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

                                 FORM 10-QSB

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

                FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997

/ / 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 0-20749

                          ASPECT DEVELOPMENT, INC.
           (Exact name of registrant as specified in its charter)

                DELAWARE                           25-1622857
   (State or other jurisdiction of             (I.R.S. Employer
    incorporation or organization)            Identification No.)

                            1300 CHARLESTON ROAD
                       MOUNTAIN VIEW, CALIFORNIA 94043
        (Address of principal executive offices, including zip code)

                               (415) 428-2700
            (Registrant's telephone number, including area code)


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

             (1)      Yes        x                 No
                              -------                     -------
             (2)      Yes        x                 No
                              -------                     -------
The number of shares outstanding of the registrant's common stock as of 
August 8, 1997 was 12,767,649.
<PAGE>
 
                          ASPECT DEVELOPMENT, INC.

                                  FORM 10-Q

                                    INDEX

PART I.  FINANCIAL INFORMATION                                         PAGE

Item 1.  Financial Statements

         Condensed Consolidated Balance Sheets
         At June 30, 1997 and December 31, 1996                         3

         Condensed Consolidated Statements of Income
         For the three months and six months ended
         June 30, 1997 and June 30, 1996                                4

         Condensed Consolidated Statements of Cash Flows
         For the six months ended June 30, 1997 
         and June 30, 1996                                              5

         Notes to Condensed Consolidated Financial Statements           6

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

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings                                             19

Item 2.  Changes in Securities                                         19

Item 3.  Defaults Upon Senior Securities                               19

Item 4.  Submission of Matters to a Vote of Securities Holders         19

Item 5.  Other Information                                             19

Item 6.  Exhibits and Reports on Form 8-K                              19

Signature                                                              21

Exhibits:

         11 - Computation of Net Income Per Share
         for the three months and six months ended
         June 30, 1997 and June 30, 1996                               22

                                       2
<PAGE>
 
PART 1.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                          ASPECT DEVELOPMENT, INC.
                    CONDENSED CONSOLIDATED BALANCE SHEETS
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

                                   ASSETS

<TABLE>
<CAPTION>
                                                                          June 30,    December 31,  
                                                                            1997        1996 (1)     
                                                                        ------------  -----------      
                                                                        (Unaudited)   
<S>                                                                     <C>           <C> 
Current assets:                                                                   
      Cash and cash equivalents ..........................                 $ 6,872        $ 9,632      
      Short-term investments .............................                  43,435         38,186      
      Accounts receivable, net ...........................                   7,297          6,570      
      Other current assets ...............................                   1,385            964      
                                                                           -------        -------      
              Total current assets .......................                  58,989         55,352      
Property and equipment, net ..............................                   4,983          3,278      
Other assets, net ........................................                   1,911            370      
                                                                           -------        -------      
              Total assets ...............................                 $65,883        $59,000      
                                                                           =======        =======      
                                                                                     
                                    LIABILITIES AND STOCKHOLDERS' EQUITY                           
                                                                                     
Current liabilities:                                                                 
      Accounts payable ..............................................     $  1,362       $    766
      Deferred revenue ..............................................        6,410          5,049
      Capital lease obligations .....................................          398            482
      Third-party royalties and fees ................................          756            972
      Other current liabilities .....................................        4,146          2,598
                                                                          --------       --------
              Total current liabilities .............................       13,072          9,867
Capital lease obligations ...........................................          286            379
Stockholders' equity:                                                                
      Convertible preferred stock, $0.001 par value; 3,805,118 shares                
         authorized, issuable in series, no shares issued                            
         and outstanding at June 30, 1997 and December 31, 1996 .....           --             --
      Common stock, $0.001 par value per share; 20,000,000 shares                    
         authorized, 12,580,539 issued and outstanding                               
         at June 30, 1997 and 12,133,575 shares issued                              
         and outstanding at December 31, 1996 .......................       50,885         49,405
      Notes receivable from stockholders ............................         (320)          (320)
      Deferred compensation .........................................         (459)          (544)
      Accumulated translation adjustment ............................          (29)            78
      Retained Earnings .............................................        2,448            135
                                                                          --------       --------
              Total stockholders' equity ............................       52,525         48,754
                                                                          --------       --------
              Total liabilities and stockholders' equity ............     $ 65,883       $ 59,000
                                                                          ========       ========
</TABLE>

      (1)  Derived from audited financial statements as of December 31,
      1996.

    See accompanying notes to Condensed Consolidated Financial Statements.

                                       3
<PAGE>
 
                           ASPECT DEVELOPMENT, INC.
                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME
              (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS; UNAUDITED)

<TABLE>
<CAPTION>

                                             Three months ended      Six months ended
                                                  June 30,               June 30,
                                            -------------------    --------------------
                                             1997        1996        1997        1996
                                            -------     -------     -------     -------
<S>                                         <C>         <C>         <C>         <C> 
Revenues:
      Licenses ........................     $ 5,370     $ 3,114     $ 9,219     $ 5,465
      Subscription and maintenance ....       2,998       2,248       5,684       4,186
      Service and other ...............       1,472         425       2,613         737
                                            -------     -------     -------     -------
               Total revenues .........       9,840       5,787      17,516      10,388
Cost of revenues:
      Licenses ........................         100         147         274         246
      Subscription and maintenance ....         598         258       1,043         528
      Service and other ...............         665         392       1,180         598
                                            -------     -------     -------     -------
               Total cost of revenues .       1,363         797       2,497       1,372
                                            -------     -------     -------     -------
Gross profit ..........................       8,477       4,990      15,019       9,016
Operating expenses:
      Research and development ........       1,985       1,794       3,858       3,342
      Sales and marketing .............       4,085       2,168       7,174       3,856
      General and administrative ......         978         748       1,795       1,335
                                            -------     -------     -------     -------
               Total operating expenses       7,048       4,710      12,827       8,533
                                            -------     -------     -------     -------
Operating income ......................       1,429         280       2,192         483
Interest and other income/expense, net          474         124       1,090         130
                                            -------     -------     -------     -------
Income before income taxes ............       1,903         404       3,282         613
Provision for income taxes ............         514          40         969          61
                                            -------     -------     -------     -------
Net income ............................     $ 1,389     $   364     $ 2,313     $   552
                                            =======     =======     =======     =======
Net income per share ..................     $  0.10     $  0.03     $  0.17     $  0.05
                                            =======     =======     =======     =======
Shares used in per share
      computations ....................      13,964      12,407      13,956      11,629
                                            =======     =======     =======     =======
</TABLE>



    See accompanying notes to Condensed Consolidated Financial Statements.

                                       4
<PAGE>
 
                           ASPECT DEVELOPMENT, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (IN THOUSANDS; UNAUDITED)

<TABLE>
<CAPTION>
                                                                              Six months ended June 30,
                                                                                1997          1996
                                                                              --------      --------
<S>                                                                           <C>           <C> 
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ..............................................................     $  2,313      $    552
Adjustments to reconcile net income to net cash from operating activities
     Depreciation and amortization ......................................          928           606
     Noncash legal dispute settlement charge ............................           --            90
     Changes in assets and liabilities:
         Accounts receivable ............................................         (727)          636
         Other current assets ...........................................         (421)         (666)
         Accounts payable ...............................................          596           369
         Deferred revenue ...............................................        1,361          (133)
         Third-party royalties & fees ...................................         (216)         (253)
         Other current liabilities ......................................        1,548           538
         Other, net                                                               (107)           --
                                                                              --------      --------
Net cash provided by operating activities ...............................        5,275         1,739

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ....................................................       (2,548)       (1,076)
Purchase of short-term investments ......................................      (27,106)      (32,500)
Proceeds from maturities of short-term investments ......................       21,857            --
Increase in other assets ................................................       (1,541)          (23)
                                                                              --------      --------
Net cash used for investing activities ..................................       (9,338)      (33,599)

CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on capital lease obligations .........................         (177)         (366)
Proceeds from Initial Public Offering ...................................           --        42,286
Proceeds from issuance of common stock ..................................        1,480            71
                                                                              --------      --------
Net cash provided by financing activities ...............................        1,303        41,991

Net increase (decrease) in cash and cash equivalents ....................       (2,760)       10,131
Cash and cash equivalents at beginning of period ........................        9,632         3,159
                                                                              ========      ========
Cash and cash equivalents at end of period ..............................     $  6,872      $ 13,290
                                                                              ========      ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest ................................     $     33      $     63
                                                                              ========      ========

Income taxes paid .......................................................     $     15      $     49
                                                                              ========      ========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Equipment acquired under capital lease obligations ......................     $     --      $    380
                                                                              ========      ========
</TABLE>


    See accompanying notes to Condensed Consolidated Financial Statements.

                                       5
<PAGE>
 
                           ASPECT DEVELOPMENT, INC.

             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.       Description of Business and Basis of Presentation

         The Company develops, markets and supports enterprise client/server and
reference data products that enable manufacturers to improve product development
and business processes through component and supplier management. The Company
sells licensed software and reference data products to customers and provides
software and data services for customers both within and outside the United
States.

         The unaudited condensed consolidated financial statements included
herein reflect all adjustments, consisting only of normal recurring adjustments
which in the opinion of management are necessary to fairly state the Company's
consolidated financial position, results of operations, and cash flows for the
periods presented. These financial statements should be read in conjunction with
the Company's audited consolidated financial statements as included in the
Company's Form 10-KSB, for the fiscal year ended December 31, 1996, filed with
the Securities and Exchange Commission on March 19, 1997. The consolidated
results of operations for the period ending June 30, 1997 are not necessarily
indicative of the results to be expected for any subsequent interim or annual
period.

         The condensed consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated. Investments in joint ventures in
which the Company has a 50% ownership interest are accounted for by the equity
method. Under such method, the Company's share of net earnings (or losses) is
included in interest and other income/expense in the consolidated statements of
income.

         Assets and liabilities of the Company and its wholly owned foreign
subsidiaries are translated from the local currency to United States dollars at
period-end exchange rates. Income and expense items are translated on a
quarterly basis at the average rates of exchange prevailing during the quarter.
The adjustment resulting from translating the financial statements of the
Company and its foreign subsidiaries is reflected as an accumulated translation
adjustment in stockholders' equity. Foreign currency transaction gains and
losses are included in results of operations and were immaterial for all periods
presented.

2.       Cash Equivalents and Short-Term Investments

         The Company considers all highly liquid investments purchased with a
maturity of three months or less at date of acquisition to be cash equivalents.
Short-term investments generally mature within two years of purchase.
Gross realized and unrealized gains and losses are not material.

                                       6
<PAGE>
 
         The following is a summary of the estimated fair value of
available-for-sale securities at June 30, 1997. The securities are carried at
amortized cost which approximates fair value, and therefore, there are no
unrealized gains or losses recorded to stockholders' equity.

                                                       June 30, 1997
                                                       --------------
                                                       (in thousands)

 Commercial Paper                                         $24,545
 Obligations of U.S. Government agencies                   18,890
                                                          -------
                                                          $43,435
                                                          =======


3.       Revenue Recognition

         Licenses are comprised of perpetual license fees, which are recognized
as revenue after execution of a license agreement or receipt of a definitive
purchase order, and shipment of the product if no significant vendor obligations
remain and collection of the resulting receivables is deemed probable. Where
delivery involves significant installation obligations at multiple sites,
revenues are recognized on a per-site basis upon completion of installation.
Product returns and sales allowances (which were not significant through June
30, 1997) are estimated and provided for at the time of sale.

         Revenue from subscription and maintenance agreements is deferred and
recognized on a straight-line basis over the life of the related agreement,
typically one year.

         Service and other revenues are comprised of service, consulting and
development fees. Service revenues from training and consulting are recognized
upon completion of the work to be performed. Development fees are recognized as
revenue in accordance with the terms of the agreements, generally when related
costs have been incurred. The Company retains complete ownership of all
technology developed under these agreements.

         Three customers accounted for 15%, 15% and 12% of revenues for the
three months ended June 30, 1997 and one customer accounted for 22% of revenues
during the three months ended June 30, 1996. No one customer accounted for more
than 10% of revenues for the six months ended June 30, 1997 and two customers
accounted for 13% and 11% of revenues for the six months ended June 30, 1996.

4.       Net Income Per Share

         Net income per share is computed using the weighted average number of
common and dilutive common equivalent shares outstanding during the period.
Dilutive common equivalent shares consists of shares issuable upon the exercise
of stock options (using the treasury stock method). Pursuant to the Securities
and Exchange Commission Staff Accounting Bulletins and staff policy, such
computations prior to the Company's Initial Public Offering ("IPO") include all
common and common equivalent shares issued within 12 months of the filing date
of the 

                                       7
<PAGE>
 
Company's IPO as if they were outstanding for all periods presented using
the treasury stock method.

         In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact is expected to
result in an increase in primary earnings per share for the quarters ended June
30, 1997 and June 30, 1996 and for the six months ended June 30, 1997 and June
30, 1996 of $0.01, $0.01, $0.02 and $0.02 per share, respectively. The impact of
Statement 128 on the calculation of fully diluted earnings per share for these
periods is not expected to be material.


5.       Foreign Exchange Hedging

         The Company has established a hedging program to manage its exposure to
foreign currency rate changes on customer receivables. During June 1997, the
Company secured a bank foreign currency guidance line for up to $5 million in
forward exchange contracts. The objective of this line is to neutralize the
impact of foreign currency exchange rate movements on the Company's operating
results. The line does not limit the type of currency that can be hedged. The
Company's accounting policy for these instruments is based on the Company's
designation of such instruments as hedging transactions. The Company does not
use derivative financial instruments for speculative or trading purposes.

At June 30, 1997, the Company has $183,000 of short-term foreign exchange
contracts outstanding, denominated in French francs, which approximated the fair
value of such contracts and their underlying transactions at June 30, 1997. The
outstanding forward contracts have original maturities that do not exceed one
year. The gains and losses on forward exchange contracts are included in
earnings when the underlying foreign currency denominated transaction is
recognized. Gains and losses related to these instruments at June 30, 1997 were
not material. The Company does not anticipate any material adverse effect on its
consolidated financial position, results of operations, and cash flows resulting
from the use of these instruments.

6.       Income Taxes

         The Company's provision for income taxes for the three months ended
June 30, 1997 is based upon the Company's estimate of the effective tax rate for
1997. The Company's effective tax rate for the three month period ended June 30,
1997 was 27%. The Company's effective tax rate for the remainder of 1997 may
vary depending on the geographic mix of income and the reinstatement of the R&D
credit.

7.       Initial Public Offering

         In May 1996, the Company completed its initial public offering and
issued 2,322,500 new shares of its common stock to the public at $20.00 per
share. The Company received approximately $42.3 million in cash, net of
underwriting discounts, commissions and other offering costs. 

                                       8
<PAGE>
 
Simultaneously with completion of the offering, 3,687,117 outstanding shares of
preferred stock were automatically converted into common stock on a one-to-one
basis.

8.       EDTN Joint Venture

         The Company entered into a joint venture agreement with CMP Media,
Inc. ("CMP") dated April 4, 1997. The joint venture was established for the
creation of the Electronic Design Technology Network ("EDTN"). EDTN is an
Internet supersite using push technology to provide electronic designers with
up-to-date information on components and suppliers, and related news, reviews,
product demonstrations and company announcements. EDTN revenues are generated
primarily from advertising sponsorships. The equity ownership of this joint
venture is split 50% to CMP and 50% to the Company. The Company invested a
total of $1,000,000 in the joint venture in the quarter ended June 30, 1997.
Included within interest and other income/expense for the second quarter of
1997 is a $200,000 charge representing the Company's share of losses in this
joint venture.
                                       9
<PAGE>
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION           
         AND RESULTS OF OPERATIONS

         The discussion in this Report contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed in "Factors
That May Affect Future Results" as well as those discussed in this section and
elsewhere in this Report, and the risks discussed in the "Business Factors"
section included in the Company's Form 10-KSB, for the fiscal year ended
December 31, 1996, filed with the Securities and Exchange Commission on March
19, 1997.

RESULTS OF OPERATIONS

REVENUES

         The Company's revenues are divided into three categories: license
revenues, subscription and maintenance revenues, and service and other
revenues. License revenues are comprised principally of perpetual license fees
for the Company's client/server software and reference data products.
Subscription and maintenance revenues are comprised principally of annual
subscription and maintenance fees for the Company's products, including its
Explore client/server software, its VIP family of component reference
databases and the CAPS reference data product. Service and other revenues are
comprised principally of fees for consulting, development and training
services performed by the Company. License revenues are recognized after
execution of a license agreement, or receipt of a definitive purchase order,
and shipment of the product if no significant vendor obligations remain and
collection of the resulting receivables is deemed probable. Product returns
and sales allowances (which were not significant through June 30, 1997) are
estimated and provided for at the time of sale. When delivery involves
significant obligations at multiple sites, revenues are recognized on a per-
site basis upon completion of installation. Revenues from subscription and
maintenance agreements are deferred and recognized on a straight-line basis
over the life of the related agreement, which is typically twelve months.
Service revenues from training and consulting are recognized upon completion
of the work to be performed. Development revenues are recognized in accordance
with the terms of the agreements, generally when related costs have been
incurred.

         Licenses. Revenues from licenses increased from $3,114,000 for the
three months ended June 30, 1996 to $5,370,000 for the three months ended June
30, 1997 and increased from $5,465,000 for the six months ended June 30, 1996,
to $9,219,000 for the six months ended June 30, 1997. This increase was due
primarily to continuing acceptance of the Company's Explore and VIP products.

         Subscription and Maintenance Revenue. Subscription and maintenance
revenue increased from $2,248,000 for the three months ended June 30, 1996 to
$2,998,000 for the three months ended June 30, 1997 and increased from
$4,186,000 for the six months ended June 30, 1996, to $5,684,000 for the six
months ended June 30, 1997. This increase was due primarily to renewals of
subscription and maintenance agreements from the increased installed base of
customers.


         Service and Other Revenue. Service and other revenue increased from
$425,000 for the three months ended June 30, 1996 to $1,472,000 for the three
months ended June 30, 1997 and increased from $737,000 for the six months ended
June 30, 1996, to $2,613,000 for the six months ended June 30, 1997. This
increase was due primarily to an increase in the number and size of consulting
contracts in 1997. The Company is increasing its focus on consulting services
due to its leverage in increasing future license revenues.

                                     10

<PAGE>

COST OF REVENUES

         Cost of Licenses. Cost of licenses consists primarily of license fees
and royalties paid to third-party vendors, primarily Oracle and Mainsoft. Cost
of licenses decreased from $147,000 for the three months ended June 30, 1996 to
$100,000 for the three months ended June 30, 1997 and increased from $246,000
for the six months ended June 30, 1996, to $274,000 for the six months ended
June 30, 1997, representing 5%, 2%, 5% and 3% of license revenues for the three
months ended June 30, 1996 and 1997 and for the six months ended June 30, 1996
and 1997, respectively. This decrease as a percentage of revenues was due
primarily to an increase in the number of customers providing their own database
software.

         Cost of Subscription and Maintenance Revenues. Cost of subscription and
maintenance revenues consists primarily of personnel-related costs incurred in
providing centralized telephone support and related technical support to
customers and license fees and royalties paid to third-party vendors, primarily
Information Handling Systems for the CAPS reference data product. Cost of
subscription and maintenance revenues increased from $258,000 for the three
months ended June 30, 1996 to $598,000 for the three months ended June 30, 1997
and increased from $528,000 for the six months ended June 30, 1996, to
$1,043,000 for the six months ended June 30, 1997, representing 11%, 20%, 13%
and 18% of subscription and maintenance revenues for the three months ended June
30, 1996 and 1997 and for the six months ended June 30, 1996 and 1997,
respectively. The increase as a percentage of related revenues in 1997 is due to
an increase in the customer support infrastructure required to provide an
increased level of support to customers.

         Cost of Service and Other Revenues. Cost of service and other revenues
consist primarily of personnel-related costs incurred in providing consulting
services, development services and training to customers. Cost of service and
other revenues increased from $392,000 for the three months ended June 30, 1996
to $665,000 for the three months ended June 30, 1997 and increased from $598,000
for the six months ended June 30, 1996, to $1,180,000 for the six months ended
June 30, 1997, representing 92%, 45%, 81% and 45% of service and other revenues
for the three months ended June 30, 1996 and 1997 and for the six months ended
June 30, 1996 and 1997, respectively. The decrease in cost of service and other
revenues as a percent of service and other revenues was due primarily to
increased growth in service revenue and the increased efficiency of the
consulting workforce.

OPERATING EXPENSES

         Research and Development. Research and development expenses consist
primarily of engineering personnel costs. Research and development expenses
increased from $1,794,000 for the three months ended June 30, 1996 to $1,985,000
for the three months ended June 30, 1997, and 

                                       11
<PAGE>
 
increased from $3,342,000 for the six months ended June 30, 1996, to $3,858,000
for the six months ended June 30, 1997, representing 31%, 20%, 32% and 22% of
total revenues for the three months ended June 30, 1996 and 1997 and for the six
months ended June 30, 1996 and 1997, respectively. The decrease in cost of
research and development as a percent of total revenues was due principally to
the Company's growth in total revenues partially offset by increased development
staffing. The increase in research and development in absolute dollars is due to
the increased development staffing. The Company expects research and development
expenses to increase in absolute dollars while remaining approximately level or
decrease as a percent of revenues.

         Sales and Marketing. Sales and marketing expenses include salaries,
commissions, advertising, travel, trade show, public relations and other selling
and marketing-related expenses. Sales and marketing expenses increased from
$2,168,000 for the three months ended June 30, 1996 to $4,085,000 for the three
months ended June 30, 1997, and increased from $3,856,000 for the six months
ended June 30, 1996, to $7,174,000 for the six months ended June 30, 1997,
representing 37%, 42%, 37% and 41% of total revenues for the three months ended
June 30, 1996 and 1997 and for the six months ended June 30, 1996 and 1997,
respectively. The increase in sales and marketing expenses both in absolute
dollars and as a percentage of revenues was due primarily to the addition of
sales marketing and consulting personnel and increased marketing activities,
including trade shows, promotional expenses and increased geographic coverage.
The Company expects sales and marketing expenses to increase in absolute dollars
and may increase as a percent of revenues as the Company releases and promotes
new products; however, there can be no assurance that increased sales and
marketing spending will result in increased revenues.

         General and Administrative. General and administrative expenses include
personnel costs for administration, finance, human resources and general
management, along with legal and accounting expenses and other professional
services. General and administrative expenses increased from $748,000 for the
three months ended June 30, 1996 to $978,000 for the three months ended June 30,
1997, and increased from $1,335,000 for the six months ended June 30, 1996, to
$1,795,000 for the six months ended June 30, 1997, representing 13%, 10%, 13%
and 10% of total revenues for the three months ended June 30, 1996 and 1997 and
for the six months ended June 30, 1996 and 1997, respectively. The increase in
absolute dollars of general and administrative expenses was primarily the result
of increased staffing and associated expenses necessary to manage and support
the Company's growth. The decrease in cost as a percent of total revenue was due
to the Company's growth in total revenues. The Company expects general and
administrative expenses to increase in absolute dollars while remaining
approximately level or decrease as a percent of revenues.

INTEREST AND OTHER INCOME/EXPENSE

         Interest and other income and expense represents interest income
earned on the Company's cash, cash equivalents and short-term investments,
charge for the Company's share of losses of the EDTN joint venture and other
items. Interest and other income and expense increased from $124,000 for the
three months ended June 30, 1996 to $474,000 for the three months ended June
30, 1997, and increased from $130,000 for the six months ended June 30, 1996,
to $1,090,000 for the six months ended June 30, 1997, representing 2%, 5%, 1%
and 6% of total revenues for the three months ended June 30, 1996 and 1997 and
for the six months ended June 30, 1996 and 1997, respectively. This increase
was primarily due to higher cash balances resulting from the infusion of cash
from the
                                       12
<PAGE>
 
initial public offering offset by the $200,000 charge for the Company's share in
losses of the EDTN joint venture.

PROVISION FOR INCOME TAXES

         The Company's effective income tax rate for the three month period
ended June 30, 1997 was 27% compared to 10% for the comparable period in the
prior year. The increase in the effective income tax rate was primarily related
to increased net income before taxes which resulted in higher federal income
taxes, and to the full utilization of net operating loss carryforwards and
utilization of a substantial portion of credit carryforwards in the prior year.
The Company's effective tax rate for the remainder of 1997 may vary depending on
the geographic mix of income and reinstatement of the R&D credit.

LIQUIDITY AND CAPITAL RESOURCES

         In May 1996, the Company completed its initial public offering, and its
common stock began trading on the NASDAQ National Market System under the symbol
ASDV. Through the offering, the Company sold 2,322,500 new shares of its common
stock which generated approximately $42.3 million of cash, net of underwriting
discounts, commissions and other offering costs.

         As of June 30, 1997, the Company had approximately $50.3 million in
cash, cash equivalents and short-term investments. Net cash provided by
operating activities was $5,275,000 for the three months ended June 30, 1997,
and was primarily due to net income of $2,313,000, an increase in deferred
revenue of $1,361,000, an increase in accounts payable of $596,000 and an
increase in accrued liabilities of $1,548,000, offset by an increase in accounts
receivable of $727,000 and a decrease in third-party royalties and fees of
$216,000.

         As of June 30, 1997, the Company's principal commitments consisted of
obligations under operating and capital leases. As of June 30, 1997, the Company
had $684,000 in outstanding borrowings under capital leases which are payable
through 1999.

         The Company believes that its current cash balances and the cash flows
generated from operations, if any, will be sufficient to meet its working
capital and capital expenditure requirements for at least the next 12 months. In
addition, although there are no present understandings, commitments or
agreements with respect to any acquisition of other businesses, products or
technologies, the Company from time to time evaluates potential acquisitions of
businesses, products and technologies and may in the future require additional
equity or debt financings to consummate such potential acquisitions.

                                       13
<PAGE>
 
FACTORS THAT MAY AFFECT FUTURE RESULTS

         The Company operates in a rapidly changing environment that involves a
number of risks, some of which are beyond the Company's control. The following
discussion highlights some of these risks. These risks should be read in
conjunction with the "Business Factors" section included in the Company's Form
10-KSB, for the fiscal year ended December 31, 1996, filed with the Securities
and Exchange Commission on March 19, 1997.

FLUCTUATIONS IN OPERATING RESULTS

         The Company's revenues and results of operations have varied on a
quarterly and an annual basis in the past and are expected to vary significantly
in the future. The Company's revenues and results of operations are difficult to
forecast and could be materially adversely affected by many factors, some of
which are outside the control of the Company, including, among others, the
relatively long sales and implementation cycles for the Company's products; the
size and timing of individual license transactions; seasonality of revenues;
changes in the Company's operating expenses; changes in the mix of products and
services sold; timing of introduction or enhancement of products by the Company
or its competitors; market acceptance of new products; technological changes in
software or database technology; personnel changes and difficulties in
attracting and retaining qualified sales, marketing, technical and consulting
personnel; changes in customers' budgeting cycles; foreign currency exchange
rates; quality control of products sold; and economic conditions generally and
in specific industry segments.

         The Company's business has experienced and is expected to continue to
experience seasonality, in part due to customer buying patterns and the
Company's expense patterns. In recent years, the Company has generally had
stronger demand for its products during the quarter ending December 31, and has
incurred higher personnel costs in the quarter ending March 31. The Company
believes that these patterns will continue for the foreseeable future.

         License of the Company's client/server software and reference data
products have historically accounted for the substantial majority of the
Company's revenues, and the Company anticipates that this trend will continue
for the foreseeable future. The Company generally ships its products within a
short period of time after execution of a license. As a result, the Company
typically does not have a material backlog of unfilled license orders, and
revenues in any quarter are substantially dependent on license revenues
recognized in that quarter. The Company's expense levels are based, in part, on
its expectations as to future revenues and to a large extent are fixed in the
short term. Accordingly, the Company may be unable to adjust spending in a
timely manner to compensate for any unexpected shortfall in revenues, and any
significant shortfall of demand in relation to the Company's expectations or any
material delay of customer orders would have an almost immediate material
adverse effect on the Company's business, financial condition or results of
operations.

         As a result, it is likely that in some future period the Company's
results of operations could fail to meet the expectations of public market
analysts or investors. In such event, or in the event that adverse conditions
prevail or are perceived to prevail generally or with respect to the Company's
business, the price of the Company's Common Stock would likely drop
significantly.

                                      14
<PAGE>
 
LENGTHY SALES AND IMPLEMENTATION CYCLES

         The license of the Company's client/server software and reference data
products generally requires the Company to engage in a sales cycle lasting six
to twelve months or longer, during which the Company typically provides a
significant level of education to prospective customers regarding the use and
benefits of the Company's products. In addition, the implementation of the
Company's standard products typically involves a significant commitment of
resources by its customers over an extended period of time and is commonly
associated with reengineering of product development and business processes. For
these reasons, sales and customer implementation cycles are subject to a number
of significant delays over which the Company may have little or no control.
Accordingly, any delay in the sale or customer implementation of a larger
license or a number of smaller licenses would have a material adverse effect on
the Company's business, financial condition or results of operations and cause
the Company's operating results to vary significantly from quarter to quarter.

RELIANCE ON ACCEPTANCE OF CSM SOLUTION

         Substantially all of the Company's revenues are derived from fees for
licensed products and for services which enable component and supplier
management ("CSM") by manufacturers. The Company's future financial performance
will depend to a large extent on the growth in the number of organizations
adopting client/server software and reference data solutions for CSM and
engaging outside vendors to provide and maintain such solutions. The Company's
future growth, if any, will also depend upon the extent to which such
organizations choose to implement CSM solutions in general, and the Company's
CSM solutions in particular, across their enterprises and on their continued
reliance on the Company's subscription, maintenance and support offerings.
Because the CSM market is relatively new and evolving, it is difficult to assess
or predict with any assurance its size or growth rate, if any. There can be no
assurance that the market for CSM products and services will continue to
develop, or that the Company's CSM products or services will continue to achieve
market acceptance. If the CSM market develops more slowly than expected or fails
to attract new competitors, or if the Company's products do not continue to
achieve broader market acceptance, the Company's business, financial condition
or results of operations could be materially adversely affected.

DEPENDENCE ON PRODUCTS

         The Company currently derives substantially all of its revenues from
the licensing of its Explore client/server software and VIP family of reference
databases and fees from related services. These products and services are
expected to continue to account for substantially all of the Company's revenues
for the foreseeable future. The Company first made its Explore client/server
software and VIP reference databases generally commercially available in the
second quarter of 1995, and has issued regular updates since then. While the
Company believes that to date its customers have not experienced significant
problems with such products, if the Company's customers were to do so in the
future or if they were dissatisfied with product functionality or performance,
the Company's business, financial condition or results of operations could be
materially adversely affected.

                                       15
<PAGE>
 
         There can be no assurance that the Company's products will continue to
achieve broader market acceptance or that the Company will be successful in
marketing its products or enhancements thereto. In the event that the Company's
current or future competitors release new products that have more advanced
features, offer better performance or are more price competitive than the
Company's products, demand for the Company's products would decline. A decline
in demand for, or market acceptance of, the Explore client/server software or
the VIP family of reference databases as a result of competition, technological
change, evolution of the Internet or other factors would have a material adverse
effect on the Company's business, financial condition or results of operations.

MANAGEMENT OF EXPANDING OPERATIONS

         The Company's business has grown rapidly in recent periods, with
revenues increasing from $8.5 million in 1994, to $13.7 million in 1995, to
$24.2 million in 1996 and to $17.5 million in the first six months of 1997. In
addition, the Company has experienced significant growth in the number of its
employees, the scope of its operating and financial systems and the geographic
area of its operations, which has placed a significant strain on the Company's
management. The Company's future results of operations will depend in part on
the ability of its officers and other key employees to continue to implement and
expand its operational, customer support and financial control systems and to
expand, train and manage its employee base. In order to successfully manage its
future growth, if any, the Company will be required to hire additional general
and administrative personnel and to augment its existing financial and
management systems or to implement new such systems. There can be no assurance
that the existing and new management will be able to augment or to implement
such systems efficiently or on a timely basis, and the failure to do so could
have a material adverse effect on the Company's business, financial condition or
results of operations. There can be no assurance that the Company will be able
to manage any future expansion, if any, successfully; and any inability to do so
would have a material adverse effect on the Company's business, financial
condition or results of operations. In addition, the Company believes that its
future success will also depend to a significant extent upon its ability to
attract, train and retain highly skilled technical, management, sales, marketing
and consulting personnel. Competition for such personnel is intense, and the
Company expects that such competition will continue for the foreseeable future.
The Company has from time to time experienced difficulty in locating candidates
with appropriate qualifications. There can be no assurance that the Company will
be successful in attracting or retaining such personnel, and the failure to
attract or retain such personnel could have a material adverse effect on the
company's business, financial condition or results of operations.

DISTRIBUTION RISKS

         An integral part of the Company's strategy is to expand its direct
sales force and to establish marketing, selling and consulting relationships
both domestically and internationally. In addition, the Company intends to
leverage its relationships with hardware and software vendors and systems
integrators to encourage these parties to recommend or distribute the Company's
products. The Company has invested resources and may invest additional resources
to develop these channels. The ability of the Company to achieve revenue growth
in the future will depend on its success in adding a substantial number of
direct sales employees and establishing marketing, selling and consulting
relationships during 1997 and future periods. There can be no assurance that the

                                       16
<PAGE>
 
Company will be able to attract sufficient direct sales personnel, hardware and
software vendors, systems integrators or other marketing or selling partners to
market the Company's products effectively. There can be no assurance that the
cost of the Company's investment in direct and indirect sales channels will not
exceed the revenues generated from such investment, if any, or that the
Company's sales and marketing organization will successfully compete against the
sales and marketing organizations of the Company's competitors.

NEED TO DEVELOP, MAINTAIN AND IMPROVE REFERENCE DATA PRODUCTS

         The Company's VIP component reference databases are composed of a large
amount of information supplied by component suppliers which requires frequent
updating and expansion. As a result, the Company must continue to invest
substantial resources in its reference data products. The information regarding
components and suppliers contained in the Company's VIP component reference
databases is not proprietary to the Company and is derived from supplier
databooks. Therefore, other parties may independently create similar reference
data products. The Company first released its VIP component reference databases
in 1995, and accordingly has only limited experience with building, maintaining
and upgrading such products. Furthermore, the Company currently plans to
develop, license or acquire reference data products for additional global
vertical markets, which will impose significant additional burdens on its data
product development efforts. As the information contained in the Company's
reference data products expands or if the demand for frequency of updates
increases, unforeseen problems with entering, updating, managing or delivering
the data may arise. Because the Company's customers rely on the information
contained in the Company's VIP family of component reference databases to design
and procure components for their products, the accuracy, completeness and
currency of the information in those data products is critical. To the extent
that the Company is unable to keep its reference data products accurate,
complete or current, its customers may become dissatisfied with the Company's
products and discontinue their purchase of the Company's products and services.
In the event that the Company's VIP family of component reference databases is
or is perceived to be inaccurate, incomplete or out-of-date, the Company's
business, financial condition or results of operations could be materially
adversely affected.

NEED TO DEVELOP NEW SOFTWARE PRODUCTS AND ENHANCEMENTS

         The market for the Company's client/server software products is
characterized by rapid technological change, changing customer requirements,
frequent new product introductions and evolving industry standards. The
introduction of products incorporating new technologies and the emergence of new
industry standards could render existing products obsolete or unmarketable. The
life cycles of the Company's client/server software products are difficult to
estimate. The Company's future success will depend in large part upon its
ability to enhance its current client/server software products and to develop
and introduce on a timely basis new products that keep pace with technological
developments and emerging industry standards and address the increasingly
sophisticated needs of its customers. The success of the Company's software
development efforts will depend on various factors, including the integration of
additional software modules under development with existing products. There can
be no assurance that the Company will be successful in developing and marketing
product enhancements or new products that respond to technological change or
evolving industry standards, that the Company will not experience difficulties
that could delay or prevent the successful development, introduction or
marketing of 

                                       17
<PAGE>
 
these products, or that the Company's new products and product
enhancements will adequately address the requirements of the marketplace and
achieve market acceptance. If the Company is unable to develop and introduce new
software products or enhancements of existing products in a timely manner or if
the Company experiences delays in the commencement of commercial shipments of
new products and enhancements, the Company's business, financial condition or
results of operations could be materially adversely affected.

                                       18
<PAGE>
 
PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

         Not Applicable.

Item 2.  Changes in Securities

         Not Applicable.

Item 3.  Defaults Upon Senior Securities

         Not Applicable.

Item 4.  Submission of Matters to a Vote of Security Holders

                  The following are the results of matters which were submitted
to a vote of security holders at the Company's Annual Meeting of Stockholders
held on June 4, 1997:

Proposal 1-Election of Directors

                       For            Against            Abstain
Romesh Wadhwani    11,449,182                             3,225
Joseph A. Prang    11,449,182                             3,225
Steven Goldby      11,449,182                             3,225
Dennis G. Sisco    11,449,182                             3,225
Mark A. Stevens    11,449,182                             3,225

Proposal 2-Proposal to amend the 1996 Employee Stock Purchase Plan to increase
the number of shares reserved for issuance by 200,000 shares

                       For            Against            Abstain
                   11,200,676         216,650            10,980

Proposal 3-Proposal to ratify the appointment of Ernst & Young LLP as the
independent auditors of the Company

                       For            Against            Abstain
                   11,445,564           1,535             5,308



Item 5    Other Information

          Not applicable.

                                       19
<PAGE>
 
Item 6.  Exhibits and Reports on Form 8-K

         (a)      Exhibits

         Exhibit 11.1 -- Computation of Net Income Per Share

         Exhibit 27   -- Financial Data Schedule

         (b)      Reports on Form 8-K

                  None.

                                       20
<PAGE>
 
                                   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.





August 13,1997                     /s/  David S. Dury
                                   ------------------
                                   David S. Dury
                                   Vice President,
                                   Chief Financial Officer
                                   (Principal Financial and
                                   Accounting Officer)

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