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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

OR

Commission File Number: 000-28797

NIKU CORPORATION

305 Main Street
Redwood City, California 94063
(Address of principal executive offices)

Telephone Number (650) 298-4600
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

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

As of December 5, 2003, there were approximately 11,946,000 shares of the registrant’s common stock outstanding.

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NIKU CORPORATION AND SUBSIDIARIES

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PART I: FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NIKU CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

See accompanying notes to condensed consolidated financial statements.

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NIKU CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

See accompanying notes to condensed consolidated financial statements.

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NIKU CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

See accompanying notes to condensed consolidated financial statements.

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NIKU CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1. Significant Accounting Policies

Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements have been prepared by Niku Corporation (the “Company”) and reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the interim periods presented. Such adjustments are of a normal recurring nature. The condensed consolidated results of operations for the interim periods presented are not necessarily indicative of the results for any future interim period or for the entire fiscal year. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted, although the Company believes that the disclosures included are adequate to make the information presented not misleading. The unaudited condensed consolidated financial statements and notes included herein should be read in conjunction with the consolidated financial statements and notes for the fiscal year ended January 31, 2003, included in the Company’s fiscal 2003 Annual Report on Form 10-K, as amended.

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

Use of Estimates

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

Reclassifications

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

Stock Split

     On November 21, 2002, the Company effected a one-for-ten reverse stock split of its outstanding common stock. All information regarding common stock, stock options, warrants and income (loss) per share amounts reflects the reverse stock split.

Stock-Based Compensation

     To account for all of its employee stock-based compensation plans, the Company uses the intrinsic-value method prescribed by Accounting Principles Board Opinion (“APB”) No. 25, Accounting for Stock Issued to Employees and Financial Accounting Standards Board Interpretation (“FIN”) No. 44, Accounting for Certain Transactions Involving Stock Compensation. Stock-based compensation is being amortized over the vesting period of the individual award in a manner consistent with the method described in FIN No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Awards Plans. The Company accounts for equity instruments issued to non-employees in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation and Emerging Issues Task Force

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Statements (“EITF”) No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.

     The resulting stock-based compensation is amortized over the estimated term of the stock option, generally four years, using the method described in FASB Interpretation No. 28. The amortization of stock-based compensation is attributable to the following functional groups (in thousands):

     In future periods, amortization of stock-based compensation will be contingent on the number of repriced options giving rise to stock-based compensation then outstanding and the Company’s stock price on the financial statement reporting date. As of October 31, 2003, there were approximately 70,000 repriced options giving rise to stock-based compensation outstanding. See Note 2 – Repricing of Stock Options.

     In December 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure – SFAS No. 123, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. This statement also amends the disclosure requirements of SFAS No. 123 to require more prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company adopted the annual disclosure requirements of SFAS No. 148 in fiscal 2003. The Company adopted the interim disclosure requirements of SFAS 148 during the first quarter of fiscal 2004.

     The compensation cost associated with the Company’s stock-based compensation plans, determined using the Black-Scholes option pricing model, resulted in a material difference from the reported net loss during the three- and nine-month periods ended October 31, 2003 and 2002. Had compensation costs been recorded by the Company in its condensed consolidated statements of operations in accordance with SFAS No. 123 for all of the Company’s stock-based compensation plans, net income (loss) and basic and diluted net income (loss) per share would have been as follows (in thousands, except per share data):

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     The Company calculated the fair value of each option grant on the date of grant during the three- and nine-month periods ended October 31, 2003 and 2002 using the Black-Scholes option pricing model as prescribed by SFAS No. 123 using the following assumptions:

Note 2. Repricing of Stock Options

     On November 12, 2001, the Company’s board of directors, acting pursuant to existing terms of the Company’s stock option plans, approved the repricing of approximately 890,000 outstanding stock options with exercise prices above $7.50. The exercise prices of all such stock options were repriced to $7.50, which was the fair market value of the Company’s stock on November 12, 2001. There were no changes to the vesting schedules or other terms of the repriced stock options. Stock options held by the Company’s former Chief Executive Officer, former Executive Vice President of Strategy and Planning, members of the board of directors and non-employees were not repriced. The Company has accounted for the repriced stock options using variable accounting whereby the aggregate intrinsic value of the repriced stock options is continuously remeasured and amortized to stock-based compensation expense over the vesting periods.

     On April 15, 2003, the Company announced a voluntary stock option exchange program for its employees. Under the program, the Company’s employees were given the opportunity to exchange outstanding stock options previously granted to them with an exercise price greater than or equal to $7.50 per share for a new stock option exercisable for 1.15 shares for each share subject to the tendered stock options, to be granted at a future date, at least six months and a day from the cancellation date. The new stock options are vested as to the number of stock options that would have been vested on such date had the old stock options not been tendered plus the number of shares that would have been vested had the old stock option been exercisable for 15% more shares. The Company’s Chief Executive Officer, Chief Financial Officer, members of the board of directors and non-employees were not eligible to participate in this program. This stock option exchange program did not result in any additional compensation charges or variable plan accounting. On April 15, 2003, stock options for 622,511 shares of common stock were eligible to be exchanged. On May 13, 2003, the Company’s employees tendered stock options for 525,031 shares of common stock.

     On November 14, 2003, the Company granted 598,842 new stock options under this stock option exchange program with an exercise price of $8.85, which was equal to the fair market value of the Company’s common stock on that date. As a result of this stock option exchange program, the Company is no longer incurring stock-based compensation for approximately 298,000 outstanding stock options that were previously repriced in November 2001 and subsequently cancelled on May 13, 2003. The Company will continue to incur stock-based compensation for outstanding stock options that were previously repriced in November 2001 and not tendered pursuant to the stock option exchange program to the extent the price of the Company’s stock on the last day of a quarter is above $8.67. Based on the stock price on October 31, 2003 of $8.67 per share, the Company recorded approximately $80,000 of stock-based compensation charges in the three- and nine-months periods ended October 31, 2003 relating to approximately 70,000 repriced but not tendered options. The Company also recorded $13,000 and $148,000 in amortization of other stock-based compensation charges not associated with the stock option exchange program in the three- and nine-month periods ended October 31, 2003, respectively.

     In October 2002, the Company cancelled stock options to purchase 55,000 shares of common stock held by its Chief Executive Officer and immediately thereafter granted him stock options to purchase 150,000 shares of common stock at a price of $1.50, which was the closing price of its common stock on the grant date. As a result, based on the closing price of its common stock of $4.67 on April 30, 2003, the Company recorded $35,000 in stock-based compensation in the first quarter of fiscal 2004. In May 2003, the Company’s Chief Executive Officer

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exercised all of his repriced stock options to purchase 55,000 shares of common stock and the Company recorded an additional $56,000 in stock-based compensation. As all such repriced options have been exercised, the Company will no longer be required to record additional stock-based compensation relating to these stock options in the future.

Note 3. Restructuring and Other

     In the third quarter of fiscal 2004, the Company recorded $312,000 in restructuring charges as a result of the Company’s termination of two leases and an adjustment of sublease estimates for a facility that the Company had previously vacated. The consideration for one termination included the release to the landlord of a $33,000 security deposit and a lease termination payment of $134,000. The consideration for the other lease termination totaled $155,000. The Company recorded a $190,000 sublease estimate adjustment for the vacated facility.

     The table below represents restructuring activities in the third quarter of fiscal 2004 (in thousands):

     The table below represents restructuring activities for the nine months ended October 31, 2003 (in thousands):

     The Company expects that of the restructuring and other charges accrued as of October 31, 2003, other exit costs, computer and car leases will be paid no later than April 2005 and the net lease commitments on vacated leased facilities will be paid no later than February 2011.

Note 4. Net Income (Loss) Per Common Share

     Basic net income (loss) per common share is computed using the weighted average number of outstanding shares of common stock during the period. Diluted net income (loss) per common share is computed using the weighted average number of common shares outstanding during the period and, when dilutive, potential common shares from options and warrants to purchase common stock, using the treasury stock method.

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

     The weighted-average exercise price of anti-dilutive options outstanding as of October 31, 2003 and 2002 was $4.02 and $11.52 per share, respectively. The weighted-average exercise price of anti-dilutive warrants as of October 31, 2003 and 2002 was $4.55 and $0.36 per share, respectively.

Note 5. Bank Borrowings and Other Obligations

     On July 18, 2003, the Company entered into a $5.0 million line of credit with a financial institution. The line of credit is secured by the Company’s tangible and intangible assets, accrues interest rate at prime rate plus 0.50% per annum (currently at 4.50%) and expires in July 2004. The line of credit has certain financial covenants, including covenants requiring 1) minimum cash and cash equivalent balance equal to at least 1.25 times the outstanding principal line balance at each month end, 2) minimum cash balance of $10 million at the end of each fiscal quarter and 3) annual GAAP profitability of at least $1 (excluding restructuring charges for vacated facilities and stock-based compensation). As of October 31, 2003, the Company was in compliance with all financial covenants. The Company had borrowings of $4.3 million as of October 31, 2003, which it repaid in November 2003.

     The Company previously had a term loan for $5.0 million from the same financial institution, which it entered into in September 2002. The term loan was secured by the Company’s tangible and intangible assets, accrued interest at 7.50% per annum and was to mature on February 15, 2004. At January 31, 2003, the Company had $4.8 million outstanding under the facility. On July 23, 2003, the Company terminated the term loan and repaid the remaining outstanding balance as of that date plus all accrued interest.

     In August 2003, the Company entered into a non-cancelable master lease agreement with a computer equipment vendor. The agreement enables the Company to lease equipment from the vendor under a capital lease. At October 31, 2003, equipment held under the lease was $155,000.

     Interest expense was $3,000 and $52,000 during the three-month periods ended October 31, 2003 and 2002, respectively, and $141,000 and $86,000 for the nine-month periods ended October 31, 2003 and 2002, respectively. Cash paid for interest was $138,000 and $48,000 for the nine-month periods ended October 31, 2003 and 2002, respectively.

Note 6. Notes Receivable from Stockholder

     In November 1999, the Company loaned $1,250,000 to its then president, vertical markets, Joshua Pickus, who is now its Chief Executive Officer, secured by a stock pledge agreement and personal assets, in connection with his purchase of 125,000 shares of the Company’s restricted common stock. The loan initially accrued interest at 6.08% and was to mature in November 2002. In May 2002, the Company extended the maturity date of the loan to November 2004 and reduced the interest rate to 3.21%. In July 2002, the Company repurchased these 125,000 shares of common stock from Mr. Pickus for $675,000, the fair market value of the common stock at that time, and Mr. Pickus used the consideration to repay the equivalent principal amount of the note. In connection with this repayment, the Company cancelled $116,000 in accrued interest, which was recorded as compensation expense. The remaining amount of the loan of $674,000, including $99,000 in accrued interest, was reclassified to other assets in the second quarter of fiscal 2003 as the loan was no longer secured by the common stock. On March 16, 2003, Mr. Pickus made a $150,000 payment against this loan, which reduced the interest outstanding as of the date of payment to zero and reduced the principal outstanding to $537,000. On June 2, 2003, Mr. Pickus made a $120,000 payment against this loan which reduced the interest outstanding as of the date of payment to zero and

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reduced the principal outstanding to $421,000. As of October 31, 2003, the outstanding balance of the loan including interest amounted to $427,000. The loan remains secured by the personal assets of Mr. Pickus.

Note 7. Comprehensive Income and (Loss)

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

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

     Accumulated other comprehensive income (loss) as of October 31, 2003 and January 31, 2003 comprises the following (in thousands):

Note 8. Segment Reporting

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

     The Company’s Chief Operating Decision Makers are considered to be the Chief Executive Officer and the Chief Financial Officer. The Chief Executive Officer and the Chief Financial Officer review financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance. The Company operates in a single segment: software.

     Disaggregated product information is as follows (in thousands):

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