<PAGE>   1

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

                                 --------------

                                    FORM 10-Q
(MARK ONE)

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

                  FOR THE QUARTERLY PERIOD ENDED JULY 29, 2000

                                       OR

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

                   FOR THE TRANSITION PERIOD FROM _______ TO ______

                       COMMISSION FILE NUMBER: 000-28797

                                 --------------

                                NIKU CORPORATION
             (Exact name of registrant as specified in its charter)


           DELAWARE                                       77-0473454
---------------------------------             ----------------------------------
 (State or other jurisdiction of                       (I.R.S. Employer
  incorporation or organization)                     Identification Number)


                                 305 MAIN STREET
                             REDWOOD CITY, CA 94063
                    (Address of principal executive offices)

                            TELEPHONE: (650) 298-4600
              (Registrant's telephone number, including area code)

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


                                 YES [X] NO [ ]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.


             75,943,734 SHARES OF COMMON STOCK AS OF AUGUST 31, 2000



                                       1
<PAGE>   2

                                NIKU CORPORATION
                          QUARTERLY REPORT ON FORM 10-Q
                       FOR THE PERIOD ENDED JULY 29, 2000


                                      INDEX
<TABLE>
<CAPTION>
                                                                               PAGE
                                                                               ----
<S>                                                                            <C>
PART I         FINANCIAL INFORMATION
Item 1.  Financial Statements:
               Condensed Consolidated Balance Sheets                             3
               Condensed Consolidated Statements of Operations                   4
               Condensed Consolidated Statements of Cash of Flows                5
               Notes to Condensed Consolidated Financial Statements              6
Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations                                     8

Item 3.  Quantitative and Qualitative Disclosures About Market Risk             18

PART II        OTHER INFORMATION
Item 2.  Change in Securities and Use of Proceeds                               19
Item 6.  Exhibits and Reports on Form 8-K                                       19
         Signature                                                              20
</TABLE>



                                       2
<PAGE>   3

                          PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                                NIKU CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                   JULY 31,       JANUARY 31,
                                                                     2000            2000
                                                                   ---------      ---------
<S>                                                                <C>            <C>
ASSETS

Current assets:
    Cash and cash equivalents                                      $ 122,978      $  27,650
    Short-term investments                                            91,524         16,865
    Accounts receivable, net                                          15,448          8,261
    Prepaid expenses and other current assets                          7,781          2,065
                                                                   ---------      ---------
      Total current assets                                           237,731         54,841
                                                                   ---------      ---------

Deposits and other assets                                              5,091          1,952
Property and equipment, net                                            8,347          6,048
Goodwill and other intangible assets, net                             76,031         49,684
                                                                   ---------      ---------
         Total assets                                              $ 327,200      $ 112,525
                                                                   =========      =========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
    Accounts payable                                               $   7,801      $   6,172
    Accrued liabilities                                               17,138          5,997
    Current portion of long-term obligations                           6,517          5,720
    Deferred revenue                                                   8,698          4,261
                                                                   ---------      ---------
      Total current liabilities                                       40,154         22,150

Long-term obligations                                                     --          1,725
                                                                   ---------      ---------

         Total liabilities                                            40,154         23,875
                                                                   ---------      ---------

Redeemable convertible preferred stock and warrants                       --        100,919
                                                                   ---------      ---------

Stockholders' equity (deficit)                                       287,046        (12,269)
                                                                   ---------      ---------
         Total liabilities and stockholders' equity (deficit)      $ 327,200      $ 112,525
                                                                   =========      =========
</TABLE>


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



                                       3
<PAGE>   4

                                NIKU CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)

<TABLE>
<CAPTION>
                                             THREE MONTHS ENDED            SIX MONTHS ENDED
                                                  JULY 31,                      JULY 31,
                                          -----------------------       -----------------------
                                            2000           1999           2000           1999
                                          --------       --------       --------       --------
<S>                                       <C>            <C>            <C>            <C>
Revenue:
    License                               $  9,033       $    355       $ 14,673       $    596
    Services                                 2,806            232          5,347            364
    Marketplace                                681             --          1,115             --
                                          --------       --------       --------       --------
        Total revenue                       12,520            587         21,135            960
                                          --------       --------       --------       --------
Cost of revenue:
    License                                    797             32          1,389             99
    Services                                 2,735            155          4,716            177
    Marketplace                                 --             --             10             --
                                          --------       --------       --------       --------
        Total cost of revenue                3,532            187          6,115            276
                                          --------       --------       --------       --------
Gross profit                                 8,988            400         15,020            684
                                          --------       --------       --------       --------
Operating expenses:
    Sales and marketing                     14,025          2,019         25,852          2,827
    Research and development                 7,755          2,226         14,430          3,314
    General and administrative               2,956            464          5,156            789
    Stock-based compensation                 6,757            596         15,518            909
    Amortization of goodwill
      and other intangible assets            5,517             61         10,564            122
                                          --------       --------       --------       --------
        Total operating expenses            37,010          5,366         71,520          7,961
                                          --------       --------       --------       --------
Operating loss                             (28,022)        (4,966)       (56,500)        (7,277)
Interest and other income, net               3,493            127          5,032             82
                                          --------       --------       --------       --------
Net loss                                  $(24,529)      $ (4,839)      $(51,468)      $ (7,195)
                                          ========       ========       ========       ========
Basic and diluted net loss per share      $  (0.35)      $  (0.82)      $  (0.86)      $  (1.25)
                                          ========       ========       ========       ========
Shares used in computing basic
   and diluted net loss per share           69,344          5,879         59,666          5,760
                                          ========       ========       ========       ========
</TABLE>

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



                                       4
<PAGE>   5

                                NIKU CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                  SIX MONTHS ENDED
                                                                                       JULY 31,
                                                                              -------------------------
                                                                                2000            1999
                                                                              ---------       ---------
<S>                                                                           <C>             <C>
Cash flows from operating activities:
    Net loss                                                                  $ (51,468)      $  (7,195)
    Adjustments to reconcile net loss to net cash
       used in operating activities:
        Depreciation                                                              1,199              99
        Amortization of debt discount                                               340              85
        Amortization of goodwill and other intangible assets                     10,564             124
        Stock-based compensation                                                 15,518             909
        Revenue resulting from nonmonetary exchanges for computer
          equipment, software and services                                         (245)           (424)
        Expense resulting from nonmonetary exchanges for services                    --              12
        Interest on note receivable from stockholders                              (137)             --
        Changes in operating assets and liabilities:
          Accounts receivable                                                    (7,087)         (1,825)
          Prepaid expenses and other assets                                      (5,565)           (832)
          Other assets                                                           (3,110)           (160)
          Accounts payable                                                        1,347             533
          Accrued liabilities                                                     8,357             729
          Deferred revenue                                                        4,391           1,461
                                                                              ---------       ---------
        Net cash used in operating activities                                   (25,895)         (6,484)
                                                                              ---------       ---------
Cash flows used in investing activities:
    Purchases of property and equipment                                          (3,027)           (742)
    Purchases of short-term investments, net                                    (74,715)        (20,185)
    Acquisition, net of cash received                                            (2,270)             --
                                                                              ---------       ---------
        Net cash used in investing activities                                   (80,012)        (20,927)
                                                                              ---------       ---------
Cash flows from financing activities:
    Proceeds from initial public offering of common stock, net                  202,173              --
    Issuance of common stock                                                        352              46
    Proceeds from debt obligations                                                5,892           4,200
    Proceeds from sale of preferred stock                                            --          19,847
    Repayment of debt obligations                                                (7,182)            (81)
                                                                              ---------       ---------
        Net cash provided by financing activities                               201,235          24,012
                                                                              ---------       ---------
Net increase (decrease) in cash and cash equivalents                             95,328          (3,399)
Cash and cash equivalents, beginning of period                                   27,650           5,147
                                                                              ---------       ---------
Cash and cash equivalents, end of period                                      $ 122,978       $   1,748
                                                                              =========       =========
Noncash investing and financing activities:
    Deferred revenue resulting from nonmonetary exchanges for computer
       equipment, software and services                                       $      40       $      --
                                                                              =========       =========
    Common stock issued for notes receivable                                  $   3,321       $      86
                                                                              =========       =========
    Common stock issued and stock options assumed for acquisitions            $  32,015       $      --
                                                                              =========       =========

    Deferred stock-based compensation                                         $  24,750       $   4,991
                                                                              =========       =========
    Conversion of redeemable convertible preferred stock to common stock      $(100,919)      $      --
                                                                              =========       =========

</TABLE>


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



                                       5
<PAGE>   6

                                NIKU CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

        Basis of Presentation

        The accompanying unaudited condensed consolidated financial statements
have been prepared by Niku Corporation (the Company) and reflect all adjustments
which are, in the opinion of management, necessary for a fair presentation of
the interim periods presented. Such adjustments are of a normal recurring
nature. The condensed consolidated results of operations for the interim periods
presented are not necessarily indicative of the results for any future interim
period or for the entire fiscal year. Certain information and footnote
disclosures normally included in annual consolidated financial statements
prepared in accordance with generally accepted accounting principles have been
omitted, although the Company believes that the disclosures included are
adequate to make the information presented not misleading. The unaudited
condensed consolidated financial statements and notes included herein should be
read in conjunction with the consolidated financial statements and notes for the
fiscal year ended January 29, 2000, included in the Company's 2000 Annual Report
on Form 10-K.

        The Company has a fiscal year that ends on the Saturday nearest January
31. For presentation purposes, the condensed consolidated financial statements
and notes refer to the interim periods' calendar month end.

        Use of Estimates

        The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the recorded amounts reported in the unaudited condensed
consolidated financial statements and accompanying notes. A change in the facts
and circumstances surrounding these estimates could result in a change to the
estimates and impact future operating results.

2. BUSINESS COMBINATIONS

        On May 17, 2000, the Company acquired 600 Monkeys, Inc. (600 Monkeys), a
privately-held company in Cleveland, Ohio. 600 Monkeys is a provider of Internet
solutions for advertising and public relations agencies. The acquisition was
accounted for as a purchase with 600 Monkeys' results of operations included
from the date of acquisition. The Company issued 170,000 shares of its common
stock for all of 600 Monkeys' outstanding capital stock for an aggregate
purchase price of $5.4 million, including direct acquisition related costs of
$0.4 million. Of the purchase price of the transaction, $0.8 million was
allocated to the acquired net tangible liabilities based on their estimated
fair values as of the date of the acquisition and $6.3 million was allocated to
goodwill. The goodwill is being amortized on a straight-line basis over a
three-year period.

        On July 6, 2000, the Company acquired bSource, Inc. (bSource), a
privately-held company in San Francisco, California. bSource is a provider of a
virtual marketplace for services such as web development, law and public
relations services. The acquisition was accounted for as a purchase with
bSource's results of operations included from the date of acquisition. The
Company issued 400,000 shares of its common stock for all of bSource's
outstanding capital stock and made a cash payment of $2.5 million for an
aggregate purchase price of $11.5 million, including direct acquisition related
costs of $0.3 million. Of the purchase price of the transaction, $0.1 million
was allocated to the acquired tangible assets and liabilities based on their
estimated fair values as of the date of the acquisition and $11.4 million was
allocated to goodwill. The goodwill is being amortized on a straight-line basis
over a three-year period.

        On January 31, 2000, the Company acquired Legal Anywhere, Inc. (Legal
Anywhere), a privately-held company in Portland, Oregon. Legal Anywhere provides
Internet-based "collaborative tools" to law firms and corporate legal
departments. The acquisition was accounted for as a purchase with Legal
Anywhere's results of operations included from the date of acquisition. The
Company issued 853,689 shares of its common stock for all of Legal Anywhere's
outstanding capital stock and assumed 141,282 stock options for an aggregate
purchase price of $20.6 million, including direct acquisition related costs of
$0.6 million. Of the purchase price of the transaction, $1.3 million was
allocated to the acquired tangible assets and liabilities based on their
estimated fair values as of the date of the acquisition, $14.8 million was
allocated to goodwill and $4.5 million was allocated to other intangible assets.
The goodwill and other intangible assets are being amortized on a straight-line
basis over a three-year period.



                                       6
<PAGE>   7

        On December 8, 1999, the Company acquired Proamics Corporation
(Proamics), a privately held company in Chicago, Illinois. Proamics provides
project accounting, time-and-expense and billing software. The acquisition was
accounted for as a purchase with Proamics' results of operations included from
the date of acquisition. The Company issued 3,501,938 shares of its common stock
and 6,491,203 shares of its Series D redeemable convertible preferred stock for
all of Proamics' outstanding capital stock for an aggregate purchase price of
$50.4 million, including direct acquisition related costs of $0.4 million. Of
the purchase price of the transaction, a net of $1.4 was allocated to the net
liabilities based on their estimated fair values as of the date of the
acquisition, $28.7 million was allocated to goodwill and $22.7 million was
allocated to other intangible assets. The goodwill and other intangible assets
are being amortized on a straight-line basis over a three to five-year period.


        The following summary, prepared on an unaudited pro forma basis,
combines the Company's consolidated results of operations for the three and six
months ended July 31, 2000 and 1999, with Proamics', Legal Anywhere's, 600
Monkeys' and bSource's results of operations as if each company had been
acquired as of February 1, 1999 (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED             SIX MONTHS ENDED
                                                            JULY 31,                      JULY 31,
                                                    -----------------------       -----------------------
                                                      2000           1999           2000           1999
                                                    --------       --------       --------       --------
<S>                                                 <C>            <C>            <C>            <C>
Pro forma revenue                                   $ 12,634       $  4,486       $ 21,566       $  8,048
Pro forma net loss                                  $(27,027)      $(12,611)      $(56,064)      $(22,342)
Basic and diluted pro forma net loss per share      $  (0.39)      $  (1.17)      $  (0.93)      $  (2.09)
Shares used to compute basic and diluted
  pro forma net loss per share                        69,681         10,805         60,130         10,685
</TABLE>

        The pro forma results are not necessarily indicative of what would have
occurred if the acquisitions had been in effect for the periods presented. In
addition, they are not intended to be a projection of future results.

3. STOCKHOLDERS' EQUITY (DEFICIT)

        Stock-based Compensation

        During the period from February 1, 2000 to February 21, 2000, prior to
the completion of the Company's initial public offering (IPO), the Company
recorded deferred stock-based compensation of $24.4 million related to options
to purchase 2.3 million shares of common stock granted during that period. The
deferred stock-based compensation recorded for that period represented the
difference at the date of grant between the exercise price of each stock option
granted and the assumed fair value of the underlying common stock. The deferred
stock-based compensation is being amortized on an accelerated basis over the
vesting period, generally four years.


        Initial Public Offering

        On February 28, 2000, the Company completed its IPO of 9.2 million
shares (including over-allotment option exercised by the underwriters) of its
common stock for net proceeds of approximately $202.2 million. Upon the
completion of the IPO, the Company issued approximately 48.2 million shares of
common stock for all outstanding shares of redeemable convertible preferred
stock, which were automatically converted into common stock on a one-for-one
basis.

4. COMPREHENSIVE LOSS

        The Company did not have any significant components of other
comprehensive loss for the three and six months ended July 31, 2000 and 1999.



                                       7
<PAGE>   8

5. NET LOSS PER SHARE

        Basic net loss per share is computed using the weighted-average number
of outstanding shares of common stock, excluding shares of restricted stock
subject to repurchase summarized below. Diluted net loss per share is computed
using the weighted-average number of shares of common stock outstanding and,
when dilutive, potential common shares from options and warrants to purchase
common stock and unvested restricted stock using the treasury stock method and
from convertible securities on an "as if converted" basis. The following
potential common shares have been excluded from the computation of diluted net
loss per share because the effect would have been anti-dilutive (in thousands):


<TABLE>
<CAPTION>
                                                                         JULY 31,
                                                               ---------------------------
                                                                   2000            1999
                                                               -----------      ----------
<S>                                                            <C>              <C>
Shares issuable under stock options                                  7,448           3,256
Shares of restricted stock subject to repurchase                     2,237             978

Shares issuable pursuant to warrants to purchase redeemable
    convertible preferred stock                                          -             630

Shares of redeemable convertible preferred stock on an "as if
    converted" basis                                                     -          33,130
</TABLE>


        The weighted-average exercise price of stock options was $5.12 and $0.14
as of July 31, 2000 and 1999, respectively. The weighted-average purchase price
of restricted stock subject to repurchase was $2.29 and $0.12 as of July 31,
2000 and 1999, respectively. The weighted-average exercise price of warrants was
$0.75 as of July 31, 1999. In February 2000, all outstanding shares of the
Company's redeemable convertible preferred stock were converted into common
stock upon completion of the Company's IPO.

6. SEGMENT REPORTING

        The Company operates in a single reportable segment: Internet software.
Company information reviewed by management is as follows (in thousands):


<TABLE>
<CAPTION>
                            THREE MONTHS ENDED         SIX MONTHS ENDED
                                  JULY 31,                 JULY 31,
                           --------------------      --------------------
                            2000          1999         2000         1999
                           -------      -------      -------      -------
<S>                        <C>          <C>          <C>          <C>
License                    $ 9,033      $   355      $14,673      $   596
                           -------      -------      -------      -------

Services:
        Consulting           2,096          197        4,110          324
        Maintenance            710           35        1,237           40
                           -------      -------      -------      -------
                             2,806          232        5,347          364

Marketplace                    681           --        1,115           --
                           -------      -------      -------      -------
        Total revenue      $12,520      $   587      $21,135      $   960
                           =======      =======      =======      =======
</TABLE>


7. SUBSEQUENT EVENTS

        Acquisitions

        On August 4, 2000, the Company acquired ABT Corporation (ABT), a
privately-held company, providing enterprise project management solutions for
information technology organizations. This transaction will be accounted for as
a purchase. The total consideration for this acquisition is approximately 4
million shares of the Company's common stock valued at approximately $100.0
million and $10 million in cash payments to the former shareholders of ABT. In
addition, the Company will issue additional shares of common stock and/or stock
options to former employees of ABT.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

        The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the condensed
consolidated financial statements and related notes contained herein and the
information contained in our annual report on Form 10-K for the year ended
January 29, 2000. This discussion contains forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the


                                       8
<PAGE>   9

 Exchange Act. We may identify these statements by the use of words such as
"believe", "expect", "anticipate", "intend", "plan" and similar expressions.
These forward-looking statements involve several risks and uncertainties. Our
actual results may differ materially from those set forth in these
forward-looking statements as a result of a number of factors, including those
described under the caption "Factors That May Affect Future Results" herein and
elsewhere in our annual report for the year ended January 29, 2000. These
forward-looking statements speak only as of the date of this quarterly report,
we do not plan or undertake a duty to update them and we caution you not to rely
on these statements without also considering the risks and uncertainties
associated with these statements and our business as addressed elsewhere in this
quarterly report and in our Form 10-K for the fiscal year ended January 29,
2000.

OVERVIEW

        Niku Corporation provides Internet software products and an online
marketplace for the sourcing, management and delivery of professional services.
Niku's Internet software products are designed to automate the core business
processes of professional services organizations, professional services
providers within enterprises and small businesses, and individual professionals.

RECENT EVENTS

        Acquisition of ABT

        On August 4, 2000, we acquired ABT Corporation, or ABT, a privately-held
company, providing enterprise project management solutions for information
technology organizations. This transaction will be accounted for as a purchase.
The total consideration for this acquisition is approximately 4 million shares
of the Company's common stock valued at approximately $100.0 million and $10
million in cash payments to the former shareholders of ABT. In addition, the
Company will issue additional shares of common stock and/or stock options to
former employees of ABT.

RESULTS OF OPERATIONS

        Three and Six Months Ended July 31, 2000 and 1999

        License. License revenue consists of license sales of our Internet
software products and other software products. License revenue in the fiscal
quarter ended July 31, 2000 was $9.0 million compared to $0.4 million in the
fiscal quarter ended July 31, 1999. License revenue in the six months ended July
31, 2000 was $14.7 million compared to $0.6 million in the six months ended July
31, 1999. Our increase was a result of an increase in sales to new customers due
to increased headcount in our sales force and expanded marketing efforts.
License revenue has been derived primarily from the sale of our eNiku product.
The percentage of our total revenue attributable to license revenue grew from
61% in the second quarter of fiscal 2000 to 72% in the second quarter of fiscal
2001. The percentage of our total revenue attributable to license revenue for
the six months ended July 31, 2000 increased to 69% from 62% for the comparable
period in fiscal 2000.

        Services. Services revenue consists of revenue from maintenance and
support contracts and the delivery of implementation consulting services.
Services revenue in the fiscal quarter ended July 31, 2000 was $2.8 million
compared to $0.2 million in the fiscal quarter ended July 31, 1999. Services
revenue in the first half of fiscal 2001 was $5.3 million compared to $0.4
million in the first half of fiscal 2000. These increases resulted primarily
from increased customer implementations and maintenance and support
arrangements. There are currently 55 Niku customers with live sites. The
percentage of our total revenue attributable to services revenue decreased from
40% in second quarter of fiscal 2000 to 22% in the second quarter of fiscal
2001. The percentage of our total revenue attributable to services revenue for
the six months ended July 31, 2000 decreased to 25% from 38% for the comparable
period in fiscal 2000.

        Marketplace. Marketplace revenue consists of revenue from a variety of
transactions, which include, but are not limited to, Niku Services Marketplace
projects, subscriptions and sponsorship arrangements, such as advertising and
affiliations. Marketplace revenue for the fiscal quarter ended July 31, 2000
increased to $0.7 million from no revenue in the fiscal quarter ended July 31,
1999. Marketplace revenue for the first half of fiscal 2001 increased to $1.1
million from no revenue in the first half of fiscal 2000. Marketplace revenue
for the fiscal quarter and six months ended July 31, 2000 was primarily from
sponsorship arrangements and xNiku subscriptions. The percentage of our total
revenue attributable to marketplace revenue in the fiscal quarter and six months
ended July 31, 2000 was 5% for both periods.

        Cost of Revenue. Cost of revenue includes the costs of our license and
services revenue. Cost of license revenue includes royalties due to third
parties, product packaging, documentation and shipping costs. Cost of service
revenue includes salaries and related expenses for our post-contract customer
support and implementation



                                       9
<PAGE>   10


consulting services and the costs of third parties contracted to provide
consulting services to our customers. Cost of revenue as a percentage of total
revenue was 28% in the second quarter of fiscal 2001 compared to 32% in the
second quarter of fiscal 2000, and increased in absolute dollars to $3.5 million
in the second quarter of fiscal 2001 from $0.2 million in the second quarter of
fiscal 2000. Cost of revenue as a percentage of total revenue was 29% in the
first half of fiscal 2001 consistent with 29% in the first half of fiscal 2000,
and increased in absolute dollars to $6.1 million in the first half of fiscal
2001 from $0.3 million in the first half of fiscal 2000. The increases in cost
of revenue in absolute dollars primarily resulted from an increase in the
service revenue derived from the delivery of implementation consulting services
and post-contract customer support in the second quarter and first half of
fiscal 2001. We anticipate that the cost of revenue will increase in absolute
dollars as a result of an increase in royalties paid to third parties and an
increase in personnel and personnel related costs, such as salaries, and
travel-related costs to support our implementation consulting services and the
costs to support our marketplace, such as hosting costs.

        Gross Profit. Gross profit increased in absolute dollars to $9.0 million
in the second quarter of fiscal 2001 from $0.4 million in the second quarter of
fiscal 2000. Gross profit increased in absolute dollars to $15.0 million in the
first half of fiscal 2001 from $0.7 million in the first half of fiscal 2000.
Gross profit as a percentage of total revenues was 72% for the second quarter of
fiscal 2001 compared to 68% for the second quarter of fiscal 2000. Gross profit
as a percentage of total revenues was 71% for the first half of fiscal 2001 and
fiscal 2000. This increases in gross profit in absolute dollars is primarily
attributable to the increase in revenue due to increased license sales of our
Internet software products and other software products. The increase in gross
profit percentage during the second quarter of fiscal 2001 compared to the
second quarter of fiscal 2000 is primarily attributable to license sales of our
Internet software products with an increase in average price per seat offset by
third party royalties and the salaries and related expenses for our
implementation consulting services.

        Sales and Marketing. Sales and marketing expenses as a percentage of
total revenue decreased to 112% in the second quarter of fiscal 2001 from 344%
in the second quarter of fiscal 2000, and increased in absolute dollars to $14.0
million in the second quarter of fiscal 2001 from $2.0 million in the second
quarter of fiscal 2000. Sales and marketing expenses as a percentage of total
revenue decreased to 122% in the first half of fiscal 2001 from 295% in the
first half of fiscal 2000, and increased in absolute dollars to $25.9 million in
the first half of fiscal 2001 from $2.8 million in the first half of fiscal
2000. The increase in sales and marketing expenses in absolute dollars was
attributable to an increase in personnel and personnel-related costs, such as
salaries and commissions, travel-related costs and additional spending in
advertising and trade shows. Additional costs incurred during the current
quarter included a marketing campaign for version 4.0 of our eNiku product and a
global sales training seminar. We anticipate that the sales and marketing
expenses will increase in absolute dollars as we continue to expand our domestic
and international sales and marketing efforts and offer our training program on
a quarterly basis.

        Research and Development. Research and development expenses as a
percentage of total revenue decreased to 62% in the second quarter of fiscal
2001 from 379% in the second quarter of fiscal 2000, and increased in absolute
dollars to $7.8 million in the second quarter of fiscal 2001 from $2.2 million
in the second quarter of fiscal 2000. Research and development expenses as a
percentage of total revenue decreased to 68% in the first half of fiscal 2001
from 345% in the first half of fiscal 2000, and increased in absolute dollars to
$14.4 million in the first half of fiscal 2001 from $3.3 million in the first
half of fiscal 2000. The increase in absolute dollars was primarily attributable
to increases in personnel and personnel-related costs associated with the
development of our products. In the first half of fiscal 2001, we released two
versions of our eNiku products. We anticipate that research and development
expense will increase in absolute dollars as we support our internal product
development efforts and the integration of acquired companies' technologies.

        General and Administrative. General and administrative expenses as a
percentage of total revenue decreased to 24% in the second quarter of fiscal
2001 from 79% in the second quarter of fiscal 2000, and increased in absolute
dollars to $3.0 million in the second quarter of fiscal 2001 from $0.5 million
in the second quarter of fiscal 2000. General and administrative expenses as a
percentage of total revenue decreased to 24% in the first half of fiscal 2001
from 82% in the first half of fiscal 2000, and increased in absolute dollars to
$5.2 million in the first half of fiscal 2001 from $0.8 million in the first
half of fiscal 2000. The increase in absolute dollars was attributable to an
increase in general and administrative personnel and personnel related costs,
such as salaries, and an increase in administrative and professional services
fees. We anticipate that general and administrative expenses will continue to
increase in absolute dollars as we add personnel to support the expansion of our
operations and incur additional expenses related to the anticipated growth of
our business.

        We expect operating expenses to increase due to the addition of
approximately 350 employees hired in connection with the ABT acquisition which
closed on August 4, 2000.



                                       10
<PAGE>   11

        Stock-based Compensation. Stock-based compensation expense increased to
$6.8 million in the second quarter of fiscal 2001 from $0.6 million in the
second quarter of fiscal 2000. Stock-based compensation expense increased to
$15.5 million in the first half of fiscal 2001 from $0.9 million in the first
half of fiscal 2000. The increases were primarily attributable to an increase in
the amortization of deferred stock compensation with respect to stock options
granted and restricted stock sold from January 31, 1998 to February 28, 2000.
The amortization of deferred stock-based compensation, combined with the expense
associated with options granted to non-employees, related to the following items
in the condensed consolidated statements of operations (in thousands):

<TABLE>
<CAPTION>
                                 THREE MONTHS ENDED         SIX MONTHS ENDED
                                      JULY 31,                   JULY 31,
                                --------------------      --------------------
                                  2000        1999          2000        1999
                                -------      -------      -------      -------
<S>                             <C>          <C>          <C>          <C>
Cost of revenue                 $   148      $    12      $   229      $    26

Sales and marketing               3,812          292        9,879          409

Research and development          1,238          222        2,593          358

General and administrative        1,559           70        2,817          116
                                -------      -------      -------      -------
   Total                        $ 6,757      $   596      $15,518      $   909
                                =======      =======      =======      =======
</TABLE>


        Amortization of the July 31, 2000 balance of deferred stock-based
compensation for the remaining half of fiscal 2001 and fiscal years 2002,
2003 and 2004 is estimated to be approximately $11.0 million, $10.5 million,
$4.4 million and $1.1 million. In addition, we may record additional stock-based
compensation as a result of the acquisition of ABT in August 2000.

        Amortization of Goodwill and Other Intangible Assets. Amortization of
goodwill and other intangible assets increased to $5.5 million in the second
quarter of fiscal 2001 from $61,000 in the second quarter of fiscal 2000.
Amortization of goodwill and other intangible assets increased to $10.6 million
in the first half of fiscal 2001 from $0.1 million in the first half of fiscal
2000. The increases were primarily attributable to amortization of goodwill and
other intangible assets resulting from the acquisitions of Proamics in December
1999, Legal Anywhere is January 2000, 600 Monkeys in May 2000, and bSource in
July 2000. We expect that amortization of goodwill and other intangible assets
will increase in future periods as a result of the acquisition of ABT in August
2000.

        Interest and Other Income, Net. Interest and other income, net consists
of interest income, interest expense and other non-operating expenses. The net
increase was primarily attributable to higher average invested cash and
short-term investment balances, which yielded more interest income in the second
quarter and first half of fiscal 2001, compared to the second quarter and first
half of fiscal 2000.

LIQUIDITY AND CAPITAL RESOURCES

        Since inception, we have financed our operations through private sales
of capital stock, with net proceeds of $68.0 million through January 31, 2000,
through our initial public offering of common stock in February 2000, with net
proceeds of $202.2 million, and from bank loans and equipment leases. As of July
29, 2000, we had cash, cash equivalents and short-term investments of $214.5
million and $197.6 million in working capital.

        Net cash used in operating activities was $25.9 million in the first
half of fiscal 2001 resulting from our net loss and increases in accounts
receivable and prepaid expenses and other assets, offset by increases in
deferred revenue and accrued liabilities. The increase in deferred revenue was
due to increases in enterprise maintenance contracts and from a $3.0 million
payment received from a reseller for which revenue has not yet been recognized.
Net cash used in investing activities was $80.0 million for the first half of
fiscal 2001 reflecting purchases of short-term investments and property and
equipment. Net cash from financing activities was $201.2 million reflecting
proceeds from our initial public offering and proceeds from debt obligations
offset in part by repayments of debt obligations.

        In September 1999, we entered into a loan and security agreement with a
financial institution providing a line of credit of up to $4.0 million. In July
2000, this line of credit was increased to $10.0 million. As of July 29, 2000,
we had borrowed $6.0 million under the line of credit and $4.0 million was
available for borrowing. We recently entered into a lease financing arrangement
providing a lease line of credit of up to $4.6 million of which approximately
$2.8 million remains available for borrowing.

        We expect to experience significant growth in our operating expenses,
particularly research and development and sales and marketing expenses, for the
foreseeable future in order to execute our business plan. As a result, we
anticipate that operating expenses, as well as planned capital expenditures,
will constitute a material use of our cash resources. In addition, we may
utilize cash resources to fund acquisitions or investments in complementary
businesses, technologies or product lines. We believe that cash from operations



                                       11
<PAGE>   12

and existing cash will be sufficient to meet our working capital and expense
requirements for at least the next twelve months.

RECENT ACCOUNTING PRONOUNCEMENTS

        In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards, or SFAS, No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. For a derivative not designated as a hedging instrument, changes
in the fair value of the derivative are recognized in earnings in the period of
change. The Company is required to adopt SFAS No. 133 effective February 1,
2001. Management does not believe the adoption of SFAS No. 133 will have a
material effect on the Company's consolidated financial position or results of
operations.

        In December 1999, the Securities and Exchange Commission, or SEC, issued
Staff Accounting Bulletin No. 101, or SAB 101, Revenue Recognition in Financial
Statements, as amended by SAB 101A and SAB 101B, which provides guidance on the
recognition, presentation, and disclosure of revenue in financial statements
filed with the SEC. SAB 101 outlines the basic criteria that must be met to
recognize revenue and provides guidance for disclosure related to revenue
recognition policies. In June 2000, the SEC issued SAB 101B that delayed the
implementation of SAB 101. The Company must adopt SAB 101 no later than the
fourth quarter of fiscal 2001. The SEC has recently indicated it intends to
issue further guidance with respect to the adoption of specific issues addressed
by SAB 101. Until such time as this additional guidance is issued, the Company
is unable to assess the impact, if any, SAB 101 may have on its consolidated
financial position or results of operations.

        In March 2000, the Emerging Issues Task Force, or EITF, published their
consensus on EITF Issue No. 00-2, Accounting for Web Site Development Costs,
which requires that costs incurred during the development of web site
applications and infrastructure, involving developing software to operate the
web site, including graphics that affect the "look and feel" of the web page and
all costs relating to software used to operate a web site should be accounted
for under Statement of Position 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. However, if a plan exists or is
being developed to market the software externally, the costs relating to the
software should be accounted for pursuant to FASB Statement No. 86, Accounting
for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed.
The Company will be required to adopt EITF Issue No. 00-2 in its first fiscal
quarter beginning after June 30, 2000. The Company is in the process of
assessing any impact that the adoption of EITF Issue No. 00-2 will have on its
consolidated financial position or results of operations.

        In March 2000, the EITF published their consensus on EITF Issue No.
00-3, Application of AICPA Statement of Position 97-2, Software Revenue
Recognition, to Arrangements That Include the Right to Use Software Stored on
Another Entity's Hardware. EITF Issue No. 00-3 states that a software element
covered by SOP 97-2 is only present in a hosting arrangement if the customer has
the contractual right to take possession of the software at any time during the
hosting period without significant penalty and it is feasible for the customer
to either run the software on its own hardware or contract with another party
unrelated to the vendor to host the software. The Company will be required to
adopt EITF Issue No. 00-2 in its first fiscal quarter beginning after June 30,
2000. Management does not believe the adoption of EITF Issue No. 00-3 will have
a material effect on the Company's consolidated financial position or results of
operations.

        In March 2000, the FASB issued FASB Interpretation No. 44, or FIN 44, an
interpretation of Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees. FIN 44 addresses inconsistencies in accounting for
stock-based compensation that arise from implementation of APB Opinion No. 25.
The Company does not anticipate that the adoption of FIN 44 will have a material
effect on the Company's consolidated financial position or results of
operations. The Company adopted FIN 44 effective July 1, 2000.

                                       12
<PAGE>   13

FACTORS THAT MAY AFFECT FUTURE RESULTS

        The occurrence of any of the following risks could materially and
adversely affect our business, financial condition and operating results. In
this case, the trading price of our common stock could decline and you might
lose all or part of your investment.

WE HAVE INCURRED LOSSES DURING OUR OPERATING HISTORY AND WE EXPECT TO INCUR
FUTURE LOSSES FOR THE FORESEEABLE FUTURE

        We have experienced operating losses in each quarterly and annual period
since we were formed and we expect to incur significant losses in the future. As
of July 29, 2000, we had an accumulated deficit of $91.0 million. We expect to
significantly increase our research and development, sales and marketing, and
general and administrative expenses, in part as a result of our recent
acquisitions. In addition, as a result of our acquisitions we will record
non-cash charges for the amortization of goodwill and other intangible assets as
these assets are amortized over the next three to five years. Further, we will
incur substantial stock-based compensation expense in future periods, which
represents non-cash charges incurred as a result of the issuance of stock and
stock options prior to our initial public offering on February 28, 2000. As a
result of these factors, we will need to significantly increase our revenue to
achieve and maintain profitability. We may not be able to sustain our recent
revenue growth rates. In fact, we may not have any revenue growth, and our
revenue could decline. Our failure to significantly increase our revenue would
seriously harm our business and operating results. Due to these and other
factors, we believe that period-to-period comparisons of our results of
operations are not meaningful and should not be relied upon as indicators of our
future performance. It is possible that in some future periods, our results of
operations may be below the expectations of investors. If this occurs, the price
of our common stock will decline.

OUR PRODUCTS HAVE A LONG SALES CYCLE, WHICH MAKES IT DIFFICULT TO PREDICT OUR
QUARTERLY RESULTS, AND MAY CAUSE OPERATING RESULTS TO VARY SIGNIFICANTLY

        The sales cycle for our products is long, typically from three to six
months, making it difficult to predict the quarter in which we may recognize
revenue from a sale, if at all. Our products often are part of a significant
strategic decision by our customers regarding their information systems.
Accordingly, the decision to license our products typically requires significant
pre-purchase evaluation. We spend substantial time educating and providing
information to prospective customers regarding the use and benefits of our
products. During this evaluation period, we may expend significant funds in
sales and marketing efforts. Our lengthy sales cycle may cause license revenue
and operating results to vary significantly from period to period. If
anticipated sales from a specific customer for a particular quarter are not
realized in that quarter, our operating results may vary significantly.

IF WE FAIL TO EXPAND OUR DIRECT AND INDIRECT SALES CHANNELS, OUR ABILITY TO
INCREASE REVENUE WILL BE LIMITED

        In order to grow our business, we need to increase market awareness and
sales of our products and services. To achieve this goal, we need to increase
both our direct and indirect sales channels. Our failure to do so could harm our
ability to increase revenue. We currently receive substantially all of our
revenue from direct sales, but intend to increase sales through indirect sales
channels in the future. We need to expand our direct sales force by hiring
additional salespersons and sales management. We are seeking to hire more of
these types of personnel in the current fiscal year. There is strong competition
for qualified sales personnel in our business, and we may not be able to attract
and retain sufficient new sales personnel to expand our operations. We intend to
derive some of our revenue from our indirect sales channels, which involves
selling our software through value added resellers and other third parties.
These resellers offer our software products to their customers together with
consulting and implementation services or integrate our software solutions with
other software. We also intend to offer our Internet software through
application service providers, who install our software on their own computer
servers and charge their customers for access to our software. We are seeking to
expand our indirect sales channel to involve more relationships with third
parties in the current fiscal year and we may not be able to do so successfully.

TO DATE, CUSTOMERS HAVE NOT DEPLOYED OUR PRODUCTS ON A LARGE-SCALE AND WE MAY
EXPERIENCE CUSTOMER DISSATISFACTION AND LOST SALES IF OUR PRODUCTS DO NOT
ACCOMMODATE LARGE-SCALE DEPLOYMENTS

    Our software must be able to accommodate substantial increases in the number
of people using our products. Our products have not been tested in the context
of large-scale customer implementations. If our customers cannot successfully
implement large-scale deployments, or if they determine that our products cannot
accommodate large-scale deployments, we could lose some or all of our existing
customers and be unable to obtain new customers.

IMPLEMENTATION OF OUR PRODUCTS BY LARGE CUSTOMERS MAY BE COMPLEX AND CUSTOMERS
COULD BECOME DISSATISFIED IF IMPLEMENTATION OF OUR PRODUCTS PROVES DIFFICULT,
COSTLY OR TIME-CONSUMING



                                       13
<PAGE>   14

        Our products must integrate with many existing computer systems and
software programs used by our customers. Integrating with many other computer
systems and software programs can be complex, time-consuming and expensive and
cause delays in the deployment of our products. Because we are one of the first
companies to offer products designed for professional services automation, many
customers will be facing these integration issues for the first time in the
context of professional services automation software. Customers could become
dissatisfied with our products if implementations prove to be difficult, costly
or time-consuming.

WE EXPECT TO DEPEND ON LICENSES OF OUR ENIKU INTERNET SOFTWARE PRODUCT AND OTHER
SOFTWARE PRODUCTS FOR SUBSTANTIALLY ALL OF OUR REVENUE FOR THE FORESEEABLE
FUTURE

        We anticipate that revenue from the license of our Internet and other
software products and related services revenue, as opposed to marketplace
revenue, will continue to constitute the vast majority of our revenue for the
foreseeable future. Consequently, a decline in the price of or demand for these
products and related services, or their failure to achieve broader market
acceptance, would seriously harm our business.

WE HAVE SOLD AND CONTINUE TO SELL OUR PRODUCTS TO COMPANIES AS PART OF BROADER
BUSINESS RELATIONSHIPS AND REVENUE FROM THESE CONTRACTS MAY NOT BE INDICATIVE OF
FUTURE REVENUE

        We have licensed our products to companies from whom we have purchased
products and services under separate arrangements. In these relationships, we
typically license our Internet software to a company and that company licenses
us software that it markets. These software licenses are typically
non-exclusive, have a perpetual term and may only be terminated if the terms of
the license are violated. Members of our Niku Partners Network typically license
our software in return for a fee. In addition, we typically pay a fee to these
companies to provide implementation services to our customers or to provide
development services for us. Our agreements with Niku Partner Network members
typically have a term of two years and may be terminated sooner if there is a
breach of the agreement. It may be more difficult to sell our products and
services to potential customers if we do not also agree to use the software
products or services that a potential customer provides. We cannot assure you
that we will be successful in licensing our products to customers without having
to enter into broader relationships with them.


THE MARKET FOR OUR PRODUCTS AND SERVICES IS NEWLY EMERGING AND CUSTOMERS MAY NOT
ACCEPT OUR PRODUCTS AND SERVICES

        The market for professional services automation software products and
services is newly emerging. Services businesses have not traditionally automated
the management of their business processes. We cannot be certain that this
market will continue to develop and grow or that companies will elect to utilize
our products and services rather than attempt to develop applications internally
or through other sources. In addition, the use of the Internet, as well as
corporate intranets and extranets, has not been widely adopted for professional
services automation. Companies that have already invested substantial resources
in other methods may be reluctant to adopt a new approach that may replace,
limit or compete with their existing systems or methods. We expect that we will
need to continue intensive marketing and sales efforts to educate prospective
customers about the uses and benefits of our products and services. Therefore,
demand for and market acceptance of our products and services will be subject to
a high level of uncertainty.

DEFECTS IN OUR PRODUCTS OR SERVICES COULD RESULT IN LOSS OF OR DELAY IN REVENUE,
LOSS OF MARKET SHARE, FAILURE TO ACHIEVE MARKET ACCEPTANCE OR INCREASED COSTS

        Products and services as complex as those we offer or develop frequently
contain undetected defects or errors. Despite internal testing and testing by
our customers or potential customers, defects or errors may occur in our
existing or future products and services, including Year 2000 errors. For
example, from time to time in the past, versions of our software that have been
delivered to customers have contained errors. In these instances, we have
substantially resolved the material errors. In the future, if we are not able to
detect and correct errors prior to release, we may experience a loss of or delay
in revenue, loss of market share, failure to achieve market acceptance or
increased costs to remediate errors, any of which could significantly harm our
business. Defects or errors could also result in tort or warranty claims.
Although we attempt to reduce the risk of losses resulting from any claims by
seeking warranty disclaimers and liability limitation clauses in our customer
agreements, such contractual provisions may not, in any event, be enforceable in
every instance. Furthermore, although we maintain errors and omissions
insurance, this insurance coverage may not adequately cover us for claims. If a
court refused to enforce the liability-limiting provisions of our contracts for
any reason, or if liabilities arose that were not contractually limited or
adequately covered by insurance, our business could be harmed.



                                       14
<PAGE>   15

IF WE CANNOT BUILD A CRITICAL MASS OF BUYERS AND SELLERS FOR OUR NIKU SERVICES
MARKETPLACE, THE MARKETPLACE WILL NOT BE SUCCESSFUL

        The success of the Niku Services Marketplace depends in large part on
our ability to build a critical mass of buyers and sellers of services for our
Niku Services Marketplace. To attract sellers of services, we must build a
critical mass of buyers interested in obtaining services. However, buyers must
perceive value in the Niku Services Marketplace, which, in part, depends upon
the breadth of the offerings from sellers of services. If we are unable to
increase the number of buyers and sellers of services, the Niku Services
Marketplace will not be successful.

WE HAVE FOCUSED ON THE IT CONSULTING INDUSTRY AND OUR EFFORTS TO EXPAND SALES OF
OUR PRODUCTS AND SERVICES TO OTHER SERVICE INDUSTRIES MAY NOT SUCCEED

        To date, our products and services have been targeted for the
information technology, or IT, consulting industry and our primary product has
been eNiku for IT Consulting. However, we have developed and marketed and intend
to continue to develop and market our products and services in other
professional services industries. For example, with our acquisition of Legal
Anywhere in early fiscal 2001, we began to offer products to the legal
profession. With our acquisition of 600 Monkeys we began to offer products to
the advertising and public relations professions. Businesses may be less likely
to use our products and services outside of the IT consulting industry. Even if
they do, we may need to develop additional expertise or industry-specific
knowledge, which we may not be able to do in a timely manner. Therefore, we may
not succeed in marketing our products and services for use outside of the IT
consulting industry. We may experience difficulties that could delay or prevent
the successful development, introduction or marketing of new or enhanced
products and services for new professional services industries in the future. In
addition, those products and services may not meet the requirements of the
marketplace in these new markets and may not achieve market acceptance.

SYSTEM FAILURE MAY CAUSE INTERRUPTION OF OUR SERVICES

        The performance of our website servers and networking hardware and
software infrastructure is critical to iNiku, our hosted professional services
automation software and our ability to provide high quality customer service.
Currently, our infrastructure and systems for iNiku, our hosted applications and
our corporate website are located at one site maintained by USi. The hosting
site is in an area susceptible to earthquakes. We depend on this single-site
infrastructure and any disruption to this infrastructure resulting from a
natural disaster or other event could result in an interruption in our services.
Our systems and operations are vulnerable to damage or interruption from human
error, natural disasters, power loss, telecommunications failures, break-ins,
sabotage, computer viruses, intentional acts of vandalism and similar events. We
do not have a formal disaster recovery plan or alternative provider of hosting
services. In addition, we do not carry sufficient business interruption
insurance to compensate us for losses that could occur. In the past we have
experienced temporary outages with respect to our iNiku website. These outages
were due to temporary malfunctions of our website servers. To date, these
outages have resulted in our iNiku website being temporarily unavailable to
users for periods of several minutes to several hours. Any system failure that
causes an interruption in service or a decrease in responsiveness of our
Internet-based services, if sustained or repeated, could harm our reputation and
the attractiveness of our brand name.

WE DEPEND ON DISTRIBUTION, MARKETING AND TECHNOLOGY RELATIONSHIPS AND IF OUR
CURRENT AND FUTURE RELATIONSHIPS ARE NOT SUCCESSFUL, OUR BUSINESS MAY BE HARMED

        We rely on distribution, marketing and technology relationships with a
variety of companies. These distribution, marketing and technology relationships
include relationships with:

        -    the Niku Partners Network of consulting firms;

        -    operators of high traffic websites; and

        -    vendors of e-commerce and Internet software, such as Allaire,
             Fulcrum, Microsoft, Oracle and Seagate Software, whose products or
             technologies we incorporate into or integrate with our products,
             such as development tools, databases and search engines.

        We depend on these companies to promote our products, provide our direct
sales force with customer leads, attract users to iNiku and the Niku Services
Marketplace, integrate and implement our products with those of customers or
provide enhanced functionality to our products. Some of these relationships are
not documented in writing, or are governed by agreements that can be terminated
by either party with little or no prior notice or do not provide for minimum
payments to us. Our Internet marketing relationships also require us to make
significant cash payments. Companies with which we have a distribution,
marketing or technology relationship may promote products or services of several
different companies, including, in some cases, products or services that compete
with ours. These companies may not devote adequate resources to selling or



                                       15
<PAGE>   16

promoting our products and services. We may not be able to maintain these
relationships or enter into additional relationships in the future.

BECAUSE WE HAVE EXPANDED OUR OPERATIONS, OUR SUCCESS WILL DEPEND ON OUR ABILITY
TO MANAGE OUR EXPECTED GROWTH, IMPROVE OUR EXISTING SYSTEMS AND IMPLEMENT NEW
SYSTEMS, PROCEDURES AND CONTROLS

        We have rapidly and significantly expanded our operations and expect to
continue to expand our operations. This growth has placed, and is expected to
continue to place, a significant strain on our managerial, operational,
financial and other resources. We are seeking to hire a substantial number of
new employees in the current fiscal year. Our ability to compete effectively and
to manage future expansion of our operations, if any, will require us to
continue to improve our financial and management controls, reporting systems and
procedures on a timely basis. We expect to hire additional new employees to
support our business and to implement and integrate new accounting and control
systems. We may not be able to manage our growth efficiently.

ACQUISITIONS MAY PRESENT RISKS TO OUR BUSINESS

        Future acquisitions could create risks for us, including:

        -    amortization of expenses related to goodwill and other intangible
             assets;

        -    difficulties in assimilating the acquired personnel, operations,
             technologies or products;

        -    our ability to effectively market and sell our products to the
             acquired company's customers;

        -    unanticipated costs associated with the acquisitions;

        -    the need to manage geographically-dispersed operations;

        -    diversion of management's attention from other business concerns;

        -    the inability to retain the acquired employees; and

        -    adverse effects on our or the acquired company's existing business
             relationships.

        If we experience difficulties in assimilating acquired businesses,
products or technologies, our ongoing business could be disrupted, our
management and employees could be distracted and we could incur increased
expenses. Furthermore, we may issue equity securities to pay for any future
acquisitions, which could be dilutive to our existing stockholders. We may also
incur debt or assume unknown liabilities in connection with acquisitions.

OUR INCREASED INTERNATIONAL ACTIVITIES MAY NOT RESULT IN INCREASED REVENUE

        During the past 12 months, we have expanded our operations into Canada,
the United Kingdom, France, The Netherlands, Sweden, Germany and Australia. In
the future, we intend to expand our operations into other areas, particularly in
the Asia-Pacific region. We believe we must expand the sales of our products and
services outside the United States and hire additional international personnel.
In connection with this expansion, we also will need to develop
internationalized versions of our products. Therefore, we expect to commit
significant resources to expand our international sales, marketing and
development. We may not be successful in marketing our products and services to
customers in markets outside the United States, where adoption of the Internet
and electronic commerce and of our software may evolve slowly or may not evolve
at all.

INCREASED INTERNATIONAL ACTIVITIES WILL EXPOSE US TO ADDITIONAL OPERATIONAL
CHALLENGES THAT WE MIGHT NOT OTHERWISE FACE

        If we succeed in increasing our international activities, we will be
exposed to additional operational challenges that we would not otherwise face if
we conducted our operations only in the United States. These include:

        -    currency exchange rate fluctuations, particularly if we sell our
             products in denominations other than U.S. dollars;

        -    seasonal fluctuations in purchasing patterns in other countries,
             particularly declining sales during summer months in European
             markets;

        -    tariffs, export controls and other trade barriers;

        -    difficulties in collecting accounts receivable in foreign
             countries;

        -    the burdens of complying with a wide variety of foreign laws;



                                       16
<PAGE>   17

        -    reduced protection for intellectual property rights in some
             countries, particularly in Asia; and

        -    the need to develop internationalized versions of our products.


PROVISIONS OF DELAWARE LAW, OUR CERTIFICATE OF INCORPORATION AND BYLAWS COULD
DELAY OR PREVENT A TAKEOVER OF US, EVEN IF DOING SO WOULD BENEFIT OUR
STOCKHOLDERS

        Provisions of Delaware law, our certificate of incorporation and bylaws
could have the effect of delaying or preventing a third party from acquiring us,
even if a change in control would be beneficial to our stockholders. These
provisions include:

        -    authorizing the issuance of preferred stock without stockholder
             approval;

        -    providing for a classified board of directors with staggered, three
             year terms;

        -    prohibiting cumulative voting in the election of directors;

        -    requiring two-thirds of the outstanding shares to approve
             amendments to some provisions of our certificate of incorporation
             and bylaws;

        -    requiring a majority of the stockholders to call stockholders
             meetings; and

        -    prohibiting stockholder actions by written consent.


THE SUCCESS OF OUR BUSINESS DEPENDS ON THE ADOPTION OF THE INTERNET FOR
ELECTRONIC COMMERCE AND COMMUNICATIONS

        Our business is, for the most part, based on providing software for the
sourcing, management and delivery of professional services using the Internet.
Therefore, in order for our business to be successful, the Internet must be
widely adopted, in a timely manner, as a means of electronic commerce and
communication relating to professional services. Because electronic commerce and
communication over the Internet are new and evolving, it is difficult to predict
the size of this market and its sustainable growth rate. To date, many
businesses and consumers have been deterred from utilizing the Internet for a
number of reasons, including, but not limited to:

        -    potentially inadequate development of network infrastructure;

        -    security concerns, including the potential for fraud or theft of
             stored data and information communicated over the Internet;

        -    inconsistent quality of service, including well-publicized down
             times for popular websites;

        -    lack of availability of cost-effective, high-speed service;

        -    limited numbers of local access points for corporate users;

        -    delay in the development of enabling technologies or adoption of
             new standards;

        -    inability to integrate business applications with the Internet;

        -    the need to operate with multiple and frequently incompatible
             products; and

        -    a lack of tools to simplify access to and use of the Internet.


INCREASING GOVERNMENTAL REGULATION OF THE INTERNET COULD LIMIT THE MARKET FOR
OUR PRODUCTS AND SERVICES

        A number of legislative and regulatory proposals under consideration by
federal, state, local and foreign governmental organizations may lead to laws or
regulations concerning various aspects of the Internet, such as user privacy,
taxation of goods and services provided over the Internet, pricing, content and
quality of products and services. Legislation could dampen the growth in
Internet usage and decrease or limit its acceptance as a communications and
commercial medium. If enacted, these laws and regulations could limit the market
for our products and services. In addition, existing laws could be applied to
the Internet, including consumer privacy laws. Legislation or application of
existing laws could expose companies involved in electronic commerce, to
increased liability, which could limit the growth of electronic commerce
generally.

SECURITY RISKS OF ELECTRONIC COMMERCE MAY DETER FUTURE USE OF OUR PRODUCTS AND
SERVICES

        A fundamental requirement to conduct Internet-based electronic commerce
is the secure transmission of confidential information over public networks.
Failure to prevent security breaches of our customers' networks, or
well-publicized security breaches affecting the Internet in general, could
significantly harm our business. We


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<PAGE>   18

cannot be certain that advances in computer capabilities, new discoveries in the
field of cryptography, or other developments will not result in a compromise or
breach of the security measures of our products and services or our iNiku
business website. Anyone who is able to circumvent our security measures could
misappropriate proprietary, confidential customer information or cause
interruptions in our operations. We may be required to incur significant costs
to protect against security breaches or to alleviate problems caused by
breaches. Further, a well-publicized compromise of security could deter people
from using the Internet to conduct transactions that involve transmitting
confidential information.

NEW TAX TREATMENT OF COMPANIES ENGAGED IN INTERNET COMMERCE MAY ADVERSELY AFFECT
THE INTERNET INDUSTRY

        Tax authorities on the international, federal, state and local levels
are currently reviewing the appropriate tax treatment of companies engaged in
Internet commerce. New state tax regulations may subject companies engaged in
electronic commerce to additional state sales, income and other taxes. A
recently passed federal law places a temporary moratorium on certain types of
taxation on electronic commerce. We cannot predict the effect of current
attempts to impose sales, income or other taxes on commerce over the Internet;
although, if imposed, these taxes would likely increase our cost of doing
business.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

        We develop products in the United States and market our products in
North America, and to a lesser extent, Europe and the Asia-Pacific region. As a
result, our financial results may be affected by factors such as changes in
foreign currency exchange rates or weak economic conditions in foreign markets.
As a majority of our sales are currently made in U.S. dollars, a strengthening
of the dollar may make our products less competitive in foreign markets. We do
not expect any material adverse effect on our consolidated financial position,
results of operations or cash flows due to movements in any specific foreign
currency.

        We currently do not use financial instruments to hedge operating
expenses by our European and Asia-Pacific subsidiaries. We intend to assess the
need to utilize financial instruments to hedge currency exposures on an ongoing
basis. Our exposure to market risk for changes in interest rates relates
primarily to our investment portfolio and outstanding debt obligations. We do
not use derivative financial instruments for speculative or trading purposes.
Our investments consists primarily of highly liquid debt instruments that are of
high-quality investment grade and mature in one year or less, as specified in
our investment policy. The policy also limits the amount of credit exposure to
any one issue, issuer and type of instrument. Due to the short-term nature of
our investments, we believe that there is no material risk exposure. Therefore
no quantitative tabular disclosures are required.



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<PAGE>   19

                           PART II. OTHER INFORMATION

ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS

        (c) CHANGES IN SECURITIES

        In May 2000, in connection with its acquisition of 600 Monkeys, Niku
issued 170,000 shares of common stock to a group of five individual investors
and five non-individuals entities owned by persons who were officers or
consultants or were otherwise affiliated with entities that had a business
relationship with 600 Monkeys, all of whom were former shareholders of 600
Monkeys. The sale of the shares was made in reliance on Section 4(2) of the
Securities Act.

        In July 2000, in connection with its acquisition of bSource, Niku issued
400,000 shares of common stock to a group of twenty-two individual investors and
two venture capital funds, all of whom were former shareholders of bSource. The
sale of the shares was made in reliance on Section 4(2) of the Securities Act.

        (d) USE OF PROCEEDS

        On February 28, 2000, Niku completed its initial public offering of
common stock. The managing underwriters in the offering were Goldman, Sachs &
Co., Dain Rauscher Wessels, Thomas Weisel Partners LLC, U.S. Bancorp Piper
Jaffray. The shares of the common stock sold in the offering were registered
under the Securities Act of 1933, as amended, on a Registration Statement on
Form S-1 (No. 333-93439). The Securities and Exchange Commission declared the
Registration Statement effective on February 28, 2000. There have been no
changes in Niku's use of proceeds from the quarterly report on Form 10-Q for the
quarter ended April 29, 2000.


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        (a.) Exhibits

             The Exhibits listed in the accompanying Exhibit Index are filed as
part of this report.

        (b.) Reports on Form 8-K

             None



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<PAGE>   20

                                    SIGNATURE

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.


                                       NIKU CORPORATION

Date:  September 12, 2000              By: /s/ LYDIA M. RONNEBERG
                                          ----------------------------
                                       Lydia M. Ronneberg
                                       Corporate Controller &
                                       Chief Accounting Officer



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<PAGE>   21

                                  EXHIBIT INDEX


<TABLE>
<CAPTION>
 Exhibit
  Number                                Exhibit Title
 ---------                              -------------
<S>            <C>
    2.1        Agreement and Plan of Reorganization, dated as of May 24, 2000,
               by an among the Company, Nation Acquisition Corp. and ABT
               Corporation. (Filed as an exhibit, and incorporated by reference
               herein, to the Company's Current Report on Form 8-K dated August
               18, 2000).

   27.01       Financial Data Schedule for July 29, 2000. (EDGAR version only)
</TABLE>



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