hereunder or to comply with any lawful instruction given to Employee by the Board

(c) The Employee is guilty of gross misconduct or is convicted of any criminal offense involving dishonesty

(d) The Employee is declared bankrupt or a receiving order is made against Employee or Employee makes or attempts to make any composition with Employee’s creditors

(e) For a period of 180 working days (whether consecutive or in aggregate) in any period of one year the Employee has been absent from Employee’s duties as a result of sickness or injury whether mental or physical

(f) The fixed term of this Agreement, as set out in Section 1, expires and Company had not previously agreed to a renewal of the Agreement.

9.             TERMINATION BY COMPANY.  The Company can terminate this Agreement for any other reason by giving to the Employee three (3) months notice in writing or payment in lieu of notice.  In addition the Company may require the Employee to retire from employment at the age of 65.

10.           TERMINATION BY EMPLOYEE.  The Employee may terminate this Agreement at any time by providing three (3) months written notice to the Company.

11.            EMPLOYMENT RIGHTS.  For the purposes of the Employment Rights Act 1996 the Employee is hereby given written notice of the following matters:

(a) There is a pension scheme in existence in which the Employee is entitled to participate by virtue of Employee’s employment hereunder full particulars of which are set out in a booklet which has been given to the Employee (or which may be read during normal working hours on application to the Company Secretary)

(b) The Employee has been continuously employed by the Company since October 17, 1994.

(c) The disciplinary rules, which apply to the Employee by virtue of Employee’s employment hereunder, are specified in Appendix 1 to this Agreement.

(d) The grievance procedure, which applies to the Employee by virtue of Employee’s employment hereunder, are specified in a Appendix 2 to this Agreement.

(e) Notwithstanding what is stated in Appendix 1 or 2,theEmployee should refer in writing any grievance about Employee’s employment hereunder or any disciplinary decision relating to the Employee, to any member of the Raining Data Corporation Board and the reference will be dealt with by discussion and a majority of those present at the relevant Board meeting at which the grievance is discussed.

(f) The Employee’s normal place of work will be within twenty miles of the Company’s present headquarters at Mitford House, Benhall, Saxmundham, Suffolk, UK.  However, from time to time the Employee may be required to travel within and outside the UK for business reasons.  Required travel may be worldwide in nature.

12.           NOTICES.  Notices given in pursuance of this agreement shall be in writing and if to be given to the Company delivered or dispatched by registered or recorded delivery post to its registered office and if to be given to the Employee handed to other or sent to Employee’s last known residential address in Britain by registered or recorded delivery post. A notice dispatched by post is deemed to be given three days’ after dispatch.

13.           PREVIOUS CONTRACTS. The contractual terms in this Agreement shall be in substitution for all or any existing contracts of employment entered into between Employee and the Company which cease to have effect on the date Employee signs this Agreement as set out below.

AS WITNESS THE HANDS OF THE EMPLOYEE AND AN AUTHORIZED EMPLOYEE ON BEHALF OF THE COMPANY THE DAY AND YEAR FIRST BEFORE WRITTEN

On behalf of Raining Data Corporation:

/s/ Brian C. Bezdek	/s/ Gwyneth M. Gibbs
Name & Title	Gwyneth M. Gibbs
May 13, 2004	May 12, 2004
Date	Date

EX-10.13

Exhibit 10.13

This LOAN AND SECURITY AGREEMENT dated as of the Effective Date, between SILICON VALLEY BANK (“Bank”), on the one side, whose address is 3003 Tasman Drive, Santa Clara, California 95054 and Raining Data Corporation and Raining Data U.S., Inc. (jointly and severally referred to herein as the “Borrower”; with Raining Data Corporation also sometimes individually referred to as the “Company”), on the other side, and the address for both of the foregoing Borrowers for purposes hereof is 17500 Cartwright Road, Irvine, CA  92614 provides the terms on which Bank will lend to Borrower and Borrower will repay Bank.  The hereby parties agree as follows:

1.             ACCOUNTING AND OTHER TERMS

Accounting terms used in this Agreement and not specifically defined herein will be construed following GAAP.  Calculations and determinations must be made following GAAP.  The term “financial statements” includes the notes and schedules.  The terms “including” and “includes” always mean “including (or includes) without limitation,” in this or any Loan Document.

2.             LOAN AND TERMS OF PAYMENT

2.1          Promise to Pay.  Borrower will pay Bank the unpaid principal amount of all Credit Extensions and interest on the unpaid principal amount of the Credit Extensions as set forth in accordance with the terms and conditions hereof.

2.1.1       Revolving Advances.

(a)           Bank will make Revolving Advances not exceeding:  (i) the lesser of the Committed Revolving Line or the Borrowing Base, minus (ii) all outstanding amounts for Cash Management Services utilizations, minus (iii) the face amount of all outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit), and minus (iv) the FX Reserve.

(b)           To obtain a Revolving Advance, Borrower must notify Bank by facsimile or telephone by 12:00 p.m. Pacific time on the Business Day the Revolving Advance is to be made.  Borrower must promptly confirm the notification by delivering to Bank the Loan Payment/Advance Request Form attached hereto as Exhibit B.  Bank will credit Revolving Advances to Borrower’s deposit account.  Bank may make Revolving Advances under this Agreement based on instructions from a Responsible Officer or his or her designee or without instructions if the Revolving Advances are necessary to meet Obligations which have become due.  Bank may rely on any telephone notice given by a person whom Bank believes is a Responsible Officer or designee.  Borrower will indemnify Bank for any loss Bank suffers due to that reliance.

(c)           The Committed Revolving Line terminates on the Revolving Maturity Date, when all Revolving Advances, all accrued and unpaid interest thereon and all related Obligations are immediately due and payable.

2.1.2       Letters of Credit.  Bank will issue letters of credit for Borrower’s account (individually referred as a “Letter of Credit” and collectively referred to herein as the “Letters of Credit”) not exceeding (i) the lesser of the Committed Revolving Line or the Borrowing Base, minus (ii) the outstanding principal balance of the Revolving Advances, minus (iii) the Cash Management

Services utilizations, and minus (iv) the FX Reserve; provided, however, the face amount of outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit) may not exceed at any time $500,000, and any proposed new Letter of Credit will be considered outstanding for purposes of determining compliance with the such maximum sublimit.  Each Letter of Credit will have an expiry date of no later than 180 days after the Revolving Maturity Date, provided that Borrower’s reimbursement obligation relating to any such any Letters of Credit shall be secured by cash upon the termination of this Agreement for any reason and Letters of Credit remain outstanding at such time.  In any of the circumstances upon which Borrower is to provide cash collateral as aforesaid, Borrower shall execute Bank’s standard cash pledge documentation in connection therewith.  Finally, Borrower agrees to execute any further documentation in connection with the Letters of Credit as Bank may reasonably request.

2.1.3       Foreign Exchange Sublimit. If there is availability under the Committed Revolving Line for new Revolving Advances, then Borrower may enter in foreign exchange forward contracts with the Bank under which Borrower commits to purchase from or sell to Bank a set amount of foreign currency more than one business day after the contract date (an “FX Forward Contract”).  Bank will subtract 10% of the amount of foreign currency, in U.S. dollars, subject to each outstanding FX Forward Contract from the foreign exchange sublimit, which is a maximum of $500,000 on a joint basis for all Borrowers (such 10% amount being referred to herein as the “FX Reserve”).  The total FX Forward Contracts at any one time may not exceed 10 times the amount of the FX Reserve and a proposed new FX Forward Contract may be entered into only if the amount of the increase in the FX Reserve relating thereto would otherwise be available for the making of a Revolving Advance in such amount.  Bank may terminate the FX Forward Contracts if an Event of Default occurs and is continuing.

2.1.4       Cash Management Sublimit.  Bank agrees to extend to Borrower further credit accommodations consisting of cash management services, which may include merchant services, direct deposit of payroll, business credit card, and check cashing services identified in various cash management services agreements related to such services (collectively referred to herein as the “Cash Management Services”), provided, however, the amount of Cash Management Services utilizations may not exceed $250,000 at any time.  The aggregate amounts utilized hereunder for Cash Management Services will at all times reduce the amount otherwise available to be borrowed under the Committed Revolving Line, in accordance with the provisions of Section 2.1.1(a) hereof, and new Cash Management Services utilizations may be extended only if the amount of such proposed new extension of such services would otherwise be available for the making of a Revolving Advance in such amount.  Any amounts Bank pays on behalf of Borrower and any amounts that are not paid by Borrower for any Cash Management Services will be treated as Revolving Advances under the Committed Revolving Line and will accrue interest at the rate applicable to Revolving Advances hereunder.

2.2          Overadvances; Limitation on Lending.  If Borrower’s Obligations under the above sections exceed the applicable lending limitations relating thereto as set forth therein, Borrower must immediately pay in cash to Bank any such excess.  Further, without limitation of any other terms or conditions hereof, Bank’s obligation to lend the undisbursed portion of any credit facility hereunder will terminate if, in Bank’s sole discretion, there has been a material adverse change in the general affairs, management, results of operation, condition (financial or otherwise) of Borrower or the prospects for repayment of the Obligations, whether or not arising from transactions in the ordinary course of business, or there has been any material adverse deviation by Borrower from the most recent business plan of Borrower presented to and accepted by Bank prior to the execution of this Agreement.

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2.3          Interest Rate, Payments.

(a)           Interest Rate.  Revolving Advances accrue interest on the outstanding principal balance thereof at a per annum rate equal to one percentage point (1.00%) above the Prime Rate, which applicable interest rate shall increase or decrease when the Prime Rate changes; provided, however, such per annum rate shall never be deemed to be less than five percent (5.00%) for any purpose relating hereto.  Interest is computed on a 360-day year for the actual number of days elapsed.  Further, upon the occurrence and during the continuance of an Event of Default, all Revolving Advances shall accrue interest at five (5) percentage points above the rate effective immediately before the Event of Default.

(b)           Payments.  Interest due on the Committed Revolving Line is payable on the last day of each month.  Bank may debit any of Borrower’s deposit accounts including Account Number 3300416375 for principal and interest payments owing or any amounts Borrower owes Bank.  Bank will promptly notify Borrower in accordance with its standard procedures when it debits Borrower’s accounts.  These debits are not a set-off.  Payments received after 12:00 noon Pacific time are considered received at the opening of business on the next Business Day.  When a payment is due on a day that is not a Business Day, the payment is due the next Business Day and additional fees or interest accrue.

2.4          Fees.

(a)           Facility Fee.  Borrower shall pay to Bank a fee of $11,250, one-half of which is due and payable concurrently herewith and the other half of which shall be payable on the one year anniversary of the Effective Date, which shall, in any event, be in addition to interest and to all other amounts payable hereunder and which shall not be refundable.

(b)           Bank Expenses.  Borrower shall pay to the Bank when due all Bank Expenses (including reasonable attorneys’ fees and expenses) incurred through and after the Closing Date.

(c)           Unused Line Fee.  Borrower shall pay to Bank the Unused Line Fee (as defined below) amount, in addition to all interest and other fees payable hereunder and which shall payable as set forth in the following sentence.  The “Unused Line Fee” shall be 0.25% per annum multiplied by an amount equal to Committed Revolving Line minus the average daily balance of the outstanding Revolving Advances and Letters of Credit, and shall be computed and paid quarterly, in arrears, on the last day of each of March, June, September and December of each year, commencing on March 31, 2004, during the term of this Agreement, provided that to extent that this Agreement is terminated prior to a particular quarter end date (and also with respect to the first payment due on March 31, 2004), Borrower shall pay the Unused Line Fee, as of any such date, on a proportional basis with respect to the number of days since the prior payment of such fee (or since the date of this Agreement in the event of the first such payment) divided by ninety multiplied by the fee that would otherwise be payable for the entire duration of such quarter assuming the applicable daily average balance would be apply for the entire quarter period in question.

2.5          Prepayment.

Borrower shall have the option at any time during the term of this Agreement to pay and perform all Obligations, without premium or penalty, and thereupon to terminate this Agreement together with the Bank’s commitments and other undertakings hereunder,, subject to the survival of the indemnity provisions as set forth herein and in any other Loan Documents.

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3.             CONDITIONS OF LOANS

3.1          Conditions Precedent to Initial Credit Extension.

Bank’s obligation to make the initial Credit Extension is subject to the condition precedent that it receive the agreements, documents and fees it requires in its good faith business judgment, including, without limitation, the delivery of a subordination agreement by Astoria Capital Partners, L.P. with respect to obligations owing by Borrower to such party and with such subordination agreement being acceptable to Bank in its discretion.

3.2          Conditions Precedent to all Credit Extensions.

Bank’s obligations to make each Credit Extension, including the initial Credit Extension, is subject to the following:

(a)           timely receipt of any Payment/Advance Form; and

(b)           the representations and warranties in Section 5 must be materially true on the date of the Loan Payment/Advance Request Form and on the effective date of each Credit Extension and no Event of Default may have occurred and be continuing, or result from the Credit Extension.  Each Credit Extension is Borrower’s representation and warranty on that date that the representations and warranties of Section 5 remain materially true.

4.             CREATION OF SECURITY INTEREST

4.1          Grant of Security Interest.

Borrower grants Bank a continuing security interest in all presently existing and later acquired Collateral to secure all Obligations and performance of each of Borrower’s duties under the Loan Documents.  Except for Permitted Liens, any security interest will be a first priority security interest in the Collateral.  If this Agreement is terminated, Bank’s lien and security interest in the Collateral will continue until Borrower fully satisfies its Obligations.

4.2          Authorization to File.

Borrower authorizes Bank to file financing statements without notice to Borrower, with all appropriate jurisdictions, as Bank deems appropriate, in order to perfect or protect Bank’s interest in the Collateral.

5.             REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants as follows:

5.1          Due Organization and Authorization.

Each of Borrower and each Subsidiary is duly existing and in good standing in its jurisdiction of formation and qualified and licensed to do business in, and in good standing in, any state in which the conduct of its business or its ownership of property requires that it be qualified, except where the failure to do so could not reasonably be expected to cause a Material Adverse Change.

The execution, delivery and performance of the Loan Documents have been duly authorized, and do not conflict with Borrower’s formation documents, nor constitute an event of default under any material agreement by which Borrower is bound.  Borrower is not in default

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under any agreement to which or by which it is bound in which the default could reasonably be expected to cause a Material Adverse Change.

5.2          Collateral.

Borrower has good title to the Collateral, free of Liens except Permitted Liens or Borrower has Rights to each asset that is Collateral.   Borrower has no other deposit account, other than the deposit accounts described in the Schedule.  The Accounts are bona fide, existing obligations, and the service or property has been performed or delivered to the account debtor or its agent for immediate shipment to and unconditional acceptance by the account debtor.   The Collateral is not in the possession of any third party bailee (such as at a warehouse).  In the event that Borrower, after the date hereof, intends to store or otherwise deliver any Collateral to such a bailee, then Borrower will receive the prior written consent of Bank and such bailee must acknowledge in writing that the bailee is holding such Collateral for the benefit of Bank.  Borrower has no notice of any actual or imminent Insolvency Proceeding of any account debtor whose accounts are an Eligible Account in any Borrowing Base Certificate.  All Inventory is in all material respects of good and marketable quality, free from material defects.  Borrower is the sole owner of the Intellectual Property, except for non-exclusive licenses granted to its customers in the ordinary course of business and subject to the Permitted Liens.  Each Patent is valid and enforceable and no part of the Intellectual Property has been judged invalid or unenforceable, in whole or in part, and no claim has been made that any part of the Intellectual Property violates the rights of any third party, except to the extent such claim could not reasonably be expected to cause a Material Adverse Change.

5.3          Litigation.

Except as shown in the Schedule, there are no actions or proceedings pending or, to the knowledge of Borrower’s Responsible Officers, threatened against Borrower or any Subsidiary in which a likely adverse decision could reasonably be expected to cause a Material Adverse Change.

5.4          No Material Adverse Change in Financial Statements.

All consolidated financial statements for Company and its Subsidiaries delivered to Bank fairly present in all material respects Company’s consolidated financial condition and Company’s consolidated results of operations.  There has not been any material deterioration in Company’s consolidated financial condition since the date of the most recent financial statements submitted to Bank.

5.5          Solvency.

The fair salable value of Borrower’s assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; the Borrower is not left with unreasonably small capital after the transactions in this Agreement; and Borrower is able to pay its debts (including trade debts) as they mature.

5.6          Regulatory Compliance.

Borrower is not an “investment company” or a company “controlled” by an “investment company” under the Investment Company Act of 1940, as amended.  Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations T and U of the Federal Reserve Board of Governors).  Borrower has complied in all material respects with the Federal Fair Labor Standards Act.  Borrower has not violated any laws, ordinances or rules, the violation of which could reasonably be expected to cause a Material Adverse Change.  None

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of Borrower’s or any Subsidiary’s properties or assets has been used by Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than in accordance in all material respects with law.  Borrower and each Subsidiary has timely filed, or obtained appropriate extensions for filing with respect to, all required tax returns and paid, or made adequate provision to pay, all material taxes, except those being contested in good faith with adequate reserves under GAAP.  Borrower and each Subsidiary has obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all government authorities that are necessary to continue its business as currently conducted, except where the failure to do so could not reasonably be expected to cause a Material Adverse Change.

5.7          Subsidiaries.

Borrower does not own any stock, partnership interest or other equity securities except for Permitted Investments.

5.8          Full Disclosure.

No written representation, warranty or other statement of Borrower in any certificate or written statement given to Bank (taken together with all such written certificates and written statements to Bank) in connection with, or in contemplation of entering into, this Agreement and related documents, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained in the certificates or statements not misleading, with it being recognized by Bank that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not viewed as facts and that actual results during the period or periods covered by such projections and forecasts may differ from the projected and forecasted results.

6.             AFFIRMATIVE COVENANTS

Borrower will do all of the following for so long as Bank has an obligation to lend, or there are outstanding Obligations:

6.1          Government Compliance.

Borrower will maintain its legal existence and good standing and the legal existence and good standing of all Subsidiaries in the applicable jurisdiction of formation and maintain qualification in each applicable jurisdiction in which the failure to so qualify would reasonably be expected to cause a material adverse effect on Borrower’s business or operations.  Borrower will comply, and have each Subsidiary comply, with all laws, ordinances and regulations to which such Person is subject to the extent that noncompliance therewith could reasonably be expected to cause a Material Adverse Change.

6.2          Financial Statements, Reports, Certificates.

(a)           Borrower will deliver to Bank:  (i) as soon as available, but no later than 30 days after the last day of each month, a company prepared consolidated balance sheet and income statement covering Company’s consolidated operations during the period certified by a Responsible Officer and in a form acceptable to Bank; (ii) as soon as available, but no later than 120 days after the last day of the Company’s fiscal year, audited consolidated financial statements prepared under GAAP, consistently applied, together with an unqualified opinion on the financial statements from an independent certified public accounting firm reasonably acceptable to Bank; (iii) Borrowers’ 10–QSB reports and 10–KSB reports within five Business Days of when filed with the Securities Exchange Commission (“SEC”) and copies of all SEC

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reports and filings within five Business Days of when made; (iv) a prompt report of any legal actions pending or threatened against Borrower or any Subsidiary that could result in damages or costs to Borrower or any Subsidiary of $100,000 or more; (v) budgets, sales projections, forecasts, operating plans or other financial information Bank reasonably requests; and (vi) prompt notice of any material change in the composition of the Intellectual Property, including any subsequent ownership right of Borrower in or to any Copyright, Patent or Trademark not shown in any intellectual property security agreement between Borrower and Bank or knowledge of an event that materially adversely affects the value of the Intellectual Property.

(b)           Within 20 days after the last day of each month when any Credit Extensions are then outstanding or in conjunction with Borrower’s request for a Credit Extension when no Credit Extensions are then outstanding, Borrower will deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in the form of Exhibit C, with aged listings of accounts receivable and accounts payable (by invoice date) together with a schedule of deferred revenue.

(c)           Within 30 days after the last day of each month, Borrower will deliver to Bank with the monthly financial statements a Compliance Certificate signed by a Responsible Officer in the form of Exhibit D.

(d)           Bank has the right to audit the Collateral at Borrower’s expense, with the first of such audits to be completed prior to the Closing Date and thereafter to be conducted no more often than once every 6 months during such times that any Credit Extensions have been outstanding, provided that, upon the occurrence and during the continuance of an Event of Default there shall be no limitation as to the frequency of any such audits all of which shall be at Borrower’s expense

6.3          Inventory; Returns.

Borrower will keep all Inventory in good and marketable condition, free from material defects.  Returns and allowances between Borrower and its account debtors will follow Borrower’s customary practices as they exist at execution of this Agreement.  Borrower must promptly notify Bank of all returns, recoveries, disputes and claims, that involve more than $50,000.

6.4          Taxes.

Borrower will make, and cause each Subsidiary to make, timely payment, or obtain appropriate extensions of payment, of all material federal, state, and local taxes or assessments (other than taxes and assessments which Borrower is contesting in good faith, with adequate reserves maintained in accordance with GAAP) and will deliver to Bank, on demand, appropriate certificates attesting to the payment.

6.5          Insurance.

Borrower will keep its business and the Collateral insured for risks and in amounts standard for Borrower’s industry, and as Bank may reasonably request.  Insurance policies will be in a form, with companies, and in amounts that are satisfactory to Bank in Bank’s reasonable discretion.  All property policies will have a lender’s loss payable endorsement showing Bank as an additional loss payee with respect to the Collateral and all liability policies will show the Bank as an additional insured and provide that the insurer must give Bank at least 20 days notice before canceling its policy.  At Bank’s request, Borrower will deliver certified copies of policies and evidence of all premium payments.  During any time that any Credit Extensions are

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outstanding, proceeds payable under any policy, to the extent of Bank’s insurable interest therein, will, at Bank’s option, be payable to Bank on account of the Obligations.

6.6          Primary Accounts.

Borrower will maintain its primary operating and investment account relationships with Bank, which relationships shall include Borrower maintaining deposit and investment account balances in accounts at or through Bank representing at least 85% of all such account balances of Borrower at any and all financial institutions.  The parties hereto understand and agree that account balances of Subsidiaries of Borrower that are not domestic United States-organized entities are not included within the scope of the foregoing covenant requirement, provided, however, transfer of funds and other assets of any Borrower to any such foreign Subsidiaries shall be subject to the limitations and related provisions set forth in the definition of Permitted Investments.

6.7          Financial Covenants.

The Company, on a consolidated basis, will as of the last day of each month during a Covenant Testing Period (as defined below) (and with each such date as it arises being a date of determination hereunder):

(i)            Quick Ratio.  Maintain a ratio of (A) unrestricted cash (and equivalents) plus net trade accounts receivable, divided by (B) Current Liabilities, including all Obligations hereunder, of not less than 0.70 to 1.00.

(ii)           EBITDA.  Maintain positive earnings before interest, taxes, depreciation and amortization with respect to the twelve months ending as of each date of determination hereunder.

As used herein, the term “Covenant Testing Period” shall mean at any time while any Credit Extensions are outstanding or at such time of, and with respect the month end period immediately prior to, a Borrower’s request for a Credit Extension when no Credit Extensions are then outstanding.

6.8          Intellectual Property.

Borrower will register with the United States Patent and Trademark Office its material Patents and Trademarks and additional material Patent and Trademark rights developed or acquired, including revisions or additions to any product before the sale or licensing of the product to any third party or if such rights are otherwise material.

With respect to copyrightable property that is not now registered with the United States Copyright Office, Borrower hereby agrees to (i) provide Bank with at least 15 days prior written notice of the registration of any copyrightable materials with the United States Copyright Office (Borrower has informed Bank that it has not, as of the date hereof, registered any copyrightable material in the United States Copyright Office); (ii) provide Bank with a copy of the application for any such registration; and (iii) execute such other instruments, and take such further actions as Bank may reasonably request from time to time to perfect or continue the perfection of Bank’s security therein and in the proceeds thereof.  Borrower hereby represents and warrants that all of its registered Copyrights, as of the date of this Agreement, are set forth on the Schedule.

Borrower will (i) protect, defend and maintain the validity and enforceability of the Intellectual Property and promptly advise Bank in writing of material infringements of Intellectual Property material to the Borrower’s business and (ii) not allow any Intellectual

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Property material to Borrower’s business to be abandoned, forfeited or dedicated to the public without Bank’s written consent.

6.9          Louisiana Subsidiary.  Company now owns PickAx, Inc, a Louisiana corporation, which now owns assets having a fair market value of less than $25,000; further, Borrower hereby covenants and agrees that such subsidiary will continue to own assets having a value of less than $25,000 at all times during the term hereof.  If PickAx, Inc, a Louisiana corporation, at any time is proposed to or does acquire assets in excess of such amount, Company shall provide written notification to Bank thereof and Company shall thereupon cause such subsidiary forthwith to execute the Guaranty and the Security Agreement and all other documents relating thereto and thus become a secured Guarantor of the Obligations.

6.10        Further Assurances.

Borrower will execute any further instruments and take further action as Bank reasonably requests to perfect or continue Bank’s security interest in the Collateral or to effect the purposes of this Agreement.

7.             NEGATIVE COVENANTS

Borrower will not do any of the following without Bank’s prior written consent, which will not be unreasonably withheld, for so long as Bank has an obligation to lend or there are any outstanding Obligations:

7.1          Dispositions.

Convey, sell, lease, transfer or otherwise dispose of (collectively, a “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, except for Transfers (i) of Inventory in the ordinary course of business; (ii) of non-exclusive licenses and similar arrangements for the use of the property of Borrower or its Subsidiaries in the ordinary course of business; (iii) of worn-out or obsolete Equipment; (iv) Transfers consisting of Permitted Investments; (v) Transfers otherwise permitted under and pursuant to the terms of Section 7.3 hereof; (vi) Transfers consisting of payment of Borrower’s trade payable obligations, rent obligations relating to Borrower’s premises, utility payments, lease obligations relating to equipment leases, payment of licenses and royalties and other like obligations, with each of the foregoing entered into in the ordinary course of Borrower’s business consistent with past business practices, provided that the foregoing permitted payment shall not include a payment with respect to any material such obligation at any such time that an Event of Default has occurred and is continuing; or (vii) Transfers of other assets (other than any right to receive income including accounts) in an aggregate amount not to exceed $50,000 in any fiscal year, provided, however, no such Transfers shall be permitted to be effected while a Default or an Event of Default has occurred and is continuing.

7.2          Changes in Business, Ownership, Management or Business Locations.

Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower or reasonably related thereto or if a Change of Control occurs.  Borrower shall give Bank no later than concurrent notice of any changes in the persons occupying the offices of the chief executive officer or the chief financial office of the Borrower.  Further, Borrower will not, without at least 30 days prior written notice, relocate its chief executive office or add any new offices or business locations in which Borrower maintains or stores over $50,000 in Borrower’s assets or property.

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7.3          Mergers or Acquisitions.

Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person, except where:  (i) no Default or Event of Default has occurred and is continuing or would result from such action during the term of this Agreement; (ii) only during such times when the provisions of the financial covenants hereof, as now such forth in Section 6.7, are deleted form this Agreement and are therefore no longer applicable at any time nor under any circumstance during the term of this Agreement, such transaction would not result in a decrease of more than 25% of Net Worth of Borrower; and (iii) upon the acquisition of any other Person as otherwise permitted pursuant to the terms of this Section, such Person become an appropriate obligor relating to the Obligations hereunder, as the Bank may determine, and shall execute such agreements, documents and instruments as are reasonably necessary or appropriate, as the Bank may determine, in order to evidence such debt obligations and to establish a first priority security interest in the personal property assets of such Person in favor of Bank, subject to Permitted Liens.  Notwithstanding the foregoing, a Subsidiary may merge or consolidate into another Subsidiary or into Borrower as long as no Default or Event of Default is occurring prior thereto or arises as a result thereof as long as Borrower provides prior written notice thereof to Bank of any such transaction.

7.4          Indebtedness.

Create, incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness.

7.5          Encumbrance.

Create, incur, or allow any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens and other than as otherwise specifically permitted under the provisions of Section 7.1 hereof, or permit the first priority lien status of Bank regarding the Collateral to change, subject only to Permitted Liens as may be applicable.  Further, in connection with any property that is subject to a Lien that is otherwise permitted pursuant to paragraph (c) of the definition of “Permitted Liens”, Bank agrees to enter into estoppel letters with respect to any such items of property in favor of the financier thereof.

7.6          Distributions; Investments.

Directly or indirectly, or permit any of its Subsidiaries to directly or indirectly, acquire or own any Person, or make any Investment in any Person, other than Permitted Investments and Permitted Distributions.  Pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock, other than for Permitted Investments, with the understanding that the determination of compliance with any amounts set forth in the definition of Permitted Investments shall be determined on a joint and not several basis for Borrowers and Subsidiaries.

7.7          Transactions with Affiliates.

Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower except for (A) transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a nonaffiliated Person; (B) transactions constituting Permitted Investments, (C) the documents and agreements entered into in connection the Astoria Notes and (D) transactions with Subsidiaries permitted by Section 7.1 or Section 7.3.

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7.8          Subordinated Debt.

Make or permit any payment on any Subordinated Debt, except under the terms of the Subordinated Debt, or amend any provision in any document relating to the Subordinated Debt without Bank’s prior written consent.

7.9          Compliance.

Become an “investment company” or a company controlled by an “investment company,” under the Investment Company Act of 1940 or undertake as one of its important activities extending credit to purchase or carry margin stock, or use the proceeds of any Credit Extension for that purpose; fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply with, or permit any of its Subsidiaries to fail to comply with, the Federal Fair Labor Standards Act or violate any other law or regulation, if the violation could reasonably be expected to have a material adverse effect on Borrower’s business or operations or would reasonably be expected to cause a Material Adverse Change determined on a consolidated basis for the Company and its domestic Subsidiaries only, or permit any of its Subsidiaries to do so.

8.             EVENTS OF DEFAULT

Any one of the following is an Event of Default:

8.1          Payment Default.

If Borrower fails to pay any of the Obligations within three Business Days after their due date.  During such additional three day period the failure to cure such payment default is not an Event of Default hereunder (but no Credit Extension will be made during the cure period);

8.2          Covenant Default.

(A)          If Borrower does not perform any obligation in Section 6.2, 6.7 or 6.8 hereof or violates any covenant in Section 7 of this Agreement; or

(B)           If Borrower does not perform or observe any other material term, condition or covenant in this Agreement, any Loan Documents, or in any agreement between Borrower and Bank and as to any default under a term, condition or covenant that can be cured, has not cured the default within 10 days after it occurs, or if the default cannot be cured within 10 Business Days or cannot be cured after Borrower’s attempts within 10 Business Day period, and the default may be cured within a reasonable time, then Borrower has an additional period (of not more than 30 days) to attempt to cure the default.  During the additional time, the failure to cure the default is not an Event of Default (but no Credit Extensions will be made during the cure period);

8.3          Material Adverse Change.

If there (i) occurs a material adverse change in the business, operations, or condition (financial or otherwise) of the Borrower, or (ii) is a material impairment of the prospect of repayment of any portion of the Obligations or (iii) is a material impairment of the value or priority  (subject to Permitted Liens if any such Permitted Liens are specifically allowed to affect the priority of the Bank’s Lien in the Collateral) of Bank’s security interests in the Collateral, taken as a whole(any of the foregoing is referred to herein as a “Material Adverse Change”).

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8.4          Attachment.

If any material portion of Borrower’s assets is attached, seized, levied on, or comes into possession of a trustee or receiver and the attachment, seizure or levy is not removed in 10 days, or if Borrower is enjoined, restrained, or prevented by court order from conducting a material part of its business or if a judgment or other claim becomes a Lien on a material portion of Borrower’s assets, or if a notice of lien, levy, or assessment is filed against any of Borrower’s assets by any government agency and not paid within 10 days after Borrower receives notice.  These are not Events of Default if stayed or if a bond is posted pending contest by Borrower (but no Credit Extensions will be made during the cure period);

8.5          Insolvency.

If Borrower becomes insolvent or if Borrower begins an Insolvency Proceeding or an Insolvency Proceeding is begun against Borrower and not dismissed or stayed within 30 days (but no Credit Extensions will be made before any Insolvency Proceeding is dismissed);

8.6          Other Agreements.

If there is a default in any agreement between Borrower and a third party that gives the third party the right to accelerate any Indebtedness exceeding $250,000 or that could cause a Material Adverse Change;

8.7          Judgments.

If a money judgment(s) in the aggregate of at least $100,000 is rendered against Borrower and is unsatisfied and unstayed for 10 days (but no Credit Extensions will be made before the judgment is stayed or satisfied);

8.8          Misrepresentations.

If Borrower or any Person acting for Borrower makes any material misrepresentation or material misstatement now or later in any warranty or representation in this Agreement or in any writing delivered to Bank or to induce Bank to enter this Agreement or any Loan Document; or

8.9          Guaranty.

Any guaranty of any Obligations, if any arises from time to time, ceases for any reason to be in full force or any Guarantor does not perform any obligation under any guaranty of the Obligations, or any material misrepresentation or material misstatement exists now or later in any warranty or representation in any guaranty of the Obligations or in any certificate delivered to Bank in connection with the guaranty, or any circumstance described in Sections 8.4, 8.5 or 8.7 occurs to any Guarantor.

9.             BANK’S RIGHTS AND REMEDIES

9.1          Rights and Remedies.

When an Event of Default occurs and continues Bank may, without notice or demand, do any or all of the following:

(a)           Declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately due and payable without any action by Bank);

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(b)           Stop advancing money or extending credit for Borrower’s benefit under this Agreement or under any other agreement between Borrower and Bank;

(c)           Settle or adjust disputes and claims directly with account debtors for amounts, on terms and in any order that Bank considers advisable;

(d)           Make any payments and do any acts it considers necessary or reasonable to protect its security interest in the Collateral.  Borrower will assemble the Collateral if Bank requires and make it available as Bank designates.  Bank may enter premises where the Collateral is located, take and maintain possession of any part of the Collateral, and pay, purchase, contest, or compromise any Lien which appears to be prior or superior to its security interest and pay all expenses incurred. Borrower grants Bank a license to enter and occupy any of its premises, without charge, to exercise any of Bank’s rights or remedies;

(e)           Apply to the Obligations any (i) balances and deposits of Borrower it holds, or (ii) any amount held by Bank owing to or for the credit or the account of Borrower;

(f)            Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral.  Bank is granted a non-exclusive, royalty-free license or other right to use, without charge, Borrower’s labels, Patents, Copyrights, Mask Works, rights of use of any name, trade secrets, trade names, Trademarks, service marks, and advertising matter, or any similar property as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Bank’s exercise of its rights under this Section, Borrower’s rights under all licenses and all franchise agreements inure to Bank’s benefit; and

(g)           Dispose of the Collateral according to the Code.

9.2          Power of Attorney.

Effective only when an Event of Default occurs and continues, Borrower irrevocably appoints Bank as its lawful attorney to:  (i) endorse Borrower’s name on any checks or other forms of payment or security; (ii) sign Borrower’s name on any invoice or bill of lading for any Account or drafts against account debtors, (iii) make, settle, and adjust all claims under Borrower’s insurance policies; (iv) settle and adjust disputes and claims about the Accounts directly with account debtors, for amounts and on terms Bank determines reasonable; and (v) transfer the Collateral into the name of Bank or a third party as the Code permits.  Bank may exercise the power of attorney to sign Borrower’s name on any documents necessary to perfect or continue the perfection of any security interest regardless of whether an Event of Default has occurred.  Bank’s appointment as Borrower’s attorney in fact, and all of Bank’s rights and powers, coupled with an interest, are irrevocable until all Obligations have been fully repaid and performed and Bank’s obligation to provide Credit Extensions terminates.

9.3          Accounts Collection.

When an Event of Default occurs and continues, Bank may notify any Person owing Borrower money of Bank’s security interest in the funds and verify the amount of the Account.  Borrower must collect all payments in trust for Bank and, if requested by Bank, immediately deliver the payments to Bank in the form received from the account debtor, with proper endorsements for deposit.

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9.4          Bank Expenses.

If Borrower fails to pay any amount or furnish any required proof of payment to third persons as required hereunder or under any Loan Document, Bank may make all or part of the payment or obtain insurance policies required in Section 6.5, and take any action under the policies Bank deems prudent.  Any amounts paid by Bank are Bank Expenses and immediately due and payable, bearing interest at the then applicable rate and secured by the Collateral.  No payments by Bank are deemed an agreement to make similar payments in the future or Bank’s waiver of any Event of Default.

9.5          Bank’s Liability for Collateral.

If Bank complies with reasonable banking practices and the Code, it is not liable for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other person.  Except to the extent set forth in this Section 9.5, Borrower bears all risk of loss, damage or destruction of the Collateral.

9.6          Remedies Cumulative.

Bank’s rights and remedies under this Agreement, the Loan Documents, and all other agreements are cumulative.  Bank has all rights and remedies provided under the Code, by law, or in equity. Bank’s exercise of one right or remedy is not an election, and Bank’s waiver of any Event of Default is not a continuing waiver. Bank’s delay is not a waiver, election, or acquiescence.  No waiver is effective unless signed by Bank and then is only effective for the specific instance and purpose for which it was given.

9.7          Demand Waiver.

Borrower waives demand, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by Bank on which Borrower is liable.

10.          NOTICES

All notices or demands by any party about this Agreement or any other related agreement must be in writing and be personally delivered or sent by an overnight delivery service, by certified mail, postage prepaid, return receipt requested, or by telefacsimile to the addresses set forth at the beginning of this Agreement.  A party may change its notice address by giving the other party written notice.

11.          CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER

California law governs the Loan Documents without regard to principles of conflicts of law.  Borrower and Bank each submit to the exclusive jurisdiction of the State and Federal courts in Orange County, California.

BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS

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AGREEMENT.  EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

12.          GENERAL PROVISIONS

12.1        Successors and Assigns.

This Agreement binds and is for the benefit of the successors and permitted assigns of each party.  Borrower may not assign this Agreement or any rights under it without Bank’s prior written consent which may be granted or withheld in Bank’s discretion.  Bank has the right, without the consent of or notice to Borrower, to sell, transfer, negotiate, or grant participation in all or any part of, or any interest in, Bank’s obligations, rights and benefits under this Agreement.

12.2        Indemnification.

Borrower will indemnify, defend and hold harmless Bank and its officers, employees, and agents against:  (a) all obligations, demands, claims, and liabilities asserted by any other party in connection with the transactions contemplated by the Loan Documents; and (b) all losses or Bank Expenses incurred, or paid by Bank from, following, or consequential to transactions between Bank and Borrower (including reasonable attorneys fees and expenses), except for losses or Bank Expenses caused by Bank’s gross negligence or willful misconduct.

12.3        Time of Essence.

Time is of the essence for the performance of all obligations in this Agreement.

12.4        Severability of Provision.

Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision.

12.5        Amendments in Writing, Integration.

All amendments to this Agreement must be in writing and signed by Borrower and Bank.  This Agreement represents the entire agreement about this subject matter, and supersedes prior negotiations or agreements.  All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Agreement merge into this Agreement and the Loan Documents.

12.6        Counterparts.

This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, are an original, and all taken together, constitute one Agreement.

12.7        Survival.

All covenants, representations and warranties made in this Agreement continue in full force while any Obligations remain outstanding.  The obligations of Borrower in Section 12.2 to indemnify Bank will survive until all statutes of limitations for actions that may be brought against Bank have run.

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12.8        Confidentiality.

All financial information (other than any such information contained periodic reports filed by Borrower with the Securities and Exchange Commission) disclosed by Borrower to Bank in writing and together with all other written information disclosed by Borrower to Bank that is marked “Confidential” shall be considered confidential for purposes hereof.  In handling any confidential information, Bank will exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made (i) to Bank’s subsidiaries or affiliates in connection with their business with Borrower, (ii) to prospective transferees or purchasers of any interest in the loans (provided, however, Bank shall use best efforts in obtaining such prospective transferee’s or purchasers’ agreement of the terms of this provision and any purchaser, shall be agreeing to assume the obligations hereunder shall therefore agree to abide by the provisions hereof, including, without limitation, the provisions of this Section, and if Bank is unable to secure such potential transferee’s or purchasers’ agreement to this provision or another provision having substantially similar import and, further, if any such disclosure would violate any material provision of any securities laws or regulations applicable to Borrower, Bank will not make such a disclosure without the prior consent of the Company (not to be unreasonably withheld) or other measures are taken to preclude any such disclosure from causing or otherwise resulting in any such violation), (iii) as required by law, regulation, subpoena, or other order, (iv) as required in connection with Bank’s examination or audit and (v) as Bank considers appropriate exercising remedies under this Agreement.  Confidential information does not include information that either: (a) is in the public domain or in Bank’s possession when disclosed to Bank, or becomes part of the public domain after disclosure to Bank; or (b) is disclosed to Bank by a third party, if Bank does not know that the third party is prohibited from disclosing the information.

12.9        Attorneys’ Fees, Costs and Expenses.

In any action or proceeding between Borrower and Bank arising out of the Loan Documents, the prevailing party will be entitled to recover its reasonable attorneys’ fees and other reasonable costs and expenses incurred, in addition to any other relief to which it may be entitled.

13.          SURETYSHIP AND RELATED WAIVERS AND PROVISIONS.

13.1        The Borrowers each are, and at all times shall be, jointly and severally liable for each and every one of the Obligations, regardless of which Borrower or Borrowers requested, received, used, or directly enjoyed the benefit of, the extensions of credit hereunder.  Each Borrower’s Obligations are independent Obligations and are absolute and unconditional.  Each Borrower hereby waives any defense to such Obligations that may arise by reason of the disability or other defense or cessation of liability of any other Borrower for any reason other than payment in full.  Each Borrower also waives any defense to such Obligations that it may have as a result of Bank’s election of or failure to exercise any right, power, or remedy, including the failure to proceed first against another Borrower or any security it holds from such other Borrower.  Without limiting the generality of the foregoing, each Borrower expressly waives all demands and notices whatsoever (except for any demands or notices, if any, that such Borrower expressly is entitled to receive pursuant to the terms of any Loan Document), and agrees that Bank may, without notice (except for such notice, if any, as such Borrower expressly is entitled to receive pursuant to the terms of any Loan Document) and without releasing the liability of such Borrower, extend for the benefit of any other Borrower the time for making any payment, waive or extend the performance of any agreement or make any settlement of any agreement for the benefit of any other Borrower, and may proceed against each Borrower, directly and independently of any other Borrower, as Bank may elect in accordance with the Loan Documents.

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13.2        Each Borrower acknowledges that the Obligations undertaken herein or in the other Loan Documents, and the grants of security interests and liens by such Borrower to secure Obligations of the other Borrower could be construed to consist, at least in part, of the guaranty of Obligations of the other Borrower and, in full recognition of that fact, each Borrower consents and agrees as hereinafter set forth in the balance of this Section 13.  The consents, waivers, and agreements of the Borrowers that are contained in the balance of this Section 13 are intended to deal with the suretyship aspects of the transactions evidenced by the Loan Documents (to the extent that a Borrower may be deemed a guarantor or surety for the Obligations of another Borrower) and thus are intended to be effective and applicable only to the extent that any Borrower has agreed to answer for the Obligation of another Borrower or has granted a lien or security interest in any property to secure the Obligation of another Borrower; conversely, the consents, waivers, and agreements of the Borrowers that are contained in the balance of this Section 13 shall not be applicable to the direct Obligation of a Borrower with respect to a credit accommodation extended directly to such Borrower, and shall not be applicable to security interests or liens on property of a Borrower given to directly secure direct Obligations of such Borrower where no aspect of guaranty or suretyship is involved, if and when any such security interest may arise.

13.3        To the extent permitted under law, each Borrower hereby waives:  (a) presentment for payment, notice of dishonor, demand, protest, and notice thereof as to any instrument, and all other notices and demands to which any other Borrower might be entitled (except for any notices that Borrower, in its capacity as a borrower, is expressly entitled to receive pursuant to the terms of the Loan Documents, including without limitation notice of all of the following:  the acceptance hereof; the creation, existence, or acquisition of any Obligations; the amount of the Obligations from time to time outstanding; any foreclosure sale or other disposition of any property which secures any or all of the Obligations or which secures the obligations of any other Borrower of any or all of the Obligations; any adverse change in any other Borrower’s financial position; any other fact which might increase such Borrower’s risk; any default, partial payment or non-payment of all or any part of the Obligations; the occurrence of any other Event of Default; any and all agreements and arrangements between Bank and any other Borrower and any changes, modifications, or extensions thereof, and any revocation, modification or release of any guaranty or joint and several liability of any or all of the Obligations by or of any person; (b) any right to require Bank to institute suit against, or to exhaust its rights and remedies against, any other Borrower or any other person, or to proceed against any property of any kind which secures all or any part of the Obligations, or to exercise any right of offset or other right with respect to any reserves, credits or deposit accounts held by or maintained with Bank or any Obligations of Bank to any other Borrower, or to exercise any other right or power, or pursue any other remedy Bank may have; (c) any defense arising by reason of any disability or other defense of any other Borrower or any guarantor, endorser, co-maker or other person, or by reason of the cessation from any cause whatsoever of any liability of any other Borrower or any guarantor, endorser, co-maker or other person, with respect to all or any part of the Obligations, or by reason of any act or omission of Bank or others which directly or indirectly results in the discharge or release of any other Borrower or any other person or any Obligations or any security therefor, whether by operation of law or otherwise; (d) any defense arising by reason of any failure of Bank to obtain, perfect, maintain or keep in force any security interest in, or lien or encumbrance upon, any property of any other Borrower or any other person; (e) any defense based upon any failure of Bank to give such Borrower notice of any sale or other disposition of any property securing any or all of the Obligations, or any defects in any such notice that may be given, or any failure of Bank to comply with any provision of applicable law in enforcing any security interest in or lien upon any property securing any or all of the Obligations including, but not limited to, any failure by Bank to dispose of any property securing any or all of the Obligations in a commercially reasonable manner; (f) any defense based upon or arising out of any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, liquidation or dissolution proceeding commenced by or against any other Borrower or any guarantor, endorser,

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co-maker or other person, including without limitation any discharge of, or bar against collecting, any of the Obligations (including without limitation any interest thereon), in or as a result of any such proceeding; and (g) the benefit of any and all statutes of limitation with respect to any action based upon, arising out of or related to this Agreement and the other Loan Documents.  Until all Obligations have been paid, performed, and discharged in full, nothing shall discharge or satisfy the liability of any Borrower under the Loan Documents except the full performance and payment of all of the Obligations.  If any claim is ever made upon Bank for repayment or recovery of any amount or amounts received by Bank in payment of or on account of any of the Obligations, because of any claim that any such payment constituted a preferential transfer or fraudulent conveyance, or for any other reason whatsoever, and Bank repays all or part of said amount by reason of any judgment, decree or order of any court or administrative body having jurisdiction over Bank or any of its property, or by reason of any settlement or compromise of any such claim effected by Bank with any such claimant (including without limitation any other Borrower), then and in any such event, such Borrower agrees that any such judgment, decree, order, settlement and compromise shall be binding upon such Borrower, notwithstanding any revocation or release of the joint and several liability of such Borrower and the other Borrowers with respect to the Obligations or the cancellation of any note or other instrument evidencing any of the Obligations, or any release of any of the Obligations, and such Borrower shall be and remain liable to Bank for the amount so repaid or recovered, to the same extent as if such amount had never originally been received by Bank, and the provisions of this sentence shall survive, and continue in effect, notwithstanding any revocation or release of the joint and several liability of such Borrower and the other Borrowers with respect to the Obligations or the cancellation of any note or other instrument evidencing any of the Obligations, or any release of any of the Obligations.  Until all Obligations have been irrevocably paid and performed in full, each Borrower hereby expressly and unconditionally waives all rights of subrogation, reimbursement and indemnity of every kind against any other Borrower, and all rights of recourse to any assets or property of any other Borrower, and all rights to any collateral or security held for the payment and performance of any Obligations, including (but not limited to) any of the foregoing rights which Borrower may have under any present or future document or agreement with any other Borrower or other person, and including (but not limited to) any of the foregoing rights which Borrower may have under any equitable doctrine of subrogation, implied contract, or unjust enrichment, or any other equitable or legal doctrine.

13.4        Each Borrower hereby consents and agrees that, without notice to or by such Borrower and without affecting or impairing in any way the obligations or liability of such Borrower hereunder, Bank may, from time to time and at any time in accordance with the provisions of this Agreement, do any one or more of the following with respect to any other Borrower:  (a) accelerate, accept partial payments of, compromise or settle, renew, extend the time for the payment, discharge, or performance of, refuse to enforce, and release all or any parties to, any or all of the Obligations; (b) grant any other indulgence to any other Borrower or any other person in respect of any or all of the Obligations or any other matter; (c) accept, release, waive, surrender, enforce, exchange, modify, impair, or extend the time for the performance, discharge, or payment of, any and all property of any kind securing any or all of the Obligations or any guaranty of any or all of the Obligations, or on which Bank at any time may have a lien, or refuse to enforce its rights or make any compromise or settlement or agreement therefor in respect of any or all of such property; (d) substitute or add, or take any action or omit to take any action which results in the release of, any one or more endorsers or any other Borrowers of all or any part of the Obligations, regardless of any destruction or impairment of any right of contribution or other right of such Borrower; (e) amend, alter or change in any respect whatsoever any term or provision relating to any or all of the Obligations, including the rate of interest thereon; (f) apply any sums received from any other Borrower, guarantor, endorser, or co-signer, or from the disposition of any collateral or security, to any Obligations whatsoever owing from such person or secured by such collateral or security, in such manner and order as Bank determines in its sole

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discretion, and regardless of whether such Obligations is part of the Obligations, is secured, or is due and payable; (g) apply any sums received from any Borrower or from the disposition of any collateral to any of the Obligations in such manner and order as Bank determines in its good faith business judgment, regardless of whether or not such Obligations is secured or is due and payable.  Each Borrower consents and agrees that Bank shall be under no obligation to marshal any assets in favor of any Borrower, or against or in payment of any or all of the Obligations.  Each Borrower further consents and agrees that Bank shall have no duties or responsibilities whatsoever with respect to any property securing any or all of the Obligations.  Without limiting the generality of the foregoing, Bank shall have no obligation to monitor, verify, audit, examine, or obtain or maintain any insurance with respect to, any property securing any or all of the Obligations.

13.5        Each Borrower hereby waives all rights of subrogation, reimbursement, indemnification, and contribution and any other rights and defenses that are or may become available to such Borrower or any other surety by reason of California Civil Code Sections 2787 to 2855, inclusive.  Each Borrower waives all rights and defenses that such Borrower may have because the Obligations may be or are secured by real property, if and when any such eventuality arises.  This means, among other things:  (a) Bank may collect from any Borrower without first foreclosing on any real or personal property collateral pledged by any other Borrower; and (b) if Bank forecloses on any real property collateral pledged by any Borrower:  (i) The amount of the Obligations may be reduced only by the price for which that collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price; and (ii) Bank may collect from any Borrower even if Bank, by foreclosing on the real property collateral, has destroyed any right such Borrower may have to collect from any other Borrower or any endorser, co-maker or other person.  This is an unconditional and irrevocable waiver of any rights and defenses any Borrower may have because the Obligations may be or are secured by real property.  These rights and defenses include, but are not limited to, any rights or defenses based upon Section 580a, 580b, 580d, or 726 of the Code of Civil Procedure.  Each Borrower waives all rights and defenses arising out of an election of remedies by Bank, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for a guaranteed obligation, has destroyed or may destroy such Borrower’s rights of subrogation and reimbursement against the principal by the operation of Section 580d of the Code of Civil Procedure or otherwise.

13.6        Each Borrower hereby agrees that one or more successive or concurrent actions may be brought hereon against such Borrower, in the same action in which any other Borrower may be sued or in separate actions, as often as deemed advisable by Bank.  The liability of each Borrower relative to the Obligations is exclusive and independent of any other guaranty or joint and several liability of any other Borrower of any or all of the Obligations whether executed by Borrower or by any other Borrower or any guarantor, endorser, co-maker or other person, or otherwise.  The liability of any Borrower hereunder shall not be affected, revoked, impaired, or reduced by any one or more of the following:  (a) the fact that the Obligations exceeds the maximum amount of any Borrower’s liability, if any, specified herein or elsewhere (and no agreement specifying a maximum amount of any Borrower’s liability shall be enforceable unless set forth in a writing signed by Bank); or (b) any direction as to the application of payment by any other Borrower or by any other party; or (c) any continuing or restrictive guaranty or undertaking or any limitation on the liability of any other Borrower; or (d) any payment on or reduction of any such guaranty or undertaking; or (e) any revocation, amendment, modification or release of any such guaranty or undertaking; or (f) any dissolution or termination of, or increase, decrease, or change in membership of any Borrower which is a partnership.  Each Borrower hereby expressly represents that it was not induced to agree to be liable for the Obligations by the fact that there are or may be other Borrowers that are jointly and severally liable with such Borrower relative to the Obligations, and each Borrower agrees that any release of any one or more of such other Borrowers shall not release such Borrower from its Obligations either in full or to any lesser extent.

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13.7        EACH BORROWER IS FULLY AWARE OF THE FINANCIAL CONDITION OF EACH OTHER BORROWER AND IS AGREEING TO BE JOINTLY AND SEVERALLY LIABLE WITH EACH OTHER BORROWER AT THE REQUEST OF EACH SUCH OTHER BORROWER AND BASED SOLELY UPON ITS OWN INDEPENDENT INVESTIGATION OF ALL MATTERS PERTINENT HERETO, AND SUCH BORROWER IS NOT RELYING IN ANY MANNER UPON ANY REPRESENTATION OR STATEMENT OF BANK WITH RESPECT THERETO.  EACH BORROWER REPRESENTS AND WARRANTS THAT IT IS IN A POSITION TO OBTAIN, AND SUCH BORROWER HEREBY ASSUMES FULL RESPONSIBILITY FOR OBTAINING, ANY ADDITIONAL INFORMATION CONCERNING EACH OTHER BORROWER’S FINANCIAL CONDITION AND ANY OTHER MATTER PERTINENT HERETO AS SUCH BORROWER MAY DESIRE, AND SUCH BORROWER IS NOT RELYING UPON OR EXPECTING BANK TO FURNISH TO SUCH BORROWER ANY INFORMATION NOW OR HEREAFTER IN BANK’S POSSESSION CONCERNING THE SAME OR ANY OTHER MATTER.

14.          DEFINITIONS

14.1        Definitions.

In this Agreement:

“Accounts” are all existing and later arising accounts, contract rights, and other obligations owed Borrower in connection with its sale or lease of goods (including licensing software and other technology) or provision of services,all credit insurance, guaranties, other security and all merchandise returned or reclaimed by Borrower and Borrower’s Books relating to any of the foregoing.

“Affiliate” of a Person is a Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by or is under common control with the Person, and each of that Person’s senior executive officers, directors, partners and, for any Person that is a limited liability company, that Person’s managers and members.

“Astoria Notes” are the 5% Convertible Subordinated Note due 2008 issued by the Company to Astoria Capital Partners, L.P. and all PIK Notes issued pursuant thereto.

“Astoria Subordination Agreement” is the Subordination Agreement dated February     , 2004 entered into between Astoria Capital Partners, L.P. and Bank, as amended or otherwise modified from time to time.

“Bank Expenses” are all audit fees and expenses and reasonable costs and expenses (including reasonable attorneys’ fees and expenses) for preparing, negotiating, administering, defending and enforcing the Loan Documents (including appeals or Insolvency Proceedings).

“Borrowing Base” is an amount of up to 80% of Eligible Accounts, as determined by Bank from Borrower’s most recent Borrowing Base Certificate.

“Borrower’s Books” are all Borrower’s books and records including ledgers, records regarding Borrower’s assets or liabilities, the Collateral, business operations or financial condition and all computer programs or discs or any equipment containing the information.

“Business Day” is any day that is not a Saturday, Sunday or a day on which the Bank is closed.

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“Cash Management Services” shall have the meaning set forth in Section 2.1.4 hereof.

“Change of Control” is an event or series of events by which either any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) shall have acquired after the date hereof beneficial ownership (within the meaning of Rule 13d-3promulgated by the Securities and Exchange Commission under said Act), directly or indirectly, of forty percent (40%) or more of the outstanding shares of capital stock of the Borrower, other than for the acquisition of any such beneficial ownership of the Borrower by Astoria Capital Partners, L.P. or any affiliate thereof.”

“Closing Date” is the date of this Agreement.

“Code” is the Uniform Commercial Code, as applicable.

“Collateral” is the property described on Exhibit A.

“Committed Revolving Line” shall mean a revolving credit facility in an aggregate principal amount of Revolving Advances hereunder of up to One Million Five Hundred Thousand Dollars ($1,500,000).

“Contingent Obligation” is, for any Person, any direct or indirect liability, contingent or not, of that Person for (i) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation directly or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable; (ii) any obligations for undrawn letters of credit for the account of that Person; and (iii) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices;  but “Contingent Obligation” does not include endorsements in the ordinary course of business.  The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under the guarantee or other support arrangement.

“Copyrights” are all copyright rights, applications or registrations and like protections in each work or authorship or derivative work, whether published or not (whether or not it is a trade secret) now or later existing, created, acquired or held.

“Credit Extension” is each Revolving Advance, Letter of Credit, FX Forward Contract and each other extension of a credit accommodation by Bank pursuant to this Agreement (as amended, supplemented, restated or otherwise modified from time to time) for Borrower’s benefit.

“Current Liabilities” are the aggregate amount of Borrower’s Total Liabilities which mature within one (1) year.

“Default” shall mean any event or occurrence which with the passing of time or the giving of notice or both would become an Event of Default hereunder.

“Effective Date” is the date Bank executes this Agreement.

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“Eligible Accounts” are Accounts arising in the ordinary course of Borrower’s business that meet all Borrower’s representations and warranties in Section 5.2; but Bank may change eligibility standards by giving Borrower notice.  Unless Bank agrees otherwise in writing, Eligible Accounts will not include:

(a)           Accounts that the account debtor has not paid within 90 days of invoice date;

(b)           Accounts for an account debtor, 50% or more of whose Accounts have not been paid within 90 days of invoice date;

(c)           Credit balances over 90 days from invoice date;

(d)           Accounts for an account debtor, including Affiliates, whose total obligations to Borrower exceed 25% of all Accounts, for the amounts that exceed that percentage, unless Bank approves in writing;

(e)           Accounts for which the account debtor does not have its principal place of business in the United States, except for those Accounts arising from account debtors located in Canada or Australia, up to an aggregate amount of no greater than $250,000 for all such account debtors viewed jointly for both such countries at any time or from time to time ;

(f)            Accounts for which the account debtor is a federal, state or local government entity or any department, agency, or instrumentality;

(g)           Accounts for which Borrower owes the account debtor, but only up to the amount owed (sometimes called “contra” accounts, accounts payable, customer deposits or credit accounts), provided that deferred revenue amounts shall not be offset or otherwise deducted in connection with the determination of the applicable Eligible Accounts amount;

(h)           Accounts for demonstration or promotional equipment, or in which goods are consigned, sales guaranteed, sale or return, sale on approval, bill and hold, or other terms if account debtor’s payment may be conditional;

(i)            Accounts for which the account debtor is Borrower’s Affiliate, officer, employee, or agent;

(j)            Accounts in which the account debtor disputes liability or makes any claim and Bank believes there may be a basis for dispute (but only up to the disputed or claimed amount), or if the Account Debtor is subject to an Insolvency Proceeding, or becomes insolvent, or goes out of business; or

(k)           Accounts for which Bank reasonably determines collectionto be doubtful.

“Equipment” is all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which Borrower has any interest.

“ERISA” is the Employment Retirement Income Security Act of 1974, and its regulations, as amended.

“FX Forward Contract” shall have the meaning ascribed to such term as is set forth in Section 2.1.3 hereof.

“GAAP” is generally accepted accounting principles, consistently applied.

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“Guarantor” is any present or future guarantor of, or surety with respect to, any of the Obligations, and shall include without limitation, Omnis Software, Inc. and PickAx, Inc., a Delaware corporation.

“Guaranty” shall mean that certain Continuing Guaranty dated February   , 2004 by Guarantors in favor of Bank, as amended or otherwise modified from time to time.

 “Indebtedness” is (a) indebtedness for borrowed money or the deferred price of property or services, or reimbursement and other obligations for surety bonds and letters of credit, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease obligations and (d) Contingent Obligations.

“Insolvency Proceeding” are proceedings by or against any Person under the United States Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.

“Intellectual Property” is:

(a)           Copyrights, Trademarks, Patents, and Mask Works including amendments, renewals, extensions, and all licenses or other rights to use and all license fees and royalties from the use;

(b)           Any trade secrets and any intellectual property rights in computer software and computer software products now or later existing, created, acquired or held;

(c)           All design rights which may be available to Borrower now or later created, acquired or held;

(d)           Any claims for damages (past, present or future) for infringement of any of the rights above, with the right, but not the obligation, to sue and collect damages for use or infringement of the intellectual property rights above; and

All proceeds and products of the foregoing, including all insurance, indemnity or warranty payments.

“Inventory” is present and future inventory in which Borrower has any interest, including merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products intended for sale or lease or to be furnished under a contract of service, of every kind and description now or later owned by or in the custody or possession, actual or constructive, of Borrower, including inventory temporarily out of its custody or possession or in transit and including returns on any accounts or other proceeds (including insurance proceeds) from the sale or disposition of any of the foregoing and any documents of title.

“Investment” is any beneficial ownership of (including stock, partnership interest or other securities) any Person, or any loan, advance or capital contribution to any Person.

“Letters of Credit” shall have the meaning ascribed to such term as is set forth in Section 2.1.2 hereof.

“Lien” is a mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance.

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“Loan Documents” are, collectively, this Agreement, any note, or notes or guaranties or third party suretyship obligations in favor of Bank executed by Borrower or other Persons with respect hereto, as applicable, including, without limitation, the Security Agreement and Guaranty and all related documents and instruments, together with any other present or future agreement between Borrower and/or for the benefit of Bank in connection with this Agreement or any of the foregoing related documents, agreements or instruments, all as amended, extended, restated or otherwise modified in any manner, at any time and from time to time.

“Mask Works” are all mask works or similar rights available for the protection of semiconductor chips, now owned or later acquired.

“Material Adverse Change” is defined in Section 8.3.

“Net Worth” is, on any date, the consolidated total assets minus Total Liabilities.

 “Obligations” are debts, principal, interest, Bank Expenses and other amounts Borrower owes Bank now or later under or with respect to, directly or indirectly, the Loan Documents, including cash management services and any and all other credit accommodations that may arise from time to time, if any and including interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to Bank if related to, directly or indirectly, any of the Loan Documents.

“Patents” are patents, patent applications and like protections, including improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.

“Permitted Distributions” are:

(a)  repurchases of stock from former employees or directors of Borrower under the terms of applicable repurchase agreements in an aggregate amount not to exceed One Hundred Thousand Dollars ($100,000) in the aggregate in any fiscal year, provided that no Default or Event of Default has occurred, is continuing or would exist after giving effect to the repurchases;

(b)  the distribution of non-cash rights in connection with any stockholders’ rights plan;

(c)  the conversion by Borrower of any of its convertible securities into other securities pursuant to the terms of such convertible securities or otherwise in exchange therefor, and payments in cash for any fractional shares of such convertible securities, provided that any such resulting securities shall not have any required right of redemption on the part of the holders thereof;

(d)           payments made, or stock issued pursuant to, the Astoria Note, only as permitted pursuant to the Astoria Subordination Agreement; and

(e)           distributions or dividends consisting solely of Borrower’s capital stock

 “Permitted Indebtedness” is:

(a)           Borrower’s and any Subsidiary’s indebtedness to Bank under this Agreement or any other Loan Document;

(b)           Indebtedness existing on the Closing Date and shown on the Schedule;

24

(c)           Subordinated Debt;

(d)           Indebtedness to trade creditors incurred in the ordinary course of business;

(e)Indebtedness secured by Permitted Liens; and

(f)            Indebtedness of Borrower to any Subsidiary and Contingent Obligations of any Subsidiary with respect to obligations of Borrower (provided that the primary obligations are not prohibited hereby), and Indebtedness of any Subsidiary to Borrower or to any other Subsidiary and Contingent Obligations of any Subsidiary with respect to obligations of any other Subsidiary (provided that the primary obligations are not prohibited hereby and that the ability of Borrower to enter into any such transaction with any such Subsidiary is specifically permitted hereunder);

(g)           obligations (contingent or otherwise) of Borrower or any Subsidiary existing or arising under any Swap Contract; provided that such obligations are (or were) entered into by such Person in the ordinary course of business for the purpose of directly mitigating risks associated with liabilities, commitments, investments, assets, or property held or reasonably anticipated by such Person, or changes in the value of securities issued by such Person and not for the purposes of speculation;

(h)           Indebtedness consisting of letters of credit issued for the benefit of any landlord or other Person to secure rental payments on any real estate lease entered into in the ordinary course of business and provided that the amount of any cash or other collateral therefore shall not exceed $250,000 at any time outstanding;

(i)            other unsecured Indebtedness of Borrower or any Subsidiary incurred in the ordinary course of business in an aggregate amount not to exceed $500,000 at any time;

(j)Indebtedness of any Person existing at the time such Person is merged with or into Borrower or becomes a Subsidiary as specifically otherwise permitted hereby, including, without limitation with respect to the existence of no Default or Event of Default at the time of or any such transaction or thereafter, provided that such Indebtedness is not incurred in connection with, or in contemplation of, such Person merging with and into the Borrower or becoming a Subsidiary of the Borrower;

(k)           Indebtedness with respect to surety, appeal, indemnity, performance or other similar bonds incurred in the ordinary course of business, consistent with past practices; and

(l)            Extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness (a), (b) and (d) through (i) above, provided that the principal amount thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon Borrower or its Subsidiary, as the case may be.

“Permitted Investments” are:

(a)           Investments shown on the Schedule and existing on the Closing Date;

(b)           (i)  marketable direct obligations issued or unconditionally guaranteed by the United States or its agency or any State maturing within 1 year from its acquisition, (ii) commercial paper maturing no more than 1 year after its creation and having the highest rating from either Standard & Poor’s Corporation or Moody’s Investors Service, Inc., and (iii) Bank’s certificates of deposit issued maturing no more than 1 year after issue;

25

(c)           Investments consisting of transfers of assets (including cash) by Borrower to a foreign Subsidiary of Borrower, as long as such transfers remain consistent in all material respects on an aggregate fiscal year basis with past business practices of Borrower and are, in any event, effected only in the ordinary course of Borrower’s business;

(d)           Investments consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business and (ii) loans to employees relating to the purchase of equity securities of Borrower or its Subsidiaries pursuant to employee stock purchase plan agreements approved by Borrower’s Board of Directors as long as no cash proceeds are distributed in connection therewith;

(e)           Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of Borrower’s business;

(f)            Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers, in each case who are not Affiliates, in the ordinary course of business;

(g)           joint ventures or strategic alliances in the ordinary course of Borrower’s business consisting of the non-exclusive licensing of technology, the development of technology or the providing of technical support, provided that any cash Investments by Borrower do not exceed Fifty Thousand Dollars ($50,000) in the aggregate in any fiscal year, provided that no such Investment shall be made at any time that a Default or an Event of Default is occurring or would arise upon the making of any such Investment;

(h)           Investments pursuant to investment policy guidelines approved or adopted by the Borrower’s board of directors, as provided to and concurred in by Bank; and

(i)            Investments permitted by Section 7.3 or Section 7.6.

 “Permitted Liens” are:

 (a)          Liens existing on the Closing Date and shown on the Schedule or arising under this Agreement or other Loan Documents;

(b)           Liens for taxes, fees, assessments or other government charges or levies, either not delinquent or being contested in good faith and for which Borrower maintains adequate reserves on its Books, if they have no priority over any of Bank’s security interests;

(c)           Purchase money Liens or capital lease obligations (i) on Equipment acquired or held by Borrower or its Subsidiaries incurred for financing the acquisition of the Equipment, or (ii) existing on equipment when acquired, if the Lien is confined to the property and improvements , additions, accessions, parts, replacements and attachments thereto, and the proceeds of the equipment;

(d)           Non-exclusive licenses or sublicenses granted in the ordinary course of Borrower’s business and, with respect to any licenses where Borrower is the licensee, any

26

interest or title of a licensor or under any such license or sublicense, if the licenses and sublicenses permit granting Bank a security interest;

(e)           Leases or subleases entered into in the ordinary course of Borrower’s business, including in connection with Borrower’s leased premises or leased property;

(f)            carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other like Liens arising in the ordinary course of business the payment relating to which is not overdue or which are being contested in good faith by appropriate proceedings and adequate reserves therefor are maintained on the books of the applicable Person as long as any Lien arising therefrom has no priority over the Lien of the Bank and as long as the amount involved is not is not in excess of $25,000;

(g)           Liens to secure payment of workers’ compensation, employment insurance, old age pensions, social security or other like obligations incurred in the ordinary course of business;

(h)           deposits to secure the performance of bids, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case, incurred in the ordinary course of business and not representing an obligation for borrowed money;

(i)          easements, rights-of-way, restrictions and other similar encumbrances affecting real property which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the applicable Person;

(j)          Liens arising by virtue of any contractual, statutory or common law provision relating to banker’s liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution, subject to the obligation of the Borrower hereunder to enter into account control agreements with respect to any such bank accounts in favor of Bank and acceptable to Bank that shall include limitations on any such Lien rights;

(k)         Liens consisting of pledges of cash collateral or government securities to secure Swap Contracts on a mark-to-market basis only in connection with any such Swap Contracts as constitute Permitted Indebtedness hereunder;

(l)          Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods and that arise in the ordinary course of Borrower’s business;

(m)        Liens on insurance proceeds securing the payment of financed insurance premiums;

(n)         Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default hereunder;

(o)         Liens arising from additional security interests and liens which are subordinate to the security interests in favor of Bank and are consented to in writing by Bank (which consent shall be subject to Bank’s sole discretionary determination); and

(f)          Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (a) through (c), but any extension, renewal or replacement Lien

27

must be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness may not increase;

“Person” is any individual, sole proprietorship, partnership, limited liability company, joint venture, company, association, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency.

“Prime Rate” is Bank’s most recently announced “prime rate,” even if it is not Bank’s lowest rate.

“Responsible Officer” is each of the Chief Executive Officer, the President, the Chief Financial Officer and the Controller of Borrower.

“Revolving Advance” or “Revolving Advances” is a loan advance (or advances) under the Committed Revolving Line.

“Revolving Maturity Date” shall mean the date that is two years from the Effective Date.

“Rights”, as applied to the Collateral, means the Borrower’s rights and interests in, and powers with respect to, that Collateral, whatever the nature of those rights, interests and powers and, in any event, including Borrower’s power to transfer rights in such Collateral to Bank.

“Schedule” is any attached schedule of exceptions.

“Security Agreement” shall mean that certain Security Agreement dated February _, 2004 by and between Guarantors, on the one side, and Bank, as amended or otherwise modified from time to time.

“Subordinated Debt” is debt incurred by Borrower subordinated to Borrower’s indebtedness owed to Bank and which is reflected in a written agreement in a manner and form acceptable to Bank and approved by Bank in writing, including the Indebtedness reflected by the Astoria Notes to the extent such Indebtedness is subject to the Astoria Subordination Agreement.

“Subsidiary” is for any Person, or any other business entity of which more than 50% of the voting stock or other equity interests is owned or controlled, directly or indirectly, by the Person or one or more Affiliates of the Person.  When used herein, unless otherwise specifically indicated, Subsidiary shall mean a Subsidiary of Borrower.

“Total Liabilities” is on any day, obligations that should, under GAAP, be classified as liabilities on Borrower’s consolidated balance sheet, including all Indebtedness, and current portion Subordinated Debt allowed to be paid, but excluding all other Subordinated Debt.

“Trademarks” are trademark and servicemark rights, registered or not, applications to register and registrations and like protections, and the entire goodwill of the business of Assignor connected with the trademarks.

28

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the date first above written.

	BORROWER:
	RAINING DATA CORPORATION
	By:	/s/ Brian C. Bezdek
	Title:				Secretary & Chief Financial Officer
	BORROWER:
	RAINING DATA U.S., INC.
	By:		/s/ Brian C. Bezdek
	Title:			Secretary & Chief Financial Officer
	BANK:
	SILICON VALLEY BANK
	By:		/s/ Ryan Incorvaia
	Title:					Vice President
Effective Date:   February 11, 2004

29

EXHIBIT A

The Collateral consists of all of Borrower’s right, title and interest in and to all of Borrower’s personal property, including without limitation the following:

All goods and equipment now owned or hereafter acquired, including, without limitation, all machinery, fixtures, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, wherever located;

All inventory, now owned or hereafter acquired, including, without limitation, all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products including such inventory as is temporarily out of Borrower’s custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above;

All contract rights and general intangibles now owned or hereafter acquired, including, without limitation, goodwill, trademarks, servicemarks, trade styles, trade names, patents, patent applications, leases, license agreements, franchise agreements, blueprints, drawings, purchase orders, customer lists, route lists, infringements, claims, computer programs, computer discs, computer tapes, literature, reports, catalogs, design rights, income tax refunds, payments of insurance and rights to payment of any kind;

All now existing and hereafter arising accounts, contract rights, royalties, license rights and all other forms of obligations owing to Borrower arising out of the sale or lease of goods, the licensing of technology or the rendering of services by Borrower, whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower;

All documents, cash, deposit accounts, securities, securities entitlements, securities accounts, investment property, financial assets, letters of credit, letter-of-credit rights, commercial tort claims, certificates of deposit, instruments and chattel paper now owned or hereafter acquired and Borrower’s Books relating to the foregoing;

All copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work thereof, whether published or unpublished, now owned or hereafter acquired; all trade secret rights, including all rights to unpatented inventions, know-how, operating manuals, license rights and agreements and confidential information, now owned or hereafter acquired; all mask work or similar rights available for the protection of semiconductor chips, now owned or hereafter acquired; all claims for damages by way of any past, present and future infringement of any of the foregoing; and

All Borrower’s Books relating to the foregoing and any and all claims, rights and interests in any of the above and all substitutions for, additions and accessions to and proceeds thereof;

Notwithstanding the foregoing, the Collateral shall not include any of the outstanding capital stock of a controlled foreign corporation (as such term is defined in the Internal Revenue Code of 1986, as amended)  in excess of 65% of the voting power of all classes of capital stock of such controlled foreign corporation entitled to vote.

 In connection with the foregoing, the Bank hereby acknowledges that enforcement of its rights with respect to certain items of Collateral in which the Bank is granted a security interest

(including the use or assignment thereof) may be restricted by the provisions of Sections 9407(b), 9408(d) or 9409(b) of the Code.

Exhibit A

EXHIBIT B

Loan Payment/Advance Request Form

Deadline for same day processing is 12:00 P.S.T.

Fax To: 949.789.1930 Date:

o loan payment:

From Account #			To Account #
	(Deposit Account #)		(Loan Account #)
Principal $		and/or Interest $

All Borrower’s representations and warranties in the Loan and Security Agreement are true and correct in all material respects on the date of the telephone transfer request for an advance, but those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date:

Authorized Signature: Phone Number:

o Loan Advance:

Complete Outgoing Wire Request section below if all or a portion of the funds from this loan advance are for an outgoing wire.

From Account #		To Account #
	(Loan Account #)	(Deposit Account #)
Amount of Advance $

All Borrower’s representations and warranties in the Loan and Security Agreement are true and correct in all material respects on the date of the telephone transfer request for an advance, but those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date:

Authorized Signature: Phone Number:

o Outgoing Wire Request

Complete only if all or a portion of funds from the loan advance above are to be wired.

Deadline for same day processing is 12:00pm, P.S.T.
Beneficiary Name:	Amount of Wire: $
Beneficiary Bank:	Account Number:
City and Sate:
Beneficiary Bank Transit (ABA) #:                                                Beneficiary Bank Code (Swift, Sort, Chip, etc.):

(For International Wire Only)

Intermediary Bank:	Transit (ABA) #:
For Further Credit to:
Special Instruction:

By signing below, I (we) acknowledge and agree that my (our) funds transfer request shall be processed in accordance with and subject to the terms and conditions set forth in the agreements(s) covering funds transfer service(s), which agreements(s) were previously received and executed by me (us).

Authorized Signature:	2nd Signature (If Required):
Print Name/Title:	Print Name/Title:
Telephone #	Telephone #

EXHIBIT C

BORROWING BASE CERTIFICATE

Borrower:  Raining Data Corporation and Raining Data U.S., Inc.	Bank:	Silicon Valley Bank 3003 Tasman Drive Santa Clara, CA 95054
Commitment Amount:  $1,500,000

ACCOUNTS RECEIVABLE
1.	Accounts Receivable Book Value as of		$
2.	Additions (please explain on reverse)		$
3.	TOTAL ACCOUNTS RECEIVABLE		$
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4.	Amounts over 90 days past invoice date	$
5.	Balance of 50% over 90 day accounts	$
6.	Credit balances over 90 days	$
7.	Concentration Limits	$
8.	Foreign Accounts (other than for up to $250,000 owing from account debtors in	$
	(Australia and Canada)
9.	Governmental Accounts	$
10.	Contra Accounts	$
11.	Promotion or Demo Accounts	$
12.	Intercompany/Employee Accounts	$
13.	Other (please explain on reverse)	$
14.	TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS		$
15.	Eligible Accounts (#3 minus #14)		$
16.	LOAN VALUE OF ACCOUNTS (80% of #15)		$
BALANCES
17.	Maximum Loan Amount	$
18.	Total Funds Available [Lesser of #17 or #16]		$
19.	Present balance owing on Line of Credit	$
20.	Outstanding under Sublimits (LC, FX or Cash Management)	$
21.	RESERVE POSITION (#18 minus #19 and #20)		$

The undersigned represents and warrants that this is true, complete and correct, and that the information in this Borrowing Base Certificate complies with the representations and warranties in the Loan and Security Agreement between the undersigned and Silicon Valley Bank.

COMMENTS:

Raining Data Corporation
Raining Data U.S., Inc.

By:

Title:

BANK USE ONLY
Rec’d By:
		authSigner
Date:
Verified:
	AuthSigner
Date:

EXHIBIT D

COMPLIANCE CERTIFICATE

TO:	SILICON VALLEY BANK
	3003 Tasman Drive
	Santa Clara, CA 95054
FROM:	Raining Data Corporation
	Raining Data U.S., Inc.

The undersigned authorized officer of Raining Data Corporation and Raining Data U.S., Inc. (jointly and severally, the “Borrower”) certifies that under the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the “Agreement”), (i) Borrower is in complete compliance for the period ending                            with all required covenants except as noted below and (ii) all representations and warranties in the Agreement are true and correct in all material respects on this date.  Attached are the required documents supporting the certification.  The undersigned Officer certifies that such required documents are prepared in accordance with Generally Accepted Accounting Principles (GAAP) consistently applied from one period to the next except as explained in an accompanying letter or footnotes.  The undersigned Officer acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined on an ongoing basis and not just at the date this certificate is delivered.

Please indicate compliance status by circling Yes/No under “Complies” column.

Reporting Covenant	Required	Complies
Monthly financial statements + CC		Monthly within 30 days	Yes	No
Annual (Audited)		FYE within 120 days	Yes	No
10Q and 10K		Within 5 days of SEC filing	Yes	No
A/R & A/P Agings; deferred revenue schedule		Monthly within 20 days *	Yes	No
A/R Audit		Initial and Semi-Annual	Yes	No
Borrowing Base Certificate		Monthly within 20 days *	Yes	No

* when borrowing or prior to a Credit Extension when none is outstanding

Financial Covenant	Required	Actual	Complies
Maintain on a Monthly Basis *:
Minimum Quick Ratio (§ 6.7(i))	0.70:1.00	:1.00	Yes	No
12 Month Trailing Positive EBITDA (§ 6.7(ii))	Positive	$	Yes	No

Have there been updates to Borrower’s intellectual property, if appropriate?                                        Yes / No

Comments Regarding Exceptions:  See Attached.

Sincerely,

Raining Data Corporation
Raining Data U.S., Inc.

By:

Title:

Date:

BANK USE ONLY
Received by:
	authorized signer
Date:
Verified:
	authorized signer
Date:
Compliance Status:		Yes	No

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors
Raining Data Corporation:

We consent to the incorporation by reference in the registration statements (Nos. 333-75202, 333-50996, 333-33672, 333-64027, 333-38449, 33-81008, 33-65538, 33-46166 and 33-32677) on Form S-8 of Raining Data Corporation of our report dated June 22, 2004, with respect to the consolidated balance sheets of Raining Data Corporation and subsidiaries as of March 31, 2004 and 2003, and the related consolidated statements of operations, cash flows, and stockholders’ equity and comprehensive loss for each of the years in the three-year period ended March 31, 2004, which report appears in the March 31, 2004, annual report on Form 10-KSB of Raining Data Corporation.

Our report dated June 22, 2004, contains an explanatory paragraph indicating that effective April 1, 2002, the Company adopted the provisions of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.”

/s/ KPMG LLP

Costa Mesa, California

June 29, 2004

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Carlton H. Baab, certify that:

1.I have reviewed this annual report on Form 10-KSB of Raining Data Corporation;

2.Based on my knowledge, this 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 report;

3.Based on my knowledge, the financial statements, and other financial information included in this 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 report;

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

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

(b)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 29, 2004

/s/ Carlton H. Baab

Carlton H. Baab
President and Chief Executive Officer

 (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Brian C. Bezdek, certify that:

1.I have reviewed this annual report on Form 10-KSB of Raining Data Corporation;

2.Based on my knowledge, this 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 report;

3.Based on my knowledge, the financial statements, and other financial information included in this 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 report;

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

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

(b)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 29, 2004

/s/ Brian C. Bezdek

Brian C. Bezdek
Chief Financial Officer
(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Carlton H. Baab, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Raining Data Corporation on Form 10-KSB for the year ended March 31, 2004 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-KSB fairly presents in all material respects the financial condition and results of operations of Raining Data Corporation.

By:	/s/ Carlton H. Baab
Name:	Carlton H. Baab
Title:	President and Chief Executive Officer

I, Brian C. Bezdek, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Raining Data Corporation on Form 10-KSB for the year ended March 31, 2004 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-KSB fairly presents in all material respects the financial condition and results of operations of Raining Data Corporation.

By:	/s/ Brian C. Bezdek
Name:	Brian C. Bezdek
Title:	Chief Financial Officer