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

                                   FORM 10-Q
                                        
/X/    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934

                 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
                                        
/ /    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)

                                (650) 428-2700
             (Registrant's telephone number, including area code)


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

                          Yes   X                 No
                              -----                  -----

The number of shares outstanding of the registrant's common stock as of April
30, 1999 was 31,287,892.
<PAGE>
 
                           ASPECT DEVELOPMENT, INC.

                                   FORM 10-Q

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
 
PART I.                        FINANCIAL INFORMATION                     PAGE
<S>          <C>                                                         <C>
 
Item 1.      Condensed Consolidated Financial Statements
 
             Condensed Consolidated Balance Sheets
             as of March 31, 1999 and December 31, 1998                     3
 
             Condensed Consolidated Statements of Operations
             for the three months ended
             March 31, 1999 and March 31, 1998                              4
 
             Condensed Consolidated Statements of Cash Flows
             for the three months ended
             March 31, 1999 and March 31, 1998                              5
 
             Notes to Condensed Consolidated Financial Statements           6
 
Item 2.      Management's Discussion and Analysis of Financial
             Condition and Results of Operations                           10
 
Item 3.      Quantitative and Qualitative Disclosures About Market Risk    18
 
PART II.     OTHER INFORMATION
 
Item 1.      Legal Proceedings                                             19
 
Item 2.      Changes in Securities and Use of Proceeds                     19
 
Item 3.      Defaults Upon Senior Securities                               19
 
Item 4.      Submission of Matter to a Vote of Security Holders            19
 
Item 5.      Other Information                                             19
 
Item 6.      Exhibits and Reports on Form 8-K                              19
 
Signature                                                                  20

</TABLE>

                                       2
<PAGE>
 
PART 1.   FINANCIAL INFORMATION

Item 1.   Condensed Consolidated Financial Statements


                           Aspect Development, Inc.
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                (In thousands)

<TABLE>
<CAPTION>
 
                                    ASSETS


                                                                  March 31,         December 31,
                                                                    1999                1998
                                                              ---------------     ----------------
                                                                (Unaudited)
<S>                                                         <C>                 <C>
Current assets:
     Cash and cash equivalents                                   $   4,849          $   7,877
     Short-term investments                                         82,945             73,596
     Accounts receivable, net                                       15,247             19,509
     Prepaid expenses and other current assets                       3,034              4,397
                                                                 ---------          ---------
             Total current assets                                  106,075            105,379
Property and equipment, net                                          8,793              9,121
Other assets, net                                                    1,190                282
                                                                 ---------          ---------
             Total assets                                        $ 116,058          $ 114,782
                                                                 =========          =========
 
                     LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable                                            $   2,054          $   2,483
     Accrued bonuses and commissions                                 5,198              5,233
     Income taxes payable                                            2,167              2,946
     Other accrued liabilities                                       5,246              5,766
     Deferred revenue                                                9,262              9,497
     Capital lease obligations-current portion                          --                 17
                                                                 ---------          ---------
             Total current liabilities                              23,927             25,942

Stockholders' equity:
     Preferred stock                                                    --                 --
     Common stock                                                   97,872             95,068
     Deferred compensation                                            (168)              (210)
     Accumulated translation adjustment                                133                 12
     Accumulated deficit                                            (5,706)            (6,031)
                                                                 ---------          ---------
             Total stockholders' equity                             92,131             88,840
                                                                 ---------          ---------
             Total liabilities and stockholders' equity          $ 116,058          $ 114,782
                                                                 =========          =========
</TABLE>

    See accompanying notes to Condensed Consolidated Financial Statements.

                                       3
<PAGE>
 
                           Aspect Development, Inc.
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                   (In thousands, except per share amounts)
                                  (unaudited)
 
<TABLE>
<CAPTION> 
                                                                             Three months ended
                                                                                  March 31,
                                                                      ----------------------------------
                                                                          1999                  1998
                                                                      ------------          ------------
<S>                                                                <C>                  <C>
Revenues
     License                                                            $   4,932            $  10,210
     Subscription and maintenance                                           5,406                4,019
     Service and other                                                      4,038                3,447
                                                                        ---------            ---------
             Total revenues                                                14,376               17,676
                                                                        ---------            ---------
Cost of revenues
     License                                                                  162                   67
     Subscription and maintenance                                           1,051                  684
     Service and other                                                      1,767                1,711
                                                                        ---------            ---------
             Total cost of revenues                                         2,980                2,462
                                                                        ---------            ---------
Gross profit                                                               11,396               15,214
Operating expenses
     Research and development                                               4,619                3,572
     Sales and marketing                                                    7,983                7,556
     General and administrative                                             2,161                1,651
                                                                        ---------            ---------
             Total operating expenses                                      14,763               12,779
                                                                        ---------            ---------
Operating income (loss)                                                    (3,367)               2,435
Interest and other income, net                                              3,805                  504
                                                                        ---------            ---------
Income before income taxes                                                    438                2,939
Provision for income taxes                                                    113                  650
                                                                        ---------            ---------
Net income                                                              $     325            $   2,289
                                                                        =========            =========
Net income per share-basic                                              $    0.01            $    0.08
                                                                        =========            =========
Net income per share-diluted                                            $    0.01            $    0.07
                                                                        =========            =========
Shares used in computing per share
     amounts-basic                                                         31,019               29,114
                                                                        =========            =========
Shares used in computing per share
     amounts-diluted                                                       33,526               32,538
                                                                        =========            =========
</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>
 
                                                                                         Three months ended March 31,
                                                                                         1999                    1998
                                                                                      ----------              ----------
<S>                                                                               <C>                    <C>
Cash flows from operating activities
Net income                                                                             $    325               $  2,289
Adjustments to reconcile net income to net cash from operating activities:
     Depreciation and amortization                                                        1,551                  1,090
     Loss in joint ventures                                                                (128)                  (159)
     Changes in assets and liabilities:
         Accounts receivable                                                              4,262                   (724)
         Prepaid expenses and other current assets                                          273                     81
         Accounts payable                                                                  (699)                     9
         Accrued bonuses and commissions                                                   (376)                  (184)
         Accrued merger costs                                                                 -                 (1,705)
         Income taxes payable                                                              (597)                   336
         Other accrued liabilities                                                         (169)                 1,549
         Deferred revenue                                                                  (235)                (1,859)
         Third-party royalties and fees                                                     244                     90
                                                                                       --------               --------
Net cash provided by operating activities                                                 4,451                    813

Cash flows from investing activities
Purchases of property and equipment                                                      (1,069)                (1,207)
Purchases of short-term investments                                                     (89,571)               (29,376)
Proceeds from maturities of short-term investments                                       80,222                 18,550
Decrease in employee note receivable                                                        442                    151
Increase in other assets                                                                   (287)                    46
                                                                                       --------               --------
Net cash used in investing activities                                                   (10,263)               (11,836)
 
Cash flows from financing activities
Principal payments on capital lease obligations                                             (17)                  (102)
Proceeds from issuance of common stock                                                    2,680                  2,449
                                                                                       --------               --------
Net cash provided by financing activities                                                 2,663                  2,347
 
Net decrease in cash and cash equivalents                                                (3,149)                (8,676)
Effect of exchange rate on cash                                                             121                   (118)
Cash and cash equivalents at beginning of period                                          7,877                 14,550
                                                                                       --------               --------
Cash and cash equivalents at end of period                                             $  4,849               $  5,756
                                                                                       ========               ========
 
Supplemental disclosure of cash flow information
Cash paid during the period for interest                                               $      -               $      7
                                                                                       ========               ========
Income taxes paid                                                                      $    658               $      -
                                                                                       ========               ========

</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

    Aspect Development, Inc. ("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 and notes thereto
as included in the Company's Form 10-K for the fiscal year ended December 31,
1998.  The consolidated results of operations for the period ended March 31,
1999 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% or less 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, net in the consolidated
statements of operations.

    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 monthly
basis at the average rates of exchange prevailing during the month.  The
adjustment resulting from translating the assets and liabilities 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.  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 vendor specific objective
evidence exists to allocate the fee from the arrangement between delivered and
undelivered elements 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 allowances (which were not significant
through March 31, 1999) are estimated and provided for at the time of sale.

                                       6
<PAGE>
 
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 one year.

Service and other revenues are comprised of data services, process consulting,
and training fees.  Revenues from these items are recognized upon completion of
the work to be performed.


3.  Comprehensive Income

    As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income."  SFAS
No. 130 establishes standards for the reporting and display of comprehensive
income and its components.  The adoption of this Statement had no impact on the
Company's net income or stockholders' equity.  SFAS No. 130 requires all changes
in equity that result from transactions and other economic events of the period
other than transactions with owners, for example, unrealized gains or losses on
the Company's available-for-sale securities and foreign currency translation
adjustments, to be included in other comprehensive income.

During the three months ended March 31, 1999 and 1998, total comprehensive
income amounted to $0.2 million and $2.2 million, respectively. The components
of comprehensive income, net of related tax, for the three months ended March
31, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
 
                                              Three months ended March 31,
(In thousands)                                      1999    1998
                                                   ------  ------
<S>                                                <C>     <C>
        Net income                                 $ 325   $ 2,289
        Unrealized gain (loss) on securities          --        --
        Foreign currency translation adjustment     (121)     (118)
                                                   -----   -------
        Comprehensive income                       $ 204   $ 2,171
                                                   =====   =======
</TABLE>

                                       7
<PAGE>
 
4.  Net Income Per Share

    Basic earnings per share is calculated using the weighted average number of
shares outstanding during the period.  Diluted earnings per share is computed on
the basis of the weighted average number of common shares outstanding plus the
dilutive effect of outstanding stock options and the employee stock purchase
plan using the "treasury stock" method.

The following table sets forth the computation of basic and diluted earnings per
share:


<TABLE>
<CAPTION>
                                                                              Three months ended March 31,
                                                                                1999                1998
                                                                            -------------       ------------
<S>                                                                     <C>                 <C>
Basic:
Total weighted average common
   shares outstanding                                                              31,109             29,114
Net income                                                                $           325        $     2,289
Basic income per share                                                    $          0.01        $      0.08
 
Diluted:
Weighted average common shares outstanding                                         31,019             29,114
Common stock equivalents (treasury stock method)                                    2,507              3,424
                                                                          ---------------     --------------
Total weighted average common and common equivalent
   shares outstanding                                                              33,526             32,538
Net income                                                                $           325        $     2,289
Diluted income per share                                                  $          0.01        $      0.07

</TABLE>
                                                                                

5.  EDTN Joint Venture

    The Company entered into a Limited Liability Company ("LLC") Agreement with
CMP Media Inc. ("CMP") dated April 4, 1997.  The LLC, EDTN, was established to
provide news, promotional materials, literature, product data, reference
material, application information tutorials, seminars, product and software
demonstrations and other services through the Internet and corporate intranets
to the electronic engineering community in North America.  Initially, the
ownership of the LLC was shared equally between the Company and CMP, each
contributing $1.0 million to establish the LLC.

In March 1999, both the Company and CMP sold approximately one-third of their
interest in EDTN to a third party for $3 million.  The Company recorded a gain
of approximately $3 million on this transaction, and this gain is included in
Interest and other income, net.

In the three months ended March 31, 1999 and 1998, the Company's share of losses
in the joint venture amounted to $128,000 and $159,000, respectively.  This
amount was charged to Interest and other income, net.


6.  Industry Segment Information

    During 1998 the Company adopted SFAS No. 131, "Disclosure About Segments of
an Enterprise and Related Information". The Company develops, markets and
supports enterprise client/server software and reference data products that
enable manufacturers to improve product development and business processes
through component and supplier management.

                                       8
<PAGE>
 
    The Company is organized based upon the nature of the products and services
it offers. Under this organizational structure, the Company operates in three
fundamental business segments: licenses, subscription and maintenance, and
service. The information in the following tables is derived directly from the
Company's internal financial reporting used for corporate management purposes.
The Company evaluates its segments' performance based on several factors,
including revenue, gross profit, and net income before taxes. Unallocated costs
include corporate and other costs not allocated to business segments for
management reporting purposes.

<TABLE>
<CAPTION>
 
 
                                                                   Three months ended March 31,
                                                            -------------------------------------------
                                                                       1999                1998
                                                            ---------------------  --------------------
<S>                                                         <C>                 <C>
Net revenues from unaffiliated customers (in thousands):
  Licenses                                                      $   4,932               $  10,210
  Subscriptions and maintenance                                     5,406                   4,019
  Service                                                           4,038                   3,447
                                                                ---------               ---------
     Total revenue                                              $  14,376               $  17,676
                                                                =========               ========= 
  
                                                                  Three months ended March 31,
                                                            -------------------------------------------
                                                                       1999                1998
                                                            ---------------------  --------------------
<S>                                                         <C>                 <C>
Income before income taxes (in thousands):
  Licenses                                                      $   4,770               $  10,143
  Subscriptions and maintenance                                     4,355                   3,335
  Service                                                           2,271                   1,736
                                                                ---------               ---------
     Gross Profit                                               $  11,396               $  15,214
                                                                =========               ========= 
 
 
  Unallocated expense                                           $  14,763               $  12,779
  Interest and other income/expense                                 3,805                     504
                                                                ---------               ---------
     Income before income taxes                                 $     438               $   2,939
                                                                =========               ========= 
 
</TABLE>

7.  Subsequent Events

    In April 1999, the Company announced that its Board of Directors approved
the repurchase of up to an aggregate of $25 million of its common stock. The
repurchases will be made from time to time on the open market at prevailing
market prices or in negotiated transactions off the market. The repurchase
program is expected to continue over the next 12 months unless extended or
shortened by the Board of Directors.

                                       9
<PAGE>
 
Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations

     This report contains forward-looking statements.  These statements relate
to future events or Aspect's future financial performance.  In some case,
forward-looking statements can be identified by terminology such as "may,"
"will," "should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," or "continue" or the negative of such terms and other
comparable technology.  These statements reflect only management's current
expectations.  Actual events or results may differ materially from any forward-
looking statements.  Factors that should cause or contribute to such differences
are discussed below and under the caption "Risk Factors."  Aspect does not
undertake any obligations to update any forward-looking statements contained in
this report to reflect any future events or developments.

RESULTS OF OPERATIONS

Revenues

     The Company's revenues consist of 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
and web-enabled software products.  Subscription and maintenance revenues are
comprised principally of annual subscription and maintenance fees for the
Company's products, including its Aspect Explore decision support software and
its family of reference content databases.  Service and other revenues are
comprised principally of fees for consulting, development and training services
performed by the Company.  The Company recognizes revenues in accordance with
American Institute of Certified Public Accountants (the "AICPA") Statement of
Position ("SOP") 97-2 on Software Revenue Recognition.  License revenue is
recognized as revenue after execution of a license agreement or receipt of a
definitive purchase order and shipment of the product, if vendor specific
objective evidence exists to allocate the fee from the arrangement between
delivered and undelivered elements and collection of the resulting receivables
is deemed probable.  For arrangements involving multiple products and services,
the entire arrangement is allocated among the elements based on each element's
relative value.  Product returns and sales allowances (which were not
significant through March 31, 1999) are estimated and provided for at the time
of sale.  When delivery involves significant installation 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 12 months.

Service revenues from training and consulting activities 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.

U.S. and international sales accounted for approximately 86% and 14% of the
Company's total revenue for the three months ended March 31, 1999, respectively,
compared to 75% and 25% for the three months ended March 31, 1998, respectively.

                                       10
<PAGE>
 
     License Revenues.  License revenues decreased from $10,210,000 for the
three months ended March 31, 1998 to $4,932,000 for the three months ended March
31, 1999.  This significant decrease in license revenue was primarily due to
unexpected delays in the signing of certain major contracts.  Manufacturers are
buying larger enterprise-wide solutions from Aspect, leading to complex and
sometimes unpredictable internal approval cycles.  As a result, there were
several such large prospective contracts that were expected to close during the
quarter, but slipped beyond the end of the quarter.

     Subscription and Maintenance Revenues.  Subscription and maintenance
revenues increased from $4,019,000 for the three months ended March 31, 1998 to
$5,406,000 for the three months ended March 31, 1999.  This increase was due
primarily to renewals of subscription and maintenance agreements from the
increased installed base of customers.

     Service and Other Revenues.  Service and other revenues increased from
$3,447,000 for the three months ended March 31, 1998 to $4,038,000 for the three
months ended March 31,1999.  This increase was due primarily to an increase in
the number and size of consulting contracts in 1999.

Cost of Revenues

     Cost of Licenses.  Cost of licenses consists primarily of license fees and
royalties paid to third-party vendors, primarily Oracle, and shipping expenses.
Cost of licenses increased from $67,000 for the three months ended March 31,
1998 to $162,000 for the three months ended March 31, 1999, representing 0.7%
and 3.3% of license revenues for the three months ended March 31, 1998 and 1999,
respectively.  This increase was due primarily to royalties paid for new 
licensing agreements.

     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.  Cost of subscription and maintenance revenues increased from
$684,000 for the three months ended March 31, 1998 to $1,051,000 for the three
months ended March 31, 1999, representing 17.0% and 19.4% of subscription and
maintenance revenues for the three months ended March 31, 1998 and 1999,
respectively.  The increase in absolute dollars and as a percentage of related
revenues in 1999 is primarily due to the Company's high level of interest in
continued customer support and the resulting increase in facilities and
employees for this segment.

     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 $1,711,000 for the three months ended March 31,
1998 to $1,767,000 for the three months ended March 31, 1999, representing 49.6%
and 43.8% of service and other revenues for the three months ended March 31,
1998 and 1999, respectively. The increase in absolute dollars is due primarily
to an increase in the number and size of consulting contracts. The overall
decrease as a percentage of service revenue is due primarily to the increasing
profit margin associated with each individual contract and the fact that an
increasing percentage of these contracts are fulfilled in India, which has a
lower labor cost.

                                       11
<PAGE>
 
Operating Expenses

     Research and Development.  Research and development expenses consist
primarily of engineering personnel costs.  Research and development expenses
increased from $3,572,000 for the three months ended March 31, 1998 to
$4,619,000 for the three months ended March 31, 1999, representing 20.2% and
32.1% of total revenues for the three months ended March 31, 1998 and 1999,
respectively. The increase in research and development expenses as a percent of
total revenues was due to a combination of increased development staffing and
lower total revenues.  The increase in research and development expenses in
absolute dollars was due to increased development staffing.  The Company expects
research and development expenses to increase in absolute dollars while
remaining approximately level or decreasing as a percent of total revenues.

     Sales and Marketing.  Sales and marketing expenses include expenditures for
salaries, commissions, advertising, travel, trade shows, public relations and
other selling and marketing-related expenses.   Sales and marketing expenses
increased from $7,556,000 for the three months ended March 31, 1998 to
$7,983,000 for the three months ended March 31, 1999, representing 42.7% and
55.5% of total revenues for the three months ended March 31, 1998 and 1999,
respectively. The increase in sales and marketing expenses in absolute dollars
was primarily due to the addition of sales and marketing personnel and increased
marketing activities, including trade shows and promotional expenses and
substantial growth in international sales and marketing channels. The increase
in cost as a percent of total revenues was due to the Company's lower total
revenues.  The Company believes that such expenses will increase in dollar
amounts and may increase as a percentage of total revenues in the future as the
Company expands its sales and marketing staff and enters new markets worldwide.

     General and Administrative. General and administrative expenses include
personnel costs for administration, finance, human resources and general
management, legal and accounting expenses and other professional services.
General and administrative expenses increased from $1,651,000 for the three
months ended March 31, 1998 to $2,161,000 for the three months ended March 31,
1999, representing 9.3% and 15.0% of total revenues for the three months ended
March 31, 1998 and 1999, 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 increase in cost as a percent of total revenues was due to the
increase in dollars and to the Company's lower total revenues.  The Company
expects general and administrative expenses to increase in absolute dollars
while remaining approximately level or decreasing as a percent of total
revenues.

Interest and  Other Income, net

     Interest and other income, net, represents interest income earned on the
Company's cash, cash equivalents and short-term investments, foreign exchange
gains and losses, the Company's share of losses of the EDTN joint venture and a
one-time gain of approximately $3 million from the sale of a partial interest in
the EDTN venture.  Interest and other income, net increased from $504,000 for
the three months ended March 31, 1998 to $3,805,000 for the three months ended
March 31, 1999, representing 2.9% and 26.4% of total revenues for the three
months ended March 31, 1998 and 1999, respectively.  The increase from 1998 to
1999 was primarily due to the one-time gain of $3 million from the sale of a
partial interest in the Company's EDTN joint venture.

                                       12
<PAGE>
 
Provision for Income Taxes

     The Company's provision for income taxes decreased from $650,000 for the
three months ended March 31, 1998 to $113,000 for the three months ended March
31, 1999. The decrease in the provision in 1999 is primarily due to decreased
income generated by the Company and the Company's ability to partially utilize
net operating loss carryforwards and credit carryforwards generated in the prior
years.  The Company's provision for income taxes and effective tax rate may vary
in future periods based upon a variety of factors, including the geographic mix
of income.

LIQUIDITY AND CAPITAL RESOURCES

     As of March 31, 1999, the Company had approximately $87.8 million in cash,
cash equivalents and short-term investments.  Net cash provided by operating
activities was $4,451,000 for the three months ended March 31, 1999, primarily
due to net income of $325,000 and a decrease in accounts receivable of
$4,262,000.

     Cash used in investing activities was $10.3 million for the quarter ended
March 31, 1999 primarily due to the investment in financial instruments
classified as short-term investments partially offset by proceeds from
maturities of short-term investments.

     Cash provided by financing activities was $2.7 million for the quarter
ended March 31, 1999 primarily due to the net proceeds received by the Company
upon the exercise of stock options by its employees.

     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, the Company from time to time evaluates potential acquisitions of
businesses, products and technologies and may in the future require additional
equity or debt financing to consummate such potential acquisitions.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which requires companies to record
derivative financial instruments on the balance sheet as assets or liabilities,
measured at fair value.  Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting.  The key criterion for hedge
accounting is that the hedging relationship must be highly effective in
achieving offsetting changes in fair value or cash flows.  SFAS No. 133 is
effective for all fiscal quarters of all fiscal years beginning after June 15,
1999.  This Statement will not have a material impact on the financial condition
or results of the operations of the Company.

In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (AICPA) issued Statement of Position
(SOP) 98-4, "Deferral of the Effective Date of a Provision of SOP 97-2,
`Software Revenue Recognition,'" which defers for one year the application of
provisions in SOP 97-2 which limit what is considered vendor-specific objective
evidence of the fair value of the various elements in a multiple element
arrangement.  All other provisions of SOP 97-2 remain in effect.  This SOP was
effective as of March 31, 1998.  In 

                                       13
<PAGE>
 
December 1998, the AICPA issued SOP 98-9, "Modification of SOP 97-2, `Software
Revenue Recognition,' With Respect to Certain Transactions," which amends
paragraphs 11 and 12 of SOP 97-2, Software Revenue Recognition, to require
recognition of revenue using the "residual value method" under certain
conditions. Effective December 15, 1998, SOP 98-9 amends SOP 98-4, "Deferral of
the Effective Date of a Provision of SOP 97-2, `Software Revenue Recognition,'"
to extend the deferral of the application of certain passages of SOP 97-2
provided by SOP 98-4 through fiscal years beginning on or before March 15, 1999.
All other provisions of this SOP are effective for transactions entered into in
fiscal years beginning after March 15, 1999. The Company does not anticipate
that these statements will have a material adverse impact on its statement of
operations.

IMPACT OF THE YEAR 2000

Many older computer software programs use two digits in their date fields,
identifying years by the last two digits only. Such programs may interpret the
year 2000 as 1900 instead, causing such systems to fail or create erroneous
results after 1999.

  The Company has a Year 2000 (Y2K) internal task force to determine the impact,
if any, of the Y2K issues related to the Company's products, third party
databases embedded in the Company's products, internal computer and
information systems, office equipment, customers' internal management systems,
and third party suppliers. The Company intends to retain a consultant to
evaluate internal systems compliance with Y2K. The amount budgeted for this
expense is $98,000. The Company has tested its products and has determined
that all of the Company's supported products are Y2K compliant, with the
exception of certain older versions of software for which upgrades are
available. The Company is in the process of obtaining questionnaires or
certificates of compliance from significant third-party vendors as to their
Y2K compliance. If any of these vendors are determined to be non-compliant,
the internal task force will develop plans to correct problems once they are
identified.

  The costs to address the Y2K compliance issues to date have been minimal and
have been financed through operating cash flow. The Company has not determined
the total estimated cost of the Y2K compliance program. The estimate of costs
will be determined as the Company continues its assessments and additional
information is known. These costs will not include internal resource costs or
the costs of software and systems that are being replaced or upgraded in the
normal course of business. There can be no assurance that these costs will not
be greater than expected, or that corrective action will be successful or
completed in the requisite timeframe. See "Risk Factors." The Company will
continue to expend appropriate resources to address this issue on a timely
basis.

  The Company believes that Y2K issues may affect the purchasing patterns of
customers and potential customers in a variety of ways. Many companies are
expending significant resources to correct, patch or replace their current
software systems to achieve Y2K compliance. These expenditures may result in
reduced funds available to purchase products such as those offered by the
Company. Any of the foregoing could result in a material adverse effect on the
Company's business, operating results and financial condition.

  The Company believes that it will be substantially complete with its Y2K
compliance work prior to December 31, 1999. Contingency plans will be developed
if it appears the Company, its key 

                                       14
<PAGE>
 
customers or its key suppliers will not be Y2K compliant, and such
noncompliance is expected to have a material adverse impact on the Company's
operations.

RISK FACTORS

     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 "Risk Factors" section included in the Company's Form 10-K
for the fiscal year ended December 31, 1998.

The Company's revenues and results of operations 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.

Licenses 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.

The licensing of the Company's decision support 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 

                                       15
<PAGE>
 
product development and business processes. For these reasons, sales and
customer implementation cycles are subject to delays over which the Company may
have little or no control. 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.

The Company currently derives substantially all of its revenues from the
licensing of its Explore decision support software and family of reference
content 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.  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.

There can be no assurance that the Company's products will 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 software or the Aspect reference content
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.

The Company's business has grown rapidly in recent periods.  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 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.

To implement its business plans, the Company may make further acquisitions in
the future, which will require significant financial and management resources
both at the time of the transaction and during the process of integrating the
newly-acquired business into the Company's operations.  The Company's operating
results could be adversely affected if it is unable to successfully integrate
such new companies into its operations.  There can be no assurance that any
acquired products, technologies or businesses will contribute at anticipated
levels to the Company's sales or earnings, or that sales and earnings from
combined businesses will not be adversely affected by the integration process.
Certain acquisitions or strategic transactions may be subject to approval by the
other party's board or stockholders, domestic or foreign governmental agencies
or other third parties.  Accordingly, there is a risk that important
acquisitions or transactions could fail to be 

                                       16
<PAGE>
 
concluded as planned. Future acquisitions by the Company could also result in
issuances of equity securities or the rights associated with the equity
securities, which could potentially dilute earnings per share. In addition,
future acquisitions could result in the incurrence of additional debt, taxes,
contingent liabilities, amortization expenses related to goodwill and other
intangible assets and expenses incurred to align the accounting policies and
practices of the acquired companies with those of the Company. These factors
could adversely affect the Company's future operating results, financial
position and cash flows. As some of the Company's competitors have pursued a
strategy of growth through acquisition, there is a risk that future acquisitions
could be more expensive due to competition among bidders for target companies.

Historically, a relatively small number of customers have accounted for a
significant percentage of the Company's total revenues, and the Company expects
that it will continue to experience significant customer concentration for the
foreseeable future.  There can be no assurance that such customers or any other
customers will in the future continue to license or purchase products or
services from the Company at levels that equal or exceed those of prior periods,
or at all.

The Company believes that, in order to provide competitive CSM solutions, it
will be necessary to develop, maintain and enhance close associations with other
enterprise data management vendors such as database, hardware, data, ERP, PDM,
Advanced Planning & Scheduling, CAD and professional service companies.  The
Company has established marketing, selling and consulting relationships with
many such vendors, but there can be no assurance that the Company will be able
to maintain its existing relationships or enter into new relationships with such
vendors.

Although the Company believes that all of its current products will record,
store, process, calculate and present calendar dates falling on or after (and if
applicable, spans of time including) January 1, 2000, and will calculate any
information dependent on or relating to such dates in the same manner, and with
the same functionality, data integrity and performance, as such products record,
store, process, calculate and present calendar dates on or before December 31,
1999, or calculate any information dependent on or relating to such dates
(collectively, "Year 2000 Compliance"), Year 2000 Compliance issues may arise
with respect to customers' internal management systems or third party suppliers
that may result in unforeseen costs or delays to the Company and therefore may
have a material adverse effect on the Company.

The Company has operations in Bangalore, India with 346 employees as of March
31, 1999.  The Company is dependent to a significant extent upon the ability of
its Indian operations to successfully maintain and upgrade its reference data
products.  The Company believes that the success of its Indian operations will
depend in large part upon its ability to attract, train and retain highly
skilled technical and management personnel in India.  Competition for such
personnel in India is intense, and there can be no assurance that the Company
will be successful in attracting a sufficient number of qualified personnel.
The Company is directly affected by the political and economic conditions to
which India is subject.  In addition, many of the Company's expenses in India
are paid in Indian currency, thereby subjecting the Company to the risk of
foreign currency fluctuations.  Any difficulties in coordinating or managing the
Indian operations due to cultural, geographic, communication or other reasons
could have a material adverse effect on the Company's business, financial
condition or results of operations.

                                       17
<PAGE>
 
Item 3.  Quantitative and Qualitative Disclosures About Market Risks

     Foreign Exchange.  The company's revenue originating outside the U.S. for
the quarter ended March 31, 1999 was 13.5% of total revenues. Revenues generated
from the European region for the quarter ended March 31, 1999 was 9.3% of the
total revenue.  International sales are made mostly from the Company's foreign
sales subsidiaries in the local countries and are typically denominated in U.S.
dollars.  These subsidiaries incur most of their expenses in the local currency.

     The company's international business is subject to risks typical of an
international business, including, but not limited to: different economic
conditions, changes in political climate, differing tax structures, other
regulations and restriction, and foreign exchange rate volatility.  Accordingly,
the Company's future results could be materially adversely impacted by changes
in these or other factors.  The effect of foreign exchange rate fluctuations on
the Company for the quarter ended March 31, 1999 was not material.

     Interest Rates. The Company invests its cash in a variety of financial
instruments, including bank time deposits, taxable and tax-advantaged variable
rate and fixed rate obligations of corporations, municipalities, and local,
state and national governmental entities and agencies. Cash balances in foreign
currencies overseas are operating balances and are invested in short-term time
deposits of the local operating bank.

     Interest income on the Company's investments is carried in "Interest and
other income, net." The Company accounts for its investments in accordance with
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". All of the cash equivalents and short-term investments are treated
as available-for-sale under SFAS No. 115.

     Investment in both fixed rate and floating rate interest earning
instruments carry a degree of interest rate risk.  Fixed rate securities may
have their fair market value adversely impacted due to a rise in interest rates,
while floating rate securities may produce less income than expected if interest
rates fall.  Due in part of these factors, the Company's future investment
income may fall short of expectations due to changes in interest rates or the
Company may suffer losses in principal if forced to sell securities which have
seen a decline in market value due to changes in interest rates. The Company's
investment securities are held for purposes other than trading.

                                       18
<PAGE>
 
PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

     None.

Item 2.  Changes in Securities and Use of Proceeds

     None.

Item 3. Defaults Upon Senior Securities

     None.

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

     None.

Item 5. Other Information

     None.

Item 6. Exhibits and Reports on Form 8-K

     (a)  Exhibits

     Exhibit 27.1  Financial Data Schedule

     (b)  Reports on Form 8-K

     None.

                                       19
<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.



May 14, 1999                            /s/ David S. Dury
                                ---------------------------------------------
                                David S. Dury
                                Vice President and Chief Financial Officer
                                (Principal Financial and Accounting Officer)

                                       20