IMANAGE INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


[X]		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2003

[ ]

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

950 Tower Lane
Foster City, California 94404
(Address of principal executive offices)

Telephone Number (650) 577-6500
(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 [X]		No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act):


Yes [ ]		No [X]

As of November 7, 2003, there were approximately 25,210,000 shares of the registrant’s common stock outstanding.

TABLE OF CONTENTS


PART I: FINANCIAL INFORMATION
	ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II: OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
EXHIBITS TO FORM 10-Q QUARTERLY REPORT
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

iMANAGE, INC.

Table of Contents


		Page No.

PART I.	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements:
	Condensed Consolidated Balance Sheets September 30, 2003 and December 31, 2002		2
	Condensed Consolidated Statements of Operations Three and nine months ended September 30, 2003 and 2002		3
	Condensed Consolidated Statements of Cash Flows Nine months ended September 30, 2003 and 2002		4
	Notes to Condensed Consolidated Financial Statements		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		32
Item 4.	Controls and Procedures		33
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings		33
Item 6.	Exhibits and Reports on Form 8-K		34
	Signatures		35
	Exhibit Index		36

PART I: FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

iMANAGE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)


			September 30,			December 31,
			2003			2002

Assets
Current assets:
	Cash and cash equivalents		$	40,044		$	29,920
	Short-term investments			4			8,236
	Accounts receivable, net			7,285			8,386
	Prepaid expenses and other current assets			1,570			2,703

		Total current assets		48,903			49,245
Property and equipment, net				1,765			2,319
Goodwill and other intangible assets, net				3,391			3,495
Other assets				2,299			2,610

		Total assets	$	56,358		$	57,669

Liabilities and Stockholders’ Equity
Current liabilities:
	Bank lines of credit, current portion		$	4,057		$	4,808
	Accounts payable			787			2,535
	Accrued liabilities			8,136			5,352
	Deferred revenues			11,252			12,276

		Total current liabilities		24,232			24,971
Bank lines of credit, less current portion				611			1,010

		Total liabilities		24,843			25,981

Commitments and contingencies
Stockholders’ equity:
	Common stock			25			24
	Additional paid-in capital			79,556			77,773
	Deferred stock-based compensation			(121	)		(306	)
	Notes receivable for common stock			—			(330	)
	Accumulated comprehensive income (loss)			(33	)		22
	Accumulated deficit			(47,912	)		(45,495	)

		Total stockholders’ equity		31,515			31,688

		Total liabilities and stockholders’ equity	$	56,358		$	57,669

See accompanying notes to condensed consolidated financial statements.

iMANAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)


				Three Months Ended						Nine Months Ended
				September 30,						September 30,

				2003			2002			2003			2002

Revenues:
	License			$	5,397		$	4,100		$	15,543		$	15,478
	Support and service				7,004			5,491			19,605			15,510

			Total revenues		12,401			9,591			35,148			30,988

Cost of revenues:
	License				362			296			1,092			1,073
	Support and service				2,046			1,829			5,946			5,211

			Total cost of revenues		2,408			2,125			7,038			6,284

			Gross profit		9,993			7,466			28,110			24,704

Operating expenses:
	Sales and marketing				6,368			6,704			18,739			20,272
	Research and development				2,300			2,295			6,774			6,541
	General and administrative				1,088			1,169			4,159			3,365
	Merger-related expenses				1,124			—			1,124			—
	Amortization of intangible assets				34			34			104			759

		Total operating expenses			10,914			10,202			30,900			30,937

		Loss from operations			(921	)		(2,736	)		(2,790	)		(6,233	)
Interest income and other, net					118			277			506			851

		Loss before provision for income taxes			(803	)		(2,459	)		(2,284	)		(5,382	)
Provision for income taxes					50			20			133			60

		Net loss		$	(853	)	$	(2,479	)	$	(2,417	)	$	(5,442	)

Basic and diluted net loss per common share				$	(0.03	)	$	(0.10	)	$	(0.10	)	$	(0.23	)

Shares used in computing basic and diluted net loss per common share					24,551			24,161			24,337			23,948

See accompanying notes to condensed consolidated financial statements.

iMANAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)


					Nine Months Ended
					September 30,

					2003			2002

Cash flows from operating activities:
	Net loss				$	(2,417	)	$	(5,442	)
	Adjustments to reconcile net loss to net cash provided by operating activities:
		Depreciation and amortization				1,273			2,280
		Amortization of deferred stock-based compensation				185			434
		Provision for doubtful accounts and sales returns				446			326
		Stock issued for services				22			—
		Lease termination expense				987			—
		Merger-related expenses				1,124			—
		Changes in operating assets and liabilities:
			Accounts receivable			646			2,508
			Prepaid expenses and other assets			1,444			98
			Accounts payable and accrued liabilities			(1,075	)		(1,273	)
			Deferred revenues			(1,024	)		822

				Net cash provided by (used in) operating activities		1,611			(247	)

Cash flows from investing activities:
	Purchases of property and equipment					(615	)		(1,867	)
	Purchases of investments					(1,003	)		(3,155	)
	Maturities and sales of investments					9,189			16,765

				Net cash provided by (used in) investing activities		7,571			11,743

Cash flows from financing activities:
	Proceeds from bank lines of credit					10,002			10,501
	Payment of bank lines of credit					(11,152	)		(10,476	)
	Payment of notes receivable from stockholders					330			—
	Net proceeds from issuance of common stock					1,762			1,431
	Repurchases of common stock					—			(458	)

				Net cash provided by (used in) financing activities		942			998

Net increase in cash and cash equivalents						10,124			12,494
Cash and cash equivalents at beginning of period						29,920			16,780

Cash and cash equivalents at end of period					$	40,044		$	29,274

Supplemental disclosures of non-cash investing and financing activities:
	Deferred stock-based compensation				$	—		$	413

	Issuance of common stock for services				$	22		$	134

See accompanying notes to condensed consolidated financial statements.

iMANAGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

The condensed consolidated financial statements included herein are unaudited and reflect all adjustments (consisting only of normal recurring adjustments), which are, in the opinion of management, necessary for a fair presentation of the consolidated financial position, results of operations and cash flows for the interim periods. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the iManage, Inc. (“iManage” or the “Company”) Annual Report on Form 10-K for the year ended December 31, 2002. The results of operations for the three and nine months ended September 30, 2003 are not necessarily indicative of the results for the entire year or for any other period.

The consolidated balance sheet as of December 31, 2002 has been derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles. Such disclosures are contained in the Company’s Annual Report on Form 10-K.

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

In December 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure – an amendment of FASB Statement No.123. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 also requires that disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation be displayed more prominently and in a tabular format. Additionally, SFAS No. 148 requires disclosure of the pro forma effect in interim financial statements. The transition and interim disclosure requirements of SFAS No. 148 are effective for years ended after and interim periods beginning after December 15, 2002. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion (“APB”) No. 25 and related interpretations. Accordingly, compensation expense for stock options is measured as the excess, if any, of the estimate of the market value of its stock at the date of the grant over the amount an employee must pay to acquire the Company’s stock. The Company has adopted the interim disclosure provisions of SFAS No. 148 for the quarter ended March 31, 2003.

The compensation cost associated with the Company’s stock-based compensation plans, determined using the Black-Scholes option pricing model, resulted in a material difference from the reported net loss during the three- and nine-month periods ended September 30, 2003 and 2002. Had compensation cost been recognized based on the fair value at the date of grant for options granted during the three- and nine-month periods ended September 30, 2003 and 2002, the pro forma amounts of the Company’s net loss and basic and diluted net loss per common share would have been as follows (in thousands, except per share amounts):


		Three Months Ended						Nine Months Ended
		September 30,						September 30,

		2003			2002			2003			2002

Net loss:
	As reported	$	(853	)	$	(2,479	)	$	(2,417	)	$	(5,442	)
	Stock-based employee compensation included in net loss as reported		46			199			207			434
	Stock-based employee compensation using the fair value method		(1,437	)		(1,310	)		(4,007	)		(4,455	)

Pro forma		$	(2,244	)	$	(3,590	)	$	(6,217	)	$	(9,463	)


		Three Months Ended						Nine Months Ended
		September 30,						September 30,

		2003			2002			2003			2002

Basic and diluted net loss per common share:
	As reported	$	(0.03	)	$	(0.10	)	$	(0.10	)	$	(0.23	)
	Pro forma	$	(0.09	)	$	(0.15	)	$	(0.26	)	$	(0.40	)

The Company calculated the fair value of each option grant on the date of grant during the three- and nine-month periods ended September 30, 2003 and 2002 using the Black-Scholes option pricing model as prescribed by SFAS No. 123 using the following assumptions:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,

	2003			2002			2003			2002

Expected life of option	5 years			5 years			5 years			5 years
Risk-free interest rate		2.82	%		2.50	%		2.20-2.88	%		2.50-4.97	%
Dividend yield		0.00	%		0.00	%		0.00	%		0.00	%
Volatility		109	%		117	%		109	%		117	%
Weighted average fair value	$	4.51		$	2.42		$	3.80		$	5.23

The fair value of each stock purchase right granted under the Employee Stock Purchase Plan (“ESPP”) is estimated using the Black-Scholes option valuation method, with the following weighted-average assumptions:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,

	2003			2002			2003			2002

Expected life of option	6 months			6 months			6 months			6 months
Risk-free interest rate		0.93	%		1.01	%		0.79-1.08	%		1.01	%
Dividend yield		0.00	%		0.00	%		0.00	%		0.00	%
Volatility		109	%		117	%		109	%		117	%
Weighted average fair value	$	2.18		$	5.35		$	2.19		$	3.58

The aggregate fair value of purchase rights granted in the three-month periods ended September 30, 2003 and 2002 was $150,000 and $155,000, respectively, and $399,000 and $314,000 for the nine-month periods ended September 30, 2003 and 2002, respectively.

Note 2. Merger

On August 6, 2003, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Interwoven, Inc., a Delaware corporation, (“Interwoven”) and Mahogany Acquisition Corporation, a Delaware corporation and direct wholly-owned subsidiary of Interwoven (“Merger Sub”). The board of directors of iManage and the Interwoven board of directors unanimously approved the Merger Agreement. The Company’s board of directors recommended that iManage stockholders approve and adopt the Merger Agreement and approve the merger. The Interwoven Board of Directors recommended that Interwoven stockholders approve the issuance of Interwoven common stock in the merger. The close of business on September 30, 2003 was set as the record date for the determination of stockholders entitled to vote on the matters presented at the iManage and Interwoven respective special meetings of stockholders, which are both scheduled to be held on November 18, 2003. On October 9, 2003, the Securities and Exchange Commission declared effective the registration statement on Form S-4 containing the joint proxy statement/prospectus that was mailed to iManage and Interwoven stockholders.

Subject to (i) the approval of the respective stockholders of the Company and Interwoven, (ii) regulatory review, and (iii) other customary conditions, the terms of the Merger Agreement provide that the Company will merge with and into Merger Sub, with Merger Sub surviving as a wholly-owned subsidiary of Interwoven. The

Company’s-stockholders will receive 2.0943 shares of Interwoven common stock and $1.20 in cash, without interest, for each outstanding share of Company common stock. The exchange ratio will be adjusted in the event that a proposed one-for-four reverse stock split of Interwoven common stock is approved by the Interwoven stockholders and implemented prior to the effective time of the merger by and at the discretion of the Interwoven board of directors; iManage stockholders would then receive 0.523575 shares of Interwoven common stock and $1.20 in cash, without interest, for each outstanding share of Company common stock. Assuming the merger is consummated, the Company’s stockholders will own approximately 32.6% of Interwoven’s outstanding common stock. The transaction is expected to close in the fourth quarter of 2003.

In connection with the proposed merger with Interwoven, we have incurred legal, accounting and other professional fees for the three-month period ended September 30, 2003 totaling $1.1 million. We expect to incur additional costs in the fourth quarter related to the proposed transaction; however, the exact amount of such costs cannot be reasonably estimated.

In the third quarter of 2003, the Company recorded approximately $604,000 of license revenue under a reseller agreement with Interwoven. These iManage product revenues were generated as a result of collaborative resale efforts with Interwoven’s and iManage’s sales force including referrals by the iManage sales force to Interwoven.

Note 3. 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. Diluted 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 (in thousands):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,

	2003			2002			2003			2002

Net loss	$	(853	)	$	(2,479	)	$	(2,417	)	$	(5,442	)
Shares used in computing basic net loss per common share		24,551			24,161			24,337			23,948

Basic net loss per common share	$	(0.03	)	$	(0.10	)	$	(0.10	)	$	(0.23	)

Shares used in computing diluted net loss per common share		25,551			24,161			24,337			23,948

Diluted net loss per common share	$	(0.03	)	$	(0.10	)	$	(0.10	)	$	(0.23	)

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 thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,

	2003		2002		2003		2002

Options to purchase common stock		6,084		5,339		6,084		5,339
Common stock subject to repurchase		—		4		—		4

		6,084		5,343		6,084		5,343

Note 4. Comprehensive Income and Loss

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

The comprehensive income (loss) comprises the following items (in thousands):


		Three Months Ended						Nine Months Ended
		September 30,						September 30,

		2003			2002			2003			2002

Net loss		$	(853	)	$	(2,479	)	$	(2,417	)	$	(5,442	)
Other comprehensive income (loss):
	Unrealized loss on available-for-sale investments		(11	)		(33	)		(46	)		(141	)
	Translation adjustment		(12	)		(1	)		(9	)		11

			(23	)		(34	)		(55	)		(130	)

Comprehensive loss		$	(876	)	$	(2,513	)	$	(2,472	)	$	(5,572	)

Accumulated other comprehensive income (loss) as of September 30, 2003 and December 31, 2002 comprises the following (in thousands):


	September 30,			December 31,
	2003			2002

Unrealized gain on available-for-sale investments	$	4		$	50
Cumulative translation adjustment		(37	)		(28	)

	$	(33	)	$	22

Note 5. Stock-Based Compensation

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,

	2003		2002		2003		2002

Cost of revenues	$	—	$	5	$	3	$	20
Sales and marketing		22		139		109		206
Research and development		1		4		10		26
General and administrative		23		51		85		182

	$	46	$	199	$	207	$	434

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

During February 2003, the Company issued 9,453 shares of common stock at fair market value of $2.35 per share for services. On the date of issuance, the common stock had a fair market value of $22,000, which was recorded and expensed as stock-based compensation.

Note 6. Borrowings

As of September 30, 2003, the Company had 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 substantially all of the Company’s assets, intangible assets and intellectual property, includes covenant restrictions requiring the Company to maintain certain minimum profitability levels and limits the Company’s ability to declare and pay dividends.

The revolving line of credit provides for borrowings of up to $5.0 million, which bears interest at the bank’s prime rate plus 0.50%. Borrowings are limited to $5.0 million minus the amount outstanding under the revolving line of credit and outstanding letters of credit, which total $1.3 million at September 30, 2003. At September 30, 2003 and December 31, 2002, the Company had outstanding borrowings against this facility totaling $3.2 million and $3.4 million, respectively. At September 30, 2003, $563,000 was available under the revolving line of credit.

The equipment line of credit, which bears interest at the greater of the prime plus 0.50% or 4.75%, provides for borrowings of up to $6.0 million to finance the purchase of property and equipment. At September 30, 2003 and December 31, 2002, amounts outstanding under the equipment line of credit totaled $1.5 million and $2.4 million, respectively. Principal repayment began in March 2000 and will continue in monthly installments of principal and interest through December 2005.

Interest expense was $22,000 and $36,000 during the three-month periods ended September 30, 2003 and 2002, respectively, and $73,000 and $110,000 for the nine-month periods ended September 30, 2003 and 2002, respectively. Cash paid for interest was $73,000 and $121,000 for the nine-month periods ended September 30, 2003 and 2002, respectively.

Note 7. Recent Accounting Pronouncements

In April 2003, the FASB issued SFAS No. 149, Amendment of SFAS No. 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. In particular, this Statement clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative. It also clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS No. 149 is generally effective for contracts entered into or modified after September 30, 2003 and is not expected to have an impact on the Company’s consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for how a company classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify certain financial instruments as a liability (or as an asset in some circumstances). SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatory redeemable financial instruments of non-public entities. The impact of the effective provisions of SFAS No. 150 have not had a material impact on the Company’s consolidated financial statements. The Company will continue to assess the possible impact of potential changes to this pronouncement as and when they are announced.

In November 2002, FASB issued FIN No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others an Interpretation of FASB Statements No. 5, 57 and 107 and rescission of FASB Interpretation No. 34. The interpretation requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken by issuing the guarantee. The interpretation also requires additional disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees it has issued. The accounting requirements for the initial recognition of guarantees are applicable on a prospective basis for guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for all guarantees outstanding, regardless of when they were issued or modified, during the first quarter of 2003. The adoption of FIN No. 45 did not have a material effect on the Company’s consolidated financial statements. The following is a summary of the agreements that the Company has determined are within the scope of FIN No. 45.

As permitted under Delaware law, the Company has agreements whereby the Company’s officers and directors are indemnified for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The term of the indemnification period is for the officer’s or director’s term in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a director and officer insurance policy that limits the Company’s exposure and enables us to recover a portion of any future amounts paid. As a result of the Company’s insurance policy coverage, the Company believes the estimated fair value of these indemnification

agreements is not significant. All of these indemnification agreements were grandfathered under the provisions of FIN No. 45 as they were in effect prior to December 31, 2002. Accordingly, the Company has no liabilities recorded for these agreements as of September 30, 2003.

The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to these agreements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party – generally, the Company’s business partners, subsidiaries and/or customers, in connection with any U.S. patent or any copyright or other intellectual property infringement claim by any third party with respect to the Company’s products or services. The term of these indemnification agreements is generally perpetual any time after execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. The Company has not incurred significant costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes the estimated fair value of these agreements is not significant. Accordingly, the Company has no liabilities recorded for these agreements as of September 30, 2003.

The Company warrants that its software products will perform in all material respects in accordance with the Company’s standard published specifications in effect at the time of delivery of the licensed products to the customer for the life of the product. Additionally, the Company warrants that its support and services will be performed consistent with generally accepted industry standards. If necessary, the Company would provide for the estimated cost of product and service warranties based on specific warranty claims and claim history. The Company has not incurred significant expense under its product or services warranties. As a result, the Company believes the estimated fair value of these agreements is not significant. Accordingly, the Company has no liabilities recorded for these agreements as of September 30, 2003.

The Company may, at its discretion and in the ordinary course of business, subcontract the performance of any of its services. Accordingly, the Company enters into standard indemnification agreements with its customers, whereby customers are indemnified for other acts, such as personal property damage, of the Company’s subcontractors. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. However, the Company has general and umbrella insurance policies that enable it to recover a portion of any amounts paid. The Company has not incurred significant costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes the estimated fair value of these agreements is not significant. Accordingly, the Company has no liabilities recorded for these agreements as of September 30, 2003.

In January 2003, FASB issued FIN No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51. FIN No. 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN No. 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN No. 46 must be applied for the first interim or annual period beginning after December 15, 2003. In addition, FIN No. 46 requires that the Company make disclosures in its consolidated financial statements for the year ended December 31, 2002 when the Company believes it is reasonably possible that it will consolidate or disclose information about variable interest entities after FIN No. 46 becomes effective. At this time, the Company does not believe it has any variable interest entities. The Company is currently evaluating the impact of the adoption on the Company’s financial position and results of operations.

Note 8. Contingencies

Defendants”); and several investment banking firms that served as underwriters of the initial public offering. Subsequently, the individual defendants stipulated with plaintiffs to dismissal from the case without prejudice, subject to a tolling agreement. The complaint alleges liability under Section 11 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 on the grounds that the registration statement for the initial public 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 predetermined prices. The complaint also alleges that false analyst reports were issued. Plaintiffs seek unspecified monetary damages, attorneys’ fees and other costs. Similar allegations were made in other lawsuits challenging over 300 other public offerings conducted in 1999, 2000 and 2001. The cases were consolidated for pretrial purposes. On February 19, 2003, the Court ruled on all defendants’ motions to dismiss. The motion was denied as to claims under the Securities Act of 1933 in the case involving the Company, as well as in majority of all other cases. The motion was denied as to the claim under Section 10(b) as to the Company, on the basis that the complaint alleged that the Company had made an acquisitions following the initial public offering.

The Company has decided to accept a settlement proposal presented to all issuer defendants. In this settlement, plaintiffs will dismiss and release all claims against the iManage Defendants, in exchange for a contingent payment by the insurance companies collectively responsible for insuring the issuers in all of the public offering cases, and for the assignment or surrender of control of certain claims the Company may have against the underwriters. The iManage Defendants will not be required to make any cash payments in the settlement, unless the pro rata amount paid by the insurers in the settlement exceeds the amount of the insurance coverage, a circumstance which the Company does not believe will occur. The settlement will require approval of the Court, which cannot be assured, after class members are given the opportunity to object to the settlement or opt out of the settlement.

The Company and certain executive officers are defendants in a complaint filed by a former employee alleging ownership of 18,000 shares of the Company’s common stock that were never issued. The complaint alleges breach of contract, breach of fiduciary duty and fraudulent concealment, and the plaintiff is seeking damages of approximately $700,000 plus unspecified punitive damages.

While the Company believes that the allegations against its officers, directors and the Company are without merit, and intends to contest them vigorously, there can be no assurance that these matters will be resolved without costly litigation or in a manner that is not adverse to its 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 these matters.

The Company is a party to other threatened legal action arising from the normal course of business activities. In management’s opinion, resolution of these matters is not expected to have a material adverse impact on the Company’s consolidated results of operations, cash flows or its financial position. However, depending on the amount and timing, an unfavorable resolution of a matter could materially affect the Company’s future results of operations, cash flows or financial position in a particular period.

Note 9. Related Party Transactions

The Company’s Chief Executive Officer is the owner of a consulting company, which subleased space from the Company and provided recruiting services to the Company. 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. The Company discontinued the sublease and recruiting activities during the third quarter of 2002. Additionally, the Company engaged certain of the consulting company’s consultants to provide software development services. In 2002, the charges related to consulting and other service expense were limited to the salary, employer taxes and travel expenses of the related consultant, who was hired by the Company in December of 2002. No amounts were paid for the three- and nine-month periods ended September 30, 2003. The Company paid the consulting company $98,000 and $192,000 for the three- and nine-month periods ended September 30, 2002.

On April 2, 2002, the Company made a loan of $750,000 to its Chief Operating Officer for the purchase of his primary residence. The loan bears interest at 5% per annum and principal and interest are due on the earlier of (i) April 2, 2007, (ii) the date nine months following his voluntary resignation or termination for cause or (iii) any event of default under the collateralized note evidencing the loan. If the Chief Operating Officer exercises common stock

options and sells the related common stock, 50% of the proceeds of the sale must be applied to the amount due under the loan. The loan is collateralized by (i) the shares or proceeds realized by the Chief Operating Officer upon the exercise of options to purchase the Company’s common stock, and (ii) a second deed of trust on the personal residence of the Chief Operating Officer. As of September 30, 2003, the principal balance of the loan was $641,000 and was included in Other Assets in the Company’s condensed consolidated balance sheets.

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 165,000 shares of the Company’s common stock currently beneficially owned by the former Chief Financial Officer. As of September 30, 2003, the principal balance of the loan was $1.0 million and was included in Other Assets in the Company’s condensed consolidated balance sheets.

In June 1999, the Company granted its former Vice President of Business Development an option to purchase 180,000 shares of the Company’s common stock at an exercise price of $1.65 per share. In July 1999, the former officer exercised the option in full with funds the Company loaned her under a full recourse promissory note approved by the Board of Directors. The promissory note accrues interest at the rate of 4.9% per year and was due on July 26, 2001. The due date was extended to September 1, 2003, when the principal and accrued interest was paid in full.

Note 10. Subsequent Event

On October 22, 2003, the Company entered into an agreement to acquire Component Insights India Private Limited (“Component Insights”) for approximately $380,000 in cash. Component Insights is a software development company based in Bangalore, India. The acquisition, which is expected to close in the fourth quarter of 2003 and is subject to customary closing conditions, will be accounted for using the purchase method.

ITEM 2. 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 that 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 Future 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 or risk factors.

Overview

We provide collaborative content management software that enables businesses to manage and collaborate effectively on critical business content across the extended enterprise. Our product suite, iManage WorkSite, delivers document management, collaboration, workflow and knowledge management accessible through a portal in a single integrated Internet solution. We believe that iManage WorkSite improves communication and process efficiency, providing faster response times and a rapid return on investment for our customers. More than 600,000 users in over 1,400 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) 577-6500. We maintain a website at www.iManage.com. Investors can obtain copies of our filings

with the Securities and Exchange Commission from this site free of charge, as well as from the Securities and Exchange Commission website at www.sec.gov.

On August 6, 2003, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Interwoven, Inc., a Delaware corporation, (“Interwoven”) and Mahogany Acquisition Corporation, a Delaware corporation and direct wholly-owned subsidiary of Interwoven (“Merger Sub”). Our board of directors and the Interwoven board of directors unanimously approved the Merger Agreement. Our board of directors recommended that our stockholders approve and adopt the Merger Agreement and approve the merger. The Interwoven Board of Directors recommended that Interwoven stockholders approve the issuance of Interwoven common stock in the merger. The close of business on September 30, 2003 was set as the record date for the determination of stockholders entitled to vote on the matters presented at Interwoven and our respective special meetings of stockholders, which are both scheduled to be held on November 18, 2003. On October 9, 2003, the Securities and Exchange Commission declared effective our registration statement on Form S-4 containing the joint proxy statement/prospectus that was mailed to our stockholders and the Interwoven stockholders.

Subject to (i) the approval of our stockholders and the Interwoven, stockholders, (ii) regulatory review, and (iii) other customary conditions, the terms of the Merger Agreement provide that we will merge with and into Merger Sub, with Merger Sub surviving as a wholly-owned subsidiary of Interwoven. Our stockholders will receive 2.0943 shares of Interwoven common stock and $1.20 in cash, without interest, for each outstanding share of Company common stock. The exchange ratio will be adjusted in the event that a proposed one-for-four reverse stock split of Interwoven common stock is approved by the Interwoven stockholders and implemented prior to the effective time of the merger by and at the discretion of the Interwoven board of directors; our stockholders would then receive 0.523575 shares of Interwoven common stock and $1.20 in cash, without interest, for each outstanding share of Company common stock. Assuming the merger is consummated, our stockholders will own approximately 32.6% of Interwoven’s outstanding common stock. The transaction is expected to close in the fourth quarter of 2003.

Results of Operations

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


			Three Months Ended						Nine Months Ended
			September 30,						September 30,

			2003			2002			2003			2002

Revenues:
	License			44	%		43	%		44	%		50	%
	Support and service			56			57			56			50

		Total revenues		100			100			100			100

Cost of revenues:
	License			3			3			3			3
	Support and service			16			19			17			17

		Total cost of revenues		19			22			20			20

		Gross margin		81			78			80			80

Operating expenses:
	Sales and marketing			51			70			54			65
	Research and development			19			24			19			21
	General and administrative			9			12			12			11
	Amortization of intangible assets			—			1			—			3
	Merger-related expenses			9			—			3			—

		Total operating expenses		88			107			88			100

		Loss from operations		(7	)		(29	)		(8	)		(20	)
Interest income and other, net				1			3			1			3

		Loss before provision for income taxes		(6	)		(26	)		(7	)		(17	)
Provision for income taxes				1			—			—			—

		Net loss		(7	)%		(26	)%		(7	)%		(17	)%

Revenues

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


	Three Months Ended							Nine Months Ended
	September 30,							September 30,

	2003		2002		Change			2003		2002		Change

License	$	5,397	$	4,100		32	%	$	15,543	$	15,478		—	%
Support and service		7,004		5,491		28	%		19,605		15,510		26	%

	$	12,401	$	9,591		29	%	$	35,148	$	30,988		13	%

License. License revenue increased 32% or $1.3 million for the three-month period ended September 30, 2003 from the corresponding period a year ago. For the nine-month period ended September 30, 2003, license revenues increased slightly from the nine-month period in 2002. The increase in license revenue in the three-month period ended September 30, 2003 was primarily due to the increased sales of the iManage WorkSite product suite. Furthermore, we recorded approximately $604,000 of license revenue under a reseller agreement with Interwoven. These iManage product revenues were generated as a result of collaborative resale efforts with Interwoven’s and iManage’s sales force including referrals by the iManage sales force to Interwoven. License revenues accounted for 44% of total revenues for each of the three- and nine-month periods ended September 30, 2003, as compared to 43% and 50% of total revenues for the corresponding prior year periods, respectively. The decrease in license revenues as a percentage of total revenues in the nine-month period ended September 30, 2003 from the same period of 2002 were due to an increase in annual support contracts and professional consulting services. We anticipate that license revenues for the remainder of 2003 as a percentage of total revenues will remain generally consistent with the three- and nine-month periods ended September 30, 2003.

Support and Service. Support and service revenues consisted primarily of customer support and, to a lesser extent, training and consulting services revenues. Support and service revenues increased 28%, or $1.5 million and 26%, or $4.1 million for the three- and nine-month periods ended September 30, 2003 from the corresponding prior year periods. These increases were primarily due to increased support revenues from our growing installed base of customers. Our renewal rates of support contracts continued in the low to mid 90% range for the three- and nine-month periods ended September 30, 2003 and were consistent with the corresponding periods in 2002. As a percentage of revenues, support and service revenue accounted for 56% of total revenues for each of the three- and nine-month periods ended September 30, 2003, as compared to 57% and 50% of total revenues for the corresponding prior year periods, respectively. The increase in support and service revenues as a percentage of total revenues in the three- and nine-month periods ended September 30, 2003 was primarily due to increased customer support revenues, an increase in professional consulting services and declining license revenues. We anticipate that support and service revenues for the remainder of 2003 will increase over 2002 on an annualized basis primarily due to our growing customer installed base and the continued renewal of customers support contracts.

Cost of Revenues

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


	Three Months Ended							Nine Months Ended
	September 30,							September 30,

	2003		2002		Change			2003		2002		Change

License	$	362	$	296		22	%	$	1,092	$	1,073		2	%
Support and service		2,046		1,829		12	%		5,946		5,211		14	%

	$	2,408	$	2,125		13	%	$	7,038	$	6,284		12	%

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 increased 22%, or $66,000 and 2%, or $19,000 for the three- and nine-month periods ended September 30, 2003 from the corresponding prior year periods, respectively. The increase in cost of license revenues were primarily due to slightly higher payments to third party software providers for products embedded or bundled with our products as a result of higher license revenues. As a

percentage of related license revenue, cost of license was 7% for each of the three- and nine-month periods ended September 30, 2003, as compared to 7% for each of the corresponding prior year periods, respectively. We expect that cost of license revenues in 2003 will remain generally consistent as a percentage of related license revenues with 2002. However, cost of license revenues as a percentage of related license revenues may fluctuate in the future due to the mix of software products sold, the extent to which third party software products are bundled with our products and amount of license revenues, as many of the third party software products embedded with our software are under fixed fee arrangements.

Support and Service. Cost of support and service revenues primarily consisted of salaries and other personnel-related expenses, costs associated with supporting our customers with active support contracts and providing consulting and learning services and depreciation of equipment used in support and service activities. Cost of support and service revenues increased 12% or $217,000 and 14% or $735,000 for the three- and nine-month periods ended September 30, 2003 from the corresponding prior year periods, respectively. As a percentage of related revenues, cost of support and service revenue was 29% and 30% for the three- and nine-month periods ended September 30, 2003, respectively, as compared to 33% and 34% for the corresponding prior year periods, respectively. The decrease in cost of support and service revenues as a percentage of the related revenues was due to economies of scale in the product support organization as a result of our growing installed base of customers. We anticipate that cost of support and services revenues will increase in absolute dollars on an annualized basis in 2003 to support and service our installed base of customers.

Operating Expenses

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


	Three Months Ended							Nine Months Ended
	September 30,							September 30,

	2003		2002		Change			2003		2002		Change

Sales and marketing	$	6,368	$	6,704		(5	)%	$	18,739	$	20,272		(8	)%
Research and development		2,300		2,295		—	%		6,774		6,541		4	%
General and administrative		1,088		1,169		(7	)%		4,159		3,365		24	%
Amortization of intangible assets		34		34		—	%		104		759		(86	)%
Merger-related expenses		1,124		—		—	%		1,124		—		—	%

	$	10,914	$	10,202		7	%	$	30,900	$	30,937		—	%

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 marketing programs, including customer conferences, promotional materials, trade shows and advertising. Sales and marketing expenses decreased 5% or $336,000 and 8% or $1.5 million for the three- and nine-month periods ended September 30, 2003 from the corresponding prior year periods, respectively. For the three-month period, the decrease in sales and marketing expense was primarily due to a $176,000 decrease in marketing programs, a $163,000 decrease in facilities-related expenses, a $137,000 reduction in outside consulting services, a $130,000 decrease in seminars and training and a $97,000 decrease in travel expenses, which were partially offset by a $382,000 increase in personnel-related costs. For the nine-month period, the decrease was primarily due to a $641,000 decrease in marketing programs expense, a $514,000 reduction in outside consulting services and a $290,000 decrease in travel expenses. As a percentage of revenues, sales and marketing expenses were 51% and 54% for the three- and nine-month periods ended September 30, 2003 compared to 70% and 65% for the corresponding prior year, respectively. We anticipate that sales and marketing expense in the fourth quarter of 2003, as a percentage of total revenues, will decrease slightly from the three- and nine-month periods of 2003.

Research and Development. Research and development expenses consisted primarily of personnel, third party contractors, facilities and related overhead costs associated with our product development and quality assurance activities. Research and development expenses for the three months ended September 30, 2003 were flat with the prior year while increasing 4%, or $233,000 for the nine-month periods ended September 30, 2003 when compared to the corresponding period last year. For the nine-month period, the increase was primarily due to a $185,000 increase in personnel-related costs, a $142,000 increase in outside consulting services, which were partially offset by a $76,000 reduction in computer hardware and software expenses and a $19,000 decrease in facilities-related

expenses. As a percentage of revenues, research and development expenses were 19% for each of the three- and nine-month periods ended September 30, 2003 compared to 24% and 21% for the corresponding prior year periods. We expect that research and development expense in the fourth quarter of 2003, as a percentage of total revenues, will remain roughly consistent with previous periods.

General and Administrative. General and administrative expenses consisted primarily of personnel and related costs for general corporate functions, including legal, finance, accounting, information technology and human resources as well as insurance and facilities costs. General and administrative expenses decreased by 7%, or $81,000 and increased by 24%, or $794,000 in the three- and nine-month periods ended September 30, 2003 from the corresponding prior year periods, respectively. For the three-month period, the decrease in general and administrative expense was primarily due to a $80,000 decrease in facilities-related expenses. For the nine-month period, the increase was primarily due to a lease termination fee of $987,000 associated with the early termination of our Chicago office lease in the first quarter of 2003, which was partially offset by a $245,000 decrease in facilities-related expenses. The lease termination expense was reimbursed by our new landlord, and we will be amortizing the reimbursement over the life of our new Chicago office lease in accordance with Emerging Issues Task Force Issue No. 88-10, Costs Associated with Lease Modification or Termination. As a percentage of revenues, general and administrative expenses were 9% and 12% for the three- and nine-month periods ended September 30, 2003, respectively, as compared to 12% and 11% for the corresponding prior year periods, respectively. We expect that general and administrative expense will increase slightly as a percentage of revenues in 2003 when compared to 2002 on an annualized basis due to the lease termination expense recorded in the first quarter of 2003. Additionally, we expect to take an additional charge in the fourth quarter of 2003 of approximately $365,000 related to the move to our new facilities in Chicago, IL. The charge relates to rent due on our current facility in Chicago from the date we occupy our new facility until April 2004, the lease termination date. Our new landlord has provided us with a free rent period to offset the rents due on our previous facility.

Amortization of Intangible Assets. Intangible assets consist of goodwill, purchased technology and non-compete agreements associated with our acquisition of ThoughtStar, Inc. (“ThoughtStar”) in June 2000 and the acquisition of technologies in 2001. Goodwill and other acquired intangibles of $17.0 million were recorded in connection with the ThoughtStar acquisition and were amortized, prior to adopting Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets, over their estimated useful lives of two years 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 our Utah facilities.

We adopted SFAS No. 142 as of January 1, 2002 and, as a result, ceased amortizing the remaining unamortized balance of goodwill of $3.4 million. In lieu of amortization, we were required to perform an initial review to determine whether the value of our remaining goodwill asset was impaired and periodic impairment reviews annually thereafter. We completed our review during the first, second and third quarters of 2003 and no impairment charge was required. However, there can be no assurance that a future evaluation will not require an impairment charge to be recorded. We have fully amortized other intangible assets in the quarter ended September 30, 2003.

Merger-related Expenses. In connection with the proposed merger with Interwoven, we have incurred legal, accounting and other professional fees for the three-month period ended September 30, 2003 totaling $1.1 million. We expect to incur additional costs in the fourth quarter related to the proposed transaction, however, the exact amount of such costs may not be estimated until the merger is completed

Interest Income and Other, Net

Interest income and other was $118,000 and $277,000 for the three-month periods ended September 30, 2003 and 2002, respectively. Interest income and other was $506,000 and $851,000 for the nine-month periods ended September 30, 2003 and 2002, respectively. The decrease in interest income and other was primarily due to lower interest rates on our investments portfolio compared to the corresponding prior year periods. For the nine-month period, the impact of lower interest rates in 2003 was partially offset by the gain on foreign currency transactions of approximately $143,000.

Provision for Income Taxes

The provision for income taxes recorded for the quarters ended September 30, 2003 and 2002 is related primarily to international taxes. Deferred tax liabilities and assets are determined based on the temporary difference between the consolidated financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Management periodically evaluates the recoverability of the deferred tax assets and recognizes the tax benefit only as reassessment demonstrates that these assets are realizable. At such time, it is determined that it is not likely that the assets will be realized. Therefore, at September 30, 2003, we have recorded a full valuation allowance against the deferred income tax assets. We will continue to evaluate the recoverability of our deferred tax asset on a quarterly basis.

Liquidity and Capital Resources

Cash provided (used) in the nine-month period ended September 30, 2003 and 2002 is as follows (in thousands):


	Nine Months Ended
	September 30,

	2003		2002

Cash provided by (used in) operating activities	$	1,611	$	(247	)
Cash provided by investing activities	$	7,571	$	11,743
Cash provided by financing activities	$	942	$	998

At September 30, 2003, we had cash, cash equivalents and short-term investments of $40.0 million.

Operating Activities. For the nine-month period ended September 30, 2003, net cash provided by operating activities was $1.6 million. The adjusted cash generated for the first nine months of 2003 was $1.6 million, which is derived from our net loss of $2.4 million after excluding the effects of non-cash items including lease termination expense of $987,000, depreciation and amortization of $1.3 million, merger-related expense of $1.1 million, provision for doubtful accounts and sales returns of $446,000 and deferred stock-based compensation of $185,000. Additional cash was generated from a decrease in accounts receivable of $646,000, a decrease in prepaid expenses and other assets of $1.4 million, which was offset by a decrease in accounts payable and accrued liabilities of $1.1 million and a decrease in deferred revenues of $1.0 million. For the nine-month period ended September 30, 2002, net cash used in operating activities was $247,000. The adjusted cash usage was $2.4 million, which derived from our net loss of $5.4 million after excluding the effects of non-cash items including depreciation and amortization of $2.3 million, deferred stock-based compensation of $434,000 and provision for doubtful accounts and sales returns of $326,000. Additional cash was generated from a decrease of $2.5 million in accounts receivable, an increase of $822,000 in deferred revenues and an decrease in prepaid expenses and other assets of $98,000, which were partially offset by a decrease in accounts payable and accrued liabilities of $1.3 million

A number of non-cash items were charged to expense and increased our net loss. These items include depreciation and amortization of property and equipment and intangible assets, amortization of deferred stock-based compensation and provisions for doubtful accounts and sales returns. The extent to which these non-cash items increase or decrease in amount and increase or decrease our future operating results will have no corresponding impact on our cash flows.

Our primary source of operating cash flow is the collection of accounts receivable from our customers offset by the timing of payments to our vendors and service providers. We measure the effectiveness of our collection efforts by an analysis of average accounts receivable days outstanding (“days outstanding”). Days outstanding were 53 days and 63 days for the quarter ended September 30, 2003 and 2002, respectively. Our days outstanding decreased in 2003 from the same period of 2002 primarily due to our continued focus on cash collections and higher support and service revenues, which have shorter collection cycles than license revenues. Collections of accounts receivable and related days outstanding will fluctuate in future periods due to the timing and amount of our future revenues, payment terms on customer contracts and the effectiveness of our collection efforts.

Our operating cash flows will also be impacted in the future based on the timing of payments to our vendors.

We endeavor to pay our vendors and service providers in accordance with invoice terms and conditions. The timing of cash payments in future periods will be impacted by the nature of vendor arrangements and management’s assessment of our cash inflows.

Investing Activities. Net cash provided by investing activities was $7.5 million for the nine-month ended September 30, 2003. Our investing cash flow primarily resulted from $9.2 million of proceeds received from the maturity and sale of investments, partially offset by $1.0 million to purchase investment securities and $615,000 for the purchase of property and equipment. Net cash provided by investing activities was $11.7 million during for the nine-month ended September 30, 2002. This primarily resulted from $16.8 million of proceeds received from the maturity and sale of investments, partially offset by $3.2 million to purchase investment securities and the purchase of property and equipment of $1.9 million.

We have classified our investment portfolio as “available for sale,” and our investments are made with capital preservation and liquidity as our primary objectives. We generally hold investments in commercial paper, corporate bonds and U.S. government agency securities to maturity; however, we may sell an investment at any time if the quality rating of the investment declines, the yield on the investment is no longer attractive or we are in need of cash. Because we invest only in investment securities that are highly liquid with a ready market, we believe that the purchase, maturity or sale of our investments has no material impact on our overall liquidity.

We anticipate that we will continue to purchase property and equipment necessary in the normal course of our business. The amount and timing of these purchases and the related cash outflows in future periods is difficult to predict and is dependent on a number of factors including our hiring of employees, the rate of change of computer hardware and software used in our business and our business outlook.

Financing Activities. Net cash provided by financing activities of $942,000 for the nine-month ended September 30, 2003 included $11.2 million repayments of bank lines of credit, offset by proceeds from bank lines of credit of $10.0 million, the net proceeds from issuance of common stock of $1.8 million and cash receipts from the repayment of notes from stockholders of $330,000. Net cash provided by financing activities of $998,000 for the nine-month ended September 30, 2002 included $10.5 million of proceeds from bank lines of credit and $1.4 million from the net proceeds from issuance of common stock, partially offset by repayments of bank lines of credit of $10.5 million and $458,000 in repurchases of common stock.

Our cash flows from financing activities are primarily the result of borrowings and payments under our lines of credit, cash receipts from the issuance of common stock and our repurchases of common stock. We have used our lines of credit primarily to finance purchases of property and equipment. We anticipate that we will continue to use lines of credit to finance our equipment purchases to the extent that such financing is available to us on acceptable terms.

We receive cash from the exercise of stock options and the sale of stock under our Employee Stock Purchase Plan. While we expect to continue to receive these proceeds in future periods, the timing and amount of such proceeds is difficult to predict and is contingent on a number of factors including the price of our common stock, the number of employees participating in our stock option plans and our Employee Stock Purchase Plan and general market conditions.

Lines of Credit. As of September 30, 2003, we had a revolving line of credit with a bank for $5.0 million, which bears interest at the bank’s prime rate plus 0.50%. Borrowings were limited to $5.0 million minus the amount outstanding under the revolving line of credit and outstanding letters of credit. This line of credit is collateralized by substantially all of our assets. As of September 30, 2003, we borrowed $3.2 million under this facility and had three outstanding standby letters of credit totaling $1.3 million primarily related to facilities lease obligations. In addition, as of September 30, 2003, we had equipment lines of credit with a bank for $6.0 million, which bears interest at the greater of the bank’s prime rate plus 0.50% or 4.75%. As of September 30, 2003, we had $1.5 million outstanding under the equipment line of credit. Principal payments due under these line of credit facilities for 2003, 2004, 2005 and 2006 were $3.5 million, $749,000, $427,000 and $35,000, respectively.

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

(a) maintain unrestricted cash balances including short- and long-term investments greater than $25.0 million;

(b) not incur a net loss, as defined, in any quarter greater than:

$2.0 million for any one quarter; or
$3.7 million for any two sequential quarters.

Net loss is defined as loss after taxes excluding amortization and depreciation expense.

We were in compliance with all of these financial covenants as of September 30, 2003.

We currently anticipate that our cash, cash equivalents and short-term investments, together with our existing lines of credit, will be sufficient to meet our anticipated needs for working capital and capital expenditures for the next 12 months. However, we may be required, or could elect, to seek additional funding at any time. We cannot provide assurance that additional equity or debt financing, if required, will be available on acceptable terms, if at all.

On March 17, 2003, we exercised an option to terminate the lease for our existing facility in Chicago, Illinois, which will now expire on April 30, 2004, and, on March 21, 2003, entered into a new facilities lease for approximately 39,000 square feet in the Chicago area. In connection with the lease termination, we incurred a lease termination fee of $987,000, which was charged to general and administrative expense in the first quarter of 2003. The new facilities lease commences no later than August 1, 2003, is non-cancelable and expires in 2016. Our research and development, customer support, training and certain sales and marketing personnel are expected to relocate to this new facility in the fourth quarter of 2003. We expect to charge to expense, upon vacating the facility subject to the terminated lease, the remaining lease payments due under the terminated lease agreement from the date of our occupancy of the new facility to April 30, 2004. We currently estimate the amount of this charge to be $500,000, and we expect to record the charges in the quarterly period ended December 31, 2003. The new lease agreement provides for cash payments from the landlord sufficient to offset the lease termination fee and provides for a period of free rent for the initial 12 months of the lease agreement including operating costs, and an additional 2 months of free rent, excluding operating costs, in each of the second, third and fourth years of the lease agreement. The free rent period and the cash payments from the landlord will reduce rent expense for the new facility on a ratable basis over the term of the new lease.

Financial Risk Management

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 consolidated financial results. Our primary exposures relate to non-U.S. dollar-denominated revenues and operating expenses in Europe, Australia and Canada. At the present time, our foreign currency exposure is not significant; therefore, we are not currently engaged in hedging activity.

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 condensed consolidated balance sheets 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.

Critical Accounting Policies

In preparing our condensed consolidated financial statements, we make estimates, assumptions and judgments that can have a significant impact on our revenues, loss from operations and net loss, as well as on the value of certain assets and liabilities on our condensed consolidated balance sheet. We believe that there are several accounting policies that are critical to an understanding of our historical and future performance, as these policies affect the reported amounts of revenues, expenses and significant estimates and judgments applied by management. While there are a number of accounting policies, methods and estimates affecting our condensed consolidated financial statements, areas that are particularly significant include:

• revenue recognition;

• estimating the allowance for doubtful accounts and sales returns;

• assessment of the probability of the outcome of our current litigation; and

• valuation of long-lived assets, intangible assets and goodwill.

Revenue Recognition. Our revenue recognition policy is defined in Note 2, Summary of Significant Accounting Policies, to our consolidated financial statements included in Item 15 of our 2002 Annual Report on Form 10-K.

Several factors require us to defer recognition of revenue for a significant period of time after entering into a license agreement. These factors include:

• payment terms due beyond our normal payment terms; and

• contracts in which collectibility from the customer is not reasonably assured.

Our customers may request payment terms beyond our normal terms. We evaluate the payment terms associated with each transaction. If a portion of the fee is due after our normal payment terms, which range from 30 days to 180 days from invoice date for professional services customers and 30 days to 120 days for all others, we recognize the revenue on the payment due date, assuming collection is reasonably assured.

We assess collectibility based on a number of factors, including past transaction history, our previous bad debt experience and the overall credit-worthiness of the customer. We use various financial reporting and rating services to review customer financial viability and request, from time to time, financial statements from our customers. We generally do not require collateral from our customers, and our bad debt experience has not been significant in relation to our overall revenues. If collection is not reasonably assured, revenue is deferred and recognized at the time collection becomes reasonably assured, which is generally upon receipt of cash.

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 the software performs as requested. If these services are included as part of an arrangement, we recognize the entire fee exclusive of the support services, 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.

We derived a significant portion of our revenues from resellers of our products under our standard software license agreement. Revenue on shipments to resellers is generally recognized when the resellers sell the product to the end-user customer. We assess the collectibility from resellers based on factors including past transaction history, previous bad debt experience and the overall financial condition and credit worthiness of the reseller. If collection from the reseller is not reasonably assured, revenue is deferred and recognized at the time collection becomes reasonably assured, which is generally upon receipt of cash.

Allowance for Doubtful Accounts. The preparation of our condensed 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 condensed 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 provide 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 September 30, 2003 and December 31, 2002, our allowance for doubtful accounts balance, which related primarily to specific accounts where we believe collection is not probable and to a lesser extent our historical experience applied to accounts receivable not specifically reserved, was $249,000 and $322,000, respectively. These amounts represent 3% and 4% of total accounts receivable at September 30, 2003 and December 31, 2002, respectively.

Allowance for Sales Returns. From time to time, a customer may return to us some or all of the software purchased. While our software and reseller agreements generally do not provide for a specific right of return, we may accept product returns in certain circumstances. To date, sales returns have been infrequent and not significant

in relation to our total revenues. We make an estimate of our expected returns and provide an allowance for sales returns in accordance with SFAS No. 48, Revenue Recognition When Right of Return Exists. In determining the amount of the allowance required, management specifically analyzes its revenue transactions, customer software installation patterns, historical return pattern, current economic trends, customers balances where the risk of product return is high and changes in its customer payment terms when evaluating the adequacy of the allowance for sales return account. During 2002 and 2001, sales returns as a percentage of license revenues were approximately 2% and 2%, respectively, and generally related to revenues recognized in the prior 90 to 180 days. Our historical estimates of product returns have approximated actual returns. If our sales returns experience were to increase by an additional 1% of license revenues, our allowance for sales returns at September 30, 2003 would increase by approximately $54,000. At September 30, 2003 and December 31, 2002, our allowance for sales return account was $437,000 and $192,000, respectively.

Litigation. We are the target of several securities class action complaints, other litigation and threatened 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 and may revise our estimates. Any such assessments and estimation could materially impact our consolidated results of operations and financial position.

Valuation of Long-lived Assets, Intangible Assets and Goodwill. We assess the impairment of long-lived assets and intangible assets whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. Factors considered important that could trigger impairment include, but are not limited to, 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 general economic trends;

• significant decline in our stock price for a sustained period; and

• our market capitalization relative to net book value.

When one or more of the above indicators of impairment occurs we estimate the value of property and equipment, long-lived assets and intangible assets to determine whether there is impairment. We measure any impairment based on a projected discounted cash flow method, which requires us to make several estimates including the estimated cash flows associated with the asset, the period over which these cash flows will be generated and a discount rate commensurate with the risk inherent in our business model. These estimates are subjective. If we made different estimates, it could materially impact the estimated fair value of these assets and the conclusions we reached regarding any impairment. To date, we have not identified any triggering events that would require us to perform this analysis.

We are required to perform an impairment review of goodwill on at least an annual basis. We performed the goodwill impairment analysis required by SFAS No. 142 as of January 1, 2002. We concluded that goodwill was not impaired. We also performed our annual analysis of goodwill on October 1, 2002 and concluded that goodwill was not impaired. We will continue to test for impairment on an annual basis and on an interim basis if an event occurs or circumstances change that would more likely than not reduce the fair value of our reporting unit below its carrying amount.

Recent Accounting Pronouncements

For recent accounting pronouncements see Note 6. Recent Accounting Pronouncements to the Condensed Consolidated Financial Statements under Part I., Item. 1.

Factors That May Impact Future Operating Results

There are numerous risks associated with our recently announced and pending merger with Interwoven, Inc.

We have recently announced that we have entered into a merger agreement with Interwoven, pursuant to which we will merge with and into a direct wholly-owned subsidiary of Interwoven, which will be the surviving entity. As a result of the merger, our stockholders will own approximately 32.6% and the existing Interwoven stockholders will own approximately 67.4% of the combined organization. Such merger is subject to a number of risks, including risks related to:

• unanticipated costs related to the merger;

• diversion of management’s time and attention from our existing business;

• disruption of our ongoing business operations;

• potential loss of key employees and employee productivity;

• adverse effects on existing business relationships with customers and customer prospects;

• potential revenue declines as a result of customer and potential customer uncertainty;

• the inability to successfully integrate our operations, products and personnel with those of Interwoven in a timely and efficient manner, or at all;

• the inability to achieve the strategic objectives and anticipated potential benefits of the merger;

• potential litigation associated with the pending transaction;

• the economic environment of the enterprise software industry; and

• general economic conditions.

In addition, if the merger is not consummated for any reason, we may be subject to a number of risks, including:

• the effect of incurring substantial costs related to the merger, such as legal, accounting and financial advisor fees, which will be required to be paid even if the merger is not consummated;

• our ability to retain key employees may be adversely affected;

• our relationships with customers may be adversely affected;

• the perception of the Company as a viable independent company may be damaged;

• continuing to operate as an independent company, or finding another merger partner or acquirer able to complete an alternative merger or sale of the company on terms as favorable to us and our stockholders as the merger; and

• depending upon the reason for termination of the merger, the possible requirement that we pay a substantial termination fee to Interwoven.

We do not know whether the merger will close, or, if it closes, that we will be able to successfully integrate our business, products, technologies or personnel with those of Interwoven or meet our financial or other strategic objectives. Any failure to do so could seriously harm our business, financial condition and results of operations. Our business is different from that of Interwoven’s, and Interwoven’s results of operations, as well as the price of Interwoven’s common stock, may be affected by factors different than those affecting our results of operations and the price of our common stock.

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

We have incurred operating losses on a quarterly and annual basis throughout our history. As of September 30, 2003, we had an accumulated deficit of $47.9 million. We must increase our revenues to achieve consistently profitable operations and positive cash flow. If our revenues do not grow, we will not be consistently profitable. In fact, our revenues may decline over corresponding periods resulting in greater operating losses and significant negative cash flows.

Our future success depends on our ability to continue to sell to law firms and other professional service firms.

We derived 66% of our license revenues for the quarter ended September 30, 2003 from sales to law firms and professional service firms. In order for us to sustain and grow our business, we must continue to successfully sell our software products and services into this vertical market. Failure to successfully sell to law firms and professional service firms will have a significant and adverse affect on our consolidated financial condition and results of operation.

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

Because our solution is mission-critical to many of our customers, the process of contractual negotiation may be protracted. The additional time needed to negotiate mutually acceptable terms that culminate in an agreement to license our products could extend the sales 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 in which we are required to deliver either unspecified additional products or specified product 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 revenue 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.

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.

Our future success is dependent on our ability to sell software licenses and services to customers outside of professional service firms, particularly large multi-national corporations in financial services and manufacturing and governments. 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. Even if we are successful in hiring and training sales teams, customers in other industries may not perceive the value in or require our collaborative content management software 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, return on investment, 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 sales transaction is subject to a number of factors, which makes our quarterly revenues difficult to forecast. These factors include but are not limited to:

• Licensing of our software products is often an enterprise-wide decision by our customers that involves many factors. Accordingly, 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.

Specifically, for the first nine-months of 2003 and throughout 2002, we continued to experience lengthening sales cycles due to increased organizational reviews by sales prospects of software purchases, regardless of transaction size. A continued lengthening in sales cycles and our inability to predict these trends could result in lower than expected future revenue, which would have a material impact on our operating results and, correspondingly, our stock price.

Declining economic conditions and significant world events have affected and could continue to negatively impact our revenues and profits.

Our revenue growth and profitability depend on the overall demand for collaborative content management software platforms and applications. Prolonged economic weakness in the United States and declining economic conditions worldwide have resulted in and may continue to result in cutbacks by our customers in the purchase of our software products and services, longer sales cycles and lower average selling prices and postponed or canceled orders. Specifically, we experienced a shortfall in our anticipated revenues for the quarter ended September 30, 2002, which we believe was in part due to slowing information technology spending in reaction to declining economic conditions. To the extent that the current economic downturn continues or increases in severity, we believe demand for our products and services, and therefore our future revenues, could be further impacted.

Our financial results could also be significantly impacted by geopolitical concerns and world events. Specifically, our revenues for the third quarter ended September 30, 2001 were negatively impacted by delays in customer orders and longer sales cycles resulting from terrorist attacks on the World Trade Center buildings and the Pentagon. We also experienced delays in some customer orders in the first quarter of 2003 as a result of concerns over the war in Iraq. Our revenues and financial results could be negatively impacted to the extent geopolitical concerns continue and similar events occur or are anticipated to occur.

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.

In addition, a significant portion of our revenues is derived from support contracts purchased by our existing customers. If our customers do not renew their support contracts or our current renewal rate experience declines, our revenues will decline and negatively affect our operating results.

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, such as the shortfall we experienced for the quarter ended September 30, 2002, will 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 final 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 and training services are negatively impacted in the fourth quarter due to the holiday season.

Competition from providers of software enabling content and collaboration management among businesses is increasing, 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, increased sales cycles 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., FileNet Corporation, Hummingbird Ltd., Intraspect Software, Inc., Microsoft Corporation, Open Text Corporation; Stellent, Inc. and NetDocuments, Inc.;

• Web content management companies such as Vignette Corporation;

• enterprise Web portal companies such as Plumtree;

• intranet and groupware companies such as IBM, Microsoft Corporation, 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. Competitive pressures may also increase with the consolidation of competitors within our market and partners in our distribution channel, such as the acquisition of eRoom Technology, Inc. by Documentum, Inc., Kramer Lee & Associates by Hummingbird Ltd., Epicentric, Inc. by Vignette Corporation and the proposed acquisition of Documentum, Inc. by EMC Corporation.

In recent quarters, some of our competitors have drastically reduced their price proposals in an effort to strengthen their bids and expand their customer bases. Such tactics, even if unsuccessful, could delay decisions by some customers that would otherwise purchase the iManage solution and may reduce the ultimate selling price of our software and services.

Our revenues from international operations are a significant part of our overall operating results. We may not successfully develop these international markets, which could harm our business.

We have established sales offices in international locations. For the quarter ended September 30, 2003, revenues from these international operations constituted approximately 21% of our total revenues. We anticipate

devoting significant resources and management attention to expanding international opportunities, which 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;

• multiple, conflicting and changing governmental laws and regulations; and

• foreign currency restrictions and exchange rate fluctuations.

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 51% of our license bookings from resellers of our application suite for the quarter ended September 30, 2003. Therefore, our future success depends on our ability to attract, retain, motivate and train resellers of our products. Similarly, the financial failure of any of our resellers could result in lower revenues and the write-off of amounts due from the failed reseller.

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.

A portion of our revenues is influenced by the recommendation of our collaborative content management 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, which could 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 higher expense levels and delays in our ability to recognize revenue.

If the emerging market for collaborative content management software does not develop as quickly as we expect, our business will suffer.

The market for our collaborative content management 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 collaborative content management 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.

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.

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 collaborative content management 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 the first quarter of 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.

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 collaborative content management 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.

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 consolidated 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, Sun Microsystems, Inc., 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 suite of products supports Windows, Solaris and Linux operating environments. If other platforms become more widely used, we could be required to convert our server application products to additional 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 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 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 (i) 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 (ii) 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 iManage WorkSite suite products, 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. 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.

New legislative, higher insurance cost and potential new accounting pronouncements are likely to impact our future consolidated financial position and results of operations.

Recently, there have been significant regulatory changes, including the Sarbanes-Oxley Act of 2002, and there may be new accounting pronouncements or regulatory rulings that will have an impact on our future financial position and results of operations. The Sarbanes-Oxley Act of 2002 and other rule changes and proposed legislative initiatives following several highly publicized corporate accounting and corporate governance failures are likely to increase general and administrative costs. In addition, insurance companies significantly increased insurance rates as a result of higher claims over the past year, and our rates for our various insurance policies increased substantially. Further, proposed initiatives may result in changes in accounting rules, including legislative and other proposals to account for employee stock options as an expense. These and other potential changes could materially increase the expenses we report under accounting principles generally accepted in the United States of America and adversely affect our operating results.

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.

Beginning on July 11, 2001, several securities class action complaints were filed against us, the underwriters of our initial public offering, our directors and certain officers in the United States District Court for the Southern District of New York. The cases were consolidated and the litigation is now captioned as In re iManage, Inc. Initial Public Offering Securities Litigation, Civ. No. 01-6277 (SAS) (S.D.N.Y.), related to In re Initial Public Offering Securities Litigation, 21 MC 92 (SAS) (S.D.N.Y). The operative amended complaint is brought purportedly on behalf of all persons who purchased our common stock from November 17, 1999 through December 6, 2000. It names as defendants the Company and five of our present and former officers (the “iManage Defendants”); and several investment banking firms that served as underwriters of the initial public offering. Subsequently, the individual defendants stipulated with plaintiffs to dismissal from the case without prejudice, subject to a tolling agreement. The complaint alleges liability under Section 11 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 on the grounds that the registration statement for the initial public 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 predetermined prices. The complaint also alleges that false analyst reports were issued. Plaintiffs seek unspecified monetary damages, attorneys’ fees and other costs. Similar allegations were made in other lawsuits challenging over 300 other public offerings conducted in 1999, 2000 and 2001. The cases were consolidated for pretrial purposes. On February 19, 2003, the Court ruled on all defendants’ motions to dismiss. The motion was denied as to claims under the Securities Act of 1933 in the case

involving us, as well as in majority of all other cases. The motion was denied as to the claim under Section 10(b) as to us, on the basis that the complaint alleged that we had made an acquisitions following the initial public offering.

We have decided to accept a settlement proposal presented to all issuer defendants. In this settlement, plaintiffs will dismiss and release all claims against the iManage Defendants, in exchange for a contingent payment by the insurance companies collectively responsible for insuring the issuers in all of the public offering cases, and for the assignment or surrender of control of certain claims we may have against the underwriters. The iManage Defendants will not be required to make any cash payments in the settlement, unless the pro rata amount paid by the insurers in the settlement exceeds the amount of the insurance coverage, a circumstance which we do not believe will occur. The settlement will require approval of the Court, which cannot be assured, after class members are given the opportunity to object to the settlement or opt out of the settlement.

We and certain of our executive officers are defendants in a complaint filed by a former employee alleging ownership of 18,000 shares of our common stock that were never issued. The complaint alleges breach of contract, breach of fiduciary duty and fraudulent concealment, and the plaintiff is seeking damages of approximately $700,000 plus unspecified punitive damages.

While we believes that the allegations against our officers, directors and the Company are without merit, and intends to contest them vigorously, there can be no assurance that these matters will be resolved without costly litigation or in a manner that is not adverse to its 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 these matters.

We are a party to other threatened legal actions arising from the normal course of business activities. In management’s opinion, resolution of these matters is not expected to have a material adverse impact on our consolidated results of operations, cash flows or our financial position. However, depending on the amount and timing, an unfavorable resolution of a matter could materially affect our future results of operations, cash flows or financial position in a particular period.

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 not 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. We have in fact received two such claims that we are currently evaluating. 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.

We may be unable to retain our 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 setting forth a term of employment. 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, 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.

Future write-offs of intangible assets may impact our future operating results.

We have $3.4 million in goodwill and $1.2 million of prepaid license royalties at September 30, 2003; 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. Any adverse change in our recoverability assumptions could result in the writing down of our intangible assets, which could materially impact our consolidated results of operations and financial position.

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. Moreover, two of our executive officers and one of our directors have established systematic plans under which they will sell a pre-determined number of shares per quarter, provided that a certain minimum price is obtained. These plans may be perceived poorly in the market, and together with the increased number of shares being made available on the market, these plans may have an adverse effect on our share price. Executive officers and board members may also sell stock outside of the systematic plan at their election. In addition, a fall in our stock price could impair our ability to raise capital through the sale of additional stock.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We develop products in the United States and market our products in North America, Europe and to a lesser extent in Asia/Pacific. As a result, our financial results could be affected by changes in foreign currency exchange rates or weak economic conditions in foreign markets. Because significant portions of our revenues are currently denominated in U.S. dollars, a weakening or strengthening of the dollar could make our products more or less competitive in foreign markets. Our interest income is sensitive to changes in the general level of U.S. interest rates, particularly since the majority of our investments are in short-term instruments, including money market funds and commercial paper, and long-term investments, with maturities currently not exceeding one year. Our interest expense is also sensitive to changes in the general level of U.S. interest rates because the interest rate charged varies with the prime rate. Due to the nature of our investments, we believe that there is not a material exposure to such risk.

Our investment portfolio consisted of fixed income securities of $35.8 million as of September 30, 2003 and $36.8 million as of December 31, 2002. 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 September 30, 2003 and December 31, 2002, 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.

The following is a summary of our investment portfolio (in thousands):


	September 30, 2003

			Gross		Gross		Estimated
			Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value

Money market funds		12,149		—		—		12,149
Government agencies		23,598		4		—		23,602

	$	35,747	$	4	$	—	$	35,751


		Estimated		Weighted
		Fair		Average
		Value		Interest Rate

Included in:
	Cash and cash equivalents	$	35,747		1.16	%
	Short-term investments		4		1.57	%

		$	35,751


	December 31, 2002

			Gross		Gross		Estimated
			Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value

Money market funds	$	11,810	$	—	$	—	$	11,810
Government agencies		9,583		3		—		9,586
Corporate obligations		15,404		47		—		15,451

	$	36,797	$	50	$	—	$	36,847


		Estimated		Weighted
		Fair		Average
		Value		Interest Rate

Included in:
	Cash and cash equivalents	$	28,611		1.58	%
	Short-term investments		8,236		3.97	%

		$	36,847

The following is a summary of our portfolio investments by contractual maturity (in thousands):


	September 30,		December 31,
	2003		2002

Due in one year or less	$	35,751	$	36,847
Due after one year through two years		—		—

	$	35,751	$	36,847

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our Company’s Chief Executive Officer (“CEO”), Mahmood M. Panjwani, and Chief Financial Officer (“CFO”), John E. Calonico, Jr., we evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Beginning on July 11, 2001, several securities class action complaints were filed against the Company, the underwriters of its initial public offering, its directors and certain officers in the United States District Court for the Southern District of New York. The cases were consolidated and the litigation is now captioned as In re iManage, Inc. Initial Public Offering Securities Litigation, Civ. No. 01-6277 (SAS) (S.D.N.Y.), related to In re Initial Public Offering Securities Litigation, 21 MC 92 (SAS) (S.D.N.Y). The operative amended complaint is brought purportedly on behalf of all persons who purchased the Company’s common stock from November 17, 1999 through December 6, 2000. It names as defendants the Company and five of its present and former officers (the “iManage Defendants”); and several investment banking firms that served as underwriters of the initial public offering. Subsequently, the individual defendants stipulated with plaintiffs to dismissal from the case without prejudice, subject to a tolling agreement. The complaint alleges liability under Section 11 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 on the grounds that the registration statement for the initial public 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 predetermined prices. The complaint also alleges that false analyst reports were issued. Plaintiffs seek unspecified monetary damages, attorneys’ fees and other costs. Similar allegations were made in other lawsuits challenging over 300 other public offerings conducted in 1999, 2000 and 2001. The cases were consolidated for pretrial purposes. On February 19, 2003, the Court ruled on all defendants’ motions to dismiss. The motion was denied as to claims under the Securities Act of 1933 in the case involving the Company, as well as in majority of all other cases. The motion was denied as to the claim under Section 10(b) as to the Company, on the basis that the complaint alleged that the Company had made an acquisitions following the initial public offering.

of contract, breach of fiduciary duty and fraudulent concealment, and the plaintiff is seeking damages of approximately $700,000 plus unspecified punitive damages.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

See Index to Exhibits on page 36 hereof. The exhibits listed in the accompanying Index to Exhibits are filed as part of this report.

(b) Reports on Form 8-K

The Company filed a Current Report on Form 8-K on July 16, 2003. Pursuant to the interim guidance provided in Securities and Exchange Commission Release No. 33-8216, the disclosure in the Current Report on Form 8-K was furnished under Item 12 of Form 8-K.

The Company filed a Current Report on Form 8-K on August 8, 2003 in which it announced that it had entered into an Agreement and Plan of Merger dated as of August 6, 2003 with Interwoven, Inc. and Mahogany Acquisition Corporation, a direct wholly-owned subsidiary of Interwoven.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in Foster City, County of San Mateo, State of California, on the 12^th day of November 2003.


		iMANAGE, INC. (Registrant)

		By:

		/s/ Mahmood M. Panjwani

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

		/s/ John E. Calonico, Jr.

		John E. Calonico, Jr.
		Vice President and Chief Financial Officer

iMANAGE, INC.

EXHIBITS TO FORM 10-Q QUARTERLY REPORT
For the Quarter Ended September 30, 2003

Incorporated by Reference

Form

Date

Exhibit No.

Filed Herewith

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.

8-K

6/21/00

2.1

2.2

Agreement and Plan of Merger by and among Interwoven, Inc., Mahogany Acquisition Corporation and iManage, Inc.

8-K

8/8/03

2.1

3.1

Restated Certificate of Incorporation of iManage, Inc.

S-1/A-1

10/8/99

3.1

3.2

Amended and Restated Bylaws of iManage, Inc.

S-1/A-1

10/8/99

3.2

4.1

Amended and Restated Rights Agreement as of May 5, 2000.

10-K

12/31/00

4.1

10.1

Form of Indemnification Agreement for directors and executive officers.

S-1

9/1/99

10.1

10.2

1997 Stock Option Plan and forms of Incentive Stock Option Agreement and Nonstatutory Stock Option Agreement thereunder.

S-1/A-1

10/8/99

10.2

10.3

1999 Employee Stock Purchase Plan and form of subscription agreement thereunder.

S-1/A-1

10/8/99

10.3

10.4

Loan and Security Agreement dated March 31, 1999 between Silicon Valley Bank and the Company.

S-1

9/1/99

10.4

10.5

Loan Modification Agreement dated March 30, 2001 between Silicon Valley Bank and the Company.

10-K

12/31/00

10.5

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-K

12/31/99

10.5

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.

S-1

9/1/99

10.6

10.8

Sublease between the Company and Q-Image Corporation dated December 5, 1998.

S-1

9/1/99

10.7

10.9

Employment Agreement, dated September 7, 2000, between iManage, Inc. and Joseph Campbell.

10-K

12/31/00

10.12

10.10

Secured Promissory Note dated April 5, 2000 by Mark Culhane to iManage, Inc.

10-K

12/31/00

10.13

10.11

Stock Pledge Agreement dated April 5, 2000 by and between Mark Culhane, the Culhane Family Revocable Trust and iManage, Inc.

10-K

12/31/00

10.14

Incorporated by Reference

Form

Date

Exhibit No.

Filed Herewith

10.12

Sublease between Hyperion Solutions Corporation and iManage, Inc. dated January 17, 2002.

10-K

12/31/02

10.13

Secured Promissory Note, dated April 2, 2002 by Joseph Campbell to iManage, Inc.

10-K/A-1

4/30/02

10.14

Stock Pledge Agreement dated April 2, 2002 by and between Joseph Campbell and iManage, Inc.

10-K/A-1

4/30/02

10.15

Deed of Trust dated April 2, 2002 by Joseph Campbell and Teresa B. Campbell in favor of iManage, Inc.

10-K/A-1

4/30/02

10.16

Employment Agreement, dated January 28, 2002, between iManage, Inc. and John E. Calonico, Jr.

10-Q

5/14/02

10.16

10.17

Amended and Restated Loan and Security Agreement by and between Silicon Valley Bank and iManage, Inc. dated December 16, 2002

10-K

3/26/03

10.17

10.18

Office Lease for 303 East Wacker, Chicago, Illinois between 303 Wacker Realty LLC and iManage, Inc. dated March, 17, 2003

10-K

3/26/03

10.18

Subsidiaries of iManage, Inc.

10-K

3/26/03

31.1

Certification of the Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of the Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification of the Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification of the Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002.

	•		revenue recognition;

	•		estimating the allowance for doubtful accounts and sales returns;

	•		assessment of the probability of the outcome of our current litigation; and

	•		valuation of long-lived assets, intangible assets and goodwill.

	•		payment terms due beyond our normal payment terms; and

	•		contracts in which collectibility from the customer is not reasonably assured.

	•		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 general economic trends;

	•		significant decline in our stock price for a sustained period; and

	•		our market capitalization relative to net book value.

	•		unanticipated costs related to the merger;

	•		diversion of management’s time and attention from our existing business;

	•		disruption of our ongoing business operations;

	•		potential loss of key employees and employee productivity;

	•		adverse effects on existing business relationships with customers and customer prospects;

	•		potential revenue declines as a result of customer and potential customer uncertainty;

	•		the inability to successfully integrate our operations, products and personnel with those of Interwoven in a timely and efficient manner, or at all;

	•		the inability to achieve the strategic objectives and anticipated potential benefits of the merger;

	•		potential litigation associated with the pending transaction;

	•		the economic environment of the enterprise software industry; and

	•		general economic conditions.

	•		the effect of incurring substantial costs related to the merger, such as legal, accounting and financial advisor fees, which will be required to be paid even if the merger is not consummated;

	•		our ability to retain key employees may be adversely affected;

	•		our relationships with customers may be adversely affected;

	•		the perception of the Company as a viable independent company may be damaged;

	•		continuing to operate as an independent company, or finding another merger partner or acquirer able to complete an alternative merger or sale of the company on terms as favorable to us and our stockholders as the merger; and

	•		depending upon the reason for termination of the merger, the possible requirement that we pay a substantial termination fee to Interwoven.

	•		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.

	•		companies addressing segments of our market including Documentum, Inc., FileNet Corporation, Hummingbird Ltd., Intraspect Software, Inc., Microsoft Corporation, Open Text Corporation; Stellent, Inc. and NetDocuments, Inc.;

	•		Web content management companies such as Vignette Corporation;

	•		enterprise Web portal companies such as Plumtree;

	•		intranet and groupware companies such as IBM, Microsoft Corporation, and Novell, Inc.; and

	•		in-house development efforts by our customers and partners.