<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 OCTOBER 28, 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)

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

                                 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.

            76,555,185 SHARES OF COMMON STOCK AS OF NOVEMBER 30, 2000



<PAGE>   2

                                NIKU CORPORATION
                          QUARTERLY REPORT ON FORM 10-Q
                      FOR THE PERIOD ENDED OCTOBER 28, 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 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.   Changes 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)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                             OCTOBER 31,    JANUARY 31,
                                                               2000            2000
                                                             ----------     ----------
<S>                                                          <C>            <C>
ASSETS
Current assets:
    Cash and cash equivalents                                $  93,272      $  27,650
    Short-term investments                                      90,152         16,865
    Accounts receivable, net                                    20,955          8,261
    Prepaid expenses and other current assets                   18,969          2,065
                                                             ---------      ---------
      Total current assets                                     223,348         54,841
                                                             ---------      ---------
Deposits and other assets                                        7,311          1,952
Property and equipment, net                                     13,295          6,048
Goodwill and other intangible assets, net                      179,381         49,684
                                                             ---------      ---------
      Total assets                                           $ 423,335      $ 112,525
                                                             =========      =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
    Accounts payable                                         $  12,705      $   6,172
    Accrued liabilities                                         29,781          5,997
    Current portion of long-term obligations                    11,205          5,720
    Deferred revenue                                            18,354          4,261
                                                             ---------      ---------
      Total current liabilities                                 72,045         22,150
Long-term obligations                                               --          1,725
                                                             ---------      ---------
      Total liabilities                                         72,045         23,875
                                                             ---------      ---------
Redeemable convertible preferred stock and warrants                 --        100,919
                                                             ---------      ---------
Stockholders' equity (deficit)                                 351,290        (12,269)
                                                             ---------      ---------
      Total liabilities and stockholders' equity (deficit)   $ 423,335      $ 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)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                    THREE MONTHS ENDED              NINE MONTHS ENDED
                                                        OCTOBER 31,                     OCTOBER 31,
                                                 -------------------------       -------------------------
                                                   2000            1999            2000            1999
                                                 ---------       ---------       ---------       ---------
       <S>                                       <C>             <C>             <C>             <C>
       Revenue:
           License                               $  12,036       $   1,366       $  26,709       $   1,962
           Services                                  7,806             650          13,153           1,014
           Marketplace                               1,166              --           2,281              --
                                                 ---------       ---------       ---------       ---------
               Total revenue                        21,008           2,016          42,143           2,976
                                                 ---------       ---------       ---------       ---------
       Cost of revenue:
           License                                     700              75           2,089             174
           Services                                  5,782             252          10,498             429
           Marketplace                                  --              --              10              --
                                                 ---------       ---------       ---------       ---------
               Total cost of revenue                 6,482             327          12,597             603
                                                 ---------       ---------       ---------       ---------
       Gross profit                                 14,526           1,689          29,546           2,373
                                                 ---------       ---------       ---------       ---------
       Operating expenses:
           Sales and marketing                      18,811           3,156          44,663           5,983
           Research and development                 11,668           2,748          26,098           6,062
           General and administrative                3,857           1,048           9,013           1,837
           Merger related expenses                   2,363              --           2,363              --
           Stock-based compensation(Footnote 1)      7,276           1,109          22,794           2,018
           Amortization of goodwill
             and other intangible assets            13,026              62          23,590             184
                                                 ---------       ---------       ---------       ---------
               Total operating expenses             57,001           8,123         128,521          16,084
                                                 ---------       ---------       ---------       ---------
               Operating loss                      (42,475)         (6,434)        (98,975)        (13,711)
       Interest and other income, net                2,872              96           7,904             178
                                                 ---------       ---------       ---------       ---------
               Net loss                          $ (39,603)      $  (6,338)      $ (91,071)      $ (13,533)
                                                 =========       =========       =========       =========
       Basic and diluted net loss per share      $   (0.54)      $   (1.04)      $   (1.41)      $   (2.31)
                                                 =========       =========       =========       =========
       Shares used in computing basic
          and diluted net loss per share            73,756           6,089          64,373           5,871
                                                 =========       =========       =========       =========
</TABLE>

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




        Footnote 1: 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       NINE MONTHS ENDED
                                                 OCTOBER 31,             OCTOBER 31,
                                             ------------------      -------------------
                                              2000        1999        2000         1999
                                             ------      ------      -------      ------
             <S>                             <C>         <C>         <C>          <C>
             Cost of revenue                 $  390      $   21      $   619      $   17
             Sales and marketing              3,814         744       13,693       1,140
             Research and development         1,404         248        3,998         597
             General and administrative       1,668          96        4,484         264
                                             ------      ------      -------      ------
                Total                        $7,276      $1,109      $22,794      $2,018
                                             ======      ======      =======      ======
</TABLE>



                                       4
<PAGE>   5

                                NIKU CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                               NINE MONTHS ENDED
                                                                                                   OCTOBER 31,
                                                                                             ------------------------
                                                                                               2000           1999
                                                                                             ---------       --------
      <S>                                                                                    <C>             <C>
      Cash flows from operating activities:
          Net loss                                                                           $ (91,071)      $(13,533)
          Adjustments to reconcile net loss to net cash
             used in operating activities:
              Depreciation                                                                       2,617            300
              Amortization of debt discount                                                        340            128
              Amortization of goodwill and other intangible assets                              23,590            184
              Stock-based compensation                                                          22,794          2,018
              Revenue resulting from nonmonetary exchanges for computer
                equipment, software and services                                                  (590)        (1,170)
              Expense resulting from nonmonetary exchanges for services                            276            154
              Interest on note receivable from stockholders                                       (211)            --
              Changes in operating assets and liabilities:
                Accounts receivable                                                            (11,036)        (2,590)
                Prepaid expenses and other assets                                              (14,097)        (1,141)
                Accounts payable                                                                 2,715          3,665
                Accrued liabilities                                                             10,108          1,739
                Deferred revenue                                                                 3,320          1,449
                                                                                             ---------       --------
              Net cash used in operating activities                                            (51,245)        (8,797)
                                                                                             ---------       --------
      Cash flows from investing activities:
          Purchases of property and equipment                                                   (4,548)        (2,935)
          Purchases of short-term investments, net                                             (73,250)        (2,175)
          Other assets                                                                              --           (160)
          Purchase of intangible asset                                                              --           (301)
          Acquisitions, net of cash received                                                    (6,683)            --
                                                                                             ---------       --------
              Net cash used in investing activities                                            (84,481)        (5,571)
                                                                                             ---------       --------
      Cash flows from financing activities:
          Net proceeds from sale of redeemable convertible preferred stock                          --         19,811
          Proceeds from initial public offering of common stock, net                           202,173             --
          Issuance of common stock                                                               2,589             56
          Proceeds from payment of  note receivable                                                 11             --
          Proceeds from debt obligations                                                        10,000          7,643
          Repayment of debt and capital lease obligations                                      (13,425)        (1,135)
                                                                                             ---------       --------
              Net cash provided by financing activities                                        201,348         26,375
                                                                                             ---------       --------
      Net increase in cash and cash equivalents                                                 65,622         12,007
      Cash and cash equivalents, beginning of period                                            27,650          5,147
                                                                                             ---------       --------
      Cash and cash equivalents, end of period                                               $  93,272       $ 17,154
                                                                                             =========       ========
      Noncash investing and financing activities:
          Property and equipment under capital lease obligations                             $      --       $    345
                                                                                             =========       ========
          Repurchase of common stock in settlement of notes receivable
             from stockholders                                                               $      28       $     30
                                                                                             =========       ========

          Deferred revenue resulting from nonmonetary exchanges for services                 $   3,000            $--
                                                                                             =========       ========
          Prepaid expenses resulting from nonmonetary exchanges for services                 $   3,000            $--
                                                                                             =========       ========
          Common stock issued for notes receivable                                           $   3,321       $     93
                                                                                             =========       ========
          Common stock issued and stock options assumed for acquisitions                     $ 126,318            $--
                                                                                             =========       ========
          Deferred stock-based compensation                                                  $  30,030       $  7,680
                                                                                             =========       ========
          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 fiscal 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 August 5, 2000, the Company acquired ABT Corporation (ABT), a
privately-held company in New York, New York. ABT is a provider of enterprise
project management solutions for information technology organizations. The
acquisition was accounted for as a purchase, with ABT's results of operations
included from the date of acquisition. The total purchase price for the
transaction was $106.3 million, including direct acquisition related costs of
$2.0 million. The Company issued 4,000,000 shares of its common stock for all of
ABT's outstanding capital stock valued at $91.4 million and made a cash payment
of $10.0 million. In addition, the Company also issued options to purchase
161,814 shares of common stock with an aggregate value of $2.9 million. The
Company will issue options to purchase 163,000 shares of common stock on August
9, 2001, at which time the then fair value will be recorded as additional
goodwill and amortized over the remaining useful life. Of the purchase price of
the transaction, $10.6 million was allocated to the net tangible liabilities
based on their estimated fair values as of the date of the acquisition, $66.8
million was allocated to goodwill and $50.1 million was allocated to other
intangible assets. The goodwill and other intangible assets are being amortized
on a straight-line basis over a two to five-year period. In connection with the
acquisition, the Company recorded deferred stock-based compensation in the
amount of $5.1 million, of which $2.0 million is being amortized over the
vesting period of 24 months, $2.8 million is being amortized over the vesting
period of 12 months, and $0.3 million is being amortized over the vesting period
of three months, in a manner consistent with FIN 28.

        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 net tangible assets 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 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



                                       6
<PAGE>   7

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 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 net tangible assets 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.

        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,
which preferred stock was subsequently converted into common 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
tangible 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.
During the three months ended October 31, 2000, an adjustment was made to the
fair value of the net tangible liabilities acquired resulting in a decrease to
goodwill of approximately $0.6 million.

        The following summary, prepared on an unaudited pro forma basis,
combines the Company's consolidated results of operations for the three and nine
months ended October 31, 2000 and 1999, with Proamics', Legal Anywhere's, 600
Monkeys', bSources's and ABT'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              NINE MONTHS ENDED
                                                               OCTOBER 31,                    OCTOBER 31,
                                                         -----------------------       ------------------------
                                                           2000           1999           2000           1999
                                                         --------       --------       ---------       --------
   <S>                                                   <C>            <C>            <C>             <C>
   Pro forma revenue                                     $ 21,008       $ 21,048       $  71,204       $ 60,248
   Pro forma net loss                                    $(39,603)      $(23,780)      $(123,913)      $(61,002)
   Basic and diluted pro forma net loss per share        $  (0.54)      $  (1.58)      $   (1.84)      $  (4.12)
   Shares used to compute basic and diluted
     pro forma net loss per share                          73,978         15,015          67,319         14,797
</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

        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 the
period from February 1, 2000 to February 21, 2000. This deferred stock-based
compensation is being amortized on an accelerated basis over the vesting period,
generally four years. In August 2000, the Company recorded additional deferred
stock-based compensation of $5.1 million related to options to purchase 243,080
shares of common stock granted in connection with the ABT acquisition (See Note
2). In addition, the Company has recorded additional deferred stock-based
compensation related to options granted to non-employees that are being
accounted for in accordance with Emerging Issues Task Force, or EITF, Issue No.
96-18.

        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



                                       7
<PAGE>   8

issued approximately 48.2 million shares of common stock for all of its
redeemable convertible preferred stock, which were automatically converted into
common stock on a one-for-one basis.

4. COMPREHENSIVE LOSS

        As of October 31, 2000, the Company has accumulated other comprehensive
income of $37,000 included in stockholders' equity (deficit) on the accompanying
condensed consolidated balance sheet, which consists entirely of unrealized
gains on marketable securities. The Company's total comprehensive loss for the
three and nine months ended October 31, 2000 was $39,500,000 and $91,034,000,
respectively, which consists of the Company's net loss for the respective period
plus the Company's unrealized gain on marketable securities for the three months
and nine months ended October 31, 2000 of $103,000 and $37,000, respectively.
There were no significant components of other comprehensive loss for the three
and nine months ended October 31, 1999.

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>
                                                                                    OCTOBER 31,
                                                                                 -----------------
                                                                                 2000        1999
                                                                                 -----       -----
              <S>                                                                <C>        <C>
              Shares issuable under stock options                                8,671       3,629
              Shares of restricted stock subject to repurchase                   2,175         959
              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 $10.95 and
$0.26 as of October 31, 2000 and 1999, respectively. The weighted-average
purchase price of restricted stock subject to repurchase was $2.32 and $0.12 as
of October 31, 2000 and 1999, respectively. The exercise price of warrants
outstanding as of October 31, 1999 was $0.75. 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        NINE MONTHS ENDED
                                                OCTOBER 31,               OCTOBER 31,
                                           --------------------      -------------------
                                            2000         1999         2000        1999
                                           -------      -------      -------      ------
                <S>                        <C>          <C>          <C>          <C>
                License                    $12,036      $ 1,366      $26,709      $1,962
                                           -------      -------      -------      ------
                Services:
                        Consulting           4,641          562        8,752         886
                        Maintenance          3,165           88        4,401         128
                                           -------      -------      -------      ------
                                             7,806          650       13,153       1,014
                Marketplace                  1,166           --        2,281          --
                                           -------      -------      -------      ------
                        Total revenue      $21,008      $ 2,016      $42,143      $2,976
                                           =======      =======      =======      ======
</TABLE>



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 fiscal year
ended January 29, 2000. This discussion contains forward-looking statements
within the meaning of



                                       8
<PAGE>   9

Section 27A of the Securities Act and Section 21E of the 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.

RESULTS OF OPERATIONS

        Three and Nine Months Ended October 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 October 31, 2000 was $12.0 million compared to $1.4 million in the
fiscal quarter ended October 31, 1999. License revenue in the nine months ended
October 31, 2000 was $26.7 million compared to $2.0 million in the nine months
ended October 31, 1999. This 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 decreased from 68% in the third quarter of fiscal 2000 to 57% in the
third quarter of fiscal 2001. The percentage of our total revenue attributable
to license revenue for the nine months ended October 31, 2000 decreased to 63%
from 66% 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 October 31, 2000 was $7.8 million
compared to $0.6 million in the fiscal quarter ended October 31, 1999. Services
revenue in the nine months ended October 31, 2000 was $13.2 million compared to
$1.0 million in the nine months ended October 31, 1999. These increases resulted
primarily from increased customer implementations and maintenance and support
arrangements. There are currently 80 Niku customers with live sites. The
percentage of our total revenue attributable to services revenue grew from 32%
in third quarter of fiscal 2000 to 37% in the third quarter of fiscal 2001. The
percentage of our total revenue attributable to services revenue for the nine
months ended October 31, 2000 decreased to 31% from 34% for the comparable
period in fiscal 2000.

        Marketplace. Marketplace revenue consists of revenue from transactions
that primarily 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 October 31, 2000
increased to $1.2 million from no revenue in the fiscal quarter ended October
31, 1999. Marketplace revenue for the nine months ended October 31, 2000
increased to $2.3 million from no revenue in the nine months ended October 31,
1999. Marketplace revenue for the fiscal quarter and nine months ended October
31, 2000 was primarily from sponsorship arrangements and xNiku subscriptions.
The percentage of our total revenue attributable to marketplace revenue was 6%
for the third quarter of fiscal 2000 and 5% for the nine months ended October
31, 2000.

        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 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 31% in the third quarter of fiscal 2001 compared
to 16% in the third quarter of fiscal 2000, and increased in absolute dollars to
$6.5 million in the third quarter of fiscal 2001 from $0.3 million in the third
quarter of fiscal 2000. Cost of revenue as a percentage of total revenue
increased to 30% in the nine months ended October 31, 2000 from 20% in the nine
months ended October 31, 1999, and increased in absolute dollars to $12.6
million in the nine months ended October 31, 2000 from $0.6 million in the nine
months ended October 31, 1999. 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 fiscal quarter and nine months ended October 31, 2000. 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



                                       9
<PAGE>   10

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.

        Sales and Marketing. Sales and marketing expenses as a percentage of
total revenue decreased to 90% in the third quarter of fiscal 2001 from 157% in
the third quarter of fiscal 2000, and increased in absolute dollars to $18.8
million in the third quarter of fiscal 2001 from $3.2 million in the third
quarter of fiscal 2000. Sales and marketing expenses as a percentage of total
revenue decreased to 106% in the nine months ended October 31, 2000 from 201% in
the nine months ended October 31, 1999, and increased in absolute dollars to
$44.7 million in the nine months ended October 31, 2000 from $6.0 million in the
nine months ended October 31, 1999. 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 Niku's first user's conference. 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 56% in the third quarter of fiscal 2001
from 136% in the third quarter of fiscal 2000, and increased in absolute dollars
to $11.7 million in the third quarter of fiscal 2001 from $2.7 million in the
third quarter of fiscal 2000. Research and development expenses as a percentage
of total revenue decreased to 62% in the nine months ended October 31, 2000 from
204% in the nine months ended October 31, 1999, and increased in absolute
dollars to $26.1 million in the nine months ended October 31, 2000 from $6.1
million in the nine months ended October 31, 1999. 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 nine months 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 18% in the third quarter of fiscal 2001
from 52% in the third quarter of fiscal 2000, and increased in absolute dollars
to $3.9 million in the third quarter of fiscal 2001 from $1.0 million in the
third quarter of fiscal 2000. General and administrative expenses as a
percentage of total revenue decreased to 21% in the nine months ended October
31, 2000 from 62% in the nine months ended October 31, 1999, and increased in
absolute dollars to $9.0 million in the nine months ended October 31, 2000 from
$1.8 million in the nine months ended October 31, 1999. 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.

        Merger Related Expenses. Merger related expenses of $2.4 million in the
three months and nine months ended October 31, 2000 were incurred in conjunction
with the acquisition and integration of ABT.

        Stock-based Compensation. Stock-based compensation expense increased to
$7.3 million in the third quarter of fiscal 2001 from $1.1 million in the third
quarter of fiscal 2000. Stock-based compensation expense increased to $22.8
million in the nine months ended October 31, 2000 from $2.0 million in the nine
months ended October 31, 1999. 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 and with respect to options granted in conjunction with the
ABT acquisition in August 2000. Amortization of the October 31, 2000 balance of
deferred stock-based compensation for the remaining three months of fiscal 2001
and fiscal years 2002, 2003 and 2004 is estimated to be approximately $6.4
million, $12.9 million, $4.6 million and $1.1 million.

        Amortization of Goodwill and Other Intangible Assets. Amortization of
goodwill and other intangible assets increased to $13.0 million in the third
quarter of fiscal 2001 from $62,000 in the third quarter of fiscal 2000.
Amortization of goodwill and other intangible assets increased to $23.6 million
in the nine months of fiscal 2001 from $0.2 million in the nine 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, bSource in July 2000
and ABT in August 2000. We expect amortization of approximately $14 million, $53
million, $48 million, $29 million, $25 million, and $10 million for the
remaining three months of fiscal 2001, and fiscal years 2002, 2003, 2004, 2005,
and 2006, respectively, related to the amortization of goodwill and other
intangible assets. In addition, we may have additional acquisitions in future
periods that could give rise to additional goodwill or other intangible assets
being acquired. If we acquire additional goodwill or other intangible assets,
our amortization may increase in future periods.



                                       10
<PAGE>   11

        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 third
quarter and nine months of fiscal 2001, compared to the third quarter and nine
months 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
October 28, 2000, we had cash, cash equivalents and short-term investments of
$183.4 million and $151.3 million in working capital.

        Net cash used in operating activities was $51.2 million in the nine
months of fiscal 2001 resulting from acquisitions, as well as our net loss and
increases in accounts receivable and prepaid expenses and other assets, offset
by increases in deferred revenue, accrued liabilities and accounts payable. Net
cash used in investing activities was $84.5 million for the nine months of
fiscal 2001 reflecting net purchases of short-term investments, purchases of
property and equipment and the net cash used for acquisitions. Net cash from
financing activities was $201.3 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 October 28,
2000, we had borrowed $10.0 million under the line of credit. Interest on this
line of credit accrues at the rate of the bank's prime rate plus .5%. We
recently entered into a lease financing arrangement providing a lease line of
credit of up to $4.6 million of which approximately $2.2 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
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. The Company will adopt SAB 101 effective November 1, 2000.
Management does not believe the adoption of SAB 101 will have a material effect
on the Company's 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 adopted EITF Issue No.
00-3 effective July 1, 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.



                                       11
<PAGE>   12

        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 adopted FIN 44 effective July 1, 2000. 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.

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 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 expect to incur significant losses in the future. As of
October 28, 2000, we had an accumulated deficit of $131 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, and with respect to possible
future acquisitions. 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 revenues could decline. Our failure to continue to significantly
increase our revenues 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 revenue growth or other results of operations may be below
the expectations of investors. If this occurs, the price of our common stock
will decline.

OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS AND IF
OUR FUTURE RESULTS ARE BELOW THE EXPECTATIONS OF INVESTORS, THE PRICE OF OUR
COMMON STOCK WILL DECLINE

        Our results of operations could vary significantly from quarter to
quarter. We expect to incur significant sales and marketing expenses to promote
our products and services. Our quarterly operating results are likely to be
particularly affected by the number of customers licensing our products and
purchasing services during any quarter as well as sales and marketing and other
expenses for a particular quarterly period.

        Other factors that could affect our quarterly operating results include:

                -       our ability to attract new customers and retain and sell
                        additional products and services to current customers;

                -       the announcement or introduction of new products or
                        services by us or our competitors;

                -       changes in the pricing of our products and services or
                        those of our competitors;

                -       variability in the mix of our products and services
                        revenues in any quarter; and

                -       the amount and timing of operating costs and capital
                        expenditures relating to expansion of our business.

        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 revenue growth or other results of operations may be below
the expectations of investors. If this occurs, the price of our common stock
will decline.



                                       12
<PAGE>   13

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 other 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.

A SIGNIFICANT PORTION OF OUR SALES FORCE IS LARGELY NEW AND UNPROVEN; IF WE FAIL
TO EXPAND AND STRENGTHEN OUR DIRECT AND INDIRECT SALES CHANNELS, OUR ABILITY TO
INCREASE REVENUES 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. Our direct sales force is in large part, new and
unproven, coming from companies we recently acquired. If these new sales
personnel do not become effective in a timely manner, our revenues could be
harmed. We also need to expand our direct sales force by hiring additional
salespersons and sales management. There is strong competition for qualified
sales personnel in our business, and it may not be able to attract and retain
sufficient new sales personnel to expand our operations.

        We intend to pursue increased revenue from indirect sales channels,
which involves selling our software through value added resellers and other
third parties. As of October 28, 2000, 25 of these other companies market our
product. 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.

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. These companies generally
consist of companies to whom we license our software and (1) from whom we
license software for use in our business or incorporation into our products, and
(2) from whom we purchase development or implementation services. Our software
licenses to these companies are typically non-exclusive, have a perpetual term
and may only be terminated if the terms of the license are violated. Our
agreements with companies providing services to or for us have varying terms and
may generally be terminated before the end of the term if there is a breach of
the agreement. We have never entered into an agreement in which we have licensed
our software and received equity as consideration. 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 broader relationships with them.

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



                                       13
<PAGE>   14

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

        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 A MAJORITY OF OUR REVENUE FOR THE FORESEEABLE FUTURE

We anticipates that revenue from the license of our software products and
related services, 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.

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 it 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. 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 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
where practical we attempt to reduce the risk of losses resulting from any
claims through warranty disclaimers and liability limitation clauses in our
customer agreements, these contractual provisions may not 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.

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.



                                       14
<PAGE>   15

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

                -       third party vendors of e-commerce and Internet software,
                        such as Allaire, Extensity, 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.

        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 us. These
companies may not devote adequate resources to selling or 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 INTEGRATE THE COMPANIES WE HAVE AND WILL ACQUIRE, 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. Much of the growth has come from the
acquisition of other companies. This growth has placed, and continues 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 control systems. We may not be able to manage our growth
efficiently.



                                       15
<PAGE>   16

ACQUISITIONS MAY PRESENT RISKS TO OUR BUSINESS

        Future and recent 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;

                -       the inability 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 us or the acquired company's existing
                        business relationships.

        To varying degrees, these risks, have been evident in our acquisitions
to date. If we experience ongoing 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 last twelve months, we have expanded our operations into
Canada, the United Kingdom, France, The Netherlands, Sweden, Germany,
Switzerland and Australia. In the future, we intend to expand our operations
into other areas, particularly Southern Europe 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 must accommodate the longer sales cycle that exist in
international markets. We also will need to develop internationalized versions
of our products and marketing and sales materials. 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 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
                        sells our products in denominations other than U.S.
                        dollars;

                -       the longer sales cycle in international markets, as well
                        as 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 and marketing and sales materials.


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

        Our business is 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 our 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 our 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 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.



                                       17
<PAGE>   18

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. 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.



                                       18
<PAGE>   19

                           PART II. OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

        (c) CHANGES IN SECURITIES

        In August 2000, in connection with its acquisition of ABT, Niku issued
4,000,000 shares of common stock to former shareholders of ABT. The sale of the
shares was made in reliance on Section 3(a) (10) 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. Other than $12.5 million
that was used to pay the cash portion of the purchase prices for acquired
companies described in this Report, there have been no changes in Niku's use of
proceeds from the quarterly report on Form 10-Q for the quarter ended July 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

        A current report on Form 8-K was filed with the Securities and Exchange
Commission by Niku on August 18, 2000 to report the consummation of our merger
with ABT Corporation. An amendment to this current report on Form 8-K was filed
with the Securities and Exchange Commission by Niku on October 18, 2000 with the
required financial information.



                                       19
<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:  December 12, 2000                   By: /s/ MARK NELSON
                                              ----------------------------------
                                              Mark Nelson
                                              Chief Financial Officer



                                       20
<PAGE>   21

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
      EXHIBIT
      NUMBER                                EXHIBIT TITLE
      -------                               -------------
      <S>       <C>
        27.01   Financial Data Schedule for October 28, 2000. (EDGAR version
                only)
</TABLE>



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