##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




---

Form 10-K



---

|   |  |                                                                                           
|-- |  | ------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
	15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934    
|  
|   |  | For the year ended December 31,
	2001                                                     
|  
|or
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13
	OR 15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-28041

iManage, Inc.

(Exact name of registrant as specified in its
charter)


|                                                                |  |                                      
|--------------------------------------------------------------- |  | -------------------------------------
|Delaware                                                        |  | 36-4043595                           
|(State or other jurisdiction of
	incorporation or organization) |  | (I.R.S. Employer
	Identification No.)

950 Tower Lane

Foster City, California 94404


(Address of principal executive
offices)


Telephone Number (650) 356-1166

(Registrants telephone number, including
area code)


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 þ          No o

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

The aggregate market value of the voting stock
held by non-affiliates of the registrant, based on the closing
sale price of the Common Stock on March 22, 2002 as
reported on the Nasdaq National Market was approximately
$141,791,000. Shares of Common Stock held by each current
executive officer and director and by each person who is known
by the registrant to own 5% or more of the outstanding Common
Stock have been excluded from this computation in that such
persons may be deemed to be affiliates of the Company. This
determination of affiliate status is not a conclusive
determination for other purposes.

The number of shares outstanding of the
registrants Common Stock as of March 22, 2002 was
approximately 23,830,000.

DOCUMENTS INCORPORATED BY REFERENCE

Parts of the Proxy Statement for
Registrants 2002 Annual Meeting of Stockholders to be held
June 13, 2002 are incorporated by reference in
Part III of this Form 10-K Report.



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TABLE OF CONTENTS



|                                    |                                                                                               |  |  |  |  |  |  | 
|----------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                             
|                                    | Item 1. Business                                                                             
|                                    | Item 2. Properties                                                                           
|                                    | Item 3. Legal Proceedings                                                                    
|                                    | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II                            
|                                    | Item 5. Market for the Registrants Common Equity and Related Stockholder Matters            
|                                    | Item 6. Selected Consolidated Financial Data                                                 
|                                    | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                    | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                          
|                                    | Item 8. Financial Statements and Supplementary Data                                          
|                                    | Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 
|PART III                           
|                                    | Item 10. Directors and Executive Officers of the Registrant                                  
|                                    | Item 11. Executive Compensation                                                              
|                                    | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                                    | Item 13. Certain Relationships and Related Transactions                                      
|PART IV                            
|                                    | Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|                                    | Notes Receivable for Common Stock                                                            
|                                    | Pro Forma Net Loss and Net Loss Per Share                                                    
|SIGNATURES                         
|EXHIBITS TO FORM 10-K ANNUAL REPORT
|EXHIBIT 10.13                      
|EXHIBIT 23.1                       



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##### Table of Contents



iMANAGE, INC.

TABLE OF CONTENTS

|           |  |                                                                                        |    |          |    | 
|---------- |  | -------------------------------------------------------------------------------------- | -- | -------- | -- | 
|           |  |                                                                                        |    | Page No.
|           |  |                                                                                        |    |         
|PART I    
|Item 1.    |  | Business                                                                               |    |          | 2  | 
|Item 2.    |  | Properties                                                                             |    |          | 7  | 
|Item 3.    |  | Legal Proceedings                                                                      |    |          | 7  | 
|Item 4.    |  | Submission of Matters to a Vote of Security
	Holders                                   |    |          | 8  | 
|PART II   
|Item 5.    |  | Market for the Registrants Common Equity
	and Related Stockholder Matters             |    |          | 8  | 
|Item 6.    |  | Selected Consolidated Financial Data                                                   |    |          | 8  | 
|Item 7.    |  | Managements Discussion and Analysis of
	Financial Condition and Results of Operations |    |          | 9  | 
|Item 7A.   |  | Quantitative and Qualitative Disclosures About
	Market Risk                            |    |          | 28 | 
|Item 8.    |  | Financial Statements and Supplementary Data                                            |    |          | 28 | 
|Item 9.    |  | Changes in and Disagreements with Accountants on
	Accounting and Financial Disclosure  |    |          | 29 | 
|PART III  
|Item 10.   |  | Directors and Executive Officers of the Registrant                                     |    |          | 29 | 
|Item 11.   |  | Executive Compensation                                                                 |    |          | 29 | 
|Item 12.   |  | Security Ownership of Certain Beneficial Owners
	and Management                        |    |          | 29 | 
|Item 13.   |  | Certain Relationships and Related Transactions                                         |    |          | 29 | 
|PART IV   
|Item 14.   |  | Exhibits, Financial Statement Schedules and
	Reports on Form 8-K                       |    |          | 29 | 
|Signatures |  |                                                                                        | 55 |         

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##### Table of Contents






PART I

This annual report on Form 10-K contains
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended, including statements using terminology such as
can, may, believe,
designed to, will, expect,
plan, anticipate, estimate,
potential or continue or the negative
thereof or other comparable terminology regarding beliefs,
plans, expectations or intentions regarding the future.
Forward-looking statements involve risks and uncertainties and
actual results could differ materially from those discussed in
the forward-looking statements. All forward-looking statements
and risk factors included in this document are made as of the
date thereof, based on information available to us as of the
date thereof, and we assume no obligation to update any
forward-looking statement or risk factors.




Item
1.     Business

Overview

iManage, Inc. provides collaborative content
management software that enables businesses to manage and
collaborate efficiently on critical business content across the
extended enterprise. Our product suite, iManage WorkSite,
delivers document management, collaboration, portal access,
workflow, knowledge management and business process automation
in a single integrated Internet solution. We believe that
iManage WorkSite improves communication and process efficiency,
provides faster response times and a rapid return on investment
for our customers. More than 400,000 users in over 1,000
businesses are utilizing iManage WorkSite.

We were incorporated in Illinois in October 1995
under the name NetRight Technologies, Inc. and we reincorporated
in Delaware in December 1996. In April 1999, we changed our name
to iManage, Inc. Our principal offices are located at 950 Tower
Lane, Suite 500, Foster City, California 94404 and our
telephone number at that location is (650) 356-1166.

The iManage Solution

iManage WorkSite is an integrated application
suite that combines document management, collaboration, portal
access, knowledge management, workflow and business process
automation in a single solution. Our solution provides a
comprehensive set of applications that work in concert with each
other and the same underlying server, the iManage WorkSite
Server.

Our application suite provides the following key
features:



| |   |                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Comprehensive and integrated, out-of-the-box
	document management, collaboration, knowledge management, portal
	access, workflow and business process automation applications in
	a single solution.
|
| |  | Robust security for globally distributed
	enterprise repositories.                                                                                                                                  
|
| |  | Reliable and highly scalable enterprise-class
	server with multilevel security.                                                                                                                     
|
| |  | Easy access via standard Web browser or Microsoft
	Windows client interfaces.                                                                                                                       
|
| |  | Rapid application development environment and
	tools.                                                                                                                                               

Initially, we targeted our software solution to
the legal industry, but in the past year we have extended our
comprehensive collaborative content management suite of
applications to other vertical markets. In addition to the legal
industry, we are targeting prospects in financial services, high
tech manufacturing, government and professional services.

Products

The iManage WorkSite application suite consists
of one Web application and two desktop applications. The iManage
WorkSite Web application provides a central workspace for an
organization to securely discuss, share and collaborate on
business content in secure equipment. Using the Web application,
users can capture,

2



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store, reuse and collaborate on critical business
information and processes with their customers, partners and
employees through an intranet or extranet, or the Internet.
Instead of recreating content, employees save time and money by
leveraging existing data and business processes.


By streamlining the retrieval and delivery of
information, we believe that iManage WorkSite reduces operating
costs while improving overall productivity and project delivery
for our customers. The WorkSite Web application is comprised of
the following modules:


iManage WorkDocs.iManage WorkDocs is a robust,
Web-based document management system that provides secure access
to enterprise-wide business content stored in scalable,
distributed repositories. With iManage WorkDocs, users can
capture, organize, reuse and share critical business content
with customers, partners and employees around the world using an
intranet, extranet or Internet solution. iManage WorkDocs
provides for document check-in/check-out, version control, audit
trails, archiving, categorization, full text, meta-data searches
and other document management functions.

iManage WorkTeam.iManage WorkTeam provides virtual
workspaces to members of a project team, wherever they may be
located, to discuss and collaborate on all facets of a project
quickly and efficiently through the Web. With iManage WorkTeam
an organization can streamline business processes, cut
unnecessary travel costs, improve overall employee productivity
and accelerate project completion.

iManage WorkRoute.iManage WorkRoute automates key
business processes and routes critical business documents to
geographically dispersed project teams for review, approval and
publishing through an enterprises intranet or extranet or
the Internet and a standard Web browser. With iManage WorkRoute
an organization can simplify and track workflow and project
status, identify bottlenecks, analyze key metrics and detect
exceptions enabling informed decisions and actions.

iManage WorkKnowledge.iManage WorkKnowledge enables
businesses to capture, store, reuse and leverage organizational
knowledge, best practices, proven methodologies and competencies
through sophisticated, unified concept searches across all
iManage repositories, as well as other internal and external
information sources. With iManage WorkKnowledge, an organization
can become more intelligent  delivering knowledge and
expertise to the entire enterprise on demand.

iManage WorkPortal.iManage WorkPortal provides each
member of the extended enterprise a secure consolidated view of
business content from multiple data sources and applications,
including the iManage repositories. By aggregating enterprise
data, business intelligence, news feeds, documents and Web
content, iManage WorkPortal provides quick and easy access to
all relevant content and its context from a single portal page.
This can save time, increase productivity and allow for more
informed decisions and actions.

iManage DeskSite and iManage MailSite.In addition to the Web-based
application, iManage WorkSite includes two, full-featured
desktop document management clients:



| |   |                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | iManage DeskSite is a Windows-based document
	management solution.                                                                                                               
|
| |  | iManage MailSite allows users to access business
	content and comprehensive document management functions
	seamlessly from within Microsoft Outlook on an enterprise-wide
	basis.

Both applications offer out-of-the-box
integration with popular Windows applications such as Microsoft
Office, Microsoft Outlook, WordPerfect, Lotus Notes and Novell
GroupWise. By combining the familiar user interface of
frequently used applications with document management
functionality, iManage DeskSite and iManage MailSite enable
rapid adoption of document management functions with minimal
training.

3



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Additionally, iManage offers iManage WorkSite
Server and a software developer toolkit:

iManage WorkSite Server.iManage WorkSite is powered by a
highly flexible and robust enterprise-class server that scales
to handle millions of documents and tens of thousands of
geographically dispersed users. iManage WorkSite Server features
include:



| |   |                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | geographically distributed repositories, enhanced
	system response time and minimized network traffic;                                                                                                                                                                                                    
|
| |  | built-in fault tolerance, load balancing and
	clustering features that ensure that iManage WorkSite
	applications are available at all times;                                                                                                                                                             
|
| |  | a powerful, flexible security model that provides
	controlled access to system functionality and data at the
	document, user and task level so that only authorized users have
	access to relevant content; and                                                                                           
|
| |  | comprehensive administrative tools that allow
	integration with multiple Light-weight Directory Access Protocol
	servers and enable central control or delegation of
	administrative tasks to specific roles and users, simplifying
	the management and maintenance of all iManage WorkSite
	applications.

iManage WorkSite Development iToolKit.iManage applications can be customized
with the flexible, standards-based iManage WorkSite Development
iToolKit. Software developers with Visual Basic or Common Object
Model (COM) experience can create new applications
with the software development kit to meet an organizations
specific requirements. By supporting open standards such as XML/
XSL, J2EE and COM, we believe the iManage WorkSite Development
iToolKit leverages the security, scalability and functionality
of the entire iManage WorkSite infrastructure.

Service and Support

While our business model focuses on the licensing
of software, we also offer a comprehensive selection of services
to our customers, including consulting, customer support and
training services.

Consulting.We offer
standardized professional services to our customers for the
deployment of our application suite and the integration of our
applications with third-party software. Our service
professionals work directly with our customers as well as with
our resellers and strategic partners. Our consulting services
are generally offered on a time and materials basis.

Customer Support.We
offer comprehensive customer support, designed to allow our
customers to quickly and effectively address technical issues as
they arise. Our customer support group provides resolution of
customer technical inquiries and is available to customers by
telephone, email and through our website. We use a customer
service automation system to track each customers inquiry
until it is resolved. Our technical support is offered on an
annual subscription basis.

Training.We offer a comprehensive training
curriculum designed for partners and customers to provide the
knowledge and skills to successfully deploy, use and maintain
our products. These classes focus on the technical aspects of
our products as well as related business issues and processes.
We regularly hold our classes in various locations throughout
the United States, including in our training facility in
Chicago, Illinois and in Europe. We generally charge a fee for
each class attended.

Customers, Sales and Marketing

To date, we have licensed our software to over
1,000 customers with more than 400,000 users. We have focused
our sales and marketing efforts primarily on the legal,
financial services, high tech manufacturing, government and
professional services markets. For 2001, 2000 and 1999, we
derived 79.3%, 76.6% and 93.3% of our total license revenues,
respectively, from law firms and professional service firms. No
single customer accounted for more than 10% of our total
revenues during 2001, 2000 or 1999.

Our sales strategy consists of engaging senior
business and information technology managers at our customer
prospects to explain the benefits of our application suite. We
emphasize to our prospects the ease of deployment and rapid
return on investment of our suite of applications.

4



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As of December 31, 2001, our sales
organization consisted of 84 managers, account executives,
product consultants and business development professionals. We
have sales representatives throughout the United States, Europe
and Asia/ Pacific. Our direct sales force is augmented by a
distribution network of over 150 strategic resellers and
partners in Australia, Canada, France, Germany, New Zealand, the
United Kingdom and the United States. These partners license our
products to end user customers as well as providing customer
support. In addition, several of these partners have built
add-on software products to extend the functionality of iManage
WorkSite.

As of December 31, 2001, our marketing
organization consisted of 14 professionals. Our marketing
programs focus on creating overall awareness of our
collaborative content management software products and services.
To generate market awareness, we participate in market research,
industry analyst product and strategy updates, press meetings,
trade shows, seminars and online webinars, and engage in Website
marketing to generate qualified sales leads. We use feedback
from our market research to determine specific industry segment
needs, and to define and direct our product development efforts.

Research and Development

Since inception, we have devoted significant
resources to develop our products and technology. We believe
that our future success will depend, in large part, on a strong
development effort that enhances and extends the features of our
application suite. Our product development organization is
responsible for product architecture, core technology, product
testing, quality assurance, documentation and expanding the
ability of our products to operate with leading hardware
platforms, operating systems, database management systems and
key electronic commerce transaction processing standards.

As of December 31, 2001, we had 73 employees
engaged in research and development and quality assurance. Our
research and development expenditures were approximately
$10.3 million for 2001, $9.1 million for 2000 and $4.7
million for 1999, respectively. All research and development
expenditures have been expensed as incurred. We expect to
continue to devote substantial resources to our research and
development activities.

Competition

We have experienced and expect to continue to
experience increased competition from current and potential
competitors. Many of these companies have greater name
recognition, longer operating histories, larger customer bases
and significantly greater financial, technical, marketing,
public relations, sales, distribution and other resources than
we have. Our current competitors include:



| |   |                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | companies addressing segments of our market
	including Documentum, Inc., Stellent, Inc., eRoom Technology,
	Inc., Hummingbird Ltd., FileNet Corporation, Introspect
	Software, Inc., Open Text Corporation and Microsoft Corporation;
|
| |  | Web content management companies such as
	Interwoven, Inc. and Vignette Corporation;                                                                                                                                                 
|
| |  | enterprise Web portal companies;                                                                                                                                                                                                     
|
| |  | intranet and groupware companies such as IBM,
	Microsoft Corporation, BroadVision, Inc. and Novell, Inc.; and                                                                                                                        
|
| |  | in-house development efforts by our customers and
	partners.                                                                                                                                                                         

We believe that we may face additional
competition from operating system vendors, online service
providers and client/server applications and tools vendors. If
any of our competitors were to become the industry standard or
were to enter into or expand relationships with significantly
larger companies through mergers, acquisitions or other similar
transactions, our business could be seriously harmed. In
addition, potential competitors may bundle their products or
incorporate functionality into existing products in a manner
that discourages users from purchasing our products.

5



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We believe that the principal competitive factors
in the collaborative content management market are:



| |   |                                                                       
| | - | ----------------------------------------------------------------------
| |  | product functionality and features;                                   
|
| |  | availability of global support;                                       
|
| |  | coverage of direct sales force;                                       
|
| |  | ease and speed of product implementation;                             
|
| |  | vendor and product reputation;                                        
|
| |  | financial condition of document management and
	collaboration vendors;
|
| |  | ability of products to support large numbers of
	concurrent users;    
|
| |  | price;                                                                
|
| |  | security;                                                             
|
| |  | integration capability with established software;                     
|
| |  | scalability; and                                                      
|
| |  | ease of access and use.                                               

Although we believe that we currently compete
favorably with respect to most of these factors, our market is
relatively new and is evolving rapidly. We may not be able to
maintain our competitive position against current and potential
competitors.

Intellectual Property and Other Proprietary
Rights

Our success depends in part on the development
and protection of the proprietary aspects of our technology as
well as our ability to operate without infringing on the
proprietary rights of others. To protect our proprietary
technology, we rely primarily on patent, trademark, service
mark, trade secret and copyright laws and contractual
restrictions.

We require our customers to enter into license
agreements that impose restrictions on their ability to
reproduce, distribute and utilize our software. In addition, we
seek to avoid disclosure of our trade secrets through a number
of means, including restricting access to our source code and
object code and requiring those entities and persons with access
to agree to confidentiality terms which restrict their use and
disclosure. We seek to protect our software, documentation and
other written materials under trade secret and copyright laws,
which afford only limited protection.

We currently have one U.S. patent issued, we have
applied for two others in the United States and we have three
pending foreign patent applications. It is possible that no
patents will be issued from our currently pending patent
applications and that our potential future patents may be found
invalid or unenforceable, or may be successfully challenged. It
is also possible that any patent issued to us may not provide us
with any competitive advantages or that we may not develop
future proprietary products or technologies that are patentable.
Additionally, we have not performed any comprehensive analysis
of the patents of others that may limit our ability to do
business.

We license technologies from several software
providers that are embedded into our product. We license
Application Builder® from Autonomy, Inc. and Search
97® from Verity, Inc. for search functionality in the
iManage WorkSite Server. These agreements expire in March 2005
and January 2003, respectively, and are renewable with written
consent of the parties. Either party may terminate the agreement
for cause before the expiration date with 90 days written
notice. In addition, we license Outside In Viewer
Technology® and Outside In HTML Export® from Stellent,
Inc. for file viewing functionality. This agreement expires in
December 2004 and is renewable with written consent of the
parties. If we cannot renew these licenses, shipments of our
products could be delayed until equivalent software could be
developed or licensed and integrated into our products. These
types of delays could seriously harm our business.

6



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Despite our efforts to protect our proprietary
rights and technology, unauthorized parties may attempt to copy
aspects of our products or obtain the source code to our
software or use other information that we regard as proprietary
or could develop software competitive to ours. Policing
unauthorized use of our products is difficult, and while we are
unable to determine the extent to which piracy of our software
exists, software piracy may be or become a problem. Our means of
protecting our proprietary rights may not be adequate.
Litigation may be necessary in the future to enforce our
intellectual property rights, to protect our trade secrets, to
determine the validity and scope of the proprietary rights of
others or to defend against claims of infringement or
invalidity. Any such litigation could result in substantial
costs and diversion of resources, which could have a material
adverse effect on our business, operating results and financial
condition.

It is possible that in the future, a third party
may file lawsuits claiming that our products infringe its
patents or copyrights or misappropriate its trade secrets. Any
claims, with or without merit, could be costly and
time-consuming to defend, divert our managements attention
or cause product delays. We have only one patent that we could
use defensively against any company bringing such a claim. If
our product was found to infringe a third partys
proprietary rights, we could be required to enter into royalty
or licensing agreements to be able to sell our product. Royalty
and licensing agreements, if required, may not be available on
terms acceptable to us, if at all, which could harm our business.

Employees

As of December 31, 2001, we had 229
full-time employees, less than 10% of who were based outside the
United States. Of these employees, 98 were in sales and
marketing, 73 were in product development, 32 were in
professional services, customer support and training and 26 were
in finance, human resources, legal, information systems and
administrative functions. Our employees are not represented by
any collective bargaining agreements and we have never
experienced a work stoppage. Our future success depends on our
ability to attract, motivate and retain highly qualified
technical and management personnel.




Item
2.     Properties

In February 2002, we moved our principal offices
to a leased facility in Foster City, California, which consists
of 21,415 square feet under a lease that will expire on
September 30, 2008. Our engineering and customer support
personnel and our training facility are located in a leased
facility in Chicago, Illinois. This facility consists of
approximately 28,000 square feet and our lease is non-cancelable
through 2004 and expires in 2009. We believe that our existing
facilities are adequate for our current needs and that suitable
additional or alternative space will be available in the future
on commercially reasonable terms.

We have also leased 12,000 square feet of space
in San Mateo, California where our principal offices were
formerly located. The lease for this space expires on
March 31, 2003.




Item 3.     Legal
Proceedings

Beginning on July 11, 2001, multiple
securities class action complaints were filed in the United
States District Court for the Southern District of New York
against us. The cases have been consolidated as Deutsche v.
iManage, Inc. et al., No. 01 GV 6277 (S.D.N.Y.
July 11, 2001). The complaints are brought purportedly on
behalf of all persons who purchased our common stock from
November 17, 1999 through December 6, 2000. The
complaints name as defendants the Company and certain of our
officers and/or directors; and several investment banking firms
that served as underwriters of our initial public offering. The
complaints allege liability under Sections 11 and 15 of the
Securities Act of 1933 and Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, on the grounds that the
registration statement for the offering did not disclose that:
(1) the underwriters had agreed to allow certain customers
to purchase shares in the offering in exchange for excess
commissions paid to the underwriters; and (2) the
underwriters had arranged for certain customers to purchase
additional shares in the aftermarket at pre-determined prices.
We are aware that similar allegations have been made in lawsuits
challenging over 300 other public offerings conducted in 1999
and 2000. All of these cases have been consolidated for pretrial
purposes before the Honorable Judge Shira Scheindlin. The time
to respond to the complaints has been stayed pending the further
coordination of

7



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the cases, including the filing of amended or
master complaint(s) in all of the cases. No specific damages are
claimed in the lawsuits involving the Company. While we believe
that the allegations against our officers/directors and us are
without merit, and intend to contest them vigorously there can
be no assurance that this matter will be resolved without costly
litigation or in a manner that is not adverse to our
consolidated financial position, results of operations or cash
flows. No estimate can be made of the possible loss or range of
loss associated with the resolution of this contingency.





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

No matters were submitted to a vote of security
holders during the fourth quarter of the year ended
December 31, 2001.




PART II






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

(a) Our common stock is listed on the Nasdaq
National Market under the symbol IMAN.

The following table sets forth, for the period
indicated, the high and low closing sales prices for our common
stock for the last eight quarters, all as reported by Nasdaq.

|                              |                |      |   |       |  |  |   |       | 
|----------------------------- | -------------- | ---- | - | ----- |  |  | - | ----- | 
|                              |                | High |   | Low  
|                              |                |      |   |      
|Year Ended December 31, 2001: |                |      |   |       |  |  |   |      
|                              | Fourth quarter |      | $ | 7.89  |  |  | $ | 3.90  | 
|                              | Third quarter  |      | $ | 5.43  |  |  | $ | 3.70  | 
|                              | Second quarter |      | $ | 4.40  |  |  | $ | 1.50  | 
|                              | First quarter  |      | $ | 7.44  |  |  | $ | 1.97  | 
|                             
|Year Ended December 31, 2000: |                |      |   |       |  |  |   |      
|                              | Fourth quarter |      | $ | 8.13  |  |  | $ | 2.63  | 
|                              | Third quarter  |      | $ | 14.00 |  |  | $ | 7.63  | 
|                              | Second quarter |      | $ | 18.75 |  |  | $ | 6.63  | 
|                              | First quarter  |      | $ | 34.94 |  |  | $ | 15.75 | 

The approximate number of holders of record of
the shares of our common stock was 257 as of March 22,
2002. This number does not include stockholders whose shares are
held by other entities. The actual number of holders is greater
than this number of holders of record. We estimate that there
were approximately 5,000 beneficial stockholders of the shares
of our common stock as of March 22, 2002.

We have not declared or paid any cash dividends
on our capital stock since our incorporation in October 1995,
and our current debt facilities prevent us from declaring or
paying any dividends. We currently intend to retain our future
earnings, if any, for use in our business and, therefore, do not
anticipate paying any cash dividends in the foreseeable future.
See Item 7. Managements Discussion and Analysis
of Financial Condition and Results of Operations 
Liquidity and Capital Resources.






|        |                                      
|------- | -------------------------------------
|Item 6. | Selected Consolidated Financial
	Data

The following selected consolidated financial
data is derived from our consolidated financial statements. This
data should be read in conjunction with the information set
forth below and is not necessarily indicative of the results of
future operations and should be read in conjunction with
Item 7. Managements Discussion

8



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and Analysis of Financial Condition and Results
of Operations and the consolidated financial statements of
iManage, Inc. and the notes thereto appearing in Item 14.
in this Annual Report on Form 10-K.


|                                                     |                                                                       |                                          |   |         |   |      |   |         |   |      |   |        |   |  |   |        |   |  |   |        |  
|---------------------------------------------------- | --------------------------------------------------------------------- | ---------------------------------------- | - | ------- | - | ---- | - | ------- | - | ---- | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                                     |                                                                       |                                         
|                                                     |                                                                       | Years Ended December 31,                
|                                                     |                                                                       |                                         
|                                                     |                                                                       | 2001                                     |   | 2000    |   | 1999 |   | 1998    |   | 1997
|                                                     |                                                                       |                                          |   |         |   |      |   |         |   |     
|                                                     |                                                                       |                                         
|                                                     |                                                                       | (In thousands, except per share amounts)
|Selected Consolidated Statement of Operations
	Data: |                                                                       |                                          |   |         |   |      |   |         |   |      |   |        |   |  |   |        |   |  |   |       
|                                                     | Total revenues                                                        |                                          | $ | 38,862  |   |      | $ | 30,008  |   |      | $ | 18,570 |   |  | $ | 7,741  |   |  | $ | 1,530  |  
|                                                     | Loss from operations                                                  |                                          |   | (21,310 | ) |      |   | (11,611 | ) |      |   | (3,461 | ) |  |   | (2,979 | ) |  |   | (3,609 | )
|                                                     | Net loss                                                              |                                          |   | (19,750 | ) |      |   | (9,114  | ) |      |   | (2,775 | ) |  |   | (2,840 | ) |  |   | (3,596 | )
|                                                     | Basic and diluted net loss per common share                           |                                          |   | (0.85   | ) |      |   | (0.41   | ) |      |   | (0.28  | ) |  |   | (0.38  | ) |  |   | (0.57  | )
|                                                     | Shares used in computing basic and diluted net
	loss per common share |                                          |   | 23,288  |   |      |   | 22,130  |   |      |   | 9,988  |   |  |   | 7,455  |   |  |   | 6,292  |  

|                                           |                                                   |                |   |        |  |      |   |        |  |      |   |        |  |  |   |        |  |  |   |       | 
|------------------------------------------ | ------------------------------------------------- | -------------- | - | ------ |  | ---- | - | ------ |  | ---- | - | ------ |  |  | - | ------ |  |  | - | ----- | 
|                                           |                                                   |               
|                                           |                                                   | December 31,  
|                                           |                                                   |               
|                                           |                                                   | 2001           |   | 2000   |  | 1999 |   | 1998   |  | 1997
|                                           |                                                   |                |   |        |  |      |   |        |  |     
|                                           |                                                   |               
|                                           |                                                   | (In thousands)
|Selected Consolidated Balance Sheet
	Data: |                                                   |                |   |        |  |      |   |        |  |      |   |        |  |  |   |        |  |  |   |      
|                                           | Cash, cash equivalents and short-term investments |                | $ | 33,607 |  |      | $ | 35,696 |  |      | $ | 51,013 |  |  | $ | 7,617  |  |  | $ | 1,789 | 
|                                           | Working capital                                   |                |   | 33,711 |  |      |   | 40,029 |  |      |   | 52,911 |  |  |   | 9,469  |  |  |   | 2,410 | 
|                                           | Total assets                                      |                |   | 60,858 |  |      |   | 73,347 |  |      |   | 63,921 |  |  |   | 13,495 |  |  |   | 3,259 | 
|                                           | Bank lines of credit, less current portion        |                |   | 1,412  |  |      |   | 2,345  |  |      |   | 1,388  |  |  |   |       |  |  |   |      | 
|                                           | Total stockholders equity                        |                |   | 36,963 |  |      |   | 53,737 |  |      |   | 48,828 |  |  |   | 7,360  |  |  |   | 1,986 | 

Working capital is defined as the excess of total
current assets over total current liabilities plus deferred
revenues.






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

The following contains forward-looking statements
within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Words such as
anticipates, expects,
intends, plans, believes,
seeks, estimates and similar expressions
identify such forward-looking statements. These forward-looking
statements are subject to risks and uncertainties that could
cause actual results to differ materially from those indicated
in the forward-looking statements. Factors, which could cause
actual results to differ materially, include those set forth in
the following discussion, and, in particular, the risks
discussed below under the subheading Factors that May
Impact Operating Results and in other documents we file
with the Securities and Exchange Commission. Unless required by
law, we do not undertake any obligation to update any
forward-looking statements.

Overview

We provide collaborative content management
software that enables businesses to manage and collaborate
efficiently on critical business content across the extended
enterprise. Our product suite delivers document management,
collaboration, portal access, workflow, knowledge management and
business process automation in a single integrated solution. We
believe that the iManage WorkSite product suite improves
communication and process efficiency, increases response times
and provides a rapid return on investment for our customers.

To date, we have licensed our software products
to over 1,000 customers, with over 400,000 users. While we have
more recently begun to focus on other vertical markets, our
customer base is comprised mainly of customers in the legal and
professional service industries.

9



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##### Table of Contents



Results of Operations

The following table sets forth, for the periods
indicated, selected consolidated financial data as a percentage
of total revenues:

|                               |                                        |                          |   |      |     |      |   |     |     |   |   |     |     |  
|------------------------------ | -------------------------------------- | ------------------------ | - | ---- | --- | ---- | - | --- | --- | - | - | --- | --- | -
|                               |                                        |                         
|                               |                                        | Years Ended December 31,
|                               |                                        |                         
|                               |                                        | 2001                     |   | 2000 |     | 1999
|                               |                                        |                          |   |      |     |     
|Revenues:                      |                                        |                          |   |      |     |      |   |     |     |   |   |    
|                               | License                                |                          |   | 63   | %   |      |   | 67  | %   |   |   | 77  | %  
|                               | Support and service                    |                          |   | 37   |     |      |   | 33  |     |   |   | 23  |    
|                               |                                        |                          |   |      |     |      |   |     |     |   |   |    
|                               |                                        | Total revenues           |   |      | 100 |      |   |     | 100 |   |   |     | 100 |  
|                               |                                        |                          |   |      |     |      |   |     |     |   |   |    
|Cost of revenues:              |                                        |                          |   |      |     |      |   |     |     |   |   |    
|                               | License                                |                          |   | 3    |     |      |   | 4   |     |   |   | 4   |    
|                               | Support and service                    |                          |   | 15   |     |      |   | 16  |     |   |   | 16  |    
|                               |                                        |                          |   |      |     |      |   |     |     |   |   |    
|                               |                                        | Total cost of revenues   |   |      | 18  |      |   |     | 20  |   |   |     | 20  |  
|                               |                                        |                          |   |      |     |      |   |     |     |   |   |    
|                               |                                        | Gross profit             |   |      | 82  |      |   |     | 80  |   |   |     | 80  |  
|Operating expenses:            |                                        |                          |   |      |     |      |   |     |     |   |   |    
|                               | Sales and marketing                    |                          |   | 74   |     |      |   | 60  |     |   |   | 59  |    
|                               | Research and development               |                          |   | 27   |     |      |   | 30  |     |   |   | 25  |    
|                               | General and administrative             |                          |   | 11   |     |      |   | 14  |     |   |   | 15  |    
|                               | Amortization of intangible assets      |                          |   | 22   |     |      |   | 15  |     |   |   |    |    
|                               | Restructuring charge                   |                          |   | 3    |     |      |   |    |     |   |   |    |    
|                               |                                        |                          |   |      |     |      |   |     |     |   |   |    
|                               |                                        | Total operating expenses |   |      | 137 |      |   |     | 119 |   |   |     | 99  |  
|                               |                                        |                          |   |      |     |      |   |     |     |   |   |    
|                               |                                        | Loss from operations     |   |      | (55 | )    |   |     | (39 | ) |   |     | (19 | )
|Interest income and other, net |                                        |                          | 4 |      |     |      | 9 |     |     |   | 4 |    
|                               |                                        |                          |   |      |     |      |   |     |     |   |   |    
|                               | Loss before provision for income taxes |                          |   | (51  | )   |      |   | (30 | )   |   |   | (15 | )  
|Provision for income taxes     |                                        |                          | 5 |      |     |      |  |     |     |   | 5 |    
|                               |                                        |                          |   |      |     |      |   |     |     |   |   |    
|                               | Net loss                               |                          |   | (51  | )%  |      |   | (30 | )%  |   |   | (15 | )% 
|                               |                                        |                          |   |      |     |      |   |     |     |   |   |    

Revenues

The following sets forth, for the periods
indicated, our revenues (in thousands):

|                    |  |                          |        |      |  |      |        |  |  |   |        | 
|------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                    |  |                         
|                    |  | Years Ended December 31,
|                    |  |                         
|                    |  | 2001                     |        | 2000 |  | 1999
|                    |  |                          |        |      |  |     
|License             |  | $                        | 24,545 |      |  | $    | 20,213 |  |  | $ | 14,257 | 
|Support and service |  |                          | 14,317 |      |  |      | 9,795  |  |  |   | 4,313  | 
|                    |  |                          |        |      |  |      |        |  |  |   |        | 
|                    |  | $                        | 38,862 |      |  | $    | 30,008 |  |  | $ | 18,570 | 
|                    |  |                          |        |      |  |      |        |  |  |   |        | 

License.License
revenue was $24.5 million, $20.2 million and $14.3
million in 2001, 2000 and 1999, respectively. License revenue
increased $4.3 million, or 21%, from 2000 to 2001. This increase
was due primarily to the increased volume of sales to both new
and existing customers and the successful introduction of our
new WorkSite product suite. License revenue increased $5.9
million, or 41%, from 1999 to 2000. This increase was due
primarily to the increased volume of sales to both new and
existing customers and the continued market acceptance of our
product suite. License revenue was 63%, 67% and 77% of total
revenue in 2001, 2000 and 1999, respectively. The decrease in
license revenue as a percentage of total revenues in 2001 from
2000 was due to slowing sales growth in a weakening economy, an
increase in annual support revenues from our customer installed
base and our strategy to increase our professional consulting
services. The

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decrease in license revenue as a percentage of
total revenues in 2000 from 1999 was due to the increase in
support and service revenues from the growth in our customer
installed base associated with the renewal of annual support
contracts.


Support and Service.Support and service revenues consisted
primarily of customer support and, to a lesser extent, training
and consulting services. Support and service revenue was
$14.3 million, $9.8 million and $4.3 million in
2001, 2000 and 1999, respectively, representing increases of
$4.5 million, or 46%, in 2001 from 2000 and
$5.5 million, or 128%, in 2000 from 1999. Support and
service revenue was 37%, 33% and 23% of total revenue in 2001,
2000 and 1999, respectively. These increases were primarily a
result of the growth in our customer installed base associated
with the renewal of annual support contracts.

Cost of Revenues

The following sets forth, for the periods
indicated, our cost of revenues (in thousands):

|        |                     |                          |       |       |  |      |       |       |  |   |       |       | 
|------- | ------------------- | ------------------------ | ----- | ----- |  | ---- | ----- | ----- |  | - | ----- | ----- | 
|        |                     |                         
|        |                     | Years Ended December 31,
|        |                     |                         
|        |                     | 2001                     |       | 2000  |  | 1999
|        |                     |                          |       |       |  |     
|License |                     | $                        | 1,376 |       |  | $    | 1,165 |       |  | $ | 773   |      
|        | Support and service |                          |       | 5,757 |  |      |       | 4,841 |  |   |       | 2,875 | 
|        |                     |                          |       |       |  |      |       |       |  |   |       |      
|        |                     | $                        | 7,133 |       |  | $    | 6,006 |       |  | $ | 3,648 |      
|        |                     |                          |       |       |  |      |       |       |  |   |       |      

License.Cost of license revenues primarily
consisted of royalties payable to third parties for software
that was either embedded in or bundled with our software
products. Cost of license revenues totaled $1.4 million,
$1.2 million and $773,000 in 2001, 2000 and 1999,
respectively, representing 6%, 6% and 5%, respectively, of
license revenues in these years. The increase in cost of license
revenues in absolute dollars in 2001 and 2000 was due to
increased license sales resulting in increased royalty payment
to third parties. To the extent license revenues increase, we
expect cost of license revenues to decline slightly as a
percentage of license revenues because royalty agreements
typically contain declining royalty rates.

Support and Service.Cost of support and service revenues
primarily consisted of salaries and other personnel-related
expenses, costs associated with providing product updates to our
customers under active support agreements and depreciation of
equipment used in providing customer support, consulting
services and training. Cost of support and service revenues
totaled $5.8 million, $4.8 million and $2.9 million,
respectively, in 2001, 2000 and 1999. These costs increased $1.0
million, or 21%, from 2000 to 2001, and $1.9 million, or
68%, from 1999 to 2000. The increases in 2001 resulted primarily
from an increase in personnel-related expenses in consulting
services. The increases in 2000 resulted primarily from an
increase of $1.0 million in facilities related expenses and
$789,000 in personnel-related expenses related to consulting
services and training personnel.

Operating Expenses

The following sets forth, for the periods
indicated, our operating expenses (in thousands):

|                                  |  |                          |        |      |  |      |        |  |  |   |        | 
|--------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                  |  |                         
|                                  |  | Years Ended December 31,
|                                  |  |                         
|                                  |  | 2001                     |        | 2000 |  | 1999
|                                  |  |                          |        |      |  |     
|Sales and marketing               |  | $                        | 28,574 |      |  | $    | 17,845 |  |  | $ | 10,929 | 
|Research and development          |  |                          | 10,374 |      |  |      | 9,094  |  |  |   | 4,680  | 
|General and administrative        |  |                          | 4,448  |      |  |      | 4,222  |  |  |   | 2,774  | 
|Amortization of intangible assets |  |                          | 8,449  |      |  |      | 4,452  |  |  |   |       | 
|Restructuring charge              |  |                          | 1,194  |      |  |      |       |  |  |   |       | 
|                                  |  |                          |        |      |  |      |        |  |  |   |        | 
|                                  |  | $                        | 53,039 |      |  | $    | 35,613 |  |  | $ | 18,383 | 
|                                  |  |                          |        |      |  |      |        |  |  |   |        | 

Sales and Marketing.Sales and marketing expenses consisted
primarily of salaries, commissions, benefits and amortization of
stock-based compensation for sales and marketing personnel,
travel, and

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marketing programs, including customer
conferences, promotional materials, trade shows and advertising.
Sales and marketing expenses were $28.6 million,
$17.8 million and $10.9 million in 2001, 2000 and 1999,
respectively, representing 74%, 60% and 59% of total revenues.
Sales and marketing expenses increased $10.7 million, or
60%, in 2001 from 2000 and $6.9 million, or 63%, in 2000
from 1999. The increase in 2001 from 2000 was primarily related
to an increase of $8.6 million in our domestic and
international sales and marketing personnel, $1.3 million
in facility charges and $671,000 in travel expense. The increase
in 2000 from 1999 was related to an increase of
$3.2 million in marketing programs, which included trade
shows and advertising activities, increased facilities expense
of $2.1 million and an increase of $782,000 in travel
expenses.


Research and Development.Research and development expenses
consisted primarily of personnel, third party contractors,
facilities and related overhead costs associated with the
product development and testing activities of our iManage
product suites. Research and development expenses were $10.4
million, $9.1 million and $4.7 million in 2001, 2000
and 1999, respectively, representing increases of
$1.3 million, or 14%, in 2001 from 2000 and $4.4 million,
or 94%, in 2000 from 1999. These increases were primarily due to
the increases in our development staff personnel expense of
$1.0 million and $3.0 million in 2001 and 2000,
respectively, and the increased facilities and related overhead
expense of $512,000 and $1.3 million in 2001 and 2000,
respectively. Research and development expenses were 27%, 30%
and 25% of total revenues in 2001, 2000 and 1999, respectively.

General and Administrative.General and administrative expenses
consisted primarily of personnel and related costs for general
corporate functions, including executive, legal, finance,
accounting and human resources. General and administrative
expenses were $4.4 million, $4.2 million and
$2.8 million in 2001, 2000 and 1999, respectively,
representing increases of $226,000, or 5%, in 2001 from 2000 and
$1.4 million, or 52%, in 2000 from 1999. The increase in
2001 was primarily a result of increased staffing and costs
related to building our general and administrative
infrastructure. The increase in 2000 was primarily the result of
$489,000 in professional service costs, $439,000 in facilities
expenses and $308,000 in personnel expense. General and
administrative expenses were 11%, 14% and 15% of total revenues
in 2001, 2000 and 1999, respectively.

Amortization of Intangible Assets.Amortization of intangible assets was
$8.4 million and $4.5 million in 2001 and 2000,
respectively. Intangibles assets consist of goodwill, purchased
technology, assembled workforce and non-compete agreements
associated with our acquisition of ThoughtStar, Inc.
(ThoughtStar) on June 21, 2000. Goodwill and
other acquired intangibles of $17.0 million recorded in
connection with the acquisition in June 2000 are being amortized
over their estimated useful lives of two to five years except
those related to the assembled workforce, which were written off
in the third quarter of 2001 in connection with closing of Utah
facilities.

In 2002, Statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets, became effective and, as a result, we
will cease to amortize the remaining unamortized balance of
goodwill at December 31, 2001 of $3.4 million. We
recorded approximately $7.1 million and $4.5 million
of goodwill amortization in 2001 and 2000, respectively and
would have recorded $3.4 million of goodwill amortization
during 2002. In lieu of amortization, we are required to perform
an initial review to determine whether the value of our
remaining goodwill asset is impaired and periodic impairment
review thereafter. We expect to complete our initial review
during the first quarter of 2002. We will record $745,000 of
amortization related to other intangible assets in 2002.

Restructuring Charge.In September 2001, we implemented a
plan to consolidate our operations and close a facility in Utah.
Our restructuring actions consisted primarily of the termination
of approximately 20 positions in engineering, sales,
marketing and administration in the Utah location and exiting
the related facility. The functions performed in the Utah
facility have been combined with our Chicago operations. As a
result of the restructuring, we recognized a charge of
$1.2 million in the third quarter of 2001. The
restructuring charge included $694,000 for employee severance,
$150,000 for the write-off of intangible assets related to the
acquisition of ThoughtStar, $93,000 for the write-off of certain
property and equipment and $257,000 related to facility closing
costs. The remaining restructuring charge accrued at
December 31, 2001

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was $448,000 primarily related to personnel
charges. We anticipate that the remaining accrued amount will be
paid by March 31, 2002.


Stock-based Compensation.Stock-based compensation charges
relate to the options granted to employees prior to the initial
public offering, options granted on the acquisition date to
ThoughtStar employees, compensation charges related to executive
compensation and non-employee consultants. We expensed
$1.4 million, $2.1 million and $3.6 million in
2001, 2000 and 1999, respectively, related to stock-based
compensation.

During 2001, 1999 and 1998, we issued options to
purchase shares of our common stock to certain employees
totaling 460,000, 1.7 million and 967,000, respectively,
with weighted average exercise prices of $0.70, $3.63 and $0.32
per share, respectively, which were below the deemed fair value
of our common stock at the dates of grant. The weighted average
deemed fair value of our common stock was $2.88, $7.02 and $1.47
in 2001, 1999 and 1998, respectively. In accordance with the
requirements of Accounting Pronouncement Board (APB)
No. 25, we have recorded deferred stock-based compensation
for the difference between the exercise price of the stock
options and the deemed fair value of our stock at the date of
grant. This deferred compensation is amortized to expense over
the period during which our right to repurchase the stock lapses
or options become exercisable, generally four or five years
consistent with the method described in Financial Accounting
Standards Board Interpretation (FIN) No. 28,
Accounting for Stock Appreciation Rights and Other Variable
Stock Option or Awards Plans. At December 31, 2001, we
have recorded deferred stock-based compensation related to these
options in an amount of $11.2 million, of which
$1.5 million, $2.9 million and $3.4 million had
been amortized to expense during 2001, 2000 and 1999,
respectively.

The amortization of deferred stock-based
compensation is comprised of the following categories (in
thousands):

|                                         |  |                          |       |      |  |      |       |   |  |   |       | 
|---------------------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- | - |  | - | ----- | 
|                                         |  |                         
|                                         |  | Years Ended December 31,
|                                         |  |                         
|                                         |  | 2001                     |       | 2000 |  | 1999
|                                         |  |                          |       |      |  |     
|Employee stock-based compensation        |  | $                        | 1,541 |      |  | $    | 2,911 |   |  | $ | 3,383 | 
|Non-employee stock-based compensation    |  |                          | 157   |      |  |      |      |   |  |   | 208   | 
|Cancellation of options upon termination |  |                          | (249  | )    |  |      | (777  | ) |  |   |      | 
|                                         |  |                          |       |      |  |      |       |   |  |   |       | 
|                                         |  | $                        | 1,449 |      |  | $    | 2,134 |   |  | $ | 3,591 | 
|                                         |  |                          |       |      |  |      |       |   |  |   |       | 

During 2001, we granted options to purchase
common stock at exercise prices ranging from $0.01 to $5.09 per
share to non-employee engineers for consulting services, when
the deemed fair market value of our common stock ranged from
$4.40 to $5.09 per share. These options were fully vested upon
grant and were valued at a total of $157,000 using the
Black-Scholes pricing model with the following assumptions:
10 year terms, volatility ranging from 102% to 132%,
discount rate ranging from 4.97% to 5.11% and 0% dividend rate.
This $157,000 was expensed immediately as options related to
services provided prior to the grant date.

In conjunction with the acquisition of
ThoughtStar on June 21, 2000, we granted 89,000 common
stock options with an exercise price of $0.01 to former
ThoughtStar employees in exchange for 1,648,000 fully vested and
exercisable ThoughtStar stock options. On the date of grant,
these options had an intrinsic value of $982,000, which was
recorded as deferred stock-based compensation and is being
amortized over the option vesting period of two years. At
December 31, 2001 and 2000, deferred compensation related
to these options totaled $249,000 and $646,000, respectively.
During September 2001, the remaining $87,000 deferred
compensation was charged to expense in connection with a
restructuring of operations.

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The amortization of deferred stock-based
compensation relates to the following items in the accompanying
consolidated statement of operations (in thousands):

|                           |  |                          |       |      |  |      |       |  |  |   |       | 
|-------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                           |  |                         
|                           |  | Years Ended December 31,
|                           |  |                         
|                           |  | 2001                     |       | 2000 |  | 1999
|                           |  |                          |       |      |  |     
|Cost of revenues           |  | $                        | 46    |      |  | $    | 127   |  |  | $ | 143   | 
|Sales and marketing        |  |                          | 767   |      |  |      | 951   |  |  |   | 2,401 | 
|Research and development   |  |                          | 504   |      |  |      | 684   |  |  |   | 500   | 
|General and administrative |  |                          | 132   |      |  |      | 372   |  |  |   | 547   | 
|                           |  |                          |       |      |  |      |       |  |  |   |       | 
|                           |  | $                        | 1,449 |      |  | $    | 2,134 |  |  | $ | 3,591 | 
|                           |  |                          |       |      |  |      |       |  |  |   |       | 

Amortization of deferred stock-based compensation
is estimated to total $394,000 for 2002, $125,000 for 2003 and
$36,000 for 2004. Amortization of deferred stock-based
compensation will be reduced in future periods to the extent
options are terminated prior to vesting.

Interest Income and Other, Net

Interest income and other was $1.7 million,
$2.6 million and $718,000 in 2001, 2000 and 1999,
respectively. Interest income and other decreased in 2001 from
2000 due to lower interest rates on our cash investments and a
lower average balance of cash, cash equivalents and short- and
long-term investments during the period. Interest income and
other income increased in 2000 from 1999 due primarily to higher
balances of cash, cash equivalents and short- and long-term
investments as a result of our initial public offering in the
fourth quarter of 1999.

Provision for Income Taxes

The provision for income taxes recorded in 2001,
2000 and 1999 related primarily to federal and state alternative
minimum taxes. As of December 31, 2001, we had
approximately $15.5 million of federal and
$20.8 million of state net operating loss carryforwards to
offset future taxable income. The federal and state tax net
operating loss carryforwards are available to reduce future
taxable income and expire at various dates through 2021 and
2011, respectively. Because of our limited operating history,
our losses incurred to date and the difficulty in accurately
forecasting our future results, management does not believe that
the realization of the related deferred income tax asset meets
the criteria required by generally accepted accounting
principles. Therefore, we have recorded a full valuation
allowance against the deferred income tax assets.

Liquidity and Capital Resources

At December 31, 2001, we had cash, cash
equivalents and short- and long-term investments of
$40.8 million.

During 2001, net cash used in operating
activities was $442,000 as compared to $8.6 million in 2000
and cash provided by operating activities in 1999 of
$5.9 million.

Net cash used in operating activities in 2001 was
primarily the result of our net loss of $19.8 million.
After excluding the effects of non-cash charges including
depreciation and amortization, stock-based compensation,
restructuring charge, provision for doubtful accounts and sales
returns, the adjusted cash usage was approximately
$6.0 million during 2001. Additional cash was generated
from an increase in accounts payable and accrued liabilities of
$2.3 million, an increase of $1.8 million in deferred
revenues, a decrease of $469,000 in accounts receivable and a
decrease of $849,000 in prepaid expenses and other assets.

Net cash used in operating activities in 2000
resulted primarily from our net loss of $9.1 million. After
excluding the effects of non-cash charges for depreciation and
amortization, stock-based compensation and the provision for
doubtful accounts and sales returns, the adjusted cash usage for
the year ended December 31, 2000 was approximately
$424,000. Additional cash was used from an increase of
$5.3 million in accounts receivable and an increase of
$3.0 million in our prepaid expenses and other assets.

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Net cash provided by operating activities in 1999
resulted primarily from our net loss of $2.8 million. After
excluding the effects of non-cash charges for depreciation and
amortization, stock-based compensation, provision for doubtful
accounts and sales returns and stock issued for services, the
adjusted cash usage was approximately $1.4 million during
1999. Additional cash was generated from an increase of
$5.7 million in deferred revenues and an increase in
accounts payable and accrued liabilities of $1.2 million
partially offset by an increase of $1.6 million in accounts
receivable and an increase of $867,000 in prepaid expenses and
other assets.

Net cash used in investing activities was
$7.1 million, $20.7 million and $8.3 million in
2001, 2000 and 1999, respectively, primarily reflecting
transactions in cash investments and additions to property and
equipment. In 2001, the activity in our investment portfolio
used approximately $6.1 million of cash and we purchased
$1.0 million of property and equipment. In 2000, the net
activity in our investment portfolio used cash of
$11.4 million; the acquisition of ThoughtStar used cash of
$6.1 million, net of cash acquired, and purchases of
property and equipment used $3.3 million. In 1999, the
activity in our investment portfolio used cash of
$6.3 million and our purchase of property and equipment
accounted for an additional use of $2.0 million in cash.

Net cash provided by financing activities was
$349,000, $5.4 million and $42.7 million in 2001, 2000
and 1999, respectively. In 2001, the net cash provided by
financing activities related to the issuance of
$1.1 million in common stock under our stock option plans
and employee stock purchase plan partially offset by the net
payment of $728,000 against our bank lines of credit. In 2000,
the net cash provided by financing activities related to $4.4
million of net proceeds from our bank lines of credit, the
issuance of $724,000 in common stock under our stock option
plans and employee stock purchase plan and $501,000 in payment
of notes receivable from stockholders. In 1999, the net cash
provided by financing activities consisted primarily of
$41.2 million generated from our initial public offering
and the net proceeds of $2.0 million from our bank line of
credit.

As of December 31, 2001, we had a revolving
line of credit with a bank for $4.0 million, which bears
interest at the banks prime rate plus 0.25%. Borrowings
were limited to the lesser of 80% of eligible accounts
receivable or $4.0 million and were secured by
substantially all of our assets. As of December 31, 2001,
we borrowed approximately $3.0 million under this facility.
In addition, as of December 31, 2001, we had an equipment
line of credit with a bank for $5.0 million, which bears
interest at the lending banks prime rate plus 0.5%. As of
December 31, 2001, we had $2.7 million outstanding
under the equipment line of credit.

Both lines of credit contain various restrictive
covenants and these restrictions require us to:



| |     |                                                                                      
| | --- | -------------------------------------------------------------------------------------
| | (a) | maintain a monthly quick assets to current
	liabilities ratio of at least two to one;
|
| | (b) | not incur a cash loss, as defined, in any quarter
	greater than:                     

$1.5 million for the quarter ended
December 31, 2001; and

$1.0 million for the quarter ended
March 31, 2002 and thereafter; and

(c) eliminate our ability to declare and pay
dividends.

The cash loss is determined based upon our
operating results, excluding charges for certain items such as
depreciation and amortization.

We were in compliance with all of these borrowing
covenants as of year end and March 22, 2002.

We currently anticipate that our cash, cash
equivalents, and short- and long term investments, together with
our existing lines of credit, will be sufficient to meet our
anticipated needs for working capital and capital expenditures
through the next 12 months. However, we may be required, or
could elect, to seek additional funding at any time. Our future
capital requirements will depend on many factors, including our
future revenues, the timing and extent of spending to support
product development efforts and expansion of sales, general and
administrative activities, the timing of introductions of new
products and market acceptance of our products. We cannot
provide assurance that additional equity or debt financing, if
required, will be available on acceptable terms if at all.

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Future payments due under debt and lease
obligations as of December 31 (in thousands):

|           |  |                 |       |                |  |       |       |  |  |   |       | 
|---------- |  | --------------- | ----- | -------------- |  | ----- | ----- |  |  | - | ----- | 
|           |  | Borrowing       |       | Non Cancelable |  |      
|           |  | Under Bank      |       | Operating      |  |      
|           |  | Line of Credits |       | Leases         |  | Total
|           |  |                 |       |                |  |      
|2002       |  | $               | 4,288 |                |  | $     | 916   |  |  | $ | 5,204 | 
|2003       |  |                 | 967   |                |  |       | 381   |  |  |   | 1,348 | 
|2004       |  |                 | 307   |                |  |       | 263   |  |  |   | 570   | 
|2005       |  |                 | 69    |                |  |       | 274   |  |  |   | 343   | 
|2006       |  |                 | 69    |                |  |       | 285   |  |  |   | 354   | 
|Thereafter |  |                 |      |                |  |       | 680   |  |  |   | 680   | 
|           |  |                 |       |                |  |       |       |  |  |   |       | 
|           |  | $               | 5,700 |                |  | $     | 2,799 |  |  | $ | 8,499 | 
|           |  |                 |       |                |  |       |       |  |  |   |       | 

Financial Risk Management

The following discussion about our risk
management activities includes forward-looking
statements that involve risks and uncertainties. Actual
results could differ materially from those projected in the
forward-looking statements.

As a global concern, we face exposure to adverse
movements in foreign currency exchange rates. These exposures
may change over time as business practices evolve and could have
a material adverse impact on our financial results. Our primary
exposures relate to non-U.S. dollar-denominated revenues and
operating expenses in Canada, Australia, New Zealand and Europe.
At the present time, the exposure is not significant; therefore,
we do not engage in hedging activity. We do not anticipate
significant currency gains or losses in the near term.

We maintain investment portfolio holdings of
various issuers, types and maturities. These securities are
classified as available-for-sale, and consequently are recorded
on the consolidated balance sheet at fair value with unrealized
gains and losses reported as a separate component of accumulated
other comprehensive income (loss). These securities are not
leveraged and are held for purposes other than trading.

On January 1, 1999, the Euro was introduced.
On that day, the exchange ratios of the currencies of the eleven
countries participating in the first phase of the European
Economic and Monetary Union were fixed. The Euro became a
currency in its own right and the currencies of the
participating countries, while continuing to exist for a
three-year transition period, are now fixed denominations of the
Euro. The conversion to the Euro will have significant effects
on the foreign exchange markets and bond markets and is
requiring significant changes in the operations and systems
within the European banking industry. Our information system is
designed to accommodate multi-currency environments. As a
result, we have the flexibility to transact business with
vendors and customers in either Euro or traditional national
currency units.

Critical Accounting Policies

Our critical accounting policies are as follows:



| |   |                                                                         
| | - | ------------------------------------------------------------------------
| |  | revenue recognition;                                                    
|
| |  | estimating the allowance for doubtful accounts;                         
|
| |  | assessment of the probability of the outcome of
	our current litigation;
|
| |  | accounting for income taxes; and                                        
|
| |  | valuation of long-lived assets, intangible assets
	and goodwill.        

Revenue Recognition.Revenues consist primarily of license,
support and service revenue from our customers, which were
primarily attributable to our iManage WorkSite suite of software
applications. In addition, we receive fees from our customers
for providing deployment and integration services.

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We apply the provisions of Statement of Position
97-2, or (SOP 97-2), Software Revenue
Recognition, as amended by SOP 98-9, Modification of SOP
97-2, Software Revenue Recognition, With Respect to Certain
Transactions, to all transactions involving the licensing of
our software.

We recognize license revenue when persuasive
evidence of an arrangement exists, the software has been
delivered, the fee is considered fixed and determinable and
collectibility is reasonably assured. Revenues from subscription
license agreements, which include software, rights to future
products and maintenance, are recognized ratably over the term
of the subscription period. Revenues on shipments to resellers
are generally recognized when the resellers sell the product to
the end-user customer. For all sales, we use either a binding
purchase order or signed license agreement as persuasive
evidence of an arrangement.

At the time of the transaction, we assess whether
the fee associated with each transaction is fixed and
determinable and collection is reasonably assured. We evaluate
the payment terms associated with each transaction. If a portion
of the fee is due after normal payment terms, which range from
30 days to 180 days from invoice date for legal
customers and 30 days to 120 days for all others, we
account for the transaction as the fees become due, assuming
collection is reasonably assured. We assess collectibility based
on a number of factors, including past transaction history and
overall credit-worthiness of the customer. We generally do not
require collateral from our customers. If collection is not
reasonably assured, fees are deferred and recognized as revenue
at the time collection becomes reasonably assured, which is
generally upon receipt of cash.

When contracts contain multiple elements wherein
vendor specific objective evidence exists for all undelivered
elements, we account for the delivered elements in accordance
with the residual method prescribed by SOP 98-9. This means
that we defer revenue equivalent to the fair value of the
undelivered elements until such time as the element is delivered
to the customer. Fair values for the ongoing support obligations
are based upon separate sales of support renewals sold to
customers or upon renewal rates quoted in the contracts. Fair
value of services, such as training or consulting, is based upon
the value of stand-alone sales of these services to customers.

License arrangements do not generally include
acceptance clauses. However, if an arrangement includes an
acceptance provision, acceptance occurs upon the earlier of
receipt of a written customer acceptance or expiration of the
acceptance period.

We recognize revenue for support services ratably
over the contract term. Training and consulting services are
billed based on hourly rates, and generally recognized as
revenue as these services are performed. However, at the time of
a transaction, we assess whether any services included in the
arrangement require us to perform significant work either to
alter the underlying software or to build complex interfaces so
that the software performs as requested. If these services are
included as part of an arrangement, we recognize the entire fee
using the percentage of completion method. We estimate the
percentage of completion based on an estimate of the total costs
estimated to complete the project as a percentage of the costs
incurred to date and the estimated costs to complete.

Allowance for Doubtful Accounts.The preparation of our consolidated
financial statements requires management to make estimates and
assumptions that affect the reported amount of assets and
disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts
of revenues and expenses during the reported period.
Specifically, our management must make estimates as to the
overall collectibility of accounts receivable and provides an
allowance for amounts deemed to be uncollectible. Management
specifically analyzes its accounts receivable and historical bad
debt pattern, customer concentrations, customer
credit-worthiness, current economic trends and changes in its
customer payment terms when evaluating the adequacy of the
allowance for doubtful accounts. At December 31, 2001, our
accounts receivable balance was $9.6 million, net of an
allowance for doubtful accounts of $277,000.

Litigation.We are
the target of several securities class action complaints and
other litigation. Because of uncertainties related to both the
amount and range of loss in these matters, our management is
unable to make a reasonable estimate of the liability that could
result from unfavorable outcomes in these actions. As additional
information becomes available, we will assess the potential
liability related to our pending litigation

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and may revise our estimates. Any such
assessments and estimation could materially impact our
consolidated results of operations and financial position.


Accounting for Income Taxes.As part of the process of preparing
our consolidated financial statements, we are required to
estimate our income tax liability in each of the jurisdictions
in which we do business. This process involves estimating our
actual current tax expense together with assessing temporary
differences resulting from differing treatment of items, such as
deferred revenues, for tax and accounting purposes. These
differences result in deferred tax assets and liabilities, which
are included within our consolidated balance sheet. We must then
assess the likelihood that these deferred tax assets will be
recovered from future taxable income and, to the extent we
believe that recovery is not more likely than not or unknown, we
must establish a valuation allowance.

Significant management judgment is required in
determining our provision for income tax, our deferred tax
assets and liabilities and any valuation allowance recorded
against our deferred tax assets. At December 31, 2001, we
have recorded a full valuation allowance against our deferred
tax assets, due to uncertainties related to our ability to
utilize our deferred tax assets, primarily consisting of certain
net operating losses carried forward, before they expire. The
valuation allowance is based on our estimates of taxable income
by jurisdiction and the period over which our deferred tax
assets will be recoverable.

Valuation of Long-lived Assets, Intangible
Assets and Goodwill.We assess the
impairment of long-lived assets, intangible assets and goodwill
whenever events or changes in circumstances indicate that the
carrying value of these assets may not be recoverable. Factors
we consider important which could trigger impairment include the
following:



| |   |                                                                                            
| | - | -------------------------------------------------------------------------------------------
| |  | significant underperformance relative to
	historical or projected future operating results;
|
| |  | changes in the use of the assets or the strategy
	for our overall business;                
|
| |  | negative industry or economic trends;                                                      
|
| |  | significant decline in our stock price for a
	sustained period; and                        
|
| |  | our market capitalization relative to net book
	value.                                     

We determine the carrying value of property and
equipment, long-lived assets, net intangible assets and goodwill
based upon managements review of the above indicators of
impairment.

Factors That May Impact Future Operating
Results



| |                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------
| | We have incurred losses throughout our
	recent operating history and may not be able to achieve
	profitability.

We have incurred operating losses on a quarterly
and annual basis throughout our history. As of December 31,
2001, we had an accumulated deficit of $38.8 million. Our
failure to significantly increase our revenues would seriously
harm our business and operating results. To increase our
revenues, we must incur significant expenses to expand our sales
and marketing, research and development and general and
administrative resources. If our revenues do not grow to offset
these increased expenses, we will not be profitable. In fact, we
may not have any revenue growth and our revenues may decline
over corresponding periods.



| |                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we do not expand sales of our products
	to customers other than professional service firms, we may not
	be able to grow our revenues and our operating results will
	suffer.

We derived 79.3%, 76.6% and 93.3% of our license
revenues for the years ended December 31, 2001, 2000 and
1999, respectively, from the sale of licenses to law firms and
professional service firms. Our future success is substantially
dependent on our ability to sell licenses to customers outside
of professional service firms, particularly large multi-national
corporations. To sell to multi-national corporations, we must
devote time and resources to hire and train sales employees to
work in industries other than legal and professional service
firms.

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Even if we are successful in hiring and training
new sales teams, customers in other industries may not perceive
the value in or require our content and collaboration software
platform and applications.




| |                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our product has a long and unpredictable
	sales cycle, which makes it difficult to forecast our future
	results and may cause our operating results to vary
	significantly.

The period between initial contact with a
prospective customer and the licensing of our application suite
varies and can range from three to more than twelve months.
Additionally, our sales cycle is long and complex as customers
consider a number of factors before committing to purchase our
application suite. Factors considered by customers when
evaluating our application suite include product benefits, cost
and time of implementation, ability to operate with existing and
future computer systems and the ability to accommodate increased
transaction volume and product reliability. Customer evaluation,
purchasing and budgeting processes vary significantly from
company to company. As a result, we spend significant time and
resources informing prospective customers about our software
products, which may not result in a completed transaction and
may negatively impact our operating margins. Even if iManage
WorkSite has been chosen by the customer, completion of the
transaction is subject to a number of contingencies, which make
our quarterly revenues difficult to forecast. These
contingencies include but are not limited to:



| |   |                                                                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Because the licensing of our software products is
	often an enterprise-wide decision by our customers that involves
	many factors, our ability to license our product may be impacted
	by changes in the strategic importance of collaborative content
	management projects to our customers, budgetary constraints or
	changes in customer personnel.
|
| |  | A customers internal approval and
	expenditure authorization process can be difficult and time
	consuming. Delays in approvals, even after selection of a
	vendor, could impact the timing and amount of revenues
	recognized in a quarterly period.                                                                                                 
|
| |  | Changes in our sales incentive plans may have an
	unpredictable impact on our sales cycle and contracting
	activities.                                                                                                                                                                                                                                
|
| |  | The number, timing and significance of
	enhancements to our software products and the introduction of
	new software by our competitors and us may affect
	customer-purchasing decisions.                                                                                                                                                              



| |                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Contractual issues may arise during the
	negotiation process that may delay the anticipated closure of
	the transaction and our ability to recognize revenue as
	anticipated.

Because our solution is mission-critical to many
of our large customers, and because our important transactions
involve million-dollar licenses, the process of contractual
negotiation is becoming more protracted and critical. The
additional time needed to negotiate mutually acceptable terms
that culminate in an agreement to license our products could
extend the sale cycle.

Several factors may also require us to defer
recognition of license revenue for a significant period of time
after entering into a license agreement, including instances
where we are required to deliver either unspecified additional
products or specified upgrades for which we do not have
vendor-specific objective evidence of fair value. While we have
a standard software license agreement that provides for revenue
recognition provided that delivery has taken place,
collectibility from the customer is reasonably assured and
assuming no significant future obligations or customer
acceptance rights exist, customer negotiations and revisions to
these terms could impact our ability to recognize revenues at
the time of delivery.

In addition, slowdowns or variances from internal
expectations in our quarterly license contracting activities may
impact our service offerings and may result in lower revenues
from our customer training, consulting services and customer
support organizations. Our ability to maintain or increase
service revenues is highly dependent on our ability to increase
the number of license agreements we enter into with customers.

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| |                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------
| | Our costs are relatively fixed in the near
	term. Therefore, any shortfall in anticipated revenues will
	adversely affect our operating results.

Because our operating expenses are based on our
expectations for future revenues and are relatively fixed in the
short term, any revenue shortfall below expectations could have
an immediate and significant adverse effect on our consolidated
results of operations and financial condition.



| |                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Delays in the signing of one or more large
	license agreements or the loss of a significant customer order
	could have a material impact on our revenues and results of
	operations.

The contract value of individual license
agreements can vary significantly. Because a substantial portion
of our quarterly revenues is derived from a relatively small
number of customers, delays in the signing of one or more large
license agreements or the loss of a significant customer order
could have a material impact on our revenues and results of
operations.



| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | Lack of quarterly bookings linearity and
	seasonality make it difficult for us to predict operating
	results.

A significant portion of our license agreements
are completed within the last few weeks of each quarter as many
customers delay completion of a transaction until the end of a
quarter to extract more favorable terms. In addition, our sales
cycle is impacted by seasonal factors. Specifically, our
historical experience indicates that our sales process and
revenues are negatively impacted by the summer season in the
third quarter. Additionally, our consulting services are
negatively impacted in the fourth quarter due to the holiday
season.



| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | Our revenues will decline significantly if
	the market does not continue to accept our iManage suite of
	products.

We derive substantially all of our license and
associated service revenues from the WorkSite suite of products.
We currently expect to continue to derive a majority of our
revenues from these products. If the market does not continue to
accept our products, our revenues will decline significantly and
negatively affect our operating results. Factors that may affect
the market acceptance of these products include the performance,
price and total cost of ownership of our products and the
availability, functionality and price of competing products and
technologies. Many of these factors are beyond our control.



| |                                                                                      
| | -------------------------------------------------------------------------------------
| | Our limited operating history makes it
	difficult to evaluate business and prospects.

You must consider our business and prospects
given the risks, expenses and challenges we might encounter
because we are at an early stage of development in a new and
rapidly evolving market. We were founded in October 1995 and
began shipping our first software product in October 1996, and
our consulting services organization is new. Due to our limited
operating history, our future performance is not predictable and
may not meet analysts projections for revenues and other
operating results, thereby disappointing investors and resulting
in a significant decline in our stock price.



| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | If we do not maintain and expand our
	reseller network, we may not be able to grow our revenues and
	our operating results will suffer.

We derived 43%, 54% and 61% of our revenues from
resellers of our application suite for 2001, 2000 and 1999.
Therefore, our future success depends on our ability to attract,
retain, motivate and train resellers of our products.



| |                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Declining economic conditions and
	significant world events, such as September 11, 2001, have
	affected and could continue to negatively impact our revenues
	and profits.

Our revenue growth and profitability depend on
the overall demand for content and collaboration software
platforms and applications. The recession in the United States
and declining economic conditions worldwide have and may
continue to result in cutbacks by our customers in the purchase
of our software products and services, postponed or canceled
orders, longer sales cycles and lower average selling prices. To
the extent that

20



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the current downturn continues or increases in
severity, we believe demand for our products and services, and
therefore future revenues, could be further impacted.


Our financial results could also be significantly
impacted by world events. Specifically, our revenues for the
third quarter ended September 30, 2001 were negatively
impacted by delays in customer orders and lower sales cycles
resulting from terrorist attacks on the World Trade Center
buildings and the Pentagon. Our revenues and financial results
could be negatively impacted to the extent similar events occur.



| |                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our failure to develop and maintain strong
	relationships with consulting and system integrator firms and
	our customers would harm our ability to market our application
	suite, which could reduce future revenues and increase our
	expenses.

An increasing portion of our revenues is
influenced by the recommendation of our content and
collaboration software platform and applications by systems
integrators, consulting firms and other third parties that help
deploy our application suite for our customers. Losing the
support of these third parties may limit our ability to
penetrate our existing and potential markets. These third
parties are under no obligation to recommend or support our
application suite and could recommend or give higher priority to
the products and services of other companies or to their own
products. Our inability to gain the support of consulting and
systems integrator firms or a shift by these companies toward
favoring competing products could negatively affect our software
license and service revenues.

Some systems integrators also engage in joint
marketing and sales efforts with us. If our relationship with
these systems integrators fails, we will have to devote
substantially more resources to the sales and marketing of our
application suite. In many cases, these parties have extensive
relationships with our existing and potential customers and
influence the decisions of these customers. A number of our
competitors have longer and more established relationships with
these systems integrators than we do and, as a result, these
systems integrators may be more likely to recommend
competitors products and services and increase our
expenses.

We may also be unable to grow our revenues if we
do not successfully obtain leads and referrals from our
customers. If we are unable to maintain these existing customer
relationships or fail to establish additional relationships, we
will be required to devote substantially more resources to the
sales and marketing of our products. As a result, we are
dependent on the willingness of our customers to provide us with
introductions, referrals and leads. Our current customer
relationships do not afford us any exclusive marketing and
distribution rights. In addition, our customers may terminate
their relationship with us at any time, pursue relationships
with our competitors or develop or acquire products that compete
with our products. Even if our customers act as references and
provide us with leads and introductions, we may not penetrate
additional markets or grow our revenues.



| |                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our failure to develop and maintain strong
	relationships with consulting and system integrator firms would
	harm our ability to implement our application
	suite.

Consulting and system integrators assist our
customers with the installation and deployment of our
application suite, in addition to competitive products, and
perform integration of computer systems and software. If we are
unable to develop and maintain relationships with system
integrators, we would be required to hire additional personnel
to install and maintain our application suite, which would
result in delays in our ability to recognize revenue and higher
expense levels.



| |                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------
| | If the emerging market for content and
	collaboration software does not develop as quickly as we expect,
	our business will suffer.

The market for our content and collaboration
software platform and applications has only recently begun to
develop, is rapidly evolving and will likely have an increasing
number of competitors. We cannot be certain that a viable market
for our products will emerge or be sustainable. If the content
and collaboration software market fails to develop, or develops
more slowly than expected, demand for our products will be less
than anticipated and our business and operating results would be
seriously harmed.

21



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Furthermore, to be successful in this emerging
market, we must be able to differentiate our business from our
competitors through our product and service offerings and brand
name recognition. We may not be successful in differentiating
our business or achieving widespread market acceptance of our
products and services. In addition, enterprises that have
already invested substantial resources in other methods of
managing their content and collaborative process may be
reluctant or slow to adopt a new approach that may replace,
limit or compete with their existing systems.



| |                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Competition from providers of software
	enabling content and collaboration management among businesses
	may increase, which could cause us to reduce our prices and
	result in reduced gross margins or loss of market
	share.

The market for products that enable companies to
manage and share content and collaborate throughout an extended
enterprise is new, highly fragmented, rapidly changing and
increasingly competitive. We expect competition to continue to
intensify, which could result in price reductions for our
products, reduced gross margins and loss of market share, any of
which would have a material adverse effect on our business and
financial condition. Our current competitors include:



| |   |                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | companies addressing segments of our market
	including Documentum, Inc., Stellent, Inc.,
	eRoom Technology, Inc., Hummingbird Ltd., FileNet
	Corporation, Introspect Software, Inc., Open Text Corporation
	and Microsoft Corporation;
|
| |  | Web content management companies such as
	Interwoven, Inc. and Vignette Corporation;                                                                                                                                                  
|
| |  | enterprise Web portal companies;                                                                                                                                                                                                      
|
| |  | intranet and groupware companies such as IBM,
	Microsoft Corporation, BroadVision, Inc. and Novell, Inc.; and                                                                                                                         
|
| |  | in-house development efforts by our customers and
	partners.                                                                                                                                                                          

When compared to us, many of these competitors
have longer operating histories, greater name recognition,
larger customer bases and significantly greater financial
resources. This may place us at a disadvantage in responding to
our competitors strategies, technological advances,
advertising campaigns, strategic partnerships and other
initiatives. Competitive pressures and our perceived viability
in this market may make it difficult for us to acquire and
retain customers, which could reduce our revenues and result in
increased operating losses.



| |                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our efforts to enhance existing products
	and introduce new products in a timely manner are not
	successful, we may not be able to generate demand for our
	products.

Our future success depends on our ability to
provide a comprehensive content and collaboration software
solution. To provide this comprehensive solution, we must
continually develop and introduce high quality, cost-effective
products as well as product enhancements on a timely basis. If
the market does not accept our new products, our business will
suffer and our stock price will likely fall.

Our WorkSite server for Windows-based operating
environments, and our compatible applications for this server,
became commercially available in June 2001. In addition, the
Java-based iManage WorkSite Server MP that supports Windows,
Solaris and Linux operating environments, and a compatible
version of the iManage WorkSite Web application, became
commercially available in early 2002. Enhanced features and
functionality are expected to be developed, but delays in
introducing these enhancements would have a material adverse
effect on our business and financial condition.

In the past, we have experienced delays in the
commencement of commercial shipments of enhancements to our
application suite. To date, these delays have not had a material
impact on our revenues. If we are unable to ship or implement
new products or enhancements to our application suite when
planned or at all, or fail to achieve timely market acceptance
of these new products or enhancements, we may suffer lost
revenues. Our future operating results will depend on demand for
our application suite, including new and enhanced releases that
are subsequently introduced.

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| |                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our products cannot scale to meet the
	demands of tens of thousands of concurrent users, our targeted
	customers may not license our solutions, which will cause our
	revenue to decline.

Our strategy is to target large organizations
that require our e-business content and collaboration software
solution because of the significant amounts of information and
content that they generate and use. For this strategy to succeed
our software products must be highly scalable and accommodate
tens of thousands of concurrent users. If our products cannot
scale to accommodate a large number of concurrent users, our
target markets will not accept our products and our business and
operating results will suffer.

While we have tested the scalability of our
products in simulations, we have not observed the performance of
our products in the context of a large-scale customer
implementation. If our customers cannot successfully implement
large-scale deployments, or if they determine that our products
cannot accommodate large-scale deployments, our customers will
not license our solutions and this will materially adversely
affect our financial condition and operating results.



| |                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our product does not operate with a wide
	variety of hardware, software and operating systems used by our
	customers, our revenues would be harmed.

We currently serve a customer base that uses a
wide variety of constantly changing hardware, software
applications and operating systems. For example, we have
designed our products to work with databases and servers
developed by Microsoft Corporation, Oracle Corporation and IBM
and software applications including Microsoft Office,
WordPerfect, Lotus Notes and Novell GroupWise. We must
continually modify and enhance our software products to keep
pace with changes in computer hardware and software and database
technology, as well as emerging technical standards in the
software industry. We further believe that our application suite
will gain broad market acceptance only if it can support a wide
variety of hardware, software applications and systems. If our
product is unable to support a variety of these products, our
revenues would be harmed. Additionally, customers could delay
purchases of our application suite until they determine how our
products will operate with these updated platforms or
applications.

Currently, our iManage WorkSite products support
Windows, Solaris and Linux operating environments. If other
platforms become more widely used, we could be required to
convert our server application products to those platforms. We
may not succeed in these efforts, and even if we do, potential
customers may not choose to license our product.



| |                                                                          
| | -------------------------------------------------------------------------
| | Defects in our software products could
	diminish demand for our products.

Our software products are complex and may contain
errors that may be detected at any point in the life cycle of
the product. We cannot assure you that, despite testing by us,
our implementation partners and our current and potential
customers, errors will not be found in our products or releases
after commencement of commercial shipment, resulting in loss of
revenues, delay in market acceptance and sales, product returns,
diversion of development resources, injury to our reputation or
increased service and warranty costs.

Errors in our application suite may be caused by
defects in third-party software incorporated into our
application suite. If so, we may not be able to fix these
defects without the cooperation of these software providers.
Since these defects may not be as significant to our software
providers as they are to us, we may not receive the rapid
cooperation that we may require. We may not have the contractual
right to access the source code of third-party software and,
even if we access the source code, we may not be able to fix the
defect.

Since our customers use our application suite for
critical business applications, any errors, defects or other
performance problems of our application suite could result in
damage to the businesses of our customers. Consequently, these
customers could delay or withhold payment to us for our software
and services, which could result in an increase in our provision
for doubtful accounts or an increase in collection cycles for
accounts receivable, both of which could disappoint investors
and result in a significant decline in our stock price. In
addition, these customers could seek significant compensation
from us for their losses. Even if unsuccessful, a product
liability claim brought against us would likely be time
consuming and costly and harm

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our reputation, and thus our ability to license
new customers. Even if a suit is not brought, correcting errors
in our application suite could increase our expenses.




| |                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to respond to rapid market
	changes due to changing technology and evolving industry
	standards, our future success will be adversely
	affected.

The market for our products is characterized by
rapidly changing technology, evolving industry standards 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
technology, and respond to technological advances and emerging
industry standards and practices on a timely and cost-effective
basis. You should be aware that (1) our technology or
systems may become obsolete upon the introduction of alternative
technologies, such as products that better manage various types
of content and enable collaboration; and (2) we may not
have sufficient resources to develop or acquire new technologies
or to introduce new products or services capable of competing
with future technologies or service offerings.



| |                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------
| | Our products may lack essential
	functionality if we are unable to obtain and maintain licenses
	to third-party software and applications.

We rely on software that we license from third
parties, including software that is integrated with our
internally developed software and used in our products to
perform key functions. For example, we license Application
Builder from Autonomy, Inc., Search 97® from Verity,
Inc. and Outside In Viewer Technology® and Outside In HTML
Export® from Stellent, Inc. The functionality of our
product suite, therefore, depends on our ability to integrate
these third-party technologies into our products. Furthermore,
we may license additional software from third parties in the
future to add functionality to our products. If our efforts to
integrate this third-party software into our products are not
successful, our customers may not license our products and our
business will suffer.

In addition, we would be seriously harmed if the
providers from whom we license software ceased to deliver and
support reliable products, enhance their current products or
respond to emerging industry standards. Moreover, the
third-party software may not continue to be available to us on
commercially reasonable terms or at all. Our license agreements
with Autonomy, Inc., Verity, Inc. and Stellent, Inc. expire in
December 2004, January 2003 and March 2005, respectively. Each
of these license agreements may be renewed only with the other
partys written consent. The loss of, or inability to
maintain or obtain licensed software, could result in shipment
delays or reductions. Furthermore, we may be forced to limit the
features available in our current or future product offerings.
Either alternative could seriously harm our business and
operating results.



| |                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------
| | We may not successfully enter international
	markets or generate significant revenues abroad, which could
	harm our business.

We have established sales offices in the United
Kingdom, Germany and France. If we fail to successfully license
our application suite in international markets, our business
could be harmed. We anticipate devoting significant resources
and management attention to expanding international
opportunities. Expanding internationally subjects us to a number
of risks, including:



| |   |                                                                                         
| | - | ----------------------------------------------------------------------------------------
| |  | greater difficulty in staffing and managing
	foreign operations;                        
|
| |  | expenses associated with foreign operations and
	compliance with applicable laws;       
|
| |  | changes in a specific countrys or
	regions political or economic conditions;          
|
| |  | expenses associated with localizing our product
	for foreign countries;                 
|
| |  | differing intellectual property rights;                                                 
|
| |  | protectionist laws and business practices that
	favor local competitors;                
|
| |  | longer sales cycles and collection periods or
	seasonal reductions in business activity;

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| |   |                                                                           
| | - | --------------------------------------------------------------------------
| |  | multiple, conflicting and changing governmental
	laws and regulations; and
|
| |  | foreign currency restrictions and exchange rate
	fluctuations.            



| |                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are the target of several securities
	class action complaints and other litigation, which could result
	in substantial costs and divert management attention and
	resources.

During 2001, several securities class action
complaints were filed against us, the underwriters of our
initial public offering, our directors and certain of our
officers in the United States District Court for the Southern
District of New York. The complaint alleges that the
underwriters entered into certain arrangements with investors in
connection with our initial public offering, and that these
alleged arrangements should have been and were not disclosed in
our registration statement and prospectus. The complaints seek
unspecified monetary damages and attorneys fees and other costs.
All of these cases have been consolidated for pretrial purposes.
We believe that we have meritorious defenses against the
lawsuits and intend to defend ourselves vigorously.

In the past, other types of securities class
action litigation have been brought against companies following
a decline in the market price of their securities. This risk is
especially acute for us because technology companies have
experienced greater than average stock price volatility in
recent years and, as a result, technology companies have been
subject to a greater number of securities class action claims
than companies in other industries. We may be the target of
additional securities class action litigation in the future.
Securities litigation could result in substantial costs and
divert managements attention and resources, which could
harm our business.

In addition, we are involved in other litigation
in the ordinary course of business. Because of the uncertainty
related to both the amount and range of loss related to this
matter, our management is unable to make reasonable estimates of
the liability that could result from an unfavorable outcome in
this action. An unfavorable outcome could materially impact our
consolidated results of operations and financial position.



| |                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to protect our
	intellectual property or become subject to intellectual property
	infringement claims, we may lose a valuable asset or incur
	costly and time-consuming litigation.

Our success depends in part on the development
and protection of the proprietary aspects of our technology as
well as our ability to operate without infringing on the
proprietary rights of others. To protect our proprietary
technology, we rely primarily on a combination of trade secret,
copyright, trademark and patent laws, as well as confidentiality
procedures and contractual restrictions.

To date, we have only one issued patent. We
presently have additional United States and foreign patent
applications pending. It is possible that some or all of the
patents that we have applied for will not be issued, and even if
issued, that some or all may be successfully defended. It is
also possible that we may not develop proprietary products or
technologies that are patentable, that any patent issued to us
may not provide us with any competitive advantages or that the
patents of others will harm our ability to do business.

Despite our efforts to protect our proprietary
rights and technology, unauthorized parties may attempt to copy
aspects of our products or obtain the source code to our
software or use other information that we regard as proprietary
or could develop software competitive to ours. Our means of
protecting our proprietary rights may not be adequate, and our
competitors may independently develop similar technology or
duplicate our product. Litigation may be necessary in the future
to enforce our intellectual property rights, to protect our
trade secrets, to determine the validity and scope of the
proprietary rights of others or to defend against claims of
infringement or invalidity. Any such resulting litigation could
result in substantial costs and diversion of resources that
could have a material adverse effect on our business, operating
results and financial condition.

It is possible that in the future, a third party
may bring suit claiming that we or our current or future
products infringe their patents, trade secrets or copyrights.
Any claims, with or without merit, could be costly and
time-consuming to defend, divert our managements attention
or cause product delays. We have only one patent that we could
use defensively against any company bringing such a claim. If
our product was found to infringe a third partys
proprietary rights, we could be required to enter into royalty
or licensing agreements to

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be able to sell our product. Royalty and
licensing agreements, if required, may not be available on terms
acceptable to us, if at all, which could harm our business.




| |                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------
| | We may be unable to retain our current key
	personnel and attract additional qualified personnel to operate
	and expand our business.

Our success depends largely on the skills,
experience and performance of the members of our senior
management and other key personnel, such as Mahmood M. Panjwani,
our President and Chief Executive Officer, Rafiq R. Mohammadi,
our Chief Technology Officer, and Joseph S. Campbell, our Chief
Operating Officer. We may not be successful in attracting or
retaining qualified personnel in the future. None of our senior
management or other key personnel is bound by an employment
agreement. If we lose one or more of these key employees, our
business and operating results could be seriously harmed. In
addition, our future success will depend largely on our ability
to continue attracting and retaining highly skilled personnel.
Like other high technology companies, we face intense
competition for qualified personnel.



| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | Our revenues will not increase if we fail
	to successfully manage our growth and expansion.

Our historical growth has placed, and is likely
to continue to place, a significant strain on our limited
resources. To be successful, we will need to implement
additional management information systems, improve our
operating, administrative, financial and accounting systems and
controls, train new employees and maintain close coordination
among our executive, research and development, accounting,
finance, marketing, sales and operations organizations. Any
failure to manage growth effectively could seriously harm our
business and operating results.



| |                                                                                                   
| | --------------------------------------------------------------------------------------------------
| | We may be unable to meet our future capital
	requirements, which would limit our ability to
	grow.

We may need to seek additional funding in the
future. We do not know if we will be able to obtain additional
financing on favorable terms, if at all. In addition, if we
issue equity securities, stockholders may experience additional
dilution or the new equity securities may have rights,
preferences or privileges senior to those of existing holders of
our common stock. If we cannot raise funds on acceptable terms,
if and when needed, we may not be able to develop or enhance our
products, take advantage of future opportunities or respond to
competitive pressures or unanticipated requirements, which could
seriously harm our business.



| |                       
| | ----------------------
| | Intangible asset risk.

We have approximately $3.4 million in
goodwill, $849,000 of intangible assets and $760,000 of prepaid
license royalties to third parties. At December 31, 2001, we
believe our goodwill, intangible assets and prepaid license
royalties are recoverable. However, changes in the economy, the
business in which we operate and our own relative performance
could change the assumptions used to evaluate the recoverability
of these assets. We must continue to monitor those assumptions
and their effect on the estimated recoverability of our
intangible assets.



| |                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------
| | There may be sales of a substantial amount
	of our common stock in the near future that could cause our
	stock price to fall.

Some of our current stockholders hold a
substantial number of shares, which they are able to sell in the
public market, subject to restrictions under the securities laws
and regulations. Sales of a substantial number of shares of our
common stock within a short period of time could cause our stock
price to fall. In addition, the sale of these shares could
impair our ability to raise capital through the sale of
additional stock.

Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards
Board (FASB) issued SFAS No. 141, Business
Combinations. SFAS No. 141 requires the purchase method
of accounting for business combinations initiated after
June 30, 2001 and eliminates the pooling-of-interests
method. We believe that the adoption of SFAS No. 141 will
not have a significant impact on our consolidated financial
statements.

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##### Table of Contents



In July 2001, the FASB issued SFAS No. 142,
Goodwill and Other Intangible Assets, which is effective
for years beginning after December 15, 2001. SFAS
No. 142 requires, among other things, the discontinuance of
goodwill amortization. In addition, the standard includes
provisions upon adoption for the reclassification of certain
existing recognized intangible assets as goodwill, reassessment
of the useful lives of existing recognized intangible assets,
reclassification of certain intangible assets out of previously
reported goodwill and the testing for impairment of existing
goodwill and other intangibles. Upon adoption of SFAS 142, we
will cease to amortize $3.4 million of goodwill. We had
recorded approximately $7.1 million of amortization on
these amounts during 2001 and would have recorded
$3.4 million of amortization during 2002. In addition, we
will be required to perform an impairment review of our goodwill
balance upon the initial adoption of SFAS No. 142. The
impairment review will involve a two-step process as follows:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Step 1  We will compare the fair value
	of our reporting units to the carrying value, including goodwill
	of each of those units. For each reporting unit where the
	carrying value, including goodwill, exceeds the units fair
	value, we will move on to step 2. If a units fair value
	exceeds the carrying value, no further work is performed and no
	impairment charge is necessary.                                                                                                                                                                   
|
| |  | Step 2  We will perform an allocation
	of the fair value of the reporting unit to its identifiable
	tangible and non-goodwill intangible assets and liabilities.
	This will derive an implied fair value for the reporting
	units goodwill. We will then compare the implied fair
	value of the reporting units goodwill with the carrying
	amount of the reporting units goodwill. If the carrying
	amount of the reporting units goodwill is greater than the
	implied fair value of its goodwill, an impairment loss must be
	recognized for the excess.

We expect to complete this review during the
first quarter of 2002. At December 31, 2001, we had one
reporting unit for the entire company. We do not expect to
record an impairment charge upon completion of the initial
review. However, there can be no assurance that at the time the
review is completed a material impairment charge may not be
recorded.

In October 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS No. 144 addresses significant
issues relating to the implementation of SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, and develops a single
accounting method under which long-lived assets that are to be
disposed of by sale are measured at the lower of book value or
fair value less cost to sell. Additionally, SFAS No. 144
expands the scope of discontinued operations to include all
components of an entity with operations that (1) can be
distinguished from the rest of the entity and (2) will be
eliminated from the ongoing operations of the entity in a
disposal transaction. SFAS No. 144 is effective for
financial statements issued for years beginning after
December 15, 2001 and its provisions are to be applied
prospectively. We are currently assessing the impact of SFAS
No. 144 on our consolidated financial position and results
of operations.

In May 2000, the Emerging Issues Task Force
(EITF) issued EITF Issue No. 00-14,
Accounting for Certain Sales Incentives.EITF Issue
No. 00-14 addresses the recognition, measurement, and
income statement classification for sales incentives that a
vendor voluntarily offers to customers (without charge), which
the customer can use in, or exercise as a result of, a single
exchange transaction. Sales incentives that fall within the
scope of EITF Issue No. 00-14 include offers that a
customer can use to receive a reduction in the price of a
product or service at the point of sale. The EITF agreed to
change the transition date for Issue 00-14, dictating that
a company should apply this consensus no later than the
companys annual or interim financial statements for the
periods beginning after December 15, 2001. In June 2001,
the EITF issued EITF Issue No. 00-25, Vendor Income
Statement Characterization of Consideration Paid to a Reseller
of the Vendors Products,effective for periods
beginning after December 15, 2001. EITF Issue
No. 00-25 addresses whether consideration from a vendor to
a reseller is (a) an adjustment of the selling prices of
the vendors products and, therefore, should be deducted
from revenue when recognized in the vendors statement of
operations or (b) a cost incurred by the vendor for assets
or services received from the reseller and, therefore, should be
included as a cost or expense when recognized in the
vendors statement of operations. Upon application,
financial statements for prior periods presented for comparative
purposes should be reclassified to comply with the income
statement display requirements under these issues. In September
2001, the EITF

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##### Table of Contents



issued EITF Issue No. 01-09, Accounting
for Consideration Given by Vendor to a Customer or a Reseller of
the Vendors Products, which is a codification of EITF
Issues No. 00-14, No. 00-25 and No. 00-22
Accounting for Points and Certain Other Time- or
Volume-Based Sales Incentive Offers and Offers for Free Products
or Services to be Delivered in the Future. We are currently
assessing the impact of the adoption of these issues on our
consolidated financial statements.







|         |                                                            
|-------- | -----------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
	About Market Risk

Our investment portfolio consisted of fixed
income securities of $39.8 million as of December 31, 2001
and $41.3 million as of December 31, 2000. These
investment securities are subject to interest rate risk and will
decline in value if market interest rates increase. If market
interest rates were to increase immediately and uniformly by 10%
from levels as of December 31, 2001 and December 31,
2000, the decline in the fair value of the portfolio would not
be material. Additionally, we have the ability to hold our fixed
income investments until maturity and, therefore, we would not
expect to recognize an adverse impact on income or cash flows. A
summary of our portfolio investments is included in Note 4 to
the financial statements.

Quantitative and qualitative disclosure about
market risk is set forth in Managements Discussion
and Analysis of Financial Condition and Results of
Operations under Item 7.






|        |                                             
|------- | --------------------------------------------
|Item 8. | Financial Statements and Supplementary
	Data

Quarterly Financial Information
(Unaudited)

|                                                                      |  |                                          |        |               |  |          |        |           |  |   |        |   |  |   |        |  
|--------------------------------------------------------------------- |  | ---------------------------------------- | ------ | ------------- |  | -------- | ------ | --------- |  | - | ------ | - |  | - | ------ | -
|                                                                      |  |                                         
|                                                                      |  | Three Months Ended                      
|                                                                      |  |                                         
|                                                                      |  | December 31,                             |        | September 30, |  | June 30, |        | March 31,
|                                                                      |  | 2001                                     |        | 2001          |  | 2001     |        | 2001     
|                                                                      |  |                                          |        |               |  |          |        |          
|                                                                      |  |                                         
|                                                                      |  | (In thousands, except per share amounts)
|Total revenues                                                        |  | $                                        | 11,265 |               |  | $        | 9,113  |           |  | $ | 9,822  |   |  | $ | 8,662  |  
|Gross profit                                                          |  |                                          | 9,438  |               |  |          | 7,271  |           |  |   | 7,984  |   |  |   | 7,036  |  
|Total operating expenses                                              |  |                                          | 12,365 |               |  |          | 14,637 |           |  |   | 13,574 |   |  |   | 12,463 |  
|Loss from operations                                                  |  |                                          | (2,927 | )             |  |          | (7,366 | )         |  |   | (5,590 | ) |  |   | (5,427 | )
|Net loss                                                              |  |                                          | (2,614 | )             |  |          | (6,950 | )         |  |   | (5,178 | ) |  |   | (5,008 | )
|Basic and diluted net loss per common share                           |  |                                          | (0.11  | )             |  |          | (0.30  | )         |  |   | (0.22  | ) |  |   | (0.22  | )
|Shares used in computing basic and diluted net
	loss per common share |  |                                          | 23,538 |               |  |          | 23,412 |           |  |   | 23,263 |   |  |   | 23,071 |  

|                                                                      |  |                                          |        |               |  |          |        |           |  |   |        |   |  |   |        |  
|--------------------------------------------------------------------- |  | ---------------------------------------- | ------ | ------------- |  | -------- | ------ | --------- |  | - | ------ | - |  | - | ------ | -
|                                                                      |  |                                         
|                                                                      |  | Three Months Ended                      
|                                                                      |  |                                         
|                                                                      |  | December 31,                             |        | September 30, |  | June 30, |        | March 31,
|                                                                      |  | 2000                                     |        | 2000          |  | 2000     |        | 2000     
|                                                                      |  |                                          |        |               |  |          |        |          
|                                                                      |  |                                         
|                                                                      |  | (In thousands, except per share amounts)
|Total revenues                                                        |  | $                                        | 8,014  |               |  | $        | 6,373  |           |  | $ | 8,439  |   |  | $ | 7,182  |  
|Gross profit                                                          |  |                                          | 6,384  |               |  |          | 4,820  |           |  |   | 6,944  |   |  |   | 5,854  |  
|Total operating expenses                                              |  |                                          | 11,481 |               |  |          | 9,799  |           |  |   | 7,718  |   |  |   | 6,615  |  
|Loss from operations                                                  |  |                                          | (5,097 | )             |  |          | (4,979 | )         |  |   | (774   | ) |  |   | (761   | )
|Net loss                                                              |  |                                          | (4,556 | )             |  |          | (4,433 | )         |  |   | (77    | ) |  |   | (48    | )
|Basic and diluted net loss per common share                           |  |                                          | (0.20  | )             |  |          | (0.19  | )         |  |   | (0.00  | ) |  |   | (0.00  | )
|Shares used in computing basic and diluted net
	loss per common share |  |                                          | 22,914 |               |  |          | 22,764 |           |  |   | 21,550 |   |  |   | 21,289 |  

We believe that period-to-period comparisons of
our consolidated financial results should not be relied upon as
an indication of future performance. The operating results of
many software companies reflect seasonal trends, and our
business, financial condition and results of operations may be
affected by such trends in the future. These trends may include
higher revenues in the fourth quarter as many customers complete
annual budgetary cycles and lower revenues in the summer months
when many businesses experience lower

28



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##### Table of Contents



sales, particularly in the European market. Also,
for example, in the third quarter of 2001, our operating
expenses increased $1.1 million from the prior quarter
primarily due to the $1.2 million restructuring charge.


The consolidated financial statements required by
this item are submitted as a separate section of this Annual
Report on Form 10-K. See Item 14.






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

None.




PART III

Certain information required by Part III is
omitted from this Annual Report on Form 10-K since we will
file a definitive Proxy Statement for our Annual Meeting of
Stockholders to be held on June 13, 2002, pursuant to
Regulation 14A of the Securities Exchange Act of 1934, as
amended (the Proxy Statement), not later than
120 days after the end of the year covered by this Annual
Report, and certain information included in the Proxy Statement
is incorporated herein by reference.






|         |                                                    
|-------- | ---------------------------------------------------
|Item 10. | Directors and Executive Officers of the
	Registrant

The information required by this Item is
incorporated by reference to the section entitled
Executive Compensation and Other Matter in our
definitive Proxy Statement.






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

The information required by this Item is
incorporated by reference to the section entitled Proposal
Number One Election of Directors  Directors and
Officers and Executive Compensation and Other
Matters  Section 16(a) Beneficial Ownership
Reporting Compliance in our definitive Proxy Statement.






|         |                                                                
|-------- | ---------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
	Owners and Management

The information required by this Item is
incorporated by reference to the section entitled Security
Ownership of Certain Beneficial Owners and Management in
the Proxy Statement.






|         |                                                
|-------- | -----------------------------------------------
|Item 13. | Certain Relationships and Related
	Transactions

The information required by this Item is
incorporated by reference to the section entitled Certain
Transactions in the Proxy Statement.




PART IV




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

(a) The following documents are filed as
part of this Annual Report:

1. Consolidated Financial Statements:



| |                                   
| | ----------------------------------
| | Independent Accountants Report   
|
| | Consolidated Financial Statements:



| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | Consolidated Balance Sheets at December 31,
	2001 and 2000                                                  
|
| | Consolidated Statements of Operations for the
	years ended December 31, 2001, 2000 and 1999                 
|
| | Consolidated Statements of Stockholders
	Equity and Comprehensive loss at December 31, 2001, 2000
	and 1999
|
| | Consolidated Statements of Cash Flows for the
	years ended December 31, 2001, 2000 and 1999                 

Notes to Consolidated Financial Statements

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##### Table of Contents



2. Financial Statement Schedule:

SCHEDULE II  VALUATION AND
QUALIFYING ACCOUNTS

|                                  |                              |                |   |            |  |            |   |            |  |  |   |     |  |  |   |       | 
|--------------------------------- | ---------------------------- | -------------- | - | ---------- |  | ---------- | - | ---------- |  |  | - | --- |  |  | - | ----- | 
|                                  |                              | Balance at     |   | Additions  |  |            |   | Balance at
|                                  |                              | Beginning      |   | Charged to |  |            |   | End of    
|Description                       |                              | of Period      |   | Expenses   |  | Write-offs |   | Period    
|                                  |                              |                |   |            |  |            |   |           
|                                  |                              |               
|                                  |                              | (In thousands)
|Allowance for doubtful accounts:  |                              |                |   |            |  |            |   |            |  |  |   |     |  |  |   |      
|                                  | Year ended December 31, 2001 |                | $ | 248        |  |            | $ | 91         |  |  | $ | 62  |  |  | $ | 277   | 
|                                  | Year ended December 31, 2000 |                | $ | 135        |  |            | $ | 164        |  |  | $ | 51  |  |  | $ | 248   | 
|                                  | Year ended December 31, 1999 |                | $ | 175        |  |            | $ | 40         |  |  | $ | 80  |  |  | $ | 135   | 
|Allowance for sales returns:      |                              |                |   |            |  |            |   |            |  |  |   |     |  |  |   |      
|                                  | Year ended December 31, 2001 |                | $ | 134        |  |            | $ | 483        |  |  | $ | 475 |  |  | $ | 142   | 
|                                  | Year ended December 31, 2000 |                | $ | 77         |  |            | $ | 100        |  |  | $ | 43  |  |  | $ | 134   | 
|                                  | Year ended December 31, 1999 |                | $ | 75         |  |            | $ | 2          |  |  | $ |    |  |  | $ | 77    | 
|Deferred tax valuation allowance: |                              |                |   |            |  |            |   |            |  |  |   |     |  |  |   |      
|                                  | Year ended December 31, 2001 |                | $ | 3,403      |  |            | $ | 5,249      |  |  | $ |    |  |  | $ | 8,652 | 
|                                  | Year ended December 31, 2000 |                | $ | 2,237      |  |            | $ | 1,166      |  |  | $ |    |  |  | $ | 3,403 | 
|                                  | Year ended December 31, 1999 |                | $ | 1,742      |  |            | $ | 495        |  |  | $ |    |  |  | $ | 2,237 | 

3. Exhibits

See Index to Exhibits hereof. The exhibits listed
in the accompanying Index to Exhibits are filed as part of this
Annual Report.

(b) Reports on Form 8-K

No reports on Form 8-K were filed during the
fourth quarter ended December 31, 2001.

30



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##### Table of Contents



INDEPENDENT ACCOUNTANTS REPORT

To the Board of Directors and Stockholders

of iManage, Inc.


In our opinion, the consolidated financial
statements listed in the index appearing under
Item 14(a)(1) on page 29 present fairly, in all material
respects, the financial position of iManage, Inc. and its
subsidiaries at December 31, 2001 and 2000, and the results
of their operations and their cash flows for each of the three
years in the period ended December 31, 2001 in conformity
with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial
statement schedule listed in the index appearing under
Item 14(a)(2) on page 29 presents fairly, in all material
respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
These consolidated financial statements and financial statement
schedule are the responsibility of the Companys
management; our responsibility is to express an opinion on these
consolidated financial statements and financial statement
schedule based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally
accepted in the United States of America, which require that we
plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
consolidated financial statements, assessing the accounting
principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the
opinion expressed above.



| |                           
| | --------------------------
| | PRICEWATERHOUSECOOPERS LLP

San Jose, California

January 18, 2002


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iMANAGE, INC.

CONSOLIDATED BALANCE SHEETS

|                                           |                                                                                                                                                                                                |                                            |       |         |        |  |        |         |        | 
|------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----- | ------- | ------ |  | ------ | ------- | ------ | 
|                                           |                                                                                                                                                                                                |                                           
|                                           |                                                                                                                                                                                                | December 31,                              
|                                           |                                                                                                                                                                                                |                                           
|                                           |                                                                                                                                                                                                | 2001                                       |       | 2000   
|                                           |                                                                                                                                                                                                |                                            |       |        
|                                           |                                                                                                                                                                                                |                                           
|                                           |                                                                                                                                                                                                | (In thousands, except                     
|                                           |                                                                                                                                                                                                | per share data)                           
|ASSETS                                    
|Current assets:                            |                                                                                                                                                                                                |                                            |       |         |        |  |        |        
|                                           | Cash and cash equivalents                                                                                                                                                                      |                                            | $     | 16,780  |        |  | $      | 24,056  |       
|                                           | Short-term investments                                                                                                                                                                         |                                            |       | 16,827  |        |  |        | 11,640  |       
|                                           | Accounts receivable, net of allowance for
	doubtful accounts of $277 and $248 in 2001 and 2000, respectively                                                                                   |                                            |       | 9,577   |        |  |        | 10,655  |       
|                                           | Prepaid expenses and other current assets                                                                                                                                                      |                                            |       | 2,279   |        |  |        | 2,041   |       
|                                           |                                                                                                                                                                                                |                                            |       |         |        |  |        |        
|                                           |                                                                                                                                                                                                | Total current assets                       |       |         | 45,463 |  |        |         | 48,392 | 
|Long-term investments                      |                                                                                                                                                                                                |                                            | 7,166 |         |        |  | 6,090  |        
|Property and equipment, net                |                                                                                                                                                                                                |                                            | 2,423 |         |        |  | 3,568  |        
|Goodwill and other intangible assets, net  |                                                                                                                                                                                                |                                            | 4,240 |         |        |  | 12,509 |        
|Other assets                               |                                                                                                                                                                                                |                                            | 1,566 |         |        |  | 2,788  |        
|                                           |                                                                                                                                                                                                |                                            |       |         |        |  |        |        
|                                           |                                                                                                                                                                                                | Total assets                               |       | $       | 60,858 |  |        | $       | 73,347 | 
|                                           |                                                                                                                                                                                                |                                            |       |         |        |  |        |        
|LIABILITIES AND STOCKHOLDERS
	EQUITY     
|Current liabilities:                       |                                                                                                                                                                                                |                                            |       |         |        |  |        |        
|                                           | Bank lines of credit, current portion                                                                                                                                                          |                                            | $     | 4,288   |        |  | $      | 4,083   |       
|                                           | Accounts payable                                                                                                                                                                               |                                            |       | 2,421   |        |  |        | 279     |       
|                                           | Accrued liabilities                                                                                                                                                                            |                                            |       | 5,043   |        |  |        | 4,001   |       
|                                           | Deferred revenues                                                                                                                                                                              |                                            |       | 10,731  |        |  |        | 8,902   |       
|                                           |                                                                                                                                                                                                |                                            |       |         |        |  |        |        
|                                           |                                                                                                                                                                                                | Total current liabilities                  |       |         | 22,483 |  |        |         | 17,265 | 
|Bank lines of credit, less current portion |                                                                                                                                                                                                |                                            | 1,412 |         |        |  | 2,345  |        
|                                           |                                                                                                                                                                                                |                                            |       |         |        |  |        |        
|                                           |                                                                                                                                                                                                | Total liabilities                          |       |         | 23,895 |  |        |         | 19,610 | 
|                                           |                                                                                                                                                                                                |                                            |       |         |        |  |        |        
|Commitments                                |                                                                                                                                                                                                |                                            |       |         |        |  |        |        
|Stockholders equity:                      |                                                                                                                                                                                                |                                            |       |         |        |  |        |        
|                                           | Common stock, $0.001 par value, 100,000 shares
	authorized at December 31, 2001 and 2000; 23,607 shares and
	23,165 shares issued and outstanding at December 31, 2001
	and 2000, respectively |                                            |       | 24      |        |  |        | 23      |       
|                                           | Additional paid-in capital                                                                                                                                                                     |                                            |       | 76,619  |        |  |        | 74,542  |       
|                                           | Deferred stock-based compensation                                                                                                                                                              |                                            |       | (555    | )      |  |        | (1,285  | )     
|                                           | Notes receivable for common stock                                                                                                                                                              |                                            |       | (430    | )      |  |        | (490    | )     
|                                           | Accumulated comprehensive income                                                                                                                                                               |                                            |       | 136     |        |  |        | 28      |       
|                                           | Accumulated deficit                                                                                                                                                                            |                                            |       | (38,831 | )      |  |        | (19,081 | )     
|                                           |                                                                                                                                                                                                |                                            |       |         |        |  |        |        
|                                           |                                                                                                                                                                                                | Total stockholders equity                 |       |         | 36,963 |  |        |         | 53,737 | 
|                                           |                                                                                                                                                                                                |                                            |       |         |        |  |        |        
|                                           |                                                                                                                                                                                                | Total liabilities and stockholders equity |       | $       | 60,858 |  |        | $       | 73,347 | 
|                                           |                                                                                                                                                                                                |                                            |       |         |        |  |        |        

See accompanying notes to consolidated financial
statements.

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iMANAGE, INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                      |                                   |                                        |        |        |         |      |        |        |         |   |       |        |        |  
|--------------------------------------------------------------------- | --------------------------------- | -------------------------------------- | ------ | ------ | ------- | ---- | ------ | ------ | ------- | - | ----- | ------ | ------ | -
|                                                                      |                                   |                                       
|                                                                      |                                   | Years Ended December 31,              
|                                                                      |                                   |                                       
|                                                                      |                                   | 2001                                   |        | 2000   |         | 1999
|                                                                      |                                   |                                        |        |        |         |     
|                                                                      |                                   |                                       
|                                                                      |                                   | (In thousands, except per share data) 
|Revenues:                                                             |                                   |                                        |        |        |         |      |        |        |         |   |       |       
|                                                                      | License                           |                                        | $      | 24,545 |         |      | $      | 20,213 |         |   | $     | 14,257 |       
|                                                                      | Support and service               |                                        |        | 14,317 |         |      |        | 9,795  |         |   |       | 4,313  |       
|                                                                      |                                   |                                        |        |        |         |      |        |        |         |   |       |       
|                                                                      |                                   | Total revenues                         |        |        | 38,862  |      |        |        | 30,008  |   |       |        | 18,570 |  
|                                                                      |                                   |                                        |        |        |         |      |        |        |         |   |       |       
|Cost of revenues:                                                     |                                   |                                        |        |        |         |      |        |        |         |   |       |       
|                                                                      | License                           |                                        |        | 1,376  |         |      |        | 1,165  |         |   |       | 773    |       
|                                                                      | Support and service               |                                        |        | 5,757  |         |      |        | 4,841  |         |   |       | 2,875  |       
|                                                                      |                                   |                                        |        |        |         |      |        |        |         |   |       |       
|                                                                      |                                   | Total cost of revenues                 |        |        | 7,133   |      |        |        | 6,006   |   |       |        | 3,648  |  
|                                                                      |                                   |                                        |        |        |         |      |        |        |         |   |       |       
|                                                                      |                                   | Gross profit                           |        |        | 31,729  |      |        |        | 24,002  |   |       |        | 14,922 |  
|                                                                      |                                   |                                        |        |        |         |      |        |        |         |   |       |       
|Operating expenses:                                                   |                                   |                                        |        |        |         |      |        |        |         |   |       |       
|                                                                      | Sales and marketing               |                                        |        | 28,574 |         |      |        | 17,845 |         |   |       | 10,929 |       
|                                                                      | Research and development          |                                        |        | 10,374 |         |      |        | 9,094  |         |   |       | 4,680  |       
|                                                                      | General and administrative        |                                        |        | 4,448  |         |      |        | 4,222  |         |   |       | 2,774  |       
|                                                                      | Amortization of intangible assets |                                        |        | 8,449  |         |      |        | 4,452  |         |   |       |       |       
|                                                                      | Restructuring charge              |                                        |        | 1,194  |         |      |        |       |         |   |       |       |       
|                                                                      |                                   |                                        |        |        |         |      |        |        |         |   |       |       
|                                                                      |                                   | Total operating expenses               |        |        | 53,039  |      |        |        | 35,613  |   |       |        | 18,383 |  
|                                                                      |                                   |                                        |        |        |         |      |        |        |         |   |       |       
|                                                                      |                                   | Loss from operations                   |        |        | (21,310 | )    |        |        | (11,611 | ) |       |        | (3,461 | )
|Interest income and other, net                                        |                                   |                                        | 1,680  |        |         |      | 2,619  |        |         |   | 718   |       
|                                                                      |                                   |                                        |        |        |         |      |        |        |         |   |       |       
|                                                                      |                                   | Loss before provision for income taxes |        |        | (19,630 | )    |        |        | (8,922  | ) |       |        | (2,743 | )
|Provision for income taxes                                            |                                   |                                        | 120    |        |         |      | 122    |        |         |   | 32    |       
|                                                                      |                                   |                                        |        |        |         |      |        |        |         |   |       |       
|                                                                      |                                   | Net loss                               |        | $      | (19,750 | )    |        | $      | (9,114  | ) |       | $      | (2,775 | )
|                                                                      |                                   |                                        |        |        |         |      |        |        |         |   |       |       
|Basic and diluted net loss per common share                           |                                   | $                                      | (0.85  | )      |         | $    | (0.41  | )      |         | $ | (0.28 | )     
|                                                                      |                                   |                                        |        |        |         |      |        |        |         |   |       |       
|Shares used in computing basic and diluted net
	loss per common share |                                   |                                        | 23,288 |        |         |      | 22,130 |        |         |   | 9,988 |       
|                                                                      |                                   |                                        |        |        |         |      |        |        |         |   |       |       

See accompanying notes to consolidated financial
statements

33



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##### Table of Contents



iMANAGE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY AND COMPREHENSIVE LOSS

For the Three Years Ended December 31,
2001


|                                                                                              |                            |                    |        |              |   |            |         |             |   |         |        |               |   |             |    |               |   |         |        |        |   |   |        |   |   |   |        |   |   |   |     |     |   |   |         |         |   |   |        |         |         |  
|--------------------------------------------------------------------------------------------- | -------------------------- | ------------------ | ------ | ------------ | - | ---------- | ------- | ----------- | - | ------- | ------ | ------------- | - | ----------- | -- | ------------- | - | ------- | ------ | ------ | - | - | ------ | - | - | - | ------ | - | - | - | --- | --- | - | - | ------- | ------- | - | - | ------ | ------- | ------- | -
|                                                                                              |                            |                    |        |              |   |            |         |             |   |         |        |               |   |             |    |              
|                                                                                              |                            | Preferred Stock    |        | Common Stock |   | Additional |         | Deferred    |   |         |        | Accumulated   |   |             |    | Total        
|                                                                                              |                            |                    |        |              |   | Paid-in    |         | Stock-based |   | Notes   |        | Comprehensive |   | Accumulated |    | Stockholders
|                                                                                              |                            | Shares             |        | Amount       |   | Shares     |         | Amount      |   | Capital |        | Compensation  |   | Receivable  |    | Income        |   | Deficit |        | Equity
|                                                                                              |                            |                    |        |              |   |            |         |             |   |         |        |               |   |             |    |               |   |         |        |       
|                                                                                              |                            |                   
|                                                                                              |                            | (In thousands)    
|Balances, December 31, 1998                                                                   |                            |                    | 8,033  |              |   | $          | 11,152  |             |   |         | 8,198  |               |   | $           | 8  |               |   | $       | 4,534  |        |   | $ | (770   | ) |   | $ | (372   | ) |   | $ |    |     |   | $ | (7,192  | )       |   | $ | 7,360  |        
|Components of comprehensive income:                                                           |                            |                    |        |              |   |            |         |             |   |         |        |               |   |             |    |               |   |         |        |        |   |   |        |   |   |   |        |   |   |   |     |     |   |   |         |         |   |   |        |        
|                                                                                              | Net loss                   |                    |        |             |   |            |         |            |   |         |        |              |   |             |    |              |   |         |        |       |   |   |        |  |   |   |        |  |   |   |     |    |   |   |         | (2,775  | ) |   |        | (2,775  | )      
|                                                                                              | Other comprehensive loss   |                    |        |             |   |            |         |            |   |         |        |              |   |             |    |              |   |         |        |       |   |   |        |  |   |   |        |  |   |   |     | (42 | ) |   |         |        |   |   |        | (42     | )      
|                                                                                              |                            |                    |        |              |   |            |         |             |   |         |        |               |   |             |    |               |   |         |        |        |   |   |        |   |   |   |        |   |   |   |     |     |   |   |         |         |   |   |        |        
|                                                                                              |                            | Comprehensive loss |        |              |  |            |         |             |  |         |        |               |  |             |    |               |  |         |        |        |  |   |        |   |  |   |        |   |  |   |     |     |  |   |         |         |  |   |        |         | (2,817  | )
|Exercise of common stock options                                                              |                            |                    |       |              |   |            |        |             |   |         | 1,712  |               |   |             | 2  |               |   |         | 915    |        |   |   |       |   |   |   | (630   | ) |   |   |    |     |   |   |        |         |   |   | 287    |        
|Stock options issued in exchange for services                                                 |                            |                    |       |              |   |            |        |             |   |         |       |               |   |             |   |               |   |         | 208    |        |   |   |       |   |   |   |       |   |   |   |    |     |   |   |        |         |   |   | 208    |        
|Deferred stock-based compensation                                                             |                            |                    |       |              |   |            |        |             |   |         |       |               |   |             |   |               |   |         | 6,612  |        |   |   | (6,612 | ) |   |   |       |   |   |   |    |     |   |   |        |         |   |   |       |        
|Amortization of deferred stock-based compensation                                             |                            |                    |       |              |   |            |        |             |   |         |       |               |   |             |   |               |   |         | 47     |        |   |   | 3,336  |   |   |   |       |   |   |   |    |     |   |   |        |         |   |   | 3,383  |        
|Repurchase of common stock                                                                    |                            |                    |       |              |   |            |        |             |   |         | (167   | )             |   |             |   |               |   |         | (750   | )      |   |   |       |   |   |   |       |   |   |   |    |     |   |   |        |         |   |   | (750   | )      
|Conversion of preferred stock to common stock                                                 |                            |                    | (8,033 | )            |   |            | (11,152 | )           |   |         | 8,033  |               |   |             | 8  |               |   |         | 11,144 |        |   |   |       |   |   |   |       |   |   |   |    |     |   |   |        |         |   |   |       |        
|Issuance of common stock in conjunction with
	initial public offering, net of offerings costs |                            |                    |       |              |   |            |        |             |   |         | 4,140  |               |   |             | 4  |               |   |         | 41,153 |        |   |   |       |   |   |   |       |   |   |   |    |     |   |   |        |         |   |   | 41,157 |        
|                                                                                              |                            |                    |        |              |   |            |         |             |   |         |        |               |   |             |    |               |   |         |        |        |   |   |        |   |   |   |        |   |   |   |     |     |   |   |         |         |   |   |        |        
|Balances, December 31, 1999                                                                   |                            |                    |       |              |   |            |        |             |   |         | 21,916 |               |   |             | 22 |               |   |         | 63,863 |        |   |   | (4,046 | ) |   |   | (1,002 | ) |   |   | (42 | )   |   |   | (9,967  | )       |   |   | 48,828 |        
|Components of comprehensive income:                                                           |                            |                    |        |              |   |            |         |             |   |         |        |               |   |             |    |               |   |         |        |        |   |   |        |   |   |   |        |   |   |   |     |     |   |   |         |         |   |   |        |        
|                                                                                              | Net loss                   |                    |        |             |   |            |         |            |   |         |        |              |   |             |    |              |   |         |        |       |   |   |        |  |   |   |        |  |   |   |     |    |   |   |         | (9,114  | ) |   |        | (9,114  | )      
|                                                                                              | Other comprehensive income |                    |        |             |   |            |         |            |   |         |        |              |   |             |    |              |   |         |        |       |   |   |        |  |   |   |        |  |   |   |     | 70  |   |   |         |        |   |   |        | 70      |        
|                                                                                              |                            |                    |        |              |   |            |         |             |   |         |        |               |   |             |    |               |   |         |        |        |   |   |        |   |   |   |        |   |   |   |     |     |   |   |         |         |   |   |        |        
|                                                                                              |                            | Comprehensive loss |        |              |  |            |         |             |  |         |        |               |  |             |    |               |  |         |        |        |  |   |        |   |  |   |        |   |  |   |     |     |  |   |         |         |  |   |        |         | (9,044  | )
|Exercise of common stock options                                                              |                            |                    |       |              |   |            |        |             |   |         | 322    |               |   |             |   |               |   |         | 149    |        |   |   |       |   |   |   | 11     |   |   |   |    |     |   |   |        |         |   |   | 160    |        
|Stock issued for acquisition, net of expenses                                                 |                            |                    |       |              |   |            |        |             |   |         | 1,007  |               |   |             | 1  |               |   |         | 10,820 |        |   |   |       |   |   |   |       |   |   |   |    |     |   |   |        |         |   |   | 10,821 |        
|Additional expenses of initial public offering                                                |                            |                    |       |              |   |            |        |             |   |         |       |               |   |             |   |               |   |         | (93    | )      |   |   |       |   |   |   |       |   |   |   |    |     |   |   |        |         |   |   | (93    | )      
|Repurchase of common stock                                                                    |                            |                    |       |              |   |            |        |             |   |         | (149   | )             |   |             |   |               |   |         | (134   | )      |   |   |       |   |   |   |       |   |   |   |    |     |   |   |        |         |   |   | (134   | )      
|Stock issued under employee stock purchase plan                                               |                            |                    |       |              |   |            |        |             |   |         | 69     |               |   |             |   |               |   |         | 564    |        |   |   |       |   |   |   |       |   |   |   |    |     |   |   |        |         |   |   | 564    |        
|Deferred stock-based compensation                                                             |                            |                    |       |              |   |            |        |             |   |         |       |               |   |             |   |               |   |         | 982    |        |   |   | (982   | ) |   |   |       |   |   |   |    |     |   |   |        |         |   |   |       |        
|Amortization of deferred stock-based compensation                                             |                            |                    |       |              |   |            |        |             |   |         |       |               |   |             |   |               |   |         | (777   | )      |   |   | 2,911  |   |   |   |       |   |   |   |    |     |   |   |        |         |   |   | 2,134  |        
|Cancellation of options upon termination                                                      |                            |                    |       |              |   |            |        |             |   |         |       |               |   |             |   |               |   |         | (832   | )      |   |   | 832    |   |   |   |       |   |   |   |    |     |   |   |        |         |   |   |       |        
|Repayment of notes receivable                                                                 |                            |                    |       |              |   |            |        |             |   |         |       |               |   |             |   |               |   |         |       |        |   |   |       |   |   |   | 501    |   |   |   |    |     |   |   |        |         |   |   | 501    |        
|                                                                                              |                            |                    |        |              |   |            |         |             |   |         |        |               |   |             |    |               |   |         |        |        |   |   |        |   |   |   |        |   |   |   |     |     |   |   |         |         |   |   |        |        
|Balances, December 31, 2000                                                                   |                            |                    |       |              |   |            |        |             |   |         | 23,165 |               |   |             | 23 |               |   |         | 74,542 |        |   |   | (1,285 | ) |   |   | (490   | ) |   |   | 28  |     |   |   | (19,081 | )       |   |   | 53,737 |        
|Components of comprehensive income:                                                           |                            |                    |        |              |   |            |         |             |   |         |        |               |   |             |    |               |   |         |        |        |   |   |        |   |   |   |        |   |   |   |     |     |   |   |         |         |   |   |        |        
|                                                                                              | Net loss                   |                    |        |             |   |            |         |            |   |         |        |              |   |             |    |              |   |         |        |       |   |   |        |  |   |   |        |  |   |   |     |    |   |   |         | (19,750 | ) |   |        | (19,750 | )      
|                                                                                              | Other comprehensive income |                    |        |             |   |            |         |            |   |         |        |              |   |             |    |              |   |         |        |       |   |   |        |  |   |   |        |  |   |   |     | 108 |   |   |         |        |   |   |        | 108     |        
|                                                                                              |                            |                    |        |              |   |            |         |             |   |         |        |               |   |             |    |               |   |         |        |        |   |   |        |   |   |   |        |   |   |   |     |     |   |   |         |         |   |   |        |        
|                                                                                              |                            | Comprehensive loss |        |              |  |            |         |             |  |         |        |               |  |             |    |               |  |         |        |        |  |   |        |   |  |   |        |   |  |   |     |     |  |   |         |         |  |   |        |         | (19,642 | )
|Exercise of common stock options                                                              |                            |                    |       |              |   |            |        |             |   |         | 296    |               |   |             | 1  |               |   |         | 363    |        |   |   |       |   |   |   |       |   |   |   |    |     |   |   |        |         |   |   | 364    |        
|Stock issued for technology acquisition, net of
	expenses                                     |                            |                    |       |              |   |            |        |             |   |         | 67     |               |   |             |   |               |   |         | 255    |        |   |   |       |   |   |   |       |   |   |   |    |     |   |   |        |         |   |   | 255    |        
|Repurchase of common stock                                                                    |                            |                    |       |              |   |            |        |             |   |         | (78    | )             |   |             |   |               |   |         | (33    | )      |   |   |       |   |   |   |       |   |   |   |    |     |   |   |        |         |   |   | (33    | )      
|Stock issued under employee stock purchase plan                                               |                            |                    |       |              |   |            |        |             |   |         | 157    |               |   |             |   |               |   |         | 686    |        |   |   |       |   |   |   |       |   |   |   |    |     |   |   |        |         |   |   | 686    |        
|Deferred stock-based compensation                                                             |                            |                    |       |              |   |            |        |             |   |         |       |               |   |             |   |               |   |         | 1,000  |        |   |   | (1,000 | ) |   |   |       |   |   |   |    |     |   |   |        |         |   |   |       |        
|Amortization of deferred stock-based compensation                                             |                            |                    |       |              |   |            |        |             |   |         |       |               |   |             |   |               |   |         | (249   | )      |   |   | 1,541  |   |   |   |       |   |   |   |    |     |   |   |        |         |   |   | 1,292  |        
|Stock options issued in exchange for services                                                 |                            |                    |       |              |   |            |        |             |   |         |       |               |   |             |   |               |   |         | 157    |        |   |   |       |   |   |   |       |   |   |   |    |     |   |   |        |         |   |   | 157    |        
|Deferred compensation related to restructuring                                                |                            |                    |       |              |   |            |        |             |   |         |       |               |   |             |   |               |   |         |       |        |   |   | 87     |   |   |   |       |   |   |   |    |     |   |   |        |         |   |   | 87     |        
|Cancellation of options upon termination                                                      |                            |                    |       |              |   |            |        |             |   |         |       |               |   |             |   |               |   |         | (102   | )      |   |   | 102    |   |   |   |       |   |   |   |    |     |   |   |        |         |   |   |       |        
|Repayment of notes receivable                                                                 |                            |                    |       |              |   |            |        |             |   |         |       |               |   |             |   |               |   |         |       |        |   |   |       |   |   |   | 60     |   |   |   |    |     |   |   |        |         |   |   | 60     |        
|                                                                                              |                            |                    |        |              |   |            |         |             |   |         |        |               |   |             |    |               |   |         |        |        |   |   |        |   |   |   |        |   |   |   |     |     |   |   |         |         |   |   |        |        
|Balances, December 31, 2001                                                                   |                            |                    |       |              |   | $          |        |             |   |         | 23,607 |               |   | $           | 24 |               |   | $       | 76,619 |        |   | $ | (555   | ) |   | $ | (430   | ) |   | $ | 136 |     |   | $ | (38,831 | )       |   | $ | 36,963 |        
|                                                                                              |                            |                    |        |              |   |            |         |             |   |         |        |               |   |             |    |               |   |         |        |        |   |   |        |   |   |   |        |   |   |   |     |     |   |   |         |         |   |   |        |        

See accompanying notes to consolidated financial
statements.

34



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##### Table of Contents



iMANAGE, INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                          |                                                                                            |                                                    |                                          |                                                      |        |       |         |         |       |        |         |         |       |        |        |  
|------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------ | -------------------------------------------------- | ---------------------------------------- | ---------------------------------------------------- | ------ | ----- | ------- | ------- | ----- | ------ | ------- | ------- | ----- | ------ | ------ | -
|                                                                          |                                                                                            |                                                   
|                                                                          |                                                                                            | Years Ended December 31,                          
|                                                                          |                                                                                            |                                                   
|                                                                          |                                                                                            | 2001                                               |                                          | 2000                                                 |        | 1999 
|                                                                          |                                                                                            |                                                    |                                          |                                                      |        |      
|                                                                          |                                                                                            |                                                   
|                                                                          |                                                                                            | (In thousands)                                    
|Cash flows from operating activities:                                     |                                                                                            |                                                    |                                          |                                                      |        |       |         |         |       |        |         |        
|                                                                          | Net loss                                                                                   |                                                    | $                                        | (19,750                                              | )      |       | $       | (9,114  | )     |        | $       | (2,775  | )    
|                                                                          | Adjustments to reconcile net loss to net cash
	provided by (used in) operating activities: |                                                    |                                          |                                                      |        |       |         |         |       |        |         |         |      
|                                                                          |                                                                                            | Depreciation and amortization                      |                                          |                                                      | 10,550 |       |         |         | 6,292 |        |         |         | 545   |       
|                                                                          |                                                                                            | Amortization of deferred stock-based compensation  |                                          |                                                      | 1,292  |       |         |         | 2,134 |        |         |         | 3,383 |       
|                                                                          |                                                                                            | Provisions for doubtful accounts and sales returns |                                          |                                                      | 574    |       |         |         | 264   |        |         |         | 42    |       
|                                                                          |                                                                                            | Restructuring charge                               |                                          |                                                      | 1,194  |       |         |         |      |        |         |         |      |       
|                                                                          |                                                                                            | Stock options issued for services                  |                                          |                                                      | 157    |       |         |         |      |        |         |         | 208   |       
|                                                                          |                                                                                            | Changes in operating assets and liabilities:       |                                          |                                                      |        |       |         |         |       |        |         |         |       |       
|                                                                          |                                                                                            |                                                    | Accounts receivable                      |                                                      |        | 469   |         |         |       | (5,269 | )       |         |       | (1,552 | )     
|                                                                          |                                                                                            |                                                    | Prepaid expenses and other assets        |                                                      |        | 849   |         |         |       | (3,005 | )       |         |       | (867   | )     
|                                                                          |                                                                                            |                                                    | Accounts payable and accrued liabilities |                                                      |        | 2,319 |         |         |       | 255    |         |         |       | 1,240  |       
|                                                                          |                                                                                            |                                                    | Deferred revenues                        |                                                      |        | 1,829 |         |         |       | (166   | )       |         |       | 5,718  |       
|                                                                          |                                                                                            |                                                    |                                          |                                                      |        |       |         |         |       |        |         |        
|                                                                          |                                                                                            |                                                    |                                          | Net cash provided by (used in) operating
	activities |        |       | (517    | )       |       |        | (8,609  | )       |       |        | 5,942  |  
|                                                                          |                                                                                            |                                                    |                                          |                                                      |        |       |         |         |       |        |         |        
|Cash flows from investing activities:                                     |                                                                                            |                                                    |                                          |                                                      |        |       |         |         |       |        |         |        
|                                                                          | Purchases of property and equipment                                                        |                                                    |                                          | (988                                                 | )      |       |         | (3,251  | )     |        |         | (1,975  | )    
|                                                                          | Purchases of investments                                                                   |                                                    |                                          | (24,820                                              | )      |       |         | (30,022 | )     |        |         | (25,915 | )    
|                                                                          | Maturities and sales of investments                                                        |                                                    |                                          | 18,700                                               |        |       |         | 18,667  |       |        |         | 19,622  |      
|                                                                          | Acquisition of business, net of cash acquired                                              |                                                    |                                          |                                                     |        |       |         | (6,140  | )     |        |         |        |      
|                                                                          |                                                                                            |                                                    |                                          |                                                      |        |       |         |         |       |        |         |        
|                                                                          |                                                                                            |                                                    |                                          | Net cash used for investing activities               |        |       | (7,108  | )       |       |        | (20,746 | )       |       |        | (8,268 | )
|                                                                          |                                                                                            |                                                    |                                          |                                                      |        |       |         |         |       |        |         |        
|Cash flows from financing activities:                                     |                                                                                            |                                                    |                                          |                                                      |        |       |         |         |       |        |         |        
|                                                                          | Proceeds from bank line of credit                                                          |                                                    |                                          | 12,274                                               |        |       |         | 4,872   |       |        |         | 2,000   |      
|                                                                          | Payment of bank lines of credit                                                            |                                                    |                                          | (13,002                                              | )      |       |         | (444    | )     |        |         |        |      
|                                                                          | Payment of notes receivable from stockholders                                              |                                                    |                                          | 60                                                   |        |       |         | 501     |       |        |         |        |      
|                                                                          | Net proceeds from issuance of common stock                                                 |                                                    |                                          | 1,050                                                |        |       |         | 724     |       |        |         | 41,444  |      
|                                                                          | Repurchases of common stock                                                                |                                                    |                                          | (33                                                  | )      |       |         | (134    | )     |        |         | (750    | )    
|                                                                          | Other                                                                                      |                                                    |                                          |                                                     |        |       |         | (93     | )     |        |         |        |      
|                                                                          |                                                                                            |                                                    |                                          |                                                      |        |       |         |         |       |        |         |        
|                                                                          |                                                                                            |                                                    |                                          | Net cash provided by financing activities            |        |       | 349     |         |       |        | 5,426   |         |       |        | 42,694 |  
|                                                                          |                                                                                            |                                                    |                                          |                                                      |        |       |         |         |       |        |         |        
|Net increase (decrease) in cash and cash
	equivalents                     |                                                                                            |                                                    | (7,276                                   | )                                                    |        |       | (23,929 | )       |       |        | 40,368  |        
|Cash and cash equivalents at beginning of period                          |                                                                                            |                                                    | 24,056                                   |                                                      |        |       | 47,985  |         |       |        | 7,617   |        
|                                                                          |                                                                                            |                                                    |                                          |                                                      |        |       |         |         |       |        |         |        
|Cash and cash equivalents at end of period                                |                                                                                            | $                                                  | 16,780                                   |                                                      |        | $     | 24,056  |         |       | $      | 47,985  |        
|                                                                          |                                                                                            |                                                    |                                          |                                                      |        |       |         |         |       |        |         |        
|Supplemental disclosures of non-cash investing
	and financing activities: |                                                                                            |                                                    |                                          |                                                      |        |       |         |         |       |        |         |        
|                                                                          | Deferred stock-based compensation                                                          |                                                    | $                                        | 1,000                                                |        |       | $       | 982     |       |        | $       | 6,612   |      
|                                                                          |                                                                                            |                                                    |                                          |                                                      |        |       |         |         |       |        |         |        
|                                                                          | Issuance of common stock in exchange for note
	receivable                                  |                                                    | $                                        |                                                     |        |       | $       |        |       |        | $       | 630     |      
|                                                                          |                                                                                            |                                                    |                                          |                                                      |        |       |         |         |       |        |         |        
|                                                                          | Issuance of common stock for acquisitions and
	technology                                  |                                                    | $                                        | 255                                                  |        |       | $       | 10,821  |       |        | $       |        |      
|                                                                          |                                                                                            |                                                    |                                          |                                                      |        |       |         |         |       |        |         |        
|                                                                          | Conversion of preferred stock into common stock                                            |                                                    | $                                        |                                                     |        |       | $       |        |       |        | $       | 11,152  |      
|                                                                          |                                                                                            |                                                    |                                          |                                                      |        |       |         |         |       |        |         |        

See accompanying notes to consolidated financial
statements

35



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##### Table of Contents



iMANAGE, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

1.     Organization
and Business

iManage, Inc. (the Company) provides
collaborative content management software that enables
businesses to efficiently manage and collaborate on critical
business content across the extended enterprise. The
Companys product suite, iManage WorkSite, delivers
document management, collaboration, portal access, workflow,
knowledge management and business process automation in a single
integrated Internet solution. The Company believes that iManage
WorkSite improves communication and process efficiency, provides
faster response times and a rapid return on investment for our
customers.

2.     Summary of
Significant Accounting Policies



| |                      
| | ---------------------
| | Basis of Presentation

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



| |                 
| | ----------------
| | Use of Estimates

The preparation of consolidated financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from those estimates.



| |                    
| | -------------------
| | Revenue Recognition

Revenues consist primarily of license, support
and service revenues from our customers, which were primarily
attributable to the iManage WorkSite suite of software
applications. In addition, the Company receives fees from
customers for providing deployment and integration services.

The Company applies the provisions of Statement
of Position 97-2, or (SOP 97-2), Software
Revenue Recognition, as amended by SOP 98-9,
Modification of SOP 97-2, Software Revenue Recognition,
With Respect to Certain Transactions, to all transactions
involving the licensing of its software.

The Company recognizes license revenue when
persuasive evidence of an arrangement exists, the software has
been delivered, the fee is considered fixed and determinable and
collectibility is reasonably assured. Revenues from subscription
license agreements, which include software, rights to future
products and maintenance, are recognized ratably over the term
of the subscription period. Revenues on shipments to resellers
are generally recognized when the resellers sell the product to
the end-user customer. For all sales, the Company uses either a
binding purchase order or signed license agreement as persuasive
evidence of an arrangement.

At the time of the transaction, the Company
assesses whether the fee associated with each transaction is
fixed and determinable and collection is reasonably assured. The
Company evaluates the payment terms associated with each
transaction. If a portion of the fee is due after normal payment
terms, which range from 30 days to 180 days from
invoice date for legal customers and 30 days to
120 days for all others, the Company accounts for the
transaction as the fees become due, assuming collection is
reasonably assured. The Company assesses collectibility based on
a number of factors, including past transaction history and
overall credit-worthiness of the customer. The Company generally
does not require collateral from its customers. If collection is
not reasonably assured, fees are deferred and recognized as
revenue at the time collection becomes reasonably assured, which
is generally upon receipt of cash.

When contracts contain multiple elements wherein
vendor specific objective evidence exists for all undelivered
elements, the Company accounts for the delivered elements in
accordance with the residual

36



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##### Table of Contents



iMANAGE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

method prescribed by SOP 98-9. This means
that the Company defers revenue equivalent to the fair value of
the undelivered elements until such time as the element is
delivered to the customer. Fair values for the ongoing support
obligations are based upon separate sales of support renewals
sold to customers or upon renewal rates quoted in the contracts.
Fair value of services, such as training or consulting, is based
upon the value of stand-alone sales of these services to
customers.

License arrangements do not generally include
acceptance clauses. However, if an arrangement includes an
acceptance provision, acceptance occurs upon the earlier of
receipt of a written customer acceptance or expiration of the
acceptance period.

The Company recognizes revenue for support
services ratably over the contract term. Training and consulting
services are billed based on hourly rates, and generally
recognized as revenue as these services are performed. However,
at the time of a transaction, the Company assesses whether any
services included in the arrangement require the performance of
significant work either to alter the underlying software or to
build complex interfaces so that the software performs as
requested. If these services are included as part of an
arrangement, the Company recognizes the entire fee using the
percentage of completion method. The Company estimates the
percentage of completion based on an estimate of the total costs
estimated to complete the project as a percentage of the costs
incurred to date and the estimated costs to complete.



| |                                                             
| | ------------------------------------------------------------
| | Cash, Cash Equivalents and Short- and
	Long-Term Investments

The Company considers all highly liquid
investments with original or remaining maturities of three
months or less at the date of purchase to be cash equivalents.
Cash and cash equivalents include money market funds, commercial
paper and various deposit accounts. Cash equivalents are
recorded at cost, which approximates fair value.

The Companys investments are classified as
available-for-sale and are carried at fair value
based on quoted market prices. These investments consist of
corporate obligations that include commercial paper, corporate
bonds and notes and U.S. government agency securities. Those
investments with original maturities greater than three months
at the balance sheet date and less than twelve months are
considered short-term investments and those with original
maturities greater than twelve months at the balance sheet date
are considered long-term investments. Realized gains and losses
are calculated using the specific identification method. There
were no realized gains and losses in 2001, 2000 or 1999. In
2001, 2000 and 1999, unrealized gains (losses) totaled
$143,000, $125,000 and $(42,000), respectively. Unrealized gains
and losses are included as a separate component of accumulated
comprehensive income and stockholders equity.



| |                         
| | ------------------------
| | Risks and Concentrations

Financial instruments that potentially subject
the Company to concentrations of credit risk consist principally
of cash and cash equivalents, short-term investments, accounts
receivable, long-term investments, accounts payable and accrued
liabilities. The Company maintains substantially all of its cash
and cash equivalents and short- and long-term investments with
two financial institutions domiciled in the United States. The
Company performs ongoing evaluations of its customers
financial condition and generally requires no collateral from
its customers on accounts receivable.

For 2001, 2000 and 1999, the Company derived
79.3%, 76.6% and 93.3% of its license revenues, respectively,
from law firms and professional service firms. Also, the Company
derived 43%, 54% and 61% of our revenues from resellers of our
application suite for 2001, 2000 and 1999.

The Company relies on software licensed from
third parties, including software that is integrated with
internally developed software and used to perform key functions.

37



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##### Table of Contents



iMANAGE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                       
| | ----------------------
| | Property and Equipment

Property and equipment are recorded at cost and
depreciated using the straight-line method over estimated useful
lives of three years. Amortization of leasehold improvements is
recorded using the straight-line method over the lesser of the
estimated useful lives of the assets or the lease term,
generally three years. Upon the sale or retirement of an asset,
the cost and related accumulated depreciation are removed from
the consolidated balance sheet and the resulting gain or loss is
reflected in operations.

Repair and maintenance expenditures, which are
not considered improvements and do not extend the useful life of
an asset are expensed as incurred.



| |                                                                       
| | ----------------------------------------------------------------------
| | Impairment of Goodwill, Other Intangible
	Assets and Long-Lived Assets

The Company assesses the impairment of
identifiable intangible assets, goodwill and property and
equipment whenever events or changes in circumstances indicate
that the carrying value may not be recoverable. Factors
considered important which could trigger an impairment review
include, but are not limited to, significant underperformance
relative to expected historical or projected future operating
results, significant changes in the use of the acquired assets
or the strategy for our overall business, significant negative
industry or economic trends, a significant decline in our stock
price for a sustained period and our market capitalization
relative to net book value. The Company measures any impairment
based on a projected discounted cash flow method using a
discount rate commensurate with the risk inherent in the
Companys business model. The Company also periodically
assesses the impairment of enterprise-level goodwill.



| |            
| | -----------
| | Advertising

The Company expenses advertising costs as
incurred. Advertising costs expensed for 2001, 2000 and 1999
were $2.1 million, $1.9 million and $540,000,
respectively.



| |                           
| | --------------------------
| | Software Development Costs

Costs incurred in the research and development of
new software products are expensed as incurred until
technological feasibility has been established at which time
such costs are capitalized, subject to a net realizable value
evaluation. Technology feasibility is established upon the
completion of an integrated working model. Costs incurred
between completion of the working model and the point at which
the product is ready for general release have not been
significant. Accordingly, the Company has charged all costs to
research and development expense in the period incurred.



| |             
| | ------------
| | Income Taxes

Income taxes are accounted for under the
liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
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 in tax rates is recognized in the consolidated
statement of operations in the period the change is enacted.
Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amounts to be recovered.



| |                         
| | ------------------------
| | Stock-based Compensation

The Company accounts for stock-based compensation
using the intrinsic value method prescribed by Accounting
Principles Board Opinion (APB) No. 25, or
APB 25, Accounting for Stock Issued to Employees,
and has elected to adopt the disclosure-only provisions of
Statement of Financial Accounting

38



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##### Table of Contents



iMANAGE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Standards (SFAS) No. 123, or
SFAS No. 123, Accounting for Stock-Based Compensation.The resulting stock-based compensation is amortized over the
estimated term of the stock option, generally four years, using
an accelerated approach. This accelerated approach is consistent
with the method described in Financial Accounting Standards
Board Interpretation (FIN) No. 28, or FIN
No. 28, Accounting for Stock Appreciation Rights and
Other Variable Stock Option or Awards Plans.Stock-based
compensation to non-employees is based on the fair value of the
option estimated using the Black-Scholes model on the date of
the grant and revalued until vested. Compensation expense
resulting from non-employee options is amortized to expense
using an accelerated approach.



| |                                                 
| | ------------------------------------------------
| | Business Segment and Major Customer
	Information

SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information, establishes
standards for the manner in which public companies report
information about operating segments in annual and interim
financial statements. It also establishes standards for related
disclosures about products and services, geographic areas and
major customers. The method for determining what information to
report is based on the way management organizes the operating
segments within the Company for making operating decisions and
assessing financial performance.

The Companys chief operating decision-maker
is considered to be the Chief Executive Officer. The Chief
Executive Officer reviews financial information presented for
purposes of making operating decisions and assessing financial
performance. The financial information is identical to the
information presented in the accompanying consolidated
statements of operations; the Company had no significant foreign
operations through December 31, 2000. For the year ended
December 31, 2001, revenues derived from customers outside
the United States represented 9% of total revenues. On this
basis, the Company is organized and operates in a single
segment: the design, development and marketing of software
solutions.

At December 31, 2001, one customer accounted
for 16% of the accounts receivable balance. At December 31,
2000, one customer accounted for 15% of the accounts receivable
balance. No customer accounted for more than 10% of the total
revenues in 2001, 2000 and 1999.



| |                 
| | ----------------
| | Foreign Currency

The financial statements of foreign subsidiaries
are measured using the local currency of the subsidiary as the
functional currency. Accordingly, assets and liabilities of the
subsidiaries are translated at current rates of exchange at the
balance sheet date and all revenue and expense items are
translated using weighted-average exchange rates prevailing
during the year. The resultant gains or losses from translation
are charged or credited to accumulated comprehensive income and
at December 31, 2001 were not significant. Foreign currency
transaction gains and losses, which have not been material to
date, are included in the consolidated statement of operations.

At December 31, 2001, the Company did not
hold any foreign currency derivative instruments.



| |                              
| | -----------------------------
| | Comprehensive Income and Loss

Other comprehensive income and loss refers to
revenues, expenses, gains and losses that under generally
accepted accounting principles are recorded as an element of
stockholders equity and are excluded from net loss.

39



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##### Table of Contents



iMANAGE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The comprehensive income (loss) comprises
the following items:

|                                   |                                                           |                          |         |      |   |      |        |     |   |   |        |     |  
|---------------------------------- | --------------------------------------------------------- | ------------------------ | ------- | ---- | - | ---- | ------ | --- | - | - | ------ | --- | -
|                                   |                                                           |                         
|                                   |                                                           | Years Ended December 31,
|                                   |                                                           |                         
|                                   |                                                           | 2001                     |         | 2000 |   | 1999
|                                   |                                                           |                          |         |      |   |     
|                                   |                                                           |                         
|                                   |                                                           | (In thousands)          
|Net loss                           |                                                           | $                        | (19,750 | )    |   | $    | (9,114 | )   |   | $ | (2,775 | )  
|Other comprehensive income (loss): |                                                           |                          |         |      |   |      |        |     |   |   |        |    
|                                   | Unrealized gain (loss) on available-for-sale
	investments |                          |         | 143  |   |      |        | 125 |   |   |        | (42 | )
|                                   | Translation adjustment                                    |                          |         | (35  | ) |      |        | (55 | ) |   |        |    |  
|                                   |                                                           |                          |         |      |   |      |        |     |   |   |        |    
|                                   |                                                           |                          | 108     |      |   |      | 70     |     |   |   | (42    | )  
|                                   |                                                           |                          |         |      |   |      |        |     |   |   |        |    
|Comprehensive loss                 |                                                           | $                        | (19,642 | )    |   | $    | (9,044 | )   |   | $ | (2,817 | )  
|                                   |                                                           |                          |         |      |   |      |        |     |   |   |        |    

Accumulated other comprehensive income
(loss) comprises the following:

|                                                          |  |                          |     |      |  |      |     |   |  |   |     |  
|--------------------------------------------------------- |  | ------------------------ | --- | ---- |  | ---- | --- | - |  | - | --- | -
|                                                          |  |                         
|                                                          |  | Years Ended December 31,
|                                                          |  |                         
|                                                          |  | 2001                     |     | 2000 |  | 1999
|                                                          |  |                          |     |      |  |     
|                                                          |  |                         
|                                                          |  | (In thousands)          
|Unrealized gain (loss) on available-for-sale
	investments |  | $                        | 226 |      |  | $    | 83  |   |  | $ | (42 | )
|Cumulative translation adjustment                         |  |                          | (90 | )    |  |      | (55 | ) |  |   |    |  
|                                                          |  |                          |     |      |  |      |     |   |  |   |     |  
|                                                          |  | $                        | 136 |      |  | $    | 28  |   |  | $ | (42 | )
|                                                          |  |                          |     |      |  |      |     |   |  |   |     |  



| |                          
| | -------------------------
| | Net Loss per Common Share

Basic net loss per common share is computed using
the weighted average number of outstanding shares of common
stock during the period, excluding shares of restricted stock
subject to repurchase. Dilutive net loss per common share is
computed using the weighted average number of common shares
outstanding during the period and, when dilutive, potential
common shares from options to purchase common stock and common
stock subject to repurchase, using the treasury stock method.

The following table reconciles net loss to basic
and diluted net loss per common share:

|                                                                      |  |                          |         |      |  |      |        |   |  |   |        |  
|--------------------------------------------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                                      |  |                         
|                                                                      |  | Years Ended December 31,
|                                                                      |  |                         
|                                                                      |  | 2001                     |         | 2000 |  | 1999
|                                                                      |  |                          |         |      |  |     
|                                                                      |  |                         
|                                                                      |  | (In thousands)          
|Net loss                                                              |  | $                        | (19,750 | )    |  | $    | (9,114 | ) |  | $ | (2,775 | )
|Shares used in computing basic and diluted net
	loss per common share |  |                          | 23,288  |      |  |      | 22,130 |   |  |   | 9,988  |  
|                                                                      |  |                          |         |      |  |      |        |   |  |   |        |  
|Basic and diluted net loss per common share                           |  | $                        | (0.85   | )    |  | $    | (0.41  | ) |  | $ | (0.28  | )
|                                                                      |  |                          |         |      |  |      |        |   |  |   |        |  

The following potential common shares have been
excluded from the calculation of diluted net loss per share for
all periods presented because the effect would have been
anti-dilutive:

|                          |                                    |       |       |           |  |  |       |       |  |  |       |       | 
|------------------------- | ---------------------------------- | ----- | ----- | --------- |  |  | ----- | ----- |  |  | ----- | ----- | 
|                          |                                    |      
|                          |                                    | (In t |       | housands)
|Anti-dilutive securities: |                                    |       |       |           |  |  |       |       |  |  |       |      
|                          | Options to purchase common stock   |       |       | 5,297     |  |  |       | 3,479 |  |  |       | 1,567 | 
|                          | Common stock subject to repurchase |       |       | 20        |  |  |       | 262   |  |  |       | 697   | 
|                          |                                    |       |       |           |  |  |       |       |  |  |       |      
|                          |                                    |       | 5,317 |           |  |  | 3,741 |       |  |  | 2,264 |      
|                          |                                    |       |       |           |  |  |       |       |  |  |       |      

40



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##### Table of Contents



iMANAGE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                  
| | ---------------------------------
| | Recent Accounting
	Pronouncements

In May 2000, the Emerging Issues Task Force
(EITF) issued EITF Issue No. 00-14,
Accounting for Certain Sales Incentives.EITF Issue
No. 00-14 addresses the recognition, measurement and income
statement classification for sales incentives that a vendor
voluntarily offers to customers (without charge), which the
customer can use in, or exercise as a result of, a single
exchange transaction. Sales incentives that fall within the
scope of EITF Issue No. 00-14 include offers that a
customer can use to receive a reduction in the price of a
product or service at the point of sale. The EITF changed the
transition date for Issue 00-14, concluding that a company
should apply this consensus no later than the companys
annual or interim financial statements for the periods beginning
after December 15, 2001. In June 2001, the EITF issued EITF
Issue No. 00-25, Vendor Income Statement
Characterization of Consideration Paid to a Reseller of the
Vendors Products, effective for periods beginning
after December 15, 2001. EITF Issue No. 00-25
addresses whether consideration from a vendor to a reseller is
(a) an adjustment of the selling prices of the
vendors products and, therefore, should be deducted from
revenue when recognized in the vendors statement of
operations or (b) a cost incurred by the vendor for assets
or services received from the reseller and, therefore, should be
included as a cost or expense when recognized in the
vendors statement of operations. Upon application of these
statements, financial statements for prior periods presented for
comparative purposes should be reclassified to comply with the
income statement display requirements under these issues. In
September of 2001, the EITF issued EITF Issue No. 01-09,
Accounting for Consideration Given by Vendor to a Customer or
a Reseller of the Vendors Products, which is a
codification of EITF Issues No. 00-14, No. 00-25 and
No. 00-22, Accounting for Points and Certain
Other Time-or Volume-Based Sales Incentive Offers and Offers for
Free Products or Services to be Delivered in the Future.The
Company is currently assessing the impact of the adoption of
these EITF issues on its consolidated financial statements.

In July 2001, the Financial Accounting Standards
Board (FASB) issued SFAS No. 141, Business
Combinations. SFAS No. 141 requires the purchase method
of accounting for business combinations initiated after
June 30, 2001 and eliminates the pooling-of-interests
method. The Company believes that the adoption of SFAS
No. 141 will not have a significant impact on its
consolidated financial statements.

Also, in July 2001, the FASB issued SFAS
No. 142, Goodwill and Other Intangible Assets, which
is effective for years beginning after December 15, 2001.
SFAS No. 142 requires, among other things, the
discontinuance of goodwill amortization. In addition, the
standard includes provisions upon adoption for the
reclassification of certain existing recognized intangible
assets as goodwill, reassessment of the useful lives of existing
recognized intangible assets, reclassification of certain
intangible assets out of previously reported goodwill and the
testing for impairment of existing goodwill and other
intangibles. Upon adoption of SFAS 142, the Company will cease
to amortize $3.4 million of goodwill. The Company had
recorded approximately $7.1 million of amortization on
these amounts during 2001 and would have recorded
$3.4 million of amortization during 2002. In addition, the
Company will be required to perform an impairment review of its
goodwill balance upon the initial adoption of SFAS No. 142.
The impairment review will involve a two-step process as follows:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Step 1  The Company will compare the
	fair value of our reporting units to the carrying value,
	including goodwill of each of those units. For each reporting
	unit where the carrying value, including goodwill, exceeds the
	units fair value, the Company will move on to step 2. If a
	units fair value exceeds the carrying value, no further
	work is performed and no impairment charge is necessary.                                                                                                                                                               
|
| |  | Step 2  The Company will perform an
	allocation of the fair value of the reporting unit to its
	identifiable tangible and non-goodwill intangible assets and
	liabilities. This will derive an implied fair value for the
	reporting units goodwill. The Company will then compare
	the implied fair value of the reporting units goodwill
	with the carrying amount of reporting units goodwill. If
	the carrying amount of the reporting units goodwill is
	greater than the implied fair value of its goodwill, an
	impairment loss must be recognized for the excess.

41



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##### Table of Contents



iMANAGE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Company expects to complete this review
during the first quarter of 2002. At December 31, 2001, the
Company had one reporting unit for the entire company. The
Company does not expect to record an impairment charge upon
completion of the initial review. However, there can be no
assurance that at the time the review is completed a material
impairment charge may not be recorded.

In October 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS No. 144 addresses significant
issues relating to the implementation of SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, and develops a single
accounting method under which long-lived assets that are to be
disposed of by sale are measured at the lower of book value or
fair value less cost to sell. Additionally, SFAS No. 144
expands the scope of discontinued operations to include all
components of an entity with operations that (1) can be
distinguished from the rest of the entity and (2) will be
eliminated from the ongoing operations of the entity in a
disposal transaction. SFAS No. 144 is effective for
financial statements issued for years beginning after
December 15, 2001, and its provisions are to be applied
prospectively. The Company is currently assessing the impact of
SFAS No. 144 on its consolidated financial position and
results of operations.

3.     Acquisition

In June 2000, the Company completed the
acquisition of ThoughtStar, Inc. (ThoughtStar). The
Company issued 1,007,000 shares of its common stock with a fair
market value on the closing date of $11.0 million and paid
cash consideration of $5.2 million for all of the
outstanding stock of ThoughtStar, including additional monies
loaned prior to the completion of the merger. The Company
incurred transaction costs consisting primarily of professional
fees of $725,000 and incurred stock issuance costs of $215,000,
resulting in a total purchase price of $17.0 million. The
acquisition was accounted for as a purchase, and as such, the
purchase price was allocated to the assets acquired and the
liabilities assumed based on estimated fair values on the date
of acquisition. The results of operations of ThoughtStar have
been included with the Companys results of operations
since the acquisition date.

The fair value of the assets of ThoughtStar was
determined through established valuation techniques used in the
software industry. No significant tangible assets or liabilities
were acquired. A summary of the consideration exchanged for
these assets is as follows:

|                     |                        |                |        |        | 
|-------------------- | ---------------------- | -------------- | ------ | ------ | 
|                     |                        | (In thousands)
|Total purchase price |                        | $              | 16,961 |       
|                     |                        |                |        |       
|                     | Assets acquired:       |                |        |        | 
|                     | Purchased technology   |                | $      | 1,900  | 
|                     | Assembled workforce    |                |        | 400    | 
|                     | Non-compete agreements |                |        | 400    | 
|                     | Goodwill               |                |        | 14,261 | 
|                     |                        |                |        |       
|                     |                        | $              | 16,961 |       
|                     |                        |                |        |       

Amounts allocated to goodwill, assembled work
force and non-compete agreements are amortized on a
straight-line over two years. At December 31, 2001 and
2000, accumulated amortization related to these items totaled
$12.9 million and $4.5 million. At December 31,
2001 and 2000, accumulated amortization related to goodwill
totaled $10.9 million and $3.7 million.

In addition to the consideration noted above,
iManage granted 89,000 common stock options with an exercise
price of $0.01 to former ThoughtStar employees in exchange for
1,648,000 fully vested and exercisable ThoughtStar stock
options. On the date of grant, these options had an intrinsic
value of $982,000, which was recorded as deferred stock-based
compensation, and are being amortized over the option vesting

42



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iMANAGE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

period of 2 years. At December 31, 2001
and 2000, deferred stock-based compensation related to these
stock options totaled $249,000 and $646,000. During September
2001, the remaining $87,000 of deferred stock-based compensation
was charged to expense in connection with a restructuring of
operations.

Pro forma condensed results of operations for the
combined Company as if the transaction had consummated at the
beginning of each of the periods presented are as follows:

|                                                                      |  |              |         |      |  |   |         |  
|--------------------------------------------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | -
|                                                                      |  |             
|                                                                      |  | Years Ended 
|                                                                      |  | December 31,
|                                                                      |  |             
|                                                                      |  | 2000         |         | 1999
|                                                                      |  |              |         |     
|Revenues                                                              |  | $            | 30,008  |      |  | $ | 18,570  |  
|Cost of revenues                                                      |  |              | 6,006   |      |  |   | 3,648   |  
|                                                                      |  |              |         |      |  |   |         |  
|Gross profit                                                          |  | $            | 24,002  |      |  | $ | 14,922  |  
|                                                                      |  |              |         |      |  |   |         |  
|Net loss                                                              |  | $            | (14,876 | )    |  | $ | (13,329 | )
|                                                                      |  |              |         |      |  |   |         |  
|Basic and diluted net loss per common share                           |  | $            | (0.66   | )    |  | $ | (1.21   | )
|                                                                      |  |              |         |      |  |   |         |  
|Shares used in computing basic and diluted net
	loss per common share |  |              | 22,634  |      |  |   | 11,005  |  
|                                                                      |  |              |         |      |  |   |         |  

The above amounts are based upon certain
assumptions and estimates which we believe are reasonable and do
not reflect any benefit from economies which might be achieved
from combined operations. The pro forma financial information
presented above is not necessarily indicative of either the
results of operations that would have occurred had the
acquisition taken place at the beginning of the periods
presented or of future results of operations of the combined
companies.

4.     Investments

The following is a summary of the Companys
portfolio investments:

|                          |  |                   |        |            |  |            |     |           |  |   |   |  |  |   |        | 
|------------------------- |  | ----------------- | ------ | ---------- |  | ---------- | --- | --------- |  | - | - |  |  | - | ------ | 
|                          |  |                  
|                          |  | December 31, 2001
|                          |  |                  
|                          |  |                   |        | Gross      |  | Gross      |     | Estimated
|                          |  |                   |        | Unrealized |  | Unrealized |     | Fair     
|                          |  | Cost              |        | Gains      |  | Losses     |     | Value    
|                          |  |                   |        |            |  |            |     |          
|                          |  |                  
|                          |  | (In thousands)   
|Money market funds        |  | $                 | 15,786 |            |  | $          |    |           |  | $ |  |  |  | $ | 15,786 | 
|Corporate obligations     |  |                   | 23,767 |            |  |            | 226 |           |  |   |  |  |  |   | 23,993 | 
|                          |  |                   |        |            |  |            |     |           |  |   |   |  |  |   |        | 
|                          |  | $                 | 39,553 |            |  | $          | 226 |           |  | $ |  |  |  | $ | 39,779 | 
|                          |  |                   |        |            |  |            |     |           |  |   |   |  |  |   |        | 
|Included in:              |  |                   |        |            |  |            |     |           |  |   |   |  |  |   |        | 
|Cash and cash equivalents |  | $                 | 15,786 |           
|Short-term investments    |  |                   | 16,827 |           
|Long-term investments     |  |                   | 7,166  |           
|                          |  |                   |        |           
|                          |  |                   |        |            |  |            |     |           |  |   |   |  |  | $ | 39,779 | 
|                          |  |                   |        |            |  |            |     |           |  |   |   |  |  |   |        | 

43



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##### Table of Contents



iMANAGE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                          |  |                   |        |            |  |            |     |           |  |   |   |  |  |   |        | 
|------------------------- |  | ----------------- | ------ | ---------- |  | ---------- | --- | --------- |  | - | - |  |  | - | ------ | 
|                          |  |                  
|                          |  | December 31, 2000
|                          |  |                  
|                          |  |                   |        | Gross      |  | Gross      |     | Estimated
|                          |  |                   |        | Unrealized |  | Unrealized |     | Fair     
|                          |  | Cost              |        | Gains      |  | Losses     |     | Value    
|                          |  |                   |        |            |  |            |     |          
|Money market funds        |  | $                 | 15,807 |            |  | $          |    |           |  | $ |  |  |  | $ | 15,807 | 
|Commercial paper          |  |                   | 2,492  |            |  |            |    |           |  |   |  |  |  |   | 2,492  | 
|Corporate notes           |  |                   | 5,253  |            |  |            |    |           |  |   |  |  |  |   | 5,253  | 
|U.S. government agencies  |  |                   | 500    |            |  |            |    |           |  |   |  |  |  |   | 500    | 
|Corporate obligations     |  |                   | 17,105 |            |  |            | 125 |           |  |   |  |  |  |   | 17,230 | 
|                          |  |                   |        |            |  |            |     |           |  |   |   |  |  |   |        | 
|                          |  | $                 | 41,157 |            |  | $          | 125 |           |  | $ |  |  |  | $ | 41,282 | 
|                          |  |                   |        |            |  |            |     |           |  |   |   |  |  |   |        | 
|Included in:              |  |                   |        |            |  |            |     |           |  |   |   |  |  |   |        | 
|Cash and cash equivalents |  | $                 | 23,552 |           
|Short-term investments    |  |                   | 11,640 |           
|Long-term investments     |  |                   | 6,090  |           
|                          |  |                   |        |           
|                          |  |                   |        |            |  |            |     |           |  |   |   |  |  | $ | 41,282 | 
|                          |  |                   |        |            |  |            |     |           |  |   |   |  |  |   |        | 

The following is a summary of the Companys
portfolio investments by contractual maturity:

|                                     |  |                |        |      |  |   |        | 
|------------------------------------ |  | -------------- | ------ | ---- |  | - | ------ | 
|                                     |  |               
|                                     |  | December 31,  
|                                     |  |               
|                                     |  | 2001           |        | 2000
|                                     |  |                |        |     
|                                     |  |               
|                                     |  | (In thousands)
|Due in one year or less              |  | $              | 32,613 |      |  | $ | 35,192 | 
|Due after one year through two years |  |                | 7,166  |      |  |   | 6,090  | 
|                                     |  |                |        |      |  |   |        | 
|                                     |  | $              | 39,779 |      |  | $ | 41,282 | 
|                                     |  |                |        |      |  |   |        | 

5.     Property and
Equipment

Property and equipment consisted of the following:

|                                |                                                |                |       |       |  |   |       |       | 
|------------------------------- | ---------------------------------------------- | -------------- | ----- | ----- |  | - | ----- | ----- | 
|                                |                                                |               
|                                |                                                | December 31,  
|                                |                                                |               
|                                |                                                | 2001           |       | 2000 
|                                |                                                |                |       |      
|                                |                                                |               
|                                |                                                | (In thousands)
|Computer software and equipment |                                                | $              | 4,792 |       |  | $ | 3,930 |      
|Furniture and office equipment  |                                                |                | 1,182 |       |  |   | 1,261 |      
|Leasehold improvements          |                                                |                | 44    |       |  |   | 783   |      
|                                |                                                |                |       |       |  |   |       |      
|                                |                                                |                | 6,018 |       |  |   | 5,974 |      
|                                | Less accumulated depreciation and amortization |                |       | 3,595 |  |   |       | 2,406 | 
|                                |                                                |                |       |       |  |   |       |      
|                                |                                                | $              | 2,423 |       |  | $ | 3,568 |      
|                                |                                                |                |       |       |  |   |       |      

Depreciation expense was $2.0 million,
$1.6 million and $458,000 in 2001, 2000 and 1999,
respectively.

44



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##### Table of Contents



iMANAGE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

6.     Other
Assets

Other assets consisted of the following:

|                    |                               |                |       |        |   |   |       |       |  
|------------------- | ----------------------------- | -------------- | ----- | ------ | - | - | ----- | ----- | -
|                    |                               |               
|                    |                               | December 31,  
|                    |                               |               
|                    |                               | 2001           |       | 2000  
|                    |                               |                |       |       
|                    |                               |               
|                    |                               | (In thousands)
|Technology licenses |                               | $              | 1,367 |        |   | $ | 1,420 |      
|                    | Less accumulated amortization |                |       | (1,044 | ) |   |       | (546  | )
|                    |                               |                |       |        |   |   |       |      
|                    |                               |                | 323   |        |   |   | 874   |      
|                    | Note receivable               |                |       | 1,000  |   |   |       | 1,000 |  
|                    | Other                         |                |       | 243    |   |   |       | 914   |  
|                    |                               |                |       |        |   |   |       |      
|                    |                               | $              | 1,566 |        |   | $ | 2,788 |      
|                    |                               |                |       |        |   |   |       |      

In 2001 and 2000, the Company entered into
technology license agreements including non-cancelable minimum
payments. The present value of payments under these agreements
is recorded as an asset and amortized over the terms of the
agreements (generally three years) as the technological
feasibility had been established for the product, which included
the technology. Each of these license agreements may be renewed
only with the other partys written consent.

7.     Accrued
Liabilities

Accrued liabilities consisted of the following:

|                      |  |                |       |      |  |   |       | 
|--------------------- |  | -------------- | ----- | ---- |  | - | ----- | 
|                      |  |               
|                      |  | December 31,  
|                      |  |               
|                      |  | 2001           |       | 2000
|                      |  |                |       |     
|                      |  |               
|                      |  | (In thousands)
|Accrued compensation  |  | $              | 2,514 |      |  | $ | 1,965 | 
|Technology licenses   |  |                | 63    |      |  |   | 412   | 
|Professional services |  |                | 598   |      |  |   | 372   | 
|Sales tax payable     |  |                | 580   |      |  |   | 360   | 
|Restructuring charge  |  |                | 448   |      |  |   |      | 
|Other                 |  |                | 840   |      |  |   | 892   | 
|                      |  |                |       |      |  |   |       | 
|                      |  | $              | 5,043 |      |  | $ | 4,001 | 
|                      |  |                |       |      |  |   |       | 

8.     Restructuring
Charge

In September 2001, the Company implemented a plan
to close its operations in Utah. The Companys
restructuring actions consisted primarily of the termination of
approximately 20 positions in engineering, sales, marketing and
administration. The functions performed in Utah have been
combined with the Companys Chicago operation. As a result
of the restructuring, the Company recognized a charge of
$1.2 million in the third quarter of 2001. The
restructuring charge included $694,000 for employee severance,
$150,000 for the write-off of intangible assets related to the
ThoughtStar acquisition, $93,000 for the write-off of certain
furniture and equipment and $257,000 related to facility closing
costs. The remaining restructuring charge accrued at
December 31, 2001 was $448,000 primarily related to
personnel charges.

9.     Borrowings

In March 1999, the Company entered into a line of
credit agreement with a bank comprised of a revolving line of
credit and an equipment line of credit. The line of credit
agreement, which is collateralized by

45



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##### Table of Contents



iMANAGE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

substantially all of the Companys assets,
intangible assets and intellectual property, includes covenant
restrictions requiring the Company to maintain certain minimum
financial ratios and profitability levels and limits the
Companys ability to declare and pay dividends.

The revolving line of credit provides for
borrowings of up to $4.0 million, which can be used at the
discretion of the Company through March 31, 2002.
Borrowings are limited to the lesser of 80% of eligible accounts
receivable or $4.0 million ($1.0 million was available
at December 31, 2001), bear interest at prime plus 0.25%
and are due at March 31, 2002. At December 31, 2001,
the Company had outstanding $3.0 million against this
facility.

The equipment line of credit, which bears
interest at prime plus 0.50%, provides for borrowings of up to
$5.0 million to finance the purchase of property and
equipment. At December 31, 2001 and 2000, amounts
outstanding under the equipment line of credit totaled
$2.7 million and $3.4 million, respectively. Principal
repayment began in March 2000 and will continue through February
2006 in monthly installments of principal and interest. In
December 2001, the Company borrowed an additional $274,000
against this facility. The Company repaid $1.0 million and
$444,000 of principal in 2001 and 2000, respectively, and, at
December 31, 2001, $2.3 million was available.

The interest expense was $254,000, $260,000 and
$96,000 in 2001, 2000 and 1999, respectively. Cash paid for
interest was $243,000, $260,000 and $96,000 in 2001, 2000 and
1999, respectively.

Principal payments due under these line of credit
facilities as of December 31, 2001 are as follows:

|                          |  |                |       | 
|------------------------- |  | -------------- | ----- | 
|Years Ending December 31, |  | (In thousands)
|                          |  |               
|2002                      |  | $              | 4,288 | 
|2003                      |  |                | 967   | 
|2004                      |  |                | 307   | 
|2005                      |  |                | 69    | 
|2006                      |  |                | 69    | 
|                          |  |                |       | 
|                          |  | $              | 5,700 | 
|                          |  |                |       | 

10.     Commitments
and Contingencies

The Company leases its main office facilities in
San Mateo, California and Chicago, Illinois and various sales
offices in the United States and Europe under non-cancelable
operating leases, which expire in December 2001 and March 2003
for the San Mateo facility and April 2009 for the Chicago
facility. Rent expense for 2001, 2000 and 1999 was
$1.6 million, $1.1 million and $684,000, respectively.
See Note 14  Subsequent Event.

Future minimum lease payments under operating
leases as of December 31, 2001 were as follows:

|                          |  |                |       | 
|------------------------- |  | -------------- | ----- | 
|Years Ending December 31, |  | (In thousands)
|                          |  |               
|2002                      |  | $              | 916   | 
|2003                      |  |                | 381   | 
|2004                      |  |                | 263   | 
|2005                      |  |                | 274   | 
|2006                      |  |                | 285   | 
|Thereafter                |  |                | 680   | 
|                          |  |                |       | 
|                          |  | $              | 2,799 | 
|                          |  |                |       | 

46



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##### Table of Contents



iMANAGE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Beginning in July 2001, several securities class
action complaints were filed against the Company, the
underwriters of the Companys initial public offering, its
directors and certain officers in the United States District
Court for the Southern District of New York. The complaint
alleges that the underwriters entered into certain arrangements
with investors in connection with the initial public offering,
and that these alleged arrangements should have been and were
not disclosed in the Companys registration statement and
prospectus. The complaints seek unspecified monetary damages,
attorneys fees and other costs. The Company is aware that
similar allegations have been made in lawsuits challenging over
300 other public offerings conducted in 2001, 2000 and 1999. All
of these cases have been consolidated for pretrial purposes
before a judge in the Southern District of New York. The time to
respond to the complaints has been stayed pending the
Courts decisions regarding coordination of the cases.
While the Company believes that it has meritorious defenses
against the lawsuits and intends to defend itself vigorously,
there can be no assurance that these lawsuits will be resolved
without costly litigation or in a manner that is not adverse to
the Companys consolidated financial position, results of
operations or cash flows. No estimate can be made of the
possible loss or possible range of loss associated with the
resolution of these contingencies.

11.     Stockholders
Equity



| |                        
| | -----------------------
| | Initial Public Offering

On November 17, 1999, the Company completed
its initial public offering of 4,140,000 shares of its common
stock, which included 540,000 shares issued in connection with
the exercise of the underwriters over allotment, at
$11 per share. Net proceeds of the offering were
approximately $41.1 million, after deducting underwriter
discounts, commissions and other offering expenses.
Simultaneously with the closing of the initial public offering,
all 8,033,000 shares of the Companys convertible preferred
stock were automatically converted into 8,033,000 shares of
common stock.



| |             
| | ------------
| | Common Stock

Each share of common stock has the right to one
vote. The holders of common stock are also entitled to receive
dividends whenever funds are legally available and when declared
by the Board of Directors, subject to the rights of holders of
all classes of stock having priority rights as to dividends. No
cash dividends have been declared or paid through
December 31, 2001.

At December 31, 2001, 2000 and 1999, 20,000,
262,000 and 697,000 shares of common stock were subject to the
Companys right of repurchase at the shares original
issuance price. Weighted average original issuance price, per
share, of these common shares was $0.51, $0.55 and $0.72 in
2001, 2000 and 1999 respectively. The Companys right to
repurchase these shares lapses ratably over periods through
September 2003.

In November 1999, the Company purchased
approximately 167,000 shares of outstanding common stock from an
officer of the Company for approximately $750,000. These shares
were recorded as treasury shares by the Company and subsequently
reissued in the initial public offering.



| |                
| | ---------------
| | Preferred Stock

At December 31, 2001, the Company has
2,000,000 authorized shares of preferred stock with a $0.001 par
value, of which none were issued and outstanding.

47



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##### Table of Contents



iMANAGE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |            
| | -----------
| | Stock Plans

At December 31, 2001, the Company had two
stock option plans, and an Employee Stock Purchase Plan.



| |                             
| | ----------------------------
| | Employee Stock Purchase Plan

In November 1999, the Company adopted an Employee
Stock Purchase Plan (ESPP). Under the terms of the
ESPP, the maximum aggregate number of shares of stock that may
be issued under the ESPP is 500,000, cumulatively increased on
January 1, 2001 and each January 1 thereafter until and
including January 1, 2009 by an amount equal to the lesser
of (a) two percent (2%) of the issued and outstanding
shares of common stock as of the preceding December 31,
(b) 500,000 shares or (c) a lesser amount of shares
determined by the Board of Directors. During each six-month
offering period, employees can choose to have up to 15% of their
annual base earnings withheld to purchase the Companys
common stock. The purchase price of the common stock is 85% of
the lesser of the fair value as of the beginning or ending of
the offering period. A total of 157,000 and 69,000 shares of
common stock were issued under the ESPP for 2001 and 2000,
respectively. At December 31, 2001, 274,000 shares were
available for issuance.



| |                       
| | ----------------------
| | 1997 Stock Option Plan

The Company has reserved 7,158,249 shares of
common stock for issuance under the 1997 Stock Incentive Plan
(1997 Plan). Automatic annual increases in the
shares reserved for issuance occur beginning in 2001 equal to
the lesser of (i) 1,200,000 common shares, (ii) 5% of
the outstanding common shares of the Company at the last day of
the preceding year, or (iii) a lesser amount as determined
by the Board of Directors.

The Board of Directors has the authority to
determine to whom options will be granted, the number of shares,
the term and exercise price. The options vest and are
exercisable at times and increments as specified by the Board of
Directors and expire ten years from date of grant. Options
granted under the 1997 Plan generally become exercisable 25% one
year after the date of the option holders date of
employment and thereafter ratably over three years.

Under the 1997 Plan, automatic grants for
non-employee directors are as follows: (i) initial grants
of options to purchase common shares over three years for any
newly elected directors following the initial public offering
and (ii) annual grants of options to purchase common stock
to be granted at the Companys annual meeting which will
become exercisable after one year.



| |                                   
| | ----------------------------------
| | 2000 Non-Officer Stock Option Plan

The Company has reserved 1,750,000 shares of
common stock for issuance under the 2000 Non-Officer Stock
Option Plan (2000 Plan). Options may be granted at
the discretion of the Board of Directors to eligible employees
and consultants.

The Board of Directors has the authority to
determine to whom options will be granted, the number of shares,
the term and the exercise price. The exercise price shall
generally not be less than 85% of the fair market value of the
Companys stock on the grant date of the option. Options
granted under the 2000 Plan generally become exercisable 25% one
year after the date of the option holders date of
employment and thereafter ratably over three years and expire
ten years from the date of the grant.

48



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##### Table of Contents



iMANAGE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Activity under the Companys stock option
plans is as follows:

|                                                                                                          |  |                                       |        |          |  |           |      |          |  |           |       |          |  |   |      |  |  |  |        |   |  |   |      | 
|--------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------ | -------- |  | --------- | ---- | -------- |  | --------- | ----- | -------- |  | - | ---- |  |  |  | ------ | - |  | - | ---- | 
|                                                                                                          |  |                                      
|                                                                                                          |  | Years Ended December 31,             
|                                                                                                          |  |                                      
|                                                                                                          |  |                                       |        |          |  |          
|                                                                                                          |  | 2001                                  |        | 2000     |  | 1999     
|                                                                                                          |  |                                       |        |          |  |          
|                                                                                                          |  |                                       |        | Weighted |  |           |      | Weighted |  |           |       | Weighted
|                                                                                                          |  |                                       |        | Average  |  |           |      | Average  |  |           |       | Average 
|                                                                                                          |  | Number of                             |        | Exercise |  | Number of |      | Exercise |  | Number of |       | Exercise
|                                                                                                          |  | Shares                                |        | Price    |  | Shares    |      | Price    |  | Shares    |       | Price   
|                                                                                                          |  |                                       |        |          |  |           |      |          |  |           |       |         
|                                                                                                          |  |                                      
|                                                                                                          |  | (In thousands, except per share data)
|Outstanding, beginning of period                                                                          |  |                                       | 3,479  |          |  | $         | 3.78 |          |  |           | 1,567 |          |  | $ | 3.69 |  |  |  | 1,620  |   |  | $ | 0.27 | 
|Granted                                                                                                   |  |                                       | 3,155  |          |  |           | 2.94 |          |  |           | 2,542 |          |  |   | 3.51 |  |  |  | 1,740  |   |  |   | 3.63 | 
|Exercised                                                                                                 |  |                                       | (296   | )        |  |           | 1.25 |          |  |           | (321  | )        |  |   | 0.50 |  |  |  | (1,712 | ) |  |   | 0.53 | 
|Canceled                                                                                                  |  |                                       | (1,041 | )        |  |           | 3.93 |          |  |           | (309  | )        |  |   | 5.22 |  |  |  | (81    | ) |  |   | 0.86 | 
|                                                                                                          |  |                                       |        |          |  |           |      |          |  |           |       |          |  |   |      |  |  |  |        |   |  |   |      | 
|Outstanding, end of period                                                                                |  |                                       | 5,297  |          |  |           | 3.40 |          |  |           | 3,479 |          |  |   | 3.78 |  |  |  | 1,567  |   |  |   | 3.69 | 
|                                                                                                          |  |                                       |        |          |  |           |      |          |  |           |       |          |  |   |      |  |  |  |        |   |  |   |      | 
|Exercisable, end of period                                                                                |  |                                       | 1,881  |          |  |           | 3.85 |          |  |           | 1,599 |          |  |   | 3.94 |  |  |  | 467    |   |  |   | 6.46 | 
|                                                                                                          |  |                                       |        |          |  |           |      |          |  |           |       |          |  |   |      |  |  |  |        |   |  |   |      | 
|Weighted average fair value of options granted
	with exercise prices equal to fair value at date of grant |  |                                       | 3,147  |          |  |           | 2.98 |          |  |           | 2,452 |          |  |   | 3.64 |  |  |  |       |   |  |   |     | 
|Weighted average fair value of options granted
	with exercise price less than fair value at date of grant |  |                                       | 8      |          |  |           | 0.01 |          |  |           | 90    |          |  |   | 0.01 |  |  |  | 1,740  |   |  |   | 3.63 | 

The following table summarizes information about
stock options as of December 31, 2001:

|                |                 |                               |  |              |       |                     |  |         |      |          |  |   |       |  |  |  |       |  |  |   |      | 
|--------------- | --------------- | ----------------------------- |  | ------------ | ----- | ------------------- |  | ------- | ---- | -------- |  | - | ----- |  |  |  | ----- |  |  | - | ---- | 
|                |                 |                               |  |              |       |                     |  |        
|                |                 | Options Outstanding           |  |              |       |                    
|                |                 |                               |  |              |       | Options Exercisable
|                |                 |                               |  | Weighted     |       |                     |  |        
|                |                 |                               |  | Average      |       | Weighted            |  |         |      | Weighted
|                |                 | Number                        |  | Remaining    |       | Average             |  | Number  |      | Average 
|                |                 | of                            |  | Contractual  |       | Exercise            |  | of      |      | Exercise
|Exercise Prices |                 | Options                       |  | Life (Years) |       | Price               |  | Options |      | Price   
|                |                 |                               |  |              |       |                     |  |         |      |         
|                |                 |                              
|                |                 | (Option amounts in thousands)
|                | $0.01 to $ 1.80 |                               |  |              | 339   |                     |  |         | 6.83 |          |  | $ | 0.95  |  |  |  | 239   |  |  | $ | 0.82 | 
|                | $2.51           |                               |  |              | 2,078 |                     |  |         | 9.31 |          |  |   | 2.51  |  |  |  | 105   |  |  |   | 2.51 | 
|                | $2.88 to $ 3.44 |                               |  |              | 1,581 |                     |  |         | 8.81 |          |  |   | 3.17  |  |  |  | 1,030 |  |  |   | 3.02 | 
|                | $3.81 to $ 9.00 |                               |  |              | 1,069 |                     |  |         | 9.25 |          |  |   | 4.76  |  |  |  | 292   |  |  |   | 5.25 | 
|                | $9.90 to $11.00 |                               |  |              | 230   |                     |  |         | 7.94 |          |  |   | 10.04 |  |  |  | 215   |  |  |   | 9.98 | 
|                |                 |                               |  |              |       |                     |  |         |      |          |  |   |       |  |  |  |       |  |  |   |      | 
|                |                 |                               |  |              | 5,297 |                     |  |         |      |          |  |   |       |  |  |  | 1,881 |  |  |   |      | 
|                |                 |                               |  |              |       |                     |  |         |      |          |  |   |       |  |  |  |       |  |  |   |      | 

49



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##### Table of Contents



iMANAGE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                   
| | ----------------------------------
| | Deferred Stock-based
	Compensation

The amortization of deferred stock-based
compensation relates to the following items in the accompanying
consolidated statement of operations:

|                           |  |                          |       |      |  |      |       |  |  |   |       | 
|-------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                           |  |                         
|                           |  | Years Ended December 31,
|                           |  |                         
|                           |  | 2001                     |       | 2000 |  | 1999
|                           |  |                          |       |      |  |     
|                           |  |                         
|                           |  | (In thousands)          
|Cost of revenues           |  | $                        | 46    |      |  | $    | 127   |  |  | $ | 143   | 
|Sales and marketing        |  |                          | 767   |      |  |      | 951   |  |  |   | 2,401 | 
|Research and development   |  |                          | 504   |      |  |      | 684   |  |  |   | 500   | 
|General and administrative |  |                          | 132   |      |  |      | 372   |  |  |   | 547   | 
|                           |  |                          |       |      |  |      |       |  |  |   |       | 
|                           |  | $                        | 1,449 |      |  | $    | 2,134 |  |  | $ | 3,591 | 
|                           |  |                          |       |      |  |      |       |  |  |   |       | 

Amortization of deferred stock-based compensation
will be reduced in future periods to the extent options are
terminated prior to full vesting.

During 2001, 1999 and 1998, the Company issued
options to purchase shares of its common stock to certain
employees totaling 460,000, 1.7 million and 967,000,
respectively, under the 1997 Plan and outside the 1997 Plan with
weighted average exercise prices of $0.70, $3.63 and $0.32 per
share, respectively, which were below the deemed fair value of
the Companys common stock at the date of grant. The
weighted average deemed fair value of the underlying common
stock was $2.88, $7.02 and $1.47 in 2001, 1999 and 1998,
respectively. In accordance with the requirements of APB
No. 25, the Company has recorded deferred stock-based
compensation for the difference between the exercise price of
the stock options and the deemed fair value of the
Companys stock at the date of grant. This deferred
compensation is amortized to expense over the period during
which the Companys right to repurchase the stock lapses or
options become exercisable, generally four or five years
consistent with the method described in FIN No. 28,
Accounting for Stock Appreciation Rights and Other Variable
Stock Option or Awards Plans. At December 31, 2001, the
Company had recorded deferred stock-based compensation related
to these options in an amount of $11.2 million, of which
$1.5 million, $2.9 million and $3.4 million had
been amortized to expense during 2001, 2000 and 1999,
respectively.

During 2001, the Company granted options to
purchase common stock at exercise prices ranging from $0.01 to
$5.09 per share to non-employee engineers for consulting
services, when the deemed fair market value of the
Companys common stock ranged from $4.40 to $5.09 per
share. These options were fully vested upon grant and were
valued at a total of $157,000 using the Black-Scholes pricing
model with the following assumptions: 10 year terms,
volatility ranging from 102% to 132%, discount rate ranging from
4.97% to 5.11% and 0% dividend rate. This $157,000 was expensed
immediately as options related to services provided prior to the
grant date.

During 1999, the Company granted options to
purchase common stock at exercise prices ranging from $0.60 to
$1.50 per share to non-employee engineers for consulting
services, when the deemed fair market value of the
Companys common stock ranged from $4.29 to $7.41 per
share. These options were 100% vested upon grant and were valued
at $208,000 using the Black-Scholes pricing model with the
following assumptions: 10 year terms, 55% volatility, 5.73%
discount rate and 0% dividend rate. This $208,000 was expensed
immediately as these options related to services provided prior
to the grant date.

50



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##### Table of Contents



iMANAGE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The amortization of deferred stock-based
compensation is comprised of the following categories:

|                                         |  |                          |       |      |  |      |       |   |  |   |       | 
|---------------------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- | - |  | - | ----- | 
|                                         |  |                         
|                                         |  | Years Ended December 31,
|                                         |  |                         
|                                         |  | 2001                     |       | 2000 |  | 1999
|                                         |  |                          |       |      |  |     
|                                         |  |                         
|                                         |  | (In thousands)          
|Employee stock-based compensation        |  | $                        | 1,541 |      |  | $    | 2,911 |   |  | $ | 3,383 | 
|Non-employee stock-based compensation    |  |                          | 157   |      |  |      |      |   |  |   | 8     | 
|Cancellation of options upon termination |  |                          | (249  | )    |  |      | (777  | ) |  |   |      | 
|                                         |  |                          |       |      |  |      |       |   |  |   |       | 
|                                         |  | $                        | 1,449 |      |  | $    | 2,134 |   |  | $ | 3,591 | 
|                                         |  |                          |       |      |  |      |       |   |  |   |       | 






| |                                   
| | ----------------------------------
| | Notes Receivable for Common
	Stock

In March 1999, a non-officer of the Company
exercised options to purchase 172,000 common shares in exchange
for a full recourse note receivable of approximately $34,000,
which is due in March 2003 and bears interest at 4.57%.

In April and May 1999, an officer of the Company
exercised options to purchase approximately 178,000 and 127,000
common shares, respectively, in exchange for two full recourse
notes receivable of approximately $53,000 and $39,000,
respectively. These notes receivable are due in March and May
2003 and bear interest at 4.71% and 4.83%, respectively.

Additionally, three non-officers exercised
options to purchase common shares in exchange for full recourse
notes receivable totaling approximately $100,000. These notes
receivable are due in July through August 2003 and bear interest
at rates ranging between 5.22% and 5.37%.






| |                                           
| | ------------------------------------------
| | Pro Forma Net Loss and Net Loss Per
	Share

The Company has adopted the disclosure only
provisions of SFAS No. 123. Had compensation cost been
determined based on the fair value at the grant date for the
awards for the years ended December 31, 2001, 2000 and
1999, the Companys net loss and basic and diluted net loss
per common share would have been as follows:

|                                             |             |                          |   |         |   |      |   |         |   |  |   |        |  
|-------------------------------------------- | ----------- | ------------------------ | - | ------- | - | ---- | - | ------- | - |  | - | ------ | -
|                                             |             |                         
|                                             |             | Years Ended December 31,
|                                             |             |                         
|                                             |             | 2001                     |   | 2000    |   | 1999
|                                             |             |                          |   |         |   |     
|                                             |             |                         
|                                             |             | (In thousands, except   
|                                             |             | per share amounts)      
|Net loss:                                    |             |                          |   |         |   |      |   |         |   |  |   |       
|                                             | As reported |                          | $ | (19,750 | ) |      | $ | (9,114  | ) |  | $ | (2,775 | )
|                                             | Pro forma   |                          | $ | (25,722 | ) |      | $ | (14,239 | ) |  | $ | (3,067 | )
|Basic and diluted net loss per common share: |             |                          |   |         |   |      |   |         |   |  |   |       
|                                             | As reported |                          | $ | (0.85   | ) |      | $ | (0.41   | ) |  | $ | (0.28  | )
|                                             | Pro forma   |                          | $ | (1.10   | ) |      | $ | (0.64   | ) |  | $ | (0.31  | )

As the provisions of SFAS 123 have only been
applied to stock options granted since the 1997 Plans
inception, the impact of the pro forma stock-based compensation
cost will likely continue to increase as the vesting period for
the Companys options and the period over which the
stock-based compensation is charged to expense is generally four
years.

The estimated weighted average value of options
granted under the Plan, during 2001, 2000 and 1999 was $2.72,
$3.77 and $1.02 per share, respectively. The value of each is
estimated on the date of grant using the

51



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##### Table of Contents



iMANAGE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

minimum value method prior to the effective date
of the Companys initial public offering and the
Black-Scholes option valuation method thereafter, with the
following weighted-average assumptions:

|                                                                            |  |      |         |      |  |      |         |   |  |  |         |  
|--------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  |  | ------- | -
|                                                                            |  | 2001 |         | 2000 |  | 1999
|                                                                            |  |      |         |      |  |     
|Expected life of option                                                     |  |      | 5 years |      |  |      | 5 years |   |  |  | 5 years |  
|Risk-free interest rate                                                     |  |      | 4.38    | %    |  |      | 6.03    | % |  |  | 5.68    | %
|Dividend yield                                                              |  |      | 0.00    | %    |  |      | 0.00    | % |  |  | 0.00    | %
|Volatility (used in the Black-Scholes model after
	initial public offering) |  |      | 125     | %    |  |      | 158     | % |  |  | 70      | %

The estimated weighted-average value of purchase
rights granted under the ESPP during 2001 and 2000 was $2.44 and
$8.18 per share. The fair value of each stock purchase right
granted under the ESPP is estimated using the Black-Scholes
option valuation method, with the following weighted-average
assumptions:

|                        |  |      |          |      |  |  |          |  
|----------------------- |  | ---- | -------- | ---- |  |  | -------- | -
|                        |  | 2001 |          | 2000
|                        |  |      |          |     
|Expected life of option |  |      | 6 months |      |  |  | 6 months |  
|Risk-free interest rate |  |      | 1.82     | %    |  |  | 5.85     | %
|Dividend yield          |  |      | 0.00     | %    |  |  | 0.00     | %
|Volatility              |  |      | 125      | %    |  |  | 158      | %

The aggregate fair value of purchase rights
granted in 2001 and 2000 was $332,000 and $729,000.

12.     401(k)
Retirement Plan

The Company sponsors an employee retirement plan
intended to qualify under section 401(k) of Internal Revenue
Code. Eligible employees may contribute up to 20% of eligible
compensation, subject to annual limitations, and are fully
vested in their own contributions. The Company made matching
contributions of 25% up to the first 6% of the employees
compensation, which is contributed and vests ratably over a
four-year period. Annual amounts contributed by the Company
under the plan are $180,000 and $141,000 in 2001 and 2000,
respectively.

13.     Income
Taxes

The individual components of the Companys
deferred tax assets are as follows:

|                                 |                           |                |        |       |  |   |        |       | 
|-------------------------------- | ------------------------- | -------------- | ------ | ----- |  | - | ------ | ----- | 
|                                 |                           |               
|                                 |                           | December 31,  
|                                 |                           |               
|                                 |                           | 2001           |        | 2000 
|                                 |                           |                |        |      
|                                 |                           |               
|                                 |                           | (In thousands)
|Net operating loss carryforward  |                           | $              | 5,796  |       |  | $ | 1,668  |      
|Depreciation and amortization    |                           |                | 401    |       |  |   | 337    |      
|Allowance for doubtful accounts  |                           |                | 165    |       |  |   | 83     |      
|Accrued liabilities              |                           |                | 702    |       |  |   | 803    |      
|Research and development credits |                           |                | 1,472  |       |  |   | 512    |      
|                                 |                           |                |        |       |  |   |        |      
|                                 | Total deferred tax assets |                |        | 8,536 |  |   |        | 3,403 | 
|Less valuation allowance         |                           |                | (8,536 | )     |  |   | (3,403 | )    
|                                 |                           |                |        |       |  |   |        |      
|                                 | Net deferred tax assets   |                | $      |      |  |   | $      |      | 
|                                 |                           |                |        |       |  |   |        |      

The components of the net change in the valuation
allowance for the years ended December 31, 2001, 2000 and
1999 were increases of $5.1 million, $1.2 million and
$495,000, respectively.

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iMANAGE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The principal items accounting for the difference
between income tax provision at the U.S. statutory rate and the
provision for income taxes reflected in the consolidated
statements of operations are as follows:

|                                                     |  |                          |     |      |  |      |     |    |  |  |     |   
|---------------------------------------------------- |  | ------------------------ | --- | ---- |  | ---- | --- | -- |  |  | --- | --
|                                                     |  |                         
|                                                     |  | Years Ended December 31,
|                                                     |  |                         
|                                                     |  | 2001                     |     | 2000 |  | 1999
|                                                     |  |                          |     |      |  |     
|Federal statutory rate                               |  |                          | 34  | %    |  |      | 34  | %  |  |  | 34  | % 
|State taxes                                          |  |                          | 5   |      |  |      | 5   |    |  |  | 5   |   
|Tax credits                                          |  |                          | 3   |      |  |      |    |    |  |  |    |   
|Amortization                                         |  |                          | (15 | )    |  |      | (17 | )  |  |  |    |   
|Deferred compensation                                |  |                          | (3  | )    |  |      | (8  | )  |  |  | (44 | ) 
|Other                                                |  |                          | 1   |      |  |      | (2  | )  |  |  | 4   |   
|Net operating losses and tax credits, not
	benefited |  |                          | (25 | )    |  |      | (13 | )  |  |  |    |   
|                                                     |  |                          |     |      |  |      |     |    |  |  |     |   
|                                                     |  |                          | 0   | %    |  |      | (1  | )% |  |  | (1  | )%
|                                                     |  |                          |     |      |  |      |     |    |  |  |     |   

At December 31, 2001, the Company has net
operating loss carryforwards available to reduce future income
subject to income taxes for federal and state income tax
purposes of approximately $15.4 million and
$20.0 million, respectively. Deferred tax assets and the
related valuation allowance include approximately $200,000
related to certain U.S. operating loss carryforwards resulting
from the exercise of stock options, the tax benefit, if
recognized, will be accounted for as a credit to additional
paid-in capital rather than a reduction of income tax expense.

Net operating loss carryforwards expire from 2003
to 2021. In addition, the Company has research and development
tax credit carryforwards of approximately $1.0 million for
federal income tax purposes and $642,000 for state income tax
purposes at December 31, 2001, which expire from 2013 to
2021.

Pursuant to the provisions of Section 382 of
the Internal Revenue Code, utilization of net operating losses
is subject to annual limitations due to a greater than 50%
change in ownership of the Company which occurred during 1998
and 1999.

Cash paid for income taxes was $62,000, $122,000
and $111,000 in 2001, 2000 and 1999, respectively.

14.     Related Party
Transactions

The Companys Chief Executive Officer is the
owner of a consulting company, which subleased space from the
Company and provided services to the Company including
accounting and employee recruitment in 2001, 2000 and 1999. In
addition, the Company reimbursed the consulting company for
certain travel expenses and other services incurred on its
behalf and for the use of certain assets. Additionally, the
Company hired certain of the consulting companys
consultants to provide software development services.

Amounts included in net loss which were paid,
received or due to or from this related party are as follows:

|                                      |  |                |     |      |  |      |     |  |  |   |     | 
|------------------------------------- |  | -------------- | --- | ---- |  | ---- | --- |  |  | - | --- | 
|                                      |  |               
|                                      |  | Years Ended   
|                                      |  | December 31,  
|                                      |  |               
|                                      |  | 2001           |     | 2000 |  | 1999
|                                      |  |                |     |      |  |     
|                                      |  |               
|                                      |  | (In thousands)
|Sublease rent income                  |  | $              | 52  |      |  | $    | 92  |  |  | $ | 85  | 
|Consulting and other services expense |  |                | 129 |      |  |      | 439 |  |  |   | 757 | 

On April 5, 2000, the Company made a loan to
its former Chief Financial Officer of $1.0 million. The
loan bears interest at 5% per annum and principal and interest
will become due on the earlier of December 31, 2008 or the
date upon which the former Chief Financial Officer will have the
ability to sell common stock, subject to Company policy, if
applicable, at a price of $20 per share or higher. The loan is
collateralized by

53



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##### Table of Contents



iMANAGE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

165,000 shares of the Companys common stock
currently beneficially owned by the former Chief Financial
Officer and any additional shares of common stock that became
beneficially owned as a consequence of the exercise of 170,000
common stock options currently held by the former Chief
Financial Officer. See Note 6  Other Assets.

15.     Significant
Customer Information and Segment Reporting

The Companys chief operating decision-maker
is considered to be the Chief Executive Officer. The Chief
Executive Officer reviews financial information presented for
purposes of making operating decisions and assessing financial
performance. The financial information is identical to the
information presented in the accompanying consolidated
statements of operations and the Company had no significant
foreign operations through December 31, 2000. For 2001,
revenues derived from customers outside the United States were
9% of total revenues. On this basis, the Company is organized
and operates in a single segment: the design, development and
marketing of software solutions.

At December 31, 2001, one customer accounted
for 16% of the accounts receivable balance. At December 31,
2000, one customer accounted for 15% of the accounts receivable
balance. No customer accounted for more than 10% of the total
revenues in 2001, 2000 and 1999.

16.     Subsequent
Event

The Company leased an office facility on
January 17, 2001 and moved its main office facilities from
San Mateo, California to Foster City, California on
February 15, 2002.

Future minimum lease payments under this lease
agreement are as follows:

|                          |  |                |       | 
|------------------------- |  | -------------- | ----- | 
|Years Ending December 31, |  |               
|                          |  | (In thousands)
|2002                      |  | $              | 648   | 
|2003                      |  |                | 724   | 
|2004                      |  |                | 746   | 
|2005                      |  |                | 768   | 
|2006                      |  |                | 791   | 
|Thereafter                |  |                | 1,444 | 
|                          |  |                |       | 
|                          |  | $              | 5,121 | 
|                          |  |                |       | 

The Company obtained a $177,000 standby letter of
credit from a financial institution on January 16, 2002, in
lieu of security deposits for leased office space. No amounts
have been drawn against the letter of credit.

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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on March 29, 2002.



| |              
| | -------------
| | IMANAGE, INC.



| |     |                        
| | --- | -----------------------
| | By: | /s/ MAHMOOD M. PANJWANI

| |                                   
| | ----------------------------------
| |                                   
| | Mahmood M. Panjwani               
| | President, Chief Executive Officer
| | and Chairman of the Board         

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below constitutes and appoints
Mahmood M. Panjwani and John E. Calonico, Jr., and each or
any one of them, his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign
any and all amendments to this Annual Report on Form 10-K,
and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Commission, granting
unto said attorneys-in-fact and agents, and each of them, full
power and authority to do and perform each and every act and
thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming our
signatures as they may be signed by ours said attorney-in-fact
and any and all amendments to this Annual Report on
Form 10-K.

Pursuant to the requirements of the Securities
Exchange Act of 1934, this Annual Report on Form 10-K has
been signed by the following persons in the capacities and on
the dates indicated.

|                                               |  |                                                                                          |  |               
|---------------------------------------------- |  | ---------------------------------------------------------------------------------------- |  | --------------
|Signature                                      |  | Title                                                                                    |  | Date          
|                                               |  |                                                                                          |  |               
|/s/ MAHMOOD M. PANJWANIMahmood M. Panjwani     |  | Chairman, President and Chief Executive
	Officer(Principal Executive Officer)            |  | March 29, 2002
|/s/ JOHN E. CALONICO, JR.John E. Calonico, Jr. |  | Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer) |  | March 29, 2002
|/s/ RAFIQ R. MOHAMMADIRafiq R. Mohammadi       |  | Chief Technology Officer,
	Vice President of Engineering
	and Director                   |  | March 29, 2001
|/s/ MARK W. PERRYMark W. Perry                 |  | Director                                                                                 |  | March 29, 2001
|/s/ THOMAS L. THOMASThomas L. Thomas           |  | Director                                                                                 |  | March 29, 2001
|/s/ MOEZ R. VIRANIMoez R. Virani               |  | Director                                                                                 |  | March 29, 2001

55



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iMANAGE, INC.






EXHIBITS TO FORM 10-K ANNUAL REPORT

For the year ended December 31,
2001


|        |           |                         |  |                                                                                                                                                                                                                                                                            
|------- | --------- | ----------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |           |                        
|Number  |           | Description of Document
|        |           |                        
|        | 2.1*      |                         |  | Agreement and Plan of Reorganization, dated as of
	April 11, 2000 by and among iManage, Inc., a Delaware
	corporation, NetRight Technologies, Inc., a Delaware corporation
	and a wholly-owned subsidiary of iManage, Inc., and ThoughtStar,
	Inc., a Delaware corporation.
|        | 3.1**     |                         |  | Restated Certificate of Incorporation of iManage,
	Inc.                                                                                                                                                                                                                    
|        | 3.2**     |                         |  | Amended and Restated Bylaws of iManage, Inc.                                                                                                                                                                                                                               
|        | 4.1****   |                         |  | Amended and Restated Rights Agreement as of
	May 5, 2000.                                                                                                                                                                                                                  
|        | 10.1**    |                         |  | Form of Indemnification Agreement for directors
	and executive officers.                                                                                                                                                                                                   
|        | 10.2**    |                         |  | 1997 Stock Option Plan and forms of Incentive
	Stock Option Agreement and Nonstatutory Stock Option Agreement
	thereunder.                                                                                                                                                 
|        | 10.3**    |                         |  | 1999 Employee Stock Purchase Plan and form of
	subscription agreement thereunder.                                                                                                                                                                                          
|        | 10.4**    |                         |  | Loan and Security Agreement dated March 31,
	1999 between Silicon Valley Bank and the Company.                                                                                                                                                                             
|        | 10.5     |                         |  | Loan Modification Agreement dated March 30,
	2001 between Silicon Valley Bank and the Company.                                                                                                                                                                             
|        | 10.6***   |                         |  | Office Lease for 2121 S. El Camino Real, San
	Mateo, California between Cornerstone Properties I, LLC and the
	Company dated November 30, 1998, as amended to date.                                                                                                        
|        | 10.7**    |                         |  | Office Building Lease for 55 East Monroe Street
	between TST 55 East Monroe, LLC and the Company dated January
	1999, as amended to date.                                                                                                                                  
|        | 10.8**    |                         |  | Sublease between the Company and Q-Image
	Corporation dated December 5, 1998.                                                                                                                                                                                              
|        | 10.9****  |                         |  | Employment Agreement, dated September 25,
	1998, between iManage, Inc. and Mark Culhane.                                                                                                                                                                                   
|        | 10.10**** |                         |  | Employment Agreement, dated September 7,
	2000, between iManage, Inc. and Joseph Campbell.                                                                                                                                                                                 
|        | 10.11**** |                         |  | Secured Promissory Note dated April 5, 2000
	by Mark Culhane to iManage, Inc. Stock Pledge Agreement dated
	April 5, 2000 by and between Mark Culhane, the Culhane                                                                                                         
|        | 10.12**** |                         |  | Family Revocable Trust and iManage, Inc.                                                                                                                                                                                                                                   
|        | 10.13     |                         |  | Sublease between Hyperion Solutions Corporation
	and iManage, Inc. dated January 17, 2002.                                                                                                                                                                                 
|        | 21****    |                         |  | Subsidiaries of iManage, Inc.                                                                                                                                                                                                                                              
|        | 23.1      |                         |  | Consent of Independent Accountants.                                                                                                                                                                                                                                        
|        | 24.1      |                         |  | Power of Attorney (see signature page).                                                                                                                                                                                                                                    



---



|  |                                                                   
|- | ------------------------------------------------------------------
|* | Filed with the Registrants Report on
	Form 8-K for June 21, 2000.



|   |                                                                                                                       
|-- | ----------------------------------------------------------------------------------------------------------------------
|** | Filed with the Registrants Registration
	Statement on Form S-1 (File No. 333-86353) on
	September 1, 1999, as amended



|    |                                                                                       
|--- | --------------------------------------------------------------------------------------
|*** | Filed with the Registrants Report on
	Form 10-K for the year ended December 31, 1999.



|     |                                                                                       
|---- | --------------------------------------------------------------------------------------
|**** | Filed with the Registrants Report on
	Form 10-K for the year ended December 31, 2000.



|  |                                                                                       
|- | --------------------------------------------------------------------------------------
| | Filed with the Registrants Report on
	Form 10-Q for the quarter ended March 31, 2001.