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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




---

FORM 10-K

(Mark One)


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

For the fiscal year ended January 26,
2002


OR

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

For the transition period from

to


Commission File Number: 000-28797

NIKU CORPORATION

(Exact name of registrant as specified in its
charter)


|                                                                                   |  |                                                
|---------------------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware(State or other jurisdiction of
	incorporation or organization)            |  | 77-0473454(I.R.S. Employer
	Identification No.)
|                                                                                  
|350 Convention Way, Redwood City, CA 94063(Address of principal executive offices) |  | 94063(Zip Code)                                

Registrants telephone number, including
area code: (650) 298-4600

Securities registered pursuant to
Section 12(b) of the Act: None


Securities registered pursuant to
Section 12(g) of the Act: Common Stock, $0.0001 par value


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

The aggregate market value of the common stock
held by non-affiliates of the registrant as of April 1,
2002 was approximately $102,041,000.

The number of shares outstanding of the
registrants common stock as of April 1, 2002 was
74,242,284.

DOCUMENTS INCORPORATED BY REFERENCE

The registrants definitive Proxy
Statement for the Annual Meeting of Stockholders to be held on
June 26, 2002 is incorporated by reference in Part III
of this Form 10-K to the extent stated herein.



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TABLE OF CONTENTS



|              |                                                                                               |  |  |  |  |  |  | 
|------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I       
|              | Item 1. Business                                                                             
|              | Item 2. Properties                                                                           
|              | Item 3. Legal Proceedings                                                                    
|              | Item 4. Submission of Matters to a Vote of Security Holders                                  
|              | Item 4A. Executive Officers of the Registrant                                                
|PART II      
|              | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                
|              | Item 6. Selected Consolidated Financial Data                                                 
|              | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|              | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                          
|              | Item 8. Financial Statements and Supplemental Data                                           
|              | Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 
|PART III     
|              | Item 10. Directors and Executive Officers of the Registrant                                  
|              | Item 11. Executive Compensation                                                              
|              | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|              | Item 13. Certain Relationships and Related Transactions                                      
|PART IV      
|              | Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|SIGNATURES   
|Exhibit Index
|Exhibit 23.01



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TABLE OF CONTENTS

|           |  |                                                                                        |    |      |    | 
|---------- |  | -------------------------------------------------------------------------------------- | -- | ---- | -- | 
|           |  |                                                                                        |    | Page
|           |  |                                                                                        |    |     
|PART I    
|Item 1.    |  | Business                                                                               |    |      | 3  | 
|Item 2.    |  | Properties                                                                             |    |      | 14 | 
|Item 3.    |  | Legal Proceedings                                                                      |    |      | 14 | 
|Item 4.    |  | Submission of Matters to a Vote of Securities
	Holders                                 |    |      | 15 | 
|Item 4A.   |  | Executive Officers of the Registrant                                                   |    |      | 15 | 
|PART II   
|Item 5.    |  | Market for Registrants Common Equity and
	Related Stockholder Matters                 |    |      | 17 | 
|Item 6.    |  | Selected Consolidated Financial Data                                                   |    |      | 17 | 
|Item 7.    |  | Managements Discussion and Analysis of
	Financial Condition and Results of Operations |    |      | 18 | 
|Item 7A.   |  | Quantitative and Qualitative Disclosures about
	Market Risk                            |    |      | 28 | 
|Item 8.    |  | Financial Statements and Supplementary Data                                            |    |      | 29 | 
|Item 9.    |  | Changes in and Disagreements with Accountants on
	Accounting and Financial Disclosure  |    |      | 55 | 
|PART III  
|Item 10.   |  | Directors and Executive Officers of the Registrant                                     |    |      | 56 | 
|Item 11.   |  | Executive Compensation                                                                 |    |      | 56 | 
|Item 12.   |  | Security Ownership of Certain Beneficial Owners
	and Management                        |    |      | 56 | 
|Item 13.   |  | Certain Relationships and Related Transactions                                         |    |      | 56 | 
|PART IV   
|Item 14.   |  | Exhibits, Financial Statement Schedules and
	Reports on Form 8-K                       |    |      | 57 | 
|Signatures |  |                                                                                        | 59 |     

Niku, Do What Matters and the Niku logo are our
trademarks. All other brand names and trademarks appearing in
this annual report on Form 10-K are the property of their
respective owners.

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Forward-Looking Statements

This annual report on Form 10-K contains
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. A word
such as expects, anticipates,
intends, believes or similar language
identifies forward-looking statements. These forward-looking
statements include, among other things, statements about the
trends we see in our business and the markets in which we
operate, the features, functionality and market acceptance of
our products and our expectations for our future operating
results and cash flows. Forward-looking statements involve risks
and uncertainties. Our actual results may differ materially from
those contemplated by the forward-looking statements. Factors
that might cause or contribute to these differences include, but
are not limited to, those discussed in the section entitled
Item 1: Business  Factors That May Affect
Future Results. You are cautioned not to place undue
reliance on the forward-looking statements, which speak only as
of the date of this report. We undertake no obligation to
publicly revise or update any forward-looking statements to
reflect events or circumstances after the date of this report.




PART I




Item 1. Business

We provide application software for service
organizations in large enterprises. These service organizations
include the information technology, consulting, and research and
development groups as well as other organizations rendering
services for the enterprise. Our software enables customers to
reduce costs and increase productivity in their service
organizations and gain visibility and control over strategic
initiatives. Our software achieves these results by allowing
users to collaborate, allocate resources, manage initiatives,
account for activities and capture and reuse knowledge using one
integrated system.

We commenced operations in 1998 and are
headquartered in Redwood City, California. We conduct operations
worldwide directly and through our wholly-owned subsidiaries.
Unless otherwise specified, references to Niku,
we, our, us, or the Company
are references to Niku and its consolidated subsidiaries. We
operate in one industry segment: software.

Products

Our latest product offering is Niku 6.

We believe Niku 6 is the first fully integrated,
Internet-based application for service organizations in the
mid-office. The mid-office sits between the front
office and the back office (the customer facing and financial
settlement functions). The mid-office consists of service
organizations such as information technology, consulting,
research and development and other organizations rendering
services for the enterprise.

The service organizations in the mid-office have
a distinct set of business processes. Niku 6 automates
these business processes, allowing companies to reduce costs and
increase productivity in their service organizations. Some
examples of the application of Niku 6 are as follows:
managing operational costs in real-time, leveraging best
practices, enabling reuse of structured and unstructured
knowledge, capacity planning, automating administrative and
production workflows, enabling executive overview of entire
portfolios, optimizing resource productivity, automating metrics
for choosing business opportunities, institutionalizing
successful financial practices, and accelerating time-to-results
and time-to-market.

Niku 6 also provides a platform for management of
company-wide strategic initiatives such as Six Sigma, which is a
management methodology that seeks to improve an
organizations profitability by decreasing its cost of
quality. Niku 6 provides a single system for tracking an
initiative from start to finish, including its staffing,
milestones, deliverables, dependencies, costs and results. By
providing enhanced visibility into every element of an
initiative, Niku 6 enhances management control of the initiative
and increases the likelihood that the initiative will achieve
its objectives.

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Niku 6 unites the key elements of our older
products (Portfolio Manager, Workbench, Revenue Manager, eNiku,
and xNiku) in a single architecture, a single database and a
single graphical user interface.

Core features of Niku 6 are described below.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Collaboration.Most work in mid-office
	organizations is accomplished through teams working in a
	collaborative manner. Niku 6 offers a secure, shared
	environment in which team members can collaborate on
	assignments, share documents, conduct discussions and otherwise
	work with each other using the Internet. This collaborative
	environment can also extend a companys processes and
	knowledge to external partners, customers and suppliers,
	allowing organizations to create and manage virtual teams
	globally, handle complex projects and processes at multiple
	locations, and shorten the time needed for any given initiative.                                                    
|
| |  | Resource Management.Niku 6 offers capabilities to
	ensure that the right people are working on the right things at
	the right time at the correct billing rate. Users can view and
	manage resource schedules, and can reserve and allocate
	resources in real time. This functionality dynamically tracks
	employee backgrounds and levels of experience in different
	specialties. Any changes or updates to an employees
	schedule or skills are automatically recorded, giving managers
	rapid access to the current information and allowing them to
	improve utilization of people, skills and time.                                                                                             
|
| |  | Initiative Management.Niku 6 helps organizations
	manage initiatives from origination to completion. For any
	initiative, the critical success factor is the ability to manage
	teams effectively and to deliver results and benefits on time
	and on budget. Niku 6 provides capabilities for planning,
	estimating and methods delivery. Niku 6 also captures time
	and expenses, manages organizational capacity, allocates
	resources based on performance, and provides tools for analyzing
	initiative, division and overall profitability.                                                                                                                                                       
|
| |  | Activity-Based Accounting.Niku 6 provides both record
	keeping tools and management and analytical capabilities for
	services organizations to manage complex accounting tasks such
	as detailed billing and invoicing on a matter-by-matter basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Knowledge Management.Niku 6s knowledge
	management module provides extensive functionality for
	capturing, managing, retrieving and utilizing the knowledge and
	experience of an organization that is contained in documents
	such as implementation plans, product development documents,
	proposals and contracts. Unlike traditional document management
	systems, Niku 6s knowledge management module utilizes
	a data-tagging feature to capture documents or other
	deliverables as they are created. This module employs an
	easy-to-use search engine for information retrieval, allowing
	users to retrieve and leverage organizational knowledge
	regardless of where or when they need it.
|
| |  | Opportunity Management.Niku 6 automates and manages
	the business development process for service organizations,
	including gathering and analyzing information on potential
	customers, monitoring sales prospects, creating proposals,
	developing sales presentations, and creating and finalizing
	contracts. The opportunity management functionality also
	provides internal services organizations the ability to assess
	potential risks and returns before embarking upon a project or
	initiative.                                                                                                                                                                                            

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Customers

Our customers include the following, all of whom
accounted for at least $200,000 of license revenue in the year
ended January 31, 2002:

|                                                                                                                                                                                                    |  |                                                                                                                                                                                                            |  |                                                                                                                                   
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------
|Accenture
	AXA
	Barclays
	Bear Stearns
	Bell South
	Best Buy
	BT (British Telecom)
	ChoicePoint
	Computer Sciences Corporation
	Deutsche Telekom (T-Mobile)
	DGZ  DekaBank
	Employers Reinsurance |  | FiServ
	Fortis
	France Telecom
	GE Medical Systems
	Georgia School Council Institute
	Getronics
	GIE Dialog
	Hewlett-Packard
	HSBC
	Hydro Quebec
	MSC Software
	Pennsylvania Department of  Transportation |  | Pharmacia
	Phillips
	Pink Roccade
	Rabobank
	Royal Sun Alliance
	Southwest Airlines
	Thomson
	Time Warner
	Westdeutsche Landesbank

No customer accounted for more than 10% of our
total revenue in fiscal 2002, 2001 and 2000. See Note 13 to
our consolidated financial statements for disclosure regarding
our international revenue.

Technology

The technology underlying Niku 6 utilizes an
advanced three tier-architecture, which is 100% Internet-based.
This allows for horizontal scalability and access to users with
different languages, time zones, currencies and regulatory
environments.

Three-Tier
Architecture.Within Niku 6s data tier,
all of the tables and data are housed in a standard relational
database geared for high performance and scalability. In the
middle tier, an application server enables the java-based
application to be deployed across multiple application servers
to easily accommodate global deployments. The application can
also be externalized through the corporate firewall to allow
access over the Internet to the application. The client tier is
a web browser that provides the interface between the user and
the application.

Web Browser Access to Applications.Niku 6 is accessed through a
web browser, which allows end-users easy access and navigation.
The familiar web browser interface allows users to access the
application from any personal computer, computer network or
computing device, regardless of physical location. Our
application framework also allows updates to software and
applications to be made centrally at the server rather than at
each users computer. This ensures that each user has the
latest application version and significantly reduces
distribution and installation costs.

Internationalized Application.All Niku 6 components support
dynamic language and locale switching. This means that a user
can enter and view data in their language and see it displayed
by a locales date, time and currency format.

Scalability.Niku 6 is designed to provide
horizontal scalability. The components which make up the product
including Database, Application, Reporting, Search and
Background can be placed on separate servers allowing customers
maximum flexibility in configuring hardware infrastructure for
supporting global implementations.

Open Standards.Niku 6 is designed to support
open standards. The software we use for the server computers
that deliver our applications is written in the Java programming
language. We also support electronic commerce protocols such as
extensible markup language, or XML, and secure socket layer, or
SSL. Niku 6 has an open standards gateway that allows data
such as projects, human resource profiles, financials, and
expenses to be shared with both up-stream and down-stream
applications such as enterprise resource planning and customer
relation management systems, regardless of architecture. Our
support of open

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standards allows customers with disparate
computer systems and networks to utilize our applications
without the need to upgrade computer systems, software or
equipment.


Supported Platforms.The platform on which our
customers run their businesses varies due to various vendor
relationships, information technology budgets, and legacy
experience. Therefore, the Niku 6 solution has been
designed to support the major platforms of Sun Solaris, Windows
2000 and NT, and HP Unix along with database support for
both Oracle and Microsoft SQL Server. This insures that our
customers can leverage their existing technology infrastructure
and relationships when deploying the Niku 6 solution.

Research and development expenses were
$34.9 million, $37.0 million and $10.9 million in
fiscal 2002, 2001 and 2000, respectively. As of January 31,
2002, we had 77 people in our research and development
organization.

Sales and Marketing

We offer our products principally through our
direct sales force. We also have dedicated technical pre-sales
professionals who assist with creating customer-tailored
business proposals, product demonstrations and presentations
that address the specific needs of each prospective customer. In
addition, we have a small telesales organization focused on
smaller transactions. As of January 31, 2002, we had 131
people in our sales and marketing organization. In certain
international markets, we offer our products indirectly through
channel partners

Services and Support

Our professional services consultants assist in
the implementation and use of our software products. Our
consultants assist customers in all aspects of the
implementation process, including requirements assessment,
implementation planning and design, content design and creation,
data migration, systems integration, deployment and training. We
offer multiple customer support options, with customer support
professionals on call 24 hours a day, seven days a week and
available through a toll-free call center. Depending on the
support level a customer chooses, we will also assign a single
account management point of contact who will oversee all support
issues and drive resolution for the customer. As of
January 31, 2002, we had 89 employees in our services
and support organization.

Competition

The market for our products and services is
competitive, dynamic and subject to frequent technological
changes. We expect the intensity of competition and the pace of
change to increase in the future. Our products compete with
products that have been developed by potential customers
in-house developers and information technology departments and
by a number of competitors offering products and services that
vary in functionality. These include:



| |   |                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------
| |  | enterprise software providers such as Oracle,
	Peoplesoft, SAP, Siebel Systems, Lawson and JD Edwards;
|
| |  | providers of project management software; and                                                         
|
| |  | providers of professional services automation
	software.                                              

A number of companies offer products that provide
some of the functionality of our products. We do not believe
that any one company has a dominant position in our market as a
whole. However, we may not be able to maintain our competitive
position against current or potential competitors, especially
those with significantly greater financial, marketing, service,
support, technical and other resources. Competitors with greater
resources may be able to undertake more extensive marketing
campaigns, adopt more aggressive pricing policies and make more
attractive offers to potential employees, distributors,
resellers or other strategic partners. We expect additional
competition from other established and emerging companies as our
market continues to develop. We may not be able to compete
successfully against current and future competitors.

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Intellectual Property

We regard substantial elements of our products as
proprietary, and protect them by relying primarily on patent,
trademark, service mark, copyright and trade secret laws and
restrictions, as well as confidentiality procedures and
contractual provisions.

We license rather than sell all our software
products and require our customers to enter into license
agreements that impose restrictions on their ability to utilize
the software or transfer the software to other users.
Additionally, we seek to avoid disclosure of our trade secrets
through a number of means, including, but not limited to,
requiring those persons with access to our proprietary
information to execute confidentiality agreements with us and
restricting access to our source code. We protect our software,
documentation, templates and other written materials under trade
secret and copyright laws, which afford only limited protection.

We have applied for four U.S. patents. We
cannot assure you that any of these applications will be
granted, that any patents that may be issued will protect our
intellectual property or that any issued patents will not be
challenged by third parties. Furthermore, other parties may
independently develop similar or competing technologies or
design around any patents that may be issued. It is possible
that any patent issued to us may not provide any competitive
advantages, that we may not develop future proprietary products
or technologies that are patentable, and that the patents of
others may seriously limit our ability to do business. In this
regard, we have not performed any comprehensive analysis of
patents of others that may limit our ability to do business.

We have applied for U.S. registration of the
trademarks Niku, Do What Matters and the Niku logo. We have
received registration for Niku and Do What Matters. The Niku
logo application is under review. These registrations may not
provide us with significant protection for our trademarks. We
rely on copyright laws with respect to our software, but we have
not made any copyright registration with any government entity
with respect to our products.

Any steps we take to protect our intellectual
property may be inadequate, time-consuming and expensive. We may
be unable to prevent third parties from infringing upon or
misappropriating our intellectual property, which could harm our
business.

Legal standards relating to the validity,
enforceability and scope of protection of intellectual property
rights in software are uncertain and still evolving, and the
future viability or value of any of our intellectual property
rights is uncertain. Effective trademark, copyright and trade
secret protection may not be available in every country in which
our products are distributed or made available.

Employees

As of January 31, 2002, we had a total of
340 employees, including 131 employees in sales and
marketing, 89 employees in services and support,
77 employees in research and development and
43 employees in general and administrative functions. Of
these, 237 employees were located in the United States and
103 employees were located outside the United States. None
of our employees is represented by a collective bargaining
agreement, nor have we experienced any work stoppage. We
consider our relations with our employees to be good.

We believe that we will need to hire additional
sales personnel. We have from time to time in the past
experienced, and we expect in the future to continue to
experience, difficulty in hiring highly skilled employees with
appropriate qualifications for our business. There is a shortage
of qualified personnel, and competition for these personnel is
intense in our industry. Our future success depends on our
continuing ability to attract and retain highly qualified
employees, and we can not assure you that we will be able to do
so.

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FACTORS THAT MAY AFFECT FUTURE
RESULTS

The occurrence of any of the following risks
could materially and adversely affect our business, financial
condition and operating results. In this case, the trading price
of our common stock, which has been extremely volatile, could
decline and you might lose all or part of your investment.

Due to our limited operating history, it is
difficult to predict our future operating results.

We were incorporated in January 1998 and began
licensing our software in December 1998. Due to our limited
operating history, it is difficult or impossible for us to
predict our future operating results. We cannot forecast
operating results based on our historical results because our
operating history is limited and our business is changing
rapidly. For example, in fiscal 2002, we introduced a major new
release of our software and implemented a restructuring program.
In particular, we have limited visibility into our future
revenue. Since we forecast our expenses based in part on future
revenue projections, our operating results would be adversely
affected if we cannot meet those revenue projections.

We have incurred losses throughout our
operating history, and we may incur losses in the
future.

We have experienced operating losses in each
quarterly and annual period since we were formed, and we may
incur losses in the future. We had an accumulated deficit of
$461.9 million as of January 31, 2002 and we had net
losses of $291.5 million in the year ended January 31,
2002.

We will need to increase our revenue to achieve
and maintain profitability. Our revenue in the fourth quarter of
fiscal 2002 increased from our revenue in the third quarter of
fiscal 2002 but decreased from the fourth quarter of fiscal
2001. Our license revenue also increased in the fourth quarter
of fiscal 2002 relative to the third quarter of fiscal 2002 but
decreased from the fourth quarter of fiscal 2001. We cannot
assure you of any future revenue growth and our revenue could
decline. Our failure to increase our revenue would seriously
harm our business and operating results, and would among other
things, require a continued depletion of our limited cash
resources to fund operating losses.

Our quarterly financial results are subject to
significant fluctuations, and if our future results are below
the expectations of investors, the price of our common stock
would likely decline.

Our operating results have in the past and could
in the future vary significantly from quarter to quarter. Our
quarterly operating results are likely to be particularly
affected by the number of customers licensing our products
during any quarter and the size of such licensing transactions.
Other factors that could affect our quarterly operating results
include:



| |   |                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------
| |  | our ability to attract new customers and retain
	and sell additional products and services to current customers;
|
| |  | our ability to upgrade current customers to new
	versions of our products;                                      
|
| |  | the renewal or non-renewal of annual maintenance
	contracts by our customers;                                   
|
| |  | the demand for professional services to implement
	our products and our efficiency in rendering such services;  
|
| |  | the announcement or introduction of new products
	or services by us or our competitors;                         
|
| |  | changes in the pricing of our products and
	services or those of our competitors;                               
|
| |  | variability in the mix of our product and
	services revenue in any quarter; and                                 
|
| |  | the amount and timing of operating expenses and
	capital expenditures relating to the business.                 

Due to these and other factors, we believe that
period-to-period comparisons of our results of operations are
not meaningful and should not be relied upon as indicators of
our future performance. If we are unable to meet the
expectations of analysts and investors in the future, the price
of our common stock would likely decline.

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We expect to experience seasonality in our
sales, which could cause our quarterly operating results to
fluctuate.

We expect to experience seasonality in the
licensing of our products and sales of our services. For
example, we anticipate that revenue may be lower in our first
fiscal quarter due to patterns in the capital budgeting and
purchasing cycles of our current and prospective customers, as
well as our sales commission structure. We also expect that
revenue may decline during summer months, particularly in
European markets. These seasonal variations in our revenue are
likely to lead to fluctuations in our quarterly operating
results.

Our products have a long sales cycle, which
makes it difficult to predict our quarterly operating results
and may cause these results to vary significantly.

The sales cycle for our products is long,
typically from three to nine months, making it difficult to
predict the quarter in which we may recognize revenue from a
sale, if at all. Our lengthy sales cycle may cause license
revenue and other operating results to vary significantly from
period to period. Our products often are part of significant
strategic decisions by our customers regarding their information
systems. Accordingly, the decision to license our products
typically requires significant pre-purchase evaluation. We spend
substantial time providing information to prospective customers
regarding the use and benefits of our products. During this
evaluation period, we may expend significant funds in sales and
marketing efforts. If anticipated sales from a specific customer
for a particular quarter are not realized in that quarter, our
operating results may be adversely affected.

The decline in spending on information
technology has impacted demand for our products and services and
may adversely affect future revenue.

While the most recent economic indicators,
including gross domestic product figures, reflect a possible
turn around in economic activity from prior periods, many
reports have indicated a continuing decline in spending by
corporations in the area of information technology, the overall
market in which we participate. While we cannot specifically
correlate the impact of macro-economic conditions on our sales
activities, we believe that the economic conditions have
resulted in decreased demand in our market, and in particular,
have increased the average length of our sales cycles and
decreased the size of our license transactions. To the extent
that the current economic climate worsens or that the global
economy fails to improve or information technology spending in
our market does not increase, the demand for our products and
services, and therefore future revenue, may be further reduced.
We may not be able to respond to future revenue reductions in a
sufficiently timely manner to avoid increases in future losses.
Even if the current decline abates, we cannot assure you that
corporations will increase their information technology spending
or that we will be able to maintain or improve revenue levels.

If the market does not accept Niku 6 or
if we are unable to continue to introduce new products on a
timely basis, our business will suffer.

We introduced a new release of our software
called Niku 6 at the end of the third quarter of fiscal
2002. While the initial market acceptance of Niku 6 has
been positive, we may experience delays in market penetration.
In addition, we may experience delays in market acceptance of
new products or product enhancements as we engage in marketing
to our user base regarding the advantages and system
requirements for the new version and as existing customers
evaluate the advantages and disadvantages of upgrading to the
new version. Further, the market for our products is new and
likely to change rapidly. Our future success will depend on our
ability to anticipate changing customer requirements effectively
and in a timely manner and to offer products that meet these
demands. The development of new or enhanced software products is
a complex and uncertain process. We may experience design,
development, testing and other difficulties that could delay or
prevent the introduction of future products or product
enhancements and could increase research and development costs.

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We are uncertain of our ability to obtain
additional financing for our future needs.

As of January 31, 2002, we had cash and cash
equivalents of $51.6 million. We also had restricted cash
in the amount of $14.5 million in the form of certain
certificates of deposit securing letters of credit required for
various leased facilities and equipment. We also had bank
borrowings of $27.0 million as of January 31, 2002.
The bank borrowings were repaid in full in February 2002. We
believe that cash from operations and existing cash will be
sufficient to meet our current expectations for working capital
and expense requirements for at least the next twelve months
based on, among other things, our current revenue and expense
projections. However, in the long-term, we may need to raise
additional funds in order to fund our business, expand our sales
activities, develop new or enhance existing products, respond to
competitive pressures and satisfy new obligations that may
arise. We may also need to raise funds in the future to meet our
working capital needs. Additional financing may not be available
on terms favorable to us, or at all. While we significantly
reduced our cash usage over the course of fiscal 2002, capital
is critical to our business, and our inability to raise capital
in the event of ongoing losses would have a material adverse
effect on our business. If we issue additional equity
securities, stockholders may experience additional dilution or
the new equity securities may have rights, preferences or
privileges senior to those of the then existing holders of our
common stock.

Failure to collect our accounts receivable
would adversely affect our cash flows.

Our cash flows are dependent upon the collection
of our accounts receivable. As of January 31, 2002, our
accounts receivable, net of allowance for doubtful accounts, was
$12.6 million and our allowance for doubtful accounts was
$3.0 million. While we significantly improved our
collection of accounts receivable in fiscal 2002, the failure by
our customers to pay or the delay by our customers in making
payments would adversely affect our cash flows, which could have
a material adverse effect on our business.

The results of legal proceedings could
adversely affect our business.

We are engaged in several legal proceedings. If
the ultimate disposition of one or more of these proceedings is
adverse to us, we could be required to pay substantial sums to
other parties. Interim rulings in the proceedings could also
adversely affect us. On April 15, 2002, a writ of
attachment in the amount of $6.3 million was granted
against us in legal proceedings relating to our former
headquarters facility. The grant of this writ provides the owner
of such facility with security in the event it prevails in the
case. We expect to provide security in the amount of
$6.3 million in the form of a certificate of deposit,
letter of credit, or bond in lieu of attachment. While such
instrument is place, our access to the funds covered thereby
will likely be restricted. Even if we ultimately prevail in the
legal proceedings in which we are engaged, the costs of these
proceedings could increase our expenses and materially and
adversely affect our operating results. See
Item 3  Legal Proceedings.

Defects in our products could result in loss
of or delay in revenue, failure to achieve market acceptance and
increased costs.

Products as complex as those we offer or are
developing frequently contain undetected defects or errors.
Despite internal testing and testing by our customers or
potential customers, defects or errors may occur in our existing
or future products and services. From time to time in the past,
versions of our software that have been delivered to customers
have contained errors. In the future, if we are not able to
detect and correct errors prior to release, we may experience a
loss of or delay in revenue, failure to achieve market
acceptance and increased costs to correct errors, any of which
could significantly harm our business.

Defects or errors could also result in tort or
warranty claims. Warranty disclaimers and liability limitation
clauses in our customer agreements may not be enforceable.
Furthermore, our errors and omissions insurance may not
adequately cover us for claims. If a court were to refuse to
enforce the liability-limiting provisions of our contracts for
any reason, or if liabilities arose that were not contractually
limited or adequately covered by insurance, our business could
be harmed.

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To date, few customers have deployed the new
version of our software on a large scale, and we may experience
customer dissatisfaction and lost revenue if this version does
not accommodate large-scale deployments.

Our software products must be able to accommodate
substantial increases in the number of people using them. Our
new products have not been tested in large-scale customer
implementations by many customers. If our customers cannot
successfully implement large-scale deployments, we could lose
some or all of our existing customers and be unable to obtain
new customers.

Implementation of our products is difficult,
costly and time-consuming, and customers could become
dissatisfied if the implementation requires more time, expense
or personnel than expected.

Implementation of our products may be difficult,
costly and time-consuming. Because we are one of the first
companies to offer an applications suite for services
organizations, many customers will be facing these
implementation issues for the first time in the context of such
software. Customers could become dissatisfied with our products
if implementation requires more time, expense or personnel than
they expected. Additionally, our losses could increase if, for
customer satisfaction and reputational reasons, we do not bill
our customers for time and expenses we incur in connection with
these implementation issues, which would adversely affect our
operating results.

As part of the implementation, our products must
integrate with many of our customers existing computer
systems and software programs. Integrating with a number of
computer systems and software programs can be time-consuming and
expensive and could lead to customer dissatisfaction and
increased expenses.

Market acceptance of our products and services
may suffer if we are unable to enhance our products to meet the
rapid technological changes in our industry.

Rapidly changing technology and standards may
impede market acceptance of our products and services. Our new
products have been designed based upon currently prevailing
technologies such as extensible markup language, or XML, or
extensible stylesheet language, or XSL. If new technologies
emerge that are incompatible with our products, our products
could become obsolete and our existing and potential customers
might seek alternatives. We may not be able to adapt quickly to
a new technology.

Additionally, we design our products to work with
databases such as Oracle Enterprise Server and SQL Server and
operating systems such as Sun Solaris, Windows 2000 and NT and
HP Unix. Any changes to those databases or systems, or
increasing popularity of other databases or systems, might
require us to modify our products or services and could cause us
to delay releasing future products and enhancements. As a
result, uncertainties related to the timing and nature of new
product announcements or introductions or modifications by
vendors of databases, operating systems, web servers and other
enterprise and Internet-based applications could delay our
product development, increase our research and development
expenses and cause customers to delay evaluation, purchase and
deployment of our products.

International activities expose us to
additional operational challenges that we might not otherwise
face.

International activities are a significant part
of our business. In the year ended January 31, 2002,
international revenue represented 47.5% of total revenue,
compared to 18.7% of total revenue in the year ended
January 31, 2001. International license revenue represented
47.6% of total license revenue in the year ended
January 31, 2002, compared to 14.3% in the year ended
January 31, 2001.

As we operate internationally, we are exposed to
operational challenges that we would not face if we conducted
our operations only in the United States. These include:



| |   |                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------
| |  | currency exchange rate fluctuations, particularly
	if we sell our products in denominations other than U.S. dollars;
|
| |  | longer sales cycles in international markets;                                                                       

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| |   |                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------
| |  | seasonal fluctuations in purchasing patterns in
	other countries, particularly declining sales during summer
	months in European markets;
|
| |  | tariffs, export controls and other trade barriers;                                                                                       
|
| |  | difficulties in collecting accounts receivable in
	foreign countries;                                                                    
|
| |  | the burdens of complying with a wide variety of
	foreign laws;                                                                           
|
| |  | reduced protection for intellectual property
	rights in some countries, particularly in Asia; and                                        
|
| |  | the need to develop internationalized versions of
	our products and marketing and sales materials.                                       

There is competition in our market, which
could make it difficult to attract customers, cause us to reduce
prices and result in reduced gross margins or loss of market
share.

The market for our products and services is
competitive, dynamic and subject to frequent technological
changes. We expect the intensity of competition and the pace of
change to increase in the future. Our products compete with
products that have been developed by potential customers
in-house developers and IT departments and by a number of
competitors offering products and services that vary in
functionality. These include:



| |   |                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------
| |  | enterprise software providers such as Oracle,
	Peoplesoft, SAP, Siebel Systems, Lawson and JD Edwards;
|
| |  | providers of project management software; and                                                         
|
| |  | providers of professional services automation
	software.                                              

A number of companies offer products that provide
some of the functionality of our products. We do not believe
that any one company has a dominant position in our market as a
whole. However, we may not be able to maintain our competitive
position against current or potential competitors, especially
those with significantly greater financial, marketing, service,
support, technical and other resources. Competitors with greater
resources may be able to undertake more extensive marketing
campaigns, adopt more aggressive pricing policies and make more
attractive offers to potential employees, distributors,
resellers or other strategic partners. We expect additional
competition from other established and emerging companies as the
market for our software continues to develop. We may not be able
to compete successfully against current and future competitors.

We depend on implementation, marketing and
technology relationships; if our current and future
relationships are not successful, our business might be
harmed.

We rely on implementation, marketing and
technology relationships with a variety of companies. These
implementation, marketing and technology relationships include
relationships with:



| |   |                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | consulting firms;                                                                                                                                                                                                                                                                     
|
| |  | third-party hardware vendors, such as Sun and
	Hewlett-Packard; and                                                                                                                                                                                                                   
|
| |  | third-party software vendors, such as Actuate,
	Ironflare, Microsoft, Oracle, Sun and Verity, whose products or
	technologies, such as reporting engines, application servers,
	operating systems, databases, and search engines, we incorporate
	into or integrate with our products.

We depend on these companies to implement our
products for customers, promote our products, provide our direct
sales force with customer leads and provide enhanced
functionality to our products. Some of these relationships are
not documented in writing, or are governed by agreements that
can be terminated by either party with little or no penalty or
prior notice and do not provide for minimum payments to us.
Companies with which we have an implementation, marketing or
technology relationship may promote products or services of
several different companies, including, in some cases, products
or services that compete with our products and services. These
companies may not devote adequate resources to selling or
promoting our products and

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services. We may not be able to maintain these
relationships or enter into additional relationships in the
future.


We will continue to incur stock-based
compensation expense in future periods.

We will continue to incur stock-based
compensation expense in future periods, which represents
non-cash charges incurred as a result of the issuance of stock
and stock options below fair market value. On November 12,
2001, our board of directors, acting pursuant to existing terms
of our stock options plans, approved a repricing of
approximately 8.9 million outstanding stock options with
exercise prices above $0.75. The exercise prices of such stock
options were repriced to $0.75, which was the fair market value
of our stock on November 12, 2001. This resulted in an
additional $5.4 million of stock-based compensation in the
fourth quarter of fiscal 2002. Options held by our chief
executive officer, executive vice president, strategy and
planning, board of directors and non-employees were not
repriced. To the extent that our stock price increases in future
periods, we will need to record additional stock-based
compensation expense.

The market price for our common stock is
volatile and could result in a decline in the value of your
investment.

The market price of our common stock is extremely
volatile. The value of your investment in our common stock could
decline due to the impact of any of the following factors upon
the market price of our common stock:



| |   |                                                                                             
| | - | --------------------------------------------------------------------------------------------
| |  | variation in our quarterly operating results,
	including our inability to increase revenues;
|
| |  | changes in our cash flows;                                                                  
|
| |  | announcements of new product or service offerings
	by us or our competitors;                
|
| |  | announcement of new customer relationships by us
	or our competitors;                       
|
| |  | changes in market valuations of comparable
	companies;                                      
|
| |  | developments in litigations in which we are
	involved;                                      
|
| |  | additions to, or departures of, our executive
	officers; and                                
|
| |  | conditions and trends in the software and
	information technology industries.               

Further, the stock markets, particularly the
Nasdaq National Market on which our common stock is listed, have
experienced substantial price and volume fluctuations. These
fluctuations have particularly affected the market prices of
equity securities of many technology companies and have often
been unrelated or disproportionate to the operating performance
of these companies.

We might not be able to protect and enforce
our intellectual property rights.

We regard substantial elements of our products as
proprietary and attempt to protect them by relying on patent,
trademark, service mark, copyright and trade secret laws and
restrictions, as well as confidentiality procedures and
contractual provisions. Any steps we take to protect our
intellectual property may be inadequate, time-consuming and
expensive. We may be unable to prevent third parties from
infringing upon or misappropriating our intellectual property,
which could harm our business.

It is possible that no patents will issue from
our current or future patent applications. Any patents that do
issue may not provide us with any competitive advantages over,
or may be challenged by, third parties. We have applied for, but
have not received, registration of, among other marks, the Niku
logo with the U.S. Patent and Trademark Office. We rely on
copyright laws with respect to our software, but we have not
registered any copyright with any government entity with respect
to our software.

Legal standards relating to the validity,
enforceability and scope of protection of intellectual property
rights in software are uncertain and still evolving, and the
future viability or value of any of our intellectual property
rights is uncertain. Effective trademark, copyright and trade
secret protection may not be available in

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every country in which our products are
distributed or made available. Furthermore, our competitors may
independently develop similar technologies that substantially
limit the value of our intellectual property or design around
patents issued to us.


Third parties might bring infringement claims
against us or our customers that could harm our
business.

In recent years, there has been significant
litigation in the United States involving patents and other
intellectual property rights, particularly in the software
industry. We could become subject to intellectual property
infringement claims as the number of our competitors grows and
our products and services increasingly overlap with competitive
offerings. In addition, as part of our product licenses, we
agree to indemnify our customers against claims that our
products infringe upon the intellectual property rights of
others. These claims, even if not meritorious, could be
expensive and divert managements attention from operating
our business. We could incur substantial costs in defending
ourselves and our customers against infringement claims. If we
become liable to third parties for infringement of their
intellectual property rights, we could be required to pay a
substantial damage award and to develop non-infringing
technology, obtain one or more licenses for us and our customers
from third parties or cease selling the products that contain
the infringing intellectual property. We may be unable to
develop non-infringing technology or obtain a license at a
reasonable cost, or at all.

Provisions of Delaware law, our certificate of
incorporation and bylaws could delay or prevent a takeover of
us, even if doing so would benefit our stockholders.

Provisions of Delaware law, our certificate of
incorporation and bylaws could have the effect of delaying or
preventing a third party from acquiring us, even if a change in
control would be beneficial to our stockholders. These
provisions include:



| |   |                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------
| |  | authorizing the issuance of preferred stock
	without stockholder approval;                                                               
|
| |  | providing for a classified board of directors
	with staggered, three-year terms;                                                         
|
| |  | prohibiting cumulative voting in the election of
	directors;                                                                             
|
| |  | requiring two-thirds of the outstanding shares to
	approve amendments to some provisions of our certificate of
	incorporation and bylaws;
|
| |  | requiring a majority of the stockholders to call
	stockholders meetings; and                                                             
|
| |  | prohibiting stockholder actions by written
	consent.                                                                                     




Item 2. Properties

Our principal executive office occupies 75,945
square feet in Redwood City, California under a lease that
expires in May 2016. We currently occupy 13 leased
facilities in the United States, five in Europe, one in Canada
and one in Asia-Pacific. These leases expire at various dates
through May 2016.

In fiscal 2002, we vacated 17 leased
facilities pursuant to our restructuring plan (See Note 3
to our consolidated financial statements).

We believe that our facilities will be adequate
to meet our demands for the foreseeable future and that we will
be able to obtain any additional space that we may require for
sales offices.




Item 3. Legal Proceedings

In August 2001, we, as well as certain of our
officers and directors, have been named as defendants in a
number of purported securities class actions in United States
District Court for the Southern District of New York, arising
out of the Companys initial public offering in February
2000 (the IPO). Various underwriters of the IPO also
are named as defendants in the actions. The complaints allege,
among other things, that the registration statement and
prospectus filed with the Securities and Exchange Commission for
purposes of the IPO were false and misleading because they
failed to disclose that the underwriters allegedly
(i) solicited and

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received commissions from certain investors in
exchange for allocating to them shares of our stock in
connection with the IPO and (ii) entered into agreements
with their customers to allocate such stock to those customers
in exchange for the customers agreeing to purchase additional
Company shares in the aftermarket at pre-determined prices. On
August 8, the Court ordered that these actions, along with
hundreds of IPO allocation cases against other issuers, be
transferred to Judge Scheindlin for coordinated pre-trial
proceedings. At a status conference held on September 7,
2001, Judge Scheindlin adjourned all defendants time to
respond to the complaints until further order of the Court.
These cases remain at a preliminary stage and no discovery
proceedings have taken place. These actions seek compensatory
damages in unspecified amounts as well as other relief. We
believe that the claims asserted against us in these cases are
without merit and we intend to defend vigorously against them.


In December 2001, Brugger Corporation, the lessor
of our former headquarters, filed suit in the Superior Court of
California for San Mateo County alleging that we breached the
lease for such facility. Brugger seeks damages for breach of
written lease, declaratory relief, and rescission. We have
denied liability and filed a cross-complaint for various
affirmative relief against Brugger. The disposition of the
principal motions in the case to date is as follows: (i) On
March 14, 2002, Bruggers motion to dismiss our
cross-complaint was denied with respect to a majority of our
claims, allowing such claims to proceed. (ii) On
April 15, 2002, Bruggers motion for a writ of
attachment in the amount of $6.3 million was granted. The
grant of this writ provides Brugger with security in the event
it prevails in the case. We expect to provide security in the
amount of $6.3 million in the form of a certificate of
deposit, letter of credit, or bond in lieu of attachment. While
such an instrument is in place, our access to the funds covered
thereby will likely be restricted. Discovery in the case has
begun and is ongoing. No trial date has yet been set in the
case. We believe Bruggers claims are without merit, and we
intend to vigorously defend against them. We believe our
cross-complaint is meritorious, and we intend to vigorously
prosecute such cross-complaint. See Factors That May
Affect Future Results  The Results of Legal Proceedings
Could Adversely Affect Our Business.

In November 2001, Deborah Donoghue filed a suit
against us and two of our officers, Farzad Dibachi and Rhonda
Dibachi, in United States District Court for the Southern
District of New York. The complaint alleges a violation of
Section 16(b) of the securities laws for certain trades
made by Mr. and Mrs. Dibachi and trades made by
Florence V, LLC, a Minnesota Limited Liability Company. We
investigated these claims prior to the filing of the lawsuit and
concluded they had no merit because, among other things, Mr. and
Mrs. Dibachi did not have the ability to take part in,
participate in, vote on, or control any decisions regarding
Florence V, LLCs purchase or sale of any our
securities. Mr. and Mrs. Dibachi challenged venue in New
York, and the parties have now stipulated that the matter may be
transferred to the Northern District of California. Mr. and
Mrs. Dibachi believe these claims are without merit, and
they intend to vigorously defend against these claims.




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

Not applicable.




Item 4A. Executive Officers of the
Registrant

Our executive officers and their ages and
positions as of March 31, 2002 were as follows:

|                     |  |     |    |          |  |                                                                           
|-------------------- |  | --- | -- | -------- |  | --------------------------------------------------------------------------
|Name                 |  | Age |    | Position
|                     |  |     |    |         
|Farzad Dibachi       |  |     | 38 |          |  | President, Chief Executive Officer and Chairman
	of the Board of Directors
|Joshua Pickus        |  |     | 41 |          |  | Chief Financial Officer                                                   
|Richard N. LaBarbera |  |     | 54 |          |  | President, Global Operations                                              
|Rhonda Dibachi       |  |     | 40 |          |  | Executive Vice President of Planning and Strategy                         

Farzad Dibachihas
served as our president, chief executive officer and chairman of
the board of directors since he co-founded Niku in January 1998.
From October 1995 to August 1997, Mr. Dibachi was a
co-founder and president and chief executive officer of Diba,
Inc., an information appliance software company, until it was

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sold to Sun Microsystems, Inc. From June 1994 to
October 1995, he served as senior vice president, new media
division for Oracle Corporation, a software company. From June
1993 to June 1994, he was vice president, marketing for
Oracles tools division and senior director of product
development in Oracles desktop products division.
Mr. Dibachi holds a B.S. in mechanical engineering and a
B.A. in computer science from San Jose State University.
Mr. Dibachi is married to Rhonda Dibachi, our executive
vice president of planning and strategy.


Joshua Pickushas
served as our chief financial officer since February 2001 and
president, worldwide business relations since January 2001. From
November 1999 to January 2001, Mr. Pickus served as our
president, vertical markets. From April 1999 to November 1999,
Mr. Pickus was a general partner in the private equity
group at Bowman Capital Management, a technology investment
firm. From January 1994 to March 1999, he was a partner at
Venture Law Group, a Silicon Valley law firm. Before joining
Venture Law Group, Mr. Pickus was a partner at
Morrison & Foerster, an international law firm.
Mr. Pickus holds an A.B. in public and international
affairs from Princeton University and a J.D. from the University
of Chicago Law School.

Richard N. LaBarberahas served as our president, global
operations since January 2001. From November 2000 to December
2000, he served as our president, worldwide field operations.
From October 1997 to November 2000, Mr. LaBarbera was a
senior vice president and general manager of the enterprise
solutions division of Sybase, Inc., a software company. From
October 1997 to May 1998, he also served as senior vice
president and general manager for Sybases worldwide
services organization, as well as Sybase University. From March
1995 to September 1997, Mr. LaBarbera served as the senior
vice president and general manager of IT services and
IT networks in the Americas for Siemens Pyramid/ Nixdorf,
an e-business company. Prior to March 1995, Mr. LaBarbera
held various management and executive positions at IBM, Storage
Technologies, Amdahl, and Octel Communications.
Mr. LaBarbera holds an M.B.A from Georgia State University.

Rhonda Dibachi,our
co-founder,has served as our executive vice president of
planning and strategy since January 2001. From May 1998 to
January 2001, Ms. Dibachi served as our senior vice
president of development. From October 1997 to April 1998,
Ms. Dibachi was the director of quality assurance at Webvan
Group, Inc., an Internet-based grocery retailer. From July 1996
to October 1997, Ms. Dibachi served as a software testing
consultant at Software Development Technologies, a software
company. From September 1989 to May 1996, she worked at the
applications division of Oracle Corporation where she held a
number of positions, including development manager, architect
and director of testing. Ms. Dibachi holds a B.S. in
nuclear engineering from Northwestern University and an M.B.A.
from Santa Clara University. Ms. Dibachi is married to
Farzad Dibachi, our president, chief executive officer and
chairman of the board of directors.

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PART II




Item 5. Market for Registrants
Common Equity and Related Stockholder Matters

Market Information for Common Stock

Our common stock is traded on the Nasdaq National
Market under the symbol NIKU. Our initial public
offering of stock was on February 29, 2000 at $24.00 per
share. The table below presents the high and low closing sales
prices for our common stock as reported by the Nasdaq National
Market for each quarter that our common stock has been publicly
traded.

|                  |  |             |        |     |  |   |       | 
|----------------- |  | ----------- | ------ | --- |  | - | ----- | 
|                  |  |            
|                  |  | Price Range
|                  |  | Per Share  
|                  |  |            
|                  |  | High        |        | Low
|                  |  |             |        |    
|Quarter Ended:    |  |             |        |     |  |   |       | 
|January 31, 2002  |  | $           | 2.94   |     |  | $ | 0.55  | 
|October 31, 2001  |  | $           | 0.90   |     |  | $ | 0.47  | 
|July 31, 2001     |  | $           | 2.71   |     |  | $ | 0.80  | 
|April 30, 2001    |  | $           | 10.81  |     |  | $ | 1.12  | 
|January 31, 2001  |  | $           | 18.56  |     |  | $ | 6.19  | 
|October 31, 2000  |  | $           | 27.06  |     |  | $ | 12.00 | 
|July 31, 2000     |  | $           | 37.50  |     |  | $ | 15.06 | 
|April 30, 2000(1) |  | $           | 101.94 |     |  | $ | 17.06 | 



|    |                                                          
|--- | ---------------------------------------------------------
|(1) | For the period from February 29, 2000 to
	April 30, 2000.

Dividends

Our present policy is to retain earnings, if any,
to finance future growth. We have never declared or paid any
cash dividends on our capital stock and have no present
intention of paying any cash dividends in the foreseeable
future. In addition, our loan agreements prohibit us from paying
dividends without the consent of our lenders.

Sale of Unregistered Securities

On November 29, 2001, we terminated a
consulting service agreement with a third-party vendor pursuant
to our restructuring program. In conjunction with this
termination agreement, we issued 300,000 shares of common stock
with a value of $0.75 per share based on the stock price on the
date of issuance of the common stock. These shares were issued
in a private placement exempt from registration under the
Securities Act of 1933 pursuant to Section 4(2) of the
Securities Act.

Stockholders of Record

At April 1, 2002, we had approximately
908 holders of record of our common stock.




Item 6. Selected Consolidated Financial
Data

The following selected consolidated financial
data should be read in conjunction with our consolidated
financial statements and related notes to our consolidated
financial statements and Managements Discussion and
Analysis of Financial Condition and Results of Operations
included elsewhere in this annual report on Form 10-K. The
consolidated statements of operations data for each of the three
years ended January 31, 2002, 2001 and 2000 and the
consolidated balance sheets data as of January 31, 2002 and
2001 are derived from our audited financial statements included
in this 10-K. The consolidated statement of operations data for
the year ended January 31, 1999 and the balance sheets data
as of January 31, 2000 and 1999 are derived from our
audited financial statements previously filed with the SEC. For
the periods covered by this annual report on Form 10-K, we
had a fiscal year that ended on the Saturday nearest
January 31. Our fiscal year 2002 ended

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on January 26, 2002. For presentation
purposes in this annual report on Form 10-K, we refer to
our fiscal year end as January 31. In fiscal 2003, we
changed our fiscal calendar to calendar month end so fiscal 2003
will end on January 31, 2003.


Consolidated Statements of Operations
Data:

|                                                               |  |                                       |          |      |  |      |          |      |  |   |         |   |  |   |        |  
|-------------------------------------------------------------- |  | ------------------------------------- | -------- | ---- |  | ---- | -------- | ---- |  | - | ------- | - |  | - | ------ | -
|                                                               |  |                                      
|                                                               |  | Years Ended January 31,              
|                                                               |  |                                      
|                                                               |  | 2002                                  |          | 2001 |  | 2000 |          | 1999
|                                                               |  |                                       |          |      |  |      |          |     
|                                                               |  |                                      
|                                                               |  | (in thousands, except per share data)
|Total revenue                                                  |  | $                                     | 65,921   |      |  | $    | 68,922   |      |  | $ | 8,157   |   |  | $ | 15     |  
|Cost of revenue                                                |  |                                       | 33,936   |      |  |      | 20,622   |      |  |   | 2,620   |   |  |   | 4      |  
|Gross profit                                                   |  |                                       | 31,985   |      |  |      | 48,300   |      |  |   | 5,537   |   |  |   | 11     |  
|Operating loss                                                 |  |                                       | (294,014 | )    |  |      | (141,000 | )    |  |   | (37,036 | ) |  |   | (3,150 | )
|Net loss                                                       |  |                                       | (291,546 | )    |  |      | (130,876 | )    |  |   | (36,487 | ) |  |   | (3,020 | )
|Basic and diluted net loss per share                           |  | $                                     | (3.92    | )    |  | $    | (1.96    | )    |  | $ | (5.61   | ) |  | $ | (0.62  | )
|Shares used in computing basic and diluted net
	loss per share |  |                                       | 74,374   |      |  |      | 66,865   |      |  |   | 6,506   |   |  |   | 4,882  |  

Consolidated Balance Sheets Data:

|                                                     |  |                |          |      |  |      |          |      |  |   |         |   |  |   |        |  
|---------------------------------------------------- |  | -------------- | -------- | ---- |  | ---- | -------- | ---- |  | - | ------- | - |  | - | ------ | -
|                                                     |  |               
|                                                     |  | January 31,   
|                                                     |  |               
|                                                     |  | 2002           |          | 2001 |  | 2000 |          | 1999
|                                                     |  |                |          |      |  |      |          |     
|                                                     |  |               
|                                                     |  | (in thousands)
|Cash, cash equivalents and short-term investments    |  | $              | 51,585   |      |  | $    | 138,892  |      |  | $ | 44,515  |   |  | $ | 5,147  |  
|Current portion of restricted cash                   |  |                | 4,665    |      |  |      |         |      |  |   |        |   |  |   |       |  
|Working capital                                      |  |                | 11,028   |      |  |      | 121,350  |      |  |   | 32,691  |   |  |   | 4,786  |  
|Restricted cash                                      |  |                | 9,822    |      |  |      | 14,487   |      |  |   |        |   |  |   |       |  
|Goodwill and other intangible assets, net            |  |                |         |      |  |      | 157,831  |      |  |   | 49,684  |   |  |   |       |  
|Total assets                                         |  |                | 101,575  |      |  |      | 393,067  |      |  |   | 112,525 |   |  |   | 6,555  |  
|Long-term restructuring accrual                      |  |                | 6,758    |      |  |      |         |      |  |   |        |   |  |   |       |  
|Long-term obligations, less current portion          |  |                |         |      |  |      | 268      |      |  |   | 1,725   |   |  |   |       |  
|Redeemable convertible preferred stock and
	warrants |  |                |         |      |  |      |         |      |  |   | 100,919 |   |  |   | 8,259  |  
|Accumulated deficit                                  |  |                | (461,929 | )    |  |      | (170,383 | )    |  |   | (39,507 | ) |  |   | (3,020 | )
|Total stockholders equity (deficit)                 |  |                | 31,557   |      |  |      | 318,393  |      |  |   | (12,269 | ) |  |   | (2,363 | )




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

You should read the following
Managements Discussion and Analysis of Financial Condition
and Results of Operations together with the consolidated
financial statements and related notes included elsewhere in
this annual report on Form 10-K. This discussion contains
forward-looking statements that involve risks and uncertainties.
These forward-looking statements include statements about our
revenue, cost of revenue, operating expenses, amortization of
intangible assets, restructuring and exit costs and capital
needs. Our actual results could differ materially from those
anticipated in these forward-looking statements. Factors that
might cause or contribute to these differences include, but are
not limited to, those discussed in Item 1 under the heading
Business  Factors That May Affect Future
Results. You are cautioned not to place undue reliance on
the forward-looking statements, which speak only as of the date
of this report. We undertake no obligation to publicly revise or
update any forward-looking statements to reflect events or
circumstances after the date of this report.

Overview

We provide application software for service
organizations in large enterprises. These service organizations
include the information technology, consulting, and research and
development groups as well as other

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organizations rendering services for the
enterprise. Our software enables customers to reduce costs and
increase productivity in their service organizations and gain
visibility and control over strategic initiatives. Our software
achieves these results by allowing users to collaborate,
allocate resources, manage initiatives, account for activities
and capture and reuse knowledge using one integrated system.


Critical Accounting Policies and
Estimates

Accounting policies, methods and estimates are an
integral part of the consolidated financial statements prepared
by management and are based upon managements current
judgments. Those judgments are normally based on knowledge and
experience with regard to past and current events and
assumptions about future events. Certain accounting policies,
methods and estimates are particularly sensitive because of
their significance to the financial statements and because of
the possibility that future events affecting them may differ
markedly from managements current judgments. While there
are a number of accounting policies, methods and estimates
affecting our financial statements, areas that are particularly
significant include revenue recognition policies, allowance for
doubtful accounts, impairment of long-lived assets and
restructuring reserves for vacated leased facilities.

Revenue
Recognition

We derive our revenue principally from licenses
of our products, maintenance and support, and delivery of
implementation services. We offer our products primarily through
our direct sales force. In certain international markets, we
also offer our products indirectly through channel partners.

Revenue from license fees is recognized in
accordance with Statement of Position 97-2, Software
Revenue Recognition (SOP 97-2), as amended by
SOP 98-9, and which permits revenue recognition when
(1) persuasive evidence of an arrangement exists,
(2) delivery of the product has occurred and no significant
obligations from us with regard to implementation remain,
(3) the fee is fixed or determinable, and
(4) collectibility is probable. Sales to channel partners
are generally recognized upon sell-through to the end-user
customer. We define each of the four criteria above as follows:

Persuasive evidence of an arrangement
exists.It is our customary practice
to have a written contract, which is signed by both the customer
and us, or a purchase order from those customers who have
previously negotiated a license agreement with us.

Delivery has
occurred.Our software may be either
physically or electronically delivered to the customer. Delivery
is deemed to have occurred upon the earlier of shipment of the
product, notification of receipt of the product or notification
by the customer of acceptance. If undelivered products or
services exist in an arrangement that are essential to the
functionality of the delivered product, delivery is not
considered to have occurred until these products or services are
delivered.

The fee is fixed or determinable.We negotiate the fees for our products
at the outset of an arrangement. In these arrangements, the
majority of the licenses are perpetual and nonrefundable. The
fees are generally due within six months or less. We consider
fees relating to arrangements with payment terms extending
beyond six months not to be fixed or determinable. If the fee is
not fixed or determinable, revenue is recognized as payments
become due from the customer.

Collectibility is probable.Collectibility is evaluated on a
customer-by-customer basis. A customers purchase order or
waiver for purchase order is generally required with each
arrangement. New customers are subject to a credit review
process, which evaluates the customers financial position
(e.g. cash position and credit rating) and their ability to
pay, and existing customers are subject to a review of payment
histories. If collectibility is not considered probable at the
outset of an arrangement in accordance with our credit review
process, revenue is recognized when the fee is collected.

Revenue from multiple-element software
arrangements is recognized using the residual value method. The
determination of the fair value of maintenance and support and
consulting services is based on the objective evidence of the
fair value of each element that is specific to us. Our
determination of fair value of each element in multiple-element
arrangements is based on vendor-specific objective evidence
(VSOE). The

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VSOE for each element is established when the
same element is sold separately. We have analyzed and determined
that we have sufficient VSOE to allocate revenue to the
maintenance and support services and consulting services
components of our perpetual license arrangements. VSOE for
maintenance and support is determined based upon the
customers annual renewal rates for this element. We sell
our consulting services separately and have established VSOE on
this basis.


Assuming all other revenue recognition criteria
are met, revenue from perpetual licenses is recognized upon
delivery using the residual method in accordance with
SOP 98-9. Maintenance and support revenue is deferred and
recognized on a straight-line basis over the contractual service
period, which is typically one year. Our software products are
fully functional upon delivery and implementation and do not
require significant modifications. The customer may implement
using their own resources or obtain the services of other
consulting service organizations to provide these services.
Therefore, our consulting services are not considered essential
to the functionality of the other elements of the arrangement.
The revenue allocable to the consulting services is generally
recognized as the services are performed.

In years prior to fiscal 2002, license revenue
includes product licenses to companies from which we have
purchased products and services under separate arrangements
executed within a short period of time (reciprocal
arrangements). Products and services purchased in
reciprocal arrangements include: (1) software licensed for
our internal use; (2) software licensed for resale or
incorporation into our products; and (3) development or
implementation services. For reciprocal arrangements, we
consider Accounting Principles Board, or APB, No. 29,
Accounting for Nonmonetary Transactions,and Emerging
Issues Task Force, or EITF, Issue No. 86-29, Nonmonetary
Transactions: Magnitude of Boot and Exceptions to the Use of
Fair Value, Interpretation of Accounting Principles Board
No. 29, Accounting for Nonmonetary Transactions, to
determine whether the arrangement is a monetary or nonmonetary
transaction. Transactions involving the exchange of boot
representing 25% or greater of the fair value of the reciprocal
arrangement are considered monetary transactions within the
context of APB No. 29 and EITF Issue No. 86-29.
Monetary transactions and nonmonetary transactions that
represent the culmination of an earnings process are recorded at
the fair value of the products delivered or products or services
received, whichever is more readily determinable, providing
these fair values are determinable within reasonable limits. In
determining these fair values, we consider the recent history of
cash sales of the same products or services in similar sized
transactions. For nonmonetary reciprocal arrangements that do
not represent the culmination of the earnings process, the
exchange is recorded based on the carrying value of the products
delivered, generally zero.

In fiscal 2002, we recognized no revenue under
reciprocal arrangements. Revenue recognized under reciprocal
arrangements was $16.4 million and $3.5 million in the
years ended January 31, 2001 and 2000, respectively, of
which approximately $630,000 and $1.5 million in the years
ended January 31, 2001 and 2000, respectively, involved
nonmonetary exchanges.

We have never engaged in a transaction in which
we provided product licenses or services to a customer in
exchange for an equity interest.

Deferred revenue includes amounts billed to
customers for which revenue has not been recognized. Deferred
revenue generally results from the following: (1) deferred
maintenance and support; (2) consulting services not yet
rendered for which we have been paid; (3) amounts billed to
customers with extended payment terms, which amounts are not yet
due; and (4) for transactions in which one of the four
revenue recognition criteria has not been met.

Accounts
Receivable

Accounts receivable are recorded net of allowance
for doubtful accounts and totaled $12.6 million and
$39.2 million as of January 31, 2002 and
January 31, 2001, respectively. Allowance for doubtful
accounts was $3.0 million and $6.4 million as of
January 31, 2002 and 2001, respectively. We regularly
review the adequacy of our accounts receivable allowance after
considering the amount of the aged accounts receivable, the age
of each invoice, each customers expected ability to pay
and our collection history with each customer. We review any
invoice greater than 30 days past due to determine if an
allowance is appropriate based on the risk category using the
factors discussed above. In addition, we maintain a general
reserve for all invoices by

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applying a percentage to each aging category. The
allowance for doubtful accounts represents our best estimate,
but changes in circumstances such as our customers
financial positions may result in a requirement for additional
allowances in the future.


Impairment
Assessment

We evaluate our long-lived assets, including
goodwill and identifiable intangibles, for impairment whenever
events or changes in circumstances indicate that the carrying
amount of these assets may not be recoverable. Factors we
consider important which could trigger an impairment review
include, but are not limited to, a significant decline in our
stock price for a sustained period, our market capitalization
relative to net book value, significant underperformance
relative to historical or projected future operating results,
significant changes in the manner of use of the acquired assets
or the strategy for our overall business, and significant
negative industry or economic trends. Recoverability of assets
to be held and used is measured by a comparison of the carrying
amount of an asset to future discounted or undiscounted net cash
flows expected to be generated by the asset. If these assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the
assets exceeds the fair value of the assets. The estimate of
fair value of an asset considers prices for similar assets and
the results of valuation techniques to the extent available in
the circumstances, such as the present value of estimated
expected future cash flows using a discount rate commensurate
with the risks involved. Assets to be disposed of are reported
at the lower of the carrying amount or fair value less costs to
sell. In fiscal 2002, we determined that our goodwill and
certain other identifiable intangibles acquired from our
acquisitions and other assets were impaired, resulting in a
charge of $138.9 million in asset impairment and other.

We regularly perform an impairment assessment of
a $500,000 strategic equity investment we made in a private
company. In performing an impairment assessment, we consider the
business current solvency, future access to capital and
recent equity transactions. Based on an analysis of these
factors, we determined that there was no impairment of such
investment as of January 31, 2002. Due to the rapid changes
occurring in the business sector in which our strategic
investment operates and the inherent risk associated with
investments in early stage technology companies, it is possible
that we may have to record an impairment charges related to this
investment in the future.

We regularly perform an impairment assessment of
our prepaid royalties for the right to third-party licensed
technology. In performing an impairment assessment, we consider
the future inclusion of third-party technology in our products
and anticipated usage under the applicable contract. Based on an
analysis of these factors, we recorded $9.4 million in
impairment of licensed technology in fiscal 2002. As of
January 31, 2002, we had $330,000 in prepaid royalties.

Restructuring
Reserves for Vacated Leased Facilities

We have recorded significant restructuring
charges in connection with vacating of certain leased facilities
pursuant to our restructuring program. Costs associated with
vacated leased facilities include remaining lease liabilities,
brokerage fees and impairment of leasehold improvements, offset
by estimated sublease income. Estimated sublease income is
determined by taking into consideration the type and condition
of the subject property, the local commercial real estate market
and expectations about time to obtain a sublessee provided by
commercial real estate brokerages. We regularly review these
estimates and to the extent that these assumptions change due to
changes in the market, the ultimate restructuring expenses for
vacated leases could vary by material amounts. Future minimum
lease payments and brokerage fees, net of estimated sublease
income relating to facilities that we vacated pursuant to the
restructuring program amount to $4.1 million,
$1.3 million, $1.3 million $842,000, and $580,000 for
the years ended January 31, 2003, 2004, 2005, 2006, and
2007, respectively, and $2.8 million thereafter.

Repricing of Stock Options

On November 12, 2001, our board of
directors, acting pursuant to existing terms of our stock
options plans, approved a repricing of approximately
8.9 million outstanding stock options with exercise prices
above

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$0.75. The exercise prices of all such stock
options were repriced to $0.75, which was the fair market value
of our stock on November 12, 2001. The options were
repriced with no changes to the vesting schedule. Options held
by our chief executive officer, executive vice president,
strategy and planning, board of directors and non-employees were
not repriced. We accounted for the repriced options using
variable accounting whereby stock-based compensation for the
options were remeasured on January 31, 2002 and will be
continuously remeasured quarterly and recorded in the
consolidated statements of operations for each reporting period.
We recorded approximately $19.4 million in deferred
stock-based compensation and amortized $5.4 million in
stock-based compensation in the year ended January 31, 2002
relating to these repriced stock options.


Pro Forma Financial Results

We prepare and release quarterly unaudited
financial statements prepared in accordance with generally
accepted accounting principles (GAAP). We also
disclose and discuss certain pro forma financial information in
the quarterly financial results release and investor conference
call. This pro forma financial information excludes certain
non-cash and special charges, consisting primarily of impairment
charges, amortization of goodwill and other intangible assets,
restructuring and exit costs, stock-based compensation and
merger related expenses. We believe the disclosure of the pro
forma financial information helps investors more meaningfully
evaluate the results of our ongoing operations. However, we urge
investors to carefully review the GAAP financial information
included as part of our quarterly reports on Form 10-Q, our
annual reports on Form 10-K, and our quarterly earnings
releases, compare GAAP financial information with the pro forma
financial results, and read the associated reconciliation.

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Results of Operations

|                                                |                                                       |                          |      |       |        |      |      |      |        |    |      |       |        |   
|----------------------------------------------- | ----------------------------------------------------- | ------------------------ | ---- | ----- | ------ | ---- | ---- | ---- | ------ | -- | ---- | ----- | ------ | --
|                                                |                                                       |                         
|                                                |                                                       | Years Ended January 31, 
|                                                |                                                       |                         
|                                                |                                                       | 2002                     |      | 2001  |        | 2000
|                                                |                                                       |                          |      |       |        |     
|Revenue:                                        |                                                       |                          |      |       |        |      |      |      |        |    |      |      
|                                                | License                                               |                          |      | 48.5  | %      |      |      | 69.1 | %      |    |      | 68.5  | %     
|                                                | Services                                              |                          |      | 51.5  |        |      |      | 30.9 |        |    |      | 31.5  |       
|                                                |                                                       |                          |      |       |        |      |      |      |        |    |      |      
|                                                |                                                       | Total revenue            |      |       | 100.0  |      |      |      | 100.0  |    |      |       | 100.0  |   
|                                                |                                                       |                          |      |       |        |      |      |      |        |    |      |      
|Cost of revenue:                                |                                                       |                          |      |       |        |      |      |      |        |    |      |      
|                                                | License                                               |                          |      | 2.6   |        |      |      | 4.4  |        |    |      | 4.9   |       
|                                                | Services                                              |                          |      | 34.7  |        |      |      | 25.5 |        |    |      | 27.2  |       
|                                                | Impairment of licensed technology                     |                          |      | 14.2  |        |      |      |     |        |    |      |      |       
|                                                |                                                       |                          |      |       |        |      |      |      |        |    |      |      
|                                                |                                                       | Total cost of revenue    |      |       | 51.5   |      |      |      | 29.9   |    |      |       | 32.1   |   
|                                                |                                                       |                          |      |       |        |      |      |      |        |    |      |      
|                                                |                                                       | Gross profit             |      |       | 48.5   |      |      |      | 70.1   |    |      |       | 67.9   |   
|                                                |                                                       |                          |      |       |        |      |      |      |        |    |      |      
|Operating expenses:                             |                                                       |                          |      |       |        |      |      |      |        |    |      |      
|                                                | Sales and marketing                                   |                          |      | 107.6 |        |      |      | 98.7 |        |    |      | 190.3 |       
|                                                | Research and development                              |                          |      | 52.9  |        |      |      | 53.7 |        |    |      | 133.9 |       
|                                                | General and administrative                            |                          |      | 23.1  |        |      |      | 19.0 |        |    |      | 58.1  |       
|                                                | Asset impairment and other                            |                          |      | 210.7 |        |      |      |     |        |    |      |      |       
|                                                | Amortization of goodwill and other intangible
	assets |                          |      | 41.5  |        |      |      | 52.2 |        |    |      | 29.1  |       
|                                                | Restructuring and exit costs                          |                          |      | 36.9  |        |      |      | 2.8  |        |    |      |      |       
|                                                | Stock-based compensation                              |                          |      | 21.8  |        |      |      | 42.1 |        |    |      | 110.5 |       
|                                                | Merger related expenses                               |                          |      |      |        |      |      | 6.2  |        |    |      |      |       
|                                                |                                                       |                          |      |       |        |      |      |      |        |    |      |      
|                                                |                                                       | Total operating expenses |      |       | 494.5  |      |      |      | 274.7  |    |      |       | 521.9  |   
|                                                |                                                       |                          |      |       |        |      |      |      |        |    |      |      
|                                                |                                                       | Operating loss           |      |       | (446.0 | )    |      |      | (204.6 | )  |      |       | (454.0 | ) 
|Interest income and other income (expense), net |                                                       |                          | 4.2  |       |        |      | 15.2 |      |        |    | 15.5 |      
|Interest expense                                |                                                       |                          | (0.5 | )     |        |      | (0.5 | )    |        |    | (8.8 | )    
|                                                |                                                       |                          |      |       |        |      |      |      |        |    |      |      
|                                                |                                                       | Net loss                 |      |       | (442.3 | )%   |      |      | (189.9 | )% |      |       | (447.3 | )%
|                                                |                                                       |                          |      |       |        |      |      |      |        |    |      |      

Comparison of Fiscal Years Ended
January 31, 2002, 2001 and 2000

Revenue

License.License
revenue consists of revenue from licenses of our software
products. License revenue was $32.0 million,
$47.6 million and $5.6 million in fiscal 2002, 2001
and 2000, respectively, decreasing 32.8% in fiscal 2002 from
fiscal 2001 and increasing 752.7% in fiscal 2001 from fiscal
2000. The decrease in license revenue in absolute dollars in
fiscal 2002 from fiscal 2001 was primarily attributable to a
slowdown in corporate information technology spending, product
development cycles and sales force tenure. The increase in
license revenue in absolute dollars in fiscal 2001 from fiscal
2000 was primarily attributable to increased headcount in our
sales force, expanded marketing efforts, and penetration of the
ABT installed base as a result of our acquisition of ABT in
August 2000.

Services.Services
revenue consists of revenue from the delivery of implementation
services and maintenance and support contracts. Services revenue
from implementation services in fiscal 2002, 2001 and 2000 was
$13.3 million, $12.9 million and $2.2 million,
respectively, increasing 2.9% in fiscal 2002 from fiscal 2001
and increasing 490.7% in fiscal 2001 from fiscal 2000. The
year-over-year increase in services revenue from implementation
services in absolute dollars was primarily attributable to an
increase in customer implementations. Service revenue from
maintenance and support contracts was $20.7 million,
$8.4 million and

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$391,000 in fiscal 2002, 2001 and 2000,
respectively, increasing 145.6% in fiscal 2002 from fiscal 2001
and increasing 2,053.5% in fiscal 2001 from fiscal 2000. The
year-over-year increase in services revenue from maintenance and
support contracts in absolute dollars was primarily attributed
to new maintenance contracts and maintenance renewals relating
to our larger installed base.


Cost of Revenue

Cost of license revenue.Cost of license revenue includes
royalties due to third parties, product packaging, documentation
and shipping costs. Cost of license revenue was
$1.7 million, $3.0 million and $400,000 in fiscal
2002, 2001 and 2000, respectively, representing 5.3%, 6.4% and
7.2% of total license revenue in the respective years. The
decrease in cost of license revenue in absolute dollars in
fiscal 2002 from fiscal 2001 was primarily attributable to a
decline in license revenue that decreased royalties due to third
parties. The increase in cost of license revenue in absolute
dollars in fiscal 2001 from fiscal 2000 was primarily
attributable to increases in royalties due to third parties as a
result of increases in license revenue.

Cost of services revenue.Cost of services revenue includes
salaries and related expenses for our implementation services
and maintenance and support personnel and the costs of third
parties contracted to provide implementation services to our
customers. Cost of services revenue was $22.9 million,
$17.6 million and $2.2 million in fiscal 2002, 2001 and
2000, respectively, representing 67.3%, 82.5% and 86.3% of total
services revenue in the respective years. The year-over-year
increase in cost of services revenue in absolute dollars was
primarily attributable to an increase in costs for third parties
contracted to implement our products and increases in personnel
and personnel-related expenses in the first six months of fiscal
2002 compared to the first six months of fiscal 2001, offset in
part by later reductions in headcount. Cost of services revenue
as a percentage of total services revenue remained constant in
fiscal 2001 from fiscal 2000 but decreased in fiscal 2002 from
fiscal 2001 primarily as a result of the reductions in headcount.

Impairment of licensed technology.In fiscal 2002, we determined that the
carrying value of certain royalties that we had prepaid for the
right to third party licensed technology would not be realized.
We recorded $9.4 million in impairment of licensed
technology, including $8.5 million from prepaid royalties
and $850,000 from royalties paid in fiscal 2002, in each case on
third-party technologies which we will not be including with our
products at all or at the extent required under the applicable
contracts due to a change in our product plan.

Operating Expenses

Sales and marketing.Sales and marketing expenses consist
primarily of salaries, advertising, commissions, bonuses, travel
and bad debt expense. Sales and marketing expenses were
$70.9 million, $68.0 million and $15.5 million in
fiscal 2002, 2001 and 2000, respectively, representing 107.6%,
98.7% and 190.3% of total revenue in the respective years. The
increase in sales and marketing expenses in absolute dollars in
fiscal 2002 from fiscal 2001 was primarily attributable to an
increase in bad debt expenses, higher salaries attributable to
higher headcount in the first six months of fiscal 2002 compared
to the first six months of fiscal 2001 and increases in
commissions and bonuses, offset in part by later reductions in
headcount and a decrease in advertising costs. The increase in
sales and marketing expenses in absolute dollars in fiscal 2001
from 2000 was primarily attributable to an increase in the
number of personnel and increases in advertising, travel costs,
commissions, tradeshows, bonuses and bad debt expense.

Research and development.Research and development expenses
consist primarily of personnel and related expenses associated
with the development of new products, the enhancement of
existing products and quality assurance and testing costs.
Research and development expenses were $34.9 million,
$37.0 million and $10.9 million in fiscal 2002, 2001
and 2000, respectively, representing 52.9%, 53.7% and 133.9% of
total revenue in the respective years. The decrease in research
and development expenses in absolute dollars in fiscal 2002 from
2001 was primarily attributable to decreases in outside
services, travel costs relating to the development of our
products and reductions in headcount. The increase in research
and development expenses in absolute dollars in fiscal 2001 and
2000 was primarily attributable to an increase in the number of
personnel.

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General and administrative.General and administrative expenses
consist primarily of salaries and other related costs for
finance, human resource, information technology and legal
employees, as well as professional services fees. General and
administrative expenses were $15.2 million,
$13.1 million and $4.7 million in fiscal 2002, 2001
and 2000, respectively, representing 23.1%, 19.0% and 58.1% of
total revenue in the respective years. The increase in general
and administrative expenses in absolute dollars in fiscal 2002
from 2001 was primarily attributable to increases in personnel
and personnel-related expenses in the first six months of fiscal
2002 compared to the first six months of fiscal 2001 and an
increase in bonus expenses, offset in part by a later reductions
in headcount and a decrease in professional services fees. The
increase in general and administrative expenses in absolute
dollars in fiscal 2001 from 2000 was primarily attributable to
an increase in the number of personnel and increases in
administrative and professional services fees.

Asset impairment and other.In the first quarter of fiscal 2002,
we performed an impairment assessment of our goodwill and other
intangible assets recorded in connection with our various
acquisitions due to a change in our product plan related to
certain acquired technologies. This assessment was based on the
expected future cash flows from goodwill and intangible assets
over their remaining useful lives. As a result of this
assessment, we recorded $24.5 million in asset impairment
charges. This amount included $21.7 million to write down
the net book value of certain goodwill and other intangible
assets from our acquisitions of Legal Anywhere, bSource, 600
Monkeys and Alyanza to zero except for the carrying value of
Legal Anywheres goodwill and customer lists which was
reduced to their estimated fair value of $1.8 million. In
the second quarter of fiscal 2002, we also performed an
additional impairment assessment of goodwill and other
intangible assets recorded in connection with our acquisitions
of ABT, Proamics and Legal Anywhere. This assessment was
performed primarily due to a significant decline in our stock
price which resulted in the net book value of our assets
significantly exceeding our market capitalization. As a result
of this assessment, we recorded $114.4 million in asset
impairment charges in the second quarter of fiscal 2002 which
reduced the fair value of goodwill and other intangible assets
related to our acquisitions of ABT, Proamics and Legal Anywhere
to zero. The estimate of the fair value was based on the
estimated future discounted cash flows for the remaining life of
the goodwill and other intangible assets with a discount rate of
25% and an estimated terminal value. The assumptions supporting
the estimated cash flows, including the discount rate and an
estimated terminal value, reflect managements best
estimates. The discount rate was based upon the weighted average
cost of capital for comparable companies. In fiscal 2002, we
recorded $138.9 million in asset impairment charges,
consisted of $136.1 million as a result of the above two
assessments, $1.9 million in accelerated depreciation for
internally used software and $874,000 to write off fixed assets
that we no longer utilized.

Amortization of goodwill and other intangible
assets.Amortization of goodwill and
other intangible assets was $27.3 million,
$35.9 million and $2.4 million in fiscal 2002, 2001
and 2000, respectively. Amortization of goodwill and other
intangible assets included amortization of developed and core
technologies of approximately $6.5 million,
$10.2 million and $1.0 million in fiscal 2002, 2001
and 2000, respectively. There will be no amortization of
goodwill and other intangible assets in fiscal 2003, unless
additional goodwill and other intangible assets are acquired, as
all goodwill and other intangibles assets were written off in
fiscal 2002.

Restructuring and exit costs.In fiscal 2002, we implemented a
restructuring program. We restructured our operations and
reduced our workforce by approximately 665 employees as part of
the restructuring program. We also vacated 17 leased
facilities, retired certain property and equipment and other
assets and exited the legal vertical market. These reductions in
workforce affected all of our functional groups. We recorded
$24.4 million in restructuring and exit costs in fiscal
2002. We retired $11.8 million in property and equipment
and other assets, including $1.3 million for the retirement
of a marketing software application and a $1.7 million
write-off of prepaid expenses associated with a consulting
service arrangement due to the reduction in headcount. We also
recorded an additional $725,000 in other exit costs to terminate
this consulting service arrangement, of which $225,000
represents the value of 300,000 shares of common stock that we
issued as part of this termination agreement. We expect that of
the restructuring and exit costs accrued as of January 31,
2002, severance costs and other exit costs will be paid by the
first quarter of fiscal 2003, exit costs for business line will
be paid no later than May 2004 and lease termination costs will
be paid no later than February 2011. The restructuring and exit
costs is offset in part by a decrease in stock-based

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compensation related to the reversal of
previously recorded stock-based compensation expenses for
employees terminated pursuant to the restructuring program.


Stock-based compensation.Amortization of stock-based
compensation was $14.4 million, $29.0 million and
$9.0 million in fiscal 2002, 2001 and 2000, respectively.
The decrease in amortization of stock-based compensation in
fiscal 2002 from fiscal 2001 was primarily attributed to
employee terminations and the effects of having applied
Financial Accounting Standard Board (FASB) Interpretation
No. 28, offset in part by additional $5.4 million in
stock-based compensation we recorded in connection with the
repricing of our stock options in the fourth quarter of fiscal
2002.

Merger related expenses.Merger related expenses of
$4.3 million in fiscal 2001 were incurred in conjunction
with the acquisition and integration of ABT in August 2000.

Interest and Other Income,
Net

Interest income and other income (expense),
net.Interest income and other income
(expense), net, consists of interest income and other
non-operating expenses. Interest income and other income
(expense), net was $2.8 million, $10.5 million and
$1.3 million in fiscal 2002, 2001 and 2000, respectively.
The net decrease in absolute dollars in fiscal 2002 from 2001
was primarily attributable to lower average invested cash and
short-term investment balances, which yielded lower interest
income. The net increase in absolute dollars in fiscal 2001 from
2000 was primarily attributable to higher average invested cash
and short-term investment balances from our initial public
offering proceeds, which yielded higher interest income.

Interest expense.Interest expense was $324,000,
$331,000 and $719,000 in fiscal 2002, 2001 and 2000,
respectively. Interest expense remained constant in fiscal 2002
from 2001 but decreased 60.0% in fiscal 2001 from 2000. This
decrease in absolute dollar was primarily attributable to higher
balances in capital leases and other loans outstanding in fiscal
2000.

Liquidity and Capital Resources

Since inception, we have financed our operations
through private and public sales of our capital stock, bank
loans, equipment leases, and cash from our operations. The cash
from these sources is used for working capital for our business.
As of January 31, 2002, we had cash and cash equivalents of
$51.6 million and restricted cash of $14.5 million. We
also had bank borrowing of $27.0 million as of
January 31, 2002. The bank borrowings were repaid in full
in February 2002. As of January 31, 2002, we had working
capital of $11.0 million. The decrease in working capital
as of January 31, 2002 from $121.4 million as of
January 31, 2001 was primarily due to decreases in cash,
cash equivalents and short-term investments, net accounts
receivable and prepaid expenses and other current assets, offset
in part by a decrease in deferred revenue. Our liquidity could
be negatively impacted by factors discussed under
Item 1: Business  Factors That May Affect
Future Results, including the provision of security for a
writ of attachment recently granted in legal proceedings.

Net cash used in operating activities was
$73.9 million, $87.0 million and $20.6 million in
fiscal 2002, 2001 and 2000, respectively. Net cash used in
operating activities in fiscal 2002 primarily resulted from a
net loss of $291.5 million, offset in part by impairment
charges, amortization of goodwill and other intangible assets,
restructuring and exit costs, stock-based compensation,
provision for doubtful accounts receivable and decreases in net
accounts receivable. Net cash used in operating activities in
fiscal 2001 primarily resulted from a net loss of
$130.9 million and increases in net accounts receivable and
prepaid and other current assets, offset in part by amortization
of goodwill and other intangible assets and stock-based
compensation. Net cash used in operating activities in fiscal
2000 primarily resulted from a net loss of $36.5 million
and an increase in net accounts receivable, offset in part by
stock-based compensation and increases in accounts payable,
accrued liabilities and deferred revenue.

Net cash provided by (used in) investing
activities was $32.3 million, ($63.2) million and
($20.9) million in fiscal 2002, 2001 and 2000,
respectively. Net cash provided by investing activities in
fiscal 2002 resulted from net sales and maturities of short-term
investments, offset in part by purchases of property and
equipment.

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Net cash used in investing activities in fiscal
2001 primarily resulted from net purchases of short-term
investments, purchases of investments for restricted cash and
purchases of property and equipment. Net cash used in investing
activities in fiscal 2000 primarily resulted from net purchases
of short-term investments and purchases of property and
equipments.


Net cash (used in) provided by financing
activities was ($251,000), $216.2 million and
$64.0 million in fiscal 2002, 2001 and 2000, respectively.
Net cash used in financing activities in fiscal 2002 resulted
from treasury stock repurchased in the open market and repayment
of debt and capital lease obligations, offset by net proceeds
from bank borrowings and issuance of common stock. Cash provided
by financing activities in fiscal 2001 resulted from net
proceeds from our initial public offering and net proceeds from
bank borrowings, offset in part by repayments of debt and
capital lease obligations. Net cash provided by financing
activities in fiscal 2000 resulted from net proceeds from
issuance of redeemable convertible preferred stock and net
proceeds from bank loans.

In March 2000, we entered into a facility lease
agreement for our worldwide headquarters. The lease term
commenced upon possession of the facility in August 2001 and has
a term of 15 years. Lease payments will be made on an
escalating basis and the total future minimum lease payments
amount to approximately $127.3 million over the lease term.
As part of this agreement, we are required to hold a letter of
credit drawable by the lessor totaling approximately
$5.9 million, secured by an equal amount of cash deposits.
We also have other facilities and equipment leases under various
noncancellable operating leases with various expiration dates
through 2011 that required letters of credit drawable by lessor
for $8.6 million.

In October 2001, we entered into two loan
agreements with a financial institution secured generally by
certain of our tangible and intangible assets and providing
revolving lines of credit up to $30.0 million, of which a
$5.0 million line of credit is secured by qualifying
accounts receivables. As of January 31, 2002, we had
$27.0 million outstanding under these lines of credit.
These lines of credit were repaid in full in February 2002.
Interest on each of these lines of credit accrues at the rate of
7.00% per annum. These lines of credit will expire in July 2002.
As of January 31, 2002, we were in compliance with all
financial covenants.

Future minimum lease payments under noncancelable
operating leases and payments under bank lines of credit are as
follows as of January 31, 2002 (in thousands):

|                       |  |           |         |            |  |       |        |  |  |   |         | 
|---------------------- |  | --------- | ------- | ---------- |  | ----- | ------ |  |  | - | ------- | 
|                       |  | Operating |         | Bank Lines |  |      
|Year Ended January 31, |  | Leases    |         | of Credit  |  | Total
|                       |  |           |         |            |  |      
|2003                   |  | $         | 16,014  |            |  | $     | 27,000 |  |  | $ | 43,014  | 
|2004                   |  |           | 11,152  |            |  |       |       |  |  |   | 11,152  | 
|2005                   |  |           | 10,908  |            |  |       |       |  |  |   | 10,908  | 
|2006                   |  |           | 10,040  |            |  |       |       |  |  |   | 10,040  | 
|2007                   |  |           | 8,551   |            |  |       |       |  |  |   | 8,551   | 
|Thereafter             |  |           | 92,804  |            |  |       |       |  |  |   | 92,804  | 
|                       |  |           |         |            |  |       |        |  |  |   |         | 
|Total payments         |  | $         | 149,469 |            |  | $     | 27,000 |  |  | $ | 176,469 | 
|                       |  |           |         |            |  |       |        |  |  |   |         | 

Lease payments above, net of estimated sublease
income and brokerage fees, relating to facilities that we
vacated pursuant to the restructuring plan amounted to
$4.1 million, $1.3 million, $1.3 million
$842,000, and $580,000 for the years ended January 31,
2003, 2004, 2005, 2006 and 2007, respectively, and
$2.8 million thereafter. These amounts were recorded in
accrued liabilities and long-term restructuring accrual as of
January 31, 2002.

We believe that cash from operations and existing
cash will be sufficient to meet our current expectations for
working capital and expense requirements for at least the next
twelve months based on, among other things, our current revenue
and expense projections. However, in the long-term, we may need
to raise additional funds in order to fund our business, expand
our sales activities, develop new or enhance existing products,
respond to competitive pressures and satisfy new obligations
that may arise. We may also need to raise funds in the future to
meet our working capital needs. Additional financing may not be
available on terms favorable to us, or at all. While we
significantly reduced our cash usage over the course of fiscal
2002, capital is

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critical to our business, and our inability to
raise capital in the event of ongoing losses would have a
significant adverse effect on our business. If we issue
additional equity securities, stockholders may experience
additional dilution or the new equity securities may have
rights, preferences or privileges senior to those of the then
existing holders of our common stock.


Recent Accounting Pronouncements

In July 2001, the FASB issued SFAS No. 141,
Business Combinationsand SFAS No. 142, Goodwill
and Other Intangible Assets. SFAS No. 141 is effective
for all business combinations initiated after June 30, 2001
and requires the use of the purchase method of accounting,
includes criteria for the recognition of intangible assets
separately from goodwill, and mandates that all goodwill created
after June 30, 2001 will not be amortized. SFAS
No. 142 will be effective for fiscal years beginning after
December 15, 2001 at which time all goodwill amortization
will be discontinued, and instead goodwill must be tested for
impairment on at least an annual basis using a fair value
method. In addition, separately identified and recognized
intangible assets resulting from business combinations completed
before July 1, 2001 that do not meet the new criteria for
separate recognition of intangible assets will be reclassified
as goodwill at the effective date of SFAS No. 142. Those
intangible assets not reclassified to goodwill must be
reassessed and amortized over revised useful lives in accordance
with SFAS No. 142. Because we have not acquired a company
since June 30, 2001, and we have no goodwill or other
intangible assets, we anticipate no effect in adopting SFAS
No. 141 and No. 142.

In October 2001, the FASB issued SFAS
No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 requires that the fair value
of retirement obligations be recognized as a liability when they
are incurred and that the associated retirement costs be
capitalized as a long-term asset and expensed over its useful
life. The provisions of SFAS No. 143 will be effective for
fiscal years beginning after June 15, 2002. We do not
expect that the adoption of SFAS No. 143 will have a
significant effect on our financial position or results of
operations.

In October 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS No. 144 supersedes SFAS
No. 121, Accounting for the Impairment of Long-lived
Assets and Assets to be Disposed ofand the accounting and
reporting provisions of Accounting Principles Board Opinion
No. 30, Reporting the Results of Operations 
Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions. SFAS No. 144 establishes a single
accounting model for impairment or disposal by sale of
long-lived assets. The provisions of SFAS No. 144 will be
effective for fiscal years beginning after December 15,
2001. We are currently evaluating the potential impact, if any,
that the adoption of SFAS No. 144 will have on our
financial position and results of operation.

In November 2001, the FASB issued
Topic D-103 Income Statement Characterization of
Reimbursements Received for Out-of-Pocket Expenses
Incurred, which will require companies to report
reimbursements of out-of-pocket expenses as revenues
and the corresponding expenses incurred as costs of revenues
within the income statement. We are currently evaluating the
potential impact, if any, that the adoption of Topic D-103
will have on our financial position and results of operation
which will be effective for our year ended January 31,
2003. We will adopt this pronouncement in the first quarter of
fiscal 2003.




Item 7A. Quantitative and
Qualitative Disclosures About Market Risk

We develop products in the United States and
market our products in North America, Europe and, to a lesser
extent, the Asia-Pacific region. As a result, our financial
results may be affected by factors such as changes in foreign
currency exchange rates or weak economic conditions in foreign
markets. In fiscal 2002, approximately 52.5% of our total
revenue were made in U.S. dollars. Therefore, a
strengthening of the dollar may make our products less
competitive in foreign markets. We do not expect any material
adverse effect on our consolidated financial position, results
of operations or cash flows due to movements in any specific
foreign currency as our operating expenses in each of our
foreign subsidiaries is the local currency. We currently do not
use financial instruments to hedge operating expenses of our
European and Asia-Pacific subsidiaries. We intend to assess the
need to utilize financial instruments to hedge currency
exposures on an ongoing basis.

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Our exposure to market risk for changes in
interest rates relates primarily to our cash and cash
equivalents and outstanding debt obligations. We do not use
derivative financial instruments for speculative or trading
purposes. Our cash and cash equivalents consist primarily of
demand deposits, certificates of deposits and money market
accounts that mature in three months or less. Due to the
short-term nature of our cash and cash equivalents and the
short-term features and fixed interest rate of our indebtedness,
we believe that there is no material market or interest rate
risk exposure.




Item 8. Financial Statements and
Supplemental Data

The following consolidated financial statements,
and the related notes hereto, of Niku Corporation and
subsidiaries and the Independent Auditors Report are filed
as part of this annual report on Form 10-K.

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INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                                                                                                   |  |      |    | 
|------------------------------------------------------------------------------------------------------------------ |  | ---- | -- | 
|                                                                                                                   |  | Page
|                                                                                                                   |  |     
|Independent Auditors Report                                                                                       |  |      | 31 | 
|Consolidated Balance Sheets as of
	January 31, 2002 and 2001                                                       |  |      | 32 | 
|Consolidated Statements of Operations and
	Comprehensive Loss for the Years Ended January 31, 2002,
	2001 and 2000 |  |      | 33 | 
|Consolidated Statements of Stockholders
	Equity (Deficit) for the Years Ended January 31, 2002, 2001
	and 2000    |  |      | 34 | 
|Consolidated Statements of Cash Flows for the
	Years Ended January 31, 2002, 2001 and 2000                         |  |      | 35 | 
|Notes to Consolidated Financial Statements                                                                         |  |      | 36 | 

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INDEPENDENT AUDITORS REPORT

The Board of Directors and Stockholders

of Niku Corporation:


We have audited the accompanying consolidated
balance sheets of Niku Corporation and subsidiaries (the
Company) as of January 31, 2002 and 2001, and the related
consolidated statements of operations and comprehensive loss,
stockholders equity (deficit), and cash flows for each of
the years in the three-year period ended January 31, 2002.
In connection with our audits of the consolidated financial
statements, we have also audited the related financial statement
schedule listed in Item 14(a). These consolidated financial
statements and financial statement schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on
our audits.

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

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Niku Corporation and
subsidiaries at January 31, 2002 and 2001, and the results
of their operations and their cash flows for each of the years
in the three-year period ended January 31, 2002, in
conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, the related
financial statement schedule, when considered in relation to the
consolidated financial statements taken as a whole, presents
fairly, in all material respects the information set forth
therein.



| |              
| | -------------
| | /s/  KPMG LLP

Mountain View, California

February 22, 2002, except as to Note 14,


which is as of April 15, 2002


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NIKU CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


(in thousands, except share and per share
data)


ASSETS

|                                            |                                                                                                                                                                                                                        |                                                                                              |       |          |         |  |     |          |         | 
|------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------- | ----- | -------- | ------- |  | --- | -------- | ------- | 
|                                            |                                                                                                                                                                                                                        |                                                                                             
|                                            |                                                                                                                                                                                                                        | January 31,                                                                                 
|                                            |                                                                                                                                                                                                                        |                                                                                             
|                                            |                                                                                                                                                                                                                        | 2002                                                                                         |       | 2001    
|                                            |                                                                                                                                                                                                                        |                                                                                              |       |         
|Current Assets:                             |                                                                                                                                                                                                                        |                                                                                              |       |          |         |  |     |         
|                                            | Cash and cash equivalents                                                                                                                                                                                              |                                                                                              | $     | 51,585   |         |  | $   | 93,673   |        
|                                            | Short-term investments                                                                                                                                                                                                 |                                                                                              |       |         |         |  |     | 45,219   |        
|                                            | Current portion of restricted cash                                                                                                                                                                                     |                                                                                              |       | 4,665    |         |  |     |         |        
|                                            |                                                                                                                                                                                                                        |                                                                                              |       |          |         |  |     |         
|                                            |                                                                                                                                                                                                                        | Total cash, cash equivalents, short-term
	investments and current portion of restricted cash |       |          | 56,250  |  |     |          | 138,892 | 
|                                            | Accounts receivable, net of allowances of $3,037
	and $6,440 as of January 31, 2002 and 2001, respectively                                                                                                             |                                                                                              |       | 12,593   |         |  |     | 39,232   |        
|                                            | Prepaid expenses and other current assets                                                                                                                                                                              |                                                                                              |       | 5,445    |         |  |     | 17,632   |        
|                                            |                                                                                                                                                                                                                        |                                                                                              |       |          |         |  |     |         
|                                            |                                                                                                                                                                                                                        | Total current assets                                                                         |       |          | 74,288  |  |     |          | 195,756 | 
|                                            | Restricted cash                                                                                                                                                                                                        |                                                                                              |       | 9,822    |         |  |     | 14,487   |        
|                                            | Property and equipment, net                                                                                                                                                                                            |                                                                                              |       | 13,196   |         |  |     | 19,932   |        
|                                            | Deposits and other assets                                                                                                                                                                                              |                                                                                              |       | 4,269    |         |  |     | 5,061    |        
|                                            | Goodwill and other intangible assets, net                                                                                                                                                                              |                                                                                              |       |         |         |  |     | 157,831  |        
|                                            |                                                                                                                                                                                                                        |                                                                                              |       |          |         |  |     |         
|                                            |                                                                                                                                                                                                                        | Total assets                                                                                 |       | $        | 101,575 |  |     | $        | 393,067 | 
|                                            |                                                                                                                                                                                                                        |                                                                                              |       |          |         |  |     |         
|LIABILITIES AND STOCKHOLDERS
	EQUITY      
|Current Liabilities:                        |                                                                                                                                                                                                                        |                                                                                              |       |          |         |  |     |         
|                                            | Accounts payable                                                                                                                                                                                                       |                                                                                              | $     | 3,279    |         |  | $   | 9,121    |        
|                                            | Accrued liabilities                                                                                                                                                                                                    |                                                                                              |       | 21,817   |         |  |     | 20,750   |        
|                                            | Current portion of long-term obligations                                                                                                                                                                               |                                                                                              |       | 27,261   |         |  |     | 25,458   |        
|                                            | Deferred revenue                                                                                                                                                                                                       |                                                                                              |       | 10,903   |         |  |     | 19,077   |        
|                                            |                                                                                                                                                                                                                        |                                                                                              |       |          |         |  |     |         
|                                            |                                                                                                                                                                                                                        | Total current liabilities                                                                    |       |          | 63,260  |  |     |          | 74,406  | 
|Long-term restructuring accrual             |                                                                                                                                                                                                                        |                                                                                              | 6,758 |          |         |  |    |         
|Long-term obligations, less current portion |                                                                                                                                                                                                                        |                                                                                              |      |          |         |  | 268 |         
|                                            |                                                                                                                                                                                                                        |                                                                                              |       |          |         |  |     |         
|                                            |                                                                                                                                                                                                                        | Total liabilities                                                                            |       |          | 70,018  |  |     |          | 74,674  | 
|                                            |                                                                                                                                                                                                                        |                                                                                              |       |          |         |  |     |         
|Commitments (Note 10)                       |                                                                                                                                                                                                                        |                                                                                              |       |          |         |  |     |         
|Stockholders equity:                       |                                                                                                                                                                                                                        |                                                                                              |       |          |         |  |     |         
|                                            | Preferred stock: $0.0001 par value; 10,000,000
	shares authorized; no shares issued and outstanding                                                                                                                    |                                                                                              |       |         |         |  |     |         |        
|                                            | Common stock; $0.0001 par value; 250,000,000
	shares authorized as of January 31, 2002 and 2001,
	respectively; 78,152,046 and 76,637,666 shares issued and
	outstanding as of January 31, 2002 and 2001, respectively |                                                                                              |       | 7        |         |  |     | 7        |        
|                                            | Treasury stock, at cost: 4,541,664 shares and
	none as of January 31, 2002 and 2001, respectively                                                                                                                      |                                                                                              |       | (3,570   | )       |  |     |         |        
|                                            | Additional paid-in capital                                                                                                                                                                                             |                                                                                              |       | 514,019  |         |  |     | 513,463  |        
|                                            | Deferred stock-based compensation                                                                                                                                                                                      |                                                                                              |       | (15,325  | )       |  |     | (19,365  | )      
|                                            | Notes receivable from stockholders                                                                                                                                                                                     |                                                                                              |       | (1,418   | )       |  |     | (5,353   | )      
|                                            | Accumulated other comprehensive (loss) income                                                                                                                                                                          |                                                                                              |       | (227     | )       |  |     | 24       |        
|                                            | Accumulated deficit                                                                                                                                                                                                    |                                                                                              |       | (461,929 | )       |  |     | (170,383 | )      
|                                            |                                                                                                                                                                                                                        |                                                                                              |       |          |         |  |     |         
|                                            |                                                                                                                                                                                                                        | Total stockholders equity                                                                   |       |          | 31,557  |  |     |          | 318,393 | 
|                                            |                                                                                                                                                                                                                        |                                                                                              |       |          |         |  |     |         
|                                            |                                                                                                                                                                                                                        | Total liabilities and stockholders equity                                                   |       | $        | 101,575 |  |     | $        | 393,067 | 
|                                            |                                                                                                                                                                                                                        |                                                                                              |       |          |         |  |     |         

See accompanying notes to consolidated financial
statements.

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NIKU CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS


AND COMPREHENSIVE LOSS


(in thousands, except per share
data)


|                                                               |                                                                                                                                                                   |                          |        |          |          |      |        |          |          |   |       |         |         |  
|-------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------ | ------ | -------- | -------- | ---- | ------ | -------- | -------- | - | ----- | ------- | ------- | -
|                                                               |                                                                                                                                                                   |                         
|                                                               |                                                                                                                                                                   | Years Ended January 31, 
|                                                               |                                                                                                                                                                   |                         
|                                                               |                                                                                                                                                                   | 2002                     |        | 2001     |          | 2000
|                                                               |                                                                                                                                                                   |                          |        |          |          |     
|Revenue:                                                       |                                                                                                                                                                   |                          |        |          |          |      |        |          |          |   |       |        
|                                                               | License                                                                                                                                                           |                          | $      | 31,974   |          |      | $      | 47,613   |          |   | $     | 5,584   |        
|                                                               | Services                                                                                                                                                          |                          |        | 33,947   |          |      |        | 21,309   |          |   |       | 2,573   |        
|                                                               |                                                                                                                                                                   |                          |        |          |          |      |        |          |          |   |       |        
|                                                               |                                                                                                                                                                   | Total revenue            |        |          | 65,921   |      |        |          | 68,922   |   |       |         | 8,157   |  
|                                                               |                                                                                                                                                                   |                          |        |          |          |      |        |          |          |   |       |        
|Cost of revenue:                                               |                                                                                                                                                                   |                          |        |          |          |      |        |          |          |   |       |        
|                                                               | License                                                                                                                                                           |                          |        | 1,688    |          |      |        | 3,043    |          |   |       | 400     |        
|                                                               | Services (exclusive of stock-based compensation
	of $1,129, $991 and $69 for the years ended January 31,
	2002, 2001 and 2000, respectively)                      |                          |        | 22,862   |          |      |        | 17,579   |          |   |       | 2,220   |        
|                                                               | Impairment of licensed technology                                                                                                                                 |                          |        | 9,386    |          |      |        |         |          |   |       |        |        
|                                                               |                                                                                                                                                                   |                          |        |          |          |      |        |          |          |   |       |        
|                                                               |                                                                                                                                                                   | Total cost of revenue    |        |          | 33,936   |      |        |          | 20,622   |   |       |         | 2,620   |  
|                                                               |                                                                                                                                                                   |                          |        |          |          |      |        |          |          |   |       |        
|                                                               |                                                                                                                                                                   | Gross profit             |        |          | 31,985   |      |        |          | 48,300   |   |       |         | 5,537   |  
|                                                               |                                                                                                                                                                   |                          |        |          |          |      |        |          |          |   |       |        
|Operating expenses:                                            |                                                                                                                                                                   |                          |        |          |          |      |        |          |          |   |       |        
|                                                               | Sales and marketing (exclusive of stock-based
	compensation of $5,042, $16,860 and $5,205 for the years ended
	January 31, 2002, 2001 and 2000, respectively)     |                          |        | 70,927   |          |      |        | 68,041   |          |   |       | 15,521  |        
|                                                               | Research and development (exclusive of
	stock-based compensation of $5,844, $5,264 and $3,155 for the
	years ended January 31, 2002, 2001 and 2000, respectively) |                          |        | 34,856   |          |      |        | 37,031   |          |   |       | 10,920  |        
|                                                               | General and administrative (exclusive of
	stock-based compensation of $2,387, $5,930 and $585 for the
	years ended January 31, 2002, 2001 and 2000, respectively) |                          |        | 15,205   |          |      |        | 13,108   |          |   |       | 4,737   |        
|                                                               | Asset impairment and other                                                                                                                                        |                          |        | 138,923  |          |      |        |         |          |   |       |        |        
|                                                               | Amortization of goodwill and other intangible
	assets                                                                                                             |                          |        | 27,333   |          |      |        | 35,902   |          |   |       | 2,381   |        
|                                                               | Restructuring and exit costs                                                                                                                                      |                          |        | 24,353   |          |      |        | 1,910    |          |   |       |        |        
|                                                               | Stock-based compensation                                                                                                                                          |                          |        | 14,402   |          |      |        | 29,045   |          |   |       | 9,014   |        
|                                                               | Merger related expenses                                                                                                                                           |                          |        |         |          |      |        | 4,263    |          |   |       |        |        
|                                                               |                                                                                                                                                                   |                          |        |          |          |      |        |          |          |   |       |        
|                                                               |                                                                                                                                                                   | Total operating expenses |        |          | 325,999  |      |        |          | 189,300  |   |       |         | 42,573  |  
|                                                               |                                                                                                                                                                   |                          |        |          |          |      |        |          |          |   |       |        
|                                                               |                                                                                                                                                                   | Operating loss           |        |          | (294,014 | )    |        |          | (141,000 | ) |       |         | (37,036 | )
|Interest income and other income (expense), net                |                                                                                                                                                                   |                          | 2,792  |          |          |      | 10,455 |          |          |   | 1,268 |        
|Interest expense                                               |                                                                                                                                                                   |                          | (324   | )        |          |      | (331   | )        |          |   | (719  | )      
|                                                               |                                                                                                                                                                   |                          |        |          |          |      |        |          |          |   |       |        
|                                                               |                                                                                                                                                                   | Net loss                 |        | $        | (291,546 | )    |        | $        | (130,876 | ) |       | $       | (36,487 | )
|                                                               |                                                                                                                                                                   |                          |        |          |          |      |        |          |          |   |       |        
|Basic and diluted net loss per share                           |                                                                                                                                                                   | $                        | (3.92  | )        |          | $    | (1.96  | )        |          | $ | (5.61 | )      
|                                                               |                                                                                                                                                                   |                          |        |          |          |      |        |          |          |   |       |        
|Shares used in computing basic and diluted net
	loss per share |                                                                                                                                                                   |                          | 74,374 |          |          |      | 66,865 |          |          |   | 6,506 |        
|                                                               |                                                                                                                                                                   |                          |        |          |          |      |        |          |          |   |       |        
|Comprehensive loss:                                            |                                                                                                                                                                   |                          |        |          |          |      |        |          |          |   |       |        
|                                                               | Net loss                                                                                                                                                          |                          | $      | (291,546 | )        |      | $      | (130,876 | )        |   | $     | (36,487 | )      
|                                                               | Foreign currency translation adjustments                                                                                                                          |                          |        | (225     | )        |      |        | (2       | )        |   |       |        |        
|                                                               | Unrealized (loss) gain on short-term
	investments                                                                                                                 |                          |        | (26      | )        |      |        | 26       |          |   |       |        |        
|                                                               |                                                                                                                                                                   |                          |        |          |          |      |        |          |          |   |       |        
|                                                               |                                                                                                                                                                   | Comprehensive loss       |        | $        | (291,797 | )    |        | $        | (130,852 | ) |       | $       | (36,487 | )
|                                                               |                                                                                                                                                                   |                          |        |          |          |      |        |          |          |   |       |        

See accompanying notes to consolidated financial
statements.

33



---



##### Table of Contents



NIKU CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY (DEFICIT)


(in thousands, except share data)


|                                                                                                          |  |              |            |                |  |            |   |             |  |            |            |               |  |              |        |               |  |         |         |                  |  |   |         |   |  |   |        |   |  |   |      |   |  |   |          |   |  |   |          |  
|--------------------------------------------------------------------------------------------------------- |  | ------------ | ---------- | -------------- |  | ---------- | - | ----------- |  | ---------- | ---------- | ------------- |  | ------------ | ------ | ------------- |  | ------- | ------- | ---------------- |  | - | ------- | - |  | - | ------ | - |  | - | ---- | - |  | - | -------- | - |  | - | -------- | -
|                                                                                                          |  |              |            |                |  |            |   |             |  | Notes      |            | Accumulated   |  |              |        |              
|                                                                                                          |  | Common Stock |            | Treasury Stock |  | Additional |   | Deferred    |  | Receivable |            | Other         |  |              |        | Total        
|                                                                                                          |  |              |            |                |  | Paid-in    |   | Stock-Based |  | from       |            | Comprehensive |  | Accumulated  |        | Stockholders
|                                                                                                          |  | Shares       |            | Amount         |  | Shares     |   | Amount      |  | Capital    |            | Compensation  |  | Stockholders |        | (Loss) Income |  | Deficit |         | Equity (Deficit)
|                                                                                                          |  |              |            |                |  |            |   |             |  |            |            |               |  |              |        |               |  |         |         |                 
|Balances as of January 31, 1999                                                                           |  |              | 5,959,995  |                |  | $          | 1 |             |  |            |           |               |  | $            |       |               |  | $       | 2,277   |                  |  | $ | (1,576  | ) |  | $ | (45    | ) |  | $ |     |   |  | $ | (3,020   | ) |  | $ | (2,363   | )
|Issuance of common stock for notes receivable                                                             |  |              | 2,335,000  |                |  |            |  |             |  |            |           |               |  |              |       |               |  |         | 1,815   |                  |  |   |        |   |  |   | (1,815 | ) |  |   |     |   |  |   |         |   |  |   |         |  
|Issuance of common stock in connection with the
	exercise of employee stock options                       |  |              | 1,056,111  |                |  |            |  |             |  |            |           |               |  |              |       |               |  |         | 88      |                  |  |   |        |   |  |   |       |   |  |   |     |   |  |   |         |   |  |   | 88       |  
|Repurchase of common stock in settlement of notes
	receivable from stockholders                           |  |              | (515,625   | )              |  |            |  |             |  |            |           |               |  |              |       |               |  |         | (52     | )                |  |   |        |   |  |   | 52     |   |  |   |     |   |  |   |         |   |  |   |         |  
|Deferred stock compensation related to stock
	option grants                                               |  |              |           |                |  |            |  |             |  |            |           |               |  |              |       |               |  |         | 24,000  |                  |  |   | (24,000 | ) |  |   |       |   |  |   |     |   |  |   |         |   |  |   |         |  
|Amortization of stock-based compensation                                                                  |  |              |           |                |  |            |  |             |  |            |           |               |  |              |       |               |  |         |        |                  |  |   | 7,831   |   |  |   |       |   |  |   |     |   |  |   |         |   |  |   | 7,831    |  
|Nonemployee stock compensation                                                                            |  |              | 18,000     |                |  |            |  |             |  |            |           |               |  |              |       |               |  |         | 546     |                  |  |   |        |   |  |   |       |   |  |   |     |   |  |   |         |   |  |   | 546      |  
|Stock compensation related to forgiveness of
	notes receivable from stockholder                           |  |              |           |                |  |            |  |             |  |            |           |               |  |              |       |               |  |         | 612     |                  |  |   |        |   |  |   | 23     |   |  |   |     |   |  |   |         |   |  |   | 635      |  
|Issuance of common stock in connection with the
	acquisition of Proamics Corporation                      |  |              | 3,501,938  |                |  |            |  |             |  |            |           |               |  |              |       |               |  |         | 17,510  |                  |  |   |        |   |  |   |       |   |  |   |     |   |  |   |         |   |  |   | 17,510   |  
|Interest accrued on notes receivables from
	stockholders                                                  |  |              |           |                |  |            |  |             |  |            |           |               |  |              |       |               |  |         |        |                  |  |   |        |   |  |   | (29    | ) |  |   |     |   |  |   |         |   |  |   | (29      | )
|Net loss                                                                                                  |  |              |           |                |  |            |  |             |  |            |           |               |  |              |       |               |  |         |        |                  |  |   |        |   |  |   |       |   |  |   |     |   |  |   | (36,487  | ) |  |   | (36,487  | )
|                                                                                                          |  |              |            |                |  |            |   |             |  |            |            |               |  |              |        |               |  |         |         |                  |  |   |         |   |  |   |        |   |  |   |      |   |  |   |          |   |  |   |          |  
|Balances as of January 31, 2000                                                                           |  |              | 12,355,419 |                |  |            | 1 |             |  |            |           |               |  |              |       |               |  |         | 46,796  |                  |  |   | (17,745 | ) |  |   | (1,814 | ) |  |   |     |   |  |   | (39,507  | ) |  |   | (12,269  | )
|Issuance of common stock in connection with the
	acquisition of Legal Anywhere, Inc.                      |  |              | 853,689    |                |  |            |  |             |  |            |           |               |  |              |       |               |  |         | 19,998  |                  |  |   |        |   |  |   |       |   |  |   |     |   |  |   |         |   |  |   | 19,998   |  
|Issuance of common stock in connection with
	initial public offering, net of offering costs of $18,319    |  |              | 9,200,000  |                |  |            | 1 |             |  |            |           |               |  |              |       |               |  |         | 202,480 |                  |  |   |        |   |  |   |       |   |  |   |     |   |  |   |         |   |  |   | 202,481  |  
|Conversion of redeemable convertible preferred
	stock into common stock                                   |  |              | 48,229,809 |                |  |            | 5 |             |  |            |           |               |  |              |       |               |  |         | 100,914 |                  |  |   |        |   |  |   |       |   |  |   |     |   |  |   |         |   |  |   | 100,919  |  
|Issuance of common stock in connection with the
	acquisition of 600 Monkeys, Inc.                         |  |              | 169,994    |                |  |            |  |             |  |            |           |               |  |              |       |               |  |         | 4,101   |                  |  |   |        |   |  |   |       |   |  |   |     |   |  |   |         |   |  |   | 4,101    |  
|Issuance of common stock in connection with the
	acquisition of bSource, Inc.                             |  |              | 399,988    |                |  |            |  |             |  |            |           |               |  |              |       |               |  |         | 7,916   |                  |  |   |        |   |  |   |       |   |  |   |     |   |  |   |         |   |  |   | 7,916    |  
|Issuance of common stock in connection with the
	acquisition of ABT Corporation                           |  |              | 3,952,679  |                |  |            |  |             |  |            |           |               |  |              |       |               |  |         | 94,447  |                  |  |   |        |   |  |   |       |   |  |   |     |   |  |   |         |   |  |   | 94,447   |  
|Issuance of common stock in connection with the
	exercise of employee stock options                       |  |              | 1,330,410  |                |  |            |  |             |  |            |           |               |  |              |       |               |  |         | 1,201   |                  |  |   |        |   |  |   |       |   |  |   |     |   |  |   |         |   |  |   | 1,201    |  
|Issuance of common stock in connection with the
	exercise of employee stock options for services received |  |              | 12,000     |                |  |            |   |             |  |            |            |               |  |              |        |               |  |         | 132     |                  |  |   |        |   |  |   |       |   |  |   |     |   |  |   |         |   |  |   | 132      |  
|Repurchase of common stock in settlement of notes
	receivable from stockholders                           |  |              | (242,562   | )              |  |            |  |             |  |            |           |               |  |              |       |               |  |         | (40     | )                |  |   |        |   |  |   | 40     |   |  |   |     |   |  |   |         |   |  |   |         |  
|Issuance of common stock for notes receivable                                                             |  |              | 301,000    |                |  |            |  |             |  |            |           |               |  |              |       |               |  |         | 3,321   |                  |  |   |        |   |  |   | (3,321 | ) |  |   |     |   |  |   |         |   |  |   |         |  
|Interest accrued on notes receivable from
	stockholders                                                   |  |              |           |                |  |            |  |             |  |            |           |               |  |              |       |               |  |         |        |                  |  |   |        |   |  |   | (282   | ) |  |   |     |   |  |   |         |   |  |   | (282     | )
|Repayment of notes receivable from stockholders                                                           |  |              |           |                |  |            |  |             |  |            |           |               |  |              |       |               |  |         |        |                  |  |   |        |   |  |   | 24     |   |  |   |     |   |  |   |         |   |  |   | 24       |  
|Issuance of common stock in connection with
	employee stock purchase plan                                 |  |              | 75,240     |                |  |            |  |             |  |            |           |               |  |              |       |               |  |         | 1,532   |                  |  |   |        |   |  |   |       |   |  |   |     |   |  |   |         |   |  |   | 1,532    |  
|Deferred stock compensation related to stock
	option grants                                               |  |              |           |                |  |            |  |             |  |            |           |               |  |              |       |               |  |         | 30,665  |                  |  |   | (30,665 | ) |  |   |       |   |  |   |     |   |  |   |         |   |  |   |         |  
|Amortization of stock-based compensation                                                                  |  |              |           |                |  |            |  |             |  |            |           |               |  |              |       |               |  |         |        |                  |  |   | 29,045  |   |  |   |       |   |  |   |     |   |  |   |         |   |  |   | 29,045   |  
|Unrealized gain on short-term investments                                                                 |  |              |           |                |  |            |  |             |  |            |           |               |  |              |       |               |  |         |        |                  |  |   |        |   |  |   |       |   |  |   | 26   |   |  |   |         |   |  |   | 26       |  
|Foreign currency translation adjustment                                                                   |  |              |           |                |  |            |  |             |  |            |           |               |  |              |       |               |  |         |        |                  |  |   |        |   |  |   |       |   |  |   | (2   | ) |  |   |         |   |  |   | (2       | )
|Net loss                                                                                                  |  |              |           |                |  |            |  |             |  |            |           |               |  |              |       |               |  |         |        |                  |  |   |        |   |  |   |       |   |  |   |     |   |  |   | (130,876 | ) |  |   | (130,876 | )
|                                                                                                          |  |              |            |                |  |            |   |             |  |            |            |               |  |              |        |               |  |         |         |                  |  |   |         |   |  |   |        |   |  |   |      |   |  |   |          |   |  |   |          |  
|Balances as of January 31, 2001                                                                           |  |              | 76,637,666 |                |  |            | 7 |             |  |            |           |               |  |              |       |               |  |         | 513,463 |                  |  |   | (19,365 | ) |  |   | (5,353 | ) |  |   | 24   |   |  |   | (170,383 | ) |  |   | 318,393  |  
|Issuance of common stock in connection with the
	exercise of employee stock options                       |  |              | 873,969    |                |  |            |  |             |  |            |           |               |  |              |       |               |  |         | 551     |                  |  |   |        |   |  |   |       |   |  |   |     |   |  |   |         |   |  |   | 551      |  
|Issuance of common stock in connection with the
	acquisition of ABT Corporation                           |  |              | 462,275    |                |  |            |  |             |  |            |           |               |  |              |       |               |  |         | 314     |                  |  |   |        |   |  |   |       |   |  |   |     |   |  |   |         |   |  |   | 314      |  
|Issuance of common stock in connection with
	employee stock purchase plan                                 |  |              | 425,587    |                |  |            |  |             |  |            |           |               |  |              |       |               |  |         | 1,244   |                  |  |   |        |   |  |   |       |   |  |   |     |   |  |   |         |   |  |   | 1,244    |  
|Issuance of common stock in connection with
	restructuring activities (see note 3)                        |  |              | 300,000    |                |  |            |  |             |  |            |           |               |  |              |       |               |  |         | 225     |                  |  |   |        |   |  |   |       |   |  |   |     |   |  |   |         |   |  |   | 225      |  
|Repurchase of common stock in the open market                                                             |  |              |           |                |  |            |  |             |  |            | (4,541,664 | )             |  |              | (3,570 | )             |  |         |        |                  |  |   |        |   |  |   |       |   |  |   |     |   |  |   |         |   |  |   | (3,570   | )
|Repurchase of common stock in settlement of notes
	receivable from stockholders                           |  |              | (438,076   | )              |  |            |  |             |  |            |           |               |  |              |       |               |  |         | (3,546  | )                |  |   |        |   |  |   | 3,546  |   |  |   |     |   |  |   |         |   |  |   |         |  
|Repurchase of common stock                                                                                |  |              | (109,375   | )              |  |            |  |             |  |            |           |               |  |              |       |               |  |         | (11     | )                |  |   |        |   |  |   |       |   |  |   |     |   |  |   |         |   |  |   | (11      | )
|Forgiveness of notes receivable from stockholders                                                         |  |              |           |                |  |            |  |             |  |            |           |               |  |              |       |               |  |         |        |                  |  |   |        |   |  |   | 248    |   |  |   |     |   |  |   |         |   |  |   | 248      |  
|Interest forgiven on notes receivable from
	stockholders                                                  |  |              |           |                |  |            |  |             |  |            |           |               |  |              |       |               |  |         |        |                  |  |   |        |   |  |   | 141    |   |  |   |     |   |  |   |         |   |  |   | 141      |  
|Deferred stock compensation related to stock
	option grants                                               |  |              |           |                |  |            |  |             |  |            |           |               |  |              |       |               |  |         | 19,403  |                  |  |   | (19,403 | ) |  |   |       |   |  |   |     |   |  |   |         |   |  |   |         |  
|Reversal of stock-based compensation due to
	employee terminations                                        |  |              |           |                |  |            |  |             |  |            |           |               |  |              |       |               |  |         | (17,624 | )                |  |   | 9,041   |   |  |   |       |   |  |   |     |   |  |   |         |   |  |   | (8,583   | )
|Amortization of stock-based compensation                                                                  |  |              |           |                |  |            |  |             |  |            |           |               |  |              |       |               |  |         |        |                  |  |   | 14,402  |   |  |   |       |   |  |   |     |   |  |   |         |   |  |   | 14,402   |  
|Unrealized loss on short-term investments                                                                 |  |              |           |                |  |            |  |             |  |            |           |               |  |              |       |               |  |         |        |                  |  |   |        |   |  |   |       |   |  |   | (26  | ) |  |   |         |   |  |   | (26      | )
|Foreign currency translation adjustment                                                                   |  |              |           |                |  |            |  |             |  |            |           |               |  |              |       |               |  |         |        |                  |  |   |        |   |  |   |       |   |  |   | (225 | ) |  |   |         |   |  |   | (225     | )
|Net loss                                                                                                  |  |              |           |                |  |            |  |             |  |            |           |               |  |              |       |               |  |         |        |                  |  |   |        |   |  |   |       |   |  |   |     |   |  |   | (291,546 | ) |  |   | (291,546 | )
|                                                                                                          |  |              |            |                |  |            |   |             |  |            |            |               |  |              |        |               |  |         |         |                  |  |   |         |   |  |   |        |   |  |   |      |   |  |   |          |   |  |   |          |  
|Balances as of January 31, 2002                                                                           |  |              | 78,152,046 |                |  | $          | 7 |             |  |            | (4,541,664 | )             |  | $            | (3,570 | )             |  | $       | 514,019 |                  |  | $ | (15,325 | ) |  | $ | (1,418 | ) |  | $ | (227 | ) |  | $ | (461,929 | ) |  | $ | 31,557   |  
|                                                                                                          |  |              |            |                |  |            |   |             |  |            |            |               |  |              |        |               |  |         |         |                  |  |   |         |   |  |   |        |   |  |   |      |   |  |   |          |   |  |   |          |  

See accompanying notes to consolidated financial
statements.

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##### Table of Contents



NIKU CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STATEMENTS OF CASH
FLOWS


(in thousands)


|                                                      |                                                                                                            |                                                                                             |                                           |                                                      |          |        |         |          |          |         |         |         |         |        |         |  
|----------------------------------------------------- | ---------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------- | ----------------------------------------- | ---------------------------------------------------- | -------- | ------ | ------- | -------- | -------- | ------- | ------- | ------- | ------- | ------ | ------- | -
|                                                      |                                                                                                            |                                                                                            
|                                                      |                                                                                                            | Years Ended January 31,                                                                    
|                                                      |                                                                                                            |                                                                                            
|                                                      |                                                                                                            | 2002                                                                                        |                                           | 2001                                                 |          | 2000  
|                                                      |                                                                                                            |                                                                                             |                                           |                                                      |          |       
|Cash flows from operating activities:                 |                                                                                                            |                                                                                             |                                           |                                                      |          |        |         |          |          |         |         |        
|                                                      |                                                                                                            | Net loss                                                                                    |                                           | $                                                    | (291,546 | )      |         | $        | (130,876 | )       |         | $       | (36,487 | )     
|                                                      |                                                                                                            | Adjustments to reconcile net loss to net cash
	used in operating activities                 |                                           |                                                      |          |        |         |          |          |         |         |         |         |       
|                                                      |                                                                                                            | Depreciation                                                                                |                                           |                                                      | 5,424    |        |         |          | 4,110    |         |         |         | 1,915   |       
|                                                      |                                                                                                            | Amortization of debt discount                                                               |                                           |                                                      |         |        |         |          | 340      |         |         |         | 171     |       
|                                                      |                                                                                                            | Amortization of goodwill and other intangible
	assets                                       |                                           |                                                      | 27,333   |        |         |          | 35,902   |         |         |         | 2,381   |       
|                                                      |                                                                                                            | Stock-based compensation                                                                    |                                           |                                                      | 14,402   |        |         |          | 29,045   |         |         |         | 9,014   |       
|                                                      |                                                                                                            | Impairment of licensed technology                                                           |                                           |                                                      | 8,536    |        |         |          |         |         |         |         |        |       
|                                                      |                                                                                                            | Restructuring and exit costs                                                                |                                           |                                                      | 14,863   |        |         |          |         |         |         |         |        |       
|                                                      |                                                                                                            | Asset impairment and other                                                                  |                                           |                                                      | 138,923  |        |         |          |         |         |         |         |        |       
|                                                      |                                                                                                            | Exercise of stock options for service received                                              |                                           |                                                      |         |        |         |          | 132      |         |         |         |        |       
|                                                      |                                                                                                            | Provision for doubtful accounts receivable                                                  |                                           |                                                      | 9,010    |        |         |          | 2,429    |         |         |         | 200     |       
|                                                      |                                                                                                            | Revenue resulting from nonmonetary exchanges for
	computer equipment, software and services |                                           |                                                      |         |        |         |          | (630     | )       |         |         | (1,534  | )     
|                                                      |                                                                                                            | Expense resulting from nonmonetary exchanges for
	services                                  |                                           |                                                      |         |        |         |          | 311      |         |         |         | 154     |       
|                                                      |                                                                                                            | Forgiveness of notes receivable from stockholder                                            |                                           |                                                      | 248      |        |         |          |         |         |         |         |        |       
|                                                      |                                                                                                            | Interest forgiven (accrued) on notes
	receivable from stockholders                          |                                           |                                                      | 141      |        |         |          | (282     | )       |         |         | (29     | )     
|                                                      |                                                                                                            | Changes in operating assets and liabilities:                                                |                                           |                                                      |          |        |         |          |          |         |         |         |         |       
|                                                      |                                                                                                            |                                                                                             | Accounts receivable                       |                                                      |          | 18,577 |         |          |          | (20,313 | )       |         |         | (5,729 | )      
|                                                      |                                                                                                            |                                                                                             | Prepaid expenses and other current assets |                                                      |          | 2,368  |         |          |          | (11,881 | )       |         |         | (1,738 | )      
|                                                      |                                                                                                            |                                                                                             | Accounts payable                          |                                                      |          | (5,882 | )       |          |          | (1,029  | )       |         |         | 4,555  |        
|                                                      |                                                                                                            |                                                                                             | Accrued liabilities                       |                                                      |          | (8,014 | )       |          |          | 841     |         |         |         | 3,834  |        
|                                                      |                                                                                                            |                                                                                             | Deferred revenue                          |                                                      |          | (8,264 | )       |          |          | 4,918   |         |         |         | 2,682  |        
|                                                      |                                                                                                            |                                                                                             |                                           |                                                      |          |        |         |          |          |         |         |        
|                                                      |                                                                                                            |                                                                                             |                                           | Net cash used in operating activities                |          |        | (73,881 | )        |          |         | (86,983 | )       |         |        | (20,611 | )
|                                                      |                                                                                                            |                                                                                             |                                           |                                                      |          |        |         |          |          |         |         |        
|Cash flows from investing activities:                 |                                                                                                            |                                                                                             |                                           |                                                      |          |        |         |          |          |         |         |        
|                                                      | Purchases of property and equipment                                                                        |                                                                                             |                                           | (13,457                                              | )        |        |         | (12,619  | )        |         |         | (5,028  | )      
|                                                      | Purchases of short-term investments                                                                        |                                                                                             |                                           | (21,171                                              | )        |        |         | (112,734 | )        |         |         | (16,865 | )      
|                                                      | Sales and maturities of short-term investments                                                             |                                                                                             |                                           | 66,364                                               |          |        |         | 84,406   |          |         |         |        |        
|                                                      | Purchases of investments for restricted cash                                                               |                                                                                             |                                           |                                                     |          |        |         | (14,487  | )        |         |         |        |        
|                                                      | Acquisitions, net of cash received                                                                         |                                                                                             |                                           |                                                     |          |        |         | (6,125   | )        |         |         | 2,884   |        
|                                                      | Deposits and other assets                                                                                  |                                                                                             |                                           | 533                                                  |          |        |         | (1,645   | )        |         |         | (1,842  | )      
|                                                      |                                                                                                            |                                                                                             |                                           |                                                      |          |        |         |          |          |         |         |        
|                                                      |                                                                                                            |                                                                                             |                                           | Net cash provided by (used in) investing
	activities |          |        | 32,269  |          |          |         | (63,204 | )       |         |        | (20,851 | )
|                                                      |                                                                                                            |                                                                                             |                                           |                                                      |          |        |         |          |          |         |         |        
|Cash flows from financing activities:                 |                                                                                                            |                                                                                             |                                           |                                                      |          |        |         |          |          |         |         |        
|                                                      | Net proceeds from sales of redeemable convertible
	preferred stock                                         |                                                                                             |                                           |                                                     |          |        |         |         |          |         |         | 59,694  |        
|                                                      | Proceeds from initial public offering of common
	stock, net                                                |                                                                                             |                                           |                                                     |          |        |         | 202,481  |          |         |         |        |        
|                                                      | Proceeds from issuance of common stock                                                                     |                                                                                             |                                           | 1,795                                                |          |        |         | 2,733    |          |         |         | 88      |        
|                                                      | Treasury stock repurchased                                                                                 |                                                                                             |                                           | (3,570                                               | )        |        |         |         |          |         |         |        |        
|                                                      | Repurchase of common stock                                                                                 |                                                                                             |                                           | (11                                                  | )        |        |         |         |          |         |         |        |        
|                                                      | Proceeds from repayment of notes receivable from
	stockholders                                             |                                                                                             |                                           |                                                     |          |        |         | 24       |          |         |         |        |        
|                                                      | Proceeds from bank borrowings, net                                                                         |                                                                                             |                                           | 2,000                                                |          |        |         | 21,229   |          |         |         | 7,982   |        
|                                                      | Repayment of debt and capital lease obligations                                                            |                                                                                             |                                           | (465                                                 | )        |        |         | (10,255  | )        |         |         | (3,799  | )      
|                                                      |                                                                                                            |                                                                                             |                                           |                                                      |          |        |         |          |          |         |         |        
|                                                      |                                                                                                            |                                                                                             |                                           | Net cash (used in) provided by financing
	activities |          |        | (251    | )        |          |         | 216,212 |         |         |        | 63,965  |  
|                                                      |                                                                                                            |                                                                                             |                                           |                                                      |          |        |         |          |          |         |         |        
|Net (decrease) increase in cash and cash
	equivalents |                                                                                                            |                                                                                             | (41,863                                   | )                                                    |          |        | 66,025  |          |          |         | 22,503  |        
|Effect of exchange rate changes                       |                                                                                                            |                                                                                             | (225                                      | )                                                    |          |        | (2      | )        |          |         |        |        
|Cash and cash equivalents, beginning of year          |                                                                                                            |                                                                                             | 93,673                                    |                                                      |          |        | 27,650  |          |          |         | 5,147   |        
|                                                      |                                                                                                            |                                                                                             |                                           |                                                      |          |        |         |          |          |         |         |        
|Cash and cash equivalents, end of year                |                                                                                                            | $                                                                                           | 51,585                                    |                                                      |          | $      | 93,673  |          |          | $       | 27,650  |        
|                                                      |                                                                                                            |                                                                                             |                                           |                                                      |          |        |         |          |          |         |         |        
|Supplemental disclosures of cash flow information:    |                                                                                                            |                                                                                             |                                           |                                                      |          |        |         |          |          |         |         |        
|                                                      | Cash paid for interest during the year                                                                     |                                                                                             | $                                         | 309                                                  |          |        | $       | 331      |          |         | $       | 584     |        
|                                                      |                                                                                                            |                                                                                             |                                           |                                                      |          |        |         |          |          |         |         |        
|Noncash investing and financing activities:           |                                                                                                            |                                                                                             |                                           |                                                      |          |        |         |          |          |         |         |        
|                                                      | Property and equipment under capital lease                                                                 |                                                                                             | $                                         |                                                     |          |        | $       |         |          |         | $       | 345     |        
|                                                      |                                                                                                            |                                                                                             |                                           |                                                      |          |        |         |          |          |         |         |        
|                                                      | Repurchases of common stock in settlement of
	notes receivable from stockholders                           |                                                                                             | $                                         | 3,546                                                |          |        | $       | 40       |          |         | $       | 52      |        
|                                                      |                                                                                                            |                                                                                             |                                           |                                                      |          |        |         |          |          |         |         |        
|                                                      | Common stock issued for notes receivable                                                                   |                                                                                             | $                                         |                                                     |          |        | $       | 3,321    |          |         | $       | 1,815   |        
|                                                      |                                                                                                            |                                                                                             |                                           |                                                      |          |        |         |          |          |         |         |        
|                                                      | Deferred stock-based compensation                                                                          |                                                                                             | $                                         | 19,403                                               |          |        | $       | 30,665   |          |         | $       | 24,000  |        
|                                                      |                                                                                                            |                                                                                             |                                           |                                                      |          |        |         |          |          |         |         |        
|                                                      | Common stock and redeemable convertible preferred
	stock issued and stock options assumed for acquisitions |                                                                                             | $                                         |                                                     |          |        | $       | 126,462  |          |         | $       | 49,966  |        
|                                                      |                                                                                                            |                                                                                             |                                           |                                                      |          |        |         |          |          |         |         |        
|                                                      | Redeemable convertible preferred stock warrant
	issued in conjunction with debt issuance                   |                                                                                             | $                                         |                                                     |          |        | $       |         |          |         | $       | 510     |        
|                                                      |                                                                                                            |                                                                                             |                                           |                                                      |          |        |         |          |          |         |         |        
|                                                      | Conversion of redeemable convertible preferred
	stock to common stock                                      |                                                                                             | $                                         |                                                     |          |        | $       | 100,919  |          |         | $       |        |        
|                                                      |                                                                                                            |                                                                                             |                                           |                                                      |          |        |         |          |          |         |         |        
|                                                      | Unrealized gain on short-term investments                                                                  |                                                                                             | $                                         |                                                     |          |        | $       | 26       |          |         | $       |        |        
|                                                      |                                                                                                            |                                                                                             |                                           |                                                      |          |        |         |          |          |         |         |        
|                                                      | Write-off of property and equipment to goodwill                                                            |                                                                                             | $                                         | 1,858                                                |          |        | $       |         |          |         | $       |        |        
|                                                      |                                                                                                            |                                                                                             |                                           |                                                      |          |        |         |          |          |         |         |        
|                                                      | Reversal of stock-based compensation due to
	employee terminations                                         |                                                                                             | $                                         | 9,041                                                |          |        | $       |         |          |         | $       |        |        
|                                                      |                                                                                                            |                                                                                             |                                           |                                                      |          |        |         |          |          |         |         |        

See accompanying notes to consolidated financial
statements.

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NIKU CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


1. DESCRIPTION OF BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

Niku Corporation (Niku or the Company) was
incorporated in Delaware on January 8, 1998. Niku designs,
develops and markets software for service organizations in large
enterprises. Nikus operations for the period from
January 8, 1998 (inception) through January 31, 1998
were not significant and are included in the Companys
results of operations for the year ended January 31, 1999.

For the periods covered by this annual report on
Form 10-K, the Company had a fiscal year that ended on the
Saturday nearest January 31. The Companys fiscal year
2002 ended on January 26, 2002. For presentation purposes
in this annual report on Form 10-K, the Company refers to
its fiscal year end as January 31. In fiscal 2003, the
Company changed its fiscal calendar to calendar month end so
fiscal 2003 will end on January 31, 2003.

BASIS OF PRESENTATION

The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries.
Unless otherwise specified, references to the Company are
references to the Company and its consolidated subsidiaries. All
significant intercompany accounts and transactions have been
eliminated in consolidation.

USE OF ESTIMATES

The preparation of consolidated financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and reported consolidated
results of operations during the reporting period. Estimates are
used for but not limited to accounting for doubtful accounts,
depreciation and amortization, sales returns, taxes, accrued
liabilities and contingencies. Actual results could differ from
those estimates.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid
investments with remaining maturities of 90 days or less at
the date of acquisition to be cash equivalents. Cash equivalents
consist of money market funds, commercial paper, government
notes and bonds and corporate notes and bonds and certificates
of deposit.

SHORT-TERM INVESTMENTS

The Companys marketable securities are
classified as available-for-sale and are reported at fair value,
with unrealized gains and losses, net of tax, recorded as a
component of accumulated other comprehensive income (loss) until
realized. Realized gains or losses and other than temporary
declines in fair value, if any, on available-for-sale securities
are reported in other income or expense as incurred.

DERIVATIVES INSTRUMENTS AND HEDGING
ACTIVITIES

In June 1998, the FASB issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities, as amended. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for
hedging activities as amended by SFAS No. 137 and 138. It
requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and
measure those instruments at fair value. For a derivative not
designated as a hedging instrument, changes in the fair value of
the derivative are recognized in earnings in the period of
change. The Company adopted SFAS No. 133

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effective February 1, 2001 and it did not
have a material effect on the Companys consolidated
financial position or results of operations.


FINANCIAL INSTRUMENTS AND CONCENTRATION OF
CREDIT RISK

The carrying value of the Companys
financial instruments, including cash and cash equivalents,
short-term investments, accounts receivable and short-term
liabilities approximates fair value. Financial instruments that
subject the Company to concentrations of credit risk consist
primarily of cash and cash equivalents and accounts receivable.
Management believes the financial risks associated with these
financial instruments are minimal. The Company maintains its
cash and cash equivalents with high quality financial
institutions. The Company performs ongoing credit evaluations of
its customers and generally does not require collateral on
accounts receivable. The Company regularly reviews the adequacy
of its accounts receivable allowance after considering the
amount of aged accounts receivable, the age of each invoice,
each customers expected ability to pay and its collection
history with each customer. The Company reviews any invoice
greater than 30 days past due to determine if an allowance
is appropriate based on the risk category using the factors
discussed above. In addition, the Company maintains a general
reserve for all invoices by applying a percentage to each aging
category. The allowance for doubtful accounts represents the
Companys best estimate, but changes in circumstances such
as our customers financial positions may result in a
requirement for additional allowances in the future.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost less
accumulated depreciation. Depreciation and amortization are
computed using the straight-line method over the estimated
useful lives of the assets, generally three years. Leasehold
improvements are amortized over the lease term. Gains and losses
on disposals are included in income at amounts equal to the
difference between the net book value of the disposed assets and
the proceeds received upon disposal. Expenditures for
replacements and improvements are capitalized, while
expenditures for maintenance and repairs are charged against
earnings as incurred.

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangibles assets were
generated through acquisitions accounted for under the purchase
accounting method. Goodwill represents the excess of the
consideration paid over the fair value of tangible and
identifiable intangible net assets acquired. Other intangible
assets consist of customer lists, assembled workforce, developed
and core technologies and tradenames. Goodwill and other
intangible assets were being amortized on a straight-line basis
over two to five years.

IMPAIRMENT OF LONG-LIVED ASSETS AND OTHER
ASSETS

The Company evaluates its long-lived assets,
including goodwill and identifiable intangibles, for impairment
whenever events or changes in circumstances indicate that the
carrying amount of these assets may not be recoverable. Factors
we consider important which could trigger an impairment review
include, but are not limited to, a significant decline in our
stock price for a sustained period, our market capitalization
relative to net book value, significant underperformance
relative to historical or projected future operating results,
significant changes in the manner of use of the acquired assets
or the strategy for the Companys overall business, and
significant negative industry or economic trends. Recoverability
of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future undiscounted net cash
flows expected to be generated by the asset. If these assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the
assets exceeds the fair value of the assets. The estimate of
fair value of an asset considers prices for similar assets and
the results of valuation techniques to the extent available in
the circumstances, such as the present value of estimated
expected future cash flows using a discount rate commensurate
with the risks involved. Assets to be disposed of are reported
at the lower of the carrying amount or fair value less costs to
sell.

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The Company regularly performs an impairment
assessment of its strategic equity investment it made in a
private company. In performing an impairment assessment, the
Company considers the business current solvency, future
access to capital and recent equity transactions.

The Company regularly performs an impairment
assessment of its prepaid royalties for the right to third-party
licensed technology. In performing an impairment assessment, the
Company considers the future inclusion of third-party technology
in its products and anticipated usage under the applicable
contract.

REVENUE RECOGNITION

The Company derives its revenue principally from
licenses of its products, maintenance, and support and delivery
of implementation services. The Company offers its products
primarily through its direct sales force. In certain
international markets, the Company also offers its products
indirectly through channel partners.

Revenue from license fees is recognized in
accordance with Statement of Position 97-2, Software
Revenue Recognition (SOP 97-2), as amended by
SOP 98-9, which permit revenue recognition and when
(1) persuasive evidence of an arrangement exists,
(2) delivery of the product has occurred and no significant
Niku obligations with regard to implementation remain,
(3) the fee is fixed or determinable, and
(4) collectibility is probable. Sales to channel partners
are recognized upon sell-through to the end-user customer. The
Company defines each of the four criteria above as follows:

Persuasive evidence of an arrangement
exists.It is the Companys
customary practice to have a written contract, which is signed
by both the customer and the Company, or a purchase order from
those customers who have previously negotiated a license
agreement with the Company.

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

The fee is fixed or
determinable.The Company negotiate
the fees for its products at the outset of an arrangement. In
these arrangements, the majority of the licenses are perpetual
and nonrefundable. The fees are generally due within six months
or less, The Company considers fees relating to arrangements
with payment terms extending beyond six months not to be fixed
or determinable. If the fee is not fixed or determinable,
revenue is recognized as payments become due from the customer.

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

Revenue from multiple-element software
arrangements is recognized using the residual value method. The
determination of the fair value of maintenance and support and
consulting services is based on the objective evidence of the
fair value of each element that is specific to the Company. The
Companys determination of fair value of each element in
multiple-element arrangements is based on vendor-specific
objective evidence (VSOE). The VSOE for each element is
established when the same element is sold separately. The
Company has analyzed and determined that it has sufficient VSOE
to allocate revenue to the maintenance and support services and
consulting services components of its perpetual license
arrangements. VSOE for maintenance and support is determined
based upon the customers annual renewal rates for this
element. The Company sells its consulting services separately
and has established VSOE on this basis.

Assuming all other revenue recognition criteria
are met, revenue from perpetual licenses is recognized upon
delivery using the residual method in accordance with
SOP 98-9. Maintenance and support revenue is deferred and
recognized on a straight-line basis over the contractual service
period, which is typically one year.

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The Companys software products are fully
functional upon delivery and implementation and do not require
significant modifications. The customer may implement using
their own resources or obtain the services of other consulting
service organizations to provide these services. Therefore, the
Companys consulting services are not considered essential
to the functionality of the other elements of the arrangement.
The revenue allocable to the consulting services is generally
recognized as the services are performed.


In years prior to fiscal 2002, license revenue
includes product licenses to companies from which the Company
has purchased products and services under separate arrangements
executed within a short period of time (reciprocal
arrangements). Products and services purchased in
reciprocal arrangements include: (1) software licensed for
internal use; (2) software licensed for resale or
incorporation into the Companys products; and
(3) development or implementation services. For reciprocal
arrangements, the Company considers Accounting Principles Board
(APB) No. 29, Accounting for Nonmonetary
Transactions,and Emerging Issues Task Force (EITF) Issue
No. 86-29, Nonmonetary Transactions: Magnitude of Boot
and Exceptions to the Use of Fair Value, Interpretation of
Accounting Principles Board No. 29, Accounting for
Nonmonetary Transactions, to determine whether the
arrangement is a monetary or nonmonetary transaction.
Transactions involving the exchange of boot representing 25% or
greater of the fair value of the reciprocal arrangement are
considered monetary transactions within the context of APB
No. 29 and EITF Issue No. 86-29. Monetary transactions
and nonmonetary transactions that represent the culmination of
an earnings process are recorded at the fair value of the
products delivered or products or services received, whichever
is more readily determinable, providing these fair values are
determinable within reasonable limits. In determining these fair
values, the Company considers the recent history of cash sales
of the same products or services in similar sized transactions.
For nonmonetary reciprocal arrangements that do not represent
the culmination of the earnings process, the exchange is
recorded based on the carrying value of the products delivered,
which is generally zero.

In fiscal 2002, the Company recognized no revenue
under reciprocal arrangements. Revenue recognized under
reciprocal arrangements was $16.4 million and
$3.5 million in the years ended January 31, 2001 and
2000, respectively, of which approximately $630,000 and
$1.5 million in the years ended January 31, 2001 and
2000, respectively, involved nonmonetary exchanges.

The Company has never engaged in a transaction in
which it provided product licenses or services to a customer in
exchange for an equity interest.

Deferred revenue includes amounts billed to
customers for which revenue have not been recognized. Deferred
revenue generally results from the following: (1) deferred
maintenance and support; (2) consulting services not yet
rendered for which we have been paid; (3) amounts billed to
customers with extended payment terms which amounts are not yet
due; and (4) for transactions in which one of the four
revenue recognition criteria has not been met.

CAPITALIZED LICENSE FEES

Capitalized license fees relate to royalties that
the Company has paid in advance to third parties for the right
to incorporate their technologies in the Companys
products. Prepaid royalties are expensed to cost of license
revenue when the products are sold to customers.

RESEARCH AND DEVELOPMENT

Research and development costs are expensed as
incurred until technological feasibility in the form of a
working model has been established. To date, the Companys
software has become available for general release concurrent
with the establishment of technological feasibility and,
accordingly, no development costs have been capitalized.

ADVERTISING EXPENSE

Advertising costs are expensed as incurred and
totaled $4.4 million, $14.0 million and
$4.3 million in the years ended January 31, 2002, 2001
and 2000, respectively.

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STOCK-BASED COMPENSATION

The Company uses the intrinsic-value method to
account for all of its employee stock-based compensation plans
including FASB Interpretation No. 44 (FIN 44), which
is an interpretation of Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees.
Stock-based compensation is being amortized over the vesting
period of individual award in a manner consistent with the
method described in Financial Accounting Standards Board (FASB)
Interpretation No. 28. The Company accounts for equity
instruments issued to non-employees in accordance with the
provisions of SFAS No. 123 and EITF Issue No. 96-18,
Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services.

INCOME TAXES

Income taxes are accounted for under the asset
and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes
the enactment date. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts expected
to be recovered.

NET LOSS PER SHARE

Basic net loss per share is computed using the
weighted-average number of outstanding shares of common stock,
excluding shares of restricted stock subject to repurchase
summarized below. Diluted net loss per share is computed using
the weighted-average number of shares of common stock
outstanding and, when dilutive, potential common shares from
options and warrants to purchase common stock and unvested
restricted stock using the treasury stock method and from
convertible securities on an as if converted basis.
The following potential common shares have been excluded from
the computation of diluted net loss per share because the effect
would have been antidilutive (in thousands):

|                                                                                |  |                         |        |      |  |      |        |  |  |  |        | 
|------------------------------------------------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                                                                                |  |                        
|                                                                                |  | Years Ended January 31,
|                                                                                |  |                        
|                                                                                |  | 2002                    |        | 2001 |  | 2000
|                                                                                |  |                         |        |      |  |     
|Shares issuable under stock options                                             |  |                         | 14,896 |      |  |      | 11,288 |  |  |  | 4,776  | 
|Shares of restricted stock subject to repurchase                                |  |                         | 313    |      |  |      | 1,393  |  |  |  | 2,150  | 
|Shares issuable under warrants                                                  |  |                         | 56     |      |  |      | 46     |  |  |  | 630    | 
|Shares of redeemable convertible preferred stock
	on an as if converted basis |  |                         |       |      |  |      |       |  |  |  | 47,619 | 

The weighted-average exercise price of options
outstanding as of January 31, 2002, 2001 and 2000 was
$1.62, $10.91 and $1.03 per share, respectively. The
weighted-average purchase price of restricted stock subject to
repurchase as of January 31, 2002, 2001 and 2000 was $1.00,
$3.13 and $0.84 per share, respectively. The weighted-average
exercise price of warrants as of January 31, 2002, 2001 and
2000 was $9.68, $11.58 and $0.75 per share, respectively.

COMPREHENSIVE LOSS

Comprehensive loss includes, in addition to net
loss, foreign currency translation adjustments and unrealized
gains or losses on short-term investments. Tax effects of the
other components of comprehensive loss have not been
material. The Company has reported components of comprehensive
loss in the accompanying consolidated statements of operations
and comprehensive loss.

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FOREIGN CURRENCY TRANSLATION

The functional currencies of the Companys
foreign subsidiaries is the local currency of the country in
which the respective subsidiary operates. Assets and liabilities
are translated using the exchange rate on the balance sheet
date. Revenue, expenses, gains and losses are translated at the
average exchange rate in effect during the period. Translation
adjustments are included in the consolidated balance sheet
caption Accumulated other comprehensive income.
Foreign currency transaction gains and losses are included in
interest income and other income (expense), net, and to date,
have not been material.

RECLASSIFICATIONS

Certain reclassifications have been made to prior
year amounts to conform to the current year presentation.

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the FASB issued SFAS No. 141,
Business Combinationsand SFAS No. 142, Goodwill
and Other Intangible Assets. SFAS No. 141 is effective
for all business combinations initiated after June 30, 2001
and requires the use of the purchase method of accounting,
includes criteria for the recognition of intangible assets
separately from goodwill, and mandates that all goodwill created
after June 30, 2001 will not be amortized. SFAS
No. 142 will be effective for fiscal years beginning after
December 15, 2001 at which time all goodwill amortization
will be discontinued, and instead goodwill must be tested for
impairment on at least an annual basis using a fair value
method. In addition, separately identified and recognized
intangible assets resulting from business combinations completed
before July 1, 2001 that do not meet the new criteria for
separate recognition of intangible assets will be reclassified
as goodwill at the effective date of SFAS No. 142. Those
intangible assets not reclassified to goodwill must be
reassessed and amortized over revised useful lives in accordance
with SFAS No. 142. Because the Company has not acquired a
company since June 30, 2001, and it has no goodwill or
other intangible assets, the Company anticipates no effect in
adopting SFAS No. 141 and No. 142.

In October 2001, the FASB issued SFAS
No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 requires that the fair value
of retirement obligations be recognized as a liability when they
are incurred and that the associated retirement costs be
capitalized as a long-term asset and expensed over its useful
life. The provisions of SFAS No. 143 will be effective for
fiscal years beginning after June 15, 2002. The Company
does not expect that the adoption of SFAS No. 143 will have
a significant effect on its financial position or results of
operations.

In October 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS No. 144 supersedes SFAS
No. 121, Accounting for the Impairment of Long-lived
Assets and Assets to be Disposed ofand the accounting and
reporting provisions of Accounting Principles Board Opinion
No. 30, Reporting the Results of Operations 
Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions. SFAS No. 144 establishes a single
accounting model for impairment or disposal by sale of
long-lived assets. The provisions of SFAS No. 144 will be
effective for fiscal years beginning after December 15,
2001. The Company is currently evaluating the potential impact,
if any, that the adoption of SFAS No. 144 will have on its
financial position and results of operation.

In November 2001, the FASB issued
Topic D-103 Income Statement Characterization of
Reimbursements Received for out-of-pocket Expenses
Incurred, which will require companies to report
reimbursements of Out-of-Pocket expenses as revenues
and the corresponding expenses incurred as costs of revenues
within the income statement. The Company is currently evaluating
the potential impact, if any, that the adoption of
Topic D-103 will have on its financial position and results
of operation which will be effective for its year ended
January 31, 2003. The Company will adopt this pronouncement
in the first quarter of fiscal 2003.

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2. ASSET IMPAIRMENT AND OTHER AND
IMPAIRMENT OF LICENSED TECHNOLOGY

The Company reviews its goodwill and other
intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying value may not be
recoverable. In the first quarter of fiscal 2002, the Company
performed an impairment assessment of its goodwill and other
intangible assets recorded in connection with its various
acquisitions due to a change in the Companys product plan
related to certain acquired technologies. This assessment was
based on the expected future cash flows from goodwill and
intangible assets over their remaining useful lives. As a result
of this assessment, the Company recorded $24.5 million in
asset impairment charges. This amount included
$21.7 million to write down the net book value of certain
goodwill and other intangible assets from its acquisitions of
Legal Anywhere, Inc. (Legal Anywhere), bSource.com, Inc.
(bSource), 600 Monkeys, Inc. (600 Monkeys) and Alyanza
Software Corporation (Alyanza) to zero except for the carrying
value of Legal Anywheres goodwill and customer lists which
was reduced to their estimated fair value of $1.8 million.
In the second quarter of fiscal 2002, the Company also performed
an additional impairment assessment of goodwill and other
intangible assets recorded in connection with its acquisitions
of ABT Corporation (ABT), Proamics Corporation (Proamics)
and Legal Anywhere. This assessment was performed primarily due
to a significant decline in the Companys stock price which
resulted in the net book value of the Companys assets
significantly exceeding the Companys market
capitalization. As a result of this assessment, the Company
recorded $114.4 million in asset impairment charges which
reduced the fair value of goodwill and other intangible assets
related to its acquisitions of ABT, Proamics and Legal Anywhere
to zero. The estimate of the fair value was based on the
estimated future discounted cash flows for the remaining life of
the goodwill and other intangible assets using a discount rate
of 25% and an estimated terminal value. The assumptions
supporting the estimated cash flows, including the discount rate
and an estimated terminal value, reflect managements best
estimates. The discount rate was based upon the weighted average
cost of capital for comparable companies. In fiscal 2002, the
Company recorded $138.9 million in asset impairment
charges, consisted of $136.1 million as a result of the
above two assessments, $1.9 million in accelerated
depreciation for internally used software and $874,000 to write
off fixed assets that the Company no longer utilized. Asset
impairment and other charges consisted of the following (in
thousands):

|                        |  |   |         | 
|----------------------- |  | - | ------- | 
|ABT                     |  | $ | 84,625  | 
|Proamics                |  |   | 28,530  | 
|Legal Anywhere          |  |   | 10,493  | 
|bSource                 |  |   | 8,150   | 
|600 Monkeys             |  |   | 4,134   | 
|Alyanza                 |  |   | 164     | 
|Other asset impairments |  |   | 2,827   | 
|                        |  |   |         | 
|                        |  | $ | 138,923 | 
|                        |  |   |         | 

In fiscal 2002, the Company determined that the
carrying value of certain royalties that the Company had prepaid
for the right to third party licensed technology would not be
realized. The Company recorded $9.4 million in cost of
revenue for impairment of licensed technology, including
$8.5 million from prepaid royalties on third-party
technologies and $850,000 from royalties paid in fiscal 2002, in
each case on third-party technologies which the Company will not
be including with its products at all or at the extent required
under the applicable contracts due to a change in the
Companys product plan.

3. RESTRUCTURING

In fiscal 2002, the Company implemented a
restructuring program. The Company restructured its operations
and reduced its workforce by approximately 665 employees as
part of the restructuring program. The Company also vacated
17 leased facilities, retired certain property and
equipment and other assets and exited the legal vertical market.
These reductions in workforce affected all functional groups of
the Company.

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The Company recorded $24.4 million in
restructuring and exit costs in the year ended January 31,
2002 and consisted of the following (in thousands):


|                                                               |  |                  |     |                  |  |                       |        |                  |  |                  |        |   |  |   |        |  |  |   |        | 
|-------------------------------------------------------------- |  | ---------------- | --- | ---------------- |  | --------------------- | ------ | ---------------- |  | ---------------- | ------ | - |  | - | ------ |  |  | - | ------ | 
|                                                               |  |                  |     | Restructuring    |  |                       |        |                  |  |                 
|                                                               |  |                  |     | and Exit         |  | Reclassifications     |        |                  |  |                 
|                                                               |  | Accrued          |     | Costs in the     |  | and Write Offs in the |        | Paid in the      |  | Accrued         
|                                                               |  | as of            |     | Year Ended       |  | Year Ended            |        | Year Ended       |  | as of           
|                                                               |  | January 31, 2001 |     | January 31, 2002 |  | January 31, 2002      |        | January 31, 2002 |  | January 31, 2002
|                                                               |  |                  |     |                  |  |                       |        |                  |  |                 
|Loss on retirement of property and equipment and
	other assets |  | $                |    |                  |  | $                     | 11,814 |                  |  | $                | 11,814 |   |  | $ |       |  |  | $ |       | 
|Severance                                                      |  |                  |    |                  |  |                       | 7,522  |                  |  |                  |       |   |  |   | 7,257  |  |  |   | 265    | 
|Lease termination costs                                        |  |                  |    |                  |  |                       | 11,041 |                  |  |                  | (593   | ) |  |   | 968    |  |  |   | 10,666 | 
|Exit costs for business line                                   |  |                  | 935 |                  |  |                       | 1,414  |                  |  |                  |       |   |  |   | 1,706  |  |  |   | 643    | 
|Other exit costs                                               |  |                  |    |                  |  |                       | 1,143  |                  |  |                  | 225    |   |  |   | 494    |  |  |   | 424    | 
|Stock-based compensation adjustment                            |  |                  |    |                  |  |                       | (8,581 | )                |  |                  | (8,581 | ) |  |   |       |  |  |   |       | 
|                                                               |  |                  |     |                  |  |                       |        |                  |  |                  |        |   |  |   |        |  |  |   |        | 
|                                                               |  | $                | 935 |                  |  | $                     | 24,353 |                  |  | $                | 2,865  |   |  | $ | 10,425 |  |  | $ | 11,998 | 
|                                                               |  |                  |     |                  |  |                       |        |                  |  |                  |        |   |  |   |        |  |  |   |        | 

The $11.8 million above in loss on
retirement of property and equipment and other assets also
included $1.3 million for the retirement of a marketing
software application and a $1.7 million write-off of
prepaid expenses associated with a consulting service
arrangement due to the reduction in headcount. The Company also
recorded an additional $725,000 in other exit costs to terminate
this consulting service arrangement, of which $225,000
represents the value of 300,000 shares of common stock that the
Company issued as part of this termination agreement.

The Company expects that of the restructuring and
exit costs accrued as of January 31, 2002, severance costs
and other exit costs will be paid by the first quarter of fiscal
2003, exit costs for business line will be paid no later than
May 2004 and lease termination costs will be paid no later than
February 2011. The above stock-based compensation adjustment
related to the reversal of previously recorded stock-based
compensation expenses for employees terminated pursuant to the
restructuring program.

4. BUSINESS COMBINATIONS

The Company acquired four companies in fiscal
2001. Each acquisition was accounted for as a purchase, with the
results of each acquired companys operations included in
the Companys results of operations from the date of its
acquisition. On August 5, 2000, the Company acquired ABT, a
privately-held company located in New York City,
New York. ABT was a provider of enterprise project
management solutions for information technology organizations.
On July 6, 2000, the Company acquired bSource, a
privately-held company in San Francisco, California. bSource was
a provider of a virtual marketplace for services such as web
development, law and public relations. On May 17, 2000, the
Company acquired 600 Monkeys, a privately-held company in
Cleveland, Ohio. 600 Monkeys was a provider of Internet
solutions for advertising and public relations agencies. On
January 31, 2000, the Company acquired Legal Anywhere, a
privately-held company in Portland, Oregon. Legal Anywhere
provided Internet-based collaborative tools to law firms and
corporate legal departments.

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The following tables summarize the consideration
paid and allocation of purchase price for each business
combination completed in the year ended January 31, 2001
(in thousands):

|                                    |  |     |         |         |  |             |       |                |  |       |       |  |  |   |        |  |  |   |         | 
|----------------------------------- |  | --- | ------- | ------- |  | ----------- | ----- | -------------- |  | ----- | ----- |  |  | - | ------ |  |  | - | ------- | 
|                                    |  | ABT |         | bSource |  | 600 Monkeys |       | Legal Anywhere |  | Total
|                                    |  |     |         |         |  |             |       |                |  |      
|Cash paid                           |  | $   | 10,000  |         |  | $           | 1,783 |                |  | $     | 1,000 |  |  | $ |       |  |  | $ | 12,783  | 
|Acquisition costs                   |  |     | 3,000   |         |  |             | 129   |                |  |       | 263   |  |  |   | 387    |  |  |   | 3,779   | 
|Common stock issued                 |  |     | 91,547  |         |  |             | 7,916 |                |  |       | 4,101 |  |  |   | 19,998 |  |  |   | 123,562 | 
|Options granted to former employees |  |     | 2,900   |         |  |             |      |                |  |       |      |  |  |   |       |  |  |   | 2,900   | 
|                                    |  |     |         |         |  |             |       |                |  |       |       |  |  |   |        |  |  |   |         | 
|                                    |  | $   | 107,447 |         |  | $           | 9,828 |                |  | $     | 5,364 |  |  | $ | 20,385 |  |  | $ | 143,024 | 
|                                    |  |     |         |         |  |             |       |                |  |       |       |  |  |   |        |  |  |   |         | 

|                                         |  |     |         |         |  |             |        |                |  |       |       |   |  |   |        |  |  |   |         |  
|---------------------------------------- |  | --- | ------- | ------- |  | ----------- | ------ | -------------- |  | ----- | ----- | - |  | - | ------ |  |  | - | ------- | -
|                                         |  | ABT |         | bSource |  | 600 Monkeys |        | Legal Anywhere |  | Total
|                                         |  |     |         |         |  |             |        |                |  |      
|Cash received                            |  | $   | 9,291   |         |  | $           |       |                |  | $     |      |   |  | $ | 1,146  |  |  | $ | 10,437  |  
|Other tangible assets (liabilities), net |  |     | (11,006 | )       |  |             | (1,456 | )              |  |       | (837  | ) |  |   | 221    |  |  |   | (13,078 | )
|Goodwill                                 |  |     | 59,040  |         |  |             | 11,284 |                |  |       | 6,201 |   |  |   | 14,508 |  |  |   | 91,033  |  
|Customer lists                           |  |     | 31,832  |         |  |             |       |                |  |       |      |   |  |   | 1,699  |  |  |   | 33,531  |  
|Developed and core technologies          |  |     | 12,698  |         |  |             |       |                |  |       |      |   |  |   | 2,329  |  |  |   | 15,027  |  
|Assembled workforce                      |  |     | 5,592   |         |  |             |       |                |  |       |      |   |  |   | 299    |  |  |   | 5,891   |  
|Tradename                                |  |     |        |         |  |             |       |                |  |       |      |   |  |   | 183    |  |  |   | 183     |  
|                                         |  |     |         |         |  |             |        |                |  |       |       |   |  |   |        |  |  |   |         |  
|                                         |  | $   | 107,447 |         |  | $           | 9,828  |                |  | $     | 5,364 |   |  | $ | 20,385 |  |  | $ | 143,024 |  
|                                         |  |     |         |         |  |             |        |                |  |       |       |   |  |   |        |  |  |   |         |  

The following summary, prepared on an unaudited
pro forma basis, combines the Companys consolidated
results of operations in the year ended January 31, 2001
and 2000 with ABTs, bSources, 600 Monkeys and
Legal Anywheres results of operations as if each company
had been acquired as of February 1, 1999. The one time
charge of $4.3 million in merger related expenses were
excluded from the pro forma results for the year ended
January 31, 2001 (in thousands, except per share data):

|                                               |  |                         |          |      |  |   |         |  
|---------------------------------------------- |  | ----------------------- | -------- | ---- |  | - | ------- | -
|                                               |  |                        
|                                               |  | Years Ended January 31,
|                                               |  |                        
|                                               |  | 2001                    |          | 2000
|                                               |  |                         |          |     
|Revenues                                       |  | $                       | 97,983   |      |  | $ | 89,700  |  
|Net loss                                       |  | $                       | (159,455 | )    |  | $ | (95,178 | )
|Basic and diluted net loss per share           |  | $                       | (2.31    | )    |  | $ | (6.19   | )
|Shares used in pro forma per share calculation |  |                         | 69,165   |      |  |   | 15,385  |  

The pro forma results are not necessarily
indicative of what would have occurred if the acquisitions had
been in effect for the period presented.

In connection with the acquisition of ABT, the
Company recorded deferred stock-based compensation in the amount
of $5.1 million, of which $2.0 million is being
amortized over the vesting period of 24 months,
$2.8 million was amortized over the vesting period of
12 months and $300,000 was amortized over the vesting
period of three months, in a manner consistent with FIN 28. The
Company also issued 462,275 shares of common stock in August
2001 to former ABT employees.

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5. CASH EQUIVALENTS AND SHORT-TERM
INVESTMENTS

Cash equivalents and short-term investments as of
January 31, 2002 consisted of $400,000 in government bonds
and are included in the caption Restricted Cash.
Cash equivalents and short-term investments as of
January 31, 2001 consisted of the following (in thousands):

|                                      |  |                  |        |            |  |            |    |       |  |   |     |   |  |   |        | 
|------------------------------------- |  | ---------------- | ------ | ---------- |  | ---------- | -- | ----- |  | - | --- | - |  | - | ------ | 
|                                      |  |                 
|                                      |  | January 31, 2001
|                                      |  |                 
|                                      |  | Amortized        |        | Unrealized |  | Unrealized |    | Fair 
|                                      |  | Cost             |        | Gains      |  | Losses     |    | Value
|                                      |  |                  |        |            |  |            |    |      
|Money market funds                    |  | $                | 14,704 |            |  | $          |   |       |  | $ |    |   |  | $ | 14,704 | 
|Certificate of deposits               |  |                  | 29,324 |            |  |            |   |       |  |   | (51 | ) |  |   | 29,273 | 
|Commercial paper                      |  |                  | 10,625 |            |  |            |   |       |  |   | (3  | ) |  |   | 10,622 | 
|Corporate notes and bonds             |  |                  | 22,131 |            |  |            | 98 |       |  |   | (18 | ) |  |   | 22,211 | 
|                                      |  |                  |        |            |  |            |    |       |  |   |     |   |  |   |        | 
|                                      |  | $                | 76,784 |            |  | $          | 98 |       |  | $ | (72 | ) |  | $ | 76,810 | 
|                                      |  |                  |        |            |  |            |    |       |  |   |     |   |  |   |        | 
|Included in cash and cash equivalents |  | $                | 31,200 |            |  | $          |   |       |  | $ | (9  | ) |  | $ | 31,191 | 
|Included in short-term investments    |  |                  | 45,184 |            |  |            | 98 |       |  |   | (63 | ) |  |   | 45,219 | 
|Included in restricted cash           |  |                  | 400    |            |  |            |   |       |  |   |    |   |  |   | 400    | 
|                                      |  |                  |        |            |  |            |    |       |  |   |     |   |  |   |        | 
|                                      |  | $                | 76,784 |            |  | $          | 98 |       |  | $ | (72 | ) |  | $ | 76,810 | 
|                                      |  |                  |        |            |  |            |    |       |  |   |     |   |  |   |        | 

6. ACCOUNTS RECEIVABLE, NET

Accounts receivable, net consisted of the
following (in thousands):

|                                |  |             |        |      |  |   |        |  
|------------------------------- |  | ----------- | ------ | ---- |  | - | ------ | -
|                                |  |            
|                                |  | January 31,
|                                |  |            
|                                |  | 2002        |        | 2001
|                                |  |             |        |     
|Unbilled accounts receivable    |  | $           | 3,702  |      |  | $ | 10,627 |  
|Accounts receivable             |  |             | 11,928 |      |  |   | 35,045 |  
|                                |  |             |        |      |  |   |        |  
|                                |  |             | 15,630 |      |  |   | 45,672 |  
|Allowance for doubtful accounts |  |             | (3,037 | )    |  |   | (6,440 | )
|                                |  |             |        |      |  |   |        |  
|                                |  | $           | 12,593 |      |  | $ | 39,232 |  
|                                |  |             |        |      |  |   |        |  

7. PROPERTY AND EQUIPMENT

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

|                                          |  |             |        |      |  |   |        |  
|----------------------------------------- |  | ----------- | ------ | ---- |  | - | ------ | -
|                                          |  |            
|                                          |  | January 31,
|                                          |  |            
|                                          |  | 2002        |        | 2001
|                                          |  |             |        |     
|Computer equipment and office equipment   |  | $           | 4,881  |      |  | $ | 7,955  |  
|Software                                  |  |             | 5,468  |      |  |   | 8,945  |  
|Furniture and fixtures                    |  |             | 2,658  |      |  |   | 2,495  |  
|Leasehold improvements                    |  |             | 6,065  |      |  |   | 5,970  |  
|                                          |  |             |        |      |  |   |        |  
|                                          |  |             | 19,072 |      |  |   | 25,365 |  
|Accumulated depreciation and amortization |  |             | (5,876 | )    |  |   | (5,433 | )
|                                          |  |             |        |      |  |   |        |  
|                                          |  | $           | 13,196 |      |  | $ | 19,932 |  
|                                          |  |             |        |      |  |   |        |  

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8. ACCRUED LIABILITIES

Accrued liabilities consisted of the following
(in thousands):

|                                       |  |             |        |      |  |   |        | 
|-------------------------------------- |  | ----------- | ------ | ---- |  | - | ------ | 
|                                       |  |            
|                                       |  | January 31,
|                                       |  |            
|                                       |  | 2002        |        | 2001
|                                       |  |             |        |     
|Accrued compensation and related costs |  | $           | 6,546  |      |  | $ | 8,542  | 
|Restructuring                          |  |             | 11,998 |      |  |   |       | 
|Accrued sales, use and property taxes  |  |             | 2,022  |      |  |   | 2,236  | 
|Other                                  |  |             | 8,009  |      |  |   | 9,972  | 
|                                       |  |             |        |      |  |   |        | 
|                                       |  | $           | 28,575 |      |  | $ | 20,750 | 
|Less: Long-term restructuring accrual  |  |             | 6,758  |      |  |   |       | 
|                                       |  |             |        |      |  |   |        | 
|                                       |  | $           | 21,817 |      |  | $ | 20,750 | 
|                                       |  |             |        |      |  |   |        | 

9. DEBT

In September 1999, the Company entered into a
loan and security agreement with a financial institution
providing a revolving line of credit up to $4.0 million.
The line of credit was increased to $10.0 million in July
2000 and to $25.0 million in January 2001. Interest on this
line of credit accrued at the rate of 9.25% per annum and is
collateralized by all tangible assets of the Company. This line
of credit expired in August 2001. In October 2001, we entered
into two loan agreements with the same financial institution
secured generally by certain of the Companys tangible and
intangible assets and providing lines of credit up to
$30.0 million, of which a $5.0 million line of credit
is secured by qualifying accounts receivables. As of
January 31, 2002, the Company had $27.0 million
outstanding under these lines of credit. These lines of credit
were repaid in full in February 2002. Interest on each of these
lines of credit accrues at the rate of 7.0% per annum. These
lines of credit will expire in July 2002. As of January 31,
2002, we were in compliance with all financial covenants
including those requiring the Company to maintain a minimum
liquidity of $10.0 million, incur less than
$29.0 million in operating expenses in the fourth quarter
of fiscal 2002 and incur a cash usage of less than
$15.0 million in the fourth quarter of fiscal 2002, as
defined.

In conjunction with the acquisition of ABT in
August 2000, the Company assumed a $744,000 loan that bears
interest at the rate of 8.25% per annum. As of January 31,
2002, the outstanding balance was approximately $120,000.

10. COMMITMENTS AND
CONTINGENCIES

In March 2000, the Company entered into a
facility lease agreement for its worldwide headquarters. The
lease term commenced upon possession of the facility in August
2001 and has a term of 15 years. Lease payments will be
made on an escalating basis and the total future minimum lease
payments amount to approximately $127.3 million over the
lease term. As part of this agreement, the Company is required
to hold a letter of credit drawable by the lessor totaling
approximately $5.9 million, secured by an equal amount of
cash deposits. The Company also has other facilities and
equipment leases under various noncancellable operating leases
with various expiration dates through 2011 that required letters
of credit drawable by lessor for $8.6 million.

Rental expense was approximately
$12.5 million, $4.4 million and $1.1 million for
the years ended January 31, 2002, 2001 and 2000,
respectively.

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Future minimum lease payments under
noncancelable, operating leases are as follows as of
January 31, 2002 (in thousands):

|                             |  |           |         | 
|---------------------------- |  | --------- | ------- | 
|                             |  | Operating
|Year Ended January 31,       |  | Leases   
|                             |  |          
|2003                         |  | $         | 16,014  | 
|2004                         |  |           | 11,152  | 
|2005                         |  |           | 10,908  | 
|2006                         |  |           | 10,040  | 
|2007                         |  |           | 8,551   | 
|Thereafter                   |  |           | 92,804  | 
|                             |  |           |         | 
|Total minimum lease payments |  | $         | 149,469 | 
|                             |  |           |         | 

Lease payments above, net of estimated sublease
income and brokerage fees, relating to leases the Company
vacated pursuant to the restructuring program amount to
$4.1 million, $1.3 million, $1.3 million
$842,000, $580,000, respectively, for the years ended
January 31, 2003, 2004, 2005, 2006 and 2007, respectively,
and $2.8 million thereafter. These amounts were recorded in
accrued liabilities and long-term restructuring accrual as of
January 31, 2002.

11. STOCKHOLDERS EQUITY

Repricing of Stock Options

On November 12, 2001, the Companys
board of directors, acting pursuant to existing terms of the
Companys stock options plans, approved a repricing of
approximately 8.9 million outstanding stock options with
exercise prices above $0.75. The exercise prices of all such
stock options were repriced to $0.75, which was the fair market
value of the Companys stock on November 12, 2001. The
options were repriced with no changes to the vesting schedule.
Options held by the Companys chief executive officer,
executive vice president, strategy and planning, board of
directors and non-employees were not repriced. The Company
accounted for the repriced options using variable accounting
whereby stock-based compensation for the options were remeasured
on January 31, 2002 and will be continuously remeasured
quarterly and recorded in the consolidated statements of
operations for each reporting period. The Company recorded
approximately $19.4 million in deferred stock-based
compensation and amortized $5.4 million in stock-based
compensation in the year ended January 31, 2002 relating to
these repriced stock options.

Common Shares Repurchase Program

In March 2001, the Companys board of
directors authorized the Company, from time to time and as
business conditions warrant, with no expiration date, to
repurchase shares of common stock at market price having an
aggregate value of up to $10.0 million in open market,
negotiated or block transactions. In fiscal 2002, the Company
repurchased 4,541,664 shares of common stock at an average
price per share of $0.79.

1998 Stock Option Plan

There were initially 8,000,000 shares of
common stock reserved for issuance to directors, employees and
consultants under the 1998 stock option plan (1998 Plan).
The 1998 Plan provided for the issuance of stock purchase
rights, incentive stock options or nonstatutory stock options.

The stock purchase rights are subject to a
restricted stock purchase agreement whereby the Company has the
right to repurchase the stock at the original issuance price
upon the voluntary or involuntary termination of the
purchasers employment with the Company. The Companys
repurchase right lapses at a rate of 25% per year over four
years or  1/3 per year over three years. Through
January 31, 2002, the Company had issued
3,399,750 shares under restricted stock purchase
agreements, of which approximately 1,305,638 shares had
been repurchased and 312,500 shares were subject to
repurchase at a weighted-average price of $1.00 per share.
Certain of these restricted shares were issued to officers of
the Company for full recourse promissory

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notes with interest rates ranging from 4.44% to
8.00% in the period from July 1998 to February 2000. As of
January 31, 2002 and 2001, the Company had repurchased
438,076 and 242,562 shares of common stock via forgiveness
of notes receivables from stockholders at a weighted average
price of $8.09 and $0.00, respectively.


Under the 1998 Plan, the exercise price for
incentive stock options was at least 100% of the stocks
fair market value on the date of grant for employees owning 10%
or less of the voting power of all classes of stock, and at
least 110% of the fair market value on the date of grant for
employees owning more than 10% of the voting power of all
classes of stock. For nonstatutory stock options, the exercise
price was also at least 110% of the fair market value on the
date of grant for employees owning more than 10% of the voting
power of all classes of stock and no less than 85% for employees
owning 10% or less of the voting power of all classes of stock.

Under the 1998 Plan, options generally expired in
ten years. However, the term of the options could be limited to
five years if the optionee owned stock representing more than
10% of the voting power of all classes of stock. Vesting periods
are determined by the Companys Board of Directors and
generally provided for shares to vest ratably over a five-year
period.

As of January 31, 2002, there were no
additional shares available for grant under the 1998 Plan.
Shares issued under the 1998 Plan that are subsequently canceled
or repurchased by the Company will become available under the
2000 Equity Incentive Plan. In addition, as of January 31,
2002, the Company had 3,753,944 shares of common stock
reserved for issuance under this Plan. The decrease in common
stock reserved for issuance under the 1998 Plan were added to
common stock reserved for issuance under the 2000 Equity
Incentive Plan.

2000 Equity Incentive Plan

During the fourth quarter of the fiscal year
ended January 31, 2000, the Company adopted the 2000 Equity
Incentive Plan (2000 Plan). The Company has initially
reserved 6,000,000 shares of common stock for issuance
under the 2000 Plan. Shares under the 1998 Plan that
were not issued or subject to outstanding options at the date
the 2000 Plan became effective are no longer available
under the 1998 Plan and have become available for grant
under the 2000 Plan. On each January 1, the aggregate
number of shares reserved for issuance under the 2000 Plan
will increase automatically by a number of shares equal to 5% of
the Companys total outstanding shares on December 31
of the preceding year. The 2000 Plan will terminate in 2010.

Under the 2000 Plan, the exercise price for
incentive stock options is at least 100% of the stocks
fair market value on the date of grant for employees owning 10%
or less of the voting power of all classes of stock, and at
least 110% of the fair market value on the date of grant for
employees owning more than 10% of the voting power of all
classes of stock. For nonstatutory stock options, the exercise
price is also at least 110% of the fair market value on the date
of grant for employees owning more than 10% of the voting power
of all classes of stock and no less than 85% for employees
owning 10% or less of the voting power of all classes of stock.

Under the 2000 Plan, options generally
expire in ten years. However, the term of the options may be
limited to five years if the optionee owns stock representing
more than 10% of the voting power of all classes of stock.
Vesting periods are determined by the Companys Board of
Directors and generally provide for shares to vest ratably over
a four-year period.

As of January 31, 2002, the Company had
6,404,092 shares available for grant and
18,404,772 shares of common stock reserved to issue under
the 2000 Plan, respectively.

2000 Stock Incentive Plan

In August 2000, the Company adopted the 2000
Stock Incentive Plan (2000 Incentive Plan) to provide incentives
to eligible employees, including employees hired in connection
with the Companys acquisition of ABT, bSource and
600 Monkeys. The Company has reserved 2,600,000 shares
of common stock for issuance under the 2000 Incentive Plan. The
exercise price of the incentive stock is determined by the Board
of

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Directors when the option is granted and may not
be less than the par value of the shares on the date of grant.
Under the 2000 Incentive Plan, options generally expire in ten
years. Vesting periods are determined by the Companys
Board of Directors.


As of January 31, 2002, 915,979 shares
were available for grant under the 2000 Incentive Plan.

Employee Stock Purchase Plan

In December 1999, the Company adopted the 2000
Employee Stock Purchase Plan (Purchase Plan) and reserved a
total of 1,000,000 shares of the Companys common stock for
issuance under the Purchase Plan. On each January 1, the
aggregate number of shares reserved for issuance under the
Purchase Plan increases automatically by a number of shares
equal to 1% of the Companys total outstanding shares on
December 31 of the preceding year. The aggregate number of
shares reserved for issuance under the Purchase Plan may not
exceed 10,000,000 shares. Generally, the offering period is
24 months in length. The Purchase Plan permits eligible
employees to purchase common stock through payroll deductions at
a purchase price of 85% of the lower of the fair market value of
the common stock at the beginning of the applicable offering
period or the end of the applicable purchase period. The Company
issued 425,587 and 75,240 shares of common stock under the
Purchase Plan in the years ended January 31, 2002 and 2001
at a weighted-average purchase price of $2.92 and $20.36 per
share, respectively.

Stock-Based Compensation

The Company uses the intrinsic-value method in
accounting for its employee stock-based compensation plans.
Accordingly, no compensation cost has been recognized for any of
its stock options granted or restricted stock sold because the
exercise price of each option or purchase price of each share of
restricted stock equaled or exceeded the fair value of the
underlying common stock as of the grant date for each stock
option or purchase date of each restricted stock share, except
for stock options granted and restricted stock sold from
January 31, 1998 through February 28, 2000 and in
January 2001 and November 2001. With respect to the stock
options granted and restricted stock sold from January 31,
1998 to February 28, 2000, in January 2001 and November
2001, the Company recorded deferred stock compensation of
$48.9 million for the difference at the grant or issuance
date between the exercise price of each stock option granted or
purchase price of each restricted share sold and the fair value
of the underlying common stock. This amount is being amortized
over the vesting period, generally six months to five years,
consistent with the method described in FASB Interpretation
No. 28.

Had compensation costs been determined in
accordance with SFAS No. 123 for all of the Companys
stock-based compensation plans, net loss and basic and diluted
net loss per share would have been as follows (in thousands,
except per share data):

|                                     |             |                         |   |          |   |      |   |          |   |  |   |         |  
|------------------------------------ | ----------- | ----------------------- | - | -------- | - | ---- | - | -------- | - |  | - | ------- | -
|                                     |             |                        
|                                     |             | Years Ended January 31,
|                                     |             |                        
|                                     |             | 2002                    |   | 2001     |   | 2000
|                                     |             |                         |   |          |   |     
|Net loss:                            |             |                         |   |          |   |      |   |          |   |  |   |        
|                                     | As reported |                         | $ | (291,546 | ) |      | $ | (130,876 | ) |  | $ | (36,487 | )
|                                     | Pro forma   |                         |   | (303,946 | ) |      |   | (172,429 | ) |  |   | (36,838 | )
|Basic and diluted net loss per share |             |                         |   |          |   |      |   |          |   |  |   |        
|                                     | As reported |                         | $ | (3.92    | ) |      | $ | (1.96    | ) |  | $ | (5.61   | )
|                                     | Pro forma   |                         |   | (4.09    | ) |      |   | (2.58    | ) |  |   | (5.66   | )

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The fair value of each option is estimated on the
date of grant using the minimum value method prior to the
initial public offering and the Black-Scholes option pricing
model after the IPO, with no expected dividends and the
following weighted-average assumptions:

|                        |  |                         |      |      |  |      |      |   |  |  |      |  
|----------------------- |  | ----------------------- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                        |  |                        
|                        |  | Years Ended January 31,
|                        |  |                        
|                        |  | 2002                    |      | 2001 |  | 2000
|                        |  |                         |      |      |  |     
|Expected life (years)   |  |                         | 3.0  |      |  |      | 3.5  |   |  |  | 4.0  |  
|Risk-free interest rate |  |                         | 3.67 | %    |  |      | 4.76 | % |  |  | 5.95 | %
|Volatility              |  |                         | 150  | %    |  |      | 100  | % |  |  |     |  

The fair value of purchase rights under the
Purchase Plan is estimated on the date of grant using the
Black-Scholes option pricing model with the following
weighted-average assumptions for shares issued in the year ended
January 31, 2002 and 2001, respectively:

|                        |  |                         |      |      |  |      |      |   |  |  |   | 
|----------------------- |  | ----------------------- | ---- | ---- |  | ---- | ---- | - |  |  | - | 
|                        |  |                        
|                        |  | Years Ended January 31,
|                        |  |                        
|                        |  | 2002                    |      | 2001 |  | 2000
|                        |  |                         |      |      |  |     
|Expected life (years)   |  |                         | 1.25 |      |  |      | 1.25 |   |  |  |  | 
|Risk-free interest rate |  |                         | 2.22 | %    |  |      | 4.73 | % |  |  |  | 
|Volatility              |  |                         | 150  | %    |  |      | 100  | % |  |  |  | 

The weighted average fair value of purchase
rights granted under the Purchase Plan was $2.18 and $13.60 per
share in the year ended January 31, 2002 and 2001,
respectively.

A summary of the status of the Companys
stock option plans as of January 31, 2002, 2001 and 2000
and changes during the years ended on those dates is presented
below:

|                                                                                                                           |  |                         |             |           |  |        |       |           |  |        |            |           |  |   |       |  |  |  |            |   |  |   |      | 
|-------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ----------- | --------- |  | ------ | ----- | --------- |  | ------ | ---------- | --------- |  | - | ----- |  |  |  | ---------- | - |  | - | ---- | 
|                                                                                                                           |  |                        
|                                                                                                                           |  | Years Ended January 31,
|                                                                                                                           |  |                        
|                                                                                                                           |  |                         |             |           |  |       
|                                                                                                                           |  | 2002                    |             | 2001      |  | 2000  
|                                                                                                                           |  |                         |             |           |  |       
|                                                                                                                           |  |                         |             | Weighted- |  |        |       | Weighted- |  |        |            | Weighted-
|                                                                                                                           |  |                         |             | Average   |  |        |       | Average   |  |        |            | Average  
|                                                                                                                           |  |                         |             | Exercise  |  |        |       | Exercise  |  |        |            | Exercise 
|                                                                                                                           |  | Shares                  |             | Price     |  | Shares |       | Price     |  | Shares |            | Price    
|                                                                                                                           |  |                         |             |           |  |        |       |           |  |        |            |          
|Outstanding at beginning of year                                                                                           |  |                         | 11,288,215  |           |  | $      | 10.91 |           |  |        | 4,775,814  |           |  | $ | 1.03  |  |  |  | 3,473,500  |   |  | $ | 0.08 | 
|Granted                                                                                                                    |  |                         | 20,068,140  |           |  |        | 1.48  |           |  |        | 10,740,093 |           |  |   | 13.52 |  |  |  | 3,575,960  |   |  |   | 1.42 | 
|Canceled                                                                                                                   |  |                         | (15,167,715 | )         |  |        | 8.40  |           |  |        | (2,584,282 | )         |  |   | 8.61  |  |  |  | (464,830   | ) |  |   | 0.18 | 
|Exercised                                                                                                                  |  |                         | (1,292,769  | )         |  |        | 0.43  |           |  |        | (1,643,410 | )         |  |   | 2.84  |  |  |  | (1,808,816 | ) |  |   | 0.20 | 
|                                                                                                                           |  |                         |             |           |  |        |       |           |  |        |            |           |  |   |       |  |  |  |            |   |  |   |      | 
|Outstanding at end of year                                                                                                 |  |                         | 14,895,871  |           |  |        | 1.62  |           |  |        | 11,288,215 |           |  |   | 10.91 |  |  |  | 4,775,814  |   |  |   | 1.03 | 
|                                                                                                                           |  |                         |             |           |  |        |       |           |  |        |            |           |  |   |       |  |  |  |            |   |  |   |      | 
|Options exercisable at end of year                                                                                         |  |                         | 3,272,025   |           |  |        | 3.33  |           |  |        | 1,167,971  |           |  |   | 5.15  |  |  |  | 516,379    |   |  |   | 1.62 | 
|                                                                                                                           |  |                         |             |           |  |        |       |           |  |        |            |           |  |   |       |  |  |  |            |   |  |   |      | 
|Weighted-average fair value of options granted
	during the year with exercise price equal to fair value at date
	of grant  |  |                         | 19,623,140  |           |  |        | 1.23  |           |  |        | 8,711,617  |           |  |   | 10.20 |  |  |  |           |   |  |   |     | 
|Weighted-average fair value of options granted
	during the year with exercise price less than fair value at date
	of grant |  |                         | 445,000     |           |  |        | 0.71  |           |  |        | 2,028,476  |           |  |   | 16.23 |  |  |  | 3,575,960  |   |  |   | 5.31 | 

Options granted and canceled for the year ended
January 31, 2002, included approximately 8.9 million
stock options repriced.

50



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##### Table of Contents



The following table summarizes information about
stock options outstanding as of January 31, 2002:

|                |  |                     |            |             |  |           |      |                     |  |           |       |  |  |  |           |  |  |   |       | 
|--------------- |  | ------------------- | ---------- | ----------- |  | --------- | ---- | ------------------- |  | --------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                |  |                     |            |             |  |          
|                |  | Options Outstanding |            |             |  |          
|                |  |                     |            |            
|                |  |                     |            | Weighted-   |  |           |      | Options Exercisable
|                |  |                     |            | Average     |  |           |      |                    
|                |  |                     |            | Remaining   |  | Weighted- |      |                     |  | Weighted-
|                |  | Number              |            | Contractual |  | Average   |      | Number              |  | Average  
|Range of        |  | of                  |            | Life        |  | Exercise  |      | of                  |  | Exercise 
|Exercise Price  |  | Shares              |            | (Years)     |  | Price     |      | Shares              |  | Price    
|                |  |                     |            |             |  |           |      |                     |  |          
|$0.00 - $3.05   |  |                     | 14,192,900 |             |  |           | 9.00 |                     |  | $         | 0.96  |  |  |  | 2,802,230 |  |  | $ | 1.07  | 
|$3.06 - $6.10   |  |                     | 1,541      |             |  |           |     |                     |  |           | 3.80  |  |  |  | 1,541     |  |  |   | 3.80  | 
|$6.11 - $9.16   |  |                     | 2,400      |             |  |           | 1.90 |                     |  |           | 6.77  |  |  |  | 2,400     |  |  |   | 6.77  | 
|$9.17 - $12.22  |  |                     | 438,971    |             |  |           | 7.90 |                     |  |           | 11.11 |  |  |  | 210,807   |  |  |   | 11.09 | 
|$12.23 - $15.27 |  |                     | 4,895      |             |  |           |     |                     |  |           | 14.78 |  |  |  | 4,895     |  |  |   | 14.78 | 
|$15.28 - $18.33 |  |                     | 3,791      |             |  |           |     |                     |  |           | 17.57 |  |  |  | 3,791     |  |  |   | 17.57 | 
|$18.34 - $21.38 |  |                     | 151,541    |             |  |           | 0.40 |                     |  |           | 19.82 |  |  |  | 148,040   |  |  |   | 19.81 | 
|$21.39 - $24.44 |  |                     | 10,887     |             |  |           |     |                     |  |           | 22.79 |  |  |  | 10,887    |  |  |   | 22.79 | 
|$24.45 - $27.50 |  |                     | 84,862     |             |  |           | 7.80 |                     |  |           | 25.04 |  |  |  | 84,862    |  |  |   | 25.04 | 
|$27.51 - $30.56 |  |                     | 4,083      |             |  |           | 5.10 |                     |  |           | 29.29 |  |  |  | 2,572     |  |  |   | 29.46 | 
|                |  |                     |            |             |  |           |      |                     |  |           |       |  |  |  |           |  |  |   |       | 
|                |  |                     | 14,895,871 |             |  |           | 8.90 |                     |  |           | 1.62  |  |  |  | 3,272,025 |  |  |   | 3.33  | 
|                |  |                     |            |             |  |           |      |                     |  |           |       |  |  |  |           |  |  |   |       | 

12. INCOME TAXES

The Companys income tax expense amounted to
$379,000 and $363,000 for the years ended January 31, 2002
and 2001, respectively and are included in interest income and
other income (expense), net, in the accompanying consolidated
statements of operations. The Company did not have income tax
expense for the year ended January 31, 2000.

|         |         |               |   |      |     |  |   |     |     | 
|-------- | ------- | ------------- | - | ---- | --- |  | - | --- | --- | 
|         |         |              
|         |         | Years Ended  
|         |         | January 31,  
|         |         |              
|         |         | 2002          |   | 2001
|         |         |               |   |     
|Current: |         |               |   |      |     |  |   |    
|         | State   |               | $ | 123  |     |  | $ | 35  |    
|         | Foreign |               |   | 256  |     |  |   | 328 |    
|         |         |               |   |      |     |  |   |    
|         |         | Total current |   | $    | 379 |  |   | $   | 363 | 
|         |         |               |   |      |     |  |   |    

The Companys pretax losses from operations
were $291,167,000 and $130,513,000 in the years ended
January 31, 2002 and 2001, respectively.

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The reconciliations between the income tax
amounts computed by applying the U.S federal statutory tax
rate of 34% to income (loss) before income taxes and actual
income taxes are as follows (in thousands):

|                                                                                |       |                         |          |      |  |      |         |     |  |   |         |   | 
|------------------------------------------------------------------------------- | ----- | ----------------------- | -------- | ---- |  | ---- | ------- | --- |  | - | ------- | - | 
|                                                                                |       |                        
|                                                                                |       | Years Ended January 31,
|                                                                                |       |                        
|                                                                                |       | 2002                    |          | 2001 |  | 2000
|                                                                                |       |                         |          |      |  |     
|Expected income tax expense (benefit)                                           |       | $                       | (101,987 | )    |  | $    | (44,455 | )   |  | $ | (12,406 | )
|Nondeductible expenses                                                          |       |                         | 189      |      |  |      | 296     |     |  |   | 63      |  
|Goodwill amortization                                                           |       |                         | 37,317   |      |  |      | 6,860   |     |  |   | 810     |  
|Stock-based compensation                                                        |       |                         | 4,033    |      |  |      | 7,900   |     |  |   | 2,134   |  
|State income taxes                                                              |       |                         | 123      |      |  |      | 35      |     |  |   |        |  
|Foreign taxes                                                                   |       |                         | 373      |      |  |      | 328     |     |  |   |        |  
|Merger costs                                                                    |       |                         |         |      |  |      | 1,362   |     |  |   |        |  
|Net operating loss and temporary differences for
	which no benefit was realized |       |                         | 60,331   |      |  |      | 28,037  |     |  |   | 9,399   |  
|                                                                                |       |                         |          |      |  |      |         |     |  |   |         |  
|                                                                                | Total |                         | $        | 379  |  |      | $       | 363 |  |   | $       |  | 
|                                                                                |       |                         |          |      |  |      |         |     |  |   |         |  

The tax effects of temporary differences that
give rise to significant portions of the deferred tax assets and
liabilities are as follows (in thousands):

|                          |                                                        |                         |                                      |          |   |         |   |         |        |         |  
|------------------------- | ------------------------------------------------------ | ----------------------- | ------------------------------------ | -------- | - | ------- | - | ------- | ------ | ------- | -
|                          |                                                        |                        
|                          |                                                        | January 31,            
|                          |                                                        |                        
|                          |                                                        | 2002                    |                                      | 2001    
|                          |                                                        |                         |                                      |         
|Deferred tax assets:      |                                                        |                         |                                      |          |   |         |   |        
|                          | Net operating loss                                     |                         | $                                    | 80,007   |   |         | $ | 38,659  |       
|                          | Credit carryforwards                                   |                         |                                      | 6,099    |   |         |   | 4,008   |       
|                          | Property and equipment                                 |                         |                                      | 4,322    |   |         |   | 2,163   |       
|                          | Accruals and reserves not deductible for tax
	purposes |                         |                                      | 6,329    |   |         |   | 6,286   |       
|                          | Deferred stock-based compensation                      |                         |                                      | 4,365    |   |         |   | 3,075   |       
|                          | Deferred revenue                                       |                         |                                      | 891      |   |         |   |        |       
|                          | State income tax                                       |                         |                                      | 43       |   |         |   |        |       
|                          | Compensation accruals                                  |                         |                                      | 1,299    |   |         |   |        |       
|                          | Other intangible assets                                |                         |                                      |         |   |         |   | 4       |       
|                          |                                                        |                         |                                      |          |   |         |   |        
|                          |                                                        |                         | Total gross deferred tax assets      |          |   | 103,355 |   |         |        | 54,195  |  
|                          | Valuation allowance                                    |                         |                                      | (103,355 | ) |         |   | (31,013 | )     
|                          |                                                        |                         |                                      |          |   |         |   |        
|                          |                                                        | Net deferred tax assets |                                      |          |  |         |   |         | 23,182 |        
|Deferred tax liabilities: |                                                        |                         |                                      |          |   |         |   |        
|                          | Acquired intangible assets                             |                         |                                      |         |   |         |   | (23,171 | )     
|                          | State income taxes                                     |                         |                                      |         |   |         |   | (11     | )     
|                          |                                                        |                         |                                      |          |   |         |   |        
|                          |                                                        |                         | Total gross deferred tax liabilities |          |   |        |   |         |        | (23,182 | )
|                          |                                                        |                         |                                      |          |   |         |   |        
|                          |                                                        | $                       |                                     |          |   | $       |  |        
|                          |                                                        |                         |                                      |          |   |         |   |        

The net changes in the valuation allowance for
the years ended January 31, 2002 and 2001 were increases of
$72.3 million and $15.6 million, respectively. The
Company believes sufficient uncertainty exists regarding its
ability to realize its deferred tax assets and, accordingly, a
valuation allowance has been established against the net
deferred tax assets.

Approximately $3.2 million of the valuation
allowance for deferred tax assets is attributable to employee
stock option deductions, the benefit from which will be
allocated to paid-in capital rather than current earnings if and
when subsequently realized.

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As of January 31, 2002 the Company had
approximately $211.8 million and $77.2 million of net
operating loss carryforwards for both federal and state purposes
available to offset taxable income in future years. The federal
net operating loss carryforwards expire if not utilized by 2021
and the state net operating loss carryforwards expire if not
utilized by 2011. In addition, the Company had approximately
$3.9 million and $2.2 million of tax credit
carryforwards for increased research expenditures for federal
and state purposes, respectively. The increased research credit
for federal purposes expires if not utilized by 2021 and the
increased research credit for state purposes can be carried over
indefinitely. The Company also had approximately $423,000 of
manufacturers investment credit carryforwards for state
purposes, which expire if not utilized by 2010.

Federal and state laws impose substantial
restrictions on the utilization of net operating loss and tax
credit carryforwards in the event of an ownership
change, as defined in Section 382 of the Internal
Revenue Code. The Company has not yet determined whether an
ownership change occurred due to significant stock transactions
in each of the reporting years disclosed. If an ownership change
has occurred, utilization of the net operating loss and tax
credit carryforwards could be significantly reduced.

13. SEGMENT INFORMATION

SFAS No. 131, Disclosure About Segments
of an Enterprise and Related Information,establishes
standards for the reporting by public business enterprises of
information about operating segments, products and services,
geographic areas and major customers. The method for determining
what information to report is based on the way that management
organizes the operating segments within the Company for making
operational decisions and assessments of financial performance.

The Companys chief operating decision maker
is considered to be the chief executive officer and the
operating committee which consists of the chief financial
officer, the president of global operations and executive vice
president of strategy and planning. The chief executive officer
and the operating committee review financial information
presented on a consolidated basis for purposes of making
operating decisions and assessing financial performance. The
Company operates in a single segment: software.

Disaggregated information is as follows (in
thousands):

|          |             |                         |   |        |  |      |   |        |  |  |   |       | 
|--------- | ----------- | ----------------------- | - | ------ |  | ---- | - | ------ |  |  | - | ----- | 
|          |             |                        
|          |             | Years Ended January 31,
|          |             |                        
|          |             | 2002                    |   | 2001   |  | 2000
|          |             |                         |   |        |  |     
|Services: |             |                         |   |        |  |      |   |        |  |  |   |      
|          | Consulting  |                         | $ | 13,268 |  |      | $ | 12,889 |  |  | $ | 2,182 | 
|          | Maintenance |                         |   | 20,679 |  |      |   | 8,420  |  |  |   | 391   | 
|          |             |                         |   |        |  |      |   |        |  |  |   |      
|          |             |                         | $ | 33,947 |  |      | $ | 21,309 |  |  | $ | 2,573 | 
|          |             |                         |   |        |  |      |   |        |  |  |   |      

It is impractical for the Company to disclose
license revenue by product type.

The Company markets its products primarily from
its operations in the United States. International sales are
primarily to customers in Europe. Revenue is attributed to the
location of the customers. Geographic information regarding the
Companys revenue is as follows (in thousands):

|                 |  |                         |        |      |  |      |        |  |  |   |       | 
|---------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ----- | 
|                 |  |                        
|                 |  | Years Ended January 31,
|                 |  |                        
|                 |  | 2002                    |        | 2001 |  | 2000
|                 |  |                         |        |      |  |     
|United States    |  | $                       | 34,620 |      |  | $    | 56,026 |  |  | $ | 8,157 | 
|Europe and other |  |                         | 31,301 |      |  |      | 12,896 |  |  |   |      | 
|                 |  |                         |        |      |  |      |        |  |  |   |       | 
|                 |  | $                       | 65,921 |      |  | $    | 68,922 |  |  | $ | 8,157 | 
|                 |  |                         |        |      |  |      |        |  |  |   |       | 

The Companys long-lived assets residing in
countries other than in the United States are insignificant.

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There were no customers individually representing
more than 10% of gross accounts receivables (including unbilled
accounts receivable) as of January 31, 2002 and 2001,
respectively. There were no customers individually representing
more than 10% of total revenue in fiscal 2002, 2001 and 2000,
respectively.

14. LITIGATION

In August 2001, the Company, as well as certain
of its officers and directors, has been named as defendants in a
number of purported securities class actions in United States
District Court for the Southern District of New York, arising
out of the Companys initial public offering in February
2000 (the IPO). Various underwriters of the IPO also
are named as defendants in the actions. The complaints allege,
among other things, that the registration statement and
prospectus filed with the Securities and Exchange Commission for
purposes of the IPO were false and misleading because they
failed to disclose that the underwriters allegedly
(i) solicited and received commissions from certain
investors in exchange for allocating to them shares of Company
stock in connection with the IPO and (ii) entered into
agreements with their customers to allocate such stock to those
customers in exchange for the customers agreeing to purchase
additional Company shares in the aftermarket at pre-determined
prices. On August 8, the Court ordered that these actions,
along with hundreds of IPO allocation cases against other
issuers, be transferred to Judge Scheindlin for coordinated
pre-trial proceedings. At a status conference held on
September 7, 2001, Judge Scheindlin adjourned all
defendants time to respond to the complaints until further
order of the Court. These cases remain at a preliminary stage
and no discovery proceedings have taken place. The Company
believes that the claims asserted against it in these cases are
without merit and the Company intends to defend vigorously
against them. These actions seek compensatory damages in
unspecified amounts as well as other relief.

In December 2001, Brugger Corporation, the lessor
of the Companys former headquarters, filed suit in the
Superior Court of California for San Mateo County alleging that
the Company breached the lease for such facility. Brugger seeks
damages for breach of written lease, declaratory relief, and
rescission. The Company has denied liability and filed a
cross-complaint for various affirmative relief against Brugger.
The disposition of the principal motions in the case to date is
as follows: (i) On March 14, 2002, Bruggers
motion to dismiss the Companys cross-complaint was denied
with respect to a majority of the Companys claims,
allowing such claims to proceed. (ii) On April 15,
2002, Bruggers motion for a writ of attachment in the
amount of $6.3 million was granted. The grant of this writ
provides Brugger with security in the event it prevails in the
case. The Company expects to provide security in the amount of
$6.3 million in the form of a certificate of deposit,
letter of credit, or bond in lieu of attachment. While such an
instrument is in place, the Companys access to the funds
covered thereby will likely be restricted. Discovery in the case
has begun and is ongoing. No trial date has yet been set in the
case. The Company believes Bruggers claims are without
merit, and it intends to vigorously defend against them. The
Company believes its cross-complaint is meritorious, and it
intends to vigorously prosecute such cross-complaint.

In November 2001, Deborah Donoghue filed a suit
against the Company and two of its officers, Farzad Dibachi and
Rhonda Dibachi, in United States District Court for the Southern
District of New York. The Complaint alleges a violation of
Section 16(b) of the securities laws for certain trades
made by Mr. and Mrs. Dibachi and trades made by
Florence V, LLC, a Minnesota Limited Liability Company. The
Company investigated these claims prior to the filing of the
lawsuit and concluded it had no merit because, among other
things, Mr. and Mrs. Dibachi did not have the ability to
take part in, participate in, vote on, or control any decisions
regarding Florence V, LLCs purchase or sale of any our
securities. Mr. and Mrs. Dibachi challenged venue in
New York, and the parties have now stipulated that the
matter may be transferred to the Northern District of
California. Mr. and Mrs. Dibachi believe these claims are
without merit, and they intend to vigorously defend against
these claims.

15. SUBSEQUENT EVENT

On February 7, 2002, the Company settled an
arbitration with two founders of ABT Corporation in connection
with their consulting agreements entered with the Company in
August 2000. The Company agreed

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to pay a total of $2,750,000 and 400,000 shares
of its common stock. In February 2002, the Company paid
$1.3 million and issued 400,000 shares of common stock with
a value of $872,000 based on the stock price on the date of
issuance of the common stock. These amounts were included in
accrued liabilities as of January 31, 2002.


16. SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)

The selected unaudited quarterly financial data
are as follows (in thousands, except per share data):

|                                                               |                                                       |                          |        |             |         |          |        |           |         |             |        |             |          |          |        |           |         |   |        |        |         |   |        |        |         |   |        |        |         |   |        |        |         |  
|-------------------------------------------------------------- | ----------------------------------------------------- | ------------------------ | ------ | ----------- | ------- | -------- | ------ | --------- | ------- | ----------- | ------ | ----------- | -------- | -------- | ------ | --------- | ------- | - | ------ | ------ | ------- | - | ------ | ------ | ------- | - | ------ | ------ | ------- | - | ------ | ------ | ------- | -
|                                                               |                                                       |                         
|                                                               |                                                       | Quarter Ended           
|                                                               |                                                       |                         
|                                                               |                                                       | January 31,              |        | October 31, |         | July 31, |        | April 30, |         | January 31, |        | October 31, |          | July 31, |        | April 30,
|                                                               |                                                       | 2002                     |        | 2001        |         | 2001     |        | 2001      |         | 2001        |        | 2000        |          | 2000     |        | 2000     
|                                                               |                                                       |                          |        |             |         |          |        |           |         |             |        |             |          |          |        |          
|Revenue                                                        |                                                       | $                        | 18,036 |             |         | $        | 14,112 |           |         | $           | 16,807 |             |          | $        | 16,966 |           |         | $ | 26,779 |        |         | $ | 21,008 |        |         | $ | 12,520 |        |         | $ | 8,615  |       
|Cost of revenue                                                |                                                       |                          | 3,809  |             |         |          | 7,073  |           |         |             | 6,901  |             |          |          | 16,153 |           |         |   | 8,025  |        |         |   | 6,482  |        |         |   | 3,532  |        |         |   | 2,583  |       
|                                                               |                                                       |                          |        |             |         |          |        |           |         |             |        |             |          |          |        |           |         |   |        |        |         |   |        |        |         |   |        |        |         |   |        |       
|Gross Profit                                                   |                                                       |                          | 14,227 |             |         |          | 7,039  |           |         |             | 9,906  |             |          |          | 813    |           |         |   | 18,754 |        |         |   | 14,526 |        |         |   | 8,988  |        |         |   | 6,032  |       
|                                                               |                                                       |                          |        |             |         |          |        |           |         |             |        |             |          |          |        |           |         |   |        |        |         |   |        |        |         |   |        |        |         |   |        |       
|Operating expenses:                                            |                                                       |                          |        |             |         |          |        |           |         |             |        |             |          |          |        |           |         |   |        |        |         |   |        |        |         |   |        |        |         |   |        |       
|                                                               | Sales and marketing                                   |                          |        | 9,034       |         |          |        | 12,308    |         |             |        | 17,181      |          |          |        | 32,404    |         |   |        | 23,378 |         |   |        | 18,811 |         |   |        | 14,025 |         |   |        | 11,827 |        
|                                                               | Research and development                              |                          |        | 4,319       |         |          |        | 8,963     |         |             |        | 10,532      |          |          |        | 11,042    |         |   |        | 10,933 |         |   |        | 11,668 |         |   |        | 7,755  |         |   |        | 6,675  |        
|                                                               | General and administrative                            |                          |        | 1,929       |         |          |        | 3,126     |         |             |        | 4,051       |          |          |        | 6,099     |         |   |        | 4,095  |         |   |        | 3,857  |         |   |        | 2,956  |         |   |        | 2,200  |        
|                                                               | Asset impairment and other                            |                          |        |            |         |          |        |          |         |             |        | 114,379     |          |          |        | 24,544    |         |   |        |       |         |   |        |       |         |   |        |       |         |   |        |       |        
|                                                               | Amortization of goodwill and other intangible
	assets |                          |        |            |         |          |        |          |         |             |        | 14,505      |          |          |        | 12,828    |         |   |        | 12,312 |         |   |        | 13,026 |         |   |        | 5,517  |         |   |        | 5,047  |        
|                                                               | Restructuring and exit costs                          |                          |        | 9,374       |         |          |        | 4,138     |         |             |        | 7,749       |          |          |        | 3,092     |         |   |        | 1,910  |         |   |        |       |         |   |        |       |         |   |        |       |        
|                                                               | Stock-based compensation                              |                          |        | 6,395       |         |          |        | 1,134     |         |             |        | 2,188       |          |          |        | 4,685     |         |   |        | 6,251  |         |   |        | 7,276  |         |   |        | 6,757  |         |   |        | 8,761  |        
|                                                               | Merger related expenses                               |                          |        |            |         |          |        |          |         |             |        |            |          |          |        |          |         |   |        | 1,900  |         |   |        | 2,363  |         |   |        |       |         |   |        |       |        
|                                                               |                                                       |                          |        |             |         |          |        |           |         |             |        |             |          |          |        |           |         |   |        |        |         |   |        |        |         |   |        |        |         |   |        |       
|                                                               |                                                       | Total operating expenses |        |             | 31,051  |          |        |           | 29,669  |             |        |             | 170,585  |          |        |           | 94,694  |   |        |        | 60,779  |   |        |        | 57,001  |   |        |        | 37,010  |   |        |        | 34,510  |  
|                                                               |                                                       |                          |        |             |         |          |        |           |         |             |        |             |          |          |        |           |         |   |        |        |         |   |        |        |         |   |        |        |         |   |        |       
|                                                               |                                                       | Operating loss           |        |             | (16,824 | )        |        |           | (22,630 | )           |        |             | (160,679 | )        |        |           | (93,881 | ) |        |        | (42,025 | ) |        |        | (42,475 | ) |        |        | (28,022 | ) |        |        | (28,478 | )
|Interest and other income, net                                 |                                                       |                          | 3      |             |         |          | 395    |           |         |             | 1,071  |             |          |          | 999    |           |         |   | 2,220  |        |         |   | 2,872  |        |         |   | 3,493  |        |         |   | 1,539  |       
|                                                               |                                                       |                          |        |             |         |          |        |           |         |             |        |             |          |          |        |           |         |   |        |        |         |   |        |        |         |   |        |        |         |   |        |       
|                                                               |                                                       | Net loss                 |        | $           | (16,821 | )        |        | $         | (22,235 | )           |        | $           | (159,608 | )        |        | $         | (92,882 | ) |        | $      | (39,805 | ) |        | $      | (39,603 | ) |        | $      | (24,529 | ) |        | $      | (26,939 | )
|                                                               |                                                       |                          |        |             |         |          |        |           |         |             |        |             |          |          |        |           |         |   |        |        |         |   |        |        |         |   |        |        |         |   |        |       
|Basic and diluted net loss per share                           |                                                       | $                        | (0.23  | )           |         | $        | (0.30  | )         |         | $           | (2.12  | )           |          | $        | (1.23  | )         |         | $ | (0.53  | )      |         | $ | (0.54  | )      |         | $ | (0.35  | )      |         | $ | (0.54  | )     
|                                                               |                                                       |                          |        |             |         |          |        |           |         |             |        |             |          |          |        |           |         |   |        |        |         |   |        |        |         |   |        |        |         |   |        |       
|Shares used in computing basic and diluted net
	loss per share |                                                       |                          | 72,922 |             |         |          | 73,753 |           |         |             | 75,331 |             |          |          | 75,504 |           |         |   | 74,818 |        |         |   | 73,756 |        |         |   | 69,344 |        |         |   | 49,760 |       
|                                                               |                                                       |                          |        |             |         |          |        |           |         |             |        |             |          |          |        |           |         |   |        |        |         |   |        |        |         |   |        |        |         |   |        |       

In the fourth quarter of fiscal 2001, the Company
changed the estimate of its fringe benefits accruals resulting
in a cost reduction of approximately $2.7 million in the
fourth quarter of fiscal 2001, including a $420,000 reduction in
cost of services revenue, $1.0 million reduction in sales
and marketing expense, $981,000 reduction in research and
development expense and $308,000 reduction in general and
administrative expense. This change in estimate resulted in a
decrease in basic and diluted net loss per share of $0.04 for
the quarter ended January 31, 2001.




Item 9. Changes in and Disagreements With
Accountants on Accounting and Financial Disclosure

None.

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PART III




Item 10. Directors and Executive Officers
of the Registrant

The information required by Item 10 and
included in the proxy statement for our 2002 annual meeting of
stockholders under the headings Proposal No. 1 
Election of Directors and Section 16(a)
Beneficial Ownership Reporting Compliance is incorporated
into this report by reference. In addition, the information in
Item 4A of this report entitled Executive Officers of
the Registrant is incorporated into this Item 10 by
reference.




Item 11. Executive Compensation

The information required by Item 11 and
included in the proxy statement for our 2002 annual meeting of
stockholders under the headings Proposal No. 1 
Election of Directors, Executive Compensation and
Related Matters and Compensation Committee
Interlocks and Insider Participation is incorporated into
this report by reference.




Item 12. Security Ownership of Certain
Beneficial Owners and Management

The information required by Item 12 and
included in the proxy statement for our 2002 annual meeting of
stockholders under the heading Stock Ownership of Certain
Beneficial Owners and Management is incorporated into this
report by reference.




Item 13. Certain Relationships and
Related Transactions

The information required by Item 13 and
included in the proxy statement for our 2002 annual meeting of
stockholders under the heading Certain Relationships and
Related Transactions is incorporated into this report by
reference.

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PART IV




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

(a) 1.     Financial
Statements

See Item 8 of this annual report on
Form 10-K.

2.     Financial
Statements Schedules

The following financial statement schedule is
filed herein on page 60.

Schedule II  Valuation and
Qualifying Accounts

3. Exhibits



| |                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------
| | (a) The following exhibits are filed as part
	of, or incorporated by reference into, this annual report on
	Form 10-K:

|       |          |               |  |                                                                                                                                                                                                                                                                               
|------ | -------- | ------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |          | Exhibit Title
|       |          |              
|       | 2.01(1)  |               |  | Agreement and Plan of Reorganization with
	Alyzanza Software Corporation, dated December 10, 1998.                                                                                                                                                                            
|       | 2.02(1)  |               |  | Agreement and Plan of Reorganization with
	Proamics Corporation, dated November 16, 1999.                                                                                                                                                                                     
|       | 2.03(1)  |               |  | Agreement and Plan of Reorganization with Legal
	Anywhere, Inc., dated January 19, 2000.                                                                                                                                                                                      
|       | 2.04(4)  |               |  | Agreement and Plan of Reorganization with 600
	Monkeys, Inc., dated May 17, 2000.                                                                                                                                                                                             
|       | 2.05(4)  |               |  | Second Amended and Restated Agreement and Plan or
	Reorganization with bSource.com, Inc., dated July 6, 2000.                                                                                                                                                                 
|       | 2.06(3)  |               |  | Agreement and Plan of Reorganization, dated as of
	May 24, 2000, by and among the Company, Nation Acquisition
	Corp. and ABT Corporation. (Filed as an exhibit, and
	incorporated by reference herein, to the Registrants
	current report on Form 8-K dated August 16, 2000).
|       | 3.01(1)  |               |  | Registrants Amended and Restated
	Certificate of Incorporation.                                                                                                                                                                                                              
|       | 3.02(1)  |               |  | Registrants Amended and Restated Bylaws.                                                                                                                                                                                                                                     
|       | 4.01(1)  |               |  | Fourth Amended and Restated Investors
	Rights Agreement, dated November 18, 1999, as amended
	December 8, 1999.                                                                                                                                                              
|       | 10.01(1) |               |  | Form of Indemnification Agreement entered into
	between Registrant and its directors and executive officers.                                                                                                                                                                  
|       | 10.02(1) |               |  | 1998 Stock Plan, as amended.                                                                                                                                                                                                                                                  
|       | 10.03(1) |               |  | 2000 Equity Incentive Plan.                                                                                                                                                                                                                                                   
|       | 10.04(1) |               |  | 2000 Employee Stock Purchase Plan.                                                                                                                                                                                                                                            
|       | 10.05(5) |               |  | 2000 Stock Incentive Plan.                                                                                                                                                                                                                                                    
|       | 10.06(1) |               |  | Business Loan Agreement, dated September 23,
	1999, by and between Mid-Peninsula and Registrant.                                                                                                                                                                              
|       | 10.07(1) |               |  | Subordinated Loan and Security Agreement, dated
	as of February 2, 1999, by and between Comdisco, Inc. and
	Registrant.                                                                                                                                                       
|       | 10.08(1) |               |  | Offer Letter for Joshua Pickus.                                                                                                                                                                                                                                               
|       | 10.09(1) |               |  | Offer Letter for Rhonda Dibachi.                                                                                                                                                                                                                                              
|       | 10.10(6) |               |  | Offer Letter for Richard LaBarbera.                                                                                                                                                                                                                                           
|       | 10.12(1) |               |  | Restricted Stock Purchase Agreement, dated
	November 1, 1999, by and between Joshua Pickus and
	Registrant.                                                                                                                                                                   
|       | 10.13(1) |               |  | Full Recourse Promissory Note, dated
	November 11, 1999, by and between Joshua Pickus and
	Registrant.                                                                                                                                                                        
|       | 10.14(2) |               |  | Office Lease, dated as of March 28, 2000 by
	and between the Registrant and DLC Redwood City, LLP.                                                                                                                                                                            

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|       |          |               |  |                                                                                                                                                                              
|------ | -------- | ------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |          | Exhibit Title
|       |          |              
|       | 10.15(6) |               |  | Office Lease, dated as of May 7, 1999 by and
	between the Registrant and Brugger Corporation.                                                                                
|       | 10.16(7) |               |  | Business Loan Agreement, Promissory Note and
	Amended and Restated Commercial Security Agreement, dated
	October 19, 2001, by and between Mid-Peninsula Bank and
	Registrant.
|       | 10.17(7) |               |  | Business Loan Agreement and Promissory Note
	(Asset Based), dated October 19, 2001, by and between
	Mid-Peninsula Bank and Registrant.                                       
|       | 21.01(6) |               |  | List of Subsidiaries.                                                                                                                                                        
|       | 23.01    |               |  | Consent of KPMG LLP, independent auditors.                                                                                                                                   



|    |                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to the
	Registrants Fiscal 2000 Annual Report on Form 10-K
	filed on April 28, 2000.
|   
|(2) | Incorporated by reference to the
	Registrants Quarterly Report on Form 10-Q filed on
	June 13, 2000.          
|   
|(3) | Incorporated by reference to the
	Registrants Quarterly Report on Form 10-Q filed on
	September 12, 2000.     
|   
|(4) | Incorporated by reference to the
	Registrants Registration Statement on Form S-3 filed
	on March 1, 2001.     
|   
|(5) | Incorporated by reference to the
	Registrants Registration Statement on Form S-8 dated
	November 17, 2001.    
|   
|(6) | Incorporated by reference to the
	Registrants Fiscal 2001 Annual Report on Form 10-K
	filed on April 19, 2001.
|   
|(7) | Incorporated by reference to the
	Registrants Quarterly Report on Form 10-Q filed on
	December 7, 2001.       

(b)Report on Form 8-K

On February 28, 2001, we filed a current
report on Form 8-K regarding the financial results for
fiscal year ended January 31, 2001 and the resignation of
the then current chief financial officer.

On May 4, 2001, we filed a current report on
Form 8-K regarding preliminary results for the quarter
ended April 28, 2001 and the naming of our current chief
financial officer.

(c)Financial Statement Schedules

See Item 14(a)(2) above.

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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this annual report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly
authorized.



| |                 
| | ----------------
| | NIKU CORPORATION



| |     |                   
| | --- | ------------------
| | By: | /s/ FARZAD DIBACHI

| |                                   
| | ----------------------------------
| |                                   
| | Farzad Dibachi,                   
| | President, Chief Executive Officer
| | and Chairman of the Board         
| | (Principal Executive Officer)     



| |                      
| | ---------------------
| | Dated: April 19, 2002

KNOW ALL PERSONS BY THESE PRESENTS that each
person whose signature appears below constitutes and appoints
Farzad Dibachi and Joshua Pickus, and each of them, his true
lawful attorneys-in-fact and agents, with full power of
substitution, for him and in his name, place and stead, in any
and all capacities, to sign any and all amendments to this
annual report on Form 10-K and to file the same, with all
exhibits thereto and all documents in connection therewith, with
the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or his or their
substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.

Pursuant to the requirements of the Securities
Exchange Act of 1934, this annual report on Form 10-K has
been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

|                                         |  |                                                                                          |  |               
|---------------------------------------- |  | ---------------------------------------------------------------------------------------- |  | --------------
|Signature                                |  | Title                                                                                    |  | Date          
|                                         |  |                                                                                          |  |               
|/s/ FARZAD DIBACHIFarzad Dibachi         |  | President, Chief Executive Officer
	and Chairman of the Board                            |  | April 19, 2002
|/s/ JOSHUA PICKUSJoshua Pickus           |  | Chief Financial Officer
	(Principal Financial Officer and
	Principal Accounting Officer) |  | April 19, 2002
|/s/ TERENCE GARNETTTerence Garnett       |  | Director                                                                                 |  | April 19, 2002
|/s/ FRANK GILLFrank Gill                 |  | Director                                                                                 |  | April 19, 2002
|/s/ EDWARD F. THOMPSONEdward F. Thompson |  | Director                                                                                 |  | April 19, 2002
|/s/ VAL E. VADENVal E. Vaden             |  | Director                                                                                 |  | April 19, 2002

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NIKU CORPORATION

SCHEDULE II


VALUATION AND QUALIFYING ACCOUNTS


(in thousands)


|                                 |  |              |       |             |  |              |       |            |  |            |       |  |  |   |        |     |  |   |       | 
|-------------------------------- |  | ------------ | ----- | ----------- |  | ------------ | ----- | ---------- |  | ---------- | ----- |  |  | - | ------ | --- |  | - | ----- | 
|                                 |  |              |       | Balance     |  |              |       |            |  |           
|                                 |  | Balance      |       | Acquired    |  | Charged      |       |            |  | Balance at
|                                 |  | Beginning of |       | Through     |  | to Operating |       |            |  | End of    
|                                 |  | Period       |       | Acquisition |  | Expenses     |       | Write-offs |  | Period    
|                                 |  |              |       |             |  |              |       |            |  |           
|Allowance for doubtful accounts: |  |              |       |             |  |              |       |            |  |            |       |  |  |   |        |     |  |   |       | 
|January 31, 2000                 |  | $            |      |             |  | $            | 1,983 |            |  | $          | 200   |  |  | $ |       |     |  | $ | 2,183 | 
|January 31, 2001                 |  | $            | 2,183 |             |  | $            | 2,734 |            |  | $          | 2,429 |  |  | $ | 906    |     |  | $ | 6,440 | 
|January 31, 2002                 |  | $            | 6,440 |             |  | $            |      |            |  | $          | 9,010 |  |  | $ | 12,413 | (1) |  | $ | 3,037 | 



|    |                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------
|(1) | Write-offs included $2,606 relating to write off
	of allowance for doubtful accounts from acquisition.

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##### Table of Contents






Exhibit Index

|      |  |                                           
|----- |  | ------------------------------------------
|23.01 |  | Consent of KPMG LLP, independent auditors.

61