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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-K



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



For the fiscal year ended December 31, 2002



OR



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



Commission File Number 001-31344



Plumtree Software, Inc.

(Exact name of registrant as specified in its charter)



|Delaware                                                       |  | 52-2303761                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer identification no.)



500
Sansome Street, San Francisco, CA 94111

(Address of principal executive offices and zip code)



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



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



Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 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 or any
amendment to this Form 10-K. ̈



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



Based on the closing sale price of the Registrants
Common Stock on the NASDAQ National Market System on June 28, 2002, the last business day of the Registrants most recently completed second fiscal quarter, the aggregate market value of voting and non-voting Common Stock held by non-affiliates
of the Registrant was $72,714,187.



The number of
shares outstanding of the issuers common stock as of February 28, 2003 was 29,949,666.



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PLUMTREE SOFTWARE, INC.



FISCAL YEAR 2002 FORM 10-K ANNUAL REPORT



TABLE OF CONTENTS



|           |  |                                                                                       |  | Page Number
|---------- |  | ------------------------------------------------------------------------------------- |  | -----------
|           |  | PART I.                                                                               |  |            
|          
|Item 1.    |  | Business                                                                              |  | 3          
|          
|Item 2.    |  | Properties                                                                            |  | 9          
|          
|Item 3.    |  | Legal Proceedings                                                                     |  | 10         
|          
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                   |  | 10         
|          
|           |  | PART II.                                                                              |  |            
|          
|Item 5.    |  | Market for Registrants Common Equity and Related Stockholder Matters                 |  | 11         
|          
|Item 6.    |  | Selected Financial Data                                                               |  | 11         
|          
|Item 7.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 12         
|          
|Item 7a.   |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 33         
|          
|Item 8.    |  | Financial Statements and Supplementary Data                                           |  | 33         
|          
|Item 9.    |  | Changes in and Disagreements with Accountants on Accounting andFinancial Disclosure   |  | 33         
|          
|           |  | PART III.                                                                             |  |            
|          
|Item 10.   |  | Directors and Officers of the Registrant                                              |  | 34         
|          
|Item 11.   |  | Executive Compensation                                                                |  | 37         
|          
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 38         
|          
|Item 13.   |  | Certain Relationships and Related Transactions                                        |  | 40         
|          
|Item 14.   |  | Controls and Procedures                                                               |  | 40         
|          
|           |  | PART IV.                                                                              |  |            
|          
|Item 15.   |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |  | 40         
|          
|Signatures |  | S-1                                                                                  



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Forward-Looking Statements



In addition to historical information, this
Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties that could cause our actual results to differ materially. Factors that might cause or contribute to such differences include, but are not limited to,
those discussed in the section entitled Managements Discussion and Analysis of Financial Position and Results of OperationsFactors That May Affect Our Future Results or the Market Price of Our Stock. When used in this report,
the words expects, anticipates, intends, plans, believes, seeks, estimates, and similar expressions are generally intended to identify forward-looking statements.
You should not place undue reliance on these forward-looking statements, which reflect our opinions only as of the date of this Annual Report. We undertake no obligation to publicly release any revisions to the forward-looking statements after the
date of this document. You should carefully review the risk factors described in other documents we file from time to time with the Securities and Exchange Commission, including the Quarterly Reports on Form 10-Q to be filed in 2003.



PART I



Item 1.    Business



Overview



We develop,
market and sell corporate portal, collaboration, content management and search software and related services for enterprises. These technologies work together in an online work environment that we call the Enterprise Web. The Enterprise Web offers
customers a foundation for building Web applications more quickly, and at a lower cost. Our Enterprise Web solution allows an enterprises employees, customers and partners to interact with different types of information and applications in one
Web site and empowers users to create new information and services. Our software also supports a wide range of online business processes, so users can complete tasks more efficiently. For example, using our solution, a companys employees can
send e-mail, read competitive news or update a sales database, accessing multiple systems in one experience. Supervisors can also use our solution to assign projects and approve expenses. Similarly, a companys customers can use our portal to
search for support articles, participate in online discussions or access billing information.



We believe that the range of resources that our software can integrate, and our proprietary Internet technology for performing this integration for hundreds of thousands of users, differentiate our
solution from those of our competitors and create significant value for our customers. We also provide professional services and training, and maintenance and support services to our customers. Since 1997, we have licensed our software to more than
450 customers across a broad range of industries and government.



Strategy



Plumtrees
mission is to create a comprehensive Web environment for employees, customers and partners across an enterprise to interact with different systems and work together. Plumtrees Enterprise Web solution consists of integration products for
bringing resources from traditional systems together on the Web, foundation services such as collaboration, content management and search for building new Web applications, and a portal platform for delivering these Web applications to broad
audiences. Plumtrees independence and its Web Services Architecture allow this solution to span rival platforms and systems, maximizing customers return on their existing investments. Key elements of our Enterprise Web strategy include:



Establishing the Plumtree Corporate Portal as
an Enterprise Platform



We intend to
establish the Plumtree Corporate Portal as the primary platform for aggregating an organizations existing information and services, and for creating new Web-based information and services. To accomplish this objective, we seek to maximize the
range of software applications integrated into our platform



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using open technologies. As our solution is adopted by our customers as an enterprise-wide Web platform, businesses can use our platform to
author new documents, build new applications and create new Web-based business processes. The extensive adoption of our platform will provide us greater revenue opportunities.



Developing New Products To Address Customer Needs



We believe our portal provides a cost-effective platform for
delivering new Web applications to broad audiences. Accordingly, we intend to build additional software products related to our portal platform. We believe that new product releases will increase our revenue opportunities with each customer and
allow us to compete even more effectively.



Products



Our products empower organizations to
create an open, enterprise-wide Web environment for people to interact with applications, find information and work together. We call this environment the Enterprise Web. The Enterprise Web provides a common framework for delivering and managing Web
applications, and a set of services designed to overcome traditional technical and organizational boundariesfor integrating systems, managing knowledge, supporting collaboration and rationalizing security across a business.



To support the Enterprise Web, Plumtree offers three product
lines:



| |  |  | Plumtree Corporate Portal: the user experience and administrative framework for the Enterprise Web.
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | Integration Web Services: products that bring to the Enterprise Web resources from existing systems.
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | Server Products: products for building Enterprise Web applications, including content management, collaboration and search.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



The Plumtree Corporate Portal



The Plumtree Corporate Portal is the primary user experience
for the Enterprise Web. The portal provides a powerful enterprise-wide arena for employees, partners and customers to interact with documents, applications, and one another. The portal integrates content, applications, search and security from other
systems through Plumtrees integration products, and delivers capabilities such as collaboration, content management and single sign-on through Plumtrees server products. The platform also hosts the main portal user experiences: the
personalized and community portal pages, the enterprise-wide Document Directory and Web-based administration.



The Plumtree Corporate Portals primary end-user benefit is that it allows everyone in an organization to use applications and find
documents on their own, in one place. By empowering users to meet their own information technology needs, the portal lowers support and training costs, and improves enterprise productivity and customer service. By providing a single managed
environment for integrating dozens or hundreds of intranets, extranets and Web-enabled applications, the portal also lowers development costs, simplifies maintenance and ensures that users can find all the electronic resources being created across
the enterprise. The portals primary benefit for information technology groups is that it allows organizations to build Web applications at lower cost, more quickly, using the content management, collaboration and search resources available
within Plumtrees Enterprise Web solution.



By using industry-standard Internet protocols to assemble all the resources available in the portal, the portal lowers the cost of integrating heterogeneous systems. At the center of this architecture is our Parallel Portal Engine
that uses the Internet to communicate with other systems. Designed from the outset to communicate with Web services running on different platforms and networks, the parallel engine is the only integration infrastructure that has proven its ability
to communicate with thousands of systems through Internet protocols, making a portal to heterogeneous resources available for hundreds of thousands of users.





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Plumtree Integration Web Services



Plumtree Softwares integration products bring together on the Web, electronic resources from across the
enterprise, introducing traditional systems to broader audiences, and increasing an enterprises return on investment. As an independent Enterprise Web vendor, Plumtree is better positioned to span rival platforms and applications than the
vendors of those systems.



Plumtrees four
types of integration products go beyond simple views of other applications to combine the full range of corporate systems within in the Enterprise Web:



| |  |  | Plumtree Portlets for integrating enterprise applications and delivering new services in portal pages;
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | Crawler Web Services for identifying content in file systems, databases and Web sites to be indexed and categorized in the Enterprise Webs knowledge management
system;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Authentication Web Services for synchronizing the Enterprise Webs security system with traditional systems of record, including common directories and Windows
domains;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Search Web Services for federating searches from the Enterprise Web to indexes maintained by third-party search engines.
| | - |  | ------------------------------------------------------------------------------------------------------------------------



Plumtree Server Products



Plumtrees Server Products offers a set of services for
creating rich Web experiences within the portal:



Plumtree Content Server



Plumtree Content Server 4.1 is our portal content management system, bringing intranet, extranet and Internet sites into the Enterprise Webs global framework for security, navigation and knowledge management. Content Server
allows portal users across a business to publish content such as win-loss reports, technical support articles, corporate communications announcements, product specifications and market updatesall in a controlled, consistent way. The result is
a portal that everyone can use to route or share information. Thoroughly integrated into the portal over the past year, the technology in Plumtree Content Server 4.1 has been battle-tested at dozens of customer sites.



We believe Plumtrees commitment to content management is
unique in the portal industry. For customers that have already deployed content management systems, Plumtree offers integration with Documentum, Interwoven, FileNET, Lotus, Open Text and Stellent, embedding the administrative tools in the portal as
Plumtree portlets, and indexing and categorizing the content through Crawler Web Services.



Plumtree Collaboration Server



Plumtree Collaboration Server 2.0 allows portal users to collaborate on projectssetting schedules, sharing documents and exchanging ideas. Designed to integrate with the Plumtree Corporate
Portal, Collaboration Server combines a view of active projects with all the other resources integrated in the portal, including e-mail and sales reports, telephone directories and competitive news. The result is an Enterprise Web environment that
employees, partners and customers can use as a working platform for project teams and business units.



With an administrative environment for managing announcements, calendars, schedules, documents and discussions, Collaboration Server
provides a comprehensive solution for driving projects to completion. For example, tasks can require documents to be uploaded for team review; those documents can be a topic for online discussions; and these discussions can trigger an e-mail
notification. Collaboration Servers integration with the Plumtree Corporate Portal allows project members to monitor their involvement with multiple projects from personalized portal pages.



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Plumtree
Search Server



Plumtree Search Server
indexes content throughout the Enterprise Web, including project documents stored by Collaboration Server, Web pages managed by Content Server and content indexed from file systems, Web sites and document databases, into the portals Document
Directory. Based on years of experience with search as enterprise application, Plumtree offers search technology with enterprise-class security, scalability, reliability and ease-of-administration. This search technology is closely integrated with
all the other systems in the Enterprise Web, freeing administrators from having to separately secure and manage a search index.



Search Server relies on the Enterprise Webs identity management to store users access privileges in the content index,
ensuring that searches are secure. Search Server maintenance tasks are scheduled through the portals Automation Server, which queues all asynchronous activity in the Enterprise Web, thereby automating administration. Crawler Web Services scan
a wide range of repositories outside the Enterprise Web for information to index in Search Servers collections, and the portals document directory provides a visualization, subscription and administration framework for publishing and
categorizing indexed content.



Plumtree Studio
Server



Plumtree Studio Server enables
portal managers to create applications for the portal such as telephone lists, work order processes, calendars and surveys, without any coding. Known as portlets, the portal applications that Studio Server builds feature a user interface,
application logic, and a database. By empowering portal managers to quickly develop numerous portlets quickly, Studio Server lowers the cost of deploying new services through the portal, and empowers portal managers to populate their own sites
within the portal without involving developers.



Plumtree Wireless Device Server



Customers can retrieve portal resources from virtually anywhere by using the Wireless Device Server, that allows users to access supported Plumtree portlets from mobile devices such as WAP-enabled mobile phones, wireless-enabled
Palmhandheld computers, and BlackBerrywireless handhelds. The Wireless Device Server supports the worlds major wireless Internet formats, including Wireless Markup Language (WML),
Handheld Device Markup Language (HDML) and Hypertext Markup Language (HTML). Using the Wireless Device Server, end-users can access to interactive services from multiple enterprise applications in a single place. Because the Plumtree Corporate
Portal already authenticates against a wide range of applications and extracts the most useful resources from those applications based on a users needs, the portal is an ideal platform for brokering corporate electronic resources to wireless
devices.



Services



In addition to offering infrastructure software, we offer
customers, systems integrators and technology vendors deployment and support services.



Professional Services



We offer professional services to deploy our solution at customer sites, and to train our alliance members, including technology vendors and systems integrators. Our consultants participate in joint
deployments with systems integrators, increasing our capacity to deploy at a large number of customer sites.



Customer Care Services



We provide customer care through technical support and assigned account managers. We offer E-mail and telephone technical support for
customers and alliance members worldwide through our support centers in San Francisco and London 24 hours per day, seven days per week. Customers, systems integrators and technology vendors may also receive technical support through Plumtrees
support portal, which is a deployment of our own portal software. Plumtree also offers premium support, which includes developer support, dedicated account management and on-site support.



6



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Training
Services



We offer a series of training
classes designed to provide our customers and alliance members with the knowledge and tools necessary to deploy, administer and expand the portal within the enterprise. Offered both at customer sites and at training centers in various cities, these
classes train individuals from customer and alliance member organizations.



Customers



We have
licensed our products to over 450 customers. Our clients represent a broad spectrum of public and private enterprises. For the year ended December 31, 2002 no single customer accounted for 10% or more of our net revenue.



Sales and Marketing



We pursue accounts using our direct sales force and through
systems integrators and independent software vendors. We focus our sales activities on large businesses and government organizations.



As of December 31, 2002, our sales organization consisted of 92 managers, account executives, channel managers and product consultants,
divided into six teams. We have sales representatives throughout the United States, Europe and Asia Pacific, located in major metro areas such as Amsterdam, Atlanta, Boston, Chicago, Dallas, Denver, London, Los Angeles, Minneapolis, Frankfurt, New
York, Paris, San Francisco, Seattle, Seoul, Singapore, Stockholm, Sydney, Tokyo and Washington D.C.



Our marketing and technology alliances efforts are conducted by a team that, as of December 31, 2002, consisted of 15 professionals. The
marketing organization is generally responsible for product positioning, product direction, communications, field events and sales tools. The product management team drives product direction, technical marketing and competitive analysis. We generate
sales leads from communications programs that include our Web site, public relations, online and local seminars, tradeshows and events.



Technology



The Plumtree Corporate Portal is based on Web services technologies and a parallel engine designed to assemble those services in an
enterprise solution.



To scale to meet the needs
of a large number of users who each require the integration of many Web services in a personalized, secure way, we have developed the parallel portal engine, which sends requests to multiple Web services in parallel through Hypertext Transfer
Protocol (HTTP). Our engine can retrieve content from a large number of Web services, optimizing the number of network sockets and computing threads required for these requests. If, for example, a portal page embeds a Gadget Web Service for listing
e-mail messages that takes one second to prepare, an inventory report Gadget Web Service that takes one second to prepare and an industry news Gadget Web Service that takes one second to prepare, the parallel portal engine assembles the page in
approximately one second, instead of three, even if each Web service is hosted on an entirely different platform. This approach is also designed to be fault-tolerant, as Gadget Web Services operating on separate computers cannot interfere with one
another or with the portals main Web server. Features of our parallel engine include:



| |  |  | Request chaining: the parallel engine combines multiple HTTP requests into a single virtual request, reducing the number of network sockets opened and closed, and
improving performance.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Thread conservation: traditional HTTP libraries use a separate computing thread for each HTTP request, which quickly exhausts the memory of a system that may have to
open thousands of HTTP requests per second. The parallel engine opens multiple HTTP requests using one thread, increasing performance.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Address caching: the parallel engine stores in memory the addresses of computers hosting portal Web services, avoiding time-consuming address requests from a domain
name server.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Time-outs: because our Internet architecture isolates faults on separate computers, the engine can bypass Web services that fail to return a result within an
administrator-configured time-frame. The portal displays a cached result or an error message where that Web service would have surfaced to the user, without causing the entire portal to fail or wait indefinitely, increasing the portals overall
quality-of-service.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Load-balancing: the parallel engine balances loads against multiple instances of the same Web service, re-directing requests when one instance is overtaxed or fails.
The portal recognizes when a portal function requires an extended connection with a particular Web service that stores information in memory while responding to the function. The portals load-balancing is designed to eliminate the need to
purchase separate load-balancing equipment for communications between the portal and its component Web services.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Secure Sockets Layer: the parallel engine is designed to support optimized communications through the Secure Sockets Layer, for secure connections to thousands of
Web services.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Plumtree Web Services
Architecture



Plumtrees Web Services
Architecture is based on our use of Internet standards such as HTTP, Simple Object Access Protocol (SOAP), Universal Description Discovery and Integration (UDDI) and Extensible Mark-up Language (XML). Through the use of these protocols, we can
integrate applications, content, security and search services. Plumtree offers a parallel engine for high-performance, enterprise-scale communications using these standards. We believe we offer the first enterprise solution in which all integration
is based on Web services standards, and that this architecture offers customers greater flexibility, reduced development costs and maximum reliability. Because it can broker resources across different platforms and networks, the Plumtree Corporate
Portal can integrate a wide range of resources from other systems, broadening the range of end users our products can serve.



Research and Development



Since inception, we have devoted significant resources to develop our products and technology. We believe our future success depends in
large part on continuing innovation and rapid development. Our engineering organization is responsible for product architecture and technology, engineering and quality assurance. As of December 31, 2002, our engineering organization consisted of 105
employees. For the years ended December 31, 2002, 2001 and 2000 our research and development expenses totaled approximately $18.1 million, $14.1 million and $7.6 million. We expect to continue to devote substantial resources to our research and
development activities.



Competition



The market for our product is intensely competitive and
highly fragmented, characterized by rapid technological change, evolving industry standards, changes in customer needs and new product introductions.



We compete principally on the basis of:



| |  |  | product features, quality and performance;
| | - |  | ------------------------------------------



| |  |  | interoperability of our solution with existing applications, content repositories and security systems;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | number, size and satisfaction of customers;
| | - |  | -------------------------------------------



| |  |  | range of applications that customers can build on our solution; and
| | - |  | -------------------------------------------------------------------



| |  |  | strength of sales and services channels.
| | - |  | ----------------------------------------



We believe we compete favorably with our competitors on the basis of these factors.



8



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Some
established software vendors, such as PeopleSoft, SAP and Siebel, are Web-enabling traditional client-server applications, which in some cases are being labeled as portal applications. Prospective customers who require only a Web view of their
applications may not need an Enterprise Web solution and may be satisfied with this category of products. Some established software vendors, such as BEA, IBM and Microsoft, are offering portal products portal-building infrastructure. Since many
prospects already license other software from these vendors, a customer-vendor relationship already exists. We also face competition from information technology departments of potential customers that have developed or may develop in-house
technologies that may substitute for those offered by us. We expect these internal development initiatives will continue to be a source of competition. We also face competition from emerging software companies. These companies generally offer
products that could substitute for those offered by us.



We expect to face increased competition in the future from our current competitors. In addition, new competitors, or alliances among existing and future competitors, may emerge and rapidly gain significant market share. Many of our
competitors have longer operating histories, significantly greater financial, technical, marketing and other resources, greater name recognition, a broader range of products to offer and a larger installed customer base, any of which could provide
them with a significant competitive advantage. We expect that the rapid evolution of Internet-based software applications and standards will require us to adapt our software products to remain competitive. If we are unable to compete successfully,
we may be unable to attract and retain customers. Increased competition could also result in price reductions for our products and lower profit margins, either of which could harm our business, results of operations and financial condition.



We may be unable to successfully compete against
current and future competitors, and competitive pressures we face may harm our business, prospects, operating results and financial condition.



Employees



As of December 31, 2002, we had 294 full-time employees, of whom 250 were based in North America and 44 were based in Europe and Asia
Pacific. Of those employees, 107 were in sales and marketing, 105 were in engineering, 58 were in professional services, technical support and training, and 24 were in finance, human resources, information systems and administrative functions. Our
employees are not represented by any collective bargaining agreements and we have never experienced a work stoppage, and we consider our relations with our employees to be good.



Public Filing



Our Internet address is www.plumtree.com. We make available free of charge through our Internet website our annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act, as amended, as soon as reasonably
practicable after we electronically file such material with the SEC.



Item 2.    Properties



Our principal headquarters facility is located in approximately 43,000 square feet of office space in San Francisco, California under leases expiring at various dates through 2006. We believe our current facilities are
adequate for our needs for the foreseeable future.



9



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Item 3.    Legal Proceedings



In December 2001, a former employee filed a lawsuit in the State Court in Philadelphia. The suit was removed to the Federal Court in the Eastern District of Pennsylvania. The complaint alleged that the
Company owed the former employee unpaid commissions and related damages. This lawsuit was settled out of court in December 2002.



On May 17, 2002 Datamize LLC filed a lawsuit against Plumtree in the United States District Court for the District of Montana alleging, in
general, that by supplying software and systems for the personalization and customization of networked kiosk and computer screens, we infringe U.S. Patent Number 6,014,137 owned by Datamize. Datamize, based in Florence, Montana describes
itself in its complaint as engaged in the business of designing, creating and commercially exploiting software useful in the personalization and customization of networked kiosk and computer screens. Datamize is seeking, among other
things, injunctive relief and unspecified damages. We filed a motion to dismiss the action for lack of personal jurisdiction or, in the alternative, have the action transferred to the Northern District of California (Motion). In November
2002, a U.S. Magistrate recommended that our motion to dismiss be granted and the motion to transfer be dismissed as moot. Datamize has filed objections to this recommendation, and the matter is currently before the court. In December 2002, Plumtree
filed a complaint for declaratory relief against Datamize in U.S. District Court for the Northern District of California (Civil Action No. 02-5693 VRW). We are seeking a declaratory judgment that we do not infringe any valid claim of the 137
patent. The parties have stipulated that Datamizes response to the complaint will be due after the Montana Court rules on the Motion. Based on other communications by Datamizes counsel, we expect Datamize may take further legal action
against us with respect to additional intellectual property that Datamize purportedly owns or will own in the future. At this time, we do not believe it is infringing any valid patent claim of Datamize and intends to defend this lawsuit vigorously.



On November 13, 2001, Plumtree commenced an
action in the District Court in The Hague against an individual, Werner Linssen, to cancel the Benelux trademark registration for Plumtree held by Mr. Linssen. That action is pending. On November 25, 2001, we also commenced a proceeding
before the Swiss Federal Institute of Intellectual Property in opposition to Mr. Linssens trademark application for Plumtree. The Swiss Patent Office has dismissed the proceeding; however, Plumtree has requested a reconsideration
of the dismissal and has filed an appeal of the dismissal with the Swiss Patent Offices Appeals Board. In addition, we and Mr. Linssen have each commenced proceedings before the E.U.s Office of Harmonization of the Internal Market
in opposition to each others Community Trade Mark applications. Those proceedings have been suspended pending disposition of the Benelux action in The Hague. In the Netherlands, Plumtree has asked the Hague District Court to (i) annul Mr.
Linssens Benelux trademark registration for Plumtree and to (ii) bar Mr. Linssen, pending the proceedings, from contacting our customers in a threatening or unfair manner.



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



Various other legal claims arising in the normal course of business have been brought or threatened against
us. Management believes that the ultimate resolution of these threatened actions or pending matters will not have a material adverse effect on our financial position or results of operations.



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



None.



10



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PART II



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



Our common stock is traded on the Nasdaq National Market under the symbol PLUM and has been traded on Nasdaq since our initial
public offering on June 4, 2002. According to the records of our transfer agent, we had 211 stockholders of record as of December 31, 2002. The following table sets forth the high and low sale price of our common stock, based on the last daily sale,
in each of the quarters since our initial public offering:



|                                   |  | Low Sale Price |      | High Sale Price
|---------------------------------- |  | -------------- | ---- | ---------------
|2002:                              |  |                |      |                
|Fourth Quarter                     |  | $              | 1.98 |                
|Third Quarter                      |  |                | 2.60 |                
|Second Quarter (from June 4, 2002) |  |                | 4.30 |                



Proceeds of Our
Initial Public Offering



On June 3,
2002, a Registration Statement on Form S-1 (Commission File No. 333-45950) relating to our initial public offering was declared effective by the SEC. The net proceeds to us from the offering were approximately $37.9 million after
deducting underwriting discounts and commissions and other expenses related to the offering.



We have used and intend to continue to use the net proceeds of our public offerings for working capital and general corporate purposes, including the expansion of our marketing and sales activity and
capital expenditures. The amounts and timing of our actual expenditures for each of these purposes may vary significantly depending upon numerous factors, including the amount of cash generated or used by our operations, competitive developments,
marketing and sales activities and market acceptance of our services, and the rate of growth, if any, of our business. Pending use for these or other purposes, we intend to invest the available proceeds of the offerings in short-term,
interest-bearing investment-grade securities.



Item 6.    Selected Financial Data



The consolidated statements of operations data for the years ended December 31, 2002, 2001, 2000, 1999 and 1998 and the consolidated balance sheet data at December 31, 2002, 2001, 2000, 1999 and 1998,
are derived from our audited consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the United States of America. The following data should be read in conjunction with our
consolidated financial statements and related notes and Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this filing.



|                                                     |  | Year Ended December 31,               |       
|---------------------------------------------------- |  | ------------------------------------- | ------
|                                                     |  | 2002                                  |       
|                                                     |  | (in thousands, except per share data) |       
|Revenue                                              |  | $                                     | 82,919
|Gross margin                                         |  |                                       | 64,761
|Income (loss) from operations                        |  |                                       | 2,852 
|Net income (loss)                                    |  |                                       | 2,390 
|Net income (loss) per share, basic                   |  | $                                     | 0.12  
|Net income (loss) per share, diluted                 |  | $                                     | 0.08  
|Cash and cash equivalents and short-term investments |  |                                       | 65,322
|Working capital                                      |  |                                       | 49,185
|Total assets                                         |  |                                       | 90,722
|Long-term liabilities                                |  |                                       | 454   
|Total stockholders equity                           |  |                                       | 55,352



11



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



Critical Accounting Policies



Our critical accounting policies are as follows:



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



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



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



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



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



Software Revenue Recognition



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



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



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



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



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



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



12



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Prior to 2002,
we entered into several license arrangements where our services were estimated to be essential to the functionality of the software but the scope of the implementation had not yet been completed. We deferred recognition of all revenue from such
arrangements until the scope of the implementation had been determined and a scope document was prepared. Upon finalization of the implementation scope, if the implementation services were determined to be essential to the functionality of the
software, services and license revenues were recognized using the percentage of completion method. If the final scope documents resulted in implementation services that were not essential to the functionality of the software, the software license
fee was recorded as revenue and the non-essential services were recognized as the services were performed. Included in deferred revenue at December 31, 2000 was $6.2 million related to six arrangements for which the implementation scope was not yet
finalized. Included in deferred revenue at December 31, 2001 was $7.1 million related to five arrangements for which the scope documents were not yet finalized. At December 31, 2002, there were no license arrangements included in deferred revenue
where services to be provided by us were estimated to be essential to the functionality of the software.



Allowance for Doubtful Accounts



We have provided an allowance for doubtful accounts of $754,000 and $1.2 million as of December 31, 2002 and 2001 for estimated losses
resulting from the inability of our customers to make their required payments.



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



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



Valuation Allowance Against Deferred Tax Assets



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



Assessing the Realizability of Capitalized Acquired Technology



We have capitalized the costs of certain purchased technology. We periodically review these costs to ensure
they are being recorded at the lower of unamortized cost or net realizable value. Net realizable value is determined using assumed future cash flows related to sales of the underlying technology. Had different assumed cash flows been used,
materially different amounts of the carrying amount of these costs could have been reported. At December 31, 2002, the unamortized costs related to the purchased software were approximately $3.1 million and are included within other assets in the
accompanying consolidated balance sheets.



13



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Determination of Fair Value of Options Granted to Employees



In connection with the granting of certain stock options, we recorded deferred stock-based compensation charges in the periods prior to our initial public offering representing the difference between
the deemed fair value of our common stock for accounting purposes and the option exercise price. We determined the deemed fair value based upon several factors including our operating performance, issuances of our convertible preferred stock and
valuations of comparable publicly traded software companies. For the year ended December 30, 2001, we recorded $4.4 million of deferred stock-based compensation and we recognized $4.5 million of stock-based compensation expense. For
the year ended December 31, 2002, we did not record any deferred stock-based compensation and we recognized $3.5 million of stock-based compensation expense. We apply the intrinsic value method in accounting for employee stock options apply in
accordance with Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees. Accordingly, we recognize no compensation expense with respect to stock-based awards to employees with
exercise prices equal to the fair market value of the award on the date of grant. Had different assumptions or criteria been used to determine the deemed fair value of the stock, materially different amounts of stock-based compensation could have
been reported. Had we applied fair value accounting for our stock options as outlined in Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation, our operating results would have been affected as
follows:



|                                                                                                          |  | Year Ended December 31, |       
|--------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------
|                                                                                                          |  | 2002                    |       
|Net income (loss) as reported                                                                             |  | $                       | 2,390 
|Add: Stock-based employee compensation expense included in net income
(loss)                              |  |                         | 3,500 
|Deduct: Stock-based employee compensation expense determined under fair value based
method for all awards |  |                         | (6,377
|                                                                                                          |  |                         |       
|Pro forma net loss under SFAS 123                                                                         |  | $                       | (487  
|                                                                                                          |  |                         |       
|Net income (loss) per common sharebasic:                                                                 |  |                         |       
|As reported under APB 25                                                                                  |  | $                       | 0.12  
|                                                                                                          |  |                         |       
|As reported under SFAS 123                                                                                |  | $                       | (0.02 
|                                                                                                          |  |                         |       
|Net income (loss) per common sharediluted:                                                               |  |                         |       
|As reported under APB 25                                                                                  |  | $                       | 0.08  
|                                                                                                          |  |                         |       
|As reported under SFAS 123                                                                                |  | $                       | (0.02 
|                                                                                                          |  |                         |       



14



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Results of Operations



The following table sets forth the
statements of operations data for each of the periods indicated as a percentage of total revenue.



|                                         |  | Year Ended December 31, |  
|---------------------------------------- |  | ----------------------- | -
|                                         |  | 2002                    |  
|Revenue:                                 |  |                         |  
|Licenses                                 |  | 59.8                    | %
|Services and maintenance                 |  | 40.2                    |  
|                                         |  |                         |  
|Total revenue                            |  | 100.0                   |  
|Cost of revenue:                         |  |                         |  
|Cost of licenses                         |  | 5.8                     |  
|Cost of services and maintenance         |  | 15.3                    |  
|Amortization of stock-based compensation |  | 0.8                     |  
|                                         |  |                         |  
|Total cost of revenue                    |  | 21.9                    |  
|Gross margin                             |  | 78.1                    |  
|Operating expenses:                      |  |                         |  
|Research and development                 |  | 21.9                    |  
|Sales and marketing                      |  | 40.1                    |  
|General and administrative               |  | 8.7                     |  
|Aborted offering costs                   |  |                        |  
|Restructuring charge                     |  | 0.5                     |  
|Amortization of stock-based compensation |  | 3.4                     |  
|                                         |  |                         |  
|Total operating expenses                 |  | 74.6                    |  
|Operating income (loss)                  |  | 3.5                     |  
|Other income (expense):                  |  |                         |  
|Interest income (expense)                |  | 0.9                     |  
|Other income (expense)                   |  | (0.1                    | )
|                                         |  |                         |  
|Other income, net                        |  | 0.8                     |  
|                                         |  |                         |  
|Income (loss) before income taxes        |  | 4.3                     |  
|Provision for income taxes               |  | (1.4                    | )
|                                         |  |                         |  
|Net income (loss)                        |  | 2.9                     | %
|                                         |  |                         |  



Year Ended December
31, 2002 and 2001



Revenue



Revenue increased from $81.5 million in
2001 to $82.9 million in 2002. Between these periods, license revenue decreased 8% and services and maintenance revenue increased 22%.



Licenses.    License revenue decreased from $54.1 million in 2001 to $49.6 million in 2002. The decrease in
license revenue was primarily due to the downturn in the overall market for information technology and software, offset by the addition of over 140 new license customers in 2002. No customer accounted for more than 10% of our revenue for the years
ended December 31, 2002 and 2001.



Services
and Maintenance.Services and maintenance revenue increased from $27.4 million in 2001 to $33.3 million in 2002. This increase was due primarily to an increase in maintenance revenue and renewals of maintenance
contracts by our installed base of customers. This increase is comprised of $7.3 million in additional maintenance revenue, offset by a decrease of $1.4 million in professional services, training and partnership revenue. The number of
professional services consultants decreased from 60 to 46 between these periods.



15



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Cost of
Revenue



Cost of
Licenses.    Our cost of licenses consists primarily of royalty expenses paid to third-party technology vendors and the amortization of acquired technology. Cost of licenses decreased from $5.1 million in 2001 to $4.8 million
in 2002. Our cost of license revenue decreased in 2002 as compared to 2001 primarily due to decreased royalty payments resulting from the shipment of version 4.5WS of our portal product, which incorporates proprietary technology not subject to
royalty payments, in replacement of similar functionality previously provided by third-party vendors. The decrease in cost of licenses was offset by the amortization of acquired technology, which increased from $138,000 in 2001 to $1.6 million in
2002.



Cost of Services and
Maintenance.Our cost of services and maintenance includes salaries and related expenses for our professional services and technical support organizations and third-party consultants. Cost of services and maintenance
decreased from $13.4 million in 2001 to $12.7 million in 2002. This decrease was primarily due to a decrease in the number of professional services staff and a continued reduction in our use of third-party consultants to deploy our products.



Amortization of Stock-Based
Compensation.Amortization of stock-based compensation related to cost of services was $627,000 in 2001 and $694,000 in 2002.



Operating Expenses



Research and Development.    Research and development expenses consist of the costs associated with new
software development and enhancement of our existing software products, including our in-house engineering staff and third-party contractors. Research and development expenses increased from $14.1 million in 2001 to $18.1 million in 2002. This
increase was due to an increase in the average number of employees within our in-house engineering staff driving the development of our product into a multi-platform solution and the expansion of our product line. As of December 31, 2001, we
had 98 employees in engineering, as compared to 105 employees as of December 31, 2002.



Sales and Marketing.    Sales and marketing expenses consist of salaries, commissions and related expenses for our sales and marketing personnel, and promotion expenses,
including public relations, advertising and trade shows. Sales and marketing expenses decreased from $40.5 million in 2001 to $33.3 million in 2002. This decrease was due primarily to a decrease in sales commissions paid to sales personnel of
$2.9 million resulting from decreased license sales as well as to a $545,000 credit to expense from the settlement of a lawsuit with a former employee and to reduced salaries and sales meetings. As of December 31, 2001, we had
111 employees in sales and marketing as compared to 107 as of December 31, 2002.



General and Administrative.    General and administrative costs consist primarily of salaries and related expenses for our administrative, executive and finance personnel,
recruiting costs, information services costs and costs associated with being a public company. General and administrative expenses decreased from $8.5 million in 2001 to $7.2 million in 2002. This decrease was primarily due to a one-time sales tax
adjustment resulting in a benefit of $703,000 and decreased use of third-party contractors. As of December 31, 2001 and 2002, we had 20 and 24 general and administrative personnel. We expect this expense to increase in future periods as we incur
additional costs associated with being a public company including compliance with the Sarbanes-Oxley Act and other related regulations. Many of the requirements of the Sarbanes-Oxley Act are not yet fully enacted. Our compliance obligations and the
establishment of additional internal controls will likely require us to hire additional full time employees or hire third party consultants.



Restructuring Charge.    In 2002, we recorded a restructuring charge of $441,000 primarily related to
reductions in employee headcount. In 2001, we recorded a restructuring charge of $760,000 related to reductions in employee headcount and the abandonment of leased facilities.



Aborted Offering Costs.Aborted offering costs of approximately $1.6 million
were recorded in 2001 related to the postponement of our initial public offering, which was completed in June 2002.



16



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Amortization of Stock-Based Compensation.Amortization of stock-based compensation related to operating expenses was $3.9 million in 2001 and $2.8 million in 2002.



Other Income (Expense), Net



Other income (expense), net consists primarily of interest
income earned on cash and cash equivalents and short-term investments, foreign currency gains and losses on transactions denominated in foreign currencies and interest expense incurred on our financing obligations, including capital loans and bank
borrowings. The net balance of other income increased from $10,000 in 2001 to $718,000 in 2002 primarily due to a $480,000 increase in interest income primarily from increased cash proceeds from our initial public offering, and a $165,000 decrease
in interest expense on our short-term debt in 2002 as compared to 2001.



Provision for Income Taxes



We recorded an income tax provision of $683,000 and $1.2 million for the years ended December 31, 2001 and 2002 primarily related to income taxes currently payable on income generated in non-U.S. and domestic state tax jurisdictions,
including withholding taxes for which no U.S. benefit is currently recognizable.



Years Ended December 31, 2001 and 2000



Revenue



Revenue
increased from $35.1 million in 2000 to $81.5 million in 2001. Between these periods, license revenue grew at a rate of 125% and services and maintenance revenue grew at a rate of 147%.



Licenses.    License revenue increased from $24.0 million in 2000 to $54.1
million in 2001. The increase in license revenue was primarily due to the addition of over 120 new license customers in 2001.



Services and Maintenance.Services and maintenance revenue increased from $11.1 million in 2000 to $27.4
million in 2001. This increase was due primarily to an increase in services and maintenance provided in connection with increased license sales and, to a lesser extent, to renewals of maintenance contracts by our installed base of customers. This
increase is comprised of $8.6 million in additional maintenance revenue and $7.4 million in additional professional services, training and other revenue. The number of professional services consultants increased from 52 to 60 between these periods
to accommodate increased services demand.



Cost of Revenue



Cost
of Licenses.    Cost of licenses increased from $2.6 million in 2000 to $5.1 million in 2001. Our cost of license revenue increased in 2001 due primarily to increased license sales and to the payment of a $4.5 million royalty
to a third party vendor.



Cost of Services and
Maintenance.Cost of services and maintenance increased from $11.0 million in 2000 to $13.4 million in 2001. This increase was primarily due to an increase in the number of professional services staff in conjunction with
increased demand for our products, offset in part by a reduction in our use of third-party consultants to deploy our products.



Amortization of Stock-Based Compensation.Amortization of stock-based compensation related to cost of
services was $754,000 in 2000 and $627,000 in 2001.



Operating Expenses



Research and Development.    Research and development expenses increased from $7.6 million in 2000 to $14.1 million in 2001. This increase was due to an increase in the number of our in-house development
staff



17



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primarily as a result of our acquisition activity during this period, the development of our product into a multi-platform solution and the
expansion of our product line. As of December 31, 2000, we had 66 employees in engineering, as compared to 98 employees as of December 31, 2001. Research and development expense in 2000 included $824,000 in non-cash charges related to a warrant
issued to Procter & Gamble for research performed in connection with version 4.0 of our product.



Sales and Marketing.    Sales and marketing expenses increased from $23.8 million in 2000 to $40.5 million in
2001. This increase was due to expanded sales and marketing efforts internationally, and an increase in sales commissions paid to sales personnel due to a significant increase in new customers. As of December 31, 2000, we had 116 employees in sales
and marketing as compared to 111 as of December 31, 2001.



General and Administrative.    General and administrative expenses increased from $7.2 million in 2000 to $8.5 million in 2001. This increase was primarily due to increased costs associated with expanding
our administrative infrastructure, our increased use of third-party contractors and increases in accounting and legal fees to support our global operations. As of December 31, 2000 and 2001, we had 23 and 20 general and administrative personnel.



Restructuring
Charge.In 2001, we recorded a restructuring charge of $760,000 related to reductions in employee headcount and the abandonment of leased facilities.



Aborted Offering Costs.Aborted offering costs of approximately $1.6 million
were recorded in 2001 related to the postponement of our initial public offering.



Amortization of Stock-Based Compensation.Amortization of stock-based compensation related to operating expenses was $4.2 million in 2000 and $3.9 million in 2001.



Other Income (Expense), Net



The net balance of other income decreased from $363,000 in
2000 to $10,000 in 2001 primarily due to a $67,000 decrease in interest income, an increase interest expense on our short-term debt, and a decrease in net foreign currency gains in 2001 as compared to 2000.



Provision for Income Taxes



We recorded an income tax provision of $683,000 for the year
ended December 31, 2001 primarily related to income taxes currently payable on income generated in non-U.S. tax jurisdictions for which no U.S. benefit is currently recognizable.



Liquidity and Capital Resources



From inception through 2000, we primarily financed our operations and capital expenditures through private
sales of convertible preferred stock, with net proceeds of $36.5 million, as well as through bank loans and equipment leases. Since 2001, we primarily financed our operations and capital expenditures through cash flow from our operations. In June
2002, we successfully completed our initial public offering resulting in net proceeds of $37.9 million. As of December 31, 2002, we had $65.3 million of cash and cash equivalents and short-term investments and $49.2 million in working capital.



Our net cash provided by operating activities
was $7.0 million and $9.6 million for the years ended December 31, 2002 and 2001. The increase in our net income between these periods was offset primarily by the decrease in deferred revenue, accounts receivable and certain other working capital
balances. The fluctuations in our deferred revenue and our accounts receivable are due principally to the significant size of some individual software licensing agreements. Our change in deferred revenue decreased to $2.1 million for the year ended



18



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December 31, 2002, from an increase of $4.1 million in 2001. Our change in accounts receivable increased to $733,000 for the year ended
December 31, 2002, from a decrease of $3.3 million in 2001. The uncollected portion of deferred revenue may have a material effect on days sales outstanding. Our change in prepaid expenses and other current assets decreased to $908,000 for the year
ended December 31, 2002, from an increase of $2.4 million in 2001. Prepaid expenses are primarily related to advance payments made to technology vendors and insurance.



Capital expenditures were $1.8 million and $2.0 million for the years ended December 31, 2002 and 2001. Our
capital expenditures consisted of purchases of items to manage our operations, including computer hardware and software, office furniture and equipment and leasehold improvements.



Our initial public offering of common stock raised net proceeds of $37.9 million during the year ended
December 31, 2002. We did not raise proceeds from the sale of our preferred stock in 2001 or 2002.



We had entered into a $7.5 million revolving line of credit with Silicon Valley Bank, which originally matured in March 2002, and was
extended through August 2002. In August 2002, we modified the line of credit agreement to decrease the original principal amount to $3.1 million and extended the maturity date to August 2003. To secure any outstanding loans, we have granted Silicon
Valley Bank a security interest in our assets, including our accounts receivable. Interest on the loans is payable monthly and accrues at one percentage point above the prime rate as announced by Silicon Valley Bank. We draw down on this bank line
from time to time. As of December 31, 2002, no amounts were outstanding under this facility. In addition, we have issued a letter of credit for $2.5 million, which is enforceable against the facility. We have limitations on declaring and paying
dividends, incurring any non-permitted indebtedness and acquiring the capital stock of any other company under our loan agreements with Silicon Valley Bank.



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



Recent Accounting Pronouncements



In July 2001, the FASB issued Statement of
Financial Accounting Standards No. 141, Business Combination (SFAS 141). SFAS 141 establishes new standards for accounting and reporting for business combinations initiated after June 30, 2001. The adoption of SFAS 141 had no
impact on our financial position or results of operations.



In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142), which superceded APB Opinion No. 17, Intangible Assets. SFAS 142
establishes new standards for goodwill, including the elimination of goodwill amortization, which is to be replaced with methods of periodically evaluating goodwill for impairment. We adopted this statement during the first quarter of fiscal 2002
and it had no effect on our operating results or financial position because we had no goodwill as of December 31, 2001.



In June and August 2001, the FASB issued Statement of Financial Accounting Standards Nos. 143, Accounting for Asset Retirement
Obligations,and 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Under FASB Statement No. 143, the fair value of a liability for an asset retirement obligation must be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. FASB Statement No. 144 retains FASB Statement No. 121s,
Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to Be Disposed Of, fundamental provisions for the: (1) recognition and measurement of impairment



19



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of long-lived assets to be held and used; and (2) measurement of long-lived assets to be disposed of by sale. FASB Statement No. 143 is
effective for fiscal years beginning after June 15, 2002, and FASB Statement No. 144 is effective for fiscal years beginning after December 15, 2001. We do not believe that FASB Statement No. 143 will have a material impact on our financial
position or results of operations. SFAS 144 was adopted in the quarter ended March 31, 2002 and did not have a material impact on our financial position or results of operations.



In November 2001, the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 01-14,
Income Statement Characterization of Reimbursements Received for Out of Pocket Expenses Incurred (EITF 01-14). EITF 01-14 requires companies to characterize reimbursements received for out of pocket expenses incurred as
revenue in the income statement. EITF 01-14 should be applied in financial reporting periods beginning after December 15, 2001 and comparative financial statements for prior periods should be reclassified to comply with the guidance in EITF 01-14.
We adopted EITF 00-14 beginning in 2002 and reclassified all prior year balances to conform to the policies outlined in EITF 01-14. EITF 01-14 had no impact on gross margin or net income but increased services revenue and cost of services revenue.



In July 2002, the FASB issued Statement of
Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses financial accounting and reporting for costs associated with exit or disposal activities. This statement requires that a
liability be recognized at fair value for costs associated with exit or disposal activities only when the liability is incurred as opposed to at the time we commit to an exit plan as permitted under EITF Issue No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit and Activity. Statement No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. We do not expect that the adoption of this statement will have
a material impact on its financial position, results of operations or cash flows.



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



In November 2002, the EITF reached a consensus on Issue No. 00-21 Revenue Arrangements with Multiple Deliverables (EITF 00-21).
EITF 00-21 addresses certain aspects of the accounting by a vendor for arrangements under which the vendor will perform multiple revenue generating activities. EITF 00-21 will be effective for fiscal years beginning after June 15, 2003. We do not
expect the adoption of EITF 00-21 to have a material impact on its financial position and results of operations.



In December 2002, FASB issued SFAS No. 148, Accounting for Stock-Based CompensationTransition and Disclosure
(SFAS 148). SFAS 148 amends FASB No. 123, Accounting for Stock-Based Compensation (SFAS 123), to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The transition guidance and annual disclosure provisions of SFAS 148 are effective for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective
for financial reports containing financial statements for interim periods beginning after December 15, 2002. We adopted the disclosure requirements of SFAS 148 in the year ended December 31, 2002.



20



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



Risks Relating to Our Business



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



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



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



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



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



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



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



Our short operating history makes the evaluation of our business operations and our prospects difficult. We were founded in 1996 and began
offering version 1.0 of our corporate portal product in March 1998. Version 4.51 of our portal was released in May 2002 as version 4.5WS. We expect to continue to develop and release future versions of our portal in future periods. We cannot
predict whether these versions or future releases of our portal will be successful. We have derived all of our revenue from licensing our Plumtree Corporate Portal and related products and services. You should consider the risks and difficulties
frequently encountered by early stage companies such as ours in new and rapidly evolving markets, particularly those companies whose businesses depend on the Internet. These risks and difficulties include:



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



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



| |  |  | concentration of our revenue in a single product;
| | - |  | -------------------------------------------------



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



| |  |  | our need to manage rapidly expanding operations; and
| | - |  | ----------------------------------------------------



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



21



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We have a history of
losses, and we may not sustain annual profitability, which would have a harmful effect on our business and the value of our common stock.



We have incurred substantial net losses since our inception in July 1996. For the years ended December 31, 2000 and 2001, we incurred net
losses of approximately $21.7 million and $7.8 million, respectively. In 2002 we achieved annual profitability for the first time and recorded net income of $2.4 million. As of December 31, 2002, we had an accumulated deficit of approximately $39.5
million.



Given the level of our planned
operating and capital expenditures, we may incur losses and negative cash flows for the foreseeable future. If our revenue does not increase or if our expenses increase at a greater pace than our revenue, we will likely be unable to sustain
profitability on an annual basis. Our ability to increase revenue and achieve and sustain profitability also will be affected by other risks and uncertainties described in this section and in Managements Discussion and Analysis of
Financial Condition and Results of Operations. Our failure to continue to sustain profitability on an annual basis or to continue to grow our revenues would have a harmful effect on our business and the value of our common stock.



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



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



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



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



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



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



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



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



22



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



We derive a significant portion of our software license
revenue in each quarter from a small number of relatively large orders. For example, in the quarter ended December 31, 2002, our top 10 customers accounted for approximately 38% of our total revenue. Similarly, in each quarter over the last two
years, generally a different customer has represented at least 10% of our total quarterly revenue. Our operating results and stock price could be harmed if we were unable to complete one or more substantial license sales during any future quarterly
period.



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



We generate our revenue from licenses of the Plumtree Corporate Portal and related products and services,
including Plumtree Portlets, Integration Products and Gadget Web Services, the building blocks from which users assemble a personalized Web page as well as our Server Products, which provide significant ancillary functionality to our Portal
Platform. We expect that our portal product, and future upgraded versions of this product, will continue to account for a large portion of our revenue in the foreseeable future. Our future financial performance will depend on increasing acceptance
of our current product and on the successful development, introduction and customer acceptance of new and enhanced versions of our product. For example, our future success depends in part on the widespread market acceptance of version 4.5WS of our
portal product, released in mid-year 2002. If new and future versions of our products and services, including upcoming versions of the Plumtree Corporate Portal as well as our server products and any subsequent releases of the Plumtree Corporate
Portal, if and when released, do not gain market acceptance when released commercially, or if we fail to deliver the product enhancements that customers want, demand for our products and services, and our revenue, may decline.



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



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



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



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



23



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



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



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



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



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



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



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



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



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



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



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



24



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



Our software products are inherently complex and may contain defects and errors that are detected only when the product is in use. We periodically release updated versions of our products, which
increases the risk of undetected defects or errors. It is also possible that our products released commercially in the first quarter of 2002, the Plumtree Collaboration Server, the Plumtree Studio Server, as well as version 4.5WS of our corporate
portal product, released in May 2002, upcoming portal product version releases and our server products, may contain undetected defects or errors that are discovered after release. In addition, third-party software that we incorporate into our portal
product, or with which we integrate to deploy our solution, has contained, and may in the future contain, defects or errors. Some of our Plumtree Corporate Portal customers require, or may require, enhanced modifications of our software for their
specific needs. Modifications may increase the likelihood of undetected defects or errors. Further, we often render implementation, consulting and other technical services, the performance of which typically involves working with sophisticated
software, computing and networking systems. As a result of product defects or our failure to meet project milestones for services, we may lose customers, customers may not implement our products more broadly within their organization, we may
experience reduced market acceptance of our products, and we may be subject to product liability claims by our customers.



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



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



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



The market for corporate portal software is newly emerging
and there can be no assurance that additional customers will adopt our products. Accordingly, we cannot accurately estimate the potential demand for our products and services. We believe that market acceptance of our products and services depends
principally on our ability to:



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



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



| |  |  | withstand downturns in general economic conditions or conditions that slow corporate spending on software products;
| | - |  | -------------------------------------------------------------------------------------------------------------------



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



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



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



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



25



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Some of these
factors are beyond our control. If our customer base does not expand, we may not be able to sustain profitability.



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



Some of our customers, such as
Centrica, Cox Enterprises, MDC Holdings, MDS Canada, ProBusiness, Powergen, TJX, Thomson Legal and Regulatory, Tokyo Electric and Unilever, are currently in a pre-deployment or preliminary stage of implementing our portal product and may encounter
delays or other problems in introducing it. These delays or other problems may result from matters specific to the customer and unrelated to us or our products. A customers decision not to implement our product, or a delay in implementation,
could result in a delay or loss in related service revenue or otherwise harm our business or prospects. We cannot predict when or if any customer currently in a pilot or preliminary phase will choose to implement broader use of our product.



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



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



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



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



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



We are highly dependent on certain members of our management staff, including, without limitation, our chief
executive officer, John Kunze, our vice president of engineering, John Hogan, and our vice president of worldwide field operations, Jim Flatley. Our ability to continue to deliver products and services that are responsive to customer needs, which is
critical to our success, also depends on our ability to retain several members of our engineering team. The loss of one or more of these officers or engineers may impede the achievement of our business objectives. None of our officers or key
employees is bound by an employment agreement for any specific term, and no one is constrained from terminating his or her employment relationship with us at any time. In addition, since a number of our long-standing employees have most of their
stock options or restricted stock vested, their economic incentive to remain in our employ may be diminished.



26



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



Recruiting and retaining qualified technical personnel is critical to our success. If our business grows, we will also need to recruit a significant number of management, technical and other personnel
for our business. If we are not able to continue to attract and retain skilled and experienced personnel on acceptable terms, our growth may be limited due to our limited capacity to develop and market our product. We are currently recruiting
personnel for technical, and sales and functions. Once hired, these people will need time to familiarize themselves with Plumtree and our business practices. We expect to continue to hire additional employees in order to grow our business. The
integration of new personnel has resulted and will continue to result in some disruption to our ongoing operations. Our failure to complete this integration in an efficient manner could harm our business and prospects.



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



The planned expansion of our operations and corresponding reduction in headcount will place a significant strain on our management,
financial controls, operations systems, personnel and other resources. Our ability to manage our future growth, should it occur, will depend in large part upon a number of factors, including our ability to rapidly:



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



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



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



| |  |  | expand our internal management and financial controls significantly, so that we can maintain control over our operations and provide support to other functional
areas within Plumtree as the number of our personnel and size of our organization increases.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



We have expanded our
international operations, and we are seeking to increase the portion of our revenue that is derived from sources outside the Americas. Our revenue from sales outside the Americas constituted approximately 7.2% of our total revenue during 2000, 8.6%
of our total revenue during 2001 and approximately 18.9% of our total revenue in the 2002. If we are unable to continue to grow our international operations, we may not generate sufficient revenue to offset the expenditures required to establish and
maintain the international sales and marketing operations, which could slow or undermine our overall growth.



We have committed substantial resources to modify our products for selected international markets, including the United Kingdom, France,
Germany, South Korea, Australia, Italy, Spain, Brazil, Portugal, Sweden, Taiwan, the Netherlands and Japan. We expect to continue to commit additional resources to modify our products for other select international markets and to develop our
international sales and support organization. However, even if we successfully expand our international operations and successfully modify our products, there can be no assurance that we will be able to maintain or increase international market
demand for our products.



27



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



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



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



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



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



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



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



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



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



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



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



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



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



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



On November 13, 2001, we
commenced an action in the District Court in The Hague against an individual, Werner Linssen, to cancel the Benelux trademark registration for Plumtree held by Mr. Linssen. That action is pending. On November 25, 2001, we also commenced
a proceeding before the Swiss Federal Institute of Intellectual Property in opposition to Mr. Linssens trademark application for Plumtree. The Swiss Patent Office has dismissed the proceeding; however, Plumtree has requested a
reconsideration of the dismissal and has filed an appeal of the dismissal with the Swiss Patent Offices Appeals Board. In addition, we and Mr. Linssen have each commenced proceedings before the E.U.s Office of Harmonization of the
Internal Market in opposition to each others Community Trade Mark applications. Those proceedings have been suspended pending disposition of the Benelux action in The Hague. In the Netherlands, Plumtree has asked the Hague District Court to
(i) annul Mr. Linssens Benelux trademark registration for Plumtree and to (ii) bar Mr. Linssen, pending the proceedings, from contacting the Companys customers in a threatening or unfair manner.



Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain and use our software product or technology without authorization. Policing unauthorized use of our



28



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products is difficult, and we cannot be certain that the steps we have taken will prevent misappropriation of our technology, particularly in
foreign countries where the laws may not protect our proprietary rights as fully as those in the United States.



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



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



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



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



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



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



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



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



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



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



On May 17, 2002, Datamize, LLC filed a lawsuit against us in
the United States District Court for the District of Montana alleging that we infringe U.S. Patent Number 6,014,137 owned by Datamize. Datamize is seeking, among other things, injunctive relief and unspecified damages. Based on other communications
by Datamizes counsel, we expect Datamize may take further legal action against us with respect to additional intellectual property that Datamize purportedly owns or will own in the future. At this time, we do not believe we are infringing any
valid patent claim of Datamize and we intend to defend this lawsuit vigorously. Since the outcome of any litigation is uncertain, we may not prevail in the lawsuit brought by Datamize. If our portal were found to infringe U.S. Patent Number
6,014,137 and we are unable to obtain a license on satisfactory terms, or if an injunction were issued, we could be required to modify our portal, cease licensing our portal product, and/or pay substantial damages. Any of these outcomes would likely
have a material adverse effect on our business. Even if we prevail, the defense of this litigation could be expensive and could consume substantial amounts of management time and attention.



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



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



From time to time, we hire or retain employees or consultants who have worked for independent software
vendors or other companies developing products similar to those offered by us. Those prior employers may claim



29



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that our products are based on their products and that we have misappropriated their intellectual property. Any claims of that variety, with
or without merit, could cause a significant diversion of management attention, result in costly and protracted litigation, cause product shipment delays, require us to indemnify our alliance members and customers, require us to refund license fees
or require us to enter into royalty or licensing agreements. Those royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all, which could harm our business.



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



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



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



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



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



Risks Relating to Our Industry



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



The market for our products is intensely competitive and highly fragmented, characterized by rapid technological change, evolving industry
standards, changes in customer needs, and new product introductions and improvements. Our current competitors include established software vendors that are Web-enabling their



30



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



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



The market for our products depends on economic conditions
affecting the broader software market. Downturns in the economy may cause businesses and governments to delay or cancel corporate portal projects, reduce their overall information technology budgets or reduce or cancel orders for our products. In
this environment, customers may experience financial difficulty, fail to or defer the budget for the purchase of our products or cease operations. This, in turn, may lead to longer sales cycles, delays or failures in payment and collection, and
price pressures, causing us to realize lower revenues and margins. In particular, capital spending in the information technology sector generally has decreased in the past 24 months, and many of our customers and potential customers have experienced
severe declines in their revenues and operations. We believe that, in light of these events, some businesses and governments may curtail or eliminate capital spending on information technology. If capital spending in our markets declines, it may be
necessary for us to gain significant market share from our competitors in order to achieve our financial goals and achieve profitability on an annual basis.



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



Terrorist attacks in New York and Washington, D.C. in September of 2001 disrupted commerce throughout the
world. The continued threat of terrorism and the potential for military action and heightened security measures in response to this threat have caused and may continue to cause significant disruption to commerce throughout the world. To the extent
that these continued disruptions result in a general decrease in corporate spending on information technology, our business and results of operations could be harmed. We are unable to predict whether the threat of terrorism or the responses thereto
will result in any long-term commercial disruptions or if such activities or responses will have a long-term adverse effect on our business, results of operations or financial condition. Additionally, if any attacks were to affect the operation of
the Internet or key data centers, our business could be harmed. These and other developments arising our of the attacks may make the occurrence of one or more of the factors discussed under Risk Factors that May Affect Our Future Results and
the Market Price of Our Stock more likely to occur.



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



New products, platforms and language support can require long development and testing periods. Any delays in developing and releasing new
products could harm our business. New products or enhancements may not be released according to schedule or may contain defects when released. For example, version 4.5WS of the



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Plumtree Corporate Portal, an updated UNIX version of the Plumtree Corporate Portal, the Plumtree Collaboration Server, Plumtree Studio
Server and Plumtree Content Server have been recently released commercially, increasing the risk of undetected defects or errors. Product release delays or product defects, including release delays or defects in version 4.5WS of the Plumtree
Corporate Portal, released in May 2002 or upcoming versions could result in adverse publicity, loss of sales, delay in market acceptance of our products or customer claims against us, any of which could harm our business. We may be unable to
successfully develop and market product enhancements or new products that respond to these technological changes, shifting customer tastes or evolving industry standards, and may experience difficulties that could delay or prevent the successful
development, introduction and marketing of these products. If we are unable to develop and introduce new products or enhancements of existing products in a timely manner or if we experience delays in the commencement of commercial shipments of new
products and enhancements, our ability to attract and retain customers will be harmed.



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



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



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



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



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



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



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



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



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



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Since the U.S. and other
countries have gone to war with Iraq, the U.S. and global economies may be negatively impacted.



Since the U.S. and other countries have gone to war with Iraq, the U.S. and global economies may be negatively impacted. The worsening of
our economy has caused and may continue to cause U.S. businesses to slow spending on products and services and delay sales cycles. Additionally, a worsening of the global economy may also cause foreign businesses to slow or otherwise cease spending
on products and services. The economic uncertainty resulting from the unpredictability of future military action and other responses associated with a war with Iraq may continue to negatively impact consumer as well as business confidence in the
near term. This economic uncertainty may make it more difficult to implement our business strategy and negatively impact our revenues in the future.



Item 7a.    Quantitative and Qualitative Disclosures About Market Risk



As of December 31, 2002, we had cash, cash equivalents and short-term investments totaling $65.3 million. Our investment portfolio
consists of money market funds, corporate-backed debt obligations, municipal bonds and U.S. government discount notes, generally due within one year. We place investments with high quality issuers and limit the amount of credit exposure to any one
issuer. These securities are subject to interest rate risks. Based on our portfolio content and our ability to hold investments to maturity, we believe that, if a significant change in interest rates were to occur, it would not have a material
effect on our financial condition, although there can be no assurance of this.



For the year ended December 31, 2002, we earned approximately 19% of our revenue from international markets, most of which are denominated in various currencies. As a result, our operating results are
and may become subject to more significant fluctuations based upon changes in the exchange rates of some currencies in relation to the U.S. dollar and diverging economic conditions in foreign markets. Although we will continue to monitor our
exposure to currency fluctuations, we cannot assure you that exchange rate fluctuations will not affect adversely our financial results in the future.



Item 8.    Financial Statements and Supplementary Data



The response to this item is submitted as a separate section of this Form 10-K. See Item 15.



Item 9.    Changes In and Disagreements with Accountants on Accounting and Financial Disclosure



In April 2002, with the approval of our board of directors (including the audit committee of the board), we changed our outside accounting
firm from Arthur Andersen LLP to KPMG LLP. Arthur Andersens reports on our 1999, 2000 and 2001 consolidated financial statements contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit
scope or accounting principles. In addition, during 2000 and 2001 and the interim period prior to this change, there were no disagreements with Arthur Andersen on any matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Arthur Andersen, would have caused it to make a reference to the subject matter of the disagreements in connection with its reports. We did not consult
KPMG LLP on any financial or accounting reporting matters in the period before their appointment.



33



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Item 10.    Directors and Officers of the Registrant



Executive Officers and Directors



The following table sets forth information regarding the executive officers, directors, and key employees of Plumtree as of December 31,
2002, unless otherwise noted:



|Name             |  | Position                                                       |  | Age
|---------------- |  | -------------------------------------------------------------- |  | ---
|John Kunze       |  | President, Chief Executive Officer and Director                |  | 39 
|Eric Borrmann    |  | Vice President and Chief Financial Officer                     |  | 41 
|Glenn Kelman     |  | Co-Founder, Vice President of Product Management and Marketing |  | 31 
|John Hogan       |  | Vice President of Engineering                                  |  | 37 
|Jim Flatley      |  | Vice President of Worldwide Field Operations                   |  | 42 
|John Dillon      |  | Director                                                       |  | 53 
|Rupen Dolasia    |  | Director                                                       |  | 39 
|Pierre Lamond    |  | Director                                                       |  | 72 
|James Richardson |  | Director (effective January 2003)                              |  | 55 
|Bernard Whitney  |  | Director                                                       |  | 46 



John Kunzehas been President, Chief Executive Officer and member of the board of directors since August 1998. Before joining Plumtree, Mr. Kunze spent his entire professional career from 1985 to 1998 at Adobe Systems.
Mr. Kunze led development for the first releases of Adobe Illustrator and PhotoShop. Mr. Kunze became Director and then Vice President of Product and Marketing at Adobe Systems, with responsibility for all product marketing and strategic
acquisitions. Mr. Kunze was later promoted to Vice President of Adobe Systems Internet Products Division, which defined Adobe Systems Internet strategy.



Eric Borrmannhas been Vice President and Chief Financial Officer since July 2000. Before joining Plumtree, Mr. Borrmann
served as Corporate Treasurer at Network Associates since 1999, where he was responsible for all financial planning and investor relations at the global security and network management company. Previously, he served as Network Associates Vice
President of Finance and Operations for Europe, the Middle East and Africa. Mr. Borrmanns experience also includes senior management and systems engineering positions at Network General from 1995 to 1997, Conner Peripherals from 1990 to 1995
and Electronic Data Systems from 1985 to 1988.



Glenn Kelman, Co-Founder and Vice President of Product Management and Marketing since March 1998, is responsible for corporate and product marketing as well as business development and collaborates with our engineering
department to set the features and design of our products. Mr. Kelman managed the design and development of the first release of the Plumtree Corporate Portal. Before founding Plumtree, Mr. Kelman was a senior product manager at Informix Software, a
company he joined via the acquisition of Stanford Technology Group, from 1995 to 1997. As a product manager for On-Line Analytical Processing software following Informix Softwares acquisition of Stanford Technology Group, Mr. Kelman was
involved in designing and launching a major release of Informix Softwares On-Line Analytical Processing product line.



John Hoganhas been Vice President of Engineering since March 1998. Before joining Plumtree, Mr. Hogan was the Director
of Engineering for Informix Softwares On-Line Analytical Processing products from 1997 to 1998. Mr. Hogan also worked at Informix Software as a business development manager from 1996 to 1997. Before joining Informix Software, Mr. Hogan was a
senior developer for Stanford Technology Group from 1994 to 1995. Mr. Hogan also worked as a manager in various development and consulting organizations at Oracle Corporation from 1989 to 1994.



34



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Jim
Flatley, Vice President of Worldwide Field Operations since July 1999, has responsibility for sales, professional services, channel development, and customer care. Before joining Plumtree, Mr. Flatley was Vice President from March 1999 to
June 1999 at Siebel Systems. Prior to working at Siebel, Mr. Flatley managed a division of 700 sales operations employees across the U.S., Latin America and Canada for Network Associates from 1990 to 1999. At Network Associates, Mr. Flatley held
sales and management positions responsible for both channel and corporate sales. Mr. Flatley worked at AT&T from 1988 to 1990 as head of sales and marketing for a custom software solution to the airline industry, and IBM from 1982 to 1988, in
sales and marketing.



John Dillonhas been a director of Plumtree since September 1997. Since April 2002, Mr. Dillon has served as Chief Executive Officer of Navis, Inc. Mr. Dillon served as the President and Chief Executive Officer of Salesforce.com from September 1999 to
November 2001. Mr. Dillon spent six years with Arbor Software from December 1993 to May 1999 as Vice President of Sales and then as President and Chief Executive Officer. He also served as President and Chief Executive Officer for Hyperion, the
global enterprise software company formed through the merger of Arbor Software and Hyperion Software.



Rupen Dolasiahas been a director of Plumtree since June 1998. Mr. Dolasia is a founding member of Granite Ventures LLC
(formerly H&Q Venture Associates, LLC), a venture capital firm formed in July 1998. Prior to founding H&Q Venture Associates, Mr. Dolasia was a Vice President in Hambrecht & Quists Venture Capital Department, which he joined in
1994. Prior to joining H&Q, Mr. Dolasia was the Manager of Information Systems consulting at PEI Consultants. Prior to joining PEI Consultants, Mr. Dolasia co-founded Grata Systems, Inc., a vendor of PC-based control and monitoring software. Mr.
Dolasia focuses on information technology investments. Mr. Dolasia currently serves on the board of directors of Apogee Networks and Covalent Technologies.



Pierre Lamondhas been a director and Chairman of the Plumtree board since February 1997, and is a partner at Sequoia
Capital, a Silicon Valley based venture capital firm. Mr. Lamond focuses on semiconductor, communications and software investments. Prior to joining Sequoia Capital in 1981, Mr. Lamond was a General Manager and Technical Director of National
Semiconductor, a company he co-founded. He serves as Chairman of Vitesse Semiconductor and Redback Networks and is a director of Verisity.



James Richardson has been a director of Plumtree since January 2003. Since April 2001, Mr. Richardson has been a consultant
to high technology companies and a private investor. From July 1998 to June 2001, Mr. Richardson was the Senior Vice President and Chief Financial Officer of WebTrends Corporation, a web server management and web analytics company which merged with
Net IQ Corporation in March 2001. Prior to joining WebTrends Corporation in July 1998, Mr. Richardson was the Senior Vice President and Chief Financial Officer at Network General Corporation, which merged with McAfee Associates in December 1997
resulting in the creation of Network Associates. Prior to joining Network General Corporation in April 1994, Mr. Richardson was Vice President of Finance and Administration and Chief Financial Officer of Logic Modeling Corporation, now a division of
Synopsys, and from November 1989 to June 1992, he was Vice President and Chief Financial Officer of Advanced Logic Research starting in August 1992. Mr. Richardson currently serves on the board of directors of Rainmaker Systems, Inc and Digimarc
Corporation. Mr. Richardson also served as the Chairman of the Board of Avantgo, Inc, which was acquired by Sybase in February 2003.



Bernard Whitneyhas been a director of Plumtree since November 2000. Since August 2002 Mr. Whitney has served as an
independent consultant and private investor. Mr. Whitney served as Chief Financial Officer of Handspring, Inc. from June 1999 to July 2002. From August 1997 to June 1999, he served as Executive Vice President and Chief Financial Officer of Sanmina,
Inc., an electronics manufacturing company. From June 1995 to August 1997, Mr. Whitney served as Vice President of Finance for Network General Corporation, a network fault tolerance and performance management solutions company. From 1987 to June
1995, Mr. Whitney held a variety of corporate finance positions at Conner Peripherals, a storage device manufacturer.



35



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Classified Board of
Directors



Our certificate of incorporation
provides for a classified board of directors consisting of three classes of directors, each serving staggered three-year terms. As a result, a portion of our board of directors will be elected each year. As of December 31, 2002, one of our directors
was elected to a one-year term, two will be elected to two-year terms and two will be elected to three-year terms. Beginning at the 2003 annual meeting of stockholders, directors will be elected for three-year terms. Mr. Lamond is designated a Class
III director whose term expires at the 2003 annual meeting of stockholders. Mr. Richardson is being proposed as a Class III director whose term shall be voted on at the 2003 annual meeting of stockholders. If elected, his term shall expire at the
2006 annual meeting of stockholders. Messrs. Dillon and Dolasia are designated Class I directors whose terms expire at the 2004 annual meeting of stockholders. Messrs. Kunze and Whitney are designated Class II directors whose terms expire at the
2005 annual meeting of stockholders.



Executive
officers are appointed by the board of directors on an annual basis and serve until their successors have been duly elected and qualified. There are no family relationships among any of our directors, officers or key employees.



Board Committees



We have established an audit committee, compensation
committee and a nominating committee. The audit committee reviews our internal accounting procedures and considers and reports to the board of directors with respect to other auditing and accounting matters, including the selection of our
independent auditors, the scope of annual audits, fees to be paid to our independent auditors and the performance of our independent auditors. The audit committee currently consists of Messrs. Dillon, Richardson and Whitney. The compensation
committee reviews and recommends to the board of directors the salaries, benefits and stock option grants for all employees, consultants, directors and other individuals compensated by us. The compensation committee also administers our stock option
and other employee benefit plans. The compensation committee currently consists of Messrs. Dillon, Dolasia, Lamond and Richardson. The nominating committee reviews and makes recommendations to the board of directors regarding the composition,
governance, responsibilities and formations of the board and board committees. The nominating committee currently consists of Messrs. Dillon, Dolasia and Whitney.



36



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Item 11.    Executive Compensation



Summary Compensation Table



The following table indicates information concerning compensation of our chief executive officer and our four most highly compensated executive officers other than the chief executive officer whose
salary and bonus exceeded $100,000 for the year ended December 31, 2002. These executives are referred to as the named executive officers elsewhere in this prospectus.



Mr. Borrmann was appointed as our chief financial officer in July 2000. On an annualized basis,
Mr. Borrmanns salary was $180,000 for 2000 and he was eligible to receive an annual bonus of up to $40,000 in 2000.



|                                             |  | Year |            | Annual Compensation |           | Long-Term Compensation Awards |                                   | All Other Compensation ($)
|-------------------------------------------- |  | ---- | ---------- | ------------------- | --------- | ----------------------------- | --------------------------------- | --------------------------
|Name and Principal Position                  |  |      | Salary ($) |                     | Bonus ($) |                               | Securities Underlying Options (#) |                           
|John Kunze                                   |  | 2002 |            | 250,000             |           |                              |                                   |                          
|President and Chief Executive Officer        |  | 2001 |            | 250,000             |           |                              |                                   | 100,000                   
|                                             |  | 2000 |            | 250,000             |           |                              |                                   | 200,000                   
|                                            
|Eric Borrmann                                |  | 2002 |            | 230,000             |           | 54,683                        |                                   |                          
|Vice President and Chief Financial Officer   |  | 2001 |            | 192,500             |           | 43,500                        |                                   | 50,000                    
|                                             |  | 2000 |            | 84,577              |           | 14,485                        |                                   | 400,000                   
|                                            
|Glenn Kelman                                 |  | 2002 |            | 160,000             |           | 39,000                        |                                   |                          
|Co-Founder, Vice President of Product        |  | 2001 |            | 155,000             |           | 12,000                        |                                   | 75,000                    
|Management and Marketing                     |  | 2000 |            | 150,000             |           |                              |                                   | 75,000                    
|                                            
|John Hogan                                   |  | 2002 |            | 170,000             |           | 37,868                        |                                   |                          
|Vice President of Engineering                |  | 2001 |            | 170,000             |           | 14,250                        |                                   | 75,000                    
|                                             |  | 2000 |            | 170,000             |           | 3,000                         |                                   | 100,000                   
|                                            
|Jim Flatley                                  |  | 2002 |            | 200,000             |           | 398,487                       |                                   |                          
|Vice President of Worldwide Field Operations |  | 2001 |            | 200,000             |           | 680,949                       |                                   | 200,000                   
|                                             |  | 2000 |            | 200,000             |           | 389,983                       |                                   | 100,000                   



Option
Grants In Last Fiscal Year



No grants of
options to purchase our common stock were made during the fiscal year ended December 31, 2002 to the named executive officers.



In the fiscal year ended December 31, 2002, we granted options to purchase up to an aggregate of 1,175,300 shares to employees,
directors and consultants. All options were granted under our 1997 equity incentive plan and our 2002 equity incentive plan at exercise prices at the fair market value of our common stock on the date of grant, as determined in good faith by the
board of directors. All options have a term of ten years. Generally, option shares vest over four years, with 25% of the option shares vesting one year after the option grant date, and the remaining option shares vesting ratably each month for the
next 36 months.



37



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Aggregate
Fiscal Year-End Option Values



The following
table describes for the named executive officers the exercisable and unexercisable options held by them as of December 31, 2002.



|              |  | Number of Securities Underlying Unexercised Options Held at Fiscal Year-End (#) |  | Value of Unexercised In-The-Money Options at Fiscal Year-End
($)
|------------- |  | ------------------------------------------------------------------------------- |  | ----------------------------------------------------------------
|Name          |  | Exercisable                                                                     |  | Unexercisable                                                   
|John Kunze    |  | 1,806,469                                                                       |  | 221,088                                                         
|Eric Borrmann |  | 37,964                                                                          |  | 196,456                                                         
|Glenn Kelman  |  | 46,876                                                                          |  | 103,124                                                         
|John Hogan    |  | 240,551                                                                         |  | 139,757                                                         
|Jim Flatley   |  | 335,780                                                                         |  | 306,922                                                         



The
Value of Unexercised In-the-Money Options at Fiscal Year End is based on a value of $2.70 per share, the fair market value of our common stock as of December 31, 2002, as determined by the board of directors, less the per share exercise
price, multiplied by the number of shares issued upon exercise of the option. Options were granted under our 1997 Equity Incentive Plan and our 2002 Equity Incentive Plan.



Item 12.    Security Ownership of Certain Beneficial Owners and Management



Security Ownership of Management



The following table and footnotes thereto set forth the beneficial ownership of Common Stock of the Company as of the Record Date, by (a)
each director and nominee for director of the Company who owned shares as of such date, (b) each of the Named Officers (defined below), (c) all directors and executive officers of the Company as a group and (d) each person known by the Company to be
the beneficial owner of more than 5% of the outstanding shares of Common Stock.



Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage ownership
of that person, shares of common stock subject to options held by that person that are currently exercisable or exercisable within 60 days of March 21, 2003 are deemed outstanding. Such shares, however, are not deemed outstanding for the purpose of
computing the percentage ownership of any other person.



Unvested options granted from inception through July 2000 were immediately exercisable upon grant, provided that upon the optionees cessation of service, any unvested shares would be subject to repurchase by the Company at the
original exercise price paid per share. In computing the number of shares beneficially owned by a person, the following shares are not included: (i) shares of common stock that will continue to be subject to repurchase by the Company at the original
exercise price paid per share for at least 60 days after March 21, 2003 and (ii) shares that are subject to options that are not exercisable but will not be vested for at least 60 days after March 21, 2003.



38



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The
percentages in the table below are based on 29,942,387 shares of our common stock outstanding as of March 21, 2003. Except as indicated in the footnotes to this table and pursuant to applicable community property laws, to our knowledge, each
stockholder named in the table has had sole voting and investment power with respect to the shares set forth opposite such stockholders name.

|Name                                                                                                  |  | Number of Shares Beneficially Owned(1) |      |  | Percent of Total |  
|----------------------------------------------------------------------------------------------------- |  | -------------------------------------- | ---- |  | ---------------- | -
|Entities affiliated with Sequoia Capital 3000 Sand Hill RoadBuilding 4, Suite 280Menlo Park, CA 94002 |  | 7,029,650                              | (1)  |  | 23.5             | %
|Entities affiliated with Granite Ventures LLC One Bush Street San Francisco, CA 94104                 |  | 2,409,707                              | (2)  |  | 8.1              |  
|John Kunze                                                                                            |  | 1,824,778                              | (3)  |  | 6.1              |  
|Eric Borrmann                                                                                         |  | 213,650                                | (4)  |  | 0.7              |  
|Glenn Kelman                                                                                          |  | 1,212,954                              | (5)  |  | 4.1              |  
|John Hogan                                                                                            |  | 533,918                                | (6)  |  | 1.8              |  
|Jim Flatley                                                                                           |  | 117,033                                | (7)  |  | 0.4              |  
|John Dillon                                                                                           |  | 75,000                                 | (8)  |  | 0.3              |  
|Rupen Dolasia                                                                                         |  | 2,449,707                              | (9)  |  | 8.2              |  
|Pierre Lamond                                                                                         |  | 7,084,650                              | (10) |  | 23.4             |  
|James Richardson                                                                                      |  | 10,300                                 | (11) |  |                 |  
|Bernard Whitney                                                                                       |  | 36,251                                 | (12) |  | 0.1              |  
|Executive officers and directors as a group (10 person)                                               |  | 13,558,241                             | (13) |  | 45.3             |  

---

|(1) |  | Includes 6,223,317 shares of common stock held by Sequoia Capital VII, 31,035 shares of common stock held by Sequoia 1995 LLC, 56,271 shares of common stock held by
Sequoia 1997 LLC, 276,890 shares of common stock held by Sequoia Technology Partners VII, 92,099 shares of common stock held by Sequoia International Partners, 100,038 shares of common stock held by SQP 1997, 30,000 shares of common stock held by
Sequoia Capital Franchise Partners, 220,000 shares held by Sequoia Capital Franchise Fund.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Includes 2,265,924 shares of common stock held by H&Q Plumtree Investors, LP and 143,783 shares of common stock held by TODD US Ventures, LLC.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Includes 1,824,778 shares of common stock issuable pursuant to stock options exercisable as of within 60 days of March 21, 2003. Also, includes 734,061 shares
of which Mr. Kunzes ex-wife has beneficial ownership pursuant to the terms of a divorce settlement arrangement.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Includes 70,371 shares of common stock issuable pursuant to stock options exercisable within 60 days of March 21, 2003. Also, includes 200,000 stock options that had
been previously exercised.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | Includes 53,126 shares of common stock issuable pursuant to stock options exercisable as of within 60 days of March 21, 2003. Also, includes 1,159,828 shares of
founders stock.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) |  | Includes 533,918 shares of common stock issuable pursuant to stock options exercisable within 60 days of March 21, 2003. Also, includes 280,308 stock options that
had been previously exercised.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) |  | Includes 117,003 shares of common stock issuable pursuant to stock options exercisable within 60 days of March 21, 2003.
|--- |  | ------------------------------------------------------------------------------------------------------------------------

|(8) |  | Includes 20,000 shares of common stock issuable pursuant to stock options exercisable within 60 days of March 21, 2003. Includes 10,000 shares of common stock Mr.
Dillon purchased independently.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) |  | Includes 40,000 shares of common stock issuable pursuant to stock options exercisable as of within 60 days of March 21, 2003. Also, included 2,409,707 shares owned
by the entities affiliated with Granite Ventures, LLC. Mr. Dolasia, a member of these entities, disclaims beneficial ownership of the shares held by such entities except to the extent of his pro rata interest in these entities.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10) |  | Includes 40,000 shares of common stock issuable pursuant to stock options exercisable as of within 60 days of March 21, 2003, 15,000 shares beneficially owned by
Mr. Lamond. Also, included 7,029,650 shares owned by the entities affiliated with Sequoia Capital. Mr. Lamond, a General Partner of these entities, disclaims beneficial ownership of the shares held by such entities except to the extent of
his pro rata interest in these entities.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(11) |  | Includes 10,300 shares of common stock Mr. Richardson purchased independently.
|---- |  | ------------------------------------------------------------------------------

|(12) |  | Includes 36,251 shares of common stock issuable pursuant to stock options exercisable within 60 days of March 21, 2003.
|---- |  | -----------------------------------------------------------------------------------------------------------------------

|(13) |  | Includes 7,029,689 shares of common stock owned by the entities affiliated with Sequoia Capital and 2,409,707 shares of common stock owned by the entities affiliated
with Granite Ventures LLC. See notes (9) and (10) above.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



39



---



Equity Compensation Plan
Information



The following table summarizes
information about our equity compensation plans as of December 31, 2002. All outstanding awards relate to our common stock.



|Plan category                                              |  | Number of securities to be issued upon exercise of outstanding options, warrants and
rights (a) |  | Weighted-average exercise price of outstanding options, warrants and
rights (b) |      | Number of securities remaining available for future issuance under equity compensation
plans (excluding securities reflected in column (a))
|---------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------- | ---- | -------------------------------------------------------------------------------------------------------------------------------------------
|Equity Compensation plans approved by security holders     |  | 8,291,153                                                                                       |  | $                                                                               | 4.08 |                                                                                                                                            
|Equity compensation plans not approved by security holders |  |                                                                                                |  |                                                                                 |     |                                                                                                                                            
|Total                                                      |  | 8,291,153                                                                                       |  | $                                                                               | 4.08 |                                                                                                                                            



Item 13.    Certain Relationships and Related Transactions



During the fiscal year ended December 31, 2002, there has not been, nor is there currently proposed, any transaction or series of similar
transactions to which we were or are to be a party in which the amount involved exceeds $60,000 and in which any director, executive officer or holder of more than 5% of our common stock, or an immediate family member of any of the foregoing, had or
will have a direct or indirect interest other than:



| |  |  | compensation arrangements, which are described where required under Executive Compensation.
| | - |  | ---------------------------------------------------------------------------------------------



Item 14.    Controls and Procedures



During the 90 day period prior to the filing of this annual report, an evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer
(CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended). Our CEO and CFO
believe based on the evaluation that the design and operation of our disclosure controls and procedures are effective to ensure that material information relating to Plumtree is made known to them by others within the Company during the period in
which this Report of Form 10-K was being prepared. There have been no significant changes in our internal controls or, to our knowledge, in other factors that could significantly affect internal controls subsequent to that evaluation.



Item 15.    Exhibits, Financial Statement Schedules and Reports on Form 8-K



(a)  1.    Financial Statements



The following financial statements are filed as part of this report:

|                                                                                                                        |  | Page
|----------------------------------------------------------------------------------------------------------------------- |  | ----
|Report of Independent Auditors                                                                                          |  | F-1 
|Consolidated Financial Statements:                                                                                      |  |     
|Balance Sheets as of December 31, 2002 and 2001                                                                         |  | F-2 
|Statements of Operations for the years ended December 31, 2002, 2001 and
2000                                           |  | F-3 
|Statements of Stockholders Equity and Comprehensive Income (Loss) for the years
ended December 31, 2002, 2001 and 2000 |  | F-4 
|Statements of Cash Flows for the years ended December 31, 2002, 2001 and
2000                                           |  | F-5 
|Notes to Consolidated Financial Statements                                                                              |  | F-6 



40



---



(a)  2.    Financial Statement Schedules



None. All schedules are omitted because they are not required or the required information is shown in the financial statements or notes thereto.



(a)  3.    Exhibits



EXHIBIT INDEX



|Exhibit |  | Description                                                                                                                     
|------- |  | --------------------------------------------------------------------------------------------------------------------------------
|       
|3.1     |  | Amended and Restated Certificate of Incorporation of the
Registrant(1)                                                          
|       
|3.2     |  | Bylaws of the Registrant(1)                                                                                                     
|       
|4.1     |  | Specimen common stock certificate(1)                                                                                            
|       
|4.9     |  | Warrant to purchase Common Stock, dated May 31, 2000, issued to WXI/SAN Realty,
L.L.C.(1)                                       
|       
|4.10    |  | Warrant to purchase Common Stock, dated Sept. 20, 2000, issued to WXI/SAN Realty,
L.L.C.(1)                                     
|       
|10.1*   |  | Form of Indemnification Agreement between the Registrant and each of its directors
and officers(1)                              
|       
|10.2*   |  | 1997 Equity Incentive Plan, as amended, and form of agreements
thereunder(1)                                                    
|       
|10.3*   |  | 2002 Stock Plan, as amended, and form of agreements
thereunder(1)                                                               
|       
|10.4*   |  | 2002 Employee Stock Purchase Plan, and form of agreements
thereunder(1)                                                         
|       
|10.5*   |  | 2002 Director Option Plan, and form of agreements thereunder(1)                                                                 
|       
|10.6    |  | Loan and Security Agreement, dated March 14, 2001, between the Registrant and Silicon
Valley Bank(1)                            
|       
|10.7    |  | Office Lease for 500 Sansome Street, dated April 7, 1999, between the Registrant and
BPG Sansome, L.L.C.(1)                     
|       
|10.8    |  | First Amendment to Lease for 500 Sansome Street, dated May 3, 2000, between the
Registrant and WXI/SAN Realty, L.L.C.(1)        
|       
|10.9*   |  | Offer letter between the Registrant and John H. Kunze(1)                                                                        
|       
|10.10*  |  | Offer letter between the Registrant and Eric Borrmann(1)                                                                        
|       
|10.11*  |  | Offer letter between the Registrant and John Hogan(1)                                                                           
|       
|10.12*  |  | Offer letter between the Registrant and Jim Flatley(1)                                                                          
|       
|10.13   |  | Second Amendment to Lease for 500 Sansome Street, dated September 20, 2000, between
the Registrant and WXI/SAN Realty, L.L.C.(1)
|       
|10.14   |  | Third Amendment to Lease for 500 Sansome Street, dated November 22, 2000, between the
Registrant and WXI/SAN Realty, L.L.C.(1)  
|       
|10.16*  |  | Secured Promissory Note dated August 14, 2000 between the Company and Eric
Borrmann(2)                                          
|       
|10.17*  |  | Security and Pledge Agreement dated August 14, 2000 between the Company and Eric
Borrmann(2)                                    
|       
|23.1    |  | Consent of KPMG LLP                                                                                                             
|       
|99.1    |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes
Oxley Act of 2002 (S-O Act)                  
|       
|99.2    |  | Certification of Chief Financial Officer pursuant to Section 906 of the S-O
Act                                                 

---

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

| |  | We obtained confidential treatment from the Securities and Exchange Commission for selected
portions of this exhibit. The omitted portions were filed separately with the Commission.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



41



---

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

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

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



(b)  Reports on Form 8-K



On January 17, 2003, we filed a current report on Form 8-K to file our press release announcing the election of Jim Richardson to the Companys Board of Directors and to acknowledge that John Kunze, Eric Borrmann and certain
other officers intended to adopt prearranged trading plans in accordance with the Securities and Exchange Commission Rule 10b5-1.





42



---

REPORT OF INDEPENDENT AUDITORS



To the Board of Directors and Stockholders of Plumtree Software, Inc.:



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



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



In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Plumtree Software, Inc. and subsidiaries as of December 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 December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.



KPMG LLP



Mountain View, California

January 14, 2003



F-1



---



PLUMTREE
SOFTWARE, INC.



CONSOLIDATED BALANCE
SHEETS

(In thousands, except per share amounts)



|                                                                                                    |  | As of December 31, |        
|--------------------------------------------------------------------------------------------------- |  | ------------------ | -------
|                                                                                                    |  | 2002               |        
|ASSETS                                                                                              |  |                    |        
|Current assets:                                                                                     |  |                    |        
|Cash and cash equivalents                                                                           |  | $                  | 20,655 
|Short-term investments                                                                              |  |                    | 44,667 
|Accounts receivable (net of allowance for doubtful accounts of $754 and
$1,184)                     |  |                    | 16,619 
|Prepaid and other current assets                                                                    |  |                    | 2,160  
|                                                                                                    |  |                    |        
|Total current assets                                                                                |  |                    | 84,101 
|Property and equipment, net                                                                         |  |                    | 2,698  
|Other assets                                                                                        |  |                    | 3,923  
|                                                                                                    |  |                    |        
|Total assets                                                                                        |  | $                  | 90,722 
|                                                                                                    |  |                    |        
|                                                                                                   
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                |  |                    |        
|Current liabilities:                                                                                |  |                    |        
|Accounts payable                                                                                    |  | $                  | 1,630  
|Accrued and other current liabilities                                                               |  |                    | 14,747 
|Deferred revenue                                                                                    |  |                    | 18,539 
|Line of credit                                                                                      |  |                    |       
|                                                                                                    |  |                    |        
|Total current liabilities                                                                           |  |                    | 34,916 
|Other long-term liabilities                                                                         |  |                    | 454    
|                                                                                                    |  |                    |        
|Total liabilities                                                                                   |  |                    | 35,370 
|                                                                                                    |  |                    |        
|                                                                                                   
|Commitments and contingencies                                                                       |  |                    |        
|                                                                                                   
|Stockholders equity:                                                                               |  |                    |        
|Convertible preferred stock, $ 0.001 par value, aggregate liquidation preference of $0
and $37,937: |  |                    |        
|Authorized20,000 shares and 16,982 shares; Outstanding0 shares and 16,581
shares                  |  |                    |       
|Common stock, $ 0.001 par value:                                                                    |  |                    |        
|Authorized100,000 shares and 31,660 shares, Outstanding29,439 shares and
7,650 shares             |  |                    | 30     
|Additional paid in capital                                                                          |  |                    | 98,384 
|Notes receivable from stockholders                                                                  |  |                    | (674   
|Deferred stock-based compensation                                                                   |  |                    | (2,951 
|Accumulated other comprehensive income (loss)                                                       |  |                    | 23     
|Accumulated deficit                                                                                 |  |                    | (39,460
|                                                                                                    |  |                    |        
|Total stockholders equity                                                                          |  |                    | 55,352 
|                                                                                                    |  |                    |        
|Total liabilities and stockholders equity                                                          |  | $                  | 90,722 
|                                                                                                    |  |                    |        



The
accompanying notes are an integral part of these consolidated financial statements.



F-2



---

PLUMTREE SOFTWARE, INC.



CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)



|                                                                                                                                                          |  | For the Year Ended December 31, |       
|--------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------
|                                                                                                                                                          |  | 2002                            |       
|Revenue:                                                                                                                                                  |  |                                 |       
|Licenses                                                                                                                                                  |  | $                               | 49,581
|Services and maintenance                                                                                                                                  |  |                                 | 33,338
|                                                                                                                                                          |  |                                 |       
|Total revenue                                                                                                                                             |  |                                 | 82,919
|                                                                                                                                                          |  |                                 |       
|Cost of revenue:                                                                                                                                          |  |                                 |       
|Licenses(1)                                                                                                                                               |  |                                 | 4,779 
|Services and maintenance                                                                                                                                  |  |                                 | 12,685
|Amortization of stock-based compensation(2)                                                                                                               |  |                                 | 694   
|                                                                                                                                                          |  |                                 |       
|Total cost of revenue                                                                                                                                     |  |                                 | 18,158
|                                                                                                                                                          |  |                                 |       
|Gross margin                                                                                                                                              |  |                                 | 64,761
|                                                                                                                                                          |  |                                 |       
|Operating expenses:                                                                                                                                       |  |                                 |       
|Research and development                                                                                                                                  |  |                                 | 18,140
|Sales and marketing                                                                                                                                       |  |                                 | 33,281
|General and administrative                                                                                                                                |  |                                 | 7,241 
|Restructuring charges                                                                                                                                     |  |                                 | 441   
|Aborted offering costs                                                                                                                                    |  |                                 |      
|Amortization of stock-based compensation(3)                                                                                                               |  |                                 | 2,806 
|                                                                                                                                                          |  |                                 |       
|Total operating expenses                                                                                                                                  |  |                                 | 61,909
|                                                                                                                                                          |  |                                 |       
|Income (loss) from operations                                                                                                                             |  |                                 | 2,852 
|Other income (expense):                                                                                                                                   |  |                                 |       
|Interest income (expense), net                                                                                                                            |  |                                 | 773   
|Other income (expense)                                                                                                                                    |  |                                 | (55   
|                                                                                                                                                          |  |                                 |       
|Other income, net                                                                                                                                         |  |                                 | 718   
|                                                                                                                                                          |  |                                 |       
|Income (loss) before income taxes                                                                                                                         |  |                                 | 3,570 
|Provision for income taxes                                                                                                                                |  |                                 | 1,180 
|                                                                                                                                                          |  |                                 |       
|Net income (loss)                                                                                                                                         |  | $                               | 2,390 
|                                                                                                                                                          |  |                                 |       
|Net income (loss) per share:                                                                                                                              |  |                                 |       
|Basic                                                                                                                                                     |  | $                               | 0.12  
|                                                                                                                                                          |  |                                 |       
|Diluted                                                                                                                                                   |  | $                               | 0.08  
|                                                                                                                                                          |  |                                 |       
|Weighted average shares outstanding:                                                                                                                      |  |                                 |       
|Basic                                                                                                                                                     |  |                                 | 19,861
|                                                                                                                                                          |  |                                 |       
|Diluted                                                                                                                                                   |  |                                 | 30,267
|                                                                                                                                                          |  |                                 |       
|(1)    During the years ended December 31, 2002 and 2001, the
Company recorded non-cash amortization of acquired technology of $1.6 million and $138,000. |  |                                 |       
|(2)    Amortization of stock-based compensation included in cost of
revenue                                                                               |  | $                               | 694   
|                                                                                                                                                          |  |                                 |       
|(3)    Amortization of stock-based compensation included in
operating expenses:                                                                           |  |                                 |       
|Research and development                                                                                                                                  |  | $                               | 1,247 
|Sales and marketing                                                                                                                                       |  |                                 | 1,281 
|General and administrative                                                                                                                                |  |                                 | 278   
|                                                                                                                                                          |  |                                 |       
|Total stock-based compensation included in operating expenses                                                                                             |  |                                 | 2,806 
|                                                                                                                                                          |  |                                 |       
|Total stock-based compensation                                                                                                                            |  | $                               | 3,500 
|                                                                                                                                                          |  |                                 |       



The
accompanying notes are an integral part of these consolidated financial statements.



F-3



---

PLUMTREE SOFTWARE, INC.



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND
COMPREHENSIVE INCOME (LOSS)

(In thousands)



|                                                                                       |  | Convertible Preferred Stock |   |  | Common Stock |     | Additional Paid in Capital |        |        | Notes Receivable from Stockholders |        |   | Deferred Stock- based Compen- sation |  |   | Accu- mulated Other Compre- hensive Income (Loss) |   |  | Accumulated Deficit |      |   | Total Stock- holders Equity |   |         | Compre- hensive Income (Loss) | 
|-------------------------------------------------------------------------------------- |  | --------------------------- | - |  | ------------ | --- | -------------------------- | ------ | ------ | ---------------------------------- | ------ | - | ------------------------------------ |  | - | ------------------------------------------------- | - |  | ------------------- | ---- | - | ---------------------------- | - | ------- | ----------------------------- | 
|                                                                                       |  | Shares                      |   |  | Amount       |     |                            | Shares |        |                                    | Amount |   |                                      |  |   |                                                   |   | 
|Balance at December 31, 1999                                                           |  | 14,150                      |   |  | $            | 14  |                            |        | 5,370  |                                    |        | $ | 5                                    |  | $ | 16,135                                            |   |  | $                   |     |   |                              | $ | (1,075  | )                             | 
|Issuance of Series E convertible preferred stock, net of issuance costs of
$1,235      |  | 2,431                       |   |  |              | 3   |                            |        |       |                                    |        |   |                                     |  |   | 21,996                                            |   |  |                     |     |   |                              |   |        |                               | 
|Issuance of warrants                                                                   |  |                            |   |  |              |    |                            |        |       |                                    |        |   |                                     |  |   | 1,124                                             |   |  |                     |     |   |                              |   |        |                               | 
|Exercise of warrants                                                                   |  |                            |   |  |              |    |                            |        | 100    |                                    |        |   |                                     |  |   | 200                                               |   |  |                     |     |   |                              |   |        |                               | 
|Exercise of stock options                                                              |  |                            |   |  |              |    |                            |        | 2,005  |                                    |        |   | 2                                    |  |   | 1,525                                             |   |  |                     | (520 | ) |                              |   |        |                               | 
|Repurchase of stock                                                                    |  |                            |   |  |              |    |                            |        | (51    | )                                  |        |   |                                     |  |   | (5                                                | ) |  |                     |     |   |                              |   |        |                               | 
|Deferred stock-based compensation                                                      |  |                            |   |  |              |    |                            |        |       |                                    |        |   |                                     |  |   | 14,480                                            |   |  |                     |     |   |                              |   | (14,480 | )                             | 
|Issuance of common stock for services                                                  |  |                            |   |  |              |    |                            |        | 20     |                                    |        |   |                                     |  |   | 100                                               |   |  |                     |     |   |                              |   |        |                               | 
|Amortization of stock-based compensation                                               |  |                            |   |  |              |    |                            |        |       |                                    |        |   |                                     |  |   |                                                  |   |  |                     |     |   |                              |   | 4,920   |                               | 
|Translation adjustment                                                                 |  |                            |   |  |              |    |                            |        |       |                                    |        |   |                                     |  |   |                                                  |   |  |                     |     |   |                              |   |        |                               | 
|Net loss                                                                               |  |                            |   |  |              |    |                            |        |       |                                    |        |   |                                     |  |   |                                                  |   |  |                     |     |   |                              |   |        |                               | 
|                                                                                       |  |                             |   |  |              |     |                            |        |        |                                    |        |   |                                      |  |   |                                                   |   |  |                     |      |   |                              |   |         |                               | 
|Balance at December 31, 2000                                                           |  | 16,581                      |   |  |              | 17  |                            |        | 7,444  |                                    |        |   | 7                                    |  |   | 55,555                                            |   |  |                     | (520 | ) |                              |   | (10,635 | )                             | 
|                                                                                       |  |                             |   |  |              |     |                            |        |        |                                    |        |   |                                      |  |   |                                                   |   |  |                     |      |   |                              |   |         |                               | 
|Exercise of stock options                                                              |  |                            |   |  |              |    |                            |        | 75     |                                    |        |   |                                      |  |   | 168                                               |   |  |                     |     |   |                              |   |        |                               | 
|Acquisition of technology                                                              |  |                            |   |  |              |    |                            |        | 358    |                                    |        |   | 1                                    |  |   | 4,497                                             |   |  |                     |     |   |                              |   |        |                               | 
|Repurchase of stock                                                                    |  |                            |   |  |              |    |                            |        | (226   | )                                  |        |   |                                     |  |   | (167                                              | ) |  |                     |     |   |                              |   |        |                               | 
|Notes receivable from stockholders                                                     |  |                            |   |  |              |    |                            |        |       |                                    |        |   |                                     |  |   |                                                  |   |  |                     | (154 | ) |                              |   |        |                               | 
|Acceleration of employee stock options                                                 |  |                            |   |  |              |    |                            |        |       |                                    |        |   |                                     |  |   | 31                                                |   |  |                     |     |   |                              |   |        |                               | 
|Deferred stock-based compensation                                                      |  |                            |   |  |              |    |                            |        |       |                                    |        |   |                                     |  |   | 4,410                                             |   |  |                     |     |   |                              |   | (4,410  | )                             | 
|Amortization of stock-based compensation                                               |  |                            |   |  |              |    |                            |        |       |                                    |        |   |                                     |  |   |                                                  |   |  |                     |     |   |                              |   | 4,527   |                               | 
|Cancellation of unvested options                                                       |  |                            |   |  |              |    |                            |        |       |                                    |        |   |                                     |  |   | (2,217                                            | ) |  |                     |     |   |                              |   | 2,217   |                               | 
|Translation adjustment                                                                 |  |                            |   |  |              |    |                            |        |       |                                    |        |   |                                     |  |   |                                                  |   |  |                     |     |   |                              |   |        |                               | 
|Net loss                                                                               |  |                            |   |  |              |    |                            |        |       |                                    |        |   |                                     |  |   |                                                  |   |  |                     |     |   |                              |   |        |                               | 
|                                                                                       |  |                             |   |  |              |     |                            |        |        |                                    |        |   |                                      |  |   |                                                   |   |  |                     |      |   |                              |   |         |                               | 
|Balance at December 31, 2001                                                           |  | 16,581                      |   |  |              | 17  |                            |        | 7,650  |                                    |        |   | 8                                    |  |   | 62,277                                            |   |  |                     | (674 | ) |                              |   | (8,301  | )                             | 
|                                                                                       |  |                             |   |  |              |     |                            |        |        |                                    |        |   |                                      |  |   |                                                   |   |  |                     |      |   |                              |   |         |                               | 
|Issuance of common stock from initial public offering, net of issuance costs of
$4,555 |  |                            |   |  |              |    |                            |        | 5,000  |                                    |        |   | 5                                    |  |   | 37,940                                            |   |  |                     |     |   |                              |   |        |                               | 
|Conversion of preferred stock to common stock                                          |  | (16,581                     | ) |  |              | (17 | )                          |        | 16,629 |                                    |        |   | 17                                   |  |   |                                                  |   |  |                     |     |   |                              |   |        |                               | 
|Exercise of warrants                                                                   |  |                            |   |  |              |    |                            |        | 187    |                                    |        |   |                                     |  |   |                                                  |   |  |                     |     |   |                              |   |        |                               | 
|Exercise of stock options                                                              |  |                            |   |  |              |    |                            |        | 48     |                                    |        |   |                                     |  |   | 73                                                |   |  |                     |     |   |                              |   |        |                               | 
|Repurchase of common stock                                                             |  |                            |   |  |              |    |                            |        | (75    | )                                  |        |   |                                     |  |   | (56                                               | ) |  |                     |     |   |                              |   |        |                               | 
|Amortization of stock-based compensation                                               |  |                            |   |  |              |    |                            |        |       |                                    |        |   |                                     |  |   |                                                  |   |  |                     |     |   |                              |   | 3,500   |                               | 
|Cancellation of unvested options                                                       |  |                            |   |  |              |    |                            |        |       |                                    |        |   |                                     |  |   | (1,850                                            | ) |  |                     |     |   |                              |   | 1,850   |                               | 
|Unrealized gain on investments                                                         |  |                            |   |  |              |    |                            |        |       |                                    |        |   |                                     |  |   |                                                  |   |  |                     |     |   |                              |   |        |                               | 
|Translation adjustment                                                                 |  |                            |   |  |              |    |                            |        |       |                                    |        |   |                                     |  |   |                                                  |   |  |                     |     |   |                              |   |        |                               | 
|Net income                                                                             |  |                            |   |  |              |    |                            |        |       |                                    |        |   |                                     |  |   |                                                  |   |  |                     |     |   |                              |   |        |                               | 
|                                                                                       |  |                             |   |  |              |     |                            |        |        |                                    |        |   |                                      |  |   |                                                   |   |  |                     |      |   |                              |   |         |                               | 
|Balance at December 31, 2002                                                           |  |                            |   |  | $            |    |                            |        | 29,439 |                                    |        | $ | 30                                   |  | $ | 98,384                                            |   |  | $                   | (674 | ) |                              | $ | (2,951  | )                             | 
|                                                                                       |  |                             |   |  |              |     |                            |        |        |                                    |        |   |                                      |  |   |                                                   |   |  |                     |      |   |                              |   |         |                               | 



The
accompanying notes are an integral part of these consolidated financial statements.





F-4



---

PLUMTREE SOFTWARE, INC.



CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                                                   |  | For the Year Ended December 31, |        
|-------------------------------------------------------------------------------------------------- |  | ------------------------------- | -------
|                                                                                                   |  | 2002                            |        
|Cash flows from operating activities:                                                              |  |                                 |        
|Net income (loss)                                                                                  |  | $                               | 2,390  
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities: |  |                                 |        
|Provision for doubtful accounts                                                                    |  |                                 | 505    
|Depreciation and amortization                                                                      |  |                                 | 1,846  
|Loss on disposal of property & equipment                                                           |  |                                 | 214    
|Amortization of stock-based compensation                                                           |  |                                 | 3,500  
|Acceleration of employee stock options                                                             |  |                                 |       
|Amortization of acquired technology                                                                |  |                                 | 1,597  
|Common stock issued for services                                                                   |  |                                 |       
|Amortization of warrants issued for services                                                       |  |                                 | 52     
|Changes in assets and liabilities:                                                                 |  |                                 |        
|Accounts receivable                                                                                |  |                                 | 733    
|Prepaid and other current assets                                                                   |  |                                 | (908   
|Other long term assets                                                                             |  |                                 | (395   
|Accounts payable                                                                                   |  |                                 | 167    
|Accrued and other current liabilities                                                              |  |                                 | (791   
|Deferred revenue                                                                                   |  |                                 | (2,060 
|Other long-term liabilities                                                                        |  |                                 | 120    
|                                                                                                   |  |                                 |        
|Net cash provided by (used in) operating activities                                                |  |                                 | 6,970  
|                                                                                                   |  |                                 |        
|Cash flows from investing activities:                                                              |  |                                 |        
|Acquisition of technology                                                                          |  |                                 |       
|Purchases of short-term investments                                                                |  |                                 | (46,141
|Maturities of short-term investments                                                               |  |                                 | 1,703  
|Return of (investment in) deposit                                                                  |  |                                 |       
|Purchases of property and equipment                                                                |  |                                 | (1,824 
|                                                                                                   |  |                                 |        
|Net cash provided by (used in) investing activities                                                |  |                                 | (46,262
|                                                                                                   |  |                                 |        
|Cash flows from financing activities:                                                              |  |                                 |        
|Payments on capital lease obligations                                                              |  |                                 | (283   
|Proceeds from short-term debt                                                                      |  |                                 | 1,600  
|Repayments on short-term debt                                                                      |  |                                 | (3,200 
|Issuance of employee notes receivable                                                              |  |                                 |       
|Net proceeds from issuance of convertible preferred stock                                          |  |                                 |       
|Proceeds from initial public offering, net                                                         |  |                                 | 37,945 
|Proceeds from issuance of common stock                                                             |  |                                 | 73     
|Repurchase of common stock                                                                         |  |                                 | (56    
|                                                                                                   |  |                                 |        
|Net cash provided by financing activities                                                          |  |                                 | 36,079 
|                                                                                                   |  |                                 |        
|Effect of change in exchange rates on cash and cash equivalents                                    |  |                                 | (172   
|                                                                                                   |  |                                 |        
|Net increase (decrease) in cash and cash equivalents                                               |  |                                 | (3,385 
|Cash and cash equivalents at beginning of year                                                     |  |                                 | 24,040 
|                                                                                                   |  |                                 |        
|Cash and cash equivalents at end of year                                                           |  | $                               | 20,655 
|                                                                                                   |  |                                 |        
|Supplemental disclosure of cash flow information:                                                  |  |                                 |        
|Cash paid for income taxes                                                                         |  | $                               | 814    
|                                                                                                   |  |                                 |        
|Cash paid for interest                                                                             |  | $                               | 113    
|                                                                                                   |  |                                 |        
|Non-cash financing activity:                                                                       |  |                                 |        
|Purchases of equipment subject to capital leases                                                   |  | $                               |       
|                                                                                                   |  |                                 |        
|Note receivable from stockholder to purchase stock                                                 |  | $                               |       
|                                                                                                   |  |                                 |        
|Issuance of common stock for acquisitions of a company and certain
technology                      |  | $                               |       
|                                                                                                   |  |                                 |        
|Liabilities assumed on acquisition                                                                 |  | $                               |       
|                                                                                                   |  |                                 |        

The accompanying notes are an integral part of these consolidated financial
statements.



F-5



---



PLUMTREE
SOFTWARE, INC.



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS



1.    ORGANIZATION OF THE COMPANY



Plumtree Software, Inc. (the Company) was originally incorporated in the State of California on July 18, 1996 to develop and market infrastructure software and services that enable a
business to deploy a corporate portal to information applications and Internet-based services. The Company reincorporated in the State of Delaware on May 31, 2002 (see Note 15).



The Company is subject to a number of risks associated with companies at a similar stage of development
including competition from larger, more established companies, dependence on new product introductions, volatility of the industry, ability to obtain adequate funding to support growth, dependence on key individuals and the ability to attract and
retain additional qualified personnel to manage the anticipated growth of the Company.



2.    SIGNIFICANT ACCOUNTING POLICIES



Recent Events



In June 2002, the Company completed the sale of a total of 5,000,000 shares of common stock in an initial public offering (IPO) at a price of $8.50 per share. The Company received total net proceeds of
approximately $37.9 million upon the consummation of the IPO. See Note 3 for additional information relating to the IPO.



Principles of Consolidation



The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.



Foreign Currency Translation



The functional currency of the Companys subsidiaries is the local currency (with the exception of Switzerland which uses the Euro as its functional currency). Accordingly, all assets and liabilities are translated into U.S.
dollars at the current exchange rate as of the applicable balance sheet date. Revenues and expenses are translated at the average exchange rate prevailing during the period. Gains and losses resulting from the translation of the financial statements
are reported as a separate component of stockholders equity. Foreign currency transaction gains and losses are included in other income (expense) and for the three years ended December 31 2002 these amounts have not been material.



Cash Equivalents and Short-Term Investments



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



F-6



---

PLUMTREE SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





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



|                                |  | Expected Maturity Date For the Year Ending December 31, |        | As of December 31, 2002
|------------------------------- |  | ------------------------------------------------------- | ------ | -----------------------
|                                |  | 2003                                                    |        | 2004                   
|Taxable auction rate securities |  | $                                                       | 11,300 |                        
|Commercial paper                |  |                                                         | 1,494  |                        
|US Government agencies          |  |                                                         | 3,045  |                        
|Corporate notes                 |  |                                                         |       |                        
|                                |  |                                                         |        |                        
|Total                           |  | $                                                       | 15,839 |                        
|                                |  |                                                         |        |                        



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



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



Concentration of
Credit Risk



Financial instruments that
potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments and accounts receivable. The Company places all of its cash and cash equivalents and short-term investments with
high credit issuers. Carrying amounts of financial instruments held by the Company, which include cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, approximate fair value due to their short duration. The Company
performs ongoing credit evaluations of its customers, generally requires customers to prepay for maintenance and maintains reserves for potential losses. The Companys customer base is primarily composed of businesses throughout the United
States, Europe and Asia.



No customer accounted
for greater than 10% of total revenue for the years ended December 31, 2000, 2001 and 2002. One customer accounted for 28% of accounts receivable at December 31, 2001. As of December 31, 2002 no customer accounted for greater than 10% of
accounts receivable.



F-7



---

PLUMTREE SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





Valuation Accounts



Below
is a summary of the changes in the Companys allowance for doubtful accounts for the years ended December 31, 2002, 2001 and 2000 (in thousands):



|                             |  | Beginning Balance |       | Additions |   | Deductions |  | Ending Balance
|---------------------------- |  | ----------------- | ----- | --------- | - | ---------- |  | --------------
|Year ended December 31, 2000 |  | $                 | 78    |           | $ | 1,528      |  | $             
|Year ended December 31, 2001 |  | $                 | 1,606 |           | $ | 1,089      |  | $             
|Year ended December 31, 2002 |  | $                 | 1,184 |           | $ | 505        |  | $             



Deductions include all charges against reserves. These deductions were made in the normal course of business and only for the specific use for which the reserve was identified and intended.



Property and Equipment



Property and equipment are stated at cost. Depreciation and
amortization is provided using the straight-line method over the shorter of the lease term or the estimated useful life of two to four years.



Income Taxes



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 from a change on tax rates is recognized in income in the period the change is enacted. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amounts to be recovered.



Commissions



The
Company records commissions due to employees relating to contracts that have been signed. The Company recognizes the commission expense in the period in which the commission is earned, which may or may not coincide with the recognition of revenue
for the respective contract.



F-8



---

PLUMTREE SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





Stock-Based Compensation



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



|                            |  | Years ended December 31,
|--------------------------- |  | ------------------------
|                            |  | 2002                    
|Risk-free interest rate     |  | 3.6%                    
|Expected life of the option |  | 4 years                 
|Dividend yield              |  | 0%                      
|Volatility                  |  | 105%                    



The fair
value of the ESPP was estimated using the Black-Scholes option pricing model, using the following weighted average assumptions; risk free interest rate of 2.4% years; expected life of 1.25 years; dividend yield of 0%; and volatility of 105%.



For pro forma purposes, the estimated fair value
of the Companys stock-based awards to employees is amortized over the options vesting period (generally four years) and the ESPPs look back period of up to two years. The weighted-average estimated fair value of stock options
issued for the years ended December 31, 2002, 2001 and 2000 were $2.88, $2.17 and $4.81 per share, respectively. The weighted-average estimated fair value of share purchase rights under the ESPP for the year ended December 31, 2002 was $4.94 per
share. The Companys pro forma net income (loss) and pro forma net income (loss) per share data under SFAS No. 123 is as follows:



|                                                                                                          |  | Years Ended December 31, |       
|--------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------
|                                                                                                          |  | 2002                     |       
|Net income (loss) as reported                                                                             |  | $                        | 2,390 
|Add: Stock-based employee compensation expense included in net income
(loss)                              |  |                          | 3,500 
|Deduct: Stock-based employee compensation expense determined under fair value based
method for all awards |  |                          | (6,377
|Pro forma net loss under SFAS 123                                                                         |  | $                        | (487  
|                                                                                                          |  |                          |       
|Net income (loss) per common sharebasic:                                                                 |  |                          |       
|As reported under APB 25                                                                                  |  | $                        | 0.12  
|As reported under SFAS 123                                                                                |  | $                        | (0.02 
|Net income (loss) per common sharediluted:                                                               |  |                          |       
|As reported under APB 25                                                                                  |  | $                        | 0.08  
|As reported under SFAS 123                                                                                |  | $                        | (0.02 



F-9



---

PLUMTREE SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





In
connection with the grant of certain stock options to employees during the years ended December 31, 2001 and 2000, the Company recorded deferred stock-based compensation of approximately $4.4 million and $14.5 million, respectively, representing the
difference between the deemed value of the common stock for accounting purposes and the option exercise price or stock sale price at the date of the option grant or stock sale. Such amount is presented as a reduction of stockholders equity and
amortized on an accelerated basis over the vesting period of the applicable options, generally four years. No deferred stock based compensation was recorded during the year ended December 31, 2002. Approximately $3.5 million, $4.5 million and $4.9
million was expensed during the years ended December 31, 2002, 2001 and 2000, respectively. Compensation expense is decreased in the period of forfeiture for any accrued but unvested compensation arising from the termination of an option holder.



Restructuring Charges



In October 2002, the Company undertook a workforce reduction
and incurred a charge of $441,000. The Company had paid for all of the costs incurred with the restructuring as of December 31, 2002.



In March 2001, the Company undertook a workforce reduction and abandonment of a leased facility and incurred a charge of $760,000. The
Company had paid for all of the costs incurred with the restructuring as of December 31, 2001.



Software Development Costs



The Company accounts for internally generated software development costs in accordance with SFAS No. 86, Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed. Capitalization of software development costs begins upon the establishment of technological feasibility of the product, which the Company defines as the development of a working model and further defines as the completion of beta
testing of the software. The establishment of technological feasibility and the ongoing assessment of the recoverability of these costs requires considerable judgment by management with respect to certain external factors, including, but not limited
to, anticipated future gross product revenue, estimated economic life and changes in technology. Such costs are reported at the lower of unamortized cost or net realizable value. To date, internal software development costs that were eligible for
capitalization have been insignificant and the Company has charged all software development costs to research and development expense as incurred.



The Company has capitalized technology costs associated with the acquisitions discussed in Note 6, as the technology acquired had reached
technological feasibility prior to acquisition. The Company periodically reviews these costs to ensure they are being recorded at the lower of unamortized cost or net realizable value. Net realizable value is determined using assumed future cash
flows related to sales of the underlying technology.



Use of Estimates



The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates and
assumptions made by management include utilizing the percentage of completion method for recognition of certain revenues, the valuation allowance related to net deferred tax assets, the determination of the fair value of stock options, allowance for
doubtful accounts and assessing the net realizable value of capitalized acquired technology.



F-10



---

PLUMTREE SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





Revenue
Recognition



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



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



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



Prior to 2002 the Company entered into several license arrangements where its services were estimated to be essential to the functionality of the software but the scope of the implementation had not yet been completed. The Company
deferred recognition of all revenue from such arrangements until the scope of the implementation had been determined and a scope document was prepared. Upon finalization of the implementation scope, if the implementation services were determined to
be essential to the functionality of the software, services and license revenues were recognized using the percentage of completion method. If the final scope documents resulted in implementation services that were not essential to the functionality
of the software, the software license fee was recorded as revenue and the non-essential services were recognized as the services were performed. Included in deferred revenue at December 31, 2000 was $6.2 million related to six arrangements for which
the implementation scope was not yet finalized. Included in deferred revenue at December 31, 2001 was $7.1 million related to five arrangements for which the scope documents were not yet finalized. At December 31, 2002, there were no license
arrangements included in deferred revenue where services to be provided by the Company were estimated to be essential to the functionality of the software.



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



For arrangements which require delivery of unspecified future products over a period, the Company uses the subscription method and recognizes revenue ratably over the period.



F-11



---

PLUMTREE SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





Net
Income (Loss) Per Share



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



|                                                                                                        |  | Years Ended December 31,                 |       
|------------------------------------------------------------------------------------------------------- |  | ---------------------------------------- | ------
|                                                                                                        |  | 2002                                     |       
|                                                                                                        |  | (in thousands, except per share amounts) |       
|Net income (loss)                                                                                       |  | $                                        | 2,390 
|                                                                                                        |  |                                          |       
|Basic:                                                                                                  |  |                                          |       
|Weighted average shares of common stock outstanding                                                     |  |                                          | 20,140
|Less: Weighted average shares subject to repurchase                                                     |  |                                          | (279  
|                                                                                                        |  |                                          |       
|Weighted average shares used in computing basic net income (loss) per
share                             |  |                                          | 19,861
|                                                                                                        |  |                                          |       
|Basic net income (loss) per share                                                                       |  | $                                        | 0.12  
|                                                                                                        |  |                                          |       
|Diluted:                                                                                                |  |                                          |       
|Weighted average shares used above                                                                      |  |                                          | 19,861
|Add: Weighted average shares subject to repurchase                                                      |  |                                          | 279   
|Add: Weighted average adjustment to reflect the effect of the conversion of convertible
preferred stock |  |                                          | 6,996 
|Add: Net additional shares related to assumed option and warrant exercises under the
treasury method    |  |                                          | 3,131 
|Weighted average shares used in computing diluted net                                                   |  |                                          |       
|Income (loss) per share                                                                                 |  |                                          | 30,267
|                                                                                                        |  |                                          |       
|Diluted net income (loss) per share                                                                     |  | $                                        | 0.08  
|                                                                                                        |  |                                          |       



Potentially dilutive securities not included in diluted weighted average shares outstanding include:



|                                   |  | As of December 31,
|---------------------------------- |  | ------------------
|                                   |  | 2002              
|                                   |  | (in thousands)    
|Common stock subject to repurchase |  |                  
|Options to purchase common stock   |  | 4,685             
|Warrants                           |  | 41                
|Series A preferred stock           |  |                  
|Series B preferred stock           |  |                  
|Series C preferred stock           |  |                  
|Series D preferred stock           |  |                  
|Series E preferred stock           |  |                  
|                                   |  |                   
|Total                              |  | 4,726             
|                                   |  |                   



Common
stock subject to repurchase includes founders stock and common stock issued pursuant to unvested option exercises (see Note 11).



F-12



---

PLUMTREE SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





Comprehensive Income (Loss)



SFAS No. 130, Reporting Comprehensive Income, establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. The objective of SFAS No. 130
is to report a measure of all changes in equity of an enterprise that results from transactions and other economic events of the period other than transactions with stockholders (comprehensive income). Comprehensive income (loss) is the
total of net income (loss) and all other non-owner changes in stockholders equity.



Recent Accounting Pronouncements



In July 2001, the FASB issued Statement of Financial Accounting Standards No. 141, Business Combination (SFAS 141). SFAS 141 establishes new standards for accounting and
reporting for business combinations initiated after June 30, 2001. The adoption of SFAS 141 had no impact on the financial position or results of the Companys operations.



In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets (SFAS 142), which superceded APB Opinion No. 17, Intangible Assets. SFAS 142 establishes new standards for goodwill, including the elimination of goodwill amortization, which is to be replaced with
methods of periodically evaluating goodwill for impairment. The Company adopted this statement during the first quarter of fiscal 2002 and it had no effect on its operating results or financial position because the Company had no goodwill as of
December 31, 2001.



In June and August 2001, the
FASB issued Statement of Financial Accounting Standards Nos. 143, Accounting for Asset Retirement Obligations,and 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Under FASB Statement No. 143, the fair value of a
liability for an asset retirement obligation must be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset. FASB Statement No. 144 retains FASB Statement No. 121s, Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to Be Disposed Of, fundamental provisions for the: (1) recognition and
measurement of impairment of long-lived assets to be held and used; and (2) measurement of long-lived assets to be disposed of by sale. FASB Statement No. 143 is effective for fiscal years beginning after June 15, 2002, and FASB Statement
No. 144 is effective for fiscal years beginning after December 15, 2001. The Company does not believe that FASB Statement No. 143 will have a material impact on its financial position or results of operations. SFAS 144 was adopted in the
quarter ended March 31, 2002 and did not have a material impact on the financial position or results of the Companys operations.



In November 2001, the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 01-14, Income Statement
Characterization of Reimbursements Received for Out of Pocket Expenses Incurred (EITF 01-14). EITF 01-14 requires companies to characterize reimbursements received for out of pocket expenses incurred as revenue in the income
statement. EITF 01-14 should be applied in financial reporting periods beginning after December 15, 2001 and comparative financial statements for prior periods should be reclassified to comply with the guidance in EITF 01-14. The Company adopted
EITF 00-14 beginning in 2002 and reclassified all prior year balances to conform to the policies outlined in EITF 01-14. EITF 01-14 had no impact on gross margin or net income but increased services revenue and cost of services revenue.



In July 2002, the FASB issued Statement of
Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses financial accounting and reporting for costs associated with exit or disposal activities. This statement requires that a
liability be recognized at fair value for



F-13



---

PLUMTREE SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



costs associated with exit or disposal activities only when the liability is incurred as opposed to at the time the Company commits to an
exit plan as permitted under EIFT Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit and Activity. Statement No. 146 is effective for exit or disposal activities that are initiated after
December 31, 2002. The Company does not expect that the adoption of this statement will have a material impact on its financial position, results of operations or cash flows.



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



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



In December 2002, FASB issued SFAS No. 148,
Accounting for Stock-Based CompensationTransition and Disclosure (SFAS 148). SFAS 148 amends FASB No. 123, Accounting for Stock-Based Compensation (SFAS 123), to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition guidance and annual disclosure provisions of SFAS 148 are effective for fiscal years
ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. The Company adopted the disclosure requirements of SFAS 148
in the year ended December 31, 2002.



Reclassifications



Certain prior year amounts have been reclassified to conform with the current period presentation.



3.    INITIAL PUBLIC OFFERING



On June 30, 2002, the Company closed the sale of 5,000,000 shares of common stock in an initial public offering at a price of $8.50 per
share. A total of $42.5 million in gross proceeds was raised from this transaction. After deducting the underwriting discount of approximately $3.0 million and approximately $1.6 million of offering expenses, net proceeds were $37.9 million.



In connection with the IPO, the Board of
Directors and stockholders approved the reincorporation of the Company from the State of California into the State of Delaware. The Company effected the reincorporation on May 31, 2002.



F-14



---

PLUMTREE SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





Upon the
closing of the Companys IPO, 16,580,830 shares of the Companys convertible preferred stock converted into common stock. Due to the anti-dilutive provisions of the Companys Series E convertible preferred stock, the holders of the
outstanding shares of Series E convertible preferred stock received an additional 48,605 shares of common stock upon the completion of the IPO.



4.    PREPAIDS AND OTHER CURRENT ASSETS



Prepaids and other current assets consist of the following (in thousands):



|                                   |  | As of December 31,
|---------------------------------- |  | ------------------
|                                   |  | 2002              
|Prepaid royalties, current portion |  | $                 
|Prepaid other                      |  |                   
|                                   |  |                   
|                                   |  | $                 
|                                   |  |                   



5.    PROPERTY AND EQUIPMENT



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



|                                          |  | As of December 31, |       
|----------------------------------------- |  | ------------------ | ------
|                                          |  | 2002               |       
|Software and computer equipment           |  | $                  | 5,356 
|Furniture and fixtures                    |  |                    | 568   
|Leasehold improvements and other          |  |                    | 867   
|                                          |  |                    |       
|                                          |  |                    | 6,791 
|Accumulated depreciation and amortization |  |                    | (4,093
|                                          |  |                    |       
|                                          |  | $                  | 2,698 
|                                          |  |                    |       



6.    OTHER ASSETS



Other assets consist of the following (in thousands):



|                                                                                      |  | As of December 31,
|------------------------------------------------------------------------------------- |  | ------------------
|                                                                                      |  | 2002              
|Acquired technology, net of accumulated amortization of $1,735 and $138,
respectively |  | $                 
|Prepaid royalties, net of current portion                                             |  |                   
|Other                                                                                 |  |                   
|                                                                                      |  |                   
|                                                                                      |  | $                 
|                                                                                      |  |                   



In July
2001, the Company acquired certain technology for $95,000. In November 2001, the Company acquired certain technology for $85,000 and 60,000 shares of common stock. In November 2001, the Company also acquired a company (the Acquired
Company) for 297,594 shares of common stock. The acquisition of the Acquired Company was accounted for under the purchase method with the results of the Acquired Company



F-15



---

PLUMTREE SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



included in the consolidated statements of operations for the year ended December 31, 2001 subsequent to the November 2001 acquisition date.
In connection with these acquisitions, the Company incurred approximately $70,000 of transaction related costs. The common stock issued in connection with these transactions was recorded at its estimated fair value for accounting purposes of $12.60
per share on the date of issuance. The purchase price was allocated to acquired technology and is being amortized over its estimated useful life of three years. Amortization is being recorded as cost of revenue and was $1.6 million and $138,000 for
the years ended December 31, 2002 and 2001.



The
following unaudited pro forma summary financial information (in thousands, except for per share information) combines the consolidated results of operations of the Company as if the acquisition of the Acquired Company had occurred at the beginning
of each period presented. Preparation of the pro forma summary information was based on assumptions deemed appropriate by the Company. The pro forma summary information is not necessarily indicative of the results that actually would have occurred
if the acquisition had been consummated at the beginning of each period presented nor does it purport to represent the future financial position and results of operations for future periods.



|                                                               |  | Year Ended December 31, |       
|-------------------------------------------------------------- |  | ----------------------- | ------
|                                                               |  | 2001                    |       
|Revenue                                                        |  | $                       | 81,473
|Loss from operations                                           |  |                         | (9,171
|Net loss                                                       |  |                         | (9,842
|Net loss per share (basic and diluted)                         |  | $                       | (1.46 
|Weighted average common shares outstanding (basic and diluted) |  |                         | 6,761 



7.    ACCRUED LIABILITIES



Accrued liabilities consist of the following (in thousands):



|                              |  | As of December 31,
|----------------------------- |  | ------------------
|                              |  | 2002              
|Accrued commissions and bonus |  | $                 
|Accrued sales taxes           |  |                   
|Accrued vacation              |  |                   
|Accrued royalties             |  |                   
|Accrued third party software  |  |                   
|Accrued ESPP                  |  |                   
|Accrued other                 |  |                   
|                              |  |                   
|                              |  | $                 
|                              |  |                   



F-16



---

PLUMTREE SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





8.    COMMITMENTS AND CONTINGENCIES



Operating Lease Commitments



The Company leases its facilities under operating lease agreements. The leases expire at various dates through 2006. As of December 31, 2002 future minimum lease payments under these agreements are as
follows (in thousands):



|Year Ended December 31, |  |  
|----------------------- |  | -
|2003                    |  | $
|2004                    |  |  
|2005                    |  |  
|2006                    |  |  
|                        |  |  
|                        |  | $
|                        |  |  



Rent
expense under operating leases was approximately $ 4.0 million, $3.8 million, and $1.5 million for the years ended December 31, 2002, 2001, and 2000, respectively.



Notes Payable and Line of Credit



In April 1998, the Company entered into a loan agreement with a bank to borrow $750,000 at an interest rate
of one percent above the banks prime rate. The loan matured in July 2001. The loan was collateralized by substantially all of the Companys assets. In connection with this loan, the Company issued warrants to purchase 28,125 shares of
Series C at $0.87 per share.



In March 2001, the
Company entered into a revolving line of credit with a bank to borrow up to $7.5 million at an interest rate of one percent above the banks prime rate (4.25% at December 31, 2002) which originally matured in March 2002 and was extended through
August 2002. In August 2002, the Company modified the line of credit agreement to decrease the original principal amount to $3.1 million and extended the maturity date through August 2003. The line is collateralized by substantially all of the
Companys assets. As of December 31, 2002 no amounts were outstanding under this facility. As of December 31, 2001, the Company had outstanding borrowings of $1.6 million under the line. In addition, the Company has issued a letter of credit
for $2.5 million which is enforceable against the facility. The facility includes certain covenants, including liquidity requirements, all of which the Company was in compliance with as of December 31, 2002.



Royalties



The Company entered into an arrangement in 1998 with a
software provider to license that companys software and include it in the Companys software. This arrangement was amended in May 2000. The Company is required to pay a royalty fee computed as a percentage of net revenue, as defined in
the agreement, generated from sales of its product. This agreement expires on May 18, 2003. For the years ended December 31, 2002, 2001 and 2000 the Company incurred royalty expense of approximately $1.9 million, $4.5 million, and $1.1 million,
respectively, related to this arrangement.



In
2000 and 2001, the Company has entered into various license arrangements with other software providers to license those software providers software in the Companys product. In return for these licenses, the Company is required to pay
certain fees upon signing of the arrangements plus a certain percentage of the Companys net revenue, as defined in these agreements, generated from the sales of its product. Beginning in



F-17



---

PLUMTREE SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



2001, the Company incurred royalty expense for the year of approximately $400,000, related to these arrangements. For the year ended December
31, 2002 the Company incurred royalty expense of approximately $1.3 million related to these arrangements.



Litigation



In December 2001, a former employee filed a lawsuit in the State Court in Philadelphia. The suit has been removed to the Federal Court in
the Eastern District of Pennsylvania. The complaint alleged that the Company owed the former employee unpaid commissions and related damages. This lawsuit was settled out of court in December 2002.



On May 17, 2002 Datamize LLC filed a lawsuit against the
Company in the United States District Court for the District of Montana alleging, in general, that by supplying software and systems for the personalization and customization of networked kiosk and computer screens, the Company infringes
U.S. Patent Number 6,014,137 owned by Datamize. Datamize, based in Florence, Montana describes itself in its complaint as engaged in the business of designing, creating and commercially exploiting software useful in the personalization and
customization of networked kiosk and computer screens. Datamize is seeking, among other things, injunctive relief and unspecified damages.



The Company filed a motion (Motion) to dismiss the action for lack of personal jurisdiction or, in the alternative, have the
action transferred to the Northern District of California. In November 2002, a U.S. Magistrate Judge Erickson recommended that the Motion to dismiss be granted and the motion to transfer be dismissed as moot. Datamize has filed objections to
this recommendation, and the matter is currently before the court.



In December 2002, the Company filed a complaint for declaratory relief against Datamize in U.S. District Court for the Northern District of California (Civil Action No. 02-5693 VRW). The Company seeks a declaratory judgment
that it does not infringe any valid claim of the 137 patent. The parties have stipulated that Datamizes response to the complaint will be due after the Montana Court rules on the Motion.



Based on other communications by Datamizes counsel, the
Company expects Datamize may take further legal action against the Company with respect to additional intellectual property that Datamize purportedly owns or will own in the future. At this time, the Company does not believe it is infringing on any
valid patent claim of Datamize and intends to defend this lawsuit vigorously.



On November 13, 2001, the Company commenced an action in the District Court in The Hague against an individual, Werner Linssen, to cancel the Benelux trademark registration for Plumtree
held by Mr. Linssen. That action is pending. On November 25, 2001, the Company also commenced a proceeding before the Swiss Federal Institute of Intellectual Property in opposition to Mr. Linssens trademark application for
Plumtree. The Swiss Patent Office has dismissed the proceeding; however, the Company has requested a reconsideration of the dismissal and has filed an appeal of the dismissal with the Swiss Patent Offices Appeals Board. In
addition, the Company and Mr. Linssen have each commenced proceedings before the E.U.s Office of Harmonization of the Internal Market in opposition to each others Community Trade Mark applications. Those proceedings have been suspended
pending disposition of the Benelux action in The Hague. In the Netherlands, Plumtree has asked the Hague District Court to (i) annul Mr. Linssens Benelux trademark registration for Plumtree and to (ii) bar Mr. Linssen, pending the proceedings,
from contacting the Companys customers in a threatening or unfair manner.



F-18



---

PLUMTREE SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





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



Various other legal claims arising in the normal course of business have been brought or threatened against the Company from time to time. Management believes that the ultimate resolution of these threatened actions or pending
matters will not have a material adverse effect on the Companys financial position or results of operations.



9.    CONVERTIBLE PREFERRED STOCK



Convertible preferred stock, par value $0.001, consists of the following, net of issuance costs (in thousands, except share information):



|                                                                                                                |  | As of December 31,
|--------------------------------------------------------------------------------------------------------------- |  | ------------------
|                                                                                                                |  | 2002              
|Series A:                                                                                                       |  |                   
|Authorized0 shares and 1,458,621 shares, respectively                                                          |  |                   
|Outstanding0 shares and 1,422,413 shares, respectively; liquidation preference of
$0 and $550, respectively    |  | $                 
|Series B:                                                                                                       |  |                   
|Authorized0 shares and 3,030,303 shares, respectively                                                          |  |                   
|Outstanding0 shares and 3,030,303 shares, respectively; liquidation preference of
$0 and $2,000, respectively  |  |                   
|Series C:                                                                                                       |  |                   
|Authorized0 shares and 4,699,155 shares, respectively                                                          |  |                   
|Outstanding0 shares and 4,655,886 shares, respectively; liquidation preference of
$0 and $4,035, respectively  |  |                   
|Series D:                                                                                                       |  |                   
|Authorized0 shares and 5,189,282 shares, respectively                                                          |  |                   
|Outstanding0 shares and 5,041,445 shares, respectively; liquidation preference of
$0 and $8,016, respectively  |  |                   
|Series E:                                                                                                       |  |                   
|Authorized0 shares and 2,604,167 shares, respectively                                                          |  |                   
|Outstanding0 shares and 2,430,784 shares, respectively; liquidation preference of
$0 and $23,336, respectively |  |                   
|                                                                                                                |  |                   
|                                                                                                                |  | $                 
|                                                                                                                |  |                   



As of
December 31, 2002 the total number of authorized shares of preferred stock was 20,000,000.



Significant rights, restrictions and preferences of Series A, B, C, D and E were as follows:



| |  |  | The holders of each outstanding share of Series A, B, C, D and E were entitled to receive annual, non-cumulative, dividends of $0.03, $0.05, $0.07, $0.13 and $0.77
per share, respectively, when and as declared by the board of directors, in preference to any distribution to the holders of the common stock.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-19



---

PLUMTREE SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





| |  |  | In the event of a liquidation, dissolution or winding-up of the affairs of the Company, the holders of each Series A, B, C, D and E were entitled to receive $0.39,
$0.66, $0.87, $1.59 and $9.60 per share, respectively, plus all declared and unpaid dividends in preference to any distribution to the holders of the common stock
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The preferred shares had full voting rights equivalent to the number of common stock shares into which they are convertible.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | Upon completion of the Companys initial public offering in June 2002 all shares of preferred stock were automatically converted into one share of common stock
with the exception of the Series E Convertible Preferred Shareholders who received an additional 48,605 shares of common stock due to their anti-dilution rights.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



10.    WARRANTS



In April 2000, in connection with the extension of the equipment lease line discussed in Note 8, a warrant
was issued to the leasing company to purchase 11,250 shares of common stock at $2.00 per share. The right to purchase the common stock was immediately effective upon signing and exercisable for a period of seven years. The estimated fair value of
the warrant at the date of issuance was approximately $45,000. This amount will be recognized as additional interest expense over the term of the lease line, which expires in 2003. As of December 31, 2002 this warrant was exercised.



In May 2000, in connection with the extension of
a facilities lease, a warrant was issued to the landlord to purchase 32,391 shares of common stock at $9.60 per share. The right to purchase the common stock was immediately effective upon signing and exercisable for a period of six years. The
estimated fair value of the warrant at the date of issuance was approximately $155,000. This amount will be recognized as additional rent expense over the term of the facilities lease, which expires in 2006.



In May 2000, the Company entered into a research and
development agreement with a customer and stockholder. A warrant was issued to this customer to purchase up to 100,000 shares of common stock at $2.00 per share. The customer earned 20,000 shares under the warrant per month for five consecutive
months in return for providing certain engineering services. The aggregate estimated fair value of the warrant was approximately $824,000 on the vesting dates. The warrant was fully vested and the aggregate estimated fair value was recognized as a
research and development expense in the accompanying consolidated statement of operations for the year ended December 31, 2000. As of December 31, 2002, this warrant was exercised.



In September 2000, in connection with the extension of the operating lease discussed in Note 8, a warrant was
issued to the lessor to purchase 8,639 shares of common stock at $9.60 per share. The right to purchase the common stock was immediately effective upon signing and exercisable for a period of six years. The estimated fair value of the warrant at the
date of issuance was approximately $79,000. This amount will be recognized as additional rent expense over the term of the operating lease, which expires in 2006.



The fair market value of warrants on the date of grant was computed using the Black-Scholes pricing model
with the following assumptions: risk-free interest rates ranging from 5.6 percent to 6.8 percent, expected dividend yield of 0 percent, contractual lives of 0.1 to 7 years, and expected volatility of 70 percent.



F-20



---

PLUMTREE SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





11.    EQUITY INCENTIVE PLANS



In June 1997, the Company adopted the 1997 Equity Incentive Plan (the Plan) and has reserved 12,700,000 shares of common stock for issuance thereunder. Under the Plan, the board of directors may grant incentive
and nonqualified stock options to purchase shares of the Companys common stock to employees, directors and consultants of the Company. The exercise price per share for an incentive stock option cannot be less than 100% of the fair market value
as determined by the board of directors on the date of grant. The exercise price per share for nonqualified stock options cannot be less than 85% of the fair market value, as determined by the board of directors, on the date of grant. Options
generally expire ten years after the date of grant and generally vest over one to four year period. In addition, certain option holders are entitled to exercise prior to the options vesting as long as they are employees. Should the
employee subsequently leave, the Company has the right to repurchase unvested shares at the original exercise price. Option activity under the Plan through December 31, 2002 was as follows:



|                                                                   |  | Shares Available for Grant |   |  | Options Outstanding |   |  | Weighted Average Exercise Price |       | Weighted Average Fair Value
|------------------------------------------------------------------ |  | -------------------------- | - |  | ------------------- | - |  | ------------------------------- | ----- | ---------------------------
|Balance at December 31, 1999                                       |  | 437,876                    |   |  | 3,859,156           |   |  | $                               | 0.10  |                            
|Authorized                                                         |  | 5,000,000                  |   |  |                    |   |  |                                 |      |                            
|Granted with exercise prices equal to fair value at date of grant  |  | (291,500                   | ) |  | 291,500             |   |  |                                 | 12.60 |                            
|                                                                   |  |                            |   |  |                     |   |  |                                 |       |                            
|Granted with exercise prices less than fair value at date of grant |  | (3,653,950                 | ) |  | 3,653,950           |   |  |                                 | 3.01  |                            
|                                                                   |  |                            |   |  |                     |   |  |                                 |       |                            
|Exercised                                                          |  |                           |   |  | (2,005,066          | ) |  |                                 | 0.76  |                            
|Repurchased                                                        |  | 51,096                     |   |  |                    |   |  |                                 | 0.08  |                            
|Cancelled                                                          |  | 559,657                    |   |  | (559,657            | ) |  |                                 | 2.04  |                            
|                                                                   |  |                            |   |  |                     |   |  |                                 |       |                            
|Balance at December 31, 2000                                       |  | 2,103,179                  |   |  | 5,239,883           |   |  | $                               | 2.35  |                            
|Authorized                                                         |  | 2,000,000                  |   |  |                    |   |  |                                 |      |                            
|Granted with exercise prices equal to fair value at date of grant  |  | (3,555,250                 | ) |  | 3,555,250           |   |  |                                 | 7.01  |                            
|                                                                   |  |                            |   |  |                     |   |  |                                 |       |                            
|Granted with exercise prices less than fair value at date of grant |  | (580,000                   | ) |  | 580,000             |   |  |                                 | 5.00  |                            
|                                                                   |  |                            |   |  |                     |   |  |                                 |       |                            
|Exercised                                                          |  |                           |   |  | (74,910             | ) |  |                                 | 2.24  |                            
|Repurchased                                                        |  | 226,226                    |   |  |                    |   |  |                                 | 0.74  |                            
|Cancelled                                                          |  | 969,225                    |   |  | (969,225            | ) |  |                                 | 6.02  |                            
|                                                                   |  |                            |   |  |                     |   |  |                                 |       |                            
|Balance at December 31, 2001                                       |  | 1,163,380                  |   |  | 8,330,998           |   |  | $                               | 4.11  |                            
|                                                                   |  |                            |   |  |                     |   |  |                                 |       |                            
|Authorized                                                         |  | 7,700,000                  |   |  |                    |   |  |                                 |      |                            
|Granted with exercise prices equal to fair value at date of grant  |  | (1,175,300                 | ) |  | 1,175,300           |   |  | $                               | 7.27  |                            
|                                                                   |  |                            |   |  |                     |   |  |                                 |       |                            
|Exercised                                                          |  |                           |   |  | (47,587             | ) |  | $                               | 1.54  |                            
|Repurchased                                                        |  | 74,841                     |   |  |                    |   |  | $                               | 0.74  |                            
|Cancelled                                                          |  | 1,167,558                  |   |  | (1,167,558          | ) |  | $                               | 7.17  |                            
|                                                                   |  |                            |   |  |                     |   |  |                                 |       |                            
|Balance at December 31, 2002                                       |  | 8,930,479                  |   |  | 8,291,153           |   |  | $                               | 4.08  |                            
|                                                                   |  |                            |   |  |                     |   |  |                                 |       |                            



F-21



---

PLUMTREE SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





The
following table summarizes the options outstanding at December 31, 2002:



|Range of Exercise Prices |  | Number of Options Outstanding |  | Weighted Average Remaining Contractual Life (Years) |  | Weighted Average Exercise Price |       | Number of Options Exercisable |           | Weighted Average Exercise Price of Exercisable Options
|------------------------ |  | ----------------------------- |  | --------------------------------------------------- |  | ------------------------------- | ----- | ----------------------------- | --------- | ------------------------------------------------------
|$0.06$  0.09            |  | 2,357,292                     |  | 5.8                                                 |  | $                               | 0.09  |                               | 2,357,292 |                                                       
|$0.16                    |  | 5,250                         |  | 6.7                                                 |  | $                               | 0.16  |                               | 5,250     |                                                       
|$0.32                    |  | 50,000                        |  | 7.0                                                 |  | $                               | 0.32  |                               | 50,000    |                                                       
|$1.25                    |  | 6,329                         |  | 0.5                                                 |  | $                               | 1.25  |                               | 6,329     |                                                       
|$2.00$  2.83            |  | 1,652,491                     |  | 7.6                                                 |  | $                               | 2.38  |                               | 1,363,241 |                                                       
|$3.20                    |  | 145,500                       |  | 9.5                                                 |  | $                               | 3.20  |                               |          |                                                       
|$5.00$  7.18            |  | 2,501,587                     |  | 8.6                                                 |  | $                               | 5.30  |                               | 864,873   |                                                       
|$9.00$12.60             |  | 1,572,704                     |  | 7.9                                                 |  | $                               | 10.13 |                               | 700,766   |                                                       
|                         |  |                               |  |                                                     |  |                                 |       |                               |           |                                                       
|$0.06$12.60             |  | 8,291,153                     |  | 7.5                                                 |  | $                               | 4.08  |                               | 5,347,751 |                                                       
|                         |  |                               |  |                                                     |  |                                 |       |                               |           |                                                       



At
December 31, 2002, 133,211 shares of common stock were subject to repurchase by the Company at a weighted average exercise price of $1.18 per share.



At December 31, 2001 4,360,595 options were exercisable.



In January 2002, the board of directors approved the Companys 2002 Stock Plan, 2002 Employee Stock
Purchase Plan, and 2002 Director Option Plan effective upon completion of this initial public offering. Under these plans the Company has reserved 7,700,000, 2,000,000, and 400,000 shares of common stock, respectively, for future issuance.



12.    INCOME TAXES



The following is a geographic breakdown of income (loss)
before the provision for income taxes (in thousands):



|         |  | Years Ended December 31, |       
|-------- |  | ------------------------ | ------
|         |  | 2002                     |       
|Domestic |  | $                        | 6,202 
|Foreign  |  |                          | (2,632
|         |  |                          |       
|Total    |  | $                        | 3,570 
|         |  |                          |       



The
provision for income taxes consists of the following (in thousands):



|                |  | Years Ended December 31,
|--------------- |  | ------------------------
|                |  | 2002                    
|Current:        |  |                         
|State           |  | $                       
|Foreign         |  |                         
|                |  |                         
|Total provision |  | $                       
|                |  |                         



F-22



---

PLUMTREE SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





The
Company accounts for income taxes pursuant to the provisions of SFAS No. 109, Accounting for Income Taxes. SFAS 109 requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have
been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined using the current applicable enacted tax rate and provisions of the enacted tax law. Provision for income taxes recorded
to date primarily relates to income taxes payable on income generated in foreign and domestic state tax jurisdictions. The components of the net deferred tax asset are as follows (in thousands):



|                                            |  | As of December 31, |       
|------------------------------------------- |  | ------------------ | ------
|                                            |  | 2002               |       
|Cumulative net operating loss carryforwards |  | $                  | 2,580 
|Research and development tax credits        |  |                    | 2,699 
|Alternative minimum tax credit              |  |                    |      
|Cumulative temporary differences            |  |                    | 1,878 
|                                            |  |                    |       
|Total deferred tax assets                   |  |                    | 7,157 
|Valuation allowance                         |  |                    | (7,157
|                                            |  |                    |       
|Net deferred tax assets                     |  | $                  |      
|                                            |  |                    |       



The
Company has federal and state net operating loss carryforwards as of December 31, 2002 of approximately $6.5 million and $8.3 million, respectively, to offset future federal and state taxable income. The net operating loss carryforwards expire at
various dates through the year 2022. A valuation allowance has been recorded for the entire net deferred tax asset as a result of managements uncertainties regarding realization of the asset including limited operating history of the Company,
the lack of sustained annual profitability and uncertainty over future operating profitability and taxable income.



The Tax Reform Act of 1986 contains provisions, which may limit the net operating loss and credit carryforwards to be used in any given
year upon the occurrence of certain events, including a significant change in ownership interest.



The provision for income taxes differs from the expected amount computed by applying the statutory Federal income tax rate of 34% to pre
tax income (loss) as follows:



|                                   |  | As of December 31, |  
|---------------------------------- |  | ------------------ | -
|                                   |  | 2002               |  
|Federal statutory rate             |  | 34.0               | %
|State taxes net of federal benefit |  | 4.6                |  
|Alternative minimum taxes          |  |                   |  
|Non-deductible compensation        |  | 37.9               |  
|Federal and state credits          |  | (36.1              | )
|Other                              |  |                   |  
|Foreign taxes                      |  | 27.1               |  
|Change in valuation allowance      |  | (34.4              | )
|                                   |  |                    |  
|                                   |  | 33.1               | %
|                                   |  |                    |  



F-23



---

PLUMTREE SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





13.    SEGMENT REPORTING



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



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



The disaggregated information reviewed on a product basis by the CEO is as follows (in thousands):



|                                   |  | Year Ended December 31,
|---------------------------------- |  | -----------------------
|                                   |  | 2002                   
|Revenues:                          |  |                        
|License                            |  | $                      
|Maintenance                        |  |                        
|Professional services and training |  |                        
|                                   |  |                        
|Total                              |  | $                      
|                                   |  |                        



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



|                              |  | Year Ended December 31,
|----------------------------- |  | -----------------------
|                              |  | 2002                   
|Revenue by geographic region: |  |                        
|Americas                      |  | $                      
|Non-Americas                  |  |                        
|                              |  |                        
|Total                         |  | $                      
|                              |  |                        



14.    RELATED PARTY TRANSACTIONS



In December 1999, the Company entered into an agreement with a customer for the sale of license, services and maintenance. In May 2000, this customer became a Series E preferred shareholder on terms
identical to the other third-party Series E investors. For the years ended December 31, 2002, 2001 and 2000 the Company recognized revenue of approximately $867,000, $471,000 and $876,000, respectively, from this customer. As of December 31, 2002,
the Company had an accounts receivable balance from this customer of $91,000.



In February and November 2000, the Company entered into an agreement with a Series D and Series E preferred shareholder for the sale of license and services. For the year ended December 31, 2000, the
Company recognized revenue of $277,000. For the years ended December 31, 2001 and 2002, revenue from this customer was not significant.



F-24



---

PLUMTREE SOFTWARE, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





In May
2000, the Company entered into an agreement with a customer for the sale of license, services and maintenance. In May 2000, this customer became a Series E preferred shareholder on terms identical to the other third-party Series E investors. For the
years ended December 31, 2000, 2001 and 2002, the Company recognized revenue from this customer of approximately $1.7 million $638,000 and $859,000, respectively. As of December 31, 2002, the Company had an accounts receivable balance from this
customer of $164,000.



In August 2000, the
Company entered into a note with an officer of the Company in the amount of $520,000 to exercise options. This note is full recourse at 6.0 percent per annum and is payable upon demand. Subsequent to December 31, 2002 through the date of this
filing, the officer has repaid a portion of the note and the current outstanding balance is $384,000.



In October 2001, the Company entered into notes with two employees for a total of $154,000. These notes are full recourse at 6.0 percent
per annum and mature in October 2003. These notes were repaid in full during February 2003.



15.    SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)



The following table presents selected quarterly information for 2001 and 2002 (in thousands, except per share data):



|                                    |  | First Quarter |        |   | Second Quarter |   |        | Third Quarter |  |   | Fourth Quarter |  
|----------------------------------- |  | ------------- | ------ | - | -------------- | - | ------ | ------------- |  | - | -------------- | -
|2001:                               |  |               |        |   |                |   |        |               |  |   |                |  
|Total revenue                       |  | $             | 18,717 |   |                | $ | 19,393 |               |  | $ | 20,586         |  
|Gross margin                        |  |               | 13,797 |   |                |   | 15,054 |               |  |   | 15,978         |  
|Net income (loss)                   |  | $             | (6,063 | ) |                | $ | (1,006 | )             |  | $ | 51             |  
|                                    |  |               |        |   |                |   |        |               |  |   |                |  
|Basic net income (loss) per share   |  | $             | (0.99  | ) |                | $ | (0.16  | )             |  | $ | 0.01           |  
|                                    |  |               |        |   |                |   |        |               |  |   |                |  
|Diluted net income (loss) per share |  | $             | (0.99  | ) |                | $ | (0.16  | )             |  | $ | 0.00           |  
|                                    |  |               |        |   |                |   |        |               |  |   |                |  
|                                   
|2002:                               |  |               |        |   |                |   |        |               |  |   |                |  
|Total revenue                       |  | $             | 23,176 |   |                | $ | 22,585 |               |  | $ | 17,678         |  
|Gross margin                        |  |               | 17,495 |   |                |   | 17,670 |               |  |   | 13,850         |  
|Net income (loss)                   |  | $             | 157    |   |                | $ | 1,269  |               |  | $ | (889           | )
|                                    |  |               |        |   |                |   |        |               |  |   |                |  
|Basic net income (loss) per share   |  | $             | 0.02   |   |                | $ | 0.09   |               |  | $ | (0.03          | )
|                                    |  |               |        |   |                |   |        |               |  |   |                |  
|Diluted net income (loss) per share |  | $             | 0.01   |   |                | $ | 0.04   |               |  | $ | (0.03          | )
|                                    |  |               |        |   |                |   |        |               |  |   |                |  



F-25



---

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 this 24th day of March, 2003.



PLUMTREE SOFTWARE,
INC.By:

/s/    JOHN H. KUNZEJohn H. Kunze




POWER OF ATTORNEY



KNOW
ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints John H. Kunze, Eric Borrmann and Greg Wharton, and each of them acting individually, as his or her attorney-in-fact, each with full power
of substitution, for him or her 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 exhibits thereto and other documents in connection therewith, with the SEC, hereby ratifying and
confirming all that each of said attorneys-in-fact, or any substitute, may do or cause to be done by virtue hereof.



Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, 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/    JOHN H.
KUNZEJohn H. Kunze       |  | President, Chief Executive Officer and Director (Principal Executive
Officer) |  | March 24, 2003
|                                       
|/s/    ERIC
BORRMANNEric Borrmann       |  | Chief Financial Officer (Principal Financial and Accounting Officer)          |  | March 24, 2003
|                                       
|/s/    JOHN
DILLONJohn Dillon           |  | Director                                                                      |  | March 24, 2003
|                                       
|/s/    RUPEN
DOLASIARupen Dolasia       |  | Director                                                                      |  | March 24, 2003
|                                       
|/s/    PIERRE
LAMONDPierre Lamond       |  | Director                                                                      |  | March 24, 2003
|                                       
|/s/    JAMES
RICHARDSONJames Richardson |  | Director                                                                      |  | March 24, 2003
|                                       
|/s/    BERNARD
WHITNEYBernard Whitney   |  | Director                                                                      |  | March 24, 2003



S-1



---

CERTIFICATIONS



CERTIFICATION OF CHIEF EXECUTIVE OFFICER AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002



I, John Kunze, certify that:



1.    I have reviewed this annual report on Form 10-K of Plumtree
Software, Inc.



2.    Based on my knowledge, this annual report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this annual report.



3.    Based on my knowledge, the financial statements, and other financial information included in
this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;



4.    The
registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



a.    designed such
disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual
report is being prepared;



b.    evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the Evaluation Date)



c.    presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;



5.    The
registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing similar functions):



a.    all
significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any
material weaknesses in internal controls; and



b.    any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and



6.    The
registrants other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.



Date: March 24, 2003



By:

/s/    JOHN
KUNZEName:

John KunzeTitle:

Chief Executive Officer




---

CERTIFICATION OF CHIEF FINANCIAL OFFICER AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002



I, Eric Borrmann, certify that:



1.    I have reviewed this annual report on Form 10-K of Plumtree
Software, Inc.



2.    Based on my knowledge, this annual report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this annual report.



3.    Based on my knowledge, the financial statements, and other financial information included in
this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;



4.    The
registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



a.    designed such
disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual
report is being prepared;



b.    evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the Evaluation Date)



c.    presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;



5.    The
registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing similar functions):



a.    all
significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any
material weaknesses in internal controls; and



b.    any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and



6.    The
registrants other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.



Date: March 24, 2003



By:

/s/    ERIC BORRMANNName:

Eric BorrmannTitle:

Chief Financial Officer