UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

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

For Quarterly Period Ended June 30, 2003

OR

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

Commission File Number: 0-28900

~~EXCHANGE~~ROGUE ~~ACT~~WAVE OFSOFTWARE, INC. ~~1934~~(Exact name of registrant as specified in its charter)

For Quarterly Period Ended December 31, 2002

Delaware		93-1064214
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

5500 Flatiron Parkway, Boulder, Colorado		80301
(Address of principal executive offices)		(Zip Code)

(303) 473-9118
(Registrant’s telephone number, including area code)

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

¨YES ~~TRANSITION~~x ~~REPORT~~NO ~~PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES~~o

~~EXCHANGE~~ ~~ACT~~Indicate OFby ~~1934~~check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

~~Commission~~YES ~~File~~o ~~Number:~~NO ~~0-28900~~ x

~~ROGUE~~ ~~WAVE~~Indicate ~~SOFTWARE~~the number of shares outstanding of each of the registrant’s classes of common stock, ~~INC~~as of the latest practicable date.

(Exact name of registrant as specified in its charter)

Class		Outstanding at July 31, 2003

Common Stock, $0.001 par value		10,217,192

Delaware		93-1064214
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification No.)
5500 Flatiron Parkway, Boulder, Colorado		80301
(Address of principal executive offices)		(Zip Code)

(303) 473-9118

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨

Inidcate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x

Indicate the number of shares outstanding of each of the registrant’s classes of Common Stock, as of the latest practicable date.

Class		Outstanding at January 20, 2003
Common Stock, $0.001 par value		10,152,052

ROGUE WAVE SOFTWARE, INC. FORM 10-Q

FORM 10-Q

INDEX

				Page No.
PART I—FINANCIAL INFORMATION
PART I - FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements:	~~Condensed Consolidated Financial Statements:~~
		Condensed Consolidated Balance Sheets at December 31, 2002 and September 30, 2002		3
	Condensed Consolidated Balance Sheets at June 30, 2003 and September 30, 2002		3
		Condensed Consolidated Statements of Operations and Other Comprehensive Loss for the Three Months Ended December 31, 2002 and 2001		4
	Condensed Consolidated Statements of Operations and Other Comprehensive Income (Loss) for the Three and Nine Months Ended June 30, 2003 and 2002		4
		Condensed Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2002 and 2001		5
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2003 and 2002		5
	Notes to Condensed Consolidated Financial Statements	~~Notes to Condensed Consolidated Financial Statements~~	6	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~	16	12
	Risk Factors	~~Risk Factors~~	25	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	~~Quantitative and Qualitative Disclosures About Market Risk~~	30	25
Item 4.	Controls and Procedures	~~Controls and Procedures~~	31	25
PART II—OTHER INFORMATION
PART II – OTHER INFORMATION
Item 6.	Exhibits and Reports on Form 8-K	~~Exhibits and Reports on Form 8-K~~32		26
Signatures		33		27
Certifications				28

2 2.

PART I— - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

ROGUE WAVE SOFTWARE, INC. AND SUBSIDIARIES

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands) (unaudited)

	December 31, 2002				September 30, 2002
	June 30, 2003			September 30, 2002
	(unaudited)
ASSETS
ASSETS
Current assets:
Current assets:
Cash and cash equivalents	$	16,704		$	10,525
Cash and cash equivalents	$	15,090			$	10,525
Short-term investments		12,094			17,731
Short-term investments		11,899				17,731
Accounts receivable, net		6,266			8,144
Accounts receivable, net		7,205				8,144
Prepaid expenses and other current assets		582			641
Prepaid expenses and other current assets		948				641
Income tax receivable		8			1,416
Income tax receivable		1,416				1,416
Total current assets		35,654			38,457
Total current assets		36,558				38,457
Furniture, fixture, and equipment, net		1,274			2,933
Furniture, fixture, and equipment, net		2,311				2,933
Intangibles, net		169			467
Intangibles, net		281				467
Other assets, net		644			1,085
Other assets, net		1,104				1,085
Total assets	$	37,741		$	42,942
Total assets	$	40,254			$	42,942
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current liabilities:
Accounts payable	$	331		$	137
Accounts payable	$	440			$	137
Accrued expenses		3,527			4,961
Accrued expenses		4,914				4,961
Deferred revenue		6,918			9,102
Deferred revenue		8,037				9,102
Total current liabilities		10,776			14,200
Total current liabilities		13,391				14,200
Stockholders’ equity:
Stockholders’ equity:
Common stock		10			10
Common stock		10				10
Additional paid-in capital		41,538			42,045
Additional paid-in capital		42,024				42,045
Treasury stock		(2,588	)		(1,652	)
Treasury stock		(2,231	)			(1,652	)
Deferred compensation		—			(449	)
Deferred compensation		(404	)			(449	)
Accumulated deficit		(12,429	)		(11,325	)
Accumulated deficit		(12,963	)			(11,325	)
Accumulated other comprehensive income		434			113
Accumulated other comprehensive income		427				113
Total stockholders’ equity		26,965			28,742
Total stockholders’ equity		26,863				28,742
Total liabilities and stockholders’ equity	$	37,741		$	42,942
Total liabilities and stockholders’ equity	$	40,254			$	42,942

The accompanying notes to the unaudited condensed consolidated financial statements are an integral part of these statements.

3 3.

ROGUE WAVE SOFTWARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND ~~SUBSIDIARIES~~OTHER COMPREHENSIVE INCOME (LOSS)

~~CONDENSED~~ ~~CONSOLIDATED~~(in ~~STATEMENTS~~thousands, except OFper ~~OPERATIONS~~share ~~AND~~data) ~~OTHER~~ (unaudited)

COMPREHENSIVE LOSS

	Three Months Ended June 30,						Nine Months Ended June 30,

	2003			2002			2003			2002

Revenue:
License revenue	$	3,880		$	5,395		$	14,535		$	18,185
Service and maintenance revenue		3,405			4,659			10,768			15,846

Total revenue		7,285			10,054			25,303			34,031
Cost of revenue:
Cost of license revenue		80			231			439			523
Cost of service and maintenance revenue		487			1,289			2,322			5,210

Total cost of revenue		567			1,520			2,761			5,733

Gross profit		6,718			8,534			22,542			28,298
Operating expenses:
Product development		1,307			2,892			5,060			9,497
Sales and marketing		2,913			5,603			11,431			17,031
General and administrative		917			1,204			3,028			4,387
Restructuring, severance and goodwill amortization		1,546			270			4,123			1,315

Total operating expenses		6,683			9,969			23,642			32,230

Income (loss) from operations		35			(1,435	)		(1,100	)		(3,932	)
Other income (loss), net		2			(104	)		117			370

Income (loss) before income taxes		37			(1,539	)		(983	)		(3,562	)
Income tax expense (benefit)		15			(517	)		121			(1,100	)

Net income (loss)	$	22		$	(1,022	)	$	(1,104	)	$	(2,462	)

Basic and diluted income (loss) per share	$	0.00		$	(0.10	)	$	(0.11	)	$	(0.23	)

Shares used in basic per share calculation		9,966			10,643			10,091			10,717
Shares used in diluted per share calculation		10,006			10,643			10,091			10,717
Net income (loss)	$	22		$	(1,022	)	$	(1,104	)	$	(2,462	)
Other comprehensive loss:
Foreign currency translation gain (loss)		(26	)		640			321			350

Total comprehensive loss	$	(4	)	$	(382	)	$	(783	)	$	(2,112	)

(in thousands, except per share data, unaudited)

	Three Months Ended December 31,
	2002			2001
Revenue:
License revenue	$	5,719		$	6,070
Service and maintenance revenue		3,870			5,876
Total revenue		9,589			11,946
Cost of revenue:
Cost of license revenue		233			169
Cost of service and maintenance revenue		1,122			2,006
Total cost of revenue		1,355			2,175
Gross profit		8,234			9,771
Operating expenses:
Product development		2,097			3,244
Sales and marketing		4,568			6,037
General and administrative		1,151			1,628
Restructuring, severance, relocation, asset impairment and goodwill amortization		2,095			562
Total operating expenses		9,911			11,471
Loss from operations		(1,677	)		(1,700	)
Other income, net		92			260
Loss before income taxes		(1,585	)		(1,440	)
Income tax expense (benefit)		53			(484	)
Net loss	$	(1,638	)	$	(956	)
Basic and diluted loss per share	$	(0.16	)	$	(0.09	)
Shares used in basic and diluted per share calculation		10,231			10,916
Net loss	$	(1,638	)	$	(956	)
Other comprehensive income (loss):
Foreign currency translation gain (loss)		314			(136	)
Total other comprehensive loss	$	(1,324	)	$	(1,092	)

The accompanying notes to the unaudited condensed consolidated financial statements are an integral part of these statements.

4 4.

ROGUE WAVE SOFTWARE, INC. AND SUBSIDIARIES

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, ) (unaudited)

	Three Months Ended December 31,
	Nine Months Ended June 30,
	2002				2001
	2003			2002
Cash flows provided by (used in) operating activities:
Net loss	$	(1,~~638~~104	)	$	$(2,462	~~(956~~)	)
Adjustments to reconcile net loss to net cash used in operating activities:
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		~~614~~1,685			2,894	~~987~~
Loss on disposal of assets		4496			63	45
Changes in assets and liabilities:
Deferred income taxes		—			(218	)
Accounts receivable		1,308				1,280
Amortization of deferred compensation		89			—
Prepaid expenses and other current assets		(297	)			(154	)
Changes in assets and liabilities:
Income tax receivable		—				(506	)
Accounts receivable		2,287			509
Other noncurrent assets		196				48
Prepaid expenses, income tax receivable and other current assets		1,424			(204	)
Accounts payable and accrued expenses		171				(662	)
Other noncurrent assets		808			(948	)
Amortization of deferred compensation		45				—
Accounts payable and accrued expenses		(1,639	)		(1,719	)
Deferred revenue		(12,~~186~~469	)		(1,887	~~(1,757~~)	)
Net cash used in operating activities		(743	)			(1,675	)
Net cash provided by (used in) operating activities		1,177			(3,972	)
Cash flows provided by (used in) investing activities:
Maturities of short-term investments		918,~~039~~097			—	—
Purchase of short-term investments		(312,~~208~~460	)		(362	~~(114~~)	)
Purchase of equipment		(1982	)		(943	~~(363~~)	)
Net cash provided by (used in) investing activities		5,~~812~~555			(1,305	~~(477~~)	)
Cash flows provided by (used in) financing activities:
Cash flows used in financing activities:
Net proceeds from issuance of common stock		8				—
Net proceeds from exercise of stock options		41			22
Treasury stock purchases		(608	)			(939	)
Net proceeds from Employee Stock Purchase Plan		73			191
Net cash used in financing activities		(600	)			(939	)
Treasury stock purchases		(1,196	)		(1,658	)
Effect of exchange rate changes on cash and cash equivalents		96				(115	)
Net cash used in financing activities		(1,082	)		(1,445	)
Net change in cash and cash equivalents		4,565				(3,206	)
Effect of exchange rate changes on cash and cash equivalents		529			(411	)
Cash and cash equivalents at beginning of period		10,525				17,047
Net change in cash and cash equivalents		6,179			(7,133	)
Cash and cash equivalents at end of period	$	15,090			$	13,841
Cash and cash equivalents at beginning of period		10,525			17,047
Cash and cash equivalents at end of period	$	16,704		$	9,914

The accompanying notes to the unaudited condensed consolidated financial statements are an integral part of these statements.

5 5.

ROGUE WAVE SOFTWARE, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO UNAUDITED

1.	Basis of Presentation
	The accompanying unaudited financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (which are of a normal and recurring nature) considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with Rogue Wave Software, Inc.’s (“Rogue Wave” or the “Company”) consolidated financial statements and notes thereto (the “Consolidated Financial Statements”) for the year ended September 30, 2002, included in the Company’s annual report on Form 10-K. The interim results presented are not necessarily indicative of results for any subsequent quarter or for the fiscal year ending September 30, 2003.

2.	Stock Based Compensation
	The Company has stock option plans for employees and directors that provide for the granting of incentive and nonqualified stock options. Under the plans, options are granted at an exercise price equal to the fair market value of the underlying common stock at the date of grant, and may be exercisable for up to 10 years. The Company applies Accounting Principles Board (“APB”) Opinion No. 25 and related interpretations in accounting for its stock option plans, as permitted under Statement of Financial Accounting Standards (“SFAS”) No. 123 and SFAS No. 148. Accordingly, no compensation cost has been recognized for its stock option plans. Assuming the compensation cost for the Company’s stock option plans had been determined based on the fair value at the grant dates for awards under those plans consistent with the fair-value methodology of SFAS No. 123, the Company’s net income (loss) and earnings (loss) per share would have been reduced to the following amounts (in thousands, except per share data):

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

	Three months ended June 30,						Nine months ended June 30,

	2003			2002			2003			2002

Reported net income (loss)	$	22		$	(1,022	)	$	(1,104	)	$	(2,462	)
Stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		152			636			757			2,030

Pro forma net loss	$	(130	)	$	(1,658	)	$	(1,861	)	$	(4,492	)

Reported basic and diluted income (loss) per share	$	0.00		$	(0.10	)	$	(0.11	)	$	(0.23	)

Pro forma basic and diluted loss per share	$	(0.01	)	$	(0.16	)	$	(0.18	)	$	(0.42	)

1. ~~Basis of Presentation~~ 6.

The accompanying unaudited financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (which are of a normal and recurring nature) considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with Rogue Wave Software, Inc.’s (“Rogue Wave” or the “Company”) consolidated financial statements and notes thereto (the “Consolidated Financial Statements”) for the year ended September 30, 2002, included in the Company’s annual report on Form 10-K. The interim results presented are not necessarily indicative of results for any subsequent quarter or for the fiscal year ending September 30, 2003.

2. Revenue Recognition

The Company derives revenue from licensing its software products and providing related maintenance and support, and training and consulting services. License revenue is recognized in accordance with Statement of Position (“SOP”) 97-2, “Software Revenue Recognition,” amended by SOP No. 98-9. Revenue is recognized upon execution of an agreement with fixed or determinable fees, upon shipment or electronic delivery of the product and management’s determination that collection of the resulting receivable is probable. The Company considers fees relating to arrangements with payment terms extending beyond twelve months not to be fixed or determinable. If the fee is not fixed or determinable, revenue is recognized as payments become due from the customer. Maintenance and service revenue includes maintenance revenue that is deferred and recognized ratably over the maintenance period. Service revenue, including training and consulting services, is recognized as services are performed. In instances where the Company enters into customized software consulting contracts, the fees are recognized using the percentage of completion method of contract accounting in accordance with SOP No. 81-1, “Accounting for Performance of Construction-Type and Certain Product-Type Contracts”.

3. Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash equivalents, short-term investments and accounts receivable. The counter parties to the agreements relating to the Company’s cash equivalents and short-term investments consist of various major corporations and financial institutions of high credit standing. The Company’s receivables are derived primarily from the sales of software products and services to customers in diversified industries as well as distributors in the U.S. and foreign markets. As of December 31, 2002, the accounts receivable balance was $8.5 million, before allowance for doubtful accounts and sales returns of $1.3 million. One customer accounted for 14% of the gross accounts receivable balance at December 31, 2002. This customer also accounted for 12% of the revenue for the quarter ended December 31, 2002, respectively. International revenue was approximately 35% and 31% of the Company’s total revenue for the quarters ended December 31, 2002 and 2001, respectively.

4The fair value of each stock option is estimated as of the grant date using the Black-Scholes option-pricing model. ~~Basic~~The assumptions used and ~~Diluted~~the ~~Loss~~estimated ~~Per Share~~fair values are as follows:

Basic loss per share for the three months ended December 31, 2002 and 2001 is computed on the basis of the weighted average number of common shares outstanding. Diluted loss per share is computed on the basis of the weighted average number of common shares outstanding plus the effect of outstanding stock options using the “treasury stock” method unless the impact is anti-dilutive. As a result of the net loss incurred for the three months ended December 31, 2002 and 2001, all options are anti-dilutive and, accordingly, the number of shares used in computing the basic and diluted shares is the same. The Company had approximately 4.5 million and 3.8 million options outstanding at December 31, 2002 and 2001, respectively, of which approximately 56,000 and 224,000, respectively, were considered “in the money”. During the three months ended December 31, 2002 and 2001, options to acquire approximately 35,000 and 55,000 shares, respectively, calculated using the “treasury stock method”, were excluded from the calculation because of their anti-dilutive effect.

Year of Grant	Risk Free Interest Rate		Expected Life of Option in Years	Expected Dividend Yield		Expected Stock Volatility

FY 2003	2.53	%	5.00	0.00	%	67.96	%
FY 2002	3.13	%	5.00	0.00	%	55.38	%

~~Calculation~~The offollowing ~~basic~~table ~~and~~summarizes ~~diluted~~stock ~~loss~~option ~~per~~activity ~~share is as follows~~ (in thousands, except per share data):

	Three months ended December 31,
	Shares			Weighted avg. price per share
	2002				2001
Outstanding options at September 30, 2001		3,914		$	5.57
Numerator:
Granted		2,487			2.99
Net loss	$	(1,638	)		$	(956	)
Exercised		(8	)		0.15
Denominator:
Canceled		(1,160	)		4.98
Historical common shares outstanding for basic and diluted loss per share at beginning of period		10,480				11,090
Outstanding options at September 30, 2002		5,233			4.48
Weighted average number of common equivalent shares issued during the period		3				—
Granted		28			1.78
Weighted average number of common equivalent shares purchased during the period		(252	)			(174	)
Exercised		(9	)		0.43
Denominator for basic and diluted loss per share — weighted average shares		10,231				10,916
Canceled		(762	)		3.99
Basic and diluted loss per share	$	(0.16	)		$	(0.09	)
Outstanding options at December 31, 2002		4,490			4.55
Granted		536			2.24
Exercised		(15	)		0.40
Canceled		(1,393	)		4.71
Outstanding options at March 31, 2003		3,618			4.16
Granted		22			2.50
Exercised		(15	)		2.11
Canceled		(865	)		3.73
Outstanding options at June 30, 2003		2,760		$	4.29

5Options vested and exercisable were 1.9 ~~Common~~million ~~Stock Repurchases~~shares at June 30, 2003. Price ranges and weighted average characteristics of outstanding stock options at June 30, 2003 were as follows (share data in thousands):

In September 2001, the Board of Directors authorized the Company to repurchase up to an aggregate of the lesser of $5.0 million or 2.5 million shares of its common stock. During the quarter ended December 31, 2002, the Company repurchased 337,000 shares for $608,000, at prices ranging from $1.72—$2.00 per share. Since September 2001, the Company has purchased approximately 1.1 million shares, at a cost of approximately $2.8 million at prices ranging from $1.72—$3.65 per share.

	Outstanding Options						Exercisable Options

Exercise Price	Shares		Remaining life (years)		Weighted avg. price		Shares		Weighted avg. price

$0.15-$2.68		1,137		9.1	$	2.40		346	$	2.36
$2.80-$5.13		696		7.6	$	4.05		635	$	4.09
$5.31-$7.88		702		7.0	$	5.65		698	$	5.64
$8.00-$17.00		225		4.9	$	10.41		220	$	10.43

		2,760		7.8	$	4.29		1,899	$	5.08

63. ~~Stockholder~~Revenue ~~Rights~~Recognition ~~Plan~~The Company derives revenue from licensing its software products and providing related maintenance and support, and training and consulting services. License revenue is recognized in accordance with Statement of Position (“SOP”) 97-2, “Software Revenue Recognition,” amended by SOP No. 98-9. Revenue is recognized upon execution of a license agreement or signed written contract with fixed or determinable fees, upon shipment or electronic delivery of the product and management’s determination that collection of the resulting receivable is probable. The Company

~~On January 3, 2003, the Board of Directors, declared a dividend of one right for each share of common stock outstanding on January 16, 2003~~7. Each right represents the right to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock, $0.01 par value, at a price of $14.16 per one one-hundredth share, subject to adjustment. In the event any person or group acquires 15% or more of the Company’s common stock or announces a tender offer or exchange offer for 15% or more of the Company’s common stock, subject to certain exceptions, the holders of the rights generally will be entitled to receive, upon exercise, common stock of the Company having a value equal to two times the exercise price of the right. The Board of Directors may, at its option

after a person or group acquires 15% or more of the Company’s common stock or announces a tender offer or exchange offer for 15% or more of the Company’s common stock, exchange all or part of the rights for shares of the Company’s common stock. In the event that the Company is acquired in a merger or other business combination or 50% or more of the Company’s assets or earning power is sold or transferred, the holders of the rights have the right to receive, upon exercise, common stock of the acquiring company having a value equal to two times the exercise price of the right. The Company may redeem the rights at a price of $0.001 per right at any time prior to an event triggering the exercisability of the rights. The rights expire January 6, 2013, unless earlier redeemed or exchanged by the Company.

	considers fees relating to arrangements with payment terms extending beyond 12 months not to be fixed or determinable. If the fee is not fixed or determinable, revenue is recognized as payments become due from the customer. Maintenance and service revenue includes maintenance revenue that is deferred and recognized ratably over the maintenance period. Service revenue, including training and consulting services, is recognized as services are performed.

	Revenue from reseller arrangements is recognized on a sell through basis, that is, when persuasive evidence is obtained by the Company that the reseller has sold the products to an end-use customer. In instances where the Company enters into customized software consulting contracts, the fees are recognized using the percentage of completion method of contract accounting in accordance with SOP No. 81-1, “Accounting for Performance of Construction-Type and Certain Product-Type Contracts.” The Company generally provides a 30 day right of return policy for software sales. The allowance for returns was $363,000 and $393,000 at June 30, 2003 and 2002, respectively.

4.	Concentration of Credit Risk
	Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash equivalents, short-term investments and accounts receivable. The counter parties to the agreements relating to the Company’s cash equivalents and short-term investments consist of various major corporations and financial institutions of high credit standing. The Company’s receivables are derived primarily from the sales of software products and services to customers in diversified industries as well as distributors in the U.S. and foreign markets. As of June 30, 2003, the accounts receivable balance was $7.5 million, before allowance for doubtful accounts and sales returns, which total $1.2 million. One customer accounted for 20% of the gross accounts receivable balance at June 30, 2003. This customer accounted for 1% of the Company’s total revenue for the three months ended June 30, 2003 and 6% of total revenue for the nine months ended June 30, 2003. There were no customers that accounted for 10% or more of revenue for the three and nine months ended June 30, 2002. International revenue was approximately 30% and 32% of the Company’s total revenue for the quarters ended June 30, 2003 and 2002, respectively. International revenue was approximately 30% and 28% of the Company’s total revenue for the nine months ended June 30, 2003 and 2002, respectively.

5.	Basic and Diluted Income (Loss) Per Share
	Basic income (loss) per share for the three and nine months ended June 30, 2003 and 2002 is computed on the basis of the weighted average number of common shares outstanding. Diluted income (loss) per share is computed on the basis of the weighted average number of common shares outstanding plus the effect of outstanding stock options using the “treasury stock” method unless the impact is anti-dilutive. The difference between basic income (loss) per share and diluted income (loss) per share is due to the effect of outstanding stock options. For the three months ended June 30, 2003, the dilutive effect of outstanding options was 40,000 shares. As a result of the net loss incurred for the three months ended June 30, 2002 and the nine months ended June 30, 2003 and 2002, all options are anti-dilutive and, accordingly, the number of shares used in computing the basic and diluted shares is the same. During the three months ended June 30, 2002 and nine months ended June 30, 2003 and 2002, options to acquire approximately 70,000, 30,000 and 56,000 shares, respectively, calculated using the “treasury stock method”, were excluded from the calculation because of their anti-dilutive effect. The Company had approximately 2.8 million and 4.8 million options outstanding at June 30, 2003 and 2002, respectively, of which approximately 1.1 million and 93,000, respectively, were considered “in the money”.

7. ~~Restructuring, Severance, Relocation, Asset Impairment and Goodwill Amortization~~ 8.

Restructuring

During the first quarter of fiscal 2003, as a result of the continued slowdown in the economy, Rogue Wave initiated several actions designed to mitigate adverse financial impact attributable to the soft economic climate. The Company implemented several cost reduction initiatives to achieve operating efficiencies, including consolidation of facilities in the U.S. and international operations. Consolidation activities included termination of employees at the Company’s Corvallis, Oregon facility and termination of Large Scale Object Solutions (“LSOS”) development operations in Southboro, Massachusetts as a result of anticipated reduced market demand for LSOS products. As a part of the consolidation of facilities, during the three months ended December 31, 2002, the Company recognized a restructuring charge of $1.7 million, related primarily to severance costs associated with the termination of approximately 75 employees as well as certain closure costs, including those related to facility lease costs. These actions are expected to reduce fiscal 2003 operating expenses as compared to fiscal 2002 by approximately $11.0 million.

The following table summarizes restructuring costs by primary component and related reserve at December 31, 2002 (in thousands). The remaining costs of $727,000 at December 31, 2002 are expected to be paid by the end of fiscal year 2003.

	Employee Severance & Related			Site Closure Costs		Other		Total
Consolidation costs incurred in the three months ended December 31, 2002	$	1,239		$	404	$	70	$	1,713
Cash paid		(986	)		—		—		(986	)
Balance at December 31, 2002	$	253		$	404	$	70	$	727

Relocation

As described above, the Company consolidated certain operations in the U.S. and international facilities to achieve cost reductions and streamline operations. The Company relocated certain development and information technology functions from the Company’s Corvallis, Oregon facility to its headquarters in Boulder, Colorado. As a result of the consolidation, the Company recognized a relocation expense of $217,000 for the three months ended December 31, 2002.

Asset Impairment

The Company incurred an asset impairment charge of $165,000 during the three months ended December 31, 2002. The asset impairment charge resulted primarily from the closure of its Southboro, Massachusetts facility and was related to software, furniture and fixtures. The carrying amount of the assets prior to the asset impairment charge was $165,000.

~~Severance~~Calculation of basic and diluted income (loss) per share is as follows (in thousands, except per share data):

During the three months ended December 31, 2001, the Company terminated the employment of certain senior managers. As a result, the Company recognized approximately $505,000 in severance costs in December 2001.

	Three months ended June 30,						Nine months ended June 30,

		2003			2002			2003			2002

Numerator:
Net income (loss)	$	22		$	(1,022	)	$	(1,104	)	$	(2,462	)

Denominator:
Historical common shares outstanding for basic and diluted income (loss) per share at beginning of period		9,973			10,646			10,481			11,090
Weighted average number of common equivalent shares purchased during the period		(11	)		(3	)		(430	)		(373	)
Weighted average number of common equivalent shares issued during the period		4			—			40			—

Denominator for basic net income (loss) per share - weighted average shares		9,966			10,643			10,091			10,717

Incremental common shares attributable to shares issuable under equity incentive plans (treasury stock method)		40			—			—			—

Denominator for diluted net income (loss) per share – weighted average shares		10,006			10,643			10,091			10,717

Basic and diluted income (loss) per share	$	0.00		$	(0.10	)	$	(0.11	)	$	(0.23	)

Goodwill Amortization

6.	Common Stock Repurchases
	In September 2001, the Board of Directors authorized the Company to repurchase up to an aggregate of the lesser of $5.0 million or 2.5 million shares of its common stock. During the nine months ended June 30, 2003, the Company repurchased 585,000 shares for $1.2 million at prices ranging from $1.72 - $2.67 per share. Since September 2001, the Company has purchased approximately 1.4 million shares for approximately $3.4 million at prices ranging from $1.72 - $3.65 per share.

7.	Stockholder Rights Plan
	On January 3, 2003, the Board of Directors declared a dividend of one right for each share of common stock outstanding on January 16, 2003. Each right represents the right to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock, $0.01 par value, at a price of $14.16 per one one-hundredth share, subject to adjustment. In the event any person or group acquires 15% or more of the Company’s common stock or announces a tender offer or exchange offer for 15% or more of the Company’s common stock, subject to certain exceptions, the holders of the rights generally will be entitled to receive, upon exercise, common stock of the Company having a value equal to two times the exercise price of the right. The Board of Directors may, at its option after a person or group acquires 15% or more of the Company’s common stock or announces a tender offer or exchange offer for 15% or more of the Company’s common stock, exchange all or part of the rights for shares of the Company’s common stock. In the event that the Company is acquired in a merger or other business combination or 50% or more of the Company’s assets or earning power is sold or transferred, the holders of the rights have the right to receive, upon exercise, common stock

~~During the three months ended December 31, 2001, the Company recognized approximately $58,000 of goodwill amortization~~9.

8. Foreign Exchange Contracts

The Company accounts for foreign exchange contracts under Statement of Financial Accounting Standards (“SFAS”) No. 133 “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS No. 137 and SFAS No. 138, which establishes accounting and reporting standards for derivative instruments, including foreign exchange forward contracts.

The Company enters into foreign exchange forward contracts to hedge certain operational and balance sheet exposures, primarily intercompany royalty fees, from changes in foreign currency exchange rates. At inception, such contracts are designated as cash flow hedges. To achieve hedge accounting, contracts must reduce the foreign currency exchange rate risk otherwise inherent in the amount and duration of the hedged exposure and comply with established company risk management policies. The Company does not enter into any derivative transactions for speculative purposes. Hedging contracts generally mature within 60 to 425 days.

When hedging the intercompany receivable exposure, the effective portion of the derivative’s gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into earnings in the period in which earnings are impacted by the variability of the cash flow of the hedged item. The ineffective portion of the gain or loss is reported in current period earnings immediately. The realized gains and losses are recorded in “Other income-net” in the statement of operations.

The notional amount of foreign exchange contracts outstanding at December 31, 2002 was $1.0 million with a derivative related fair value of $10,000. The fair value of the forward contracts is estimated based on quoted exchange rates at December 31, 2002. The effective or unrealized gain related to the outstanding contracts at December 31, 2002 was $72,000 and the unrealized loss at December 31, 2001 was $6,000. Also during the three months ended December 31, 2002 and 2001, certain foreign currency contracts matured resulting in a total realized net loss of $4,000 and a net gain of $4,000, respectively.

9. Worldwide Operations

	of the acquiring company having a value equal to two times the exercise price of the right. The Company may redeem the rights at a price of $0.001 per right at any time prior to an event triggering the exercisability of the rights. The rights expire January 6, 2013, unless earlier redeemed or exchanged by the Company.

8.	Restructuring, Severance, Relocation, Asset Impairment and Goodwill Amortization

	First Quarter 2003 Restructuring
	During the first quarter of fiscal 2003, Rogue Wave initiated several actions designed to mitigate the adverse financial impact attributable to the overall weakness in the world economy. The Company implemented several cost reduction initiatives to achieve operating efficiencies, including consolidation of facilities in the U.S. and international operations. Consolidation activities included termination of employees at the Company’s Corvallis, Oregon facility and discontinuance of Large Scale Object Solutions (“LSOS”) development operations in Southboro, Massachusetts as a result of anticipated reduced market demand for LSOS products. As a part of the consolidation of facilities, during the three months ended December 31, 2002, the Company recognized a restructuring charge of $1.7 million, related primarily to severance costs associated with the termination of approximately 75 employees as well as certain site closure costs, including those related to facility lease costs. The Company revised its estimate of the initial restructuring costs by $4,000 in the second quarter of fiscal 2003, as actual severance costs were slightly less than originally anticipated. These actions are expected to reduce fiscal 2003 operating expenses, as compared to fiscal 2002, by approximately $11.0 million. The remaining liability associated with these actions of $111,000 at June 30, 2003 is expected to be paid by the end of fiscal year 2003.

	The following table summarizes restructuring costs by primary component and related reserve at June 30, 2003 (in thousands):

Revenue by geographic area for the three months ended December 31, 2002 and 2001 was 65% and 69% in the Americas, 21% and 22% in Europe, Middle East, Eastern Europe and Africa (“EMEA”), and 14% and 9% in Asia Pacific, respectively.

	Employee Severance & Related			Site Closure Costs			Other			Total

Consolidation costs incurred in the three months ended December 31, 2002	$	1,239		$	404		$	70		$	1,713
Cash paid		(986	)		—			—			(986	)

Balance at December 31, 2002		253			404			70			727
Cash paid		(233	)		(146	)		(74	)		(453	)
Adjustments for revised estimates		(8	)		—			4			(4	)

Balance at March 31, 2003		12			258			—			270
Cash paid		(12	)		(147	)		—			(159	)

Balance at June 30, 2003	$	—		$	111		$	—		$	111

~~Information~~Second ~~regarding~~Quarter ~~worldwide~~2003 ~~operations~~Cost isReduction asInitiatives ~~follows~~In (the second quarter of fiscal 2003, the Company implemented additional cost reduction measures that resulted in ~~thousands):~~ workforce reductions of 24 employees. As a result of these actions, the Company recognized a severance charge of approximately $374,000. The Company revised its original estimate of the severance costs by $3,000 in the third quarter of fiscal 2003, as actual severance costs were less than anticipated. These actions are expected to reduce fiscal 2003 operating expenses, as compared to fiscal 2002, by approximately $2.4 million.

	Americas			EMEA			Asia1 Pacific		Eliminations			Total
December 31, 2002, and for the quarter then ended:
Revenue to unaffiliated customers	$	6,246		$	2,017		$	1,326	$	—		$	9,589
Intercompany transfers		1,913			—			—		(1,913	)		—
Net revenue		8,159			2,017			1,326		(1,913	)		9,589
Operating income (loss)		(1,278	)		(630	)		231		—			(1,677	)
Long–lived assets		2,010			285			16		—			2,311
December 31, 2001, and for the quarter then ended:
Revenue to unaffiliated customers	$	8,234		$	2,599		$	1,113	$	—		$	11,946
Intercompany transfers		1,372			—			—		(1,372	)		—
Net revenue		9,606			2,599			1,113		(1,372	)		11,946
Operating income (loss)		(2,007	)		(71	)		378		—			(1,700	)
Long–lived assets		4,299			320			—		—			4,619

10.

1. Japan was the only country reported in Asia Pacific for the three months ended December 31, 2001. Due to the Company’s international focus and realignment in fiscal 2002, Asia Pacific now includes Japan, Hong Kong, Australia and India.

10. Accounting for Income Taxes

At December 31, 2002, the Company had net operating loss carryforwards for Federal and foreign income tax purposes of $9.4 million and various tax credits and temporary differences, which expire in varying amounts between 2003 and 2022. Under SFAS No. 109, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. SFAS No. 109 provides for the recognition of deferred tax assets if realization of such assets is more likely than not. Based upon the requirements of SFAS No. 109, the Company has established a valuation allowance related to deferred tax assets of approximately $6.7 million and $5.9 million as of December 31, 2002 and September 30, 2002, respectively. The net recoverable tax asset balance of $1.4 million at December 31, 2002 is expected to be carried back and offset against income in prior taxable years.

11. New Accounting Pronouncements

On July 29, 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 146, “Accounting for Exit or Disposal Activities.” SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred instead of the date of an entity’s commitment to an exit plan. This Statement also establishes that fair value is the objective for initial measurement of the liability. Severance pay under Statement No. 146, in many cases, would be recognized over time rather than upfront for employees who render future services beyond a minimum retention period. The minimum retention

~~period would be based on the legal notification period, or if there is no such requirement, 60 days.~~ The ~~provisions~~following oftable ~~SFAS~~summarizes ~~No.~~restructuring ~~146~~costs ~~are~~at ~~effective~~June ~~for the Company for disposal activities initiated after December 31~~30, ~~2002.~~2003 ~~Management~~(in ~~does not believe adoption of this statement will have a material impact on the Company’s financial position, results of operations or cash flows.~~ thousands):

In November 2002, the FASB issued FASB Interpretation (“FIN”) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”, an interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34. FIN 45 clarifies the requirements of FASB Statement No. 5, “Accounting for Contingencies,” relating to the guarantor’s accounting for, and disclosure of the issuance of certain types of guarantees. Guarantees meeting the characteristics described in the Interpretation, which are not included in a long list of exceptions, are required to be initially recorded at fair value, which is different from the general current practice of recording a liability only when a loss is probable and estimable, as those terms are defined in FASB Statement No. 5, “Accounting for Contingencies”. The disclosure provisions of the Interpretation are effective for financial statements of interim or annual reports that end after December 15, 2002. However the provisions for initial recognition and measurement are effective on a prospective basis for guarantees that are issued or modified after December 31, 2002, irrespective of the guarantor’s year end. Management does not believe adoption of this statement will have an impact on the Company’s financial position, results of operations or cash flows.

	Employee Severance & Related

Employee reduction costs incurred during the three months ended March 31, 2003	$	374
Cash paid		(349	)

Balance at March 31, 2003		25
Cash paid		(22	)
Adjustments for revised estimates		(3	)

Balance at June 30, 2003	$	—

InThird ~~December~~Quarter ~~2002,~~2003 ~~the~~Strategic ~~FASB issued~~Realignment ~~SFAS~~In ~~No.~~response ~~148,~~to ~~“Accounting~~the ~~for~~continuing ~~Stock-Based~~sluggish ~~Compensation-Transition~~economy and ~~Disclosure-an~~change ~~amendment~~in ofproduct ~~FASB~~strategy, ~~Statement~~the ~~No.~~Company ~~123”~~realigned certain U.S. ~~This~~operations ~~Statement~~and ~~amends~~closed ~~FASB~~its ~~Statement~~Sydney, ~~No.~~Australia ~~123~~and ~~“Accounting~~Amsterdam, ~~for~~Netherlands ~~Stock-Based~~offices ~~Compensation”,~~in tothe ~~provide alternative~~third ~~methods~~quarter of ~~transition~~fiscal ~~for~~2003. As a ~~voluntary~~result ~~change~~of tothese ~~the~~cost ~~fair~~reduction ~~value~~actions, ~~based~~the ~~method~~Company ofrecognized ~~accounting~~a ~~for~~restructuring ~~stock-based~~charge ~~employee~~of ~~compensation~~approximately ~~and~~$1.4 ~~the~~million, ~~effect~~related ofprimarily ~~the~~to ~~method~~severance ~~used~~costs onassociated ~~reported~~with ~~results.~~the ~~The~~termination ~~Company~~of ~~will~~approximately ~~adopt~~39 ~~the~~employees ~~disclosure~~as ~~requirements~~well ~~of SFAS~~as ~~No.~~certain ~~148~~site inclosure ~~its~~costs, ~~second~~including ~~quarter~~those ofrelated ~~fiscal~~to ~~2003~~facility ~~consolidated~~lease ~~financial statements~~costs. ~~However,~~These ~~the~~actions ~~Company,~~are atexpected ~~this~~to ~~time,~~reduce ~~does~~fiscal ~~not~~2003 ~~intend~~operating toexpenses, ~~change~~as compared to ~~the~~fiscal ~~fair~~2002, ~~value~~by ~~based~~approximately ~~method~~$3.9 ofmillion. ~~accounting~~The ~~for~~remaining ~~stock-based~~accrued ~~employee~~balance ~~compensation.~~of ~~Management currently~~$689,000 ~~does~~at ~~not~~June ~~believe~~30, ~~that~~2003, ~~adoption~~is ofexpected ~~the~~to ~~disclosure~~be ~~requirements~~paid ofby ~~SFAS~~December No31, 2003. ~~148~~The ~~will~~following ~~have~~table ansummarizes ~~impact~~restructuring oncosts ~~the~~by ~~Company’s~~primary ~~financial~~component ~~position,~~and ~~results~~related ofreserve ~~operations~~at orJune ~~cash~~30, ~~flows.~~2003 (in thousands):

	Employee Severance & Related			Site Closure Costs			Other			Total

Consolidation costs incurred in the three
months ended June 30, 2003	$	786		$	572		$	37		$	1,395
Cash paid		(660	)		(9	)		(37	)		(706	)

Balance at June 30, 2003	$	126		$	563		$	—		$	689

	Relocation
	As described above, the Company consolidated certain operations in the U.S. and international facilities in the first quarter of fiscal 2003 to achieve cost reductions and streamline operations. The Company relocated certain development and information technology functions from the Company’s Corvallis, Oregon facility to its headquarters in Boulder, Colorado. As a result of the consolidation, the Company recognized a relocation expense of $217,000 during the three months ended December 31, 2002. In the second quarter of fiscal 2003, the Company adjusted these costs, which resulted in a less than anticipated cost of $40,000. In the third fiscal quarter of fiscal 2003, the Company finalized these costs and recognized an additional $10,000 of expense.

	Asset Impairment
	The Company incurred an asset impairment charge of $165,000 during the three months ended December 31, 2002. The asset impairment charge resulted primarily from the closure of its Southboro, Massachusetts’s facility and was related to software, furniture and fixtures. During the three months ended June 30, 2003, the Company incurred an additional asset impairment charge of $44,000 for other software, furniture and fixtures as a result of the closure of its Amsterdam, Netherlands office.

11.

	LSOS Contract Termination
	During the three months ended March 31, 2003, in conjunction with the discontinuance of the LSOS product line, the Company terminated a software license agreement related to these products. The software contract included provisions for minimum royalty payments that had been accrued in previous periods, which were expected to be paid subsequent to the first year anniversary of the contract. Upon termination of the contract, the Company determined that an estimated $181,000 obligation for minimum royalties was no longer required and reversed the accrual during the second quarter of fiscal 2003, which reduced operating expense.

	Other Severance Charges
	During the nine months ended June 30, 2002, the Company terminated the employment of certain senior managers. As a result, the Company recognized approximately $505,000 and $112,000 in severance costs in the first and second quarters of fiscal 2002, respectively. During the second and third quarters of fiscal 2003, the employment of three Company executives was terminated, which resulted in severance costs of approximately $333,000 and $100,000, respectively.

	Strategic Realignment - 2002
	During the second quarter of fiscal year 2002, the Company announced a realignment of its corporate strategy to include a focused expansion in Europe, Middle East, Eastern Europe and Africa (“EMEA”), Asia Pacific and Latin America. In conjunction with this action and to better align its cost structure with its then new international business focus, on March 29, 2002, the Company announced plans to restructure certain areas of its global operations, which resulted in severance related charges of approximately $352,000 during that period. All severance expenses were paid in the third quarter of fiscal 2002.

	Goodwill Amortization
	During the three and six months ended March 31, 2002, the Company recognized approximately $58,000 and $18,000 of goodwill amortization, respectively. Goodwill was fully amortized at March 31, 2002.

9.	Foreign Exchange Contracts
	The Company accounts for foreign exchange contracts under SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS No. 137 and SFAS No. 138, which establishes accounting and reporting standards for derivative instruments, including foreign exchange forward contracts.

	The Company enters into foreign exchange forward contracts to hedge certain operational and balance sheet exposures, primarily intercompany royalty fees, from changes in foreign currency exchange rates. At inception, such contracts are designated as cash flow hedges. To achieve hedge accounting, contracts must reduce the foreign currency exchange rate risk otherwise inherent in the amount and duration of the hedged exposure and comply with established Company risk management policies. The Company does not enter into any derivative transactions for speculative purposes. Hedging contracts generally mature within 60 to 425 days.

	When hedging the intercompany receivable exposure, the effective portion of the derivative’s gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into earnings in the period in which earnings are impacted by the variability of the cash flow of the hedged item. The ineffective portion of the gain or loss is reported in current period earnings immediately. The realized gains and losses are recorded in “Other income-net” in the statement of operations.

12.

	The notional amount of foreign exchange contracts outstanding at June 30, 2003 was $2.1 million with a derivative related fair value of $73,000. The fair value of the forward contracts is estimated based on quoted exchange rates at June 30, 2003. The effective or unrealized gain related to the outstanding contracts at June 30, 2003 was $121,000 and the unrealized loss related to the outstanding contracts at June 30, 2002 was $73,000. Also during the nine months ended June 30, 2003 and 2002, certain foreign currency contracts matured resulting in a net loss of $3,000 and a net gain of $4,000, respectively, of which a gain of $2,000 and $0 was recognized in the third quarters of fiscal 2003 and 2002, respectively.

10.	Worldwide Operations

	Revenue by geographic area for the three months ended June 30, 2003 and 2002 was 70% and 68% in the Americas, 28% and 29% in EMEA, and 2% and 3% in Asia Pacific, respectively.

	Information regarding worldwide operations is as follows (in thousands):

	Americas			EMEA			Asia¹Pacific			Eliminations			Total

June 30, 2003, and for the quarter then ended:
Revenue to unaffiliated customers	$	5,093		$	2,023		$	169		$	—		$	7,285
Intercompany transfers		1,307			—			—			(1,307	)		—

Net revenue		6,400			2,023			169			(1,307	)		7,285
Operating income (loss)		1,458			(1,143	)		(280	)		—			35
Long–lived assets		1,058			201			15			—			1,274
June 30, 2002, and for the quarter then ended:
Revenue to unaffiliated customers	$	6,837		$	2,940		$	277		$	—		$	10,054
Intercompany transfers		1,193			—			—			(1,193	)		—

Net revenue		8,030			2,940			277			(1,193	)		10,054
Operating income (loss)		(1,362	)		359			(432	)		—			(1,435	)
Long–lived assets		3,133			326			13			—			3,472

Japan was the only country reported in Asia Pacific for the three months ended June 30, 2002. Asia Pacific includes Japan, Hong Kong, China, Australia and India in the three months ended June 30, 2003.

13.

	Revenue by geographic area for the nine months ended June 30, 2003 and 2002 was 70% and 72% in the Americas, 23% and 23% in EMEA, and 7% and 5% in Asia Pacific, respectively.

	Information regarding worldwide operations is as follows (in thousands):

	Americas			EMEA			Asia¹Pacific			Eliminations			Total

June 30, 2003, and for the nine months then ended:
Revenue to unaffiliated customers	$	17,696		$	5,933		$	1,674		$	—		$	25,303
Intercompany transfers		4,501			604			—			(5,105	)		—

Net revenue		22,197			6,537			1,674			(5,105	)		25,303
Operating income (loss)		1,041			(1,729	)		(412	)		—			(1,100	)
Long–lived assets		1,058			201			15			—			1,274
June 30, 2002, and for the nine months then ended:
Revenue to unaffiliated customers	$	24,599		$	7,872		$	1,560		$	—		$	34,031
Intercompany transfers		3,410			—			—			(3,410	)		—

Net revenue		28,009			7,872			1,560			(3,410	)		34,031
Operating income (loss)		(4,163	)		339			(108	)		—			(3,932	)
Long–lived assets		3,133			326			13			—			3,472

Japan was the only country reported in Asia Pacific for the nine months ended June 30, 2002. Asia Pacific includes Japan, Hong Kong, China, Australia and India in the nine months ended June 30, 2003.

11.	Income Taxes
	At June 30, 2003, the Company had net operating loss carryforwards for federal and foreign income tax purposes and various tax credits and temporary differences, which expire in varying amounts between 2003 and 2022. Under SFAS No. 109, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. SFAS No. 109 provides for the recognition of deferred tax assets if realization of such assets is more likely than not. Based upon the requirements of SFAS No. 109, the Company has established a valuation allowance related to deferred tax assets of approximately $6.9 million and $5.9 million as of June 30, 2003 and September 30, 2002, respectively.

12.	New Accounting Pronouncements
	In April 2003, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. In particular, this statement clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative and when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS No. 149 is generally effective for contracts entered into or modified after June 30, 2003. Management does not believe adoption of this statement will have a material impact on the Company’s financial position, results of operations or cash flows.

	In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS No. 150 changes the accounting for certain

14.

financial instruments that, under previous guidance, could be classified as equity or “mezzanine” equity, by now requiring those instruments to be classified as liabilities (or assets in some circumstances) in the statement of financial position. Further, SFAS No. 150 requires disclosure regarding the terms of those instruments effective for all financial instruments entered into or modified after May 31, 2003, and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. Management does not believe adoption of this statement will have a material impact on the Company’s financial position, results of operations or cash flows.

15.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Except for the historical information contained herein, the following discussion contains forward-looking statements that involve risks and uncertainties. These forward-looking statements may relate to, but are not limited to, revenues, cash flows, earnings, costs, strategy, demand for our products, market and technological trends in the software industry, effective tax rates, interest rates, foreign currency exchange rates and various economic and business trends. Generally, you can identify forward-looking statements by the use of words such as “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “goal,” “intend,” “plan,” “may,” “will,” “could,” “should,” “believes,” “predicts,” “potential,” “continue” and similar expressions or the negative or other variations thereof. The Company’s actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this section, as well as in the section “Risk Factors” and “Business” in the Company’s Annual Report on Form 10-K for the year ended September 30, 2002. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. The Company undertakes no obligation to publicly release the results of any revision to these forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. The following discussions should be read in conjunction with our condensed consolidated financial statements and the notes thereto.

The Rogue Wave Strategy and Business Model

Rogue Wave Software develops, markets and supports object-oriented software technology. Rogue Wave’s strategic objective is to provide technology and services that allow customers to ~~optimize~~maximize productivity when building software solutions to address their business requirements. ~~The Company strives to create products that efficiently and effectively align underlying information technology with a customers’ application of that technology.~~

~~Historically,~~ The ~~the~~ Company ~~has~~markets ~~marketed~~ its products primarily through its direct sales force and, ~~to a lesser extent, through the Internet and~~ an indirect channel consisting of original-equipment-manufacturers, value added resellers, dealers and distributors. The Company’s direct sales force consists of an inside telesales group that focuses on smaller orders ($50,000 or less), and an outside sales force that focuses on larger enterprise-wide technology customers. The Company makes certain of its products available for sale and distribution over the Internet. Revenue through this channel has not been significant to date, and there can be no assurance that the Company will be successful in marketing its products through this channel.

Products

Core Technology— - SourcePro™ C++

The Company’s principal product is SourcePro C++. SourcePro C++ is comprised of four products: SourcePro Core, SourcePro DB, SourcePro Net and SourcePro Analysis. Pricing of the SourcePro C++ products is based on a customer value model, which considers scope of deployment, including operating systems.

Light Weight Enterprise Integration Framework (“LEIF”)

In December 2002, the Company launched its LEIF product. This product is designed to integrate C++ applications with XML data and Web Services, enabling C++ applications to communicate with .NET and J2EE based applications, both within an enterprise and with external partners or customers. LEIF employs industry-standard networking, XML and Web Services technologies to expose the functionality of business-critical C++ applications to other disparate application and business ~~processes. By easing the integration of XML with C++ applications, LEIF allows business-critical systems to work seamlessly with XML documents and communicate using an XML-based data format that spans~~

12 16.

~~platforms~~ ~~and languages~~processes. By ~~Pricing~~easing the integration of ~~the~~XML with C++ applications, LEIF ~~product~~allows isbusiness-critical ~~based~~systems onto awork ~~customer~~seamlessly ~~value~~with ~~model,~~XML ~~which~~documents ~~also~~and communicate using an XML-based data format that spans platforms and languages. Pricing of the LEIF product considers scope of deployment, including operating systems.

Application Tuning System (“ATS”)

Rogue Wave ATS provides increased application stability and performance by reducing heap contention and optimizing memory allocation in multithreaded applications. ATS offers development teams an opportunity to leverage their current hardware and use a solution to increase high-end processing efficiency, workflow efficiency and positive end-user experience.

Stingray Studio

Stingray Studio offers higher-level graphical user interface (“GUI”) components for Microsoft Windows platforms providing ease of use, shortening development time and making it easier to maintain GUI applications. Stingray Studio lets developers rapidly build scalable, distributed GUI applications that can be easily integrated with current enterprise systems and applications.

Large Scale Object Solutions

LSOS iswas a set of technologies the Company developed to target customers with specific needs related to running very high throughput systems deployed against a relational database. The Company’s first implementation of this technology was an application that the Company developed, in partnership with JPMorgan Chase, known as Global Market Reference Data ~~and renamed CornerstoneST~~. The Company planned to market this product to worldwide financial institutions that were facing T+1 compliance requirements.

~~The~~ Because ~~second~~of ~~implementation~~global ofeconomic uncertainties, ~~LSOS~~which have resulted in significant spending constraints for information technology isorganizations, ~~SynopticaST.~~and ~~SynopticaST~~the ispostponement aof ~~framework~~the ~~producer~~T+1 ~~platform~~compliance ~~that~~requirements ~~enables~~by the ~~quick~~Securities Industry Association, the Company reexamined the marketplace ~~development~~opportunities offor ~~very~~the ~~high-performance~~LSOS ~~data~~product. During ~~dissemination~~the ~~applications~~three ~~that~~months ~~consume~~ended December 31, ~~store~~2002, ~~manipulate~~the ~~and~~Company ~~distribute~~suspended ~~mission~~all ~~critical~~future ~~enterprise~~investment ~~data~~related to this product line. Additionally, in ~~real~~connection ~~time~~with overall cost containment initiatives and the uncertainty of the marketplace for these products, ~~while~~the ~~preserving~~Company ~~transactional~~terminated ~~integrity~~its LSOS operations in Southboro, ~~maintaining~~Massachusetts ~~history~~in November 2002 and ~~audit~~incurred ~~trails~~a ~~and ensuring~~related ~~continuous~~restructuring ~~availability~~charge during the quarter ended December 31, 2002. The Company ~~Initial~~has ~~development~~also ofdiscontinued all marketing and other related activities associated with this product ~~was~~line. ~~completed~~See inNote ~~November~~8 ~~2002.~~of Notes to Unaudited Condensed Consolidated Financial Statements.

Because of global economic uncertainties, which have resulted in significant spending constraints for information technology organizations, and the recent elimination of the T+1 compliance requirements by the Securities Industry Association, the Company reexamined the marketplace opportunities for CornerstoneST and SynopticaST. Although the Company plans to continue to market and sell these products to potential customers that it has identified, it has suspended all future investment related to these products. The Company’s future involvement with these products will depend on its ability to contract with customers to which it can provide custom LSOS solutions. In connection with overall cost containment initiatives and the uncertainty of the marketplace for these products, the Company terminated its LSOS operations in Southboro, Massachusetts in November 2002 and incurred a related restructuring charge during the quarter ended December 31, 2002. See Note 7 of Notes to Condensed Consolidated Financial Statements.

New Product Initiatives

~~The~~ Since the first quarter of fiscal 2003, the Company ishas been aggressively investigating new product development opportunities that ~~allow~~are itintended to ~~optimize~~leverage its current cross-platform expertise, ~~engineering~~application development expertise, sales channels and customer base. Based ~~Areas~~on the extensive research conducted through the third quarter of ~~particular~~fiscal ~~interest~~2003, the Company announced its plans to create products that facilitate application development in a service-based architecture. In a service-based architecture, the goal is to create the functionality of a full-scale application, traditionally provided in a monolithic architecture, from an amalgam of smaller applications. These smaller applications are ~~J2EE~~individually wrapped in a network layer and are invoked as services.~~NET~~ In this respect they function like reusable components. When these services are connected or orchestrated, they function like a full-scale application but they are much more flexible and they can be easily modified and enhanced. Another

17.

benefit of a service-based architecture is the ability to connect new and old applications written in different languages and built on different platforms. Currently, the Company sells LEIF, a product that facilitates the development of service-based architectures by creating Web services that can connect C++ applications to Java/J2EE and .NET applications. The Company plans to deliver significant enhancements to LEIF and also to introduce an additional new product in calendar year 2004. Both of these initiatives target facilitating the creation of applications for a service-based architecture.

Strategic Realignment

Globalization

During fiscal 2002, Rogue Wave ~~continued~~aggressively tofocused ~~solidify its worldwide presence. The Company announced a realignment of its strategy to include an aggressive focus~~ on expansion in EMEA, Asia Pacific and Latin America. In conjunction with this action and to better align its cost structure with its international business focus, the Company restructured certain areas of its global operations, which resulted in severance related charges of approximately $479,000 in fiscal 2002.

13 As part of this 2002 restructuring plan and to better meet the needs of its customers, the Company established three separate regional operations, the Americas, EMEA and Asia Pacific, in an effort to drive autonomy and greater accountability. During the second fiscal quarter of 2002, the Company opened an office in Sydney, Australia and increased its resources in other areas of the Asia Pacific and EMEA regions. Despite the Company’s efforts and investment in expanding its international operations, the Company achieved only minimal success during the subsequent 12 months. As a result, the Company closed its Sydney, Australia and Amsterdam, Netherlands offices during the third quarter of fiscal 2003. Currently, Rogue Wave has not announced plans to close additional international offices. However, the Company continually evaluates its international presence, which could result in future office closures.

~~Table~~ The Company will continue to develop these regions through strategic partnerships with third party distributors and through development of ~~Contents~~internet based channels. Additionally, as part of the strategy to penetrate international markets, the Company has created a streamlined license and packaging process to be utilized by new distributor channels. There can be no assurance, however, that the Company will be able to maintain or increase international market demand for its products. See “Risk Factors” for additional risk factors associated with the Company’s international operations.

new international business focus, the Company restructured certain areas of its global operations, which resulted in severance related charges of $479,000 in fiscal 2002.

Additionally, as part of this restructuring plan and to better meet the needs of its customers, the Company has established three separate regional operations, the Americas, EMEA and Asia Pacific, in an effort to drive autonomy and greater accountability. During the second fiscal quarter of 2002, the Company opened an office in Australia and increased its resources in other areas of the Asia Pacific region and EMEA. The Company began the process of establishing several new distributor arrangements. As a part of the strategy to move into new international markets, the Company is creating a streamlined license and packaging process to be utilized by these new distributor channels. The Company anticipates further expansion in foreign countries, including within the Asia Pacific markets, and expects that international license and service and maintenance revenue will account for an increasing portion of its total revenue in the future. There can be no assurance, however, that the Company will be able to maintain or increase international market demand for its products. See “Risk Factors” for additional risk factors associated with the Company’s global expansion.

Outlook

The world economy has ~~recently~~ experienced a significant slowdown,. The ~~particularly~~financial inservices ~~the Americas region. The~~and technology ~~sector~~sectors, including telecommunications, and computer/software ~~and financial services~~, which ~~represents~~represent approximately 75% of the Company’s customer base, ~~has~~have been severely impacted. Significant information technology spending constraints have resulted, with fewer new project initiations expected in the near term and spending limited to “mission critical” functions. ~~Further~~ Additionally, the ~~Company~~continued ~~anticipates~~maturation ~~greater use~~ of ~~“open~~the ~~source”~~Company’s core products ~~by customers for internal development,~~ coupled with greater focus by our customers on competitive technologies, including Java as well as others, have resulted in further uncertainties. Finally, Aswhile ainterest ~~result~~in our new products, ofsuch ~~continuing~~as ~~uncertainty~~LEIF, ~~arising~~has ~~from~~been encouraging, sales have been less than originally anticipated. As a result of these factors, the Company currently anticipates noa ~~growth~~26% in- ~~revenue~~32% decline in fiscal 2003. revenue compared to fiscal 2002 revenue.

~~The~~ In response, the Company initiated several actions during the ~~first~~nine ~~fiscal quarter~~months ofending June 30, 2003 that were designed to mitigate the adverse financial impact attributable to the ~~current~~factors ~~economic~~discussed ~~climate~~above. The Company implemented several cost management initiatives to achieve operating efficiencies, including consolidation of facilities in the U.S. and international operations. Consolidation activities included termination or relocation of employees at the Company’s Corvallis, Oregon facility to its headquarters in Boulder, Colorado and termination of LSOS development operations in Southboro, Massachusetts as a result of anticipated reduced market demand for LSOS products.

~~These~~ restructuring initiatives resulted in workforce reductions of approximately 75 employees and a charge for restructuring, severance, lease termination, asset impairment, relocation and other related costs of approximately $218.~~1 million. The Company expects to implement additional cost reduction measures in the second quarter of fiscal year 2003, resulting in an estimated charge of approximately $300,000 to $350,000.~~

Critical Accounting Policies

~~require~~ ~~the~~including ~~company~~consolidation toof ~~make~~facilities ~~its~~in ~~most~~the ~~difficult~~U.S. and ~~subjective~~international ~~judgments,~~operations ~~often~~and asthrough aan ~~result~~overall ofreduction ~~the~~in ~~need~~headcount. Consolidation toactivities included ~~make~~termination ~~estimates~~or relocation of ~~matters~~employees ~~that~~at ~~are~~the ~~inherently~~Company’s ~~uncertain.~~Corvallis, ~~Based~~Oregon onfacility ~~this~~to ~~definition~~its headquarters in Boulder, ~~the~~Colorado, ~~Company~~termination ~~has~~of ~~identified~~LSOS ~~the~~development ~~following~~operations ~~critical~~in ~~accounting~~Southboro, ~~policies~~Massachusetts and ~~judgments~~closure ~~and~~of ~~assumptions.~~its ~~Actual~~Sydney, ~~results~~Australia ~~may~~and Amsterdam, ~~differ~~Netherlands ~~significantly~~offices. These ~~from~~restructuring ~~these~~initiatives ~~estimates under~~resulted ~~different~~in ~~assumptions~~workforce orreductions ~~conditions.~~of ~~For~~approximately ~~all~~140 ~~financial~~employees ~~statement~~and ~~periods~~a ~~presented~~charge for restructuring, ~~there~~severance, ~~have~~lease ~~been~~termination, noasset ~~material~~impairment, ~~modifications~~relocation toand ~~the~~other ~~application~~related costs of ~~these~~approximately ~~critical~~$4.1 ~~accounting policies~~million.

Critical Accounting Policies

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities in the consolidated financial statements and accompanying notes. The Securities and Exchange Commission has defined a company’s most critical accounting policies as those that are most important to the portrayal of the company’s financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, the Company has identified the following critical accounting policies and judgments and assumptions. Actual results may differ significantly from these estimates under different assumptions or conditions. For all financial statement periods presented, there have been no material modifications to the application of these critical accounting policies.

Revenue Recognition

The Company’s revenue is derived from licenses of its software products and related maintenance, training and consulting services. License, maintenance and most services are recognized in accordance with SOP No. 97-2, “Software Revenue Recognition,” as amended by SOP No. 98-9, which permits revenue recognition when (1) persuasive evidence of an arrangement exists, (2) delivery of the product has occurred, (3) the fee is fixed or determinable and (4) collectibility is probable. The Company defines each of the four criteria as follows:

Persuasive evidence of an arrangement exists. Related to all sales transactions, Rogue Wave’s customary practice is to execute a written contract, signed by both the customer and the Company, or obtain a purchase order issued by the customer, depending on the type of sale.

Delivery. The Company’s software may be either physically or electronically delivered to the customer. Delivery is deemed to have occurred upon the shipment of the product or delivery of the authorization code. If undelivered products or services exist in an arrangement that are essential to the functionality of the delivered product, delivery is not considered to have occurred until these products or services are delivered.

The fee is fixed or determinable. The Company negotiates the fee for its products at the outset of an arrangement. In these arrangements, the majority of the development licenses are perpetual and nonrefundable. The fees are generally due within one to 12twelve months depending on the length of the contract. The Company considers fees relating to arrangements with payment terms extending beyond 12twelve months not to be fixed or determinable. If the fee is not fixed or determinable, revenue is recognized as payments become due from the customer. The Company has no history of concessions and there has been no indicator that fees are not fixed or determinable.

~~Collectibility is probable~~19. Collectibility is evaluated on a customer-by-customer basis. New and existing customers are subject to a credit review process, which evaluates the customers’ financial position (e.g. cash position and credit rating) and their ability to pay. If collectibility is not considered probable at the outset of an arrangement in accordance with the Company’s credit review process, revenue is recognized when the fee is collected.

Assuming all other revenue recognition criteria are met, revenue from licenses is recognized upon delivery. Maintenance and support revenue is deferred and recognized on a straight-line basis over the contractual service periods, which are typically one to three years. Consulting services, which include training, are not considered essential to the functionality of the other elements of the arrangement. The revenue allocable to the consulting services is generally recognized as the services are performed. In instances where the Company enters into customized software consulting contracts, the fees are recognized using the percentage of completion method of contract accounting in accordance with SOP No. 81-1, “Accounting for Performance of Construction-Type and Certain Product-Type Contracts.”

Collectibility is probable. Collectibility is evaluated on a customer-by-customer basis. New and existing customers are subject to a credit review process, which evaluates the customers’ financial position (e.g. cash position and credit rating) and their ability to pay. If collectibility is not considered probable at the outset of an arrangement in accordance with the Company’s credit review process, revenue is recognized when the fee is collected.

Assuming these revenue recognition criteria are met, revenue from licenses is recognized upon delivery. Maintenance and support revenue is deferred and recognized on a straight-line basis over the contractual service periods, which are typically one to three years. Consulting services, which include training, are not considered essential to the functionality of the other elements of the arrangement. The revenue allocable to the consulting services is generally recognized as the services are performed. Revenue from reseller arrangements is recognized on a sell through basis, that is, when persuasive evidence is obtained by the Company that the reseller has sold the products to an end-use customer. In instances where the Company enters into customized software consulting contracts, the fees are recognized using the percentage of completion method of contract accounting in accordance with SOP No. 81-1, “Accounting for Performance of Construction-Type and Certain Product-Type Contracts.”

Sales Returns and Allowance for Doubtful Accounts

The Company’s management must make estimates of potential future product returns related to current period product revenue. Management analyzes historical returns, current economic trends, and changes in customer demand and acceptance of the products when evaluating the adequacy of the sales returns. Based on this analysis, management must make subjective judgments in connection with establishing the estimated sales returns in any accounting period.

The Company’s allowance for doubtful accounts is intended to reduce the value of customer accounts receivable to amounts expected to be collected. In determining the required allowance, the Company considers factors such as customer credit history, overall and industry economic conditions and the customer’s current financial position and recent performance. The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their current credit information. The Company continuously monitors collections and payments from customers. While credit losses have historically been within expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past.

Accounting for Income Taxes

In preparing its consolidated financial statements, the Company is required to estimate income taxes in each of the jurisdictions in which it operates. This process involves preparing estimates of the actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within the Company’s consolidated balance sheet. The Company then records a valuation allowance to reduce its deferred tax assets to the amount that it believes is more likely than not to be realized. In assessing the need for a valuation allowance, the Company estimates future taxable income, considering the feasibility of ongoing tax planning strategies and the realizability of tax changes to tax laws, changes to statutory tax rates and future anticipated taxable income levels.

The Company has reported net operating losses for the past several years, in part due to cost restructuring efforts coupled with an overall continued decline in revenue. As a result, the Company determined that it did not meet the applicable accounting requirements for recognition of deferred tax assets and, during the fourth quarter of fiscal 2002, increased its income tax valuation allowance by approximately $4.3 million through a charge to income. In the first quarter of fiscal 2003, the Company incurred a loss and, subsequently, established a valuation allowance equal to the tax benefit estimated for the quarter. If, in the future, the Company were to determine that accounting requirements for the recognition of tax assets are met, the Company would decrease the recorded valuation allowance in the period that such determination is made. See Note 10 of Notes to Condensed Consolidated Financial Statements.

16 20.

assets and, during the fourth quarter of fiscal 2002, increased its income tax valuation allowance by approximately $4.3 million through a charge to income. For the nine months ended June 30, 2003, the Company incurred a loss and, subsequently, established a valuation allowance equal to the estimated tax benefit. If, in the future, the Company were to determine that accounting requirements for the recognition of tax assets are met, the Company would decrease the recorded valuation allowance in the period that such determination is made. See Note 11 of Notes to Unaudited Condensed Consolidated Financial Statements.

Results of Operations

The following table sets forth for the periods indicated the percentage of total revenue represented by certain line items in the Company’s Condensed Consolidated Statements of Operations.

	Three months ended December 31,
	Percentage of Total Net Revenue
	2002			2001
	Three months ended June 30,						Nine months ended June 30,
Revenue:
	2003			2002			2003			2002
License revenue	60	%		51	%
Revenue:
Service and maintenance revenue	40			49
License revenue		53	%		54	%		57	%		53	%
Total revenue	100			100
Service and maintenance revenue		47			46			43			47
Cost of revenue:
Total revenue		100			100			100			100
Cost of license revenue	2			1
Cost of revenue:
Cost of service and maintenance revenue	12			17
Cost of license revenue		1			2			2			2
Total cost of revenue	14			18
Cost of service and maintenance revenue		7			13			9			15
Gross profit	86			82
Total cost of revenue		8			15			11			17
Operating expenses:
Gross profit		92			85			89			83
Product development	22			27
Operating expenses:
Sales and marketing	48			50
Product development		18			29			20			28
General and administrative	12			14
Sales and marketing		40			55			45			50
Restructuring, severance, relocation, asset impairment and goodwill amortization	22			5
General and administrative		13			12			12			13
Total operating expenses	104			96
Restructuring, severance and goodwill amortization		21			3			16			4
Loss from operations	(18	)		(14	)
Total operating expenses		92			99			93			95
Other income, net	1			2
Income (loss) from operations		—			(14	)		(4	)		(12	)
Loss before income taxes	(17	)		(12	)
Other income (loss), net		—			(1	)		—			2
Income tax expense (benefit)	1			(4	)
Income (loss) before income taxes		—			(15	)		(4	)		(10	)
Net loss	(17	)%		(8	)%
Income tax expense (benefit)		—			(5	)		—			(3	)
Net income (loss)		—	%		(10	)%		(4	)%		(7	)%

Revenue

Total revenue for the three and nine months ended ~~December~~June 3130, ~~2002~~2003 was $7.3 million and ~~2001~~$25.3 ~~was~~million, versus $910.61 million and $1134.90 million for the three and nine months ended June 30, ~~respectively~~2002, representing a decrease of 1928%. and 26%, respectively. License revenue ~~decreased~~for the three and nine months ended June 30, 2003 was $~~351~~3.9 million and $14.5 million,~~000~~ orversus 6%$5.4 ~~compared~~million toand $18.2 million for the ~~same~~three ~~quarter~~and nine ~~last~~months ~~year.~~ended June 30, 2002, representing a decrease of 28% and 20%, respectively. The decrease in license revenue is due to the softness in overall demand, resulting primarily from athe weakened economy and overall ~~drop~~decrease in ~~U.S.~~ sales volume for C++ based products ~~without an offset from international operations~~.

~~Service and maintenance revenue for the three months ended December 31, 2002 and 2001 was $3~~21.9 million and $5.9 million, respectively, representing a decrease of $2.0 million or 34%. Because most of our support revenue is recognized over a term of one year, the decrease in service and maintenance revenue was primarily attributable to the overall decline in gross sales during several of the previous quarters, coupled with minimal new consulting contracts.

See Strategic Realignment for further discussion on the Company’s revenue outlook.

Service and maintenance revenue for the three and nine months ended June 30, 2003 was $3.4 million and $10.8 million, versus $4.7 million and $15.8 million for the three and nine months ended June 30, 2002, representing a decrease of 28% and 32%, respectively. As most of our support revenue is recognized over a term of one year, the decrease in service and maintenance revenue was primarily attributable to the overall decline in gross sales during several previous quarters, coupled with minimal new consulting contracts.

See “Strategic Realignment” above for further discussion on the Company’s revenue outlook.

Cost of Revenue

Cost of license revenue consists primarily of amortization of purchased software, materials, packaging, royalties and freight expense. Cost of license revenue for the three and nine months ended ~~December~~June 3130, ~~2002~~2003 was $80,000 and ~~2001~~$439,000, ~~was~~versus $~~233~~231,000 and $~~169~~523,000 for the three and nine months ended June 30, ~~respectively~~2002, representing ana ~~increase~~decrease of ~~$64,000~~65% orand 3816%, respectively. The ~~increase~~decrease in costs was primarily the result of anthe ~~increase~~cancellation inof ~~royalties~~a ~~associated~~contract ~~with~~due ~~certain~~to ~~technology~~the ~~licensing~~discontinuance ~~rights~~of ~~acquired~~the LSOS product in the ~~last~~second ~~half~~quarter of fiscal ~~2002~~2003 that required the Company to pay royalties for technology licensing rights. See Note 8 of Notes to Unaudited Condensed Consolidated Financial Statements.

Cost of service and ~~maintenance~~ maintenance revenue consists primarily of personnel related and facilities costs incurred in providing customer support and training services as well as third party costs incurred in providing training and consulting services. Cost of service and maintenance revenue for the three and nine months ended ~~December~~June 3130, ~~2002~~2003 was $487,000 and ~~2001~~$2.3 ~~was~~million, versus $1.13 million and $25.02 million for the three and nine months ended June 30, ~~respectively~~2002, representing a decrease of ~~$900,000~~63% orand 4556%., respectively. This decrease was due primarily to staff reductions resulting from cost management actions instituted during the last several quarters and a decline in the utilization of third-party consulting services. The Company expects that the cost of such revenue will continue to decline as a percentage of total revenue in fiscal 2003.

Operating Expenses

Product development expenses for the three and nine months ended ~~December~~June 3130, ~~2002~~2003 were $1.3 million and ~~2001~~$5.1 ~~were~~million, versus $2.19 million and $39.25 million for the three and nine months ended June 30, ~~respectively~~2002, representing a decrease of ~~$1.1~~55% ~~million~~and ~~or 34~~46%., respectively. As a percent of revenue, product development ~~expense~~expenses for the three and nine months ended ~~December~~June 3130, ~~2002~~2003 were 18% and ~~2001~~ ~~was~~20%, 22versus 29% and 2728% for the three and nine months ended June 30, 2002, respectively. The overall decrease in product development ~~expense~~expenses during the three and nine months ended ~~December~~June 3130, ~~2002~~2003 was primarily attributable to the consolidation of development and information technology functions in the first ~~fiscal~~ quarter of fiscal 2003. as well as staff reduction measures taken over the second and third quarters of fiscal 2003. These actions included the closure of the LSOS operations in Southboro, Massachusetts in November 2002 and the reduction of the staff in Corvallis, Oregon ~~operation~~ by approximately 75%, in part ~~through~~as ~~relocations~~a result of the relocation of certain functions to Boulder, Colorado ~~as well as streamlining certain processes~~. Although the Company anticipates that it will continue to devote substantial resources to product development and that product development expenses will increase as a percent of revenue for fiscal 2004, the Company believes such expenses will increase only slightly as a percentage of total revenue for the remainder of fiscal 2003. All costs incurred in the research and development of software products and enhancements to existing products have been expensed as incurred.

Sales and marketing expenses for the three and nine months ended ~~December~~June 3130, ~~2002~~2003 ~~and 2001~~ were $42.69 million and $611.04 million, ~~respectively,~~versus ~~representing~~$5.6 amillion ~~decrease~~and of $117.40 million orfor ~~23%.~~the three Asand anine ~~percentage~~months ofended ~~total~~June ~~revenue~~30, ~~sales~~2002, ~~and~~representing ~~marketing~~a ~~expenses~~decrease ~~were~~of 48% and 5033%, respectively. As The decrease in sales and marketing expense is due to the decrease in sales and marketing personnel and related costs associated with the implementation of cost containment programs coupled with the overall decrease in sales. The Company expects that sales and marketing expenses will remain stable as a percentage of total revenue ~~for fiscal 2003.~~ ,

~~General~~ ~~and administrative expenses for the three months ended December 31, 2002 were $1~~22.2 million as compared to $1.6 million for the three months ended December 31, 2001, representing a decrease of $400,000 or 25%. The decrease is due primarily to a reduction in personnel as a result of the cost containment programs instituted in fiscal 2002 and early in the first quarter of fiscal 2003. These expenses are not expected to vary significantly as a percentage of total revenue for fiscal 2003.

Restructuring, relocation and asset impairment expenses totaling $2.1 million were recognized during the three months ended December 31, 2002. The Company incurred severance of $1.2 million,

~~lease~~ ~~realignment~~sales ofand ~~$404,000,~~marketing ~~relocation~~expenses ~~costs~~were of40% ~~$217,000,~~and an45% ~~asset~~for ~~impairment~~the ~~charge~~three ofand ~~$165,000~~nine ~~and other~~months ~~related~~ended ~~costs~~June of30, ~~$70~~2003,~~000~~ ~~associated~~versus ~~with~~55% and 50% for the ~~consolidation~~three ofand ~~facilities~~nine inmonths ~~the~~ended ~~Americas~~June 30, ~~EMEA~~2002, respectively. The ~~and~~decrease ~~Asia~~in ~~Pacific~~sales and ~~the~~marketing ~~streamlining~~expense ofis ~~operating~~due ~~functions.~~to ~~See~~the ~~Note~~decrease 7in ofsales ~~Notes~~and tomarketing ~~Condensed~~personnel ~~Consolidated~~and ~~Financial~~related ~~Statements.~~costs ~~These~~associated ~~actions resulted~~with inthe animplementation ~~overall~~of ~~personnel~~cost ~~reduction~~containment ofprograms ~~37%~~coupled aswith ofthe ~~December~~overall ~~31,~~decrease ~~2002~~in sales. The ~~compared~~Company toexpects ~~December~~that ~~31,~~sales ~~2001~~ and ~~are~~marketing ~~expected~~expenses towill ~~reduce~~remain ~~fiscal~~stable ~~2003~~as ~~expenses~~a ~~from~~percentage ~~fiscal~~of ~~2002~~total byrevenue ~~approximately~~for ~~$11.0~~the ~~million.~~remainder of fiscal 2003.

~~Severance~~ General and ~~goodwill~~administrative expenses ~~totaling~~ ~~approximately~~for the three and nine months ended June 30, 2003 were $~~562~~917,000 ~~were~~and ~~recognized~~$3.0 ~~during~~million ~~the~~versus $1.2 million and $4.4 million for the three and nine months ended ~~December~~June 3130, ~~2001.~~2002 representing a decrease of 24% and 32%, respectively. The ~~Company~~decreases ~~incurred~~are ~~severance~~due primarily to a reduction in personnel as a result of ~~$505,000~~the ~~for~~cost containment programs instituted in fiscal 2002 and in the ~~termination~~first nine months of ~~two~~fiscal ~~senior~~2003. Additionally, ~~managers~~during ~~and~~the three months ended March 31, 2003, the Company determined that a previously established reserve of approximately $57153,000 related to ~~goodwill~~certain ~~amortization.~~employee bonuses were no longer expected to be paid. This amount was reversed, which reduced general and administrative expenses in fiscal 2003. General and administrative expenses are not expected to vary significantly as a percentage of total revenue for fiscal 2003.

The Company recognized restructuring, relocation and asset impairment expenses totaling $1.5 million and $4.1 million during the three and nine months ended June 30, 2003, respectively. During the nine months ended June 30, 2003, the Company incurred employee severance of $2.4 million, executive severance of $433,000, site closure costs of $976,000, relocation costs of $187,000, an LSOS and office closure asset impairment charge net of a contract termination benefit of $28,000 and other related costs of $111,000 associated with the consolidation of facilities in the Americas, EMEA and Asia Pacific and the streamlining of operating functions. See Note 8 of Notes to Unaudited Condensed Consolidated Financial Statements. These actions resulted in an overall personnel reduction of 55% as of June 30, 2003 compared to June 30, 2002, and are expected to reduce fiscal 2003 expenses from fiscal 2002 by approximately $17.3 million.

The Company recognized severance and goodwill expenses totaling approximately $1.3 million during the nine months ended June 30, 2002. The Company incurred severance of $617,000 for the termination of three senior managers, Stingray asset impairment and lease termination penalty of $148,000, severance of $479,000 for a strategic realignment and approximately $76,000 related to goodwill amortization.

Other Income, Net

Other income for the three and nine months ended June 30, 2003 was $922,000 and $~~260~~117,000 , respectively, versus a net other loss of $104,000 for the three months ended June ~~December 31~~30, 2002 and ~~2001~~other income of $370,000 ~~respectively~~for the nine months ended June 30, 2002, representing an increase of 102% and a decrease of 68%, respectively. The increase attributed to the quarter to quarter comparison is primarily due to a loss incurred in the third quarter of fiscal 2002 for the settlement of certain foreign currency transactions. Other income primarily consists of interest income on the Company’s cash, cash equivalents and short-term investments. The decrease in other income ~~of $168,000 or 65%~~ for the ~~three months~~comparative ~~ended~~nine ~~December~~month ~~31,~~periods ~~2002, compared to the three months ended December 31, 2001,~~ is primarily due to a decrease in ~~investments~~investment yield, specifically corporate notes and commercial paper~~, during the current fiscal quarter as compared to the same fiscal quarter last year~~.

Income Tax Expense

Income taxes for the three and nine months ended ~~December~~June 3130, ~~2002~~2003 are provided during interim periods based on the expected tax rate for the year. The provision for income taxes for the three ~~months ended December 31, 2002 was (3.4)%. Income tax expense relates primarily to state~~ and ~~foreign~~nine ~~income taxes that the Company expects to pay. The Company increased its valuation allowance on the deferred tax assets generated during the three~~ months ended ~~December~~June 3130, ~~2002~~2003 aswas a41% ~~result of uncertainties associated with future realization. Under SFAS No. 109, deferred tax assets~~ and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. SFAS No. 109 provides for the recognition of deferred tax assets if realization of such assets is more likely than not. Based upon the requirements of SFAS No. 10912%, ~~the Company has recorded, as of December 31, 2002, a $6~~respectively.7 Income ~~million valuation allowance against certain deferred~~ tax ~~assets. The Company will continue to record very minimal tax benefit or~~ expense ~~until~~recognized ~~at least four quarters of profitability have been achieved.~~ during

23.

these periods relates primarily to state and foreign income taxes that the Company expects to pay. The Company increased its valuation allowance on the deferred tax assets generated during the three and nine months ended June 30, 2003 as a result of uncertainties associated with future realization. Under SFAS No. 109, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. SFAS No. 109 provides for the recognition of deferred tax assets if realization of such assets is more likely than not. Based upon the requirements of SFAS No. 109, the Company has recorded a $6.9 million and $5.9 million valuation allowance against certain deferred tax assets as of June 30, 2003 and September 30, 2002, respectively. The Company expects to continue to record very minimal tax benefit or expense until at least four consecutive quarters of profitability have been achieved.

Liquidity and Capital Resources

As of ~~December~~June 3130, ~~2002~~2003, the Company had cash, cash equivalents and short-term investments of $2728.08 million. Net cash ~~used~~provided inby operating activities was $~~743,000~~1.2 million during the ~~three~~nine months ended ~~December~~June 3130, ~~2002~~2003 compared to $14.70 million used in operating activities during the ~~three~~nine months ended ~~December~~June 3130, ~~2001~~2002. The overall increase in cash ~~from~~provided by operating activities was primarily attributable to ~~a smaller decrease in deferred revenue from~~ the ~~prior~~implementation ~~quarter~~of ~~compared~~cost tocontainment ~~first~~actions, ~~quarter~~strong inaccounts ~~fiscal~~receivable ~~2002~~collections and anreceipt ~~increase~~of instate ~~the~~and ~~Company’s~~federal ~~accrued expenses,~~tax ~~when compared to fiscal 2002, as well as a decrease in accounts receivable~~refunds.

In During the ~~first~~nine ~~fiscal~~months ~~quarters~~ended ofJune 30, 2003 and 2002, the Company’s investing activities consisted primarily of purchases of equipment and purchases and maturities of short-term investments. In the ~~first~~nine ~~fiscal~~months ~~quarter~~ended ofJune 30, 2003, the Company had maturities of $918.01 million in short-term investments and purchased $312.25 million in short-term investments and $1982,000 in equipment, purchases, resulting in net cash provided ~~from~~by investing activities of $5.86 million. This compared to net cash used in investing activities of $1.3 million in the nine months ended June 30, 2002.

19 Net cash used in financing activities during the nine months ended June 30, 2003 was $1.1 million, primarily as a result of the Company purchasing its common stock, offset, in part, by the proceeds of $114,000 from the employee stock purchase plan and exercise of stock options. In September 2001, the Board of Directors authorized the Company to repurchase up to an aggregate of $5.0 million or 2.5 million shares of its common stock. For the nine months ended June 30, 2003, the Company repurchased 585,000 shares for $1.2 million, at prices ranging from $1.72 - $2.67 per share. Since September 2001, the Company has purchased approximately 1.4 million shares, for approximately $3.4 million at prices ranging from $1.72 - $3.65 per share.

The Company believes that expected cash flows from operations combined with existing cash and cash equivalents and short-term investments will be sufficient to meet its cash requirements for the 12 months following June 30, 2003. See “Risk Factors” below.

In the future, the Company’s capital purchases will relate primarily to replacement of computer equipment and are not expected to be significant. The Company frequently evaluates strategic opportunities available to it and may in the future pursue acquisitions of complementary technologies, products or businesses. Any such acquisitions would use cash, common stock or other securities, or a combination of cash and securities. The Company does not currently have any agreements for any such acquisitions.

24.

~~Net~~ The ~~cash used in financing activities during the three months ended December 31, 2002 was $600,000, primarily as a result of the~~ Company ~~purchasing~~leases ~~its~~certain ~~common~~equipment ~~stock,~~and ~~offset,~~office inspace ~~part,~~through bynon-cancelable ~~the~~operating ~~proceeds~~lease ~~from~~arrangements ~~the~~that ~~exercise~~require offuture ~~stock~~cash ~~options~~payments. The Intable ~~September~~below ~~2001,~~summarizes ~~the~~these ~~Board~~future ofobligations ~~Directors~~(in authorized the Company to repurchase up to an aggregate of $5.0 million or 2.5 million shares of its common stock. For the quarter ended December 31, 2002, the Company repurchased 337,375 shares for $608,000, at prices ranging from $1.72—$2.00 per share. Since September 2001, the Company has purchased approximately 1.1 million shares, at a cost of approximately $2.8 million at prices ranging from $1.72—$3.65 per share. thousands):

Contractual Obligations		Total		Less than 1 year		1-3 years		4-5 years		After 5 years

Operating Leases	$	3,161	$	1,506	$	1,352	$	303	$	—

Risk Factors

In evaluating the Company’s business, investors should carefully consider the following factors in addition to the other information presented in this report.

Our future operating results are difficult to predict and actual financial results may vary from our expectations, which could have an adverse effect on our stock price.

Our future operating results are difficult to predict due to a variety of factors, many of which are outside of our control. These factors include:

• overall economic conditions of the U.S. and the rest of the world; • overall economic conditions in the software and information systems, telecommunications, financial services and defense industries; • the demand for our products and services; • the level of product and price competition; • the size, type and timing of individual license transactions; • the delay or deferral of customer implementations; • our success in expanding our direct sales force and indirect distribution channels; • timing of new product introductions and product enhancements; • levels of international sales; • obsolescence of our products or the programming languages that our products are designed to enhance; • changes in our pricing policy or that of our competitors; • publication of opinions about us, our products and object-oriented and infrastructure component technology by industry analysts; • our ability to retain key employees and hire new employees; • our ability to develop and market new products and control costs; and • our ability to effectively deploy our new strategy, including our current business model.

• One ~~overall~~or ~~economic~~more ~~conditions~~of in the ~~software~~foregoing factors may cause our operating expenses to be disproportionately high during any given period or may cause our revenue and ~~information~~operating results ~~systems~~to fluctuate significantly. Based on the preceding factors, ~~telecommunications~~we may experience a shortfall in revenue or earnings or otherwise fail to meet public market expectations, ~~financial~~which ~~services~~could materially adversely affect our business, financial condition and ~~defense~~the ~~industries;~~market price of our common stock.

• ~~the~~We ~~demand~~operate ~~for~~in an industry with rapidly changing technology and, if we do not successfully modify our products ~~and~~to ~~services;~~incorporate new technologies or introduce new products, our sales will suffer.

• The ~~the~~software ~~level~~market in which we compete is characterized by (1) rapid technological change, (2) frequent introductions of ~~product~~new products, (3) changing customer needs and ~~price~~(4) ~~competition;~~evolving industry standards.

• ~~the size, type and timing of individual license transactions;~~25.

• the delay or deferral of customer implementations;

• our success in expanding our direct sales force and indirect distribution channels;

• timing of new product introductions and product enhancements;

• levels of international sales;

• obsolescence of our products or the programming languages that our products are designed to enhance;

• changes in our pricing policy or that of our competitors;

• publication of opinions about us, our products and object-oriented and infrastructure component technology by industry analysts;

• our ability to retain key employees and hire new employees;

• our ability to develop and market new products and control costs; and

• our ability to effectively deploy our new strategy including our new business model.

One or more of the foregoing factors may cause our operating expenses to be disproportionately high during any given period or may cause our net revenue and operating results to fluctuate significantly. Based on the preceding factors, we may experience a shortfall in revenue or earnings or otherwise fail to meet public market expectations, which could materially adversely affect our business, financial condition and the market price of our common stock.

To keep pace with technological developments, evolving industry standards and changing customer needs, Rogue Wave must support existing products and develop new products. We have been aggressively investigating new product development opportunities, and we recently announced plans to create new products and enhancements to existing products that facilitate application development in a service-based architecture. We may not be successful in developing, marketing and releasing new products or new versions of our products that respond to technological developments, evolving industry standards or changing customer requirements. We may also experience difficulties that could delay or prevent the successful development, introduction and sale of these enhancements. In addition, these new products or enhancements may not adequately meet the requirements of the marketplace and may not achieve any significant degree of market acceptance. If release dates of any future products or enhancements are delayed, or if these products or enhancements fail to achieve market acceptance when released, our business, operating results and financial condition could be materially adversely affected. In addition, new products or enhancements by our competitors may cause customers to defer or forgo purchases of our products, which could have a material adverse effect on our business, financial condition and results of operations.

Our market is highly competitive, and if we are unable to compete successfully, our ability to grow our business or even maintain revenue and operating results at current levels will be diminished.

Our products target the markets for C++ components and development focused integration products. Direct competitors in the C++ components market include ILOG, several privately held companies and Open Source offerings. Direct competitors in the development focused integration products market include large vendors like IBM and Borland, as well as a number of smaller public and privately held companies. IBM and Borland are particularly strong competitors as they occupy leadership positions in this market and have significantly greater resources, name recognition and larger installed bases of customers than Rogue Wave.

Software applications can also be developed using components and programming tools in languages other than C++, including Java and Microsoft .NET languages such as Visual Basic .NET and C#. Companies that provide components and tools for these languages include Microsoft, BEA, Borland and Oracle. These companies have significantly greater resources, name recognition and larger installed bases of customers than Rogue Wave and have established relationships with current and potential customers. They may be able to respond more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to the development, promotion and sales of their products than Rogue Wave can.

It is expected that new application development will be higher for Java and .NET than C++ in the foreseeable future. As a result, the widespread acceptance of Java and Microsoft’s .NET could curtail the use of C++ and therefore adversely impact the sales of our products. In addition, failure to develop and market new products that will move us into new technologies, could materially and adversely affect our business, results of operations and financial condition.

We also face competition from systems integrators and our customers’ internal information technology departments. Many systems integrators possess industry specific expertise that may enable them to offer a single vendor solution more easily, and already have a reputation among potential customers for offering enterprise-wide solutions to software programming needs. Systems integrators may market competitive software products in the future.

There are many factors that may increase competition in the market for object-oriented software parts and programming tools, including (1) entry of new competitors, (2) alliances among existing

26.

competitors and (3) consolidation in the software industry. Increased competition may result in price reductions, reduced gross margins or loss of market share, any of which could materially adversely affect our business, operating results and financial condition. If we cannot compete successfully against current and future competitors or overcome competitive pressures, our business, operating results and financial condition may be adversely affected.

Our historical financial information relates to the sale of products primarily based on C++ and as such may not be indicative of our future performance in developing and marketing software that targets other current or emerging technologies related to application development.

Our historical financial information is based on sales of software designed to develop applications for C++. While we continue to enhance the functionality of these products and expect sales of these technologies to continue to generate a significant percentage of our revenues, we expect to derive an increasing percentage of our revenues from sales of products that target the service-oriented architecture opportunity. Relative to our traditional business, we do not have a lengthy operating history in these markets upon which to evaluate our prospects, which may make it difficult to predict our actual results in future periods. Accordingly, actual results of our future operations may not meet our anticipated results.

Our sales volume is subject to fluctuations and unpredictable timing and may cause our operating results to fluctuate significantly.

We generally ship orders as received, which means that quarterly revenue and operating results depend substantially on the volume and timing of orders we receive during the quarter. Sales volume is difficult to forecast due to a number of reasons, many of which are outside our control. Such reasons include:

• lack of a reliable means to assess overall customer demand; • we typically earn a substantial portion of our revenue in the last weeks, or even days, of each quarter; • larger customer orders are subject to long sales cycles and are frequently delayed; and • our service and maintenance revenue tends to fluctuate as consulting contracts are undertaken, renewed, completed or terminated.

• we typically earn a substantial portion of our revenue in the last weeks, or even days, of each quarter;

• larger customer orders are subject to long sales cycles and are frequently delayed; and

• our service and maintenance revenue tends to fluctuate as consulting contracts are undertaken, renewed, completed or terminated.

We base operating expenses on anticipated revenue trends. A high percentage of these expenses are relatively fixed. As a result, a delay in the recognition of revenue from a limited number of transactions could cause significant variations in operating results from quarter to quarter and could lead to significant losses. Accordingly, operating results and growth rates for any particular quarter or other fiscal period may not be indicative of future operating results. Furthermore, fluctuations in our quarterly operating results may result in volatility in the price of our common stock.

Failure to attract and retain key employees will adversely affect our business.

Our future performance depends significantly upon the continued service of our key technical, sales and senior management personnel, none of whom is bound by an employment agreement. We believe that the technological and creative skills of our personnel are essential to establishing and maintaining a leadership position, particularly in light of the fact that our intellectual property, once sold to the public market, is easily replicated. The loss of the services of one or more of our executive officers or key technical personnel may have a material adverse effect on our business.

27.

Our future success also depends on our continuing ability to attract and retain highly qualified technical, sales and managerial personnel. In the past, we have experienced some difficulty in attracting key personnel. Competition for such personnel is intense and there can be no assurance that we can retain key employees or that we can attract, assimilate or retain other highly qualified personnel in the future.

Variability of our sales cycles make it difficult to forecast quarterly and annual revenue and operating results, making it likely that period-to-period comparisons are not necessarily meaningful as an indicator of future results.

We distribute our products primarily through ~~two different~~ direct sales channels, ~~a telesales force and a field sales force, each of~~ which isare subject to a variable sales cycle. Products sold by our telesales force may be sold after a single phone call or may require several weeks of education and negotiation before a sale is made. As such, the sales cycle associated with telesales typically ranges from a few days to two months. The purchase of products ~~from our field sales force~~ is often an enterprise-wide decision and may require the sales person to provide a significant level of education to prospective customers regarding the use and benefits of our products. For these and other reasons, the sales cycle associated with the sale of our products ~~through our field sales force~~ typically ranges from two to six months and is subject to a number of significant delays over which we have little or no control. As a result, quarterly revenue and operating results are variable and are difficult to forecast, and we believe that period-to-period comparisons of quarterly revenue are not necessarily meaningful and should not be relied upon as an indicator of future revenue.

revenue and operating results are variable and are difficult to forecast, and we believe that period-to-period comparisons of quarterly revenue are not necessarily meaningful and should not be relied upon as an indicator of future revenue.

We face risks involving future business acquisitions.

We frequently evaluate strategic opportunities available to us and may in the future pursue additional acquisitions of complementary technologies, products or businesses. Future acquisitions may result in the diversion of management’s attention from the day-to-day operations of our business and may include numerous other risks, including difficulties in the integration of the operations, products and personnel of the acquired companies. Future acquisitions may also result in a dilutive issuance of equity securities, the incurrence of debt, and amortization expenses related to intangible assets. Our failure to successfully manage future acquisitions may have a material adverse effect on our business and financial results.

Doing business outside the United States involves numerous factors that could negatively affect our financial results.

A significant portion of our revenue is derived from international sources. To service the needs of our international customers, we must provide worldwide product support services. We have expanded, and intend to continue expanding, our international operations and plan to enter additional international markets. This will require significant management attention and financial resources that could adversely affect our operating margins and earnings. We may not be able to maintain or increase international market demand for our products. If we do not, our international sales will be limited, and our business, operating results and financial condition could be materially and adversely affected.

Our international operations are subject to a variety of risks, including (1) foreign currency and exchange rate fluctuations, (2) economic or political instability, (3) shipping delays and (4) increases in the level of customs duties, export quotas or other trade restrictions. Any of these risks could have a significant impact on our ability to deliver products on a competitive and timely basis.

We may not be able to adequately protect our intellectual property or operate our business without infringing on the intellectual property rights of others.

We rely primarily on a combination of copyright, trademark and trade secret laws, confidentiality procedures and contractual provisions to protect our proprietary rights. We also believe that factors such as the technological and creative skills of our personnel, new product developments, frequent product enhancements, name recognition and reliable product maintenance are essential to establishing and maintaining a technological leadership position. We seek to protect our software, documentation and other written materials under trade secret and copyright laws, which afford only limited protection. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. The nature of many of our products requires the release of the source code to customers. Policing unauthorized use of our products is difficult, and while we are unable to determine the extent to which piracy of our products exists, software piracy can be expected to be a persistent problem. In addition, the laws of some foreign countries do not protect our proprietary rights as fully as do the laws of the United States. There can be no assurance that our means of protecting our proprietary rights in the United States or abroad will be adequate or that competition will not independently develop similar technology.

22 28.

enhancements, name recognition and reliable product maintenance are essential to establishing and maintaining a technological leadership position. We seek to protect our software, documentation and other written materials under trade secret and copyright laws, which afford only limited protection. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. The nature of many of our products requires the release of the source code to customers. Policing unauthorized use of our products is difficult, and while we are unable to determine the extent to which piracy of our products exists, software piracy can be expected to be a persistent problem. In addition, the laws of some foreign countries do not protect our proprietary rights as fully as do the laws of the United States. There can be no assurance that our means of protecting our proprietary rights in the United States or abroad will be adequate or that competition will not independently develop similar technology.

Although we do not believe that we are infringing any proprietary rights of others, third parties may claim that we have infringed their intellectual property rights. Furthermore, employers of our former, current or future employees may assert claims that such employees have improperly disclosed to us the confidential or proprietary information of such employers. Any such claims, with or without merit, could (1) be time consuming to defend, (2) result in costly litigation, (3) divert management’s attention and resources, (4) cause product shipment delays or (5) require us to pay money damages or enter into royalty or licensing agreements. A successful claim of intellectual property infringement against us and our failure or inability to license or create a workaround for such infringed or similar technology may materially and adversely affect our business, operating results and financial condition.

Our license agreements with our customers typically contain provisions designed to limit our exposure to potential product liability claims. It is possible, however, that the limitation of liability provisions contained in our license agreements may not be effective under the laws of certain jurisdictions. A successful product liability claim brought against us could have a material adverse effect upon our business, operating results and financial condition.

Our business will suffer if our products contain defects or do not function as intended, which would cause our revenue to decline.

Software products frequently contain errors or failures, especially when first introduced or when new versions are released. Also, new products or enhancements may contain undetected errors, or “bugs,” or performance problems that, despite testing, are discovered only after a product has been installed and used by customers. Errors or performance problems could cause delays in product introduction and shipments or require design modifications, either of which could lead to a loss in revenue or increase in costs. Our products are typically intended for use in applications that may be critical to a customer’s business. As a result, we expect that our customers and potential customers have a greater sensitivity to product defects than the market for software products generally. Despite extensive testing by us and by current and potential customers, errors may be found in new products or releases after commencement of commercial shipments, resulting in loss of revenue or delay in market acceptance, diversion of development resources, the payment of monetary damages, damage to our reputation, or increased service and warranty costs, any of which could have a material adverse effect on our business and results of operations.

~~Our~~ ~~market is highly competitive, and if we are unable to compete successfully, our ability to grow our business or even maintain revenue and operating results at current levels will be diminished~~29.

Our products target the markets for Visual C++/MFC and Visual Basic/ActiveX software parts and programming tools. Direct competitors in the C++ market include Microsoft (with its MFC), ILOG and several privately held companies. Microsoft is a particularly strong competitor due to its large installed base and the fact that it bundles its MFC library with its own and other C++ compilers. Microsoft may decide in the future to devote more resources to or broaden the functions of MFC in order to address and more effectively compete with the functionality of our products.

Software applications can also be developed using software parts and programming tools in environments other than C++. Indirect competitors with such offerings include Microsoft, Borland and Oracle. Many of these competitors have significantly greater resources, name recognition and larger installed bases of customers than Rogue Wave. These potential competitors have well-established relationships with current and potential customers and have the resources to enable them to more easily offer a single vendor solution. As a result, these potential competitors may be able to respond more

quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to the development, promotion and sale of their products than Rogue Wave can.

There are many factors that may increase competition in the market for object-oriented software parts and programming tools, including (1) entry of new competitors, (2) alliances among existing competitors and (3) consolidation in the software industry. Increased competition may result in price reductions, reduced gross margins or loss of market share, any of which could materially adversely affect our business, operating results and financial condition. If we cannot compete successfully against current and future competitors or overcome competitive pressures, our business, operating results and financial condition may be adversely affected.

We operate in an industry with rapidly changing technology and, if we do not successfully modify our products to incorporate new technologies, they may become obsolete and sales will suffer.

The software market in which we compete is characterized by (1) rapid technological change, (2) frequent introductions of new products, (3) changing customer needs and (4) evolving industry standards. To keep pace with technological developments, evolving industry standards and changing customer needs, Rogue Wave must support existing products and develop new products. We may not be successful in developing, marketing and releasing new products or new versions of our products that respond to technological developments, evolving industry standards or changing customer requirements. We may also experience difficulties that could delay or prevent the successful development, introduction and sale of these enhancements. In addition, these enhancements may not adequately meet the requirements of the marketplace and may not achieve any significant degree of market acceptance. If release dates of any future products or enhancements are delayed, or if these products or enhancements fail to achieve market acceptance when released, our business, operating results and financial condition could be materially adversely affected. In addition, new products or enhancements by our competitors may cause customers to defer or forgo purchases of our products, which could have a material adverse effect on our business, financial condition and results of operations.

Provisions in our charter documents, our rights agreement and Delaware law could prevent or delay a change in control of the Company and may reduce the market price of our common stock.

Provisions of our certificate of incorporation, by-laws and rights agreement may discourage, delay or prevent a merger, acquisition or other business combination that a stockholder may consider favorable. These provisions include:

• authorizing the issuance of preferred stock without stockholder approval; • limiting the persons who may call special meetings of stockholders; • prohibiting stockholder action by written consent; • establishing advance notice requirements for nominations for election to the board of directors and for proposing other matters that can be acted on by stockholders at stockholder meetings; • requiring super-majority voting to effect certain amendments to our certificate of incorporation or to amend our by-laws; and • requiring parties to request board approval prior to acquiring 15% or more of the voting power of our common stock to avoid economic and voting dilution of their stock holdings.

• limiting the persons who may call special meetings of stockholders;

• prohibiting stockholder action by written consent;

• establishing advance notice requirements for nominations for election to the board of directors and for proposing other matters that can be acted on by stockholders at stockholder meetings;

• requiring super-majority voting to effect certain amendments to our certificate of incorporation or to amend our by-laws; and

• requiring parties to request board approval prior to acquiring 15% or more of the voting power of our common stock to avoid economic and voting dilution of their stock holdings.

We are incorporated in Delaware and certain provisions of Delaware law may also discourage, delay or prevent someone from acquiring or merging with us, which may cause the market price of our common stock to decline.

~~ITEM~~ ~~3.—QUANTITATIVE~~Potential ~~AND~~new ~~QUALITATIVE~~accounting ~~DISCLOSURES~~pronouncements ~~ABOUT~~may ~~MARKET~~cause ~~RISK~~our net income to decrease.

~~The~~ We ~~Company’s~~currently ~~market~~account ~~risk~~for ~~exposure~~the isissuance ~~the~~of ~~potential~~stock ~~loss~~options ~~arising~~under ~~from~~APB ~~changes~~No. in25, ~~interest~~“Accounting ~~rates~~for ~~and~~Stock ~~its~~Issued to ~~impact~~Employees.” If onproposals ~~short-term~~currently ~~investments~~under consideration by accounting standards organizations and ~~foreign~~governmental ~~currency~~authorities ~~exchange~~are ~~rate~~adopted, ~~fluctuations~~we may be required to change our practice and treat the value of stock options granted to employees as a compensation expense. If we change our method of accounting for employee stock options, whether voluntarily or as a result of changes in accounting rules, our net income could materially decrease.

As ofLegislative ~~December~~and ~~31,~~regulatory ~~2002,~~actions ~~the~~may ~~Company~~cause ~~had~~our ~~short-term~~operating ~~investments~~expenses ~~of $11.9 million, which are classified as held~~ to ~~maturity and are carried at their amortized cost~~increase. All investments have acquired maturities of less than 360 days. Short-term investments consist primarily of high credit and highly liquid corporate notes and commercial paper. A reduction in overall interest rates would not have a material affect on the fair value of the investments or the financial position of the Company.

~~Exposure~~ The toSarbanes-Oxley Act ~~variability~~of in2002 ~~foreign~~and ~~currency~~newly ~~exchange~~proposed ~~rates~~or isenacted ~~managed~~rules ~~primarily~~and ~~through~~regulations of the ~~use~~SEC ofor ~~natural hedges~~NASDAQ, ~~whereby~~impose ~~funding~~new ~~obligations~~duties ~~and~~on ~~assets are both managed in~~ the ~~local currency. In addition, the~~ Company ~~will~~and ~~from time to time enter into foreign currency exchange agreements to manage~~ its ~~exposure~~executives, ~~arising from fluctuating exchange rates~~directors, ~~primarily~~attorneys inand ~~the Euro~~auditors. In ~~The~~order ~~Company does not enter into any derivative transactions for speculative purposes. The sensitivity of earnings and cash flows~~ to ~~variability~~comply inwith ~~exchange rates is assessed by applying an appropriate range of potential rate fluctuations to~~ the ~~Company’s~~Sarbanes-Oxley ~~assets,~~Act ~~obligations~~ and ~~projected~~any ~~results~~new ofrules ~~operations~~promulgated ~~denominated~~by ~~in foreign currencies. Based on~~ the ~~Company’s~~SEC ~~overall~~or ~~foreign currency rate exposure at December 31~~NASDAQ, ~~2002,~~we ~~movements~~may inbe ~~foreign~~required ~~currency~~to ~~rates~~hire ~~would~~additional ~~not~~personnel ~~materially~~and ~~affect~~use ~~the~~additional ~~financial~~outside ~~position of the Company. At December 31~~legal, ~~2002,~~accounting ~~the~~and ~~Company~~advisory ~~had outstanding short-term forward exchange contracts to exchange Euros for U~~services.S. Any ~~dollars in the amount~~ of ~~$1.0~~these ~~million.~~developments ~~See~~could ~~Note~~materially 8increase ofour ~~Notes~~operating toexpenses ~~Condensed~~and, ~~Consolidated~~accordingly, reduce ~~Financial~~our ~~Statements.~~net income.

ITEM 43.~~—CONTROLS~~ - QUANTITATIVE AND ~~PROCEDURES~~QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~Based~~ The ~~on their evaluation of the~~ Company’s ~~disclosure~~market ~~controls~~risk ~~and~~exposure ~~procedures~~is ~~(as defined by Rules 13a-14(c) and 15d-14(c) under~~ the ~~Securities~~potential ~~Exchange~~loss ~~Act~~arising offrom ~~1934)~~changes asin ofinterest arates ~~date~~and ~~within~~their 90impact ~~days~~on ofshort-term ~~the filing date of this quarterly report~~investments, ~~the Company’s Chief Executive Officer~~ and ~~Chief~~from ~~Financial Officer have concluded that these disclosure controls and procedures are effective to ensure that information required to be disclosed by the~~foreign ~~Company~~currency inexchange ~~its~~rate ~~periodic reports is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Securities and Exchange Commission~~fluctuations.

~~There~~ As ~~were~~of noJune ~~significant~~30, ~~changes~~2003, in the Company’s ~~internal~~had ~~controls~~short-term orinvestments inof ~~other~~$12.1 million, which are classified ~~factors~~as ~~that~~held ~~could~~to ~~significantly~~maturity ~~affect~~and ~~these~~are ~~controls~~carried ~~subsequent~~at totheir ~~the~~amortized ~~date~~cost. All investments have acquired maturities of ~~their~~less ~~evaluation~~than 360 days. Short-term ~~Because~~investments ~~there~~consist ~~were~~primarily noof ~~significant~~high ~~deficiencies~~credit orand ~~material~~highly ~~weaknesses~~liquid corporate notes and commercial paper. A reduction in ~~these~~overall ~~controls,~~interest norates ~~corrective~~would ~~actions~~not ~~were~~have ~~taken~~a ~~with~~material ~~respect~~effect toon ~~them~~the fair value of the investments or the financial position of the Company.

25 30.

~~PART~~ Exposure ~~II—OTHER~~to variability in foreign currency exchange rates is managed primarily through the use of natural hedges, ~~INFORMATION~~whereby funding obligations and assets are both managed in the local currency. In addition, the Company will from time to time enter into foreign currency exchange agreements to manage its exposure arising from fluctuating exchange rates, primarily in the Euro. The Company does not enter into any derivative transactions for speculative purposes. The sensitivity of earnings and cash flows to variability in exchange rates is assessed by applying an appropriate range of potential rate fluctuations to the Company’s assets, obligations and projected results of operations denominated in foreign currencies. Based on the Company’s overall foreign currency rate exposure at June 30, 2003, movements in foreign currency rates would not materially affect the financial position of the Company. At June 30, 2003, the Company had outstanding short-term forward exchange contracts to exchange Euros for U.S. dollars in the amount of $2.1 million. See Note 9 of Notes to Unaudited Condensed Consolidated Financial Statements.

ITEM 64.~~—EXHIBITS~~ ~~AND~~– ~~REPORTS~~CONTROLS ONAND ~~FORM 8-K~~ PROCEDURES

a The Company carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer, who is currently serving as interim Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based ~~Exhibits:~~on that evaluation, our Chief Executive Officer concluded that our controls and procedures were effective as of the end of the period covered by this report. There were no changes in the Company’s internal control over financial reporting that occurred during the period covered by this report that have materially affected, or that are reasonably likely to materially affect, the Company’s internal control over financial reporting.

99.1		Chief Executive Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2		Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer or Chief Financial Officer, as appropriate, to allow timely decisions regarding disclosure.

b The Company has confidence in its internal controls and procedures. Nevertheless, ~~Reports~~the onCompany’s ~~Form~~management, ~~8-K:~~including the Chief Executive Officer, does not expect that our internal controls will prevent all errors or intentional fraud. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of such internal controls are met. Further, the design of an internal control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all internal control system, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud within the Company, if any, have been detected.

On ~~January 6, 2002, the Company filed a Form 8-K with the Securities and Exchange Commission, reporting in Item 5 that on January 3, 2002, the Board of Directors adopted a stockholder rights plan~~31.

PART II – OTHER INFORMATION

ITEM 6. – EXHIBITS AND REPORTS ON FORM 8-K

(a)	Exhibits:

	The exhibits listed on the accompanying Exhibit Index are filed or incorporated by reference as part of this report and the Exhibit Index is incorporated herein by reference.

(b)	Reports on Form 8-K:

	On April 11, 2003, the Company filed a report on Form 8-K furnishing its press release dated April 10, 2003 under Item 12.

	On May 2, 2003, the Company filed a report on Form 8-K furnishing its press release dated April 29, 2003 under Item 12.

32.

SIGNATURES

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

		ROGUE WAVE SOFTWARE, INC. (Registrant)
	ROGUE WAVE SOFTWARE, INC.
Date: February 14, 2003		/s/ Merle A.Waterman
	(Registrant)
		MERLE A. WATERMAN VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND SECRETARY
Date: August 13, 2003	/s/ KATHLEEN E. BRUSH
	KATHLEEN E. BRUSH
	PRESIDENT, CHIEF EXECUTIVE OFFICER AND
	INTERIM CHIEF FINANCIAL OFFICER

27 33.

I, ~~John~~EXHIBIT ~~Floisand, certify that:~~ INDEX

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

EXHIBIT NUMBER		DESCRIPTION OF DOCUMENT

10.21(1)		Separation & Release Agreement between Registrant and Merle A. Waterman dated May 8, 2003.
31.1(1)		Certification of Chief Executive Officer and interim Chief Financial Officer pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1(1)		Certification of Chief Executive Officer and interim Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1) Filed herewith.

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

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

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

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

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

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

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

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

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

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

February 14, 2003 /s/ John Floisand John Floisand Chairman of the Board and Chief Executive Officer

I, Merle A. Waterman, certify that:

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

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

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

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

February 14, 2003 /s/ Merle A. Waterman Merle A. Waterman Vice President, Chief Financial Officer and Secretary

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Filing Compare · ROGUE WAVE SOFTWARE INC /OR/