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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K
                            ------------------------

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

                    FOR THE FISCAL YEAR ENDED MARCH 31, 2001

                                       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)

<TABLE>
<S>                                            <C>
                   DELAWARE                                      94-3244366
       (STATE OR OTHER JURISDICTION OF                        (I.R.S. EMPLOYER
        INCORPORATION OR ORGANIZATION)                      IDENTIFICATION NO.)

     1098 HARRISON STREET, SAN FRANCISCO,                          94103
                  CALIFORNIA                                     (ZIP CODE)
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>

                                 (415) 625-4000
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

<TABLE>
<CAPTION>
             TITLE OF EACH CLASS                    NAME OF EXCHANGE ON WHICH REGISTERED
             -------------------                    ------------------------------------
<S>                                            <C>
                     NONE                                           NONE
</TABLE>

          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.  [X]

     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 June 1, 2001, as reported on the Nasdaq National Market, was
approximately $289,231,000. 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
June 1, 2001: 35,186,261

                      DOCUMENTS INCORPORATED BY REFERENCE

     Parts of certain sections of the Proxy Statement to be filed in connection
with the 2001 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 e-learning solutions designed to address the strategic business
objectives of our customers by helping them to improve workforce productivity,
sales channel effectiveness and customer loyalty and satisfaction. We host and
centrally manage all 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.

     As of March 31, 2001, we had delivered courses to over 365 customers on
more than 475 subjects in a variety of industries including technology,
healthcare, financial services and telecommunications. Our customers either
select courses from our catalog or pay us to develop custom courses for their
specific requirements. Customers that have purchased solutions from us over the
past fiscal year include Adobe Systems, the American Bankers' Association,
Aspect Telecommunications, Charles Schwab, Circuit City, Cisco Systems, EDS, The
Gallup Organization, General Electric, and KPMG, 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 recent 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.
Estimates published by the Department of Education in 1997 show that businesses
spend nearly $55 billion annually on learning programs in the United States. As
the Internet and the e-learning continue to demonstrate provable 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:

     - 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.

     - 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.

     - 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.

     - 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.

     - 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 $1.7 billion in 1999 to more than $23.1 billion
in 2004. 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

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seeking outsourced and integrated e-learning solutions as a means of more
effectively educating their extended enterprise.

THE DIGITALTHINK SOLUTION

     We provide corporate e-learning courses and services that produce
measurable results for large enterprise that address 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. Our online learning courses and services combine powerful Internet
delivery technologies, customized content, dedicated tutors, and tools to track
and report on course registrations and measure participant performance. Because
we host and deliver all of our courses, they can be easily deployed to thousands
of participants. The advantages of our solutions include:

     Innovative Delivery Model. We deliver outsourced solutions that overcome
the shortcomings of traditional learning methods. Our courses are completely
Web-based and we host and centrally manage all software and content from our
servers. Central hosting and delivery reduces our customers' expenses because
they avoid the need to build e-learning delivery systems and staff and manage
large teams to design, develop and produce e-learning content. In addition, our
centrally hosted system enables us to deploy e-learning solutions rapidly and
broadly to course participants who have an Internet connection and standard Web
browser. We also provide our customers with the tools necessary to support and
track participant performance and completion as well as the required interfaces
to connect this information with customer-operated learning management and data
base administration systems.

     Powerful e-Business Capability. Our highly scalable, configurable 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 operates entirely on our dynamically hosted platform. We implement these
projects by delivering a combination of services and platform-based technology
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.

     High-Quality Content. We offer courses from our catalog and from custom
courseware. Our staff of trained learning strategists and instructional
designers work with subject matter experts to build courses that take advantage
of the features of the Internet to create a learning experience that have been
recognized by our customers and independent evaluators as high quality. Using a
Web-based deployment system also allows us to continually update content, and
avoids the need to ship or recall physical materials such as books or CD-ROMs.
This ability to rapidly deploy courses allows our customers a way to ensure that
learning and knowledge is aligned with business needs.

     Web-Based Instructional Design. Courses designed for our e-learning
environment leverage the unique communications and interactive capabilities of
the Internet. This Web-based approach results in an engaging and compelling
student experience resulting from increased interactivity through the use of
Internet technologies such as Java applets within the course material,
discussion boards, online labs, simulations, e-mail and chat rooms. These
elements allow a student to learn course material by actively participating in
the learning experience. For example, a course participant might read a lesson,
watch a Java applet in order to view the steps of a described process, and then
complete an exercise applying that same process to a business scenario which is
electronically submitted to a tutor for grading. The student might further
discuss the process in an online discussion. This level of personalization
represents an improvement over instructor-led curricula that may not offer the
equivalent, extended opportunity for interaction with tutors or peers.

     Interactive Tutor Support. Our courses are interactive, self-paced and can
be accessed at any time. All of our catalog courses and many of our custom
courses are supported by online tutors who respond to student queries through
e-mail or monitored discussion groups. We believe that written responses are
more in-depth and considered than real-time telephone or in-person
conversations, and that the documented reply features of e-mail allow our tutors
to create written records of correspondence with participants. We maintain a
network

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of consultants and independent contractors who act as tutors and are experts in
the subject matter of our courses. On average, participants receive responses to
their submissions within a few hours. Participants are required to complete
exercises and can ask questions or solicit feedback from the tutor. Our
technology enables us to accurately track response times and ensure that our
tutors are achieving their response time targets.

     Robust and Scalable Technology Framework. Participants have access to our
courses at anytime from anywhere using standard Web browser software. Our open,
standards-based solution allows participants to access courses online without
any proprietary plug-ins or other software. Our delivery infrastructure can
instantly be deployed to concurrently support hundreds of thousands of learners.
We also have capabilities to fully configure and customize the environment to
meet our customer's specific business processes and look and feel requirements.
Our outsourced delivery infrastructure significantly reduces costs for our
customers by eliminating the need for them to purchase, install, and integrate
learning management software, databases, web servers, security, monitoring, and
content management tools.

     Enterprise Tracking and Reporting Tools. We offer Web-based tools that are
used by our 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. Our platform uniquely
stores click by click learner tracking information 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. We believe our reporting and analysis capabilities are industry-leading
and provide critical feedback to monitor, measure, and improve our customers'
e-learning programs.

     Performance Consulting Services. We offer a unique set of performance
consulting services to help enterprises identify critical problem areas that can
be addressed by e-learning. These consulting services focus on sales force
effectiveness, workforce development, and customer acquisition & retention.
Through delivery of these consulting services, we offer our customers focused
e-learning programs which are designed to solve specific business requirements
that generate returns on investment not normally measurable in traditional
training applications.

STRATEGY

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

     - Enhance our 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.

     - 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.

     - 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.

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       This approach allows us to generate additional revenue opportunities
       while leveraging previous course development efforts.

     - 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.

     - Expand our international presence. As the rate of Internet adoption
       accelerates overseas, we believe that significant international market
       demand will exist for e-learning solutions, especially in Europe and
       Asia. To that end, we have begun delivering our e-learning solutions in
       strategically targeted international locations, using courseware and
       tutor support in English, French, German and Japanese. We plan to expand
       our reach internationally by developing direct sales channels in Europe
       and indirect sales channels in other regions.

CUSTOMERS

     Our customers can use our 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, 2001, we have sold courses to over 365 customers, including
many large corporations. Our customers use our 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 475 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:

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

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

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

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

  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 and discussion boards. 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,

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multiple answer quizzes with randomized question sets, tutor-scored and
commented exercises, and interactive testing applets and simulations.

  Full Integration with Corporate Infrastructures

     Our 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 systems. We design our course content to be
compatible with our customer's 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 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.

SALES AND MARKETING

     We sell our 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 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. We expect to face increasing price pressures from competitors as
our potential customers demand more value for their education budgets.

     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.

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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 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, 2001, we employed 441 persons. Of these employees, 173 were
employed in course development, 116 in sales and marketing, 73 in research and
development, 36 in Web delivery and customer support and 43 in general and
administration. Each of our employees was granted options to purchase shares of
our common stock upon joining us. In April 2001 we entered into an agreement to
purchase the outstanding shares of a Web production company located in Calcutta,
India. When the transaction is approved by the Government of India, we will add
approximately 55 new employees to our course development team.

     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 2001, we had revenues of $38.7
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 HISTORY OF LOSSES AND A LARGE ACCUMULATED DEFICIT OF $95.6 MILLION AT
MARCH 31, 2001. 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, 2001 was $95.6 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. We plan to increase our
operating expenses to market, sell and support our e-learning solutions, build
infrastructure, add additional features to our product and hire additional
staff. We also plan to invest heavily to develop and acquire new course
offerings with new areas of expertise, which will increase operating expenses.

     We currently expect our total costs, including non-cash expenses, to be at
least $72.0 million in fiscal 2002. As a result, we will need to significantly
increase our quarterly revenues to achieve profitability. If we do not generate
sufficient revenues or become profitable within a timeframe expected by public
market analysts or investors, the market price of our common stock will probably
decline. 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.

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 current and
future expense estimates are largely fixed 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

                                        9
<PAGE>   11

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, 2001. 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.

IN ANY QUARTER, A DELAY IN RECEIVING PAYMENT FROM A KEY CUSTOMER 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 delayed
payment in any future fiscal period. For example, in fiscal 2001, our largest
customer accounted for 10.4% of our total revenues. In fiscal 2000, our largest
customer accounted for more than 30% of our revenues. We expect that EDS will
account for a significant portion of our revenues at least through fiscal 2005.

OUR GROWTH DEPENDS ON HIRING AND RETAINING THIRD-PARTY TUTORS AND OTHER
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. We require personnel with educational course and Web design
experience. Candidates experienced in both areas are limited. Currently, we
contract with individual tutors throughout the United States, the United
Kingdom, New Zealand and Australia. Our failure to attract and retain sufficient
skilled personnel and tutors 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:

     - historic reliance on traditional education methods;

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

     - 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.

                                        10
<PAGE>   12

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:

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

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

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

     - 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.

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:

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

     - internal education departments; and

     - 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
end-to-end solution by comparison with point solutions offered by other
e-learning companies. These companies may include click2learn.com, Docent, IBM,
NETg, SmartForce and Saba. 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.

                                        11
<PAGE>   13

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 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 FAIL TO EFFECTIVELY MANAGE OUR RAPID GROWTH, WE MAY MISS MARKET
OPPORTUNITIES THAT COULD SEVERELY IMPACT OUR ABILITY TO COMPETE.

     Our recent rapid growth and future anticipated growth has placed and is
likely to continue to place a considerable strain on our managerial resources.
We have grown from 33 employees on January 1, 1998 to 441 employees on March 31,
2001. We plan to continue to expand our sales and marketing, administration,
content and technology development and tutoring organizations. In order to
manage this growth effectively, we will need to improve our financial and
managerial controls as well as our reporting systems and procedures. We will
also need to expand, train and manage our expanding work force. If we fail to
manage our growth effectively, we will not be able to capitalize on attractive
business opportunities and may fail to adequately support our existing customer
base. Should this occur, our reputation and competitive position could be
seriously damaged.

                                        12
<PAGE>   14

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 Communications, Inc. 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 provider 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

                                        13
<PAGE>   15

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.

     Our facilities in the State of California, including our corporate
headquarters and our Exodus facility, are currently subject to electrical
blackouts as a consequence of a shortage of available power. In the event these
blackouts continue to increase in severity, they could disrupt the operations of
our affected facilities and our business could be seriously harmed. In addition,
prices for electricity have risen dramatically, and are likely to continue to
increase in the foreseeable future. Such price changes will increase our
operating costs, which could adversely impact our financial results.

OUR INTERNATIONAL EXPANSION COULD SUBJECT US TO NEW RISKS BECAUSE OF CURRENCY
AND POLITICAL CHANGES, LEGAL AND CULTURAL DIFFERENCES OR ECONOMIC INSTABILITY.

     Our strategy includes international expansion of our business. Our current
plans include the continued growth of our European operations based in the
United Kingdom, which began during the first quarter of fiscal 2001, as well as
the creation of a partner-based support infrastructure for customers around the
world. In addition, in April 2001 we announced an agreement to expand our course
development organization into India. In the United Kingdom, we could be affected
by political and monetary changes, including European unification and the
introduction of the Euro.

     This international expansion 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 currently have approximately 20
employees located outside of the United States, with approximately another 55
employees if the India transaction is closed as expected in the second quarter
of fiscal 2002. We could become subject to additional risks as we expand
internationally, including:

     - difficulties in staffing and managing international operations;

     - inability to develop content localized for international jurisdictions;

     - protectionist laws and business practices that favor local competition;

     - multiple, conflicting and changing governmental laws and regulations;

     - slower adoption of e-learning solutions;

     - different learning styles;

     - longer sales and payment cycles;

     - difficulties in collecting accounts receivable;

     - fluctuations in currency exchange rates;

     - political and economic instability;

     - adverse tax consequences;

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

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

     - trade barriers imposed by foreign countries.

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

                                        14
<PAGE>   16

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 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.

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:

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

     - 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;

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

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

     - 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.

                                        15
<PAGE>   17

ITEM 2. PROPERTIES

     We are currently under agreement to lease a total of approximately 139,000
square feet of office space in three locations in San Francisco, California and
one location in Alameda, California. Approximately 72,000 square feet of this
office space is currently under construction and we will begin paying rent on
that space in the second half of the 2002 fiscal year. In addition, we have
approximately 8,000 square feet of leased building space in the United Kingdom
and approximately 1,200 square feet of leased office space in Chicago, Illinois.
These leases expire at varying dates through 2016 and include renewals at our
option.

ITEM 3. LEGAL PROCEEDINGS

     None.

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, 2001.

                                        16
<PAGE>   18

                                   MANAGEMENT

EXECUTIVE OFFICERS OF THE REGISTRANT

<TABLE>
<S>                    <C>    <C>
Peter J. Goettner....  37     Chief Executive Officer and Chairman of the Board of Directors
Jon C. Madonna.......  57     President
Justin K. Ford.......  44     Vice President, Learning Solutions & Development
Umberto Milletti.....  35     Vice President, Solutions Management
Michael W. Pope......  34     Vice President, Chief Financial Officer
</TABLE>

     Peter J. Goettner has served as our Chief Executive Officer and Chairman of
our Board of Directors since he co-founded DigitalThink in April 1996 and
President from April 1996 until December 2000. From January 1996 to April 1996,
Mr. Goettner was developing the business and financing plan for DigitalThink.
From November 1993 to December 1995, Mr. Goettner served as Director of
Marketing for Knowledge Revolution, a developer of educational and engineering
software. Mr. Goettner holds a B.S. in Electrical Engineering from the
University of Michigan and a M.B.A. from the Haas School of Business at the
University of California at Berkeley.

     Jon C. Madonna has served as our President since December 2000 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 January 1998. Mr. Madonna holds a B.S. from the University of San
Francisco.

     Justin K. Ford has served as our Vice President, Learning Strategy and
Development since January 2001. From March 2000 to January 2001, Mr. Ford was
our General Manager of Learning Solutions. Prior to joining DigitalThink in
March 2000, Mr. Ford served as Vice President, Professional Services for the
Gartner Institute, an education company, from August 1999. From May 1985 to July
1999, Mr. Ford served in various positions at EDS, a system integration and
technical consulting company, most recently as Director, Human Performance
Services for EDS' E.solutions division. Mr. Ford holds a Bachelor of Industrial
Administration from the General Motors Institute.

     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.

     Michael W. Pope has served as our Vice President, Chief Financial Officer
since October 1999. 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.

                                        17
<PAGE>   19

                                    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 2000    FISCAL YEAR 2001
                                                  ----------------    ----------------
                                                   LOW       HIGH      LOW       HIGH
                                                  ------    ------    ------    ------
<S>                                               <C>       <C>       <C>       <C>
Quarter ended June 30...........................   n/a       n/a      $15.00    $42.13
Quarter ended September 30......................   n/a       n/a      $28.38    $60.00
Quarter ended December 31.......................   n/a       n/a      $ 9.50    $44.25
Quarter ended March 31..........................  $18.00    $57.00    $ 6.88    $18.38
</TABLE>

     As of June 1, 2001 there were 35,186,261 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.

                                        18
<PAGE>   20

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>
                                                         PERIOD FROM
                                                        APRIL 22, 1996               YEAR ENDED MARCH 31,
                                                        (INCEPTION) TO    ------------------------------------------
                                                        MARCH 31, 1997     1998       1999        2000        2001
                                                        --------------    -------    -------    --------    --------
                                                                   (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                     <C>               <C>        <C>        <C>         <C>
REVENUES:
  Delivered Learning fees.............................     $     5        $   148    $ 1,034    $  4,994    $ 17,978
  Learning Solution services..........................          20             52        813       5,821      20,680
                                                           -------        -------    -------    --------    --------
         Total revenues...............................          25            200      1,847      10,815      38,658
                                                           -------        -------    -------    --------    --------
COSTS AND EXPENSES:
  Cost of Delivered Learning fees.....................          29            363        855       2,409       5,509
  Cost of Learning Solution services..................          11             39        361       3,337      11,211
  Content research and development....................         251            886      1,657       4,082       6,092
  Technology research and development.................         299            665      1,005       3,687      11,791
  Selling and marketing...............................         188          1,400      2,970      11,596      23,105
  General and administrative..........................         157            419        622       2,342       6,046
  Depreciation........................................          10             83        236         915       3,190
  Write-off of in-process research and development....          --             --         --          --       7,118
  Goodwill amortization...............................          --             --         --          --       3,602
  Amortization of warrants............................          --             --         --          --      13,131
  Stock-based compensation(*).........................          --             --         58       3,663       5,432
                                                           -------        -------    -------    --------    --------
         Total costs and expenses.....................         945          3,855      7,764      32,031      96,227
                                                           -------        -------    -------    --------    --------
Loss from operations..................................        (920)        (3,655)    (5,917)    (21,216)    (57,569)
Interest and other income.............................          32            186        166       1,055       5,344
                                                           -------        -------    -------    --------    --------
Net loss..............................................     $  (888)       $(3,469)   $(5,751)   $(20,161)   $(52,225)
                                                           -------        -------    -------    --------    --------
Accretion of redeemable convertible preferred stock...     $   278        $ 1,669    $ 3,518    $  7,593    $     --
                                                           -------        -------    -------    --------    --------
Loss attributable to common shareholders..............     $(1,166)       $(5,138)   $(9,269)   $(27,754)   $(52,225)
                                                           -------        -------    -------    --------    --------
Basic and diluted loss per common share...............     $ (0.29)       $ (1.27)   $ (2.26)   $  (3.87)   $  (1.51)
                                                           -------        -------    -------    --------    --------
Shares used in basic and diluted loss per common
  share...............................................       4,010          4,036      4,095       7,164      34,524
                                                           -------        -------    -------    --------    --------
Pro forma basic and diluted loss per common
  share(1)............................................     $    --        $    --    $ (0.56)   $  (1.09)   $  (1.51)
                                                           =======        =======    =======    ========    ========
Shares used in pro forma basic and diluted net loss
  per common share(2).................................          --             --     16,687      25,412      34,524
                                                           =======        =======    =======    ========    ========
</TABLE>

<TABLE>
<CAPTION>
                                                                                   MARCH 31,
                                                             ------------------------------------------------------
                                                              1997       1998        1999        2000        2001
                                                             -------    -------    --------    --------    --------
<S>                                                          <C>        <C>        <C>         <C>         <C>
BALANCE SHEET DATA:
Cash and cash equivalents and marketable securities........  $   680    $ 2,862    $  9,455    $ 96,698    $ 64,038
Working capital............................................      608      2,615       8,353      92,316      58,473
Total assets...............................................      786      3,580      11,330     110,176     111,687
Redeemable convertible preferred stock.....................    1,870      9,329      24,583          --          --
Accumulated deficit........................................   (1,166)    (6,305)    (15,573)    (43,327)    (95,552)
Total stockholders' equity (deficit).......................  $(1,161)   $(6,298)   $(15,505)   $ 97,880    $ 89,127
(*) Stock-based compensation:
    Cost of Delivered Learning fees........................  $    --    $    --    $      3    $    143    $    121
    Cost of Learning Solution services.....................       --         --           4         318         500
    Content research and development.......................       --         --           4          72          76
    Technology research and development....................       --         --          13         473       1,329
    Selling and marketing..................................       --         --          25       1,042       1,391
    General and administrative.............................       --         --           9       1,615       2,015
                                                             -------    -------    --------    --------    --------
         Total.............................................  $    --    $    --    $     58    $  3,663    $  5,432
                                                             =======    =======    ========    ========    ========
</TABLE>

---------------
(1) 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.
(2) 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.

                                        19
<PAGE>   21

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
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 employees as of March 31, 2001.
Our revenues increased from $200,000 in fiscal 1998, to $1.8 million in fiscal
1999, to $10.8 million in fiscal 2000, and to $38.7 million in fiscal 2001.

SOURCES OF REVENUES AND REVENUE RECOGNITION POLICY

     We deliver our 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 learning 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

                                        20
<PAGE>   22

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 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
quarters, 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 substantially 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, 2001, we had an accumulated deficit of $95.6 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. 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. Deferred stock compensation of
$1.6 million was recorded in fiscal 2001 in connection with an acquisition.
These amounts are amortized over the four-year vesting period of the options
using the multiple option approach. Stock-based compensation expense of $58,000
was recorded during fiscal 1999, $3.7 million was recorded in fiscal 2000 and
$5.4 million was recorded in fiscal 2001. See Note 7 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, 2001, we had $46.9 million of federal and $45.1
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 5 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
                                        21
<PAGE>   23

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 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.

     Since the date of acquisition, approximately $1 million has been incurred
in development costs related to the in-process technology project acquired. The
project is scheduled to be completed in stages beginning in the first half of
fiscal 2002 and expenses to complete the development are expected to total
approximately $500,000.

STRATEGIC ALLIANCE WITH ELECTRONIC DATA SYSTEMS CORPORATION

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

     Under the terms of the second warrant, EDS can earn warrants for up to
690,364 shares of DigitalThink common stock exercisable at $29 per share. The
warrant is earned when EDS delivers third-party customers from outside the
United States prior to July 31, 2003, which generate a total of $50 million of
contractually committed revenue to DigitalThink recognizable by July 31, 2005.
The warrants must be exercised by October 31, 2003. This warrant contains a
significant disincentive for non-performance. If EDS fails to deliver the full
$50 million of contracted, non-United States revenue by July 31, 2003, EDS has
agreed to pay DigitalThink $5 million.

     The Company will incur 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 will occur
over the three years through July 31, 2003, in proportion to the amount of
revenue generated under the agreement, or on a straight-line basis, whichever is
faster. To date, amortization has been recorded on a straight-line basis.

                                        22
<PAGE>   24

                        HISTORICAL RESULTS OF OPERATIONS

     The following tables 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,
                                                           --------------------------
                                                            1999      2000      2001
                                                           ------    ------    ------
<S>                                                        <C>       <C>       <C>
REVENUES:
  Delivered Learning fees................................    56.0%     46.2%     46.5%
  Learning Solution services.............................    44.0      53.8      53.5
                                                           ------    ------    ------
          Total revenues.................................   100.0%    100.0%    100.0%
                                                           ------    ------    ------
COSTS AND EXPENSES:
  Cost of Delivered Learning fees........................    46.3      22.3      14.3
  Cost of Learning Solution services.....................    19.5      30.9      29.0
  Content research and development.......................    89.7      37.7      15.8
  Technology research and development....................    54.4      34.1      30.5
  Selling and marketing..................................   160.8     107.2      59.8
  General and administrative.............................    33.7      21.7      15.6
  Depreciation...........................................    12.8       8.5       8.3
  Write-off of in-process research and development.......      --        --      18.4
  Goodwill amortization..................................      --        --       9.3
  Amortization of warrants...............................      --        --      34.0
  Stock-based compensation...............................     3.1      33.9      14.1
                                                           ------    ------    ------
          Total costs and expenses.......................   420.3     296.3     249.1
                                                           ------    ------    ------
Loss from operations.....................................  (320.3)   (196.3)   (149.1)
Interest and other income................................     9.0       9.8      13.8
Net loss.................................................  (311.3)%  (186.5)%  (135.3)%
</TABLE>

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. We expect that the number of courses and customers will
continue to increase as our content development projects progress.

  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. 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 opened our European operations headquartered in London in
May 2000

                                        23
<PAGE>   25

and 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 $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. 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 substantially in future periods.

     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. We expect to complete the project in the first half of
fiscal 2002 at an additional cost of $150,000 to $300,000, which we will
capitalize.

  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. Management believes that continued investment
in technology research and development is essential to our future success and
expects these expenses to increase in future periods.

     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. We
expect to complete the project in

                                        24
<PAGE>   26

the first half of fiscal 2002 at an additional cost of approximately $1 million
to $2 million, which we will capitalize.

  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. We
expect selling and marketing expenses will continue to increase as we continue
to expand our sales and marketing efforts, establish additional sales
territories and increase 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 $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.
Management expects general and administrative expenses to modestly increase in
the future as we expand our staff and incur additional costs to support the
expected growth of our business.

  Goodwill Amortization

     Goodwill amortization totaled $3.6 million in fiscal 2001 associated with
the acquisition of Arista. No goodwill 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.

COMPARISON OF FISCAL 1999 AND FISCAL 2000

  Revenues

     Revenues increased from $1.8 million in fiscal 1999 to $10.8 million for
fiscal 2000. In fiscal 2000, Delivered Learning fees represented 46% of
revenues, and Learning Solution services represented 54% of revenues. This is
compared to fiscal 1999, during which Delivered Learning fees represented 56% of
revenues and Learning Solution services represented 44% of revenues.

  Delivered Learning Fees

     Delivered Learning fees increased from $1.0 million in fiscal 1999 to $5.0
million in fiscal 2000 as the number of customers increased from 132 to 231 and
the number of courses we offered increased from 98 to 232.

                                        25
<PAGE>   27

  Learning Solution Services

     Learning Solution service revenues increased from $813,000 in fiscal 1999
to $5.8 million in fiscal 2000 as the number of projects and dollar size of
projects increased.

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 $855,000 in fiscal 1999 to $2.4 million in fiscal
2000. 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 increased from eight employees at March 31, 1999 to 19
employees at March 31, 2000.

  Cost of Learning Solution Services

     Cost of Learning Solution services consists primarily of personnel related
costs to develop custom and tailored courses for specific customers. Cost of
Learning Solution services increased from $361,000 in fiscal 1999 to $3.3
million in fiscal 2000, due to the need for additional headcount to develop
custom courses. Headcount increased from 12 employees at March 31, 1999 to 64 at
March 31, 2000.

  Content Research and Development

     Content research and development expenses represent costs to develop
catalog courses, including personnel related costs, content acquisition costs,
royalties paid to authors and content editing. Content research and development
expenses increased from $1.7 million in fiscal 1999 to $4.1 million in fiscal
2000. 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 21 employees at March 31, 1999 to 36 employees at
March 31, 2000. All content research and development expenses have been expensed
as incurred.

  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 $1.0
million in fiscal 1999 to $3.7 million in fiscal 2000. This increase was due to
the hiring of additional technology research and development employees.
Headcount increased from 12 employees at March 31, 1999 to 39 employees at March
31, 2000.

  Selling and Marketing

     Selling and marketing expenses consist primarily of personnel related
costs, commissions, advertising and other promotional expenses, and travel and
entertainment expenses. Selling and marketing expenses increased from $3.0
million in fiscal 1999 to $11.6 million in fiscal 2000. This increase reflects
the costs associated with the hiring of additional personnel and increased
promotional activities. Headcount in sales and marketing increased from 23 at
March 31, 1999 to 57 employees at March 31, 2000.

  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 $622,000 in fiscal 1999 to $2.3 million in fiscal 2000.
This increase was due to an increase in personnel related costs, higher
occupancy costs and fees related to professional services. Headcount increased
from 5 employees at March 31, 1999 to 20 employees at March 31, 2000.

                                        26
<PAGE>   28

  Stock-Based Compensation

     Stock-based compensation expense totaled $58,000 in fiscal 1999 and $3.7
million in fiscal 2000.

  Net Loss

     The net loss increased from $5.8 million in fiscal 1999 to $20.2 million in
fiscal 2000.

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,   JUNE 30,   SEPTEMBER 30,   DECEMBER 31,
                                     1999         1999            1999         2000        2000         2000            2000
                                   --------   -------------   ------------   ---------   --------   -------------   ------------
<S>                                <C>        <C>             <C>            <C>         <C>        <C>             <C>
REVENUES:
  Delivered Learning fees........  $   458       $   992        $ 1,606       $ 1,938    $ 2,395      $  3,322        $  5,460
  Learning Solution services.....      716         1,144          1,572         2,389      3,867         5,438           5,327
                                   -------       -------        -------       -------    -------      --------        --------
        Total revenues...........    1,174         2,136          3,178         4,327      6,262         8,760          10,787
                                   -------       -------        -------       -------    -------      --------        --------
COSTS AND EXPENSES:
  Cost of Delivered Learning
    fees.........................      318           486            651           954      1,012         1,331           1,521
  Cost of Learning Solution
    services.....................      374           614            832         1,517      2,281         2,932           2,981
  Content research and
    development..................      616           883          1,276         1,307      2,820         1,125           1,062
  Technology research and
    development..................      443           922          1,000         1,322      2,142         2,778           3,435
  Selling and marketing..........    1,351         2,065          3,802         4,378      3,921         5,736           6,585
  General and administrative.....      288           486            745           823      1,174         1,498           1,558
  Depreciation...................      108           143            274           390        562           771             922
  Write-off of in-process
    research and development.....       --            --             --            --         --         7,118              --
  Goodwill amortization..........       --            --             --            --         --         1,201           1,201
  Amortization of warrants.......       --            --             --            --         --         7,629           2,751
  Stock-based compensation.......      143           479          1,474         1,567      1,549         1,656           1,182
                                   -------       -------        -------       -------    -------      --------        --------
        Total costs and
          expenses...............    3,641         6,078         10,054        12,258     15,461        33,775          23,198
                                   -------       -------        -------       -------    -------      --------        --------
Interest and other income........       92            68            189           706      1,549         1,434           1,317
                                   -------       -------        -------       -------    -------      --------        --------
Net loss.........................  $(2,375)      $(3,874)       $(6,687)      $(7,225)   $(7,650)     $(23,581)       $(11,094)
                                   =======       =======        =======       =======    =======      ========        ========

<CAPTION>
                                   MARCH 31,
                                     2001
                                   ---------
<S>                                <C>
REVENUES:
  Delivered Learning fees........   $ 6,801
  Learning Solution services.....     6,048
                                    -------
        Total revenues...........    12,849
                                    -------
COSTS AND EXPENSES:
  Cost of Delivered Learning
    fees.........................     1,645
  Cost of Learning Solution
    services.....................     3,017
  Content research and
    development..................     1,085
  Technology research and
    development..................     3,436
  Selling and marketing..........     6,863
  General and administrative.....     1,816
  Depreciation...................       935
  Write-off of in-process
    research and development.....        --
  Goodwill amortization..........     1,200
  Amortization of warrants.......     2,751
  Stock-based compensation.......     1,045
                                    -------
        Total costs and
          expenses...............    23,793
                                    -------
Interest and other income........     1,044
                                    -------
Net loss.........................   $(9,900)
                                    =======
</TABLE>

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 7 of Notes to Consolidated Financial
Statements. As of March 31, 2001, we had cash and cash equivalents of $30.5
million compared to $54.9 million on March 31, 2000. In addition on March 31,
2001 we had investments in marketable securities of $33.5 million, compared to
$41.8 million on March 31, 2000.

     Net cash used in operating activities totaled $4.6 million for fiscal 1999,
$10.5 million for fiscal 2000, and $20.2 million for fiscal 2001. 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 increased from $7.0 million at March 31, 2000 to
$11.5 million at March 31, 2001. Deferred revenue results from customer

                                        27
<PAGE>   29

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 $544,000 in fiscal 1999,
$49.4 million in fiscal 2000, and $5.8 million in fiscal 2001. The uses resulted
from the purchase of marketable securities and the acquisition of capital
assets, including hardware for our Web site, computer and office equipment, and
platform development costs, offset by proceeds from sales of marketable
securities.

     Cash provided by financing activities totaled $11.7 million in fiscal 1999,
$105.3 million in fiscal 2000, and $1.7 million in fiscal 2001. The sources in
fiscal 1999 were the proceeds received from the issuance of preferred stock. The
sources in fiscal 2000 was 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 were the proceeds received from
issuance of common stock through the exercise of options and the employee stock
purchase plan.

     We believe that our existing cash resources are sufficient to finance our
presently anticipated operating expenses and working capital requirement for the
next 12 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 bank
line of credit. Currently, we have no other immediately available sources of
liquidity. The sale of additional equity or other securities could result in
additional dilution to our stockholders. Arrangements for additional financing
may not be available in amounts or on terms acceptable to us, if at all.

RECENT ACCOUNTING PRONOUNCEMENTS

     In December 1999 the SEC published Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements". SAB 101 summarizes certain
of the staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements and provides interpretations
regarding the application of generally accepted principles to revenue
recognition where there is an absence of authoritative literature addressing a
specific arrangement or a specific industry. SAB 101 was effective for the
Company in the fourth quarter of fiscal 2001. The Company's adoption of SAB 101
did not have a material impact on our financial position or results of
operations.

     In March 2000, Financial Accounting Standards Board ("FASB") issued
Financial Interpretation No. 44 ("FIN 44"). FIN 44 clarifies (a) the definition
of employee for purposes of applying Accounting Principles Board ("APB") Opinion
25, Accounting for Stock Issued to Employees, (b) the criteria for determining
whether a plan qualifies as a noncompensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. FIN 44 is effective July 1, 2000, but certain
conclusions in this Interpretation cover specific events that occur after either
December 15, 1998, or January 12, 2000. The adoption of these provisions did not
have a material impact on our financial position or results of operations.

     In March 2000, the Emerging Issues Task Force (EITF), published their
consensus on EITF Issue No. 00-2, "Accounting for Web Site Development Costs",
which requires that costs incurred during the development of Web site
applications and infrastructure, involving developing software to operate the
Web site, including graphics that affect the "look and feel" of the Web page and
all costs relating to software used to operate a Web site should be accounted
for under Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". However, if a plan exists or
is being developed to market the software externally, the costs relating to the
software should be accounted for pursuant to FASB

                                        28
<PAGE>   30

Statement No. 86, "Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed". EITF Issue No. 00-2 was effective for the
Company on July 1, 2000. The adoption of EITF Issue No. 00-2 did not have a
material impact on our financial position or results of operations.

     In June 1998, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities,
which defines derivatives, requires that all derivatives be carried at fair
value, and provides for hedge accounting when certain conditions are met. SFAS
No. 133 is effective for the Company in fiscal year 2002. The Company does not
believe the adoption of this statement will have a material impact on the
Company's financial position or 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, foreign currency exchange rates, and equity prices. 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, 2001, we had cash and cash equivalents of $30.5 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 $33.5 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, 2001 would cause the fair value of
these investments to change by an immaterial amount. Declines in interest rates
over time will 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, an increasing 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.

EQUITY PRICE RISK

     We do not own any equity investments.

                                        29
<PAGE>   31

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Independent Auditors' Report................................   31
Consolidated Balance Sheets at March 31, 2000 and 2001......   32
Consolidated Statements of Operations for the years ended
  March 31, 1999, 2000 and 2001.............................   33
Consolidated Statements of Stockholders' Equity (Deficit)
  for the years ended March 31, 1999, 2000 and 2001.........   34
Consolidated Statements of Cash Flows for the years ended
  March 31, 1999, 2000 and 2001.............................   35
Notes to Consolidated Financial Statements..................   36
</TABLE>

                                        30
<PAGE>   32

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
DigitalThink, Inc.

     We have audited the accompanying consolidated balance sheets of
DigitalThink, Inc. as of March 31, 2000 and 2001, 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, 2001. 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. at March 31,
2000 and 2001, and the results of their operations and their cash flows for each
of the three years in the period ended March 31, 2001 in conformity with
accounting principles generally accepted in the United States of America.

                                          DELOITTE & TOUCHE LLP

San Jose, California
April 20, 2001

                                        31
<PAGE>   33

                               DIGITALTHINK, INC.

                          CONSOLIDATED BALANCE SHEETS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                AS OF MARCH 31,
                                                              --------------------
                                                                2000        2001
                                                              --------    --------
<S>                                                           <C>         <C>
Current assets:
  Cash and cash equivalents.................................  $ 54,854    $ 30,512
  Marketable securities.....................................    41,844      33,526
  Restricted cash...........................................     1,800       3,833
  Accounts receivable, net of allowance for doubtful
     accounts of $205 and $247, respectively................     5,322       9,027
  Prepaid expenses and other current assets.................       792       4,118
                                                              --------    --------
          Total current assets..............................   104,612      81,016
Property and equipment, net.................................     5,564      15,061
                                                              --------    --------
Goodwill and other intangible assets........................        --      15,610
                                                              --------    --------
          Total assets......................................  $110,176    $111,687
                                                              ========    ========

                       LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................  $  2,243    $  4,471
  Accrued liabilities.......................................     3,018       6,524
  Deferred revenues.........................................     7,035      11,548
                                                              --------    --------
          Total current liabilities.........................    12,296      22,543
Long-term liabilities.......................................        --          17
Commitments and contingencies (Note 11)
Stockholders' equity:
  Common stock -- $0.001 per share value; 100,000 shares
     authorized; issued and outstanding 33,788 in 2000 and
     34,999 in 2001.........................................   149,160     187,583
Deferred stock compensation.................................    (7,953)     (3,099)
Stockholders' notes receivable..............................        --          (9)
Accumulated other comprehensive income......................        --         204
Accumulated deficit.........................................   (43,327)    (95,552)
                                                              --------    --------
          Total stockholders' equity........................    97,880      89,127
                                                              --------    --------
          Total liabilities and stockholders' equity........  $110,176    $111,687
                                                              ========    ========
</TABLE>

          See accompanying notes to consolidated financial statements.
                                        32
<PAGE>   34

                               DIGITALTHINK, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                   YEAR ENDED MARCH 31,
                                                              -------------------------------
                                                               1999        2000        2001
                                                              -------    --------    --------
<S>                                                           <C>        <C>         <C>
REVENUES:
  Delivered Learning fees...................................  $ 1,034    $  4,994    $ 17,978
  Learning Solution services................................      813       5,821      20,680
                                                              -------    --------    --------
          Total revenues....................................    1,847      10,815      38,658
                                                              -------    --------    --------
COSTS AND EXPENSES:
  Cost of Delivered Learning fees...........................      855       2,409       5,509
  Cost of Learning Solution services........................      361       3,337      11,211
  Content research and development..........................    1,657       4,082       6,092
  Technology research and development.......................    1,005       3,687      11,791
  Selling and marketing.....................................    2,970      11,596      23,105
  General and administrative................................      622       2,342       6,046
  Depreciation..............................................      236         915       3,190
  Write-off of in-process research and development..........       --          --       7,118
  Goodwill amortization.....................................       --          --       3,602
  Amortization of warrants..................................       --          --      13,131
  Stock-based compensation*.................................       58       3,663       5,432
                                                              -------    --------    --------
          Total costs and expenses..........................    7,764      32,031      96,227
                                                              -------    --------    --------
Loss from operations........................................   (5,917)    (21,216)    (57,569)
Interest and other income...................................      166       1,055       5,344
                                                              -------    --------    --------
Net loss....................................................  $(5,751)   $(20,161)   $(52,225)
                                                              =======    ========    ========
Accretion of redeemable convertible preferred stock.........  $ 3,518    $  7,593    $     --
                                                              -------    --------    --------
Loss attributable to common stockholders....................  $(9,269)   $(27,754)   $(52,225)
                                                              -------    --------    --------
Basic and diluted loss per common share.....................  $ (2.26)   $  (3.87)   $  (1.51)
                                                              -------    --------    --------
Shares used in basic and diluted loss per common share......    4,095       7,164      34,524
                                                              -------    --------    --------
Pro forma basic and diluted loss per common share...........  $ (0.56)   $  (1.09)   $  (1.51)
                                                              -------    --------    --------
Shares used in pro forma basic and diluted net loss per
  common share..............................................   16,687      25,412      34,524
                                                              =======    ========    ========
(*) Stock-based compensation:
     Cost of Delivered Learning fees........................  $     3    $    143    $    121
     Cost of Learning Solution services.....................        4         318         500
     Content research and development.......................        4          72          76
     Technology research and development....................       13         473       1,329
     Selling and marketing..................................       25       1,042       1,391
     General and administrative.............................        9       1,615       2,015
                                                              -------    --------    --------
          Total.............................................  $    58    $  3,663    $  5,432
                                                              =======    ========    ========
</TABLE>

          See accompanying notes to consolidated financial statements.
                                        33
<PAGE>   35

                               DIGITALTHINK, INC.

           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                   YEARS ENDED MARCH 31, 1999, 2000 AND 2001
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                            ACCUMULATED
                                     COMMON STOCK                                              OTHER
                                   -----------------   DEFERRED STOCK    STOCKHOLDERS'     COMPREHENSIVE   ACCUMULATED
                                   SHARES    AMOUNT     COMPENSATION    NOTES RECEIVABLE      INCOME         DEFICIT      TOTAL
                                   ------   --------   --------------   ----------------   -------------   -----------   --------
<S>                                <C>      <C>        <C>              <C>                <C>             <C>           <C>
Balances, March 31, 1998.........   4,057   $      6      $     --            $--              $ --         $ (6,304)    $ (6,298)
Components of comprehensive
  income:
  Net loss.......................      --         --            --             --                --           (5,751)      (5,751)
                                                                                                                         --------
         Total comprehensive
           income................                                                                                          (5,751)
                                                                                                                         --------
  Exercise of stock options......      74          4            --             --                --               --            4
  Accretion for redemption value
    on Series A, B and C
    preferred stock..............      --         --            --             --                --           (3,518)      (3,518)
  Deferred stock compensation....      --        390          (390)            --                --               --           --
  Amortization of deferred stock
    compensation.................      --         --            58             --                --               --           58
                                   ------   --------      --------            ---              ----         --------     --------
Balances, March 31, 1999.........   4,131        400          (332)            --                --          (15,573)     (15,505)
Components of comprehensive
  income:
  Net loss.......................      --         --            --             --                --          (20,161)     (20,161)
                                                                                                                         --------
         Total comprehensive
           income................                                                                                         (20,161)
                                                                                                                         --------
  Exercise of stock options......     707        506            --             --                --               --          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..............  22,815     58,242            --             --                --               --       58,242
  Common stock issued for cash in
    initial public offering and
    concurrent private placement,
    net of issuance costs........   6,135     78,728            --             --                --               --       78,728
  Deferred stock compensation....      --     11,284       (11,284)            --                --               --           --
  Amortization of deferred stock
    compensation.................      --         --         3,663             --                --               --        3,663
                                   ------   --------      --------            ---              ----         --------     --------
Balances, March 31, 2000.........  33,788    149,160        (7,953)            --                --          (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......     525        480            --             --                --               --          480
  Employee stock purchase plan...     100      1,187            --             --                --               --        1,187
  Stockholders' notes
    receivable...................      --         --            --             (9)               --               --           (9)
  Forfeited and unvested
    options......................      --       (974)          974             --                --               --           --
  Amortization of deferred stock
    compensation.................      --         --         5,432             --                --               --        5,432
  Amortization of warrants.......      --     13,131            --             --                --               --       13,131
  Issuance of common stock and
    assumption of stock options
    in connection with
    acquisition..................     586     24,599        (1,552)            --                --               --       23,047
                                   ------   --------      --------            ---              ----         --------     --------
Balances, March 31, 2001.........  34,999   $187,583      $ (3,099)           $(9)             $204         $(95,552)    $ 89,127
                                   ======   ========      ========            ===              ====         ========     ========
</TABLE>

          See accompanying notes to consolidated financial statements.
                                        34
<PAGE>   36

                               DIGITALTHINK, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                   YEAR ENDED MARCH 31,
                                                              -------------------------------
                                                               1999        2000        2001
                                                              -------    --------    --------
<S>                                                           <C>        <C>         <C>
Cash flows from operating activities:
  Net loss..................................................  $(5,751)   $(20,161)   $(52,225)
  Adjustments to reconcile net loss to net cash used in
     operating activities:
     Depreciation...........................................      236         915       3,190
     Amortization of deferred stock compensation............       58       3,663       5,432
     Amortization of warrants...............................       --          --      13,131
     Amortization of goodwill...............................       --          --       3,602
     Write-off of in-process research and development.......       --          --       7,118
     Changes in assets and liabilities:
       Restricted cash......................................       --          --      (2,033)
       Accounts receivable..................................     (865)     (4,207)     (3,705)
       Prepaid expenses and other current assets............       17        (758)     (1,705)
       Accounts payable.....................................      296       1,868       1,868
       Accrued liabilities..................................      485       2,307         679
       Deferred revenues....................................      921       5,869       4,456
                                                              -------    --------    --------
          Net cash used in operating activities.............   (4,603)    (10,504)    (20,192)
                                                              -------    --------    --------
Cash flows from investing activities:
  Purchases of property and equipment.......................     (549)     (5,781)    (12,404)
  Net cash paid in acquisition..............................       --          --      (1,732)
  Purchases of marketable securities........................       --     (43,644)    (52,799)
  Proceeds from maturities of marketable securities.........       --          --      61,117
  Other assets..............................................        5          27          --
                                                              -------    --------    --------
          Net cash used in investing activities.............     (544)    (49,398)     (5,818)
                                                              -------    --------    --------
Cash flows from financing activities:
  Proceeds from sale of preferred stock.....................   11,736      26,067          --
  Proceeds from sale of common stock........................        4      79,234       1,668
                                                              -------    --------    --------
          Net cash provided by financing activities.........   11,740     105,301       1,668
                                                              -------    --------    --------
Net increase(decrease) in cash and cash equivalents.........    6,593      45,399     (24,342)
Cash and cash equivalents, beginning of year................    2,862       9,455      54,854
                                                              -------    --------    --------
Cash and cash equivalents, end of year......................  $ 9,455    $ 54,854    $ 30,512
                                                              =======    ========    ========
Supplemental disclosure of noncash financing activities:
  Unrealized gain on marketable securities..................  $    --    $     --    $    177
</TABLE>

          See accompanying notes to consolidated financial statements.
                                        35
<PAGE>   37

                               DIGITALTHINK, INC.

                   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 subsidiary. 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, 2001 all short-term marketable securities were due in one year
or less and consisted of the following:

<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>

     At March 31, 2000, short-term marketable securities consisted entirely of
corporate bonds ($29.5 million), and long-term marketable securities consisted
entirely of U.S. government agencies ($12.3 million). The Company classifies
these investments as available for sale. Unrealized gains or losses, if
material, 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

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

  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

                                        36
<PAGE>   38
                               DIGITALTHINK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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, 2000, two
accounts represented 20% and 19% of gross accounts receivable, respectively. At
March 31, 2001, one account represented 21% of gross accounts receivable,
although less than 30 days outstanding.

     In fiscal 1999, no customer accounted for more than 10% of total revenues.
In fiscal 2000, one customer accounted for 32% of total revenues. In fiscal
2001, one customer accounted for 10% of total revenues.

  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 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. No impairment has been indicated to date.

  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 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 are charged to operations as incurred. Such expenses include
course development personnel related costs. Course development expenses and
subject matter expert payments to course authors are expensed as incurred as the
recoverability of such costs against future revenues is uncertain.
                                        37
<PAGE>   39
                               DIGITALTHINK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

  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.

  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.

  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.

  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.

  Recently Issued Accounting Standards

     In December 1999 the SEC published Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements". SAB 101 summarizes certain
of the staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements and provides interpretations
regarding the application of generally accepted principles to revenue
recognition where there is an absence of authoritative literature addressing a
specific arrangement or a specific industry. SAB 101 was effective for the
Company in the fourth quarter of fiscal 2001. The Company's adoption of SAB 101
did not have a material impact on our financial position or results of
operations.

     In March 2000, Financial Accounting Standards Board ("FASB") issued
Financial Interpretation No. 44 ("FIN 44"). FIN 44 clarifies (a) the definition
of employee for purposes of applying Accounting Principles Board ("APB") Opinion
25, Accounting for Stock Issued to Employees, (b) the criteria for

                                        38
<PAGE>   40
                               DIGITALTHINK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 is effective July 1, 2000,
but certain conclusions in this Interpretation cover specific events that occur
after either December 15, 1998, or January 12, 2000. The adoption of these
provisions did not have a material impact on our financial position or results
of operations.

     In March 2000, the Emerging Issues Task Force (EITF), published their
consensus on EITF Issue No. 00-2, "Accounting for Web Site Development Costs",
which requires that costs incurred during the development of Web site
applications and infrastructure, involving developing software to operate the
Web site, including graphics that affect the "look and feel" of the Web page and
all costs relating to software used to operate a Web site should be accounted
for under Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". However, if a plan exists or
is being developed to market the software externally, the costs relating to the
software should be accounted for pursuant to FASB Statement No. 86, "Accounting
for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed".
EITF Issue No. 00-2 was effective for the Company on July 1, 2000. The adoption
of EITF Issue No. 00-2 did not have a material impact on our financial position
or results of operations.

     In June 1998, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities,
which defines derivatives, requires that all derivatives be carried at fair
value, and provides for hedge accounting when certain conditions are met. SFAS
No. 133 is effective for the Company in fiscal year 2002. The Company does not
believe the adoption of this statement will have a material impact on the
Company's financial position or results of operations

  Comprehensive Income

     The Company is required to report comprehensive income in the financial
statements, in addition to net income. For the Company, 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 amounts in the consolidated financial statements and notes thereto
have been reclassified to conform to the current year presentation.

 2. BUSINESS COMBINATION

     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>

                                        39
<PAGE>   41
                               DIGITALTHINK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     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):

<TABLE>
<CAPTION>
                                                           YEARS ENDED MARCH 31,
                                                           ----------------------
                                                             2000         2001
                                                           ---------    ---------
<S>                                                        <C>          <C>
Net sales................................................   $10,832      $38,658
Loss from operations.....................................   $26,189      $62,061
Net loss.................................................   $25,406      $58,353
Basic and diluted loss per share.........................   $  3.55      $  1.69
</TABLE>

 3. PROPERTY AND EQUIPMENT

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

<TABLE>
<CAPTION>
                                                               MARCH 31,
                                                           ------------------
                                                            2000       2001
                                                           -------    -------
<S>                                                        <C>        <C>
Furniture and fixtures...................................  $    63    $   671
Computer hardware and software...........................    5,093     11,587
Leasehold improvements...................................    1,643      2,473
Assets in progress.......................................       --      4,879
Accumulated depreciation.................................   (1,235)    (4,549)
                                                           -------    -------
Property and equipment, net..............................  $ 5,564    $15,061
                                                           =======    =======
</TABLE>

 4. ACCRUED LIABILITIES (IN THOUSANDS):

<TABLE>
<CAPTION>
                                                                MARCH 31,
                                                             ----------------
                                                              2000      2001
                                                             ------    ------
<S>                                                          <C>       <C>
Payroll and related expenses...............................  $1,243    $2,865
Royalties..................................................     273       203
Deferred rent..............................................     436       531
Other......................................................   1,066     2,925
                                                             ------    ------
          Total accrued liabilities........................  $3,018    $6,524
                                                             ======    ======
</TABLE>

                                        40
<PAGE>   42
                               DIGITALTHINK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 5. 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,
                                                         --------------------
                                                           2000        2001
                                                         --------    --------
<S>                                                      <C>         <C>
Deferred tax assets:
  Accruals and reserves................................  $    294    $    617
  Amortization of warrants.............................        --       5,230
  Net operating losses and tax credits carried
     forward...........................................    11,220      19,189
  Basis difference in fixed assets.....................        --         400
                                                         --------    --------
          Total gross deferred tax asset before
            valuation allowance........................    11,514      25,436
Valuation allowance....................................   (11,426)    (25,436)
                                                         --------    --------
                                                               88          --
Deferred tax liabilities -- basis difference in fixed
  assets...............................................       (88)         --
                                                         --------    --------
Net deferred tax asset.................................  $     --    $     --
                                                         ========    ========
</TABLE>

     At March 31, 2001, the Company had available federal and California state
net operating loss carryforwards of approximately $46.9 million and $45.1
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 also has federal and California state research and
development credit carryforwards of $326,000 and $291,000, respectively. At
March 31, 2000 and 2001, 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 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.

     At March 31, 2001, the Company's wholly owned foreign subsidiary in the
United Kingdom had a foreign net operation loss carryforward of approximately
$1.3 million to offset future foreign taxable income. A valuation allowance has
been placed against the net deferred tax assets to reduce their value to zero.

 6. 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

                                        41
<PAGE>   43
                               DIGITALTHINK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

 7. STOCKHOLDERS' EQUITY (DEFICIT)

  Initial Public Offering

     On March 1, 2000, the Company closed 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 72,673 shares available for future grant at March 31, 2001.

                                        42
<PAGE>   44
                               DIGITALTHINK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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, 1998..............................     990,133     $ 0.07
Granted (weighted average fair value of $0.03)........   1,461,250       0.29
Canceled..............................................    (192,486)      0.09
Exercised.............................................     (73,848)      0.06
                                                        ----------
Balances, March 31, 1999 (397,626 shares 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 shares exercisable
  at a weighted average exercise price of $4.18 per
  share)..............................................   4,879,264       3.13
Granted (weighted average fair value of $17.12).......   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..............................   8,128,895     $ 9.89
                                                        ==========     ======
</TABLE>

     The following table summarizes information as of March 31, 2001 concerning
options outstanding:

<TABLE>
<CAPTION>
                             OPTIONS OUTSTANDING                 VESTED OPTIONS
                  -----------------------------------------   --------------------
                                WEIGHTED AVERAGE   WEIGHTED               WEIGHTED
                                   REMAINING       AVERAGE                AVERAGE
   RANGE OF         NUMBER      CONTRACTUAL LIFE   EXERCISE    NUMBER     EXERCISE
EXERCISE PRICES   OUTSTANDING       (YEARS)         PRICE      VESTED      PRICE
---------------   -----------   ----------------   --------   ---------   --------
<S>               <C>           <C>                <C>        <C>         <C>
$ 0.05 - $ 0.25      871,996          7.10          $ 0.13      517,110    $ 0.12
  0.50 -   1.50    1,939,529          8.39            1.22      525,343      1.31
  4.50 -   7.75    1,342,687          9.91            7.64       16,707      4.50
  8.00 -  11.00    2,494,175          9.40           10.01      300,851      8.98
 11.19 -  34.25      907,649          9.31           21.87       42,375     16.60
 34.63 -  53.00      572,859          9.36           40.34        5,050     38.86
                   ---------          ----          ------    ---------    ------
          Total    8,128,895          8.99          $ 9.89    1,407,436    $ 3.14
                   =========          ====          ======    =========    ======
</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
                                        43
<PAGE>   45
                               DIGITALTHINK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

used: expected life, 2.7 years in fiscal 1999, 2.5 years in fiscal 2000 and 3
years in fiscal 2001; average risk-free interest rate, 5% in fiscal 1999, 6% in
fiscal 2000 and 5.3% in fiscal 2001. The Company's calculations include
volatility of 100% in the period following the public offering through March 31,
2000 and 115% in fiscal 2001 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,
                                              -------------------------------
                                               1999        2000        2001
                                              -------    --------    --------
<S>                                           <C>        <C>         <C>
Net loss (in thousands):
  As reported...............................  $(5,751)   $(20,161)   $(52,225)
  Pro forma.................................  $(5,757)   $(20,407)   $(53,411)
Basic and diluted net loss per share:
  As reported...............................  $ (2.26)   $  (3.87)   $  (1.51)
  Pro forma.................................  $ (2.26)   $  (3.91)   $  (1.55)
</TABLE>

  Stock-Based Compensation

     During fiscal 1999, the Company issued 966,500 common stock options at a
weighted average price of $0.39 per share, which were at prices less than the
fair value of its common stock. The weighted average fair value of the common
stock was $0.79 per share. Accordingly, the Company recorded $390,000 as the
value of such stock options in 1999. Stock-based compensation of $58,000 was
amortized to expense in fiscal 1999.

     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, 2001, the Company had $3.1 million in deferred stock
compensation related to options, which will be amortized to expense through
fiscal 2005.

 8. NET LOSS PER SHARE

     For fiscal 1999, 2000 and 2001, the Company had securities outstanding
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. Such outstanding
securities consist of the following:

<TABLE>
<CAPTION>
                                                  YEARS ENDED MARCH 31,
                                           ------------------------------------
                                              1999         2000         2001
                                           ----------    ---------    ---------
<S>                                        <C>           <C>          <C>
Redeemable convertible preferred stock...  18,734,973           --           --
Stock options............................   2,185,049    4,879,264    8,128,895
                                           ----------    ---------    ---------
          Total..........................  20,920,022    4,879,264    8,128,895
                                           ==========    =========    =========
</TABLE>

                                        44
<PAGE>   46
                               DIGITALTHINK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 9. RELATED PARTY TRANSACTIONS:

     During fiscal 1999, the Company generated revenues of approximately
$110,000, $161,000, $92,000 and $40,000 from four customers who are investors in
the Company. Related accounts receivable totaled $322,000 at March 31, 1999.

     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 an
executive officer. Receivables at fiscal year-end relating to these six
customers totaled $752,000.

10. 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. At March 31, 2001, approximately 100,000 shares were available for
purchase under the ESPP.

11. LEASE COMMITMENTS

     The Company leases its principal office facilities under operating leases.
As of March 31, 2001, future minimum payments under facilities operating leases
are as follows (in thousands):

<TABLE>
<CAPTION>
                    FISCAL YEAR ENDING
                         MARCH 31,
                    ------------------
<S>                                                          <C>
2002.......................................................  $ 5,228
2003.......................................................    6,297
2004.......................................................    5,975
2005.......................................................    6,101
2006.......................................................    6,185
Thereafter.................................................   30,750
                                                             -------
          Total............................................  $60,536
                                                             =======
</TABLE>

     Rent expense under operating leases was $142,000, $978,000 and $2,730,000
for the years ended March 31, 1999, 2000 and 2001, respectively.

                                        45
<PAGE>   47
                               DIGITALTHINK, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. STRATEGIC ALLIANCE WITH ELECTRONIC DATA SYSTEMS CORPORATION

     On July 11, 2000 the Company entered into an agreement with Electronic Data
Systems Corporation (EDS) pursuant to which EDS has been issued two separate
performance warrants to purchase shares of DigitalThink common stock. Under the
terms of the first warrant, EDS can earn warrants to purchase up to 862,955
shares of DigitalThink common stock exercisable at $29 per share. The warrant is
earned when EDS delivers third-party customers from the United States prior to
July 31, 2003, which generate a total of $50 million of contractually committed
revenue to DigitalThink recognizable by July 31, 2005. The warrants must be
exercised by October 31, 2003. This warrant contains a significant disincentive
for non-performance. If EDS fails to deliver the full $50 million of contracted,
United States revenue by July 31, 2003, EDS has agreed to pay DigitalThink $5
million.

     Under the terms of the second warrant, EDS can earn warrants for up to
690,364 shares of DigitalThink common stock exercisable at $29 per share. The
warrant is earned when EDS delivers third-party customers from outside the
United States prior to July 31, 2003, which generate a total of $50 million of
contractually committed revenue to DigitalThink recognizable by July 31, 2005.
The warrants must be exercised by October 31, 2003. This warrant contains a
significant disincentive for non-performance. If EDS fails to deliver the full
$50 million of contracted, non-United States revenue by July 31, 2003, EDS has
agreed to pay DigitalThink $5 million.

     The Company will incur 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 will occur
over the three years through July 31, 2003, in proportion to the amount of
revenue generated under the agreement, or on a straight-line basis, whichever is
faster. To date, amortization has been recorded on a straight-line basis.

                                 *  *  *  *  *

                                        46
<PAGE>   48

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
2001 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 SCHEDULES, 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

<TABLE>
    <S>                                                           <C>

    Independent Auditors' Report

    Consolidated Balance Sheets at March 31, 2000 and 2001

    Consolidated Statements of Operations for the years ended
      March 31, 1999, 2000 and 2001

    Consolidated Statement of Stockholders' Equity (Deficit) for
      the years ended March 31, 1999, 2000 and 2001

    Consolidated Statements of Cash Flows for the years ended
      March 31, 1999, 2000 and 2001

    Notes to Consolidated Financial Statements
</TABLE>

(a)2. Financial Statement Schedules

     Refer to schedule of valuation and qualifying accounts.

                                        47
<PAGE>   49

(a)3. Exhibits

     Refer to (C) below.

(b) Reports on Form 8-K

     The Company filed an 8-K on July 21, 2000, amended on September 15, 2000,
describing the Arista acquisition.

(c) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                      DESCRIPTION OF DOCUMENT
-------                     -----------------------
<C>       <S>

  #3.1    Amended and Restated Certificate of Incorporation

  @3.2    Bylaws of DigitalThink, Inc.

  *4.1    Specimen Common Stock Certificate

  *5.1    Opinion of Wilson Sonsini Goodrich & Rosati, Professional
          Corporation

 *10.2    1996 Stock Plan and forms of agreements thereunder

 *10.3    1999 Employee Stock Purchase Plan

 *10.4    Form of Director and Executive Officer Indemnification
          Agreement

 *10.5    Standard Industrial/Commercial Single Tenant Lease dated
          June 18, 1998 between DigitalThink and Bruce J. Cardinal,
          Trustee of the Robert J. Cardinal Trust, for office space
          located at 1064 & 1098 Harrison Street, San Francisco,
          California, and addenda and inserts thereto

( 7/8)10.14 2000 NSO Stock Plan

  21.1    DigitalThink subsidiaries

  23.1    Consent of Deloitte & Touche LLP
</TABLE>

---------------
#  Incorporated by reference to exhibit 3.1(b) filed with our Registration
   Statement on Form S-1 (File No. 333-92429), as amended.

@ 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.

( 7/8)  Incorporated by reference to exhibit 4.1 filed with our Registration
        Statement on Form S-8 (File No. 333-56770).

                                        48
<PAGE>   50

                                   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 7, 2001                              By:     /s/ PETER J. GOETTNER
                                            ------------------------------------
                                                     Peter J. Goettner
                                                  Chief Executive Officer,
                                                 and Chairman of the Board

June 7, 2001                              By:      /s/ MICHAEL W. POPE
                                            ------------------------------------
                                                      Michael W. Pope
                                                     Vice President and
                                                  Chief Financial Officer

                               POWER OF ATTORNEY

     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Peter J. Goettner and Michael W. Pope, 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
                     ---------                                      -----                      ----
<C>                                                  <C>                                   <S>
             By: /s/ PETER J. GOETTNER               Chief Executive Officer and Chairman  June 7, 2001
  ----------------------------------------------      of the Board (Principal Executive
                 Peter J. Goettner                                 Officer)

              By: /s/ JON C. MADONNA                              President                June 7, 2001
  ----------------------------------------------
                  Jon C. Madonna

              By: /s/ MICHAEL W. POPE                 Vice President and Chief Financial   June 7, 2001
  ----------------------------------------------       Officer (Principal Financial and
                  Michael W. Pope                            Accounting Officer)

             By: /s/ E. FOLLET CARTER                              Director                June 7, 2001
  ----------------------------------------------
                 E. Follet Carter

             By: /s/ STEVE L. ESKENAZI                             Director                June 7, 2001
  ----------------------------------------------
                 Steve L. Eskenazi

            By: /s/ SAMUEL D. KINGSLAND                            Director                June 7, 2001
  ----------------------------------------------
                Samuel D. Kingsland

           By: /s/ WILLIAM H. LANE, III                            Director                June 7, 2001
  ----------------------------------------------
               William H. Lane, III

            By: /s/ RODERICK C. MCGEARY                            Director                June 7, 2001
  ----------------------------------------------
                Roderick C. McGeary
</TABLE>

                                        49
<PAGE>   51

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                                 BALANCE AT    CHARGES TO                  BALANCE AT
                                                 BEGINNING     COSTS AND                     END OF
                                                 OF PERIOD      EXPENSES     DEDUCTIONS      PERIOD
                                                 ----------    ----------    ----------    ----------
<S>                                              <C>           <C>           <C>           <C>
Year ended March 31, 1999:
  Allowance for doubtful accounts..............   $ 10,000      $ 72,000     $  (7,000)     $ 75,000
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
</TABLE>

                                        50
<PAGE>   52

                                  EXHIBIT LIST

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                      DESCRIPTION OF DOCUMENT
-------                     -----------------------
<C>       <S>

  #3.1    Amended and Restated Certificate of Incorporation

  @3.2    Bylaws of DigitalThink, Inc.

  *4.1    Specimen Common Stock Certificate

  *5.1    Opinion of Wilson Sonsini Goodrich & Rosati, Professional
          Corporation

 *10.2    1996 Stock Plan and forms of agreements thereunder

 *10.3    1999 Employee Stock Purchase Plan

 *10.4    Form of Director and Executive Officer Indemnification
          Agreement

 *10.5    Standard Industrial/Commercial Single Tenant Lease dated
          June 18, 1998 between DigitalThink and Bruce J. Cardinal,
          Trustee of the Robert J. Cardinal Trust, for office space
          located at 1064 & 1098 Harrison Street, San Francisco,
          California, and addenda and inserts thereto

( 7/8)10.14 2000 NSO Stock Plan

  21.1    DigitalThink subsidiaries

  23.1    Consent of Deloitte & Touche LLP
</TABLE>

---------------
#  Incorporated by reference to exhibit 3.1(b) filed with our Registration
   Statement on Form S-1 (File No. 333-92429), as amended.

@ 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.

( 7/8)  Incorporated by reference to exhibit 4.1 filed with our Registration
        Statement on Form S-8 (File No. 333-56770).