8-K/A

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K/A

CURRENT REPORT

Amendment No. 1

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Earliest Event Reported: December 10, 2002

DOCUMENTUM, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization) 000-27358
(Commission File Number) 95-4261421
(IRS Employer
Identification No.)

6801 Koll Center Parkway, Pleasanton, California
(Address of principal executive offices) 94566-7047
(Zip Code)

Registrant’s telephone number, including area code (925) 600-6800

N/A

(Former name or former address, if changed since last report.)

TABLE OF CONTENTS

EXHIBIT 99.1

EXHIBIT 99.2

EXHIBIT 99.3

     On December 20, 2002, Documentum, Inc. (“Documentum”) filed a Current Report on Form 8-K (the “Form 8-K”) to report its acquisition of eRoom Technology, Inc., a Delaware corporation (“eRoom Technology”), by the statutory merger of Copper Top Acquisition Corp., a Delaware corporation and Documentum’s wholly owned subsidiary (“Sub”) with and into eRoom Technology. Documentum indicated that it would file certain financial information no later than the date required by Item 7 of Form 8-K and Documentum hereby amends Item 7 of the Form 8-K to file such financial information.

Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS

(a) FINANCIAL STATEMENTS OF eROOM TECHNOLOGY.

     Included herein as Exhibit 99.1 to this Form 8-K are the audited consolidated balance sheets of eRoom Technology as of December 31, 2000 and 2001, and the consolidated statements of operations, stockholders’ deficit, and cash flows for the years ended December 31, 1999, 2000 and 2001, and the notes to these audited consolidated financial statements.

     Also included herein as Exhibit 99.2 to this Form 8-K is the unaudited consolidated balance sheet of eRoom Technology as of September 30, 2002, the related unaudited consolidated statements of operations, stockholders’ deficit, and cash flows for the nine months ended September 30, 2002 and 2001, and the notes to these unaudited consolidated financial statements.

(b) PRO FORMA FINANCIAL INFORMATION.

     The following documents of Documentum appear as Exhibit 99.3 to this Form 8-K and are incorporated herein by reference.

(i)	Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2002;
(ii)	Unaudited Pro Forma Condensed Combined Statements of Operations for the Nine Months Ended September 30, 2002;
(iii)	Unaudited Pro Forma Condensed Combined Statements of Operations for the Year Ended December 31, 2001; and
(iv)	Notes to the Unaudited Pro Forma Condensed Combined Financial Information.

     The unaudited pro forma condensed combined financial statements attached as Exhibit 99.3 to this Form 8-K are presented for illustrative purposes only and are not necessarily indicative of the combined financial position or results of operations for future periods or the financial position or results of operations that actually would have been realized had Documentum and eRoom Technology been a combined company during the specified periods. The unaudited pro forma condensed combined financial statements, including the related notes, are qualified in their entirety by reference to, and should be read in conjunction with, the historical consolidated financial statements and related notes of Documentum, included in its Form 10-K filed with the Securities and Exchange Commission on March 29, 2002 (as amended on August 29, 2002) and Form 10-Q filed

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with the Securities and Exchange Commission on November 14, 2002, and the historical consolidated financial statements and related notes of eRoom Technology, included elsewhere in this Form 8-K.

     The unaudited pro forma condensed combined financial statements give effect to the merger between Documentum and eRoom Technology using the purchase method of accounting. The pro forma condensed combined financial statements are based on the respective historical financial statements of Documentum and eRoom Technology. The unaudited pro forma condensed combined financial information has been prepared on the basis of assumptions described in the notes to the unaudited pro forma condensed combined financial statements. In the opinion of management, all adjustments necessary to present fairly this unaudited pro forma condensed combined financial information have been made.

     The unaudited pro forma condensed combined balance sheet assumes the merger took place on September 30, 2002, and the unaudited pro forma condensed combined statement of operations assumes the merger took place January 1, 2001. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2001 combines Documentum’s statement of operations for the year ended December 31, 2001 with the same period for eRoom Technology. The unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2002 combines Documentum’s statement of operations for the nine months ended September 30, 2002 with the same period for eRoom Technology. Such statements of operations do not include the estimated effect of the approximately $4,700,000 of nonrecurring charge for the write off of in-process research and development costs acquired.

(c) EXHIBITS.

     2.1 *     Agreement and Plan of Reorganization dated October 3, 2002, by and among Documentum, Inc., Copper Top Acquisition Corp., eRoom Technology, Inc. and certain other parties.

     99.1     Audited Consolidated Financial Statements of eRoom Technology, Inc. for the years ended December 31, 1999, 2000 and 2001

     99.2     Unaudited Consolidated Financial Statements of eRoom Technology, Inc. as of September 30, 2002 and 2001

     99.3     Unaudited Pro Forma Condensed Combined Financial Information of Documentum, Inc.

*   Previously filed as an exhibit to the Registrant’s Form 8-K (File No. 000-27358) filed on October 8, 2002.

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SIGNATURE

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

DOCUMENTUM, INC.

/s/ Mark Garrett
Mark Garrett
Chief Financial Officer
and Executive Vice President
(Principal Financial and Accounting Officer)

Date: February 24, 2003

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DOCUMENTUM, INC.

Current Report on Form 8-K

INDEX TO EXHIBITS

Exhibit No.	Description
2.1*	Agreement and Plan of Reorganization dated October 3, 2002, by and among Documentum, Inc., Copper Top Acquisition Corp., eRoom Technology, Inc. and certain other parties.
99.1	Audited Consolidated Financial Statements of eRoom Technology, Inc. for the years ended December 31, 1999, 2000 and 2001
99.2	Unaudited Consolidated Financial Statements of eRoom Technology, Inc. as of September 30, 2002 and 2001
99.3	Unaudited Pro Forma Condensed Combined Financial Information of Documentum, Inc.

* Previously filed as an exhibit to the Registrant’s Form 8-K (File No. 000-27358) filed on October 8, 2002.

EX-99.1 3 f87875a1exv99w1.txt EXHIBIT 99.1 Exhibit 99.1 eROOM TECHNOLOGY, INC. CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001 eROOM TECHNOLOGY, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------

PAGE(S) Consolidated Balance Sheets at December 31, 2000 and 2001 2 Consolidated Statements of Operations for the years ended December 31, 1999, 2000 and 2001 3 Consolidated Statements of Stockholders' Deficit for the years ended December 31, 1999, 2000 and 2001 4 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 2000 and 2001 5 Notes to Consolidated Financial Statements 6-19

eROOM TECHNOLOGY, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2000 AND 2001 - --------------------------------------------------------------------------------

2000 2001 ----------- ----------- ASSETS Current assets: Cash and cash equivalents $ 3,513,996 $15,111,702 Short-term investments 17,415,270 - Accounts receivable, net of allowance for doubtful accounts of $260,000 and $429,367 at December 31, 2000 and 2001, respectively 3,726,106 4,069,964 Prepaid expenses and other current assets 536,163 - ----------- ----------- Total current assets 25,191,535 19,181,666 Property and equipment, net 2,388,105 1,731,799 Other assets 676,205 129,009 ----------- ----------- Total assets $28,255,845 $21,042,474 =========== =========== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Current portion of long-term debt $ 160,884 $ 324,505 Accounts payable 2,267,698 111,500 Accrued expenses 1,899,566 2,136,921 Accrued payroll and benefits 2,041,472 1,907,730 Deferred revenue 13,789,540 18,065,073 ----------- ----------- Total current liabilities 20,159,160 22,545,729 Long-term debt, net of current portion 419,625 486,757 Deferred revenue 2,299,183 271,576 ----------- ----------- Total liabilities 22,877,968 23,304,062 =========== =========== Commitments and contingencies (Note 12) Redeemable convertible preferred stock (Note 6): Series A redeemable convertible preferred stock; $.01 par value; 3,565,000 shares authorized, issued and outstanding at December 31, 2000 and 2001 (liquidation preference $3,565,000 at 2000 and 2001) 3,565,000 3,565,000 Series B redeemable convertible preferred stock; $.01 par value; 2,851,065 shares authorized, issued and outstanding at December 31, 2000 and 2001 (liquidation preference $6,700,000 at 2000 and 2001) 6,700,000 6,700,000 Series B-1 redeemable convertible preferred stock; $.01 par value; 1,250,000 shares authorized, issued and outstanding at December 31, 2000 and 2001 (liquidation preference $3,500,000 at 2000 and 2001) 3,500,000 3,500,000 Series C redeemable convertible preferred stock; $.01 par value; 3,236,918 shares authorized, issued and outstanding at December 31, 2000 and 2001 (liquidation preference $15,537,206 at 2000 and 2001) 15,537,206 15,537,206 Series D redeemable convertible preferred stock; $.01 par value; 2,009,571 shares authorized, issued and outstanding at December 31, 2000 (liquidation preference $21,000,018 at 2000) 21,000,018 21,000,018 ---------- ---------- Total redeemable convertible Preferred Stock 50,302,224 50,302,224 ---------- ---------- Stockholders' deficit (Notes 7 and 9): Common stock; $.01 par value; 60,000,000 shares authorized at December 31, 2000 and 2001; 4,949,554 and 5,004,635 shares issued and outstanding at December 31, 2000 and 2001, respectively 49,495 50,046 Additional paid-in capital 20,455,729 18,463,283 Deferred stock-based compensation (14,949,602) (8,812,489) Cumulative translation adjustment - (28,629) Accumulated deficit (50,479,969) (62,236,023) Total stockholders' deficit (44,924,347) (52,563,812) ----------- ----------- Total liabilities, redeemable convertible Preferred Stock and stockholders' deficit $28,255,845 $21,042,474 =========== ===========

The accompanying notes are an integral part of these consolidated financial statements. 2 eROOM TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001 - --------------------------------------------------------------------------------

1999 2000 2001 ----------- ------------ ------------ Revenue: Product license $ 2,854,665 $ 10,805,526 $ 21,057,874 Services 732,987 3,823,621 6,701,584 Hosting services - - 1,779,073 ----------- ------------ ------------ Total revenue 3,587,652 14,629,147 29,538,531 ----------- ------------ ------------ Cost of revenue: Cost of product license revenue 186,147 1,029,764 1,252,621 Cost of services revenue* 622,839 2,066,500 4,263,073 Cost of hosting services revenue* - - 1,087,761 ----------- ------------ ------------ Total cost of revenue 808,986 3,096,264 6,603,455 Gross margin 2,778,666 11,532,883 22,935,076 Operating expenses: Research and development* 3,010,027 8,898,156 7,164,496 Sales and marketing* 7,192,772 24,697,001 21,556,443 General and administrative* 2,129,630 4,728,158 2,272,585 Employee stock-based compensation expense 574,779 3,612,715 4,114,000 ----------- ------------ ------------ Total operating expenses 12,907,208 41,936,030 35,107,524 ----------- ------------ ------------ Loss from operations (10,128,542) (30,403,147) (12,172,448) Interest income 287,832 1,121,371 659,418 Interest expense (1,495) (6,966) (76,473) Other income (expense), net - - (166,551) Net loss $(9,842,205) $(29,288,742) $(11,756,054) =========== ============ ============ Basic and diluted net loss per share $ (3.89) $ (6.81) $ (2.46) Shares used in computing basic and diluted net loss per share 2,530,595 4,300,515 4,774,930 Pro forma basic and diluted net loss per share (unaudited) $ (0.66) Shares used in computing pro forma basic and diluted net loss per share (unaudited) 17,687,484 * Excludes amortization of deferred employee stock-based compensation expense of the following: Cost of services revenue $ 71,463 $315,147 $408,977 Cost of hosting services revenue - - 34,941 Research and development 92,975 797,126 680,198 Sales and marketing 228,437 1,145,003 1,770,221 General and administrative 181,904 1,355,439 1,219,663 ----------- ------------ ------------ $ 574,779 $ 3,612,715 $ 4,114,000 =========== ============ ============

The accompanying notes are an integral part of these consolidated financial statements. 3 eROOM TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001 - --------------------------------------------------------------------------------

REDEEMABLE CONVERTIBLE PREFERRED STOCK COMMON STOCK --------------------------- ----------------------- NUMBER CARRYING NUMBER PAR OF SHARES VALUE OF SHARES VALUE ---------- ----------- ---------- -------- Balance at December 31, 1998 7,666,065 $13,765,000 3,034,544 $ 30,345 Issuance of Series C redeemable convertible preferred stock, including issuance costs of $61,854 3,236,918 15,537,206 Issuance of common stock pursuant to the exercise of stock options 624,496 6,245 Deferred compensation related to stock option grants, net of cancellations Employee stock-based compensation expense Stock options granted to nonemployees Net loss ---------- ----------- ---------- -------- Balance at December 31, 1999 10,902,983 29,302,206 3,659,040 36,590 Issuance of Series D redeemable convertible preferred stock, including issuance costs of $75,802 2,009,571 21,000,018 Issuance of common stock pursuant to the exercise of stock options 1,290,514 12,905 Deferred compensation related to stock option grants, net of cancellations Employee stock-based compensation expense Stock options granted to nonemployees Net loss ---------- ----------- ---------- -------- Balance at December 31, 2000 12,912,554 50,302,224 4,949,554 49,495 Issuance of common stock pursuant to the exercise of stock options 55,081 551 Deferred compensation related to stock option grants, net of cancellations Employee stock-based compensation expense Translation adjustment Net loss ---------- ----------- ---------- -------- Balance at December 31, 2001 12,912,554 $50,302,224 5,004,635 $ 50,046 ========== =========== ========== ========

STOCKHOLDERS' DEFICIT ---------------------------------------------------------------------- ADDITIONAL DEFERRED CUMULATIVE PAID-IN STOCK-BASED ACCUMULATED TRANSLATION CAPITAL COMPENSATION DEFICIT ADJUSTMENT TOTAL ----------- ------------ ------------ ----------- ---------- Balance at December 31, 1998 $1,104,257 $ (904,997) $(11,211,366) $ - (10,981,761) Issuance of Series C redeemable convertible preferred stock, including issuance costs of $61,854 (61,854) (61,854) Issuance of common stock pursuant to the exercise of stock options 48,306 54,551 Deferred compensation related to stock option grants, net of cancellations 3,742,976 (3,742,976) - Employee stock-based compensation expense 574,779 574,779 Stock options granted to nonemployees 18,084 18,084 Net loss (9,842,205) (9,842,205) ----------- ----------- ------------ -------- ----------- Balance at December 31, 1999 4,913,623 (4,073,194) (21,115,425) - (20,238,406) Issuance of Series D redeemable convertible preferred stock, including issuance costs of $75,802 (75,802) (75,802) Issuance of common stock pursuant to the exercise of stock options 847,572 860,477 Deferred compensation related to stock option grants, net of cancellations 14,489,123 (14,489,123) - Employee stock-based compensation expense 3,612,715 3,612,715 Stock options granted to nonemployees 205,411 205,411 Net loss (29,288,742) (29,288,742) ----------- ----------- ------------ -------- ----------- Balance at December 31, 2000 20,455,729 (14,949,602) (50,479,969) - (44,924,347) Issuance of common stock pursuant to the exercise of stock options 30,667 31,218 Deferred compensation related to stock option grants, net of cancellations (2,023,113) 2,023,113 - Employee stock-based compensation expense 4,114,000 4,114,000 Translation adjustment (28,629) (28,629) Net loss (11,756,054) (11,756,054) ----------- ----------- ------------ -------- ----------- Balance at December 31, 2001 $18,463,283 $(8,812,489) $(62,236,023) $(28,629) $(52,563,812) =========== =========== ============ ======== ===========

The accompanying notes are an integral part of these consolidated financial statements. 4 eROOM TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001 - --------------------------------------------------------------------------------

1999 2000 2001 ----------- ------------ ------------ Cash flows from operating activities: Net loss $(9,842,205) $(29,288,742) $(11,756,054) Adjustments to reconcile net loss to net cash used by operating activities: Stock-based compensation expense 592,863 3,818,126 4,114,000 Depreciation 327,865 882,754 1,082,829 Gain from sale of investments - (619,862) - Provision for doubtful accounts 267,894 110,102 191,659 Loss on disposal of fixed assets 3,889 - 109,642 Changes in assets and liabilities: Accounts receivable (1,216,345) (1,722,240) (535,517) Prepaid expenses and other assets (166,714) (876,665) 1,083,359 Accounts payable 684,468 1,365,340 (2,156,198) Accrued expenses 447,132 1,359,347 237,355 Accrued payroll and benefits 409,024 1,214,840 (133,742) Deferred revenue 3,466,420 10,835,563 2,247,926 ----------- ------------ ------------ Net cash used by operating activities (5,025,709) (12,921,437) (5,514,741) ----------- ------------ ------------ Cash flows from investing activities: Purchases of short-term investments - (29,295,408) - Proceeds from sale of short-term investments - 12,500,000 17,415,270 Proceeds from sale of fixed assets - - 161,615 Purchases of fixed assets (889,364) (2,228,409) (697,780) ----------- ------------ ------------ Net cash (used by) provided by investing activities (889,364) (19,023,817) 16,879,105 ----------- ------------ ------------ Cash flows from financing activities: Borrowings under line of credit - 580,509 534,394 Repayment of borrowings under line of credit (37,430) - (303,641) Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs 15,475,352 20,924,216 - Proceeds from issuance of common stock 54,551 860,477 31,218 ----------- ------------ ------------ Net cash provided by financing activities 15,492,473 22,365,202 261,971 ----------- ------------ ------------ Effect of exchange rate changes on cash and cash equivalents - - (28,629) Net increase (decrease) in cash and cash equivalents 9,577,400 (9,580,052) 11,597,706 Cash and cash equivalents, beginning of year 3,516,648 13,094,048 3,513,996 ----------- ------------ ------------ Cash and cash equivalents, end of year $13,094,048 $ 3,513,996 $ 15,111,702 =========== ============ ============ Supplemental disclosure of cash flow information: Cash paid for interest $ 1,994 $ - $ 80,464

The accompanying notes are an integral part of these consolidated financial statements. 5 eROOM TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. NATURE OF THE BUSINESS eRoom Technology, Inc. (the "Company") (formerly, Instinctive Technology, Inc.) was incorporated in Delaware in June 1996. The Company is a provider of business collaboration software products and hosted offerings. The Company's product, eRoom, enables organizations and their employees, customers, suppliers, and other partners to manage their business relationships over the Internet. The Company has a single operating segment, the development, marketing and sale of collaboration software products and services. The Company has no organizational structure dictated by product line, geography or customer type. Primarily all revenue earned to date has been generated from U.S.-based customers; however, the Company operates as a branch in the United Kingdom and France and as a corporation in Australia. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Significant accounting policies followed in the preparation of the consolidated financial statements are as follows: PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All intercompany transactions have been eliminated in consolidation. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents, and investments with original maturity dates greater than three months but less than one year to be short-term investments. At December 31, 2000 short-term investments were comprised of high-grade commercial paper, were carried at amortized cost, and approximated fair market value. At December 31, 2000 cash equivalents were comprised of repurchase agreements and high-grade commercial paper which were carried at cost and amortized cost, respectively, and approximated fair market value. At December 31, 2001 cash equivalents were comprised of money market accounts which were carried at cost and approximated fair market value. PROPERTY AND EQUIPMENT Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:

ESTIMATED USEFUL LIFE --------------------- Computer equipment, purchased software and internally developed software 2 - 3 years Office equipment 3 years Furniture and fixtures 5 years Leasehold improvements Shorter of lease term or asset useful life

On disposal, the assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in other income (expense). Repairs and maintenance costs are expensed as incurred. 6 eROOM TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- REVENUE RECOGNITION The Company recognizes revenue in accordance with Statement of Position, or ("SOP"), No. 97- 2, Software Revenue Recognition, as amended by ("SOP") No. 98-4 and Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial Statements. The Company sells its software under perpetual license arrangements, which include license services. License services ("License Services") include certain support and professional services, which are included with the license in the first year. Revenue under these arrangements is recognized ratably as product license revenue over the period which License Services are provided, typically one year beginning at the time the software is delivered to the customer, provided that the fee is fixed or determinable, evidence of the arrangement exists and collection is probable. Maintenance revenue for the initial year of the license period is recorded ratably over the first year of the arrangement. Customers may purchase additional maintenance contracts after the initial term at then negotiated prices. Revenue from maintenance contracts is recognized ratably and recorded as service revenue over the length of the contract. From time to time, customers also purchase professional consulting services, which include best practices, training and implementation assistance. When professional consulting services are sold with software licenses, the value of services-related revenue, based upon vendor specific objective evidence, is deferred until such time that services are delivered. Vendor specific objective evidence is determined based on the price for which such services are sold separately. Revenue from professional consulting service arrangements are recognized as services revenue as the services are performed, provided that the fees are fixed or determinable, evidence of the arrangement exists and collection is probable. Hosting revenue consists of monthly fees for application management and application hosting rentals. Revenue from the arrangements is billed and recognized over the term of the contract. Amounts collected or billed prior to satisfying the above revenue recognition criteria are reflected as deferred revenue. COST OF REVENUE Cost of product license revenue consists of royalties for third-party technology. Cost of services revenue consists of cost of technical support and other costs directly attributable to supporting the Company's customers primarily for consulting and training personnel including cost of services provided by third-party consultants engaged by the Company. Cost of hosted revenue consists of the cost of technical support and other costs directly attributable to supporting the Company's hosted product and customers RESEARCH AND SOFTWARE DEVELOPMENT COSTS Costs incurred in the research and development of the Company's products are expensed as incurred, except for certain software development costs. Costs associated with the development of computer software products are expensed prior to establishment of technological feasibility (as defined by Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed") and capitalized thereafter. Software development costs subject to capitalization during 2000 and 2001 were not significant. 7 eROOM TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- On January 1, 1999, the Company adopted SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." Accordingly, the Company's policy is to capitalize costs associated with the development and implementation of its operating systems, including internally and externally developed software. Internal costs eligible for capitalization under SOP 98-1 of $148,085 and $196,814 were capitalized in 1999 and 2000, respectively. No costs were capitalized in 2001. These costs are being amortized over 24 months. Amortization expense was $12,340, $114,002 and $118,687 for the years ended December 31, 1999, 2000 and 2001, respectively. CONCENTRATION OF CREDIT RISK Financial instruments that potentially expose the Company to concentrations of credit risk include accounts receivable and cash. The Company maintains reserves for potential credit losses. Such losses, in the aggregate, have not exceeded management expectations. At times, the Company may maintain cash balances in excess of federally insured limits; however, the Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. STOCK-BASED COMPENSATION The Company accounts for stock-based awards to employees using the intrinsic value method as prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, compensation expense is recorded for options issued to employees in fixed amounts to the extent that the exercise prices are less than the fair market value of the Company's common stock at the date of grant. The Company applies the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," through disclosure only (See Note 9 to Notes to Consolidated Financial Statements). Stock-based awards to nonemployees are accounted for at their fair value in accordance with SFAS No. 123 and the Emerging Issues Task Force ("EITF") Issue No. 96-18, "Accounting for Equity Investments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services." COMPREHENSIVE LOSS SFAS No. 130, Reporting Comprehensive Income, requires disclosure of all components of comprehensive loss on an annual and interim basis. The Company has disclosed comprehensive loss for all periods in the accompanying consolidated statements of stockholders' deficit. FOREIGN CURRENCY TRANSLATION The functional currency of the Company's foreign subsidiary is the subsidiary's local currency. Balance sheet accounts of the Company's foreign operations are translated from foreign currencies into U.S. dollars at period-end exchange rates while income and expenses are translated using average rates during the year. Translation gains or losses related to net assets located outside of the United States of America are shown as a component of accumulated other comprehensive loss in stockholders' equity (deficit). Gains or losses resulting from foreign currency transactions (transactions denominated in a currency other than the entity's functional currency) are reflected in other income, net in the consolidated statements of operations. ADVERTISING COSTS The Company expenses advertising costs as they are incurred. During the years ended December 31, 1999, 2000 and 2001, advertising expense totaled $53,864, $1,063,467 and $50,784, respectively. 8 eROOM TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NET LOSS PER SHARE Basic net loss per share is computed using the weighted average number of common shares outstanding during the period, which excludes unvested restricted common stock. Dilutive net loss per share is computed using the weighted average number of common shares outstanding during the period, plus the dilutive effect of potential common stock. Potential common stock consists of convertible preferred stock, unvested restricted common stock, stock options and warrants. RISKS AND UNCERTAINTIES The Company operates in one segment, the development, marketing and sale of business collaboration software products and services, and is subject to a number of risks similar to other companies in the industry, including but not limited to, rapid technology change, uncertainty of market acceptance of its product, competition from substitute products and larger companies, protection of proprietary technology, ability to scale up its operations to support additional users of its service, the need to obtain additional financing to support growth, and dependence on third parties and key individuals. The Company's revenue is primarily derived from customers based in the United States. No one customer accounted for more than 10% of accounts receivable at December 31, 2000 and 2001. The Company performs ongoing credit evaluations of its customers; however, collateral is not required. The Company maintains reserves for credit losses that, in the aggregate, have not exceeded management's expectations. The Company believes that existing cash and cash equivalents will be sufficient to meet the Company's anticipated cash needs for working capital and capital expenditures for planned expansion for at least the next 12 months. However, the Company may need to raise additional funds in the next 12 months or in the future to support more rapid expansion of the Company's sales force, develop new or enhanced products or services, respond to competitive pressures, acquire complementary businesses or technologies, or respond to unanticipated requirements. If the Company seeks to raise additional funds, the Company may not be able to obtain funds on terms which are favorable or acceptable to the Company. If the Company raises additional funds through the issuance of equity securities, the percentage ownership of its stockholders would be reduced. Furthermore, these securities may have rights, preferences or privileges senior to the Company's common stock and its outstanding series of preferred stock. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period. These estimates include assessing the collectibility of accounts receivable, the realization of deferred tax assets and useful lives for amortization periods of tangible and intangible assets, among others. The markets for the Company's products are characterized by intense competition, rapid technological development and frequent product introduction, all of which could impact the future realizability of the Company's assets. Actual results could differ from these estimates. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS SFAS No. 141, Business Combinations, issued in July 2001, requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. The adoption of SFAS No. 141 did not have any impact on the Company's consolidated financial statements. 9 eROOM TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- SFAS No. 142, Goodwill and Other Intangible Assets, was issued in July 2001. Under SFAS No. 142, goodwill is no longer subject to amortization over its estimated useful life. Rather, goodwill is subject to at least an annual assessment for impairment by applying a fair-value-based test. Also under SFAS No. 142, intangible assets acquired in conjunction with a business combination should be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented or exchanged, regardless of the acquirer's intent to do so. Intangible assets will continue to be amortized over their respective useful lives under SFAS No. 142. SFAS No. 142 became effective on January 1, 2002 and the adoption of SFAS No. 142 is not expected to have a material impact on the Company's consolidated financial statements, as the Company does not have any goodwill, nor has it or is it anticipating the acquisition of another entity. In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to (a) all entities and (b) legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset, except for certain obligations of lessees. SFAS No. 143 amends SFAS No. 19, Financial Accounting and Reporting by Oil and Gas Producing Companies, and is effective for financial statements issued for fiscal years beginning after June 15, 2002. The Company does not anticipate that the adoption of SFAS No. 143 will have a material impact on its financial statements. In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses the financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes FASB SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, but retains SFAS No. 121's fundamental provisions for (a) recognition/measurement of impairment of long-lived assets to be held and used and (b) measurement of long-lived assets to be disposed of by sale. SFAS No. 144 also supersedes the accounting/reporting provisions of Accounting Principles Board (APB) Opinion No. 30, Reporting the Results of Operations --Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for segments of a business to be disposed of but retains APB No. 30's requirement to report discontinued operations separately from continuing operations and extends that reporting to a component of an entity that either has been disposed of or is classified as held for sale. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years. The Company does not anticipate that the adoption of SFAS No. 144 will have a material impact on its financial statements. In November 2001, the Emerging Issues Task Force issued Consensus Issue No. 01-14 relating to the accounting for reimbursement received for out-of-pocket expense. In accordance with Consensus Issue No. 01-14, reimbursements received for out-of-pocket expenses incurred should be characterized as revenue in the statement of operations. The Company has historically accounted for reimbursements received for out-of-pocket expenses as a reduction to cost of service revenues in the statement of operations to offset the costs incurred. The Company will adopt Consensus Issue No. 01-14 in financial reporting periods beginning after December 31, 2001 and comparative financial statements for prior periods will be classified to comply with the guidance in Consensus Issue No. 01-14. The Company does not anticipate that the adoption of Emerging Issues Task Force issued Consensus Issue No. 01-14 will have a material effect on its financial statements. 10 eROOM TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- RECLASSIFICATION Certain revenue and cost of sales amounts in the prior years financial statements have been reclassified to conform with the current year presentation. 3. NET LOSS PER SHARE The calculation of basic net loss per share includes the number of common shares outstanding excluding unvested restricted stock. Dilutive net loss per share is computed using the weighted average number of common shares outstanding during the period, plus the dilutive effect of potential common stock. Potential common stock consists of convertible preferred stock, unvested restricted common stock, stock options and warrants. The following potential common shares were excluded from the calculation of dilutive net loss per share for all periods presented since their inclusion would be antidilutive:

DECEMBER 31, ------------------------------------------------ 1999 2000 2001 ---------- ---------- ---------- Redeemable convertible preferred stock 10,902,983 12,912,554 12,912,554 Stock options 2,253,462 3,295,707 3,677,858 Unvested restricted stock 341,830 307,500 147,656

PRO FORMA NET LOSS PER SHARE (UNAUDITED) Pro forma basic and diluted net loss per share have been calculated assuming the conversion of all outstanding shares of redeemable convertible preferred stock into common stock, as if the shares had converted as of the beginning of the applicable period or, if later, the time the shares were issued. Pro forma basic and diluted net loss per share is also calculated assuming the termination of repurchase rights as if such repurchase rights on restricted stock (see Note 9) had terminated at the time the shares were issued. The following is a calculation of net loss per share and pro forma net loss per share:

DECEMBER 31, ------------------------------------------- 1999 2000 2001 ----------- ------------ ------------ Numerator: Net loss $(9,842,205) $(29,288,742) $(11,756,054) =========== ============ ============ Denominator: Historical: Weighted average common shares outstanding 3,132,671 4,606,290 4,970,586 Weighted average common shares outstanding subject to repurchase (602,076) (305,775) (195,656) Denominator for basic and diluted calculation 2,530,595 4,300,515 4,774,930 =========== ============ ============ Basic and diluted net loss per share $ (3.89) $ (6.81) (2.46) =========== ============ ============ Pro Forma (unaudited): Historical weighted average common shares 4,774,930 outstanding Weighted average number of shares with assumed conversion of redeemable preferred stock and expiration of repurchase rights 12,912,554 Shares used in computing pro forma basic and diluted net loss per share 17,687,484 ============ Pro forma basic and diluted net loss per share $ (0.66) ============

11 eROOM TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 4. PROPERTY AND EQUIPMENT Property and equipment consist of the following:

DECEMBER 31, ------------------------------ 2000 2001 ---------- ---------- Computer equipment, purchased software and internally developed software $2,943,794 $3,370,054 Office equipment 171,667 200,004 Furniture and fixtures 435,572 387,461 Leasehold improvements 408,559 356,295 ---------- ---------- 3,959,592 4,313,814 Less - accumulated depreciation 1,571,487 2,582,015 ---------- ---------- $2,388,105 $1,731,799 ========== ==========

Depreciation and amortization expense was $327,865, $882,754 and $1,082,829 for the years ended December 31, 1999, 2000 and 2001, respectively. Fully depreciated fixed assets of $5,700 and $0 were retired in 2000 and 2001, respectively. 5. LINES OF CREDIT In December 2001, the Company entered into two lines of credit with a bank. The first line is a $1.5 million working capital line for which the borrowing capacity is based on 80% of the Company's eligible domestic accounts receivable and the interest rate is prime rate plus 0.50% (5.25% at December 31, 2001). The working capital line has a revolving maturity date, which expires December 5, 2002. The second line is a $1.5 million equipment acquisition line for which the interest rate is prime rate plus 1.50% (6.25% at December 31, 2001) and is available through June 30, 2002. At December 31, 2001, $811,262 has been drawn against this facility. Principal repayment begins in January 2002 and continues through June 2004 in equal monthly installments of principal and interest. Principal payments due under the facility as of December 31, 2001 are as follows:

YEAR - ---- 2002 $324,505 2003 324,505 2004 162,252 -------- $811,262 ========

These loans are secured by all of the Company's assets except the Company's intellectual property. The Company has agreed not to create or incur any liens or security interest on its intellectual property. The Company has agreed to maintain the ratio of its quick assets to current liabilities as defined. The Company has also agreed to maintain quarterly net revenues at an agreed upon amount over the term of the loan agreement. The Company has also agreed to limitations on its ability to incur indebtedness, make investments and acquisitions, create liens on its assets and buy back, or pay cash dividends, on its capital stock. The Company was in compliance with all covenants at December 31, 2001. 12 eROOM TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- In December 2001, the Company executed and delivered a letter of credit in the amount of $672,487 to the landlord of its corporate headquarters. The letter of credit is subject to the same terms and conditions as the lines of credit and reduced the borrowing capacity available under the working capital line as of December 31, 2001 to $827,513. As of December 31, 2001, $688,738 remained available under the equipment acquisition line. 6. REDEEMABLE CONVERTIBLE PREFERRED STOCK In April 2000, the Company sold 956,938 shares of Series D redeemable convertible preferred stock ("Series D Preferred Stock") to a strategic investor in exchange for approximately $10,000,000 in cash. During 2000 and 2001, the Company recorded revenue of $1,507,131 and $1,896,246 respectively, from this strategic investor. Deferred revenue related to this strategic investor was $2,068,291 at December 31, 2000 and $1,046,521 at December 31, 2001. In July 2000, the Company sold 287,082 shares of Series D Preferred Stock to a venture management firm for approximately $3,000,000 in cash. During 2000 and 2001, the Company recorded revenue of $49,625 and $54,625 respectively, from this investor. Deferred revenue related to this investor was $49,625 at December 31, 2000 and $0 at December 31, 2001. At December 31, 2001, Series A redeemable convertible preferred stock ("Series A Preferred Stock"), Series B redeemable convertible preferred stock ("Series B Preferred Stock"), Series B-1 redeemable convertible preferred stock ("Series B-1 Preferred Stock"), Series C redeemable convertible preferred stock ("Series C Preferred Stock") and Series D redeemable convertible preferred stock ("Series D Preferred Stock") have the following characteristics (collectively, "Redeemable Convertible Preferred Stock"): REDEMPTION The Series A, Series B, Series B-1, Series C and Series D Preferred Stock are redeemable at the request of 55% of the holders of Series A, Series B, Series B-1, Series C and Series D Preferred Stock, voting as a single class, beginning on September 13, 2004 at per share prices of $1.00, $2.35, $2.80, $4.80 and $10.45, respectively, plus all declared but unpaid dividends, as of December 31, 2001 as follows:

PRINCIPAL REDEMPTION YEAR AMOUNT - ---- ----------- 2005 $16,767,408 2006 16,767,408 2007 16,767,408 ----------- $50,302,224 ===========

CONVERSION Each share of Series A, Series B, Series B-1, Series C and Series D Preferred Stock is convertible at any time at the option of the holder into shares of common stock at a ratio of one share of common stock for each share of Series A, Series B, Series B-1, Series C or Series D Preferred Stock, subject to certain anti-dilution adjustments. All shares of Series A, Series B, Series B-1 and Series C Preferred Stock will automatically convert to shares of common stock upon the closing of a public offering of the Company's common stock involving aggregate net proceeds to the Company of at least $20,000,000 and a per share price of not less than $9.60. All shares of Series D Preferred Stock will automatically convert to shares of common stock upon the closing of a public offering of the Company's common stock involving aggregate net proceeds to the Company of at least $20,000,000 and a per share price of not less than $10.45. 13 eROOM TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- At December 31, 2001, the Company has reserved 12,912,554 shares of common stock for issuance upon the conversion of the Series A, Series B, Series B-1, Series C and Series D Preferred Stock. DIVIDENDS RIGHTS Holders of Redeemable Convertible Preferred Stock are entitled to receive dividends only when and if declared by the Board of Directors but must be paid on redemption, liquidation or a sale of the company. No dividends have been declared or paid by the Company on Redeemable Convertible Preferred Stock through December 31, 2001. LIQUIDATION, DISSOLUTION OR WINDING-UP OF THE COMPANY In the event of any liquidation, dissolution, or winding-up of the Company, the holders of the Redeemable Convertible Preferred Stock will be entitled to receive, in preference to the holders of the common stock, an amount per share equal to the greater of (i) $1.00, $2.35, $2.80, $4.80 and $10.45 for Series A, Series B, Series B-1, Series C and Series D Preferred Stock, respectively, plus any declared but unpaid dividends thereon, subject to certain anti-dilution adjustments, or (ii) such amount per share as would have been payable had the shares been converted into common stock immediately prior to such liquidation, dissolution or winding-up of the Company. If the remaining assets of the Company are insufficient to pay the Redeemable Convertible Preferred Stockholders the full amount to which they are entitled, the stockholders shall share ratably in any distribution of the remaining assets in proportion to the respective amounts which would otherwise by payable if all amounts payable were paid in full. Any assets remaining after the initial distribution to the holders of the Redeemable Convertible Preferred Stock shall be available for distribution ratably among the Company's common stockholders. VOTING RIGHTS Each holder of the Redeemable Convertible Preferred Stock is entitled to the number of votes equal to the number of shares of common stock into which such holder's shares are convertible at the record date for such vote. 7. COMMON STOCK Each share of common stock entitles the holders to one vote on all matters submitted to a vote of the Company's stockholders. Common stockholders are entitled to receive dividends only when and if declared by the Board of Directors, subject to the preferential dividend rights of the holders of the Redeemable Convertible Preferred Stock. 8. WRITE-OFF OF INITIAL PUBLIC OFFERING COSTS In December 2000, the Company decided to postpone its initial public offering due to unfavorable market conditions. Accordingly, it was determined that the related prepaid costs of $1,001,228 incurred to date would not be of future benefit to the Company and were expensed to general and administrative expenses. 14 eROOM TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 9. 1996 AND 2000 STOCK PLANS In 1996, the Company adopted the 1996 Stock Plan (the "1996 Plan") for the issuance of incentive and nonqualified stock options and restricted stock awards. The number of shares of common stock reserved for issuance under the 1996 Plan is 7,384,302 shares, as amended. Options to purchase common stock and restricted stock awards are granted at the discretion of the board of directors. Under the terms of the 1996 Plan, the exercise price of incentive stock options granted must not be less than 100% (110% in certain cases) of the fair market of the common stock on the date of grant, as determined by the board of directors. The exercise price of nonqualified stock options may be less than the fair market value of the common stock on the date of grant, as determined by the board of directors but in no case may the exercise price be less than the statutory minimum. Vesting of options granted is at the discretion of the board of directors, which typically if four years. The term of options granted cannot exceed ten years (five years for incentive stock options granted to holders of more than 10% of the voting stock of the Company. A restricted stock award provides for issuance of common stock to directors, officers, consultants and other key personnel at prices determined by the board of directors. Participants' unvested shares are subject to repurchase by the Company at the original purchase price for up to four years. Generally, 25% of the shares vest on the first anniversary date of purchase. In 2000, there were 307,500 shares of restricted common stock issued from the 1996 Plan. There were no shares of restricted common stock issued in 1999 or 2001. As of December 31, 2001, the Company had the right to repurchase up to 147,656 unvested shares at the original purchase price of $1.50 per share. In September 2000, the 2000 Stock Option and Incentive Plan and the 2000 Employee Stock Purchase Plan were adopted by the Board of Directors and approved by the Company's stockholders. A total of 2,500,000 and 450,000 shares of common stock has been initially authorized for issuance under the stock option and incentive plan and the employee stock purchase plan, respectively. The 2000 Stock Option and Incentive Plan and the 2000 Employee Stock Purchase Plan are effective on the completion of an initial public offering by the Company. SFAS No. 123, "Accounting for Stock-Based Compensation," encourages but does not require companies to record compensation cost for stock-based employee compensation at fair value. The Company has chosen to account for stock-based compensation granted to employees using the intrinsic value method prescribed in APB No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, deferred compensation cost for restricted stock awards and stock options granted to employees is measured as the excess, if any, of the fair value of the Company's stock at the date of the grant over the amount that must be paid to acquire the stock. 15 eROOM TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Had the value of options granted to employees been measured using the fair value method prescribed by SFAS 123, the Company's net loss would have been as indicated below. The effects of applying SFAS No. 123 in this pro forma disclosure are not indicative of future amounts.

DECEMBER 31, ------------------------------------------------ 1999 2000 2001 ----------- ------------ ------------ Net loss available to common stockholders: As reported $(9,842,205) $(29,288,742) $(11,756,054) Pro forma (9,892,150) (29,397,460) (12,237,283) Basic and diluted net loss per common share: As reported $(3.89) $ (6.81) $ (2.46) Pro forma (3.91) (6.84) (2.56)

The fair value of each option grant was estimated as of the date of grant using the Black-Scholes option pricing model. The following assumptions were used to value grants made during the years ended December 31, 1999, 2000 and 2001, respectively: a dividend yield of zero for all three years; volatility of 0.001% for all three years; weighted-average risk free interest rate of 5.8%, 5.1% and 4.6%, respectively; and an expected option term of 7, 6 and 5 years, respectively. Activity under the 1996 Plan during the years ended December 31, 1999, 2000 and 2001 is summarized as follows:

1999 2000 2001 -------------------- --------------------- -------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE --------- ----- --------- ----- --------- ----- Outstanding at beginning of year 2,208,683 $0.17 2,253,462 $0.43 3,295,707 $2.39 Granted 996,872 0.74 2,491,300 3.26 1,321,766 3.29 Exercised (624,496) 0.09 (1,290,576) 0.68 (55,081) 0.57 Canceled (327,597) 0.33 (158,479) 1.97 (884,534) 2.70 --------- ----- --------- ----- --------- ----- Outstanding at end of year 2,253,462 $0.43 3,295,707 $2.39 3,677,858 $2.67 ========= ===== ========= ===== ========= ===== Weighted average fair value of options granted during the year $4.26 $9.55 $4.33

16 eROOM TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The following table summarizes information about stock options outstanding under the 1996 and 2000 Plans at December 31, 2001:

OPTIONS OUTSTANDING ---------------------------------------------- OPTIONS EXERCISABLE WEIGHTED ------------------------- WEIGHTED AVERAGE WEIGHTED AVERAGE REMAINING AVERAGE EXERCISE NUMBER EXERCISE CONTRACTUAL NUMBER EXERCISE PRICE OUTSTANDING PRICE LIFE (IN YEARS) EXERCISABLE PRICE - -------- ----------- -------- --------------- ----------- --------- $ 0.02 97,285 $0.02 4.75 97,285 $0.02 0.10 52,709 0.10 5.40 52,709 0.10 0.25 214,975 0.25 6.08 194,046 0.25 0.35 237,926 0.35 7.10 156,999 0.35 0.75 118,555 0.75 7.76 61,583 0.75 1.50 906,484 1.50 8.07 390,815 1.50 2.00 600,448 2.00 9.89 3,350 2.00 4.50 1,265,851 4.50 8.93 301,554 4.50 7.25 183,625 7.25 8.85 54,258 7.25 --------- --------- $ 0.02 - $7.25 3,677,858 $2.67 1,312,599 $1.90 ========= =========

During 2001, the Company recorded a reversal of $2,023,113 of employee stock-based deferred compensation due to 884,534 options canceled, generally with fair values that exceed the 901,216 options to purchase common stock granted at exercise prices that were subsequently determined to be below fair value of the common stock. The Company also issued 420,550 options at or above fair value of the common stock. Compensation expense of $4,114,000 was recognized during 2001. During 2000, the Company recorded $14,489,123 of employee stock-based deferred compensation net of cancellations, from 2,480,300 options to purchase common stock granted at exercise prices subsequently determined to be below fair value of the common stock. Compensation expense of $3,622,118 was recognized during 2000. During 1999, the Company recorded $3,742,976 of employee stock-based deferred compensation net of cancellations, from 991,050 options to purchase common stock granted at exercise prices subsequently determined to be below the fair value of common stock. Compensation expense of $574,779 was recognized during 1999. The Company recorded equity related expense totaling $18,084, $205,411 and $0 related to 5,822, 28,200 and 375 stock options granted to certain nonemployee consultants during the years ended December 31, 1999, 2000 and 2001, respectively. At December 31, 2001, a total of 3,677,858 shares of common stock were reserved for issuance upon exercise of the options under the 1996 Plan and 1,634,670 options were available for future grant. 17 eROOM TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 10. INCOME TAXES Deferred tax assets (liabilities) consist of the following:

DECEMBER 31, --------------------------- 2000 2001 ----------- ----------- Deferred tax asset: Net operating loss carryforwards $15,210,746 $19,323,265 Research and development tax credits 764,230 1,191,971 Stock-based compensation (314,489) (403,884) Allowance for doubtful accounts 104,702 172,906 Deferred revenue 3,396,236 2,131,355 Accrued expenses 196,979 404,876 Depreciation and amortization 52,375 9,851 ----------- ----------- Gross deferred tax assets 19,410,779 22,830,340 Less: valuation allowance (19,410,779) (22,830,340) ----------- ----------- Total net deferred tax assets $ - $ - =========== ===========

The Company has provided a full valuation allowance for its net deferred tax assets since it is more likely than not that these future benefits will not be realized. If the Company achieves future profitability, a significant portion of these deferred tax assets could be available to offset future income taxes. At December 31, 2001, the Company has federal and state net operating loss carryforwards of approximately $48,027,000 and $47,754,000, respectively, available to reduce future taxable income and federal and state research and development credit carryforwards of approximately $929,000 and $398,000, respectively, available to reduce future tax liabilities. If not utilized, these credits and carryforwards will expire between 2002 and 2021. The reconciliation of the statutory federal tax rate to the Company's actual rate is as follows:

1999 2000 2001 ---- ---- ---- Income tax benefit computed at the federal statutory rate (34.0)% (34.0)% (34.0)% Permanent items 0.1 4.5 12.5 State income taxes, net of federal benefit (5.9) (5.6) (5.2) Research and development credit generated (1.0) (1.0) (2.4) Increase in valuation allowance 40.8 36.1 29.1 ---- ---- ---- -% -% -% ==== ==== ====

Under the provisions of the Internal Revenue Code, certain substantial changes in the Company's ownership may limit the amount of net operating loss and tax credit carryforward which could be utilized annually to offset future taxable income and taxes payable. The amount of this annual limitation is determined based upon the Company's value prior to an ownership change. 18 eROOM TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 11. BENEFIT PLAN 401(k) SAVINGS PLAN The Company has established a retirement savings plan under section 401(k) of the U.S. Internal Revenue Code (the "401(k) Plan"). The 401(k) Plan covers substantially all U.S. based employees of the Company who meet minimum age and service requirements, and allows participants to defer a portion of their annual compensation on a pre-tax basis. Matching contributions to the 401(k) Plan may be made at the discretion of the Company. The Company has contributed $188,800 and $243,768 to the 401(k) Plan for the years ended December 31, 2000 and 2001, respectively. The Company did not make a contribution to the 401(k) Plan prior to 2000. 12. COMMITMENTS AND CONTINGENCIES OPERATING LEASES The Company leases office space under various noncancelable-operating leases, which expire through June 2005. The approximate future minimum payments as of December 31, 2001 are as follows:

YEAR - ---- 2002 $1,459,000 2003 1,349,000 2004 1,318,000 2005 689,000 ---------- $4,815,000 ==========

Total rent expense under operating leases was $327,110, $965,042 and $1,526,861 for the years ended December 31, 1999, 2000 and 2001, respectively. CONTINGENCIES The Company is, from time to time, subject to claims arising in the ordinary course of business. While the outcome of the claims cannot be predicted with certainty, management does not expect these matters to have a material adverse effect on the consolidated results of operations and financial condition of the Company. 19 EX-99.2 4 f87875a1exv99w2.txt EXHIBIT 99.2 Exhibit 99.2 eROOM TECHNOLOGY, INC. CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2002 (UNAUDITED) IN THOUSANDS EXCEPT FOR SHARE DATA

SEPTEMBER 30, 2002 ------------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 16,380 Accounts receivable, net of allowance for doubtful accounts of $429 at September 30, 2002 5,743 ------------- Total current assets 22,123 Property and equipment, net 1,209 Other assets 129 ------------- Total assets $ 23,461 ------------- LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT Current liabilities: Current portion of long-term debt $ 343 Accounts payable 309 Accrued expenses 2,415 Accrued payroll and benefits 1,898 Deferred revenue 19,705 ------------- Total current liabilities 24,670 Long-term debt 262 Deferred revenue 272 ------------- Total liabilities 25,204 ------------- Commitments and contingencies Redeemable convertible preferred stock Series A redeemable convertible preferred stock; $.01 par value; 3,565,000 shares authorized, issued and outstanding at September 30, 2002 (liquidation preference $3,565) 3,565 Series B redeemable convertible preferred stock; $.01 par value; 2,851,065 shares authorized, issued and outstanding at September 30, 2002 (liquidation preference $6,700) 6,700 Series B-1 redeemable convertible preferred stock; $.01 par value; 1,250,000 shares authorized, issued and outstanding at September 30, 2002 (liquidation preference $3,500) 3,500 Series C redeemable convertible preferred stock; $.01 par value; 3,236,918 shares authorized, issued and outstanding at September 30, 2002 (liquidation preference $15,537) 15,537 Series D redeemable convertible preferred stock; $.01 par value; 2,009,571 shares authorized, issued and outstanding at September 30, 2002 (liquidation preference $21,000) 21,000 ------------- Total redeemable convertible preferred stock 50,302 ------------- Stockholders' deficit Common stock; $.01 par value; 60,000,000 shares authorized at September 30, 2002; 5,298,005 shares issued and outstanding at September 30, 2002 53 Additional paid-in capital 17,692 Deferred stock-based compensation (4,966) Accumulated deficit (64,793) Cumulative Translation Adjustment (31) ------------- Total stockholders' deficit (1,743) ------------- Total liabilities, redeemable convertible preferred stock and stockholders' deficit $ 23,461 =============

eROOM TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2002 (UNAUDITED) IN THOUSANDS

NINE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, 2001 SEPTEMBER 30, 2002 ------------------------------------------ Revenue: Product license $15,499 $14,616 Services 4,989 8,052 Hosting services 1,008 3,960 ------------------------------------------ Total revenue 21,496 26,628 ------------------------------------------ Cost of revenue: Cost of product license revenue 827 835 Cost of services revenue* 3,258 3,203 Cost of hosting services revenue* 792 919 ------------------------------------------ Total cost of revenue 4,877 4,957 ------------------------------------------ Gross margin 16,619 21,671 ------------------------------------------ Operating expenses: Research and development* 5,541 5,297 Sales and marketing* 17,746 14,785 General and administrative* 1,855 1,442 Employee stock-based compensation expense 3,143 2,836 Operating expenses 28,285 24,360 ------------------------------------------ Net loss from operations (11,666) (2,689) Interest income 583 138 Other expense, net (61) (6) ------------------------------------------ Net loss $(11,144) $(2,557) ========================================== *Excludes amortization of deferred employee stock-based compensation expense of the following: Cost of services revenue 245 154 Cost of hosting services revenue 26 28 Research and development 530 920 Sales and marketing 1,451 812 General and administrative 891 922 ------------------------------------------ 3,143 2,836 ==========================================

eROOM TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT FOR THE YEAR ENDED 2001 AND THE PERIOD ENDED SEPTEMBER 30, 2002 (UNAUDITED) IN THOUSANDS EXCEPT FOR SHARE DATA

REDEEMABLE CONVERTIBLE PREFERRED STOCK COMMON STOCK ------------------------- --------------------- NUMBER CARRYING NUMBER PAR OF SHARES VALUE OF SHARES VALUE ----------- --------- ---------- ------- Balance at December 31, 2001 12,912,554 50,302 $5,004,635 $ 50 Issuance of common stock pursuant to the exercise of stock options 293,370 3 Deferred compensation related to stock option grants, net of cancellations Employee stock-based compensation expense Translation adjustment Net loss ---------- ------ ---------- ----- Balance at September 30, 2002 (unaudited) 12,912,554 50,302 5,298,005 53 ========== ====== ========== =====

STOCKHOLDERS' DEFICIT --------------------------------------------------------------------- ADDITIONAL DEFERRED CUMULATIVE PAID-IN STOCK-BASED ACCUMULATED TRANSLATION COMPREHENSIVE CAPITAL COMPENSATION DEFICIT ADJUSTMENT TOTAL INCOME (LOSS) ------------ ------------- ----------- ------------ -------- --------------- Balance at December 31, 2001 $ 18,463 (8,812) $ (62,236) $ (29) (52,564) $ (11,785) Issuance of common stock pursuant to the exercise of stock options 239 242 Deferred compensation related to stock option grants, net of cancellations (1,010) 1,010 -- Employee stock-based compensation expense 2,836 2,836 Translation adjustment (2) (2) (2) Net loss (2,557) (2,557) (2,557) ---------- ------ ---------- ----- ------ ---------- Balance at September 30, 2002 (unaudited) 17,692 (4,966) (64,793) (31) (52,045) (2,559) ========== ====== ========== ===== ====== ==========

eROOM TECHNOLOGY, INC. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2002 (UNAUDITED) IN THOUSANDS

NINE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, 2001 SEPTEMBER 30, 2002 ----------------------------------------- Cash flows from operating activities: Net loss $ (11,144) $ (2,557) Adjustments to reconcile net loss to net cash provided by operating activities: Stock-based compensation expense 3,143 2,836 Depreciation 762 742 Changes in assets and liabilities: Accounts receivable (1,067) (1,669) Prepaid expenses and other assets 989 Accounts payable (2,131) 196 Accrued expenses 784 (571) Accrued payroll and benefits (127) 851 Deferred revenue 2,904 1,623 ---------------------------------------- Net cash (used by) provided by operating activities (5,887) 1,451 ---------------------------------------- Cash flows from investing activities: Proceeds from sale of short-term investments 17,415 -- Purchases of fixed assets (293) (216) ---------------------------------------- Net cash provided by (used in) investing activities 17,122 (216) ---------------------------------------- Cash flows from financing activities: Borrowings under line of credit 452 45 Repayment of borrowings under line of credit (233) (252) Proceeds from issuance of common stock 17 233 ---------------------------------------- Net cash provided in financing activities 236 26 ---------------------------------------- Net increase in cash and cash equivalents 11,471 1,261 Effective of exchange rate changes on cash and cash equivalents (14) 7 Cash and cash equivalents, beginning of period 3,514 15,112 ---------------------------------------- Cash and cash equivalents, end of period 14,971 16,380 ======================================== Supplemental disclosure of cash flow information: Cash paid for interest $ 62 $ 33

eROOM TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS IN THOUSANDS EXCEPT SHARE DATA - ------------------------------------------------------------------------------ The accompanying unaudited financial statements and notes for the interim period ended September 30, 2001 have not been subject to review in accordance with SAS 71. 1. NATURE OF THE BUSINESS eRoom Technology, Inc. (the "Company") (formerly, Instinctive Technology, Inc.) was incorporated in Delaware in June 1996. The Company is a provider of business collaboration software products and hosted offerings. The Company's product, eRoom, enables organizations and their employees, customers, suppliers, and other partners to manage their business relationships over the Internet. The Company has a single operating segment, development and marketing of collaboration software. The Company has no organizational structure dictated by product line, geography or customer type. Primarily all revenue earned to date has been generated from U.S. based customers; however, the Company operates as a branch in the United Kingdom and France and as a corporation in Australia. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Significant accounting policies followed in the preparation of the consolidated financial statements are as follows: PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All intercompany transactions have been eliminated in consolidation. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents, and investments with original maturity dates greater than three months to be short-term investments. At September 30, 2002 cash equivalents were comprised of money market accounts which were carried at cost and approximated fair market value. PROPERTY AND EQUIPMENT Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:

ESTIMATED USEFUL LIFE --------------------- Computer equipment, purchased software and internally developed software 2 - 3 years Office equipment 3 years Furniture and fixtures 5 years Leasehold improvements Shorter of lease term or asset useful life

1 eROOM TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS IN THOUSANDS EXCEPT SHARE DATA - ------------------------------------------------------------------------------ On disposal, the assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in other income (expense) . Repairs and maintenance costs are expensed as incurred. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions in Form 10-Q and Article 10 of Regulation S-X. It is recommended that these financial statements be read in conjunction with the consolidated financial statements and related notes that appear in the Audited financial statements for the year ended December 31, 2001. In the opinion of management, all adjustments have been recorded as necessary to present fairly the Company's consolidated financial position, results of operations and cash flow for the periods presented. The consolidated results of operations for the nine months ended September 30, 2002 are not necessarily indicative of the results that may be expected for any future period. REVENUE RECOGNITION The Company recognizes revenue in accordance with Statement of Position, or SOP, No. 97-2, Software Revenue Recognition, as amended by SOP No. 98-4 and Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements. The Company sells its software under perpetual license arrangements that are sold together with a maintenance contract having a specified term, typically one year. Revenue under these arrangements is recognized ratably as product license revenue and maintenance revenue, respectively over the specified maintenance contract term beginning at the time the software is delivered to the customer, provided that the fee is fixed or determinable, evidence of the arrangement exists and collection is probable. Customers may purchase additional maintenance contracts after the initial term at then negotiated prices. Revenue from these contracts is recognized ratably as maintenance revenue over the length of the contract. From time to time, customers also purchase professional consulting services, which include best practices, training and implementation assistance. When professional consulting services are sold with software licenses, the value of services-related revenue, based upon vendor specific objective evidence, is deferred until such time that services are delivered. Vendor specific evidence is determined based on the price for which such services are sold separately. Revenue from professional consulting service arrangements are recognized as services revenue as the services are performed, provided that the fees are fixed or determinable, evidence of the arrangement exists and collection is probable. Hosting revenue consists of monthly fees for application management and application hosting rentals. Revenue (other than installation fees) is generally billed and recognized over the term of the contract based on actual usage. 2 eROOM TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS IN THOUSANDS EXCEPT SHARE DATA - ------------------------------------------------------------------------------ Amounts collected or billed prior to satisfying the above revenue recognition criteria are reflected as deferred revenue. COST OF REVENUE Cost of product license revenue consists of royalties for third-party technology. Cost of maintenance revenue consists of cost of technical support and other costs directly attributable to supporting the Company's product and customers. Cost of services revenue consists of cost primarily for consulting and training personnel including cost of services provided by third-party consultants engaged by the Company. Cost of hosted revenue consists of cost of technical support and other costs directly attributable to supporting the Company's hosted product and customers RESEARCH AND SOFTWARE DEVELOPMENT COSTS Costs incurred in the research and development of the Company's products are expensed as incurred, except for certain software development costs. Costs associated with the development of computer software products are expensed prior to establishment of technological feasibility (as defined by Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed") and capitalized thereafter. Software development costs subject to capitalization during 2002 were not significant. On January 1, 1999, the Company adopted SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." Accordingly, the Company's policy is to capitalize costs associated with the development and implementation of its operating systems, including internally and externally developed software. STOCK-BASED COMPENSATION The Company accounts for stock-based awards to employees using the intrinsic value method as prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, compensation expense is recorded for options issued to employees in fixed amounts to the extent that the exercise prices are less than the fair market value of the Company's common stock at the date of grant. The Company applies the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," through disclosure only (See Note 9 to Notes to Consolidated Financial Statements). Stock-based awards to nonemployees are accounted for at their fair value in accordance with SFAS No. 123 and the Emerging Issues Task Force ("EITF") Issue No. 96-18, "Accounting for Equity Investments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services." Compensation expense of $3,143 and $2,836 was recognized during the nine months ended, September 30, 2001 and 2002, respectively. COMPREHENSIVE LOSS 3 eROOM TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS IN THOUSANDS EXCEPT SHARE DATA - ------------------------------------------------------------------------------ SFAS No. 130, Reporting Comprehensive Income, requires disclosure of all components of comprehensive income (loss) on an annual and interim basis. The Company has disclosed comprehensive income (loss) for all periods presented in the accompanying consolidated statements of stockholders' equity. ADVERTISING COSTS The Company expenses advertising costs as they are incurred. During the nine months ended September 30, 2001 and 2002, the Company did not incur any advertising costs. RISKS AND UNCERTAINTIES The Company operates in one segment, has only one product and is subject to a number of risks similar to other companies in the industry, including but not limited to, rapid technology change, uncertainty of market acceptance of its product, competition from substitute products and larger companies, protection of proprietary technology, ability to scale up its operations to support additional users of its service, the need to obtain additional financing to support growth, and dependence on third parties and key individuals. The Company's revenue is primarily derived from customers based in the United States. Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents, short-term investments and accounts receivable. At September 30, 2002 the Company had cash balances at certain financial institutions in excess of federally insured limits; however, the Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. No one customer accounted for more than 10% of accounts receivable at September 30, 2002. The Company performs ongoing credit evaluations of its customers; however, collateral is not required. The Company maintains reserves for credit losses that, in the aggregate, have not exceeded management's expectations. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could materially differ from those estimates. 4. PROPERTY AND EQUIPMENT Property and equipment consist of the following: 4 eROOM TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS IN THOUSANDS EXCEPT SHARE DATA - ------------------------------------------------------------------------------

SEPTEMBER 30 2002 ------------ Computer equipment, purchased software and internally developed software $ 3,618 Office equipment 203 Furniture and fixtures 356 Leasehold improvements 358 ---------- 4,535 Less - accumulated depreciation 3,326 ---------- $ 1,209 ==========

Depreciation and amortization expense was $762 and $742 for the nine months ended September 30, 2001 and 2002, respectively. 5. LINES OF CREDIT In December 2001, the Company entered into two lines of credit with a bank. The first line is a $1.5 million working capital line for which the borrowing capacity is based on 80% of the Company's eligible domestic accounts receivable and the interest rate is prime rate plus 0.50% (% at September 30, 2002). The second line is a $1.5 million equipment acquisition line for which the interest rate is prime rate plus 1.50% (% at September 30, 2002). At September 30, 2002, $650 has been drawn against this facility. Principal repayment continues through June 2004 in equal monthly installments of principal and interest. These loans are secured by all of the Company's assets except the Company's intellectual property. The Company has agreed not to create or incur any liens or security interest on its intellectual property. The Company has agreed to maintain the ratio of its quick assets to current liabilities as defined. The Company has also agreed to maintain quarterly net revenues at an agreed upon amount over the term of the loan agreement. The Company has also agreed to limitations on its ability to incur indebtedness, make investments and acquisitions, create liens on its assets and buy back, or pay cash dividends, on its capital stock. The Company was in compliance with all covenants at September 30, 2002. The outstanding principal balance was $605 at September 30, 2002. 5 eROOM TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS IN THOUSANDS EXCEPT SHARE DATA - ------------------------------------------------------------------------------ 6. REDEEMABLE CONVERTIBLE PREFERRED STOCK In April 2000, the Company sold 956,938 shares of Series D redeemable convertible preferred stock ("Series D Preferred Stock") to a strategic investor in exchange for approximately $10,000 in cash. During the nine months ended September 30, 2001 and 2002 respectively, the Company recorded revenue of $1,413 and $763, from this strategic investor. Deferred revenue related to this strategic investor was $722 at September 30, 2002. In July 2000, the Company sold 287,082 shares of Series D Preferred Stock to a venture management firm for approximately $3,000 in cash. During the nine months ended September 30, 2001 and 2002 respectively, the Company recorded revenue of $37 and $0, from this strategic investor. At December 31, 2001, Series A redeemable convertible preferred stock ("Series A Preferred Stock"), Series B redeemable convertible preferred stock ("Series B Preferred Stock"), Series B-1 redeemable convertible preferred stock ("Series B-1 Preferred Stock"), Series C redeemable convertible preferred stock ("Series C Preferred Stock") and Series D redeemable convertible preferred stock ("Series D Preferred Stock") have the following characteristics (collectively, "Redeemable Convertible Preferred Stock"): REDEMPTION The Series A, Series B, Series B-1, Series C and Series D Preferred Stock are redeemable at the request of 55% of the holders of Series A, Series B, Series B-1, Series C and Series D Preferred Stock, voting as a single class, beginning on September 13, 2004 at per share prices of $1.00, $2.35, $2.80, $4.80 and $10.45, respectively, plus all declared but unpaid dividends, as of September 30,2002 as follows:

PRINCIPAL REDEMPTION YEAR AMOUNT ---- ---------- 2005 $ 16,767 2006 16,767 2007 16,767 -------- $ 50,301 ========

CONVERSION Each share of Series A, Series B, Series B-1, Series C and Series D Preferred Stock is convertible at any time at the option of the holder into shares of common stock at a ratio of one share of common stock for each share of Series A, Series B, Series B-1, Series C or Series D Preferred Stock, subject to certain anti-dilution adjustments. All shares of Series A, Series B, Series B-1 and Series C Preferred Stock will automatically convert to shares of common stock upon the closing of a public offering of the Company's common stock involving aggregate net proceeds to the Company of at least $20,000 and a per share price of not less than $9.60. All shares of Series D Preferred Stock will automatically convert to shares of common stock upon the closing of a public offering of the Company's common stock involving aggregate net proceeds to the Company of at least $20,000 and a per share price of not less than $10.45. At September 30, 2002, the Company has reserved 12,912,554 shares of common stock for issuance upon the conversion of the Series A, Series B, Series B-1, Series C and Series D Preferred Stock. 6 eROOM TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS IN THOUSANDS EXCEPT SHARE DATA - ------------------------------------------------------------------------------ DIVIDENDS RIGHTS Holders of Redeemable Convertible Preferred Stock are entitled to receive dividends only when and if declared by the Board of Directors but must be paid on redemption, liquidation or a sale of the company. No dividends have been declared or paid by the Company on Redeemable Convertible Preferred Stock through September 30, 2002. LIQUIDATION, DISSOLUTION OR WINDING-UP OF THE COMPANY In the event of any liquidation, dissolution, or winding-up of the Company, the holders of the Redeemable Convertible Preferred Stock will be entitled to receive, in preference to the holders of the common stock, an amount per share equal to the greater of (i) $1.00, $2.35, $2.80, $4.80 and $10.45 for Series A, Series B, Series B-1, Series C and Series D Preferred Stock, respectively, plus any declared but unpaid dividends thereon, subject to certain anti-dilution adjustments, or (ii) such amount per share as would have been payable had the shares been converted into common stock immediately prior to such liquidation, dissolution or winding-up of the Company. If the remaining assets of the Company are insufficient to pay the Redeemable Convertible Preferred Stockholders the full amount to which they are entitled, the stockholders shall share ratably in any distribution of the remaining assets in proportion to the respective amounts which would otherwise by payable if all amounts payable were paid in full. Any assets remaining after the initial distribution to the holders of the Redeemable Convertible Preferred Stock shall be available for distribution ratably among the Company's common stockholders. VOTING RIGHTS Each holder of the Redeemable Convertible Preferred Stock is entitled to the number of votes equal to the number of shares of common stock into which such holder's shares are convertible at the record date for such vote. 7 EX-99.3 5 f87875a1exv99w3.txt EXHIBIT 99.3 Exhibit 99.3 The following unaudited pro forma condensed combined financial statements are presented for illustrative purposes only and are not necessarily indicative of the combined financial position or results of operations for future periods or the financial position or results of operations that actually would have been realized had Documentum and eRoom been a combined company during the specified periods. The unaudited pro forma condensed combined financial statements, including the related notes, are qualified in their entirety by reference to, and should be read in conjunction with, the historical consolidated financial statements and related notes of Documentum, included in its Form 10-K and Form 10-Q filed with the Securities and Exchange Commission on March 29, 2002 (as amended on August 29, 2002) and November 14, 2002, respectively, and the historical consolidated financial statements and related notes of eRoom, included elsewhere in this Form 8-K/A. The following unaudited pro forma condensed combined financial statements give effect to the merger between Documentum and eRoom using the purchase method of accounting. The unaudited pro forma condensed combined financial statements are based on the respective historical financial statements of Documentum and eRoom. The unaudited pro forma condensed combined financial information has been prepared on the basis of assumptions described in the notes to the unaudited pro forma condensed combined financial statements. In the opinion of management, all adjustments necessary to present fairly this unaudited pro forma condensed combined financial information have been made. The unaudited pro forma condensed combined balance sheet as of September 30, 2002 assumes the merger took place on September 30, 2002. The unaudited pro forma condensed combined statements of operations for the nine months ended and year ended September 30, 2002 and December 31, 2001, respectively, include the results of both Documentum's and eRoom's operations assuming the merger took place on January 1, 2002 and 2001, respectively. The unaudited pro forma condensed combined statements of operations do not include the estimated effect of the approximately $4,700,000 of a nonrecurring charge for the write off of acquired in-process research and development. DOCUMENTUM, INC. PRO FORMA COMBINED BALANCE SHEET (IN THOUSANDS) UNAUDITED

SEPTEMBER 30, 2002 ---------------------------------------------------- HISTORICAL PRO FORMA ----------------------- -------------------------- DOCUMENTUM eROOM ADJUSTMENTS COMBINED ---------- ------- ------------ -------- ASSETS CURRENT ASSETS: Cash and cash equivalents 76,244 16,380 (12,605)(a) 80,019 Short-term investments 97,792 -- -- 97,792 Accounts receivable, net 43,728 5,743 -- 49,471 Other current assets 26,904 -- -- 26,904 ------- ------ ------ ------- TOTAL CURRENT ASSETS 244,668 22,123 (12,605) 254,186 Property and equipment, net 25,642 1,209 (439)(c) 26,412 Long-term investments 60,151 -- -- 60,151 Intangible assets, net 2,369 -- 22,450 (a) 24,819 Goodwill 8,317 -- 78,219 (a) 86,536 Other assets 11,870 129 -- 11,999 ------- ------ ------ ------- 353,017 23,461 87,625 464,103 ======= ====== ====== ======= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable 3,855 309 -- 4,164 Accrued liabilities 41,330 4,313 6,940 (c) 52,583 Deferred Revenue 29,849 19,977 (15,302)(c) 34,524 Current portion of long-term debt -- 343 -- 343 Current portion of capital lease obligation 47 -- -- 47 ------- ------ ------ ------- TOTAL CURRENT LIABILITIES 75,081 24,942 (8,362) 91,661 Long-term debt 125,000 262 -- 125,262 Other long-term liabilities 661 -- -- 661 Total stockholders' (deficit) equity 152,275 (1,743) 95,987 (a) 246,519 ------- ------ ------ ------- 353,017 23,461 87,625 464,103 ======= ====== ====== =======

DOCUMENTUM, INC. PRO FORMA COMBINED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) UNAUDITED

NINE MONTHS ENDED SEPTEMBER 30, 2002 ---------------------------------------------------------- HISTORICAL PRO FORMA --------------------- ----------------------------- DOCUMENTUM eROOM ADJUSTMENTS COMBINED ---------- ------ ----------- -------- Revenue 160,897 26,628 -- 187,525 Cost of Revenue 43,406 4,957 -- 48,363 ------- ------ ------ ------- GROSS MARGIN 117,491 21,671 -- 139,162 ------- ------ ------ ------- Operating expenses: Sales and marketing 70,384 14,785 -- 85,169 Research and development 27,688 5,297 -- 32,985 General and administrative 18,727 1,442 7,894 (b),(c) 28,063 Restructuring costs 1,043 -- -- 1,043 Employee stock-based compensation expense -- 2,836 -- 2,836 ------- ------ ------ ------- Total operating expenses 117,842 24,360 7,894 150,096 ------- ------ ------ ------- LOSS FROM OPERATIONS (351) (2,689) (7,894) (10,934) Interest and other income, net 125 132 -- 257 Provision for (benefit from) income taxes (68) -- 84 (d) 16 ------- ------ ------ ------- NET LOSS (158) (2,557) (7,977) (10,692) ======= ====== ====== ======= Basic and diluted net loss per share -- (0.23) Shares used in computing basic and diluted net loss per share 39,527 7,773 (a) 47,300 ======= ====== =======

DOCUMENTUM, INC. PRO FORMA COMBINED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) UNAUDITED

TWELVE MONTHS ENDED DECEMBER 31, 2001 ---------------------------------------------------------- HISTORICAL PRO FORMA --------------------- ----------------------------- DOCUMENTUM eROOM ADJUSTMENTS COMBINED ---------- ------ ----------- -------- Revenue 185,712 29,539 -- 215,251 Cost of Revenue 56,080 6,604 -- 62,684 ------- ------ ------- ------- GROSS MARGIN 129,632 22,935 -- 152,567 ------- ------ ------- ------- Operating expenses: Sales and marketing 100,564 21,556 -- 122,120 Research and development 34,720 7,164 -- 41,884 General and administrative 25,158 2,273 10,491 (b),(c) 37,922 Restructuring costs 6,271 -- -- 6,271 Employee stock-based compensation expense -- 4,114 -- 4,114 ------- ------ ------- ------- Total operating expenses 166,713 35,107 10,491 212,311 ------- ------ ------- ------- LOSS FROM OPERATIONS (37,081) (12,172) (10,491) (59,744) Interest and other income, net 3,580 416 -- 3,996 Permanent impairment of investment (2,012) -- -- (2,012) Provision for (benefit from) income taxes 2,780 -- (588)(d) 2,192 ------- ------ ------- ------- NET LOSS (38,293) (11,756) (9,903) (59,952) ======= ====== ======= ======= Basic and diluted net loss per common share (1.01) (1.31) ======= ====== ======= ======= Shares used in computing basic and diluted net loss per common share 37,934 7,773 (a) 45,707 ======= ======= =======

DOCUMENTUM, INC. NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS NOTE 1. BASIS OF PRESENTATION The unaudited pro forma condensed combined financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and certain footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations. However the Company believes that the disclosures are adequate to make the information presented not misleading. NOTE 2. PURCHASE PRICE ALLOCATION In accordance with Statement of Financial Accounting Standards (SFAS) No. 141, the merger is accounted for as a purchase of eRoom by Documentum. The purchase price has been allocated based upon the fair value of the assets acquired and liabilities assumed. The following table summarizes the components of the total purchase price and the estimated purchase price allocation (in thousands, except per share and option amounts): Cash....................................................................... $12,605 Fair value of Documentum common stock (7,772,708 shares)................... 90,816 Fair value of stock options assumed (1,605,108 options assumed)............ 8,127 Transaction costs.......................................................... 6,940 Total purchase price.............................................. 118,488 Book value of net tangible assets at 9/30/02............................... $23,022 Book value of net liabilities at 9/30/02................................... (9,903) Estimated acquired intangibles............................................. 22,450 Write off of in-process research and development*.......................... 4,700 Goodwill................................................................... 78,219 Net assets acquired............................................... 118,488 * In-process research and development of $4,700,000 was expensed in the period in which the acquisition was consummated. Accordingly the in-process research and development is reflected in the pro forma condensed combined balance sheet as an addition to accumulated deficit. The pro forma condensed combined statements of operations do not include the in-process research and development of $4,700,000 as it is considered a non-recurring charge. NOTE 3. PRO FORMA ADJUSTMENTS The following adjustments have been reflected in the unaudited pro forma condensed combined financial statements: (a) To record cash consideration, common stock issued, options issued, and record the allocation of purchase price to intangible assets arising from the transaction. Common stock and options issued are based on the number of shares issued and options assumed in the actual transaction which closed on December 10, 2002 (b) Adjustment to record the amortization of identifiable intangible assets, excluding goodwill and intangible assets with indefinite lives, resulting from the allocation of purchase price. The pro forma adjustment assumes that the identifiable intangibles will be amortized on a straight-line basis over the following estimated lives: Core Developed Technology........................ 2 years Maintenance Contracts............................ 2 years License Contracts................................ 3 years Subscription Contracts........................... 1 year Executor Contracts............................... 2 years OEM Contracts.................................... 3 years (c) To adjust assets acquired and liabilities assumed from eRoom to fair value. (d) To apply Documentum's statutory tax rate to the results of eRoom's operations. -----END PRIVACY-ENHANCED MESSAGE-----

EX-99.1

                                                                    Exhibit 99.1

eROOM TECHNOLOGY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999,
2000 AND 2001






eROOM TECHNOLOGY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------




                                                                                                PAGE(S)
                                                                                             
Consolidated Balance Sheets at December 31, 2000 and 2001                                        2

Consolidated Statements of Operations for the years ended
December 31, 1999, 2000 and 2001                                                                 3

Consolidated Statements of Stockholders' Deficit for the years ended
December 31, 1999, 2000 and 2001                                                                 4

Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 2000 and 2001                                                                 5

Notes to Consolidated Financial Statements                                                       6-19








eROOM TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 2001
- --------------------------------------------------------------------------------




                                                                                                    2000             2001
                                                                                                -----------      -----------
                                                                                                           
ASSETS
Current assets:
  Cash and cash equivalents                                                                     $ 3,513,996      $15,111,702
  Short-term investments                                                                         17,415,270                -
  Accounts receivable, net of allowance for doubtful accounts of $260,000 and
   $429,367 at December 31, 2000 and 2001, respectively                                           3,726,106        4,069,964
  Prepaid expenses and other current assets                                                         536,163                -
                                                                                                -----------      -----------
    Total current assets                                                                         25,191,535       19,181,666
Property and equipment, net                                                                       2,388,105        1,731,799
Other assets                                                                                        676,205          129,009
                                                                                                -----------      -----------
    Total assets                                                                                $28,255,845      $21,042,474
                                                                                                ===========      ===========

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
  Current portion of long-term debt                                                             $   160,884      $   324,505
  Accounts payable                                                                                2,267,698          111,500
  Accrued expenses                                                                                1,899,566        2,136,921
  Accrued payroll and benefits                                                                    2,041,472        1,907,730
  Deferred revenue                                                                               13,789,540       18,065,073
                                                                                                -----------      -----------
    Total current liabilities                                                                    20,159,160       22,545,729
Long-term debt, net of current portion                                                              419,625          486,757
Deferred revenue                                                                                  2,299,183          271,576
                                                                                                -----------      -----------
    Total liabilities                                                                            22,877,968       23,304,062
                                                                                                ===========      ===========
Commitments and contingencies (Note 12)
Redeemable convertible preferred stock (Note 6):
    Series A redeemable convertible preferred stock; $.01 par value; 3,565,000
     shares authorized, issued and outstanding at December 31, 2000 and 2001
     (liquidation preference $3,565,000 at 2000 and 2001)                                         3,565,000        3,565,000
    Series B redeemable convertible preferred stock; $.01 par value; 2,851,065 shares
     authorized, issued and outstanding at December 31, 2000 and 2001 (liquidation
     preference $6,700,000 at 2000 and 2001)                                                      6,700,000        6,700,000
    Series B-1 redeemable convertible preferred stock; $.01 par value; 1,250,000 shares
     authorized, issued and outstanding at December 31, 2000 and 2001 (liquidation
     preference $3,500,000 at 2000 and 2001)                                                      3,500,000        3,500,000
    Series C redeemable convertible preferred stock; $.01 par value; 3,236,918 shares
     authorized, issued and outstanding at December 31, 2000 and 2001 (liquidation
     preference $15,537,206 at 2000 and 2001)                                                    15,537,206       15,537,206
    Series D redeemable convertible preferred stock; $.01 par value; 2,009,571 shares
     authorized, issued and outstanding at December 31, 2000 (liquidation preference
     $21,000,018 at 2000)                                                                        21,000,018       21,000,018
                                                                                                 ----------       ----------
    Total redeemable convertible Preferred Stock                                                 50,302,224       50,302,224
                                                                                                 ----------       ----------

Stockholders' deficit (Notes 7 and 9):
    Common stock; $.01 par value; 60,000,000 shares authorized at
    December 31, 2000 and 2001; 4,949,554 and 5,004,635 shares issued
     and outstanding at December 31, 2000 and 2001, respectively                                     49,495           50,046
    Additional paid-in capital                                                                   20,455,729       18,463,283
    Deferred stock-based compensation                                                           (14,949,602)      (8,812,489)
    Cumulative translation adjustment                                                                     -          (28,629)
    Accumulated deficit                                                                         (50,479,969)     (62,236,023)
      Total stockholders'
deficit                                                                                         (44,924,347)     (52,563,812)
                                                                                                -----------      -----------
      Total liabilities, redeemable convertible Preferred Stock and stockholders' deficit        $28,255,845      $21,042,474
                                                                                                ===========      ===========



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



                                        2



eROOM TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
- --------------------------------------------------------------------------------





                                                                            1999             2000             2001
                                                                        -----------      ------------     ------------
                                                                                                  
Revenue:
  Product license                                                       $ 2,854,665      $ 10,805,526     $ 21,057,874
  Services                                                                  732,987         3,823,621        6,701,584
  Hosting services                                                                -                 -        1,779,073
                                                                        -----------      ------------     ------------
    Total revenue                                                         3,587,652        14,629,147       29,538,531
                                                                        -----------      ------------     ------------
Cost of revenue:
  Cost of product license revenue                                           186,147         1,029,764        1,252,621
  Cost of services revenue*                                                 622,839         2,066,500        4,263,073
  Cost of hosting services revenue*                                               -                 -        1,087,761
                                                                        -----------      ------------     ------------
    Total cost of revenue                                                   808,986         3,096,264        6,603,455

    Gross margin                                                          2,778,666        11,532,883       22,935,076

Operating expenses:
  Research and development*                                               3,010,027         8,898,156        7,164,496
  Sales and marketing*                                                    7,192,772        24,697,001       21,556,443
  General and administrative*                                             2,129,630         4,728,158        2,272,585
  Employee stock-based compensation expense                                 574,779         3,612,715        4,114,000
                                                                        -----------      ------------     ------------
    Total operating expenses                                             12,907,208        41,936,030       35,107,524
                                                                        -----------      ------------     ------------
    Loss from operations                                                (10,128,542)      (30,403,147)     (12,172,448)

Interest income                                                             287,832         1,121,371          659,418
Interest expense                                                             (1,495)           (6,966)         (76,473)
Other income (expense), net                                                       -                 -         (166,551)

Net loss                                                                $(9,842,205)     $(29,288,742)    $(11,756,054)
                                                                        ===========      ============     ============
Basic and diluted net loss per share                                       $  (3.89)         $  (6.81)        $  (2.46)
Shares used in computing basic and diluted net loss per share             2,530,595         4,300,515        4,774,930
Pro forma basic and diluted net loss per share (unaudited)                                                $      (0.66)
Shares used in computing pro forma basic and diluted net loss
per share (unaudited)                                                                                       17,687,484

* Excludes amortization of deferred employee stock-based
  compensation expense of the following:
  Cost of services revenue                                                 $ 71,463          $315,147         $408,977
  Cost of hosting services revenue                                                -                 -           34,941
  Research and development                                                   92,975           797,126          680,198
  Sales and marketing                                                       228,437         1,145,003        1,770,221
  General and administrative                                                181,904         1,355,439        1,219,663
                                                                        -----------      ------------     ------------
                                                                        $   574,779      $  3,612,715     $  4,114,000
                                                                        ===========      ============     ============



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



                                       3


eROOM TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
- --------------------------------------------------------------------------------





                                                               REDEEMABLE CONVERTIBLE
                                                                  PREFERRED STOCK                    COMMON STOCK
                                                             ---------------------------        -----------------------
                                                               NUMBER          CARRYING          NUMBER           PAR
                                                             OF SHARES          VALUE           OF SHARES        VALUE
                                                             ----------       -----------      ----------      --------
                                                                                                    
Balance at December 31, 1998                                  7,666,065       $13,765,000       3,034,544      $ 30,345

Issuance of Series C redeemable convertible preferred
stock, including issuance costs of $61,854                    3,236,918        15,537,206
Issuance of common stock pursuant to the exercise
of stock options                                                                                  624,496         6,245
Deferred compensation related to stock option grants,
net of cancellations
Employee stock-based compensation expense
Stock options granted to nonemployees
Net loss
                                                             ----------       -----------      ----------      --------
Balance at December 31, 1999                                 10,902,983        29,302,206       3,659,040        36,590

Issuance of Series D redeemable convertible preferred
stock, including issuance costs of $75,802                    2,009,571        21,000,018
Issuance of common stock pursuant to the exercise
of stock options                                                                                1,290,514        12,905
Deferred compensation related to stock option grants,
net of cancellations
Employee stock-based compensation expense
Stock options granted to nonemployees
Net loss
                                                             ----------       -----------      ----------      --------
Balance at December 31, 2000                                 12,912,554        50,302,224       4,949,554        49,495

Issuance of common stock pursuant to the exercise
of stock options                                                                                   55,081           551
Deferred compensation related to stock option grants,
net of cancellations
Employee stock-based compensation expense
Translation adjustment
Net loss
                                                             ----------       -----------      ----------      --------
Balance at December 31, 2001                                 12,912,554       $50,302,224       5,004,635      $ 50,046
                                                             ==========       ===========      ==========      ========





                                                                                     STOCKHOLDERS' DEFICIT
                                                             ----------------------------------------------------------------------
                                                              ADDITIONAL      DEFERRED                     CUMULATIVE
                                                               PAID-IN      STOCK-BASED   ACCUMULATED     TRANSLATION
                                                               CAPITAL      COMPENSATION    DEFICIT        ADJUSTMENT       TOTAL
                                                             -----------    ------------  ------------    -----------    ----------
                                                                                                          
Balance at December 31, 1998                                  $1,104,257    $ (904,997)   $(11,211,366)   $      -      (10,981,761)

Issuance of Series C redeemable convertible preferred
stock, including issuance costs of $61,854                                                     (61,854)                     (61,854)
Issuance of common stock pursuant to the exercise
of stock options                                                  48,306                                                     54,551
Deferred compensation related to stock option grants,
net of cancellations                                           3,742,976    (3,742,976)                                           -
Employee stock-based compensation expense                                      574,779                                      574,779
Stock options granted to nonemployees                             18,084                                                     18,084
Net loss                                                                                    (9,842,205)                  (9,842,205)
                                                             -----------   -----------    ------------    --------      -----------
Balance at December 31, 1999                                   4,913,623    (4,073,194)    (21,115,425)          -      (20,238,406)

Issuance of Series D redeemable convertible preferred
stock, including issuance costs of $75,802                                                        (75,802)                  (75,802)
Issuance of common stock pursuant to the exercise
of stock options                                                 847,572                                                    860,477
Deferred compensation related to stock option grants,
net of cancellations                                          14,489,123   (14,489,123)                                           -
Employee stock-based compensation expense                                    3,612,715                                    3,612,715
Stock options granted to nonemployees                            205,411                                                    205,411
Net loss                                                                                   (29,288,742)                 (29,288,742)
                                                             -----------   -----------    ------------    --------      -----------
Balance at December 31, 2000                                 20,455,729   (14,949,602)    (50,479,969)          -       (44,924,347)

Issuance of common stock pursuant to the exercise
of stock options                                                  30,667                                                     31,218
Deferred compensation related to stock option grants,
net of cancellations                                          (2,023,113)    2,023,113                                            -
Employee stock-based compensation expense                                    4,114,000                                    4,114,000
Translation adjustment                                                                                     (28,629)         (28,629)
Net loss                                                                                   (11,756,054)                 (11,756,054)
                                                             -----------   -----------    ------------    --------      -----------
Balance at December 31, 2001                                 $18,463,283   $(8,812,489)   $(62,236,023)   $(28,629)    $(52,563,812)
                                                             ===========   ===========    ============    ========      ===========






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


                                       4



eROOM TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
- --------------------------------------------------------------------------------




                                                                             1999             2000             2001
                                                                          -----------     ------------     ------------
                                                                                                  
Cash flows from operating activities:
  Net loss                                                                $(9,842,205)    $(29,288,742)    $(11,756,054)
  Adjustments to reconcile net loss to net cash used
   by operating activities:
  Stock-based compensation expense                                            592,863        3,818,126        4,114,000
  Depreciation                                                                327,865          882,754        1,082,829
  Gain from sale of investments                                                     -         (619,862)               -
  Provision for doubtful accounts                                             267,894          110,102          191,659
  Loss on disposal of fixed assets                                              3,889                -          109,642
  Changes in assets and liabilities:
    Accounts receivable                                                    (1,216,345)      (1,722,240)        (535,517)
    Prepaid expenses and other assets                                        (166,714)        (876,665)       1,083,359
    Accounts payable                                                          684,468        1,365,340       (2,156,198)
    Accrued expenses                                                          447,132        1,359,347          237,355
    Accrued payroll and benefits                                              409,024        1,214,840         (133,742)
    Deferred revenue                                                        3,466,420       10,835,563        2,247,926
                                                                          -----------     ------------     ------------
      Net cash used by operating activities                                (5,025,709)     (12,921,437)      (5,514,741)
                                                                          -----------     ------------     ------------
Cash flows from investing activities:
  Purchases of short-term investments                                               -      (29,295,408)               -
  Proceeds from sale of short-term investments                                      -       12,500,000       17,415,270
  Proceeds from sale of fixed assets                                                -                -          161,615
  Purchases of fixed assets                                                  (889,364)      (2,228,409)        (697,780)
                                                                          -----------     ------------     ------------
    Net cash (used by) provided by investing activities                      (889,364)     (19,023,817)      16,879,105
                                                                          -----------     ------------     ------------
Cash flows from financing activities:
  Borrowings under line of credit                                                   -          580,509          534,394
  Repayment of borrowings under line of credit                                (37,430)               -         (303,641)
  Proceeds from issuance of redeemable convertible
   preferred stock, net of issuance costs                                  15,475,352       20,924,216                -
  Proceeds from issuance of common stock                                       54,551          860,477           31,218
                                                                          -----------     ------------     ------------
    Net cash provided by financing activities                              15,492,473       22,365,202          261,971
                                                                          -----------     ------------     ------------
Effect of exchange rate changes on cash and cash equivalents                        -                -          (28,629)

Net increase (decrease) in cash and cash equivalents                        9,577,400       (9,580,052)      11,597,706

Cash and cash equivalents, beginning of year                                3,516,648       13,094,048        3,513,996
                                                                          -----------     ------------     ------------
Cash and cash equivalents, end of year                                    $13,094,048     $  3,513,996     $ 15,111,702
                                                                          ===========     ============     ============
Supplemental disclosure of cash flow information:
  Cash paid for interest                                                  $     1,994     $          -     $     80,464



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





                                       5



eROOM TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

 1.      NATURE OF THE BUSINESS

         eRoom Technology, Inc. (the "Company") (formerly, Instinctive
         Technology, Inc.) was incorporated in Delaware in June 1996. The
         Company is a provider of business collaboration software products and
         hosted offerings. The Company's product, eRoom, enables organizations
         and their employees, customers, suppliers, and other partners to
         manage their business relationships over the Internet.

         The Company has a single operating segment, the development, marketing
         and sale of collaboration software products and services. The Company
         has no organizational structure dictated by product line, geography or
         customer type. Primarily all revenue earned to date has been generated
         from U.S.-based customers; however, the Company operates as a branch in
         the United Kingdom and France and as a corporation in Australia.


 2.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Significant accounting policies followed in the preparation of the
         consolidated financial statements are as follows:

         PRINCIPLES OF CONSOLIDATION
         The consolidated financial statements include the accounts of the
         Company and its wholly-owned subsidiary. All intercompany transactions
         have been eliminated in consolidation.

         CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
         The Company considers all highly liquid investments with an original
         maturity of three months or less to be cash equivalents, and
         investments with original maturity dates greater than three months but
         less than one year to be short-term investments. At December 31, 2000
         short-term investments were comprised of high-grade commercial paper,
         were carried at amortized cost, and approximated fair market value. At
         December 31, 2000 cash equivalents were comprised of repurchase
         agreements and high-grade commercial paper which were carried at cost
         and amortized cost, respectively, and approximated fair market value.
         At December 31, 2001 cash equivalents were comprised of money market
         accounts which were carried at cost and approximated fair market value.

         PROPERTY AND EQUIPMENT
         Property and equipment are stated at cost, net of accumulated
         depreciation. Depreciation is computed using the straight-line method
         over the estimated useful lives of the assets as follows:




                                                                          ESTIMATED USEFUL LIFE
                                                                          ---------------------
                                                                    
Computer equipment, purchased software and internally
 developed software                                                          2 - 3 years
Office equipment                                                               3 years
Furniture and fixtures                                                         5 years
Leasehold improvements                                                  Shorter of lease term
                                                                         or asset useful life



On disposal, the assets disposed of and the related accumulated depreciation are
removed from the accounts and any resulting gain or loss is included in other
income (expense). Repairs and maintenance costs are expensed as incurred.





                                       6



eROOM TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

         REVENUE RECOGNITION
         The Company recognizes revenue in accordance with Statement of
         Position, or ("SOP"), No. 97- 2, Software Revenue Recognition, as
         amended by ("SOP") No. 98-4 and Staff Accounting Bulletin ("SAB") No.
         101, Revenue Recognition in Financial Statements. The Company sells
         its software under perpetual license arrangements, which include
         license services. License services ("License Services") include
         certain support and professional services, which are included with the
         license in the first year. Revenue under these arrangements is
         recognized ratably as product license revenue over the period which
         License Services are provided, typically one year beginning at the
         time the software is delivered to the customer, provided that the fee
         is fixed or determinable, evidence of the arrangement exists and
         collection is probable. Maintenance revenue for the initial year of
         the license period is recorded ratably over the first year of the
         arrangement. Customers may purchase additional maintenance contracts
         after the initial term at then negotiated prices. Revenue from
         maintenance contracts is recognized ratably and recorded as service
         revenue over the length of the contract.

         From time to time, customers also purchase professional consulting
         services, which include best practices, training and implementation
         assistance. When professional consulting services are sold with
         software licenses, the value of services-related revenue, based upon
         vendor specific objective evidence, is deferred until such time that
         services are delivered. Vendor specific objective evidence is
         determined based on the price for which such services are sold
         separately. Revenue from professional consulting service arrangements
         are recognized as services revenue as the services are performed,
         provided that the fees are fixed or determinable, evidence of the
         arrangement exists and collection is probable.

         Hosting revenue consists of monthly fees for application management and
         application hosting rentals. Revenue from the arrangements is billed
         and recognized over the term of the contract.

         Amounts collected or billed prior to satisfying the above revenue
         recognition criteria are reflected as deferred revenue.

         COST OF REVENUE
         Cost of product license revenue consists of royalties for third-party
         technology. Cost of services revenue consists of cost of technical
         support and other costs directly attributable to supporting the
         Company's customers primarily for consulting and training personnel
         including cost of services provided by third-party consultants engaged
         by the Company. Cost of hosted revenue consists of the cost of
         technical support and other costs directly attributable to supporting
         the Company's hosted product and customers

         RESEARCH AND SOFTWARE DEVELOPMENT COSTS
         Costs incurred in the research and development of the Company's
         products are expensed as incurred, except for certain software
         development costs. Costs associated with the development of computer
         software products are expensed prior to establishment of technological
         feasibility (as defined by Statement of Financial Accounting Standards
         ("SFAS") No. 86, "Accounting for the Costs of Computer Software to be
         Sold, Leased, or Otherwise Marketed") and capitalized thereafter.
         Software development costs subject to capitalization during 2000 and
         2001 were not significant.





                                       7



eROOM TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

         On January 1, 1999, the Company adopted SOP 98-1, "Accounting for the
         Costs of Computer Software Developed or Obtained for Internal Use."
         Accordingly, the Company's policy is to capitalize costs associated
         with the development and implementation of its operating systems,
         including internally and externally developed software. Internal costs
         eligible for capitalization under SOP 98-1 of $148,085 and $196,814
         were capitalized in 1999 and 2000, respectively. No costs were
         capitalized in 2001. These costs are being amortized over 24 months.
         Amortization expense was $12,340, $114,002 and $118,687 for the years
         ended December 31, 1999, 2000 and 2001, respectively.

         CONCENTRATION OF CREDIT RISK
         Financial instruments that potentially expose the Company to
         concentrations of credit risk include accounts receivable and cash. The
         Company maintains reserves for potential credit losses. Such losses, in
         the aggregate, have not exceeded management expectations. At times, the
         Company may maintain cash balances in excess of federally insured
         limits; however, the Company does not believe that it is subject to
         unusual credit risk beyond the normal credit risk associated with
         commercial banking relationships.

         STOCK-BASED COMPENSATION
         The Company accounts for stock-based awards to employees using the
         intrinsic value method as prescribed by Accounting Principles Board
         ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and
         related interpretations. Accordingly, compensation expense is recorded
         for options issued to employees in fixed amounts to the extent that the
         exercise prices are less than the fair market value of the Company's
         common stock at the date of grant. The Company applies the provisions
         of SFAS No. 123, "Accounting for Stock-Based Compensation," through
         disclosure only (See Note 9 to Notes to Consolidated Financial
         Statements). Stock-based awards to nonemployees are accounted for at
         their fair value in accordance with SFAS No. 123 and the Emerging
         Issues Task Force ("EITF") Issue No. 96-18, "Accounting for Equity
         Investments That Are Issued to Other Than Employees for Acquiring, or
         in Conjunction with Selling, Goods or Services."

         COMPREHENSIVE LOSS
         SFAS No. 130, Reporting Comprehensive Income, requires disclosure of
         all components of comprehensive loss on an annual and interim basis.
         The Company has disclosed comprehensive loss for all periods in the
         accompanying consolidated statements of stockholders' deficit.

         FOREIGN CURRENCY TRANSLATION
         The functional currency of the Company's foreign subsidiary is the
         subsidiary's local currency. Balance sheet accounts of the Company's
         foreign operations are translated from foreign currencies into U.S.
         dollars at period-end exchange rates while income and expenses are
         translated using average rates during the year. Translation gains or
         losses related to net assets located outside of the United States of
         America are shown as a component of accumulated other comprehensive
         loss in stockholders' equity (deficit). Gains or losses resulting from
         foreign currency transactions (transactions denominated in a currency
         other than the entity's functional currency) are reflected in other
         income, net in the consolidated statements of operations.

         ADVERTISING COSTS
         The Company expenses advertising costs as they are incurred. During the
         years ended December 31, 1999, 2000 and 2001, advertising expense
         totaled $53,864, $1,063,467 and $50,784, respectively.





                                       8



eROOM TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

         NET LOSS PER SHARE
         Basic net loss per share is computed using the weighted average number
         of common shares outstanding during the period, which excludes unvested
         restricted common stock. Dilutive net loss per share is computed using
         the weighted average number of common shares outstanding during the
         period, plus the dilutive effect of potential common stock. Potential
         common stock consists of convertible preferred stock, unvested
         restricted common stock, stock options and warrants.

         RISKS AND UNCERTAINTIES
         The Company operates in one segment, the development, marketing and
         sale of business collaboration software products and services, and is
         subject to a number of risks similar to other companies in the
         industry, including but not limited to, rapid technology change,
         uncertainty of market acceptance of its product, competition from
         substitute products and larger companies, protection of proprietary
         technology, ability to scale up its operations to support additional
         users of its service, the need to obtain additional financing to
         support growth, and dependence on third parties and key individuals.
         The Company's revenue is primarily derived from customers based in the
         United States.

         No one customer accounted for more than 10% of accounts receivable at
         December 31, 2000 and 2001. The Company performs ongoing credit
         evaluations of its customers; however, collateral is not required. The
         Company maintains reserves for credit losses that, in the aggregate,
         have not exceeded management's expectations.

         The Company believes that existing cash and cash equivalents will be
         sufficient to meet the Company's anticipated cash needs for working
         capital and capital expenditures for planned expansion for at least the
         next 12 months. However, the Company may need to raise additional funds
         in the next 12 months or in the future to support more rapid expansion
         of the Company's sales force, develop new or enhanced products or
         services, respond to competitive pressures, acquire complementary
         businesses or technologies, or respond to unanticipated requirements.
         If the Company seeks to raise additional funds, the Company may not be
         able to obtain funds on terms which are favorable or acceptable to the
         Company. If the Company raises additional funds through the issuance of
         equity securities, the percentage ownership of its stockholders would
         be reduced. Furthermore, these securities may have rights, preferences
         or privileges senior to the Company's common stock and its outstanding
         series of preferred stock.

         The preparation of financial statements in conformity with accounting
         principles generally accepted in the United States requires management
         to make estimates and assumptions that affect the reported amounts of
         assets and liabilities, and disclosures of contingent assets and
         liabilities, at the date of the financial statements, and the reported
         amounts of revenue and expense during the reporting period. These
         estimates include assessing the collectibility of accounts receivable,
         the realization of deferred tax assets and useful lives for
         amortization periods of tangible and intangible assets, among others.
         The markets for the Company's products are characterized by intense
         competition, rapid technological development and frequent product
         introduction, all of which could impact the future realizability of the
         Company's assets. Actual results could differ from these estimates.

         RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
         SFAS No. 141, Business Combinations, issued in July 2001, requires all
         business combinations initiated after June 30, 2001 to be accounted for
         using the purchase method. The adoption of SFAS No. 141 did not have
         any impact on the Company's consolidated financial statements.





                                       9



eROOM TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

         SFAS No. 142, Goodwill and Other Intangible Assets, was issued in July
         2001. Under SFAS No. 142, goodwill is no longer subject to amortization
         over its estimated useful life. Rather, goodwill is subject to at least
         an annual assessment for impairment by applying a fair-value-based
         test. Also under SFAS No. 142, intangible assets acquired in
         conjunction with a business combination should be separately recognized
         if the benefit of the intangible asset is obtained through contractual
         or other legal rights, or if the intangible asset can be sold,
         transferred, licensed, rented or exchanged, regardless of the
         acquirer's intent to do so. Intangible assets will continue to be
         amortized over their respective useful lives under SFAS No. 142. SFAS
         No. 142 became effective on January 1, 2002 and the adoption of SFAS
         No. 142 is not expected to have a material impact on the Company's
         consolidated financial statements, as the Company does not have any
         goodwill, nor has it or is it anticipating the acquisition of another
         entity.

         In August 2001, the FASB issued SFAS No. 143, Accounting for Asset
         Retirement Obligations. SFAS No. 143 addresses financial accounting and
         reporting for obligations associated with the retirement of tangible
         long-lived assets and the associated asset retirement costs. It applies
         to (a) all entities and (b) legal obligations associated with the
         retirement of long-lived assets that result from the acquisition,
         construction, development and/or the normal operation of a long-lived
         asset, except for certain obligations of lessees. SFAS No. 143 amends
         SFAS No. 19, Financial Accounting and Reporting by Oil and Gas
         Producing Companies, and is effective for financial statements issued
         for fiscal years beginning after June 15, 2002. The Company does not
         anticipate that the adoption of SFAS No. 143 will have a material
         impact on its financial statements.

         In October 2001, the FASB issued SFAS No. 144, Accounting for the
         Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses the
         financial accounting and reporting for the impairment or disposal of
         long-lived assets. SFAS No. 144 supersedes FASB SFAS No. 121,
         Accounting for the Impairment of Long-Lived Assets and for Long-Lived
         Assets to Be Disposed Of, but retains SFAS No. 121's fundamental
         provisions for (a) recognition/measurement of impairment of long-lived
         assets to be held and used and (b) measurement of long-lived assets to
         be disposed of by sale. SFAS No. 144 also supersedes the
         accounting/reporting provisions of Accounting Principles Board (APB)
         Opinion No. 30, Reporting the Results of Operations --Reporting the
         Effects of Disposal of a Segment of a Business, and Extraordinary,
         Unusual and Infrequently Occurring Events and Transactions, for
         segments of a business to be disposed of but retains APB No. 30's
         requirement to report discontinued operations separately from
         continuing operations and extends that reporting to a component of an
         entity that either has been disposed of or is classified as held for
         sale. SFAS No. 144 is effective for fiscal years beginning after
         December 15, 2001, and interim periods within those fiscal years. The
         Company does not anticipate that the adoption of SFAS No. 144 will have
         a material impact on its financial statements.

         In November 2001, the Emerging Issues Task Force issued Consensus Issue
         No. 01-14 relating to the accounting for reimbursement received for
         out-of-pocket expense. In accordance with Consensus Issue No. 01-14,
         reimbursements received for out-of-pocket expenses incurred should be
         characterized as revenue in the statement of operations. The Company
         has historically accounted for reimbursements received for
         out-of-pocket expenses as a reduction to cost of service revenues in
         the statement of operations to offset the costs incurred. The Company
         will adopt Consensus Issue No. 01-14 in financial reporting periods
         beginning after December 31, 2001 and comparative financial statements
         for prior periods will be classified to comply with the guidance in
         Consensus Issue No. 01-14. The Company does not anticipate that the
         adoption of Emerging Issues Task Force issued Consensus Issue No. 01-14
         will have a material effect on its financial statements.





                                       10



eROOM TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

         RECLASSIFICATION
         Certain revenue and cost of sales amounts in the prior years financial
         statements have been reclassified to conform with the current year
         presentation.


 3.      NET LOSS PER SHARE

         The calculation of basic net loss per share includes the number of
         common shares outstanding excluding unvested restricted stock. Dilutive
         net loss per share is computed using the weighted average number of
         common shares outstanding during the period, plus the dilutive effect
         of potential common stock. Potential common stock consists of
         convertible preferred stock, unvested restricted common stock, stock
         options and warrants. The following potential common shares were
         excluded from the calculation of dilutive net loss per share for all
         periods presented since their inclusion would be antidilutive:




                                                                            DECEMBER 31,
                                                           ------------------------------------------------
                                                              1999             2000                 2001
                                                           ----------       ----------           ----------
                                                                                       
Redeemable convertible preferred stock                     10,902,983       12,912,554           12,912,554
Stock options                                               2,253,462        3,295,707            3,677,858
Unvested restricted stock                                     341,830          307,500              147,656



         PRO FORMA NET LOSS PER SHARE (UNAUDITED)

         Pro forma basic and diluted net loss per share have been calculated
         assuming the conversion of all outstanding shares of redeemable
         convertible preferred stock into common stock, as if the shares had
         converted as of the beginning of the applicable period or, if later,
         the time the shares were issued. Pro forma basic and diluted net loss
         per share is also calculated assuming the termination of repurchase
         rights as if such repurchase rights on restricted stock (see Note 9)
         had terminated at the time the shares were issued.

         The following is a calculation of net loss per share and pro forma net
         loss per share:




                                                                                  DECEMBER 31,
                                                                   -------------------------------------------
                                                                      1999           2000             2001
                                                                   -----------   ------------     ------------
                                                                                         
Numerator:
  Net loss                                                         $(9,842,205)  $(29,288,742)    $(11,756,054)
                                                                   ===========   ============     ============
Denominator:
  Historical:
    Weighted average common shares outstanding                       3,132,671      4,606,290        4,970,586
    Weighted average common shares outstanding
     subject to repurchase                                            (602,076)      (305,775)        (195,656)
    Denominator for basic and diluted calculation                    2,530,595      4,300,515        4,774,930
                                                                   ===========   ============     ============
    Basic and diluted net loss per share                           $     (3.89)  $      (6.81)           (2.46)
                                                                   ===========   ============     ============
Pro Forma (unaudited):
  Historical weighted average common shares                                                          4,774,930
   outstanding
  Weighted average number of shares with assumed
   conversion of redeemable preferred stock and
   expiration of repurchase rights                                                                  12,912,554
  Shares used in computing pro forma basic and
   diluted net loss per share                                                                       17,687,484
                                                                                                  ============
  Pro forma basic and diluted net loss per share                                                  $      (0.66)
                                                                                                  ============






                                       11



eROOM TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

 4.      PROPERTY AND EQUIPMENT

         Property and equipment consist of the following:




                                                                                       DECEMBER 31,
                                                                              ------------------------------
                                                                                 2000                2001
                                                                              ----------          ----------
                                                                                            
Computer equipment, purchased software and internally
 developed software                                                           $2,943,794          $3,370,054
Office equipment                                                                 171,667             200,004
Furniture and fixtures                                                           435,572             387,461
Leasehold improvements                                                           408,559             356,295
                                                                              ----------          ----------
                                                                               3,959,592           4,313,814
Less - accumulated depreciation                                                1,571,487           2,582,015
                                                                              ----------          ----------
                                                                              $2,388,105          $1,731,799
                                                                              ==========          ==========



         Depreciation and amortization expense was $327,865, $882,754 and
         $1,082,829 for the years ended December 31, 1999, 2000 and 2001,
         respectively. Fully depreciated fixed assets of $5,700 and $0 were
         retired in 2000 and 2001, respectively.


 5.      LINES OF CREDIT

         In December 2001, the Company entered into two lines of credit with a
         bank. The first line is a $1.5 million working capital line for which
         the borrowing capacity is based on 80% of the Company's eligible
         domestic accounts receivable and the interest rate is prime rate plus
         0.50% (5.25% at December 31, 2001). The working capital line has a
         revolving maturity date, which expires December 5, 2002. The second
         line is a $1.5 million equipment acquisition line for which the
         interest rate is prime rate plus 1.50% (6.25% at December 31, 2001) and
         is available through June 30, 2002. At December 31, 2001, $811,262 has
         been drawn against this facility. Principal repayment begins in January
         2002 and continues through June 2004 in equal monthly installments of
         principal and interest.

         Principal payments due under the facility as of December 31, 2001 are
         as follows:




YEAR
- ----
                                           
2002                                          $324,505
2003                                           324,505
2004                                           162,252
                                              --------
                                              $811,262
                                              ========



         These loans are secured by all of the Company's assets except the
         Company's intellectual property. The Company has agreed not to create
         or incur any liens or security interest on its intellectual property.
         The Company has agreed to maintain the ratio of its quick assets to
         current liabilities as defined. The Company has also agreed to
         maintain quarterly net revenues at an agreed upon amount over the term
         of the loan agreement. The Company has also agreed to limitations on
         its ability to incur indebtedness, make investments and acquisitions,
         create liens on its assets and buy back, or pay cash dividends, on its
         capital stock. The Company was in compliance with all covenants at
         December 31, 2001.





                                       12



eROOM TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

         In December 2001, the Company executed and delivered a letter of credit
         in the amount of $672,487 to the landlord of its corporate
         headquarters. The letter of credit is subject to the same terms and
         conditions as the lines of credit and reduced the borrowing capacity
         available under the working capital line as of December 31, 2001 to
         $827,513. As of December 31, 2001, $688,738 remained available under
         the equipment acquisition line.


 6.      REDEEMABLE CONVERTIBLE PREFERRED STOCK

         In April 2000, the Company sold 956,938 shares of Series D redeemable
         convertible preferred stock ("Series D Preferred Stock") to a strategic
         investor in exchange for approximately $10,000,000 in cash. During 2000
         and 2001, the Company recorded revenue of $1,507,131 and $1,896,246
         respectively, from this strategic investor. Deferred revenue related to
         this strategic investor was $2,068,291 at December 31, 2000 and
         $1,046,521 at December 31, 2001. In July 2000, the Company sold 287,082
         shares of Series D Preferred Stock to a venture management firm for
         approximately $3,000,000 in cash. During 2000 and 2001, the Company
         recorded revenue of $49,625 and $54,625 respectively, from this
         investor. Deferred revenue related to this investor was $49,625 at
         December 31, 2000 and $0 at December 31, 2001. At December 31, 2001,
         Series A redeemable convertible preferred stock ("Series A Preferred
         Stock"), Series B redeemable convertible preferred stock ("Series B
         Preferred Stock"), Series B-1 redeemable convertible preferred stock
         ("Series B-1 Preferred Stock"), Series C redeemable convertible
         preferred stock ("Series C Preferred Stock") and Series D redeemable
         convertible preferred stock ("Series D Preferred Stock") have the
         following characteristics (collectively, "Redeemable Convertible
         Preferred Stock"):

           REDEMPTION
           The Series A, Series B, Series B-1, Series C and Series D Preferred
           Stock are redeemable at the request of 55% of the holders of Series
           A, Series B, Series B-1, Series C and Series D Preferred Stock,
           voting as a single class, beginning on September 13, 2004 at per
           share prices of $1.00, $2.35, $2.80, $4.80 and $10.45, respectively,
           plus all declared but unpaid dividends, as of December 31, 2001 as
           follows:




                                              PRINCIPAL
                                              REDEMPTION
YEAR                                            AMOUNT
- ----                                         -----------
                                          
2005                                         $16,767,408
2006                                          16,767,408
2007                                          16,767,408
                                             -----------
                                             $50,302,224
                                             ===========



           CONVERSION Each share of Series A, Series B, Series B-1, Series C and
           Series D Preferred Stock is convertible at any time at the option of
           the holder into shares of common stock at a ratio of one share of
           common stock for each share of Series A, Series B, Series B-1, Series
           C or Series D Preferred Stock, subject to certain anti-dilution
           adjustments. All shares of Series A, Series B, Series B-1 and Series
           C Preferred Stock will automatically convert to shares of common
           stock upon the closing of a public offering of the Company's common
           stock involving aggregate net proceeds to the Company of at least
           $20,000,000 and a per share price of not less than $9.60. All shares
           of Series D Preferred Stock will automatically convert to shares of
           common stock upon the closing of a public offering of the Company's
           common stock involving aggregate net proceeds to the Company of at
           least $20,000,000 and a per share price of not less than $10.45.





                                       13



eROOM TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

           At December 31, 2001, the Company has reserved 12,912,554 shares of
           common stock for issuance upon the conversion of the Series A, Series
           B, Series B-1, Series C and Series D Preferred Stock.

           DIVIDENDS RIGHTS
           Holders of Redeemable Convertible Preferred Stock are entitled to
           receive dividends only when and if declared by the Board of Directors
           but must be paid on redemption, liquidation or a sale of the company.
           No dividends have been declared or paid by the Company on Redeemable
           Convertible Preferred Stock through December 31, 2001.

           LIQUIDATION, DISSOLUTION OR WINDING-UP OF THE COMPANY
           In the event of any liquidation, dissolution, or winding-up of the
           Company, the holders of the Redeemable Convertible Preferred Stock
           will be entitled to receive, in preference to the holders of the
           common stock, an amount per share equal to the greater of (i) $1.00,
           $2.35, $2.80, $4.80 and $10.45 for Series A, Series B, Series B-1,
           Series C and Series D Preferred Stock, respectively, plus any
           declared but unpaid dividends thereon, subject to certain
           anti-dilution adjustments, or (ii) such amount per share as would
           have been payable had the shares been converted into common stock
           immediately prior to such liquidation, dissolution or winding-up of
           the Company.

           If the remaining assets of the Company are insufficient to pay the
           Redeemable Convertible Preferred Stockholders the full amount to
           which they are entitled, the stockholders shall share ratably in any
           distribution of the remaining assets in proportion to the respective
           amounts which would otherwise by payable if all amounts payable were
           paid in full. Any assets remaining after the initial distribution to
           the holders of the Redeemable Convertible Preferred Stock shall be
           available for distribution ratably among the Company's common
           stockholders.

           VOTING RIGHTS
           Each holder of the Redeemable Convertible Preferred Stock is entitled
           to the number of votes equal to the number of shares of common stock
           into which such holder's shares are convertible at the record date
           for such vote.


 7.      COMMON STOCK

         Each share of common stock entitles the holders to one vote on all
         matters submitted to a vote of the Company's stockholders. Common
         stockholders are entitled to receive dividends only when and if
         declared by the Board of Directors, subject to the preferential
         dividend rights of the holders of the Redeemable Convertible Preferred
         Stock.


 8.      WRITE-OFF OF INITIAL PUBLIC OFFERING COSTS

         In December 2000, the Company decided to postpone its initial public
         offering due to unfavorable market conditions. Accordingly, it was
         determined that the related prepaid costs of $1,001,228 incurred to
         date would not be of future benefit to the Company and were expensed to
         general and administrative expenses.





                                       14



eROOM TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

 9.      1996 AND 2000 STOCK PLANS

         In 1996, the Company adopted the 1996 Stock Plan (the "1996 Plan") for
         the issuance of incentive and nonqualified stock options and restricted
         stock awards. The number of shares of common stock reserved for
         issuance under the 1996 Plan is 7,384,302 shares, as amended. Options
         to purchase common stock and restricted stock awards are granted at the
         discretion of the board of directors.

         Under the terms of the 1996 Plan, the exercise price of incentive stock
         options granted must not be less than 100% (110% in certain cases) of
         the fair market of the common stock on the date of grant, as determined
         by the board of directors. The exercise price of nonqualified stock
         options may be less than the fair market value of the common stock on
         the date of grant, as determined by the board of directors but in no
         case may the exercise price be less than the statutory minimum. Vesting
         of options granted is at the discretion of the board of directors,
         which typically if four years. The term of options granted cannot
         exceed ten years (five years for incentive stock options granted to
         holders of more than 10% of the voting stock of the Company.

         A restricted stock award provides for issuance of common stock to
         directors, officers, consultants and other key personnel at prices
         determined by the board of directors. Participants' unvested shares are
         subject to repurchase by the Company at the original purchase price for
         up to four years. Generally, 25% of the shares vest on the first
         anniversary date of purchase. In 2000, there were 307,500 shares of
         restricted common stock issued from the 1996 Plan. There were no shares
         of restricted common stock issued in 1999 or 2001. As of December 31,
         2001, the Company had the right to repurchase up to 147,656 unvested
         shares at the original purchase price of $1.50 per share.

         In September 2000, the 2000 Stock Option and Incentive Plan and the
         2000 Employee Stock Purchase Plan were adopted by the Board of
         Directors and approved by the Company's stockholders. A total of
         2,500,000 and 450,000 shares of common stock has been initially
         authorized for issuance under the stock option and incentive plan and
         the employee stock purchase plan, respectively. The 2000 Stock Option
         and Incentive Plan and the 2000 Employee Stock Purchase Plan are
         effective on the completion of an initial public offering by the
         Company.

         SFAS No. 123, "Accounting for Stock-Based Compensation," encourages but
         does not require companies to record compensation cost for stock-based
         employee compensation at fair value. The Company has chosen to account
         for stock-based compensation granted to employees using the intrinsic
         value method prescribed in APB No. 25, "Accounting for Stock Issued to
         Employees," and related interpretations. Accordingly, deferred
         compensation cost for restricted stock awards and stock options granted
         to employees is measured as the excess, if any, of the fair value of
         the Company's stock at the date of the grant over the amount that must
         be paid to acquire the stock.





                                       15



eROOM TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

         Had the value of options granted to employees been measured using the
         fair value method prescribed by SFAS 123, the Company's net loss would
         have been as indicated below. The effects of applying SFAS No. 123 in
         this pro forma disclosure are not indicative of future amounts.




                                                                                 DECEMBER 31,
                                                                ------------------------------------------------
                                                                    1999             2000               2001
                                                                -----------      ------------       ------------
                                                                                           
Net loss available to common stockholders:
  As reported                                                   $(9,842,205)     $(29,288,742)      $(11,756,054)
  Pro forma                                                      (9,892,150)      (29,397,460)       (12,237,283)

Basic and diluted net loss per common share:
  As reported                                                        $(3.89)     $      (6.81)      $      (2.46)
  Pro forma                                                           (3.91)            (6.84)             (2.56)



         The fair value of each option grant was estimated as of the date of
         grant using the Black-Scholes option pricing model. The following
         assumptions were used to value grants made during the years ended
         December 31, 1999, 2000 and 2001, respectively: a dividend yield of
         zero for all three years; volatility of 0.001% for all three years;
         weighted-average risk free interest rate of 5.8%, 5.1% and 4.6%,
         respectively; and an expected option term of 7, 6 and 5 years,
         respectively.

         Activity under the 1996 Plan during the years ended December 31, 1999,
         2000 and 2001 is summarized as follows:




                                               1999                      2000                      2001
                                       --------------------      ---------------------     --------------------
                                                     WEIGHTED                   WEIGHTED                 WEIGHTED
                                                      AVERAGE                   AVERAGE                  AVERAGE
                                         NUMBER      EXERCISE     NUMBER        EXERCISE     NUMBER      EXERCISE
                                       OF SHARES      PRICE      OF SHARES       PRICE     OF SHARES      PRICE
                                       ---------      -----      ---------       -----     ---------      -----
                                                                                        
Outstanding at beginning of year       2,208,683      $0.17      2,253,462       $0.43     3,295,707      $2.39
Granted                                  996,872       0.74      2,491,300        3.26     1,321,766       3.29
Exercised                               (624,496)      0.09     (1,290,576)       0.68       (55,081)      0.57
Canceled                                (327,597)      0.33       (158,479)       1.97      (884,534)      2.70
                                       ---------      -----      ---------       -----     ---------      -----
Outstanding at end of year             2,253,462      $0.43      3,295,707       $2.39     3,677,858      $2.67
                                       =========      =====      =========       =====     =========      =====
Weighted average fair value of
 options granted during the year                      $4.26                      $9.55                    $4.33






                                       16



eROOM TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

         The following table summarizes information about stock options
         outstanding under the 1996 and 2000 Plans at December 31, 2001:




                                       OPTIONS OUTSTANDING
                          ----------------------------------------------
                                                                              OPTIONS EXERCISABLE
                                                            WEIGHTED        -------------------------
                                            WEIGHTED         AVERAGE                         WEIGHTED
                                            AVERAGE         REMAINING                        AVERAGE
EXERCISE                    NUMBER          EXERCISE       CONTRACTUAL        NUMBER         EXERCISE
PRICE                     OUTSTANDING        PRICE       LIFE (IN YEARS)    EXERCISABLE       PRICE
- --------                  -----------       --------     ---------------    -----------      ---------
                                                                                
$ 0.02                       97,285           $0.02           4.75             97,285          $0.02
  0.10                       52,709            0.10           5.40             52,709           0.10
  0.25                      214,975            0.25           6.08            194,046           0.25
  0.35                      237,926            0.35           7.10            156,999           0.35
  0.75                      118,555            0.75           7.76             61,583           0.75
  1.50                      906,484            1.50           8.07            390,815           1.50
  2.00                      600,448            2.00           9.89              3,350           2.00
  4.50                    1,265,851            4.50           8.93            301,554           4.50
  7.25                      183,625            7.25           8.85             54,258           7.25
                          ---------                                         ---------
$ 0.02 - $7.25            3,677,858           $2.67                         1,312,599          $1.90
                          =========                                         =========



          During 2001, the Company recorded a reversal of $2,023,113 of employee
          stock-based deferred compensation due to 884,534 options canceled,
          generally with fair values that exceed the 901,216 options to purchase
          common stock granted at exercise prices that were subsequently
          determined to be below fair value of the common stock. The Company
          also issued 420,550 options at or above fair value of the common
          stock. Compensation expense of $4,114,000 was recognized during 2001.

          During 2000, the Company recorded $14,489,123 of employee stock-based
          deferred compensation net of cancellations, from 2,480,300 options to
          purchase common stock granted at exercise prices subsequently
          determined to be below fair value of the common stock. Compensation
          expense of $3,622,118 was recognized during 2000.

          During 1999, the Company recorded $3,742,976 of employee stock-based
          deferred compensation net of cancellations, from 991,050 options to
          purchase common stock granted at exercise prices subsequently
          determined to be below the fair value of common stock. Compensation
          expense of $574,779 was recognized during 1999.

          The Company recorded equity related expense totaling $18,084, $205,411
          and $0 related to 5,822, 28,200 and 375 stock options granted to
          certain nonemployee consultants during the years ended December 31,
          1999, 2000 and 2001, respectively.

          At December 31, 2001, a total of 3,677,858 shares of common stock were
          reserved for issuance upon exercise of the options under the 1996 Plan
          and 1,634,670 options were available for future grant.





                                       17



eROOM TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

10.      INCOME TAXES

         Deferred tax assets (liabilities) consist of the following:




                                                                                     DECEMBER 31,
                                                                              ---------------------------
                                                                                  2000            2001
                                                                              -----------     -----------
                                                                                        
Deferred tax asset:
  Net operating loss carryforwards                                            $15,210,746     $19,323,265
  Research and development tax credits                                            764,230       1,191,971
  Stock-based compensation                                                       (314,489)       (403,884)
  Allowance for doubtful accounts                                                 104,702         172,906
  Deferred revenue                                                              3,396,236       2,131,355
  Accrued expenses                                                                196,979         404,876
  Depreciation and amortization                                                    52,375           9,851
                                                                              -----------     -----------
Gross deferred tax assets                                                      19,410,779      22,830,340
Less: valuation allowance                                                     (19,410,779)    (22,830,340)
                                                                              -----------     -----------
Total net deferred tax assets                                                 $         -     $         -
                                                                              ===========     ===========



          The Company has provided a full valuation allowance for its net
          deferred tax assets since it is more likely than not that these future
          benefits will not be realized. If the Company achieves future
          profitability, a significant portion of these deferred tax assets
          could be available to offset future income taxes.

          At December 31, 2001, the Company has federal and state net operating
          loss carryforwards of approximately $48,027,000 and $47,754,000,
          respectively, available to reduce future taxable income and federal
          and state research and development credit carryforwards of
          approximately $929,000 and $398,000, respectively, available to reduce
          future tax liabilities. If not utilized, these credits and
          carryforwards will expire between 2002 and 2021.

          The reconciliation of the statutory federal tax rate to the Company's
          actual rate is as follows:




                                                                   1999          2000            2001
                                                                   ----          ----            ----
                                                                                       
Income tax benefit computed at the federal statutory rate         (34.0)%       (34.0)%         (34.0)%
Permanent items                                                     0.1           4.5            12.5
State income taxes, net of federal benefit                         (5.9)         (5.6)           (5.2)
Research and development credit generated                          (1.0)         (1.0)           (2.4)
Increase in valuation allowance                                    40.8          36.1            29.1
                                                                   ----          ----            ----
                                                                      -%            -%              -%
                                                                   ====          ====            ====



          Under the provisions of the Internal Revenue Code, certain substantial
          changes in the Company's ownership may limit the amount of net
          operating loss and tax credit carryforward which could be utilized
          annually to offset future taxable income and taxes payable. The amount
          of this annual limitation is determined based upon the Company's value
          prior to an ownership change.





                                       18



eROOM TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

11.      BENEFIT PLAN

         401(k) SAVINGS PLAN
         The Company has established a retirement savings plan under section
         401(k) of the U.S. Internal Revenue Code (the "401(k) Plan"). The
         401(k) Plan covers substantially all U.S. based employees of the
         Company who meet minimum age and service requirements, and allows
         participants to defer a portion of their annual compensation on a
         pre-tax basis. Matching contributions to the 401(k) Plan may be made at
         the discretion of the Company. The Company has contributed $188,800 and
         $243,768 to the 401(k) Plan for the years ended December 31, 2000 and
         2001, respectively. The Company did not make a contribution to the
         401(k) Plan prior to 2000.


12.      COMMITMENTS AND CONTINGENCIES

         OPERATING LEASES
         The Company leases office space under various noncancelable-operating
         leases, which expire through June 2005. The approximate future minimum
         payments as of December 31, 2001 are as follows:




YEAR
- ----
                                           
2002                                          $1,459,000
2003                                           1,349,000
2004                                           1,318,000
2005                                             689,000
                                              ----------
                                              $4,815,000
                                              ==========



          Total rent expense under operating leases was $327,110, $965,042 and
          $1,526,861 for the years ended December 31, 1999, 2000 and 2001,
          respectively.

          CONTINGENCIES
          The Company is, from time to time, subject to claims arising in the
          ordinary course of business. While the outcome of the claims cannot be
          predicted with certainty, management does not expect these matters to
          have a material adverse effect on the consolidated results of
          operations and financial condition of the Company.





                                       19

EX-99.2

                                                                    Exhibit 99.2

eROOM TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2002 (UNAUDITED)
IN THOUSANDS EXCEPT FOR SHARE DATA




                                                                                         SEPTEMBER 30, 2002
                                                                                         ------------------
                                                                                             (UNAUDITED)

                                                                                         
ASSETS
Current assets:
    Cash and cash equivalents                                                                $      16,380
    Accounts receivable, net of allowance for doubtful accounts of
      $429 at September 30, 2002                                                                     5,743
                                                                                             -------------
        Total current assets                                                                        22,123

Property and equipment, net                                                                          1,209
Other assets                                                                                           129
                                                                                             -------------
        Total assets                                                                         $      23,461
                                                                                             -------------
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS'
  DEFICIT
Current liabilities:
    Current portion of long-term debt                                                        $         343
    Accounts payable                                                                                   309
    Accrued expenses                                                                                 2,415
    Accrued payroll and benefits                                                                     1,898
    Deferred revenue                                                                                19,705
                                                                                             -------------
        Total current liabilities                                                                   24,670

Long-term debt                                                                                         262
Deferred revenue                                                                                       272
                                                                                             -------------
        Total liabilities                                                                           25,204
                                                                                             -------------

Commitments and contingencies

Redeemable convertible preferred stock
    Series A redeemable convertible preferred stock; $.01 par value; 3,565,000
      shares authorized, issued and outstanding at September 30, 2002 (liquidation
      preference $3,565)                                                                             3,565
    Series B redeemable convertible preferred stock; $.01 par value; 2,851,065
      shares authorized, issued and outstanding at September 30, 2002 (liquidation
      preference $6,700)                                                                             6,700
    Series B-1 redeemable convertible preferred stock; $.01 par value; 1,250,000
      shares authorized, issued and outstanding at September 30, 2002 (liquidation
      preference $3,500)                                                                             3,500
    Series C redeemable convertible preferred stock; $.01 par value; 3,236,918
      shares authorized, issued and outstanding at September 30, 2002 (liquidation
      preference $15,537)                                                                           15,537
    Series D redeemable convertible preferred stock; $.01 par value; 2,009,571
      shares authorized, issued and outstanding at September 30, 2002 (liquidation
      preference $21,000)                                                                           21,000
                                                                                             -------------
        Total redeemable convertible preferred stock                                                50,302
                                                                                             -------------

Stockholders' deficit
    Common stock; $.01 par value; 60,000,000 shares authorized at September 30,
      2002; 5,298,005 shares issued
      and outstanding at September 30, 2002                                                             53
    Additional paid-in capital                                                                      17,692
    Deferred stock-based compensation                                                               (4,966)
    Accumulated deficit                                                                            (64,793)
    Cumulative Translation Adjustment                                                                  (31)
                                                                                             -------------
        Total stockholders' deficit                                                                 (1,743)
                                                                                             -------------
        Total liabilities, redeemable convertible preferred stock and
          stockholders' deficit                                                              $      23,461
                                                                                             =============







eROOM TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2002 (UNAUDITED)
IN THOUSANDS




                                                              NINE MONTHS ENDED    NINE MONTHS ENDED
                                                             SEPTEMBER 30, 2001   SEPTEMBER 30, 2002
                                                          ------------------------------------------
                                                                                      
Revenue:
  Product license                                                       $15,499              $14,616
  Services                                                                4,989                8,052
  Hosting services                                                        1,008                3,960
                                                          ------------------------------------------
    Total revenue                                                        21,496               26,628
                                                          ------------------------------------------

Cost of revenue:
  Cost of product license revenue                                           827                  835
  Cost of services revenue*                                               3,258                3,203
  Cost of hosting services revenue*                                         792                  919
                                                          ------------------------------------------
     Total cost of revenue                                                4,877                4,957
                                                          ------------------------------------------
Gross margin                                                             16,619               21,671
                                                          ------------------------------------------

Operating expenses:

  Research and development*                                               5,541                5,297
  Sales and marketing*                                                   17,746               14,785
  General and administrative*                                             1,855                1,442
  Employee stock-based compensation expense                               3,143                2,836
Operating expenses                                                       28,285               24,360
                                                          ------------------------------------------
Net loss from operations                                                (11,666)              (2,689)

Interest income                                                             583                  138
Other expense, net                                                          (61)                  (6)
                                                          ------------------------------------------
Net loss                                                               $(11,144)             $(2,557)
                                                          ==========================================


*Excludes amortization of deferred employee stock-based
compensation expense of the following:
   Cost of services revenue                                                 245                  154
   Cost of hosting services revenue                                          26                   28
   Research and development                                                 530                  920
   Sales and marketing                                                    1,451                  812
   General and administrative                                               891                  922
                                                          ------------------------------------------
                                                                          3,143                2,836
                                                          ==========================================











eROOM TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEAR ENDED 2001 AND THE PERIOD ENDED SEPTEMBER 30, 2002 (UNAUDITED)
IN THOUSANDS EXCEPT FOR SHARE DATA



                                                  REDEEMABLE CONVERTIBLE
                                                     PREFERRED STOCK          COMMON STOCK
                                               -------------------------   ---------------------
                                                  NUMBER       CARRYING      NUMBER        PAR
                                                OF SHARES        VALUE      OF SHARES     VALUE
                                               -----------     ---------   ----------    -------
                                                                              
Balance at December 31, 2001                    12,912,554      50,302     $5,004,635     $  50
Issuance of common stock pursuant to the
exercise of stock options                                                     293,370         3
Deferred compensation related to stock
option grants, net of cancellations
Employee stock-based compensation expense
Translation adjustment
Net loss
                                                ----------      ------     ----------     -----
Balance at September 30, 2002 (unaudited)       12,912,554      50,302      5,298,005        53
                                                ==========      ======     ==========     =====






                                                                   STOCKHOLDERS' DEFICIT
                                            ---------------------------------------------------------------------
                                             ADDITIONAL       DEFERRED                     CUMULATIVE
                                              PAID-IN       STOCK-BASED     ACCUMULATED   TRANSLATION                COMPREHENSIVE
                                              CAPITAL       COMPENSATION      DEFICIT      ADJUSTMENT      TOTAL      INCOME (LOSS)
                                            ------------   -------------    -----------   ------------   --------   ---------------
                                                                                                    
Balance at December 31, 2001                 $   18,463          (8,812)    $  (62,236)       $ (29)     (52,564)     $  (11,785)
Issuance of common stock pursuant to the
exercise of stock options                           239                                                      242
Deferred compensation related to stock
option grants, net of cancellations              (1,010)          1,010                                       --
Employee stock-based compensation expense                         2,836                                    2,836
Translation adjustment                                                                           (2)          (2)             (2)
Net loss                                                                        (2,557)                   (2,557)         (2,557)
                                             ----------          ------     ----------        -----       ------      ----------
Balance at September 30, 2002 (unaudited)        17,692          (4,966)       (64,793)         (31)     (52,045)         (2,559)
                                             ==========          ======     ==========        =====       ======      ==========








eROOM TECHNOLOGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2002 (UNAUDITED)
IN THOUSANDS




                                                                NINE MONTHS ENDED    NINE MONTHS ENDED
                                                               SEPTEMBER 30, 2001   SEPTEMBER 30, 2002
                                                              -----------------------------------------
                                                                                     
Cash flows from operating activities:
    Net loss                                                         $     (11,144)        $    (2,557)
    Adjustments to reconcile net loss to net cash provided
      by operating activities:
    Stock-based compensation expense                                         3,143               2,836
    Depreciation                                                               762                 742
    Changes in assets and liabilities:
      Accounts receivable                                                   (1,067)             (1,669)
      Prepaid expenses and other assets                                        989
      Accounts payable                                                      (2,131)                196
      Accrued expenses                                                         784                (571)
      Accrued payroll and benefits                                            (127)                851
      Deferred revenue                                                       2,904               1,623
                                                              ----------------------------------------
        Net cash (used by) provided by operating activities                (5,887)               1,451
                                                              ----------------------------------------

Cash flows from investing activities:
    Proceeds from sale of short-term investments                            17,415                  --
    Purchases of fixed assets                                                 (293)               (216)
                                                              ----------------------------------------
        Net cash provided by (used in) investing activities                 17,122                (216)
                                                              ----------------------------------------

Cash flows from financing activities:
    Borrowings under line of credit                                            452                  45
    Repayment of borrowings under line of credit                              (233)               (252)
    Proceeds from issuance of common stock                                      17                 233
                                                              ----------------------------------------
        Net cash provided in financing activities                              236                  26
                                                              ----------------------------------------

Net increase in cash and cash equivalents                                   11,471               1,261

Effective of exchange rate changes on cash and cash
equivalents                                                                    (14)                  7

Cash and cash equivalents, beginning of period                               3,514              15,112
                                                              ----------------------------------------
Cash and cash equivalents, end of period                                    14,971              16,380
                                                              ========================================
Supplemental disclosure of cash flow information:
    Cash paid for interest                                           $          62         $        33




eROOM TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IN THOUSANDS EXCEPT SHARE DATA
- ------------------------------------------------------------------------------

The accompanying unaudited financial statements and notes for the interim
period ended September 30, 2001 have not been subject to review in accordance
with SAS 71.

1.       NATURE OF THE BUSINESS

         eRoom Technology, Inc. (the "Company") (formerly, Instinctive
         Technology, Inc.) was incorporated in Delaware in June 1996. The
         Company is a provider of business collaboration software products and
         hosted offerings. The Company's product, eRoom, enables organizations
         and their employees, customers, suppliers, and other partners to manage
         their business relationships over the Internet.

         The Company has a single operating segment, development and marketing
         of collaboration software. The Company has no organizational structure
         dictated by product line, geography or customer type. Primarily all
         revenue earned to date has been generated from U.S. based customers;
         however, the Company operates as a branch in the United Kingdom and
         France and as a corporation in Australia.


2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Significant accounting policies followed in the preparation of the
         consolidated financial statements are as follows:

         PRINCIPLES OF CONSOLIDATION
         The consolidated financial statements include the accounts of the
         Company and its wholly-owned subsidiary. All intercompany transactions
         have been eliminated in consolidation.

         CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
         The Company considers all highly liquid investments with an original
         maturity of three months or less to be cash equivalents, and
         investments with original maturity dates greater than three months to
         be short-term investments. At September 30, 2002 cash equivalents were
         comprised of money market accounts which were carried at cost and
         approximated fair market value.

         PROPERTY AND EQUIPMENT
         Property and equipment are stated at cost, net of accumulated
         depreciation. Depreciation is computed using the straight-line method
         over the estimated useful lives of the assets as follows:



                                                                      ESTIMATED USEFUL LIFE
                                                                      ---------------------
                                                                   
          Computer equipment, purchased software and internally
           developed software                                              2 - 3 years
          Office equipment                                                   3 years
          Furniture and fixtures                                             5 years
          Leasehold improvements                                      Shorter of lease term
                                                                      or asset useful life


                                       1


eROOM TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IN THOUSANDS EXCEPT SHARE DATA
- ------------------------------------------------------------------------------

         On disposal, the assets disposed of and the related accumulated
         depreciation are removed from the accounts and any resulting gain or
         loss is included in other income (expense) . Repairs and maintenance
         costs are expensed as incurred.

         BASIS OF PRESENTATION

         The accompanying unaudited condensed consolidated financial statements
         have been prepared in accordance with accounting principles generally
         accepted in the United States of America for interim financial
         information and with the instructions in Form 10-Q and Article 10 of
         Regulation S-X. It is recommended that these financial statements be
         read in conjunction with the consolidated financial statements and
         related notes that appear in the Audited financial statements for the
         year ended December 31, 2001. In the opinion of management, all
         adjustments have been recorded as necessary to present fairly the
         Company's consolidated financial position, results of operations and
         cash flow for the periods presented. The consolidated results of
         operations for the nine months ended September 30, 2002 are not
         necessarily indicative of the results that may be expected for any
         future period.


         REVENUE RECOGNITION

         The Company recognizes revenue in accordance with Statement of
         Position, or SOP, No. 97-2, Software Revenue Recognition, as amended by
         SOP No. 98-4 and Staff Accounting Bulletin (SAB) No. 101, Revenue
         Recognition in Financial Statements. The Company sells its software
         under perpetual license arrangements that are sold together with a
         maintenance contract having a specified term, typically one year.
         Revenue under these arrangements is recognized ratably as product
         license revenue and maintenance revenue, respectively over the
         specified maintenance contract term beginning at the time the software
         is delivered to the customer, provided that the fee is fixed or
         determinable, evidence of the arrangement exists and collection is
         probable. Customers may purchase additional maintenance contracts after
         the initial term at then negotiated prices. Revenue from these
         contracts is recognized ratably as maintenance revenue over the length
         of the contract.

         From time to time, customers also purchase professional consulting
         services, which include best practices, training and implementation
         assistance. When professional consulting services are sold with
         software licenses, the value of services-related revenue, based upon
         vendor specific objective evidence, is deferred until such time that
         services are delivered. Vendor specific evidence is determined based on
         the price for which such services are sold separately. Revenue from
         professional consulting service arrangements are recognized as services
         revenue as the services are performed, provided that the fees are fixed
         or determinable, evidence of the arrangement exists and collection is
         probable. Hosting revenue consists of monthly fees for application
         management and application hosting rentals. Revenue (other than
         installation fees) is generally billed and recognized over the term of
         the contract based on actual usage.


                                       2


eROOM TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IN THOUSANDS EXCEPT SHARE DATA
- ------------------------------------------------------------------------------

         Amounts collected or billed prior to satisfying the above revenue
         recognition criteria are reflected as deferred revenue.

         COST OF REVENUE
         Cost of product license revenue consists of royalties for third-party
         technology. Cost of maintenance revenue consists of cost of technical
         support and other costs directly attributable to supporting the
         Company's product and customers. Cost of services revenue consists of
         cost primarily for consulting and training personnel including cost of
         services provided by third-party consultants engaged by the Company.
         Cost of hosted revenue consists of cost of technical support and other
         costs directly attributable to supporting the Company's hosted product
         and customers

         RESEARCH AND SOFTWARE DEVELOPMENT COSTS
         Costs incurred in the research and development of the Company's
         products are expensed as incurred, except for certain software
         development costs. Costs associated with the development of computer
         software products are expensed prior to establishment of technological
         feasibility (as defined by Statement of Financial Accounting Standards
         ("SFAS") No. 86, "Accounting for the Costs of Computer Software to be
         Sold, Leased, or Otherwise Marketed") and capitalized thereafter.
         Software development costs subject to capitalization during 2002 were
         not significant.

         On January 1, 1999, the Company adopted SOP 98-1, "Accounting for the
         Costs of Computer Software Developed or Obtained for Internal Use."
         Accordingly, the Company's policy is to capitalize costs associated
         with the development and implementation of its operating systems,
         including internally and externally developed software.

         STOCK-BASED COMPENSATION

         The Company accounts for stock-based awards to employees using the
         intrinsic value method as prescribed by Accounting Principles Board
         ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and
         related interpretations. Accordingly, compensation expense is recorded
         for options issued to employees in fixed amounts to the extent that the
         exercise prices are less than the fair market value of the Company's
         common stock at the date of grant. The Company applies the provisions
         of SFAS No. 123, "Accounting for Stock-Based Compensation," through
         disclosure only (See Note 9 to Notes to Consolidated Financial
         Statements). Stock-based awards to nonemployees are accounted for at
         their fair value in accordance with SFAS No. 123 and the Emerging
         Issues Task Force ("EITF") Issue No. 96-18, "Accounting for Equity
         Investments That Are Issued to Other Than Employees for Acquiring, or
         in Conjunction with Selling, Goods or Services."

         Compensation expense of $3,143 and $2,836 was recognized during the
         nine months ended, September 30, 2001 and 2002, respectively.

         COMPREHENSIVE LOSS

                                       3





eROOM TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IN THOUSANDS EXCEPT SHARE DATA
- ------------------------------------------------------------------------------

         SFAS No. 130, Reporting Comprehensive Income, requires disclosure of
         all components of comprehensive income (loss) on an annual and interim
         basis. The Company has disclosed comprehensive income (loss) for all
         periods presented in the accompanying consolidated statements of
         stockholders' equity.

         ADVERTISING COSTS
         The Company expenses advertising costs as they are incurred. During the
         nine months ended September 30, 2001 and 2002, the Company did not
         incur any advertising costs.

         RISKS AND UNCERTAINTIES
         The Company operates in one segment, has only one product and is
         subject to a number of risks similar to other companies in the
         industry, including but not limited to, rapid technology change,
         uncertainty of market acceptance of its product, competition from
         substitute products and larger companies, protection of proprietary
         technology, ability to scale up its operations to support additional
         users of its service, the need to obtain additional financing to
         support growth, and dependence on third parties and key individuals.
         The Company's revenue is primarily derived from customers based in the
         United States.

         Financial instruments that potentially expose the Company to
         concentrations of credit risk consist primarily of cash, cash
         equivalents, short-term investments and accounts receivable. At
         September 30, 2002 the Company had cash balances at certain financial
         institutions in excess of federally insured limits; however, the
         Company does not believe that it is subject to unusual credit risk
         beyond the normal credit risk associated with commercial banking
         relationships.

         No one customer accounted for more than 10% of accounts receivable at
         September 30, 2002. The Company performs ongoing credit evaluations of
         its customers; however, collateral is not required. The Company
         maintains reserves for credit losses that, in the aggregate, have not
         exceeded management's expectations.

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


4.       PROPERTY AND EQUIPMENT

         Property and equipment consist of the following:



                                       4



eROOM TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IN THOUSANDS EXCEPT SHARE DATA
- ------------------------------------------------------------------------------




                                                                SEPTEMBER 30
                                                                    2002
                                                                ------------
                                                              
Computer equipment, purchased software and internally
  developed software                                             $    3,618
Office equipment                                                        203
Furniture and fixtures                                                  356
Leasehold improvements                                                  358
                                                                 ----------
                                                                      4,535
Less - accumulated depreciation                                       3,326
                                                                 ----------
                                                                 $    1,209
                                                                 ==========



         Depreciation and amortization expense was $762 and $742 for the nine
         months ended September 30, 2001 and 2002, respectively.


5.       LINES OF CREDIT

         In December 2001, the Company entered into two lines of credit with a
         bank. The first line is a $1.5 million working capital line for which
         the borrowing capacity is based on 80% of the Company's eligible
         domestic accounts receivable and the interest rate is prime rate plus
         0.50% (% at September 30, 2002). The second line is a $1.5 million
         equipment acquisition line for which the interest rate is prime rate
         plus 1.50% (% at September 30, 2002). At September 30, 2002, $650 has
         been drawn against this facility. Principal repayment continues through
         June 2004 in equal monthly installments of principal and interest.

         These loans are secured by all of the Company's assets except the
         Company's intellectual property. The Company has agreed not to create
         or incur any liens or security interest on its intellectual property.
         The Company has agreed to maintain the ratio of its quick assets to
         current liabilities as defined. The Company has also agreed to maintain
         quarterly net revenues at an agreed upon amount over the term of the
         loan agreement. The Company has also agreed to limitations on its
         ability to incur indebtedness, make investments and acquisitions,
         create liens on its assets and buy back, or pay cash dividends, on its
         capital stock. The Company was in compliance with all covenants at
         September 30, 2002. The outstanding principal balance was $605 at
         September 30, 2002.




                                       5




eROOM TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IN THOUSANDS EXCEPT SHARE DATA
- ------------------------------------------------------------------------------

6.       REDEEMABLE CONVERTIBLE PREFERRED STOCK

         In April 2000, the Company sold 956,938 shares of Series D redeemable
         convertible preferred stock ("Series D Preferred Stock") to a strategic
         investor in exchange for approximately $10,000 in cash. During the nine
         months ended September 30, 2001 and 2002 respectively, the Company
         recorded revenue of $1,413 and $763, from this strategic investor.
         Deferred revenue related to this strategic investor was $722 at
         September 30, 2002. In July 2000, the Company sold 287,082 shares of
         Series D Preferred Stock to a venture management firm for approximately
         $3,000 in cash. During the nine months ended September 30, 2001 and
         2002 respectively, the Company recorded revenue of $37 and $0, from
         this strategic investor. At December 31, 2001, Series A redeemable
         convertible preferred stock ("Series A Preferred Stock"), Series B
         redeemable convertible preferred stock ("Series B Preferred Stock"),
         Series B-1 redeemable convertible preferred stock ("Series B-1
         Preferred Stock"), Series C redeemable convertible preferred stock
         ("Series C Preferred Stock") and Series D redeemable convertible
         preferred stock ("Series D Preferred Stock") have the following
         characteristics (collectively, "Redeemable Convertible Preferred
         Stock"):

         REDEMPTION
         The Series A, Series B, Series B-1, Series C and Series D Preferred
         Stock are redeemable at the request of 55% of the holders of Series A,
         Series B, Series B-1, Series C and Series D Preferred Stock, voting as
         a single class, beginning on September 13, 2004 at per share prices of
         $1.00, $2.35, $2.80, $4.80 and $10.45, respectively, plus all declared
         but unpaid dividends, as of September 30,2002 as follows:




                                                         PRINCIPAL
                                                        REDEMPTION
         YEAR                                             AMOUNT
         ----                                           ----------
                                                      
         2005                                            $ 16,767
         2006                                              16,767
         2007                                              16,767
                                                         --------
                                                         $ 50,301
                                                         ========




         CONVERSION
         Each share of Series A, Series B, Series B-1, Series C and Series D
         Preferred Stock is convertible at any time at the option of the holder
         into shares of common stock at a ratio of one share of common stock for
         each share of Series A, Series B, Series B-1, Series C or Series D
         Preferred Stock, subject to certain anti-dilution adjustments. All
         shares of Series A, Series B, Series B-1 and Series C Preferred Stock
         will automatically convert to shares of common stock upon the closing
         of a public offering of the Company's common stock involving aggregate
         net proceeds to the Company of at least $20,000 and a per share price
         of not less than $9.60. All shares of Series D Preferred Stock will
         automatically convert to shares of common stock upon the closing of a
         public offering of the Company's common stock involving aggregate net
         proceeds to the Company of at least $20,000 and a per share price of
         not less than $10.45.

         At September 30, 2002, the Company has reserved 12,912,554 shares of
         common stock for issuance upon the conversion of the Series A, Series
         B, Series B-1, Series C and Series D Preferred Stock.


                                       6




eROOM TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IN THOUSANDS EXCEPT SHARE DATA
- ------------------------------------------------------------------------------

         DIVIDENDS RIGHTS

         Holders of Redeemable Convertible Preferred Stock are entitled to
         receive dividends only when and if declared by the Board of Directors
         but must be paid on redemption, liquidation or a sale of the company.
         No dividends have been declared or paid by the Company on Redeemable
         Convertible Preferred Stock through September 30, 2002.

         LIQUIDATION, DISSOLUTION OR WINDING-UP OF THE COMPANY
         In the event of any liquidation, dissolution, or winding-up of the
         Company, the holders of the Redeemable Convertible Preferred Stock will
         be entitled to receive, in preference to the holders of the common
         stock, an amount per share equal to the greater of (i) $1.00, $2.35,
         $2.80, $4.80 and $10.45 for Series A, Series B, Series B-1, Series C
         and Series D Preferred Stock, respectively, plus any declared but
         unpaid dividends thereon, subject to certain anti-dilution adjustments,
         or (ii) such amount per share as would have been payable had the shares
         been converted into common stock immediately prior to such liquidation,
         dissolution or winding-up of the Company.

         If the remaining assets of the Company are insufficient to pay the
         Redeemable Convertible Preferred Stockholders the full amount to which
         they are entitled, the stockholders shall share ratably in any
         distribution of the remaining assets in proportion to the respective
         amounts which would otherwise by payable if all amounts payable were
         paid in full. Any assets remaining after the initial distribution to
         the holders of the Redeemable Convertible Preferred Stock shall be
         available for distribution ratably among the Company's common
         stockholders.

         VOTING RIGHTS

         Each holder of the Redeemable Convertible Preferred Stock is entitled
         to the number of votes equal to the number of shares of common stock
         into which such holder's shares are convertible at the record date for
         such vote.

                                       7

EX-99.3

                                                                    Exhibit 99.3

The following unaudited pro forma condensed combined financial statements are
presented for illustrative purposes only and are not necessarily indicative of
the combined financial position or results of operations for future periods or
the financial position or results of operations that actually would have been
realized had Documentum and eRoom been a combined company during the specified
periods. The unaudited pro forma condensed combined financial statements,
including the related notes, are qualified in their entirety by reference to,
and should be read in conjunction with, the historical consolidated financial
statements and related notes of Documentum, included in its Form 10-K and Form
10-Q filed with the Securities and Exchange Commission on March 29, 2002 (as
amended on August 29, 2002) and November 14, 2002, respectively, and the
historical consolidated financial statements and related notes of eRoom,
included elsewhere in this Form 8-K/A.

The following unaudited pro forma condensed combined financial statements give
effect to the merger between Documentum and eRoom using the purchase method of
accounting. The unaudited pro forma condensed combined financial statements are
based on the respective historical financial statements of Documentum and eRoom.
The unaudited pro forma condensed combined financial information has been
prepared on the basis of assumptions described in the notes to the unaudited pro
forma condensed combined financial statements. In the opinion of management, all
adjustments necessary to present fairly this unaudited pro forma condensed
combined financial information have been made.

The unaudited pro forma condensed combined balance sheet as of September 30,
2002 assumes the merger took place on September 30, 2002. The unaudited pro
forma condensed combined statements of operations for the nine months ended and
year ended September 30, 2002 and December 31, 2001, respectively, include the
results of both Documentum's and eRoom's operations assuming the merger took
place on January 1, 2002 and 2001, respectively. The unaudited pro forma
condensed combined statements of operations do not include the estimated effect
of the approximately $4,700,000 of a nonrecurring charge for the write off of
acquired in-process research and development.



                                DOCUMENTUM, INC.
                        PRO FORMA COMBINED BALANCE SHEET
                                 (IN THOUSANDS)
                                   UNAUDITED



                                                                         SEPTEMBER 30, 2002
                                                         ----------------------------------------------------
                                                                HISTORICAL                  PRO FORMA
                                                         -----------------------   --------------------------
                                                         DOCUMENTUM       eROOM     ADJUSTMENTS      COMBINED
                                                         ----------      -------   ------------      --------
                                                                                         
ASSETS

CURRENT ASSETS:
Cash and cash equivalents                                    76,244      16,380     (12,605)(a)        80,019
Short-term investments                                       97,792          --          --            97,792
Accounts receivable, net                                     43,728       5,743          --            49,471
Other current assets                                         26,904          --          --            26,904
                                                            -------      ------      ------           -------
TOTAL CURRENT ASSETS                                        244,668      22,123     (12,605)          254,186

Property and equipment, net                                  25,642       1,209        (439)(c)        26,412
Long-term investments                                        60,151          --          --            60,151
Intangible assets, net                                        2,369          --      22,450 (a)        24,819
Goodwill                                                      8,317          --      78,219 (a)        86,536
Other assets                                                 11,870         129          --            11,999
                                                            -------      ------      ------           -------
                                                            353,017      23,461      87,625           464,103
                                                            =======      ======      ======           =======



LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable                                              3,855         309          --             4,164
Accrued liabilities                                          41,330       4,313       6,940 (c)        52,583
Deferred Revenue                                             29,849      19,977     (15,302)(c)        34,524
Current portion of long-term debt                                --         343          --               343
Current portion of capital lease obligation                      47          --          --                47
                                                            -------      ------      ------           -------
TOTAL CURRENT LIABILITIES                                    75,081      24,942      (8,362)           91,661

Long-term debt                                              125,000         262          --           125,262
Other long-term liabilities                                     661          --          --               661
Total stockholders' (deficit) equity                        152,275      (1,743)     95,987 (a)       246,519
                                                            -------      ------      ------           -------
                                                            353,017      23,461      87,625           464,103
                                                            =======      ======      ======           =======







                                DOCUMENTUM, INC.
                   PRO FORMA COMBINED STATEMENT OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                    UNAUDITED



                                                                           NINE MONTHS ENDED SEPTEMBER 30, 2002
                                                               ----------------------------------------------------------
                                                                     HISTORICAL                      PRO FORMA
                                                               ---------------------        -----------------------------
                                                               DOCUMENTUM      eROOM        ADJUSTMENTS          COMBINED
                                                               ----------      ------       -----------          --------
                                                                                                     
Revenue                                                           160,897      26,628              --             187,525
Cost of Revenue                                                    43,406       4,957              --              48,363
                                                                  -------      ------          ------             -------
  GROSS MARGIN                                                    117,491      21,671              --             139,162
                                                                  -------      ------          ------             -------
Operating expenses:
  Sales and marketing                                              70,384      14,785              --              85,169
  Research and development                                         27,688       5,297              --              32,985
  General and administrative                                       18,727       1,442           7,894 (b),(c)      28,063
  Restructuring costs                                               1,043          --              --               1,043
  Employee stock-based compensation expense                            --       2,836              --               2,836
                                                                  -------      ------          ------             -------
    Total operating expenses                                      117,842      24,360           7,894             150,096
                                                                  -------      ------          ------             -------

LOSS FROM OPERATIONS                                                 (351)     (2,689)         (7,894)            (10,934)

Interest and other income, net                                        125         132              --                 257
Provision for (benefit from) income taxes                             (68)         --              84 (d)              16
                                                                  -------      ------          ------             -------
NET LOSS                                                             (158)     (2,557)         (7,977)            (10,692)
                                                                  =======      ======          ======             =======
Basic and diluted net loss per share                                   --                                           (0.23)
Shares used in computing basic and diluted net loss
per share                                                          39,527                       7,773 (a)          47,300
                                                                  =======                      ======             =======








                                DOCUMENTUM, INC.
                   PRO FORMA COMBINED STATEMENT OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                    UNAUDITED



                                                                        TWELVE MONTHS ENDED DECEMBER 31, 2001
                                                               ----------------------------------------------------------
                                                                     HISTORICAL                      PRO FORMA
                                                               ---------------------        -----------------------------
                                                               DOCUMENTUM       eROOM       ADJUSTMENTS          COMBINED
                                                               ----------       ------      -----------          --------
                                                                                                     
Revenue                                                           185,712       29,539             --             215,251
Cost of Revenue                                                    56,080        6,604             --              62,684
                                                                  -------       ------        -------             -------
  GROSS MARGIN                                                    129,632       22,935             --             152,567
                                                                  -------       ------        -------             -------
Operating expenses:
  Sales and marketing                                             100,564       21,556             --             122,120
  Research and development                                         34,720        7,164             --              41,884
  General and administrative                                       25,158        2,273         10,491 (b),(c)      37,922
  Restructuring costs                                               6,271           --             --               6,271
  Employee stock-based compensation expense                            --        4,114             --               4,114
                                                                  -------       ------        -------             -------
    Total operating expenses                                      166,713       35,107         10,491             212,311
                                                                  -------       ------        -------             -------

LOSS FROM OPERATIONS                                              (37,081)     (12,172)       (10,491)            (59,744)

Interest and other income, net                                      3,580          416             --               3,996
Permanent impairment of investment                                 (2,012)          --             --              (2,012)
Provision for (benefit from) income taxes                           2,780           --           (588)(d)           2,192
                                                                  -------       ------        -------             -------
NET LOSS                                                          (38,293)     (11,756)        (9,903)            (59,952)
                                                                  =======       ======        =======             =======
Basic and diluted net loss per common share                         (1.01)                                          (1.31)
                                                                  =======       ======        =======             =======
Shares used in computing basic and diluted net loss
per common share                                                   37,934                       7,773 (a)          45,707
                                                                  =======                     =======             =======







                                DOCUMENTUM, INC.
           NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS


NOTE 1. BASIS OF PRESENTATION

The unaudited pro forma condensed combined financial statements included herein
have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
certain footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles (GAAP) have been
condensed or omitted pursuant to such rules and regulations. However the Company
believes that the disclosures are adequate to make the information presented not
misleading.


NOTE 2.  PURCHASE PRICE ALLOCATION

In accordance with Statement of Financial Accounting Standards (SFAS) No. 141,
the merger is accounted for as a purchase of eRoom by Documentum. The purchase
price has been allocated based upon the fair value of the assets acquired and
liabilities assumed. The following table summarizes the components of the total
purchase price and the estimated purchase price allocation (in thousands, except
per share and option amounts):

                                                                         
  Cash....................................................................... $12,605
  Fair value of Documentum common stock (7,772,708 shares)...................  90,816
  Fair value of stock options assumed (1,605,108 options assumed)............   8,127
  Transaction costs..........................................................   6,940

           Total purchase price.............................................. 118,488

  Book value of net tangible assets at 9/30/02............................... $23,022
  Book value of net liabilities at 9/30/02...................................  (9,903)
  Estimated acquired intangibles.............................................  22,450
  Write off of in-process research and development*..........................   4,700
  Goodwill...................................................................  78,219

           Net assets acquired............................................... 118,488


  

*    In-process research and development of $4,700,000 was expensed in the
     period in which the acquisition was consummated. Accordingly the in-process
     research and development is reflected in the pro forma condensed combined
     balance sheet as an addition to accumulated deficit. The pro forma
     condensed combined statements of operations do not include the in-process
     research and development of $4,700,000 as it is considered a non-recurring
     charge.


NOTE 3. PRO FORMA ADJUSTMENTS

The following adjustments have been reflected in the unaudited pro forma
condensed combined financial statements:

(a)  To record cash consideration, common stock issued, options issued, and
     record the allocation of purchase price to intangible assets arising from
     the transaction. Common stock and options issued are based on the number of
     shares issued and options assumed in the actual transaction which closed on
     December 10, 2002

(b)  Adjustment to record the amortization of identifiable intangible assets,
     excluding goodwill and intangible assets with indefinite lives,
     resulting from the allocation of purchase price. The pro forma
     adjustment assumes that the identifiable intangibles will be amortized on a
     straight-line basis over the following estimated lives:

                                              
              Core Developed Technology........................ 2 years
              Maintenance Contracts............................ 2 years
              License Contracts................................ 3 years
              Subscription Contracts........................... 1 year
              Executor Contracts............................... 2 years
              OEM Contracts.................................... 3 years

              



(c)      To adjust assets acquired and liabilities assumed from eRoom to fair
         value.

(d)      To apply Documentum's statutory tax rate to the results of eRoom's
         operations.