<PAGE>

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



                                   FORM 10-Q



               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

<TABLE>
<S>                                                 <C>
FOR THE QUARTER ENDED SEPTEMBER 30, 2000        COMMISSION FILE NUMBER: 000-26273



                       PRIMUS KNOWLEDGE SOLUTIONS, INC.

            (Exact name of Registrant as specified in its charter)

       WASHINGTON                                         91-1350484
 (State or other jurisdiction of                       (I.R.S. Employer
incorporation or organization)                        Identification No.)
</TABLE>

                         1601 Fifth Avenue, Suite 1900
                           Seattle, Washington 98101
                   (Address of principal executive offices)

                                (206) 292-1000
             (Registrant's telephone number, including area code)

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

                                Yes [X] No [_]

     As of November 8, 2000 there were 18,010,630 shares of the Registrant's
Common Stock outstanding.
<PAGE>

                       Primus Knowledge Solutions, Inc.
                                   Form 10-Q
                              September 30, 2000

                                     INDEX

<TABLE>
<CAPTION>


PART I.    FINANCIAL INFORMATION                                                                 PAGE
                                                                                                 ----
<S>                                                                                              <C>
ITEM 1.   Condensed Consolidated Financial Statements (Unaudited)

          .    Condensed Consolidated Balance Sheets as of September 30, 2000 and
               December 31, 1999..............................................................     3

          .    Condensed Consolidated Statements of Operations for the three and nine months
               ended September 30, 2000 and 1999..............................................     4

          .    Condensed Consolidated Statements of Shareholders' Equity for the three months
               ended March 31, 2000, June 30, 2000 and September 30, 2000.....................     5

          .    Condensed Consolidated Statements of Cash Flows for the nine months
               ended September 30, 2000 and September 30, 1999................................     6

          .    Notes to Condensed Consolidated Financial Statements...........................     7

ITEM 2.   Management's Discussion and Analysis of Financial Condition and Results of
            Operations........................................................................    10

ITEM 3.   Quantitative and Qualitative Disclosures About Market Risk..........................    23

PART II.  OTHER INFORMATION

ITEM 2.   Change in Securities and Use of Proceeds............................................    24

ITEM 6.   Exhibits and Reports on Form 8-K....................................................    24
</TABLE>

                                  Page 2 of 25
<PAGE>

PART I.  FINANCIAL INFORMATION

Item 1.    Condensed Consolidated Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

<TABLE>
<CAPTION>
                                                                                September 30, 2000   December 31, 1999
                                                                                ------------------   -----------------
<S>                                                                                   <C>                  <C>
                                         ASSETS
Current assets:
  Cash and cash equivalents                                                            $ 24,327            $ 17,602
  Short-term investments                                                                 18,374              37,055
  Accounts receivable, net                                                                7,258               8,479
  Prepaid expenses and other current assets                                                 756                 993
                                                                                       --------            --------
       Total current assets                                                              50,715              64,129

Property and equipment, net                                                               4,247               2,853
Other assets                                                                                360                 424
                                                                                       --------            --------
       Total assets                                                                    $ 55,322            $ 67,406
                                                                                       ========            ========

                           LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Accounts payable                                                                     $  2,485            $  1,415
  Accrued and other liabilities                                                           1,842               4,190
  Compensation-related accruals                                                           2,947               3,249
  Current portion of long-term debt                                                           -                 319
  Deferred revenue, including related-party amounts of $651
     and $1,516 at September 30, 2000 and December 31, 1999, respectively                 7,399              10,418
                                                                                       --------            --------
       Total current liabilities                                                         14,673              19,591
                                                                                       --------            --------

Long-term debt, net of current portion                                                        -                  60
Redeemable convertible preferred stock                                                        -               9,054

Shareholders' equity:
  Common stock                                                                              451                 404
  Additional paid-in-capital                                                            106,401              92,891
  Deferred stock-based compensation                                                         (65)               (114)
  Accumulated other comprehensive loss                                                      (88)               (110)
  Accumulated deficit                                                                   (66,050)            (54,370)
                                                                                       --------            --------
       Total shareholders' equity                                                        40,649              38,701
                                                                                       --------            --------
       Total liabilities and shareholders' equity                                      $ 55,322            $ 67,406
                                                                                       ========            ========
</TABLE>

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

                                  Page 3 of 25
<PAGE>

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)

<TABLE>
<CAPTION>


                                                   Three Months Ended September 30,    Nine Months Ended September 30,
                                                  ----------------------------------  ---------------------------------
<S>                                                   <C>               <C>               <C>               <C>
                                                         2000             1999              2000               1999
                                                         ----             ----              ----               ----
Revenues:
  License, including amounts from
     related parties of $308 and $148
     for the three months ended September 30,
     2000 and 1999, respectively; $1,788
     and $1,220 for the nine months ended
     September 30, 2000 and 1999, respectively        $     6,254       $     4,447       $    23,343       $   12,377
  Services                                                  3,880             2,496            10,310            5,659
                                                      -----------       -----------       -----------       ----------
     Total revenues                                        10,134             6,943            33,653           18,036
                                                      -----------       -----------       -----------       ----------
Cost of revenues:
  License                                                     212               241               865              716
  Services                                                  2,414             1,638             7,461            4,494
                                                      -----------       -----------       -----------       ----------
     Total cost of revenues                                 2,626             1,879             8,326            5,210
                                                      -----------       -----------       -----------       ----------
         Gross profit                                       7,508             5,064            25,327           12,826
Operating expenses:
  Sales and marketing                                       6,350             5,309            20,112           13,797
  Research and development                                  3,704             2,517            11,432            6,689
  General and administrative                                1,862             1,568             6,876            4,150
  Merger related costs                                          -                 -               505                -
                                                      -----------       -----------       -----------       ----------
     Total operating expenses                              11,916             9,394            38,925           24,636
                                                      -----------       -----------       -----------       ----------
         Loss from operations                              (4,408)           (4,330)          (13,598)         (11,810)
Other income, net                                             674               505             2,039              536
                                                      -----------       -----------       -----------       ----------
     Loss before income taxes                              (3,734)           (3,825)          (11,559)         (11,274)
Income tax expense                                             39                27               121              227
                                                      -----------       -----------       -----------       ----------
         Net loss                                          (3,773)           (3,852)          (11,680)         (11,501)

Preferred stock accretion                                       -              (172)              (43)            (948)
                                                      -----------       -----------       -----------       ----------
     Net loss available to common
     shareholders                                     $    (3,773)      $    (4,024)      $   (11,723)      $  (12,449)
                                                      ===========       ===========       ===========       ==========

Basic and diluted net loss per common share           $     (0.21)      $     (0.27)      $     (0.67)      $    (1.48)
                                                      ===========       ===========       ===========       ==========

Shares used in computing basic and diluted
net loss per common share                              17,895,590        14,952,184        17,605,953        8,390,402
                                                      ===========       ===========       ===========       ==========

</TABLE>

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


                                  Page 4 of 25
<PAGE>

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share data)
(Unaudited)

<TABLE>
<CAPTION>
                                                                                                 Accumulated                Total
                                                                      Additional   Deferred         other                   share-
                                                                        paid-in   stock-based   comprehensive  Accumulated  holder's
                                                   Common stock         capital   compensation      loss         deficit    equity
                                               ---------------------  ----------- -------------     ----         -------    ------
                                                 Shares    Par value
                                               ----------  ---------
<S>                                            <C>         <C>        <C>           <C>          <C>          <C>          <C>
Balance at December 31, 1999.................  16,180,886  $     404  $   92,891    $     (114)  $    (110)   $  (54,370)  $ 38,701
Preferred stock accretion....................          --         --         (43)           --          --            --        (43)
Exercise of stock options and warrants.......     515,497         14       1,446            --          --            --      1,460
Stock options and warrants issued in
 exchange for services.......................          --         --         178            --          --            --        178
Deferred stock-based compensation............          --         --          --            19          --            --         19
Conversion of 2order.com redeemable
 convertible preferred stock.................     916,918         23       9,074            --          --            --      9,097
Comprehensive loss:
 Foreign currency translation loss...........          --         --          --            --          (6)           --
 Unrealized loss on short-term
  investments................................          --         --          --            --         (62)           --
 Net loss....................................          --         --          --            --          --        (5,492)
                                                                                              --------------------------
    Total comprehensive loss.................          --         --          --            --         (68)       (5,492)    (5,560)
                                               ------------------------------------------------------------------------------------
Balance at March 31,  2000...................  17,613,301  $     441  $  103,546    $      (95)  $    (178)   $  (59,862)  $ 43,852
Exercise of stock options and warrants.......      87,496          3         655            --          --            --        658
Shares purchased through employee
 stock purchase plan.........................      42,123          1         646            --          --            --        647
Deferred stock-based compensation............          --         --          --            13          --            --         13
Comprehensive loss:
 Foreign currency translation loss...........          --         --          --            --         (17)           --
 Unrealized gain on short-term
  investments................................          --         --          --            --          64            --
 Net loss....................................          --         --          --            --          --        (2,415)
                                                                                              --------------------------
    Total comprehensive loss.................          --         --          --            --          47        (2,415)    (2,368)
                                               ------------------------------------------------------------------------------------
Balance at June 30, 2000.....................  17,742,920  $     445  $  104,847    $      (82)  $    (131)   $  (62,277)  $ 42,802
Exercise of stock options and warrants.......     250,561          6       1,554            --          --            --      1,560
Deferred stock-based compensation............          --         --          --            17          --            --         17
Comprehensive loss:
 Foreign currency translation loss...........          --         --          --            --         (10)           --
 Unrealized gain on short-term                                                                          53
  investments................................          --         --          --            --                        --
 Net loss....................................          --         --          --            --          --        (3,773)
                                                                                               -------------------------
    Total comprehensive loss.................          --         --          --            --          43        (3,773)    (3,730)
                                               ------------------------------------------------------------------------------------
Balance at September 30, 2000................  17,993,481  $     451  $  106,401    $      (65)  $     (88)   $  (66,050)  $ 40,649
                                               ====================================================================================

</TABLE>

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


                                  Page 5 of 25
<PAGE>

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

<TABLE>
<CAPTION>
                                                                         Nine Months Ended September 30,
                                                                         -------------------------------
                                                                           2000               1999
                                                                         --------           --------
<S>                                                                      <C>                <C>
Cash flows from operating activities:
  Net loss                                                               $(11,680)          $(11,501)
     Adjustments to reconcile net loss to net cash used in
       operating activities:
          Option and warrant expense                                          227                461
          Depreciation and amortization                                     1,998                728
          Changes in assets and liabilities:
            Accounts receivable                                             1,221             (1,341)
            Prepaid expenses and other current assets                         237               (710)
            Other assets                                                       64               (229)
            Accounts payable and accrued and other liabilities             (1,278)             1,569
            Compensation-related accruals                                    (302)               414
            Deferred revenue                                               (3,019)               497
                                                                         --------           --------
              Net cash used in operating activities                       (12,532)           (10,112)
                                                                         --------           --------
Cash flows from investing activities:
  Purchases of short-term investments                                      (6,780)           (36,073)
  Proceeds from maturity of short-term investments                         25,516              3,809
  Purchases of property and equipment                                      (3,392)            (1,103)
                                                                         --------           --------
              Net cash provided by (used in) investing activities          15,344            (33,367)
                                                                         --------           --------
Cash flows from financing activities:
  Proceeds from issuance of long-term debt                                      -              1,157
  Repayments on long-term debt                                               (379)            (2,107)
  Proceeds from the issuance of common stock, net                           4,325             48,396
  Proceeds from issuance of Imparto convertible preferred stock, net                           4,584
  Repurchase of common stock                                                    -               (104)
  Proceeds from issuance of preferred stock                                     -              1,200
                                                                         --------           --------

              Net cash provided by financing activities                     3,946             53,126

Effect of exchange rate changes on cash                                       (33)                --
                                                                         --------           --------
              Net increase in cash and cash equivalents                     6,725              9,647

Cash and cash equivalents at beginning of period                           17,602              7,708
                                                                         --------           --------
Cash and cash equivalents at end of period                               $ 24,327           $ 17,355
                                                                         ========           ========

</TABLE>

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


                                  Page 6 of 25
<PAGE>

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)

NOTE 1.   DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION

Description of the Business

Primus Knowledge Solutions, Inc. (Primus) is a leading provider of knowledge-
enabled software that empowers CRM implementations and drives customer
satisfaction for Global 2000 companies. The Primus(R) Associative Search Engine
delivers powerful search, retrieval, and authoring capabilities that enhance
traditional CRM implementations with the power of knowledge in context.  Sales
are primarily generated through a domestic and European field sales
organization.  Products sold domestically and internationally are developed by
us at our Seattle headquarters and at our Atlanta and Palo Alto offices.  We
were incorporated in the state of Washington in 1986.

Basis of Presentation

The condensed consolidated financial statements include the accounts of Primus
and our wholly-owned subsidiaries, including our foreign subsidiary, Primus UK
Ltd.  All significant intercompany balances and transactions have been
eliminated.

In December 1999 and January 2000, Primus merged with Imparto Software
Corporation (Imparto) and 2order.com, Inc. (2order.com), respectively, in
combinations accounted for as pooling-of-interests.  The condensed consolidated
financial statements and notes thereto for all periods prior to the combinations
are restated to include the accounts and results of operations of Imparto and
2order.com.

Unaudited Interim Financial Information

The accompanying unaudited condensed consolidated financial statements have been
prepared in conformity with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Article 10 of
Regulation S-X.  Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed, or omitted, pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC).  In our
opinion, the financial statements include all adjustments necessary (which are
of a normal and recurring nature) for the fair presentation of the results of
the interim periods presented.  These financial statements should be read in
conjunction with our audited financial statements for the year ended December
31, 1999 included in our Form 8-K filed with the SEC on June 30, 2000.  The
results of operations for any interim period are not necessarily indicative of
the results of operations for any other interim period or for a full fiscal
year.


NOTE 2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

We have recognized software license revenue in accordance with AICPA Statement
of Position 97-2, "Software Revenue Recognition," which provides specific
industry guidance and stipulates that revenue recognized from software
arrangements is to be allocated to each element of the arrangement based on the
relative fair value of the elements. The AICPA recently issued its Statement of
Position 98-9, which provides certain amendments to its Statement of Position
97-2 and is effective for transactions entered into beginning January 1, 2000.
The

                                  Page 7 of 25
<PAGE>

implementation of this latest AICPA pronouncement did not materially impact our
revenue recognition practices.

We currently recognize license revenue over the implementation period if
implementation services are included in the original license arrangement. As a
result, even where we have a signed license agreement for the purchase of our
software and have shipped the software, license revenue recognition depends on
whether we have begun implementation. For license agreements under which we have
no implementation responsibility, or where implementation is not considered to
be essential to the functionality of the software, we generally recognize
revenue from the agreement upon shipping the software.

In addition, there may be arrangements where we are contractually restricted
from invoicing a customer until a later date.  In these cases, we will record
the accounts receivable and the revenue when we invoice the customer, which is
generally 30-60 days prior to the due date.

Our services revenue consists of consulting, training and maintenance and
support fees. We provide consulting and training services relating to our
products on a time-and-materials basis under installation services agreements
with our customers. We provide maintenance and support services to our customers
under renewable one-year maintenance and support agreements, which we price as a
percentage of our license fees.

For new customers, we generally enter into services agreements to implement our
software. Most of our new customers begin implementation within 30 to 60 days of
signing a license agreement. Once commenced, implementation of our products
typically ranges from 30 to 45 days, an improvement from prior years when
installations took 60 to 90 days. Examples of situations under which we have no
implementation responsibility include additional license sales to existing
customers or customers who elect to use internal or third party resources to
implement the software.


NOTE 3.   EARNINGS PER SHARE

In accordance with SFAS No. 128, "Earnings Per Share," we reported both basic
and diluted net loss per common share for each period presented. Basic net loss
per common share is computed on the basis of the weighted-average number of
common shares outstanding for the year. Diluted net loss per common share is
computed on the basis of the weighted-average number of common shares plus
dilutive potential common shares outstanding. Dilutive potential common shares
are calculated under the treasury stock method. Securities that could
potentially dilute basic income per share consist of outstanding stock options
and warrants and for certain periods, convertible preferred stock. Net loss
available to common shareholders includes net loss and preferred stock
accretion. As we had a net loss available to common shareholders in each of the
periods presented, basic and diluted net loss per common share are the same. All
outstanding warrants, stock options, and convertible preferred stock to acquire
common shares were excluded from the computation of diluted earnings per share
at September 30, 2000 and September 30, 1999 because the effect was anti-
dilutive.

Potential common shares consisted of options and warrants to purchase 4,141,360
and 3,785,991 common shares at September 30, 2000 and 1999, respectively.


NOTE 4.   COMPREHENSIVE LOSS

The following table reconciles net loss as reported to total comprehensive loss
for the three and nine months ended September 30, 2000 and 1999:

<TABLE>
                                                <S>                   <C>
                                                Three Months Ended    Nine Months Ended
                                                  September 30,         September 30,
                                               --------------------  --------------------
                                                   2000       1999       2000       1999
                                                -------    -------   --------   --------
</TABLE>

                                  Page 8 of 25
<PAGE>

<TABLE>
<CAPTION>
                                                   (In thousands)      (In thousands)
<S>                                             <C>        <C>       <C>        <C>
Net loss                                        $(3,773)   $(3,852)  $(11,680)  $(11,501)
Other comprehensive income (loss):
    Unrealized foreign currency (loss) gain         (10)        11        (33)        --
    Unrealized gain (loss) on short-term
      investments                                    53        (46)        55        (46)
                                                -------    -------   --------   --------
Total comprehensive loss                        $(3,730)   $(3,887)  $(11,658)  $(11,547)
                                                =======    =======   ========   ========
</TABLE>

NOTE 5.   BUSINESS SEGMENT INFORMATION

Primus and subsidiaries are principally engaged in the design, development,
marketing and support of our eService family of eProducts: eServer, eSupport,
eSales and eMarketing.  Substantially all revenues result from the licensing of
our software products and related consulting and customer support (maintenance)
services.  Our chief operating decision-maker reviews financial information
presented on a consolidated basis, accompanied by disaggregated revenue
information.

The majority of our revenues are derived from customers in the United States.
Our international sales are principally in Europe and Japan. The following
geographic information is presented for three and nine months ended September
30, 2000 and 1999:

<TABLE>
<CAPTION>
                                           Three Months Ended September 30,          Nine Months Ended September 30,
                                    -----------------------------------------------------------------------------------
                                             2000                 1999                  2000                 1999
                                    -------------------     ----------------     -----------------      ---------------
                                                  (In thousands)                               (In thousands)

     <S>                                    <C>                   <C>
     United States                          $ 8,508               $6,433               $25,781              $15,604
     International                            1,626                  510                 7,872                2,432
                                            -------               ------               -------              -------
        Total revenues                      $10,134               $6,943               $33,653              $18,036
                                            =======               ======               =======              =======
</TABLE>

                                  Page 9 of 25
<PAGE>

Item 2.    Management's Discussion and Analysis of Financial Condition and
Results of Operations


FORWARD-LOOKING STATEMENTS

This document contains certain forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934 and Section 27A of the
Securities Act of 1933.  These forward-looking statements involve risks and
uncertainties, including, but not limited to, those identified in the section of
this Form 10-Q entitled "Factors Affecting Our Future Operating Results," which
may cause actual results to differ materially from those discussed in such
forward-looking statements.  When used in this document, the words "believes,"
"expects," "anticipates," "intends," "plans" and similar expressions, are
intended to identify certain of these forward-looking statements.  However,
these words are not the exclusive means of identifying such statements.  In
addition, any statements that refer to expectations, projections or other
characterizations of future events or circumstances are forward-looking
statements.  The cautionary statements made in this document should be read as
being applicable to all related forward-looking statements wherever they appear
in this document.  Factors that could cause or contribute to such differences
include those discussed below, as well as those discussed in our Annual Report
on Form 10-K, a copy of which is on file at the Securities and Exchange
Commission.  We undertake no obligation to release publicly the results of any
revision to these forward-looking statements that may be made to reflect events
or circumstances occurring subsequent to the filing of this Form 10-Q with the
SEC.  Readers are urged to review and carefully consider the various disclosures
made by us in this report and in our other reports filed with the SEC that
attempt to advise interested parties of the risk and factors that may affect our
business.

OVERVIEW

Primus Knowledge Solutions, Inc. (Primus) is a leading provider of knowledge-
enabled software that empowers CRM implementations and drives customer
satisfaction for Global 2000 companies. The Primus(R) Associative Search Engine
delivers powerful search, retrieval, and authoring capabilities that enhance
traditional CRM implementations with the power of knowledge in context.

To remain competitive in today's business environment, companies are
implementing e-business initiatives to enable them to interact with their
customers using both traditional and e-business communication channels,
including the Internet, in a way that will maximize the value of each customer
interaction. More specifically, these initiatives allow companies to market
their products, transact sales, manage customer service, and interact and
communicate with customers, partners and suppliers using the Internet and other
electronic means. Ultimately, each customer interaction must be maximized for
purposes of customer retention, cross-sell and up-sell opportunities, and
customer satisfaction to enhance customer relationships.

                                 Page 10 of 25
<PAGE>

RESULTS OF OPERATIONS FOR THE THREE  AND NINE MONTHS ENDED SEPTEMBER 30, 2000
AND 1999

     The following table sets forth certain financial data, derived from our
unaudited statements of operations, as a percentage of total revenues for the
periods indicated.  The operating results for the three and nine months ended
September 30, 2000 and 1999 are not necessarily indicative of the results that
may be expected for any future period.

<TABLE>
<CAPTION>
                                     Three Months Ended September 30,    Nine Months Ended September 30,
                                     ----------------------------------  --------------------------------
                                         2000               1999              2000            1999
                                     -------------     -------------     ------------     ------------
<S>                                  <C>               <C>               <C>              <C>
Revenues:
 License                                  61.7%             64.1%             69.4%           68.6%
 Services                                 38.3              35.9              30.6            31.4
                                        ------            ------            ------          ------
 Total revenues                          100.0             100.0             100.0           100.0
                                        ------            ------            ------          ------
Cost of revenues:
 License                                   2.1               3.5               2.5             4.0
 Services                                 23.8              23.6              22.2            24.9
                                        ------            ------            ------          ------
 Total cost of revenues                   25.9              27.1              24.7            28.9
                                        ------            ------            ------          ------
Gross profit                              74.1              72.9              75.3            71.1
                                        ------            ------            ------          ------
Operating expenses:
 Sales and marketing                      62.6              76.5              59.8            76.5
 Research and development                 36.6              36.3              34.0            37.1
 General and administrative               18.4              22.5              20.4            23.0
 Merger related costs                       --                --               1.5              --
                                        ------            ------            ------          ------
 Total operating expenses                117.6             135.3             115.7           136.6
                                        ------            ------            ------          ------
Loss from operations                     (43.5)            (62.4)            (40.4)          (65.5)
Other income, net                          6.7               7.3               6.1             3.0
                                        ------            ------            ------          ------
Loss before income taxes                 (36.8)            (55.1)            (34.3)          (62.5)
Income tax expense                          .4                .4                .4             1.3
                                        ------            ------            ------          ------
Net loss                                 (37.2)%           (55.5)%           (34.7)%         (63.8)%
                                        ======            ======            ======          ======
</TABLE>

Revenues

We derive our revenue from the sale of software licenses and related services
including support and maintenance contracts.  Revenue was approximately $10.1
million and $6.9 million for the three months ended September 30, 2000 and 1999,
respectively, representing an increase in the third quarter of 2000 of
approximately $3.2 million, or 46%, over the comparable quarter of the prior
year. Revenue was approximately $33.7 million and $18.0 million for the nine
months ended September 30, 2000 and 1999, respectively, representing an increase
of approximately $15.7 million, or 87%, over the comparable period in the prior
year.

License Revenue. License revenue was approximately $6.3 million and $4.4 million
for the three months ended September 30, 2000 and 1999, respectively,
representing an increase in the third quarter of 2000 of approximately $1.9
million, or 41%, over the comparable quarter of the prior year. License revenue
was approximately $23.3 million and $12.4 million for the nine months ended
September 30, 2000 and 1999, respectively, representing an increase of
approximately $10.9 million, or 89%, over the comparable period of the prior
year.  The increases were due to increased sales of our eCRM products and
continued increases in both the size and productivity of our sales force.
International license revenues were approximately $751,000 and $510,000 for the
three months

                                 Page 11 of 25
<PAGE>

ended September 30, 2000 and 1999, respectively and approximately $7.9 million
and $2.4 million for the nine months ended September 30, 2000 and 1999,
respectively. Sales personnel totaled 79 and 56 as of September 30, 2000 and
1999, respectively.

Services Revenue. Services revenue was approximately $3.9 million and $2.5
million for the three months ended September 30, 2000 and 1999, respectively,
representing an increase in the third quarter of 2000 of approximately $1.4
million, or 55%, over the comparable quarter of the prior year. Services revenue
was approximately $10.3 million and $5.7 million for the nine months ended
September 30, 2000 and 1999, respectively, representing an increase of
approximately $4.6 million, or 82%, over the comparable period of the prior
year.  Maintenance and support contract revenues increased approximately $1.4
million in the third quarter of 2000 over the comparable quarter of the prior
year and increased approximately $3.7 million in the first nine months of 2000
over the same period of the prior year.  Consulting fees increased approximately
$50,000 in the third quarter of 2000 over the comparable quarter of the prior
year and increased approximately $1.0 million in the first nine months of 2000
over the same period of the prior year.

Services revenue represented 38% and 36% of our total revenue for the three
months ended September 30, 2000 and  1999, respectively and approximately 31% of
our total revenue for the first nine months of 2000 and 1999.  The increase in
service revenues was primarily due to the continued growth in our professional
services business and the growth in our customer base receiving maintenance.  We
expect the proportion of service revenue to total revenue to fluctuate in the
future, depending in part on our customers' use of third-party consulting and
implementation services providers.

Cost of Revenue

Cost of License Revenue. Cost of license revenue includes royalties and fees
paid to third parties under license arrangements and costs related to media and
duplication of our products and manuals. Cost of license revenue was
approximately $212,000 and $241,000 for the three months ended September 30,
2000 and 1999, respectively.  Cost of license revenue as a percentage of license
revenue was 3% and 5% for the three months ended September 30, 2000 and 1999,
respectively. Cost of license revenue was approximately $865,000 and $716,000
for the nine months ended September 30, 2000 and 1999, respectively.  Cost of
license revenue as a percentage of license revenue was 4% and 6% for the nine
months ended September 30, 2000 and 1999, respectively.  We anticipate that our
cost of license revenue will continue to fluctuate in absolute dollars and as a
percent of license revenue, which has varied in the past due to the expected
increase in the volume of software product sales and the type of royalty
agreements in place at the time.

Cost of Services Revenue. Cost of services revenue includes personnel and other
costs related to professional services and customer support.  Cost of services
revenue was approximately $2.4 million and $1.6 million for the three months
ended September 30, 2000 and 1999, respectively.   Cost of services revenue as a
percentage of service revenues was 62% and 66% for the three months ended
September 30, 2000 and 1999. Cost of services revenue was approximately $7.5
million and $4.5 million for the nine months ended September 30, 2000 and 1999,
respectively. Cost of services revenue as a percentage of service revenues was
72% and 79% for the nine months ended September 30, 2000 and 1999.  The decrease
in cost of services revenue as a percentage of services revenue was primarily
due to higher utilization of consulting-services personnel and growth of
maintenance revenue.  Professional services and customer support personnel
totaled 66 and 54 as of September 30, 2000 and 1999, respectively.

Operating Expenses

Sales and Marketing. Sales and marketing expenses consist primarily of salaries,
bonuses and commissions earned by sales and marketing personnel, travel and
costs associated with marketing programs, such as trade shows, public relations
and new product launches. Sales and marketing expenses were approximately $6.3
million and $5.3 million for the three months ended September 30, 2000 and 1999,
respectively. Sales and marketing

                                 Page 12 of 25
<PAGE>

expenses increased approximately $1.0 million, or 20% for the three months ended
September 30, 2000 as compared to the three months ended September 30, 1999.
Sales and marketing expenses were approximately $20.1 million and $13.8 million
for the nine months ended September 30, 2000 and 1999, respectively. Sales and
marketing expenses increased approximately $6.3 million, or 46% for the nine
months ended September 30, 2000 as compared to the nine months ended September
30, 1999. This increase is primarily due to the continued growth in the number
of our sales and marketing personnel as well as an increase in commissions as a
result of revenue growth. Sales and marketing employees totaled 102 and 79 for
the nine months ended September 30, 2000 and 1999, respectively. Sales and
marketing expenses as a percentage of total revenue was 63% and 77% for the
three months ended September 30, 2000 and 1999, respectively. Sales and
marketing expenses as a percentage of total revenue was 60% and 77% for the nine
months ended September 30, 2000 and 1999, respectively. We believe that a
significant increase in our sales and marketing efforts is essential for us to
maintain market position and further increase market acceptance of our products.
Accordingly, we anticipate that we will continue to invest significantly in
sales and marketing for the foreseeable future, and the dollar amount of sales
and marketing expenses will increase in future periods, although they may
decline as a percentage of total revenue.

Research and Development. Research and development expenses consist primarily of
salaries and benefits for software developers, program managers and quality
assurance personnel and payments to outside contractors.  Research and
development expenses were approximately $3.7 million and $2.5 million for the
three months ended September 30, 2000 and 1999, respectively.  Research and
development expenses increased approximately $1.2 million, or 47%, for the three
months ended September 30, 2000 compared to the three months ended September 30,
1999. Research and development expenses were approximately $11.4 million and
$6.7 million for the nine months ended September 30, 2000 and 1999,
respectively.  Research and development expenses increased approximately $4.7
million, or 71%, for the nine months ended September 30, 2000 compared to the
same period in the prior year.  The increase was primarily due to increased
hiring of software developers and quality-assurance staff to support development
of our new products, enhancements to our existing products and an increase in
compensation levels for development and quality-assurance personnel.  Research
and development personnel totaled 100 and 79 for the nine months ended September
30, 2000 and 1999, respectively. Research and development expenses as a
percentage of total revenue was 37% and 36% for the three months ending
September 30, 2000 and 1999, respectively. Research and development expenses as
a percentage of total revenue was 34% and 37% for the nine months ending
September 30, 2000 and September 30, 1999, respectively.  We believe that a
significant increase in our research and development investment is essential for
us to maintain our market position, to continue to expand our eCRM software and
to develop additional applications.  Accordingly, we anticipate that we will
continue to invest significantly in product research and development for the
foreseeable future, and research and development expenses are likely to increase
in future periods. As such, we expect research and development costs as a
percentage of total revenue to fluctuate.  In the development of our new
products and enhancements of existing products, the technological feasibility of
our software was not established until substantially all product development was
complete. Accordingly, software development costs eligible for capitalization
were insignificant, and all costs related to internal research and development
have been expensed as incurred.

General and Administrative.  General and administrative expenses consist
primarily of salaries, benefits and related costs for executive, finance,
administrative and information services personnel. General and administrative
expenses were approximately $1.9 million and $1.6 million for the three months
ended September 30, 2000 and 1999, respectively.  General and administrative
expenses increased approximately $300,000, or 19%, for the three months ended
September 30, 2000 compared to the three months ended September 30, 1999.
General and administrative expenses were approximately $6.9 million and $4.2
million for the nine months ended September 30, 2000 and 1999, respectively.
General and administrative expenses increased approximately $2.7 million, or
66%, for the nine months ended September 30, 2000 compared to the same period in
the prior year. The increase in general and administrative expenses was
primarily the result of associated executive, finance, and administrative
personnel expenses necessary to manage and support the growth of our business
during these periods as well as an increase in legal and professional fees
associated with becoming a public company. General

                                 Page 13 of 25
<PAGE>

and administrative employees totaled 28 and 29 for the nine months ended
September 30, 2000 and 1999. General and administrative expenses as a percentage
of total revenue were 18% and 23% for the three months ended September 30, 2000
and 1999, respectively, and 20% and 23% for the nine months ended September 30,
2000 and 1999, respectively. The fluctuation of general and administrative
expense as a percentage of total revenue reflects the building of our
infrastructure during these periods. We believe that our general and
administrative expenses will continue to increase as a result of the continued
expansion of our administrative staff and the expenses associated with being a
public company, including, but not limited to, annual and other public-reporting
costs, directors' and officers' liability insurance, investor-relations programs
and professional services fees.

Merger Related Costs.  Merger related costs were approximately $505,000 for the
nine months ended September 30, 2000.  All merger related costs were incurred
during the first quarter of 2000 as these costs were recorded in connection with
the January 2000 merger with 2order.com that was accounted for under the
pooling-of-interests method of accounting.

Other Income, Net. Other income was $674,000 and $505,000 for the three months
ended September 30, 2000 and 1999, respectively. Other income was $2.0 million
and $536,000 for the nine months ended September 30, 2000 and 1999,
respectively. The variances from period to period were due to fluctuations in
the average combined cash and cash equivalents and short-term investment
balances. We expect to continue to yield investment income on our average
balance of combined cash and cash equivalents and short-term and long-term
investments at an average rate comparable to that experienced in 1999 and the
first nine months of 2000.

Income Taxes. We have not recorded income tax benefits related to the net
operating losses in 1999 and the first nine months of 2000 as a result of the
uncertainties regarding the realization of the net operating losses.  Tax
expense recorded in both the third quarter of 2000 and 1999 and the first nine
months of 2000 and 1999 primarily relates to tax expense from our foreign
operations.

Liquidity and Capital Resources

As of September 30, 2000, we had cash and cash equivalents of approximately
$24.3 million, an increase from $17.6 million of cash and cash equivalents held
as of December 31, 1999.  As of September 30, 2000, we had short-term
investments of approximately $18.4 million, representing a decrease of
approximately $18.7 million from investments held as of December 31, 1999.  As
of September 30, 2000, our working capital was approximately $36.0 million
compared to approximately $44.5 million at December 31, 1999.

Our accounts receivable were approximately $7.3 million and $8.5 million as of
September 30, 2000 and December 31, 1999, respectively, representing an decrease
of approximately $1.2 million or 14%.  This decrease was principally a result of
higher cash collections during the nine months ended September 30, 2000.  Days
sales outstanding ("DSO") in accounts receivable was 64 days as of September 30,
2000.  We expect that DSO will fluctuate significantly in future quarters.

Our total liabilities were approximately $14.7 million as of September 30, 2000
and $28.6 million as of December 31, 1999, including our redeemable preferred
stock, representing a decrease of $13.9 million, or 49%.  This decrease was
mainly the result of the conversion of approximately $9.1 million in redeemable
convertible preferred stock to common stock in connection with the merger of
2order.com in the first quarter of 2000.

Our operating activities resulted in net cash outflows of approximately $12.5
million for the nine months ended September 30, 2000.  Adjustments to the $11.7
million net loss to reconcile to cash used in operating activities includes a
decrease of approximately $3.0 million in deferred revenue, of which $1.9
million relates to the write-off of the deferred revenue against a receivable
from a customer, approximately $1.2 million for the increase in accounts
receivable and $2.0 million for depreciation and amortization.  Net cash used in
operating activities was approximately $9.9 million for the nine months ended
September 30, 1999.

                                 Page 14 of 25
<PAGE>

Investing activities provided cash of approximately $15.3 million for the nine
months ended September 30, 2000.  Investing activities for this period consisted
primarily of approximately $25.5 million in proceeds from the maturity of short-
term investments offset by approximately $6.8 million in purchases of short-term
investments.  Further activities included the purchase of approximately $3.4
million in capital equipment. Net cash used in investing activities was
approximately $33.4 million for the nine months ended September 30, 1999.

Financing activities provided cash of approximately $3.9 million for the nine
months ended September 30, 2000.  Financing activities for this period included
approximately $4.3 million in proceeds from the exercise of stock options and
warrants offset by approximately $379,000 in repayments of debt obligations.
Net cash provided by financing activities was approximately $52.9 million for
the nine months ended September 30, 1999.

We currently anticipate that we will continue to experience significant growth
in our operating expenses for the foreseeable future as we:

     .    enter new markets for our products and services

     .    increase research and development spending

     .    increase sales and marketing activities

     .    develop new distribution channels

     .    improve our operational and financial systems

     .    broaden our professional services capabilities


Such operating expenses will consume a material amount of our cash.  We believe
that our existing cash and cash equivalents, short-term investments and
available line of credit will be sufficient to meet our anticipated cash needs
for working capital and capital expenditures for at least the next twelve
months.  Thereafter, we may require additional funds to support our working
capital requirements or for other purposes and may seek to raise such additional
funds through public or private equity financing or from other sources.  We may
not be able to obtain adequate or favorable financing at that time.  Any
financing we obtain may dilute our current shareholders' ownership interest in
Primus.

Recently Issued Accounting Pronouncements

The Financial Accounting Standards Board issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities in June 1998.  This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities.  It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value.  If certain conditions are met, a derivative may be specifically
designated as a hedge.  The accounting for changes in the fair value of a
derivative depends on the intended use of the derivative and the resulting
designation.  SFAS No. 133, as amended, is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000.  The adoption of this statement is
not expected to have a material impact on our consolidated financial statements.

In June 2000, the SEC updated Staff Accounting Bulletin No. 101 (SAB 101)
"Revenue Recognition in Financial Statements".  The most recent update delays
the effective date of SAB 101 to the fourth quarter for fiscal years beginning
after December 15, 1999.  SAB 101 provides guidance on revenue recognition and
the SEC staff's views on the application of accounting principles to selected
revenue recognition issues.  We will adopt the provisions of SAB 101 in the
fourth quarter of 2000 and anticipate that such adoptions will not have a
material

                                 Page 15 of 25
<PAGE>

impact on our consolidated financial statements.

In March 2000, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation, an Interpretation of APB Opinion No. 25.  Interpretation No. 44
clarifies the application of APB Opinion 25, Accounting for Stock Issued to
Employees, for issues, among others, regarding; (a) the definition of employees,
(b) defining non-compensatory plans, (c) modifications to previously fixed stock
option awards, and (d) accounting for an exchange of stock compensation awards
in a business combination.  We adopted Interpretation No. 44 in the third
quarter of 2000 and it did not have a material impact on the consolidated
financial statements.

Factors Affecting Our Future Operating Results

     You should carefully consider the risks and uncertainties described below
and the other information in this report. They are not the only ones we face.
Additional risks and uncertainties that we are not aware of or that we currently
deem immaterial also may impair our business. If any of the following risks
actually occur, our business, financial condition and operating results could be
materially adversely affected and the trading price of our common stock could
decline.


We have incurred operating losses and we may not be profitable in the future.

     We have incurred net losses in each quarter since inception and we could
continue to incur net losses for the foreseeable future. As of September 30,
2000, we had an accumulated deficit of $66.1 million. We expect to continue to
devote substantial resources to expand our product development, sales and
marketing and our customer support and professional service groups. As a result,
we will need to generate significant revenues to achieve and maintain
profitability. We may not be profitable in any future period.

Quarterly fluctuations in our operating results may adversely affect our stock
price.

     Our license revenues have fluctuated substantially from quarter to quarter
in the past and are likely to continue to fluctuate substantially in the future.
In addition, the fiscal or quarterly budget cycles of our users can cause our
revenues to fluctuate from quarter to quarter and applicable accounting policies
may cause us to report new license agreements as deferred revenue until
implementation begins. As a result, we believe that period-to-period comparisons
of our operating results are not meaningful, and you should not rely on such
comparisons to predict our future performance. We will continue to base our
decisions regarding our operating expenses on anticipated revenue trends. To the
extent these expenses are not followed by increased revenues, our operating
results will suffer. Fluctuations in our operating results, particularly
compared to the expectations of market analysts or investors, could cause severe
volatility in the price of our common stock.

Our quarterly operating results depend on a small number of large orders.

     We derive a significant portion of our product license revenues in each
quarter from a small number of relatively large orders. Our operating results
for a particular fiscal quarter could be materially adversely affected if we are
unable to complete one or more substantial license sales or implementations
planned for that quarter.

Factors outside our control may cause the timing of our license revenues to vary
from quarter-to-quarter, possibly adversely affecting our operating results.

     Under applicable accounting rules, we may experience further variability in
our license revenues from quarter to quarter due to factors outside our control,
including:
     .    whether we are providing implementation services
     .    whether implementation is delayed or takes longer than expected

                                 Page 16 of 25
<PAGE>

     .    variability in the mix of new and existing customers

     Where we are implementing the software, we will account for the agreement
as an item of deferred revenue and will recognize the license revenue over the
period of implementation. Most of our new customers begin implementation within
30 to 60 days of signing a license agreement. Once commenced, implementation of
our products typically ranges from 30 to 45 days, an improvement from prior
years when installations took 60 to 90 days. We can't, however, guarantee that
customers will begin implementation or that we will always be able to implement
our software within those time periods. Thus, all of our deferred license
revenue may not be recognized within the originally expected time period.

Seasonality may adversely affect our quarterly operating results.

     We expect to experience seasonality in our license revenue. To date, we
believe that seasonality has been masked by other factors, such as large orders
and the timing of personnel changes in our sales staff. Our customers' purchase
decisions are often affected by fiscal budgetary factors and by efforts of our
direct sales force to meet or exceed sales quotas. As a result, we expect new
business in the last quarter of a year to be greater than new business in the
first quarter of the following year. One effect of our revenue recognition
policy, however, is that revenue recognized in a quarter will typically not
reflect all of the new license agreements signed and shipped in that quarter.
Because revenue recognized in a given quarter may be primarily associated with
new business in prior quarters, revenue in the first quarter may be higher than
revenue recognized in the previous fourth quarter.

The limited sales history of our products makes it difficult to evaluate our
business and prospects.

     We released our first eCRM product in August 1996.  Accordingly, the basis
upon which you can evaluate our prospects in general, and market acceptance of
our products in particular, is limited. For our business to succeed, the market
for eCRM software will have to grow significantly, and we will have to achieve
broad market acceptance of our products.

If e-business sales and marketing solutions are not widely adopted, we may not
be successful.

     We are broadening our current product suite to integrate with various
aspects of e-business solutions. These products address a new and emerging
market for e-business sales and marketing solutions. The failure of this market
to develop, or a delay in the development of this market, would seriously harm
our business. The success of e-business sales and marketing solutions depends
substantially upon the continued growth and the widespread adoption of the
Internet as a primary medium for commerce and business applications. The
Internet infrastructure may not be able to support the demands placed on it by
the continued growth upon which our success depends. Moreover, reliability,
cost, accessibility, security and quality of service remain unresolved and may
negatively affect the growth of Internet use or the attractiveness of commerce
and business communication over the Internet.

We rely on sales of only one product family.

     Product license revenues and related services from our Primus eServer and
Primus eSupport products accounted for over 90% of our total revenues through
September 30, 2000, and we expect these products to continue to account for a
substantial portion of our revenues for the remainder of 2000. As a result,
factors adversely affecting the demand for these products and our eCRM products
in general, such as competition, pricing or technological change, could
materially adversely affect our business, financial condition and operating
results. Our future financial performance will substantially depend on our
ability to sell current versions of our entire suite of eCRM products and our
ability to develop and sell enhanced versions of our eCRM products.

Factors outside our control may make our products less useful.

                                 Page 17 of 25
<PAGE>

     The effectiveness of our eCRM products depends in part on widespread
adoption and effective use of our software by an enterprise's personnel,
partners and customers and the value derived by each such usage. In addition,
the effectiveness of our knowledge-enabled approach is dependent upon a current
database. If customer-support personnel do not adopt and effectively use our
products, necessary solutions will not be added to the database, and the
database will be inadequate. If an enterprise deploying our software fails to
maintain a current database, the value of our eCRM products to our users will be
impaired. Thus, successful deployment and broad acceptance of our eCRM products
will depend in part on the quality of the users' existing database of solutions,
which is outside our control.

The high level of competition in our market may result in pricing pressures,
reduced margins or the failure of our products to achieve market acceptance.

     The market for our products is new and rapidly evolving, and is expected to
become increasingly competitive as current competitors expand their product
offerings and new companies enter the market. Our suite of products competes
against various vendor software tools designed to address a specific element or
elements of the complete set of eCRM processes, including Internet
communications, esupport, esales and emarketing. We also face competition from
in-house designed products and third-party custom development efforts.

     In addition, companies providing e-commerce and traditional customer
relationship management solutions that may compete with us include Broadvision,
Oracle, Peoplesoft, Siebel and Vignette.

     The principal competitive factors in our industry include:

<TABLE>
     <S>                                                         <C>
     .    vendor and product reputation                          .    product ease-of-use

     .    customer referenceability                              .    the quality of customer support services,
                                                                      documentation and training
     .    measurable economic return                             .    the quality, speed and effectiveness of
                                                                      application development services
     .    product quality, performance and price                 .    the effectiveness of sales and marketing efforts
     .    breadth of product functionality and features          .    product integration with other enterprise
                                                                      applications
     .    product scalability
     .    the availability of products on the Internet and
          multiple operating platforms
</TABLE>

     As the market for eCRM software matures, it is possible that new and larger
companies will enter the market, existing competitors will form alliances or
current and potential competitors could acquire, be acquired by or establish
cooperative relationships with third parties. The resulting organizations could
have greater technical, marketing and other resources and improve their products
to address the needs of our existing and potential users, thereby increasing
their market share. Increased competition could result in pricing pressures,
reduced margins or the failure of our products to achieve or maintain market
acceptance.

If we do not integrate Imparto's and 2order.com's technology quickly and
effectively, many of the potential benefits of these acquisitions may not be
realized.

     We intend to integrate Imparto's and 2order.com's technology into our own
products. We cannot assure you that we will be able to integrate Imparto's and
2order.com's technology quickly and effectively. In order to obtain the benefits
of these acquisitions, we must make Imparto's and 2order.com's technology,
products and services operate together with our technology, products and
services. We may be required to spend additional time or money on integration
which would otherwise be spent on developing our business and services or other
matters. If we do not integrate these technologies effectively or if management
and technical staff spend too much time on integration issues, it could harm our
business, financial condition and results of operations. In addition, the

                                 Page 18 of 25
<PAGE>

success of these acquisitions will also depend on our ability to successfully
integrate and manage the acquired operations and retain or replace the key
employees of the companies we acquired.

The loss of access to, or a problem with, Versant's database could adversely
affect our business.

     Historically, we incorporated a database licensed from Versant into our
products. Presently, our products support Microsoft SQL Server, Oracle and
Versant databases. Because most of the products we have shipped historically,
however, rely on Versant's database, we continue to depend on Versant's ability
to support the database in a timely and effective manner.

Failure to sufficiently expand our sales and marketing infrastructure would
adversely affect our sales.

     To date, we have licensed our products primarily through our direct sales
force. Our future revenue growth will depend in large part on our ability to
recruit, train and manage additional sales and marketing personnel and to expand
our indirect distribution channels. We have experienced and continue to
experience difficulty in recruiting qualified sales and marketing personnel and
in establishing third-party relationships. We may not be able to successfully
expand our direct sales force or other distribution channels and any such
expansion may not result in increased revenues. Our business, financial
condition and operating results will be materially adversely affected if we fail
to expand our sales and marketing resources.

Our inability to sufficiently expand our implementation and consulting
capabilities would limit our ability to grow.

     If sales of new licenses increased rapidly or if we were to sign a license
agreement for a particularly large or complex implementation, our customer
support and professional services personnel may be unable to meet the demand for
implementation services. In that case, if we were unable to retain or hire
highly trained consulting personnel or establish relationships with third-party
systems-integrators and consultants to implement our products, we would be
unable to meet customer demands for implementation and educational services
related to our products.

Our failure to attract and retain skilled technical personnel in a tight labor
market may adversely affect our product development, sales and customer
satisfaction.

     Qualified technical personnel are in great demand throughout the software
industry. The demand for qualified technical personnel is particularly acute in
the Pacific Northwest, due to the large number of software companies and the low
unemployment in the region. Our success depends in large part upon our continued
ability to attract and retain highly skilled technical employees, particularly
software architects and engineers. Our failure to attract and retain the highly-
trained technical personnel that are integral to our direct sales, product
development and customer support teams may limit the rate at which we can
generate sales and develop new products or product enhancements. This could have
a material adverse effect on our business, financial condition and operating
results.

     The market price of our common stock has been volatile since our initial
public offering in July 1999. Consequently, potential employees may perceive our
equity incentives such as stock options as less attractive. In that case, our
ability to attract and retain employees will be adversely affected.

Acquisitions could disrupt our business and harm our financial condition.

     In order to remain competitive, we may find it necessary to acquire
additional businesses, products and technologies. In the event that we do
complete an acquisition, we could be required to do one or more of the
following:

     .    issue equity securities, which would dilute current shareholders'
          percentage ownership

                                 Page 19 of 25
<PAGE>

     .    assume contingent liabilities
     .    incur a one-time charge
     .    amortize goodwill and other intangible assets

     We may not be able to successfully integrate any technologies, products,
personnel or operations of companies that we acquire. These difficulties could
disrupt our ongoing business, divert management resources and increase our
expenses.

Failure to properly integrate our management team would adversely affect our
business.

     In the last year we added three new members to our senior management team,
none of whom worked together prior to joining Primus. Our success depends on the
performance of our senior management and their ability to work together. Failure
to properly integrate them would harm our business. Much of our success also
depends on Michael A. Brochu, our President and Chief Executive Officer. The
loss of Mr. Brochu's services would harm our business.

Our international operations are subject to additional risks.

     Revenues from customers outside the United States represented approximately
$7.9 million in the 9 months ended September 30, 2000, or 23.4% of our total
revenue for the same period. We currently customize our products for the
Japanese market. In the future, we plan to develop additional localized versions
of our products. Localization of our products will create additional costs and
would cause delays in new product introductions. In addition, our international
operations will continue to be subject to a number of other risks, including:

     .    costs of customizing products for foreign countries
     .    laws and business practices favoring local competition
     .    compliance with multiple, conflicting and changing laws and
          regulations
     .    longer sales cycles
     .    greater difficulty or delay in accounts receivable collection
     .    import and export restrictions and tariffs
     .    difficulties in staffing and managing foreign operations
     .    political and economic instability

     Our international operations also face foreign-currency-related risks. To
date, substantially all of our revenues have been denominated in U.S. dollars,
but we believe that in the future, an increasing portion of our revenues will be
denominated in foreign currencies, including the Euro. The Euro is an untested
currency and may be subject to economic risks that are not currently
contemplated. Fluctuations in the value of the Euro or other foreign currencies
may have a material adverse effect on our business, operating results and
financial condition.

Our failure to adapt to technology trends and evolving industry standards would
hinder our competitiveness.

     Our market is susceptible to rapid changes due to technology innovation,
evolving industry standards, and frequent new service and product introductions.
New services and products based on new technologies or new industry standards
expose us to risks of technical or product obsolescence. We will need to use
leading technologies effectively, continue to develop our technical expertise
and enhance our existing products on a timely basis to compete successfully in
this industry. We cannot be certain that we will be successful in using new
technologies effectively, developing new products or enhancing existing products
on a timely basis or that any new technologies or enhancements used by us or
offered to our customers will achieve market acceptance.

                                 Page 20 of 25
<PAGE>

Our inability to continue integration of our products with other third-party
software could adversely affect market acceptance of our products.

     Our ability to compete successfully also depends on the continued
compatibility and interoperability of our products with products and systems
sold by various third parties, including traditional CRM software sold by
Clarify, Onyx, Remedy, Siebel and Peoplesoft. Currently, these vendors have open
applications program interfaces, which facilitate our ability to integrate with
their systems. If any one of them should close their programs' interface or if
they should acquire one of our competitors, our ability to provide a close
integration of our products could become more difficult and could delay or
prevent our products' integration with future systems.

Our stock price has been volatile and could fluctuate in the future.

     The market price of our common stock has been highly volatile and is
subject to wide fluctuations. We expect our stock price to continue to
fluctuate:
     .    in response to quarterly variations in operating results
     .    in response to announcements of technological innovations or new
          products by us or our competitors
     .    because of market conditions in the enterprise software industry
     .    in reaction to changes in financial estimates by securities analysts,
          and our failure to meet or exceed the expectations of analysts or
          investors
     .    in response to our announcements of significant acquisitions,
          strategic relationships or joint ventures
     .    in response to sales of our common stock

Our efforts to protect our proprietary rights may be inadequate.

     Our success depends in part on our ability to protect our proprietary
rights. To protect our proprietary rights, we rely primarily on a combination of
copyright, trade secret and trademark laws, confidentiality agreements with
employees and third parties, and protective contractual provisions such as those
contained in license agreements with consultants, vendors and customers. We have
not signed such agreements in every case. Despite our efforts to protect our
proprietary rights, unauthorized parties may copy aspects of our products and
obtain and use information that we regard as proprietary. Other parties may
breach confidentiality agreements and other protective contracts we have entered
into. We may not become aware of, or have adequate remedies in the event of,
such breaches.

     We pursue the registration of some of our trademarks and service marks in
the United States and in certain other countries, but we have not secured
registration of all our marks. A significant portion of our marks include the
word "Primus." Other companies use "Primus" in their marks alone or in
combination with other words, and we cannot prevent all third-party uses of the
word "Primus." We license certain trademark rights to third parties. Such
licensees may not abide by compliance and quality control guidelines with
respect to such trademark rights and may take actions that would adversely
affect our trademarks.

Other companies may claim that we infringe their intellectual property or
proprietary rights.

     If any of our products violate third party proprietary rights, we may be
required to reengineer our products or seek to obtain licenses from third
parties, and such efforts may not be successful. We do not conduct comprehensive
patent searches to determine whether the technology used in our products
infringes patents held by third parties. Product development is inherently
uncertain in a rapidly evolving technological environment in which there may be
numerous patent applications pending, which are confidential when filed, with
regard to similar technologies. In addition, other companies have filed
trademark applications for marks similar to the names of our products. Although
we believe that our products do not infringe the proprietary rights of any third
parties, third parties could assert infringement claims against us in the
future. The defense of any such claims

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would require us to incur substantial costs and would divert management's
attention and resources to defend against any claims relating to proprietary
rights, which could materially and adversely affect our financial condition and
operations. Parties making such claims could secure a judgment awarding them
substantial damages, as well as injunctive or equitable relief that could
effectively block our ability to sell our products and services. Any such
outcome could have a material adverse effect on our business, financial
condition and operating results.

Control by inside shareholders of a large percentage of our voting stock may
permit them to influence us in a way that adversely affects our stock price.

     Our officers, directors and affiliated entities together beneficially own
approximately one-third of the outstanding shares of our common stock. As a
result, these shareholders are able to influence all matters requiring
shareholder approval and, thereby, our management and affairs. Some matters that
typically require shareholder approval include:

     .    election of directors
     .    certain amendments to our articles of incorporation
     .    merger or consolidation
     .    sale of all or substantially all our assets

     This concentration of ownership may delay, deter or prevent acts that would
result in a change of control, which in turn could reduce the market price of
our common stock.

Our articles of incorporation and bylaws and Washington law contain provisions
that could discourage a takeover.

     Specific provisions of our articles of incorporation and bylaws and
Washington law could make it more difficult for a third party to acquire us,
even if doing so would be beneficial to our shareholders.

     Our articles of incorporation and bylaws establish a classified board of
directors, eliminate the ability of shareholders to call special meetings,
eliminate cumulative voting for directors and establish procedures for advance
notification of shareholder proposals. The presence of a classified board and
the elimination of cumulative voting may make it more difficult for an acquirer
to replace our board of directors. Further, the elimination of cumulative voting
substantially reduces the ability of minority shareholders to obtain
representation on the board of directors.

     Our board of directors has the authority to issue up to 5,000,000 shares of
preferred stock and to determine the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further vote
or action by our shareholders. The issuance of preferred stock could have the
effect of delaying, deferring or preventing a change of control of Primus and
may adversely affect the market price of the common stock and the voting and
other rights of the holders of common stock.

     Washington law imposes restrictions on some transactions between a
corporation and significant shareholders. Chapter 23B.19 of the Washington
Business Corporation Act prohibits a target corporation, with some exceptions,
from engaging in particular significant business transactions with an acquiring
person, which is defined as a person or group of persons that beneficially owns
10% or more of the voting securities of the target corporation, for a period of
five years after the acquisition, unless the transaction or acquisition of
shares is approved by a majority of the members of the target corporation's
board of directors prior to the acquisition. Prohibited transactions include,
among other things:

     .    a merger or consolidation with, disposition of assets to, or issuance
          or redemption of stock to or from, the acquiring person
     .    termination of 5% or more of the employees of the target corporation

                                 Page 22 of 25
<PAGE>

     .    allowing the acquiring person to receive any disproportionate benefit
          as a shareholder

     A corporation may not opt out of this statute. This provision may have the
effect of delaying, deterring or preventing a change in control of Primus.

     The foregoing provisions of our charter documents and Washington law could
have the effect of making it more difficult or more expensive for a third party
to acquire, or could discourage a third party from attempting to acquire Primus.
These provisions may therefore have the effect of limiting the price that
investors might be willing to pay in the future of our common stock.

Changes in accounting standards could affect the calculation of our future
operating results.

     In October 1997, the American Institute of Certified Public Accountants
issued its Statement of Position 97-2, "Software Revenue Recognition," and later
amended its position by its Statement of Position 98-4. We adopted Statement of
Position 97-2 effective January 1, 1998. Based on our interpretation of the
AICPA's position, we believe our current revenue recognition policies and
practices are consistent with Statement of Position 97-2 and Statement of
Position 98-4. The AICPA has also issued Statement of Position 98-9, which is
effective for transactions we enter into beginning January 1, 2000 and the
Securities and Exchange Commission has issued Staff Accounting Bulletin No. 101
"Revenue Recognition," which has a deferred effective date under SAB 101B until
October 1, 2000. Implementation guidelines for these standards are evolving and
once available, such implementation guidelines could lead to unanticipated
changes in our current revenue accounting practices, which could materially
adversely affect our business, financial condition and operating results.
Additionally, the accounting standard setters, including the Securities and
Exchange Commission and the Financial Accounting Standards Board (FASB), are
continuing to review the accounting standards related to stock-based
compensation. Any changes to these standards or any other accounting standards
could materially adversely affect our business, financial condition and
operating results.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to the impact of interest rate changes and change in the market
values of our investments.

Interest Rate Risk. We are exposed to the impact of short-term changes in
interest rates. Our exposure primarily relates to our investment portfolio. We
invest our excess cash in high quality corporate and municipal debt instruments.
Investments in both fixed rate and floating rate interest earning instruments
carries a degree of interest rate risk. Fixed rate securities may have their
fair market value adversely impacted by a rise in interest rates, while floating
rate securities may produce less income than expected if interest rates fall. As
a result, changes in interest rates may cause us to suffer losses in principal
if forced to sell securities that have declined in market value or may cause our
future investment income to fall short of expectations. Our investment portfolio
is designated as available-for-sale, and accordingly is presented at fair value
in the consolidated balance sheet.

We protect and preserve our invested funds with investment policies and
procedures that limit default, market and reinvestment risk. We have not
utilized derivative financial instruments in our investment portfolio.

During the nine months ended September 30, 2000, the effects of changes in
interest rates on the fair market value of our marketable investment securities
and our earnings were insignificant. At September 30, 2000, our investment
portfolio included approximately $2.8 million in variable rate investments,
primarily all of which are due during 2000. Fixed rate investments at September
30, 2000 of approximately $15.6 million had a weighted average interest rate of
6.50% and are primarily due in 2000. We believe that the impact on the fair
market value of our securities and our earnings for the remainder of 2000 from a
hypothetical 10% increase in interest rates would be insignificant.

Foreign Currency Exchange Risk. We develop products in the United States and
sell them in North America,

                                 Page 23 of 25
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Asia and Europe. As a result, our financial results could be affected by factors
such as changes in foreign currency exchange rates or weak economic conditions
in foreign markets. Since our sales are currently priced in U.S. dollars and
translated to local currency amounts, a strengthening of the dollar could make
our products less competitive in foreign markets. We have one foreign subsidiary
whose expenses are incurred in its local currency. As exchange rates vary, its
expenses, when translated, may vary from expectations and adversely impact
overall expected profitability. Our operating results have not been
significantly affected by exchange rate fluctuations in 1999. If, in 2000, the
U.S. dollar uniformly decreases in strength by 10% relative to the currency of
our foreign sales subsidiary, our operating results for the remainder of 2000
would likely not be significantly effected.

PART II -- OTHER INFORMATION

Item 2.  Change in Securities and Use of Proceeds

(d)    Use of Proceeds


     On June 30, 1999, the SEC declared effective our Registration Statement on
Form S-1 (Registration No. 333-77477) as filed with the SEC in connection with
our Initial Public Offering. The offering consisted of 4,772,500 shares of
Primus common stock, including 622,500 shares of common stock offered pursuant
to the exercise of the underwriters' over-allotment option and 150,000 shares
offered by selling shareholders. The aggregate price of the shares offered and
sold by Primus was approximately $50.8 million. Proceeds to Primus, after
accounting for $3.6 million in underwriting discounts and commissions and
approximately $1.0 million in other expenses were $46.2 million.

     We are using the net proceeds raised in the initial public offering for
additional working capital, repayment of short-term indebtedness, and general
corporate purposes, including increased domestic and international sales and
marketing expenditures, increased research and development expenditures and
capital expenditures made in the ordinary course of business.  Pending such
uses, the net proceeds will be invested in investment-grade, interest-bearing
instruments, the majority of which are short-term.

Item 6.  Exhibits and Reports on Form 8-K

(a)    Exhibits
       10.20   Second Amendment to Joint Venture Agreement, dated July 24, 2000,
               by and between the registrant and Trans Cosmos, Inc.

       27.1    Financial Data Schedule.


SIGNATURES

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

                              PRIMUS KNOWLEDGE SOLUTIONS, INC.

Date:  November 13, 2000      By: /s/ Ronald M. Stevens
                                 ----------------------------------

                              Ronald M. Stevens
                              Chief Financial Officer,
                              Secretary and Treasurer

                              (Principal financial and chief accounting officer)

                                 Page 24 of 25
<PAGE>

INDEX TO EXHIBITS

     Exhibit No.         Description
     ----------          -----------

     10.20               Second Amendment to Joint Venture Agreement, dated July
                         24, 2000, by and between the registrant and Trans
                         Cosmos, Inc

     27.1                Financial Data Schedule.

                                 Page 25 of 25