ACTIONPOINT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Interim Unaudited Financial Information:

The accompanying interim unaudited consolidated condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. The December 31, 19981999 balance sheet data was derived from audited financial statements contained in the Company's 19981999 Annual Report on Form 10-K10-k but does not include all disclosures required by generally accepted accounting principles. On September 8, 1998 the Company sold its display division. Accordingly, the operating results of the display division for 1998 have been segregated from continuing operations and reported separately on the statements of income. The unaudited financial statements for the ninethree month periods ended September 30,March 31, 2000 and 1999 and 1998 include, in the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial information set herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for an entire year and should not be relied on as such.

Recent Pronouncements: As of January 1, 1998 the Company has adopted the provisions of Statement of Position 97-2, ("SOP 97-2"), "Software Revenue Recognition." This statement establishes requirements for revenue recognition for software companies. Under SOP 97-2, the Company recognizes product revenues and license fees upon shipment if a signed contract exists, the fee is fixed and determinable, collection of resulting receivables is probable and product returns are reasonably estimable. In addition, for contracts with multiple obligations (e.g. deliverable and undeliverable products, service, and maintenance), revenue must be allocated to each component of the contract based on evidence of its fair value. Revenue allocated to undelivered products is recognized when the criteria for product and license revenue set forth above are met. Revenue allocated to maintenance fees for ongoing customer support and updates is recognized ratably over the period of the maintenance contract. Payments for maintenance fees are generally made in advance and are non-refundable. Revenue related to other services is recognized as the related services are performed. Royalty revenues that are contingent upon sale to an end user by OEMs are recognized upon receipt of a report of sale by the Company for the OEM. In March 1998, The AICPA issued Statement of Position No. 98-4 ("SOP 98-4"), "Deferral of the Effective Date of a Provision of SOP 97- 2, Software Revenue Recognition." SOP 98-4 defers, for one year, the application of certain passages in SOP 97-2, which limit what is considered vendor-specific objective evidence ("VSOE") necessary to recognize revenue for software licenses in multiple-element arrangements when undelivered elements exist. The adoption of SOP 97-2, as amended by SOP 98-4, in the first quarter of 1998 did not have a material effect on the Company's revenue recognition practices. The Company has evaluated the amendments expected to be issued under SOP 98-4 and does not expect their adoption will have a material effect on its revenue recognition practices. In December 1998, the AICPA issued Statement of Position No. 98-9 ("SOP 98-9"), "Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions," which clarifies guidance regarding VSOE and multiple element arrangements. SOP 98-9 amends SOP 98-4 to extend the deferral of guidance in SOP 97-2 as it relates to these matters through fiscal years beginning after March 15, 1999. In April 1998, the American Institute of Certified Public Accountants issued Statement of Position No. 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This Statement of Position (SOP) provides guidance on accounting for the costs of computer software developed or obtained for internal use. The SOP applies to all nongovernmental entities and is effective for financial statements for fiscal years beginning after December 15, 1998. The Company has not yet determined the impact, if any, of the adoption of this statement on the financial statements of the Company.

In June of 1998, the Financial Accounting Standards Board ("FASB")issued Statement of Financial Standards No. 133 ("("SFAS 133"133"), "Accounting"Accounting for Derivative Instruments and Hedging Activities."Activities," which is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. In July of 1999, the FASB issued Statement of Financial Standards No. 137 ("SFAS 137"), "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133," which defers the effective date to all fiscal quarters of fiscal years beginning after June 15, 2000. The Company has not yet evaluated the effects of this change on its operations. The Company will adopt SFAS 133 as required for its first quarterly filing of the fiscal year 2001.

In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 provides guidance for revenue recognition under certain circumstances. The Company is currently evaluating the impact of SAB 101 on its financial statements and related disclosures, but does not expect that such impact, if any, will be material. The accounting and disclosures prescribed by SAB 101 will be effective for the Company's fiscal year ending December 31, 2000.

In March 2000, the FASB issued FASB Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB Opinion No. 25." FIN 44 is intended to clarify certain problems that have arisen in practice since the issuance of APB 25 and provide guidance, some of which is a significant departure from current practice. FIN 44 generally provides for prospective application for grants or modifications to existing stock options or awards made after June 30, 2000. 2. DISCONTINUED OPERATIONS: On September 8,However, for certain transactions the guidance is effective after December 15, 1998 and January 12, 2000. The Company believes the Company sold its display divisionadoption of this pronouncement will not have a material impact on the Company's financial position and results of operations.

3. INCOME TAXES:

The tax benefit related to the current management team. This business now operates asoperating loss for the quarter ended March 31, 2000 has been offset by a private company named Cornerstone Peripherals Technology, Inc. Undervaluation reserve placed against the terms of the sale the Company sold certain assets and transferred certain liabilities associated with the display division.resulting deferred tax assets. The Company retained certain assets, primarily accounts receivable and certain inventory, which were substantially converted to cash by December 31, 1998. The Company holds a minority equity interest in Cornerstone Peripherals Technology, Inc. 3. INCOME TAXES: The Company'sremaining provision for income taxes reflects the Company's estimated 1999 annualized effective tax rate of 34%. foreign taxes.

4. STOCK REPURCHASE:

Since February 1997 through February 1999, the Company's Board of Directors has authorized the use of up to $25 million to repurchase the Company's common stock. During the nine months ended September 30,Through December 31, 1999 the Company repurchased 755,1003.8 million shares for a total of $4.2$23.6 million. Since inception ofNo repurchases were made in the program a total of 3.7 million shares have been repurchased for a total of $23.3 million.quarter ending March 31, 2000. The repurchased stock is expected to bebeing held by the Company as treasury stock to be used to meet the Company's obligations under its stock plans and for other corporate purposes. Purchases have been and willmay continue to be made from time- to-timetime-to-time on the open market or in privately negotiated transactions. The timing and volume of purchases will be dependent upon market conditions and other factors. - ------------------------------------------------------------------------ The Company intends to use cash on hand to fund its purchases.

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

OVERVIEW:

On April 24, 2000, the Company announced a name change from Input Software, Inc. to ActionPoint, Inc. This change was made to more effectively communicate a new strategic focus on e-commerce interaction management software.

The Company helps Global 1000 organizations, dot.com companies and B2B net market makers simplify Web-based and paper-based business transactions. ActionPoint products are part of the e-commerce infrastructure required to deliver scaleable, flexible and high performance e-business solutions. ActionPoint Dialog Server™ is designed to replace static Web forms with personalized, intelligent interactions. The ActionPoint Enterprise Server™ is a delivery and integration mechanism behind the firewall that integrates all types of information, both paper and web-based, into the enterprise infrastructure. Our award-winning information capture solution, InputAccel®, has been shipping since late 1995 and intelligently captures mission critical information -provided as email, paper, and faxes- into formats compatible with enterprise computing systems and the Internet.

The Company's also markets software tools, which allow hardware and software developers to save both time and money by offering stable, supported libraries of software code to drive certain computer peripherals rather than having to develop such software themselves. Most of these tools are based on the Company's Image & Scanner Interface Specification ("ISIS®"), an industry standard interface for scanners. ISIS also provides a key component for InputAccel.

RESULTS OF OPERATIONS:

This Quarterly Report on Form 10-Q may contain forward-looking statements that involve risks and uncertainties. The Company's actual results may differ materially from the results discussed in any such forward-looking statements. Factors that might cause such a difference include, but are not limited to those discussed below and in the section captioned RISK FACTORS in the Company's most recent Annual Report on Form 10-K. RESULTS OF OPERATIONS: Input Software, Inc. (the "Company") develops and markets software products that intelligently capture customer, supplier, and business partner information - provided as Web input, data, paper, and faxes - into formats compatible with enterprise computing systems and the Internet. Its flagship product, InputAccelT, is an open integration platform that has become the de facto standard for information capture software.

Net Revenues

The Company's newest product, DynamicInputT, is an XML-based software product scheduled to ship to Beta customerslicense revenues decreased 21% in the first quarter of 2000 that will allow organizations to personalize real time, two-way communications with their customers over the Web. The Company also markets software tools under its Pixel Translations brand which allow hardware and software developers to save both time and money by offering stable, supported libraries of software code to drive certain computer peripherals rather than having to develop such software themselves. Most of these tools are based on the Company's Image & Scanner Interface Specification ("ISISr"), an industry standard interface for scanners. ISIS also provides a key component for InputAccel. Net Revenues The Company's revenues increased 19% in the third quarter of 1999 to $5.5$3.5 million from $4.6 million in the third quarter of 1998. For the nine months ending September 30, 1999, revenues increased 36% to 16.6 million from revenues of $12.1$4.4 million in the first nine monthsquarter of 1998.1999. As a percent of revenue, licenses accounted for 76% and 84% for the first quarter of 2000 and 1999 respectively. The decrease in revenue is due in large part to a shift in buying patterns from our Global 1000 customer base as they begin to move away from traditional paper based applications in order to focus on e-commerce solutions.

The Company's service revenues increased 31% in the first quarter of 2000 to $1.1 million from $833,000 in the first quarter of 1999. As a percent of revenue, services accounted for 24% and 16% for the first quarter of 2000 and 1999 respectively. The increase in revenue growth from 1999 comparedservice revenues both in absolute and percentage terms was primarily attributable to 1998 is due primarily to an increased customera larger installed base as well as add-on revenues from our InputAccel product line. of customers purchasing annual software maintenance.

Gross Profit

Gross profit increased 12% indecreased 17% for the thirdfirst quarter of 19992000 to $4.7$3.8 million from $4.2$4.5 million infor the thirdfirst quarter of 1998. For the nine months ending September 30, 1999, gross profit increased 30%1999. Gross margin decreased to $14.2 million82% from gross profit of $10.9 million in86% for the first nine monthsquarter of 1998. The gross margin was 86%2000 and 91% for the third quarters of 1999, and 1998, respectively and was 86% and 90% for the nine months ended September 30, 1999 and 1998, respectively. The decrease in gross margin percent for both periods is largely due to the increased percentage of revenues derived from software maintenance and professional services, which have lower margins than revenues from product licensing. The Company expects revenues from maintenance and services to continue to moderately increase as a percentage of overall revenues. Sales

Research and Marketing SalesDevelopment

Research and marketingdevelopment expenses increased 34%42% to $2.8$1.7 million in the thirdfirst quarter of 19992000 from $2.1$1.2 million in the thirdfirst quarter of 1998, and1999. The increase is largely due to investments made for the nine-month period ended September 30, 1999,ActionPoint product line. Research and development increased 46% to $8.0 million from $5.5 million for the first nine months of 1998. Sales and marketing expenses as a percentage of revenue were 51% and 45% for the third quarter of 1999 and 1998, respectively and was 48% and 45% for the nine months ended September 30,1999 and 1998, respectively. The Company expects that sales and marketing expenses will increase in the future as the Company continues to expand sales and marketing programs, and specifically anticipates incremental expenses associated with launching the DynamicInput product line. Research and Development Research and development expenses increased 35% to $1.3 million in the third quarter of 199938% from $1.0 million in the third quarter of 1998 and for the nine month period ended September 30, 1999, increased 24% to $3.8 million from $3.1 million23% for the first nine monthsquarter of 1998. 2000 compared to the first quarter of 1999.

Current R&D staffing levels exceed those of prior periods. The Company believes that continued investment in research and development is critical to its future growth and will continue to commit substantial resources to this area, particularly for development efforts of the recently announced DynamicInput product.area. As a result, quarterly research and development expenses are likely to increase during the remainder of 19992000 and beyond.

Sales and marketing

Sales and marketing expenses increased 36% to $3.3 million in the first quarter of 1999 from $2.5 million in the first quarter of 1999. The Company expects that sales and marketing expenses will increase in the future, in absolute terms, as the Company continues to expand sales and marketing programs in conjunction with the launch of the ActionPoint product line. Sales and marketing increased as a percentage of revenue to 72% from 47% for the first quarter of 2000 compared to the first quarter of 1999.

General and administrative

General and administrative expenses in the thirdfirst quarter of 1999 decreased2000 increased by 7%2% to $733,000$872,000 from $790,000$853,000 in the thirdfirst quarter of 1998, and for the nine month period ended September 30, 1999, increased by 22% to $2.3 million from $1.9 million for the first nine months of 1998. The increase in the nine month period is primarily due to increased staffing, various internal technology enhancements, and related costs incurred to support the Company's revenue growth. 1999.

As a percentage of revenue, general and administrative expenses decreasedincreased to 13%19% for the thirdfirst quarter of 1999, from 17% for the third quarter of 1998 and to 14%2000, from 16% for the nine months ended September 30, 1999first quarter of 1999. The Company expects general and administrative expenses to increase in succeeding future periods.

Stock Related Bonus Expense

The first quarter of 2000 included a one-time charge of $2.6 million related to a stock-based incentive plan.

Minority Equity Investment

Based on its assessment of the likelihood to realize value, the Company wrote off its $500,000 minority equity interest in Cornerstone Peripherals Technology. This investment was made in 1998 respectively. Divestiture As a result ofin conjunction with the sale of the display products division, the Company recorded aCompany's hardware division.

Provision for Income Taxes

The benefit for tax loss of approximately $2.6 million for the period ended September 30, 1998. This charge includes a loss from display division operationscarryforward in the first quarter of 1998, net of2000 was offset by an increase to the valuation allowance. The tax benefit, of $361,000 and an estimated loss of $2.3 million, net of tax benefit, on the sale of the net assets of the display division. All financial statements have been restated to accountprovision for the display division as a discontinued operation. As a result of the sale, the Company owns a minority interest in Cornerstone Peripherals Technology, Inc., which is reflected as an 'other asset' on the December 31, 1998 balance sheet. Provision for Income Taxes The provision for federal and state income taxes as a percentage of pretax income from operations was 33% and 32% for the thirdfirst quarter of 1999 and 1998 respectively and was 34% and 31% for nine months ended September 30, 1999 and 1998, respectively. utilized a rate of 33%.

Liquidity and Capital Resources

At September 30, 1999,March 31, 2000, the Company had cash and cash equivalents of $9.9$6.4 million, compared to $14.4$9.2 million at December 31, 1998. 1999.

Net cash used inby operating activities was $130,000$3.0 million in the first ninethree months of 19992000 compared to net cash providedused by operating activities of $9.2 million$454,000 in the first ninethree months of 1998.1999. The net cash provided by operationsfunds were utilized to support increased expenses, primarily related to the ActionPoint product family, and for the first nine months of 1998 was due primarily to conversion to cash of various assets from the discontinued display operation. payments made under a stock-based incentive plan.

Net cash used in investing activities, exclusively additions to property and equipment, was $528,000$340,000 for the first ninethree months of 1999,2000, compared to $440,000$199,000 in the first ninethree months of 1998. On February 14, 1997,1999.

Net cash provided by financing activities was $556,000 for the Company's Boardfirst three months of Directors authorized2000, primarily from the useproceeds of upexercises of employee stock options. This compares to $5.0net cash used of $1.2 million to repurchasefor Company stock repurchased in the Company's common stock. This amount was increased to $15.0 million on Sept 17, 1997, further increased to $20 million on August 12, 1998, and to $25 million on February 11,first quarter of 1999. The repurchased stock is expected to be held by the Company and may be used to meet the Company's obligations under its stock plans and for other corporate purposes. Purchases will be made from time-to-time on the open market or in privately negotiated transactions. The timing and volume of purchases will be dependent upon market conditions and other factors. The Company intends to use cash on hand to fund its purchases. During the nine months ended September 30, 1999 the Company used $4.2 million to repurchase stock.

The Company believes that its cash and cash equivalents, together with cash flows from operations will be sufficient to meet the Company's liquidity and capital requirements for the next 12 months. The Company may, however, seek additional equity or debt financing to fund further expansion. The timing and amount of such capital requirements cannot be precisely determined at this time and will depend on a number of factors, including demand for the Company's products, product mix and competitive factors. Accordingly, the Company may require additional funds to support its working capital requirements or for other purposes and may seek to raise such additional funds through public or private equity or other sources. There can be no assurance that additional financing will be available at all or that it, if available, will be obtainable on terms favorable to the Company and would not be dilutive.

RISK FACTORS

In addition to the other information in this Report, the following risk factors should be considered carefully in evaluating the Company and its business. Limited Software Operating History; History of

The Company's operating losses have been due in part to the commitment of significant resources to the Company's research and development and sales and marketing departments. The Company expects to continue to devote substantial resources to these areas and as a result will need to achieve significant quarterly revenues to achieve profitability. In particular, the Company intends to continue to hire additional sales and research and development personnel in 1999 and beyond, which the Company believes is required if the Company is to achieve significant revenue growth in the future. Although the Company's software related revenues generally have increased in recent periods, there can be no assurance that the Company's revenues will grow in future periods, that they will grow at past rates or that the Company will remain profitable on a quarterly or annual basis in the future. Operating Results Subject to Significant Fluctuations; Seasonality The Company's quarterly revenues, expenses and operating results have varied significantly in the past and are likely to vary significantly in the future due to a variety of factors, such as demand for the Company's products, the size and timing of significant orders, the number, the delay or deferral of customer implementations, timing and significance of product enhancements and new product announcements by the Company and its competitors, changes in pricing policies by the Company or its competitors, customer order deferrals in anticipation of enhancements or new products offered by the Company or its competitors, the ability of the Company to develop, introduce and market new and enhanced versions of its products on a timely basis, changes in the Company's level of operating expenses, budgeting cycles of its customers, product life cycles, software defects and other product quality problems, the Company's ability to attract and retain qualified personnel, success in expanding the direct sales and customer support organizations, changes in the Company's sales incentive plans, changes in the mix of domestic and international revenues, the level of international expansion, foreign currency exchange rate fluctuations, performance of indirect channel partners, changes in the mix of indirect channels through which the Company's products are offered, the impact of acquisitions of competitors and indirect channel partners, the publication of opinions concerning the Company, its products or technology by industry analysts, changes in the Company's ability to control costslevel of operating expenses and general domestic and international economic and political conditions.

During any given period, one or more of the foregoing factors may cause revenue to fluctuate significantly or operating expenses to be disproportionately high. For the past several quarters the Company has increased spending and has incurred operating losses. The increased spending has been due in large part to the investment of significant research and development and marketing resources to the yet-to-be-shipped ActionPoint product family. The Company expects to continue to devote substantial resources to these areas and as a result will need to achieve significantly increased quarterly revenues to achieve profitability. In particular, the Company intends to continue to hire additional sales, marketing and engineering personnel in 2000 and beyond, which the Company believes is required if the Company is to achieve significant revenue growth in the future. While the Company's revenues generally have increased in recent periods, the revenues for the most recent quarter were below those of the same quarter of 1999. Accordingly there can be no assurance that revenues will increase in future periods, that revenues will grow at past rates or that the Company will return to profitability in the future.

The Company has limited ability to forecast future revenues, and it is likely that in some future period the Company's operating results will be below the expectations of public securities analysts and investors. In the event that operating results are below expectations, or in the event that adverse conditions prevail or are perceived to prevail generally or with respect to the Company's business, the price of the Company's Common Stock would likely be materially adversely affected.

The Company's quarterly revenues, expenses and operating results have varied significantly in the past and are likely to vary significantly in the future due to a variety of factors. In addition to those mentioned earlier, these factors include the size and timing of significant orders, budgeting cycles of its customers, possible delays in recognizing licensing revenues and the trend within the software industry for a large portion of orders to be booked late in a calendar quarter. The Company operates with virtually no order backlog because its software products are shipped shortly after orders are received, which makes product revenues in any quarter substantially dependent on orders booked and shipped throughout that quarter. In addition, the Company achieves a significant portion of revenues from indirect sales channels over which the Company has little control. Moreover, the Company's expense levels are based to a significant extent on the Company's expectations of future revenues and therefore are relatively fixed in the short term. If revenue levels are below expectations, operating results are likely to be adversely and disproportionately affected because only a small portion of the Company's expenses vary with its revenues.

The Company's business has experienced and is expected to continue to experience seasonality, largely due to customer buying patterns. In most of the recent years, the Company has had relatively stronger demand for its products during the quarter ending December 31 and demand has been relatively weaker in the quarter ending March 31. While theThe Company believes that, adjusting for the negative in late 1999 impact caused by Year 2000 concerns, this pattern will continue in future years, uncertainities in buying patterns caused by concerns related to Y2K will likely have a negative adverse impact on revenues for the fourth quarter of 1999.continue. Based upon all of the factors described above, the Company believes that its quarterly revenues, expenses and operating results are likely to vary significantly in the future, that period-to-period comparisons of its operating results are not necessarily meaningful and that, in any event, such comparisons should not be relied upon as indications of future performance.

The Company has limited ability to forecast future revenues, and it is likely that in some future quarter the Company's operating results will be below the expectations of public securities analysts and investors. In the event that operating results are below expectations, or in the event that adverse conditions prevail or are perceived to prevail generally or with respect to the Company's business, the price of the Company's Common Stock would likely be materially adversely affected.

The market for the Company's products is intensely competitive and subject to rapid change. In addition, because there are relatively low barriers to entry in the software market, the Company may encounter additional competition from other established and emerging companies. Many of the Company's competitors have longer operating histories, significantly greater financial, technical, marketing and other resources than the Company, significantly greater name recognition and a large installed base of customers. As a result, the Company's 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 competitive products, than can the Company. There is also a substantial risk that announcements of competing products by large competitors could result in the cancellationdelay or postponement of customer orders in anticipation of the introduction of such new products. In addition, current and potential competitors have established or may establish cooperative relationships among themselves or with third-parties to increase the ability of their products to address customer needs and which may limit the Company's ability to sell its products through particular reseller partners. Accordingly, new competitors or alliances among current and new competitors may emerge and rapidly gain significant market share. The Company also expects that competition will increase as a result of software industry consolidation. Increased competition is likely to result in price reductions, fewer customer orders, reduced margins and loss of market share, any of which could materially adversely affect the Company. There can be no assurance that the Company will be able to compete successfully against current and future competitors or that the competitive pressures faced by the Company will not materially adversely affect its business, operating results and financial condition.

The Company currently expects the sale and license of its InputAccelproducts and software tools to account for substantially allmost of the Company's revenues for 2000, as revenues from the foreseeable future.ActionPoint family of products not expected to start contributing in the second half of 2000. The Company's future operating results are, therefore, heavily dependent upon continued market acceptance of its InputAccel products and enhancements to these products. Consequently, asuch. A decline in the demand for InputAccel or lack of market acceptance of,for the Company's InputAccelActionPoint products as a result of competition, technological change or other factors, would have a material adverse effect on the Company's business, operating results and financial condition.

The market for Data Captureinteraction management and Document Management Applications Although demand for documentdata capture software for document management applications has grown in recent years, thisis fragmented, rapidly changing, and extremely competitive. This market is still emerging and there can be no assurance that it will continue to grow or that organizations will continue to adopt the Company's products. The Company has spent, and intends to continue to spend, considerable resources educating potential customers about the Company's software products and the document processinginteraction management market generally. However, there can be no assurance that such expenditures will enable the Company's new products to achieve any additional degree of market acceptance. The rate at which organizations have adopted the Company's existing products has varied significantly and the Company expects to continue to experience such variations in the future. There can be no assurance that the markets for the Company's products will continue to develop or that the Company's products will be accepted within such markets. If the markets for the Company's products fail to develop, or develop more slowly than the Company currently anticipates, the Company's business, operating results and financial condition would be materially adversely affected.

The market for the Company's products is characterized by rapid technological change, frequent new product introductions and enhancements, uncertain product life cycles, changes in customer demands and evolving industry standards. The introduction of products, such as ActionPoint, embodying new technologies and the emergence of new industry standards can render existing products obsolete and unmarketable. The Company's future success will depend upon its ability to continue to enhance its current products and to develop and introduce new products on a timely basis that keep pace with technological developments and satisfy increasingly sophisticated customer requirements. As a result of the complexities inherent in document image processingits software, new products and product enhancements can require long development and testing periods. As a result, significant delays in the general availability of such new releases or significant problems in the installation or implementation of such new releases could have a material adverse effect on the Company's business, operating results and financial condition. The Company has experienced delays in the past in the release of new products and new product enhancements. There can be no assurance that the Company will be successful in developing and marketing, on a timely and cost effective basis, new products or new product enhancements that respond to technological change, evolving industry standards or customer requirements, that the Company will not experience difficulties that could delay or prevent the successful development, introduction or marketing of these products or that the Company's new products and product enhancements will achieve market acceptance.

Software products as complex as those offered by the Company may contain errors or defects, particularly when first introduced or when new versions or enhancements are released. The Company has in the past discovered software errors in certain of its new products after their introduction. There can be no assurance that, despite testing by the Company, defects and errors will not be found in current versions, new versions or enhancements of its products after commencement of commercial shipments, resulting in loss of revenues or delay in market acceptance, which could have a material adverse effect on the Company's business, operating results and financial condition. Year 2000 Readiness Disclosure The following information constitutes a "Year 2000 Readiness Disclosure" for purposes of the Year 2000 Information and Readiness Disclosure Act: Many currently installed computer systems are not capable of distinguishing 21st century dates from 20th century dates. As a result, in less than one year, computer systems and/or software used by many companies in a very wide variety of applications will experience operating difficulties unless they are modified or upgraded to adequately process information involving, related to or dependent upon the century change. Significant uncertainty exists concerning the scope and magnitude of problems associated with the century change. The Company recognizes the need to ensure its operations will not be adversely impacted by the Year 2000 problem. The Company's Year 2000 compliance effort has been led since mid-1998 by a committee headed by its Vice Presidents of Operations and Product Strategy. The effort has been focused on compliance of the Company's products and the Company's critical business systems. Non-critical business systems will be addressed if and when necessary, as the Company currently anticipates minimal impact to operations and ready availability of replacement goods or services in this category. As more fully discussed below, the Company's products make only limited use of date algorithms and generally are user configurable and/or dependent on third-party products for date information. As a result, it is impossible to make definitive statements concerning the compliance of any particular system, but the Company believes that when properly installed, its products can be configured in a compliant manner. As a software developer, the Company is dependent on relatively few critical suppliers. These tend to be infrastructure vendors rather than component vendors, most notably including building utilities, telecommunications and internet service as well as third-party software suppliers whose products are used for product development, internal business processes and operating platforms for the Company's products. Generally these suppliers are well established enterprises which have provided assurances that they are or will be Year 2000 compliant sufficiently before January 1 to avoid business disruptions, and the Company anticipates no significant disruptions from these suppliers. The Company's flagship product, InputAccel, is a modular, configurable, enterprise software application that operates on a Microsoft Windows platform and can export information to one or more third-party software applications. The product's current revision (2.2) has been subjected to code inspection testing for Year 2000 compliance by the Company, and the Company offers no-charge test systems to licensed end-users so that they may perform compliance testing in their own environments. The Company warrants to new end-users that the product is capable of compliant installation and that the Company will take prompt action to address any Year 2000 defects that may be encountered. However, due to the product's configurable nature and its interdependence with third-party products, its warranty is of limited scope in order to avoid liability for externally introduced Year 2000 problems. The Company is advising users of InputAccel revisions prior to 2.2 to upgrade to the current revision to install a no charge software patch that will eliminate potential Y2K issues in 2 specific client modules. Released versions of PixToolsr development toolkit products and the PixViewTM image utility application do not represent, store or process dates, and the Company believes that the Year 2000 compliance issue is inapplicable to these products alone. It should be noted however, that the toolkit algorithms are intended to be combined with other program elements in the course of development, and toolkit users must exercise care not to introduce Year 2000 problems with those program elements. The Company's internal information technology systems are comprised of certain hardware, including computers and telecommunications equipment; software applications, including sales management, accounting, electronic mail, word processing, spreadsheets and the Windows operating system as well as software development platforms. Nearly all of the above hardware and software applications are commercially available products from major suppliers. Many of these products have been subject to upgrade or replacement concurrent with the Company's recent relocation or as a result of scheduled maintenance, for which there have been no extraordinary costs. Critical externally supplied products and services include electricity, telecommunications, internet service, payroll and shipping. Such products and services are generally supplied by major providers which currently represent that they will have no significant Year 2000 problems. In the event any such third-parties cannot provide the Company with products, services or systems that meet the Year 2000 requirements on a timely basis, or in the event Year 2000 issues prevent such third-parties from timely delivery of products or services required by the Company, the Company's results of operations could be materially adversely affected. The InputAccel customer base is comprised primarily of large public and private enterprises which have devoted, or will devote in 1999, significant efforts to Year 2000 compliance issues. While InputAccel may enhance the overall efficiency of such a customer's operations, it is nevertheless not likely to be a material factor in any customer's Year 2000 compliance effort. To the extent that such customers' MIS departments are occupied with Year 2000 issues, they may defer enterprise software acquisitions that are not critical to the Year 2000 effort, such as InputAccel. Such acquisition deferrals could have a material adverse effect on the Company's business, operating results, and financial condition. The Company is dependent on Microsoft products which serve as the operating system for its products and as the development platform for those same products. In addition, the Company uses Windows-based computers and a number of Microsoft applications in the regular conduct of its business. While the Company regards the possibility of a significant Year 2000 problem in Microsoft's products to be remote, if such a problem were to occur in any of the Microsoft products used by the Company, it could impact the Company's operations or development efforts negatively. To date, the Company has made no extraordinary expenditures in its effort to achieve Year 2000 compliance other than the labor costs associated with compliance analysis. Replacement products have been secured, where necessary, in conjunction with scheduled and budgeted maintenance. Other costs for replacing software have been insignificant as most are under maintenance contracts or under warranty. The Company does not anticipate that any significant future expenditure will be required to achieve compliance, and it believes that any such expenditure will have no material bearing on the Company's financial performance. Accordingly, the Company has not adopted any formal contingency plan in the event its Year 2000 project is not completed in a timely manner. The Company believes that, as a comparatively small and centralized business operation, its Year 2000 risks are identifiable, and it believes that it is already substantially prepared for the Year 2000. Nevertheless there can be no assurance that all risks have been identified and will be cured or that no business disruptions will occur due to Year 2000 problems within the Company or from outside the Company. The above discussion of compliance efforts, risks and costs contain forward-looking statements based on the Company's current best estimates, which estimates are based on currently available information. Such information may be subject to change, in which case compliance efforts, risks and costs could vary materially from current estimates which could have a material adverse affect on the Company's business, operating results and financial condition. Euro On January 1, 1999, the "euro" was introduced. On that day, the exchange ratios of the currencies of the eleven countries participating in the first phase of the European Economic and Monetary Union were fixed. The euro became a currency in its own right and the currencies of the participating countries, while continuing to exist for a three-year transition period, are now fixed denominations of the euro. The conversion to the euro will have significant effects on the foreign exchange markets and bond markets and is requiring significant changes in the operations and systems within the European banking industry. Our information system is designed to accommodate multi-currency environments. As a result we have the flexibility to transact business with vendors and customers in either euro or traditional national currency units. For those countries where bank accounts were not automatically translated into dual currency bank accounts, we maintain separate euro accounts.

The Company anticipates that for the foreseeable future a significant portion of its revenues will be derived from sources outside North America and the Company intends to continue to expand its sales and support operations internationally. In order to successfully expand international sales, the Company mustmay establish additional foreign operations, expand its international sales channel management and support organizations, hire additional personnel, customize its products for local markets, recruit additional international resellers and increase the productivity of existing international resellers. To the extent that the Company is unable to do sothese things in a timely and cost- effectivecost-effective manner, the Company's sales growth internationally, if any, will be limited, and the Company's business, operating results and financial condition could be materially adversely affected. Even if the Company is able to successfully expand its international operations there can be no assurance that the Company will be able to maintain or increase international market demand for its products.

The Company's international operations are generally subject to a number of risks, including costs of customizing products for foreign countries, protectionist laws and business practices favoring local competition, dependence on local vendors, compliance with multiple, conflicting and changing government laws and regulations, longer sales cycles, greater difficulty or delay in accounts receivable collection, import and export restrictions and tariffs, difficulties in staffing and managing foreign operations, foreign currency exchange rate fluctuations, multiple and conflicting tax laws and regulations and political and economic instability. To date, a majority of the Company's revenues and costs have been denominated in U.S. dollars. However, the Company believes that in the future, an increasing portion of the Company's revenues and costs will be denominated in foreign currencies. Although the Company may from time to time undertake foreign exchange hedging transactions to reduce its foreign currency transaction exposure, the Company does not currently attempt to eliminate all foreign currency transaction exposure.

The Company's success depends to a significant extent upon the efforts of its key management, sales and marketing, technical support and research and development personnel, none of whom are bound by an employment contract. The loss of key management or technical personnel could adversely affect the Company. The Company believes that its future success will depend in large part upon its continuing ability to attract and retain highly skilled managerial, sales and marketing, technical support and research and development personnel. Like other software companies, the Company faces intense competition for such personnel, and the Company has at times experienced and continues to experience difficulty in recruiting qualified personnel. There can be no assurance that the Company will be successful in attracting, assimilating and retaining additional qualified personnel in the future. The loss of the services of one or more of the Company's key individuals, or the failure to attract and retain additional qualified personnel, could have a material adverse effect on the Company's business, operating results and financial condition.

The Company relies primarily on a combination of copyright, trademark and trade secret laws, confidentiality procedures and contractual provisions to protect its proprietary rights. The Company licenses its software products primarily under license agreements. There can be no assurance that others will not develop technologies that are similar or superior to the Company's technology or design around the copyrights and trade secrets owned by the Company. Despite the Company's efforts to protect its proprietary rights, unauthorized parties may attempt to copy aspects of the Company's products or to obtain and use information that the Company regards as proprietary. Policing unauthorized use of the Company's products is difficult, and although the Company is unable to determine the extent to which piracy of its software products exists, software piracy can be expected to be a persistent problem. In addition, the laws of some foreign countries do not protect the Company's proprietary rights as fully as do the laws of the U.S.

The Company is not aware that it is infringing any proprietary rights of third-parties. There can be no assurance, however, that third-parties will not claim infringement by the Company of their intellectual property rights. The Company expects that software product developers increasingly will be subject to infringement claims as the number of products and competitors in the Company's industry segment grows and the functionality of products in different industry segments overlaps. Any such claims, with or without merit, could be time consuming to defend, result in costly litigation, divert management's attention and resources, cause product shipment delays or require the Company to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to the Company, if at all. In the event of a successful claim of product infringement against the Company and failure or inability of the Company to either license the infringed or similar technology or develop alternative technology on a timely basis, the Company's business, operating results and financial condition could be materially adversely affected.

The Company relies upon certain software that it licenses from third-parties, including software that is integrated with the Company's internally developed software and used in its products to perform key functions. There can be no assurance that these third-party software licenses will continue to be available to the Company on commercially reasonable terms, if at all. The loss of or inability to maintain any such software licenses could result in shipment delays or reductions until equivalent software could be developed, identified, licensed and integrated such delays would materially adversely affect the Company's business, operating results and financial condition.

Although the Company's license agreements with its customers typically contain provisions designed to limit the Company's exposure to potential product liability claims, it is possible that such limitation of liability provisions may not be effective as a result of existing or future laws or unfavorable judicial decisions. The Company has not experienced any material product liability claims to date; however, the sale and support of the Company's products may entail the risks of such claims, which may be substantial in light of the use of the Company's products in business-critical applications.

Item 3- Quantitative and Qualitative Disclosures About Market Risk.

The Company's exposure to market risk for changes in interest rates relates primarily to its investment portfolio. The Company maintains an investment policy which is intended to ensure the safety and preservation of its invested funds by limiting default risk, market risk and reinvestment risk. The Company does not currently use, nor has it historically used, derivative financial instruments to manage or reduce market risk. The Company mitigates default risk by investing in high credit quality securities such as debt instruments of the United States government and its agencies and high quality corporate issuers, as well as money market funds. The portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity and maintains a prudent amount of diversification. As of March 31, 2000, the Company had $6,4 million of cash and cash equivalents.

The Company does not currently transact any significant portion of its business in functional currencies other than the United States dollar.

To the extent that it continues to transact its business using the United State dollar as its functional currency, the Company does not believe that the fluctuations in foreign currency exchange rates will have a material adverse effect on the Company's results of operations.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings -

     Not Applicable

Item 2. Changes in Securities -

     Not Applicable

Item 3. Defaults Upon Senior Securities -

     Not Applicable

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

     Not Applicable

Item 5. Other Information

     Not Applicable

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

     11.1 Statement of Computation of Earnings Per Share

     27 Financial Data Schedule

(b) Reports on Form 8-K -

     Not Applicable

ACTIONPOINT, INC.

SIGNATURES

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

	ACTIONPOINT, INC.

	(Registrant)

Dated: May 15, 2000

	By:	/s/ JOHN FINEGAN

	John Finegan
	Chief Financial Officer and Secretary
	(Principal Financial and Accounting Officer)

ACTIONPOINT, INC. ------------------------------ Registrant Date: November 15,1999 /s/ John Finegan ------------------------------ John Finegan Chief Financial Officer and Secretary (Principal Financial and Accounting Officer) EXHIBIT

INDEX Exhibit Description - --------- ------------------------------------------------------------TO EXHIBITS

Exhibit Number	Exhibit Title
11.1	Statement of Computation of Earnings per Share
27	Financial Data Schedule (electronic filing only)