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                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                               ------------------
                                    FORM 10-K
                               ------------------
        (Mark One)

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

                    For the fiscal year ended March 31, 2002

                                       OR

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

             For the transition period from _________ to __________.

                             Commission File Number:

                               DIGITALTHINK, INC.
             (Exact name of registrant as specified in its charter)

                     Delaware                            94-3244366
          (State or other jurisdiction of             (I.R.S. Employer
           Incorporation or organization)            Identification No.)

  601 Brannan Street, San Francisco, California             94107
     (Address of principal executive offices)             (Zip code)

                                 (415) 625-4000
              (Registrant's telephone number, including area code)

           Securities registered pursuant to Section 12(b) of the Act:

             Title of each class           Name of Exchange on which registered
                     None                                   None

           Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, $.001 par value
                                (Title of Class)

     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 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 [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

     The aggregate market value of registrant's voting stock held by
non-affiliates of registrant, based upon the closing sale price of the common
stock on May 23, 2002, as reported on the Nasdaq National Market, was
approximately $55.7 million. Shares of common stock held by each officer and
director have been excluded in that such persons may be deemed to be affiliates.
This determination of affiliate status is not necessarily a conclusive
determination for other purposes.

     Outstanding shares of registrant's common stock, $.001 par value, as of
May 23, 2002: 40,987,547

                      DOCUMENTS INCORPORATED BY REFERENCE

     Parts of certain sections of the Proxy Statement to be filed in connection
with the 2002 Annual Meeting of Stockholders are incorporated by reference into
Part III of this Form 10-K Report where indicated.
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                                    PART I

Item 1. Business

     This document contains forward-looking statements that relate to future
events or our future financial performance. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "forecasts,"
"predicts," "intend," "potential" or "continue" or the negative of such terms
or other comparable terminology. In addition, these forward-looking statements
include, but are not limited to, statements regarding the following: (1) our
ability to compete effectively in the e-learning market, (2) our plans to
develop new solutions and products, (3) our business strategies and plans, and
(4) our strategic relationships with Electronic Data System, Incorporated
("EDS") and others. Many of the statements we make regarding the future are
only predictions. Although we believe that the expectations reflected in the
forward-looking statements are reasonable based on our current beliefs, we
cannot guarantee future results, levels of activity, performance or
achievements. The risks set forth in the "Factors Affecting Future Results"
section and elsewhere in this document could cause our future operating results
to differ materially from those contemplated by our forward-looking statements.
In addition, factors that we are not currently aware of could harm our future
operating results.

DigitalThink Overview

     We provide custom e-learning solutions designed to address the strategic
business objectives of our customers by helping them to improve workforce
development, sales force effectiveness and customer acquisition and retention.
We can host and centrally manage software and content, significantly reducing
our customers' learning infrastructure costs and enabling us to rapidly update
or customize our courses. Our Web-based solutions deliver content on new
initiatives, and products or processes to large, geographically dispersed
groups who can access courses from anywhere, at anytime through a standard Web
browser. Our instructional design approach encourages participants to interact
with tutors through e-mail and the Internet. In addition, our solutions allow
customers to generate revenue opportunities by offering branded e-learning
solutions to their customers. We also offer Web-based tracking and reporting
tools that our customers use to measure and evaluate participants' progress and
the effectiveness of our learning programs. In addition, DigitalThink's
deployed delivery option is targeted at companies that need an e-learning
solution that resides within their own corporate environment.

     As of March 31, 2002, we had delivered courses to over 450 customers on
more than 700 subjects in a variety of industries including technology, retail,
healthcare, financial services and telecommunications. Our customers either pay
us to develop custom courses for their specific requirements or select courses
from our catalog, or both. Customers that have purchased solutions from us over
the past fiscal year include Adobe Systems, the American Bankers' Association,
Aspect Telecommunications, Automatic Data Processing, Charles Schwab, Circuit
City, Cisco Systems, EDS, The Gallup Organization, Lincoln Financial, Kinko's,
KPMG Consulting, Marsh, McDonald's, and Sun Microsystems.

Industry Background

     Today's businesses face rapidly changing environments characterized by
increasing competition, economic globalization and technological change. To
compete effectively, businesses must improve business processes, reduce
operating costs, extend barriers to entry and shorten product development
cycles. The emergence of the Internet as a business platform has accelerated
these trends and presented new opportunities in many industries for leading
companies to create a competitive advantage.

     Senior executives at these leading companies realize that a fundamental
source of competitive advantage is the depth, consistency and currency of
knowledge possessed by their employees, distributors, suppliers and customers.
Employees who know more about a company's business are generally able to
perform more effectively. Sales professionals and distributors who understand
the benefits of a company's services achieve better results. Customers who
learn the benefits of a product's features tend to be more loyal, less
expensive to support and more likely to purchase again. Driving knowledge to
the extended enterprise effectively reduces the time-to-market of new products
and services, improves sales channel productivity and reduces customer support
costs. The result is a demonstrable increase in operating efficiency and
profitability.

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     In an attempt to address today's competitive business challenges,
businesses are investing increasing amounts on learning and skills development.
Based on annual industry report by Training Magazine in 2001, businesses spend
nearly $56.8 billion annually on learning programs in the United States. As the
Internet and e-learning continue to demonstrate measurable results for
businesses, we believe investments will be dedicated to e-learning programs. To
date most investment in corporate learning has been in in-person,
instructor-led training programs. We have found that these traditional learning
methodologies are less effective than e-learning for certain types of business
purposes because they are:

     o    Difficult to deploy across an organization and its extended
          enterprise. Many businesses find it difficult to effectively deliver
          up-to-date content in a timely and consistent manner to large,
          geographically-dispersed groups. The traditional solution of
          scheduling corporate education programs at specific times in single
          locations results in logistical challenges and opportunity costs that
          often lower participation rates and limit a company's ability to
          extend knowledge to its extended enterprise.

     o    Difficult to customize and update. Instructor-led content is often
          prepared in advance to provide for the production and distribution of
          printed or videotaped materials, which are then updated at fixed
          intervals and delivered using an instructor-led, standardized
          curriculum of pre-scheduled meetings in set physical locations. As a
          result, print-based content cannot be updated and distributed to
          learners as rapidly as Web- based content, and instructor-led sessions
          using these materials may fail to incorporate the latest information
          on new products, strategies and processes for specific uses or
          customers.

     o    Difficult to personalize on a large scale. Instructor-led learning
          programs are typically designed to address the needs of large groups,
          which can impair the effectiveness of the individual learning
          experience. If a participant cannot have his or her individual
          question answered or cannot access supplemental tutoring after the
          course sessions have concluded, learning may not actually occur. The
          cost of assembling a large group in a central location is often
          justified because of the economics of presenting material to a mass
          audience. Actual learning, by contrast, occurs on an individual level.
          The mass approach rarely provides sufficient time for individuals to
          ask questions, much less to be tutored and critiqued.

     o    Unable to track and monitor learning effectiveness. Tracking student
          performance in traditional corporate classroom programs is avoided as
          it typically requires additional expenses for manual test
          administration, grading and recording.

     o    Costly and slow. Traditional learning initiatives require prolonged
          absences of valuable employees due to travel to course locations and
          attendance at scheduled course meetings, resulting in significant
          opportunity costs due to lost work. In addition, course materials must
          be printed and delivered using traditional means. As a result,
          businesses are unable to continuously educate their extended
          enterprises on new products, strategies and processes in a timely
          manner. With e-learning, participants can learn at anytime from a
          computer, without having to schedule classrooms or meetings, and
          without having to travel to a classroom facility.

     In response to these limitations, many businesses are seeking more
effective learning solutions. The Internet is transforming the corporate
learning marketplace by offering innovative ways to design and deliver
knowledge. According to International Data Corporation, the corporate
e-learning market is projected to grow from $2.3 billion in 2000 to more than
$18 billion in 2005. By leveraging the Internet, businesses can instantly and
simultaneously deploy content to a broad, global audience. This content can be
easily and continuously accessed, modified and refreshed and learning programs
can be enhanced as participants use e-mail and chat rooms to establish
interactive relationships with instructors and peers. Web-based technologies
can also offer real-time tracking of participant performance.

     Internal training organizations and external corporate learning providers
are geared to instructor-led training and their set of skills is limited to
classroom scheduling and instruction. To compete effectively in the e-learning
market, these organizations would need to develop a broad range of
competencies, including technology development, content creation, Web-hosting
and online community management. Companies are seeking outsourced and
integrated e-learning solutions as a means of more effectively educating their
extended enterprise.

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The DigitalThink Solution

     We provide custom e-learning business solutions that produce measurable
results for large enterprises, addressing the strategic imperative of knowledge
as a driver of business performance. Executives of leading companies use our
solutions to achieve business results that they can correlate to the learning.
DigitalThink e-learning solutions combine customized and catalog content with
tutors, a standards-based content delivery system, management and analysis
technologies, and content development and editing tools. Our learning solutions
are highly scalable, empowering companies to reach hundreds of thousands of
globally dispersed people instantly.

     The key components of our solutions include:

     Award-Winning Content. DigitalThink works with organizations to create
customized courseware and we develop courses of popular topics for our
award-winning off-the-shelf catalog. Our learning strategists and instructional
designers work with subject matter experts to build high quality courses that
leverage adult learning theory and e-learning best practices, to create a
learning experience and content that is consistently praised by learners,
corporate customers, and independent evaluators. We create courses using a
variety of different learning frameworks including problem-based,
scenario-based and discovery-based learning. DigitalThink's focus is on
creating learning that improves the knowledge, skills and performance of
individuals, which in turn accelerates business performance.

     Interoperability. The DigitalThink Enterprise Gateway is a standards-based
and secure protocol that facilitates seamless and reliable integration between
a DigitalThink e-learning solution and a company's enterprise business
applications, including enterprise resource planning (ERP), learning management
(LMS), human resource management (HRMS), e-commerce, and customer relationship
management (CRM) systems. Enterprise Gateway employs industry-standard
protocols (XML, SOAP) and best-of-breed security technologies.

     DigitalThink's commitment to interoperability and openness extends to
learning delivery as well. Our Shareable Content Object Reference Model or
SCORM-native learning delivery system enables companies to use DigitalThink to
deliver any standards-based content, whether developed by their own resources,
DigitalThink, or a third-party.

     World-Class Learning Environment. DigitalThink is focused on delivering
learning to globally dispersed organizations in a fast, effective and
convenient way--providing an entire enterprise with a single source for e-
learning. In addition to delivering e-learning content, and tracking student
progress at a detailed level, the DigitalThink learning delivery system creates
a highly engaging learning experience, with a comprehensive learning community
(discussion boards, tutor support, instant messaging), personalized learning
paths, dynamic content navigation and many other performance-enhancing
features. Unlike other systems that have added SCORM support as a surface
feature, DigitalThink's learning delivery system was designed from the ground
up to deliver SCORM- based content, making it the only SCORM-native delivery
system available in e-learning today. The native implementation gives
DigitalThink unique advantages in interoperability and scalability, and the
ability to enhance standards-based content authored by customers, partners or
other providers with the high-value learning environment capabilities available
in DigitalThink-authored content.

     Interactive Tutor Support. Our courses are interactive, self-paced and can
be accessed at any time. Most of our catalog courses and many of our custom
courses are supported by online tutors who respond to student queries and grade
submitted exercises, providing personalized feedback on their work. This
worldwide network of tutors adds a highly valued human element to the learning
experience. Our Platform enables us and our customers to accurately track
response times and ensure that our tutors are achieving their response time
targets.

     Delivery flexibility. Because DigitalThink recognizes that organizations
have diverse needs and require multiple delivery methods for e-learning, we
offer a variety of options:

     o    DigitalThink's hosted delivery solution provides 24x7 access to
          e-learning and administrative tools from any Internet-connected
          computer in the world. Our hosted solution gives customers the lowest
          total cost of ownership, very short implementation cycles, the highest
          availability in the industry and virtually unlimited scalability to
          reach wide audiences.

     o    DigitalThink's desktop delivery option is ideal for organizations with
          employee groups--or entire locations--that are not wired for the
          Internet.

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     o    DigitalThink's deployed delivery option is targeted at companies that
          need an e-learning solution that resides within their own corporate
          environment.

     All content developed for the DigitalThink platform can be available in
one or more of these delivery modalities.

     Learning Management. Our Platform provides all the tools necessary to
manage even the largest e-learning initiatives by enabling the instant launch
and coordination of global, enterprise-wide e-learning initiatives--all via a
standard Web browser. With the open catalog, standards-compliant content can be
integrated and managed through the e-learning platform. Like other parts of the
platform, learning management is easily configurable, allowing customization of
business rules and look and feel. Batch enrollment and registration
capabilities get an organization up and learning rapidly, and search
functionality helps administrators manage large e-learning catalogs.

     Enterprise Reporting and Analysis Tools. We offer Web-based tools that are
used by customers to track and monitor each participant's progress in order to
measure course completion and knowledge acquisition. Managers can assess the
performance of their employees and correlate this information with business
results to evaluate the effectiveness of any course. The DigitalThink platform
is industry-leading in the depth of usage and performance tracking, and
includes powerful analysis tools to allow our enterprise customers to
understand the usage and effectiveness of their e-learning programs and
correlate learning with business results.

     Powerful E-Business Capability. Our highly scalable, flexible e-learning
platform enables our customers and strategic resellers to develop
revenue-generating businesses around our e-learning solutions. We put many of
our customers into the "e-learning business" by giving them a platform to sell
content and services to their customers or resellers. Customers come to
DigitalThink to get into the e-learning business without installing any
hardware or software because our service can operate entirely on our web-based
platform. We implement these projects by delivering a combination of services
and technologies to help our customer create a custom-hosted enterprise portal,
tools for custom catalog creation, credit card authorization, and customized
business logic and reports to provide a complete solution.

Strategy

     Our objective is to be the leading provider of custom e-learning solutions
to large enterprises. Key elements of our strategy include:

     o    Enhance our custom e-learning solutions. We intend to continually add
          functionality and features to enhance our comprehensive e-learning
          solutions to meet our customers' evolving needs. For example, we plan
          to integrate our services more closely with the internal systems of
          our customers to facilitate our customers' ability to correlate
          learning data, such as course completion rates and student assessment
          scores, with organizational and performance metrics. Examples of these
          performance metrics include sales per employee, customer satisfaction
          and manager evaluations. We also plan to devote significant resources
          to expanding the breadth of our course offerings and improving the
          reporting and tracking features of our solutions. In addition, we will
          partner with existing best of breed technologies to offer our
          customers solutions that will meet their needs quickly and
          effectively.

     o    Develop long-term strategic relationships with our customers. We
          believe that e-learning solutions will become increasingly critical to
          a business' ability to compete successfully. As an existing provider
          of e-learning solutions, we become a strategic resource for our
          customers. We plan to extend our presence within our customers'
          enterprises by helping our customers understand the value and
          applicability of our solutions to a broad range of operational
          initiatives. In addition, we will continue to develop new e-learning
          solutions that are aligned with our customers' evolving business
          objectives.

     o    Expand our course offerings. We intend to continually introduce new
          courses and leverage our existing courses across multiple customers
          and industries. In many instances, we will modify content developed
          for existing customers in order to provide similar courses to
          customers in different industries. This approach allows us to generate
          additional revenue opportunities while leveraging previous course
          development efforts.

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     o    Leverage development alliances and reseller relationships. We plan to
          grow both our direct and indirect sales channels to better service our
          existing markets and penetrate new markets. Our technology platform
          can be easily adapted to a variety of learning uses and our partners
          are building content to be hosted and delivered by us on behalf of
          their customer.

Customers

     Our customers can use our custom e-learning solutions to compress the
learning cycle, increase knowledge throughout the extended enterprise, enhance
brand equity and customer service and reduce operational costs.

     As of March 31, 2002, we have sold courses to over 450 customers,
including many large corporations. Our customers use our custom e-learning
solutions to address strategic business needs in three broad areas: workforce
development, sales force effectiveness and customer acquisition & retention. A
workforce development customer uses our e-learning solutions to achieve a
particular strategic objective by teaching or reinforcing employee skills.
Sales executives use e-learning to improve the sales performance of their
internal or external sales channels by deploying skills and product education
quickly into the field. Customer retention customers use our products and
services to provide e-learning to their external customers as an attractive
additional service or as a source of goodwill or brand enhancement.

Content and Courses

     We currently offer our customers more than 700 self-paced courses from our
custom developed and e-learning catalog. Depending on topic area, each course
consists of one to several hours of student work, including lessons, quizzes,
interactive applets, simulations, and hands-on participant exercises which are
graded and commented upon by our tutors before being returned via email to
participants. All of our courses have been designed to take advantage of our
e-learning environment and leverage Internet technologies, such as e-mail and
discussion boards, in order to provide participants with an engaging learning
experience and extensive interaction with our tutors. In addition to
pre-developed courses, we develop customized content for our customers. These
customized courses incorporate the significant domain knowledge of our clients
and can be rapidly redesigned for other customers in the same industry. We
typically retain intellectual rights to our content and can reuse elements of
the courses for other customers.

Products and Technology

     Our e-learning environment consists of technologies that we have designed
and created to function as an integrated solution. By employing standard
Internet technologies and a hosted content delivery model, we are able to
provide our customers with a high quality, efficient means to educate their
extended enterprise.

     Content Delivery System

     We host the e-learning environments of our customers. By centralizing all
infrastructure and hosting requirements, our customers derive the following
significant benefits:

     o    customers do not need to install or manage any software;

     o    content can be updated and infrastructure technology can be improved
          continuously without impacting our clients and at a minimal cost to
          us;

     o    customers avoid the need to make significant investments in technology
          infrastructure such as servers, databases, technical staff or
          technical support; and

     o    participants can access course content at anytime, from anywhere,
          through the use of a standard modem and Web browser.

     Deployed Solution

     DigitalThink's deployed delivery option is targeted at companies that need
an e-learning solution that resides within their own corporate environment.
Companies host their own learning management system and then add our content
from either our catalog or custom courses we design for them, or both. This is
a new feature that we are offering and is not yet significant in terms of
revenue.

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 System Architecture

     Our e-learning architecture is designed to scale rapidly to provide large
student populations with tutor- supported e-learning content. In addition, we
have developed our content delivery system using standard Internet technologies
such as Java and HTML, facilitating the delivery of our content to our
customers' Web browsers. We utilize a single code base to deliver content. As a
result, any improvement made in our software for one customer automatically
benefits all other customers.

     Our content is stored in a database as structured "learning elements." We
have developed a templating system that automatically controls the graphical
presentation, or "look & feel", of a course, as well as course navigation. This
content storage and delivery approach allows us to personalize the content for
individuals in each course and minimizes content or formatting errors. In
addition, this structure enables the rapid customization of course content for
different customers. Our technology was not ported from a legacy application,
nor was it an adaptation of a previously existing learning delivery system.

     Course Enrollment Options

     Our customers can choose several different methods to allow participants
to access our courses. Enrollments can be managed by authorized personnel using
our corporate administration system. Alternatively, participants can
self-enroll using an intranet or Internet e-commerce option. Our system can
also be integrated with third-party enterprise software applications to allow
automated enrollments using a learning management or other data base
administration system.

     Tracking and Reporting System

     Each participant's learning activities are fully tracked in our database.
This comprehensive tracking ability allows a participant to start a course at
work, and continue at home or while traveling. Regardless of their location,
our system recognizes each participant, tracks their course progress and
records their performance. Using only a standard Web browser, managers can run
both standardized and custom reports on participant enrollments and progress,
gaining visibility into the learning status of their extended enterprise.

     Course Tutoring

     Our technology allows us to increase the efficiency and scalability of our
tutoring resources. The ability of tutors worldwide to interact with
participants through standard Internet communication methodologies
significantly increases the pool of tutor candidates we can recruit. In
addition, our database system allows multiple tutors to support the same course
as grading and exercise submissions can be accessed and responded to by any
tutor. Duplication of tutor work is prevented by our message queuing
technology.

     Collaboration Tools

     We host and make available to our customers proprietary and third-party
collaboration tools, which currently include instant messaging software, e-mail
solutions, chat rooms, discussion boards and real-time communications. These
collaboration tools are designed to create a learning environment that fosters
collaboration between peers and a high degree of interaction between
participants and tutors.

     Testing and Assessment

     Our system offers comprehensive testing and assessment capabilities, which
can be customized for specific learning solutions and customers. Assessment and
testing capabilities include multiple choice, multiple answer quizzes with
randomized question sets, tutor-scored and commented exercises, and interactive
testing applets and simulations.

     Full Integration with Corporate Infrastructures

     Our custom e-learning solutions can be fully integrated with our
customers' corporate information technology systems, including their Web sites
and intranets. As a result, course participants do not necessarily realize that
they are accessing content hosted from our servers. Our integration layer
provides adapters for learning management

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systems. We design our course content to be compatible with our customers'
security concerns and bandwidth limitations. As a result, it is highly unusual
for participants at our corporate clients to be unable to access our courses.

     Scalable Architecture

     Our system has been designed to scale rapidly and to consistently deliver
content to large numbers of participants. We use extensive load testing to
measure our system capacity and identify potential bottlenecks. Constant
improvements to our system architecture continue to increase system capacity
well beyond the current demands.

     High-Availability Systems

     Our systems have been designed to maximize availability, with redundancy
in the areas in which we believe failures are most likely to occur. We have
also implemented redundant network connections to the Internet, a load-
balanced redundant Web server and a highly-redundant storage array to safeguard
our information. In addition, locating our Web servers with Exodus, a Cable and
Wireless Service, and a leading Web-hosting firm, provides us with backup
power, constant monitoring, physical security, seismic resistance, fire
suppression and climate control systems. We are vulnerable to certain types of
failures, including catastrophic failure of the Exodus site due to natural
disasters or other events and simultaneous failure of our primary and redundant
systems. We are currently building a redundant site in Sacramento, California,
to mitigate any risk with regards to a catastrophic failure at Exodus. The
redundant site will be completed by the last half of fiscal 2003.

Sales and Marketing

     We sell our custom e-learning solutions primarily through our own direct
sales organization. We also sell indirectly through channel partners and
strategic alliance partners. Our direct sales organization focuses on
developing long-term relationships with large corporate customers. Our channel
partners, including Sun Educational Services, IBM, Red Hat and others, leverage
their unique distribution models to reach differentiated industries,
international markets and customer segments. We also have alliance
relationships with EDS, KPMG and others, who work with us to jointly sell our
custom e-learning solutions and resell our courses as components of their
e-learning offerings targeted at specific industries.

Competition

     The e-learning market is evolving quickly and is subject to rapid
technological change, shifts in customer demands and evolving learning
methodologies. To succeed, we must continue to expand our course offerings,
upgrade our technology and distinguish our solution. As competition continues
to intensify, we expect the e-learning market to undergo significant price
competition and consolidation. We expect to face increasing price pressures
from competitors as our potential customers demand more value for their
education budgets and as our competitors become mature.

     The e-learning market is highly fragmented with no single competitor
accounting for a dominant market share, and competition is intense. In addition
to competing with other suppliers of technology-based learning solutions, we
also compete with third-party suppliers of instructor-led education and
learning and internal education departments.

     Our competitors vary in size and in the scope and breadth of the courses
and services they offer. Several of our competitors have longer operating
histories and significantly greater financial, technical and marketing
resources. In addition, larger companies may enter the e-learning market
through the acquisition of our competitors. We anticipate increased competition
as additional entrants join the e-learning market.

Intellectual Property and Proprietary Rights

     Our success depends, in part, on our ability to protect our proprietary
rights and technology. We rely on a combination of copyrights, trademarks,
service marks, trade secret laws and employee and third-party nondisclosure
agreements to protect our proprietary rights. We have registered the trademark
DigitalThink and we own the domain name digitalthink.com. It is possible,
however, that third parties could acquire trademarks or domain names that are
substantially similar or conceptually similar to our trademarks or domain
names. This could decrease the value

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of our trademarks or domain names and could hurt our business. The regulation
of domain names in the United States and in foreign countries is subject to
change. The relationship between regulations governing domain names and laws
protecting trademarks and similar proprietary rights is unclear.

     We obtain the content for many of our courses from our customers and often
receive the right to resell this content to other customers. It is possible
that the use of this content may subject us to the intellectual property claims
of third parties. Although we generally seek indemnification from our customers
to protect us from these types of claims, we may not be fully protected from
extensive damage claims or claims for injunctive relief. In addition, our
customers may assert that some of the courses we develop for our general
catalog or under contract with other customers may improperly use their
proprietary content. Our involvement in any litigation to resolve intellectual
property ownership matters would require us to incur substantial costs and
divert management's attention and resources. In addition, we cannot predict the
effect of a failure to prevail in any litigation of this kind.

Employees

     As of March 31, 2002, we employed 464 persons. Of these employees, 218
were employed in course development, 114 in sales and marketing, 64 in research
and development, 29 in Web delivery and customer support and 39 in general and
administration. Each of our employees was granted options to purchase shares of
our common stock upon joining us.

     Our success will depend in large part upon our ability to attract and
retain employees. We face competition in this regard from other companies, but
we believe that we maintain good relations with our employees. None of our
employees are members of organized labor groups.

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                                 Risk Factors

     You should consider the risks described below before making an investment
decision. We believe that the risks and uncertainties described below are the
principal material risks facing our company as of the date of this Form 10-K. In
the future, we may become subject to additional risks that are not currently
known to us. Our business, financial condition or results of operations could be
materially adversely affected by any of the following risks. The trading price
of our common stock could decline due to any of the following risks.

Our limited operating history and the new and emerging e-learning market makes
it difficult to evaluate our business and future prospects.

     We commenced operations in April 1996 and did not begin to generate
significant revenues until fiscal 1999. In fiscal 2002, we had revenues of $43.4
million. We are still in the early stages of our development, which, when
combined with the new and emerging e-learning market, and general economic
factors affecting the technology sector, make it difficult to evaluate our
business or our prospects. Because of our limited operating history, we have a
limited and unproven ability to predict the trends in the e-learning market and
in our business. The uncertainty of our future performance, in particular, and
the uncertainty regarding the acceptance of e-learning, in general, increases
the risk that we will be unable to build a sustainable business and that our
stockholder value will decline.

We have a significant business presence in India, and risks associated with
doing business there could disrupt or harm our business.

     In order to reduce costs associated with course development, we have
established a significant presence in India through two recent acquisitions. As
of March 31, 2002, we had approximately 180 employees in India. Difficulties
that we could encounter with our Indian operation or with other international
operations that we may establish in the future include the following:

     o    difficulties in staffing and managing international operations;

     o    multiple, conflicting and changing governmental laws and regulations;

     o    difficulties in collecting accounts receivable;

     o    fluctuations in currency exchange rates;

     o    political and economic instability, including the potential for more
          terrorist acts;

     o    developments between the nations of India and Pakistan regarding the
          threat of war;

     o    adverse tax consequences;

     o    difficulties in protecting our intellectual property rights;

     o    increases in tariffs, duties, price controls or other restrictions on
          foreign currencies; and

     o    trade barriers imposed by foreign countries.

     In particular, in recent months, the level of hostilities between India and
Pakistan has significantly increased as both nations have increased their troop
strength at the border. In addition, both India and Pakistan are known to
possess nuclear weapons. In the event war between India and Pakistan were to
occur, our operations in India could be materially and adversely effected.
Recently, in light of the continuing escalation of tensions between India and
Pakistan, the United States government has authorized the departure of
non-essential personnel from India and the State Department has issued an
advisory against travel to India.

     If we encounter these problems in connection with our operations in India,
our revenues could fall below expectations, which would harm our business and
operating results. In this event, our stock price could decline.

Our international presence could subject us to new risks because of currency and
political changes, legal and cultural differences or economic instability.

     Our strategy includes international sales. Our current plans include
continued sales overseas, which began during fiscal 2001, as well as the
creation of a partner-based support infrastructure for customers around the
world. In addition to our operations in India, we could be affected by political
and monetary changes, including instability in the Middle East and Central Asia,
European unification and the introduction of the Euro.

                                       9
<PAGE>

     This international presence will require significant management attention
and financial resources and could harm our financial performance by increasing
our costs. We have very limited experience in marketing, selling and
distributing courses internationally. We could become subject to additional
risks as we grow internationally, including:

     o    difficulties in staffing and managing international operations;

     o    inability to develop content localized for international
          jurisdictions;

     o    protectionist laws and business practices that favor local
          competition;

     o    multiple, conflicting and changing governmental laws and regulations;

     o    slower adoption of e-learning solutions;

     o    different learning styles;

     o    longer sales and payment cycles;

     o    difficulties in collecting accounts receivable;

     o    fluctuations in currency exchange rates;

     o    political and economic instability;

     o    adverse tax consequences;

     o    little or no protection of our intellectual property rights in certain
          foreign countries;

     o    increases in tariffs, duties, price controls or other restrictions on
          foreign currencies; and

     o    trade barriers imposed by foreign countries.

     If we encounter these problems in connection with our current and future
sales growth internationally, our revenues could fall below expectations, which
would harm our business and operating results. In this event, our stock price
could decline.

We have a history of losses and a large accumulated deficit of $157.2 million
at March 31, 2002. We expect future losses over the next three quarters and we
may not achieve profitability within the timeframes public stockholders
anticipate.

     We have experienced losses in each quarter since our inception and expect
that our quarterly losses will continue at least through the next three
quarters. Our accumulated deficit as of March 31, 2002 was $157.2 million. We
have never achieved a profitable quarter and we expect to continue to incur
quarterly losses as we expand our operations, invest in our technology, fund
the development of new content and support our growth. In addition, we plan to
continue to invest to develop and acquire new course offerings with new areas
of expertise, which will increase operating expenses.

     We will need to increase our quarterly revenues to achieve profitability.
Even if we do achieve profitability, we may not be able to sustain or increase
profitability on a quarterly or annual basis in the future.

Demand for our products and services has been and may continue to be effected
by adverse economic conditions affecting the information technology industry.

     The information technology industry has been in a period of economic
decline during 2001 and 2002. This decline may be attributable in part to
general weakness in the overall economy, which has led to reduced levels of
investment by businesses in information technology products and systems. When
businesses are reducing investment in technologies or slowing the rate of
adoption of new technologies and systems, they have a reduced need for training
of their employees, customers and others in the use of these systems. In
addition, many of our current and potential customers have experienced adverse
changes in their financial performance, whether as a result of the general
weakening of the economy or other factors. Some companies may delay training
initiatives or, if these companies continue to experience disappointing
operating results, whether as a result of adverse economic conditions,
competitive issues or other factors, they may decrease or forego education and
training expenditures

                                       10
<PAGE>

overall before limiting other expenditures. As a result of these factors, and
possibly also due to aftermath of the September 11 terrorist attacks, our new
contract signings in the second half of fiscal 2002 were materially and
adversely affected. Therefore, continuation of the economic downturn in the
United States as well as continuation of the current adverse economic
conditions in the information technology industry would harm our results of
operations.

We may not be able to secure necessary funding in the future; additional
funding may result in dilution to our stockholders

     We require substantial working capital to fund our business. We have had
significant operating losses and negative cash flow from operations since
inception and expect this to continue for the foreseeable future. We expect to
use our available cash resources and credit facility primarily to fund sales
and marketing activities, research and development, and continued operations,
and possibly make future acquisitions. We believe that our existing capital
resources will be sufficient to meet our capital requirements for the next
twelve months. However, if our capital requirements increase materially from
those currently planned or if revenues fall below our expectations, we may
require additional financing sooner than anticipated. If additional funds are
raised through the issuance of equity securities, the percentage ownership of
our stockholders will be reduced, stockholders may experience dilution, or such
equity securities may have rights, preferences or privileges senior to those of
the holders of our common stock. Additional financing may not be available when
needed on terms favorable to us or at all. If adequate funds are not available
or are not available on acceptable terms, we may be unable to develop or
enhance our products and services, take advantage of future opportunities or
respond to competitive pressures.

Our quarterly operating results are subject to fluctuations, which could cause
our stock price to decline.

     Our revenue and operating results are volatile and difficult to predict
and may be susceptible to declines in future periods. Our quarterly results of
operations may fluctuate significantly in the future due to shortfalls in
revenues or orders or the timing of orders. We therefore believe that
quarter-to-quarter comparisons of our operating results may not be a good
indication of our future performance. In the event of a revenue or order
shortfall or unanticipated expenses in some future quarter or quarters, our
operating results may be below the expectations of public market analysts or
investors. In such an event, the price of our common stock may decline
significantly. Our operating expenses are largely fixed in the short term and
based, to a significant degree, on our estimates of future revenue. We will
likely be unable to, or may elect not to, reduce spending quickly enough to
offset any unexpected revenue shortfall. Therefore, any significant shortfall
in revenue in relation to our expectations would cause our quarterly results
for a particular period to decline.

In recognizing revenue we depend on the timely achievement of various
milestones, and our inability to recognize revenue in accordance with our
expectations will harm our operating results.

     In accordance with our revenue recognition policy, our ability to record
revenues depends upon several factors. These factors include acceptance by our
customers of new courses and the pace of participant registrations in courses
once they are completed and made available for access from our Web site. All of
our customer contracts provide that at least a portion of our revenues depend
on either course completion or participant registration, or both. Revenues from
custom course development accounted for approximately 53% of our total revenues
for the year ended March 31, 2002. Our ability to recognize revenues from
custom-tailored courses depends upon our customers providing us with subject
matter experts and content to be incorporated into the courses as well as our
completion of production and obtaining customer acceptance at each stage of
development. Accordingly, if customers do not provide us with the subject
matter experts or content in a timely manner, we will not be able to recognize
the revenues associated with that project, which would harm our operating
results.

     In addition, if the expected number of participants do not sign up for a
course, our ability to recognize revenues will be delayed, which could also
harm our operating results in any quarter. Participant registration depends in
large part on the promotional activities of our customers. If customers fail to
take necessary measures to require employee enrollment in courses or if they
fail to promote the course effectively to persons outside their organization,
our ability to recognize revenues, and therefore our operating results, could
be harmed.

                                       11
<PAGE>

We are likely to be dependent upon a small group of major customers for a
significant portion of our revenues, and changes in sales to these customers
could harm our performance.

     We expect that we will continue to depend upon a small number of customers
for a significant portion of our revenues. As a result, our operating results
could suffer if we lost any of these customers or if these customers slowed or
cancelled purchases or delayed payment in any future fiscal period. For
example, in fiscal 2002, our largest customer, EDS, accounted for 8.8% and
another customer accounted for 15.5% of our total revenues of $43.4 million, or
25.9% and 12.6%, respectively, when excluding the forgiveness of a $10 million
penalty associated with the restructuring of an agreement with EDS. We expect
that EDS and other major customers will continue to account for a significant
portion of our revenues during future fiscal periods. Accordingly, changes in
these customers' businesses and in their views regarding the value of
e-learning in general and our products and services in particular could harm
our financial performance.

The length and variability of our sales cycle may make our operating results
unpredictable and volatile.

     The period between our initial contact with a potential customer and the
first purchase of our solution by that customer typically ranges from three to
nine months. In some cases the cycle has extended for close to two years.
Because we rely on large sales for a substantial portion of our revenues, these
long sales cycles can adversely effect our financial performance in any
quarter. Factors which may contribute to the variability and length of our
sales cycle include the time periods required for:

     o    our education of potential customers about the benefits of our
          e-learning solutions;

     o    our potential customers' assessment of the value of online solutions
          compared to traditional educational solutions;

     o    our potential customers' evaluation of competitive online solutions;
          and

     o    our potential customers' internal budget and approval processes.

     Our lengthy sales cycle limits our ability to forecast the timing and size
of specific sales. This, in turn, makes it difficult to predict quarterly
financial performance.

Our growth depends on hiring and retaining qualified personnel in a highly
competitive employment market.

     The growth of our business and revenues will depend in large part upon our
ability to attract and retain sufficient numbers of highly skilled employees,
particularly database engineers, course content developers, web designers and
technical and sales personnel. We primarily rely on individual third parties to
provide the majority of our tutoring and our ability to support our courses
depends on the availability and competency of these third-party tutors.
Education and Internet related industries create high demand for qualified
personnel and candidates experienced in both areas are limited. Our failure to
attract and retain sufficient skilled personnel may limit the rate at which we
can grow, which will harm our business and financial performance.

The growth of our business requires wide acceptance of e-learning solutions.

     The market for e-learning solutions is new and rapidly evolving. A number
of factors could impact the acceptance of our e-learning solutions, including:

     o    historic reliance on traditional education methods;

     o    limited allocation of our customers' and prospective customers'
          education budgets to e-learning; and

     o    ineffective use of online learning solutions.

     Our e-learning solutions are new, largely untested and less familiar to
prospective customers than more established education methods. If the market
for e-learning fails to develop or develops more slowly than we expect, we will
not achieve our growth and revenue targets and our stock price will likely
decline.

                                       12
<PAGE>

We may fail to integrate adequately acquired products, third-party technologies
and businesses.

     We regularly evaluate acquisition opportunities and have made, and are
likely to make in the future, acquisitions that would provide additional
product or service offerings, additional industry expertise or an expanded
geographic presence. For example in August 2001 we acquired LearningByte
International, a provider of custom e-learning courseware. In November 2001, we
acquired TCT Technical Training Pvt. Ltd. ("TCT"), of Kolkata, India, a content
developer of custom courseware. We may be unable to locate attractive
opportunities to obtain access to technologies and products, or acquire any
companies that we identify on attractive terms. Future acquisitions of
companies, products or technologies could result in potentially dilutive
issuances of equity securities, the incurrence of debt and contingent
liabilities and amortization expenses related to intangible assets, which could
materially adversely affect our results of operations. Product and technology
acquisitions or strategic partnerships entail numerous risks, including
difficulties in the assimilation of acquired operations, technologies and
products, diversion of management's attention to other business concerns, risks
of entering markets in which we have no or limited prior experience and the
potential loss of key employees of acquired businesses. We may be unable to
integrate successfully any operations, personnel or products that have been
acquired or that might be acquired in the future. Further, the revenues from
the acquired businesses may not be sufficient to support the costs associated
with those businesses without adversely affecting our operating margin in the
future. Any failure to successfully complete the integration in a timely
fashion or to generate sufficient revenues from the acquired businesses could
have a material adverse effect on our business and results of operations.

We may not have adequate resources to compete effectively, acquire and retain
customers and attain future growth in the highly competitive e-learning market.

     The e-learning market is evolving quickly and is subject to rapid
technological change, shifts in customer demands and evolving learning
methodologies. In recent months e-learning has received more attention and
numerous new companies have entered the market. As a result, customers and
potential customers have more choices. This challenges us to distinguish our
offerings. If we fail to adapt to changes and the increased competition in our
industry, we may lose existing customers or fail to gain new customers. No
single competitor accounts for a dominant market share, yet competition is
intense. We compete primarily with:

     o third-party suppliers of instructor-led education and learning;

     o internal education departments; and

     o other suppliers of technology-based learning solutions.

     Due to the high market fragmentation, we do not often compete head-to-head
with any particular company. On occasion, our customers may evaluate our
solution by comparison with solutions offered by other e-learning companies.
These companies may include click2learn.com, Docent, IBM, NETg, Saba,
Skillsoft, SmartForce and other regional web development organizations. We may
not provide solutions that compare favorably with traditional or new
instructor-led techniques or other technology-based learning methodologies. Our
competitors vary in size and in the scope and breadth of the courses and
services they offer. Several of our competitors have longer operating histories
and significantly greater financial, technical and marketing resources. Larger
companies may enter the e-learning market through the acquisition of our
competitors. We anticipate that the lack of significant entry barriers to the
e-learning market will allow other competitors to enter the market, increasing
competition.

     To succeed, we must continue to expand our course offerings, upgrade our
technology and distinguish our solution. We may not be able to do so
successfully. Any failure by us to anticipate or respond adequately to changes
in technology and customer preferences, or any significant delays in course
development or implementation, could impact our ability to capture market
share. As competition continues to intensify, we expect the e-learning market
to undergo significant price competition. We also expect to face increasing
price pressures from customers as they demand more value for their learning
related expenditures. Increased competition, or our inability to compete
successfully against current and future competitors, could reduce operating
margins, loss of market share and thought leadership resulting in a diminution
of our brand.

                                       13
<PAGE>

We rely on cooperation from our customers and third parties to develop and
deliver courses and our business will suffer if such cooperation occurs in an
untimely or inefficient manner.

     To be competitive, we must develop and introduce on a timely basis new
course offerings, which meet the needs of companies seeking to use our
e-learning solutions. The quality of our learning solutions depends in large
part on our ability to frequently update our courses and develop new content as
the underlying subject matter changes. We create courses by incorporating
subject matter expertise provided by our customers and third party content
developers into an e-learning delivery platform. The quality of our courses
depends on receiving content and cooperation from our customers, subject matter
experts provided by our customers, and third-party content developers. If we do
not receive materials from these sources in a timely manner, we may not be able
to develop or deliver specialized courses to our customers in the expected time
frame. Even if we do receive necessary materials from third parties, our
employees and consultants must complete their work in a timely manner or we
will not meet customer expectations. In the past, we have experienced delays in
obtaining access to our customers' experts, which has contributed to a longer
development cycle and inefficient allocation of our resources. Any prolonged
delays, even when caused by our customers, can result in failure to satisfy a
customer's demands and damage our reputation.

Our plans to expand the scope of our courses to fields other than information
technology depends on our ability to develop relationships with experts, and if
we are unable to attract the right experts, we may not be successful in
entering new fields.

     Our strategy involves broadening the fields presently covered by our
courses. In particular, to date we have been primarily focused on courses in
the information technology area. We are currently planning to develop and
introduce new course offerings in soft skills, financial services and other
fields. These new course offerings may encompass areas in which we have little
or no experience or expertise. Therefore, our ability to expand our courses
into these areas will depend in part on our ability to negotiate and execute
content development relationships with recognized experts or leading
corporations in the new fields. If we cannot locate these experts, we may fail
to develop the courses that our current and future customers will demand. The
failure to expand our course offerings to new fields could constrain our
revenue growth and harm our future prospects.

To remain competitive, we must keep pace with rapid technological changes in
our industry.

     Rapidly changing technologies, frequent new service introductions, short
development cycles and evolving standards characterize the e-learning market.
We must adapt to rapidly changing technologies by maintaining and improving the
performance features and reliability of our courses. We may experience
technical difficulties that could delay or prevent the successful development,
introduction or marketing of new courses and related services. For instance,
adding capabilities to deliver video over the Internet to our courses may be
desired by some customers, but may nevertheless pose a serious technical
challenge and could have a negative impact on our ability to develop and
deliver courses on a profitable basis. In addition, any new enhancements to our
courses must meet the requirements of our current and prospective customers and
participants. We could incur substantial costs to modify our services or
infrastructure to adapt to rapid technological change.

If we release updated functionality or new products containing defects, we may
need to reconfigure and re-release and our business and reputation would be
harmed

     Products as complex as ours often contain unknown and undetected errors or
performance problems. Many serious defects are frequently found during the
period immediately following introduction and initial deployment of new
products or enhancements to existing products. Although we attempt to resolve
all errors that we believe would be considered serious by our customers before
release to them, our products are not error-free. These errors or performance
problems could result in lost revenues or delays in customer acceptance and
would be detrimental to our business and reputation. As is typical in the
industry, with each release we have discovered errors in our products after
introduction. We will not be able to detect and correct all errors before
releasing our products commercially and these undetected errors could be
significant. We cannot assure that these undetected errors or performance
problems in our existing or future products will not be discovered in the
future or that known errors considered minor by us will not be considered
serious by our customers, resulting in a decrease in our revenues.

                                       14
<PAGE>

We could inhibit increases in our revenues if we do not develop indirect sales
channels.

     To date, more than 90% of our sales have been made through direct sales
efforts. We believe that we will need to diversify our sales efforts to be
successful. If we do not develop indirect sales channels, we may miss sales
opportunities. We are currently investing in personnel and marketing activities
to develop indirect sales channels, particularly through our relationships with
EDS, KPMG and other system integrators and consulting firms who provide
learning as an additional service to their clients.

     Although we are currently investing to develop these indirect sales
channels, we may not succeed in establishing a channel that can effectively
market our e-learning solutions on a profitable basis. Our direct sales force
may compete with these resellers, and we may not be able to manage conflicts
across our direct and indirect sales channels. Our focus on increasing sales
through our indirect channel may divert management resources and attention from
direct sales. Conflicts across sales channels could cause us to encounter
pricing pressures and lose revenue opportunities, which could harm our business
and cause our operating results to decline.

The expected growth in our business requires continuous improvement in the
capacity of our technology infrastructure and a failure to coordinate such
improvements with our growth could lead to customer dissatisfaction and revenue
losses.

     In order to address the expected growth in our business, we must continue
to improve the capacity of our technology infrastructure. Our success requires
the continuing and uninterrupted performance of our internal computer network
and Internet course servers. Any system failure that causes interruptions or
delays in our ability to make our courses accessible to customers could reduce
customer satisfaction. If sustained or repeated, a system failure could reduce
the attractiveness of our courses and services, resulting in significant
revenue losses. We are particularly vulnerable to network failures during
periods of rapid growth when our roster of courses and participants can outpace
our network capacity. The continued viability of our business requires us to
support multiple participants concurrently and deliver fast response times with
minimal network delays. We continue to add system capacity, but we may not
adequately address network capacity, especially during periods of rapid growth.
Any failure to meet these capacity requirements could lead to additional
expenditures, lost business opportunities and damage to our reputation and
competitive position.

Any failure of, or capacity constraints in, the systems of third parties on
which we rely could adversely affect our business.

     Our success is highly dependent on the consistent performance of our
Internet and communications infrastructure. Our communications hardware and
some of our other computer hardware operations are located at the facilities of
Exodus, in Santa Clara, California. Unexpected events such as natural
disasters, power losses and vandalism could damage our systems.
Telecommunications failures, computer viruses, electronic break-ins,
earthquakes, fires, floods, other natural disasters or other similar disruptive
problems could adversely affect the operation of our systems. Despite
precautions we have taken, unanticipated problems affecting our systems in the
future could cause interruptions or delays in the delivery of our courses.

     Our telecommunications vendor and Exodus together provide us with our
Internet connection. Their failure to provide sufficient and timely data
communications capacity and network infrastructure could cause service
interruptions or slower response times, resulting in reduced customer demand
for our courses and services. Our insurance policies may not adequately
compensate us for any losses that may occur due to any damages or interruptions
in our systems. We could be required to make capital expenditures in the event
of damage. Any system failures could adversely affect customer usage in any
future quarters, which could adversely affect our revenues and operating
results and harm our reputation with corporate customers, subscribers and
commerce partners.

     We do not currently have fully redundant systems or a formal disaster
recovery plan. Our Web site must accommodate a high volume of traffic and
deliver courses and other information in a timely manner. If our Web site fails
for any reason or if we experience periods of unscheduled downtimes, even for a
short period of time, our business and reputation would be materially harmed.
We cannot accurately project the rate or timing of any increases in traffic to
our Web site and the failure to expand and upgrade the Web site or any system
error, failure or extended downtime could materially harm our business,
reputation, financial condition or results of operations.

                                       15
<PAGE>

We have recently contracted with a third party to provide fully redundant
systems to our live site outside the San Francisco Bay area. We are in the
process of developing the redundant site, expected to be operational in the
last half of fiscal 2003.

We may become subject to government regulation and legal uncertainties that
could reduce demand for our products and services or increase the cost of doing
business, thereby adversely affecting our financial results

     We are not currently subject to direct regulation by any domestic or
foreign governmental agency, other than regulations applicable to businesses
generally, export control laws and laws or regulations directly applicable to
Internet commerce. However, due to the increasing popularity and use of the
Internet, it is possible that a number of laws and regulations may become
applicable to us or may be adopted in the future with respect to the Internet
covering issues such as:

     o    user privacy;

     o    taxation;

     o    content;

     o    right to access personal data;

     o    copyrights;

     o    distribution; and

     o    characteristics and quality of services.

     The applicability of existing laws governing issues such as property
ownership, copyrights, and other intellectual property issues, encryption,
taxation, libel, export or import matters and personal privacy to the Internet
is uncertain. The vast majority of these laws were adopted prior to the broad
commercial use of the Internet and related technologies. As a result, they do
not contemplate or address the unique issues of the Internet and related
technologies. Changes to these laws, including some recently proposed changes,
could create uncertainty in the Internet marketplace. Such uncertainty could
reduce demand for our services or increase the cost of doing business due to
increased costs of litigation or increased service delivery costs.

Our inability to protect our intellectual property and proprietary rights and
our Internet domain name could lead to unauthorized use of our courses or
restrict our ability to market our courses.

     Our success depends on our ability to protect our proprietary rights and
technology. We rely on a combination of copyrights, trademarks, service marks,
trade secret laws and employee and third-party nondisclosure agreements to
protect our proprietary rights. Despite our efforts, unauthorized parties may
attempt to duplicate or copy our courses or our delivery technology or obtain
and use information that we regard as proprietary. The laws of many countries
do not protect our proprietary rights to the same extent as the laws of the
United States. Effective trademark, service mark, copyright and trade secret
protection may not be available in every country in which we provide our
courses and services.

     We have registered the trademark DigitalThink and we own the domain name
digitalthink.com. It is possible, however, that third parties could acquire
trademarks or domain names that are substantially similar or conceptually
similar to our trademarks or domain names. This could decrease the value of our
trademarks or domain names and could hurt our business. The regulation of
domain names in the United States and in foreign countries could change. The
relationship between regulations governing domain names and laws protecting
trademarks and similar proprietary rights is unclear. As a result, we may not
acquire or maintain exclusive rights to our domain names in the United States
or in other countries in which we conduct business.

     We may from time to time encounter disputes over rights and obligations
concerning intellectual property. We obtain the content for many of our courses
from our customers and it is possible that the use of this content may subject
us to the intellectual property claims of third parties. Although we generally
seek indemnification from our customers to protect us from these types of
claims, we may not be fully protected from extensive damage claims or claims
for injunctive relief. Our customers may assert that some of the courses we
develop for our general catalog

                                       16
<PAGE>

or under contract with other customers may improperly use their proprietary
content. Our involvement in any litigation to resolve intellectual property
ownership matters would require us to incur substantial costs and divert
management's attention and resources. We cannot predict the effect of a failure
to prevail in any litigation of this kind.

The price of our common stock has fluctuated significantly in the past and may
continue to do so.

     Our common stock price has fluctuated significantly since our initial
public offering in February 2000. While much of the fluctuation in our common
stock price may be due to our business and financial performance, we believe
that these fluctuations are also due to fluctuations in the stock market in
general based on factors not directly related to our performance, such as
general economic conditions or prevailing interest rates. As a result of these
fluctuations in the price of our common stock, it is difficult to predict what
the price of our common stock will be at any point in the future, and you may
not be able to sell your common stock at or above the price that you paid for
it.

We are subject to a pending legal proceeding and may become subject to
additional proceedings and adverse determinations in these proceedings could
harm our business.

     In October 2001, a complaint was filed in the United States District Court
for the Southern District of New York against the Company, certain of its
officers and directors, and certain underwriters of the Company's initial
public offering. The complaint was purportedly filed on behalf of a class or
certain persons who purchased the Company's common stock between February 24,
2000 and December 6, 2000. The complaint alleges violations by the Company and
its officers and directors of the Securities Act of 1933 in connection with
certain alleged compensation arrangements entered into by the underwriters in
connection with the offering. Substantially similar complaints have been filed
against over 300 other issuers that have had initial public offerings since
1998.

     We believe that this action is without merit and intend to vigorously
defend ourselves against it. Although we cannot presently determine the outcome
of this action, an adverse resolution of this matter could significantly
negatively impact our financial position and results of operations.

     We may be from time to time involved in various lawsuits and legal
proceedings, which arise in the ordinary course of business. An adverse
resolution of these matters could significantly negatively impact our financial
position and results of operations.

Provisions of our charter documents and Delaware law may have anti-takeover
effects that could prevent a change in our control, even if this would be
beneficial to stockholders.

     Provisions of our amended and restated certificate of incorporation,
bylaws and Delaware law could make it more difficult for a third party to
acquire us, even if doing so would be beneficial to our stockholders. These
provisions include:

     o    A Shareholder Rights Plan that grants existing stockholders additional
          rights in the event that a single holder acquires greater than 15% of
          our shares;

     o    a classified board of directors, in which our board is divided into
          three classes with three year terms with only one class elected at
          each annual meeting of stockholders, which means that a holder of a
          majority of our common stock will need two annual meetings of
          stockholders to gain control of the board;

     o    a provision which prohibits our stockholders from acting by written
          consent without a meeting;

     o    a provision which permits only the board of directors, the president
          or the chairman to call special meetings of stockholders; and

     o    a provision which requires advance notice of items of business to be
          brought before stockholders meetings.

     Amending any of the above provisions will require the vote of the holders
of 66 2/3% of our outstanding common stock.

Item 2. Properties

     We are currently under agreement to lease a total of approximately 140,000
square feet of office space in three locations in San Francisco, California and
one location in Alameda, California. Approximately 25,000 square feet

                                       17
<PAGE>

of this office space is currently under construction and we will begin paying
rent on that space in the first half of the 2003 fiscal year. In addition, we
have approximately 25,000 square feet of leased building space in Minneapolis,
Minnesota, which we have subleased, approximately 4,000 square feet of leased
building space in Troy, Michigan, approximately 9,000 square feet of building
space in San Diego California, approximately 3,000 square feet of leased office
space in Chicago, Illinois, approximately 8,000 square feet of leased building
space in the United Kingdom and a total of approximately 30,000 square feet of
leased building space in India in the cities of Kolkata, Bangalore and
Hyderabad. These leases expire at varying dates through 2016 and include
renewals at our option.

     In March 2002, the Company took a $6.8 million charge as part of the
restructuring charge, associated with leases related to excess or closed
facilities, which represents the excess of the remaining lease obligations over
estimated market value, net of anticipated sublease income. This action will
consolidate our sales, administrative and content and technology development
facilities from a total of approximately 244,000 square feet into approximately
100,000 square feet. Amounts accrued (net of anticipated sublease proceeds)
related to the consolidation of facilities will be paid over the respective
lease terms through 2016. As of March 31, 2002, seven sites have been vacated:
San Diego, California; Chislom, Minnesota; Detroit, Michigan; Alameda,
California; two facilities in San Francisco, California and our office in the
United Kingdom.

Item 3. Legal Proceedings

     In October 2001, a complaint was filed in the United States District Court
for the Southern District of New York against the Company, certain of its
officers and directors, and certain underwriters of the Company's initial
public offering. The complaint was purportedly filed on behalf of a class or
certain persons who purchased the Company's common stock between February 24,
2000 and December 6, 2000. The complaint alleges violations by the Company and
its officers and directors of the Securities Act of 1933 in connection with
certain alleged compensation arrangements entered into by the underwriters in
connection with the offering. Substantially similar complaints have been filed
against over 300 other issuers that have had initial public offerings since
1998. The Company intends to vigorously defend against this action. Although no
assurance can be given that this matter will be resolved in the Company's
favor, the Company believes that the resolution of this lawsuit will not have a
material adverse effect on its financial position, results of operations or
cash flows.

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

     We did not have any matters submitted to a vote of security holders during
the fourth quarter ended March 31, 2002.

                                       18
<PAGE>

                                   MANAGEMENT

Executive Officers of the Registrant

<TABLE>
<S>                            <C>    <C>
Jon C. Madonna .............   58     Chairman
Michael W. Pope ............   35     President and Chief Executive Officer
Robert J. Krolik ...........   33     Chief Financial Officer
Todd A. Clyde ..............   37     Vice President, Consulting and Alliances
Linda T. Drumright .........   41     Vice President, Engineering
Adam D. Levy ...............   40     Vice President, Human Resources and General Counsel
Umberto Milletti ...........   36     Vice President, Solutions Management
John M. Olmstead ...........   44     Vice President, Sales
</TABLE>

     Jon C. Madonna has served as our Chairman since April 2002. Prior to that
he was President from December 2000 to April 2002, Chief Executive Officer from
August 2001 to April 2002 and a member of our board of directors since January
2000. From December 1998 to December 2000, Mr. Madonna was President and Chief
Executive Officer of Carlson Wagonlit Travel, a leading business travel and
expense management company. From January 1997 to October 1998, Mr. Madonna was
Vice Chairman of The Travelers Group, a financial services and insurance
company, and Vice Chairman of Travelers Property and Casualty and Chief
Executive Officer of the Personal Lines business. Previously, Mr. Madonna was
with KPMG Peat Marwick for 28 years, where he held numerous senior leadership
positions, most recently as Chairman and CEO from 1990 to December 1996. Mr.
Madonna holds a B.S. from the University of San Francisco.

     Michael W. Pope has served as our President and Chief Executive Officer
since April 2002. Prior to that he was Vice President, Chief Financial Officer
from October 1999 to April 2002. From June 1992 to October 1999, Mr. Pope served
in various positions at Dionex Corporation, a manufacturer and marketer of
chromatography systems and related products for chemical analysis, most recently
as Chief Financial Officer from April 1994 to October 1999. Mr. Pope holds a
B.A. in Quantitative Economics from Stanford University and a M.B.A. from the
Haas School of Business at the University of California at Berkeley.

     Robert J. Krolik has served as Chief Financial Officer since April 2002.
From March 2001 to April 2002 he was Corporate Controller. Prior to that he was
Chief Financial Officer of Karna LLC from September 1999 to March 2001. From
April 1997 to September 1999 he was Director of Finance of SRI Consulting. From
July 1991 to March 1997 he held various positions at Arthur Andersen, most
recently as manager from July 1996 to March 1997. Mr. Krolik holds a B.B.A. in
Finance from the University of Texas at Austin. He is also a Certified Public
Accountant.

     Todd A. Clyde has served as Vice President, Consulting and Alliances since
January 2001. Prior to that he was Vice President, Learning Solutions from March
1998 to December 2000. From October 1986 to March 1998, Mr. Clyde held several
positions with Anderson Consulting, most recently Senior Manager. Mr. Clyde
holds a B.A. in Management Science from the University of California at San
Diego.

     Linda T. Drumright has served as Vice President, Engineering since October
1999. From August 1998 to October 1999, Ms. Drumright served Vice President,
Budgeting, Planning and Forecasting Application Product Development for Hyperion
Solutions Corporation, a developer of enterprise analytic application software.
Prior to that, from July 1997 to August 1998, she was the Senior Director of the
Tools and Applications Division at Arbor Software Corp., a database software
developer, and from June 1990 to July 1997, she held several technical
positions, including Senior Manager, at Sybase, Inc. Ms. Drumright holds a B.A.
in Computer Science from the University of California at Berkeley.

     Adam D. Levy has served as Vice President, Human Resources and General
Counsel since October 2001. Prior to that he was General Counsel from February
1999 to October 2001. From September 1994 through October 1999, Mr. Levy was an
Associate at the law firm of Wilson Sonsini Goodrich and Rosati. Mr. Levy holds
a B.A. in Economics from Haverford College and a J.D. from Georgetown
University.

     Umberto Milletti is one of our co-founders and has served in various
positions and as our Vice President, Solutions Management since April 1996. From
March 1993 to March 1996, Mr. Milletti was Director of Product Development at
Knowledge Revolution. Mr. Milletti holds a B.S. in Electrical Engineering from
Tufts University and a M.S. in Electrical Engineering and Computer Science from
the University of California at Berkeley.

                                       19
<PAGE>

     John M. Olmstead has served as Vice President, Sales since March 2001. From
April 1986 to March 2001 he was Vice President, Global Sales, Central Region for
UUNET & CompuServe Network Services. Prior to that he was National Account
Executive for Basic Computer/MicrOhio from March 1982 to March 1986. Mr.
Olmstead holds a Bachelor of Science and Systems from Taylor University.

                                    PART II

Item 5. Market for Registrant's Common Equity and Related Stock Matters

     Our Common Stock is traded on the Nasdaq National Market System under the
symbol DTHK. The following table sets forth, for the period indicated, the low
and high last reported prices per share for our Common Stock as reported by the
Nasdaq National Market.

<TABLE>
<CAPTION>
                                 Fiscal Year ended           Fiscal Year ended
                                   March 31, 2002             March 31, 2001
                                  Low          High          Low           High
                              ----------   -----------   -----------   -----------
<S>                           <C>          <C>           <C>           <C>
   First quarter ..........     $ 5.51       $ 10.10       $ 15.00       $ 42.13
   Second quarter .........     $ 6.81       $ 15.00       $ 28.38       $ 60.00
   Third quarter ..........     $ 6.32       $ 11.34       $  9.50       $ 44.25
   Fourth quarter .........     $ 2.20       $ 11.50       $  6.88       $ 18.38
</TABLE>

     As of May 23, 2002 there were approximately 7,000 holders of record of
DigitalThink Common Stock.

     No dividends have been paid on the Common Stock since inception and we
currently intend to retain all future earnings, if any, for use in our business
and do not anticipate paying cash dividends in the foreseeable future.

                      EQUITY COMPENSATION PLAN INFORMATION

     The following table gives information about our common stock that may be
issued upon the exercise of options, warrants and rights under all of our
existing equity compensation plans as of March 31, 2002, including the 1996 ISO
Stock Plan and 2000 Nonstatutory Stock Plan.

<TABLE>
<CAPTION>
                                                                                                           (c)
                                                                                                  Number of securities
                                                       (a)                        (b)            remaining available for
                                              Number of securities         Weighted average       future issuance under
                                                to be issued upon          exercise price of    equity compensation plans
                                             exercise of outstanding     outstanding options,     (excluding securities
Plan Category                             options, warrants and rights    warrants and rights    reflected in column(a)
-------------                             ----------------------------    -------------------    ----------------------
<S>                                                 <C>                          <C>                    <C>
Equity compensation plans approved by
security holders .......................            5,731,132                    $8.67                  2,217,466
Equity compensation plans not approved
by security holders ....................            1,244,480(1)                 $9.76                    225,520
                                                    ---------                                           ---------
Total ..................................            6,975,612                                           2,472,986
                                                    =========                                           =========
</TABLE>

------------
(1)  Issued pursuant to our 2000 Nonstatutory Stock Option Plan, which does not
     require the approval of and has not been approved by our shareholders. See
     description of the 2000 Nonstatutory Stock Option Plan below.

2000 Nonstatutory Stock Option Plan

     On December 14, 2000, the Board of Directors approved the 2000 Nonstatutory
Stock Option Plan (the "2000 Plan"). The 2000 Plan provides for the granting of
non-qualified stock options to employees and consultants at the fair market
value of our common stock as of the date of grant. Options granted under the
2000 Plan generally vest at a rate of 1/4th after twelve months and 1/48th per
month thereafter, however, the vesting schedule can change on a grant-by-grant
basis. The 2000 Plan provides that vested options may be exercised for 3 months
after termination of employment and for 12 months after termination of
employment as a result of death or disability. We may select alternative periods
of time for exercise upon termination of service. The 2000 Plan permits options
to be exercised with cash, check, certain other shares of our stock or
consideration received by us under a "cashless exercise" program. In the event
that we merge with or into another corporation, or sell substantially all of our
assets,

                                       20
<PAGE>

the 2000 Plan provides that each outstanding option will be assumed or
substituted for by the successor corporation. If such substitution or assumption
does not occur, each option will fully vest and become exercisable. There are
1,500,000 shares of common stock reserved under the Plan, and 255,520 shares
remaining for future issuance.

Item 6. Selected Financial Data

     The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and related notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Form 10-K.

<TABLE>
<CAPTION>
                                                                              Year Ended March 31,
                                                     ----------------------------------------------------------------------
                                                         1998          1999          2000           2001           2002
                                                     -----------   -----------   ------------   ------------   ------------
                                                                     (In thousands, except per share data)
<S>                                                  <C>           <C>           <C>            <C>            <C>
Revenues:
Delivered Learning fees (1) ......................    $    148      $  1,034      $   4,994      $  17,978      $  20,401
 Learning Solution services (1) ..................          52           813          5,821         20,680         22,955
                                                      --------      --------      ---------      ---------      ---------
   Total revenues ................................         200         1,847         10,815         38,658         43,356
                                                      --------      --------      ---------      ---------      ---------
Costs and expenses:
 Cost of Delivered Learning fees .................         363           855          2,409          5,509          6,619
 Cost of Learning Solution services ..............          39           361          3,337         11,211         11,934
 Content research and development ................         886         1,657          4,082          6,092          7,094
 Technology research and development .............         665         1,005          3,687         11,791         11,318
 Selling and marketing ...........................       1,400         2,970         11,596         23,105         21,208
 General and administrative ......................         419           622          2,342          6,046          7,355
 Depreciation ....................................          83           236            915          3,190          5,274
 Amortization of warrants ........................          --            --             --         13,131         11,003
 Stock-based compensation * ......................          --            58          3,663          5,432          1,888
 Amortization of goodwill and other
   intangibles ...................................          --            --             --          3,602          7,208
 Write-off of in-process research and
   development ...................................          --            --             --          7,118             --
 Impairment of goodwill ..........................          --            --             --             --         10,437
 Acquisition related charges .....................          --            --             --             --          5,792
 Restructuring charge ............................          --            --             --             --          9,778
                                                      --------      --------      ---------      ---------      ---------
   Total costs and expenses ......................       3,855         7,764         32,031         96,227        116,908
                                                      --------      --------      ---------      ---------      ---------
Loss from operations .............................      (3,655)       (5,917)       (21,216)       (57,569)       (73,552)
Penalty income recognized (1) ....................          --            --             --             --         10,000
Interest and other income ........................         186           166          1,055          5,344          1,911
                                                      --------      --------      ---------      ---------      ---------
Net loss .........................................    $ (3,469)     $ (5,751)     $ (20,161)     $ (52,225)     $ (61,641)
                                                      --------      --------      ---------      ---------      ---------
Accretion of redeemable convertible preferred
 stock ...........................................    $  1,669      $  3,518      $   7,593      $      --      $      --
                                                      --------      --------      ---------      ---------      ---------
Loss attributable to common shareholders .........    $ (5,138)     $ (9,269)     $ (27,754)     $ (52,225)     $ (61,641)
                                                      --------      --------      ---------      ---------      ---------
Basic and diluted loss per common share ..........    $  (1.27)    $   (2.26)     $   (3.87)     $   (1.51)     $   (1.61)
                                                      --------     ---------      ---------      ---------      ---------
Shares used in basic and diluted loss per
 common share ....................................       4,036         4,095          7,164         34,524         38,176
                                                      --------     ---------      ---------      ---------      ---------
Pro forma basic and diluted loss per common
 share(2) ........................................    $     --     $   (0.56)     $   (1.09)     $   (1.51)     $   (1.61)
                                                      ========     =========      =========      =========      =========
Shares used in pro forma basic and diluted net
 loss per common share (3) .......................          --        16,687         25,412         34,524         38,176
                                                      ========     =========      =========      =========      =========
</TABLE>

                                       21
<PAGE>

<TABLE>
<CAPTION>
                                                                                  March 31,
                                                   ------------------------------------------------------------------------
                                                       1998          1999           2000           2001            2002
                                                   -----------   ------------   ------------   ------------   -------------
<S>                                                <C>           <C>            <C>            <C>            <C>
Balance Sheet Data:
Cash and cash equivalents and marketable
 securities ....................................    $  2,862      $   9,455      $  96,698      $  64,038      $   31,110
Working capital ................................       2,615          8,353         92,316         54,640          12,137
Total assets ...................................       3,580         11,330        110,176        111,687         136,272
Redeemable convertible preferred stock .........       9,329         24,583             --             --              --
Accumulated deficit ............................      (6,305)       (15,573)       (43,327)       (95,552)       (157,193)
Total stockholders' equity (deficit) ...........    $ (6,298)     $ (15,505)     $  97,880      $  89,127      $  109,726
(*) Stock-based compensation: ..................
    Cost of Delivered Learning fees ............    $     --      $       3      $     143      $     121      $       28
    Cost of Learning Solution services .........          --              4            318            500             165
    Content research and development ...........          --              4             72             76              34
    Technology research and development ........          --             13            473          1,329             555
    Selling and marketing ......................          --             25          1,042          1,391             451
    General and administrative .................          --              9          1,615          2,015             655
                                                    --------      ---------      ---------      ---------      ----------
   Total .......................................    $     --      $      58      $   3,663      $   5,432      $    1,888
                                                    ========      =========      =========      =========      ==========
</TABLE>

------------
(1)  Reflects the forgiveness of the penalty associated with the restructuring
     of an agreement with EDS resulting in a reduction of revenues of $8.8
     million and $1.2 million for Delivery Learning fees and Learning Solution
     services, respectively, and $10 million of penalty income recognized in the
     fiscal year ended March 31, 2002.
(2)  Pro forma basic and diluted loss per common share is computed by dividing
     net loss by the weighted average number of shares outstanding for the
     period and the weighted average number of common shares resulting from the
     assumed conversion of outstanding shares of redeemable convertible
     preferred stock.
(3)  Shares used in pro forma basic and diluted net loss per common share
     assumes the conversion of preferred stock into an equivalent number of
     shares of common stock at time of issuance.

                                       22
<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

     The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements based upon
current expectations that involve risks and uncertainties. When used in this
document, the words "intend," "anticipate," "believe," "estimate," "plan," and
"expect" and similar expressions as they relate to us are included to identify
forward-looking statements. Our actual results and the timing of certain events
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under
"Risk Factors" in this document.

Overview

     We provide online learning courses and services, which we refer to as
custom e-learning solutions. We were founded in April 1996. In fiscal 1997, we
invested in both course content development and research and development as we
built our course offerings and technology, releasing our first course in the
later part of fiscal 1997. Since fiscal 1998, we have made significant
investments in content research and development, sales and marketing
activities, technology research and development, Web delivery, and customer
support. We have also experienced significant headcount increases during this
period. We grew from 40 employees on March 31, 1998 to 235 on March 31, 2000 to
441 on March 31, 2001 and to 464 employees as of March 31, 2002. Our revenues
increased from $200,000 in fiscal 1998, to $1.8 million in fiscal 1999, to
$10.8 million in fiscal 2000, to $38.7 million in fiscal 2001, and to $43.4
million in fiscal 2002.

Sources of Revenues and Revenue Recognition Policy

     We deliver our custom e-learning solutions through a catalog of existing
courses and through customized content tailored to the specific needs of our
customers. We refer to the individuals taking courses as participants.
Customized e-learning courses have accounted for, and we expect will continue
to account for, a significant portion of our total revenues.

     We generate revenues by delivering courses included in our course catalog
as well as delivering our customized e-learning courses to participants.
Customers that enter into Delivered Learning contracts provide participants
with access to our online courses and tutor support. Additionally, customers
are provided with access to management systems that allow them to track and
monitor participants' performance. Delivered Learning contracts typically allow
for a specific number of registered participants, based on a per participant
fee. These contracts also typically limit the period of time over which
participants can register for and complete an online course. We begin
recognizing these Delivered Learning fees when a participant registers for a
course. These fees are recognized ratably over the time period a participant
has access to the course, which is typically six months. Customers typically
pay for the courses in advance of the anticipated timeframe of course
registration and do not receive refunds for the unused portion of the available
registrations agreed to in the contract. In cases where we allow unlimited
access to our courses for a specific period of time, revenue is recognized
ratably over the term of the contract.

     We also derive revenues from contracts that require development of
tailored e-learning solutions. Typically, these Learning Solution service
revenues are generated from performance consulting services, implementation
services, course content development, instructional plan design, and release of
the course for access by participants and are recognized as earned in
accordance with Statement of Position (SOP) 81-1, Accounting for Performance of
Construction Production-Type Contracts, as development progresses on the
percentage of completion method. We measure the percentage of completion based
on the ratio of actual custom development or service costs incurred to date, to
total estimated costs to complete the custom course or service. Provisions for
estimated losses on incomplete contracts will be made on a contract by contract
basis and recognized in the period in which such losses become probable and can
be reasonably estimated. To date, there have been no such losses. Custom
contracts typically call for non-refundable payments due upon achievement of
certain milestones in the production of courses or in consulting services.

     Delivered Learning fees and Learning Solution service revenues are each
recognized only when collection is probable and there is evidence that we have
completed our obligation. If a contract includes both Delivered Learning fees
and Learning Solution services, the revenues are apportioned consistent with
the value associated with each and the term of the contract. In all cases,
these revenues are recognized in accordance with the policies detailed above.

     We have entered into revenue sharing agreements with some of our customers
and have certain reseller agreements. Under revenue sharing agreements, we
receive royalties or similar payments based on sales of courses

                                       23
<PAGE>

by the customer. Under reseller agreements, we provide the reseller with
courses at a discount from our list price. The reseller then assumes
responsibility for sales, marketing, and related activities, and we would not
expect to incur significant sales and marketing expenses in connection with
reseller sales.

     We have a limited operating history, which makes it difficult to forecast
future operating performance. Although our revenues have grown in recent years,
this growth rate may not be sustainable. In addition, we have never been
profitable and expect to incur significant net losses in the foreseeable future
as we increase our content research and development, technology research and
development, selling and marketing, and general and administrative expenses.

     We have experienced losses in each quarter since our inception and expect
that our quarterly losses will continue at least through the next three
quarters. We expect that these losses will result in large part from our
ongoing emphasis on course development and sales and marketing activities. As
of March 31, 2002, we had an accumulated deficit of $157.2 million. In
addition, we derive a significant portion of our revenues from a limited number
of customers and the percentage of our revenues from any one customer can be
material. For example, in fiscal 2002, our largest customer, EDS, accounted for
8.8% and another customer accounted for 15.5% of our total revenues of $43.4
million, or 25.9% and 12.6%, respectively, when excluding the forgiveness of a
$10 million penalty associated with the restructuring of an agreement with EDS.
We expect that EDS and other major customers will continue to account for a
significant portion of our revenues during future fiscal periods. Sales to our
largest customer comprised 10% of our revenues in fiscal 2001. Sales to our
largest customer comprised 32% of our revenues in fiscal 2000. In fiscal 1999,
no customer accounted for more than 10% of our revenues.

Stock-Based Compensation

     Deferred stock compensation represents the difference between the
estimated fair value of the common stock for accounting purposes and the option
exercise price at the date of grant. We recorded deferred stock compensation of
$390,000 in fiscal 1999, and $11.3 million in fiscal 2000, and $1.6 million in
fiscal 2001 in connection with an acquisition. These amounts are being
amortized over the four-year vesting period of the options using the multiple
option approach. Stock-based compensation expense of, $3.7 million was recorded
in fiscal 2000, $5.4 million was recorded in fiscal 2001, and $1.9 million was
recorded in fiscal 2002. See Note 8 of Notes To Consolidated Financial
Statements.

Net Operating Loss Carryforwards

     From inception through March 31, 2001, we incurred net losses for federal
and state income tax purposes and have not recognized any income tax provision
or benefit. As of March 31, 2002, we had $87.1 million of federal and $84.7
million of state net operating loss carryforwards. These net operating loss
carryforwards begin to expire in 2012 and 2005 for federal and state purposes,
respectively. Given our limited operating history and losses incurred to date,
coupled with difficulty in forecasting future results, a full valuation
allowance has been recorded. Furthermore, as a result of changes in our equity
ownership from our preferred stock offerings and initial public offering,
utilization of net operating losses and tax credits may be subject to
substantial annual limitations. This is due to the ownership change limitations
provided by the Internal Revenue Code and similar state provisions. The degree
of any such limitation cannot presently be estimated. To date, we have not
performed an evaluation to determine if such a limitation exists, and we may
not perform such an evaluation until and unless we are profitable in the
future. The annual limitation may result in the expiration of net operating
losses and tax credits before utilization. See Note 6 of Notes To Consolidated
Financial Statements.

Acquisition of Arista Knowledge Systems

     On July 6, 2000 DigitalThink, Inc. acquired Arista Knowledge Systems, Inc.
("Arista"), a company providing Internet-based learning management systems.
DigitalThink issued approximately 746,000 shares of DigitalThink common stock
in exchange for outstanding stock, options and warrants of Arista. The total
cost of the acquisition, including transaction costs, was approximately $26.3
million. The acquisition was accounted for as a purchase business combination;
accordingly the results of operations of Arista have been included with the
Company's results of operations since July 6, 2000. Of the purchase price, $7.1
million represented purchased in-process technology that was estimated to be
70% complete in its development at the time of acquisition. The in-process
technology represented a turnkey solution for education and knowledge
distribution systems that had not yet reached

                                       24
<PAGE>

technological feasibility and had no alternative future use. Accordingly, this
amount was immediately expensed in the consolidated statement of operations
upon consummation of the acquisition. The value of intangibles was based upon
management's estimates of after tax cash flow. The valuation gave consideration
to the following: (i) comprehensive due diligence concerning all potential
intangibles; (ii) the value of developed and core technology, ensuring that the
relative allocations to core technology and in-process research and
development, were consistent with the contribution of final products; (iii) the
allocation to in-process research and development was based upon a calculation
that only considered the efforts completed as of the date of the transaction,
and only cash flows associated with one generation of products currently
in-process; and (iv) it was performed by an independent valuation group. A
discount rate of 28% was used for the in-process technology. Intangible assets
acquired are being amortized on a straight-line basis over a period of up to
four years.

Acquisition of LearningByte International

     Effective August 28, 2001, the Company acquired LearningByte
International, Inc. ("LBI"), a provider of custom e-learning courseware, in
exchange for an agreement to issue approximately 4.7 million shares of
DigitalThink common stock and assume approximately 500,000 warrants
outstanding, for a total purchase price of approximately $68 million, including
transaction costs. The acquisition of LBI was accounted for by the purchase
method; accordingly the results of operations of LBI have been included with
the Company's results of operations since the effective date of the
acquisition. The assets acquired and liabilities assumed were recorded at
estimated fair values as determined by the Company's management based on
information currently available and on current assumptions as to future
operations and based on an independent appraisal of the fair value of the
acquired intangible assets. Identifiable intangible assets acquired of $6.8
million are being amortized on a straight-line basis over a weighted average
period of 4.6 years. Goodwill will not be amortized in accordance with
Statement of Financial Accounting Standards ("SFAS") No.141, Business
Combinations.

     In connection with the LBI acquisition, the Company recorded a charge of
$5.8 million comprised of approximately $5.3 million for the write-off of
internal use software made obsolete by the acquisition of LBI and $0.5 million
for severance-related costs.

Acquisition of TCT Technical Training Pvt. Ltd.

     Effective November 16, 2001, the Company acquired TCT Technical Training
Pvt. Ltd. ("TCT"), of Kolkata, India, a content developer of custom courseware.
DigitalThink acquired all the outstanding shares of TCT for $500,000 in cash
after we received governmental approval in November 2001. TCT has been acting
exclusively as a contractor to the Company since April 2001, when the
transaction was first announced. Upon acquisition, $215,000 was recorded as an
intangible that will be amortized over one year, and $285,000 represented the
net fair market value of tangible assets acquired and liabilities assumed. The
acquisition of TCT was accounted for by the purchase method. TCT's results of
operations have been included in the Company's results of operations since the
effective date of the acquisition.

Strategic Alliance with Electronic Data Systems Corporation

     On July 11, 2000 the Company entered into an agreement with EDS pursuant
to which EDS was issued two separate performance warrants to purchase shares of
DigitalThink common stock. Under the terms of the first warrant, EDS could earn
warrants to purchase up to 862,955 shares of DigitalThink common stock
exercisable at $29 per share. The warrant could have been earned when EDS
delivered third-party customers from the United States prior to July 31, 2003,
which generated a total of $50 million of contractually committed revenue to
DigitalThink recognizable by July 31, 2005. The warrants expired October 31,
2003. This warrant contained a significant disincentive for non-performance. If
EDS failed to deliver the full $50 million of contracted, United States revenue
by July 31, 2003, EDS agreed to pay DigitalThink $5 million.

     Under the terms of the second warrant, EDS could earn warrants for up to
690,364 shares of DigitalThink common stock exercisable at $29 per share. The
warrant could have been earned when EDS delivered third-party customers from
outside the United States prior to July 31, 2003, which generated a total of
$50 million of contractually committed revenue to DigitalThink recognizable by
July 31, 2005. The warrants expired October 31, 2003. This warrant contained a
significant disincentive for non-performance. If EDS failed to deliver the full
$50 million of contracted, non-United States revenue by July 31, 2003, EDS
agreed to pay DigitalThink $5 million.

                                       25
<PAGE>

     The Company calculated a fixed non-cash charge of $38 million related to
this transaction, based on the fair value of the warrants issued. A portion of
the warrant vested at the date of the transaction resulting in an immediate
charge of $4.9 million. Amortization of the remaining warrant expense would
occur over three years from July 2000 through July 2003, in proportion to the
amount of revenue generated under the agreement, or on a straight-line basis,
whichever is faster. Through March 31, 2002, amortization was recorded on a
straight-line basis totaling $24.1 million.

     On March 27, 2002, DigitalThink restructured the agreement entered into
with EDS, whereby EDS has surrendered its vested and unvested warrants to
purchase shares of DigitalThink common stock and DigitalThink has forgiven the
$10 million total non-performance penalty associated with these warrants.
Therefore, a charge of approximately $10 million was recorded as a reduction of
revenue and a credit of approximately $10 million was recorded as other income.

Impairment of Goodwill and Other Long-Lived Assets

     As part of our ongoing review of the Company's operations and financial
performance, we performed an assessment of the carrying value of the our
long-lived assets to be held for use including goodwill and other intangible
assets recorded in connection with our various acquisitions. The assessment was
performed pursuant to SFAS 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. The conclusion of that
assessment was that the value of the technology purchased associated with the
Arista acquisition was no longer being utilized in current product offerings and
was not part of the product roadmap for the future. As a result, we recorded
charges of $10.4 million to write off the Arista goodwill during the fourth
quarter of fiscal 2002 as it no longer had any recoverable value.

     In addition, it is likely we may incur additional reductions in goodwill
upon adoption of SFAS No. 142, Goodwill and Other Intangible Assets.

Strategic Initiative--Restructuring Charge

     Since the middle of fiscal year 2002, the Company and its industry have
experienced a progressive downturn, the primary direct cause of which has been a
decrease in new training initiatives and a decrease in expenditures by most
Fortune 2000 companies. The Company believes that this decrease can be
attributable to, among other things: (a) constrained capital markets; and (b)
other factors, including the general economic business slowdown and other higher
priority objectives at potential clients. The result has been a decrease in the
overall demand for e-learning training. In response, buyers are exhibiting
caution when making significant expenditures. Moreover, as the economic slowdown
continues, the Company's current customers delayed committed projects to reduce
their spending. Consequently, the impact of the slowdown on the Company's
business is magnified, as it faces declining sales as the result of its
customers' declining business and the resulting adjustment to their spending
levels.

     In March 2002 we initiated a strategic initiative, under which we
restructured our business in response to the current market environment and as
part of our continuing program to create efficiencies within our operations. We
recorded total restructuring charges of $9.8 million as part of our strategic
initiative, which included the following:

     o    Reducing our workforce by approximately 80 employees, mainly within
          the learning services organization, resulting in a $700 thousand
          severance charge. Approximately $400 thousand was paid in March 2002,
          and approximately $300 thousand will be paid in the first and second
          quarters of fiscal 2003.

     o    Consolidating our sales, administrative and content and technology
          development facilities through building and site closures, from a
          total of approximately 244,000 square feet into approximately 100,000
          square feet. As of March 31, 2002, seven sites have been vacated: San
          Diego, California; Chislom, Minnesota; Detroit, Michigan; Alameda,
          California; two facilities in San Francisco, California and our office
          in the United Kingdom. Property and equipment that was disposed or
          removed from operations resulted in a charge of $2.3 million and
          consisted primarily of leasehold improvements, computer equipment and
          furniture and fixtures. In addition, we incurred a charge of $6.8
          million associated with leases related to excess or closed facilities,
          which represents the excess of the remaining lease obligations over
          estimated market value, net of anticipated sublease income. Amounts
          accrued (net of anticipated sublease proceeds) related to the
          consolidation of facilities will be paid over the respective lease
          terms through 2016.

                                       26
<PAGE>

                       HISTORICAL RESULTS OF OPERATIONS

     The following table sets forth, for the periods indicated, the percentage
of net revenue represented by certain items in our statement of operations.

<TABLE>
<CAPTION>
                                                                          Year Ended March 31,
                                                              ---------------------------------------------
                                                                   2000            2001            2002
                                                              -------------   -------------   -------------
Revenues:
<S>                                                           <C>             <C>             <C>
 Delivered Learning fees (1) ..............................         46.2%           46.5%           47.1%
 Learning Solution services (1) ...........................         53.8            53.5            52.9
                                                                  ------          ------          ------
   Total revenues .........................................        100.0%          100.0%          100.0%
                                                                  ------          ------          ------
Costs and expenses:
 Cost of Delivered Learning fees ..........................         22.3            14.3            15.2
 Cost of Learning Solution services .......................         30.9            29.0            27.5
 Content research and development .........................         37.7            15.8            16.4
 Technology research and development ......................         34.1            30.5            26.1
 Selling and marketing ....................................        107.2            59.8            48.9
 General and administrative ...............................         21.7            15.6            17.0
 Depreciation .............................................          8.5             8.3            12.2
 Amortization of warrants .................................           --            34.0            25.4
 Stock-based compensation .................................         33.9            14.1             4.4
 Amortization of goodwill and other intangibles ...........           --             9.3            16.6
 Write-off of in-process research and development .........           --            18.4              --
 Impairment of goodwill ...................................           --              --            24.1
 Acquisition related charges ..............................           --              --            13.3
 Restructuring charges ....................................           --              --            22.6
                                                                  ------          ------          ------
   Total costs and expenses ...............................        296.3           249.1           269.7
                                                                  ------          ------          ------
Loss from operations ......................................       (196.3)         (149.1)         (169.7)
Penalty income recognized (1) .............................           --              --            23.1
Interest and other income .................................          9.8            13.8             4.4
Net loss ..................................................       (186.5)%        (135.3)%        (142.2)%
</TABLE>

------------
(1) Reflects the forgiveness of the penalty associated with the restructuring
    of an agreement with EDS resulting in a reduction of revenues of $8.8
    million and $1.2 million for Delivery Learning fees and Learning Solution
    services, respectively, and $10 million of penalty income recognized in
    the fiscal year ended March 31, 2002.

Comparison of Fiscal 2001 and Fiscal 2002

     Revenues

     Revenues increased from $38.7 million in fiscal 2001 to $43.4 million for
fiscal 2002, reflecting the forgiveness of a penalty associated with the
restructuring of an agreement with EDS of approximately $10 million. In fiscal
2002, Delivered Learning fees represented 47% of revenues and Learning Solution
services represented 53% of revenues. This is compared to fiscal 2001, during
which Delivered Learning fees represented 47% of revenues and Learning Solution
services represented 53% of revenues.

     Delivered Learning Fees

     Delivered Learning fees increased from $18.0 million in fiscal 2001 to
$20.4 million in fiscal 2002, reflecting the forgiveness of a penalty
associated with the restructuring of an agreement with EDS of approximately
$8.8 million, as the number of customers increased from 366 to 458, and overall
course registration increased. In addition, we also increased the number of
catalog courses we offered from 257 to 317 and the number of custom courses
from 222 to 459. We expect that the number of courses and customers will
continue to increase as our content development projects progress.

                                       27
<PAGE>

 Learning Solution Services

     Learning Solution service revenues increased from $20.7 million in fiscal
2001 to $23.0 million in fiscal 2002, reflecting the forgiveness of a penalty
associated with the restructuring of our agreement with EDS of approximately
$1.2 million, as the number of projects and dollar size of projects increased.
We expect that both Delivered Learning fees and Learning Solutions services
revenue will continue to account for a similarly significant proportion of our
total revenues in the near term.

     We market our products primarily through our direct sales force in the
United States. We also market our products through indirect channels including
resellers, consulting firms, customers, co-developers, and Internet portals.
Internationally, we have begun developing relationships with third-party
integrators and resellers. To date, our international revenues have been less
than 5% of total revenue.

Costs and Expenses

     Cost of Delivered Learning Fees

     Cost of Delivered Learning fees include personnel related costs,
maintenance and facility costs required to operate our Web site and to provide
interactive tutor support to participants in our courses. Cost of Delivered
Learning fees increased from $5.5 million in fiscal 2001 to $6.6 million in
fiscal 2002. This increase was attributable to increased personnel on average
throughout the year and rental equipment related expenses required for a
greater number of courses and an increased number of participants. In addition,
a greater number of customers and courses required additional support from
tutors to provide timely online responses to participants. Headcount, which
excludes third-party tutors related to Cost of Delivered Learning fees,
decreased from 36 employees at March 31, 2001 to 29 employees at March 31,
2002.

     Cost of Learning Solution Services

     Cost of Learning Solution services consists primarily of personnel related
costs and contractor expenses to develop custom and tailored courses for
specific customers. Cost of Learning Solution services increased from $11.2
million in fiscal 2001 to $11.9 million in fiscal 2002, due primarily to the
need for additional contractors throughout the year to meet demand for the
development of custom courses. Headcount decreased from 116 employees at March
31, 2001 to 56 at March 31, 2002.

     Content Research and Development

     Content research and development costs are expensed as incurred in
accordance with SFAS No. 86, and represent costs to develop catalog courses,
including personnel related costs, content acquisition costs and content
editing. Content research and development expenses increased from $6.1 million
in fiscal 2001 to $7.1 million in fiscal 2002. This increase was due to higher
content acquisition fees related to the purchase of additional content and the
hiring of additional personnel primarily engaged in catalog course development.
Headcount in content research and development increased from 57 employees at
March 31, 2001 to 218 employees at March 31, 2002 due to the acquisitions of
TCT and LBI during the year. Management believes that continued investment in
content development and content acquisition is essential to expand our
business. As a result, we expect these expenses to increase in future periods.

     Technology Research and Development

     Technology research and development expenses consist primarily of
personnel related costs in connection with product development efforts of
underlying technology. Technology research and development expenses decreased
from $11.8 million in fiscal 2001 to $11.3 million in fiscal 2002. This
decrease was due to the reduction in headcount during the year, from 73
employees at March 31, 2001 to 64 employees at March 31, 2002.

     Selling and Marketing

     Selling and marketing expenses consist primarily of personnel related
costs, commissions, advertising and other promotional expenses, royalties paid
to authors, and travel and entertainment expenses. Selling and marketing
expenses decreased from $23.1 million in fiscal 2001 to $21.2 million in fiscal
2002. This decrease reflects the

                                       28
<PAGE>

reduction in headcount offset by higher commissions associated with increased
revenues. Headcount in sales and marketing decreased from 116 at March 31, 2001
to 58 employees at March 31, 2002. We expect selling and marketing expenses
will remain flat as we reevaluate our marketing efforts and review our
promotional activities.

     General and Administrative

     General and administrative expenses consist primarily of personnel related
costs, occupancy costs and professional service fees. General and
administrative expenses increased from $6.0 million in fiscal 2001 to $7.4
million in fiscal 2002. This increase was due to an increase in personnel
related costs, higher occupancy costs and fees related to professional
services. Headcount decreased from 43 employees at March 31, 2001 to 39
employees at March 31, 2002.

     Amortization of Goodwill and Other Intangibles

     Amortization of goodwill and other intangibles totaled $3.6 million in
fiscal 2001 associated with the acquisition of Arista. Amortization totaled
$7.2 million in fiscal 2002 related to amortization of goodwill and other
intangibles associated with the acquisition of Arista, and amortization of
other intangibles associated with the acquisition of LBI.

     Amortization of warrants

     The Company recorded amortization of $13.1 million in fiscal 2001 and
$11.0 million in fiscal 2002 in connection with the strategic alliance with EDS
and the two separate performance warrants to purchase shares of the Company's
common stock.

     Goodwill Impairment

     As part of our ongoing review of the Company's operations and financial
performance, we performed an assessment of the carrying value of the our
long-lived assets to be held for use including goodwill and other intangible
assets recorded in connection with our various acquisitions. The assessment was
performed pursuant to SFAS 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. The conclusion of that
assessment was that the value of the technology purchased associated with the
Arista acquisition was no longer being used in the current product offerings
and was not part of the product roadmap for the future. As a result, we
recorded charges of $10.4 million to write off the Arista goodwill during the
fourth quarter of fiscal 2002 as it no longer had any recoverable value.

     Acquisition and Other Related Charges

     Expenses related to the acquisition of LBI and other related charges
totaled $5.8 million in fiscal 2002 and are comprised of approximately $5.3
million for the write-off of internal use software made obsolete by the
acquisition, and approximately $500,000 for severance-related costs for
redundancies. The write-off of internal use software related to one significant
project that was put into service during fiscal 2002 to better enable content
development by the Company and clients, but was determined to be obsolete given
LBI's technology.

     Restructuring

     In March 2002 we initiated a strategic initiative, under which we
restructured our business in response to the current market environment and as
part of our continuing program to create efficiencies within our operations. We
recorded total restructuring charges of $9.8 million as part of our strategic
initiative, which included the following:

     o    Reducing our workforce by approximately 80 employees, mainly within
          the learning services organization, resulting in a $700 thousand
          severance charge. Approximately $400 thousand was paid in March 2002,
          and approximately $200 thousand will be paid in the first and second
          quarters of fiscal 2003.

     o    Consolidating our sales, administrative and content and technology
          development facilities through building and site closures, from a
          total of approximately 244,000 square feet into approximately 100,000
          square feet. As of March 31, 2002, seven sites have been vacated: San
          Diego, California; Chislom, Minnesota; Detroit, Michigan; Alameda,
          California; two facilities in San Francisco, California and our office
          in the United

                                       29
<PAGE>

          Kingdom. Property and equipment that was disposed or removed from
          operations resulted in a charge of $2.3 million and consisted
          primarily of leasehold improvements, computer equipment and furniture
          and fixtures. In addition, we incurred a charge of $6.8 million
          associated with leases related to excess or closed facilities, which
          represents the excess of the remaining lease obligations over
          estimated market value, net of anticipated sublease income. Amounts
          accrued (net of anticipated sublease proceeds) related to the
          consolidation of facilities will be paid over the respective lease
          terms through 2016.

     Write-off of In-Process Research and Development

     On July 6, 2000 DigitalThink, Inc. acquired Arista. Of the purchase price,
$7.1 million represented purchased in-process technology that was estimated to
be 70% complete in its development at the time of acquisition. The in-process
technology represented a turnkey solution for education and knowledge
distribution systems that had not yet reached technological feasibility and had
no alternative future use. Accordingly, this amount was immediately expensed in
the consolidated statement of operations upon consummation of the acquisition.
The value of intangibles was based upon management's estimates of after tax
cash flow. The valuation gave consideration to the following: (i) comprehensive
due diligence concerning all potential intangibles; (ii) the value of developed
and core technology, ensuring that the relative allocations to core technology
and in-process research and development, were consistent with the contribution
of final products; (iii) the allocation to in-process research and development
was based upon a calculation that only considered the efforts completed as of
the date of the transaction, and only cash flows associated with one generation
of products currently in-process; and (iv) it was performed by an independent
valuation group. A discount rate of 28% was used for the in-process technology.
Intangible assets acquired will be amortized on a straight-line basis over a
period of up to four years.

     Stock-Based Compensation

     Stock-based compensation expense totaled $5.4 million in fiscal 2001 and
$1.9 million in fiscal 2002.

     Penalty Recognized

     On March 27, 2002, DigitalThink restructured the agreement entered into
with EDS, whereby EDS surrendered its vested and unvested warrants to purchase
shares of DigitalThink common stock and DigitalThink forgave the $10.0 million
total non-performance penalty associated with this agreement. Therefore, a
charge of approximately $10 million was recorded as a reduction of revenue and
a credit of approximately $10.0 million was recorded as other income.

     Net Loss

     The net loss increased from $52.2 million in fiscal 2001 to $61.6 million
in fiscal 2002.

Comparison of Fiscal 2000 and Fiscal 2001

     Revenues

     Revenues increased from $10.8 million in fiscal 2000 to $38.7 million for
fiscal 2001. In fiscal 2001, Delivered Learning fees represented 47% of
revenues and Learning Solution services represented 53% of revenues. This is
compared to fiscal 2000, during which Delivered Learning fees represented 46%
of revenues and Learning Solution services represented 54% of revenues.

     Delivered Learning Fees

     Delivered Learning fees increased from $5.0 million in fiscal 2000 to
$18.0 million in fiscal 2001 as the number of customers increased from 231 to
366, and overall course registration increased. In addition, we also increased
the number of catalog courses we offered from 232 to 257 and the number of
custom courses from 132 to 222.

     Learning Solution Services

     Learning Solution service revenues increased from $5.8 million in fiscal
2000 to $20.7 million in fiscal 2001 as the number of projects and dollar size
of projects increased.

                                       30
<PAGE>

Costs and Expenses

     Cost of Delivered Learning Fees

     Cost of Delivered Learning fees include personnel related costs,
maintenance and facility costs required to operate our Web site and to provide
interactive tutor support to participants in our courses. Cost of Delivered
Learning fees increased from $2.4 million in fiscal 2000 to $5.5 million in
fiscal 2001. This increase was attributable to increased personnel and
equipment related expenses required for a greater number of courses and an
increased number of participants. In addition, a greater number of customers
and courses required additional support from tutors to provide timely online
responses to participants. Headcount, which excludes third-party tutors related
to cost of Delivered Learning fees, increased from 19 employees at March 31,
2000 to 36 employees at March 31, 2001.

     Cost of Learning Solution Services

     Cost of Learning Solution services consists primarily of personnel related
costs and contractor expenses to develop custom and tailored courses for
specific customers. Cost of Learning Solution services increased from $3.3
million in fiscal 2000 to $11.2 million in fiscal 2001, due primarily to the
need for additional headcount to meet demand for the development of custom
courses. Headcount increased from 64 employees at March 31, 2000 to 116 at
March 31, 2001.

     Content Research and Development

     Content research and development expenses represent costs to develop
catalog courses, including personnel related costs, content acquisition costs
and content editing. Content research and development expenses increased from
$4.1 million in fiscal 2000 to $6.1 million in fiscal 2001. This increase was
due to higher content acquisition fees related to the purchase of additional
content and the hiring of additional personnel primarily engaged in catalog
course development. Headcount in content research and development increased
from 36 employees at March 31, 2000 to 57 employees at March 31, 2001.

     Content research and development expenses are expensed as incurred, except
for costs related to localizing a course to a specific country. In accordance
with Financial Accounting Standards Board ("FASB") Statement No. 86, under
which we are required to capitalize software development costs after
technological feasibility has been established. In fiscal 2001, approximately
$160,000 in localization costs have been capitalized related to translating
courses in different languages.

     Technology Research and Development

     Technology research and development expenses consist primarily of
personnel related costs in connection with product development efforts of
underlying technology. Technology research and development expenses increased
from $3.7 million in fiscal 2000 to $11.8 million in fiscal 2001. This increase
was due to the hiring of additional technology research and development
employees and the acquisition of Arista. Headcount increased from 39 employees
at March 31, 2000 to 73 employees at March 31, 2001.

     Software development costs are accounted for in accordance with the FASB
Statement No. 86, under which we are required to capitalize software
development costs after technological feasibility has been established. In
fiscal 2001, approximately $4.9 million in development costs have been
capitalized related to a new delivery platform, where technological feasibility
has been reached.

     Selling and Marketing

     Selling and marketing expenses consist primarily of personnel related
costs, commissions, advertising and other promotional expenses, royalties paid
to authors, and travel and entertainment expenses. Selling and marketing
expenses increased from $11.6 million in fiscal 2000 to $23.1 million in fiscal
2001. This increase reflects the costs associated with the hiring of additional
personnel and increased promotional activities. Headcount in sales and
marketing increased from 57 at March 31, 2000 to 116 employees at March 31,
2001.

                                       31
<PAGE>

 General and Administrative

     General and administrative expenses consist primarily of personnel related
costs, occupancy costs and professional service fees. General and
administrative expenses increased from $2.3 million in fiscal 2000 to $6.0
million in fiscal 2001. This increase was due to an increase in personnel
related costs, higher occupancy costs and fees related to professional
services. Headcount increased from 20 employees at March 31, 2000 to 43
employees at March 31, 2001.

     Amortization of Goodwill and Other Intangibles

     Amortization totaled $3.6 million in fiscal 2001 associated with the
acquisition of Arista. No amortization was recorded in fiscal 2000.

     Amortization of warrants

     The Company recorded amortization in fiscal 2001 of $13.1 million in
connection with the strategic alliance with EDS and the two separate
performance warrants to purchase shares of the Company's common stock. No
amortization was recorded in fiscal 2000.

     Stock-Based Compensation

     Stock-based compensation expense totaled $3.7 million in fiscal 2000 and
$5.4 million in fiscal 2001.

     Net Loss

     The net loss increased from $20.2 million in fiscal 2000 to $52.2 million
in fiscal 2001.

Quarterly Results of Operations

     The following table sets forth unaudited quarterly consolidated statement
of operations data for each of the eight most recent quarters. In our opinion,
this information has been prepared on the same basis as the audited financial
statements contained in this report and includes all adjustments, consisting
only of normal recurring adjustments, we consider necessary for fair
presentation in accordance with generally accepted accounting principles. This
information should be read in conjunction with our annual consolidated
financial statements and the related notes appearing elsewhere in this report.
Our operating results for any three-month period are not necessarily indicative
of results for any future period.

<TABLE>
<CAPTION>
                             June 30,   September 30,   December 31,   March 31,
                               2000          2000           2000          2001
                            ---------- --------------- -------------- -----------
<S>                         <C>        <C>             <C>            <C>
Revenues:
Delivered Learning
 fees (1) .................   $2,395        $3,322         $ 5,460      $ 6,801
Learning Solution
 services (1) .............    3,867         5,438           5,327        6,048
                              ------        ------         -------      -------
Total revenues ............    6,262         8,760          10,787       12,849
Costs and expenses:
Cost of Delivered
 Learning fees ............    1,012         1,331           1,521        1,645
Cost of Learning
 Solution services ........    2,281         2,932           2,981        3,017
Content research and
 development ..............    2,820         1,125           1,062        1,085
Technology research
 and development ..........    2,142         2,778           3,435        3,436
Selling and marketing .....    3,921         5,736           6,585        6,863
General and
 administrative ...........    1,174         1,498           1,558        1,816
Depreciation ..............      562           771             922          935
Amortization of
 warrants .................       --         7,629           2,751        2,751
Stock-based
 compensation .............    1,549         1,656           1,182        1,045

<CAPTION>
                             June 30,   September 30,   December 31,    March 31,
                               2001          2001           2001          2002
                            ---------- --------------- -------------- ------------
<S>                         <C>        <C>             <C>            <C>
Revenues:
Delivered Learning
 fees (1) .................  $ 7,778       $ 8,239         $ 7,397      $ (3,013)
Learning Solution
 services (1) .............    7,232         7,045           6,410         2,268
                             -------       -------         -------      --------
Total revenues ............   15,010        15,284          13,807          (745)
Costs and expenses:
Cost of Delivered
 Learning fees ............    1,795         1,775           1,567         1,482
Cost of Learning
 Solution services ........    3,363         3,375           3,023         2,173
Content research and
 development ..............    1,382         1,919           1,862         1,931
Technology research
 and development ..........    3,246         3,153           2,603         2,316
Selling and marketing .....    7,210         5,390           4,676         3,932
General and
 administrative ...........    1,758         1,790           1,604         2,203
Depreciation ..............    1,067         1,443           1,308         1,456
Amortization of
 warrants .................    2,751         2,751           2,751         2,750
Stock-based
 compensation .............      628           541             469           250
</TABLE>

                                       32
<PAGE>

<TABLE>
<CAPTION>
                              June 30,    September 30,   December 31,   March 31,
                                2000           2000           2000          2001
                            ------------ --------------- -------------- -----------
<S>                         <C>          <C>             <C>            <C>
Amortization of
 goodwill and other
 intangibles ..............         --          1,201          1,201        1,200
Write-off of in-process
 research and
 development ..............         --          7,118             --           --
Impairment of goodwill              --             --             --           --
Acquisition and other
 related charges ..........         --             --             --           --
Restructuring charge ......         --             --             --           --
                                    --          -----          -----        -----
Total costs and
 expenses .................     15,461         33,775         23,198       23,793
                                ------         ------         ------       ------
Interest and other
 income ...................      1,549          1,434          1,317        1,044
Penalty income
 recognized (1) ...........         --             --             --           --
                                ------         ------         ------       ------
Net loss ..................   $ (7,650)     $ (23,581)     $ (11,094)    $ (9,900)
                              ========      =========      =========     ========

<CAPTION>
                              June 30,    September 30,   December 31,    March 31,
                                2001           2001           2001           2002
                            ------------ --------------- -------------- -------------
<S>                         <C>          <C>             <C>            <C>
Amortization of
 goodwill and other
 intangibles ..............      1,201          1,794          2,114          2,099
Write-off of in-process
 research and
 development ..............         --             --             --             --
Impairment of goodwill              --             --             --         10,437
Acquisition and other
 related charges ..........         --          5,792             --             --
Restructuring charge ......         --             --             --          9,778
                                 -----          -----          -----         ------
Total costs and
 expenses .................     24,401         29,723         21,977         40,807
                                ------         ------         ------         ------
Interest and other
 income ...................        829            578            324            180
Penalty income
 recognized (1) ...........         --             --             --         10,000
                                ------         ------         ------         ------
Net loss ..................   $ (8,562)     $ (13,861)      $ (7,846)     $ (31,372)
                              ========      =========       ========      =========
</TABLE>

------------
(1) Reflects the forgiveness of the penalty associated with the restructuring
    of an agreement with EDS resulting in a reduction of revenues of $8.8
    million and $1.2 million for Delivery Learning fees and Learning Solution
    services, respectively, and $10 million of penalty income recognized in
    the fiscal year ended March 31, 2002.

Critical Accounting Policies

     Management has evaluated the accounting policies used in the preparation
of the accompanying consolidated financial statements and related notes and
believes those policies to be reasonable and appropriate. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities. We believe that the following accounting policies are
both important to the portrayal of the company's financial condition and
results and requires management's most difficult, subjective or complex
judgments.

     Revenue Recognition. The Company has two types of revenue: Delivered
Learning fees and Learning Solution services. Delivered Learning fees allow
access to training systems, courses hosted by the Company, tutor support, and
other learning materials for a fixed period, typically six months. Delivered
Learning fees are recognized ratably over this access period. Learning Solution
services revenue consists of revenue from fixed-price contracts, which require
the accurate estimation of the value, scope and duration of each course hour.
Revenue for these projects is recognized on percentage of completion, in
accordance with AICPA Statement of Position (SOP) 81-1, Accounting for
Performance of Construction/Production-Type Contracts, as development
progresses based on the percentage of completion method. The percentage of
completion is based on the ratio of actual custom development or service costs
incurred to date, to total estimated costs to complete the custom course or
service. Provisions for estimated losses on incomplete contracts are made on a
contract by contract basis and recognized in the period in which such losses
become probable and can be reasonably estimated. If the Company does not
accurately estimate the resources required or the scope of work to be
performed, or does not manage its projects properly within the planned periods
of time or satisfy its obligations under the contracts, then future learning
services margins may be significantly and negatively affected or losses on
existing contracts may need to be recognized. Any such resulting reductions in
margins or contract losses could be material to the Company's results of
operations.

     Allowance for Doubtful Accounts. The Company maintains an allowance for
doubtful accounts for estimated losses resulting from the inability of its
customers to make required payments. We review, with assistance from our sales
team, the ability of our customers to pay the indebtedness. We provide an
allowance for doubtful accounts for all specific receivables that we judge to
be unlikely of collection. In addition, we record an estimated reserve based on
the size and age of all receivable balances against which we have not
established a specific reserves. These estimated allowances are periodically
reviewed, analyzing the customer's payment history and information regarding
customer's credit worthiness known to us. If the financial condition of the
Company's customers were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances may be required.

                                       33
<PAGE>

     Goodwill and Other Acquired Intangibles. Our business acquisitions
typically result in goodwill and other intangible assets, which affect the
amount of future period amortization expense and possible impairment expense
that we will incur. The determination of the value of such intangible assets
requires management to make estimates and assumptions that affect our
consolidated financial statements. In assessing the recoverability of the
Company's goodwill and other intangibles, the Company must make assumptions
regarding estimated future cash flows and other factors to determine the fair
value of the respective assets. If these estimates or their related assumptions
change in the future, the Company may be required to record impairment charges
for these assets not previously recorded. Effective April 1, 2002 the Company
will adopt SFAS No. 142, Goodwill and Other Intangible Assets, and will be
required to analyze its goodwill for impairment issues during the first six
months of fiscal 2003, and then on a periodic basis thereafter. It is likely we
may incur additional reductions in goodwill upon adoption of SFAS No. 142.
During the year ended March 31, 2002, the Company recorded an impairment loss
related to goodwill of $10.4 million associated with the Arista acquisition.

     Operating Leases. We have many operating lease agreements related to our
office buildings throughout the United States, the United Kingdom and India.
The agreements qualify for operating lease accounting treatment under SFAS No.
13, Accounting for Leases, and, as such, the assets are not included on our
balance sheet. We believe we will be able to meet our obligations under the
agreements, but if we default on our commitments and are unable to remedy the
default quickly enough, the lessors may terminate all remaining commitments and
demand payment equal to the lessor's net present value of all future lease
payments. If we default on the leases and are required to make payment, this
will decrease our cash available for working capital and could require us to
find alternate facilities on terms that may not be as favorable as the current
arrangement. As of March 31, 2002, we were in compliance with all covenants.
For further information on these leases, please refer to our "Commitments"
section under "Liquidity and Capital Resources" and Note 12 of our Notes to
Consolidated Financial Statements.

     We have chosen to account for our common stock incentive awards under the
intrinsic value method, in accordance with Accounting Principles Board (APB)
Opinion No. 25. This accounting policy is applied consistently for all years
presented. Our operating results would have been affected if other alternatives
were used. Information about the impact on our operating results of using APB
Opinion No. 25 is included in Note 8 of our Notes to Consolidated Financial
Statements.

Liquidity and Capital Resources

     Through February 25, 2000, we historically satisfied our cash requirements
primarily through private placements of equity securities, raising since
inception a total of $45.1 million. On February 25, 2000, we completed our
initial public offering and concurrent private placements raising a total of
$78.7 million, net of expenses. See Note 8 of Notes to Consolidated Financial
Statements. As of March 31, 2002, we had cash and cash equivalents of $29.5
million compared to $30.5 million on March 31, 2001. In addition, on March 31,
2002 we had investments in marketable securities of $1.6 million, compared to
$33.5 million on March 31, 2001.

     Net cash used in operating activities totaled $10.5 million for fiscal
2000, $20.2 million for fiscal 2001, and $19.0 million for fiscal 2002. Cash
used in operating activities resulted from net operating losses in each of the
periods and changes in operating assets and liabilities. To date, we have met
our operating expense requirements primarily from the proceeds of our equity
offerings. Deferred revenue decreased from $11.5 million at March 31, 2001 to
$7.0 million at March 31, 2002. Deferred revenue results from customer
prepayments of Delivered Learning fees and Learning Solutions services. In both
cases, prepayments remain in deferred revenue until revenue recognition
criteria have been met.

     Net cash used in investing activities totaled $49.4 million in fiscal
2000, $5.8 million in fiscal 2001, and net cash provided by investing
activities totaled $17.1 in fiscal 2002. The source of cash resulted from the
sales of marketable securities offset by the acquisition of capital assets,
including hardware for our Web site, computer and office equipment, and
platform development costs, and purchases of marketable securities.

     Cash provided by financing activities totaled $105.3 million in fiscal
2000, $1.7 million in fiscal 2001, and $1.2 in fiscal 2002. The sources in
fiscal 2000 were attributable to both the issuance of preferred stock in
November 1999 and our initial public offering and private placement in February
2000. The sources in fiscal 2001 and fiscal 2002 were the proceeds received
from issuance of common stock through the exercise of options and the employee
stock purchase plan.

                                       34
<PAGE>

     In December 2001 we entered into a $5 million line of credit agreement,
expiring in December 2002, and had available $2.8 million from this line of
credit as of March 31, 2002. Subsequent to March 31, 2002, the balance on the
line of credit of $2.2 million was repaid.

     The company leases its facilities and certain equipment and furniture
under operating lease agreements that expire at various dates through fiscal
2007 and thereafter. Future lease payments under the operating lease agreements
are approximately as follows:

<TABLE>
<CAPTION>
<S>                                 <C>
Fiscal Year Ending March 31,          (000's)
  2003 ..........................     $7,196
  2004 ..........................      6,677
  2005 ..........................      6,554
  2006 ..........................      6,710
  2007 ..........................      6,722
  Thereafter ....................     27,585
                                      ------
  Total .........................    $61,444
                                     =======
</TABLE>

     We believe our existing cash resources and available borrowings are
sufficient to finance our presently anticipated operating expenses and working
capital requirements for at least the next twelve months. Our future liquidity
and capital requirements will depend on numerous factors. The rate of expansion
of our operations in response to potential growth opportunities and competitive
pressures will affect our capital requirements as will funding of continued net
losses and substantial negative cash flows. Additionally, we may need
additional capital to fund acquisitions of complementary businesses, products,
and technologies. Our forecast of the period of time through which our
financial resources will be adequate to support operations is a forward-looking
statement that involves risks and uncertainties. Actual resources sought may
differ materially. We may seek to sell additional equity or debt securities or
secure a larger bank line of credit. The sale of additional equity or debt
securities could result in additional dilution to our stockholders. Currently,
we have no other immediately available sources of liquidity. Additional
financing may not be available in amounts or on terms acceptable to us, if at
all.

Recent Accounting Pronouncements

     In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
133 establishes a new model for accounting for derivatives and hedging
activities and supercedes and amends a number of existing accounting standards.
SFAS No. 133 requires that all derivatives be recognized in the balance sheet
at their fair market value and the corresponding derivative gains or losses be
either reported in the statement of operations or as a deferred item depending
on the type of hedge relationship that exists with respect of such derivatives.
In July 1999, the FASB issued SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133. SFAS No. 137 deferred the effective date until years
beginning after June 30, 2000. In June 2000, the FASB issued SFAS No. 138,
Accounting for Derivative Instruments and Hedging Activities--An Amendment of
FASB Statement No. 133. SFAS No. 138 amends the accounting and reporting
standards for certain derivatives and hedging activities such as net settlement
contracts, foreign currency transactions and intercompany derivatives. The
Company has adopted SFAS No. 133 in its quarter ending June 30, 2001. To date,
the Company has not engaged in derivative or hedging activities, and
accordingly, the adoption of SFAS No. 133 had no impact on the financial
statements.

     In June 2001, the FASB issued SFAS No. 141, Business Combinations and SFAS
No.142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that all
business combinations initiated after June 30, 2001 be accounted for under the
purchase method and addresses the initial recognition and measurement of
goodwill and other intangible assets acquired in a business combination. SFAS
No. 142 addresses the initial recognition and measurement of intangible assets
acquired outside of a business combination and the accounting for goodwill and
other intangible assets subsequent to their acquisition. SFAS No. 142 provides
that intangible assets with finite useful lives be amortized and that goodwill
and intangible assets with indefinite lives will not be amortized, but will
rather be tested at least annually for impairment. The Company will adopt SFAS
No. 142 for its fiscal year beginning April 1, 2002. During the first half of
fiscal year 2003, we will perform the first of the required impairment tests

                                       35
<PAGE>

of goodwill and indefinite-lived intangible assets as of April 1, 2002. We are
currently assessing the impact, if any, of SFAS 142 on our financial position
and results of operations.

     In August 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 requires businesses to record the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred. When the liability is initially recorded, the entity
capitalizes a cost by increasing the carrying amount of the related long-lived
asset. Over time, the liability is accreted to its present value each period,
and the capitalized cost is depreciated over the useful life of the related
asset. Upon settlement of the liability, an entity either settles the
obligation for its recorded amount or incurs a gain or loss upon settlement. We
are required to adopt SFAS No. 143 for our fiscal year beginning April 1, 2003.
We are currently assessing the impact, if any, of SFAS No. 143 on our financial
position and results of operations.

     In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets which supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of and APB No. 30, Reporting the Results of Operations--Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions. SFAS No. 144 also amends
Accounting Research Bulletin No. 51, Consolidated Financial Statements. SFAS
144 requires that long-lived assets that are to be disposed of by sale be
measured at the lower of book value or fair value less cost to sell. The
statement also significantly changes the criteria required to classify an asset
as held-for-sale. Additionally, SFAS 144 expands the scope of discontinued
operations to include all components of an entity with operations that (1) can
be distinguished from the rest of the entity and (2) will be eliminated from
the ongoing operations of the entity in a disposal transaction. We are required
to adopt SFAS 144 for our fiscal year beginning April 1, 2002. We are currently
assessing the impact, if any, of SFAS 144 on our financial position and results
of operations.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Market Risk

     The following discusses our exposure to market risk related to changes in
interest rates and foreign currency exchange rates. This discussion contains
forward-looking statements that are subject to risks and uncertainties. Actual
results could vary materially as a result of a number of factors.

Interest Rate Risk

     As of March 31, 2002, we had cash and cash equivalents of $29.5 million,
consisting of cash and highly liquid short-term investments with original
maturities of three months or less at the date of purchase. Additionally the
Company had marketable securities, classified as available for sale, with
maturities greater than three months totaling $1.6 million. These investments
may be subject to interest rate risk and will decrease in value if market rates
increase. A hypothetical increase or decrease in market interest rates of 10%
from the market rates in effect at March 31, 2002 would cause the fair value of
these investments to change by an immaterial amount. Declines in interest rates
over time would result in lower interest income.

Foreign Currency and Exchange Rate Risk

     Almost all of our revenues recognized to date have been denominated in
U.S. dollars and are primarily from the United States. However, a portion of
our future revenue may be derived from international customers. Revenues from
these customers may be denominated in the local currency of the applicable
countries. As a result, our operating results could become subject to
significant foreign currency fluctuations based upon changes in exchange rates
in relation to the U.S. dollar.

     Furthermore, as we engage in business outside the United States, changes
in exchange rates relative to the U.S. dollar could make us less competitive in
international markets. Although we will continue to monitor our foreign
currency exposure, and may use financial instruments to limit this exposure,
there can be no assurance that exchange rate fluctuations will not have a
materially negative impact on our business.

                                       36
<PAGE>

Item 8. Consolidated Financial Statements and Supplementary Data

                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                              Page
                                                                                             -----
<S>                                                                                          <C>
Independent Auditors' Report .............................................................   38
Consolidated Balance Sheets as of March 31, 2001 and 2002 ................................   39
Consolidated Statements of Operations for the years ended March 31, 2000, 2001 and 2002 ..   40
Consolidated Statement of Stockholders' Equity (Deficit) for the years ended March 31,
   2000, 2001 and 2002 ...................................................................   41
Consolidated Statements of Cash Flows for the years ended March 31, 2000, 2001 and 2002 ..   42
Notes to Consolidated Financial Statements ...............................................   43
</TABLE>

                                       37
<PAGE>

                         INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
DigitalThink, Inc.

     We have audited the accompanying consolidated balance sheets of
DigitalThink, Inc. and subsidiaries as of March 31, 2001 and 2002, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for each of the three years in the period ended March 31, 2002.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

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

     In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of DigitalThink, Inc. and
subsidiaries at March 31, 2001 and 2002, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
2002 in conformity with accounting principles generally accepted in the United
States of America.

                                        DELOITTE & TOUCHE LLP

San Jose, California
April 23, 2002

                                       38
<PAGE>

                      DIGITALTHINK, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                        As of March 31,
                                                                                 -----------------------------
                                                                                      2001            2002
                                                                                 --------------   ------------
<S>                                                                              <C>              <C>
                                                               ASSETS
Current assets:
 Cash and cash equivalents ...................................................     $ 30,512        $   29,470
 Marketable securities .......................................................       33,526             1,640
 Accounts receivable, net of allowance for doubtful accounts of $247 and $484,
   respectively ..............................................................        9,027             5,779
 Prepaid expenses and other current assets ...................................        4,118             1,675
                                                                                   ---------       ----------
    Total current assets .....................................................       77,183            38,564
Restricted cash and deposits .................................................        3,833             4,083
Property and equipment, net ..................................................       15,061            18,325
Goodwill and other intangible assets .........................................       15,610            75,300
                                                                                   ---------       ----------
    Total assets .............................................................     $111,687        $  136,272
                                                                                   =========       ==========
                                         LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Accounts payable ............................................................     $  4,471        $    3,569
 Accrued liabilities .........................................................        6,524            13,238
 Borrowings under line of credit .............................................           --             2,577
 Deferred revenues ...........................................................       11,548             7,043
                                                                                   ---------       ----------
    Total current liabilities ................................................       22,543            26,427
Long-term liabilities ........................................................           17               119
Commitments and contingencies (Note 12)
Stockholders' equity:
 Common stock -- $0.001 per share value; 250,000 shares authorized;
   issued and outstanding 34,999 in 2001 and 40,452 in 2002 ..................      187,583           267,814
Deferred stock compensation ..................................................       (3,099)             (631)
Stockholders' notes receivable ...............................................             (9)             --
Accumulated other comprehensive income .......................................          204              (264)
Accumulated deficit ..........................................................      (95,552)         (157,193)
                                                                                   ----------      ----------
Total stockholders' equity ...................................................       89,127           109,726
                                                                                   ----------      ----------
Total liabilities and stockholders' equity ...................................     $111,687        $  136,272
                                                                                   ==========      ==========
</TABLE>

          See accompanying notes to consolidated financial statements.
                                       39
<PAGE>

                      DIGITALTHINK, INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
                                                                              Year Ended March 31,
                                                                   ------------------------------------------
                                                                       2000           2001           2002
                                                                   ------------   ------------   ------------
<S>                                                                <C>            <C>            <C>
Revenues:
 Delivered Learning fees .......................................    $   4,994      $  17,978      $  20,401
 Learning Solution services ....................................        5,821         20,680         22,955
                                                                    ---------      ---------      ---------
    Total revenues .............................................       10,815         38,658         43,356
                                                                    ---------      ---------      ---------
Costs and expenses:
 Cost of Delivered Learning fees ...............................        2,409          5,509          6,619
 Cost of Learning Solution services ............................        3,337         11,211         11,934
 Content research and development ..............................        4,082          6,092          7,094
 Technology research and development ...........................        3,687         11,791         11,318
 Selling and marketing .........................................       11,596         23,105         21,208
 General and administrative ....................................        2,342          6,046          7,355
 Depreciation ..................................................          915          3,190          5,274
 Amortization of warrants ......................................           --         13,131         11,003
 Stock-based compensation* .....................................        3,663          5,432          1,888
 Amortization of goodwill and other intangibles ................           --          3,602          7,208
 Write-off of in-process research and development ..............           --          7,118             --
 Impairment of goodwill ........................................           --             --         10,437
 Acquisition related charges ...................................           --             --          5,792
 Restructuring charge ..........................................           --             --          9,778
                                                                    ---------      ---------      ---------
    Total costs and expenses ...................................       32,031         96,227        116,908
                                                                    ---------      ---------      ---------
Loss from operations ...........................................      (21,216)       (57,569)       (73,552)
Penalty income recognized (Note 13) ............................           --             --         10,000
Interest and other income ......................................        1,055          5,344          1,911
                                                                    ---------      ---------      ---------
Net loss .......................................................      (20,161)     $ (52,225)     $ (61,641)
                                                                    =========      =========      =========
Accretion of redeemable convertible preferred stock ............    $   7,593      $      --      $      --
                                                                    ---------      ---------      ---------
Loss attributable to common stockholders .......................      (27,754)     $ (52,225)     $ (61,641)
                                                                    ---------      ---------      ---------
Basic and diluted loss per common share ........................    $   (3.87)     $   (1.51)     $   (1.61)
                                                                    ---------      ---------      ---------
Shares used in basic and diluted loss per common share .........        7,164         34,524         38,176
                                                                    ---------      ---------      ---------
Pro forma basic and diluted loss per common share ..............    $   (1.09)     $   (1.51)     $   (1.61)
                                                                    =========      =========      =========
Shares used in pro forma basic and diluted net loss per
 common share ..................................................       25,412         34,524         38,176
                                                                    =========      =========      =========
(*) Stock-based compensation:
  Cost of Delivered Learning fees ..............................    $     143      $     121      $      28
  Cost of Learning Solution services ...........................          318            500            165
  Content research and development .............................           72             76             34
  Technology research and development ..........................          473          1,329            555
  Selling and marketing ........................................        1,042          1,391            451
  General and administrative ...................................        1,615          2,015            655
                                                                    ---------      ---------      ---------
    Total ......................................................    $   3,663      $   5,432      $   1,888
                                                                    =========      =========      =========
</TABLE>

          See accompanying notes to consolidated financial statements.
                                       40
<PAGE>

                      DIGITALTHINK, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                   Years ended March 31, 2000, 2001 and 2002
                                (in thousands)

<TABLE>
<CAPTION>
                                                   Common stock
                                              ----------------------  Deferred Stock
                                                Shares     Amount      Compensation
                                              --------- ------------ ----------------
<S>                                            <C>        <C>           <C>
Balances, March 31, 1999 ....................  $ 4,131    $    400      $    (332)
Components of comprehensive income: .........
 Net loss ...................................       --          --             --
   Total comprehensive income ...............
 Exercise of stock options ..................      707         506             --
 Accretion for redemption value on
  Series A, B, C and D preferred stock ......       --          --             --
 Conversion of preferred stock to
  common stock ..............................   22,815      58,242             --
 Common stock issued for cash in
  initial public offering and
  concurrent private placement, net
  of issuance costs .........................    6,135      78,728             --
 Deferred stock compensation ................       --      11,284        (11,284)
 Amortization of deferred stock
  compensation ..............................       --          --          3,663
                                               -------    --------      ---------
Balances, March 31, 2000 ....................   33,788     149,160         (7,953)
Components of comprehensive income:
 Net loss ...................................       --          --             --
 Change in unrealized gain on available-
  for-sale investments ......................       --          --             --
 Translation adjustment .....................       --          --             --
   Total comprehensive income ...............
 Exercise of stock options ..................      525         480             --
 Employee stock purchase plan ...............      100       1,187             --
 Stockholders' notes receivable .............       --          --             --
 Forfeited and unvested options .............       --        (974)           974
 Amortization of deferred stock
  compensation ..............................       --          --          5,432
 Amortization of warrants ...................       --      13,131             --
 Issuance of common stock and
  assumption of stock options in
  connection with acquisition ...............      586      24,599         (1,552)
                                               -------    --------      ---------
Balances, March 31, 2001 ....................   34,999    $187,583      $  (3,099)
Components of comprehensive income:
 Net loss ...................................       --          --             --
 Change in unrealized gain on available-
  for-sale investments ......................       --          --             --
 Translation adjustment .....................       --          --             --
   Total comprehensive income ...............
 Exercise of stock options and warrants .....      516         993             --
 Employee stock purchase plan ...............      228       1,629             --
 Repayment of stockholders' notes
  receivable ................................       --          --             --
 Forfeited and unvested options .............       --        (580)           580
 Amortization of deferred stock
  compensation ..............................       --          --          1,888
 Amortization of warrants ...................       --      11,003             --
 Issuance of common stock and
  assumption of warrants in connection
  with acquisition ..........................    4,709      67,186             --
                                               -------    --------      ---------
Balances, March 31, 2002 ....................   40,452    $267,814      $    (631)
                                               =======    ========      =========

<CAPTION>
                                                                   Accumulated
                                                                      Other
                                                 Stockholders'    Comprehensive    Accumulated
                                               Notes Receivable       Income         Deficit         Total
                                              ------------------ --------------- -------------- ---------------
<S>                                                  <C>             <C>           <C>             <C>
Balances, March 31, 1999 ....................        $--             $   --        $  (15,573)     $(15,505)
Components of comprehensive income: .........
 Net loss ...................................         --                 --           (20,161)      (20,161)
                                                                                                   --------
   Total comprehensive income ...............                                                       (20,161)
                                                                                                   --------
 Exercise of stock options ..................         --                 --                --           506
 Accretion for redemption value on
  Series A, B, C and D preferred stock ......         --                 --            (7,593)       (7,593)
 Conversion of preferred stock to
  common stock ..............................         --                 --                --        58,242
 Common stock issued for cash in
  initial public offering and
  concurrent private placement, net
  of issuance costs .........................         --                 --                --        78,728
 Deferred stock compensation ................         --                 --                --            --
 Amortization of deferred stock
  compensation ..............................         --                 --                --         3,663
                                                     ---             ------        ----------      --------
Balances, March 31, 2000 ....................         --                 --           (43,327)       97,880
Components of comprehensive income:
 Net loss ...................................         --                 --           (52,225)      (52,225)
 Change in unrealized gain on available-
  for-sale investments ......................         --                177                --           177
 Translation adjustment .....................         --                 27                --            27
                                                                                                   --------
   Total comprehensive income ...............                                                       (52,021)
                                                                                                   --------
 Exercise of stock options ..................         --                 --                --           480
 Employee stock purchase plan ...............         --                 --                --         1,187
 Stockholders' notes receivable .............           (9)              --                --              (9)
 Forfeited and unvested options .............         --                 --                --            --
 Amortization of deferred stock
  compensation ..............................         --                 --                --         5,432
 Amortization of warrants ...................         --                 --                --        13,131
 Issuance of common stock and
  assumption of stock options in
  connection with acquisition ...............         --                 --                --        23,047
                                                     -----           ------        ----------      ----------
Balances, March 31, 2001 ....................        $(9)            $  204        $  (95,552)     $ 89,127
Components of comprehensive income:
 Net loss ...................................         --                 --           (61,641)      (61,641)
 Change in unrealized gain on available-
  for-sale investments ......................         --               (165)               --          (165)
 Translation adjustment .....................         --               (303)               --          (303)
                                                                                                   ----------
   Total comprehensive income ...............                                                       (62,109)
                                                                                                   ----------
 Exercise of stock options and warrants .....         --                 --                --           993
 Employee stock purchase plan ...............         --                 --                --         1,629
 Repayment of stockholders' notes
  receivable ................................          9                 --                --             9
 Forfeited and unvested options .............         --                 --                --            --
 Amortization of deferred stock
  compensation ..............................         --                 --                --         1,888
 Amortization of warrants ...................         --                 --                --        11,003
 Issuance of common stock and
  assumption of warrants in connection
  with acquisition ..........................         --                 --                --        67,186
                                                     -----           ------        ----------      ----------
Balances, March 31, 2002 ....................        $--             $ (264)       $ (157,193)     $109,726
                                                     =====           ======        ==========      ==========
</TABLE>

          See accompanying notes to consolidated financial statements.
                                       41
<PAGE>

                      DIGITALTHINK, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in thousands)

<TABLE>
<CAPTION>
                                                                                     Year Ended March 31,
                                                                         ---------------------------------------------
                                                                              2000            2001            2002
                                                                         -------------   -------------   -------------
<S>                                                                      <C>             <C>             <C>
Cash flows from operating activities:
 Net loss ............................................................     $ (20,161)      $ (52,225)      $ (61,641)
 Adjustments to reconcile net loss to net cash used in
   operating activities: .............................................
   Depreciation ......................................................           915           3,190           5,274
   Amortization of deferred stock compensation .......................         3,663           5,432           1,888
   Amortization of warrants ..........................................            --          13,131          11,003
   Amortization of goodwill and other intangibles ....................            --           3,602           7,208
   Impairment of goodwill ............................................            --              --          10,437
   Restructuring charges .............................................            --              --           2,333
   Acquisition related charges .......................................            --              --           5,328
   Write-off of in-process research and development ..................            --           7,118              --
   Changes in assets and liabilities: ................................
    Accounts receivable ..............................................        (4,207)         (3,705)          4,078
    Prepaid expenses and other current assets ........................          (758)         (1,705)          2,427
    Accounts payable .................................................         1,868           1,868          (2,433)
    Accrued liabilities ..............................................         2,307             652           1,397
    Deferred revenues ................................................         5,869           4,456          (6,294)
                                                                           ---------       ---------       ---------
      Net cash used in operating activities ..........................       (10,504)        (18,186)        (18,995)
                                                                           ---------       ---------       ---------
Cash flows from investing activities: ................................
 Restricted cash .....................................................            --          (2,033)           (250)
 Purchases of property and equipment .................................        (5,781)        (12,404)        (14,402)
 Net cash paid in acquisition ........................................            --          (1,732)           (169)
 Purchases of marketable securities ..................................       (43,644)        (52,799)        (17,300)
 Proceeds from maturities of marketable securities ...................            --          61,117          49,186
 Other assets ........................................................            27              --               9
                                                                           ---------       ---------       ---------
      Net cash (used in) provided by investing activities ............       (49,398)         (7,851)         17,074
                                                                           ---------       ---------       ---------
Cash flows from financing activities: ................................
 Proceeds from sale of preferred stock ...............................        26,067              --              --
 Payments of notes payable ...........................................            --              --          (1,440)
 Proceeds from sale of common stock ..................................        79,234           1,668           2,622
                                                                           ---------       ---------       ---------
      Net cash provided by financing activities ......................       105,301           1,668           1,182
                                                                           ---------       ---------       ---------
Effect of exchange rate changes on cash and cash equivalents .........            --              27            (303)
Net increase(decrease) in cash and cash equivalents ..................        45,399         (24,342)         (1,042)
Cash and cash equivalents, beginning of year .........................         9,455          54,854          30,512
                                                                           ---------       ---------       ---------
Cash and cash equivalents, end of year ...............................     $  54,854       $  30,512       $  29,470
                                                                           =========       =========       =========
Supplemental disclosure of cash flow information:
 Cash paid for interest ..............................................     $      --       $      --       $      41
Supplemental disclosure of noncash investing and financing
 activities:
 Unrealized gain/(loss) on marketable securities .....................     $      --       $     177       $    (165)
</TABLE>

          See accompanying notes to consolidated financial statements.
                                       42
<PAGE>

                      DIGITALTHINK, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

     Organization

     DigitalThink, Inc. (the "Company"), was incorporated in California on
April 22, 1996 to provide Web-based training courses and training delivery
technology. The Company completed the development of its delivery technology
and initial content, and began substantial sales and marketing efforts in
fiscal year 1998. In November 1999, the Company reincorporated in Delaware.

     Principles of Consolidation

     The consolidated financial statements include the accounts of DigitalThink
Inc., and its wholly-owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation. Accounts denominated in
foreign currencies have been translated using the U.S. dollar as the functional
currency.

     Estimates

     The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets, liabilities, revenues
and expenses as of the dates and for the periods presented. Actual results
could differ from those estimates.

     Cash and Cash Equivalents

     The Company considers all highly liquid debt instruments purchased with a
remaining maturity of three months or less to be cash equivalents.

     Marketable Securities

     At March 31, 2002 all short-term marketable securities were due in one
year or less and consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                                          Gross                Gross           Estimated
                                                          Cost      Unrealized Gains     Unrealized Losses     Fair Value
                                                       ---------   ------------------   -------------------   -----------
<S>                                                    <C>                 <C>                 <C>               <C>
Short-Term Investments Government agencies .........    $1,652             $--                 $ (12)            $1,640
</TABLE>

     At March 31, 2001 all short-term marketable securities were due in one
year or less and consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                     Gross                Gross           Estimated
                                    Cost       Unrealized Gains     Unrealized Losses     Fair Value
                                 ----------   ------------------   -------------------   -----------
<S>                              <C>                 <C>                  <C>              <C>
Short-Term Investments
 Commercial paper ............    $18,015            $ 47                  $--             $18,062
 Government agencies .........     15,334             130                   --              15,464
                                  -------            ----                  ---             -------
                                  $33,349            $177                  $--             $33,526
                                  =======            ====                  ===             =======
</TABLE>

     The Company classifies these investments as available for sale. Unrealized
gains or losses are included in a separate component of stockholders' equity.
Realized gains and losses are computed based on the specific determination
method and were not material during any of the periods presented.

     Restricted Cash and Deposits

     Restricted cash and deposits represent deposits held as collateral
relating to operating leases and letters of credit.

                                       43
<PAGE>

                      DIGITALTHINK, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

1. Summary of Significant Accounting Policies -- (Continued)

     Concentration of Credit Risk

     Financial instruments potentially subjecting the Company to concentrations
of credit risk consist primarily of cash, cash equivalents, short term
investments and accounts receivable. The Company invests its excess cash in
deposits with major banks, in U.S. Treasury and U.S. agency obligations and in
debt securities of corporations with strong credit ratings. No losses have been
experienced on such investments.

     Accounts receivable are unsecured, and the Company is at risk to the
extent that such amounts become uncollectible. The Company closely monitors its
outstanding receivable balances on an on-going basis. At March 31, 2001, one
account represented 21% of gross accounts receivable, although less than 30
days outstanding. At March 31, 2002, one account represented 23% of gross
accounts receivable, although less than 30 days outstanding.

     In fiscal 2000, one customer accounted for 32% of total revenues. In
fiscal 2001, one customer accounted for 10% of total revenues. In fiscal 2002,
our largest customer, EDS, accounted for 8.8% and another customer accounted
for 15.5% of our total revenues of $43.4 million, or 25.9% and 12.6%,
respectively, when excluding the forgiveness of a $10 million penalty
associated with the restructuring of an agreement with EDS.

     Property and Equipment

     Property and equipment is stated at cost. Depreciation is computed using
the straight-line method over estimated useful lives of three to four years.
Leasehold improvements are amortized using the straight-line method over the
shorter of the estimated useful lives or the remaining lease terms.

     Long-Lived Assets

     The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of that asset may
not be recoverable. An impairment loss would be recognized when the sum of the
undiscounted future net cash flows expected to result from the use of the asset
and its eventual disposition is less than its carrying amount.

     Goodwill

     Goodwill is recorded when the consideration paid for acquisitions exceeds
the estimated fair value of identifiable net tangible and intangible assets
acquired. Goodwill related to acquisitions occurring prior to July 1, 2001 and
other acquisition-related intangibles are amortized on a straight-line basis up
to four years. Goodwill and other acquisition-related intangibles are reviewed
for recoverability periodically or whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable.

     As part of our ongoing review of the Company's operations and financial
performance, we performed an assessment of the carrying value of the our
long-lived assets to be held for use including goodwill and other intangible
assets recorded in connection with our various acquisitions. The assessment was
performed pursuant to SFAS 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. The conclusion of that
assessment was that the value of the technology purchased associated with the
Arista acquisition was no longer being used in the current product offerings
and was not part of the product roadmap for the future. As a result, we
recorded charges of $10.4 million to write off the Arista goodwill during the
fourth quarter of fiscal 2002 as it no longer had any recoverable value.

     Revenue Recognition

     Delivered learning fees allow access to training systems, courses hosted
by the Company, tutor support, and other learning materials for a fixed period,
typically six months. Delivered Learning fees are recognized ratably over this
access period. Revenues for Learning Solution services (custom course
development or consulting services) are recognized as earned in accordance with
Statement of Position (SOP) 81-1, Accounting for Performance of
Construction/Production-Type Contracts, as development progresses based on the
percentage of

                                       44
<PAGE>

                      DIGITALTHINK, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

1. Summary of Significant Accounting Policies -- (Continued)

completion method. The percentage of completion is based on the ratio of actual
custom development or service costs incurred to date, to total estimated costs
to complete the custom course or service. Provisions for estimated losses on
incomplete contracts will be made on a contract by contract basis and
recognized in the period in which such losses become probable and can be
reasonably estimated. To date, there have been no such losses. Custom contracts
typically call for non-refundable payments due upon achievement of certain
milestones in production of the courses or in consulting services. Deferred
revenues represent customer prepayments for both Delivered Learning fees and
Learning Solution services.

     Content research and development

     Expenses charged to operations as incurred include course development
personnel related costs. Course development expenses and subject matter expert
payments to course authors are expensed as incurred, in accordance with SFAS
No. 86, as the recoverability of such costs against future revenues is
uncertain.

     Technology research and development

     Expenses are charged to operations as incurred. Such expenses include Web
site development costs. Web site development costs which meet the
capitalization criteria of SOP 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use are capitalized and amortized
over the useful economic life.

     Income Taxes

     The Company accounts for income taxes using an asset and liability
approach. Deferred tax liabilities are recognized for future taxable amounts
and deferred tax assets are recognized for future deductions and operating loss
carryforwards, net of a valuation allowance to reduce net deferred tax assets
to amounts that are more likely than not to be realized.

     Stock-Based Awards

     The Company accounts for stock-based awards to employees under its stock
option plan and employee stock purchase plan as noncompensatory in accordance
with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees.

     Translation of Foreign Currency

     The Company's foreign operations are measured using local currencies as
the functional currency. Assets and liabilities are translated into U.S.
dollars at year-end rates of exchange, and results of operations are translated
at average rates for the year.

     Loss per Common Share

     Basic loss per common share excludes dilution and is computed by dividing
loss attributable to common stockholders by the weighted average number of
common shares outstanding during the period. Diluted loss per common share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
Common share equivalents are excluded from the computation in loss periods as
their effect would be anti-dilutive.

     Pro Forma Net Loss per Common Share

     Pro forma basic and diluted loss per share is computed by dividing net
loss by the weighted average number of shares outstanding for the period and
the weighted average number of common shares resulting from the assumed
conversion of outstanding shares of redeemable convertible preferred stock.

                                       45
<PAGE>

                      DIGITALTHINK, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

1. Summary of Significant Accounting Policies -- (Continued)

     Recently Issued Accounting Standards

     In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
133 establishes a new model for accounting for derivatives and hedging
activities and supercedes and amends a number of existing accounting standards.
SFAS No. 133 requires that all derivatives be recognized in the balance sheet
at their fair market value and the corresponding derivative gains or losses be
either reported in the statement of operations or as a deferred item depending
on the type of hedge relationship that exists with respect of such derivatives.
In July 1999, the FASB issued SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133. SFAS No. 137 deferred the effective date until years
beginning after June 30, 2000. In June 2000, the FASB issued SFAS No. 138,
Accounting for Derivative Instruments and Hedging Activities--An Amendment of
FASB Statement No. 133. SFAS No. 138 amends the accounting and reporting
standards for certain derivatives and hedging activities such as net settlement
contracts, foreign currency transactions and intercompany derivatives. The
Company has adopted SFAS No. 133 in its quarter ending June 30, 2001. To date,
the Company has not engaged in derivative or hedging activities, and
accordingly, the adoption of SFAS No. 133 had no impact on the financial
statements.

     In June 2001, the FASB issued SFAS No. 141, Business Combinations and SFAS
No.142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that all
business combinations initiated after June 30, 2001 be accounted for under the
purchase method and addresses the initial recognition and measurement of
goodwill and other intangible assets acquired in a business combination. SFAS
No. 142 addresses the initial recognition and measurement of intangible assets
acquired outside of a business combination and the accounting for goodwill and
other intangible assets subsequent to their acquisition. SFAS No. 142 provides
that intangible assets with finite useful lives be amortized and that goodwill
and intangible assets with indefinite lives will not be amortized, but will
rather be tested at least annually for impairment. The Company will adopt SFAS
No. 142 for its fiscal year beginning April 1, 2002. During the first half of
fiscal year 2003, we will perform the first of the required impairment tests of
goodwill and indefinite-lived intangible assets as of April 1, 2002. We are
currently assessing the impact, if any, of SFAS 142 on our financial position
and results of operations.

     In August 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 requires businesses to record the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred. When the liability is initially recorded, the entity
capitalizes a cost by increasing the carrying amount of the related long-lived
asset. Over time, the liability is accreted to its present value each period,
and the capitalized cost is depreciated over the useful life of the related
asset. Upon settlement of the liability, an entity either settles the
obligation for its recorded amount or incurs a gain or loss upon settlement. We
are required to adopt SFAS No. 143 for our fiscal year beginning April 1, 2003.
We are currently assessing the impact, if any, of SFAS No. 143 on our financial
position and results of operations.

     In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets which supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of and APB No. 30, Reporting the Results of Operations--Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions. SFAS No. 144 also amends
Accounting Research Bulletin No. 51, Consolidated Financial Statements. SFAS
144 requires that long-lived assets that are to be disposed of by sale be
measured at the lower of book value or fair value less cost to sell. The
statement also significantly changes the criteria required to classify an asset
as held-for-sale. Additionally, SFAS 144 expands the scope of discontinued
operations to include all components of an entity with operations that (1) can
be distinguished from the rest of the entity and (2) will be eliminated from
the ongoing operations of the entity in a disposal transaction. We are required
to adopt SFAS 144 for our fiscal year beginning April 1, 2002. We are currently
assessing the impact, if any, of SFAS 144 on our financial position and results
of operations.

                                       46
<PAGE>

                      DIGITALTHINK, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

1. Summary of Significant Accounting Policies -- (Continued)

     Comprehensive Income

     The Company is required to report comprehensive income in the financial
statements, in addition to net income. The primary differences between net
income and comprehensive income are foreign currency translation adjustments
and net unrealized gains or losses on securities available for sale.

     Reclassification

     Certain prior year amounts in the consolidated financial statements and
notes thereto have been reclassified to conform to the current year
presentation.

2. Business Combinations

     On July 6, 2000 DigitalThink, Inc. acquired Arista Knowledge Systems, Inc.
("Arista"), a company providing Internet-based learning management systems.
DigitalThink issued approximately 746,000 shares of DigitalThink common stock
in exchange for outstanding stock, options and warrants of Arista. The total
cost of the acquisition, including transaction costs, was approximately $26.3
million. The acquisition was accounted for as a purchase business combination;
accordingly the results of operations of Arista have been included with the
Company's results of operations since July 6, 2000. The purchase price paid for
the Arista acquisition was allocated based on the estimated fair values of the
net assets acquired as follows (in thousands):

<TABLE>
<S>                                                                        <C>
            In-process research and development ........................    $  7,118
            Acquired technology, workforce intangible and goodwill            19,212
            Intrinsic value of unvested Arista options assumed .........       1,552
            Tangible assets acquired ...................................       1,718
            Liabilities assumed ........................................      (3,269)
                                                                            --------
            Net assets acquired ........................................    $ 26,331
                                                                            ========
</TABLE>

     The consideration given in the acquisition of Arista was as follows:

<TABLE>
<S>                                               <C>
  DigitalThink common stock ...................    $20,523
  Stock options assumed .......................      3,976
  Net cash paid ...............................      1,732
  Transaction costs ...........................        100
                                                   -------
  Total purchase price ........................    $26,331
                                                   =======
</TABLE>

     Of the purchase price, $7.1 million represents purchased in-process
technology that had not yet reached technological feasibility and had no
alternative future use. Accordingly, this amount was immediately expensed in
the consolidated statement of operations upon consummation of the acquisition.
The value assigned to purchased in-process technology was based on a valuation
prepared by an independent third-party appraiser. Intangible assets acquired
will be amortized on a straight-line basis over a period of four years.

     The following unaudited pro forma results of operations for the years
ended March 31, 2000 and 2001 give effect to the acquisition as if it had
occurred at the beginning of fiscal 2000. The pro forma results of operations
exclude the $7.1 million of nonrecurring charges that were recorded in
conjunction with the acquisition (in thousands, except per share amounts):

                                       47
<PAGE>

                      DIGITALTHINK, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

2. Business Combinations -- (Continued)

<TABLE>
<CAPTION>
                                                                 Years Ended March 31,
                                                            -------------------------------
                                                                 2000             2001
                                                            --------------   --------------
<S>                                                           <C>              <C>
         Net revenues ...................................     $   10,832       $   38,658
         Loss from operations ...........................     $   26,189       $   62,061
         Net loss .......................................     $  (25,406)      $  (58,353)
         Basic and diluted loss per share attributable to
          common shareholders ...........................     $    (4.61)      $    (1.69)
</TABLE>

     Effective August 28, 2001, the Company acquired LearningByte
International, Inc. ("LBI"), a provider of custom e-learning courseware, in
exchange for approximately 4.7 million shares of DigitalThink common stock and
assume approximately 500,000 warrants outstanding, for a total purchase price
of approximately $68 million, including transaction costs, as follow (in
thousands):

<TABLE>
<S>                                                    <C>
            DigitalThink common stock ..............    $ 63,656
            Warrants assumed at fair value .........       3,530
            Transaction costs ......................         800
                                                        --------
            Total purchase price ...................    $ 67,986
                                                        ========
</TABLE>

     The acquisition of LBI was accounted for by the purchase method. LBI's
results of operations have been included in the Company's results of operations
since the effective date of the acquisition. The assets acquired and
liabilities assumed were recorded at estimated fair values as determined by the
Company's management based on information currently available and on current
assumptions as to future operations. The Company obtained an independent
appraisal of the fair value of the acquired tangible and identified intangible
assets, and their remaining useful lives. The allocation of the purchase price
is based on preliminary estimates that are not expected to change materially.
Intangible assets acquired will be amortized on a straight-line basis over a
weighted average period of 4.6 years. Goodwill will not be amortized in
accordance with SFAS 141. A summary of the assets acquired and liabilities
assumed in the acquisition follows (in thousands):

<TABLE>
<S>                                                                      <C>
            Acquired technology and customer list ....................    $  6,800
            Goodwill .................................................      70,040
            Net fair value of tangible assets acquired and liabilities
               assumed ...............................................      (8,854)
                                                                          --------
            Net assets acquired ......................................    $ 67,986
                                                                          ========
</TABLE>

     The following table reflects the results of operations on a pro forma
basis as if the acquisition had been completed on April 1, 2001 and 2000, and
does not consider the effects of synergies and cost reduction initiatives
directly related to all acquisitions. Therefore, the pro forma financial
information is as follows (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                           Years Ended March 31,
                                                      -------------------------------
                                                           2002             2001
                                                      --------------   --------------
<S>                                                   <C>              <C>
         Net revenues .............................     $   46,387       $   32,216
         Loss from operations .....................     $  (70,513)      $  (58,781)
         Net loss .................................     $  (70,162)      $  (54,476)
         Basic and diluted loss per share .........     $    (1.75)      $    (1.39)
</TABLE>

     In connection with the LBI acquisition, the Company recorded a charge of
$5.8 million comprised of approximately $5.3 million for the write-off of
internal use software made obsolete by the acquisition of LBI and $0.5 million
for severance-related costs.

     Effective November 16, 2001, the Company acquired TCT Technical Training
Pvt. Ltd. ("TCT"), of Kolkata, India, a content developer of custom courseware.
DigitalThink acquired all the outstanding shares of TCT for

                                       48
<PAGE>

                      DIGITALTHINK, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

2. Business Combinations -- (Continued)

$500,000 after we received governmental approval in November 2001. TCT has been
acting exclusively as a contractor to the Company since April 2001, when the
transaction was first announced. Upon acquisition, $215,000 was recorded as an
intangible to be amortized over one year and $285,000 was the net fair value of
tangible assets acquired and liabilities assumed. The acquisition of TCT was
accounted for by the purchase method. TCT's results of operations have been
included in the Company's results of operations since the effective date of the
acquisition. Pro forma financial information in connection with the TCT
acquisition has not been provided, as results would not have differed
materially from actual reported results.

3. Restructuring Charge (in thousands)

<TABLE>
<CAPTION>
                                                                                                    Remaining
                                                                                   Charged to       Liability
                                      Fiscal 2002       Cash         Non-Cash         Other       Balances as of
                                        Expense       Payments       Charges        Accounts      March 31, 2002
                                     -------------   ----------   -------------   ------------   ---------------
<S>                                     <C>           <C>           <C>               <C>            <C>
Severance ........................      $   650       $  (440)      $      --         $ --            $  210
Facilities and equipment .........        2,365            --          (2,333)          --                32
Lease commitments ................        6,763            --              --          864             7,627
                                        -------       -------       ---------         ----            ------
 Total ...........................      $ 9,778       $  (440)      $  (2,333)        $864            $7,869
</TABLE>

     In March 2002 we initiated a strategic initiative, under which we
restructured our business in response to the current market environment and as
part of our continuing program to create efficiencies within our operations. We
recorded total restructuring charges of $9.8 million as part of our strategic
initiative, which included the following:

     o    Reducing our workforce by approximately 80 employees, mainly within
          the learning services organization, resulting in a $700 thousand
          severance charge. Approximately $400 thousand was paid in March 2002,
          and approximately $300 thousand will be paid in the first and second
          quarters of fiscal 2003.

     o    Consolidating our sales, administrative and content and technology
          development facilities through building and site closures, from a
          total of approximately 244,000 square feet into approximately 100,000
          square feet. As of March 31, 2002, seven sites have been vacated: San
          Diego, California; Chislom, Minnesota; Detroit, Michigan; Alameda,
          California; two facilities in San Francisco, California and our office
          in the United Kingdom. Property and equipment that was disposed or
          removed from operations resulted in a charge of $2.3 million and
          consisted primarily of leasehold improvements, computer equipment and
          furniture and fixtures. In addition, we incurred a charge of $6.8
          million associated with leases related to excess or closed facilities,
          which represents the excess of the remaining lease obligations over
          estimated market value, net of anticipated sublease income. Amounts
          accrued (net of anticipated sublease proceeds) related to the
          consolidation of facilities will be paid over the respective lease
          terms through 2016.

     The Company has been recording deferred rent for those leased facilities
that met the criteria in accordance with SFAS No. 13, Accounting for Leases.
Nine leased facilities were included in the restructuring costs and for two of
those facilities; the Company had recorded deferred rent of approximately $864
thousand. This amount of deferred rent was a liability as of March 2002 and
noted as part of the restructuring liability.

                                       49
<PAGE>

                      DIGITALTHINK, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

4. Property and Equipment

     Property and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                            March 31,
                                                    -------------------------
                                                        2001          2002
                                                    -----------   -----------
<S>                                                 <C>           <C>
         Furniture and fixtures .................    $    671      $    737
         Computer hardware and software .........      11,587        18,812
         Leasehold improvements .................       2,473         8,337
         Assets in progress .....................       4,879            --
         Accumulated depreciation ...............      (4,549)       (9,561)
                                                     --------      --------
         Property and equipment, net ............    $ 15,061      $ 18,325
                                                     ========      ========
</TABLE>

5. Accrued Liabilities (in thousands):

<TABLE>
<CAPTION>
                                                        March 31,
                                                  ---------------------
                                                     2001        2002
                                                  ---------   ---------
<S>                                               <C>         <C>
         Payroll and related expenses .........    $2,865      $ 1,464
         Deferred rent ........................       531          103
         Restructuring charge .................        --        7,869
         Other ................................     3,128        3,802
                                                   ------      -------
         Total accrued liabilities ............    $6,524      $13,238
                                                   ======      =======
</TABLE>

6. Income Taxes:

     No income taxes were provided for any of the periods presented due to the
Company's net losses. Deferred tax assets (liabilities) are comprised of the
following (in thousands):

<TABLE>
<CAPTION>
                                                                     March 31,
                                                            ---------------------------
                                                                2001           2002
                                                            ------------   ------------
<S>                                                         <C>            <C>
         Deferred tax assets: ...........................
         Accruals and reserves ..........................    $     617      $     539
         Net operating losses and tax credits carried
          forward .......................................       19,189         31,755
         Basis difference in fixed assets ...............          400            392
                                                             ---------      ---------
          Total gross deferred tax asset before valuation
            allowance ...................................       20,206         32,686
         Valuation allowance ............................      (20,206)       (32,686)
                                                             ---------      ---------
         Net deferred tax asset .........................    $      --      $      --
                                                             =========      =========
</TABLE>

     At March 31, 2002, the Company had available federal and California state
net operating loss carryforwards of approximately $77.0 million and $74.6
million, respectively, to offset future taxable income. These net operating
loss carryforwards begin to expire in 2012 and 2005 for federal and state
purposes, respectively. The Company has federal and California state research
and development credit carryforwards of $326,000 and $271,000 respectively. The
Company also has California state enterprise zone credit carryforwards of
$613,000. At March 31, 2002, the Company's wholly owned foreign subsidiaries in
the United Kingdom and India had foreign net operation loss carryforwards of
approximately $3.0 million to offset future foreign taxable income. At March
31, 2001 and 2002, the net deferred tax assets have been fully reserved due to
the uncertainty surrounding the realization of such benefits.

     Internal Revenue Code Section 382 places a limitation (the "Section 382
Limitation") on the amount of taxable income which can be offset by net
operating loss ("NOL") carryforwards after a change in control (generally
greater

                                       50
<PAGE>

                      DIGITALTHINK, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

6. Income Taxes: -- (Continued)

than 50% change in ownership) of a loss corporation. California has similar
rules. Generally, after a control change, a loss corporation cannot deduct NOL
carryforwards in excess of the Section 382 Limitation. Due to these "change in
ownership" provisions, utilization of the NOL carryforwards may be subject to
an annual limitation regarding their utilization against taxable income in
future periods.

7. Redeemable Convertible Preferred Stock

     In July 1996, the Company issued 2,910,000 shares of Series A preferred
stock for cash at $0.50 per share. In December 1996, 274,000 shares of Series A
preferred stock were issued upon conversion of $137,000 of convertible notes.
In June 1997, the Company issued 7,726,668 shares of Series B preferred stock
for $0.75 per share. In December 1998 and March 1999, the Company issued
7,824,305 shares of Series C preferred stock for $1.50 per share. In November
1999, the Company issued 3,999,617 shares of Series D preferred stock for $6.50
per share.

     Beginning in 2001, the shares of each series of preferred stock were
redeemable at the option of the holders of a majority of the outstanding
preferred shares of that series, provided that the Company had not completed a
public offering meeting certain criteria. The redemption price of Series A
preferred stock was $0.50 per share plus a 25% compound annual rate of return
from July 19, 1996 (as adjusted for any stock dividends, combinations, or
splits). The redemption price of Series B preferred stock was $0.75 per share
plus a 25% compound annual rate of return from June 1, 1997. The redemption
price of Series C preferred stock was $1.50 per share plus a 25% compound
annual rate of return from October 30, 1998. The redemption price of Series D
preferred stock was $6.50 per share plus a 25% compound annual rate of return
from November 1, 1999. The redemption value was accreted over the redemption
period. Accretion for Series A was $278,000, $468,000, $584,000, and $658,000
in fiscal 1997, 1998, 1999 and 2000, respectively. Accretion for Series B was
$1,202,000, $1,719,000 and $1,934,000 in fiscal 1998, 1999 and 2000
respectively. Accretion for Series C was $1,214,000 and $2,900,000 in fiscal
1999 and 2000 respectively. Accretion for Series D was $2,101,000 in fiscal
2000.

     Upon the closing of the Company' initial public offering on March 1, 2000
all of the outstanding shares of Series A, B, C and D redeemable convertible
preferred stock were automatically converted into shares of common stock on a
one-to-one basis.

8. Stockholders' Equity (Deficit)

     Initial Public Offering

     On February 25, 2000, the Company completed its initial public offering of
5,060,000 shares, resulting in net proceeds of $64.7 million to the Company.

     Private Placement

     In February 2000, concurrent with its initial public offering, the Company
completed a private placement of 1,075,269 shares, resulting in proceeds of
$14.0 million to the Company.

     Stock Option Plan

     The Company's stock option plans provide for grants of incentive or
nonstatutory stock options to officers, employees, directors and consultants.
Options vest over four years and expire over terms up to ten years. One of the
Company's stock option plans provides for annual increases in the number of
shares available for issuance equal to the lesser of 2 million shares, 5% of
the outstanding shares on the date of the annual increase, or a lesser amount
as may be determined by the board of directors.

     The Company had 2,472,986 shares available for future grant at March 31,
2002.

                                       51
<PAGE>

                      DIGITALTHINK, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

8. Stockholders' Equity (Deficit) -- (Continued)

     A summary of the activity under the Company's stock option plans is as
follows:

<TABLE>
<CAPTION>
                                                                                                    Weighted
                                                                                                    Average
                                                                                      Number        Exercise
                                                                                    of Shares        Price
                                                                                 ---------------   ---------
<S>                                                                                 <C>             <C>
Balances, March 31, 1999 (397,626 exercisable at a weighted average exercise
 price of $0.074 per share) ..................................................       2,185,049      $  0.23
Granted (weighted average fair value of $3.69) ...............................       3,709,550         4.18
Canceled .....................................................................        (307,874)        0.68
Exercised ....................................................................        (707,461)        0.71
                                                                                     ---------      -------
Balances, March 31, 2000 (487,576 exercisable at a weighted average exercise
 price of $4.18 per share) ...................................................       4,879,264         3.13
Granted (weighted average fair value of $14.47) ..............................       4,627,554        17.12
Options assumed in acquisition ...............................................         159,704        17.44
Canceled .....................................................................      (1,012,929)       15.77
Exercised ....................................................................        (524,698)        0.90
                                                                                    ----------      -------
Balances, March 31, 2001 (1,407,436 exercisable at a weighted average exercise
 price of $3.14 per share ....................................................       8,128,895      $  9.89
Granted (weighted average fair value of $7.99) ...............................       1,629,519         9.63
Canceled .....................................................................      (2,277,736)       14.44
Exercised ....................................................................        (505,066)        1.96
                                                                                    ----------      -------
Balances, March 31, 2002 .....................................................       6,975,612      $  8.89
                                                                                    ==========      =======
</TABLE>

     The following table summarizes information as of March 31, 2002 concerning
options outstanding:

<TABLE>
<CAPTION>
                                       Options Outstanding                      Vested Options
                         -----------------------------------------------   ------------------------
                                          Weighted Average     Weighted                    Weighted
       Range of                               Remaining         Average                    Average
       Exercise              Number       Contractual Life     Exercise       Number       Exercise
        Prices            Outstanding          (Years)           Price        Vested        Price
        ------            -----------          -------           -----        ------        -----
<S>                        <C>                   <C>            <C>           <C>          <C>
   $ 0.05 -- $ 0.25          704,440             6.09           $ 0.14        631,287      $ 0.12
     0.50 --   1.50        1,350,117             7.47             1.37        774,806        1.38
     4.43 --   7.75        1,292,504             8.96             7.63        316,791        7.66
     7.82 --  11.00        2,618,386             8.70             9.51        771,526        9.78
    11.19 --  34.25          684,552             8.73            17.48        210,899       20.97
    34.63 --  56.00          325,613             8.37            41.00        144,288       41.08
                           ---------             ----           ------        -------      ------
              Total        6,975,612             8.23           $ 8.89      2,849,597      $ 7.53
                           =========             ====           ======      =========      ======
</TABLE>

     Additional Stock Plan Information

     As discussed in Note 1, the Company accounts for its stock-based awards
using the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and its related
interpretations.

     Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS 123), requires the disclosure of pro forma net
income (loss) had the Company adopted the fair value method. Under SFAS 123,
the fair value of stock-based awards to employees is calculated through the use
of option pricing models, even though such models were developed to estimate
the fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option
awards. These models also require subjective assumptions, including expected
time to exercise, which greatly affect the calculated values. Until the date of
the initial public offering the Company's calculations were made using the
minimum value pricing method. The following weighted average assumptions were
used: expected life after vesting, 2.5 years in fiscal 2000, 3 years

                                       52
<PAGE>

                      DIGITALTHINK, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

8. Stockholders' Equity (Deficit) -- (Continued)

in fiscal 2001 and 2.5 years in fiscal 2002; average risk-free interest rate,
6.0% in fiscal 2000, 5.3% in fiscal 2001 and 4.5% in fiscal 2002. The Company's
calculations include volatility of 100% in the period following the public
offering through March 31, 2000, 115% in fiscal 2001 and 120% in fiscal 2002
and no dividends during the expected term. The Company's calculations are based
on a multiple option valuation approach, and forfeitures are recognized as they
occur.

     If the computed values of the Company's stock-based awards to employees
had been amortized to expense over the vesting period of the awards as
specified under SFAS No. 123, loss attributable to common stockholders and
basic and diluted loss per share on a pro forma basis (as compared to such
items as reported) would have been:

<TABLE>
<CAPTION>
                                                    Years Ended March 31,
                                        ---------------------------------------------
                                             2000            2001            2002
                                        -------------   -------------   -------------
Net loss (in thousands):
<S>                                       <C>             <C>             <C>
 As reported ........................     $ (20,161)      $ (52,225)      $ (61,641)
 Pro forma ..........................     $ (20,407)      $ (53,411)      $ (62,222)
Basic and diluted net loss per share:
 As reported ........................     $   (3.87)      $   (1.51)      $   (1.61)
 Pro forma ..........................     $   (3.91)      $   (1.55)      $   (1.63)
</TABLE>

     Stock-Based Compensation

     During fiscal 2000, the Company issued 3,709,550 common stock options at a
weighted average price of $4.18 per share, which was less than the deemed
weighted average fair value of $7.22 per share. Accordingly, the Company
recorded $11,284,000 as the value of such options. Stock-based compensation of
$3,663,000 was amortized to expense in the year ended March 31, 2000.

     During fiscal 2001, the Company assumed 159,704 unvested common stock
options at a weighted average price of $17.44 per share, which was less than
the fair value of $35 per share, related to the Arista acquisition.
Accordingly, the Company recorded $1.6 million as the value of such options.
Stock-based compensation of $5.4 million was amortized to expense in the year
ended March 31, 2001. In addition, the Company recorded a $974,000 decrease in
deferred stock compensation in fiscal 2001 due to unvested options of
terminated employees.

     At March 31, 2002, the Company had $631,000 in deferred stock compensation
related to options, which will be amortized to expense through fiscal 2004.

9. Net Loss Per Share

     For fiscal 2000, 2001 and 2002, the Company had stock options outstanding
of 4,879,264, 8,128,895, and 6,975,612, respectively, which could potentially
dilute basic earnings per share in the future, but were excluded in the
computation of diluted net loss per share in the periods presented, as their
effect would have been antidilutive.

10. Related Party Transactions:

     During fiscal 2000, the Company generated revenues of approximately
$549,000, $526,000, $230,000, $158,000, $143,000, and $113,000 from six
customers who are investors in the Company. Additionally, the Company generated
revenues of $3.5 million from one customer of which one of the Company's
directors is an executive officer.

     During fiscal 2001, the Company generated revenues of approximately $4.0
million, $3.0 million, $831,000, $827,000, and $199,000 from 5 customers who
are investors in the Company. Additionally, the Company generated revenues of
$2.5 million from one customer of which one of the Company's directors is a
director. Receivables at fiscal year-end relating to these six customers
totaled $752,000.

                                       53
<PAGE>

                      DIGITALTHINK, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

10. Related Party Transactions: -- (Continued)

     During fiscal 2002, the Company generated revenues of approximately $4.0
million, $1.5 million, $335,000, and $10,000 from 4 customers who are investors
in the Company. Additionally, the Company generated revenues of $3.9 million
from one customer of which one of the Company's directors is an executive
officer. Receivables at fiscal year-end relating to these six customers totaled
$486,000.

11. Employee Benefit Plans

 401(k) Plan

     The Company has a 401(k) retirement plan (the Plan) that covers
substantially all employees of the Company. The Plan provides for voluntary
salary reduction contributions of up to 20% of eligible participants' annual
compensation. The Company has not provided matching contributions for any of
the periods presented.

     Employee Stock Purchase Plan

     The Company has a Qualified Employee Stock Purchase Plan (ESPP) under
which 200,000 shares of common stock were originally reserved for issuance. The
ESPP allows for annual increases equal to the lesser of 1% of the outstanding
shares of common stock on the first day of the fiscal year, 400,000 shares, or
such lesser amount as may be determined by the board. Under the ESPP, eligible
employees may purchase shares of the Company's common stock through payroll
deductions of up to 10% of the participant's compensation.

     Under this plan, eligible employees may purchase shares of the Company's
common stock at 85% of fair market value at specific, predetermined dates. In
fiscal 2001, approximately 100,000 shares were purchased at an average price of
$11.87. In fiscal 2002, approximately 228,000 shares were purchased at an
average price of $7.18. At March 31, 2002, approximately 227,000 shares were
available for purchase under the ESPP.

12. Lease Commitments

     The Company leases its principal office facilities under operating leases.
As of March 31, 2002, future minimum payments under facilities operating leases
are as follows (in thousands):

<TABLE>
<CAPTION>
Fiscal Year Ending March 31,
------------------------------
<S>                              <C>
  2003 .......................     $7,196
  2004 .......................      6,677
  2005 .......................      6,554
  2006 .......................      6,710
  2007 .......................      6,722
  Thereafter .................     27,585
                                   ------
    Total ....................    $61,444
                                  =======
</TABLE>

     Rent expense under operating leases was $978, $2,730, and $4,366 for the
years ended March 31, 2000, 2001 and 2002, respectively.

13. Strategic Alliance with Electronic Data Systems Corporation

     On July 11, 2000 the Company entered into an agreement with EDS pursuant
to which EDS was issued two separate performance warrants to purchase shares of
DigitalThink common stock. Under the terms of the first warrant, EDS could earn
warrants to purchase up to 862,955 shares of DigitalThink common stock
exercisable at $29 per share. The warrant could have been earned when EDS
delivered third-party customers from the United States prior to July 31, 2003,
which generated a total of $50 million of contractually committed revenue to
DigitalThink recognizable by July 31, 2005. The warrants expired October 31,
2003. This warrant contained a significant disincentive for non-performance. If
EDS failed to deliver the full $50 million of contracted, United States revenue
by July 31, 2003, EDS agreed to pay DigitalThink $5 million.

                                       54
<PAGE>

                      DIGITALTHINK, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

13. Strategic Alliance with Electronic Data Systems Corporation -- (Continued)

     Under the terms of the second warrant, EDS could earn warrants for up to
690,364 shares of DigitalThink common stock exercisable at $29 per share. The
warrant could have been earned when EDS delivered third-party customers from
outside the United States prior to July 31, 2003, which generated a total of
$50 million of contractually committed revenue to DigitalThink recognizable by
July 31, 2005. The warrants expired October 31, 2003. This warrant contained a
significant disincentive for non-performance. If EDS failed to deliver the full
$50 million of contracted, non-United States revenue by July 31, 2003, EDS
agreed to pay DigitalThink $5 million.

     The Company calculated a fixed non-cash charge of $38 million related to
this transaction, based on the fair value of the warrants issued. A portion of
the warrant vested at the date of the transaction resulting in an immediate
charge of $4.9 million. Amortization of the remaining warrant expense would
occur over three years from July 2000 through July 2003, in proportion to the
amount of revenue generated under the agreement, or on a straight-line basis,
whichever is faster. Through March 31, 2002, amortization was recorded on a
straight-line basis totaling $24.1 million.

     On March 27, 2002, DigitalThink restructured the agreement entered into
with EDS, whereby EDS has surrendered its vested and unvested warrants to
purchase shares of DigitalThink common stock and DigitalThink has forgiven the
$10 million total non-performance penalty associated with these warrants.
Therefore, a charge of approximately $10 million was recorded as a reduction of
revenue and a credit of approximately $10 million was recorded as other income.

                                   * * * * *

                                       55
<PAGE>

Item 9. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure
   None

                                   PART III

Item 10. Directors and Executive Officers of the Registrant

     The information required by this item is hereby incorporated by reference
from the information under the captions "Election of Directors" and "Executive
Officers" contained in DigitalThink's definitive Proxy Statement, to be filed
with the Securities and Exchange Commission no later than 120 days from the end
of our last fiscal year in connection with the solicitation of proxies for our
2002 Annual Meeting of Stockholders (the "Proxy Statement"). The information
required by Section 16(a) is incorporated by reference form the information
under the caption "Compliance with Section 16(a) of the Securities Exchange Act
of 1934" in the Proxy Statement.

Item 11. Executive Compensation

     The information required by this item is incorporated by reference from
the information under the caption "Executive Officer Compensation" in the Proxy
Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management

     The information required by this item is incorporated by reference from
the information under the caption "Security Ownership of Certain Beneficial
Owners and Management" in the Proxy Statement.

Item 13. Certain Relationships and Related Transactions

     The information required by this item is incorporated by reference from
the information under the caption "Certain Relationships and Related
Transactions" in the Proxy Statement.

                                    PART IV

Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K

(a) 1. Consolidated Financial Statements

     The following Consolidated Financial Statements of DigitalThink, Inc. and
Report of Deloitte & Touche LLP, have been filed as part of this Form 10-K. See
Index to Consolidated Financial Statements under Item 8, above:

                  Index to Consolidated Financial Statements

   Independent Auditors' Report
   Consolidated Balance Sheets as of March 31, 2001 and 2002
   Consolidated Statements of Operations for the years ended March 31, 2000,
      2001 and 2002
   Consolidated Statement of Stockholders' Equity (Deficit) for the years
      ended March 31, 2000, 2001 and 2002
   Consolidated Statements of Cash Flows for the years ended March 31, 2000,
      2001 and 2002
   Notes to Consolidated Financial Statements

(a) 2. Financial Statement Schedule

     The following financial statement schedule of DigitalThink, Inc. for the
fiscal years ended March 31, 2000, 2001, and 2002 is filed as part of this
Report and should be read in conjunction with the Consolidate Financial
Statements of DigitalThink, Inc.

     Schedule II -- Valuation and Qualifying Accounts

     Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the Consolidated Financial Statements or Note thereto.

(a) 3. Exhibits

     Refer to (C) below.

                                       56
<PAGE>

(b) Reports on Form 8-K

     The Company filed an 8-K on August 22, 2001, amended on October 26, 2001,
describing the LearningByte acquisition.

     The Company filed an 8-K on April 5, 2002, press release dated April 2,
2002 announcing DigitalThink's Preliminary Results for Fourth Quarter; Revises
Outlook and a press release dated April 2, 2002 announcing Executive
Appointments naming Jon Madonna as Chairman and Michael Pope, President and CEO

(c) Exhibits

<TABLE>
<CAPTION>
Exhibit
Number                                           Description of Document
------                                           -----------------------
<S>      <C>
^2.1     Agreement and Plan of Reorganization among and between DigitalThink, LearningByte
         International and Merger Sub, dated August 14, 2001
 3.1     Amended and Restated Certificate of Incorporation
#3.2     Bylaws of DigitalThink, Inc.
*5.1     Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
10.15    Restated 1996 ISO Stock Plan
10.16    Change of Control Severance Agreement between DigitalThink and Jon C. Madonna dated
         September 14, 2001
10.17    Change of Control Severance Agreement between DigitalThink and Michael W. Pope dated
         September 14, 2001
10.18    Standard Industrial/Commercial Single Tenant Lease dated July 17, 2000 between Thomas A. Price
         and Gwendolyn L. Price, as trustees of the Price Trust UTD October 5, 1984 and DigitalThink, for
         office space located at 601 Brannan Street, San Francisco, California, and addenda and inserts thereto
21.1     DigitalThink subsidiaries
23.1     Independent Auditors' Consent and Report on Schedule
24.1     Power of Attorney (included in Registration Statement on page 55)
</TABLE>

------------
^ Incorporated by reference to exhibit 99.1 filed with our Report on Form 8-K
  (File No. 000-28687).
# Incorporated by reference to exhibit 4.2(b) filed with our Registration
  Statement on Form S-1 (File No. 333-92429), as amended.
* Incorporated by reference to the same number exhibit filed with our
  Registration Statement on Form S-1 (File No. 333-92429), as amended.

                                       57
<PAGE>

                                   SIGNATURES

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

                                        DIGITALTHINK, INC.
                                        (Registrant)

June 4, 2002
                                        By:   /s/ MICHAEL W. POPE
                                             -------------------------
                                             Michael W. Pope
                                             President and Chief Executive
                                             Officer

June 4, 2002
                                        By:   /s/ ROBERT J. KROLIK
                                             -------------------------
                                             Robert J. Krolik
                                             Chief Financial Officer

                                POWER OF ATTORNEY

     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Michael W. Pope and Robert J. Krolik, or
either of them, each with the power of substitution, his attorney-in-fact, to
sign any amendments to this Form 10-K (including post-effective amendments), and
to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
                  Signature                                 Title                            Date
                  ---------                                 -----                            ----
<S>     <C>                             <C>                                             <C>
BY:          /s/ JON C. MADONNA                     Chairman of the Board               June 4, 2002
        ---------------------------
               Jon C. Madonna

By:          /s/ MICHAEL W. POPE           Chief Executive Officer, President and       June 4, 2002
        ---------------------------                       Director
               Michael W. Pope                 (Principal Executive Officer)

By:         /s/ ROBERT J. KROLIK                   Chief Financial Officer              June 4, 2002
        ---------------------------     (Principal Financial and Accounting Officer)
              Robert J. Krolik

By:         /s/ STEVE L. ESKENAZI                         Director                      June 4, 2002
        ---------------------------
              Steve L. Eskenazi

By:         /s/ PETER J. GOETTNER                         Director                      June 4, 2002
        ---------------------------
              Peter J. Goettner

By:        /s/ SAMUEL D. KINGSLAND                        Director                      June 4, 2002
        ---------------------------
             Samuel D. Kingsland

By:       /s/ WILLIAM H. LANE, III                        Director                      June 4, 2002
        ---------------------------
            William H. Lane, III

By:        /s/ RODERICK C. MCGEARY                        Director                      June 4, 2002
        ---------------------------
             Roderick C. McGeary
</TABLE>

                                       58
<PAGE>

                                                                    Schedule II

                      DigitalThink, Inc. and Subsidiaries
                       Valuation and Qualifying Accounts
                For the Years Ended March 31, 2000, 2001, 2002

<TABLE>
<CAPTION>
                                             Balance at     Charges to                         Charged       Balance at
                                              Beginning      Costs and                        To Other         End of
                                              of Period      Expenses       Deductions      Accounts (1)       Period
                                            ------------   ------------   --------------   --------------   -----------
<S>                                         <C>            <C>            <C>              <C>              <C>
Year ended March 31, 2000:
Allowance for doubtful accounts .........     $ 75,000       $170,000       $  (40,000)       $     --       $205,000
Year ended March 31, 2001:
Allowance for doubtful accounts .........     $205,000       $170,000       $ (128,000)       $     --       $247,000
Year ended March 31, 2002:
Allowance for doubtful accounts .........     $247,000       $ 96,000       $ (342,000)       $483,000       $484,000
</TABLE>

------------
(1) Recorded on the books of acquired company

                                       59
<PAGE>

                                 EXHIBIT LIST

<TABLE>
<CAPTION>
Exhibit
Number                                           Description of Document
------                                           -----------------------
<S>      <C>
^2.1     Agreement and Plan of Reorganization among and between DigitalThink, LearningByte
         International and Merger Sub, dated August 14, 2001
 3.1     Amended and Restated Certificate of Incorporation
#3.2     Bylaws of DigitalThink, Inc.
*5.1     Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
10.15    Restated 1996 ISO Stock Plan
10.16    Change of Control Severance Agreement between DigitalThink and Jon C. Madonna dated
         September 14, 2001
10.17    Change of Control Severance Agreement between DigitalThink and Michael W. Pope dated
         September 14, 2001
10.18    Standard Industrial/Commercial Single Tenant Lease dated July 17, 2000 between Thomas A. Price
         and Gwendolyn L. Price, as trustees of the Price Trust UTD October 5, 1984 and DigitalThink, for
         office space located at 601 Brannan Street, San Francisco, California, and addenda and inserts thereto
21.1     DigitalThink subsidiaries
23.1     Independent Auditors' Consent and Report on Schedule
24.1     Power of Attorney (included in Registration Statement on page 55)
</TABLE>

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^ Incorporated by reference to exhibit 99.1 filed with our Report on Form 8-K
  (File No. 000-28687).
# Incorporated by reference to exhibit 4.2(b) filed with our Registration
  Statement on Form S-1 (File No. 333- 92429), as amended.
* Incorporated by reference to the same number exhibit filed with our
  Registration Statement on Form S-1 (File No. 333-92429), as amended.

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