<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 SEPTEMBER 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)

                                 (650) 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 November
7, 1997 was 12,970,402.
<PAGE>
 
                            ASPECT DEVELOPMENT, INC.

                                   FORM 10-Q

                                     INDEX
<TABLE>
<CAPTION>
 
PART I.                      FINANCIAL INFORMATION                  PAGE
<S>          <C>                                                    <C>
 
Item 1.      Financial Statements
 
             Condensed Consolidated Balance Sheets
             At September 30, 1997 and December 31, 1996               3
 
             Condensed Consolidated Statements of Income
             For the three months and nine months ended
             September 30, 1997 and September 30, 1996                 4
 
             Condensed Consolidated Statements of Cash Flows
             For the nine months ended
             September 30, 1997 and September 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                                        18
 
Item 2.      Changes in Securities                                    18
 
Item 3.      Defaults Upon Senior Securities                          18
 
Item 4.      Submission of Matters to a Vote of Securities Holders    18
 
Item 5.      Other Information                                        18
 
Item 6.      Exhibits and Reports on Form 8-K                         18
 
Signature                                                             19
 
Exhibits:    11 - Computation of Net Income Per Share
             for the three months and nine months ended
             September 30, 1997 and September 30, 1996                20
</TABLE>

                                       2
<PAGE>
 
PART 1.  FINANCIAL INFORMATION
 
ITEM 1.    FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                   ASPECT DEVELOPMENT, INC.
                                             CONDENSED CONSOLIDATED BALANCE SHEETS
                                        (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
 
                                                            ASSETS
 
                                                                                               September 30,         December 31,
                                                                                                   1997                1996 (1)
                                                                                                 --------              -------
Current assets:                                                                               (Unaudited)
<S>                                                                                             <C>                  <C> 
     Cash and cash equivalents                                                                   $  6,025              $ 9,632
     Short-term investments                                                                        44,209               38,186
     Accounts receivable, net                                                                       9,004                6,570
     Other current assets                                                                           2,062                  964
                                                                                                 --------              -------
               Total current assets                                                                61,300               55,352
Property and equipment, net                                                                         6,034                3,278
Other assets, net                                                                                   1,594                  370
                                                                                                 --------              -------
               Total assets                                                                      $ 68,928              $59,000
                                                                                                 ========              =======
                                       LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
     Accounts payable                                                                            $  1,164              $   766
     Deferred revenue                                                                               6,818                5,049
     Capital lease obligations                                                                        381                  482
     Third-party royalties and fees                                                                   791                  972
     Other current liabilities                                                                      4,477                2,598
                                                                                                 --------              -------
               Total current liabilities                                                           13,631                9,867
Capital lease obligations                                                                              90                  379
Stockholders' equity:
     Convertible preferred stock, $0.001 par value; 
         3,805,118 shares authorized, issuable in series, no shares issued
         and outstanding at September 30, 1997 and December 31, 1996                                   --                   --
     Common stock, $0.001 par value per share; 20,000,000 shares 
         authorized, 12,932,885 issued and outstanding 
         at September 30, 1997 and 12,133,575 shares issued 
         and outstanding at December 31, 1996                                                      51,980               49,405
     Notes receivable from stockholders                                                              (320)                (320)
     Deferred compensation                                                                           (419)                (544)
     Accumulated translation adjustment                                                              (172)                  78
     Retained Earnings                                                                              4,138                  135
                                                                                                 --------              ------- 
               Total stockholders' equity                                                          55,207               48,754
                                                                                                 --------              -------
               Total liabilities and stockholders' equity                                        $ 68,928              $59,000
                                                                                                 ========              =======
</TABLE>

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

    See accompanying notes to Condensed Consolidated Financial Statements.

                                       3
<PAGE>
 
<TABLE>
<CAPTION>
                                             ASPECT DEVELOPMENT, INC.
                                    CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS; UNAUDITED)
 
 
                                                           Three months ended                        Nine months ended 
                                                              September 30,                             September 30,
                                                    ---------------------------------         ---------------------------------
                                                         1997                 1996                 1997                 1996
                                                    ------------         ------------         ------------         ------------
 
<S>                                                  <C>                  <C>                  <C>                  <C>
Revenues:
        License                                        $ 6,578              $ 2,949              $15,797              $ 8,414
        Subscription and maintenance                     3,092                2,127                8,776                6,313
        Service and other                                1,836                1,346                4,449                2,083
                                                       -------              -------              -------              -------
                Total revenues                          11,506                6,422               29,022               16,810
Cost of revenues:
        License                                             24                  181                  298                  427
        Subscription and maintenance                       670                  323                1,713                  851
        Service and other                                  844                  482                2,024                1,080
                                                       -------              -------              -------              -------
                Total cost of revenues                   1,538                  986                4,035                2,358
                                                       -------              -------              -------              -------
Gross profit                                             9,968                5,436               24,987               14,452
Operating expenses:
        Research and development                         2,199                1,769                6,057                5,111
        Sales and marketing                              4,732                2,240               11,906                6,096
        General and administrative                       1,185                  892                2,980                2,227
                                                       -------              -------              -------              -------
                Total operating expenses                 8,116                4,901               20,943               13,434
                                                       -------              -------              -------              -------
Operating income                                         1,852                  535                4,044                1,018
Interest and other income/expense, net                     462                  605                1,552                  735
                                                       -------              -------              -------              -------
Income before income taxes                               2,314                1,140                5,596                1,753
Provision for income taxes                                 624                  120                1,593                  181
                                                       -------              -------              -------              -------
Net income                                             $ 1,690              $ 1,020              $ 4,003              $ 1,572
                                                       =======              =======              =======              =======
 
Net income per share                                   $  0.12              $  0.07              $  0.28              $  0.13
                                                       =======              =======              =======              =======
 
Shares used in per share
        computations                                    14,356               13,761               14,089               12,340
                                                       =======              =======              =======              =======
</TABLE>

     See accompanying notes to Condensed Consolidated Financial Statements.

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

                                                                           Nine months ended September 30,
                                                                            1997                    1996
                                                                          --------                -------- 
<S>                                                                     <C>                      <C> 
CASH FLOWS FROM OPERATING ACTIVITIES

Net income                                                                $  4,003                $  1,572
Adjustments to reconcile net income to net cash from operating
activities
        Depreciation and amortization                                        1,514                     939
        Noncash legal dispute settlement charge                                                         90
        Changes in assets and liabilities:
                Accounts receivable                                         (2,434)                 (1,400)
                Other current assets                                        (1,098)                   (209)
                Accounts payable                                               398                     279
                Deferred revenue                                             1,769                     157
                Third-party royalties & fees                                  (181)                    (56)
                Other current liabilities                                    1,879                     903
                Other, net                                                    (250)                      -
                                                                          --------                -------- 
Net cash provided by operating activities                                    5,600                   2,275

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures                                                        (4,145)                 (1,825)
Purchase of short-term investments                                         (43,383)                (46,898)
Proceeds from maturities of short-term investments                          37,360                   4,000
Increase in other assets                                                    (1,224)                    (23)
                                                                          --------                -------- 
Net cash used for investing activities                                     (11,392)                (44,746)

CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on capital lease obligations                               (390)                   (553)
Proceeds from Initial Public Offering                                            -                  42,286
Proceeds from issuance of common stock                                       2,575                      92
                                                                          --------                -------- 
Net cash provided by financing activities                                    2,185                  41,825

Net decrease in cash and cash equivalents                                   (3,607)                   (646)
Cash and cash equivalents at beginning of period                             9,632                   3,159
                                                                          --------                -------- 
Cash and cash equivalents at end of period                                $  6,025                $  2,513
                                                                          ========                ========            
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                          
Cash paid during the period for interest                                  $     44                $    188
                                                                          ========                ========

Income taxes paid                                                         $     15                $     71
                                                                          ========                ========
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 September 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 September 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.

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

     Commercial Paper                               $33,815
     Obligations of U.S. Government agencies         10,394
                                                    -------
                                                    $44,209
                                                    =======


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
September 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.

     One customer accounted for 17% of revenues for the three months ended
September 30, 1997 and one customer accounted for 29% of revenues during the
three months ended September 30, 1996. One customer accounted for 12% of
revenues for the nine months ended September 30, 1997 and one customer accounted
for 13% of revenues during the nine months ended September 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 September 30, 1997
and September 30, 1996 and for the nine months ended September 30, 1997 and
September 30, 1996 of $0.01, $0.02, $0.04 and $0.04 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 reduce 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 September 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 September 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 for the quarter and
nine months ended September 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
September 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 September 30, 1997 was 27%.  The Company's effective tax rate for the
remainder of 1997 may vary depending on several factors, including geographic
mix of income.

                                       8
<PAGE>
 
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.  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 third quarter of 1997 and the
nine months ended September 30, 1997 are charges of $221,000 and $421,000,
respectively, 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 September 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 Revenue.  Revenues from licenses increased from $2,949,000 for the
three months ended September 30, 1996 to $6,578,000 for the three months ended
September 30, 1997 and increased from $8,414,000 for the nine months ended
September 30, 1996, to $15,797,000 for the nine months ended September 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 $2,127,000 for the three months ended September 30, 1996 to
$3,092,000 for the three months ended September 30, 1997 and increased from
$6,313,000 for the nine months ended September 30, 1996, to $8,776,000 for the
nine months ended September 30, 1997.  This increase was due primarily to
renewals of subscription and maintenance agreements from the increased installed
base of customers.

                                       10
<PAGE>
 
     Service and Other Revenue.  Service and other revenue increased from
$1,346,000 for the three months ended September 30, 1996 to $1,836,000 for the
three months ended September 30, 1997 and increased from $2,083,000 for the nine
months ended September 30, 1996, to $4,449,000 for the nine months ended
September 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.

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 $181,000 for the three months ended September 30, 1996
to $25,000 for the three months ended September 30, 1997 and decreased from
$427,000 for the nine months ended September 30, 1996, to $298,000 for the nine
months ended September 30, 1997, representing 6.1%, 0.4%, 5.1% and 1.9% of
license revenues for the three months ended September 30, 1996 and 1997 and for
the nine months ended September 30, 1996 and 1997, respectively. This decrease
as a percentage of revenues and in absolute dollars 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 $323,000 for the three
months ended September 30, 1996 to $670,000 for the three months ended September
30, 1997 and increased from $851,000 for the nine months ended September 30,
1996, to $1,713,000 for the nine months ended September 30, 1997, representing
15.2%, 21.7%, 13.5% and 19.5% of subscription and maintenance revenues for the
three months ended September 30, 1996 and 1997 and for the nine months ended
September 30, 1996 and 1997, respectively.  The increase as a  percentage of
related revenues and in absolute dollars 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 $482,000 for the three months ended September 30,
1996 to $844,000 for the three months ended September 30, 1997 and increased
from $1,080,000 for the nine months ended September 30, 1996, to $2,024,000 for
the nine months ended September 30, 1997, representing 35.8%, 50.0%, 51.8% and
45.5% of service and other revenues for the three months ended September 30,
1996 and 1997 and for the nine months ended September 30, 1996 and 1997,
respectively. The increase in cost of service and other revenues as a percent of
service and other revenues was due primarily to the periodic achievement of
consulting milestones, which results in revenue recognition which may vary from
the timing of costs incurred for the related revenue.

OPERATING EXPENSES

                                       11
<PAGE>
 
     Research and Development.  Research and development expenses consist
primarily of engineering personnel costs. Research and development expenses
increased from $1,769,000 for the three months ended September 30, 1996 to
$2,199,000 for the three months ended September 30, 1997, and increased from
$5,111,000 for the nine months ended September 30, 1996, to $6,057,000 for the
nine months ended September 30, 1997, representing 27.5%, 19.1%, 30.4% and 20.9%
of total revenues for the three months ended September 30, 1996 and 1997 and for
the nine months ended September 30, 1996 and 1997, respectively. The decrease in
research and development expenses 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
expenses 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 decreasing as a percent of total
revenues.

     Sales and Marketing.  Sales and marketing expenses include salaries,
commissions, advertising, travel, trade shows, public relations and other
selling and marketing-related expenses.   Sales and marketing expenses increased
from $2,240,000 for the three months ended September 30, 1996 to $4,732,000 for
the three months ended September 30, 1997, and increased from $6,096,000 for the
nine months ended September 30, 1996, to $11,906,000 for the nine months ended
September 30, 1997, representing 34.9%, 41.1%, 36.3% and 41.0% of total revenues
for the three months ended September 30, 1996 and 1997 and for the nine months
ended September 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 that they may increase as a percent of
revenues as the Company releases and promotes new products and expands its
geographic coverage; however, there can be no assurance that increased sales and
marketing expenditure 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 $892,000 for the
three months ended September 30, 1996 to $1,185,000 for the three months ended
September 30, 1997, and increased from $2,227,000 for the nine months ended
September 30, 1996, to $2,980,000 for the nine months ended September 30, 1997,
representing 13.9%, 10.3%, 13.2% and 10.3% of total revenues for the three
months ended September 30, 1996 and 1997 and for the nine months ended September
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 revenues 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 decreasing
as a percent of total 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, the Company's
share of losses of the EDTN joint venture and other items.  Interest and other
income and expense decreased from $605,000 for the 

                                       12
<PAGE>
 
three months ended September 30, 1996 to $462,000 for the three months ended
September 30, 1997, and increased from $735,000 for the nine months ended
September 30, 1996, to $1,552,000 for the nine months ended September 30, 1997,
representing 9.4%, 4.0%, 4.4% and 5.3% of total revenues for the three months
ended September 30, 1996 and 1997 and for the nine months ended September 30,
1996 and 1997, respectively. Interest and other income and expense increased
from 1996 to 1997 primarily due to higher cash balances resulting from the
infusion of cash from the initial public offering offset by the share in losses
of the EDTN joint venture in 1997.

PROVISION FOR INCOME TAXES

     The Company's effective income tax rate for the three month period ended
September 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 in future
periods based upon a variety of factors, including the geographic mix of income.

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 September 30, 1997, the Company had approximately $50.2 million in
cash, cash equivalents and short-term investments.  Net cash provided by
operating activities was $5,600,000 for the nine months ended September 30,
1997, and was primarily due to net income of $4,003,000, an increase in deferred
revenue of $1,769,000, an increase in accounts payable of $398,000 and an
increase in accrued liabilities of $1,879,000, offset by an increase in accounts
receivable of $2,434,000 and an increase in other current assets of $1,098,000.

     As of September 30, 1997, the Company's principal commitments consisted of
obligations under operating and capital leases.  As of September 30, 1997, the
Company had $471,000 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, 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.

     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.

                                       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 $29.0 million in the first nine 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. 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 Company will
be able to attract sufficient direct sales personnel, 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.

                                       16
<PAGE>
 
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. 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 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.

                                       17
<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

          Not Applicable.

Item 5   Other Information

         Not applicable.

Item 6.  Exhibits and Reports on Form 8-K

         (a)  Exhibits

         Exhibit 11.1 -- Computation of Net Income Per Share

         Exhibit 27.1 - Financial Data Schedule

         (b)  Reports on Form 8-K

              None.

                                       18
<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.



November 7, 1997                    /s/  David S. Dury
                                    ------------------
                              David S. Dury
                              Vice President,
                              Chief Financial Officer
                              (Principal Financial and
                              Accounting Officer)

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