UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

Commission File Number: 000-27389

Interwoven, Inc.

(Exact name of registrant as specified in its charter)

803 11th Avenue

Sunnyvale, California 94089

(Address of principal executive offices and zip code)

(408) 774-2000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.001 par value

(Title of Class)

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:     Yes þ          No o

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

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

      The aggregate market value of the voting stock held by non-affiliates of the Registrant as of June 30, 2004 was approximately $394,382,000 (based on the last reported sale price of $10.10 on June 30, 2004 on the NASDAQ National Market).

      The number of shares outstanding of the Registrant’s common stock as of February 28, 2005 was approximately 41,110,000.

DOCUMENTS INCORPORATED BY REFERENCE

      Parts of the Proxy Statement for Registrant’s 2005 Annual Meeting of Stockholders to be held June 2, 2005 are incorporated by reference in Part III of this Annual Report on Form 10-K.

INTERWOVEN, INC.

TABLE OF CONTENTS

      Interwoven, Content Networks, OpenDeploy, DeskSite, iManage, LiveSite, MediaBin, MetaCode, MetaFinder, MetaSource, MetaTagger, OpenDeploy, OpenTransform, Primera, TeamPortal, TeamSite, TeamXML, TeamXpress, VisualAnnotate, WorkKnowledge, WorkDocs, WorkPortal, WorkRoute, WorkTeam, the respective taglines, logos and service marks are trademarks of Interwoven, Inc., which may be registered in certain jurisdictions. All other trademarks are owned by their respective owners.

CAUTION REGARDING FORWARD LOOKING STATEMENTS

      Some statements in this Annual Report on Form 10-K are forward-looking statements that involve substantial risks and uncertainties. In some cases, you can identify these forward-looking statements by the use of words such as “expect,” “plan,” “anticipate,” “believe,” “estimate” or “continue.” Any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. Our Management’s Discussion and Analysis of Financial Condition and Results of Operations contain many such forward-looking statements. Our forward-looking statements involve risks, uncertainties and situations that may cause our actual results, level of activity, performance or achievements to be different from what is anticipated or implied by those statements. The risk factors contained in this report, as well as any other cautionary language in this report, describe risks, uncertainties and events that may cause our actual results to differ from the expectations described or implied in our forward-looking statements.

      You should not place undue reliance on these forward-looking statements, which apply only as of the date of this report. Except as required by law, we do not undertake to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

PART I

Overview

      Interwoven, Inc. provides enterprise content management (“ECM”) software and services that enable businesses to create, review, manage, distribute and archive critical business content, such as documents, spreadsheets, e-mails and presentations, as well as Web images, graphics, content and applications code across the enterprise and its value chain of customers, partners and suppliers. Our ECM platform consists of integrated software product offerings, delivering customers end-to-end content lifecycle management including collaboration, e-mail management, imaging, digital asset management, Web content management, document management and records management. Customers have deployed our products for business initiatives such as intranet management, marketing content management, collaborative portals, Web content management, records management, deal management, matter-centric collaboration and content provisioning. To date, more than 3,100 enterprises, law firms and professional services organizations worldwide have licensed our software products.

      We were incorporated in California in March 1995 and reincorporated in Delaware in October 1999. Our principal office is located at 803 11th Avenue, Sunnyvale, California 94089 and our telephone number at that location is (408) 774-2000. We maintain a Website at www.interwoven.com. Investors can obtain copies of our filings with the Securities and Exchange Commission from this site free of charge, as well as from the Securities and Exchange Commission Website at www.sec.gov.

Interwoven Enterprise Content Management Platform, Services and Solutions

      Our ECM platform consists of software components that are integrated with related services including common security, single sign-on services, distribution intelligence and integration. The following components comprise our core platform: collaboration, e-mail management, document management, Web content management, digital asset management, imaging and records management. Our ECM platform is architected on a service-oriented architecture (“SOA”), enabling customers to integrate our products with their existing infrastructures, including Java 2 (“J2EE”), Microsoft.NET and Linux environments.

      The SOA-based platform enables us to deliver ECM solutions that are designed to solve critical challenges for departments, enterprises or industries. These solutions, together with our technology partners, unify people, content and processes to reduce business risks, accelerate time-to-value and sustain a lower total cost of ownership. Our software solutions include unified electronic content management for accounting firms, collaborative portals, collaborative document management for corporate legal departments, deal management, e-mail management, enterprise content distribution, enterprise digital asset management, enterprise Web

content management, extranet management, intranet management, matter-centric collaboration for law firms, marketing content management, records management and content provisioning.

      Collaborative Document Management — WorkSite MP Server and WorkSite Server. These products offer comprehensive collaborative document management functions including check-in/check-out, version control, audit trails, archiving, categorization and full text and meta data search. Out-of-the box document routing and approval enables simultaneous processing of documents. WorkSite provides geographically dispersed teams with virtual workspaces in which they can securely share, discuss and collaborate on all facets of a project quickly and efficiently — via intranet, extranet or the Internet.

      E-mail Management — Interwoven’s e-mail management software and WorkSite Communications Server Software. These products deliver a comprehensive approach to managing e-mail as a vital part of a complete content management strategy. The products collectively capture e-mail correspondence in context by subject and merge it with other relevant documents and content in a collaborative environment.

      Imaging — Image Processing. This product enables users to convert paper, forms and fax documents to digital format for on-going use in a collaborative context, combined with record retention, archival and disposal. Our Image Processing offering is central to automating core business processes such as accounts payable, claims processing, legal document processing and contract management. We deliver these capabilities to our customers through our relationships with scanning and image capture providers.

      Enterprise Web Content Management — LiveSite Content Publishing Server, TeamSite Content Management Server and TeamSite XML Server. LiveSite Content Publishing Server eliminates IT Web development bottlenecks and empowers business professionals to rapidly and cost-effectively publish dynamic Web sites, enabling organizations to improve communication, respond to changing market demands, support new business initiatives and contain costs. TeamSite Content Management Server enables businesses to manage content across internally and externally facing Web-based applications, such as enterprise portals, intranets, self-service applications, public-facing Web Sites and extranets, enabling organizations to reduce cost, time to Web and risks associated with all online initiatives. TeamSite XML Server provides XML component management capabilities for advanced content reuse, enabling organizations to shorten content development cycles, eliminate content redundancy and publish content in multiple formats for multiple channels and audiences.

      Digital Asset Management — MediaBin Asset Server. This product provides businesses with a full-featured central library for the large numbers of digital assets they use to promote their products and brands. With the MediaBin Asset Server, marketing teams can effectively catalog, manage, transform, search for, repurpose and deploy digital assets, including photographs, rich graphics, marketing collateral, presentations, documents and videos.

      Records Management — Records Manager. This product offers a records management system that organizes physical, electronic and e-mail records in a single integrated repository. Records Manager can automatically archive business content and help enable our customers to comply with corporate record retention policies and external regulations.

      Content Distribution — OpenDeploy Distribution Server Software. This product automates the distribution of enterprise content and application code from multiple sources, such as content management and source code management systems, to multiple targets, from a few production Web servers to an entire enterprise network. OpenDeploy is also available for open platform content distribution.

      Content Intelligence — MetaTagger Content Intelligence Server. This product provides enterprises with a metadata management system to drive content relevance for initiatives like portals, enterprise search and business applications. MetaTagger Content Intelligence Server integrates with any repository to process enterprise information, including Web content, business documents, database records, syndicated feeds and existing content archives. Built on a core set of computational linguistics algorithms, this product processes

content in nearly any format and helps organizations make informed and accurate decisions about how to classify content and what additional metadata to apply.

      Connectors — TeamPortal Software. This product is a Web-services powered connector that enables secure content and code access between our core ECM platform and enterprise portal applications. TeamPortal Software ensures that team members throughout the enterprise can effectively collaborate, share and manage knowledge through their chosen portal interface.

      ECM Developers Suite — Interwoven Developer Suite. We provide developers with a set of tools that assist with the development, customization and integration of applications with our content management platform. The Developer Suite includes ContentService SDK, a Web services-based Application Program Interface that supports implementation of our SOA and a developer server, which provides a separate environment for testing new applications, customizations and upgrades.

Support and Service

      Consulting. We offer professional services to our customers for the deployment of our software and the integration of our applications with third-party software, as well as strategic consulting services. Our professional services team works directly with our customers as well as with our resellers and strategic partners. We have and continue to employ third-party subcontractors in the past to accommodate customer demands in excess of the capacity of our in-house consulting organization or to provide consulting services in locations where we have no permanent staff. Our consulting services are generally offered on a time and materials basis.

      Customer Support. Our customer support service is designed to allow customers to receive product updates and quickly and effectively address technical issues as they arise. Our support personnel provide resolution of customer technical inquiries and are available to customers by telephone, e-mail and through our Website. We use a customer service automation system to track each customer inquiry through to satisfactory resolution. Our technical support is generally offered on an annual subscription basis.

      Training. We offer a comprehensive training curriculum for our customers, partners and system integrators designed to provide the knowledge and skills to deploy, use and maintain our products successfully. These training classes focus on the technical aspects of our products as well as related best practices and business processes. We hold classes in various locations, including our training facilities in Sunnyvale, California; Bethesda, Maryland; Chicago, Illinois and in Europe and Asia Pacific. We generally charge a daily fee for such classes. Web-based training is also available at a price per online course.

Customers

      Our software products and services are marketed and sold to a diverse group of customers operating in a broad range of industries. Our customers include companies migrating their operations online, companies looking to increase channel and partner effectiveness by establishing sales extranets and companies whose objective is to deploy and manage critical business content within and across their organization. We believe that our customers typically consider ECM applications to be critical to their success. As of December 31, 2004, more than 3,100 companies had licensed our software products. No single customer accounted for ten percent or more of our total revenues in 2004, 2003 or 2002. Sales to customers in North America accounted for 66%, 65% and 66% of our total revenues in 2004, 2003 and 2002, respectively. See Note 15 of Notes to Consolidated Financial Statements.

Sales and Marketing

      We market and license our software products and services primarily through a direct sales force and we augment our sales efforts through relationships with technology vendors, professional service firms, systems integrators and other strategic partners. We have sales offices and maintain operations in Australia, Canada, France, Germany, Hong Kong, Italy, India, Japan, the Netherlands, People’s Republic of China, Singapore, South Korea, Spain, Sweden, Taiwan, the United Kingdom and in various locations throughout the United

States. Reflecting our commitment to our international initiatives, we have introduced localized versions of our software for several major European and Asia Pacific markets.

      We have developed an indirect sales channel by establishing relationships with technology vendors, professional services firms and systems integrators that recommend and, when appropriate, resell our products. Several of our partners have also built add-on products to extend the functionality of our software. We believe that our business is not substantially dependent on any one technology vendor, professional services firm or system integrator. However, our relationships with these entities on the whole are critical to our success.

      Our ability to grow revenue in future periods will depend in large part on how successfully we recruit, train and retain sufficient direct sales, technical and customer support personnel, and our ability to establish and maintain strategic relationships.

Research and Development

      Since our inception, we have devoted significant resources to develop our products and technologies. We believe that our future success will depend, in large part, on a strong development effort that enhances and extends the features of our products. Our product development organization is responsible for product architecture, core technology, quality assurance, documentation and expanding the ability of our products to operate with leading hardware platforms, operating systems, database management systems and key electronic commerce transaction processing standards. We currently have research and development operations in Sunnyvale, California; Chicago, Illinois and Atlanta, Georgia. Also, in 2003, we established an operation in Bangalore, India to perform quality assurance and development activities.

      Our research and development expenditures were $30.8 million, $24.6 million and $26.6 million for the years ended December 31, 2004, 2003 and 2002, respectively. All research and development expenditures have been expensed as incurred. We expect to continue to devote substantial resources to our research and development activities.

Acquisitions

      In August 2004, we acquired certain assets and assumed certain liabilities of Software Intelligence, Inc. (“Software Intelligence”), a provider of records management systems. The aggregate purchase price of this acquisition was $1.6 million, which included issuance of 118,042 shares of our common stock with an estimated fair value of $782,000, assumed liabilities of $693,000 and transaction costs of $156,000. The purchase price may increase by up to $200,000 if specific software license revenue goals are achieved during a period that ends on December 31, 2005, with such purchase price increase payable in shares of common stock. The allocation of the purchase price for this acquisition included purchased technology of $1.2 million, customer list of $303,000 and goodwill of $215,000 less the fair value of assumed liabilities of $84,000. The results of operations of Software Intelligence have been included in our results of operations since August 12, 2004.

      In November 2003, we completed the merger with iManage, Inc. (“iManage”), a provider of collaborative document management software. In connection with this merger, we paid the iManage common stockholders $1.20 in cash and 0.523575 shares of our common stock in exchange for each share of iManage common stock outstanding as of the merger date. The aggregate purchase price of the acquisition was $181.7 million, which included cash of $30.6 million, issuance of 13.3 million shares of common stock with an estimated fair value of $122.2 million, assumed stock options with a fair value of $18.9 million, estimated employee severance and facilities closure costs of $5.8 million and transaction costs of $4.2 million. The results of operations of iManage have been included in the consolidated results of operations of the Company since November 18, 2003.

      In June 2003, we acquired MediaBin, Inc. (“MediaBin”). MediaBin develops standards-based enterprise brand management solutions to help companies manage, produce, share and deliver volumes of digital assets, such as product photographs, advertisements, brochures, presentations, video clips and other marketing collateral. The aggregate purchase price of the acquisition was $12.9 million, which included cash of

$4.2 million, issuance of 700,000 shares of common stock with an estimated fair value of $6.4 million, assumed stock options with a fair value of $683,000, estimated employee severance costs of $775,000 and transaction costs of $899,000. The results of operations of MediaBin have been included in the consolidated results of operations of the Company since June 27, 2003.

Competition

      The enterprise content management market is fragmented, rapidly changing and increasingly competitive. We have experienced and expect to continue to experience increased competition from current and potential competitors. Many of these competitors have greater name recognition, longer operating histories, larger customer bases and significantly greater financial, technical, marketing, sales, distribution and other resources than we have. Our current competitors include:

      We also face potential competition from our strategic partners, or from other companies that may in the future decide to compete in our market. Some of our existing and potential competitors have longer operating histories, greater name recognition, larger customer bases and greater financial, technical and marketing resources than we do. Many of these companies can also take advantage of extensive customer bases and adopt aggressive pricing policies to gain market share. Potential competitors may bundle their products in a manner that discourages users from purchasing our products. Barriers to entering the content management software market are relatively low. Competitive pressures may also increase with the consolidation of competitors within our market and partners in our distribution channel, such as the acquisition of Documentum, Inc. by EMC Corporation, Presence Online Pty Ltd. by IBM, Optika, Inc. by Stellent, Inc., Artesia Technologies, Inc. by Open Text Corporation and TOWER Technology Pty Ltd. and Epicentric, Inc. by Vignette Corporation.

      We believe that the principal competitive factors in the market for ECM solutions are:

      Although we believe that we compete favorably with respect to many of the above factors, our market is rapidly evolving. We may not be able to maintain our competitive position against current and potential competitors.

Seasonality

      Our business is influenced by seasonal factors, largely due to customer buying patterns. In recent years, we have generally had weaker demand for our software products and services in the first and third quarters. Our consulting and training services are negatively impacted in the fourth quarter due to the holiday season, which results in fewer billable hours for our consultants and fewer training classes.

Intellectual Property and Other Proprietary Rights

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

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

      We currently have 31 issued United States patents and 41 issued foreign patents. These patents have remaining lives ranging from 2 to 16 years, with an average remaining life of 9 years. We also have applied for 8 other patents in the United States and we have 35 pending foreign patent applications. It is possible that no patents will be issued from our currently pending patent applications and that our existing patents may be found to be invalid or unenforceable, or may be successfully challenged. It is also possible that any patent issued to us may not provide us with competitive advantages or that we may not develop future proprietary products or technologies that are patentable. Additionally, we have not performed a comprehensive analysis of the patents of others that may limit our ability to do business. While our patents are an important element of our success, our business as a whole is not materially dependent on any one patent or on the combination of all of our patents.

      We rely on software licensed from third parties, including software that is integrated with internally developed software. These software license agreements expire on various dates from 2005 to 2009 and the majority of these agreements are renewable with written consent of the parties. Either party may terminate the agreement for cause before the expiration date with written notice. If we cannot renew these licenses, shipments of our products could be delayed until equivalent software could be developed or licensed and integrated into our products. These types of delays could seriously harm our business. In addition, we would be seriously harmed if the providers from whom we license our software ceased to deliver and support reliable products, enhance their current products or respond to emerging industry standards. Moreover, the third-party software may not continue to be available to us on commercially reasonable terms or at all.

      Despite our efforts to protect our proprietary rights and technology, unauthorized parties may attempt to copy aspects of our products or obtain the source code to our software or use other information that we regard as proprietary or could develop software competitive to ours. Policing unauthorized use of our products is difficult, and while we are unable to determine the extent to which piracy of our software exists, software piracy may become a problem. Our means of protecting our proprietary rights may not be adequate. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement

or invalidity. Any such litigation could result in substantial costs and diversion of resources, which could have a material adverse effect on our business, operating results and financial condition.

      Our competitors, some of which have substantially greater resources and have made substantial investments in competing technologies, may have applied for or obtained, or may in the future apply for and obtain, patents that will prevent, limit or otherwise interfere with our ability to make and license our products. We have not conducted an independent review of patents issued to third parties. It is possible that one or more third parties may make claims of infringement or misappropriation against us or third parties from whom we license technology. In fact, on August 6, 2004, Advanced Software, Inc. filed suit against us in the United States District Court for the Northern District of California alleging that our TeamSite software infringes Advanced Software’s United States Patent No. Re. 35,861. Any claim or any other claims, with or without merit, could be costly and time-consuming to defend, cause us to cease making, licensing or using products that incorporate the challenged intellectual property, require us to redesign or reengineer our products, if feasible, divert our management’s attention or resources, or cause product delays. If our product was found to infringe a third party’s proprietary rights, we could be required to enter into royalty or licensing agreements to be able to sell our products. Royalty and licensing agreements, if required, may not be available on terms acceptable to us, if at all. A successful claim of infringement or misappropriation against us or third-party licensors in connection with the use of our technology could adversely affect our business.

Employees

      As of December 31, 2004, we employed 696 people, including 228 in sales and marketing, 205 in research and development, 180 in support and professional services and 83 in general and administrative functions. Of our employees, 525 were located in North America, 101 were located in the Asia Pacific region and 70 were located in Europe. Our future success depends in part on our ability to attract, hire and retain qualified personnel. None of our employees are represented by a labor union, other than statutory unions required by law in certain European countries. We have not experienced any work stoppages and consider our relations with our employees to be good.

      Our principal offices are located in a leased facility in Sunnyvale, California and consist of approximately 130,000 square feet that will expire in July 2007. We also occupy other leased facilities in the United States, Europe, Asia Pacific, Australia and Canada under leases totaling approximately 201,000 square feet that expire at various times through July 2016.

      We believe that our existing facilities are adequate for our current needs.

      Beginning in 2001, Interwoven, Inc. and certain of our officers and directors and certain investment banking firms, were separately named as defendants in a securities class-action lawsuit filed in the United States District Court Southern District of New York, which was subsequently consolidated with more than 300 substantially identical proceedings against other companies. Similar suits were filed against iManage, Inc., its directors and certain of its officers. The consolidated complaint asserts that the prospectuses for our October 8, 1999 initial public offering, our January 26, 2000 follow-on public offering and iManage’s November 17, 1999 initial public offering, failed to disclose certain alleged actions by the underwriters for the offerings. In addition, the consolidated complaint alleges claims under Section 11 and 15 of the Securities Act of 1933 against iManage and us and certain of iManage’s and our officers and directors. The plaintiff seeks damages in an unspecified amount. In June 2003, following the dismissal of iManage’s and our respective officers and directors from the litigation without prejudice and after several months of negotiation, the plaintiffs named in the consolidated complaint and iManage and Interwoven, together with the other issuers named in those complaints and their respective insurance carriers, agreed to settle the litigation and dispose of any remaining claims against the issuers named in the consolidated complaint, in each case without admitting any wrongdoing. As part of this settlement, iManage’s and our respective insurance carriers have agreed to

assume iManage’s and our entire payment obligation under the terms of the settlement. This settlement has been preliminarily approved by the District Court and will be presented to members of the putative plaintiff classes in the coming months. We cannot be reasonably assured, however, that the settlement will be approved by the putative plaintiff classes or finally approved the District Court.

      On August 6, 2004, Advanced Software, Inc. filed suit against us in the United States District Court for the Northern District of California alleging that our TeamSite software infringes Advanced Software’s United States Patent No. Re. 35,861. Advanced Software, Inc. seeks damages in an unspecified amount. We believe that the claim is without merit and intend to vigorously contest this matter. However, intellectual property litigation is inherently uncertain and, regardless of the ultimate outcome, could be costly and time-consuming to defend, cause us to cease making, licensing or using products that incorporate the challenged intellectual property, require us to redesign or reengineer our products, if feasible, divert management’s attention or resources, or cause product delays, or require us to enter into royalty or licensing agreements to obtain the right to use a necessary product, component or process; any of which could have a material impact on our consolidated financial condition and results of operation. Discovery is still in its preliminary stages. Trial has been set for April 17, 2006.

      We are a party to other threatened legal action and employment-related lawsuits arising from the normal course of business activities. In our opinion, resolution of these matters is not expected to have a material adverse impact on our consolidated results of operations or financial position. However, an unfavorable resolution of a matter could materially affect our consolidated results of operations or financial position in a particular period.

      None

PART II

Price Range of Common Stock

      Our common stock trades on the NASDAQ National Market under the symbol “IWOV”.

      The following table sets forth, for the periods indicated, the high and low sales prices for our common stock for the last eight quarters, all as reported on the NASDAQ National Market. The prices included below have been adjusted to give retroactive effect to all stock splits that have occurred since our inception.

Holders of Record

      The approximate number of holders of record of the shares of our common stock was 445 as of March 3, 2005. This number does not include stockholders whose shares are held by other entities. The actual number of holders is greater than the number of holders of record.

Dividend Policy

      We have not declared or paid any cash dividends on our capital stock since our incorporation. We currently intend to retain future earnings, if any, for use in our business and, therefore, do not anticipate paying any cash dividends in the foreseeable future.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

      None

      The following selected consolidated financial data is qualified in its entirety by, and should be read in conjunction with, the consolidated financial statements and the notes thereto, and Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations. The selected consolidated statements of operations data and consolidated balance sheet data as of and for each of the five years in the period ended, and as of December 31, 2004, have been derived from the audited consolidated financial statements. All share and per share amounts have been adjusted to give retroactive effect to stock splits that have occurred since our inception.

Overview

      We provide enterprise content management software and services that enable businesses to create, review, manage, distribute and archive business content, such as documents, spreadsheets, e-mails and presentations, as well as Web images, graphics, content and applications code, across the enterprise and its value chain of customers, partners and suppliers. Our ECM platform consists of integrated software product offerings, delivering customers end-to-end content lifecycle management including collaboration, e-mail management, imaging, digital asset management, Web content management, document management and records management. Customers have deployed our products for business initiatives such as Web content management, intranet management, marketing content management, collaborative portals, records management, deal management, matter-centric collaboration and content provisioning. To date, more than 3,100 enterprises, law firms and professional services organizations worldwide have licensed our software products. We market and license our software products and services primarily through a direct sales force and augment our sales, marketing and service efforts through relationships with technology vendors, professional service firms, systems integrators and other strategic partners. Our revenues to date have been derived primarily from accounts in North America; revenues from outside of North America accounted for 34% of our total revenues in 2004. We had 696 employees as of December 31, 2004.

      In August 2004, we completed the acquisition of certain assets of Software Intelligence. In November 2003, we completed our merger with iManage and, in June 2003, we completed the acquisition of MediaBin. The results of operations of these business combinations have been included prospectively from the closing dates of these transactions through year-end. Accordingly, our financial results are not directly comparable to those of the previous periods. In particular, our consolidated results for 2003 include revenues and expenses for iManage for only one month and the results of MediaBin for six months, while the consolidated results for 2004 include such revenues and expenses for these operations a full year. On November 18, 2003, we effected a one-for-four reverse stock split. All share and per share information included in these consolidated financial statements has been retroactively adjusted to reflect the reverse stock split.

Results of Operations

      In 2002, our business was impacted by a sharp decline in customer spending on information technology initiatives both domestically and internationally and the information technology spending environment has remained weak throughout 2003 and 2004. Our revenues were further affected by a shift away from spending on public-facing Web applications, such as our TeamSite product, to internal productivity enhancing applications. As a result of these factors, our revenues declined 12% from 2002 to 2003. In response, we initiated and completed a series of strategic actions designed to expand our product offerings. During 2003, we acquired MediaBin and iManage to extend our product offerings into digital asset management and collaborative document management, thereby creating product offerings that we believe address a larger market opportunity. As a result of these actions, our revenues increased 44% from 2003 to 2004. These business combinations also allowed us to achieve economies of scale in our sales, marketing, development and administrative functions. We also completed a series of restructuring actions to help align our cost structure with expected revenues. These restructuring actions included staff reductions in all functional areas of our business, decreases in marketing and promotional spending and the abandonment of certain facilities in excess of current and expected future needs.

Revenues

      Total revenues increased 44% from $111.5 million in 2003 to $160.4 million in 2004. We believe this increase was primarily attributable to sales of the WorkSite product, which we acquired in November 2003 as part of our merger with iManage, and the digital asset management products, which we acquired in June 2003 as part of our acquisition of MediaBin. Total revenues decreased 12% from $126.8 million in 2002 to $111.5 million in 2003. We believe this decrease was attributable to a worldwide slowdown in spending on information technology initiatives, particularly public-facing Web applications, which began in late 2001 and is ongoing. Our average license transaction size for sales in excess of $50,000 was $170,000, $153,000 and $178,000 in 2004, 2003 and 2002, respectively. Sales outside of the United States of America represented 34%, 36% and 34% of our total revenues in 2004, 2003 and 2002, respectively. We expect that reduced spending on information technology initiatives will continue to adversely affect our business for the foreseeable future and, to the extent that any improvement occurs, such an improvement may not be sustained.

      License. License revenues increased 47% from $45.9 million in 2003 to $67.3 million in 2004. We believe this increase was primarily attributable to license revenues from the WorkSite product that we acquired in November 2003 and the digital asset management products that we acquired in June 2003. License revenues decreased 20% from $57.3 million in 2002 to $45.9 million in 2003. We believe this decrease was attributable to weak economic conditions worldwide, resulting in reduced spending on information technology initiatives and a shift away from spending on public-facing Web applications like our TeamSite product. This decline was partially offset by license revenues from sales of the digital asset management products we acquired in June 2003. License revenues represented 42%, 41% and 45% of total revenues in 2004, 2003 and 2002, respectively.

      Support and Service. Support and service revenues increased 42% from $65.6 million in 2003 to $93.0 million in 2004. We believe this increase was primarily attributable to the acquisitions of iManage and MediaBin, which provided a greater opportunity for consulting services and a larger installed base of customers purchasing support services. Support and service revenues decreased 6% from $69.5 million in 2002 to $65.6 million in 2003. We believe this decrease was primarily attributable to fewer customer engagements as a result of declining license transactions, as well as price competition from third-party system integrators for consulting services and shorter implementations due to the improved product design.

      To the extent that our license revenues decline in the future, our support and service revenues may also decline. Specifically, a decline in license revenues may result in fewer consulting engagements. Additionally, since customer support contracts are generally sold with each license transaction, a decline in license revenues may also result in a decline in customer support revenues. However, since customer support revenues are recognized over the duration of the support contract, the impact will lag a decline in license revenues.

Cost of Revenues