---



SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



Form 10-Q



|x |  | QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ----------------------------------------------------------------------------------



For the Quarter Ended September 30, 2003



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



Commission File Number 001-31344



PLUMTREE SOFTWARE, INC.

(Exact name
of registrant as specified in its charter)



|Delaware                                                      |  | 52-2303761                         
|------------------------------------------------------------- |  | -----------------------------------
|(State or other jurisdiction ofincorporation or organization) |  | (I.R.S. Employeridentification no.)



500 Sansome Street,
San Francisco, CA 94111

(Address of principal executive offices and zip code)



Registrants telephone number, including area code: (415) 263-8900



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



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Act). Yes ̈x No



The number of shares outstanding of the issuers common stock as of September 30, 2003
was 31,140,862 shares.



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PLUMTREE SOFTWARE, INC.



FORM 10-Q



September 30, 2003



INDEX



|                              |  |                                                                                                                                |  | PageNumber
|----------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------ |  | ----------
|                              | 
|PART I. FINANCIAL INFORMATION |  |                                                                                                                               
|                              |  |                                                                                                                               
|Item 1.                       |  | Financial Statements (unaudited)                                                                                               |  |           
|                              |  |                                                                                                                               
|a.                            |  | Condensed Consolidated Balance Sheets  September 30, 2003 and December 31, 2002                                               |  | 3         
|                              |  |                                                                                                                               
|b.                            |  | Condensed Consolidated Statements of Operations  Three months and nine months ended September 30, 2003 and September 30, 2002 |  | 4         
|                              |  |                                                                                                                               
|c.                            |  | Condensed Consolidated Statements of Cash Flows Nine months ended September 30, 2003 and September 30, 2002                   |  | 5         
|                              |  |                                                                                                                               
|d.                            |  | Notes to Condensed Consolidated Financial Statements                                                                           |  | 6         
|                              |  |                                                                                                                               
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                          |  | 13        
|                              |  |                                                                                                                               
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                                     |  | 32        
|                              |  |                                                                                                                               
|Item 4.                       |  | Controls and Procedures                                                                                                        |  | 32        
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                                               
|                              |  |                                                                                                                               
|Item 1.                       |  | Legal Proceedings                                                                                                              |  | 33        
|                              |  |                                                                                                                               
|Item 2.                       |  | Changes in Securities and Use of Proceeds                                                                                      |  | 34        
|                              |  |                                                                                                                               
|Item 3.                       |  | Defaults Upon Senior Securities                                                                                                |  | 34        
|                              |  |                                                                                                                               
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                                            |  | 34        
|                              |  |                                                                                                                               
|Item 5.                       |  | Other Information                                                                                                              |  | 34        
|                              |  |                                                                                                                               
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                                                               |  | 36        
|                              | 
|Signatures                    |  | 36                                                                                                                            
|                              | 
|Certifications                |  |                                                                                                                               



-2-



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PART I. FINANCIAL INFORMATION



|ITEM 1. |  | FINANCIAL STATEMENTS
|------- |  | --------------------



PLUMTREE SOFTWARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)



|                                                                                            |  | As of September 30,2003 |         |   | As ofDecember 31,2002 |  
|------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | --------------------- | -
|                                                                                            |  | (Unaudited)             |         |   |                       |  
|                                                                                            |  |                        
|ASSETS                                                                                      |  |                         |         |   |                       |  
|Current assets:                                                                             |  |                         |         |   |                       |  
|Cash and cash equivalents                                                                   |  | $                       | 19,623  |   |                       | $
|Short-term investments                                                                      |  |                         | 47,684  |   |                       |  
|Accounts receivable (net of allowance for doubtful accounts of $548 and $754, respectively) |  |                         | 15,879  |   |                       |  
|Prepaid expenses and other current assets                                                   |  |                         | 2,871   |   |                       |  
|                                                                                            |  |                         |         |   |                       |  
|Total current assets                                                                        |  |                         | 86,057  |   |                       |  
|Property and equipment, net                                                                 |  |                         | 2,040   |   |                       |  
|Other assets                                                                                |  |                         | 2,425   |   |                       |  
|                                                                                            |  |                         |         |   |                       |  
|Total assets                                                                                |  | $                       | 90,522  |   |                       | $
|                                                                                            |  |                         |         |   |                       |  
|                                                                                            |  |                        
|LIABILITIES AND STOCKHOLDERS EQUITY                                                        |  |                         |         |   |                       |  
|Current liabilities:                                                                        |  |                         |         |   |                       |  
|Accounts payable                                                                            |  | $                       | 1,084   |   |                       | $
|Accrued and other current liabilities                                                       |  |                         | 12,385  |   |                       |  
|Deferred revenue                                                                            |  |                         | 18,871  |   |                       |  
|                                                                                            |  |                         |         |   |                       |  
|Total current liabilities                                                                   |  |                         | 32,340  |   |                       |  
|Other long-term liabilities                                                                 |  |                         | 462     |   |                       |  
|                                                                                            |  |                         |         |   |                       |  
|Total liabilities                                                                           |  |                         | 32,802  |   |                       |  
|Commitments and contingencies                                                               |  |                         |         |   |                       |  
|Stockholders equity:                                                                       |  |                         |         |   |                       |  
|Common stock, $0.001 par value:                                                             |  |                         |         |   |                       |  
|Authorized  100,000 shares                                                                 |  |                         |         |   |                       |  
|Outstanding  31,141 and 29,439 shares, respectively                                        |  |                         | 31      |   |                       |  
|Additional paid-in capital                                                                  |  |                         | 99,425  |   |                       |  
|Notes receivable from stockholders                                                          |  |                         | (35     | ) |                       |  
|Deferred stock-based compensation                                                           |  |                         | (1,205  | ) |                       |  
|Accumulated other comprehensive income (loss)                                               |  |                         | (121    | ) |                       |  
|Accumulated deficit                                                                         |  |                         | (40,375 | ) |                       |  
|                                                                                            |  |                         |         |   |                       |  
|Total stockholders equity                                                                  |  |                         | 57,720  |   |                       |  
|                                                                                            |  |                         |         |   |                       |  
|Total liabilities and stockholders equity                                                  |  | $                       | 90,522  |   |                       | $
|                                                                                            |  |                         |         |   |                       |  



See accompanying notes
to the condensed consolidated financial statements



-3-



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PLUMTREE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(Unaudited)



|                                                                 |  | For the Three MonthsEnded September 30, |        |   | For the Nine MonthsEnded September 30, |  
|---------------------------------------------------------------- |  | --------------------------------------- | ------ | - | -------------------------------------- | -
|                                                                 |  | 2003                                    |        |   | 2002                                   |  
|Revenue:                                                         |  |                                         |        |   |                                        |  
|Licenses                                                         |  | $                                       | 9,064  |   |                                        | $
|Services and maintenance                                         |  |                                         | 9,416  |   |                                        |  
|                                                                 |  |                                         |        |   |                                        |  
|Total revenue                                                    |  |                                         | 18,480 |   |                                        |  
|                                                                 |  |                                         |        |   |                                        |  
|Cost of revenue:                                                 |  |                                         |        |   |                                        |  
|Licenses                                                         |  |                                         | 259    |   |                                        |  
|Services and maintenance                                         |  |                                         | 2,903  |   |                                        |  
|Amortization of stock-based compensation and acquired technology |  |                                         | 416    |   |                                        |  
|                                                                 |  |                                         |        |   |                                        |  
|Total cost of revenue                                            |  |                                         | 3,578  |   |                                        |  
|                                                                 |  |                                         |        |   |                                        |  
|Gross margin                                                     |  |                                         | 14,902 |   |                                        |  
|                                                                 |  |                                         |        |   |                                        |  
|Operating expenses:                                              |  |                                         |        |   |                                        |  
|Research and development                                         |  |                                         | 5,293  |   |                                        |  
|Sales and marketing                                              |  |                                         | 8,136  |   |                                        |  
|General and administrative                                       |  |                                         | 1,660  |   |                                        |  
|Restructuring charges                                            |  |                                         | 475    |   |                                        |  
|Amortization of stock-based compensation                         |  |                                         | 107    |   |                                        |  
|                                                                 |  |                                         |        |   |                                        |  
|Total operating expenses                                         |  |                                         | 15,671 |   |                                        |  
|                                                                 |  |                                         |        |   |                                        |  
|Income (loss) from operations                                    |  |                                         | (769   | ) |                                        |  
|Other income (loss), net:                                        |  |                                         |        |   |                                        |  
|Interest income, net                                             |  |                                         | 269    |   |                                        |  
|Other income (loss), net                                         |  |                                         | 364    |   |                                        |  
|                                                                 |  |                                         |        |   |                                        |  
|Income (loss) before income taxes                                |  |                                         | (136   | ) |                                        |  
|Provision for income taxes                                       |  |                                         | 237    |   |                                        |  
|                                                                 |  |                                         |        |   |                                        |  
|Net income (loss)                                                |  | $                                       | (373   | ) |                                        | $
|                                                                 |  |                                         |        |   |                                        |  
|Net income (loss) per common share:                              |  |                                         |        |   |                                        |  
|Basic                                                            |  | $                                       | (0.01  | ) |                                        | $
|                                                                 |  |                                         |        |   |                                        |  
|Diluted                                                          |  | $                                       | (0.01  | ) |                                        | $
|                                                                 |  |                                         |        |   |                                        |  
|Weighted average common shares outstanding:                      |  |                                         |        |   |                                        |  
|Basic                                                            |  |                                         | 30,962 |   |                                        |  
|                                                                 |  |                                         |        |   |                                        |  
|Diluted                                                          |  |                                         | 30,962 |   |                                        |  
|                                                                 |  |                                         |        |   |                                        |  



See accompanying notes
to the condensed consolidated financial statements



-4-



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PLUMTREE SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)



|                                                                                         |  | For the Nine MonthsEnded September 30, |        
|---------------------------------------------------------------------------------------- |  | -------------------------------------- | -------
|                                                                                         |  | 2003                                   |        
|Cash flows from operating activities:                                                    |  |                                        |        
|Net income (loss)                                                                        |  | $                                      | (915   
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                                        |        
|Provision for doubtful accounts                                                          |  |                                        | (155   
|Amortization of premium on short-term investments                                        |  |                                        | 472    
|Depreciation and amortization                                                            |  |                                        | 1,328  
|Gain on sale of investment                                                               |  |                                        | (475   
|Loss on disposal of property and equipment                                               |  |                                        |       
|Amortization of stock-based compensation                                                 |  |                                        | 1,032  
|Amortization of acquired technology                                                      |  |                                        | 1,182  
|Amortization of warrants issued for services                                             |  |                                        | 33     
|Changes in assets and liabilities:                                                       |  |                                        |        
|Accounts receivable                                                                      |  |                                        | 895    
|Prepaid expenses and other current assets                                                |  |                                        | (724   
|Other assets                                                                             |  |                                        | 296    
|Accounts payable                                                                         |  |                                        | (546   
|Accrued and other current liabilities                                                    |  |                                        | (2,288 
|Deferred revenue                                                                         |  |                                        | 332    
|Other long-term liabilities                                                              |  |                                        | 8      
|                                                                                         |  |                                        |        
|Net cash provided by operating activities                                                |  |                                        | 475    
|                                                                                         |  |                                        |        
|Cash flows from investing activities:                                                    |  |                                        |        
|Purchases of property and equipment                                                      |  |                                        | (671   
|Proceeds from sale of investment                                                         |  |                                        | 475    
|Purchases of short-term investments                                                      |  |                                        | (27,768
|Proceeds from sale of short-term investments                                             |  |                                        | 24,259 
|                                                                                         |  |                                        |        
|Net cash used in investing activities                                                    |  |                                        | (3,705 
|                                                                                         |  |                                        |        
|Cash flows from financing activities:                                                    |  |                                        |        
|Payments on capital lease obligations                                                    |  |                                        | (74    
|Proceeds from short term debt                                                            |  |                                        |       
|Payments on short term debt                                                              |  |                                        |       
|Net proceeds from initial public offering                                                |  |                                        |       
|Repayments of employee notes receivable                                                  |  |                                        | 639    
|Proceeds from issuance of common stock                                                   |  |                                        | 1,770  
|Repurchases of common stock                                                              |  |                                        | (12    
|                                                                                         |  |                                        |        
|Net cash provided by financing activities                                                |  |                                        | 2,323  
|                                                                                         |  |                                        |        
|Effect of change in exchange rates on cash and cash equivalents                          |  |                                        | (125   
|                                                                                         |  |                                        |        
|Net increase (decrease) in cash and cash equivalents                                     |  |                                        | (1,032 
|Cash and cash equivalents at beginning of period                                         |  |                                        | 20,655 
|                                                                                         |  |                                        |        
|Cash and cash equivalents at end of period                                               |  | $                                      | 19,623 
|                                                                                         |  |                                        |        
|Supplemental disclosure of cash flow information:                                        |  |                                        |        
|Cash paid for income taxes                                                               |  | $                                      | 551    
|                                                                                         |  |                                        |        
|Cash paid for interest                                                                   |  | $                                      | 149    
|                                                                                         |  |                                        |        



See accompanying notes
to the condensed consolidated financial statements



-5-



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PLUMTREE SOFTWARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(information as of September 30, 2003

and for the three months and nine months ended September 30, 2003 and 2002 is unaudited)



Note 1. BACKGROUND AND BASIS OF PRESENTATION



The Company



Plumtree Software, Inc.,
(the Company) develops and distributes infrastructure software, maintenance and consulting, training and installation services that enable businesses to deploy corporate portals to information applications and Internet-based services.



The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
contain all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of the Companys management, the accompanying unaudited condensed
consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the Companys financial position as of September 30, 2003, the results of operations for the
three months and nine months ended September 30, 2003 and 2002, and cash flows for the nine months ended September 30, 2003 and 2002. The following information should be read in conjunction with the audited consolidated financial statements and
accompanying notes thereto included in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2002 filed with the Securities and Exchange Commission on March 24, 2003.



The results of operations for the interim periods presented are not
necessarily indicative of the operating results to be expected for any subsequent interim period or for the full fiscal year ending December 31, 2003.



Revenue Recognition



License revenue consists principally of revenue from the licensing of the Companys software and is generally recognized when a contract is executed,
all delivery obligations have been met, the fee is fixed or determinable, and collectibility is probable. When licenses are sold together with services, in accordance with the provisions of the American Institute of Certified Public
Accountants Statement of Position 97-2, Software Revenue Recognition (SOP 97-2), license fees are recognized upon delivery, provided that (1) the above criteria have been met, (2) payment of the license fees is not
dependent upon the performance of the services, (3) the services do not include significant modifications to the features and functionality of the software, and (4) the services are not essential to the functionality of the software.



The Company has not established vendor specific objective evidence of fair
value (VSOE) for license sales and recognizes revenue from arrangements with multiple elements involving software licenses under the residual method as outlined in SOP 97-2. To the extent that a discount exists on any of the elements,
the Company follows the residual method and attributes that discount entirely to the delivered elements.



Service revenue consists of consulting, training and installation services that the Company provides to its customers. Revenue from such services is
generally recognized as the service is performed. If services are included with a license agreement, amounts related to services are unbundled from the license fee based on VSOE as established by transactions where such services have been sold
separately.



Maintenance revenue relates to the technical
support and software updates the Company provides to its customers. Revenue on maintenance contracts is recognized ratably over the term of the contract. If maintenance is bundled with a license agreement, amounts related to maintenance are
unbundled from the license fee based on VSOE as established by the renewals the Company charges in accordance with its contracts and its established pricing.



Restructuring Charges



In July 2003, the Company undertook a workforce reorganization and incurred a charge of $475,000. The Company has paid for substantially all
of costs associated with the restructuring as of the date of this filing.



-6-



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Stock-Based Compensation



In accordance with Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to
Employees, the Company applies the intrinsic value method in accounting for employee stock options. Accordingly, the Company recognizes no compensation expense with respect to stock-based awards to employees for which the exercise price equals the
fair market value of the stock on the date of grant. The Company has determined pro forma information regarding net income (loss) and net income (loss) per common share as if the Company had accounted for employee stock options under the fair value
method as required by Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based Compensation, and Statement of Financial Accounting Standards No. 148 (SFAS 148), Accounting for Stock-Based
Compensation Transition and Disclosure. The fair value of these stock-based awards to employees were estimated using the Black-Scholes option pricing model, using the following weighted average assumptions:



|                            |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|--------------------------- |  | -------------------------------- |  | -------------------------------
|                            |  | 2003                             |  | 2002                           
|Risk-free interest rate     |  | 2.61%                            |  | 3.84%                          
|Expected life of the option |  | 4 years                          |  | 4 years                        
|Dividend yield              |  | 0%                               |  | 0%                             
|Volatility                  |  | 80%                              |  | 105%                           



The fair value of
rights under the Employee Stock Purchase Plan (ESPP) for the three months and nine months ended September 30, 2003 and 2002 were estimated using the Black-Scholes option pricing model, using the following weighted average assumptions:



|                            |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|--------------------------- |  | -------------------------------- |  | -------------------------------
|                            |  | 2003                             |  | 2002                           
|Risk-free interest rate     |  | 1.24%                            |  | 1.72%                          
|Expected life of the option |  | 1.25 years                       |  | 1.25 years                     
|Dividend yield              |  | 0%                               |  | 0%                             
|Volatility                  |  | 80%                              |  | 105%                           



For pro forma
purposes, the estimated fair value of the Companys stock-based awards to employees is amortized over the options vesting period (generally four years) and the ESPPs look back period of up to two years. The weighted-average
estimated fair value of stock options issued for the three months and nine months ended September 30, 2003 was $2.43 and $2.31 per share, respectively. The weighted-average estimated fair value of share purchase rights under the ESPP for the three
months and the nine months ended September 30, 2003 was $1.51 per share. The Companys pro forma net income (loss) and pro forma net income (loss) per common share data under SFAS No. 123 is as follows (in thousands, except per share amounts):



|                                                                                                          |  | Three MonthsEnded September 30, |        |   | Nine Months Ended September 30, |  
|--------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------- | -
|                                                                                                          |  | 2003                            |        |   | 2002                            |  
|Net income (loss) as reported                                                                             |  | $                               | (373   | ) |                                 | $
|Add: Stock-based employee compensation expense included in net income (loss)                              |  |                                 | 129    |   |                                 |  
|Deduct: Stock-based employee compensation expense determined under fair value based method for all awards |  |                                 | (1,083 | ) |                                 |  
|                                                                                                          |  |                                 |        |   |                                 |  
|Pro forma net loss under SFAS 123                                                                         |  | $                               | (1,327 | ) |                                 | $
|                                                                                                          |  |                                 |        |   |                                 |  
|Net income (loss) per common share  basic:                                                               |  |                                 |        |   |                                 |  
|As reported under APB 25                                                                                  |  | $                               | (0.01  | ) |                                 | $
|                                                                                                          |  |                                 |        |   |                                 |  
|Pro forma under SFAS 123                                                                                  |  | $                               | (0.04  | ) |                                 | $
|                                                                                                          |  |                                 |        |   |                                 |  
|Net income (loss) per common share  diluted:                                                             |  |                                 |        |   |                                 |  
|As reported under APB 25                                                                                  |  | $                               | (0.01  | ) |                                 | $
|                                                                                                          |  |                                 |        |   |                                 |  
|Pro forma under SFAS 123                                                                                  |  | $                               | (0.04  | ) |                                 | $
|                                                                                                          |  |                                 |        |   |                                 |  



-7-



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Amortization of stock-based compensation expense is as follows (in thousands):



|                                                                         |  | For the ThreeMonths EndedSeptember 30, |     | For the NineMonths EndedSeptember 30,
|------------------------------------------------------------------------ |  | -------------------------------------- | --- | -------------------------------------
|                                                                         |  | 2003                                   |     | 2002                                 
|Amortization of stock-based compensation included in cost of revenue     |  | $                                      | 22  |                                      
|Amortization of stock-based compensation included in operating expenses: |  |                                        |     |                                      
|Research and development                                                 |  |                                        | 47  |                                      
|Sales and marketing                                                      |  |                                        | 49  |                                      
|General and administrative                                               |  |                                        | 11  |                                      
|                                                                         |  |                                        |     |                                      
|Total stock-based compensation included in operating expenses            |  |                                        | 107 |                                      
|                                                                         |  |                                        |     |                                      
|Total stock-based compensation                                           |  | $                                      | 129 |                                      
|                                                                         |  |                                        |     |                                      



Cash Equivalents and Short-term
Investments



Cash equivalents consist of highly liquid
investments including corporate debt securities and money market funds with maturities of 90 days or less from the date of purchase.



The following is a chart of the principal amounts of short-term investments by expected maturity (in thousands):



|                                |  | Expected Maturity Date for the Year EndingDecember 31, |       | As ofSeptember 30,2003
|------------------------------- |  | ------------------------------------------------------ | ----- | ----------------------
|                                |  | 2003                                                   |       | 2004                  
|Cash equivalents                |  | $                                                      | 3,361 |                       
|Taxable auction rate securities |  |                                                        | 5,450 |                       
|US Government agencies          |  |                                                        |      |                       
|Corporate notes                 |  |                                                        |      |                       
|                                |  |                                                        |       |                       
|Total                           |  | $                                                      | 8,811 |                       
|                                |  |                                                        |       |                       



With respect to the
above investments the Company is exposed to market risks for changes in interest rates. The Company places its investments with high quality credit issuers that have a rating by either Moodys of A-1 or higher, Fitchs of F-1 or higher or
Standard & Poors of P-1 or higher.



The Companys
general policy is to limit the risk of principal loss and ensure the safety of invested funds by limiting market and credit risk. The Company considers all investments to be short-term investments, which are classified in the balance sheet as
current assets, because (1) the investments can be readily converted at any time into cash or into securities with a shorter remaining time to maturity and (2) the investments are selected for yield management purposes only and the Company is not
committed to holding the investments until maturity. The Company determines the appropriate classification of its investments at the time of purchase and re-evaluates such designations as of each balance sheet date. All short-term investments and
cash equivalents in the Companys portfolio are classified as available-for-sale and are stated at fair market value, with the unrealized gains and losses reported as a component of accumulated other comprehensive income (loss). The
amortized cost of debt securities is adjusted for amortization of premiums and accretion of unrealized discounts to maturity. Such amortization and accretion is included in interest income and other, net. The cost of securities sold is based on the
specific identification method.



Intangible Assets



In November 2001, the Company acquired certain technology for $85,000 and
60,000 shares of common stock. In November 2001, the Company also acquired a company (the Acquired Company) for 297,594 shares of common stock. The acquisition of the Acquired Company was accounted for under the purchase method with the
results of the Acquired Company included in the consolidated statements of operations for the year ended December 31, 2001, subsequent to the November 2001 acquisition date. In connection with these acquisitions, the Company incurred



-8-



---

approximately $70,000 of transaction related costs. The common stock issued in connection with these transactions was recorded at its estimated fair value
for accounting purposes of $12.60 per share on the date of issuance. The purchase price was allocated to acquired technology and is being amortized over its estimated useful life of three years. Amortization is being recorded as cost of revenue and
was $394,000 and $1.2 million for the three months and nine months ended September 30, 2003. Amortization was $394,000 and $1.2 million for the three months and nine months ended September 30, 2002.



Accrued Liabilities



Accrued liabilities consist of the following (in thousands):



|                      |  | September 30, 2003 |        | December 31, 2002
|--------------------- |  | ------------------ | ------ | -----------------
|Commissions and bonus |  | $                  | 2,099  |                  
|Sales taxes           |  |                    | 1,446  |                  
|Vacation              |  |                    | 1,400  |                  
|Royalties             |  |                    | 705    |                  
|Third party software  |  |                    | 282    |                  
|ESPP                  |  |                    | 251    |                  
|Other                 |  |                    | 6,202  |                  
|                      |  |                    |        |                  
|                      |  | $                  | 12,385 |                  
|                      |  |                    |        |                  



Litigation and Contingencies



On May 17, 2002, Datamize, LLC filed a lawsuit
against the Company in the United States District Court for the District of Montana alleging in general, that by supplying software and systems for the personalization and customization of networked kiosk and computer screens, the
Company infringes U.S. Patent Number 6,014,137 (the 137 patent) owned by Datamize. Datamize, based in Florence, Montana, described itself in its complaint as engaged in the business of designing, creating and commercially
exploiting software useful in the personalization and customization of networked kiosk and computer screens. The Company moved to dismiss the action for lack of personal jurisdiction. In early July 2003, the court granted the Companys
motion, and entered judgment in favor of the Company on July 7, 2003 in accordance with that order. Datamize had thirty (30) days to appeal this judgment, which period elapsed on August 6, 2003 without Datamize taking any action with the court.



In December 2002, the Company filed a complaint for
declaratory relief against Datamize in United States District Court for the Northern District of California (Civil Action No. 02-5693 VRW). The Company seeks a declaratory judgment that it does not infringe any valid claim of U.S. Patent Number
6,014,137, Electronic Kiosk Authoring System (the 137 patent), which Datamize claims to own. Datamize has filed its answer and a counterclaim alleging that the Company infringes the 137 patent. Datamize is seeking, among
other things, injunctive relief and unspecified damages. In response to a procedural motion, the court realigned the parties so that the Company is now the defendant, and Datamize is now the plaintiff. The case is in its early stages. At this time,
the Company does not believe it is infringing any valid patent claim of Datamize and intends to vigorously pursue its claims and defenses.



On November 13, 2001, the Company commenced an action in the District Court in The Hague against an individual, Werner Linssen, to cancel his Benelux
trademark registration for Plumtree. Specifically, the Company asked the Hague District Court to (i) annul Mr. Linssens Benelux trademark registration for Plumtree and (ii) bar Mr. Linssen, pending the proceedings, from
contacting the Companys customers in a threatening or unfair manner. On September 24, 2003, the Hague District Court granted the Companys request for a preliminary injunction barring Mr. Linssen, pending the proceedings, from contacting
the Companys customers in a threatening or unfair manner. On October 15, 2003, Mr. Linssen filed answering papers denying the Companys allegations and asserting a counterclaim for infringement of his registered trademark. The Company is
reviewing the counterclaim and intends to reply shortly.



On
November 25, 2001, the Company also commenced a proceeding before the Swiss Federal Institute of Intellectual Property in opposition to Mr. Linssens trademark application for Plumtree. The Swiss Patent Office has dismissed the
proceeding; however, the Company has appealed the decision. In addition, on May 2, 2003, the Company initiated a civil lawsuit against Mr. Linssen in the Commercial Court of the Canton of Zurich, Switzerland, seeking (i) an injunction barring Mr.
Linssens use of the Plumtree trademark, and (ii) the transfer of Mr. Linssens Swiss trademark



-9-



---

registration for Plumtree, or in the alternative, the cancellation of Mr. Linssens Swiss registration. On October 6, 2003, Mr. Linssen
filed answering papers denying the Companys allegations and asserting a counterclaim for infringement of his registered trademark. The Company is reviewing the counterclaim and intends to reply shortly.



The Company and Mr. Linssen have each also commenced proceedings before the
E.U.s Office of Harmonisation of the Internal Market in opposition to each others Community Trade Mark applications. Those proceedings have been suspended pending disposition of the action in The Hague.



In connection with the Companys operating lease agreement for their
corporate headquarters in San Francisco, CA, the Company is contractually obligated to complete certain leasehold improvements during the lease term. The Company is currently unable to determine the Companys potential liability related to this
matter. Management does not believe that the outcome of this matter will have a material impact on the Companys financial position, liquidity or results of operations in the near future.



The results of the above issues and proceedings cannot be predicted with
certainty; however, in the opinion of management, the potential liabilities associated with these complaints are not expected to have a material adverse effect on the Companys financial position, liquidity or results of operations.



Royalties



The Company has entered into various license arrangements with other software providers to incorporate the software
providers software in the Companys product. In return for these licenses, the Company is required to pay certain fees upon signing of the arrangements plus a certain percentage of the Companys net revenue, as defined in these
agreements, generated from the sales of its product. Royalty expense is recognized in the period in which liability is incurred. Up-front fees are amortized over the period benefited or as the incorporated software is sublicensed, as applicable. For
the three months and nine months ended September 30, 2003 the Company incurred royalty expense of approximately $259,000 and $888,000, respectively, related to these arrangements. For the three months and nine months ended September 30, 2002, the
Company incurred royalty expense of approximately $258,000 and $2.9 million, respectively, related to these arrangements. The Company classifies all royalty expenses as cost of revenues.



Net Income (Loss) Per Share



Basic and diluted net income (loss) per common share are presented in conformity with SFAS No. 128, Earnings Per Share, for all periods
presented. In accordance with SFAS No. 128, basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average common shares outstanding during the period, less shares subject to repurchase. Diluted net income
(loss) per share is calculated by dividing net income (loss) by the weighted average common shares outstanding adjusted for all potential dilutive common shares, which includes shares issuable upon the exercise of outstanding common stock options,
warrants, and common stock subject to repurchase, using the treasury stock method, and from convertible preferred stock, using the if-converted method. The Company excludes all potentially dilutive securities from its diluted net income
(loss) per share computation when there affect would be anti-dilutive.



The following table presents the calculation of basic and diluted net income (loss) per share (in thousands, except per share amounts):



|                                                                                                                |  | Three Months Ended September 30, |        |   | Nine Months Ended September 30, |  
|--------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | ------ | - | ------------------------------- | -
|                                                                                                                |  | 2003                             |        |   | 2002                            |  
|Net income (loss)                                                                                               |  | $                                | (373   | ) |                                 | $
|Basic:                                                                                                          |  |                                  |        |   |                                 |  
|Weighted average shares of common stock outstanding                                                             |  |                                  | 31,002 |   |                                 |  
|Less: Weighted average shares subject to repurchase                                                             |  |                                  | (40    | ) |                                 |  
|                                                                                                                |  |                                  |        |   |                                 |  
|Weighted average shares used in computing basic net income (loss) per common share                              |  |                                  | 30,962 |   |                                 |  
|                                                                                                                |  |                                  |        |   |                                 |  
|Basic net income (loss) per common share                                                                        |  | $                                | (0.01  | ) |                                 | $
|                                                                                                                |  |                                  |        |   |                                 |  
|Diluted:                                                                                                        |  |                                  |        |   |                                 |  
|Weighted average shares used above                                                                              |  |                                  | 30,962 |   |                                 |  
|Add: Weighted average shares subject to repurchase                                                              |  |                                  |       |   |                                 |  
|Add: Net additional shares related to assumed option and warrant exercises under the treasury stock method      |  |                                  |       |   |                                 |  
|Add: Weighted average adjustment to reflect the effect of the assumed conversion of convertible preferred stock |  |                                  |       |   |                                 |  
|                                                                                                                |  |                                  |        |   |                                 |  
|Weighted average shares used in computing diluted net income per common Share                                   |  |                                  | 30,962 |   |                                 |  
|                                                                                                                |  |                                  |        |   |                                 |  
|Diluted net income (loss) per common share                                                                      |  | $                                | (0.01  | ) |                                 | $
|                                                                                                                |  |                                  |        |   |                                 |  



-10-



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The following potential shares of common stock have been excluded from the computation of diluted net
income (loss) per share because the effect of including these shares would have been anti-dilutive (in thousands):



|                                                           |  | Three MonthsEndedSeptember 30, |  | Nine MonthsEnded September 30,
|---------------------------------------------------------- |  | ------------------------------ |  | ------------------------------
|                                                           |  | 2003                           |  | 2002                          
|Options to purchase common stock                           |  | 8,769                          |  | 8,628                         
|Common stock subject to repurchase                         |  | 40                             |  | 207                           
|Warrants to purchase common stock                          |  | 41                             |  | 98                            
|                                                           |  |                                |  |                               
|Weighted average potential shares of common stock excluded |  | 8,850                          |  | 8,933                         
|                                                           |  |                                |  |                               



Recent Accounting Pronouncements



In June 2001, the FASB issued Statement of Financial
Accounting Standards Nos. 143, Accounting for Asset Retirement Obligations(SFAS 143). Under SFAS 143, the fair value of a liability for an asset retirement obligation must be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. SFAS 143 is effective for fiscal years beginning after June 15, 2002. SFAS 143 was adopted
in the quarter ended March 31, 2003 and did not have a material impact on the financial position or results of the Companys operations.



In July 2002, the FASB issued Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities(SFAS 146), which addresses financial accounting and reporting for costs associated with exit or disposal activities. This statement requires that a liability be recognized at fair value for costs associated with exit or disposal
activities only when the liability is incurred as opposed to at the time the Company commits to an exit plan as permitted under EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit and
Activity. SFAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002. SFAS 146 was adopted in the quarter ended March 31, 2003 and did not have a material impact on the financial position or results of the
Companys operations.



In November 2002, the EITF reached
a consensus on Issue No. 00-21 Revenue Arrangements with Multiple Deliverables (EITF 00-21). EITF 00-21 addresses certain aspects of accounting by a vendor for arrangements under which the vendor will perform multiple revenue
generating activities. EITF 00-21 is effective for fiscal periods beginning after June 15, 2003. The adoption of EITF 00-21 did not have a material impact on its financial position or results of the Companys operations.



In November 2002, the FASB issued FASB Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others(FIN 45), which clarifies disclosure and recognition/measurement requirements related to certain
guarantees. The disclosure requirements are effective for financial statements issued after December 15, 2002 and the recognition/measurement requirements are effective on a prospective basis for guarantees issued or modified after December 31,
2002. The Company typically grants its customers a warranty, which guarantees that the Companys products will substantially conform to the Companys current specifications for ninety days from the delivery date as well as indemnification
for customers from third party claims. Through the nine months ended September 30, 2003, costs related to these guarantees and indemnifications have not been significant. The Company cannot estimate the potential impact of these guarantees and
indemnifications on future results of operations.



-11-



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In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. SFAS 150 requires that certain financial instruments, which under previous guidance were accounted for as equity, must now be accounted for as liabilities. The financial instruments affected
include mandatorily redeemable stock, certain financial instruments that require or may require the issuer to buy back some of its shares in exchange for cash or other assets and certain obligations that can be settled with shares of stock. SFAS 150
is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. SFAS 150 was adopted in the quarter ended June 30, 2003
and did not have a material impact on the financial position or results of the Companys operations.



Note 2. Segment Reporting



SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, established standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance.



The Company has organized its operations based on a single operating segment:
the development and delivery of corporate portal, collaboration, content management and search software as well as related maintenance and consulting, training and installation services for enterprises.



The disaggregated information reviewed on a product basis by the CEO (our
Chief Operating Decision Maker) is as follows (in thousands):



|                                               |  | Three Months Ended September 30, |        | Nine Months Ended September 30,
|---------------------------------------------- |  | -------------------------------- | ------ | -------------------------------
|                                               |  | 2003                             |        | 2002                           
|Revenues:                                      |  |                                  |        |                                
|License                                        |  | $                                | 9,064  |                                
|Maintenance                                    |  |                                  | 5,681  |                                
|Consulting, training and installation services |  |                                  | 3,735  |                                
|                                               |  |                                  |        |                                
|Total revenues                                 |  | $                                | 18,480 |                                
|                                               |  |                                  |        |                                



The Company markets
its products primarily from its operations in the United States. International sales are made primarily to customers in Canada, Europe, Japan and Asia Pacific. Substantially all of the Companys long-term assets are located within the Americas.
Information regarding the Companys revenues in different geographic regions is as follows (in thousands):



|                         |  | Three Months Ended September 30, |        | Nine Months Ended September 30,
|------------------------ |  | -------------------------------- | ------ | -------------------------------
|                         |  | 2003                             |        | 2002                           
|Revenues:                |  |                                  |        |                                
|United States of America |  | $                                | 15,202 |                                
|Other                    |  |                                  | 3,278  |                                
|                         |  |                                  |        |                                
|Total revenues           |  | $                                | 18,480 |                                
|                         |  |                                  |        |                                



For the three months
and nine months ended September 30, 2003 and 2002, no customer represented more than 10% of the Companys total revenues. As of September 30, 2003 and 2002, no customer accounted for greater than 10% of accounts receivable.



-12-



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Note 3. Other Comprehensive Income (Loss)



Other comprehensive income (loss) includes net income (loss), unrealized gains (losses) on available-for-sale securities and
foreign currency translation adjustments.



Other comprehensive
income (loss) is comprised of the following (in thousands):



|                                                               |  | Three MonthsEndedSeptember 30, |      |   | Nine MonthsEndedSeptember 30, |  
|-------------------------------------------------------------- |  | ------------------------------ | ---- | - | ----------------------------- | -
|                                                               |  | 2003                           |      |   | 2002                          |  
|Net income (loss)                                              |  | $                              | (373 | ) |                               | $
|Other comprehensive income (loss):                             |  |                                |      |   |                               |  
|Change in accumulated foreign currency translation adjustments |  |                                | 97   |   |                               |  
|Change in accumulated unrealized gain (loss) on investments    |  |                                | (103 | ) |                               |  
|                                                               |  |                                |      |   |                               |  
|Total comprehensive income (loss)                              |  | $                              | (379 | ) |                               | $
|                                                               |  |                                |      |   |                               |  



|ITEM 2. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- |  | -------------------------------------------------------------------------------------



This Managements Discussion and Analysis of Financial Condition and Results of Operations should be read in
conjunction with the accompanying condensed consolidated financial statements and notes included in this report. This Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 that involve
risks and uncertainties identified in our Annual Report on Form 10K filed with the Securities and Exchange Commission on March 24, 2003, as well as other reports that we will file from time to time with the Securities and Exchange Commission. Any
statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements. In many cases, you can identify forward-looking statements by terms such as may, will,
should, expect, plan, anticipate, believe, estimate, predict, potential, intend or continue, the negative of these terms or other
comparable terminology. These statements are only predictions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including, but not limited to, those presented in
Risk Factors that May Affect Our Future Results and the Market Price of Our Stock and elsewhere in this report. We undertake no obligation to update publicly any forward-looking statements for any reason, except as required by law, even
if new information becomes available or other events occur in the future.



Overview



General



We develop, market and sell corporate portal, collaboration, content
management and search software as well as related services for enterprises. These technologies work together in an online work environment that we call the Enterprise Web. The Enterprise Web integrates resources from existing systems with new online
services to allow customers to assemble, manage and deliver Web applications more quickly and at a lower cost. Our Enterprise Web solution allows an enterprises employees, customers and partners to interact with different types of information
and applications in one Web site and empowers users to create new information and services. Our software also supports a wide range of online business processes, so users can complete tasks more efficiently. For example, using our solution, a
companys employees can send e-mail, read competitive news or update a sales database, accessing multiple systems in one experience. Supervisors can also use our solution to assign projects and approve expenses. Similarly, a companys
customers can use our portal to search for support articles, participate in online discussions or access billing information. We believe that the range of resources our software can integrate and our proprietary Internet technology for performing
this integration for hundreds of thousands of users differentiates our solution and creates significant value for our customers. We also provide professional services and training, maintenance and support services to our customers. Since 1997, we
have licensed our software to over 550 customers from a broad range of industries and government.



Sources of Revenue



We derive our revenue from software licenses, services and maintenance. To generate revenue, we utilize both a direct sales force and an indirect sales
channel consisting primarily of systems integrators and independent software vendors. Our services include installation, consulting and training. We typically work in tandem with third-party consulting organizations to deliver these services.
Maintenance services include technical support and software updates. Our maintenance contracts are typically one year in duration and can be renewed annually.



-13-



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Critical Accounting Policies



Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United
States of America GAAP. These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information
available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the
reported amounts of revenues and expenses during the periods presented. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. The significant
accounting policies that we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:



| |  |  | software revenue recognition;
| | - |  | -----------------------------



| |  |  | allowance for doubtful accounts;
| | - |  | --------------------------------



| |  |  | valuation allowance against deferred tax assets;
| | - |  | ------------------------------------------------



| |  |  | assessing the realizability of capitalized acquired technology; and
| | - |  | -------------------------------------------------------------------



| |  |  | determination of the fair value of options granted to employees.
| | - |  | ----------------------------------------------------------------



Software Revenue Recognition



Our software arrangements typically include: (i) an end user license that provides for an initial fee in exchange for a customers use of our
products in perpetuity based on a specified number of users; (ii) a maintenance arrangement that provides for technical support and product updates over a period of 12 months; and (iii) a professional service arrangement on a time and materials
basis. We recognize software revenue using the residual method pursuant to the requirements of Statement of Position No. 97-2 Software Revenue Recognition, as amended by Statement of Position No. 98-9, Software Revenue Recognition
with Respect to Certain Arrangements. Under the residual method, revenue is recognized when Plumtree-specific objective evidence of fair value exists for all of the undelivered elements in the arrangement (i.e., professional services and
maintenance), but does not exist for one or more of the delivered elements in the arrangement (i.e., the software product). We allocate revenue to each undelivered element based on its respective fair value, with the fair value determined by the
price charged when that element is sold separately. We determine the fair value of the maintenance portion of the arrangement based on consistent pricing of maintenance and maintenance renewals as a percentage of net license fees. If evidence of
fair value cannot be established for the undelivered elements of a license agreement, the entire amount of revenue from the arrangement is deferred and recognized over the period that these elements are delivered. For substantially all of our
software arrangements, we defer revenue for the fair value of the maintenance and professional services to be provided to the customer and recognize revenue for the software license when persuasive evidence of an arrangement exists and delivery has
occurred, provided the fee is fixed or determinable, and collection is deemed probable. We evaluate each of these criteria as follows:



| |  |  | Evidence of an arrangement: We consider a non-cancelable agreement signed by us and the customer to be evidence of an arrangement.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | Delivery: Delivery is considered to occur when media containing the licensed programs is provided to a common carrier or, in the case of electronic delivery, the customer is given
access to the licensed programs.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Acceptance: Our typical end user license agreement does not include customer acceptance provisions. If the arrangement specifies acceptance provisions, we defer the revenue until
the earlier of written acceptance is received from the customer or the customers acceptance rights expire.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Fixed or determinable fee: We consider the fee to be fixed or determinable if the fee is not subject to refund or adjustment and is on standard payment terms. If the arrangement fee
is not fixed or determinable, we recognize the revenue as amounts become due and payable.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Collection is deemed probable: We conduct credit reviews for all significant transactions at the time of the arrangement to determine the credit worthiness of the customer.
Collection is deemed probable if we expect that the customer will be able to pay amounts under the arrangement as payments become due. If we determine that collection is not probable, we defer the revenue and recognize the revenue upon cash
collection.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



-14-



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Allowance for Doubtful Accounts



We have provided an allowance for doubtful accounts of $548,000 as of September 30, 2003 for estimated losses resulting from
the inability of our customers to make their required payments.



The total allowance for doubtful accounts is comprised of a specific reserve and a general reserve. We regularly review the adequacy of our allowance for doubtful accounts after considering the size of the accounts receivable aging, the age
of each invoice, each customers expected ability to pay and our collection history with each customer. Unless specific indications arise earlier, we review any invoice greater than 120 days past due to determine if an allowance is appropriate
based on the risk category. In addition, we maintain a general reserve for all invoices billed, and not included in the specific reserve, by applying a percentage based on each 30-day age category. For unbilled invoices we generally apply a
percentage to the entire balance. In determining these percentages, we analyze our historical collection experience and current economic trends.



In calculating the specific reserve, we identify specific high-risk accounts where collection is deemed unlikely. In calculating the general reserve, we
reduce the gross accounts receivable balance by any specific reserves. The remaining balance is segregated into 30-day aged categories and a reserve percentage is applied to each category. If the historical data we use to calculate the allowance
provided for doubtful accounts does not reflect the future ability to collect outstanding receivables, additional provisions for doubtful accounts may be needed and the future results of operations could be materially affected. However, historically
the reserve has proven to be adequate.



Valuation Allowance Against Deferred
Tax Assets



We provided a valuation allowance of $7.2
million against the entire net deferred tax asset as of December 31, 2002. The valuation allowance was recorded given the accumulated losses we have incurred and uncertainties regarding our future operating profitability and taxable income.



Assessing the Realizability of Capitalized Acquired Technology



We have capitalized the costs of certain purchased
technology. We periodically review these costs to ensure they are being recorded at the lower of unamortized cost or net realizable value. Net realizable value is determined using assumed future cash flows related to sales of the underlying
technology. Had different assumed cash flows been used, materially different amounts of the carrying amount of these costs could have been reported. At September 30, 2003, the unamortized costs related to the purchased software were approximately
$1.9 million and are included within other assets in the accompanying consolidated balance sheets.



Determination of Fair Value of Options Granted to Employees



In connection with the granting of certain stock options, we recorded deferred stock-based compensation charges in the periods before our initial public
offering representing the difference between the deemed fair value of our common stock for accounting purposes and the option exercise price. We determined the deemed fair value based upon several factors including our operating performance,
issuances of our convertible preferred stock and valuations of comparable publicly traded software companies. For the three months and the nine months ended September 30, 2003 we recognized $129,000 and $1.0 million of stock-based compensation
expense, respectively. For the three months and the nine months ended September 30, 2002 we recognized $887,000 and $3.3 million of stock-based compensation expense, respectively. We apply the intrinsic value method in accounting for employee stock
options apply in accordance with Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees. Accordingly, we recognize no compensation expense with respect to stock-based awards to employees with
exercise prices equal to the fair market value of the award on the date of grant. Had different assumptions or criteria been used to determine the deemed fair value of the stock, materially different amounts of stock-based compensation could have
been reported. Had we applied fair value accounting for our stock options as outlined in Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation, our operating results would have been affected as follows:



|                                                                                                          |  | Three Months EndedSeptember 30, |        |   | Nine Months Ended September 30, |  
|--------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------- | -
|                                                                                                          |  | 2003                            |        |   | 2002                            |  
|Net income (loss) as reported                                                                             |  | $                               | (373   | ) |                                 | $
|Add: Stock-based employee compensation expense included in net income (loss)                              |  |                                 | 129    |   |                                 |  
|Deduct: Stock-based employee compensation expense determined under fair value based method for all awards |  |                                 | (1,083 | ) |                                 |  
|                                                                                                          |  |                                 |        |   |                                 |  
|Pro forma net loss under SFAS 123                                                                         |  | $                               | (1,327 | ) |                                 | $
|                                                                                                          |  |                                 |        |   |                                 |  
|Net income (loss) per common share  basic:                                                               |  |                                 |        |   |                                 |  
|As reported under APB 25                                                                                  |  | $                               | (0.01  | ) |                                 | $
|                                                                                                          |  |                                 |        |   |                                 |  
|Pro forma under SFAS 123                                                                                  |  | $                               | (0.04  | ) |                                 | $
|                                                                                                          |  |                                 |        |   |                                 |  
|Net income (loss) per common share  diluted:                                                             |  |                                 |        |   |                                 |  
|As reported under APB 25                                                                                  |  | $                               | (0.01  | ) |                                 | $
|                                                                                                          |  |                                 |        |   |                                 |  
|Pro forma under SFAS 123                                                                                  |  | $                               | (0.04  | ) |                                 | $
|                                                                                                          |  |                                 |        |   |                                 |  



-15-



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Results of Operations



Three Months Ended September 30, 2003 and 2002



Revenue



Revenue increased to $18.5 million in the three months ended September 30, 2003 from $17.7 million in the three months ended September 30, 2002. Between
these periods, license revenue increased 6% and services and maintenance revenue increased 3%.



Licenses. License revenue increased to $9.1 million in the three months ended September 30, 2003 from $8.5 million in the three months ended September 30, 2002. The increase in license revenue for the three
months ended September 30, 2003 over results for the comparable period in 2002 was due to the initial market acceptance of the new versions of our Plumtree Corporate Portal and certain server products introduced in the second quarter of 2003.



Services and Maintenance. Services and maintenance
revenue increased to $9.4 million in the three months ended September 30, 2003 from $9.1 million in the three months ended September 30, 2002, primarily due to increased maintenance we provided to our new customers and maintenance renewals from our
larger installed customer base. Services revenue decreased to $3.7 million for the three months ended September 30, 2003 as compared to $4.1 million for the three months ended September 30, 2002 primarily due to lower headcount in our professional
services organization. Maintenance revenue increased to $5.7 million in the three months ended September 30, 2003 from $5.0 million in the three months ended September 30, 2002.



Cost of Revenue



Licenses. Our cost of licenses consists primarily of royalty expenses paid to third-party technology vendors and the amortization of acquired
technology. Cost of licenses increased to $259,000 in the three months ended September 30, 2003 from $151,000 in the three months ended September 30, 2002.



Services and Maintenance. Our cost of services and maintenance includes salaries and related expenses for our professional services and technical
support organization and third-party consultants. Cost of services and maintenance decreased to $2.9 million in the three months ended September 30, 2003 from $3.1 million in the three months ended September 30, 2002. This decrease was attributable
primarily to the decrease in headcount in our professional services and technical support departments. As of September 30, 2003, we had 64 professional services and technical support personnel as compared to 69 at September 30, 2002. We currently
plan to increase hiring in these organizations.



Amortization of Stock-Based Compensation and Acquired Technology. In connection with options granted to employees in 2001 and 2000, we recorded deferred stock-based compensation related to our cost of services and maintenance
representing the difference between the exercise price of options granted and the deemed fair market value of our common stock at the date of grant. Compensation expense is decreased in the period of forfeiture for any accrued but unvested
compensation arising from the surrender of unvested options upon the termination of an option holder. Amortization of stock-based compensation related to cost of services for the three months ended September 30, 2003 and 2002 was $22,000 and
$181,000, respectively. In connection with the acquisitions of certain technology in 2001, amortization of acquired technology related to cost of license revenue for the three months ended September 30, 2003 and 2002 was $394,000 for both periods.



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Operating Expenses



Research and Development. Research and development expenses consist of costs associated with new software development and enhancement of our
existing software products, including our in-house engineering staff and third-party contractors. The costs associated with our in-house development staff consist primarily of salaries and benefit costs. From time to time our in-house development
staff is supported by outside developers on an independent contractor basis. Research and development expenses increased to $5.3 million in the three months ended September 30, 2003 from $4.6 million in the three months ended September 30, 2002, due
primarily to an increase in the number of our research and development staff resulting from our efforts to enhance our core portal product offering and to expand our product line. As of September 30, 2003, we had 126 employees in research and
development as compared to 115 employees as of September 30, 2002.



Sales and Marketing. Sales and marketing expenses consist of payroll expenses, including salaries and commissions and related costs for sales and marketing personnel and promotion expenditures, including public relations, advertising
and trade shows. Sales and marketing expenses increased to $8.1 million in the three months ended September 30, 2003 from $7.6 million in the three months ended September 30, 2002. Sales expenses increased to $6.8 million in the three months ended
September 30, 2003 from $6.4 million in the three months ended September 30, 2002, although salaries and commissions for the third quarter of 2003 were lower by $422,000 as a result of lower headcount and reduced license sales. The overall
comparative increase is due to cost savings achieved in the third quarter of 2002 from the cancellation of employee rewards and sales meetings in the third quarter of 2002 that did not recur in third quarter of 2003. Marketing expenses increased to
$1.3 million in the three months ended September 30, 2003 from $1.2 million in the three months ended September 30, 2002. As of September 30, 2003, we had 117 employees in sales and marketing as compared to 134 employees as of September 30, 2002.



General and Administrative. General and administrative
costs consist primarily of salaries and related expenses for our administrative, executive and finance personnel, information services costs and costs associated with being a public company. General and administrative expenses remained flat at $1.7
million in the three months ended September 30, 2003 as compared to the three months ended September 30, 2002. As of September 30, 2003, we had 28 general and administrative personnel as compared to 28 as of September 30, 2002. We expect this
expense to increase in future periods as we incur additional costs associated with being a public company, including compliance with the Sarbanes-Oxley Act, proposed changes to the NASDAQ listing rules and other related rules and regulations. Many
of the requirements of the Sarbanes-Oxley Act and proposed changes to the NASDAQ listing rules are not yet fully enacted or applicable to us yet. Our compliance obligations will likely require us to hire additional full time employees or hire third
party consultants.



Restructuring Changes. We recorded a
restructuring change of $475,000 for the three months ended September 30, 2003 related to reorganizations in employee headcount.



Amortization of Stock-Based Compensation. Amortization of stock-based compensation related to operating expenses for the three months ended
September 30, 2003 and 2002 was $107,000 and $706,000, respectively.



Certain of our expense items are subject to estimates. From time to time these estimates are changed and refined and these changes and refinements can cause increases or decreases in our expenses for any particular period. See Critical
Accounting Policies.



Other Income, Net



Other income, net primarily consists of foreign currency gains and losses on
transactions denominated in foreign currencies, interest income earned on cash and cash equivalents and interest expense incurred on our financing obligations. Total other income, net increased to $633,000 in the three months ended September 30,
2003 as compared to other income, net, of $242,000 in the three months ended September 30, 2002. The increase was primarily the result of a gain on the sale of an investment, offset by decreased interest income and an increase in the loss on foreign
currency transactions. During the three months ended September 30, 2003 we recognized a $475,000 gain on the sale of an investment, net of legal fees and commissions. We do not expect to benefit from similar gains on sales of investments in future
periods. Interest income, net, decreased to $269,000 for the three months ended September 30, 2003 from $343,000 for the comparable period in 2002 primarily from a decrease in interest rates resulting in lower rates of return on our short term
investments. The effect of foreign currency transactions was a loss of $(111,000) for the three months ended September 30, 2003 as compared to a loss of $(101,000) for the comparable period in 2002.



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Provision for Income Taxes



We recorded an income tax provision of $237,000 and $411,000 for the three months ended September 30, 2003 and 2002
primarily related to income and withholding taxes currently payable on sales and income generated in non-U.S. and domestic state tax jurisdictions for which no U.S. benefit is currently recognizable.



Nine Months Ended September 30, 2003 and 2002



Revenue



Revenue decreased to $52.7 million in the nine months ended September 30, 2003 from $63.4 million in the nine months ended
September 30, 2002. Between these periods, license revenue decreased 34% and services and maintenance revenue increased 10%.



Licenses. License revenue decreased to $25.2 million in the nine months ended September 30, 2003 from $38.4 million in the nine months ended
September 30, 2002. The decrease in license revenue for the nine months ended September 30, 2003 over results for the comparable period in 2002 was due primarily to customers delaying purchasing decisions or failing to make purchases due to the
corresponding downturn in the overall software market.



Services and Maintenance. Services and maintenance revenue increased to $27.5 million in the nine months ended September 30, 2003 from $25.0 million in the nine months ended September 30, 2002, primarily due to increased maintenance
we provided to our new and existing customers. Services revenue decreased to $10.7 million for the nine months ended September 30, 2003 as compared to $11.5 million for the nine months ended September 30, 2002. Maintenance revenue increased to $16.7
million in the nine months ended September 30, 2003 from $13.5 million in the nine months ended September 30, 2002.



Cost of Revenue



Licenses. Cost of licenses decreased to $887,000 in the nine months ended September 30, 2003 from $2.8 million in the nine months ended September
30, 2002. Our cost of license revenue decreased primarily due to decreased royalty payments due to the shipment of version 4.5WS of our portal product. Version 4.5WS (and later versions of our portal product) incorporate proprietary technology not
subject to royalty payments in replacement of certain functionality previously provided by third-party vendors. Royalty expense for the nine months ended September 30, 2003 was $887,000 as compared to $2.9 million in the comparable period in 2002.



Services and Maintenance. Our cost of services and
maintenance includes salaries and related expenses for our professional services and technical support organization and third-party consultants. Cost of services and maintenance decreased to $7.9 million in the nine months ended September 30, 2003
from $9.8 million in the nine months ended September 30, 2002. This decrease was attributable primarily to lower headcount in our professional services and technical support departments as well as a $327,000 credit to expense from the expiration of
a software license purchased but never placed into service.



Amortization of Stock-Based Compensation and Acquired Technology. Amortization of stock-based compensation related to cost of services for the nine months ended September 30, 2003 and 2002 was $179,000 and $649,000, respectively.
Amortization of acquired technology related to cost of license revenue for each of the nine months ended September 30, 2003 and 2002 was $1.2 million.



Operating Expenses



Research and Development. Research and development expenses increased to $15.4 million in the nine months ended September 30, 2003 from $13.7
million in the nine months ended September 30, 2002, due to an increase in the number of our research and development staff and our efforts to enhance our core portal product offering and to expand our product line.



Sales and Marketing. Sales and marketing expenses decreased to $22.5
million in the nine months ended September 30, 2003 from $25.5 million in the nine months ended September 30, 2002, primarily as a result of lower commissions for our sales personnel resulting from decreased license invoicing, and reduced marketing
expenditures resulting primarily from decreased salaries as a result of lower headcount in sales and marketing. Sales expenses decreased to $19.1 million in the nine months ended September 30, 2003 from $21.8 million in the nine months ended
September 30, 2002 due primarily to reduced salaries as a result of lower headcount and a $1.5 million decrease in sales commissions due to



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reduced license invoicing. Marketing expenses decreased to $3.4 million in the nine months ended September 30, 2003 from $3.7 million in the nine months
ended September 30, 2002 due primarily to reduced salaries as a result of lower headcount.



General and Administrative. General and administrative expenses decreased to $4.8 million in the nine months ended September 30, 2003 from $6.3 million in the nine months ended September 30, 2002, primarily as
a result of a decrease in overhead and legal costs associated with becoming a public company in June 2002 as well as a reduction in bad debt expense.



Restructuring Changes. We recorded a restructuring change of $475,000 for the nine months ended September 30, 2003 related to reorganizations in
employee headcount.



Amortization of Stock-Based
Compensation. Amortization of stock-based compensation related to operating expenses for the nine months ended September 30, 2003 and 2002 was $853,000 and $2.6 million, respectively.



Other Income, Net



Total other income, net increased to $1.2 million for the nine months ended September 30, 2003 as compared to other income of $444,000 in the nine months
ended September 30, 2002, primarily as a result of a gain on the sale of an investment, increased interest income and a favorable result of foreign currency transactions. Interest income, net, increased to $592,000 for the nine months ended
September 30, 2003 from $519,000 for the comparable period in 2002, was primarily from interest income from short-term investments. During the nine months ended September 30, 2003 we recognized a $475,000 gain on the sale of an investment, net of
legal fees and commissions. We do not expect to benefit from similar gains on sales of investments in future periods. The effect of foreign currency transactions was a gain of $78,000 for the nine months ended September 30, 2003 as compared to a
loss of $(75,000) for the comparable period in 2002.



Provision for
Income Taxes



We recorded an income tax provision of
$613,000 and $768,000 for the nine months ended September 30, 2003 and 2002 primarily related to income and withholding taxes currently payable on sales and income generated in non-U.S. and domestic state tax jurisdictions for which no U.S. benefit
is currently recognizable.



Liquidity and Capital Resources



As of September 30, 2003, we had $67.3 million of cash and cash
equivalents and short-term investments and $53.7 million in working capital.



Our net cash provided by operating activities decreased by $4.5 million from $5.0 million for the nine months ended September 30, 2002, to $475,000 for the nine months ended September 30, 2003. The decrease is
primarily attributable to the $1.5 million decrease in net income (loss) for the nine months ended September 30, 2003 as compared to the nine months ended September 30, 2002 as well as decreases in our liabilities.



Capital expenditures were $671,000 and $1.4 million for the nine months ended
September 30, 2003 and 2002. Our capital expenditures in the first nine months of 2003 consisted of purchases of items to manage our operations, including computer hardware and software, office furniture and equipment and leasehold improvements.



We have a $3.1 million revolving line of credit with Silicon
Valley Bank with a maturity date of August 2004. To secure any outstanding loans, we have granted Silicon Valley Bank a security interest in our assets, including our accounts receivable. Interest on the loans is payable monthly and accrues at one
percentage point above the prime rate as announced by Silicon Valley Bank. As of September 30, 2003, no amounts were outstanding under this facility. We have issued a letter of credit for $2.5 million to the landlord of our corporate headquarters,
which is enforceable against the facility. We have limitations on declaring and paying dividends, incurring any non-permitted indebtedness and acquiring the capital stock of any other company under our loan agreements with Silicon Valley Bank. We
are also required to maintain a minimum cash balance with Silicon Valley Bank, which we were in compliance with at September 30, 2003.



We expect to maintain our current level of operating expenses for the foreseeable future in order to execute our business plan. As a result, these
operating expenses, as well as planned capital expenditures, may constitute a material use of our cash resources. In addition, we may utilize cash resources to fund acquisitions of complementary businesses, technologies or product lines. We believe
that our cash and cash equivalents and short-term investments on hand will be sufficient to meet our cash requirements for at least the next 18 months, including working capital requirements and planned capital expenditures.



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Recent Accounting Pronouncements



In June 2001, the FASB issued Statement of Financial Accounting Standards Nos. 143, Accounting for Asset Retirement
Obligations(SFAS 143). Under SFAS 143, the fair value of a liability for an asset retirement obligation must be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. SFAS 143 is effective for fiscal years beginning after June 15, 2002. SFAS 143 was adopted in the quarter ended June 30, 2003 and did not have a material
impact on our financial position or results of our operations.



In July 2002, the FASB issued Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities(SFAS 146), which addresses financial accounting and reporting for costs
associated with exit or disposal activities. This statement requires that a liability be recognized at fair value for costs associated with exit or disposal activities only when the liability is incurred as opposed to at the time the Company commits
to an exit plan as permitted under EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit and Activity. Statement No. 146 is effective for exit or disposal activities that are initiated
after December 31, 2002. SFAS 146 was adopted in the quarter ended June 30, 2003 and did not have a material impact on our financial position or results of our operations.



In November 2002, the EITF reached a consensus on Issue No. 00-21 Revenue Arrangements with Multiple Deliverables
(EITF 00-21). EITF 00-21 addresses certain aspects of the accounting by a vendor for arrangements under which the vendor will perform multiple revenue generating activities. EITF 00-21 is effective for fiscal periods beginning after June
15, 2003. The adoption of EITF 00-21 did not have a material impact on our financial position or results of our operations.



In November 2002, the FASB issued FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others(FIN 45), which clarifies disclosure and recognition/measurement requirements related to certain guarantees. The disclosure requirements are effective for financial statements issued
after December 15, 2002 and the recognition/measurement requirements are effective on a prospective basis for guarantees issued or modified after December 31, 2002. We typically grant our customers a warranty, which guarantees that our products will
substantially conform to our current specifications for a period of ninety days from the delivery date as well as indemnification for customers from third party claims. Through the nine months ended September 30, 2003, costs related to these
guarantees and indemnifications have not been significant. We cannot estimate the potential impact of these guarantees and indemnifications on future results of operations.



In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity. SFAS 150 requires that certain financial instruments, which under previous guidance were accounted for as equity, must now be accounted for as liabilities. The financial instruments affected include mandatory redeemable
stock, certain financial instruments that require or may require the issuer to buy back some of its shares in exchange for cash or other assets and certain obligations that can be settled with shares of stock. SFAS 150 is effective for all financial
instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after September15, 2003. SFAS 150 was adopted in the quarter ended June 30, 2003 and did not have a material
impact on the financial position or results of our operations.



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Risk Factors that May Affect Our Future Results and the Market Price of Our Stock



Risks Relating to Our Business



Our efforts to establish and maintain the Plumtree Corporate Portal and related products
as an enterprise-wide platform may fail and, as a result, our revenue may not increase and our ability to compete successfully may be impaired.



We have expended, and plan to continue to expend, significant resources to establish our portal as an enterprise-wide platform for integrating an
organizations diverse systems and applications and for building new applications. To succeed, we must develop and market both enhancements to our Plumtree Corporate Portal and new products and services that expand its functionality. Plumtree
Collaboration Server and Plumtree Studio Server, each released commercially in the first quarter of 2002 and our Content Server released in November 2002, are our most significant new product developments since the introduction of the Plumtree
Corporate Portal. These and other new products and subsequent versions of our products may not achieve widespread market acceptance.



Even if we are successful in establishing our products as an enterprise-wide platform, we face, among others, the following risks:



| |  |  | We will likely face new and in many cases larger competitors, and some of our current system integrators and technology partners with whom we work closely may come to view our new
products and services as competitive with their own products and services.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In order to remain competitive, we must increase the number of systems and applications that can be integrated into and built with our portal platform as Web services, which will
increasingly strain our development and support infrastructure and may require us to add significant additional personnel.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The industry may develop and adopt technology standards different from the standards presently incorporated in our products resulting in our products becoming less competitive.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We have a short operating history, which limits your ability
to evaluate our business and operating results and may increase the risk of your investment.



Our short operating history makes the evaluation of our business operations and our prospects difficult. We were founded in 1996 and began offering
version 1.0 of our corporate portal product in March 1998. The latest version of our portal product, version 5.0, was released in June 2003. We cannot predict whether this version of our portal will be successful. We have derived all of our revenue
from licensing our Plumtree Corporate Portal and related products and services. You should consider the risks and difficulties frequently encountered by early stage companies such as ours in new and rapidly evolving markets, particularly those
companies whose businesses depend on the Internet. These risks and difficulties include:



| |  |  | potential fluctuations in operating results and uncertain growth rates;
| | - |  | -----------------------------------------------------------------------



| |  |  | limited market acceptance of our products;
| | - |  | ------------------------------------------



| |  |  | concentration of our revenue in a small range of products;
| | - |  | ----------------------------------------------------------



| |  |  | our need to expand our direct sales forces and indirect sales channels, particularly for international markets; and
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | our need to attract, train and retain qualified personnel.
| | - |  | ----------------------------------------------------------



We have a history of losses, and we may never sustain profitability on a quarterly or annual basis, which would have a harmful effect on our business and the value of
our common stock.



We incurred substantial net losses in
each year from our inception in July 1996 through 2001. For the years ended December 31, 2000 and 2001, we incurred net losses of approximately $21.7 million and $7.8 million, respectively. Although we achieved annual profitability of approximately
$2.4 million in 2002, for the nine months ended September 30, 2003 we had a net loss of $915,000. As of September 30, 2003, we had an accumulated deficit of approximately $40.4 million.



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Given the level of our planned operating and capital expenditures, for the foreseeable future we expect
our results of operations to fluctuate, and during this period we may incur losses and negative cash flows. If our revenue does not increase or if our expenses increase at a greater pace than our revenue, we will not be able to sustain operating
profitability on a consistant basis if at all. Our ability to increase revenue and achieve and sustain operating profitability also will be affected by other risks and uncertainties described in this section and in Managements Discussion
and Analysis of Financial Condition and Results of Operations. Our failure to operate profitably on a quarterly or annual basis could have a harmful effect on our business and the value of our common stock.



Because our quarterly operating results are volatile and difficult to predict, our
operating results in one or more future periods are likely to fluctuate significantly, and if we fail to meet the expectations of securities analysts or investors, our stock price could decline significantly.



As a result of our limited operating history and the emerging and evolving
nature of the market in which we compete, our quarterly operating results have varied significantly in the past and are likely to continue to vary significantly in the future. Our success depends upon our ability to increase sales of our products
and services to our new and existing customers. Our license revenue is comprised substantially of one-time license fees. As a result, we will be required to regularly and increasingly attract and contract with additional customers for substantial
license fees on a timely basis to realize comparable or increased license revenue. Our services and maintenance revenue historically has been comprised almost entirely of installation, modification and consulting fees and support and maintenance
fees. Our services revenue has a lower gross margin than our license revenue. To the extent the percentage of our services revenue increases compared to the percentage of license revenue, our profitability would be impaired. Our maintenance
contracts are generally renewable for 12-month periods. If our customers elect not to renew their maintenance contracts or seek to renegotiate price each year, our revenue could decline.



We expect to continue to experience significant fluctuations in our results of operations due to a variety of factors, some
of which are outside of our control, including:



| |  |  | introduction of products and services and enhancements by us and our competitors;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | competitive factors that affect our pricing;
| | - |  | --------------------------------------------



| |  |  | the timing and magnitude of our capital expenditures, including costs relating to the expansion of our operations within the United States and internationally;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the size and timing of customer orders and deployments, particularly large orders and deployments, some of which may represent more than 10% of total revenue during a particular
quarter; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | costs associated with litigation and corporate events such as reorganizations.
| | - |  | ------------------------------------------------------------------------------



As a result of these factors, we believe that quarter-to-quarter comparisons of our revenue and operating results are not necessarily meaningful, and
that these comparisons are not accurate indicators of future performance. Because our staffing and operating expenses are based on anticipated revenue levels, and because a high percentage of our costs are fixed, small variations in the timing of
the recognition of specific revenue could cause significant variations in operating results from quarter to quarter. If we are unable to adjust spending in a timely manner to compensate for any revenue shortfall, any significant revenue shortfall
would likely have an immediate negative effect on our operating results. If our operating results in one or more future quarters fail to meet the expectations of securities analysts or investors, we would expect to experience an immediate and
significant decline in the trading price of our stock.



If we do not expand
our customer base, we may be unable to increase our revenue and our stock price will likely decline.



The market for corporate portal software is newly emerging and additional customers may not adopt our products. Accordingly, we cannot accurately estimate
the potential demand for our products and services. We believe that market acceptance of our products and services depends principally on our ability to:



| |  |  | withstand downturns in general economic conditions or conditions that slow corporate spending on software products, such as the downturn we are currently experiencing in the overall
software market.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | enhance our portal solution to meet changing customer demand;
| | - |  | -------------------------------------------------------------



| |  |  | effectively market the Plumtree Corporate Portal and related products and services;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | hire, train and retain a sufficient number of qualified sales and marketing personnel;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | provide high-quality and reliable customer support for our products;
| | - |  | --------------------------------------------------------------------



| |  |  | distribute and price our products and services to be more appealing to customers than those of our competitors or of our customers internally-developed solutions; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | develop a favorable reputation among our customers, potential customers and participants in the software industry who can serve as reference accounts for our products and services;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Some of these factors are beyond our control. If
our customer base does not expand, we may never become consistently profitable.



Because our quarterly results often depend on a small number of large orders, if we were unable to complete one or more of these orders during any future period, our quarterly operating results and the trading price of our stock could be
harmed.



We derive a significant portion of our software
license revenue in each quarter from a small number of relatively large orders. For example, in the quarter ended September 30, 2003, our top 10 customers accounted for approximately 28% of our total revenue. Similarly, for most quarters over the
last two years, generally a different customer has represented at least 10% of our total quarterly revenue. Our operating results and stock price could be harmed if we were unable to complete one or more substantial license sales during any future
quarterly period.



Our business currently depends on revenue related to our
flagship product, the Plumtree Corporate Portal, and if the market does not increasingly accept this product and related products and services, our revenue may decline.



We generate our revenue from licenses of the Plumtree Corporate Portal and related products and services, including Plumtree
Portlet Web Services (formerly known as gadgets), the building blocks from which users assemble a personalized Web page as well as our Server Products, which provide significant ancillary functionality to our Portal Platform. We expect
that our portal product, and future upgraded versions of this product will continue to account for a large portion of our revenue in the foreseeable future. Our future financial performance will depend on increasing acceptance of our current product
and on the successful development, introduction and customer acceptance of new and enhanced versions of our products. For example, in June 2003 we released version 5.0 of our portal product. If new and future versions of our products and services,
including version 5.0 of the Plumtree Corporate Portal and planned future releases of the Plumtree Corporate Portal, such as 5.0 for Java platforms, and planned future updates to our Collaboration Server and Content Server, do not gain market
acceptance when released commercially, or if we fail to deliver the product enhancements that customers want, demand for our products and services, and our revenue, may decline.



Our sales and implementation cycles are long, unpredictable and subject to seasonal fluctuations, making it difficult to accurately
forecast our revenue and causing it to fluctuate, which could harm our operating results.



As a result of our limited operating history, the nature of our products, and the emerging and rapidly evolving nature of the market in which we compete, the typical sales cycle of our portal product is long and
unpredictable. A successful sales cycle may last nine months or longer, and typically includes presentations to both business and technical decision makers, often requiring us to expend substantial resources educating prospective customers about the
benefits of our software to their business. The implementation of our product can be time-consuming and often involves a significant commitment of resources by prospective customers. Our sales cycle is also affected by a number of other factors,
some of which we have little or no control over, including the volatility of the overall software market, the business conditions of each prospective customer, seasonal fluctuations as a result of customers fiscal year budgeting and purchasing
cycles and the selection and performance of our technology and of our technology partners, systems integrators and resellers, any of which could harm our operating results. As an example, in the first nine months of 2003 we experienced a decline in
license revenues from our core portal product resulting from delayed purchasing decisions from our customers due to the current downturn in the software market.



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We depend on technology licensed from third-party software developers and our ability to develop and sell our products
and services could be delayed or impaired if we fail to maintain these license arrangements.



We incorporate into our products and in certain cases resell third-party software that enables, enhances or compliments aspects of their functionality.
This third-party software may not continue to be available on commercially reasonable terms or with acceptable levels of support, or at all. Some of these third-party software developers offer products that compete with the Plumtree Corporate Portal
and our other products. Our loss of or inability to maintain these software licenses on current terms could delay or impair the sale of our products and services until equivalent software, if available, is identified, licensed or developed, and
integrated, which could adversely affect our business and impair our future growth.



We depend on our direct sales force to sell our products, and if we fail to hire and train new sales personnel, our future growth will be impaired.



We sell our products primarily through our direct sales force and we expect to continue to do so in the future. Our ability
to achieve revenue growth in the future will depend on our ability to recruit, train and retain qualified direct sales personnel. We have in the past and may in the future experience difficulty in recruiting qualified sales personnel. The complexity
of our product and the length of our sales cycle typically results in a lead time of six months or more before newly-hired direct sales people become productive and can generate revenue. Our inability to rapidly and effectively expand and train our
direct sales force could impair our growth and cause our stock price to fall.



If we are unable to establish and maintain relationships with systems integrators and resellers, our ability to market, sell and deploy our products and services will be harmed.



We have relationships with a large number of systems integrators and
resellers, such as Computer Sciences Corporation, Lexis Nexis, Lockheed Martin, Project Performance Corporation, SAIC and SRA International. We rely significantly on these parties to market and sell our products and to provide rapid and
comprehensive deployment of our products. These relationships are a key factor in our overall business strategy and involve a number of risks, including:



| |  |  | Systems integrators and resellers may not view their relationships with us as valuable or significant to their own businesses. The related arrangements typically may be terminated
by either party with limited notice and in some cases are not covered by a formal agreement.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Systems integrators may attempt to market their own products and services rather than ours.
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | Our competitors may have stronger relationships with these parties and, as a result, these system integrators and resellers may recommend a competitors products and services
over ours.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Under our co-deployment model, we often rely on our system integrators and resellers employees to perform implementations. If we fail to work together effectively, or if
these parties perform poorly, our reputation may be harmed and deployment of our products may be delayed or performed inadequately.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | If we lose our relationships with our systems integrators and resellers, we will not have the personnel necessary to deploy our products effectively, and we will need to commit
significant additional sales and marketing resources in an effort to reach the markets and customers served by these parties.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



If our alliances with technology and content providers are discontinued, our future growth will be impaired.



We have relationships with technology providers, such as Sun Microsystems,
Cognos, MediaEdge, SEEC, Project Performance Corporation, Stellant, Inxight, Pinnacor (formerly Screaming Media), Oblix, BEA Athoc, Handysoft, Pivia and Documentum, to provide our customers with support of many applications and services. Although
these relationships are a key factor in our overall business strategy, our alliance members may not view their relationships with us as significant to their own businesses. A number of our competitors may have stronger relationships with these
technology and content vendors and, as a result, these alliance members may be more likely to support our competitors products and services over ours. In addition, our technology providers may offer products and services that are competitive
to ours. Our arrangements generally do not establish minimum performance requirements but instead rely on voluntary efforts. In addition, most of our agreements with these entities may be terminated by either party with limited notice. In some cases
these arrangements are not covered by a formal agreement. We currently invest significant resources to develop these alliances and plan to continue to do so. If we are unable to maintain our existing relationships or fail to enter into additional
relationships, our ability to increase our sales could be harmed, and we could also lose anticipated customer introductions and co-marketing benefits. Even if we succeed in establishing and maintaining these relationships, they may not result in
additional customers or revenue.



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If our software or software we furnish contains errors, we may lose customers or experience reduced market acceptance
of our products.



Our software products are inherently
complex and may contain defects and errors that are detected only when the product is in use. We periodically release updated versions of our products, which increases the risk of undetected defects or errors. It is also possible that our products
including the Plumtree Collaboration Server, the Plumtree Studio Server, version 5.0 of our corporate portal product (released in June 2003), upcoming portal product version releases and our server products, may contain undetected defects or errors
that are discovered after release. In addition, third-party software that we bundle with, resell or incorporate into our products, or with which we integrate to deploy our solution, has contained, and may in the future contain, defects or errors.
Some of our customers require, or may require, enhanced modifications of our software for their specific needs. Modifications may increase the likelihood of undetected defects or errors for which we may become liable. Further, we often render
implementation, consulting and other technical services, the performance of which typically involves working with sophisticated software, computing and networking systems. As a result of product defects or our failure to meet project milestones for
services, we may lose customers, customers may not implement our products more broadly within their organization, we may experience reduced market acceptance of our products, and we may be subject to product liability claims by our customers.



If we are unable to develop products that are compatible and can be
integrated with a large variety of hardware, software, database and networking systems, our ability to attract and retain customers will be harmed.



The Plumtree Corporate Portal is designed to support a broad set of software applications and online services through Plumtree Portlet Web Services. To
gain broad market acceptance, we believe that we must support an increased number of operating environments, applications and services in the future. If the underlying applications and services are upgraded or changed, maintaining this support may
be difficult or impossible. If we are unable to support an increased number of applications and services in the future or if we are unable to maintain compatibility with these systems, our ability to attract and retain customers will be harmed.
Furthermore, providers of competitive products and services may cease cooperating with our development efforts to integrate our corporate portal product with products in their portfolio.



Some of our customers are in the preliminary phase of implementing our portal product and this implementation may not proceed on a timely
basis or at all.



Some of our customers, such as Allied
Domecq, ConAgra Foods, Chartered Semiconductor, Department of Health and Human Services, Hochtief, Logira, Thomson Legal and Regulatoryand others are currently in a pre-deployment or preliminary stage of implementing our portal product and may
encounter delays or other problems in introducing it. These delays or other problems may result from matters specific to the customer and unrelated to us or our products. A customers decision not to implement our product, or a delay in
implementation, could result in a delay or loss in related service revenue or otherwise harm our business or prospects. We cannot predict when or if any customer currently in a pilot or preliminary phase will choose to implement broader use of our
product.



If we fail to adequately address our customer support demands, our
ability to attract and retain customers will suffer.



We
expect that our customers increasingly will demand additional information and reports with respect to the services we provide. To meet these demands, we must develop and implement expanded customer support services to enable future sales growth. In
addition, if we are successful in implementing our marketing strategy, we expect the demands on our technical support resources to grow rapidly, and we may experience difficulties in responding to customer demand for our services and providing
technical support in accordance with our customers expectations. We expect that these demands will require not only the addition of new management personnel, but also the development of additional expertise by existing management personnel and
the establishment of long-term relationships with third-party service vendors. If we are unable to address these customer demands, our ability to attract and retain customers will suffer.



Security breaches with our software may lead to unexpected capital expenditures and cause a loss in revenue and reputation.



Our portal product is designed to facilitate the secure
transmission of sensitive business information to specified parties outside the business over the Internet. This includes product information, competitive intelligence, sales and inventory data, sales reports and corporate e-mail. As a result, the
reputation of our software for providing security is vital to its acceptance by customers. Problems caused by security breaches associated with our products or products furnished by us could result in loss of or delay in revenue, loss of market
share, failure to achieve market acceptance, diversion of research and development resources, harm to our reputation, customer claims against us, increased insurance costs or increased service and warranty costs. Because the techniques used by
computer hackers to access or sabotage networks change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques. Moreover, our products may be even more susceptible to security
breaches, since portals require the aggregation of many different Web applications on many different servers, with different security standards and protocols.



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Capacity restrictions of our software could reduce the demand for and use of our products, which may limit our ability
to generate license revenue.



Our products are designed to
support enterprise-wide deployments with hundreds of thousands of users. However, the maximum amount of information and the maximum number of concurrent users that our products can support in any particular deployment is uncertain. It is also
subject to factors outside of our control such as customer architecture. If the capacity boundaries of our products are reached, our customers may be dissatisfied, and we may lose customers or fail to gain new customers.



If we are unable to retain key personnel, our growth will be limited.



We are highly dependent on certain members of our management staff,
including, without limitation, our Chief Executive Officer, John Kunze. Our Vice President of World Wide Operations left the Company in April 2003 and has not yet been replaced. Our ability to continue to deliver products and services that are
responsive to customer needs, which is critical to our success, also depends on our ability to retain several members of our management and engineering team. The loss of one or more of these officers or engineers may impede the achievement of our
business objectives. None of our officers or key employees are bound by an employment agreement for any specific term, and no one is constrained from terminating his or her employment relationship with us at any time. In addition, since a number of
our long-standing employees have most of their stock options vested, their economic incentive to remain in our employ may be diminished.



If we are unable to recruit and train new personnel, our operations will be disrupted and our growth impaired.



Recruiting and retaining qualified technical personnel is critical to our
success. If our business grows, we will also need to recruit a significant number of management, technical and other personnel for our business. Competition for specialized employees in our industry can be intense. If we are not able to continue to
attract and retain skilled and experienced personnel on acceptable terms, our growth may be limited due to our limited capacity to develop and market our product. We are currently recruiting for a Vice President of Worldwide Operations and skilled
technical personnel for our professional services group. It may take an extended period of time to hire a new Vice President of Worldwide Operations and a sufficient number of new technical professionals. Without a senior operations executive in
place our sales force may lack direction and our sales process and productivity may suffer. Similarly, we may not be able to meet customer or internal demand for professional services. Once hired, new personnel will need time to familiarize
themselves with Plumtree and our business practices. The integration of new personnel has resulted and will continue to result in some disruption to our ongoing operations. Our failure to complete this integration in an efficient manner could harm
our business and prospects.



Managing the breadth of our operations will
continue to strain managerial, operational and financial resources, and if we are unable to do so our business and operating results could be harmed.



The planned conduct of our operations, coupled with recent reductions and reallocations in headcount, will place a significant strain on our management,
financial controls, operations systems, personnel and other resources. Our ability to manage our business and achieve growth depends in large part upon a number of factors, including our ability to rapidly:



| |  |  | build and train our sales and marketing staff to create an effective presence in the evolving corporate portal market, and keep them fully informed over time regarding the technical
features, issues and key selling points of our product;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | attract and retain qualified technical personnel in order to continue to develop reliable and scalable products and services that address evolving customer needs;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | develop our customer support capacity as sales of our products increase, so that we can provide customer support without diverting resources from product development efforts; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | expand our internal management and financial controls significantly, so that we can maintain control over our operations and provide support to other functional areas within
Plumtree.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our inability to achieve any of these
objectives could harm our business and operating results.



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We may be unable to grow our international operations, which could impair our overall growth.



We have invested capital and management resources in expanding our
international operations, and we are seeking to increase the portion of our revenue that is derived from sources outside the United States. Our revenue from sales outside the United States constituted approximately 18%, 16%, 19%, 9% and 7% of our
total revenue during the nine months ended September 30, 2003 and 2002 and for the years ended December 31, 2002, 2001 and 2000, respectively. If we are unable to continue to grow our international operations, we may not generate sufficient revenue
to offset the expenditures required to establish and maintain the international sales and marketing operations, which could slow or undermine our overall growth.



We have committed substantial resources to modify our products for selected international markets, including the United
Kingdom, France, Germany, South Korea, Australia, Italy, Spain, Brazil, Portugal, Sweden, Taiwan, the Netherlands and Japan. We expect to continue to commit additional resources to modify our products for other select international markets and to
develop our international sales and support organization. However, even if we successfully expand our international operations and successfully modify our products, we may be unable to maintain or increase international market demand for our
products.



Our international operations are subject to a number
of risks, including:



| |  |  | costs of modifying our products for foreign countries;
| | - |  | ------------------------------------------------------



| |  |  | compliance with multiple, conflicting and changing foreign governmental laws and regulations, including taxes, intellectual property, securities and employment laws;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increased reliance on systems integrators and resellers abroad;
| | - |  | ---------------------------------------------------------------



| |  |  | longer sales cycles;
| | - |  | --------------------



| |  |  | import and export restrictions and tariffs;
| | - |  | -------------------------------------------



| |  |  | fluctuations in foreign currency exchange rates;
| | - |  | ------------------------------------------------



| |  |  | difficulties in staffing and managing international operations;
| | - |  | ---------------------------------------------------------------



| |  |  | greater difficulty in enforcing our intellectual property rights; and
| | - |  | ---------------------------------------------------------------------



| |  |  | greater difficulty or delay in accounts receivable collection.
| | - |  | --------------------------------------------------------------



Product liability claims could divert managements attention and be costly to defend.



Our license agreements with customers and arrangements with our systems integrators and technology vendors typically contain
provisions designed to limit our exposure to potential product liability claims. Not all domestic and international jurisdictions may enforce these limitations. Although we have not experienced any product liability claims to date, we may encounter
this type of claim in the future. Product liability claims brought against us, whether or not successful, could divert the attention and resources of our management and key personnel, could be costly to defend and could require us to pay significant
monetary damages or impair our ability to market our products.



If we are
unable to effectively protect our proprietary rights, our competitors may be able to copy important aspects of our products or product presentations, which would undermine the relative appeal of our products to customers and reduce our sales.



We believe that proprietary rights are important to our
business. We have no issued patents. We have filed eleven non-provisional patent applications with the U.S. Patent and Trademark Office and two international patent applications with the World Intellectual Property Organization. However, current or
future patent applications may not be granted, and it is possible that any patents issued to us may be circumvented by our competitors or otherwise may not provide significant protection or commercial advantage to us. Similarly, our trademark,
service mark and copyright rights may not provide significant protection or commercial advantage to us, and the measures we take to maintain the confidentiality of our trade secrets may not be effective.



On November 13, 2001, we commenced an action in the District Court in The
Hague against an individual, Werner Linssen, to cancel his Benelux trademark registration for Plumtree. Specifically, we asked the Hague District Court to (i) annul Mr. Linssens Benelux trademark registration for
Plumtree and (ii) bar Mr. Linssen, pending the proceedings, from contacting our customers in a threatening or unfair manner. On September 24, 2003, the Hague



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District Court granted our request for a preliminary injunction barring Mr. Linssen, pending the proceedings, from contacting our customers in a threatening
or unfair manner. On October 15, 2003, Mr. Linssen filed answering papers denying our allegations and asserting a counterclaim for infringement of his registered trademark. We are reviewing the counterclaim and intend to reply shortly.



On November 25, 2001, we also commenced a proceeding before the Swiss
Federal Institute of Intellectual Property in opposition to Mr. Linssens trademark application for Plumtree. The Swiss Patent Office has dismissed the proceeding; however, we have appealed the decision. In addition, on May 2, 2003,
we initiated a civil lawsuit against Mr. Linssen in the Commercial Court of the Canton of Zurich, Switzerland, seeking (i) an injunction barring Mr. Linssens use of the Plumtree trademark, and (ii) the transfer of Mr.
Linssens Swiss trademark registration for Plumtree, or in the alternative, the cancellation of Mr. Linssens Swiss registration. On October 6, 2003, Mr. Linssen filed answering papers denying our allegations and asserting a
counterclaim for infringement of his registered trademark. We are reviewing the counterclaim and intend to reply shortly.



We and Mr. Linssen have each also commenced proceedings before the E.U.s Office of Harmonisation of the Internal Market in opposition to each
others Community Trade Mark applications. Those proceedings have been suspended pending disposition of the action in The Hague.



Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our software product or
technology without authorization. Policing unauthorized use of our products is difficult, and we cannot be certain that the steps we have taken will prevent misappropriation of our technology, particularly in foreign countries where the laws may not
protect our proprietary rights as fully as those in the United States.



We generally enter into confidentiality or license agreements with our employees, consultants and alliance members, control access to our source code and other proprietary technology and limit distribution of our software, documentation and
other proprietary information. These measures afford only limited protection and may be inadequate. Others may develop noninfringing technologies that are similar or superior to our own.



If our products employ technology that infringes the proprietary rights of others, we may be subject to infringement claims, forced to
pay high prices to license technology or required to stop selling our products.



We expect that software products, including ours, may be increasingly subject to third-party infringement claims as the number of competitors in our industry segment grows and the functionality of products in
different industry segments expands and overlaps. Third parties may claim our products infringe their intellectual property rights. Regardless of whether these claims have any merit, they could:



| |  |  | Be time-consuming to defend;
| | - |  | ----------------------------



| |  |  | result in costly litigation;
| | - |  | ----------------------------



| |  |  | divert our managements attention and resources;
| | - |  | ------------------------------------------------



| |  |  | require us to indemnify technology vendors, system integrators or customers;
| | - |  | ----------------------------------------------------------------------------



| |  |  | require us to refund license fees;
| | - |  | ----------------------------------



| |  |  | cause product shipment delays;
| | - |  | ------------------------------



| |  |  | require us to enter into royalty or licensing agreements, which may not be available on terms acceptable to us, if at all: or
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | result in count orders limiting our ability to license our products.
| | - |  | --------------------------------------------------------------------



On May 17, 2002, Datamize, LLC filed a lawsuit against us in the United States District Court for the District of Montana alleging that we infringe U.S.
Patent Number 6,014,137 owned by Datamize. Datamize is seeking, among other things, injunctive relief and unspecified damages. Based on other communications by Datamizes counsel, we expect Datamize may take further legal action against us with
respect to additional intellectual property that Datamize purportedly owns or will own in the future. At this time, we do not believe we are infringing any valid patent claim of Datamize and we intend to defend this lawsuit and pursue our claim for
declaratory relief vigorously. Since the outcome of any litigation is uncertain, we may not prevail in the lawsuit brought by Datamize. If our portal were found to infringe



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U.S. Patent Number 6,014,137 and we are unable to obtain a license on satisfactory terms, or if an injunction were issued, we could be required to modify our
portal, cease licensing our portal product, and/or pay substantial damages. Any of these outcomes would likely have a material adverse effect on our business. Even if we prevail, the defense of this litigation could be expensive and could consume
substantial amounts of management time and attention.



A
successful claim of infringement against us or our failure or inability to license the infringed or similar technology could damage our business to the extent that we are required to pay substantial monetary damages or if, as result of a successful
claim, we became unable to sell our products without redeveloping them or otherwise were forced to incur significant additional expenses.



We may be subject to misappropriation claims by former employers of our personnel, which could be costly and disruptive to our business.



From time to time, we hire or retain employees or consultants who have worked
for independent software vendors or other companies developing products similar to those offered by us. Those prior employers may claim that our products are based on their products and that we have misappropriated their intellectual property. Any
claims of that variety, with or without merit, could cause a significant diversion of management attention, result in costly and protracted litigation, cause product shipment delays, require us to indemnify our alliance members and customers,
require us to refund license fees or require us to enter into royalty or licensing agreements. Those royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all, which could harm our business.



Acquisitions of companies or technologies may result in disruptions to our business and
management due to difficulties in assimilating personnel, acquired products and technology and operations and may dilute stockholder value.



We have made, and in the future may make acquisitions or investments in other companies or technologies. We may not realize the anticipated benefits of
any acquisitions or investments we undertake. For instance, we made three small acquisitions in late 2001. Acquisitions such as these require us to assimilate the operations, products, technology and personnel of the acquired businesses and train,
retain and motivate key personnel from the acquired businesses. We may be unable to maintain uniform standards, controls, procedures and policies if we fail in these efforts. Similarly, acquisitions may cause disruptions in our operations and divert
managements attention from day-to-day operations, which could impair our relationships with our current employees, customers and strategic partners. If we consummate acquisitions through an exchange of our securities, our existing stockholders
could suffer significant dilution. In addition, our profitability may suffer because of acquisition-related costs or impairment costs for acquired goodwill and other intangible assets, or undisclosed liabilities of the acquired business. Finally,
the terms of our existing contractual obligations may restrict or prohibit acquisitions that we may seek to consummate.



If we are required to raise additional funds, we may be unable to obtain these funds on terms acceptable to us or at all.



The development and expansion of our business may require significant capital
to fund our operating expenses, working capital needs and capital expenditures. During the next 18 months, we expect to meet our cash requirements with existing cash and cash equivalents and short-term investments, cash flow from sales of our
product and services and proceeds from existing and future working capital lines of credit and other borrowings. Our failure to generate sufficient cash flows from sales of products and services or to raise sufficient funds may require us to delay
or abandon some or all of our development and expansion plans or otherwise forego market opportunities.



Future equity or debt financing may not be available to us on favorable terms or at all. The terms of our existing loan agreement with Silicon Valley Bank
limit our ability, among other things, to incur additional indebtedness. Future borrowing instruments, such as credit facilities and lease agreements, are also likely to contain restrictive covenants and will likely require us to pledge assets as
security for borrowings under those future arrangements. If we raise additional funds through the issuance of equity securities, the issuance could result in substantial dilution to existing stockholders. Our inability to obtain additional capital
on satisfactory terms may result in a delay or failure to develop and enhance our products, acquire new technologies or businesses, expand operations and hire and train employees.



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Risks Relating to Our Industry



Intense competition and consolidation in our industry could limit our ability to attract and retain customers.



The market for our products is intensely competitive and highly fragmented,
characterized by rapid technological change, evolving industry standards, changes in customer needs, and new product introductions and improvements. Our current competitors include established software vendors that are Web-enabling their
applications or are building infrastructure software, emerging companies offering competitive products and companies choosing to build their own solutions. Some of our large competitors may expand their competitive product offerings through
acquisitions. For example, SAP expanded its competitive offerings through its acquisition of TopTier in March 2001; Vignette completed its acquisition of Epicentric, Inc. in December 2002; Open Text Corporation acquired Corechange, Inc. in February
2003 and Web Methods acquired certain assets of Data Channel in October 2003. Many of our competitors have longer operating histories, significantly greater financial, technical, marketing and other resources, greater name recognition, a broader
range of products and a larger installed customer base, any of which could provide them with a significant competitive advantage. In addition, new competitors, or alliances among existing and future competitors may emerge and rapidly gain
significant market share. Some of our competitors, particularly established software vendors, may also be able to provide customers with products and services comparable to ours at lower or at aggressively reduced prices in an effort to increase
market share or as part of a broader software package they are selling to a customer. We may be unable to match competitors prices or price reductions, and we may fail to win customers that choose to purchase a portal solution as part of a
broader software and services package. If we cannot compete successfully against current and future competitors, we may be unable to attract and retain customers. Increased competition could also result in price reductions for our products and lower
profit margins and reduced market share, any of which could harm our business, results of operations and financial condition.



Downturns in the software market may decrease our revenue and margins.



The market for our products is affected by economic conditions of the broader software market. Downturns in the economy such as the downturn we are
currently experiencing may cause businesses and governments to delay or cancel corporate portal projects, reduce their overall information technology budgets or reduce or cancel orders for our products. In this environment, customers may experience
financial difficulty, fail to or defer the budget for the purchase of our products or cease operations. This, in turn, may lead to longer sales cycles, delays or failures in payment and collection, and price pressures, causing us to realize lower
revenues and margins. In particular, capital spending in the information technology sector generally has decreased in the past 36 months, and many of our customers and potential customers have experienced severe declines in their revenues and
operations. We believe that, in light of these events, some businesses and governments may curtail or eliminate capital spending on information technology. If capital spending in our markets declines, it may be necessary for us to gain significant
market share from our competitors in order to achieve our financial goals or to sustain annual or quarterly profitability.



Terrorist activities and resulting military and other actions could harm our business



Terrorist attacks in New York and Washington, D.C. in September of 2001 and the recent war in Iraq disrupted commerce
throughout the world. The continued threat of terrorism and continued military action and heightened security measures in response to this threat have caused and may continue to cause significant disruption to commerce throughout the world. To the
extent that these continued disruptions result in a general decrease in corporate spending on information technology, our business and results of operations could be harmed. We are unable to predict whether these threats or the responses thereto
will result in any long-term commercial disruptions or if such activities or responses will have a long-term adverse effect on our business, results of operations or financial condition. Additionally, if any attacks were to affect the operation of
the Internet or key data centers, our business could be harmed.



Our failure
to introduce new products and enhancements in a timely manner will make market acceptance of our products less likely.



New products, platforms and language support can require long development and testing periods. Any delays in developing and releasing new products could
harm our business. New products or enhancements may not be released according to schedule or may contain defects when released. For example, version 5.0 of the Plumtree Corporate Portal, the Plumtree Collaboration Server, Plumtree Studio Server and
Plumtree Content Server have been recently released



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commercially, increasing the risk of undetected defects or errors. Our efforts to develop and release new products, such as the planned version 5.0J (Java)
of the Plumtree Corporate Portal, and applications, such as dashboard and score carding with Cognos, an Enterprise Web customer service application for insurers with SEEC and an electronic courtroom management application with MediaEdge, could be
delayed or hindered by development problem. Product release delays or product defects, could result in adverse publicity, loss of sales, delay in market acceptance of our products or customer claims against us, any of which could harm our business.
We may be unable to successfully develop and market product enhancements or new products that respond to technological changes, shifting customer tastes or evolving industry standards, and may experience difficulties that could delay or prevent the
successful development, introduction and marketing of new or enhanced products. If we are unable to develop and introduce new products or enhancements of existing products in a timely manner or if we experience delays in the commencement of
commercial shipments of new products and enhancements, our ability to attract and retain customers will be harmed.



If we fail to manage technological change, demand for our products and services will drop and our revenue will decline.



The market for corporate portals is still in an early stage of development
and is characterized by rapidly changing technology, evolving industry standards, frequent new service and product introductions and changes in customer demands. Our future success will depend to a substantial degree on our ability to offer products
and services that incorporate leading technologies and respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis. You should be aware that:



| |  |  | our technology or systems may become obsolete upon the introduction of alternative technologies;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | The technological life cycles of our products may end abruptly and, in any event, are difficult to estimate;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | we may not have sufficient resources to develop or acquire new technologies or to introduce new services capable of competing with future technologies or service offerings; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the price of the products and services we provide may decline as rapidly as, or more rapidly than, the price of any competitive alternatives, particularly if the unique features of
our products become widely adopted through new technologies.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We may not be able to effectively respond to the technological requirements of the changing market for corporate portals. To the extent we determine that new technologies and equipment are required to remain
competitive, the development, acquisition and implementation of those technologies and equipment are likely to continue to require significant capital investment by us. We may not have sufficient capital for these purposes in the future. Even if we
successfully raise capital to develop new technologies, investments in these technologies may not result in commercially viable technological processes, or there may not be commercial applications for those technologies. If we do not develop and
introduce new products and services, and achieve market acceptance in a timely manner, demand for our products and services will drop and our revenue will decline.



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|ITEM 3. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- |  | ----------------------------------------------------------



As of September 30, 2003, we had cash, cash equivalents and short-term investments totaling $67.3 million. Our investment portfolio consists of money
market funds, corporate-backed debt obligations, municipal bonds and U.S. government discount notes, generally due within two years. We place investments with high quality issuers and limit the amount of credit exposure to any one issuer. These
securities are subject to interest rate risks. Based on our portfolio content and our ability to hold investments to maturity, we believe that, if a significant change in interest rates were to occur, it would not have a material effect on our
financial condition, although there can be no assurance of this.



For the three months ended September 30, 2003, we earned approximately 18% of our revenue from international markets, most of which are denominated in various foreign currencies. As a result, our operating results are and may become subject
to more significant fluctuations based upon changes in the exchange rates of some currencies in relation to the U.S. dollar and diverging economic conditions in foreign markets. Although we will continue to monitor our exposure to currency
fluctuations, we cannot assure you that exchange rate fluctuations will not affect adversely our financial results in the future.



|ITEM 4. |  | CONTROLS AND PROCEDURES
|------- |  | -----------------------



Based on their evaluation as of the end of the period covered by this quarterly report, our Chief Executive Officer (CEO) and Chief Financial
Officer (CFO) believe, based on an evaluation performed under the supervision and with the participation of management, including our CEO and CFO, that the design and operation of our disclosure controls and procedures (as defined in
Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended) are effective to ensure that material information relating to Plumtree is made known to them by others within our company during the period in which this Report on
Form 10-Q was being prepared. There have been no material changes in our internal controls over financial reporting that occurred during the period covered by the quarterly report which materially affected, or would be reasonably likely to affect,
our internal control over financial reporting.



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PART II. OTHER INFORMATION



|ITEM 1. |  | LEGAL PROCEEDINGS
|------- |  | -----------------



On May 17, 2002, Datamize, LLC filed a lawsuit against the Company in the United States District Court for the District of Montana alleging in general,
that by supplying software and systems for the personalization and customization of networked kiosk and computer screens, the Company infringes U.S. Patent Number 6,014,137 (the 137 patent) owned by Datamize. Datamize,
based in Florence, Montana, described itself in its complaint as engaged in the business of designing, creating and commercially exploiting software useful in the personalization and customization of networked kiosk and computer screens.
The Company moved to dismiss the action for lack of personal jurisdiction. In early July 2003, the court granted the Companys motion, and entered judgment in favor of the Company on July 7, 2003 in accordance with that order. Datamize had
thirty (30) days to appeal this judgment, which period elapsed on August 6, 2003 without Datamize taking any action with the court.



In December 2002, the Company filed a complaint for declaratory relief against Datamize in United States District Court for the Northern District of
California (Civil Action No. 02-5693 VRW). The Company seeks a declaratory judgment that it does not infringe any valid claim of U.S. Patent Number 6,014,137, Electronic Kiosk Authoring System (the 137 patent), which Datamize
claims to own. Datamize has filed its answer and a counterclaim alleging that the Company infringes the 137 patent. Datamize is seeking, among other things, injunctive relief and unspecified damages. In response to a procedural motion, the
court realigned the parties so that the Company is now the defendant, and Datamize is now the plaintiff. The case is in its early stages. At this time, the Company does not believe it is infringing any valid patent claim of Datamize and intends to
vigorously pursue its claims and defenses.



On November 13,
2001, the Company commenced an action in the District Court in The Hague against an individual, Werner Linssen, to cancel his Benelux trademark registration for Plumtree. Specifically, the Company asked the Hague District Court to (i)
annul Mr. Linssens Benelux trademark registration for Plumtree and (ii) bar Mr. Linssen, pending the proceedings, from contacting the Companys customers in a threatening or unfair manner. On September 24, 2003, the Hague
District Court granted the Companys request for a preliminary injunction barring Mr. Linssen, pending the proceedings, from contacting the Companys customers in a threatening or unfair manner. On October 15, 2003, Mr. Linssen filed
answering papers denying the Companys allegations and asserting a counterclaim for infringement of his registered trademark. The Company is reviewing the counterclaim and intends to reply shortly.



On November 25, 2001, the Company also commenced a proceeding before the
Swiss Federal Institute of Intellectual Property in opposition to Mr. Linssens trademark application for Plumtree. The Swiss Patent Office has dismissed the proceeding; however, the Company has appealed the decision. In addition,
on May 2, 2003, the Company initiated a civil lawsuit against Mr. Linssen in the Commercial Court of the Canton of Zurich, Switzerland, seeking (i) an injunction barring Mr. Linssens use of the Plumtree trademark, and (ii) the
transfer of Mr. Linssens Swiss trademark registration for Plumtree, or in the alternative, the cancellation of Mr. Linssens Swiss registration. On October 6, 2003, Mr. Linssen filed answering papers denying the Companys
allegations and asserting a counterclaim for infringement of his registered trademark. The Company is reviewing the counterclaim and intends to reply shortly.



The Company and Mr. Linssen have each also commenced proceedings before the E.U.s Office of Harmonisation of the Internal Market in opposition to
each others Community Trade Mark applications. Those proceedings have been suspended pending disposition of the action in The Hague.



In connection with the Companys operating lease agreement for their corporate headquarters in San Francisco, CA, the Company is contractually
obligated to complete certain leasehold improvements during the lease term. The Company is currently unable to determine the Companys potential liability related to this matter. Management does not believe that the outcome of this matter will
have a material impact on the Companys financial position, liquidity or results of operations.



The results of the above issues and proceedings cannot be predicted with certainty; however, in the opinion of management, the potential liabilities
associated with these complaints are not expected to have a material adverse effect on the Companys financial position, liquidity or results of operations.



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|ITEM 2. |  | CHANGES IN SECURITIES AND USE OF PROCEEDS
|------- |  | -----------------------------------------



None.



|ITEM 3. |  | DEFAULTS UPON SENIOR SECURITIES
|------- |  | -------------------------------



None.



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



Nothing to report.



Stockholders who wish to present proposals at our 2004 annual meeting must submit their proposals in accordance with our bylaws and such proposals must be
received by us no later than December 13, 2003 in order for their proposals to be considered for inclusion in our proxy statement and form of proxy related to that meeting and to be considered at that meeting.



Stockholders who wish to present a proposal for consideration for our 2004
annual meeting but do not want such proposal included in our proxy statement must submit such proposals in accordance with our bylaws between February 16, 2004 and March 16, 2004.



|ITEM 5. |  | OTHER INFORMATION
|------- |  | -----------------



Our Insider Trading Policy allows directors, officers and other employees covered under the policy to establish, under the limited circumstances
contemplated by Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, written programs that permit automatic trading of the Companys stock or trading of the Companys stock by an independent person (such as an investment bank)
who is not aware of material inside information at the time of the trade. Several officers have conducted trades during the fiscal quarter ended September 30, 2003 pursuant to previously adopted Rule 10b5-1 trading plans.



Stockholders who wish to present proposals at our 2004 annual meeting must
submit their proposals in accordance with our bylaws and such proposals must be received by us no later than December 13, 2003 in order for their proposals to be considered for inclusion in our proxy statement and form of proxy related to that
meeting and to be considered at that meeting.



Stockholders who
wish to present a proposal for consideration for our 2004 annual meeting but do not want such proposal included in our proxy statement must submit such proposals in accordance with our bylaws between February 16, 2004 and March 16, 2004.



Our CFO, Eric Borrmann paid the balance of the Companys Secured
Promissory Note dated August 14, 2000 (Note) on October 30, 2003 and therefore the Note, as well as the Security and Pledge Agreement dated August 14, 2000 between the Company and Eric Borrmann have been cancelled.



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---

|Item 6. |  | Exhibits and Reports on Form 8-K
|------- |  | --------------------------------



(a) Exhibits.



EXHIBIT INDEX



|Exhibit |  | Description                                                                                                                     
|------- |  | --------------------------------------------------------------------------------------------------------------------------------
|        | 
|        |  |                                                                                                                                 
|        | 
|3.1     |  | Amended and Restated Certificate of Incorporation of the Registrant(1)                                                          
|        | 
|3.2     |  | Bylaws of the Registrant(1)                                                                                                     
|        | 
|4.1     |  | Specimen common stock certificate(1)                                                                                            
|        | 
|4.2     |  | Warrant to purchase Common Stock, dated May 31, 2000, issued to WXI/SAN Realty, L.L.C.(1)                                       
|        | 
|4.3     |  | Warrant to purchase Common Stock, dated Sept. 20, 2000, issued to WXI/SAN Realty, L.L.C.(1)                                     
|        | 
|10.1*   |  | Form of Indemnification Agreement between the Registrant and each of its directors, officers and certain other key employees(1) 
|        | 
|10.2*   |  | 1997 Equity Incentive Plan, as amended, and form of agreements thereunder(1)                                                    
|        | 
|10.3*   |  | 2002 Stock Plan, as amended, and form of agreements thereunder(1)                                                               
|        | 
|10.4*   |  | 2002 Employee Stock Purchase Plan, and form of agreements thereunder(3)                                                         
|        | 
|10.5*   |  | 2002 Director Option Plan, and form of agreements thereunder(1)                                                                 
|        | 
|10.6    |  | Loan and Security Agreement, dated March 14, 2001, between the Registrant and Silicon Valley Bank(1)                            
|        | 
|10.7    |  | Office Lease for 500 Sansome Street, dated April 7, 1999, between the Registrant and BPG Sansome, L.L.C.(1)                     
|        | 
|10.8    |  | First Amendment to Lease for 500 Sansome Street, dated May 3, 2000, between the Registrant and WXI/SAN Realty, L.L.C.(1)        
|        | 
|10.9*   |  | Offer letter between the Registrant and John H. Kunze(1)                                                                        
|        | 
|10.10*  |  | Offer letter between the Registrant and Eric Borrmann(1)                                                                        
|        | 
|10.11*  |  | Offer letter between the Registrant and John Hogan(1)                                                                           
|        | 
|10.12   |  | Second Amendment to Lease for 500 Sansome Street, dated September 20, 2000, between the Registrant and WXI/SAN Realty, L.L.C.(1)
|        | 
|10.13   |  | Third Amendment to Lease for 500 Sansome Street, dated November 22, 2000, between the Registrant and WXI/SAN Realty, L.L.C.(1)  
|        | 
|10.14   |  | Fourth Amendment to Lease for 500 Sansome Street, dated July 31, 2002, between the Registrant and WXI/SAN Realty, L.L.C.        
|        | 
|10.15   |  | Fifth Amendment to Lease for 500 Sansome Street, dated July 21, 2003, between the Registrant and WXI/SAN Realty, L.L.C.         
|        | 
|10.16   |  | Offer letter between Registrant and Eric Zocher                                                                                 
|        | 
|31.1    |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (S-O Act)                  
|        | 
|31.2    |  | Certification of Chief Financial Officer pursuant to Section 302 of the S-O Act                                                 
|        | 
|32.1    |  | Certification of Chief Executive Officer pursuant to Section 906 of the S-O Act                                                 
|        | 
|32.2    |  | Certification of Chief Financial Officer pursuant to Section 906 of the S-O Act                                                 



|* |  | Management contract or compensatory plan or arrangement.
|- |  | --------------------------------------------------------



(1)Incorporated by reference to
Exhibits filed with Registration Statement No. 333-45950, as amended, which became effective on June 3, 2002.



(2)Incorporated by reference to Exhibits filed with the Registrants 10-Q for the
fiscal quarter ended September 30, 2002 and filed with the SEC on August 14, 2002 (File No. 001-31344).



(3)Incorporated by reference to Exhibits filed with the Registrants 10-Q for the
fiscal quarter ended September 30, 2002 and filed with the SEC on November 12, 2002 (File No. 001-31344).



-35-



---

(b) Reports on Form 8-K.



On July 10, 2003, we furnished a current report on Form 8-K to file our press release announcing the Companys results for the fiscal quarter ended
June 30, 2003.



On September10, 2003, we furnished a current
report on Form 8-K to file our press release announcing the hiring of Eric Zocher as Vice President of Engineering.



On October 13, 2003, we furnished a current report on Form 8-K to file our press release announcing the Companys results for the fiscal quarter
ended September 30, 2003.



SIGNATURES



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



PLUMTREE SOFTWARE, INC.

(Registrant)



|                        |  | 
|----------------------- |  | 
|Dated: October 31, 2003 |  | 
|                        |  | 
|                        |  | 
|                        |  | 
|Dated: October 31, 2003 |  | 
|                        |  | 



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